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Wednesday, March 11, 1998.










Opening Remarks

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    Mr. ROGERS. This morning we will hear the testimony regarding the fiscal year 1999 budget request of the Supreme Court. We welcome before the subcommittee Justices Anthony Kennedy and David Souter. This is their fifth appearance together before us, and they have become quite a team—including a softshoe dance from time to time.

    This is a unique opportunity for the Congress to interact with the Supreme Court, the highest court of a separate and independent branch of our government, working within the system of checks and balances envisioned by our founding fathers.

    One of the constitutional bases of our government is that no money can be spent from the Treasury except as a result of an appropriation enacted into law, as set forth in Article 1, Section 9. That requirement is what leads to your appearance here, and we are, of course, pleased to welcome you here. Our hearts are open to you, if not our wallets.

    We know that this hearing always sparks some media interest, and we suspect that it has more to do with your being here than our being here, so welcome.

    After hearing from the Justices, we will hear from the Architect of the Capitol, who has responsibility for the care of the Supreme Court Building and grounds.

    Justice Kennedy, we will make your prepared testimony a part of the record. We would be pleased to hear any summary that you would care to make, and then we would be pleased to hear from Justice Souter.

Statement of Justice Kennedy
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    Justice KENNEDY. Thank you, Mr. Chairman. Justice Souter and I are pleased to be with you, once again.

    I know that the budget of the Supreme Court is small by comparison even with that of the whole third branch. The budget for the courts as a whole this year I think is something over $4 billion, and we are less than one percent of that.

    I was thinking last night, though, Mr. Chairman, that this is a valuable exercise for us. It gives us a good chance to examine our own court operation, small as it is. It has been many years since I have had to meet a payroll or a monthly overhead commitment, and it is important for us to see what governmental agencies and what private law firms have to do in order to have a modern and efficient operation.

    We are assisted in the preparation of our budget, of course, by our staff. Most of the principal officers of the court are here with us today—Bill Suter, the Clerk of the Court; Dale Bosley, the Marshal; our Reporter of Decisions, Frank Wagner; our Budget and Personnel Officer, Tony Donnelly; and our Public Information Officer, Toni House; and Jim Duff, your fellow Kentuckian the Administrative Officer/Administrative Assistant to the Chief Justice.

    Our budget request is for just under $37 million, which is a 13 percent increase, and most of that increase is due to the buildings and grounds portion, which the Architect will present. He, and not we, are the experts on the raw data that make up that request.

    As we have advised you, and as you well know, Mr. Chairman and members of the committee, the court facility is going to need some major renovations in the next few years. The Justices think the building is just fine the way it is. We like it. And as you know, we have spent a considerable amount to clean the exterior over the last few years. We think the building represents stability and fidelity and inspiration to the public, and we think it is very important to stay in that building.
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    Now, the things we do not see are wires and the plumbing systems and electric systems and foundations. The Architect felt that we need to refurbish those systems, and so that is what that increase is going to be and he will tell you about it.

    Our budget request of just over $31 million for Salaries and Expenses is a six percent increase. At page 1.3, we detail the adjustments to base. Those are the things that you are very familiar with. Much of the increase is for pay and benefits. My understanding is that this is—part of this will always be constant if there are COLAs.

    On the other hand, the federal employees retirement system and the conversion to that is an increase that may not occur, to this extent in any event, in later years. Law books increase in cost at more than the rate of inflation. They are up again this year by 10 percent.

    On page 1.4, we detail the request, or list the request, for four additional positions. We actually identified a potential need for up to six, but we think we can defer two certainly for a year. The first three are all technically related. They all have to do with the computer and technical systems.

    Our people tell us that they replace the hardware once every three years. One-third of the hardware is replaced every year, and I could not understand that until I started talking to people who say that they send their son or their daughter to college with a computer as a freshman and it is outmoded by the time they are a junior. So that is happening to us, and we need these people to keep us up to date on these systems.
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    We actually, over the years, have converted many of our positions in the Clerk's office and in other offices of the court to this computerized Clerk's function. So the staff has been strong and innovative in upgrading the talents and the skills of our own people.

    The fourth request is somewhat technology related as well. It is for an additional person in our Reporter of Decisions Office. He or she will be the Assistant Reporter of Decisions. I brought my prop here, the United States Reports. These are the lineal successor, of course, of Dallas and Cranch and Wheaton. The U.S. Reports set a very high standard in the world of the law for their excellence and their accuracy. It is the way we keep in touch with our own past.

    The time lag between the preparation of this bound volume, or I should say between the issuance of our decision and the preparation of the bound volume, was just a few years ago, over four years. This was simply unacceptable. Our reporter, Frank Wagner, has cut that gap in half. He tells us that by the end of the '98 term it will be less than 12 months, which is certainly commercially acceptable.

    The problem now, though, Mr. Chairman, is that as soon as we release our opinion, it really should be in fully edited form. In past decades, the reporter has been able to wait for counsel or attorneys or law professors to write, suggesting certain small changes, and also to take his own time to ensure that the statutory references and citations are precisely correct, that being one of the most difficult parts of his work.

    But now, since it is released immediately and becomes really part of the public domain worldwide, the post-edit function becomes largely irrelevant and, in some cases, rather mischievous. So this additional position is to enable him to complete almost all of the editing before the opinion is written.
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    The other increases are for telecommunications improvements and removal of some wiring systems. The Architect of the Capitol is in charge of placing the conduit for the wire, but we are in charge of putting the wire in and out.

    Mr. Chairman, over the years, the Congress of the United States has been generous in providing facilities and resources and support for the Judiciary. As you well know, when people from foreign countries, or even from other states, come to Washington, they visit the Administrative Office of Courts and our Court, and the Federal Judicial Center. What they see is one of the most impressive judicial systems in the world.

    We had lunch, the nine of us, last week with the Chief Justice of Norway. He had come here specifically to discuss court structure and court management with the Administrative Office of the Courts, and he told us how valuable that was and how enviable the system is that we have. And that is because the Congress, Mr. Chairman, and the Executive have recognized their constitutional responsibility to maintain the courts, and for that we thank you.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. ROGERS. Thank you very much. Justice Souter.

    Justice SOUTER. Mr. Chairman, thank you, but I will be even more brief than Justice Kennedy.
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    Mr. ROGERS. Well, you managed that.

    Well, thank you very much for your statements.

    Last year, we talked about plans for replacing the utility systems in the building, a project that last year was estimated to cost $22 million, compared with estimates a year earlier of $7 million.

    Justice Kennedy, last year you indicated that you thought it would be worthwhile to do the schematic study that we did in fact fund in fiscal year 1998, and then decide whether it made sense to proceed forward with the entire plan. This year's Architect's budget includes $2 million to proceed with the design of the project, even though the schematic study has not been completed.

    Do you think that we should proceed to design the replacement of the court's utility infrastructure, before the schematic study is done and decisions are made about whether and how to go forward with the project?

    Justice KENNEDY. That is a technical question that I will leave to the Architect. As I indicated at the outset, we think that—I know that we, and I am sure that the public, and I think that the Congress has committed to keeping us in that building. When you tell me—when the Architect tells me, rather, that it is going to take $2 million to study improvements of a building that cost $9 million to build, it is a little difficult to fathom.
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    But so much of this has to do with wiring and telephone communications, plus basic plumbing and electrical systems, plus security, that I hope that you will give the Architect the funding that he needs. We deferred it last year, and I think we had better proceed with the study as he proposes it.

    Mr. ROGERS. Are you fully prepared for the dislocation and the disruption of a four-year remodeling? I hope so. It is going to be a mess.

    Justice KENNEDY. We are thinking about that. We——

    Justice SOUTER. The answer is no.

    Justice KENNEDY. I may work at home more days of the week than I do.


    Mr. ROGERS. Of course, the primary purpose of your being here today at this hearing is to consider your budget for fiscal '99, and to be sure that you have sufficient resources to carry out the weighty responsibilities that you carry. You currently have an operation that includes 331 employees.

    What is your overall assessment of the resources that are available to you? Are we adequately taking care of your needs?
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    Justice KENNEDY. Our needs are adequately taken care of. As I indicated, we identified two positions that we might have added in the library and in the printing staff, but we think we can wait at least a year for those. Our people have been good about reassigning functions and redesigning the functions of the court. We are adequately staffed.

    Of course, we are a much simpler operation than even a court of appeals. All nine of us sit on every case. We have no vacancies. The courts of appeal sit in panels, they sit in different cities, they have mandatory jurisdiction, and a trial court is far more complex even than that. So we are a fairly simple operation, which is why I think it is valuable for us to focus on it as a discrete budget matter.

    Mr. Chairman, we are current in our work. We have the staff and the facilities that we think that we need to perform that work.

    Mr. ROGERS. You are requesting an increase of $200,000 for the removal of old voice and data wire. Why would not that be a part of the major system's refurbishment that will be starting in fiscal 2001 that is the $22 million renovation?

    Justice KENNEDY. I have got two answers to that. One is it has to be done anyway, and the other is that it has to be done immediately, because we cannot put new wires in. The conduits are only so big, and apparently they kept just adding new wires without pulling the old ones out. And if you go in and just pull them all out, then you stop the system. So the Architect has told us that this is not redundant and that it is necessary now.

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    Mr. ROGERS. Now, here is truly something that Chief Justice John Marshall would have had no way of anticipating. It is called a year 2000 computer problem. Yours is one of the few budgets that we have seen that does not include a budget request to anticipate the year 2000 computer glitch. How will the problem affect the Supreme Court, and are you anticipating any needs in that area?

    Justice KENNEDY. Number one, it does affect us, because we have dates and docketing, as well as payroll, just as any other agency does. Number two, apparently, it is a problem with our computers. And, number three, within the existing budgets, including the senior program analyst that we have requested as a workload increase, the staff says that they have this problem contemplated within the existing budget and within the personnel increase. They are looking at it.

    I have not met anybody yet who tells me that it is not going to be a problem. They say that within existing budget we can identify the problem and solve it.

    Mr. ROGERS. Mr. Dixon.


    Mr. DIXON. Thank you very much, Mr. Chairman, and I, too, would like to welcome you gentlemen here. And I have really no questions as it relates to the budget.

    But, Justice Kennedy, you talked about electronic distribution. Are you currently using some form of electronic distribution?
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    Justice KENNEDY. Yes. We, number one, have access to our docket, to our order list, to our attorneys admissions lists, and immediately when the opinion is out, it is on an electronic system so that it can be picked up that way.

    Mr. DIXON. And the additional person would be to make sure that the opinions are in the proper form before they are released?

    Justice KENNEDY. That is the Assistant Reporter of Decisions, yes. The opinion goes out over the wires to I suppose tens of thousands of lawyers hours after it is issued, and that is why the instant release has become so much more important. It has taken on such a greater significance these days. And we want to be able to complete the editing function before it goes out.

    Mr. DIXON. I have not attended the last two hearings of the Supreme Court, but I have read with interest the dialogue that has gone on between the Chairman and members about the trial courts. And I note that recently a commission here in Washington, D.C. has made some recommendations about restructuring of the jury selection process.

    In fact, there is an editorial in today's Washington Post about restructuring of jury selection. I do not know if either one of you gentlemen have an opinion or think that we need to study the jury selection processes. Do you have an opinion? And, if so, would you state it?

    Justice KENNEDY. I do not have a well thought out specific plan. I do know that it is an area that deserves attention from the courts and from the Congress. I think the public sometimes thinks that the jury system is being manipulated when we have jury consultants, so that the person sitting next to the counsel table says what kind of a juror to find.
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    In England, as you know, it is basically the first 12 people in the box are selected, unless there is a clear conflict such as a financial interest or a relationship between a juror and one of the parties or the counsel, and I think this works very well. I think preemptory challenges are very costly, not only from the standpoint of delay in getting the jury selection, but from the standpoint of the perception of fairness of the community.

    Justice Souter I know agrees with me, and I think every member of our court agrees, that the jury system is of immense importance in this country.

    Congressman, we would not have a system in which courts and judges have the authority and the influence and the significance that they do were it not for the leveling and the democratizing influence of the jury. And we are absolutely committed to the jury system in this country. It is the opportunity for the citizen to participate in government in a very direct way. Other than voting, this is the most direct participatory role a juror can have, and it is of immense importance.

    I think we ought to give more attention to how we select the jurors. I think preemptory challenges are somewhat——

    Mr. DIXON. You are not suggesting that we do away with preemptory challenges?

    Justice KENNEDY. I think they can be severely limited.

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    Mr. DIXON. In general, I would agree with your statement. But just from my general observation, it seems that a lot of people escape jury duty. And, therefore, you do not have a good class to draw from. Many professional people escape jury duty because for one reason or another they cannot afford it or they are providing a service.

    When you look at jury pools, you find that in some areas or communities the same people are being called all the time. They are usually Federal Government employees, because the Federal Government understands the importance of jury service and pays the people.

    If you are in the private sector working for the tire company, perhaps your employer will not pay you for your jury service. So, in theory, this jury system seems to be working very well or has in the past, but it seems to me that there is a disproportionate burden falling on some people in our society to serve on juries versus others who very easily escape.

    I am not criticizing them for that. I am just saying that when we talk about the jury system, it sounds like democracy at work, but we find more and more that there is a limited class of people that are participating in the jury system.

    Justice KENNEDY. You may remember, you were in the legislature in California, I think in the early '70s it was, when California abolished all exemptions.

    Mr. DIXON. Yes.

    Justice KENNEDY. And the Code was just rife with exemptions. And the result was I was a United States Circuit Judge, I sat on a jury. To my supreme disappointment, the case was dismissed before it ever went to the jury. [Laughter.]
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    The governor, Governor Brown, sat on the jury, and I thought this was salutary. But this is largely a function of state court judgments, but I agree with you that it is very difficult to have a fair jury if the jury pool itself is not representative of the community.


    Mr. DIXON. Justice Souter, I certainly want to give you an opportunity to restate your position about a bill that is currently before our Judiciary Committee that would give discretion to judges in the federal system to allow cameras in the courtroom. I understand you are opposed to that.

    The Chairman has tried to make a comparison between the House of Representatives or Congress and the Judiciary, and some might say it seems kind of stuffy that the court system feels that they should not be open to the camera, and you also make some very valid points.

    I think one is the context in which statements are being made and that justice may be taken out of context. You think, as I recall your testimony, that it is an inhibiting factor in dialogue between the attorneys appearing before you and the justices.

    But on one hand you want to use electronic distribution, modern technology, and, of course, having cameras in legislative bodies and in some courts is now the accepted practice. I guess my question to you, would you still be opposed to giving the discretion to judges if the Supreme Court were exempted from that particular——
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    Justice SOUTER. I still would be. The different courts have different reasons, I think, for fearing the effect of live cameras, or still cameras for that matter, in the courtroom. But they all have an interest, and I saw the interest back in New Hampshire as an appellate judge in New Hampshire, and I do not think we need any extended argument today to point out the effect that these cameras can have on a live trial.

    And so, yes, I am very protective about the process of the Supreme Court, and I do not want that compromised. But I am equally protective about the processes of the other appellate courts in this country and the trial courts, and I do not want them compromised either.

    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. Let me stay on that subject a bit further here. Let me ask you this, Justice Souter. Would you allow making available video recordings of court arguments to proceed, or would that still be within your objection?

    Justice SOUTER. I do not see that it would make very much difference whether the broadcast comes literally simultaneously with the argument, or whether it comes three hours later, or for that matter three weeks later. I think the process is going to be compromised, and it is too valuable to spoil it.

    Mr. ROGERS. Correct me on this. The audio recordings of oral arguments before the court are released at a later time, are they not?

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    Justice SOUTER. Yes. They have traditionally been released at the end of the term, and we have talked about even getting them out earlier once the case has been decided. I do not think they are actually being released that early yet, but they are basically available at the end of the term.

    Mr. ROGERS. You have no problem with the audio recordings?

    Justice SOUTER. No. You know, it is a pragmatic difference. It is not a difference in some kind of theoretical principle. That does not seem to invite the abuse that I think a video recording with relatively early release of the video recording would do.

    Mr. ROGERS. Would you have a problem with live radio broadcasts of the oral arguments?

    Justice SOUTER. I think I would, simply for this reason. That, oddly enough, has never been one of the proposals, but I think my concern with that would be that the immediate release of a radio recording would lend itself simply to the kind of editing down to the sound bite, to the two-second clip, that the audio recording does. And I think it would have the same kind of inhibiting effect that immediate video release would have.

    Mr. ROGERS. So you do not think that in releasing the audio recordings of the oral arguments at the end of the term would cause a lawyer to add any rhetorical flourishes that he would not otherwise make in order to gain some notoriety?

    Justice SOUTER. I really do not. Actually, it is not so much adding the rhetorical flourishes that concerns me, although that is in my mind, as the reticence sometimes on the part of the court in place of being very candid in its questioning, and that would be true in any event.
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    But a release months later of simply an audio recording just does not present the opportunity for the kind of grandstanding, which goes with the performance itself. It is six months old news then. Not many people are going to play it, and I think for that reason not many people are going to be tempted to abuse the process so that it can be played.

    Mr. ROGERS. Mr. Dixon referred to the fact that the U.S. House, and now the Senate, have added live television coverage of our proceedings. And I do not think anyone would say that there is any grandstanding that goes on in the Congress.

    Justice SOUTER. I would certainly hope not. I would be shocked if there were.

    Mr. DIXON. If the Chairman would yield, it would seem to me, Justice—and maybe you can respond to this—that my personal view of C-SPAN activities of the House is that members of Congress, because they are elected, are talking to a particular audience and not to the other member, that they are using this as a forum to communicate to other people unrelated to the House.

    But in the case of the court, the attorneys are addressing, particularly at the Supreme Court I would think, the Justices, and do not have the need as much to try to shape public opinion on the issue.

    It seems to me that you could make an argument that, in fact, it would work better in the court than it does in Congress, in that people would get a real feel for what is going on versus here in the House where I do not think people are getting a real feel at all for what is going on. They are getting a performance every day by many members of the House, not all, but by many members of the House.
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    Mr. ROGERS. What? [Laughter.]

    Mr. DIXON. I know that you are surprised to hear that, Mr. Chairman.

    Justice KENNEDY. Well, if I could just jump in at some point. What many people when they visit our court see, when they observe an oral argument, appears to be a dialogue between two people—the counsel who is responding to a question and the Justice who is asking it. But as you indicate, the dynamic is much more rich, and it has a much deeper dimension than that.

    Basically, a skilled attorney enters into a conversation among the Justices. I ask a question because I want Justice Souter to know that I am concerned about the following thing, and so I am basically talking to Justice Souter through the medium of the counsel. And a very skilled counsel understands this dynamic and the argument can be quite a wonderful thing.

    This is why it is a quiet, deliberative, cautious process that is based on a logic and a tradition of its own that is different—not better, not worse, but different—than the political branch's. And, of course, there is educational value in that.

    The question is whether the television is really needed in order to enhance that process or in order to make it better understood. Ultimately, Justice Souter's position in the law, in history, and my position, will be assessed by what is written in this volume. (Witness points to Volume of U.S. Reports)
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    Mr. ROGERS. Well, Justice Souter, you have no problem, as you have said, with audio recordings of the proceedings for release as a historical record, at the end of that term. Would you have a problem if, similarly, a videotape of the proceedings were made verbatim, in a generic sense, to be released only at the end of the term, similar to the audio recordings, just for historical records purposes?

    Justice SOUTER. Well, I would, because in the real world, those would not be the terms on which the video was being made. The first video might be made, if that was the way to get the camel's nose under the tent, on exactly those terms.

    The next year what we would hear is, ''The camera is already in there. It is not distorting the process. It is not going to distort the process any more, depending on when you release the tape.'' And within a year or two, the tape would be out of the courtroom in time for the 6:00 news. So I would not run that risk.

    I would like, if I may, just to go back to a word on Representative Dixon's question. I agree with what Justice Kennedy said, by the way. Let me just take your question on your terms, bearing in mind the difference in the relationship between counsel and us, and a member of Congress and his constituents.

    There are days, even under the present system, when I have to admit that the ideal kind of argumentative relationship that Justice Kennedy speaks about does not always occur. I have been here, well, eight years now, going on eight years, and I have derived one tentative general rule, and that is that great cases at least raise a very high risk of lousy arguments.
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    The best arguments that we have, the most helpful arguments that we have over there, tend not to be in the most spectacular cases. And the reason that sometimes things do not work in the spectacular cases is—and it is very apparent the minute the argument starts—that the argument is not being made to us.

    The argument basically is a statement, a dress rehearsal almost, of what is going to be said out on the terrace in front of the building when the argument is over. And when we start off on those terms, it is difficult for us to accomplish what we want to accomplish in an argument.

    If we have got cameras with instant release, we are going to be inviting that kind of breakdown in a much higher percentage of cases.

    Justice KENNEDY. My experience is the same as Justice Souter's. The merit of an oral argument is inversely proportional to the public importance of the case. And you know from your own experience, Congressman, that if the attorney's clients are in the courtroom, he cannot resist talking to his clients and not to the court.


    Mr. ROGERS. We hear anecdotal stories that the Justices do not always think the quality of oral arguments are the highest quality. As the forum that hears the most exalted cases of law—and you debate some of the most pressing issues that our society faces—the Supreme Court is a place where probably most people believe that the most profound arguments take place. And we all believe that.
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    What is your experience on the quality of arguments that takes place in the court?

    Justice KENNEDY. Well, it is mixed. I think we do a disservice to the bar in stressing our disappointment at some of these arguments. I think overall they are very good. The object of an oral argument is to address the difficult issue in the case, not the easy issue in the case.

    And it is sometimes frustrating to us when we will take a case that is representative of many cases. There is only one counsel arguing, say, for a state, but many states are interested in the issues. And if the oral argument is not helpful to us, we then become somewhat frustrated.

    But I would not let that occasional frustration obscure the fact that the oral argument dynamic is generally excellent. Sometimes we do not behave very well. We interrupt each other, and we end up—we are very conscious that the clock is ticking. We have only a half an hour per argument, per side. And we are sometimes anxious to make our own points.

    I think we sometimes should and do reflect on the fact that civility begins at home, and we must be more conscious of allowing the counsel to get his or her point out. But we become so interested in the argument that we sometimes forget. It is a great dynamic, and I cannot make any generalization about the percent of good ones and the percentage of bad ones.

    But the ones that are not good are ones where we are disappointed. We came out there looking for help, and we often ask questions of the counsel who we think is going to prevail, just to test our position. I have to sit there, or Justice Souter must, and think, well, you know, the Chief might assign us this opinion. What am I going to say about this? And we need the help from the counsel.
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    Maybe Justice Souter would disagree with that assessment.

    Justice SOUTER. Well, no, just more of the same. I mean, there is not any question that there is an enormous range of quality in Supreme Court arguments. Some of them are not very good, and some of them are simply magnificent. And at least based on a comparison, in my own experience, between the State Supreme Court and this Supreme Court, I know that we are lucky here. The mixture is just richer. We get a higher percentage of the really magnificent.

    I never heard Rex Lee argue in the Supreme Court of New Hampshire, and I heard him argue down here. And you do not forget those days, and you are not unappreciative of the fact that on the whole the mixture is rich.

    Mr. ROGERS. Are there ways available for lawyers to be better trained and educated about a presentation before the court?

    Justice SOUTER. Well, there are. I am not sure in all cases they are very practical. But I know that a lot of state's counsel from the State Attorneys Generals' offices will avail themselves of the chance to basically have a kind of dress rehearsal argument thanks to the volunteer services of some Washington lawyers who will try to prep them for what they can expect. And I know that other counsel go through that, too. But, you know, the best guarantee of a good argument is a good lawyer.

    Justice KENNEDY. Routinely, the Solicitor General of the United States and his deputies present superb arguments. They will never go before us without having had at least one full dress rehearsal where there is someone playing each of the Justices. And new counsel, private counsel, sometimes forget to do that.
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    Mr. ROGERS. Would it help if an inexperienced lawyer, although a good one, was preparing himself or herself to argue before the court—would it help if they were able to look at a videotape of a Rex Lee performance before the court, for example?

    Justice SOUTER. Not if they are not Rex Lee. [Laughter.]

    Mr. ROGERS. Or any of the other good ones?

    Justice SOUTER. Well, actually, what they do—and I think this does help them—we frequently find, just because we notice faces in the bar section of the court, that a lawyer with an argument will either come for a couple of days of argument in the session preceding the one when he is going to argue, or will come a few days early on the week that his argument is planned, and will just begin to get a feel of the court and a sense of what to expect. I think, you know, they can do that also by getting the transcripts of the arguments, if they want to.

    Mr. ROGERS. You do not think that the non-verbal language that we all communicate with, body language, facial expressions, inflections in voices, inflections in faces, have any part of the communication before the court?

    Justice SOUTER. Oh, I think they have a great deal of it. But the cost of providing that by video coverage of the court would be too high for the system to bear.

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    Mr. ROGERS. I just cannot get around the objection here.

    Justice KENNEDY. You can see what it is like arguing with Justice Souter. [Laughter.]

    Mr. DIXON. I think the answer, Justice Souter, is yes, it would be of value to the lawyers, but on balance, as you said, you would resist it because of the cost. I have mixed emotions about it, and I think they make very good points.


    Mr. ROGERS. Let me switch gears quickly. Much has been made, even by the Chief Justice, of the number of judicial vacancies in the Federal system. In fact, there are currently 85 judicial vacancies, by no means a historical high. Thirty-four of the vacancies are nominees who were pending last year and have carried over to this session, well below the average number of vacancies.

    Thirteen have been nominated this year, so action on those nominees could not be considered overdue. Thirty-eight vacancies are for judgeships for which the Administration has failed to send up a nominee to the Senate. So does not that show that the current level of vacancies is not, number one, even average, above average? And, number two, does not it show that it is primarily due to the failure to submit nominations in a timely manner?

    Justice KENNEDY. The Chief Justice in his year-end report made the point or addressed the problem that you are referring to. The Chief Justice is very prompt, and he issues the year-end report at the end of the year. And I think the press reporting of the Chief Justice's statement missed his major point.
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    He was, I think, careful to say that the responsibility for the current vacancy factor rests both with the Executive and with the Congress, and that they must together find a way to cure it.

    I have looked at the figures, Congressman. An 85 or 86 vacancy rate is just about 10 percent of the judiciary. It has sometimes been higher than that, if there are many new judges that have just been authorized; sometimes lower, if an election has just occurred and the process moves along.

    The Chief Justice's point was that what might have been an acceptable vacancy factor when the courts were not so overburdened is no longer acceptable. A 10 percent vacancy factor 10 years ago was not nearly so injurious to the system as it is now. You are looking at a 10-year increase in court of appeals filings of close to 70 percent. And so a 10 percent vacancy rate hurts the courts much more now than it did then.

    One answer might be to increase the size of the judiciary, so that the vacancy factor, which will always exist to some extent, is no longer so injurious. I know the Chief Justice and Justice Souter, and I believe every one of my colleagues, would strongly resist recommending increasing the size of the Federal judiciary. The question is becoming more efficient, more expeditious with the appointment process that we do have. That was the Chief's point.

    On the Ninth Circuit, I think almost a third of the positions are vacant. It is our biggest appellate court. I think the Chief Justice this year, as he makes the point every year, he says we have got to address the judicial vacancy problem.
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    So I think in the context of these repeated statements of his, and of the increased workload of the courts, his comments can be put into better perspective and be given a better perspective and a better interpretation than they have been given by some of the press reports that I have seen.


    Justice SOUTER. Could I add just one thing? You know, there is one other factor in the mix that the Chief was addressing—and it is reflected in what Justice Kennedy spoke of—is the increase in the workload, whether you measure it by cases per judge or cases filed, in, say, the course of this decade. That is simply the increase in the court's jurisdiction.

    The reason the number of cases is going up is not simply because the population is increasing. It is increasing because the judiciary is being given more jobs to do.

    And I think the Chief's point is—the problem that he is trying to address is a function of the size of the judiciary, the vacancy rate, and the jurisdiction of the court. And part of his plea is, ''Do not increase that jurisdiction of the Federal judiciary, because you are going to exacerbate the problem that we have got now. It can only get worse.''

    Mr. ROGERS. Well, if the point is that even though the vacancy rate may not be higher than historical averages that your caseload has increased, and, therefore, the vacancies are much more pronounced than normal——
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    Justice SOUTER. Yes.

    Mr. ROGERS. I think that is your basic point, is it not?

    Justice SOUTER. Yes, and that is a function, in part, of jurisdiction.

    Mr. ROGERS. Let me just point out two other things in that regard. Number one, the number of senior judges who have chosen to remain active and hear cases on the trial court, especially on the trial court level, are at a record high.

    Justice SOUTER. Yes. About 400, I think, all over.

    Mr. ROGERS. 469.

    Justice SOUTER. Is it as high as that?

    Mr. ROGERS. A record number. It is almost 100 more than five years ago, and that number is expected to surpass 500 by next year. So you have got a lot more wise heads there than appears because of the number of senior judges.

    Justice SOUTER. Well, without that, the system would not be working. I was talking with one of the first circuit judges last night, and he said that as a matter of course now when he sits in a panel of three on the first circuit, he said almost invariably one of those members is a senior circuit judge and, with great frequency, the other one is a ringer from some other circuit. That is sort of the informal mechanism for adjusting for the difference in the loads.
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    But you are right. The system would not be working without the seniors.


    Mr. ROGERS. And then, number two, on that point of higher workload—the Chief Justice's 1997 year-end report made good mention of the Congress' action in streamlining habeas corpus and prison litigation reform. And he stated that Congress acted wisely. We passed habeas corpus reform in 1996, and he says by June of 1997 that had led to a decrease in habeas corpus applications well below the average number of monthly filings during the 15 months prior to the enactment of the reform in April of '96.

    Prison litigation reform, which we passed as a part of this bill in 1996, has led to a 46 percent decrease in civil rights filings from April '96 to February '97. Do you agree that those two actions have dramatically decreased the workload?

    Justice SOUTER. Well, you know, I was going to say in the filings of the civil rights cases, the effect was pretty immediate. How the Habeas Reform Act is ultimately going to work out for us is still something we have got to see, because, number one, the one-year statute of limitations resulted in an immediate increase, quite dramatically, of habeas filings to get in in the one-year—under the one-year statute. So it is going to take a little time for that to work out.

    And, of course, we have had—although I do not have a figure in my head, we have had an increase in the number of petitions for original habeas corpus writs right in our court as a result of the limitations on the appeals.
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    So it is going to probably take us another year or two before we see how it works out, but there is no question, as the Chief said, the effects are beginning to show up, and particularly in the 1983 litigation, very, very clearly.

    Justice KENNEDY. Well, and it seems to me important to say that we for some years told Congress of our concerns with abuse of the habeas system. The Act addressed it directly. I think the results, as the Chief indicates, are already measurable; and they are salutary. I think it was an important piece of legislation.

    And the prisoner reform litigation means that prisoners have to pay, to the extent they can, some part of the cost of filing, and the thought is that this will be some sort of a rationing mechanism for frivolous suits. I simply have not seen enough data to know how that is playing out. We do know that prisoner petitions are down.


    Mr. ROGERS. Well, some have said that the Congress, while giving you some relief on those two—with those two reforms, at the same time we federalized so many more new crimes or former state crimes that we are increasing the criminal case load of the court. But the statistics really do not reveal that, do they?

    Justice KENNEDY. Well, I think part of that is because the function of Federal prosecution is a function of the number of United States Attorneys there are, especially when there is concurrent jurisdiction. And I think those numbers have remained relatively constant.
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    We are very concerned that you do not, for every salutary piece of legislation like the habeas corpus reform, take two or three steps back by federalizing more wrongful conduct. The United States courts are now a major source of employment law for American business. That is, about nine percent of our jurisdiction civilly is in employment cases. Ten years ago, I think it was probably less than three percent.

    Mr. ROGERS. Employment cases?

    Justice KENNEDY. Employment discrimination, wrongful discharge cases that are alleged to be in violation of Federal statutes.

    Mr. ROGERS. And you have had a dramatic increase in immigration cases from 2,000 to 6,600. Those are not really particularly time-consuming or resource-intensive type cases, are they?

    Justice KENNEDY. I am not sure. I would think——

    Justice SOUTER. I cannot answer that for the trial courts.

    Mr. ROGERS. Mr. Latham?


    Mr. LATHAM. Thank you very much, Mr. Chairman.
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    And welcome. It is a pleasure to have you here. I think you have talked about using television cameras in the courtroom, and I know your feeling. I think we talked last year about any kind of live broadcasts. Have you changed your opinion at all about the possibility of taping deliberations to be used, say, for students in law school, maybe five or 10 years down the road? Is your opinion still that this should be considered?

    Justice SOUTER. We have been over something close to that already, and that still is my opinion. The——

    Mr. LATHAM. As far as education?

    Justice SOUTER. Yes. He did not mention the education aspect.

    Mr. LATHAM. As far as law school?

    Justice SOUTER. But the Chairman did speak of taping for a later release, and no, I just think the risk of abusing and skewing the process, even with the best will in the world, is just inevitable, and it is not worth it.

    Mr. LATHAM. What is your——

    Justice KENNEDY. I have taken the position for many years that I think it is a much closer question than my colleagues. But that if some of my colleagues, as Justice Souter and others do, feel that it will affect the way in which our courtroom dynamic works, I will defer to them.
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    Mr. LATHAM. You know, the court is the one branch, I think, that most people are least aware of, and you are very fortunate in that regard. Are you doing anything as far as setting up a web page or anything to let the American people see more of what is going on?

    Justice KENNEDY. Yes. We have a computerized system where you can get our docket sheet, our calendar, our rules, our admissions lists, and our opinions.

    Mr. LATHAM. Is there anything about the Justices themselves as far as background——

    Justice KENNEDY. Oh. Well, nothing that we put out, so far as I know. But there is much biographical information that I think you can pick up off a standard web site.


    Mr. LATHAM. I see your written testimony addresses the year 2000 concern. How much of a problem is that going to be for the Court, and what are you doing?

    Justice KENNEDY. Well, as I indicated before you came in, I have not had anybody certify to me that it will not be a problem. They say that they have identified that there can be a problem; and they are working on it; and they are confident they have the people and the resources to solve it. But no guarantee. And because we do have dockets and payroll just like any other agency does, it is a problem.
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    Mr. LATHAM. That is all. From my understanding, you have covered most everything already, Mr. Chairman. Thank you.


    Mr. DIXON. It seems to me, Mr. Chairman, that the issue of concern about vacancies is not the number but historically what is the rate of confirmation. According to the Congressional Quarterly, when you go from the 95th Congress to the 105th, the first session, that the rate, the percentage of confirmation, whether it has been one judge—one vacancy or 180—has gone from 92.8 percent, almost all of those who were nominated, to 45 percent.

    That seems to be, from our perspective, the concern—the rate of confirmation, the number of people that the President nominates versus the number of people that are confirmed.

    Mr. ROGERS. Would the gentleman yield?

    Mr. DIXON. I would be pleased to.

    Mr. ROGERS. I would prefer to think that that reflects the quality of the nominees as opposed to anything else.

    Mr. DIXON. But the point is that they should be acted on one way or the other. You and I agree on many things, but the point is not whether there are retired judges or senior judges sitting to fill the vacancy. In our wisdom, we have these vacancies.
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    For instance, I understand that there is a bill on the floor to create five new judgeships in Florida. And I am told here that there are already three vacancies of judges in Florida. So to me the real question is whether the Senate is letting up on their responsibility to confirm or reject a nominee.

    And it would appear by looking at the Congressional Quarterly, if they are correct, that the rate of confirmations or rejections is about half what occurred in the 95th Congress under President Carter, or in the 97th Congress under President Reagan, which was 97.8 percent.

    Mr. ROGERS. If the gentleman would yield. Of course, the 105th statistics that you refer to only cover the first session. I mean, we are only half through this 105th.

    Mr. DIXON. So assuming that we——

    Mr. ROGERS. Hope springs eternal, and there are now 45 vacancies. Let us hope——

    Mr. DIXON. If we go at the same rate the rest of the 105th Congress as we have the first part of the 105th, then we will be up to probably 90 percent.

    Justice KENNEDY. Well, in all events, the Constitution commits some matters to the political branches and not to us. We are the final interpreter of the Constitution, in many instances, just because we are chronologically last in line.
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    But the confirmation process is committed to—the appointment process to the President and the confirmation process to the Senate. And it is their constitutional responsibility to determine the standards for confirmation, the standards for appointment, and to the processes for making that determination.

    All we can do is speak from the standpoint of judicial administration, and looking at statistics and numbers and vacancies and say that we think that there is a problem in continuing to keep the courts current if vacancies are not filled. The Chief Justice suggested that there be action up or down on some of the nominees that have been pending.


    Mr. ROGERS. Chief Justice Rehnquist, in his annual report, indicated that the Federal judiciary is in danger of becoming so large as to lose its character as what he called a ''distinctive judicial forum of limited jurisdiction.'' Do either of you have any concerns about the effects of an expanding Federal judiciary and its impacts on the Federal judicial system? And what does he mean by losing its character as a distinctive judicial forum of limited jurisdiction?

    Justice KENNEDY. Well, the Constitution, as you know, creates courts of limited jurisdiction. The design has been, and the tradition has been, that the bulk of judicial business is conducted by the state judiciaries. Over 90 percent of litigation today is in the state courts.

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    The idea of a Federal judiciary was a judiciary that had particular expertise in matters that should and could be tried only in a Federal court—complex antitrust cases, security cases, certain crimes. If you continue to overload the judiciary with jurisdiction so that its numbers have to expand, you are going to find it more difficult for us to attract highly skilled attorneys, highly skilled professionals to our bench.

    You are going to turn them into police court judges. They are going to be hearing criminal cases most of the time. That is not the design of the judiciary. As it becomes larger, the problems that we have in finding highly qualified people, and in confirming highly qualified people, will be exacerbated. If you have a 10 percent vacancy rate now, it is going to be even more difficult to fill the vacancies that you create necessarily by an expanded judiciary.

    I think it would be tragic if the numbers of the judiciary increased substantially more than they are now. So we are now close to 900, and I think that ought to be a cap.

    Justice SOUTER. Just two details. The effect of increasing jurisdiction, and the pressure to increase, has shown up already in one way that you and I, Mr. Chairman, were alluding to earlier this morning. And it is going to show up in another way in which the dialogue within the committee referred earlier.

    You spoke of the number of senior judges who were working, and the number is—I said it was around 400. It is, in fact, higher than that you pointed out. I cannot give you an exact statistic, but I can tell you that the majority of those senior judges at the trial level, where they are really keeping the system going, are sitting on civil cases.
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    The criminal cases, which by virtue of the speedy trial rule demand the most immediate attention, have necessarily got to get the attention of the regular sitting judges there, 100 percent of whose time can be budgeted for that purpose. So there has already been a shift in the amount of civil litigation which is actually being handled by the active, the non-senior Federal judiciary now.

    The second implication of a demand for greater size is an implication going to the capacity of the Senate to scrutinize nominees. I mean, it is one thing to have to keep in effect a Federal judiciary, say, of 700 judges supplied with judges. It is another thing to have to go through the same process for a Federal judiciary of 800 or 900 or 1,000.

    There is simply a limit to the amount of legislative time that can be spent on this, and I think if the Federal judiciary continues to grow, the scrutiny that can be given to the nominees is necessarily going to fall or the system is going to start congealing.

    So there are I think very insistent institutional reasons to want to keep that number from going up.

    Mr. ROGERS. Should we cap it?

    Justice SOUTER. If that is the only way to discipline, in effect, the process, sure. I would rather see a cap than simply see the number inching up every year. I do not have a great deal of faith in those kind of artificial restraints. The faith has got to be placed in the responsibility of Congress simply to recognize that when the jurisdiction goes up, somebody has got to do the work. And sooner or later, that is going to mean more judges.
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    I would rather keep everybody sort of hammering away on that point than to put my faith in a mechanical cap. But if the mechanical cap is the only way we can have any hope for it, then let us have a cap.

    Justice KENNEDY. But if you have a mechanical cap, plus an increase in the jurisdiction, that is a recipe for disaster.

    Justice SOUTER. Yes.


    Justice KENNEDY. So you simply—the Congress simply must be very, very cautious and exercise the utmost discipline in resisting the cry to federalize every current social problem.

    The Federal balance—you know, people think of checks and balances as automatic, and in a large sense it is. But it also requires the constant attention of the political branch. Federalism is almost completely committed to the political branch. You determine what the Federal balance is.

    There are few constraints that we can or ought to put upon you to police that balance, and you have to make that judgment; and you have to understand that there is a tremendous cost to Federal intervention; and you have to believe in the Constitution. There are three or four mechanisms in the Constitution that the framers put in, and one is federalism.
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    And if you do not believe in it, then you are sacrificing probably a third of the protection that the framers gave when they made the constitutional design. I understand it is difficult for you to do, but it is committed to you, not to us.

    Mr. ROGERS. Well, I hear that. I think the Congress needs to be very, very cautious about federalizing a crime. But in this day and age of instantaneous communications worldwide, not to mention nationwide—and the new interstate commerce that is going on in new and fundamentally different ways—it creates the need to discipline those who violate our criminal laws in ways we never dreamt of 10 years ago, much less the founding fathers.

    Justice KENNEDY. Well, if the states do not have the resources, then perhaps the Federal Government must do it. But——

    Mr. ROGERS. Well, you could not have the state courts, the state laws, make it a criminal activity to pass pornography on the Internet when the crime is committed in New Jersey and maybe the impact is in California?

    Justice KENNEDY. Assuming that that act is constitutionally punishable, I see no reason why the state in both the sending and the receiving jurisdiction cannot prosecute.

    Justice SOUTER. And to the extent that the Congress, as you point out, has got to consider new criminal methodology in deciding what the criminal jurisdiction of the United States is going to be, it is equally important from the standpoint of the Federal judiciary to look at what has been criminalized up to this point and say, ''Do we still need to give this, in a system that is not infinitely expansible, the Federal prominence that it has had?''
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    It may very well be that the insistence for new criminal jurisdiction in one area is an argument for curtailing it in another in order to keep the Federal system manageable.

    Mr. ROGERS. Well, it seems to me that while we must be mindful of the load of work that we are putting on a finite system, i.e. the courts, that at the same time we have the responsibility of trying to keep up with the times in establishing Federal crimes where state laws would be ineffective.

    And the way the technology of this world is moving and changing every day, it seems to me it is going to continue to demand that we, in the Congress, federalize some crimes that did not exist before or were ineffectively attacked by state jurisdiction.

    So I wonder—I am not sure that I agree with you fully that the size of the Federal judiciary can be set at some magic number.

    Justice SOUTER. Well, I am not suggesting that it ought to be set at a number. But I am suggesting that there is a direct correlation between the size of the Federal judiciary and the quality of the Federal judiciary, and we have got to accept—both you and the judges have got to accept the responsibility for that.

    Mr. ROGERS. Well, we are willing to take ours. However, I do not think the quality of the Supreme Court is any less than it was in times past. In fact, I think it is a good deal higher.
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    Justice SOUTER. We are still at nine.

    Mr. ROGERS. But the quality is better.

    Justice KENNEDY. But the whole point of our last discussion is it is your judgment and it is your prerogative to determine the balance of federalism, but you must be aware of the costs. And so long as you are aware of the costs, both to our constitutional tradition and to the judiciary, of creating new Federal acts, so be it. And I agree with Justice Souter. For every new crime you create, you might look at decriminalizing other activity where Federal monies, Federal expertise has designed systems that the states can implement.

    Mr. ROGERS. Point well taken.


    Number two, the courts have been reluctant—and I have tried to find the best word for this that I could find—have been reluctant to modernize, to use the modern means of communication, of training, of decisionmaking, i.e. computers, word processors, training long distance by satellite, what have you.

    I personally think—and I have ridden the AOC fairly hard on this type of thing—the courts need to try to utilize the modern means of communications and of training in order to make up for the lack of personnel. I think we could save money and save personnel if the courts utilized more than they do now the modern methods that the electronic age has offered us. Do you have a problem with that idea?
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    Justice KENNEDY. I do not have a problem. Our court, we think, is current. As our new clerks come in each year, we find that we need to have software systems that they can use, in part so they are marketable when they leave, and in part so we can use their skills when they come.

    The influx of new law clerks every year is one way to keep the courts up to date, and this applies to the district courts and the circuit courts as well as to us.


    Mr. ROGERS. Now, one major source of growth in the Federal caseload is the increase in bankruptcy cases. They have climbed from 800,000 filings a few years ago to an expected 1,400,000 this year, despite the health of the economy that we read about—numerous proposals being floated to reform the bankruptcy statute.

    In your view, is the bankruptcy area in need of an overhaul?

    Justice KENNEDY. We overhauled it recently—I would say 10 or 15 years ago—and to good effect. I am not sure what to make of those numbers in an expanding economy. Perhaps the subtext of your question is to wonder if there is an abuse. I cannot speak to that, Congressman. I will have to think about that.

    Mr. ROGERS. Justice Souter.

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    Justice SOUTER. Well, I am in the same boat. I do not have an opinion. I have assumed, and I may have assumed quite wrong, that the growth in the bankruptcy filings, given the state of the economy, was probably a reflection of the ease with which consumer credit is extended. That is probably too simplistic, but that is what I have assumed.

    So if that were correct, I do not know whether bankruptcy ought to be given a hard look or consumer credit policies given a hard look. I just do not know.


    Mr. ROGERS. Justice Kennedy, let me ask you about the Ninth Circuit, since Mr. Dixon did not. Are you satisfied that the Commission on Structural Alternatives for the Federal courts represents a good way to examine what should happen with the Ninth Circuit?

    Justice KENNEDY. Well, I certainly thought that the Congress was wise in asking the Chief Justice to appoint all of the members of that Commission so that they could talk with the bench and the bar around the country about circuit lines. In a way, the issue has been around so long that there is not a lot new to say about the Ninth Circuit.

    The five states of the Northwest, according to many of their judges, would form a logical and a very desirable unit. They want to have their chief judge, their own administration, so that they can make their own contribution to sound judicial administration.

    I have always been concerned that a court of 28 active judges simply could not function as a close collegial court. If I were a successful practitioner, and you asked me to become a circuit judge and be the junior judge on a 28-judge court, I might have to give it a second thought.
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    We see systemic problems emerging with the Ninth Circuit. Part of the problem is the State of California—our state, Congressman. California now has about as many people as were in the United States at the time of the Civil War. I do not know the precise number—it is about 32 million. It is a huge state. It would need 15 circuit judges just for that state.

    So there has been some thought given to splitting the state for circuit purposes, and you would have two circuits. I have yet to see a satisfactory mechanism for resolving the conflicts that those two circuits within the State of California would have without the split of the State being prejudicial to the litigants and to the bar, and without adding a year to the litigation time. This, I think, is unfair to the state.

    Ultimately, this is a political judgment to make. I am anxious to see the commission report. I do not think that the justice system is necessarily well served by keeping the Ninth Circuit intact. Each of those judges is very dedicated. They love the circuit. They love its traditions. They have great respect for each of their colleagues. They are very hardworking judges. But I think we have to get a hard look at splitting the circuit.

    Mr. ROGERS. Mr. Dixon.

    Mr. DIXON. Thank you, Mr. Chairman. Mr. Chairman, I thought your question was, is this the best methodology to proceed with. And I gather from your answer, Justice Kennedy, that in the political system that we probably came up with the best methodology, and that was to have a commission appointed by the Chief Justice of the Supreme Court.
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    Justice KENNEDY. Yes.

    Mr. DIXON. So the answer is yes, that we did come up with probably the best solution to a political problem.

    Justice KENNEDY. Well, I am not so sure it is a solution. You ask them to give you information, so that you can make the judgment. And I assume they will give you some pros and cons, and perhaps a recommendation. I am not sure.

    Mr. DIXON. It is probably better than just us—either the Judiciary Committee or the Appropriations Committee—redesigning the Ninth Circuit.

    Justice KENNEDY. Well, I think it gives you the basis from which to begin some deliberations.


    Mr. LATHAM. I just had one question I guess from your statement before as we have a tendency to federalize crimes here. And your statement was then we should look at decriminalization of other things. Would you have any suggestions? What would you decriminalize to make room for the expanded workload?

    Justice SOUTER. Well, that was my suggestion. I do not have any candidates. I would not start—I did not come prepared to do it. I have not been through the U.S. Code, but I probably would think very inhospitably of increasing the juvenile jurisdiction very much, for example. That is not decriminalization. That is going the other direction. So I would be more prepared to ask you to go slow there than to tell you exactly what you ought to lop off.
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    Mr. LATHAM. Would there be any way of getting suggestions? I mean, I do not disagree with you. I am real concerned about the growth of the——

    Justice KENNEDY. Part of it is discretionary. It used to be if you had a bank robbery—the old saying was—''If they have got a good strong case, the feds will do it. If not, they will give it to the state.'' And both this and the past administrations and the Justice Department have been good, I think, about setting forth guidelines to give the states primary responsibility, for instance, in the area of bank robbery.

    So much of what we seek to accomplish in decriminalization can be accomplished by making sure the states have adequate resources to prosecute crimes within their jurisdiction and allowing the United States Attorney General, where concurrent jurisdiction exists, to permit the state prosecution to proceed.

    Mr. LATHAM. Do you think large increases come because of the sometimes more severe Federal sentencing guidelines? I mean, I can think of a few cases where the state—the citizens would rather have things go on the Federal level because of the potential for a more severe sentence.

    Justice KENNEDY. I have to assume—and I have no empirical evidence for this—that state and Federal prosecutors will sometimes sit down and say, ''We want the Federal—agree that the feds will do this because of the increased sentence.'' I just have to assume that is the case. I have no basis for it.

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    Justice SOUTER. We also have to assume that one reason that Congress does not get more of an outcry from the states when the criminal jurisdiction shifts is because the buck is shifting along with it, literally the buck. The Federal Government is going to pay the bill for the prosecution, the investigation, the incarceration, and money is tight. And what gets lost in the process is federalism.

    You know, there is a lot that states can do, but they have got to pay the bill for doing it, too. And when somebody comes along and is willing to pay that bill, it is tempting to let them do it.

    Mr. LATHAM. I would just ask if you found areas where you could decriminalize or move, you know, to make—move some of these crimes back to the states, or your workload in an appropriate manner. If you could offer suggestions, that would be very helpful.

    Justice SOUTER. Well, in all candor, I probably would be reluctant to do it, because I do not think we should make those suggestions without, reviewing the whole darn Federal criminal code.

    Mr. LATHAM. And that is our difficulty.

    Justice SOUTER. Yes.

    Mr. LATHAM. Thank you.

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    Mr. ROGERS. Mr. Dixon.


    Mr. DIXON. Either Justice—I referred earlier to a commission that had made some findings and recommendations as to restructuring of the jury system. Justice Kennedy or Justice Souter, I do not know if you want to comment on this, but one of the suggestions—I am reading from an editorial in the Post today—would allow jurors to take notes and ask questions of the witnesses through the judge, which I thought was kind of a revolutionary idea. I have been in courtrooms where jurors have blurted out things.

    But is that something that you think that would be helpful to the system?

    Justice KENNEDY. Okay. Whether we like it or not, we have the jury system. I like it.

    Mr. DIXON. Right.

    Justice KENNEDY. I think it is very important, as I have indicated. So we have to make it work. If you have a complex antitrust case, you will sometimes have jurors come in and they are infuriated that they have been given this case. It is too complex. So you have to find ways to assist the jurors.

    One of the ways to do it is to take notes. The other way is to let them ask questions of the judges. Another way is to let them discuss it as the case proceeds.
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    Now, attorneys do not like this, because every attorney thinks that the juror does not know anything until the attorney has stated everything he or she has to say. And there are also certain problems, incidentally, in control. You do not want three or four jurors talking about a case in the absence of the other eight or nine.

    But we have to do more to make sure that that jury is well informed, that it can deliberate on the case in a real decisionmaking environment, not an artificial decisionmaking environment.

    If somebody came in to this room and locked the door and said, ''The 12 of us are going to be together for four months, and the only thing we cannot do is talk about the only thing we have in common,'' that is a little bit odd. So I think we have to take a good hard look at the jury system. It is sacrosanct as an institution. It is not sacrosanct as to how it does its job.

    Mr. DIXON. Well, one of the things that kind of surprised me here—and I guess the——

    Justice KENNEDY. I have not seen the report, and I do not——

    Mr. DIXON. I understand that. The focus is Washington, both the local courts and the Federal courts. It surprised me to read in this editorial that one of the suggestions is that the judges should thank the jurors personally. I thought that went on all the time, that judges thanked them for their services.
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    But the comments I hear from jurors is that although we think it is a very important ingredient in the judicial system, they are treated like cattle. They are not given dignity or respect. And when I saw this particular point, that the judge had thanked the jurors, I just thought that was just common courtesy, and that most judges were doing that. Evidently, maybe they are not doing that.

    Justice KENNEDY. The Federal system had a program in place several years ago to study juror utilization, and we have made tremendous advances in the Federal system.

    Rather than to keep the jurors waiting around forever and ever, they call them in advance, identify the days they can serve, so that they can go home. Good trial judges know that they have to have excellent relations with that jury, and that this is a marvelous civics lesson.

    Jurors come out and they are sometimes so very impressed with that trial judge. It is the closest they will ever come to the judicial system. And the Federal system is doing a marvelous job of educating the judges, and I would think that the increased awareness that state judges have of good public relations will serve them well.

    Mr. DIXON. Mr.—excuse me.

    Justice SOUTER. No, I was just going to echo that. I think we got copies of that report a couple of days ago. I looked at the summary at lunch the day before yesterday, and I noticed the same thing you did.
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    I think it was in connection with the reference to thanking the jurors that there was a recommendation that, at the end of the trial, a judge go into the jury room and be willing to answer questions from the jurors. I think that is one of the indispensable functions.

    I was a trial judge for five years, and with the exception of one case, which I remember, I always sat down with the jury when the case was over. I would never tell them whether I agreed with their verdict or not. But beyond that, I would answer just about anything that came up.

    Mr. DIXON. And certainly thank them for their service.

    Justice SOUTER. Yes. And, you know, they realize that they are not being taken for granted. But a judge learns an awful lot from sitting down like that. I would not have missed one of those conversations.

    Mr. ROGERS. Mr. Taylor.

    Mr. TAYLOR. Thank you, Mr. Chairman.


    According to the testimony provided by the Architect regarding the care of the buildings and grounds account, there are six capital budget items requested. It is about $2.8 1/2 million. What are those six items and—or the ones that just come to mind? You do not have to name them all.
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    Mr. ROGERS. If the gentleman would yield, we have the Architect waiting to testify.

    Mr. TAYLOR. Okay.

    Mr. ROGERS. We could perhaps deal with him on that, if you would like.

    Mr. TAYLOR. Okay. Well, I was going to complete the question, but I will wait and get that from the Architect. Unfortunately, I will not be here, so I will leave it in writing.

    Justice KENNEDY. Well, he has a $22 million estimate, which he assumes is going to result from a $2 million study he wants to make. And he has this for the complete renovation of the basic building systems—wiring, plumbing, electric, roofing, and also some additions for perimeter security included in the overall budget, although not the $22 million figure.

    Congressman, we are not the technical experts. We leave that to the Architect of the Capitol. We have indicated that we hope you agree with him, so that our building can be modern and up to date and that we can continue to stay in it.

    Mr. TAYLOR. Well, you mentioned that there have been 5,000 to 7,000 calls handled by the Clerk's office. Have these offices witnessed an increase now, or is there going to be? Do you anticipate increasing calls? I do not know all of the things that the Architect will be recommending, but I assume it has to do with modernization more than repair. I mean, there——
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    Justice KENNEDY. Within our own budget, we have a telecommunications position we want filled because these calls are increasing.

    You mentioned the web site earlier. Because of the immediate availability of our opinions, because of the web site, we get many, many more calls, and people now know when the oral arguments are going to be in advance, because they can pick that up from the web site.

    So the Clerk's office has an automated answering system that works extremely well, and the Clerk is our public relations arm. We do not talk to the public, or even to the attorneys; the Clerk's office does. They receive high marks from the attorneys, and I think from the public, on getting fast information. And we will continue to be just as up to date as we can in that area, Congressman.

    Mr. TAYLOR. Well, I guess the summation of what I am trying to ask is you feel that for modernization for new technology, and that sort of thing, this nearly $3 million increase on top of the $22 million is warranted. Could it be done this year or in 1999?

    Justice KENNEDY. I am not so sure that the Architect's budget focuses on the specific electronics that we need. He is trying to give us the basic system so that we can put in the wire, and he tells us we need that.

    Mr. TAYLOR. Thank you, Mr. Chairman.

    Mr. ROGERS. To both of you, we appreciate very much your appearing here this morning. This is a remarkable process that our founding fathers dreamt up. There is no place on earth that I am aware of where the people's representatives can question the highest court of that land on the details that we are obligated, we think, to ask you here.
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    I do not know any place in the world where we can ask the highest court of that land how much pressure are in the tires of the vehicles that carry you around, and such mundane things as that. It is remarkable that we have this system that we have in this country.

     And, number two, it never ceases to impress me, each time we have this hearing, with the separate, independent branch that the courts represent, meeting in open session before the world with another branch who is obligated to finance your necessary operations.

    And we will give you, by and large, what you ask. I mean, that is, I think, the obligation that we have under the Constitution. We feel obligated to find out what it is and illuminate what it is you are asking for. But if you say you need it, you are going to find an open ear here. And so that is sort of the way we look at it, and we hope we are taking the right approach toward it. It is sort of a ticklish friction point in the founding fathers' democratic machine.

    So we appreciate your being here and answering the questions that our members have posed to you. And we trust that you will give the Chief Justice and your colleagues our respects and greetings.

    Justice KENNEDY. We will be pleased to do that.

    Thank you, Mr. Chairman, both for your courtesy and for your very thoughtful approach to the constitutional position that we are both in. And we appreciate all that you and your colleagues do in the discharge of your responsibilities to the Constitution of the United States.
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    Mr. ROGERS. Thank you very much.

    Justice SOUTER. Thank you.

    Mr. ROGERS. Good to see you.

    [Whereupon, at 11:52 a.m., the subcommittee proceeded to other business.]

    "The Official Committee record contains additional material here."

Wednesday, March 11, 1998.







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    Mr. ROGERS. How are you?

    Mr. HANTMAN. I am well. And how are you, Mr. Chairman?

    Mr. ROGERS. We are pleased to have with us the Architect of the Capitol, Alan Hantman, who has jurisdiction over the care of the Supreme Court building and grounds. And we welcome you here. We'll make your statement a part of the record, and we'd be pleased to hear a summary of that, if you care to.


    Mr. HANTMAN. Thank you. I am pleased again to appear again before this committee. As you recall, last year was my first initial appearance before this committee. I have been Architect of the Capitol since February 3rd of 1997. And it's been an interesting first year, Mr. Chairman. I've really been immersed in learning and evaluating the complexities of the agency and the responsibilities of the position.

    As you pointed out, my responsibilities for the judiciary branch, as Architect of the Capitol, is for the structural and mechanical care of the United States Supreme Court building and grounds. And we're really not charged with issues relative to custodial care, which is under the Marshal of the Supreme Court.

    In general, Mr. Chairman, the budget request for the buildings and grounds for fiscal year 1999 amounts to $5.9 million, which is a significant increase of some $2.5 million over the fiscal year '98 appropriation, which was $3,400,000.
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    The fiscal year 1999 capital budget request is grounded in a comprehensive, systematic study, and planning effort with in-depth involvement of the Court. There are some 13 capital projects identified for the Supreme Court building and grounds, for the five year period which begins in 1999.

    And the total estimated funding for that five year period is currently estimated, before a lot of our studies are done, as an order of magnitude of $30.9 million.

    The bulk of that amount, $22 million is attributed to a project to provide an overall building improvement and systems upgrade, which is the first such comprehensive planned project for the building since its construction in 1934.

    The current fiscal year appropriation includes $225,000 for a study on the project, with a follow up of $2 million in the 1999 request to actually do detailed design and construction documents.

    The $2 million for fiscal year 1999 is a no year allocation, so that we expect to be able to get into construction documents the next year, which may go into the following fiscal year, when we will actually request construction dollars.

    The other important project for the Court is the perimeter security enhancement project, which is currently estimated at $5.3 million. A preliminary study provided by funds in fiscal year 1997 is being completed right now. And we're requesting an amount of $500,000 for detailed design and development and for preparation of construction documents for implementation of the study.
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    Of course we're now going to be bringing that study to the security committee of the Supreme Court, which is headed by Justice Souter, and various support staff there, the Marshal, Dale Bosley, and Jim Duff, the Administrative Assistant to the Chief Justice.

    So, once we get some feedback from the Security Committee itself, we'd certainly be able to come back to the Committee, and talk about their reaction, and what portions of this study they do, in fact, recognize as being important, and something they want to go forward with.

    It's important to note, Mr. Chairman, that the requirements in all of our budgets simply do not disappear if they're not funded, or if they're deferred. One thing I've been looking at throughout the Capitol buildings is that there's a recognition that the capital budget is often an easy place to cut.

    Clearly, if you have staff doing service jobs throughout the Capitol, it's more difficult to eliminate those service functions as they are justified. But capital projects have, in fact, been cut down very significantly over the past number of years.

    In the legislative branch appropriations hearing, I spoke about the same issue of capital budgets in that branch going down from $33 million in 1993 down to $14 million in 1997. And that's been turned around, gratefully, by the oversight committees. And last year, we were provided in fact some $33 million, to begin to dig ourselves out of the hole that deferred maintenance has brought us to.

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    A lot of the equipment that we see in the Supreme Court has outlived its usefulness. It's gone ten, 20 years beyond its expected life.

    And this whole master plan and restudy of the facilities in the Supreme Court will point us in the right direction, in terms of what we need to address, and how we need to bring that 60 year old building back into modern standards, relating to telecommunications, electrical, and mechanical issues.

    Many of the reasons I felt that there was such a need for that was the replacement of the aging building systems, technological advances, regulatory compliance requirements that we are faced with, and security issues which are very real.

    We have just presented a budget to the legislative branch regarding the Capitol itself, and we've put in for a $20 million perimeter security program there, as well, which is being very seriously considered at this point.

    But I assure you, Mr. Chairman, I'll work closely with you, and the subcommittee, as well as the Court, between now and the time the subcommittee marks up the bill, to take a look at what's rational, what's adequate.

    We recognize that this is a time of a zero growth budget, and very difficult to obtain funds. But Mr. Chairman, the needs are real.

    That concludes my comments. And I'd be more than happy to respond to any questions you might have.
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    [The statement and biography of Mr. Hantman follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Well, I'll be brief because of the hour, and we covered some of this with the Justices, that you, I'm sure heard, as we had their hearing.

    But you're asking $2 million for the design of the replacement of the utility systems in the Supreme Court building. We just gave you $225,000 for what was called a schematic study. And I understand that's not yet complete.

    Mr. HANTMAN. That is correct.

    Mr. ROGERS. But you're going ahead with the $2 million that you want for the design. Why are you not planning a pause between when you see the schematic report, before you actually design the project. Shouldn't that be the logical way that you would do that?

    Mr. HANTMAN. In terms of this conceptual schematic report itself, your point is certainly well taken. We don't have the information in from that study as of yet. But we feel very comfortable with the time that we have allotted left in this fiscal year, so that we can get started with an actual review and approval process, by both the Court and by the oversight committees. And that the $2 million we're talking about, Mr. Chairman, is no-year funding.
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    So that, in all likelihood, you're correct. Some of that funding would not be spent in fiscal year '99. But the idea of putting another full year between the basic study, and requesting the funds to proceed, on the basis of a project right now, which is really such in crying need to get done, we didn't think we could give it another year.

    Mr. ROGERS. Yes. Well now, what will be the approval process?

    Mr. HANTMAN. Well, even with the perimeter security study that we are wrapping up right now. It's in final draft. We have submitted it to the Marshal, and will have a meeting with the security committee, headed by Justice Souter.

    Once they review this information, we would then talk to, I would assume—the Chief Justice, and all the other Justices, as well, regarding what they are comfortable with, what they think is appropriate, relative to, say, the security effort.

    And then, we have to come back to you and the Committees, sir. And we have to take a look at what is being recommended over here. I think the community needs to be involved in this, also, if there are implications that might impact the community. Let them know what is being considered here, and then come back for actual construction funding.

    Mr. ROGERS. Well, taking the perimeter security project as an example, it's taken two years from funding of the schematic study to get to the design phase. And the schematic study is still not complete.

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    Of course, the utility upgrade project is an enormously much larger project than perimeter security. But why isn't a two year time period from schematics to design a more appropriate schedule for this replacement project, as it was for the perimeter project?

    Mr. HANTMAN. What we're trying to do, Mr. Chairman, is there are so many needs throughout the Supreme Court building that have been on hold for a long time, that we're trying to take a look at not spending money on an interim basis, and then having to re-do it in a final form, down the line.

    Telecommunications clearly is an issue that needs to be addressed with respect to the Supreme Court, as it does throughout our Capitol Hill campus, as are structural issues relative to driveways and sidewalks. We don't want to have to do things on a temporary basis, and then come back and re-do them in a final form.

    So, we're trying to move the process along. Clearly, the review and approval cycle is really what will determine ultimately when we actually put a spade in the ground, so to speak, and start on projects, providing funding is available.

    Mr. ROGERS. When do you anticipate that?

    Mr. HANTMAN. Relative to the perimeter security project?

    Mr. ROGERS. Yes. Perimeter security and the replacement project.

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    Mr. HANTMAN. Again, part of that issue will come down to review and approval. But we are looking at fiscal year 2000, and $4.6 million at this point in time, for the security project, the year after the design is done.

    We need the $500,000 next year for the perimeter security, to do the detailed design work, assuming that we go through the review and approval process.

    If we obtain the $2 million design funds in fiscal year '99 for the building project. And then, we do have a one year hiatus, year 2000 for the actual study for the total building improvements. And we're not asking for, in our master plan, any significant dollars, until some $5 million in the year 2001.

    So, that is a much longer process, as you well point out, Mr. Chairman. And I think we have the breathing room we need for that larger project.

    Mr. ROGERS. Now, on the perimeter security project, you're asking a half million dollars for design of the project. And that's based on a preliminary study that hasn't yet been finalized. How can you——

    Mr. HANTMAN. The Marshal currently has a draft of that. And we're marking it up, as per his comments. And we're virtually ready within the next couple of weeks, to meet with Justice Souter and his committee, on that.

    Mr. ROGERS. And when can we expect to see a copy of that preliminary report?
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    Mr. HANTMAN. I think once we meet with Justice Souter, and they give us some indication of what direction they think we should be going, we'd be more than happy to come to you, sir, with that report.

    Mr. ROGER. Well, we'll see it before we mark up, right?

    Mr. HANTMAN Yes, sir. That will be the case.

    Mr. ROGERS. Now, on the larger project, the renovation of the building, I'm going to call it, tell us what that will entail.

    Mr. HANTMAN. All the base building systems, Mr. Chairman, have been there, and have been in place since the early 30's. So, the building's basically open since 1935.

    A lot of those systems have truly outlived their useful life. So, we're going to look top to bottom at the facility. Not only electrical, mechanical, air conditioning, but also telecommunications, life safety systems, ADA criteria, accessibility. All of these issues need to be looked at.

    A major issue also, Mr. Chairman, is the fact that the building was designed for some 170 or so people, and my last numbers, I think, there's some 380 people in that building, utilizing spaces that were not originally designed for office usage.

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    So, we need to take a look at a master plan for where the Court is right now, with all its people, how they're using their space, and what recommendations might flow from that. As well as the building core, and shell, and all of the utility services in that building.

    It's a stem to stern review of where that building is, and where we need to take it. So that——

    Mr. ROGERS. So, it's going to be more than the infrastructure. You're going to be looking at possibly re-configuring rooms in the building?

    Mr. HANTMAN. I would think that would have to be part of any intelligent master plan, Mr. Chairman.

    Mr. ROGERS. Are you thinking about putting, just in case they ever need it, television co-axial cables through the building?

    Mr. HANTMAN. Well, I think it's up to the Court, Mr. Chairman, in terms of what type of communications that they want to recommend to this committee.


    Mr. ROGER. Are the Justices and the Court officials aware of the magnitude of these projects we're talking about, and the efforts that are going to be required to carry them out, and the inconveniences that they're going to face as we go through this?

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    Mr. HANTMAN. Mr. Chairman, until one goes through a renovation, restoration such as this, I don't think anybody really realizes what that's all about.

    Mr. ROGERS. Yes.

    Mr. HANTMAN. Clearly, inconveniencing anybody who has a full schedule, they're trying to get their job done, is not a happy situation. Whether we're talking about the Capitol building, the Rayburn building, any building.

    There will be inconveniences. And one of the things that will clearly impact the time frame for doing the project, and the cost of the project, will be how many phases we need to carve it up into, to minimize the inconveniences to the Justices.

    Mr. ROGERS. Will they continue to occupy the building in full as we proceed?

    Mr. HANTMAN. The intent at this point is that the master plan would certainly look at that. We're not aware, at this stage of the study, in terms of what options we have, to physically move people around, and have essentially turn-around space, where if we had to renovate this room, where would this committee meet in that time frame?

    That type of situation. But conceptually speaking, depending on the magnitude of the work, and I think it will be significant, we will have to have some dislocations during the project.

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    Mr. ROGERS. Would they be better off to move to a temporary location elsewhere, and leave you the building to work on?

    Mr. HANTMAN. We've been working, as you know, Mr. Chairman, in the House office buildings, and the Senate office buildings, also upgrading them, from a perspective of mechanical, electrical, telecommunications, air flow, indoor air quality, all of these issues. And we've been addressing the renovations almost a wing, or a suite at a time.

    And I think that's inherent in how we would also approach the Supreme Court. We have not vacated any of the House office buildings. We've done them sections at a time.

    Mr. ROGERS. So, you don't anticipate that the Court would have to relocate temporarily to another building?

    Mr. HANTMAN. No. We do not.


    Mr. ROGERS. Will the appearance of the building change any, by either one of these two projects?

    Mr. HANTMAN. When we talk about the largest project, which is the total retro-fit and renovation, we would want to be as true and faithful to the original design as we possibly could, while we integrate modern utilities and, communications issues.

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    With the issues relative to security, there would have to be some physical ramifications, of making sure that the perimeter of that building was secure. And these are the sensitive issues that we need to address with Justice Souter and his committee, and the full Court, as well.

    A lot of sensitivities, as you're well aware, Mr. Chairman, throughout all of Washington, and very sensitive facilities, and how they are subject to potential negative impacts.

    Mr. ROGERS. On the perimeter security program, I know you don't have the details yet, and it's perhaps some weeks away from finalization. But in general, are you talking about perhaps some sort of a fence or barrier, on the outside edge of the property of the Court?

    Mr. HANTMAN. The type of elements that we're looking at, Mr. Chairman, really are very much in line with what we've recommended for the Capitol itself. We've had a perimeter security plan there, which deals with sensitivity to the original Olmstead walls. And we would do the same thing here.

    Bollards that are sensitive to aesthetics in lieu of pots, planter pots, that are ubiquitous on Capitol Hill at this point in time.

    So, the same type of themes, of working with the existing palette of walls, of stonework, and the introduction of bollards, and security measures, are very much in demand.
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    Mr. ROGERS. When would you expect the perimeter security program to be complete?

    Mr. HANTMAN. We have—our best judgment at this point in time is that once we do our design work in fiscal year '99 the project itself probably could be completed the subsequent year. We have some $4.6 million as a marker in fiscal year 2000 at this point in time.

    Mr. ROGERS. So, they would be finished, and in place, during the year 2000?

    Mr. HANTMAN. That would be our sense at this point in time. We would like to move the design process, the construction documents, and the bidding process along. But clearly, basic approvals need to be had. And the approvals, as we discussed earlier, not only of the Court itself, but certainly of oversight committees, and the community, as well.

    Mr. ROGERS. Will the appearance of the main chamber in the building change, in the renovation of the building?

    Mr. HANTMAN. We would try to avoid any significant changes to the original design, Mr. Chairman.

    Mr. ROGERS. But you would modernize the appearance of the interior to some degree?
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    Mr. HANTMAN. Well, whatever it takes for us to get the electrical, mechanical, telecommunications work in. We would try not to take care of—not to modify any significant design elements from the original design.

    Clearly, we would like to very much make this a restoration project. Keep the full design intent intact. It's a very pristine building. And as I indicated earlier, not very much has been done to it.

    Mr. ROGERS. Structurally, the building is okay?

    Mr. HANTMAN. We have no indication that there are any basic structural problems. Security related issues may have to be addressed in that vein, though.

    Mr. ROGERS. Once you get into the project, might the project change to some degree, when you get the wood off the wall, and the plaster uncovered, might you find something that you didn't anticipate?

    Mr. HANTMAN. Electrically, mechanically, I don't think that there are going to be any major surprises. I think that the major issue will really be how the Supreme Court is currently using the building, and how that differs from the original intent.

    The number of people they're housing, how those people work. I think that will be the biggest impact on what the master plan turns up.

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    Mr. ROGERS. Now, switching gears, you are asking $112,000 this year, with a similar amount next year, for renovating the north and south driveways of the Supreme Court property. Why wouldn't it be more appropriate to do that as a part of the perimeter security project, since undoubtedly, the driveways will have to be incorporated into the security of the building?

    Mr. HANTMAN. The Marshal has specifically asked us to accelerate work on that, basically because it's a safety hazard.

    The bricks, in the current form that they're in right now, become a slipping hazard for trucks and cars going down those ramps. About a third of those bricks have been deteriorating the 60-odd years that the building has been in place.

    We need to review that, and take a look at how we can make sure that the safety issues are addressed. Perhaps where you're going with this, Mr. Chairman, clearly is, we don't want to do anything now that will have to be redone in the future.

    Mr. ROGERS. Correct.

    Mr. HANTMAN. And we fully recognize that. In fact, we're taking a look at what type of surface material is most appropriate. We've been investigating the cast concrete elements, and have not been satisfied so far with the types of samples we're getting back.
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    We don't think it fits with the historic nature of the building. And we only have some five inches to work with, before we get down to the structural slab. So, the bricks that are currently there have a sitting bed, and they're sitting five inches above the slab.

    The drains are there. We're trying to avoid replacing the drains. And the entry ramp also has an elevation that needs to be relating to the street. And the bottom of the ramp needs to relate to the structural slabs down there.

    So, we're trying to work within that five inches. And also, get radiant coils in there, so we can, in fact, whether they're electrical of hydronic, melt the snow, melt the ice, and avoid some of that safety problem that we currently have.

    We don't think, Mr. Chairman, that we will have to redo what we do here now. And we certainly would take every effort to make sure that that does not happen.


    Mr. ROGERS. That was my concern. And likewise, you're asking $100,000 for site preparation, for conduit, and pathways, related to computer cabling. Why could that not also be made a part of the renovation project?

    Mr. HANTMAN. The issue, Mr. Chairman, comes back to, again, the immediate need, and the time frame within which a master plan could be done, could be funded, could be built.
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    The LAN network that needs to be put in is an immediate need with the Supreme Court. And we would design it in such a way where we would have slack cable, the ability to come on in, and replace wiring which is over 60 years old right now, and cannot support the technology.

    So, we think that, clearly, what we're doing right now, some of it may well be temporary in nature, and be relocated. But we're trying to minimize that, and still give the Court the ability over the next several years, to be able to react to the state of the art, and do their jobs most effectively.


    Mr. ROGERS. Now, you're proposing to replace two of the four X-ray machines in the building, is that correct?

    Mr. HANTMAN. That is correct, Mr. Chairman. Those machines don't have a very long life. They are not state of the art any longer. And we need to replace them, initially. And we also have money down the road, to replace the additional two machines that they have. Because, again, that technology changes so quickly. And the level of security that is necessary in these buildings also has increased.

    Mr. ROGERS. That's way down the list, though. It's way down your priority list, isn't it?

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    Mr. HANTMAN. Right. We have it under new requirements for 1999 as $130,000. That is correct.

    Mr. ROGERS. Well, you prioritize your requests. And that's way down your list. It's real low. I was wondering why it was not higher?

    Mr. HANTMAN. Well, when we look at what's up above it, Mr. Chairman, design, roof fall protection, for instance, $10,000 to do a design on that. That is an OSHA criteria that we need to meet, in terms of life safety. It's a regulatory type of issue.

    When we look at driveways, that was a life safety issue that we just talked about, in terms of trucks sliding down the driveway.

    The communication for the LAN system is also very important. It's a question of how you prioritize the needs.

    Mr. ROGERS. I wouldn't think there was anything more important than knowing whether or not a package delivered to the Supreme Court had been X-rayed properly.

    Mr. HANTMAN. That is a very important issue. It truly is. But, we did just replace other X-ray machines in 1997.


    Mr. ROGERS. Mr. Dixon.
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    Mr. DIXON. What is the capacity of the chamber itself? Seating capacity?

    Mr. HANTMAN. We certainly can get back to you, Congressman, and give you that specific number.

    Mr. DIXON. What roughly is it? I mean, somebody on the staff must have been over there, and I can tell you roughly what the seating capacity in this room is.

    Mr. HANTMAN. It must be several hundred people, at least. Staff, and visitors, audience, about 200.

    [CLERK'S NOTE.—The seating capacity in the courtroom is 230.]

    Mr. DIXON. Will you be discussing with the Justices a modification of that capacity, making it smaller or larger?

    Mr. HANTMAN. Congressman, we don't know that at this point in time. I think what we need to do, when we go through a master plan program——

    Mr. DIXON. Will you be discussing that with them? You know whether you're going to——

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    Mr. HANTMAN. Oh, absolutely. In terms of programmatic needs, I think how the building functions, and each of its major spaces, needs to be part of an interview process with the Chief Justice, and the other Justices, as well, to find out what's working well, what's not working well, and what kinds of corrections they seem to think might be appropriate.

    So, just as we are currently doing a study for a refurbishment of the Senate chamber, and we have a recommendation to the Speaker to look into a refurbishment, as well, of the House chamber. Part of that study would also include talking to the leadership, and key people, in terms of how things work, and how they might be changed, to more appropriately satisfy the needs of the chamber.

    Mr. DIXON. So there could be a possibility that the size of that chamber, as far as seating, could be either expanded, or to some extent, contracted?

    Mr. HANTMAN. I think there's a life safety limit to the number of people that you'd want to safely put in any room. And we would strongly come up with those recommendations, and indicate what kinds of limits we have to work within, as they relate to egress, should fire or any other event occur.

    Mr. DIXON. Thank you, Mr. Chairman.

Closing Comments

    Mr. ROGERS. Thank you. Thank you very much for your testimony. We apologize for the delay. We've tried to make this, as your friendly dentist said, as painless as we can make it.
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    Mr. HANTMAN. We thank you, Mr. Chairman. And we will be getting back to you once we have our information.

    Mr. ROGERS. Thank you. The hearing is adjourned.

    [The questions submitted by Representative Charles H. Taylor follows:]

    "The Official Committee record contains additional material here."

Wednesday, March 4, 1998.






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    Mr. ROGERS. The committee will come to order.

    We are pleased to welcome the panel today, a distinguished panel of jurists from the Federal courts, to defend the fiscal year 1999 budget requests for the Federal Court System.

    The panel is being lead for the second year by Judge John Heyburn, who sits on the United States District Court for the District of Western Kentucky which, by the way, is a good place to sit.

    He is here in his capacity as Chairman of the Judicial Conference Committee on the Budget. He now has the benefit of a year under his belt in that position and a very successful year, I might add. It is again a special pleasure to welcome you, Judge, to the subcommittee.

    He is joined at the table by Judge Robert C. Broomfield from the United States District Court for the District of Arizona, also a member of his budget committee; Judge Rya Zobel, appearing as Director of the Federal Judicial Center, who has been here several times; and, of course, Leonidas Ralph Mecham, Director of the Administrative Office of the Courts, who has been here for more times than any of us care to admit to.

    As you know, fiscal year 1998 was a year in which resources were available to meet a number of needs. Fiscal year 1999 is the year which the spending caps will still be there from the budget deal and will tighten significantly as we seek a balanced budget and even a surplus.
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    So, this will be a year we will have to work together closely and to do our best to determine what resources are absolutely required to enable the Judiciary to carry out its mission.

    Your written statements will be made a part of the record. Judge Heyburn, we will be delighted to hear from you.


    Mr. HEYBURN. Thank you very much, Mr. Chairman and Congressman Skaggs. I would like to make just a very few introductory remarks.

    It is again a very distinct pleasure for me to represent the Third Branch in the appropriations process and, of course as it was last year, to appear before you, Mr. Chairman, for whom I have such high regard. It is a great honor.

    These appearances never cease to remind me about the majesty and the delicacy of our constitutional system. I was reading the Federalist recently and read that James Madison said that justice is the end of civil society.

    The founding fathers created a separate and independent branch of our government exactly for that very purpose. I come representing that branch; one which, in our constitutional system, is dependent upon others for the resources to do what Madison foresaw for us. I know of, Mr. Chairman, and respect your deeper understanding of these relationships.
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    In fact, we see that understanding in the cooperative attitude of you and your staff as we work through this appropriations process. We do appreciate that very, very much.

    To begin with, I want to offer my sincere thanks on behalf of the Judiciary for our appropriation last year. As a tangible expression of that appreciation, I promise our continued careful stewardship of those funds.

    I am also pleased to tell you that this year our overall budget request is for a 6.7-percent increase over obligated funds for last year. This is our lowest requested increase I believe in 20 years, but it could be even longer. I do not know.

    Our job is law enforcement. That work is ever increasing. We are asking only for the limited funds to do that necessary job as the public demands. We also recognize, of course, our continuing duty to be more efficient.

    Our Economy Subcommittee has been leading those efforts. We have talked about that in the past. We think we have been successful in those areas. I must say that you, and Congressman Mollohan, and the other Members of this committee can share in the credit for the progress that I think we have made.

    A couple of years ago, you passed the Prisoner Litigation Reform Act which seems to be reducing the number of frivolous prisoner lawsuits. Partly as a result of that, we are requesting fewer personnel this year in our budget for pro se law clerks, and fewer personnel for the District Court clerks' offices around the country.
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    The reduced need for staffing is, in part, a result of our ability to do that job, but it is also directly related to the legislation that you have passed, which we think is in the interest of justice and in the interest of economy.

    As another example, you may recall last year we had an extended conversation about the escalating cost of defender services and what we could do about it. We were both concerned about it.

    Your concern and prodding has encouraged us to re-double our efforts. We commissioned Coopers and Lybrand to do an independent study. This was a study which your legislation initiated.

    That study pretty much confirms what I told you last year. It is an interesting study and I will certainly be open to questions about that as we go along.

    Another area we discussed last year was that of courthouse security where you mentioned that the cost of that program increased about 20-percent each year in 1997 and in fiscal year 1998.

    I am glad to report that this year we are requesting only a 6.9-percent increase in courthouse security. Most of that is related to normal increases of ongoing operations.

    Also, in response to inquiries from yourself and from your staff, we are continuing to review our standards and the application of those standards to particular courthouses.
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    We all wrestle with the question of how much security is enough security. Everybody wants our courthouses to be safe. No one should fear working there. Our citizens should not fear going there to be jurors. We are committed to providing the necessary, but also the appropriate security for our courthouses.

    I also want to convey my sincere thanks on your actions on the COLA last year. We think you should include provisions for a COLA for yourselves and for the Judiciary again this year. From my own personal experience and I think from the experience of working men and women around the country, I think they have grown to accept the fact that COLAs, in general, small yearly COLAs, are an appropriate and necessary part of compensation.

    From my view, I am no longer the political expert that I once tried to be, but it seems to me that the reaction or, it might be better put, the lack of reaction to what the Congress appropriately did last year proved that point.

    There are a couple of small accounts that we represent that also deserve some mention because they are vital to the Judiciary. The Federal Judicial Center; Judge Zobel is here. She can, of course, answer any questions. Their funding has remained about the same for the last five years. I think you will agree from their submission that they have worked hard to find alternatives to travel-based education.

    They are asking for only a 3.1-percent increase. They are doing a bigger job now than they were five years ago with about the same amount of funds. I would encourage you to grant their request.
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    The Administrative Office of the United States Courts is the heart of our administrative and policy apparatus. In fiscal year 1999, the AO is going to be implementing some new automated systems.

    These systems will enhance our operations in the courts. The AO's ability to manage these systems is going to be critical to some of our plans to gain greater efficiencies. They are also asking for a modest increase.

    I would encourage you to give them the increase that they have requested. One last item I will touch on briefly. It is sort of a technical matter.

    Last month, Director Mecham and I sent you a letter requesting some language be included in the supplemental appropriations bill authorizing the Judiciary to establish statutory certifying officers. This goes along with our concept of decentralized budgeting and management which has proved so successful. We believe this language will give some additional technical authority to our local managers at the court level and is needed to make financial operations of the courts more efficient. We would appreciate your consideration of it.

    I will certainly submit my written testimony and that of Judge Zobel, and Mr. Mecham for the record. Also, on their behalf I would also like to submit the written testimony of Chief Judge Haldane Robert Mayer of the United States Court of Appeals for the Federal Circuit, and Chief Judge Gregory Carman of the United States Court for International Trade.

    Mr. HEYBURN. That completes my brief statements.
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    I look forward to answering any questions that you might have along with my colleagues who are appearing with me.

    [The statements of Judge Heyburn, Mr. Mecham, Judge Zobel, Judge Mayer, and Judge Carman follow:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Thank you, Judge, very much. That was a good statement. You covered a number of the points that I was going to ask about. I will try to re-mention some of them.

    In the current fiscal year, we provided $175 million less than your overall request for the Judiciary last year and $159 million less for the major salaries and expense account.

    Yet, you are able to fund all of that activity that you originally had requested and then some, to be frank. How were you able to do that?

    Mr. HEYBURN. We discussed this very thing last year, as you know, and every year we request the amount that we think we need. Every year, different things happen. Some things happen to increase our expenses.
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    Some things happen to reduce our expenses. Last year, of course, the number of confirmations of judges was much less than we expected. That resulted in a significant savings of dollars.

    There was some space that we anticipated coming on that did not come on. That resulted in some savings. These are things really that are completely beyond our control.

    Also, once we get an appropriation, we allocate those funds to the local districts. They have broad authority to spend those resources.

    As I mentioned last year, we do not view it as our job, to spend every dollar you give us in order to justify the amount that we received.

    Last year, we got back from the courts, at the end of the year, about $38 million, I think it was. Those were funds which the courts, in their best judgment, believed were not necessary.

    Those funds were put back in our financial plan and were a part of the carryover that, of course, significantly reduced the appropriation that you were required to give us to fund our operations for this coming year.

    Mr. ROGERS. On that carryover point, since your original 1998 request was submitted, the planned obligational level for the major court salaries and expenses account decreased by $83 million.
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    The carry over from 1997 increased from $35 million to $183 million. You are already planning to carry over $110 million in to fiscal year 1999. What further growth in carryover, and changes in planned obligational levels for fiscal year 1999 can we expect?

    Mr. HEYBURN. Well, we cannot expect any more at this moment. I think your staff will confirm. What we are attempting to do in our FY 1999 request is give you estimated carryover earlier than we have in the past. You mentioned that we started out last year with predicting a carry over of $35 million. It was not as though it was a jump, of course, from $35 million to $180 million. It was the process that evolved throughout the year. This year, again to our credit I think, we have been able to estimate, much earlier on than we did last year, the existence of a potential carryover.

    Again, it is just a prediction at this point. I think the number is around $110 million that we have identified at this particular time, which is much earlier than we have been able to predict that kind of a carryover.

    We view it, again, as part of the cooperative spirit between our staff and your staff. We are going to try to keep you advised at the earliest possible time of whether the expenses are more than or less than we might otherwise have predicted.


    Mr. ROGERS. The largest program increase in your S&E account in the budget is for 596 additional bankruptcy officials at a cost of $31 million.
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    Mr. HEYBURN. Right.

    Mr. ROGERS. Presumably based on continued increase in bankruptcy filings.

    Mr. HEYBURN. Yes.

    Mr. ROGERS. Yet, your budget also assumes a decrease in bankruptcy filing fees, presumably based on a decrease in bankruptcy cases. Can you help me decide what to do?

    Mr. HEYBURN. Yes, I can.

    Number one, in the last fiscal year we had a huge increase in bankruptcy filings. I think it was about a 25-percent increase in bankruptcy filings.

    Because some of these court filings are volatile, they may go up one year and then may go down, although in the case of bankruptcy, they have been steadily increasing and they are at an all time high.

    Under our staffing formula, we do not request from you, nor do we staff the bankruptcy courts in this instance, at the full level of an increase. We phase it in over a two-year period.

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    That is good for us and also good for you. Also, it is probably not possible to hire 1,500 bankruptcy clerks in any one year. So, what is happening in FY 1999 is, in effect, the second half of the phase-in begun in FY 1998 based on FY 1998 estimated workload.

    So, the bankruptcy filings have increased 300,000, roughly, over two years. We are just now catching up to that. We think that is good management. It is more efficient. It is better for the bankruptcy courts.

    So, that is part of the answer. Also, of course, as your staff is aware and as I am sure you are aware, the estimated staffing needs for fiscal year 1999 are not based on future projections of bankruptcy filings, but based upon the actual filings for fiscal year 1998.

    For instance, if actual bankruptcy filings by September of 1998 are actually going down then, as we have in the past, our budget request will be revised downward to reflect the staffing formula.

    Now, having said that, the projections that we use to determine the fees are based upon the projected number of bankruptcy filings each year. So, there is a slight difference there between what we use to project the fees and the actual number that we use on the staffing formula.

    It is a little bit of a technical answer. I suppose we could do it a different way, but it is based upon what we believe to be the best available information in order to satisfy your particular staffing needs and to anticipate fees from bankruptcy filings.

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    Mr. ROGERS. So, in case the actual number of filings start going down, we will not have to provide the full increase that you have requested.

    Mr. HEYBURN. That is right. I mean the proof is in the pudding. This year we are asking for in the request to you, I believe, 203 fewer district court clerks because they will have fewer cases. Now, they are going to have to make some adjustments. We are asking for fewer pro se law clerks because of the declining number of prisoner pro se cases.

    That is a part of the reason. Just to amplify, let us take bankruptcy clerks as an example. Although for the last four or five years, there has been a steady climb up in filings, bankruptcy courts know there could be a downward fluctuation. Therefore, they are naturally a little bit resistant to put on staff too quickly.

    That is a part of the reason why we get some of the funds returned at the end of the year. Instead of putting on personnel, they may do a little bit more travel. Instead of putting on another person which would be difficult to delete from the staff, the courts may elect to spend their funds in another way or return them.

    So, there are a lot of adjustments they make in order to avoid continuing costs. That is a part of the way the centralized management has, we think, worked so well for us.


    Mr. ROGERS. Well, I was especially pleased to see the Chief Justice's recent annual report approving of this Subcommittee's and the Congress' action to decrease the workload. He said that we acted wisely, which I agree with, in the habeas corpus reform which we passed in 1996.
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    He said in his letter that by June of 1997, that had led to a decrease in habeas corpus applications well below the average number of monthly filings during the 15 months before the enactment of that law.

    Prison litigation reform, which passed as a part of our 1996 appropriations bill, he says has led to a 46-percent decrease in civil rights filings from April 1996 to February 1997. Are those figures accurate to your knowledge?

    Mr. HEYBURN. Yes. I think they are. The prison litigation reduction has been very dramatic. The habeas corpus reform has more complicated affects because it set a statute of limitations when the new legislation took effect.

    We had a huge spike right before the statute of limitations when there was a record number of habeas cases filed. Since then, there has been a decline. What I personally think is that we are really going to see this effect over a period of time.

    A part of what the legislation does, as you know, is prevent the filing of numerous habeas cases. So, we are going to see, I think, more of a gradual decline over a period of years as opposed to the much more dramatic decline that we saw with the Prisoner Litigation Reform Act.


    Mr. ROGERS. Now, Director Mecham, the budget request contains a $16 million item entitled General Services Administration Security Surcharge. What is that? What information do you have from GSA regarding their notice that you are expected to pay that?
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    Mr. MECHAM. First of all, we do not have adequate information upon which to make the payment. We are assuming they are dealing with us in good faith. We have requested additional information.

    It arose because of an extensive security survey which was made following the Oklahoma City bombing case. They took a look at security needs all over the country. This occasioned an increase in costs.

    GSA believes that our share is $16 million. We feel that they ought to provide a little better justification than we have. We will get that to you as soon as we have it.

    Mr. ROGERS. Is this supposed to be for physical construction or personnel? What is it?

    Mr. MECHAM. As I said, it dealt with both. I think the chairman has better information.

    Mr. HEYBURN. My impression was it was both and that these were additional expenses which will be charged to, not only the Judiciary, but to other government entities as well.

    Mr. MECHAM. Right; Executive Branch agencies, and joint use facilities as well.

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    Mr. ROGERS. But you are not going to pay it until you know more about it.

    Mr. HEYBURN. That is right.

    Mr. MECHAM. Correct.

    Mr. ROGERS. Good. Mr. Skaggs.

    Mr. SKAGGS. Thank you, Mr. Chairman.

    Maybe I have been inattentive in our last proceeding here, but I have not noticed our new microphone stand until just now. I wondered whether our staff had gotten a duct tape grant from the NEA.

    Mr. ROGERS. We only reserve the fine things for the courts.

    Mr. SKAGGS. That is right.

    Mr. ROGERS. That is our best.


    Mr. SKAGGS. It is certainly award qualified, if not award winning.
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    You chose your words, I think, carefully when you were talking about COLAs in suggesting that we might, again, include provisions.

    Of course, we do not have to include any provision for us. We just have to include a provision for you. That is, I think, no doubt troubling to you and problematic, I think, to me anyway.

    I just wanted to give you an opportunity to state what I suspect is the Judiciary's position on reconciling the legal treatment of your COLAs with the legal treatment of our COLAs.

    Mr. HEYBURN. Our position is, of course, we ought to repeal section 140 of P.L. 97–92 and then we would all be on the same playing field. I recognize that this is not necessarily a legal question. It is a matter of history the way the thing has developed over a period of years.

    We think the repeal of section 140 is the appropriate way to go. I recognize there are various Members of Congress who feel, for whatever reason, they like it the way it is. We also understand that it is unlikely that Congress is going to give itself a COLA and not give one to the Judiciary.

    So, certainly I have my preference as to how the law should read, but, you know, there are certain realities that we bow to. You are the legislators. We have confidence that you are going to treat us fairly and that you will treat yourselves fairly.
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    We have made our recommendation. I do not want to come on too strong on a point that I really think is within your purview.

    Mr. MECHAM. Can I make one amplification of that?

    Mr. HEYBURN. Maybe he will come on strong.

    Mr. MECHAM. I will not come on strong here, but I work for judges. The 1989 Ethics Reform Act makes Members eligible for a COLA unless someone takes some action to either amend existing law, or place a prohibition on an appropriation bill to stop you from getting it. Members can receive a COLA automatically, whereas judges cannot, because of section 140 of P.L. 97–92, a provision that says judges have to have some sort of affirmative action to receive a COLA and that has to be in a public law. This calls unneeded attention to the COLA issue.

    Mr. SKAGGS. Right.

    Mr. MECHAM. This means it gives those who do not want Members of Congress to have a COLA an opportunity to offer an amendment to the judges COLA provision stating that Members should not get a COLA.

    So, if I were a Member, I would rather not have section 140 on the books. I would repeal it and put the judges and the Members on the same playing field.

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    Mr. SKAGGS. No extra charge for your political consultation.

    Mr. HEYBURN. I was never able to charge for my political advice before.


    Mr. SKAGGS. Give us a sense, maybe from your several districts, of what vacancies exist, how long they have existed, and what difference they have made in your daily lives.

    Mr. HEYBURN. First of all, I will speak from the position of a district which has no vacancies. I have both perspectives because I am from a district which had two vacancies for about five years which, when you only have five judges, is a lot.

    During that time, we went from having literally no cases that were over three years old to almost 300. Now, with a full complement of judges and working hard, we have reduced the number of cases that are over three years old down to 50.

    So, we feel like we are making progress and that, with the right number of judges, we can do a good job. There are many, many districts around the country who have a full complement and are in good shape.

    I think there are at least 20 districts around the country where the vacancies have been pending for 18 months. Having been in that situation once before myself, I can tell you that the quality of justice suffers.
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    The timeliness of attention to motions suffers and the litigants and the citizens suffer. I think Congress needs to be attentive to where those circumstances exist. In my view, if a nominee is put forward, act on that nominee. It is your prerogative to not confirm that nominee.

    Mr. SKAGGS. The Senate's prerogative.

    Mr. HEYBURN. The Senate's prerogative, exactly. The others may have something.

    Mr. SKAGGS. Judge Broomfield, are there vacancies in your district?

    Mr. BROOMFIELD. We do not have any vacancies in our district, but I echo what Judge Heyburn has said. I agree with him completely.

    We are, in our district, about the eleventh busiest out of the 94 districts. On the criminal side, we are the fourth busiest district. We have almost twice as many weighted cases per judge than the national average.

    If we did have vacancies, our judges' weighted caseload would be out of sight. So, the fact that we have all of our complement is just barely causing us to be able to keep our head above water.

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    Mr. HEYBURN. In Judge Broomfield's district, I think their average case load is something like 700 cases. Is that right?

    Mr. BROOMFIELD. Over that; closer to 800.

    Mr. HEYBURN. Our district actually mirrors almost exactly what the average is. We have about 400 cases per judge. I cannot imagine 700. So, we feel like we are in reasonable shape. I can understand why the District of Arizona must be working awfully hard to keep their head above water.

    Mr. SKAGGS. Judge Zobel, any from your area?

    Ms. ZOBEL. Well, this is a rare trio because my district, which is Massachusetts, also has no vacancies at the moment. However, like Kentucky, we had out of 13 judgeships, five vacancies until they were filled about four years ago. So, we had exactly the same problem.

    Our caseload climbed. Our old cases climbed. Now, we have a manageable load. Indeed, because of the statute that allows a successor to be appointed while I am director of the Center, we have two people sharing one seat at the moment, although I am not exercising the prerogative to judge, except in some ongoing civil cases and criminal cases with fugitives that are caught while I am down here.

    Mr. SKAGGS. I assume the major impact is on your civil case load. The criminal cases have to move because of the constitutional right to a speedy trial.
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    Ms. ZOBEL. That is true.

    Mr. SKAGGS. I mean, the old cases are complicated civil matters.

    Ms. ZOBEL. That is right and less complicated too. I mean they are just old cases and, you know, sometimes you simply cannot get to them.

    Mr. MECHAM. Judging statistically, we had 87 vacancies as of the first of March; 32 of these vacancies have existed for over 18 months. I would suppose the Ninth Circuit, from which Judge Broomfield hails, is one that has a record number of vacancies. There are nine Circuit vacancies out of their 28 complement and 10 District Court vacancies.

    Some of the courts are hurting. I hear horror stories from places like Nevada or Alabama, or places where there are incredible case loads. There are some problems out there.


    Mr. SKAGGS. Our budgetary windfall is a loss to justice, I guess. Do any of you care to make any comment?

    My question really relates to the impact of the expansion in Federal court jurisdiction that has especially come with some of our changes in the criminal law over the last few years. Where there were some projections of a pretty terrific effect from some of those changes in law. I am wondering what was actually experienced. I think we will start with the director this time.
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    Mr. MECHAM. I yield to the Chairman on this one. I can speak, but he can speak with authority.

    Mr. HEYBURN. From personal experience, we have not seen too much change in our district. As Chairman of the Budget Committee, one tremendous impact has been the legislation that has increased the number of Federal capital crimes, for instance.

    About four or five years ago, we may have had ten capital prosecutions pending at one time in the Federal courts. Now, there are over 150.

    A part of the consequence of that is not only the tremendous time and effort that it takes to organize and try such a case, from a judge's point of view, but from a budgetary point of view, we have seen it reflected as one of the significant drivers of increased defender cost.

    So, that has been a big factor for the Judiciary. All we have said every time we have come here is that when Congress passes new legislation, it is making a choice. We are here to do the job that Congress and the Constitution assign us.

    You do make choices. As long as the resources continue to increase, then we can do every job that Congress asks. In a way it is a complement that you think the Federal courts do such a fine job, you want to give us more work.

    I know that your committee is not the one that decides what that job is. You just have to be responsible for finding the resources when someone else decides that Federal courts should do a much bigger job. So, it is a difficult task for you. We recognize that.
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    Ms. ZOBEL. Let me answer it from the point of view of the Federal Judicial Center rather than the District of Massachusetts. We anticipated, particularly in the area of capital cases, that there would be a great need for training.

    We have, therefore, instituted a number of programs to help judges deal with these cases. We have had training programs in circuit workshops. We have had training programs in our major district court workshops.

    We are doing research on the capital habeas side, on various programs that a number of circuits have to assist them in dealing with it. The problem for us is not merely the increase in jurisdiction, but also sometimes, with due respect, the difficulties of interpreting the laws.

    There are many times when it is very unclear what it is that you intended for us to do. So, we have had training programs on what we think you meant for us to do as well. All of that, I hope, has helped the judges to deal more efficiently, and to deal better, and more justly with these cases.

    So, it is both in the area of education, as well as in the area of research that we have tried to respond at the Center to this increase, and I think successfully so.

    Mr. SKAGGS. It might be advantageous for both sides if there was a representative of the Judiciary in our freshmen orientation program for new Members of Congress, just to seriously give even an hour overview of what imprecision in statutory drafting means in your lives, in crafting jury instructions and all of the rest.
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    Mr. MECHAM. Would you believe we have asked for that privilege, both on the Senate and House sides. We have been respectfully said no to.


    Mr. SKAGGS. Well, I am interested to hear that. Even though I am not going to be back next year, I hope to be helpful in the rest of this year as we plan for the new Members that will be coming in. So, I will see if we cannot make some progress on that.

    Just one final question. I am curious as to whether you make it a practice to have post-trial discussions with juries.

    If so, have you noted any particular trend in juror attitudes toward the justice system over the last several years? I think that is one place where we can certainly take the temperature of civil society in some way.

    Mr. HEYBURN. Since I became a judge, now just five and a half years, I have talked with every jury after the case is over. I started out doing it because I thought it would help me and not necessarily help them.

    I wanted to find out whether there were things that I was doing which confused them. Whether the instructions we gave them were confusing or whether there was something about the process that separated them from what their objective would be, which is to listen to the facts and come to a fair conclusion.
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    It has been a fascinating experience for me to talk with them. Many of them are very apprehensive before they become jurors. My impression has been that they are uniformly impressed with the majesty of the occasion, the seriousness of the occasion, and they take their job so, so seriously.

    They make very good suggestions about how the process could be better, and sometimes how judges could be clearer, and often times how the lawyers could be better. So, it has helped me when, for instance, a lawyer wants to put on three or four witnesses, which essentially prove the same thing.

    I can tell the lawyers that I talk with jurors. They do not like it when lawyers cover the same thing four or five times. So, it helps me to speed along the trial.

    I also think that from time-to-time there is concern about these high profile cases and concern about their own privacy. So, we do everything that we can to allay their fears that somehow they are going to be set upon by lawyers, or the press, or whatever and questioned and have to answer questions they do not want to.

    So, it is a good calming experience for them. I think they appreciate what I have done. They are also interested in whether you think they have done a good job. So, I think it is important to have the judge tell them, to confirm, that they have done a good job.

    When I tell them that I think they have tried their hardest and that I am glad I did not have to be the one to make the decision that they had to make, it makes them feel better. So, I have been tremendously impressed by my experience with jurors.
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    It has given me great confidence in how much wisdom they collectively bring to a decision. Sure, you question a decision every now and then, but then you think, well, I wonder how I would do if I had to be the one who had to decide who was lying and who was not lying? I have been very impressed.

    Mr. SKAGGS. Mr. Broomfield.

    Mr. BROOMFIELD. I think you struck on the key or the core of the American system of justice. The citizen, as a juror, really is the hallmark of our society. We do not have to vote in this country, but we ought to serve on jury duty when we are called. I have been struck by the great willingness of people to serve on juries, even long ones.

    Now, there will be people who will ask to be excused. But so often, they will simply ask to be deferred to a later date. They do not try to get out of jury service. They truly take it seriously. It really is the hallmark of our society.

    I have served on jury duty. It is an amazing experience. If you never have, you ought to, if you ever get the chance. It is really the key to our system. It is what causes the people to have respect for the judicial process; the fact that so many of them are a part of it as jurors.

    Ms. ZOBEL. I have not tried a jury case for three years, since I have been here. Before that, I would always speak with the jurors afterwards.

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    One of the things I have learned—we have at the Center yet another training program. It teaches judges how to be clearer in communicating with juries. We did a program last year in conjunction with NYU that was directed just to that and also included it in our big programs for the district judges.

    It was very interesting. People speak a different language now. Their attention span is different. As a result of being used to computers and videos, jurors have a very different reaction to the way people communicate to each other. The Center has tried to translate that into teaching judges how they need to speak with jurors.

    I, too, was called as a juror here. I spent the whole day and was the last person bumped off the jury. I was so crushed.

    I understand that in the District of Columbia, you get called about every two years because there are so many cases and so few citizens. So, I fully expect to be called again and I look forward to doing my duty in that capacity as well. Thank you.

    Mr. SKAGGS. Thank you, Mr. Chairman.

    Mr. ROGERS. On that last point, I am reminded that there was a story recently that the reason that there are so few jurors called here is because they have such a horrible address list that they cannot get through but just a few people, who continuously serve on juries in DC.

    Ms. ZOBEL. Well, that may be. So, I have a chance yet.
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    Mr. ROGERS. Now, briefly, about the vacancies question.

    In 1997, there was an average of 90 vacancies. In 1987, ten years ago, there was an average of 48 vacancies. So, we are not really far removed from what it was 10 years ago.

    In fact, in 1991, there was 136. In 1992, 126. In 1993, 116. In 1994, 111. So, we are not really far out of line here in our vacancies. I do not know who is making all of the noise, but they should have been making that noise five, six or seven years ago when there was a huge number of vacancies.

    We have now an average of 724 active Article II judges which, except for a couple of years, is a record number. We have a record number of senior or retired judges, 469, which is up from 298, 10 years ago.

    Those senior judges are productive people, very productive people. One vacancy is too many, but what is all of this noise about having a huge, abnormal number of vacancies? Does anybody have a comment?

    Mr. MECHAM. May I say that the Chief Justice has spoken out virtually every year since 1988 on the subject.

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    Mr. ROGERS. Well, he is wrong. He is wrong.

    Mr. MECHAM. We have had a good many vacancies in most of those years, particularly when the Biden Judgeship bill was passed. In 1990, there were 85 new judgeships created, as I remember.

    Mr. ROGERS. Look at the chart. I mean the chart is as plain as your hand.

    Mr. HEYBURN. See, Mr. Chairman, you have the privilege of saying the Chief Justice is wrong and we do not.

    Mr. MECHAM. My point was he has consistently spoken on the need to fill vacancies for the 11 years he has been Chief Justice.


    Mr. ROGERS. It is a free country. He can speak what he wants. The truth is that the number of vacancies is not abnormally high. In fact, it is probably lower than average, given the two-decade count.

    Now, last year we gave a large increase to the court security appropriation. We went up $41 million; from $127 million to $168 million in one year. A large part of that request was justified on providing funding for 426 new court security officers.

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    That was later revised to 387, including 274 to bring existing court facilities up to the minimum standard in court security. We erred on the side of being generous on court security. I think that is the responsible thing to do.

    Well, this year, the budget has an increase of $12 million more and another 168 new court security officers, including 78 more required to bring the existing court facilities up to the minimum staffing level for court security.

    Either that program is being poorly managed or somebody is not being straight with us in representing what is required to get existing court facilities up to standard. Cannot we have some rationality in that?

    Mr. HEYBURN. No one would like to find that rationality more than myself, Mr. Chairman. I think we are getting to that point. Let me just put it in a little bit of perspective.

    Number one, we are happy that after two years of 20-percent increases, we are asking for only a 6.9-percent increase this year.

    Total budget obligations that we are asking for is $179 million, a net $12 million increase over last year. Now, about $11 million of that is for adjustments to the base, such as salary increases for existing employees. This is offset by a $16 million reduction to the base for non-recurring equipment and other expenses.

    For program enhancements we request an increase of only $4.7 million for the additional CSOs. So, it is a small dollar amount. We are asking for $11.7 million for new equipment. Of the 168 new positions that we are asking for, 78 are positions that we thought last year were over the standard.
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    After the Marshals Service has reviewed the particular facilities, they have determined that they are within the standard. So, those were, really through a mix-up last year, not requested.

    This year we are requesting it. So, that is 78. The other additional 90 spots are to cover new facilities that we anticipate coming on-line this year. So, that is what it is. I know there has been some confusion in the past.

    At the prodding of your staff, we are going to be reviewing the numbers that we have assigned and the numbers we get from the Marshal's Service based on the standards and see if we have applied the standards correctly.

    We know the numbers have shifted somewhat. We think that when the dust settles that the numbers will come out to be and are consistent. It is pretty clear what we are asking for this year and the reason why we are asking for it. We think the program is now headed in the right direction.


    Mr. ROGERS. Judge Heyburn, you or the Director or you may both respond. As you know, we have been concerned about the rising cost of defender services, as have you. It has grown from an appropriation of $240 million in 1995 to this year's request of $361 million.

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    Mr. HEYBURN. It is $391 million, actually, in obligations. I hate to tell you we are asking for $30 million more.

    Mr. ROGERS. No, you get that $30 from other sources.

    Mr. HEYBURN. That is true. I am talking obligations. You are talking appropriations.

    Mr. ROGERS. The appropriations level is $361 million.

    Mr. HEYBURN. Yes. That is correct.

    Mr. ROGERS. At any rate, that is a 50-percent increase in four years. We now have a weighty report on increases from 1995 to 1997 done at our request, which in addition to increasing numbers of representations, points to changing case mix, and a handful of extraordinarily costly capital prosecutions as the reasons for the increase.

    Mr. HEYBURN. Right.

    Mr. ROGERS. Now, what is being done to focus in on those costly cases that really drive up the cost to bring this thing under control? We cannot afford to pay what this thing is costing us. It is going up too quickly.

    Mr. HEYBURN. Well, number one, I believe that the Coopers and Lybrand report shows that the program is not out of control at all. In fact, it shows good management.
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    If you exclude the cost of the capital cases, the average annual cost of a case has increased one-percent or less a year over the last five years or so. So, it is just about a flat line. The average annual cost of a capital habeas defense has been a flat line. The increase in cost, as you have properly suggested, is the result of a number of very clear factors: the increased number of representations, the change in case mix, and the tremendous increase in the cost of these capital prosecutions.

    After discussions with this committee last year, we began to take a number of actions which we hoped would have an impact on those capital prosecutions.

    The FJC is developing plans for better education for judges because after all, when judges get capital cases, often times, it is the first time they have ever had to try a capital case, unless they have been a state judge.

    We have instituted a program of budgeting for these high profile cases. Now, we can already tell you and I think you have the graph in my testimony that the average cost of capital prosecutions last year got to a high of $150,000 per case. It is already being reduced. It has already been reduced now by about 50 percent. It is below $100,000.

    Mr. ROGERS. The big problem is the Ninth Circuit. Let us just be frank about it. Can we be frank about that?

    Mr. HEYBURN. Yes.

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    Mr. ROGERS. For capital habeas corpus cases, the report says that the Ninth Circuit—California districts particularly—account for 48 to 63 percent of all panel attorney capital habeas representations. But it has 60 to 70 percent of the costs. Now, what is going on in California that is not going on in the rest of the country?

    Mr. HEYBURN. Well, I will give a very brief answer. Then Judge Broomfield, who is from the Ninth Circuit, not from California I might add, has a perspective on that.

    Mr. ROGERS. I know of the non-California members of the Ninth Circuit; their attitudes toward California.

    Mr. HEYBURN. I will let Judge Broomfield speak for himself on that. Of course, the Coopers and Lybrand report identified the problem. A part of the answer, and I am not suggesting in any way, shape, or form, that this is all of the answer.

    A part of the answer may have to do with the particular way that capital cases are tried in the California State Courts. What we understand is that some of the California trial courts do not allow all of the kinds of expert witnesses and other resources that other states allow in the defense of a capital case.

    So, then when the case gets to the habeas side, the argument is made that these kinds of resources need to be devoted in order to appropriately deal with the habeas case.

    Mr. ROGERS. Well, it is obvious that you cannot deal with this. We can.
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    Mr. HEYBURN. We are doing something about it. It is just that it is at its beginning stages. Judge Broomfield may want to comment on that.

    Mr. ROGERS. Well, if California cannot limit their appetite, it is just not going to happen. No one state is going to take two-thirds or three-fourths of the monies that we allocate for this type activity. Now, either you handle it or we will. I prefer you do it. So, what do you need from us to arm you to do that?

    Mr. BROOMFIELD. Mr. Chairman, I will tell you what is happening in the Ninth Circuit. I will reiterate. I am from the District of Arizona. The cost of capital habeas corpus cases in three of the four California districts are quite high.

    The fourth California District has virtually no capital habeas corpus cases. So, they are not on the radar screen. The Ninth Circuit Judicial Council is concerned. The Chief Judge of the circuit appointed a committee to study this issue. That committee reported its findings and recommendations last Friday at the Ninth Circuit Judicial Council session, which I attended. I am currently on the council.

    That report was received and certain things were adopted to try to contain costs, including the process by which budgets are going to be proposed in most capital cases, or at least those that go above a certain threshold number.

    Secondly, limitations on the hourly rate for the lawyers were adopted. If there is a second counsel, there will be a lesser hourly rate for the second counsel.
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    Mr. ROGERS. When do you plan to do this?

    Mr. BROOMFIELD. The council adopted that last Friday.

    Mr. ROGERS. When will it be effective?

    Mr. BROOMFIELD. I assumed right away.

    Mr. ROGERS. So, what effect will that have on the California bite at the apple?

    Mr. BROOMFIELD. The honest answer to that is, Mr. Chairman, I do not know because there are some cases in the pipeline. Those will have to be finished up. For new cases, this can be implemented right away.

    I might also indicate that I think the word is out in those districts. I think the numbers we were talking about were caps. The lawyers' fees on an hourly rate are already in place.

    These are the actions we are taking to reduce costs. I cannot represent to you this moment that I know that they will work. That is what I understand.

    Mr. ROGERS. What I want to see, before we have the mark-up, is the Ninth Circuit's plan to keep California from eating up everything we send to the Ninth Circuit and the whole country.
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    That is absolutely ridiculous. You would have to admit to that. It is incredible. So, I want to know what, Mr. Chairman, what the Federal Judiciary is going to do about this problem that you have? If you admit that you cannot handle it, we will do it in our bill. I will guarantee you. We will handle it.

    Mr. HEYBURN. Well, we would like to handle it ourselves. We will get you that information.

    Mr. ROGERS. I will guarantee you, if you do not handle it, we are going to do it for you. You will not like what we do. We are going to handle this problem. Now, either you, or me, or somebody, but it is going to be handled this year.

    We have been talking about this now for how many years? It has gotten worse. It has not gotten better. It is just absolutely unfair, number one. So, let us handle it. I want to know what we are going to do before we mark up the bill in the spring.

    Mr. HEYBURN. We will do that. I think we can.

    Mr. ROGERS. Now, the cost of investigative and expert services for our attorneys seems to be going up astronomically as well. It was a $5 million increase, a 20-percent increase requested for 1999 to nearly $30 million; double what it was in 1996.

    The cost of experts for Federal Public Defenders amounts to just $3 million, an increase of 2.6 percent. Now, what is going on with the cost of investigative and expert services for panel attorneys and no one else?
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    Mr. HEYBURN. I do not have the precise answer to that. We will get it for you. I am confident that it is related to the increasing number of Federal capital prosecutions, which are normally not handled by the defender organizations, but normally handled by a panel attorney. We can get you that information.

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]

    Investigative, expert, and other services are available to persons who are furnished representation under the Criminal Justice Act and to persons who have retained counsel but are financially unable to secure these services. Of the requested fiscal year 1999 increase, $130,000 applies to expert services in cases where representation is provided by Federal defender organizations. This increase represents a standard 2.6 percent inflationary increase to projected fiscal year 1998 obligations for these services.

    The remaining requested increase of $5,006,000 applies to the cost of experts in cases where representation is provided by panel attorneys. This increase represents the application of historical rates of increase over the last three fiscal years, which has been significantly higher than the rate of inflation. Much of the large historical increases can be attributed to a small number of very expensive representations. Since some of these cases may be completed by fiscal year 1999, the judiciary will recalculate the request for expert costs based on updated information. This information will be incorporated into the overall technical and workload reestimates for fiscal year 1999 to be provided to Congress later this spring.

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    Mr. ROGERS. Well, defender attorneys and panel attorneys will be handling roughly the same type of cases; would they not?

    Mr. HEYBURN. No, not necessarily. Typically, a defender organization would not be handling a capital prosecution. In other words, in the McVeigh case most of the attorneys that were on the McVeigh case were not defender organization attorneys.

    I do not know about the Kaczynski case, but for many of these high profile cases, it takes such an inordinate amount of time. It would take up all of the resources of the defender organization. So, they get a panel attorney.

    So, that would account for some of that increase because those panel attorneys might tend to handle the more complicated cases. They would certainly tend to handle the capital prosecutions.


    Mr. ROGERS. Judge Zobel, last year the Federal Judicial Center put out its strategic plan. It recommended that the Center assume primary responsibility for education and training of Judiciary personnel which would eliminate unnecessary overlap in the Center and the Administrative Office education and training responsibilities.

    What is the current status of that recommendation? Has there been any movement toward consolidating education and training?

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    Ms. ZOBEL. The Chief Justice appointed an ad hoc committee to review that report and make recommendations to the judicial conference. The ad hoc committee has issued a report that will come before the conference next week.

    The report says, in essence, that the AO and the FJC should cooperate in providing education so that there be no duplication, or overlap, or even the appearance thereof. It also says even now any overlap is minimal. That is where it is.

    Mr. ROGERS. The plan also recommended that the Center seek to expand its funding by getting funding out of the appropriations provided to other parts of the Judiciary. What is the current status of that recommendation?

    Ms. ZOBEL. There was no contemplation in the plan, and there is no intention by the Center to transfer any appropriations from any other Judiciary entity to us. If we were ever to do this, and as I say, we have no plans to do it, we would certainly come to you before we did it or sought it.

    Mr ROGERS. Judge Heyburn, you and Director Mecham sent a letter asking for language to be put in an upcoming supplemental.

    While not officially requested by the Judiciary or the Administration, it would give the Judiciary the authority to designate disbursing and certifying officers, which would allow for electronic certification of financial transactions.

    This would allow the implementation of the new automated financial system in all of the courts. Tell us about that. Why is it urgent that we do it on sudden notice?
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    Mr. HEYBURN. I mentioned that in my opening statement. I think the Director will respond.

    Mr. MECHAM. The reason it is necessary, I believe, is because it gives the clerks, at the district level, authority to act as certifying officers.

    Right now, under our decentralized budgeting program, we give staff in the courts the authority to spend the money. Now, they would have a greater authority to actually execute the check. It would speed up and make more efficient our financial management program on a district level.

    I think that is the basic answer. If you want a more technical answer, I can get one for you. It is going to eliminate a lot of paper work because we will not have to send all supporting documents to the district clerk in order to get a technical approval of a check. The district clerk can execute the check based on the certification of officers authorized to obligate funds in the courts.

    Mr. ROGERS. Why is it necessary to do that on an urgent basis?

    Mr. MECHAM. Well, because we were beginning a new financial management program on a trial level in certain courts last year. We wanted to have that authority when we started the full program.

    We are still implementing that program. So, the sooner we get that authority, the easier it will be for us to implement that program.
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    It is not an emergency in the sense that something terrible is going to happen if we do not get the approval tomorrow. It is just going to make it easier for us to implement our new financial management program. We could not see any downside to it at all. It was not intended to be a controversial request as we understood it.

    Mr. ROGERS. Judge, in your 1998 budget request, you included $7.4 million for an electronic courtroom project. What is that? What difference would it make in a court like in Kentucky, for example?

    Mr. HEYBURN. Well, in an individual trial, it can make quite a bit of difference in the speed with which the trial goes and the comprehensive abilities of the jurors. We are just at the beginning stages of this sort of thing.

    It is not as though we are going to put an electronic courtroom in every single courtroom. There are some courts that have more complex trials that may have more need of it. The technology and the use of it is something that people have to get used to.

    So, on a trial basis we are trying to extend that technology. Judge Broomfield, I do not know whether your court is one of those. You may want to say something about that.

    Mr. BROOMFIELD. Our court is one of the courts that has that technology.

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    Mr. ROGERS. I understand that the London, Kentucky court would be one of the experiments. Is that correct?

    Mr. MECHAM. That is my understanding. We are doing our best to get GSA to get that courthouse finished.

    Mr. ROGERS. Judge.

    Mr. BROOMFIELD. Mr. Chairman, I think it permits a better trial and/or just trial. It also has the potential to save money and time. Sitting on the bench in my courtroom right now are, I think, eight wide books of exhibits in a trial that I just finished.

    If we had had the electronic courtroom and were using it for the trial, all of that material would have been on a disk to be used in the courtroom and put on a screen to show to the jurors, to me, or to the lawyers as the case may be.

    So, I do think it has the dual effect of delivering better justice and, hopefully, some savings in time and costs.

    Mr. ROGERS. Now, is that dollar item a recurring item in your base funding for 1999?

    Mr. HEYBURN. No. I do not believe it is.

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]
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    There are funds included in both fiscal year 1998 and fiscal year 1999 associated with the implementation of electronic courtrooms, however, in both of these fiscal years the majority of the costs are for installing the technology in additional courtrooms. The only recurring costs budgeted for in this program are for communication costs for courts using videoconferencing. It is anticipated that when the program is fully implemented there will be other recurring expenses for things like maintenance agreements and cyclical replacements.


    Mr. ROGERS. The AOUSC has submitted what we would expect to be an annual report on steps that the Judiciary has taken to economize and make its operation more efficient. Can you tell me specifically what new steps the Judiciary has taken over the past 12 months to save money and become more efficient?

    Mr. HEYBURN. Over a period of time, including this year, we have continually had a committee that is working on best practices; surveying all of the courts throughout the country to see what practices they have developed that are more efficient and then advertising those practices to all of the courts.

    We are beginning the process of initiating a new financial accounting system at the district level so that those courts and the AO can have quicker financial management information.

    We have a new Jury Modernization Program which is just beginning and which will make the calling of jurors more efficient. It will allow us to, hopefully, only call the jurors that are necessary and not have twice as many jurors as we might need on a given day and have people sitting around all day. So, we think that will be a savings over a period of time.
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    You know, really everything that we are doing now is a credit to the Chairman and this Committee who helped us change the whole consciousness of the Judiciary. We are a partner in your efforts to balance the budget.

    No longer, not that we were ever this way, but no longer is it simply a matter of whatever it is we want, we are entitled to because we are the Judiciary and the Third Branch.

    We try to instill in our staff, and in the judges, a consciousness of the financial component to the request that we make and the work we do. We need to be concerned about that every day in the job that we do.

    Certainly, that is a primary focus of the Administrative Office in everything that we do. I must say that we see the consequences of our efforts in little things that we do, in little savings that we make, and our ability to do much more work with correspondingly fewer resources.

    We are proud of that. Also, I see it personally in the conscientiousness of the judges. They are, I think, on a different mind set than they were five years ago. I think we deserve some credit for that. I know you deserve some credit for that.

    Mr. ROGERS. Well, I think you are right. I think the judges and the Judiciary understand that they are having to carry a load like everybody else in trying to get the budget under control.
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    Ms. ZOBEL. Mr. Chairman, may I add what the Center is completing?

    Mr. ROGERS. Yes.

    Ms. ZOBEL. We have developed a number of programs that have in fact been going on for several years, designed specifically in this effort to make the Judiciary more conscious of costs and management.

    For example, we have developed what we call a risk prediction index, at the behest of the Judicial Conference, that assists probation officers in predicting the risk that offenders will commit future crimes which also then becomes a management tool for the chief probation officer to decide how to deploy the forces of that office.

    That is just one of many examples. This is one that we developed with an interactive video and a package curriculum that goes to the courts. So, all of the training is done in the courts.

    Similarly, we have broadcast management programs, leadership programs, to the clerks' offices, to the probation offices in order to assist them to understand their role in keeping down the costs and managing their offices more effectively with fewer resources.


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    Mr. ROGERS. How is your program to use teleconferencing in place of conferences going?

    Ms. ZOBEL. Well, as you know, we used some of our resources a year ago to build a studio for teleconferencing. It has a two-way video studio, as well as a studio for training, one that does not require a whole lot of production work.

    We have in the pipeline a series of programs for both of those. At the moment, we are waiting for the satellite downlinks to be put in place. The Administrative Office has done yeomen's work in trying to get that done.

    The contractor has, so far, been slower than they said they would be. So, once the courts have downlinks, we are ready to go with program after program to the courts. In the meantime, we are using rented spaces for downlinks, which is not terribly efficient for the courts because court personnel cannot watch from their courthouses.

    We are doing a lot now. I think we are reaching over 80-percent of all of our participants by video and other distance education mechanisms.

    Mr. ROGERS. Maybe the Judge or Mr. Mecham can tell us about the downlinks. Where are we?

    Mr. MECHAM. We have it under contract. AT&T, regrettably, did not give us emphasis. There was an acquisition going on involving one of the companies involved in the contract. It slowed them down.
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    We have been on their case now for about six weeks. They had promised to install 200 downlinks by the end of 1997. I believe they are talking about beginning installation this month.

    They now anticipate that they will get this job done in a much more expeditious way. So, we are after them. They were unacceptably slow, but I think they are going to be fine now.

    Mr. ROGERS. When do you anticipate they would have them all done?

    Mr. MECHAM. I believe that by no later than this fall is when they are scheduled to have them on.

    Mr. ROGERS. Do they indicate they can meet that target?

    Mr. MECHAM. Yes.

    Ms. ZOBEL. Mr. Chairman, we have, in preparation for all of this, put together programs to teach the courts how to deal with the broadcasts as they come into the court.

    We put together this booklet as well which explains to the personnel in the courthouses what they need to do. I would very much like to make this a part of the record of this hearing.
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    Mr. ROGERS. Okay.

    [The booklet referred to follows:]

    "The Official Committee record contains additional material here."

    Ms. ZOBEL. So, we are ready to go. Let me just reiterate. The Administrative Office has worked very hard to get this going. We are working with them in accomplishing this as quickly as possible.

    Mr. ROGERS. Well, we all know the power of television. We all know how effective it is and how easy it is to hold conferences by electronic means which saves enormous sums of money.

    I know there are times when you need to have meetings face-to-face instead of conferences, but so much training can be done electronically at less cost and, I think, much more effectively.

    Ms. ZOBEL. Well, we certainly agree with you. We are grateful to you for having pushed us because we are ready to go. We have a whole bunch of programs now in the pipeline and some actually ready to be broadcast.


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    Mr. ROGERS. Now, Judge Heyburn, becoming more efficient means that where there is a judge with a relatively small case load, we ought to consolidate somehow or eliminate a judgeship in that circuit, or that district.

    Now, there were six District Court judgeships that are not warranted in terms of case load. What have we done to eliminate those that are not needed in order to put the judges where the case load is?

    Mr. HEYBURN. Well, what has happened is the Judicial Conference has adopted a policy that, I think I can state it correctly, that not only will they recommend to Congress when new judges are needed, but they will also tell Congress when the case load is such that either a vacant judgeship might not be filled or a judgeship, in theory, could even be eliminated.

    I think we want our role in that regard to be one of simply passing along information. It is not our prerogative to either create or delete a judgeship. That is the Congress' prerogative.

    Of course, it will be the Senate's prerogative, based on information we provide, whether they want to fill or not fill a vacant judgeship. So, from our perspective, we are giving Congress and the Senate the information they need to make the political or financial decision that they want to make.

    Mr. ROGERS. Have you recommended certain actions be taken in that respect?
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    Mr. HEYBURN. I do not know that it has gotten to that point yet. There are a number of districts where the information has been developed. At a point in time, the Senate would know that those particular districts have a lower case load than would support the number of judges currently in that district.

    Mr. ROGERS. Well, Judge Broomfield, for example, he has got a huge case load out there. It is unfair to him and other judges who have huge case loads to be penalized by someone sitting there doing much less being paid the same amount of money. Is that not correct?

    Mr. HEYBURN. I would agree with you. I think what we are committed to doing and what the Judicial Conference policy calls for is to provide the information to the Senate upon which they can act.

    As you know, the process of getting judges or certainly taking them away is not always pristine. We have, in times past, not gotten judges that we suggested that we should get. Sometimes we have gotten judges we did not want.

    I suspect the same will be true with respect to this process of taking away judgeships. We would like to be in the position, of providing the information, all of the information, and a recommendation if necessary to the Congress.

    We recognize that it is your decision to take action on that information, if you so choose.
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    Mr. MECHAM. Mr. Chairman, you are perhaps aware that Senator Hatch and Senator Grassley, in particular, have said that they feel that we should be as rigorous in determining standards for filling vacancies as we are for creating new judgeships.

    The Judicial Conference has taken that seriously and has so resolved. The Judicial Resources Committee of the Judicial Conference has come up with a suggested group of judgeships that should be questioned based upon statistical and other data.

    They have been in touch with these seven or eight courts that are involved. The courts are now in the process of responding.

    The responses will then be collated and the committee will make its recommendation to the Judicial Conference on whether some of those judgeships should be filled. I do not think they will recommend that they be eliminated.

    They may recommend, conceivably, that they not be filled. So, the process is going. Let me just say that compared to that seven, the Judicial Conference has requested, based upon weighted case load data, the creation of 53 new judgeships. We are having difficulty getting those authorized.

    Mr. ROGERS. How many vacancies, average vacancies, are you projecting for 1999?

    Mr. MECHAM. We are projecting 61 for 1999 and 73 for this year of average vacancies. I think there are 83 or 87 right now. So, we are projecting some progress on confirmations.
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    Mr. ROGERS. How many are currently vacant?

    Mr. MECHAM. Eighty-seven total.

    Mr. ROGERS. But you are projecting an average of 61 for 1999; correct?

    Mr. MECHAM. Right.


    Mr. ROGERS. Now, for the record, would you give us the most current schedule of new courthouse space coming on-line and how that schedule compares with what is contained in the budget submission? Will you file that for the record?

    Mr. MECHAM. I will file that for the record, yes.

    [The new courthouse schedule referred to follows:]

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided.]

    The FY 1999 budget submission requested $22,439,400 for 965,094 square feet of prospectus space. The revised request provided prior to the subcommittee markup included $26,683,486 for 966,851 square feet. The nonprospectus space costs also decreased $85,086 in the revised request. The total net change in the cost of space to be delivered in FY 1999 was $4,159,000 ($26,683,486–$22,439,400–$85,086). The space to be delivered in FY 1999 is shown below:
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FY 1999 Request

FY 1999 Revised Request

St. Louis, Missouri

Omaha, Nebraska

London, Kentucky

Montgomery, Alabama

New York, New York New York, New York

Brownsville, Texas Brownsville, Texas

Albuquerque, New Mexico Albuquerque, New Mexico

Santa Ana, California Santa Ana, California

Lafayette, Louisiana Lafayette, Louisiana

Camden, New Jersey Camden, New Jersey

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Tallahassee, Florida Tallahassee, Florida

Beckley, West Virginia Beckley, West Virginia

Milwaukee, Wisconsin Milwaukee, Wisconsin

Albany, Georgia Albany, Georgia

Albany, New York Albany, New York

Hammond, Indiana Hammond, Indiana

Covington, Kentucky Covington, Kentucky

San Juan, Puerto Rico

Philadelphia, Pennsylvania

Scranton, Pennsylvania

Wheeling, West Virginia

Los Angeles, California

Sacramento, California
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Kansas City, Missouri

    Mr. ROGERS. Also, provide for us the U.S. Marshal's current schedule and explain it.

    Mr. MECHAM. I will be glad to do that, yes, sir.

    [The U.S. Marshal's schedule referred to follows:]

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided.]

Table 1

Table 2


    Mr. ROGERS. Now, the mandatory drug testing provision of the Violent Crime Control Act and Law Enforcement Act of 1994 requires that all offenders convicted of crimes that occurred after September 1994 submit to at least three drug tests.

    Now, that has been in effect for three years plus. Yet, you are asking for a $2.6 million increase for that activity; almost double what your current level is. Why the spike in 1999?

    Mr. MECHAM. I confess I do not have a specific answer on that. I will get that for you.
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    Mr. ROGERS. It has been in effect for three years. All of a sudden you are asking to double it in one year. I do not know what the anomaly is there. Perhaps you can help us with that.

    Mr. MECHAM. I do not know either.

    Mr. ROGERS. You will find out.

    Mr. MECHAM. Yes, I will. We will send that to you.

    [The information referred to follows:]

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]

    The Crime Bill requires, as a mandatory condition of supervision, that all offenders convicted of crimes that occurred after September 1994 submit to at least three drug tests during the period of their supervision.

    The requirement for mandatory drug testing is based on an assumption that, as more time passes since the passage of the Crime Bill, more of the offenders under supervision will be under the new law and required to submit to the testing. Because of this, the costs for this provision will increase as the number of offenders under the new law increases. Because offenders are released from prison throughout the year, we do not assume that all 3 mandatory tests will be administered in the first year of release. Rather, we distribute the estimated number of releasees and resultant tests and treatment costs over the course of 2 years. The cost requirements for FY 1999 include both offenders released in FY 1999 as well as FY 1998 supervision cases with testing and treatment costs in FY 1999.
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    Funding in the amount of $2.6 million is requested as an enhancement in the Probation/Pretrial line item above the $3.3 million in the FY 1998 base. The increase is needed due to anticipated increases in the number of people under supervision.

    Therefore, a total of $5.9 million is included in the FY 1999 Judiciary budget request. This consists of $1.3 million in personnel costs (22 authorized work units) plus $4.6 million in program costs to implement the provision. The $4.6 million includes $1.2 million for testing, $0.5 million for collection and $2.9 million for treatment costs associated with the program.

    The total requirement was developed by first determining the number of individuals to be tested under the Mandatory Drug Testing provision, then estimating the number of tests that would be performed on this population. We assumed an average of four tests per individual to be fully compliant under the provision, since the provision requires at least three tests. The unit costs used for collection, testing, and treatment are based on our current average costs.

    In FY 1999, our budget request assumes that 60% of the population under supervision will be required to submit to at least 2 tests based on the Mandatory Drug Test provision of the Crime Bill. Our assumptions also include remaining costs for testing and treatment for offenders released in FY 1998.

    To determine the FY 1999 testing population of 32,029, we included all new probation cases, plus 60% of all new prison cases, plus the remaining 7,076 offenders from 1998 who had only two of the required tests during FY 1998. Under the assumption that not all four tests could be administered to each offender in a given year, we estimated 97,329 tests will be given in FY 1999.
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    Our assumptions are that approximately five percent of those tested under the mandatory drug testing provision, or 1,601 offenders, will test positive and require treatment. At an estimated cost of $1,828 per treatment (our composite average treatment cost), the total treatment cost of mandatory drug testing will be approximately $2.9 million.

    Mandatory drug testing requires drug testing a larger segment of the post conviction population. Our budget estimates take into account that testing a larger population will dilute the current (approximately 11%) positive or dirty urine results. Therefore, resultant drug treatment and additional drug test requirements for FY 1999 were computed using a lower percentage rate.


    Mr. ROGERS. Now, last year we created a study of the Federal Circuits.

    Mr. HEYBURN. Yes.

    Mr. ROGERS. Where are we on that?

    Mr. HEYBURN. The Chief Justice has appointed the committee with retired Supreme Court Justice Byron R. White as the chair. From everything I have heard, they are taking their job very, very seriously. The Commission could impact people in the Ninth Circuit and in all of the other circuits, because their job extends to looking at all of the circuits.
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    I am sure their focus will be on the Ninth Circuit. I guess the people in the Ninth Circuit are waiting with baited breath as to what the answer will be.

    Mr. ROGERS. Judge Broomfield, do you want to add anything to that?

    Mr. BROOMFIELD. I am not sure I can add too much, Mr. Chairman. The commission is off and running. One of our judges is a member of the commission. I can tell you that Justice White is making them work hard.

    They have hired their executive director, Professor Dan Meador. They have scheduled, I think, six hearings across the country. They will have their report to the Congress by the deadline Congress has given them.

    Mr. ROGERS. Well, it was obviously a major blow up in the Congress. When we passed this bill last year, one of the major controversies in not only this bill, but in the closing days of the Congress. So, it has its followers on the Hill.

    Mr. HEYBURN. I was able to watch your performance on CNN during the end of the bill. I guess this was one problem that seemed like you were fighting them from all sides on. You did a terrific job getting it through.


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    Mr. ROGERS. Well, it was an interesting few days. Mr. Latham.

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

    As you know, the production, trafficking, and consumption of methamphetamine is a serious and growing problem in my home State of Iowa. My colleagues, with the Chairman's leadership, are trying to do all we can as far as resources for law enforcement to confront the threat to our children and society.

    Would you tell me whether there has been a noticeable affect on the Judiciary's case load in this area, and particularly in Iowa and the mid-west, and what you are doing with the additional case load, if there is an increase in that area?

    Mr. HEYBURN. Well, just from anecdotal evidence, I think Kentucky has somewhat of the same situation as Iowa in that there seems to be an increase in those kinds of cases. So, just from that experience, it seems as though the United States Attorneys are paying more attention to it. Our budget requests the resources to deal with those cases.

    The criminal case load is steadily increasing, not dramatically, but steadily. We think our budget requests the resources to deal with the prosecutions that are brought.

    Mr. LATHAM. Do you have any numbers?

    Mr. HEYBURN. I do not have any specific numbers on the methamphetamine cases, no.
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    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]

    Each year the Administrative Office of the U.S. Courts (AOUSC) allocates resources to district courts based on work measurement formaulae that use caseload data and other data reported by courts. The U.S. Department of Justice has increased U.S. Attorney positions to prosecute methamphetamine defendants in Iowa. The AOUSC, using zero-based budgeting, automatically allocated resources to district courts, probation offices, and pretrial services offices in response to the increased caseload resulting from increased prosecutions of these cases. Locally, courts used the resources to train officers to identify and treat defendants charged with drug violations involving methamphetamine. Between 1993 and 1997, criminal case filings in the Southern District of Iowa (IA–S) grew 73 percent (up 67 cases) and drug filings doubled (up 39 cases). During the same period criminal case filings in Northern District of Iowa (IA–N) increased 14 percent (up 20 cases) and drug case filings increased 1 percent (up 1 case). Criminal case filings peaked in IA–N in fiscal year 1996 and in IA–S in fiscal year 1995, then declined in both districts in fiscal year 1997. Drug case filings in both districts constitute a significantly higher percentage of overall criminal filings compared to the 28 percent they constitute for the nation. During the past five years, this percentage peaked at 56 percent in IA–N in 1993 and peaked at 50 percent in IA–S in 1995. Because the Federal Judiciary does not collect data by specific drug types, we are unable to track the increase specifically of methamphetamine cases. However, according to the United States Sentencing Commission's fiscal year 1996 data, methamphetamine defendants constituted 10 percent (1,667 defendants March 18, 1998) of the defendants sentenced for drug law violation nationwide. For IA–S, methamphetamine constituted 53 percent (75 defendants) of drug defendants sentenced and for IA–N they made up percent 26 percent (26 defendants) of drug defendants sentenced.
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    Mr. LATHAM. I know that in Iowa we have got one-percent of the nation's population—but about 9-percent of the meth-related arrests.

    Mr. HEYBURN. Again, anecdotal, it seems in Kentucky that there are more of those cases than there used to be. So, my only conclusion would be there seems to be greater attention in terms of the prosecutorial resources that may be putting forth those efforts. Again, that is just an anecdotal experience in one district.

    Mr. LATHAM. As you know, the Federal Judicial Conference, concerned that all criminal law was being federalized, recommended that Congress voluntarily narrow its authority by passing criminal legislation only when a ''paramount interest'' justifies a Federal enforcement effort. Among the interests identified was criminal activity with substantial multi-state aspects. Is it safe to assume that drug trafficking and production would be included in the Conference's definition of paramount?

    Mr. HEYBURN. I do not think there is any question about that.

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]

    The Judicial Conference has on a number of occasions expressed concern about the federalization of what have traditionally been state offenses, and, in the ''Long Range Plan for Federal Courts,'' has suggested criteria for consideration by Congress when deciding to create new Federal offenses. Certainly, many drug trafficking and production offenses could meet some of these criteria and, in the commentary to the long range plan (which was not specifically approved by the Judicial Conference), multi-state drug operations were cited as an example of an activity that may call for the resources and reach of the Federal government.
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    Mr. LATHAM. You do not question whether or not we have that. Sioux City, Iowa sits on the border, with South Dakota and Nebraska. We have three States within those two units.

    Mr. HEYBURN. We have the same situation in the Chairman's district. There are a number of highways passing through. You see a greater number of cases on those heavily traveled areas. I am sure you do in your area.

    The key to the drug area, I think is the cooperation between—and I am stepping out of my judge's role—the local and Federal prosecutors and dividing up who is going to prosecute which cases.

    I know in Kentucky, we have an excellent arrangement between the State and Federal prosecutors. In Federal court, we tend to get the more significant cases, the more difficult cases, because the prosecutorial resources are better.

    Sometimes they bring them in the Federal court because the sentences tend to be longer. So, as long as the prosecutors are cooperating, then of course the courts are open to do that.


    Mr. LATHAM. I see that there is a lot of new technology being employed by the courts and making its way into the courtroom.
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    With regards to the computer systems, would you let us know what steps you are taking regarding security and the integrity of the records in criminal court.

    You know, we have a lot of good hackers out there. We have had recent problems in the Air Force with hackers getting into the system. What are you doing to secure the records?

    Mr. HEYBURN. We have excellent computer people. To my knowledge, we have never had a problem with the security of our computers.

    To the extent which we have been moving slowly on electronic court filing, for instance, and on some other electronic public access projects, it is because of our concern about that very subject.

    Now, we have implemented a program where the public, and particularly lawyers, can access certain parts of the court record. Those systems are secured. They also do not contain any privileged or confidential information.

    There are some other programs that maybe in the future could pose a concern. We are looking at it. We have not yet ever had a problem.

    Mr. LATHAM. We have a bunch of very inventive people out there that seem to have little else to do with their time.

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    Mr. HEYBURN. Right now, the only thing that the public can access from the court records generally is the court docket. That is, what particular documents have been filed and the date that they were filed.

    So, in most courts you cannot access a complete document. Any confidential documents are held in the court's safe. There simply are not court records that are accessible by the system.

    Mr. LATHAM. They are not put in the system.

    Mr. HEYBURN. They are not put in the system, no.

    Mr. LATHAM. Is that going to change over time?

    Mr. HEYBURN. It conceivably could change because at some point in time, we may have, and some courts already have, electronic filing systems; particularly Bankruptcy Courts where there is a large number of similar types of filings.

    The issues do become more complicated when you deal with different kinds of filings or a larger number of people. So, that is a concern. I think there are concerns that we believe ultimately we can overcome. We are not going to put a system on-line until we are satisfied about that.

    [CLERK'S NOTE.—Subsequent to the hearing, the following additional information was provided:]
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    By the end of 1998, it is anticipated that all courts will be physically connected through the judiciary-wide Data Communications Network. This enables judges and staff to take full advantage of established and emerging technologies and access the Internet. At the same time, however, the judiciary recognizes the threats posed by computer hackers and has taken proactive steps to protect both the vital records stored within its automated systems and the wide-area communications network that serves the courts.

    The Administrative Office established the Computer Security and Independent Testing Office in 1996 to serve as a central policy and management focal point for computer security within the judiciary. This office has been working with the National Security Agency to conduct information security assessments at selected volunteer local court sites so that a national baseline of vulnerabilities can be identified and solutions to reduce these vulnerability can be developed.

    At its September 1998 session, the Judicial Conference approved a policy that for any computer connected to the judiciary's Data Communications Network, access to the Internet be provided only through protected national gateway connections approved by the Administrative Office.

    The Administrative Office is upgrading its incident response capability so that it can monitor, detect, track, and prosecute anyone who enters or attacks the judiciary's information systems without authorization.

    The Administrative Office is actively working on promulgating computer security guidelines and conducting computer security education and training. It will build on these areas to encourage the implementation of appropriate countermeasures at the national and local levels to reduce vulnerabilities to the extent possible. Additionally, local courts are encouraged to appoint a security officer to identify, analyze, and coordinate computer security issues.
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    The judiciary is in compliance with the Computer Security Act of 1987 and provides computer security training to judges, probation officers, clerks of court and staff on a continuing basis. It also follows advice of the General Accounting Office disseminated through various publications.

    The judiciary's automation management process requires a security plan be developed and updated as new systems are developed.

    Mr. LATHAM. That is all I have, Mr. Chairman.

    Mr. ROGERS. Mr. Skaggs.


    Mr. SKAGGS. Just one other thing, Mr. Chairman.

    We get opportunities to consider the way the wire tap laws are administered from various points of view. I just thought I would take the opportunity with you all here to ask if you have noted any particular trends in the frequency or volume of warrant requests. Any notable change in the experience that the courts are having in dealing with that part of your responsibility?

    Mr. HEYBURN. I have not. We have very few, quite frankly. I have not noticed any change.
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    Mr. MECHAM. There is a special court, too, that deals with wire tap requests for foreign intelligence cases.

    Mr. SKAGGS. For that particular kind of case.

    Mr. MECHAM. They meet periodically here in Washington. They have a top security room down at the Justice Department and so on. I know they deal with them.

    Mr. SKAGGS. That is only for the foreign intelligence piece of the jurisdiction.

    Mr. MECHAM. That is right, exactly; that particular piece of it.

    Mr. SKAGGS. No. I am just talking generally; your run of the mill drug case or whatever it may be.

    Mr. MECHAM. We, as you know, have a heavy criminal case load. We have always had wire taps. I do not see any significant change in the level of requests. The process is pretty straightforward. It works reasonably well.

    Mr. SKAGGS. Is that largely delegated to magistrates?

    Mr. MECHAM. No. District judges hear the application and then any renewal of it, the reporting of it, and eventually the completion of the tap, including the sealing of the records.
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    Mr. SKAGGS. Just one other point. We are told by folks in law enforcement by way of reassurance that this is not likely to be an abused investigative tool. That these are highly labor-intensive and resource-intensive.

    Given the limits on law enforcement resources, wire tape really are necessarily tools of last resort. I am just wondering whether, again from your end of the system, you can validate that general proposition for us.

    Mr. BROOMFIELD. That is correct. It is indeed in the application. Law enforcement agencies have to show how they have minimized the need for a wire tap, what they have done, up-to-date, to get the information they think they must have before they would even be entitled to get a court order.

    I do not have any sense that it is being abused currently. We are, as I say, in district court with a very heavy criminal case load and a very heavy drug case load.

    Mr. SKAGGS. Thanks a lot.


    Mr. ROGERS. Thank you very much. We have had an interesting discussion. As Judge Heyburn pointed out in his opening statement, we are two different branches of government.

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    It is a strange situation where that independent branch comes to the other branch to get funding to operate the independent branch.

    I think we have a very careful and time-intensive role on the Committee and in the Congress in reviewing your spending requests. Normally, we move the process along in the direction of trying to provide essentially what the courts ask for.

    We feel obligated to comb through it with a fine toothed comb to be sure it is something we can defend, not only to our colleagues, but to the country at large.

    So, it is a matter of great trust that we have between us. Again, we will comb through your budget request with a fine toothed comb. We will try our best to give you the appropriate funding to operate the nation's justice system.

    We hope it will be an ongoing process. We trust and hope that our staffs will stay in touch as we approach the time when we must put finally the pencil to the paper this late spring or whenever we have to refine the request down to the pennies.

    Mr. HEYBURN. We very much appreciate the opportunity to appear before your committee and to work with your staff.

    Mr. ROGERS. It is also nice to have a chairman of the budget committee who does not speak with an accent. Thank you.

    "The Official Committee record contains additional material here."
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Wednesday, February 25, 1998.







    Mr. ROGERS. The Committee will come to order.

    Let me say that this is the first session of our Subcommittee in the new year. I am blessed to be a part of a Subcommittee whose members I like, admire and respect. We have got the pick of the crop, I think, on our Subcommittee of the whole House, and we have got some very dedicated, articulate and smart Members of Congress.

    I am blessed with the best Ranking Member that there is in the Congress, and I am in favor of establishing an award that rewards the best Ranking Member, and the first recipient is Alan Mollohan.
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    Mr. MOLLOHAN. I am afraid to hear what the prize is. [Laughter.]

    But I appreciate it.

    Mr. ROGERS. But we do have some excellent Congressmen on our Subcommittee, and people who have been here a while and understand the bills and the agencies that we deal with.

    Mr. MOLLOHAN. Thank you, sir.

    Mr. ROGERS. This morning we begin our hearings for fiscal year 1999, and we would like to welcome the Chairman of the Board of the Legal Services Corporation, Douglas Eakeley; the Vice-Chairman of the Board and a former colleague of ours, who distinguished himself in service from Illinois in this Congress, John Erlenborn, whom we are pleased to see; and the new President of the Corporation, John McKay, who is appearing for his first time before the Committee. He will learn that we always have a very pleasant exchange in the Subcommittee with the President. But we are pleased to have all of you with us today to discuss your 1999 budget request for the Legal Services Corporation.

    Your budget request totals $340 million for fiscal year 1999, a 20 percent increase over the amount you have now for 1998. It has been less than a year since the Congress enacted, and the President signed, legislation to balance the Federal budget.

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    As a result, this Committee will face the very difficult task of doing its part to implement the Balanced Budget Agreement, while at the same time finding a way to fund a number of competing and equally important priorities—everything from the War on Crime and Drugs to the decennial census, which goes through this Subcommittee's funding process.

    So it is going to be another year of tough choices, and we will be looking for ways to maximize inadequate resources.

    In addition, there are numerous policy issues which we are required to face because the authorizing committees refuse to act in many cases. The entire Justice Department has been unauthorized ever since I have been in Congress, for example, and most of the Commerce Department is unauthorized. The State Department has been unauthorized for many of my 18 years in the Congress. So it falls upon this Subcommittee, not only to find money to fund the agencies that we cover, but to also pass the authorizing laws that authorize the very existence of all of these agencies.

    To me, it is passingly strange why the authorizing committees refuse to discharge the responsibility they were elected to do, and the Legal Services Corporation, obviously, has not been authorized since 1980. And we are required to do that, and that is where we get into the harsh environment of the floor trying to hash out policy issues that we don't have the responsibility to deal with and we are not equipped, frankly, to deal with because we cover such a broad range of the government.

    Nevertheless, we will have those numerous policy issues again, I am sure, to debate how we ensure that indigent people have access to America's civil legal system.
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    Clearly, this Committee is well aware of recent actions related to implementing the reforms adopted by the Congress over the last three years and proposed to be continued in the fiscal year 1999 budget request. We will be watching closely as LSC implements and oversees the changes that have been made, both by you and by the Congress.

    At this point, we will insert into the record each of your written statements and, in a moment, I am going to allow you to proceed with your oral summaries.

    Mr. ROGERS. One of our members, though, is Chairman of another Subcommittee of the Appropriations Committee, Ralph Regula, and he has a hearing at this moment of his own Subcommittee. I appreciate him being here for at least a part of our hearing, and I am going to allow Ralph to proceed quickly out of order, so that he can go back to his Subcommittee.

    Ralph, before they make their statements, would you like to proceed?

    Mr. REGULA. Thank you very much. I would add there is the same frustration in our Committee that you have that we deal with a lot of unauthorized issues, and the authorizers just simply seem to ignore their responsibilities in that respect.

    Unanimous consent to put questions in the record.

    Mr. ROGERS. Without objection.

    Mr. REGULA. One question that I have, Mr. Erlenborn, you were here when there was a lot of criticism of the Legal Services Corporation because it was politicized, and now that you are on the other side of the table, what has been your experience as far as the politicization of the activities of Legal Services?
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    Mr. ERLENBORN. Thank you for the question. It is good to be here this morning to see all of you, in particular, a couple of the three members, I guess, that I served with before I left here about 13 years ago.

    To answer your question, I was involved initially in managing the legislation that created the Legal Services Corporation during the Nixon Administration, handling it on behalf of the Republicans from the Education and Labor Committee. That is back in the days when it was called that. It has changed its name several times since.

    Over the course of the years, I was disturbed by some of the things that were being done by grantees of Legal Services Corporation. There were many things that I thought that were the type of cases they just should not have touched, particularly those that were so politically sensitive, such as redistricting, reapportionment, suing state, county, city officials, and the day-by-day needs, the real needs of the poor were not necessarily being served by that, in my opinion.

    And so I can say, generally, many of the limitations and restrictions that have been placed upon the Corporation by the Congress in recent years, if I had been here, I would have supported.

    Now, when I joined the Board, for the second time—I served, by the way, under appointment from President Bush in 1989 and 1990, and I won't go into the reasons for my leaving at that time—but I rejoined the Board a little over a year ago.

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    I testified before this Committee last year for the first time. What I said then I can say, again, today, only with greater emphasis, and that is that there is no politicization of the Corporation. It is not being run by a cabal of far-left activists. As a matter of fact, I served on the Board for some time before I found out which of the members were Democrats and which were Republicans.

    It is a board that works together without rancor. It is a board that is dedicated, and I can attest to this because I serve on the subcommittee that drafts the regulations to implement the restrictions that Congress has enacted, and both that committee and the full board have done, in my estimation, everything possible within our purview of what we could do to see that the restrictions that Congress has imposed are implemented, not just to the letter, but also to the spirit of the law.

    I enjoy my service on the Board. As a matter of fact, I enjoy it much more than I did some almost ten years ago, when the Board was split, at each other's throats, and really it was quite dysfunctional. This board and the administration of the Legal Services Corporation today is unified and doing everything possible, and I think being very successful in seeing that the restrictions are implemented, as well as seeing that the proper operation of the grantee agencies is such that they are providing the services that Congress contemplated.

    Mr. REGULA. Thank you and thank you, Mr. Chairman.

    Mr. ROGERS. Thanks for being with us this morning.

    Now, at this point, we will insert into the record each of your written statements, and we would ask that you proceed with your oral summaries of your testimony.
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    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. EAKELEY. Thank you very much, Mr. Chairman, and I thank Mr. Regula for coming over and taking the time from his busy Subcommittee as well.

    As the Committee knows, I am an attorney in private practice in Roseland, New Jersey, and serve pro bono as Chairman of the Board of the Legal Services Corporation. I just want to add a few words to our formal submission.

    When we testified before this Subcommittee almost exactly one year ago, we were just concluding a period of transition, which had been going on for most of the preceding year, since April of 1996, when Congress made a variety of changes in the Legal Services delivery system. These included a new system of competition for grants, a new system of compliance monitoring, and a variety of new rules governing the kinds of activities that Legal Services' attorneys can engage on behalf of their clients and the kinds of clients they can represent.

    That period of transition is now over. The new systems are in place and working effectively. The constitutional questions relating to the Corporation's regulations implementing the new requirements appear to have been successfully resolved.

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    As you have heard from the Corporation's Inspector General, who is also here today, the first round of compliance audits under the new system showed that the overwhelming majority of local programs have brought themselves fully into compliance with the new requirements.

    With these tasks behind us and the system working as, we believe, you intended, the Corporation has been able to turn its attention to the future. We have developed a strategic plan to guide us in the coming years as we seek to find new ways to expand and improve access to justice for low-income Americans.

    We have a new President, John McKay, who is with us here today, to lead the Corporation in those efforts. I will be turning the podium over to him in a moment to tell you about our plans, but first I would like to ask the Corporation's Vice-Chairman, John Erlenborn, to say a few additional words to those that he has already addressed in responding to Mr. Regula's question.

    Mr. ROGERS. So recognized.

    Mr. ERLENBORN. I thank you, Mr. Chairman and Mr. Chairman.

    I really stated most of what I had in prepared initial remarks. Let me say one other thing, though, that I believe that, as the Chairman has stated, the results are already coming in to show that the leadership of the Legal Services Corporation, both the Board and the management of the organization, what they are doing has produced the kind of results that the Congress was hoping for, and I think that that is ample evidence of the fact that they are doing the job that has to be done.
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    I would also like to think that in the last—and from a partisan standpoint, let me say—in the last nine or ten months, we have had a Republican President of the Corporation, a conservative Republican, and I should think that this shows the bipartisan nature of the actions of the Board in choosing John McKay as our President. He has some great ideas for proactive management of the Corporation and the grantees. I think he has done an excellent job so far that bodes very well for the future.

    Mr. EAKELEY. Now, Mr. Chairman, if I may introduce John McKay, our new President, and just say a few words about him.

    We found Mr. McKay as a result of a nationwide search that we conducted for a new President after Mr. Forger decided to step down. Mr. McKay was in private practice in the State of Washington, where he distinguished himself both in terms of his advocacy for his paying clients, as well as for his many pro bono efforts and, most recently, as Chairman of the Equal Justice Coalition in that State.

    He also had been president of the Young Lawyers Division of the State Bar, which was essentially a service organization.

    Mr. McKay is no stranger to Washington, however. He has had two tours of duty here in the District; first, as a legislative assistant for the late Congressman Joel Pritchard, Republican from Washington, and later as a White House Fellow during the Bush Administration, when he worked for FBI Director William Sessions.

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    It has been a wonderful experience having John on board. I said this publicly before, but I find him exhausting at times because he is in perpetual motion. He has challenged all of us to look anew at what we are doing, and why we are doing it, and how we are doing it, and to explore new ways of making sure that we fulfill the congressional purpose of securing access to justice for those who need it, while living up to the letter and the spirit of the restrictions that are, as we recognize, a precondition for continued congressional support.

    So let me introduce our new President, John McKay.

    Mr. ROGERS. So recognized.

    Mr. MCKAY. Thank you, Doug. Mr. Chairman, thank you, and Members of the Subcommittee. I consider this an honor to be here and have an opportunity to help present our fiscal year 1999 budget.

    I would like to say that my background, in terms of Legal Services, has been as one of the thousands of volunteer lawyers around the country who, through, one way or another, a local Legal Services office, have done free legal services for indigent people. I think it is one of the secret strengths of the Legal Services Corporation and the Legal Services system that many lawyers like me, regardless of their own political backgrounds, if any, are interested in one simple thing, and that is to help ensure that everyone has access to the justice system.

    To me, and I think to all of those who participate, that is a very nonpartisan concept and that, I think, is where, as our Vice-Chairman, Mr. Erlenborn, indicated, where we really ought to be and what we ought to be perceived as, as a nonpartisan key and essential part of the justice system.
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    When I came to the Corporation a little more than nine months ago, I was pleased, really, to learn that I would be working for and with a board that had that same view about access to justice; that is, that our primary function is to serve as the gateway, if you will, to the justice system for poor people, to make sure that access to justice and that equal justice applies to them as well as to everyone else. That is the fundamental basis from which our board approaches its job, and I want to report further to you that that is the way our staff views their job, and I am pleased to see, as I have worked more closely with the staff over these last several months, how truly outstanding they are, and I want to compliment them on some of the difficult tasks that they have had, particularly, as we have moved to efficiently, carefully, and aggressively implement the will and the intent of Congress.

    I want to just indicate, Mr. Chairman, that I appreciate your opening remarks regarding the financial situation, the fiscal situation, that faces this Committee and faces the Congress. We are very much aware of that and, as we have submitted our proposed budget for fiscal year 1999, we have borne that very much in mind.

    I hope that as the Committee has the opportunity to review the particulars of our budget request, that the increase that you mention over our current appropriation level of $283 million are essentially threefold.

    The first is, I believe, a modest increase based on, essentially, a cost-of-living adjustment to maintain our ability to provide current levels of service to the field.

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    The two other areas are areas which we think are really of critical importance to the Legal Services delivery system.

    The first is a client self-help and technology appropriation, which includes a one-time request of $10 million.

    The second are programs, specific grants out to the field which are specifically tailored to reach the special needs of domestic violence victims and the unmet legal needs of children.

    We have arrived at these priorities, in part, because we have surveyed our own grantees to determine what the most pressing needs are, and we are absolutely convinced that those are very important areas that we need to be involved in.

    So I know that our prepared statement has more detail. The budget itself contains the particulars. We look forward to the opportunity to respond to any questions that the Chairman or the Committee Members have.

    Again, I thank you for this opportunity. It is a privilege to be a part of what I think is really a model public-private partnership.

    Mr. ROGERS. Well, thank you, all three, for your excellent statements.

    We all know the situation that we are all in here. There being no authorization of LSC, every year it falls upon this Subcommittee, as I have said, to not only appropriate your funds, but to pass an authorizations bill and, of course, that violates House rules to authorize on an appropriations bill.
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    Consequently, when the bill comes to the floor, it is required that that rule be waived or else a single person can stand up and object and the bill is off the floor.

    Consequently, it means that every single member of the House has to be unanimous, if you will, on the passage of the authorization bill, unless the rule protects the bill.

    So therein comes the rub. And, again, it falls on deaf ears, but the authorizers ought to act. That is the simple answer here.

    And, again, I doubt that they will. So we are in the same mode, as we have been since I have been in Congress, particularly on this Subcommittee.


    Now, there is a new twist to your funding, the IOLTA aspect of your financial base. If I am not mistaken, 40 percent, roughly, of your total funds come from non-Federal sources; the largest non-Federal source being the States' Interest on Lawyers Trust Accounts programs, the IOLTA programs, which is a big chunk of your financial base.

    As you mentioned in your written statement, the Supreme Court is currently considering the constitutionality of the IOLTA programs, which have been declared unconstitutional by the Fifth Circuit.

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    Do you have an idea of when that decision may be rendered?

    Mr. EAKELEY. No, I don't. I think it is hard to predict when the Court will decide.

    Mr. ERLENBORN. It has been argued, I believe.

    Mr. EAKELEY. Yes, it has been.

    Mr. ERLENBORN. Mr. Chairman, if I might just add, you are correct in that a good deal of funding for the grantee agencies that we fund also comes from IOLTA, but I would point out, for the record, that none of those funds flow through the Corporation. We do not make the IOLTA grants. That is done at the State level.

    Mr. ROGERS. Can you tell me how much money the IOLTA programs expect to generate during the fiscal year 1999 year for the State program grantees?

    Mr. MCKAY. I believe, Mr. Chairman, that our recipients will expect to receive approximately $50 million in total.

    Mr. ROGERS. In the event the Court strikes down the IOLTA contribution, how will that affect LSC and the local grantees and the various States?

    Mr. EAKELEY. That will be a serious loss of an important revenue source, the second largest source of revenues after the Federal funding for the programs across the country, and that will mean a further reduction in our ability to meet an already overwhelming set of unmet legal needs of low-income persons.
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    Mr. ROGERS. Will all of the States be impacted equally by that decision?

    Mr. MCKAY. Well, Mr. Chairman, as each State receives a different amount—it is a question of how many funds are actually in lawyer trust accounts in a particular State. So based on the lawyer population, the client population, the numbers would shift.

    But I think what our Chairman said is absolutely accurate. There would be a huge impact among our recipients and others who provide legal services if IOLTA were to disappear.

    Mr. ROGERS. The States vary on how much of the percent of the local program gets funds from IOLTA. It varies quite dramatically, I think, from State-to-State.

    Mr. MCKAY. Yes.

    Mr. ROGERS. Given that the States created the IOLTA programs and, in many cases, support non-LSC programs with those monies, it seems that this is very much an issue which the States will have to address if the Court knocks down the IOLTA contribution. Do you agree with that?

    Mr. MCKAY. My view would be we would all have to address that problem.
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    Mr. ROGERS. Are there any efforts by the States to replace IOLTA funding, that you are aware of, through some other State mechanism in light of the court challenge?

    Mr. MCKAY. I don't think so, at this point, Mr. Chairman. I think what is happening is everyone is looking at the Supreme Court, and those who are responsible for obtaining funding are, I think, on their knees in prayer in hopes that it does not go away.

    Mr. ROGERS. Well, it is something we are going to have to deal with, perhaps.

    Mr. MCKAY. Very much so.

    Mr. ROGERS. No one knows what the Court will do or when.

    Mr. MCKAY. I think that is right.

    Mr. ROGERS. But it seems to me that there is a reasonable chance that they could uphold the lower Court. Not knowing anything about the merits of the case, the Fifth Circuit is not an insignificant place.


    Quickly, our colleague, Congressman Lobiondo of New Jersey, brought to my attention the problem involving an LSC grantee employing questionable tactics in his district against farmers. He explained the problem to me that when serving complaints against New Jersey farmers, the Puerto Rico LSC grantee is filing its complaints and other actions in Spanish rather than English. As a result, the farmers are at some great disadvantage in trying to respond in a timely manner in those cases. Clearly, that is not acceptable.
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    Are you aware of the problem and has there been any action taken on that?

    Mr. EAKELEY. We are aware of the problem. I think it has been resolved, but it is, in part, due to a lack of resources. The Puerto Rican program, acting within the law, apparently, served process written in Spanish on defendants in New Jersey. I guess they provided them with notice in advance that this was coming, but did not provide them with certified translations, which cost money, and this was a State proceeding and needed not to be translated.

    That program has now voluntarily undertaken to provide certified translations of all process served on defendants residing in other parts of the United States.

    Mr. ROGERS. Have you had a similar problem anywhere else?

    Mr. EAKELEY. Not to my knowledge. We have the undertaking in writing, although it will be a substantial cost to provide that certified translation, but that is the undertaking that we have received.

    Mr. ROGERS. I have other questions. I will wait my turn.

    Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman, and thank you for the kind introductory words. I appreciate them. I certainly appreciate the way you conduct the Subcommittee and allow the minority to input the process. We are appreciative of that attitude and also of the fine and competent way in which you manage the Subcommittee. So we look forward to starting the hearing process.
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    Mr. ROGERS. You are now trying to copy my predecessor.

    Mr. MOLLOHAN. Yes, sir. I don't know what is coming. [Laughter.]

    I would like to join the Chairman in welcoming the distinguished witnesses to the hearing here today.


    We have been in communication with Mr. Jim Martin, who is head of the West Virginia Legal Services program. I note that from 1995, when your appropriation was $400 million, to 1998, when your appropriation was $283 million, that you experienced a very large decrease in funding.

    Mr. Martin indicates that funding increases have impacted West Virginia very dramatically and very seriously and limited the capability of the three programs in West Virginia to deliver legal services under this program.

    I would like to ask you for comments, using West Virginia as an example. Mr. McKay, I understand you are going to have the primary responsibility for operational running of the L.S.C. Therefore, I would like you to talk about that reduction in service to West Virginia as a result of this decrease in funding, recognizing that this funding decrease is probably a reality, as the chairman explained, for a number of reasons.
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    This funding level is probably a reality for the future, however the sentiment might be on the committee to want to increase funding.

    So how, in that prospect of scarce resources, what kind of strategies can be employed with regard to providing quality legal services to our people?

    Mr. MCKAY. Congressman Mollohan, you are right in, I think, both of your assumptions, which are that nationally, as well as in West Virginia, there has been a very dramatic impact in the reduction in funding for the Corporation.

    We start from a recognition that the Corporation retains less than 3 percent of the overall budget for administrative purposes and that the funds go out to the field programs in places like West Virginia to deal with the everyday critical legal problems of poor people. Using West Virginia as an example, I believe before there were significant cuts in the budget you referenced in excess of $400 million, there were, approximately, 17 or 18 offices in West Virginia.

    Mr. MOLLOHAN. Forty lawyers and now there are 15.

    Mr. MCKAY. A greatly reduced number of staff lawyers in order to meet the reduction in funding. There is a direct impact in the reduction of funding and the level of services that we can provide to poor people.

    What we have found is that in dealing with the reductions with two things are happening; one, the level of urgency that a case has the bar has risen. Not only do you see offices closed and staff levels reduced among staff lawyers, but you end up with situations like, if I could use an example from my home State of Washington, in the City of Everett, Washington.
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    Shortly before I came to the Corporation, the staff there had to issue an instruction that they could not represent a woman who called the office and said that she was a victim of domestic violence. She could not see a staff lawyer unless she could say she had been beaten within the last 24 hours.

    Now, that is a dramatic example, but it is not apocryphal. It is, in fact, a situation that has occurred in offices around the country as a response.

    The second part of this, and what we want to do at the Legal Services Corporation is to accept—we do have, as you pointed out, a level of funding with which we must work, and so the second half of the answer to your question is we are working every way we possibly can with what are limited resources to try to reach as many poor people with critical needs as is possible.


    One of the most exciting new programs that we see, as we try and look to the future with some hope and some anticipation, one of the exciting things is the new technology, which allows us to do telephone intake, brief advice and referral.

    Many times we are finding, and a number of programs have been able to put together the hardware and the software necessary and the telephone equipment to do this, that we can reach some legal problems before they get to the point where they have to be filed in court through brief advice and referral. But we may be able to send, for example, the woman who is the victim of domestic violence to another agency to get some assistance before it evolves into an issue that a lawyer has to get directly involved in, but some brief advice and referral can be very helpful. This is a new and better way, more efficient way, and maybe a more effective way, in some circumstances, to do more with less.
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    And so we recognize that we must deal with the funding level, as it currently stands, and we are doing our very best to try and come up with new solutions.

    But the situation in West Virginia is not unusual. It is, I think, a good example of what is happening around the country.

    Mr. MOLLOHAN. But how do we really reach those geographic areas? You are talking about a jurisdictional basis where you are raising the bar with regard to cases.

    And I am wondering if this technology initiative that you are undertaking here might not be addressing that aspect of the problem. Would you describe it in terms of being able to outreach for us here today?

    Mr. MCKAY. Yes. Exactly. You are correct in assuming that there are portions of States which otherwise would have had an office that, perhaps, someone could find who was in critical need of legal services. The telephone system is really an 800 system, and what our grantees or our recipients are attempting to do is provide greater coverage through the use of the telephone, an 800 number where they can call and get advice.

    Mr. MOLLOHAN. Is that the extent of your technology initiative?

    Mr. MCKAY. It is part of what we are attempting to accomplish in our technology, our $17 million special request this year in our budget. Yes, we want to be able to provide to grantees the opportunity to purchase the initial equipment to do that sort of work if they can otherwise satisfy us that they have a reliable grant.
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    Mr. MOLLOHAN. Purchase what equipment?

    Mr. MCKAY. Well, you would have to purchase telephone equipment, computer equipment, software to run the system. Our board, in fact, just was briefed this month at its board meeting on an analysis prepared by our staff, a survey of five programs that have adopted this new really cutting-edge approach of a telephone intake brief advice and referral system.

    It is not a perfect way to try to make up for the offices that were closed, for example, in West Virginia. But it does give us some hope that we may be able to be a resource for that battered woman who otherwise couldn't get to the office that was closed.

    Mr. MOLLOHAN. I heard a report on technology being used in the District of Columbia, where people in need of legal services come into the courthouse, to access a computer, actually, a user-friendly screen, and go through a process of getting advice. It is hard for me to imagine a machine giving legal advice, being a lawyer. It is humbling, actually. [Laughter.]

    But maybe higher quality. [Laughter.]

    Is that notion any part of your technology proposal? I can see the usefulness of really reaching out into the remote areas of, for example, West Virginia. If it were successful, it would be a great way to save money.

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    Mr. MCKAY. Absolutely, Congressman. There are a number of exciting programs. Most of these I think what you are referring to are the kiosks that a number of States have been implementing. They are appearing in Arizona, New York, and Georgia. They are beginning to spring up, and they are appearing in courthouses, libraries, and they, essentially, are either stand-alone or Internet-based providers.

    Mr. MOLLOHAN. Is that idea a part of addressing this challenge, would you say?

    Mr. MCKAY. It is in two ways; one, in the $10 million, one-time appropriation request, but we also request $2 million for demonstration projects and, in fact, the kiosks that you are mentioning are very much a focus of that proposal.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Taylor.

    Mr. TAYLOR. Mr. Chairman, thank you.


    My concern with this organization is not just happening. Of course, I believe that government will mess up a one-car funeral, and if we could get pro bono work, and I am not—a question about that in a moment—but in what was just said, we tell a woman she will receive no advice unless she has been beaten because our resources are so scarce.
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    And, yet, Mr. Chairman, the Farm Workers Legal Services of North Carolina is a subgrantee of LSC, and in January of 1998 Farm Workers Legal Service of North Carolina sent letters to a number of Mexican farmers at their homes in Mexico. The letters announced that in February, which is a good time to be out of the States and be in Mexico, which we have a lot of snow, they will be visiting Mexico to discuss the H–2A Agricultural Workers program, and they invite the recipients of the letter to come to the meetings—there are several dates mentioned. They are planning to stay some time there—and to bring their family and their friends.

    It goes on to say that they will be purchasing radios to present announcements and that sort of thing and for anyone in the community to call collect to North Carolina and discuss this matter.

    Now, I don't know whether these folks will be coming back to North Carolina. I don't know how much of Mexico will be educated, but this is a lot of money being spent to advise people in the H–2A Agricultural Workers about whatever is going on with that Farm Workers Legal Service.

    And, yet, you are saying we don't have the money to advise our clients here, the poor people here. How do we have all of this money to travel to Mexico and to advise people in Mexico, who may or may not be coming back to work, or may not ever go to work in the United States?

    Mr. MCKAY. Well, Congressman Taylor, I don't know specifically what outreach effort you are referring to, and I would be——
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    Mr. TAYLOR. I would be glad to furnish you a copy of the letter, a copy of the legal service program that sets forth, Mr. Chairman, that they are a grantee, and here is the letter. We have translated it from Spanish into English, so you can read it.

    If you believe what they say in the letter, they are coming down, and I doubt if they are driving, and they will be spending a considerable amount of money to educate these folks.

    Mr. MCKAY. Let me just say, as a general proposition, that in terms of outreach on farmworker cases, if these folks are residing in Mexico and they are not citizens of the United States, I would certainly like to know about that outreach effort, and I would welcome the information that you have.

    You can understand that I haven't had the opportunity to review that. I would be glad to do so and supplement my comments.

    Mr. TAYLOR. It is always—there is a lot going on there. I am sure all three of you would be interested in it. We have to live with the consequences, you know, out across the country.

    Mr. ROGERS. Before you leave that, if the gentleman would yield.

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    Mr. TAYLOR. Yes.

    Mr. ROGERS. Can you, for the record, when you go back, research this and give us a report on the status of this matter?

    Mr. MCKAY. I would be very pleased to do that, Mr. Chairman.

    Mr. TAYLOR. It is my understanding that H–2A workers are allowed to be represented due to a loophole in the last appropriations, and the restrictions placed on LSC by Congress it allowed that loophole, and we can't close everything.

    I wonder does LSC maintain statistics, for instance, as to how many non-citizens receive legal assistance from LSC each year under that loophole? Do we have any idea?

    Mr. MCKAY. I don't, Mr. Taylor, I am sorry. I can certainly get the answer to that question for you.

    Mr. TAYLOR. It is a concern. I believe in a Christian attitude, but we cannot serve the whole world, while people in West Virginia or North Carolina or wherever that have needs that we say we can't serve because of lack of money.

    Let me ask another question, then. The recent reports that I have seen in several newspapers, including the Legal Times, have indicated that the amount of pro bono work is increasing across the country. How large is the pro bono work, do you think, and how much of an impact has it had? Is that helping you?
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    Mr. MCKAY. Very much. Yes. Each of our recipients, Congressman Taylor, are required to expend some of their funds, in part, seeking out volunteer lawyers like me. That was my involvement with Legal Services in my career was as a volunteer pro bono lawyer. Many lawyers volunteer their time.

    We, at the Corporation, want to encourage even more lawyers. The note of caution I would just add for the Subcommittee, however, is that the need for legal services and the types of subject matters that we need to handle for the poverty population in this country are such that we are very confident that the pro bono or volunteer legal services by private attorneys won't come close to meeting the needs of poor people in America.

    But answering your question directly, we welcome it, we support it, and we want to encourage more of it.

    Mr. TAYLOR. One final thing, Mr. Chairman. There is a North Carolina citizen who has been sued more than once, I think, by Legal Services, and I am not maintaining whether he is right or wrong, but he is served by Legal Services in Spanish, the complaint is, and that, of course, puts a burden, whether he is innocent or not. If he is innocent, it is a lot of extra time and that sort of thing.

    Do you not agree that at least the complaint should be prepared in English, since this is America, and the English language is one that we really recognize and that that would be at least something that Legal Services could do?

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    Mr. MCKAY. Yes, I agree with you.

    In fact, I have asked our staff to contact our program in Puerto Rico. They have indicated to us in writing, which we are going to make part of the record, that in the future all of their complaints will be translated into English. It is legal in Puerto Rico, but I agree with you. I don't think that that is a wise way to do business, and we have corrected that problem.

    Mr. TAYLOR. Thank you.

    Mr. ROGERS. Mr. Skaggs.

    Mr. SKAGGS. Thank you, Mr. Chairman.


    I notice in your submission you propose to delete section 505, language that pertains to this year's appropriation, which we added in the last cycle, having to do with filing certain information about any cases filed by grantees. I infer from that that we have some evidence as to its utility and cost? I am just wondering if you would share that with us.

    Mr. MCKAY. I think you are referring, Congressman, to the Administration's budget proposal. Have I got this right? I think that is—yes.

    In the Administration's budget, apparently, they have not submitted that language. We have, at the Corporation, already begun the process to prepare a regulation which implements that provision and, in fact, we really have had no contact with the White House with regard to that specific provision.
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    I think our staff made the position of our recipients clear that we didn't favor that particular language, but it is now, at this point, it is law, and our Board is moving forward to prepare regulations to implement that section.

    Mr. SKAGGS. In your booklet it recites the fact that it is the same as submitted by the Administration. I didn't know whether to infer that you were providing it for informational purposes and not something as advocacy.

    Mr. MCKAY. I think you should consider it informational. We are moving forward with implementation of a regulation.

    Mr. SKAGGS. In fact, section 505 says, ''Not later than January 1 you shall implement a system,'' so we are a little behind, I gather.

    Mr. MCKAY. We have, in fact, sent a letter with the force of our Office of Program Operations indicating to all of our recipients that they must, on an interim basis, begin gathering this material. The regulatory process does not allow us, and I think our Board will consider public comment to our proposed regulation at its Board meeting in April. So we are in that process as deep and as quickly as we can be.

    Mr. SKAGGS. I want you to take an advocacy position as to the retention, or not, of this language.

    Mr. ERLENBORN. Mr. Skaggs, I might add, as you are no doubt aware, that that was not language that came from this Committee. It was added on the floor. And we had discussion on the proposed regulation, which is now published out for comment, and some of the interpretations, which I think may be accurate of that language, would be that if a Legal Services grant was given to, say, a law firm to provide as the local Legal Services provider, that the provision would require all of the clients of that law firm, not just those that were being served as eligible clients, but all of the clients of the law firm would have to be identified in the filing; the name, the case number, and so forth, even though they were private clients of the law firm.
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    So, as often happens, as I think we are all aware, sometimes amendments on the floor that haven't gone through the committee process may not have been refined as much as they should be.

    Mr. SKAGGS. Let me ask you to take it one step further. You are being very gentle and circumspect.

    Mr. ERLENBORN. It's my nature.

    Mr. SKAGGS. Yes, yes. Do you see any useful purpose to be served by retaining this language?

    Mr. ERLENBORN. I, personally, have not been aware of any.

    Mr. SKAGGS. We, of course, carried forward into fiscal year 1998 all of the restrictions that had been brilliantly introduced in earlier years. What would you all identify at this point as the two or three that seem, from experience now gathered, to be the most counterproductive in terms of providing good service to poor people?

    Mr. EAKELEY. That is hard to answer and awkward to answer because we have really been intent upon making this work in a way that invites stability and increased funding.

    I think that if we ever got back to an authorization process, and we intend to seek to encourage the authorizing committees to take another look at us this year, that we will be in a better position to engage in a consideration and discussion about how well or badly some of the restrictions may impact upon the mission of the Corporation, which is to provide cost-effective legal assistance to low-income persons.
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    But I would rather dodge your question today.

    Mr. SKAGGS. I appreciate the candor of the dodge. I understand your assessment of the real world that you have to survive in. It is just, as I expressed a couple of years ago and last year, it is too bad it was not fixed.

    I assume that some of these areas have now been picked up by pro bono counsel or by other programs that exist out there. But you are proscribed even from having any role in such cases if they get outside funding; is my recollection correct on that?

    Mr. MCKAY. That is correct.

    Mr. SKAGGS. So are we, to your knowledge, seeing situations, for instance, in which multiple cases are having to be filed that otherwise could have been handled in a class action?

    Mr. MCKAY. Oh, yes.

    Mr. SKAGGS. Does that consume more time of more lawyers in your programs than it otherwise would?

    Mr. MCKAY. That is a pretty reasonable assumption.

    Mr. SKAGGS. And aggravates your inability to serve all of the client needs that you would otherwise be able to serve?
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    Mr. MCKAY. Right. Like my Chairman, Congressman Skaggs, in the wisdom of the Congress, the device of the class action is no longer available to recipients. We are certainly aware of some cases that have been filed that, as a practicing commercial lawyer, I think would normally have been filed, gone through the very rigorous process of certifying a class. That is not happening.

    As I said in my earlier comments, we prefer to look forward rather than back. We will make it work as best as we can on behalf of poor people.

    Mr. SKAGGS. Well, I am not asking you to take an editorial position, but just to help us know the real consequences of our actions so that if they deserve to be revisited, we may have the data with which to then form a judgment.

    I suspect my time is up.

    Mr. ROGERS. Mr. Dixon.

    Mr. DIXON. Let me follow-up on what Mr. Taylor was addressing, and that is the pro bono work.


    I think the testimony before the Subcommittee in the past has been that pro bono work had reached some kind of plateau, and it is much more difficult now to expand the pro bono service.
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    You were saying that part of the budgets of the grantees is dedicated to an outreach program to increase that. What is your measure of success going to be? What is your goal? And what makes you think that that can happen? I read the same article Mr. Taylor did. But the testimony here has been, well, there is kind of a plateau, and we have exhausted that potential market.

    So I am trying to figure out which is it?

    Mr. MCKAY. I think, from my own response as the new President of the Corporation, but coming to this from a pro bono background, I think that we can do more. I think that private lawyers can do more. But I also think that the need that is out there is far greater than the resources that the Federal government supplies, that State governments supply, that IOLTA programs supply that we have learned recently in a report by the Justice Department that there are thousands and thousands of unreported cases of domestic violence.

    If we can't, through our leadership at the Corporation and through our recipients, help bring more lawyers who aren't yet doing pro bono work into the system, that is not good for all of us.

    If the question is do I think that will meet the need in lieu of other resources, I will tell you resoundingly the answer to that is, no. I have been a defense lawyer. I have been a prosecutor. I have been a pro tem judge, and I am firmly of the belief that there is a vast unmet need; people who can't get into a Legal Services office or don't yet have an 800 number that they can call to get some help. That is what motivates me to come to this. I know it motivates many other lawyers to volunteer their time.
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    I am not going to turn away from the challenge of trying to bring more volunteer lawyers in, but I think the need is so vastly understated that we will not be able to address it through that device alone.

    Mr. EAKELEY. And the reality of the private practice of law today is such that, while we believe there is more potential for encouraging more lawyers to do better at this, the pressures to deliver billable hours, almost to the exclusion of all else, continue to increase.

    So there is a challenge behind the potential that makes it difficult to do this without any resources to do it.

    Mr. DIXON. To some extent, you are saying two inconsistent things here. I was asking what does the outreach consist of and how are you going to measure success of this outreach?

    Mr. MCKAY. Exactly. We do have, as part of our recipient requirement, an obligation to involve private attorneys. That happens in a number of ways, including pro bono.

    Our recipients spend money doing training programs, for example. If I, as a volunteer lawyer, am assigned to a case in my hometown of Seattle, the likelihood is that is going to be a domestic case. It would be, at this point, unfortunately, malpractice for me to take that case unless I were trained, and so the Legal Services programs around this country are the principal trainers of pro bono lawyers, and I think that is a universally true statement across this country.
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    So that the specific subject matter, poverty law work, the training that gets done of the volunteer lawyer is done by Legal Services lawyers, in many cases, and that is an expense to that office. That is part of the private attorney requirement that we suggest. There is also advertising in the sense that they will try and bring people in, explain the value of pro bono and what it really means to provide legal services to a poor person. A lot of lawyers just haven't had that opportunity.

    I guess maybe if there is an inconsistency it might be based on the relative levels of optimism here about the legal profession. I remain optimistic that we can get lawyers to do more, but I think I am enough of a pragmatist to say that our problem of the unmet need is so great that that is not the answer.

    Mr. DIXON. Would you provide the Committee next year some remarks about how successful this program is, or its lack of success?

    Mr. MCKAY. We'd be delighted.


    Mr. DIXON. I notice from your prepared statement that two-thirds of your clientele is women or children and that you say that 70 percent of the increase in funding would go for an outreach program for domestic cases. Exactly what does that mean?

    Mr. MCKAY. What that means is we will be asking our recipients, Congressman, to propose to us new programs to provide legal services to women who are victims of domestic violence and the unmet legal needs of children.
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    Those would include, we have specific proposals, I think, that have already been submitted by some of our grantees that are in our budget request, but there are a number of things that our grantees are telling us they would like to be able to do. Some are very simple. We need to add two staff lawyers to meet our crushing burden.

    Some are a little bit different; we need to develop an expertise, for example, to assist children who are disabled. As the Committee is well aware, there are a number of new laws with respect to the eligibility of individuals and, in particular, children who are disabled. Oftentimes, as the Subcommittee knows, that will devolve into a legal question and someone may have to advocate for that child with regard to access to either education or to health care, and there needs to be training for that, and we probably need some new expertise as those State laws change.

    So we expect to get some proposals along those lines. We are looking for, also, new ideas. If we have a new submission from Kentucky or from Colorado or California or West Virginia, we would expect to learn from that submission, act as an agency that will promote that new idea to our other recipients. We are hoping it will sow the kinds of seeds for new ideas in outreach to, in particular, unmet legal needs of children and domestic violence victims.

    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. This just demonstrates sometimes the frustration of most of us. Here you are asking for a $23 million increase in your budget, the biggest single item, for domestic violence initiatives and unmet legal needs of children.
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    Last year this Subcommittee increased the funding of the Justice Department for violence against women, domestic violence programs in the Department of Justice, by 246 percent. In fact, this year, 1998, we provided $271 million, $74 million more than last year, $22 million more than what the Administration requested, aimed at domestic violence against women and children. It is laying there. The Administration has not gotten the money out and, yet, they complain about not having enough money to fight violence against women. The money is laying there.

    This Congress went overboard in providing more money for this type of effort, and this Subcommittee created and funded a new program within the Department of Justice specifically for the civil legal needs of domestic violence victims and made LSC local grantees eligible to apply for those monies. There is more money than you could ever use and, yet, I am not seeing it happen.

    And, yet, you come in here with a budget request for that type of thing, and there is money laying there that is a bottomless well.

    Now, tell me about it, how can you come in here in good conscience, with a straight face, and ask for more money for that when you know that your local grantees can apply for millions of dollars for that very purpose, and that is why we made it available because there is a dramatic problem out there, and your local grantees, the biggest, as you said, the biggest percent of their caseload is women and children, and a big share of that is domestic violence activities.

    There is money available for those local grantees to represent women and children who are in this battered condition right now, and those grantees can apply and get those monies from the Justice Department just like that. They haven't done it. What is wrong?
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    Mr. EAKELEY. Could I take a first pass and then turn it over to Mr. McKay or Mr. Erlenborn?

    Mr. ROGERS. Yes.

    Mr. EAKELEY. First, I think what we are saying in our budget request is that we recognize that the Congress shares the same priority to address a very serious problem that exists at all socioeconomic levels in our society.

    I think what we are saying also implicitly in the request is that we can do a lot with a lot less than allocated to the Justice Department.

    We have met several times. We had a meeting with the Deputy Attorney General and his staff, and there have been subsequent staff follow-up meetings to see how we can coordinate, to see how grantees can become eligible for grants under either the Violence Against Women Act or the Victims of Crime Act, but it is not quite as if that 246 percent increase in funding is available to be drawn down by grantees. It is limited, in many respects.

    The activities for which it can be used are limited to emergency services that don't really represent the full array of needs of victims of domestic violence, and we think that——

    Mr. ROGERS. Let's just stop there before we get off on something else.
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    Justice is not limiting it to those emergency conditions. If they are, they are doing it illegally and we'll stop it. Those monies were appropriated by the Congress for programs to prevent violence against women and children. We specifically made LSC grantees eligible knowing that your funding was going to be scarce. It is another big source of monies, which I am absolutely astounded have not been seen to by you and the local grantees. It is a huge new source of funding, and I am puzzled.

    You have never been bashful in the past.

    Mr. EAKELEY. We have not been bashful with the Justice Department either, but we have identified obstacles that remain in the path of grantees qualifying for funds in a way that would permit those grantees to apply for those funds.

    Mr. ROGERS. I would be interested to know today what those barriers are because tomorrow they will be gone.

    Mr. MCKAY. Well, if I may, Mr. Chairman. We are, as our Chairman indicates, we have at a number of different levels in the Justice Department been looking for some clarification on the Justice Department's——

    Mr. ROGERS. Let me know, and we will help you see through that.

    Mr. MCKAY. We would be glad to seek the Committee's assistance.

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    Mr. ROGERS. We meet with the Attorney General Thursday.

    Mr. MCKAY. Our understanding is that a significant portion of those funds are not for civil legal representation; that they are, in fact, used in other ways by the Justice Department, but directed towards——

    Mr. ROGERS. But there is $271 million there. You don't need that much. You just need a piece of it, and why don't you use it?

    Mr. MCKAY. We know we have a number of our recipients who are, in fact, already grantees of the Justice Department under this program. We, of course, encourage them to do so.

    We have now, and we are really learning of this anew, but we are aware of some barriers. We are working with the Justice Department here to try and resolve them. I can give you an example. Some of our recipients are finding that the grants are being made on a short-term basis and so, while they will apply for them on a short-term basis, they can't hire the staff necessary to continue that sort of legal representation.

    So this is what we are hearing from our recipients. We are trying to engage in a dialogue with the Department of Justice.

    If it involves civil legal representation of poor people, we will, and our recipients will, in the strongest terms, seek those funds from the Department of Justice.

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    Mr. ROGERS. Now, I am not talking about here monies that a local grantee would get to hire a social worker or to duplicate something that is already being done by some other agency. We have got monies in other agencies—Health and Human Services and the like—for that type of thing, and I think some of your applications are applying for things like social workers for a local grantee. That is just not going to happen. We have got people doing that already.

    But I am talking about money for local grantees to represent in court women and children who are being battered. That money is there waiting, and we put it there. We upped everybody's ante to put that money there, and I am absolutely chagrined that the White House/Justice Department has not been aggressive in spending that money, as we gave it to them, and all of the time wanting more money for this. They have got money laying there, just as they have got money in the INS laying there to hire Border Patrol agents that they won't hire and then get on television saying we need to increase or double the number of Border Patrol agents or do this. It is absolutely frustrating.

    I have never seen an Administration that is able to double-talk more and more successfully than this one, and somehow the press doesn't take them to task for it. But that money is laying there.

    Mr. MCKAY. We are attempting to get as much as we possibly can for our recipients, Mr. Chairman, and we will continue to do that. We welcome the offer of the Subcommittee to assist us with the Department of Justice. We have begun a number of conversations at different levels in Justice to address what we see as some of the barriers, but I am confident that we will work some of those things out, and where there are funds available for civil legal representation of victims of domestic violence, you can be sure we will be attempting to get it.
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    Mr. MOLLOHAN. Mr. Chairman, may I just ask a follow-up?

    Mr. ROGERS. Yes, I yield.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Did I understand you to say, Mr. McKay, that some of the grantees were pulling down this Justice grant money for domestic violence?

    Mr. MCKAY. Yes. That is correct.

    Mr. MOLLOHAN. What percentage of them did you say were taking advantage of it?

    Mr. MCKAY. I would have to provide you with those numbers. I know——

    Mr. MOLLOHAN. Will you?

    Mr. MCKAY. I would be glad to, yes.

    [CLERK'S NOTE.—The following information was submitted subsequent to the hearing:]

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    Two Violence Against Women Act (VAWA) Grants are available to legal services programs. The first, the STOP Violence Against Women Formula Grants, are administered by the individual states and territories that receive the grants. The second, made available for the first time through the FY 1998 Department of Justice appropriation, are administered by the Violence Against Women Grants Office (VAWGO) in the Office of Justice Programs (OJP), and provide $12 million specifically to provide civil legal assistance to victims of domestic violence. All LSC grantees received an application package for these grants from the Department of Justice in April, and decisions are to be handed down in early June.

    Based on a survey of all grantees conducted by LSC on June 2 to which 215 of 262 grantees responded, approximately 20 percent (50 programs) currently receive some funding pursuant to the Violence Against Women Act. Grants range from as little as $10,000 to over $100,000 in a few cases. An additional four programs received VAWA grants during previous cycles, but do not currently receive them. Additionally, nine programs receive VAWA grant money through a subgrant from another entity. Over 60 percent of all LSC programs have applied for this type of funding. A significant number of programs, 101 of those who responded, or 38.5 percent, applied but did not receive funding.

    Mr. MOLLOHAN. And then the other thing I heard you saying was that there are impediments to doing it. So how do those two sentiments not conflict?

    Mr. MCKAY. Some have taken, what my understanding is, the Department of Justice has categorized some of these funds for particular uses.

    Mr. MOLLOHAN. The grantee?
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    Mr. MCKAY. And so the grantees, while trying to fit within the terms of the Justice Department guidelines, some have successfully been awarded grants. We believe and understand that there are some impediments to our grantees obtaining those funds and, again, we are trying to work with the Department of Justice now to get those resolved. And I would like to say to the Subcommittee I think we are making some progress. It is a little soon to say. We would like to see more progress.

    Mr. MOLLOHAN. That is a bit of clarification because it sounded like that money was unavailable to you at the beginning of your testimony.

    Thank you, Mr. Chairman.

    Mr. ROGERS. The second bells have rung. We have about nine minutes left. Mr. Skaggs?

    Mr. SKAGGS. I just have really one question which I would ask be answered for the record, since I don't expect you to have data with you, and I will certainly ask the Chairman to bless the answering process as not involving any disloyalty to the law that now circumscribes what your grantees may do, if he is kind enough to do so.

    But I would ask if you could identify the one or, if there is a close call, two proscriptions that were introduced into the program back in the 104th Congress, that, in a dispassionate sense, seemed to be counter-productive; that is, which, if deleted, would enable you to make more cost-effective use of the funds that you have.
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    Mr. ROGERS. Do you want that information now?

    Mr. SKAGGS. No. For the record.

    Mr. EAKELEY. We will submit that, sure, the response.

    [CLERK'S NOTE.—The following information was submitted subsequent to the hearing:]

    The new Congressional restrictions that took effect in 1996 have significantly changed the national legal services delivery system. Legal services attorneys are not permitted to initiate or participate in class actions. They may not challenge or engage in any activity to influence welfare reform. They may not engage in direct or grassroots lobbying on behalf of their clients, although they are permitted to use non-LSC funds to respond to written requests of officials for information or testimony. For cases and claims initiated after April 26, 1996, they may not collect court-awarded attorney's fees. Litigation on behalf of prisoners and representation of undocumented and other categories of aliens are also prohibited. Other new requirements address redistricting, cases involving eviction from public housing of individuals charged with or convicted of drug violations, participation in government rulemaking, and solicitation. Unlike past efforts to restrict the work of legal services, these provisions apply to all of the recipient's funds, with a few specified exceptions.

    The great need for critical legal services by indigent clients, coupled with the new restrictions, has resulted in a refocusing of many legal services programs. Over 98 percent of all legal services cases deal with basic legal issues including family, housing, income maintenance, consumer, and employment matters. LSC has mandated that all programs participate in a state-focused planning process to determine the best and most efficient use of Federal resources to meet the legal needs of low-income individuals. These state planning efforts, which are under way in every state, should provide valuable information on the impact and effect of new restrictions upon the legal representation available for poor clients.
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    LSC continuously evaluates its effectiveness and the unmet legal needs of America's poor. While it is perhaps too soon to evaluate the impact of the new congressional restrictions on LSC's statutory mission, LSC will provide the committee with data and analysis when it becomes available. In the meantime, LSC remains fully dedicated to following the letter and spirit of congressional direction while serving as a model public/private partnership to enhance access to justice.

    Mr. SKAGGS. Again, I just wanted the Chairman's blessing that answering that question would not be seen as an act of disloyalty, but really one of informing Congress' judgment on this matter.

    Mr. ROGERS. The gentleman would never be accused of disloyalty.

    Mr. SKAGGS. Not me—them. [Laughter.]

    Mr. ROGERS. Now, like we discussed last year, a group of grantees and outside parties filed a lawsuit challenging the constitutionality of the restrictions that the Congress placed on LSC. Where are we on that case and when do you expect that to be resolved?

    Mr. MCKAY. I am pleased to report to the Subcommittee, Mr. Chairman, that in the lawsuit in Hawaii, summary judgment was granted in favor of the Legal Services Corporation. That matter has been appealed by the plaintiffs to the Ninth Circuit. Argument is expected in March.
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    In New York, the Court, after a lengthy delay, has declined to enter a requested preliminary injunction citing the action of the Court in Hawaii. That matter, also is scheduled for argument in March——

    Mr. ROGERS. On appeal?

    Mr. MCKAY. On appeal. And so we are confident that the position of the Corporation, with respect to its regulations, which, of course, implement the congressional restrictions, will be upheld. We are confident, in part, because of the strong language of the case in Hawaii.

    Mr. ERLENBORN. Mr. Chairman, if I might just add I think that this is an excellent example of how strong the Corporation has been and how sincere the Corporation has been in trying to see that the intention of Congress is carried out.

    With advice of counsel, we amended the offending regulation. It wasn't the law that was passed that was offending, but the way it was being implemented with a regulation.

    Mr. ROGERS. Well, help me out here——

    Mr. ERLENBORN. And we won the case.

    Mr. ROGERS. Can you describe for us what the regulations regarding this matter are and how they will ensure that mirror corporations, using non-Federal funds, are not set up which would thwart congressional restrictions? How do the regulations prevent mirror corporations from being formed which would thwart congressional restrictions?
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    Mr. MCKAY. Mr. Chairman, are you asking that question in the context of those lawsuits because they may be different issues. I would be glad to address it in either context.

    Mr. ROGERS. The regulations that you adopted.

    Mr. MCKAY. I will take it in a broader sense than in terms of the regulations.

    The regulations that the Corporation currently has in place relate to program integrity, and within program integrity, we require each of our grantees, our recipients, to maintain records and to certify, first and foremost, that there is financial separation between themselves and any other entity that provides legal services that are restricted.

    Secondly, just to bottom-line the regulation, it also requires a certain amount of physical separation. The cases that you referred to—the case in Hawaii and the case in New York—both rely on a Supreme Court decision which provides entities some constitutional right to expression within those entities.

    So we have taken the U.S. Supreme Court case, followed that regulation with regard to program integrity.

    The construct that the Congress has set up involves a system of independent field auditors, and it is those auditors' responsibility to make sure that program integrity is maintained.
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    Mr. ROGERS. So can you assure me and assure the Subcommittee that the practice of mirror corporations is not occurring?

    Mr. MCKAY. Well, let me say this, that our recipients, consistent with our regulation, are not engaged in any impermissible contacts with affiliated other entities that perform restricted legal activities. So I hope you take that answer as assurance from us that no such activities are occurring.

    And I might just add that the independent field auditors perform their function, as the Congress requires the system to operate, under the auspices of the Office of Inspector General, and that the Inspector General then provides reports to both the Congress and to management, which is essentially my responsibility and the responsibility of my staff to follow up.

    Mr. ROGERS. If you find an instance when a grantee is, in any fashion, participating in the formation or operation of a mirror corporation, which would have the effect of thwarting the congressional restrictions, will you notify the subcommittee?

    Mr. MCKAY. I believe the Inspector General will do so, and you can be assured that I will respond in a very careful, but aggressive manner if that occurs.

    Mr. ROGERS. Well, thank you all for your appearance here this morning. We wish you the best. If you have anything you would like to add to the record, feel free to do so.
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    Mr. MCKAY. Thank you, Mr. Chairman.

    "The Official Committee record contains additional material here."

Wednesday, March 4, 1998.




    Mr. ROGERS. The Committee will come to order.

    We are pleased to welcome to the Subcommittee today the Administrator of the Small Business Administration, Aida Alvarez.

    The fiscal year 1999 budget request for SBA totals $724.4 million, an increase of $8.3 million from the 1998 enacted level.

    Fiscal year 1999 promises to require yet more fiscal restraint. So, we will want to hear today about how SBA is improving its lending and other programs to support and assist the nation's small businesses in a climate of limited resources.

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    We would like to know what program and administrative efficiencies are being achieved and what you see as the major opportunities and challenges facing SBA in the coming year.

    We are pleased to have the Administrator with us today and her staff. Madam, if you would like to proceed with your opening statement, we will make your written statement a part of the record and you can summarize it for us.

    Ms. ALVAREZ. Mr. Chairman, how are you?

    Mr. ROGERS. Fine.

Opening Statement

    Ms. ALVAREZ. Mr. Chairman, Mr. Mollohan was here a moment ago, Mr. Forbes, and Members of the Committee, thank you for this opportunity to appear before you today to present the fiscal year 1999 budget for the Small Business Administration. I am very proud to present this budget. It is arguably the strongest ever for America's small businesses, with record levels proposed in all of our major capital and credit programs, as well as in our entrepreneurial development programs.

    At the same time, we are able to achieve these record levels with only a modest growth of 1.16-percent in the overall resources for the agency. SBA is requesting total budgetary resources of $724.4 million.

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    The Small Business Administration's fiscal 1999 budget offers small businesses unprecedented levels of capital and credit with $11 billion for the 7(a) General Business Loan Guarantee Program, $3 billion for the Section 504 Program, and $1.1 billion for the Small Business Investment Company Program.

    The funding level for the 7(a) Program is $1.8 billion more than the projected level for this year. The SBIC Program is more than triple the 1997 program level. I am particularly pleased to note that our budget proposes to decrease the fees charged to our Section 504 borrowers for the second straight year.

    SBA requests $901 million for disaster loans in 1999; an amount equal to the 10-year historical average level of disaster assistance. The SBA Disaster Loan Program provides families and businesses with a down payment on the future.

    As we speak, SBA employees are on location providing first class service to disaster victims, home owners, renters, and businesses which have been flooded by El Nino in California, frozen in the ice storms of New England or had their homes torn asunder in Central Florida.

    This year's budget also proposes a $15 million initiative to support mitigation activities to help small businesses prepare in advance for a disaster event, thereby reducing losses should the disaster strike.

    At the SBA, we are preparing ourselves and our small business customers for the 21st Century. The business environment in the 21st Century will be more diverse, technologically-driven, and global in scope.
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    SBA's fiscal year 1999 budget will help prepare us for this future. SBA is already serving an increasingly diverse business population. Since 1992, we have more than tripled our loans to women, doubled our loans to minorities, and at the same time, the cost of our programs have gone down.

    In other words, lending to minority and women-owned businesses is good business. Our 1999 budget includes funding requests to more than double the funding for our women's business centers.

    With our $9 million request, SBA can establish an additional 30 new centers reaching our goal of establishing a Women's Business Center in every state. There are still considerable needs requiring government sponsorship with business development and training, especially in the procurement area.

    This is why we are requesting $9.5 million for the business training program known as 7(j). Through the 7(j) Program, SBA provides specialized training and executive development assistance to firms participating in the Section 8(a) Program, for example.

    The procurement landscape will expand to accommodate new 8(a) participants, especially women. As it expands with the entrance of HubZone small businesses, we will need additional resources to provide the necessary training.

    The Fiscal Year 1999 budget reflects SBA's commitment to the now permanent MicroLoan Program. We propose to double MicroLoan levels from 1998 to 1999. I will work with the Congress to achieve a reasonable balance between the requested program levels and the demand for technical assistance funding.
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    Just as technology will be a key to small business success into the 21st Century, so also technology is a key strategic piece of my overall mission to transform the SBA into a 21st Century leading edge financial institution.

    Upgrading our technology is an important part of upgrading our lender oversight capacity. We hope that the Congress will look favorably on our reprogramming requests to increase our resources for this initiative from $8 million, provided this year, to $18 million.

    The reprogramming will also allow SBA to increase available 7(a) resources this year by $500 million to $9.5 billion. SBA already has one of the best financial management infrastructures in government.

    We were the only credit agency to receive an unqualified opinion on our 1996 audit. I was proud to learn this week that we will again receive an unqualified opinion on our 1997 financial statements.

    However, I want to take SBA to a higher level. That is why the budget includes a $3 million initiative to allow the SBA to reach a standard of internal control comparable to ones sought by major private financial institutions.

    A 21st Century leading edge financial institution also protects the taxpayer against waste, fraud, and abuse. The SBA proposal requests $1 million to implement a system for criminal background checks on SBA borrowers.

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    Our objective is to reduce losses in our loan programs. The SBA's budget proposal is modest in its request for increased resources, but far reaching in its vision for improving our services to America's small businesses.

    With this budget, SBA will continue to show small businesses the way to success into the 21st Century. Thank you for inviting me to appear here today. I have a written statement for the record which, of course, is much longer. I will be happy to answer any questions that you may have.

    [The statement of Ms. Alvarez follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Well now, once again this year you are failing to request sufficient funds to provide for disaster loans. I assume that is at the request, again, of OMB.

    You play this game with us every year which means that the Congress will have to find a way to come up with the necessary monies from some other place. You request no new budget authority for disaster loans, in spite of the fact we are having a record number of disasters. Why is that?

    Ms. ALVAREZ. Well, sir——
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    Mr. ROGERS. Because OMB told you to; right?

    Ms. ALVAREZ. Well, we certainly worked with OMB on our calculations and on our proposal.

    Mr. ROGERS. Did you request it of OMB or did they make you do it?

    Ms. ALVAREZ. OMB asked us to explore proposing a cap on the interest rate of 6 percent.

    Mr. ROGERS. Yes.

    Ms. ALVAREZ. Which would result in a reduction to the subsidy rate.

    Mr. ROGERS. Right.

    Ms. ALVAREZ. And——

    Mr. ROGERS. So, the answer is OMB made you do it; right?

    And we hear that every year. I do not know why they go through this game every year. We have got to find the money. They know we have got to find the money to pay disaster loans. It is like closing the Washington Monument.
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    We have got to do it. It means that they are playing tricks with the budget in order to file a balanced budget. It is trickery. It is unfair. It is not good government. It is sophomoric—tell them that. That will change it.

    Ms. ALVAREZ. Maybe we should go in together and tell them that.

    Mr. ROGERS. So, you are going to be proposing again legislative changes that would increase the interest rates paid by disaster victims.

    Ms. ALVAREZ. It would cap the amount, however, at 6-percent.

    Mr. ROGERS. Yes. Here we go again. Why do you think that is a good idea?

    Ms. ALVAREZ. Well, a 6-percent loan over 30 years is probably still a very reasonable loan, albeit that a disaster situation is a very stressful situation. Nobody ever wants to have to pay more.

    We think that it is a fair and reasonable expectation that they could pay 6-percent max on the loan. That would be spread out over 30 years.

    Mr. ROGERS. Well, presently it is capped at 4-percent; right?

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    Ms. ALVAREZ. Yes, sir.

    Mr. ROGERS. So, let me get this straight. The Administration is proposing to charge the poor people who cannot afford a loan anywhere else, two more percentage points when they are laying at death's door from a disaster. Is that right?

    Ms. ALVAREZ. Well, sir, I think we have some very sensitive professionals who are providing first rate service to disaster victims. I have heard nothing but positive reactions to our disaster effort.

    Mr. ROGERS. Because they are paying 4 percent. You are proposing to increase it to 6 percent, at least. The poor people out there in California, and in Florida, and the other places, in Kentucky they have places in the country where we have got disasters going on right now.

    You are talking about people who cannot get a loan anywhere else because they are too poor or they have been wiped out. You are talking about ripping them off some more. Is that right?

    Ms. ALVAREZ. Well, we are here to serve the American people.

    Mr. ROGERS. You are here to serve the American people with a higher interest charge.

    Ms. ALVAREZ. I understand your perspective.
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    Mr. ROGERS. Tell them where to leave that. Tell them that Congress is not about to act on increasing the interest rates on poor people who have been wiped out in a disaster and they cannot borrow money anywhere else.

    It defeats the whole purpose of the SBA Disaster Loan Program. So, where are you going to find this additional money that we are not going to give you on the interest rate increase of $700 million. Where are you going to get it?

    Ms. ALVAREZ. Well, certainly Berky can comment, but of course when we asked for $901 million, it is really the result of a 10-year average. In fact, we really cannot predict just how much we will need in any given year.

    So, there is always the possibility that in fact we will not need the $901 million, which means that even if the subsidy rate were higher, we might be able to cover that cost.

    Mr. ROGERS. Well, you are anticipating disasters of $901 million; correct?

    Ms. ALVAREZ. Well, that is the historical average. Would you like to comment? Berky Kulik runs our disaster program.

    Mr. KULIK. The figure of $901 million, is just an estimate. This year our estimate based on the same 10-year average was $785 million. As of now, we are running considerably below that figure.
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    Once again, we cannot tell what that figure is going to end up as at the end of the year. It could very well be that we will have more carry over funds than we had anticipated.

    Mr. ROGERS. Well, the current projections, I am told, is that Florida alone can be accommodated within the projected disaster loan level this year of $785 million. We are talking a lot more than that around the country.

    Mr. KULIK. We are talking about the possibility of a lot more. For the disasters that we now have in-house including Florida, the Northeastern States, and California; we have sufficient funds, very easily. Once again, we do not know what is going to happen during the balance of the year.

    Mr. ROGERS. I thank you. So, again, how do you propose we come up with this extra money since we are not going to agree to increase the interest rates on disaster loan borrowers?

    Ms. ALVAREZ. If the subsidy rate does not go down because there is no legislative change, then we have the capacity or we would be funded to the amount of $335 million for fiscal year 1999.

    Mr. ROGERS. That would not even pay the gasoline to go to California where all of the disasters are; would it not?

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    Ms. ALVAREZ. Well, we can only hope that there are no substantial disasters. But of course, even a crystal ball will predict there will be some activity.

    Mr. ROGERS. Yes. The average is $901 million; right?

    Ms. ALVAREZ. Well, $901 million is what we estimate. We do a 10-year rolling average. That is what we estimate from that average.

    Mr. ROGERS. Again, my question is where are you folks going to find the money to pay for the disaster loans that we are not going to increase the rates to pay for them?

    I am going to wean you of this habit of coming here every year with what you know is going to be a ridiculously absurd idea of passing off on the Congress the idea of increasing the interest rates for these poor people, or finding a gazillion dollars somewhere else to offset it and make it happen.

    Now, we do not have that kind of money on this subcommittee. So, I am going to let the world know this is what your game plan is. We are not going to take the heat for it. So, you have got to find the monies.

    I am going to ask you to resubmit. I am going to allow you to resubmit your budget request. You are going to find those monies. If you do not, we are going to find them in places you will not like. Can I be plainer than that?
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    Ms. ALVAREZ. Very clear, sir.

    Mr. ROGERS. How soon can you resubmit your budget with realistic disaster loan monies in it?

    Ms. ALVAREZ. I will certainly get back with OMB and talk to them about what we can do.

    Mr. ROGERS. We will reschedule you to testify at a later date.

    Ms. ALVAREZ. That will be good.

    Mr. ROGERS. I see no reason to proceed further today, Gentlemen. Does anybody have word or thought about that?

    Mr. DIXON. Mr. Chairman, I would just like to ask some questions about the existing conditions in California, if you do not mind.

    Mr. ROGERS. We will limit it to that. Does anybody else have anything they would like to bring up?

    Mr. MOLLOHAN. I would just like to follow-up.

    Mr. ROGERS. Please, Mr. Mollohan.
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    Mr. MOLLOHAN. As explained, it does create a dilemma for the committee. Your request assumes an authorizing action that has not happened in a year since you requested it.

    As I compute your requested loan program $237 million, that is not going to touch the requirements—you are just going to have to find it from somewhere. That is a sizeable amount of money.

    Ms. ALVAREZ. It is well-taken.

    Mr. ROGERS. We will allow her plenty of time when she reappears for questions in general, but if you would like to ask something.


    Mr. DIXON. Yes, just in general.

    Ms. ALVAREZ. I think you would like to get the latest in California.

    Mr. DIXON. If you do not mind, Mr. Chairman. I hope that the disaster will have subsided and passed by the time she gets back here.

    As I understand it, you have enough money for the disasters that have occurred as a result of heavy rain in Southern California.
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    Mr. KULIK. Yes, for all of the declared areas in California right now.

    Mr. DIXON. It is my understanding that March will be as bad as the recent months, as it relates to the storms. So, looking ahead, will you have enough funds?

    Mr. KULIK. We are told that the storms are going to last into April also. As far as we can see now, even based on that kind of activity, we will have sufficient funds.

    Mr. DIXON. So, all is going well in California as it relates to the coordination between FEMA and SBA?

    Mr. KULIK. Yes.

    Mr. DIXON. And SBA loans?

    Mr. KULIK. Yes, very well. May the record show that my fingers are crossed.

    Mr. DIXON. All right. It is my general understanding that the criteria are basically the same. SBA, well, first they go to FEMA. SBA will cover any non-insurable damage.

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    Mr. KULIK. That is right; any cost to repair or replace what was damaged in the disaster.

    Mr. DIXON. Thank you, Mr. Chairman. They seemed to be doing fine in California thus far.

    Mr. ROGERS. Thank you. Madam, I am sorry to break off this hearing in this fashion, but until you can submit a budget request that is intelligible and reasonable, there is no point in having this hearing. So, we will see you in the next round.

    Ms. ALVAREZ. I will be back.

    Mr. ROGERS. Thank you.

    Ms. ALVAREZ. I hope. Thank you.

    "The Official Committee record contains additional material here."

Wednesday, March 18, 1998.



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    Mr. ROGERS. The subcommittee will come to order.

    We are pleased today to welcome Arthur Levitt, Chairman of the Securities and Exchange Commission. He is accompanied by James McConnell, the Commission's Executive Director.

    The fiscal year 1999 budget request for the SEC totals $341.1 million; an increase of $26.1 million over the 1998 enacted level. The Commission is responsible for the oversight of the nation's securities markets.

    In the past three years, these markets have experienced, I started to say extraordinary growth, but it is phenomenal growth, bringing new challenges for the SEC. We will want to hear today about how the SEC is maintaining market integrity and protecting the interest of investors in such a climate.

    We would also like to know what program and administrative efficiencies are being achieved at the SEC. Mr. Chairman, if you would like to proceed with your opening statement, we will make your written statement a part of the record.

    If you would like to summarize it briefly, we would welcome that. I note that you have been nominated for a second five-year term. This would take you to 2003, if the Senate confirms you, I hope, as early as next week. So, we are truly looking at the man who is going to carry us into the next millennium.
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Opening Statement

    Mr. LEVITT. Thank you very much, Mr. Rogers, Mr. Mollohan, and members of the Subcommittee. I appreciate the opportunity to testify here today in support of the SEC's budget proposal for 1999.

    We are grateful for the very strong commitment that this subcommittee has given to the Commission and its work. Our mission of protecting investors and promoting the integrity of our markets has never been more crucial.

    Consider the growth in our markets since 1980. Then, one out of every 17 American households was investing in our securities markets. Today, it is one household out of three. With that growth in mind, the Commission is seeking an appropriation of $341.1 million for 1999. This figure represents an increase of $26.1 million and 30 staff years over last year's level. I have tried to run the Commission as I have run other businesses. We have exercised strong fiscal restraint for the past four years, keeping our staffing essentially flat.

    I think we have fulfilled our broad legal mandate to protect investors without over-burdening taxpayers. When I testified here last year, we discussed the likelihood that the Commission would need to seek a modest budget increase this year.

    I am here to ask for your support as I make that request today. Our markets, as you say, are experiencing phenomenal growth in every area. The value of merger and acquisition activity increases at a record pace. The number of investors in our markets has grown to the highest level in history.
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    The value of mutual fund assets is now greater than the total value of deposits in America's commercial banks. The additional resources that we request today will help the Commission keep up with those trends.

    The additional resources are intended to help our Enforcement Division step up the campaign to prosecute securities fraud, stop abuses in the microcap sector, crack down on fraud on the Internet, and pursue complex litigation when investigating a record number of insider trading cases.

    These resources will help our Division of Market Regulation assert effective oversight over the exchanges and over new technologies for trading. They will help our Division of Corporation Finance review companies' financial information, initial public offerings, and mergers and acquisition filings.

    They will help our Division of Investment Management and our Office of Investor Assistance keep Americans informed and protected as they invest, many of them for the first time ever.

    The year ahead presents the Commission with a number of challenging market developments. Our major management challenge is to retain experienced staff members to carry out our mission.

    The staff turnover at the SEC has increased dramatically, especially among attorneys, accountants, and securities compliance examiners. So, we have requested $7 million for retention allowances to help us keep highly skilled employees who would otherwise leave the Commission for private sector jobs. This is a pivotal step in ensuring consistency and experience in staff who bring important cases and oversee complex regulatory policies. Our capital markets are the strongest, deepest, and most liquid in the world. They are fair to investors. They are efficient for business. They are vital to our nation's economy. I know that you share my commitment to ensuring that they remain so. I look forward to continuing to work with you.
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    Thank you very much, Mr. Chairman.

    [The statement of Mr. Levitt follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Mr. Chairman, thank you very much for your statement. Now, you are asking for 45 new FTE, $7 million for retention allowances, $5.7 million for automation improvements, and $700,000 for litigation support.

    Can you tell me which of those are your highest priority? I know they are all important to you, but try to qualify that for me.

    Mr. LEVITT. I would say that the automated data processing, for which we have allocated $5.7 million, is terribly important. That amount includes a little bit more than $2.5 million for the year 2000 conversion. Our examination program is also a part of our request which would be another $3 million.

    The retention allowances, I cannot say to you, are going to eliminate the number of staff leaving us, but what we intend to use that for is to try to target the very most essential people.

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    These allowances will not enable us to match what they are being offered in the private sector, but it is my feeling that, this kind of gesture could go a long way toward keeping critical people. So, I regard the retention allowance as terribly important.

    I would say that, in terms of the staffing increase, the most important area is our Enforcement Division where we simply need additional staff to keep up with fraud on the Internet, to keep up with microcap fraud, and to keep up with the pace of the market. The market that we are experiencing at this time brings out the worst elements in the industry. Our enforcement programs are essential to protecting investors.


    Mr. ROGERS. Now, speaking of staff turnover, you had an increase in staff turnover in 1996 from 9.5-percent to 11.9-percent in 1997. For attorneys, the rate increased from 11.3-percent to 16-percent from 1996 to 1997. That is substantial turnover; is it not?

    Mr. LEVITT. It is. When you think that in our New York region, where the competition is keenest with law firms and brokerage firms, our turnover was 26-percent. That is a terribly high figure for the Commission to have to train and replace attorneys.

    Mr. ROGERS. What would you consider a normal rate of turnover?

    Mr. LEVITT. Well, to give you some basis of comparison, the securities industry averages run around 20-percent. That is extraordinarily high. The best run companies in America, Merrill Lynch, for instance, have a turnover in their brokers of under 10-percent.
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    I would say a number in the 6-percent or 7-percent region would be satisfactory. When you get beyond that, it is really a problem and a great expense.


    Mr. ROGERS. Now, how would you go about using these allowances?

    Mr. LEVITT. What I would do is go to my division directors and have them identify for me key people, people that are being constantly besieged by individuals in the private sector with very lucrative offers.

    If I was satisfied that those individuals were deserving, I would work with a committee that we have set up to screen all the people that we think should be targeted for those increases.

    The screening committee would make a recommendation, and if I was satisfied that the recommendation was sound, I would go ahead with it.

    Mr. ROGERS. What would be the largest percent increase in allowance to a given person?

    Mr. LEVITT. I would think that 20-percent would be probably on the largest side.
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    Mr. ROGERS. Well, that is not uncommon for the private sector to offer salaries of 50-percent to 100-percent of government pay. Is that going to make much of a difference?

    Mr. LEVITT. Not in absolute terms. Without thinking very hard, I can think of eight people at the Commission who are working for less than $120,000 per year, who have had offers of over $1 million from the private sector.

    These people are really patriots. It is the only reason that I can explain why there is such a large number of committed people working at the Commission. Given the fact that they have a predisposition to try to help investors, to try to work for their country, I believe this kind of token increase could make a difference. Can I guarantee that? No. But the turnover is so alarmingly great that I would like to be able to try it.

    Mr. ROGERS. Well, any payment of tax dollars for bonuses would have to be scrupulously justified and documented. Have you mechanisms in place to be sure that those allowances are paid in some equitable and justifiable manner?

    Mr. LEVITT. I think we do. I think that the best way of determining that is through the committee which represents some of the most seasoned and experienced SEC employees. I think that the screening process, together with my personal oversight, will assure us of standards that I think are reasonable.

    Again, I cannot give you the assurance that this is going to stop the turnover. It will not, but I think for a relatively small amount of money, we could save enough key people to generate much more savings in terms of the dollar value than the $7 million allowance that we are talking about.
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    Mr. ROGERS. You are working with the OPM personnel, are you not, on how to set this up and how it has to be documented?

    Mr. LEVITT. Yes, sir.

    Mr. ROGERS. I understand you plan to begin paying these allowances in 1998 within the monies we have already provided for 1998. We are likely in 1999 to face very restrictive spending caps. How would you proceed in 1999 if we are unable to find the additional funding that you seek for this purpose? Are there offsets that you could propose somewhere else in your budget to continue this effort, in the event that we cannot find the monies?

    Mr. LEVITT. Well, we have not started yet. So, I think I have enough flexibility to be able to adjust to that.

    Mr. ROGERS. Well, I appreciate you coming to us in advance on this. That is appreciated. We would like to keep in touch with you on what you are doing, what improvements you see, if any, and how we can be of help.

    We understand the problem and appreciate the problem that you face trying to keep your qualified personnel in government service.

    So, we would like to get quarterly updates on how your are implementing it, including attrition statistics, percentage of people receiving an allowance, percentage of salaries represented by the allowances that are granted, a description of the review decision process, cost implications and so forth, and if it is working.
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    Mr. LEVITT. Okay, good.

    [The information referred to follows:]

    Once the Retention Allowance Program is implemented in FY 1999, quarterly reports with the requested data will be provided to the Subcommittee.


    Mr. ROGERS. Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Just following up a little bit on the Chairman's questions. Do you currently have a Retention Allowance Program in effect?

    Mr. LEVITT. It is a relatively modest one which impacts 13 to 15 people.

    Mr. MOLLOHAN. Who does it impact currently?

    Mr. LEVITT. Some staff attorneys, and some of our information and technology people.

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    Mr. MOLLOHAN. Could you describe the current retention program you have and tell us how this proposed increase would be helpful?

    Mr. LEVITT. I am going to ask Jim McConnell to fill you in on the numbers.

    Mr. MCCONNELL. We are currently using the Retention Allowance Program that is allowed by the law passed several years ago, as are a lot of other agencies. It has been very, very modest.

    It essentially has allowed each major office to identify one or perhaps two key individuals that we want to use this program for. What we are proposing going forward is being more aggressive because retention has gotten to be such a problem.

    So, right now we have 13 people who have received it, and who are scattered throughout the agency. There is no single segment that has received it.

    Mr. MOLLOHAN. Give the committee an example, if you will, of how it works. What would their salary be if you did not have it in place and what it is now with the Pay Retention Program in place.

    Mr. MCCONNELL. One we did was for an information technology person who was receiving about $65,000. He got an offer for over $100,000 to leave. We increased that person's salary by 20-percent. It did not match the offer, but it was enough for that person to want to stay.
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    Mr. MOLLOHAN. At the high end, what would be an example for this program?

    Mr. MCCONNELL. We intend to limit it to GS–15s and below: We would not go into the SES category. The highest pay a GS–15 can receive is approximately $100,000. So, if a person in that grade were to receive it and get the maximum which would be 20-percent, then they would receive $120,000. That would be the high end.

    You generally see it going to people at the GS–14 level and the GS–15 level; people who have been here for three years or more and we want to keep them an extra couple of years. We do not think we can ever stem the tide with this program, but it will allow them to stay longer, finish what they are doing, and make that key contribution.

    Mr. MOLLOHAN. How many employees are affected by the Retention Program now?

    Mr. MCCONNELL. Well, right now we have about 13. We have proposed under the new program to have perhaps as many as 20-percent of the staff that would be the upper limit. That would depend, of course, upon the budget authority.

    Mr. MOLLOHAN. What would 20-percent of the staff be in numbers? You have 13 now in the program. If you increase it to 20-percent of the staff, how much would that be?

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    Mr. MCCONNELL. Several hundred.

    Mr. MOLLOHAN. So, this is a pretty massive increase in the number. No, that is the wrong word. It is a significant increase in the number of people. You say other agencies employ this procedure?

    Mr. MCCONNELL. Yes. They are doing it on the modest scale that we are doing it now throughout the government.


    Mr. MOLLOHAN. How much of this increase in the automated data process request is for addressing the so-called year 2000 problem?

    Mr. LEVITT. That is about $2.5 million.

    Mr. MOLLOHAN. What kind of a problem does the SEC have with regard to this? If you have a problem, that could be very serious.

    Mr. LEVITT. I think the SEC is on top of this. The EDGAR Program, which is such an important part of the SEC interface with the public and with corporate America, is year 2000 compliant. Our problem is trying to see to it that corporate America, that the major stock exchanges, the major brokerage firms, and for that matter international counterparts are ready for the year 2000.

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    I think that for the Commission itself, I am very comfortable that we are ready. Our mission is to see to it that the rest of the industry understands the critical importance of this.

    Frankly, I am less concerned about domestic readiness than I am about international readiness. That becomes critically important because our domestic dealers, corporations, and brokerage firms have counterparts that may or may not be ready. I have reason to believe that international attention to this issue is far less than our own.

    Mr. MOLLOHAN. International attention to this issue is far less than our own.

    Mr. LEVITT. Yes.

    Mr. MOLLOHAN. What does that mean?

    Mr. LEVITT. Well, I spoke to the heads of all of the international stock exchanges six months ago. I was surprised at their apparent lack of concern for the importance of getting ready for the year 2000.

    I am told that this has been characteristic of various entities in different parts of the world that simply are not treating this as seriously as we have been treating it.

    We have done a great deal to awaken their awareness of the issue. I think today their situation is better than it was when I spoke to them six months ago.
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    Mr. MOLLOHAN. So, you are telling us that the SEC is prepared for the year 2000.

    Mr. LEVITT. Yes.

    Mr. MOLLOHAN. Your computer systems have already been adapted and they are ready?

    Mr. LEVITT. Where we are at essentially is that all of the systems have been targeted. By February of next year we will be totally year 2000 compliant.

    Mr. MOLLOHAN. You have companies working on the software problems that are associated with the year 2000?

    Mr. LEVITT. Yes.

    Mr. MOLLOHAN. And you are achieving success in being able to operate your systems in the year 2000?

    Mr. LEVITT. Yes.

    Mr. MOLLOHAN. What is the money you are requesting for?

    Mr. LEVITT. To complete that program.
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    Mr. MOLLOHAN. To complete that program. Only to complete that program? Why did you bring up these other people you deal with in the context of my question?

    Mr. LEVITT. When you asked about the year 2000, I think this is such a serious issue that few people appreciate that we cannot take total comfort in the fact that our agency or the U.S. Government is ready.

    Mr. MOLLOHAN. Okay, I understand. The money you are requesting is simply for your systems.

    Mr. LEVITT. Absolutely.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.


    Mr. ROGERS. Now, last week we heard about the proposed merger of AMEX and NASDAQ Exchanges. Do you have a reaction to that proposal?

    Mr. LEVITT. I think it is part of a rapidly changing landscape in terms of the way our markets are structured. I suspect we are going to see that change accelerate with new entrants coming in, new configurations, new alignments, new suggestions of mergers between various entities.

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    This merger is something that has been discussed extensively in the past. It is difficult to effect mergers of this kind because we are talking about membership organizations. We will study this particular affiliation very carefully to be certain that it increases competition in a way which will protect America's investors and America's capital markets.

    Mr. ROGERS. What is the SEC's role, vis-a-vis, a possible merger of AMEX and NASDAQ?

    Mr. LEVITT. Where we get involved is in connection with the merger. There has to be a large number of filings that each of those entities will make with the Commission in order to effect the merger. If they intend to register this merger in some way because it becomes a corporate structure, rather than a membership structure, that will go through our Division of Corporation Finance.

    In terms of membership rights and the way each of these self-regulating organizations are structured, all of their rule filings must be approved by the Division of Market Regulation. So, we have a fairly extensive kind of approval process as they move forward to accomplish this.

    Mr. ROGERS. When will this likely be concluded?

    Mr. LEVITT. I am told that their boards hope to vote on the merger this week. The membership of the American Stock Exchange will have to vote on this issue. They generally allow several months before a membership vote takes place.
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    So, I would guess that, if this merger were to proceed, it probably would take three to six months before it might be consummated.

    Mr. ROGERS. As I understand the process, the merger will be reviewed by SEC and perhaps by Justice for anti-trust potential.

    Mr. LEVITT. I think that is probably so.

    Mr. ROGERS. Does anybody else have any jurisdiction over it?

    Mr. LEVITT. Bob Colby who is the Deputy Director of our Division of Market Regulation says that it is only Justice and ourselves. He feels that my estimate of three to six months is good, if all goes well.

    Mr. ROGERS. What will your review entail? What are you looking for?

    Mr. LEVITT. The most important thing that we are looking for is to see to it that this affiliation in no way diminishes the competitive landscape in America's markets and that it provides investors with the same kinds of opportunities they had before the merger, if not greater opportunities. I view that our role at the Commission with respect to our American markets is to see that competition is fierce but fair.

    This is a very unique kind of affiliation. To see a membership organization turned into a corporate structure is very unusual. Historically, members have guarded the value of their membership as tenaciously as a lion does its cub.
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    So, it will be interesting to see how that conversion proceeds. Our interest is in seeing to it that competition is not diminished and that investor protections are maintained.

    Mr. ROGERS. You sound like the Justice Department. Is that not what they are looking for as well, anti-trust connotations?

    Mr. LEVITT. Well, I think theirs would be a different context. They are concerned probably about monopolies. I am concerned that various participants in the market are giving investors the best possible deal. I must say to you, Mr. Chairman, I have traveled around the world. I have seen other markets.

    Every market in the world has a risk premium assigned to it because of the level of investor confidence in that market. This country has the lowest risk premium of any market in the world by a quantum amount because investors trust it. They believe in it. They think they are going to get a fair deal.

    A part of that belief is because the great organizations that operate in those markets really have competed fairly and openly in a way that investors have benefitted. The system has allowed us to move vast amounts of capital at the lowest possible cost.

    I think of our role as a kind of overseer. Not to micro-manage, but to see to it that the right standards and values are maintained, and that we have a level, open playing field.
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    Mr. ROGERS. What possible advantage could come out of a merger of NASDAQ and AMEX, the number two and three markets in size in the country?

    Mr. LEVITT. I think different participants would see different values of the merger. The member firms would view it and say well, it is just one less entity that we have to deal with; one less inspection vehicle; one less board meeting that we have to send members to; one less organization that we have to pay fees to.

    From the standpoint of the entities themselves, they would see cost savings. Instead of having two compliance divisions, they would have one compliance division, and so forth, up and down the line.

    Instead of spending money on marketing, they would be able to use that money to upgrade their systems. I have been long frustrated with the efforts of the various exchanges to advertise why they are the best exchange. I wish that money were spent to educate public investors rather than to use their members' money to promote the interests of the institutions. I think the exchanges are getting better in that regard.

    I think that investors, too, will see that instead of having to debate whether they should deal in one market or another, they may be getting the best of both worlds where these markets are affiliated.

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    Now, that is what they expect. Will they get everything that they expect? I think only time will tell. Mergers of self-regulating organizations have failed by a large amount more than they have succeeded.

    I cannot, for the moment, think of any that have succeeded. So, it will not be easy. As best I can tell, those are the relative advantages that each of them are seeking.

    Mr. ROGERS. Now, what conceivably could be a down-side from the public's point of view of the merger?

    Mr. LEVITT. I think to the extent to which one or the other of those institutions has been able to offer a service that they would no longer offer. Right now they compete very aggressively to list companies.

    The American Stock Exchange and NASDAQ are going after essentially the same market—high growth, emerging kinds of companies. In order to compete, they have had to offer a variety of services.

    The American Stock Exchange has offered analyst meetings and research studies. They have brought their companies to international investors' attention. If, because of this merger, they felt that the lack of competition enabled them to cut back on some of those services, I think investors might be hurt by it.

    I believe that the competition with the New York Stock Exchange and the electronic markets that are developing will be so profound, that rather than offering fewer services, they probably will have to offer greater services.
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    The combined capital of those two merged entities makes me more comfortable about their ability to offer those services than if they remained as individual entities.

    Mr. ROGERS. Did I hear you say, in so many words, that the merger might make the New York Stock Exchange even more competitive in their operation?

    Mr. LEVITT. It could. It could. Now, I have not seen all of the details of the merger. I have not studied it. I am not really in a position to say what my position on the merger would be. I am being hypothetical in terms of these assumptions.

    Mr. ROGERS. Do you think that this merger might trigger other exchange mergers?

    Mr. LEVITT. Absolutely. I would not be at all surprised.

    Mr. ROGERS. Is that good or bad?

    Mr. LEVITT. I have such enormous confidence in the markets of America that I would never say that what goes on there is bad. I think it will be interesting. We will have to watch it closely to see to it that it does not create distortions. I could hypothetically conceive of some affiliations which would give me great pause.

    Mr. ROGERS. Do you care to mention a couple of them?
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    Mr. LEVITT. I would prefer not, if you would let me off the hook.

    Mr. ROGERS. Could this thing get out of hand, the merger mania?

    Mr. LEVITT. Well, I guess anything could get out of hand. I think the good sense of the people that run those institutions and our oversight will keep that from happening.

    I am not alarmed by the discussion of this present merger. I will have to analyze the details. I am not at a point of saying this is getting out of hand. I think there are enough remedies available to the Commission to address that, if we felt so.

    Mr. ROGERS. I do not want to put words in your mouth or cause you to short circuit the regular process this review will entail. It sort of sounds to me like that unless the review turns up something that you are not now expecting, that your inclination would be to approve the merger. Is that an accurate statement?

    Mr. LEVITT. We are going to study it very closely. Again, I am reluctant to intervene in natural market processes. We are often importuned by corporations that are engaged in unfriendly mergers to intervene in some fashion.

    We try to maintain some detachment. I would have to wait until I saw what the impact would be on America's investors before I would suggest that the Commission is about to embrace this merger proposal.
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    Mr. ROGERS. Now, after 1987, when you approved circuit breakers, the first time they kicked in was October 27th. I think you are among those who felt that the circuit breakers artificially deepened the plunge. You can correct me if you would like.

    The New York Exchange adopted new circuit breakers at 10- percent and 20-percent. SEC successfully urged them to loosen those limits, closing for the day when the Dow falls 20-percent after 2:00 p.m. or 30-percent at any point. What, in your opinion, is driving the market volatility that we have seen over the last several months?

    Mr. LEVITT. It is interesting. If you look at volatility as a percentage of the total volume, you would find that with the market at this level, we probably have significantly less volatility than we did following the decline in October 1987.

    For six months after that, the volatility was substantially greater than the volatility we have experienced in recent months. The numbers look larger today because today we have a market of over 8,000. At that point, it was substantially lower than this.

    So, I am not concerned about the level of market volatility at this point. I do not think that is a particularly worrisome characteristic of today's markets.


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    Mr. ROGERS. Do you see any direct and lasting adverse affects resulting from the Asian market crisis?

    Mr. LEVITT. I would not be surprised. I think that what has happened in Asia will inevitably impact America's corporations, which are becoming increasingly globalized. We are just beginning to see the impact on the earnings of those companies.

    I think the psychological impact of what occurred there has not run the course yet. I do not think the Asian crisis is behind us. I think that, in a market which has become more and more globalized, it has got to have an impact. So, my answer to your question is very definitely, yes.


    Mr. ROGERS. Last fall we saw in action for the first time the circuit breakers that I mentioned, enacted after the 1987 plunge. We heard a lot of criticism that the circuit breakers actually had the opposite affect than what was intended. That they accelerated the sell off. Do you agree with that? Have you done anything to address that matter?

    Mr. LEVITT. I guess I have always had reservations about devices which interfere with the ordinary workings of the market.

    I regard circuit breakers as essentially an artificial device which was intended to create a pause for various participants in the market to reassess their positions and to consider the implications of what was going on—to be able to react to some dramatic development that might occur.
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    The circuit breaker that was imposed in 1988 was an absolute number rather than a percentage. When the market moved up as dramatically as it did, the drop to that absolute number was much smaller than it should have been.

    I think it was unnecessary that the circuit breaker triggered. Yes, personally I believe that the first circuit breaker accelerated the move to the second circuit breaker, because traders felt that the second circuit breaker was certainly going to be reached. They wanted to get out before they were closed down for the day. The New York Stock Exchange has wisely implemented a program which moves to percentages. I think a pause at 10-percent, which is roughly 800 points, and another pause at 20-percent, which would shut the market for two hours if the decline took place before 1:00 p.m. is appropriate. Until that is phased in, which I believe will be in April, we are still operating under the old circuit breakers.

    In April, if we approve the filing of the New York Stock Exchange, the 10-, 20-, and 30-percent circuit breakers would be imposed. I feel a lot more comfortable about them than I do about either the present breakers or the ones that were implemented in 1988.

    Mr. ROGERS. Well, it sounds like the Board of Directors have met.

    Mr. LEVITT. Yes.

    Mr. ROGERS. On this.

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    Mr. LEVITT. It would be fair to say that we are certainly leaning in that direction.

    Mr. ROGERS. Do you think that will solve the problem?

    Mr. LEVITT. No. Nothing ever totally solves the problem.


    Mr. ROGERS. Now, switching gears here.

    You are putting a great deal of money into automation and rightfully so. You are taking some money away from your information technology activities; ten fewer FTEs. I understand that is a result of the reorganization of that function which began in 1997.

    Will this small organization be equipped to manage all of the automation projects, including EDGAR modernization?

    Mr. LEVITT. I think it will. I think that we will have a more efficient structure which enables us to outsource much of the work that we are doing. It will help us improve our data delivery programs to the regions.

    The basic program involves outsourcing much of this in a more efficient configuration. So, I am very optimistic about the efficiency of this new structure.

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    Mr. ROGERS. Is your FTE reduction simply a result of outsourcing? Are there other factors?

    Mr. LEVITT. No. I would say that is clearly the driving factor.

    Mr. ROGERS. On your modernization of EDGAR, what are your next steps?

    Mr. LEVITT. We are about to complete the second phase, which means that we are ready to go out for the best and final bid, which is the final contract bidding.

    Mr. ROGERS. Well, as you recollect, we wrote you a letter approving the three-year, $22.5 million EDGAR modernization Reprogramming request that you had made of us. That is an unusually large investment. As I mentioned in my letter, we would like to be regularly informed of your progress, and have a chance to review your spending plans in advance for 1999 and beyond.

    Mr. LEVITT. I share your concern about that. We are very, very appreciative of your support represented by that letter.

    I followed EDGAR when I was in the securities industry when it was first suggested. I have seen it evolve to a point where it has become a vital tool and probably one of the most broadly praised governmental programs. I regard as a very vital part of my responsibilities seeing to it that the EDGAR money is wisely spent, and that we get the best value for our dollars, and that America's investors have a program that is a program for the next millennium; not one representing the last ten years. So, we will work very closely with the Committee in keeping you up-to-date on where we stand on EDGAR and its progress.
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    Mr. ROGERS. Why are you asking for a $700,000 increase for your litigation support?

    Mr. LEVITT. The reason that we are doing that is we have a general broad definition of litigation support. That includes our efforts to modernize document management. If you walked around the Commission's halls in the Enforcement Division, you would see boxes, and boxes, and boxes of documents which has troubled me enormously. I just wondered whether that is the way lawyers do business. We clearly have to modernize the way our documents are managed.

    We also are about to implement an interagency agreement with the Department of Justice for coding, optical imaging, and scanning of case files into an automated tracking system which will allow us to store, search, and retrieve critical documents without stumbling over boxes, which I think is just a terrible way to keep them.

    We also need extra funds for expert witnesses. We are anticipating higher expenditures for our litigation support program in terms of being able to compete with outside counsel, opposing counsel, generally with many more years of experience than the counsel within the Commission, and, generally, with vastly greater resources than Commission counsel have available to them.

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    Mr. ROGERS. Collectively, the American public now has more money invested in the stock market than in their own homes. This obviously magnifies the risk posed by fraud because the numbers are so large.

    We see it in the news. The indictments of ten New York Stock Exchange traders, price fixing at Nasdaq, allegations of fraud in the microcap market. Is there a sudden increase in fraud or are we just uncovering it better?

    Mr. LEVITT. I think what we have seen is a predictable increase in fraud that comes with markets that have traveled further and faster than any markets in history. We are in the midst of an exuberant bull market with more investors, more products, more IPOs, and more mergers than ever before in history.

    That level of activity tends to attract more scamsters as well. So I would say that increased fraud is predictable. If you gave me a hypothetical situation of 20 years from now where the conditions were amplified, I would be able to predict, I think, with relative conviction the number of frauds that we would have at that time. They would be different; maybe more clever. Maybe they would be geared at different people, but this sort of market brings out the worst in our society.


    Mr. ROGERS. I understand that you are undertaking a review of your Enforcement Division. Why are you doing that and when do you expect to conclude it?
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    Mr. LEVITT. Whenever I've run a business for any period of time, I periodically have looked at various parts of the business to see whether we have kept up with the times, whether we are doing it as efficiently as possible.

    The Enforcement Division is a division that probably has the greater relationship to investor protection. We are at a point where our division director is leaving the Commission to go to the private sector.

    We have a new Commissioner who is an alumna of the Enforcement Division. I try to ask each Commissioner to undertake the oversight of different divisions of the Commission. Part and parcel of that was a request to this Commissioner to review the practices of the Enforcement Division to be certain that we were aware of any changes, any suggestions that we should consider.

    It is a program that we have used for other divisions and we will continue to do that as long as I stay at the Commission. I want to be certain that we are up-to-date and that our systems are appropriate. In no way will this study impact the direction of the Enforcement Division, but just the way they reach their goals.

    Mr. ROGERS. What changes do you think are likely?

    Mr. LEVITT. I am not sure. I have asked Commissioner Unger to talk to me about her suggestions for changes over the course of the next 60 days. I will then discuss it with the new division director and the division itself.
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    I have asked that this study be conducted with key members of the division. The danger of any such study, particularly in a government agency, is that people begin to get very fearful about their jobs and the direction the division is going to take.

    I think it is terribly important that the division members view this as an ordinary exercise that they have a vital part in, and see it as a way to enable them to do their jobs more efficiently than ever before.

    Mr. ROGERS. Well, you are losing both the director and the deputy director of the Enforcement Division. Have you gotten replacements for them yet?

    Mr. LEVITT. Not yet. We are in the process of screening candidates, both from within the Commission and outside of the Commission. I would say that I am very encouraged by the caliber of people that have come forth to fill those places.

    Mr. ROGERS. When do you expect to select someone?

    Mr. LEVITT. I would say within the next 30 days.


    Mr. ROGERS. Now, what has been the impact of technology on both the incidence of fraud and how you go about fighting it with the electronic age upon us?

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    Mr. LEVITT. Fairly dramatic because any of us who use the Internet knows the vast numbers of get-rich-quick schemes that we are inundated with. A day does not go by without eight or nine offerings coming to me to buy ostriches, rare coins, or a whole host of screwy investments.

    We are seeing more and more cases of fraud. That troubles me because many of America's investors have never seen a down market. They are looking for a quick way to make money. The best way to counteract that is not necessarily a regulatory fix.

    There is no possible way this Commission or any agency in government can protect people against their own foolishness. I think that our program of investor education, which costs under $2 million a year, has done more to help investors protect themselves than anything I could imagine. We started this program four years ago with 30 investors who came out of Camden, New Jersey.

    In Los Angeles, about two months ago, we had 6,000 people who stayed at an investor seminar for hours, asking questions about their investments. We watch the Internet closely in the Enforcement Division. Because it is an open system, scamsters cannot hide what they are doing.

    So, that is the positive side of it. We are developing more sophisticated techniques of screening the Internet, but that is only one kind of technological fraud. There are a lot of other kinds as well.

    I think a combination of investor education, technology, in terms of our ability to screen vast amounts of electronic offerings, and the learning curve of those who deal with technology will work together to try to respond to a totally new kind of fraud that is preying on America's investors.
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    Mr. ROGERS. Has there been an instance when you have taken any legal action against a scamster on the Internet?

    Mr. LEVITT. Yes. We had one scamster who sold several million dollars worth of interests in an eel farm. The eels did not exist. The farm did not exist. I tell investors all the time not to deal with a broker unless you meet him or her face to face, look them in the eye and make some judgment as to their fundamental integrity.

    Mr. ROGERS. An eel farm.

    Mr. LEVITT. An eel farm.

    Mr. ROGERS. Mr. Skaggs.


    Mr. SKAGGS. Good morning. I apologize for coming in late. I had another committee meeting that overlapped.

    I think it was last year when you were before this committee. We talked briefly about the then-current proposals to push the markets to a decimal pricing system. If I recall correctly, you demurred on that for the moment in part because there was enough change going on to absorb without doing that as well.

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    I am just wondering how things look at this point? I have heard that there is a push on to do that from a legislative side, anyway, but if you could give us a status report.

    Mr. LEVITT. I do not think this is the kind of issue that you legislate. I think that decimalization is the way our markets should develop and will develop. The Commission intends to push decimalization.

    I would say to you that if there was no Commission, the natural movement of our markets would be in that direction, just as it has moved us to 16ths at this present point in time. It was not the Commission that moved the markets there. It was the natural market forces. So, I am supportive of that. Probably the sooner decimalization comes, the better.

    However, our markets today are faced with a number of factors which are life-threatening. If our markets are not prepared for the year 2000, that will be the end of our markets. It is that draconian.

    If our markets cannot accommodate the very dramatic new order handling rules that the Commission imposed transferring billions of dollars from dealers to investors, if either of those systems go awry, the consequences are very, very serious.

    My long-winded way of answering your question is that I would prefer to see the year 2000 changes in place before the decimalization takes place, which would mean deferring decimalization for under a year.

    There are no life-threatening consequences to a deferral of decimalization. So, we support it. We will do everything we possibly can to see to it that decimalization is implemented very shortly after the year 2000, which is a delay of under a year.
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    Mr. SKAGGS. Well, I wonder if there is some unintended benefit even in terms of American numbers if we are forced to deal with those odd fractions.

    Mr. LEVITT. Absolutely.

    Mr. SKAGGS. It requires a different—than just the simplicity of decimals.

    Mr. LEVITT. Absolutely, it does.


    Mr. SKAGGS. I serve also on the Select Intelligence Committee. One of the things that troubles us a lot in that realm is the vulnerability of both national assets and private assets to techno-terror or communications warfare, however you want to put it.

    I just wanted to invite your observations and assessment of how well our securities markets and exchanges are equipped to defend themselves in the event of such an attack; either a hacker or an international foe of some kind. Also, what that may imply with regard to national encryption policy, if anything.

    Mr. LEVITT. I think that the securities markets, the major markets of the country, are very much aware of the dangers of electronic interference. SIAC, which is the Securities Industry Automation Corporation, has a whole battery of back-up procedures.
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    The individual exchanges themselves, if you look at them today, are vastly different physically than they were as recently as five years ago, to prevent terrorism. I cannot answer your question for the moment about the ability to protect against hackers.

    As far as encryption is concerned, my greatest interest is to see to it that the brokerage firms and the banks have the same opportunities. Jim, do you have any thoughts about it?

    Mr. MCCONNELL. No, sir.

    Mr. LEVITT. I am reminded that all of our markets undergo security and assessments. This is Bob Colby, Deputy Director, Division of Market Regulation.

    Mr. COLBY. Several years ago we developed an automation review program where we require the markets to undergo internal and external assessments of their capacity planning and their security procedures.

    We have also had, in particular instances, outside assessments of clearing agencies by very formidable organizations to check their security preparedness. Where that has been undergone, the markets have very high performance ratings.

    Mr. SKAGGS. Thank you.

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    Mr. ROGERS. Thank you. Now, on March 10th, you passed rules simplifying the mutual fund prospectuses to use ''plain English'' How does that benefit individual investors? Is it a good thing or a bad thing?

    Mr. LEVITT. Let me say first that I became interested in this when I came to the Commission. I never owned a mutual fund before. I had to sell everything I owned and put it into mutual funds.

    I began to read prospectuses for the first time. Even after years in the securities industry, I found parts of them totally unintelligible.

    Our subsequent studies of investor attitudes and performance indicated that investors do not take large bulky convoluted prospectuses seriously.

    Now, prospectuses are very important for the information that is available to investors, as well as analysts. I do not want to denigrate that, but the language that conveys that information is arcane.

    We have made a major effort to effect a cultural change. First, by changing the way we, the Commission, deal with corporations, deal with investors, and deal with regulators. We try to use plain English.

    We have placed a great premium on that. Interestingly enough, it is the lawyers of America who say, ''hey, wait a second. This is not right.'' They say it is not right because they view themselves as the arbiters of an arcane language. They are the only ones that can use ''investor speak''.
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    Mr. ROGERS. No.

    Mr. LEVITT. You are not a lawyer, Mr. Chairman, are you?

    Mr. ROGERS. Used to be.

    Mr. LEVITT. Oh, my. I take it all back.

    Going through the prospectus, however, it seemed to us that our Division of Investment Management has done a simply extraordinary job of developing a profile, a shortened prospectus, that includes all of the key information that investors need to know to make a judgment as to whether this investment is appropriate.

    Now, that profile does not deny the investor the right of using the full prospectus. The investor will still get the full prospectus.

    Does it mean that the investor might not look at the full prospectus? Possibly. I think it is a great tool to give investors more information than they have had before and to really help them. I am very sanguine about it.

    Mr. ROGERS. So, will the investor get both the technical full prospectus?

    Mr. LEVITT. Yes.
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    Mr. ROGERS. Plus the plain English restatement of the prospectus?

    Mr. LEVITT. Yes.

    Mr. ROGERS. So, it should not be said that by using the plain English only, that fraud could be perpetrated because the plain English version would not be as precise as the so-called arcane language would make it?

    Mr. LEVITT. If a mutual fund was offering their fund to the public and an investor wrote in to request information, the mutual fund might send them the profile prospectus alone. Then if the investor decides he wishes to buy the fund, he would get this whole prospectus.

    So, any investor in the fund will have all of the information that he has today, plus greater clarity. We have reorganized the full prospectus so that it is clearer than it was before.

    Mr. ROGERS. Well, I congratulate you on that. I think that is a major step forward. It is a little bit untested at this point. We will have to keep an eye out to be sure that using plain English does not promote scamster successes or fraud.

    Lawyers would say that it may be difficult to read, but it is also very, very precise. Precision is important for many scams against fraud. If you say to us that the investor will have access to both, the so-called plain English version plus the lawyer's version, then I would feel a bit more sedate about it. Am I correct?
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    Mr. LEVITT. Yes, sir.


    Mr. ROGERS. Thank you very much, Mr. Chairman, for your answers and for your candor here today. You have been very helpful to us.

    We want to work with you. You have got a tiger by the tail. You have got a sky rocketing sky rocket here in the market. Plus you, coincidentally, are into the information age. All of a sudden, the world market is one as we have never seen before, which means you have to anticipate what is happening in Asia as in Russia.

    So, you have got a really tough job; much more tough than the Chairmen of the past have had to deal with. So, we congratulate you and wish you well. We are here to help.

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

    You have been a great help to us. I greatly appreciate your support.

    Mr. ROGERS. Well, you have done a wonderful job, Mr. Chairman.

    Mr. LEVITT. Thank you, sir.

    Mr. ROGERS. Thank you very much.
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    [The following questions were responded to for the record by the SEC.]

    "The Official Committee record contains additional material here."

Wednesday, March 25, 1998.





Opening Remarks

    Mr. ROGERS. The committee will come to order.

    We are pleased to welcome William Kennard, appearing before the committee today for the first time as Chairman of the Federal Communications Commission. I think you have attended hearings before, but not in this capacity.

    Mr. KENNARD. Yes, sir.

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    Mr. ROGERS. You have taken on a very challenging duty and we look forward to working with you to help carry out the FCC's mission. We are in the midst of a revolution, obviously, in telecommunications technology and we will be counting on you to help lead the way.

    Today, we will discuss your 1999 budget request. You are seeking $213 million, an increase of $26.5 million over the 1998 enacted level. It has now been more than two years since we passed the landmark Telecom Act. We will want to hear today about how FCC resources are being used to deregulate, encourage competition, and support public access to telecommunications.

    Before recognizing you for your statement, we are pleased to have with us this morning the chairman of the full committee, who has to cover 13 subcommittees, and I would like to accommodate him on his time schedule and would recognize Chairman Livingston at this time.

    Mr. LIVINGSTON. Thank you very much, Mr. Chairman, and Chairman Kennard, welcome to the subcommittee. I am glad to have a chance to express my best wishes to you for a long and successful tenure in office.

    Mr. KENNARD. Thank you very much.

    Mr. LIVINGSTON. I know that you will be working very closely with Mr. Rogers and the members of this subcommittee, but we want to offer our assistance, as well.

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    I am here really just to express a concern that I think is shared by Chairman Rogers, and he will express his thoughts for himself shortly, but there has been a lot of notoriety given to a proposal floating around about whether or not you all unilaterally might regulate the media and require them to provide free time on the airwaves for public officials, for candidates.

    I just want to say it is a very serious issue. I do not know how the Congress would come down on that issue. I do not want to prejudge that. I think that such a monumental issue of significance ought to be thoroughly debated and vetted through the normal legislative processes and it is not one that ought to be simply pushed through by regulatory mandate. I would hope that you all would forswear any action along those lines and allow the Congress to discuss and debate the issue and act as Members legislatively choose.

    Should the FCC not do that and require it by regulation, I can almost guarantee that there would be a backlash in Congress, the likes of which would not be pleasant to the Federal Communications Commission under any circumstances. We want a good working relationship and we encourage it and I just do hope that you might not go down that trail.

    But at any rate, I will let you respond to Mr. Rogers as the issue comes up. Again, I just want to reiterate my welcome to you. I do not mean to greet you with a baptism of fire, but simply tell you that we offer our hands in friendship and look forward to working with you.

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

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    Mr. LIVINGSTON. Thank you. Thank you, Mr. Chairman.

    Mr. ROGERS. Thank you, Mr. Chairman. We appreciate your being here. We want you to stay as long as you think that you can.

    Mr. Chairman, if you would like to proceed with your opening statement, we will make your written statement part of the record. If you would like to summarize, we would appreciate that.

    Mr. KENNARD. Thank you very much.

    Mr. ROGERS. And you may introduce whomever you would like.


    Mr. KENNARD. Thank you, Mr. Chairman. I am here with Andy Fishel, who is the Managing Director of the Federal Communications Commission. I very much appreciate this opportunity to review with you the fiscal year 1999 budget estimates for the FCC and I am especially pleased to be here in my first appearance before the subcommittee as chairman.

    I would like to summarize just a few of the major points that are set forth in my written statement. First, as I look ahead over the next several months, I believe it is very important that the Commission and the Congress work together. We are in the midst of implementing the most significant rewrite of the laws governing the telecommunications sector in history and it is very important that we have an open dialogue and communicate closely and I pledge that I will do that.
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    As I look ahead over the next several months, I see three essential issues that we are going to have to grapple with to ensure that the Telecommunications Act of 1996 is a success. One is to implement the universal service mandates of the Telecommunications Act. Second is to continue to foster competition in the communications marketplace wherever possible, and that means in all sectors of the marketplace. And third, is to facilitate the transition from analog to digital technologies, which is really transforming these markets.

    Perhaps the most important transition that we are seeing today is the transition from analog to digital television, and the FCC stands ready to make sure that this is a smooth transition so the American public gets the benefits of digital technology as soon as possible.

    On universal service, I will say a couple of things. First, there are some people who argue that universal service is fundamentally inconsistent with competitive markets. I do not share that view. I believe that we can have competition and universal service. We are going to have to work hard to make that happen.

    I commit to doing that, and I want this Committee to know that I am committed to ensuring that we will implement universal service in a way that does not jeopardize the affordability of telephone service or jeopardize our pro-competitive goals, both in the Act and at the FCC. We will do so in continuing to deliver universal service to high-cost and low-income consumers. We will also implement the law's mandate that we provide universal service support for schools, libraries, and rural health care facilities.

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    We have due shortly to the Congress a report which was mandated in connection with our last appropriations bill. The report is due April 10 and I assure you that we will meet that deadline and we will give you a comprehensive report.

    Now, on competition, as you can see from a chart that I submitted with my written testimony, we are seeing competition develop faster in some markets than in others. I think this is natural. I think that it would not be wise for us to expect that competition would encompass the nation in one great wave. We are seeing more competition in long distance than in residential local service, for example. We are seeing more competition in wireless than we see in wireline. And I think that we just have to continue to work diligently to promote competition wherever possible, and I pledge to do that.

    One way that we can do that is to ensure that the process that you have put in place in the Act to allow the Bell Operating Companies to get into in-region long distance works well. I see that as one of the big challenges that the FCC has in the coming years and I want to make sure that that process works well.

    My vision for that process is to ensure that it is an open process. We are trying hard at the FCC to demystify the Section 271 process to make sure that all of the stakeholders in this debate, including, most importantly, the American public, understand that the process is working for them.

    On digital television, we need to resolve some very key issues to facilitate the transition from analog to digital transmission. We have to lay the groundwork with must-carry rules, which we are working on. We need to continue to clarify the public interest obligations for this new medium. And we have to do all of this in an environment where there is a lot of change and uncertainty in these marketplaces. But I am confident if we work together, we can make this happen successfully.
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    I would like to say a few words about the FCC's pending relocation to the Portals office complex in Southwest Washington, D.C. As you know, Chairman Rogers, we have talked about the issues involved in this move and I have asked you for your guidance on these issues. It is a difficult issue, one that has been pending for really ten years now. It is not a problem of your making, obviously. It is not a problem of my making. But it is one that we need to work on and solve together because it is of vital importance to the agency and the public.

    As I have stated in my written testimony, in order for the FCC to make this move, we need the support of this Subcommittee to provide the funding that we need to cover the additional rent to make the move possible. I do not believe that it would be prudent for the FCC to move to this Portals complex without having the support of the Congress in our appropriations. That would require the agency to furlough employees, to lay off over 100 employees, and that, in my view, would not be wise or prudent for us to do.

    We are working with GSA to try to improve the relationship between the FCC and the GSA and to resolve some of the security issues and some of the other outstanding issues. I am confident that we can do that and we can work this out, but we do need a commitment from this subcommittee that the funds will be there for us to make this move.

    Whether or not we move to the Portals, the FCC will continue to move forward. For example, we have a number of streamlining and deregulatory initiatives that are in the works. One of the things that I am very excited about as Chairman is to see technology change the FCC. We have implemented electronic filing in some of our services. It is my goal to implement electronic filing for all of the services that we regulate so that people around the country can have quick access to FCC databases.
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    Already, we are seeing this transform the way that the public interacts with the FCC. We have a web site that gets 227,000 hits per day. This is really a revolutionary change in the way people can interact with the agency, people around the country and around the world.

    We are also implementing our National Call Center, which has been very successful. One of the great frustrations that people have in dealing with government is they often have a simple question and they call a government agency and they have to talk to five or six people before they get the person who can really answer their question. Well, with the FCC's call center, we have one toll-free number that you can call. We have FCC employees who have a state-of-the-art database where they can answer any question and immediately connect callers to the person who can give them the answers that they need.

    To sum up, Mr. Chairman, we need your support for our fiscal year 1999 budget request to complete the implementation of the Telecommunications Act and the goals that I have outlined. We have already produced some important tangible results in implementing the Act. There is much left to be done, but again, I believe if we work together and with the support of the Congress, we have and will have much to be proud of.

    This concludes my oral statement, Mr. Chairman, and I would be happy to answer any questions that you may have.

    [The statement of Mr. Kennard follows:]

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    "The Official Committee record contains additional material here."


    Mr. ROGERS. Thank you very much, Mr. Chairman, for your statement.

    You and I talked the other day. You have got one of the hottest seats in government these days, mainly because of the rapid, almost mercurial change in telecommunications and electronics and all of that, and it will take a super-human effort for you and your colleagues to stay on top and out in front of the parade that has already formed. I think the job that you have and the rest of us have, too, in this regard is to be able to keep ahead of the parade and try to help lead the way.

    Let me start off quickly by following up on Chairman Livingston's questions about so-called free air time. Has the Administration asked the FCC to do anything with regard to this question?

    Mr. KENNARD. Well, we have gotten requests from many, many quarters to deal with this question. Some 80 Members of Congress have asked us to have a proceeding in this area. Many members of the public have filed petitions and asked us to work on this. The President of the United States talked about this in his State of the Union message. So yes, we have received requests and interest from many, many quarters on this.

    Mr. ROGERS. Has the Administration, though, other than through the public media, such as State of the Union, asked you in any other private or semi-private fashion to act on this?
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    Mr. KENNARD. During the confirmation process, I talked to many, many people, both in the Congress and the Administration, and many people gave me advice, some solicited, some unsolicited, and I probably have talked to many people, including people in the Administration, who have expressed an interest in ensuring that, as we define the public interest obligations of broadcasters in a digital world, we include a discussion of how broadcasters can improve the political dialogue in this country. We received a letter from the President of the United States urging us to do this, as well.

    Mr. ROGERS. Of course, we all understand that the FCC is an independent agency, independent of the Congress, of the Administration, of anybody else. You are a freestanding agency that takes orders from no one. That is clear, is it not?

    Mr. KENNARD. Of course.

    Mr. ROGERS. What do you feel the FCC's proper role is in compelling broadcasters to provide free air time for political advertising? Do you think the FCC has the authority or power to order that to occur without congressional approval?

    Mr. KENNARD. I do think that the FCC would have jurisdiction to do this on its own, but I also understand that this is an issue of great importance and great controversy. It is not my intention to act unilaterally in this area. I think it is important that we have a proceeding so that we can openly debate this, including the important jurisdictional questions, but I am not prepared to move forward unilaterally without extensive consultation with the Congress.
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    As I shared with you the other day, Mr. Chairman, I think that this is an issue of such importance that it would involve extensive consultation with Congress before we made the ultimate step of actually writing the rule. That would not be my intention.

    Mr. ROGERS. Before we mark this bill up for 1999, we are going to need from you a letter or other written communications to the effect that you will not proceed with a rulemaking on your own or else the Congress will have to take preemptive action here, I think. What do you think?

    Mr. KENNARD. I think that if we could—I would certainly like to work with you on something that would satisfy your concerns in this regard but also allow the FCC to have this debate, because obviously they are questions of great importance.

    Mr. ROGERS. You and I talked about this somewhat the other day. You had a thought that you were pursuing. Is that something you would like to discuss today?

    Mr. KENNARD. I certainly can, Mr. Chairman. I believe that the FCC could proceed as a next step to have a Notice of Inquiry proceeding, which would be a broad-ranging inquiry which would not propose specific rules but would get the issues on the table for a public debate. I truly believe that if we can get these issues debated and take them out of the abstract to the more concrete so that people could understand more specifically what is within the realm of the possible, then I think that we could significantly advance this debate.

    That would be, I think, probably the most productive next step that we could take. But as you know and as I shared with you the other day, a Notice of Inquiry proceeding would not propose specific rules, but rather it would allow all of the interested parties, the many Members of Congress who are interested in this, the many members of the public, the broadcast communities, to come forward and put their thoughts on the record.
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    Mr. ROGERS. So this would not be a rulemaking procedure?

    Mr. KENNARD. Correct.

    Mr. ROGERS. Whatever takes place during the Notice of Inquiry hearing that you are talking about would be educational-instructive only?

    Mr. KENNARD. Yes. A Notice of Inquiry is contemplated by the Administrative Procedure Act and it is a first step. If we were going to go to rules, we would have to issue a Notice of Proposed Rulemaking and specifically propose rules. A Notice of Inquiry is, as you noted, an inquiry. It is more educational in nature. It would help inform the debate and take it to the next step.

    Mr. ROGERS. So even if you had the Notice of Inquiry procedure, in order to then, presumably, start an actual rulemaking procedure, you would have to start completely afresh, correct?

    Mr. KENNARD. Yes, with the benefit of the record that we developed in the inquiry proceeding.

    Mr. ROGERS. So the Notice of Inquiry hearing would, in that respect, then, aid if a later rulemaking should take place?

    Mr. KENNARD. That is correct. It would also aid the Congress. If the Congress is interested in further exploring these issues, we as the expert agency would have assisted in that effort by developing a useful record. And I would propose in the inquiry proceeding that it include legislative recommendations that might be useful in this area, as well.
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    Mr. ROGERS. I do not know. In my experience here, I found that it is not hard to get members of Congress to debate on their own on such things without your prompting. The Chairman, the big chairman——


    Mr. ROGERS [continuing]. Has said that the Congress feels this is their ballgame, that you do not have the authority or jurisdiction to proceed with any procedure that would result in the FCC requiring broadcasters to give free time to political candidates. That view is shared by this member. I am sure we would get differing points of view from across the spectrum and the Congress, perhaps even on this subcommittee. We will find out, I guess.

    But it would be the intent of the chair to find out from you in writing before we mark the bill up whether or not you intend to proceed in any fashion that could result in a rule that would require free air time. We would need that before we marked up. Otherwise, the chair will be proceeding with the proposition of prohibiting that. So I would hope that we can come to some understanding.

    Mr. KENNARD. That is understood, Mr. Chairman, and I look forward to working with you on something that would be mutually acceptable.

    [The information follows:]

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    "The Official Committee record contains additional material here."

    Mr. ROGERS. Do you have any questions?

    Mr. LIVINGSTON. Thank you, Mr. Chairman.

    Thank you, Mr. Chairman.

    Mr. KENNARD. Thank you.

    Mr. ROGERS. Thank you, Mr. Chairman.

    Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Welcome to the hearing.

    Mr. KENNARD. Thank you.

    Mr. MOLLOHAN. During the chairman's questions about the issue of free airtime, what was your response when he asked the question about statutory authority? Do you feel you have statutory authority?

    Mr. KENNARD. I do. I think that the Communications Act has traditionally given the FCC a role in defining the public interest responsibilities and obligations of broadcasters, including in the content area. The real question here is whether the Act is so specific in the area of political broadcasting that it has essentially preempted the FCC from taking any action. My view of the law is that it has not. In fact, there have been instances historically where the FCC has promulgated rules in the political broadcasting area that are consistent with but not specifically required by the statute and the Commission has been upheld in the courts on this.
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    Mr. MOLLOHAN. In the political section of the operative statute there are enumerations as to what you can and cannot do, is that correct, and this is not one of them that is enumerated?

    Mr. KENNARD. That is right. It is not inconsistent with what is enumerated, but it is not specifically contemplated.

    Mr. MOLLOHAN. And the issue of whether you can go beyond what is contemplated has been addressed in the court?

    Mr. KENNARD. Yes, in other contexts.

    Mr. MOLLOHAN. What is an example of that?

    Mr. KENNARD. There are rules, for example, that—there is a rule called the political editorializing rule. When a broadcast station editorializes against a candidate during an election, that candidate has a right under our FCC rules to come on the air and give a response.

    Mr. MOLLOHAN. And that is regulatory and not statutory?

    Mr. KENNARD. That is regulatory, that is correct. We also have——

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    Mr. MOLLOHAN. What is the example that would take you the closest to having authority to regulate free air time? Do you understand my question?

    Mr. KENNARD. Yes, I do.

    Mr. MOLLOHAN. What is the broadest example of that?

    Mr. KENNARD. Well, the Congress directed the FCC in statutory amendments to the Act in the early 1970s to allow broadcasters to provide political time at the lowest unit rate and gave the FCC authority to administer that statutory provision, and over the years, the FCC has come up with a series of rules to clarify and define what lowest unit charge means in the marketplace.

    As you know, Congressman, since that time, the nature of campaigns and political broadcasting has changed dramatically. The cost of campaigns is much more today. The way that broadcast stations sell time to candidates is very different. Broadcast stations used to have rate cards where it was very easy to determine what the lowest unit charge is for any given station. That is different now. It is computerized. They do it in a different fashion. That has created confusion and difficulty and actually spawned lots of lawsuits, where candidates actually have sued television stations to try to determine whether they got the lowest unit charge or not.

    So as campaigns change, as the broadcast industry changes, I think it is incumbent on the FCC to make sure that the agency in administering these laws is keeping pace. The way I interpret the statute is that it gives the FCC some latitude to ensure that that happens.

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    Mr. MOLLOHAN. My question was a little different, I think, at least as I understand your answer. My question was, what is the example that you can cite that gives you the broadest power beyond those authorities that are enumerated in the political section of the statute.

    Mr. KENNARD. I do not know if I could give you a specific example. I would cite the fundamental obligation of the FCC, which is to ensure that broadcasters operate in the public interest, and the courts consistently have interpreted that to be a broad mandate.

    Mr. MOLLOHAN. In spite of your interpretation and whatever the courts have said, you are still respectful of Congressional interest in this area and you do not intend to proceed with a rulemaking beyond the fact-gathering stage, which is preliminary to publishing proposed rules, is that correct?

    Mr. KENNARD. That is accurate, yes.

    Mr. MOLLOHAN. Regardless of what our individual attitudes might be on the ultimate question, I do think that is a wise course because there is significant Congressional interest in the area which has been expressed and which I think ought to be respected.


    Chairman Kennard, as you know, many schools and libraries across this nation are excited about the E-rate program. Access to the information superhighway is critical for students. I am sure you will agree. What efforts are being made by the FCC to make certain that the E-rate program stays on track?
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    Mr. KENNARD. The FCC is very committed to making sure that the E-rate program works for the country. It is part of the Communications Act. We have been working very, very hard to make sure that it is administered properly and quickly. The efforts of the corporation that was established to administer the schools and libraries mechanism, the so-called E-rate, has really done a terrific job. This was an entity set up in September 1997. Already, they have accepted over 40,000 applications from every State in the country. So it is really a monumental accomplishment thus far and I am committed to making sure that it works successfully.

    Mr. MOLLOHAN. Can you explain to us GAO's objections and how you are dealing with those objections?

    Mr. KENNARD. Certainly. The GAO issued a report about a month ago now, if memory serves, which questioned the FCC's ability to establish an independent corporation to administer this without express statutory direction. We have been in communication with Members of Congress in both houses to try to get a better understanding of their specific concerns about the administration of the program.

    My bottom line is that it is really important that the program continue. I think it is pretty clear that we are going to have to make some mid-course adjustments to keep it on track and to resolve the concerns of various members.

    I do not agree with the GAO report. I think that there are two key sections in the Act that do give us authority to have set up this administrative structure the way we did, and, in fact, there are other examples where the FCC has used similar statutory provisions to set up universal service funding mechanisms like this. But we are going to work to make sure that Congress is comfortable with the structure we have set up so we can move forward.
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    Mr. MOLLOHAN. Senator Rockefeller is extremely interested in this and has been working hard on the Senate side.

    Mr. KENNARD. Yes.

    Mr. MOLLOHAN. I think he has formed a partnership with Chairman Stevens in a compromise. Are you familiar with that initiative?

    Mr. KENNARD. Yes. I have been working with both of them on that.

    Mr. MOLLOHAN. Can you please describe that compromise?

    Mr. KENNARD. Well, it is sort of a work in progress right now, as far as I can understand. The amendment that I have seen would require the FCC to provide some basic information about how the program is administered, basically what it is going to cost, and to make sure that it is administered in a way that is efficient and effective.

    Mr. MOLLOHAN. And additional costs are not borne by residential users, is that correct?

    Mr. KENNARD. Correct.

    Mr. MOLLOHAN. Do you know enough about this agreement to talk about that and how it is going to ensure that we do not have rate increases for residential users?
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    Mr. KENNARD. There is a lot of misunderstanding about this particular point because the mechanism was established so that it would never create rate increases for residential consumers.

    Mr. MOLLOHAN. As originally conceived.

    Mr. KENNARD. As originally conceived. Long distance rates have been declining over the last 10 or 12 years and they continue to decline. So any consumer who is concerned about this need only look at the bottom line on their phone bill and they will see that, overall, rates for long distance calling have declined dramatically, some 60 percent in the last dozen years, which is pretty remarkable, mainly as a result of competition.

    In addition, the FCC in the last year adopted reductions to access charges which should be passed along to consumers and further reduce rates. So these reductions are more than adequate to compensate for any additional universal service charges.

    Mr. MOLLOHAN. I see. Do you support the compromise?

    Mr. KENNARD. I cannot say, because I do not know enough about the latest version. I heard last night there was still——

    Mr. MOLLOHAN. It is in the supplemental, is it not?

    Mr. KENNARD. I believe it is. Yes, I think it changed. Yes.
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    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Kolbe.


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

    We welcome you to the subcommittee. I have just a couple of specific questions that relate to my own jurisdiction and concern as Chairman of another one of the subcommittees of Appropriations and that is the Treasury, Postal Service, and General Government, which includes GSA. So my questions have to do with the projected move of the Federal Communications Commission to the so-called Portals II location.

    In the past, this subcommittee has been reluctant to give the FCC the money it needs to move to Portals II, a move which, as you know, and I think the subcommittee knows, was directed by the Federal Court and it went all the way through the appeals process. They said that we had a contract, that we had to honor it, and now a report the GAO has completed just less than a month ago, said is in the best interests of the taxpayers that we complete this move.

    But we have had an impasse, I think personally led by the FCC and some of the private sector communications lawyers that work before you, that has helped you delay this effort. The result is now that we are going to pay $14 million this year for an empty building. In fact, in 1999, the FCC may be the only Federal agency not paying GSA the legally required full rent.
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    You have said in a letter that you do intend to go ahead with this move and you refer to the GAO report. GSA has begun to advance moving funds to the Federal Communications Commission, but the FCC has to pay back those relocation funds and this subcommittee has to authorize that. Otherwise, GSA, which funds all the building operations for the government, will not be made whole and that comes out of the subcommittee and that means that some courthouse project in some member's district is not going to be built because we are going to be short the money that is needed.

    Frankly, I think the situation makes the government look a little bit foolish. The GAO has reported that the FCC estimates there will be about half-a-million dollars in annual savings from consolidating at Portals, and no matter what happens, your rent is going to increase. They cannot renew the lease at the location that you are in because it violates basic life safety standards. So you have to move anyhow, and even if you did not and you upgraded that building somehow while you stayed in it, the rents would go up substantially, so you are going to need higher rents anyhow. I hope that this subcommittee will keep that in mind.

    The question that I have for you is that your budget this year includes an increase in the amount of funds that the FCC would pay the General Services Administration for the space that it occupies. Is that increase a result of the planned move and do you fully support both the increase in the budget and the move?

    Mr. KENNARD. Yes. As I have stated a number of times, Congressman, I believe the FCC needs to make this move. I have reviewed the history of the efforts of the FCC to try to consolidate its operations in one headquarters facility and it is a long and, frankly, embarrassing history. For ten years, this agency has been trying to make this move. The Portals complex offers us the best near-term opportunity to make this happen. If this move does not happen, then we are unfortunately going to be embroiled in another multi-year effort to try to find another building and move, and I do not think that that makes any sense.
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    But I also do not think it makes any sense for the FCC to move into a building when it does not have money to pay its rent. That would require the FCC to fire employees. I am fully committed to streamlining and downsizing this agency, but we should do it in a programmatic way and not in a way just to try to pay rent.

    So I am fully committed to this move, but I want to be very clear that I do not think the move makes any sense if we cannot get the support of the Congress to give us the rent and the moving expenses to make it happen.

    Mr. KOLBE. I appreciate hearing you say that and I hope that you will continue to, in your personal discussions with members of the subcommittee, continue to make that point and lobby as hard as you can, because frankly, I think there have been some mixed signals in the past. I think there has been some quiet, behind-the-scenes efforts made to try to not make this happen, and even though it means a huge drain fiscally for GSA and for the government. What is your current schedule for moving?

    Mr. KENNARD. As I understand it, the earliest we could move would be the latter part of September of this year. But for that to happen, we need a commitment from the Congress that the money is going to be there so that we can move quickly and do what is necessary to make this happen.

    Mr. ROGERS. Would the gentleman yield on that point?

    Mr. KOLBE. Certainly.
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    Mr. ROGERS. The Chairman has an opinion about this. Apparently, as I gather, GSA entered this contract, this lease arrangement at the Portals, without much consultation with FCC. Is that generally correct?

    Mr. KENNARD. Yes, Mr. Chairman. I think it is fair to say, and I have reviewed this history and participated in some of this history, I think it is fair to say that the relationship between the GSA and the FCC has been a dysfunctional one. There has not been a good degree of communication and coordination. I do not think the GSA should have signed the lease agreement when it did without taking some very fundamental concerns that the FCC had into account. I could sit here all day and talk about all the mistakes that have been made in the GSA–FCC relationship, but it would not change anything. I think we need to move ahead.

    Mr. ROGERS. There is still some baggage to be handled here, I think. In fact, the deal between GSA and Portals on this thing is under investigation at the moment by the Congress, is it not?

    Mr. KENNARD. Yes.

    Mr. ROGERS. In relationship to possibly some underhanded methods, is that correct?

    Mr. KENNARD. That is correct.

    Mr. ROGERS. Can you enlighten us any at all on that?
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    Mr. KENNARD. Mr. Chairman, I do not know much about that investigation, and frankly, I do not want to know much about it. My concern is running my agency and making sure that I have a place for the employees where they can be safe and they can do their job for the public.

    The prospect of having this agency go through many more years of uncertainty about where it is going to move is going to make my job as a manager much harder and any subsequent Chairman's job much harder. So I think we just need to clarify the Portals situation.

    Mr. ROGERS. But the question that we face here is, how can we move on this when there is an investigation ongoing which could lead to no telling what. I mean, there is an investigation as to whether or not there was a pay-off, for example, involved in the initiation of this contract. That is weighty stuff.

    Mr. KENNARD. I cannot disagree with that comment, Mr. Chairman, but the GAO did look at the lease arrangement overall and concluded that it is in the best interests of the government to move.

    Mr. ROGERS. That is assuming that the GSA contract, the lease, was legitimately obtained. If the investigation, for example, concludes, proves, or whatever that Portals is getting an exorbitantly high rent under this GSA contract, and assuming that that was illegitimately obtained, then the taxpayers will be paying higher rent because of that criminality, is that not correct?
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    Mr. KENNARD. I believe the GAO has concluded that the rent is not unreasonable, and——

    Mr. ROGERS. I do not want to know GAO's opinion. I want to know your opinion. The question is, suppose the investigation proves that GSA negotiated with Portals an exorbitantly high rental payment because of fraud or what have you. Should the taxpayers pick up the bill for that by paying that higher rent?

    Mr. KENNARD. No, obviously not, Mr. Chairman. But I do not think that it is appropriate to hold the 2,000 employees hostage to this investigation.

    Mr. ROGERS. Go ahead and pay the ransom? Are you saying to go ahead and pay the ransom?

    Mr. KENNARD. No, I am not suggesting that, Mr. Chairman. What I suggest is this. I would hope that this investigation is brought to a very quick conclusion——

    Mr. ROGERS. Amen.

    Mr. KENNARD [continuing]. So that we can lay issues to rest if they can be laid to rest and this agency can go ahead and do its business.

    Mr. ROGERS. I am sorry to take your time.
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    Mr. KOLBE. Mr. Chairman, reclaiming my time, if I might, this has been the subject of a fairly extensive hearing before the Federal Court of Claims. They determined that the effort to cancel the lease contract in 1992, a lease contract that was first offered in 1989, then on December 20, 1991, Portals II ownership was notified that they were the successful offeror. It was in February 1992 that the GSA tried to cancel the space request. That became the subject of the hearing in front of the U.S. Court of Claims. They have upheld it and it has gone to the Court of Appeals, and have upheld the claim of the owners.

    Now, if some investigation by Congress shows that there was something here that has not turned up in any kind of court hearing, then that could be the subject, obviously, of either a criminal prosecution by the Justice Department or some kind of a civil claim that the GSA would have against the owners of Portals II for part of the rent.

    But nonetheless, we now have a court decision that we need to move forward. We are legally bound to pay the rent to Portals, so it is going to come out of somebody's pocket anyhow. The point is that we need to move ahead with this, I think, as quickly as possible, and I hope this subcommittee will do that.

    I wanted just to follow up with a couple more questions.

    Mr. ROGERS. Before you leave that, if you are moving to something else——

    Mr. KOLBE. No, on this issue, though, on this issue.
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    Mr. ROGERS. If you will yield a minute on that issue—

    Mr. KOLBE. Can I just finish the question I had? It is on this issue.

    Mr. ROGERS. Sure.

    Mr. KOLBE. The GAO report says that you told them that you no longer believe it is necessary to consolidate into a single building, though you want to consolidate. Is that still your position?

    Mr. KENNARD. I understand, Mr. Chairman, that that was in response to the question of whether in the event that the lease were to be canceled, what would we want to do next, and I am told that we did respond that we would not consolidate in one building if the lease were canceled, if it was cost-effective not to do so.

    Mr. KOLBE. Have you received the relocation funds from GSA?

    Mr. KENNARD. I understand that we have received some, but not all, of the funds that are necessary at this point.

    Mr. KOLBE. I think we were told yesterday the last amount, or second amount, anyhow, has been released to you. Can you tell me, for the record if you cannot give it to me today, tell me how much you have received from GSA in relocation funds as of this date?
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    Mr. KENNARD. Certainly. We are expecting $24 million. We have received $17 million to date.

    Mr. KOLBE. You have received $17 million as of this date. I think my understanding is GSA is waiting to see what your actual costs are.

    Mr. ROGERS. Will the gentleman yield?

    Mr. KOLBE. Yes, of course.

    Mr. ROGERS. I think we can settle this pretty quickly. This subcommittee is not about to pay ransom. We are not about to pay a high premium for a fraudulently-obtained contract from GSA or ABC or CBS. I do not care who it is. Until this investigation concludes there was no hanky-panky involved in the GSA contract with the Portals, it is going to ride clean.

    The allegations are, of course, that a political contribution led to GSA's giving Portals an exorbitantly high rental contract. That is the allegation that is being investigated. I am not about to commit myself, certainly—the Members have their own say about this—I am not about to say that we are going to pay the taxpayers' monies for that exorbitantly high rent until we can rest assured that it was reached at arms-length and not through some inside deal, which the indications are that it was.

    I understand, Mr. Kolbe, your predicament on your subcommittee. You handle the GSA matters and you have the legitimate case to make. But until we get this resolved on the criminality and the investigation of this underhanded deal, we are not about to pay it. I mean, you can move if you want to.
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    Mr. KOLBE. Mr. Chairman, let me just say again that you have the Federal Court of Claims decision in this and you——

    Mr. ROGERS. The Court of Claims has nothing to do with the criminal investigation and the gentleman knows that.

    Mr. KOLBE. And we have an appeals court that made this decision.

    Mr. ROGERS. It is your time. I yield back.

    Mr. KOLBE. If that is going to be the case with this subcommittee, that we are not going to pay that rent, it means the taxpayers are going to be out the money and the GSA is out both the relocation money, apparently—

    Mr. ROGERS. If the gentleman will yield, as I have said, the FCC is free to move. If they feel like they want to move, I am not standing in the way.

    Mr. MOLLOHAN. Will the gentleman yield?

    Mr. KOLBE. I certainly will yield to the gentleman.

    Mr. MOLLOHAN. I do understand that the GAO has looked at this issue.
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    Mr. KOLBE. Yes. They have looked at it and concluded that this is in the best interests of the taxpayers.

    Mr. MOLLOHAN. And they have looked at some of the impropriety issues that the chairman is referencing?

    Mr. KOLBE. That is correct.

    Mr. MOLLOHAN. Also I understand that our colleague, Mr. Tauzin, has decided to investigate that.

    Mr. KOLBE. That is correct.

    Mr. MOLLOHAN. I do not want to get into the impropriety issue because, I think there still remains a question as to what extent GSA has proceeded in a way that has incurred costs. I do think it is an issue that needs to be sorted through, and a determination made as to what agency is responsible for excess expenditures. So short of the wrongdoing issues here, however that turns out, I do still think that the GSA has made mistakes in this process and we have to look at who is responsible for paying the costs. This is a large amount of money. I understand we have a vacant building for which we are paying a million dollars a month in rent.

    Short of the Chairman's concern which he stated, I am sure he has concerns beyond that about who should be responsible for any bad decision making.

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    Mr. KOLBE. Let me just conclude by saying that——

    Mr. MOLLOHAN. I thank the gentleman.

    Mr. KOLBE. Let me just conclude, Mr. Chairman, by saying that it seems unfortunate to me that we are going to decide in the name of protecting I am not sure what here that we are going to stick the American taxpayer with the cost of an empty building, which is exactly what is going to happen if we do not go ahead with this move.

    The issue of whether or not there should be a claim against the owners of that building because the rent is too high or a criminal claim because the contract was entered into inappropriately is an issue that ought to be settled separately, and I am sure there are plenty of mistakes to go around on both sides with the FCC and the GSA and the way this was handled, but that goes back to 1986 when this process began. As the Chairman correctly pointed out, the lack of communication between the two sides in the discussion of this led to the offering in 1990, the contract in 1991 or later 1990, and then the attempt to cancel it in 1992.

    We are, nonetheless, now stuck with that building and using that building should be our number one priority. Making use of that building ought to be our number one priority right now, and we should resolve the other issues, I believe, separately.

    Mr. ROGERS. Before we proceed here, I would like to insert this because it is so relevant to our conversation here. The GSA, my information is the GSA on its own entered into this agreement with Portals without consultation with the FCC. There is no dirt on both hands here. The FCC had nothing to do with the GSA entering into the contract with Portals. Now the Commerce Committee of the House is investigating whether or not that arrangement between GSA, a governmental agency, and Portals was reached underhandedly, not at arms-length. GSA is under investigation, as well as Portals, and it looks pretty shady.
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    We will wait to see what the facts are, but while that is ongoing, I am not about to recommend that our subcommittee fund these exorbitantly high, underhandedly reached, perhaps, rental payments. Now, I am not going to prohibit you from doing that. If you want to move in there and pay those rents out of unobligated funds, perhaps, or reprogram money, that is up to you. I am not going to stand in your way. But I am not going to recommend that we pay the ransom at this stage in time.

    Mr. KENNARD. May I respond, Mr. Chairman?

    Mr. ROGERS. Please, yes.

    Mr. KENNARD. I think, for the record, I should make clear that the FCC objected to the lease that was entered into by the GSA. It was entered into over our objections at the time——

    Mr. ROGERS. Say that again?

    Mr. KENNARD. The GSA entered into this lease agreement over the objections of the FCC. The FCC is in the awkward position of being represented by GSA in these negotiations with the Portals developer, but unfortunately, there has not been good communication between these two agencies and my view is that many of our concerns have not been taken into account.

    This leaves us in a very awkward position of not having the money to make this move, but in a position where GSA can, in effect, order us to make this move. We have expended to date about $6 million to prepare for the move. We are now facing the difficult dilemma of whether we spend additional money, not knowing whether this move is going to happen or not.
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    So two things. One is I think it is important to realize that the FCC is sort of becoming a scapegoat in this whole problem, and second, that we just urge those who have the power to make the decision here, namely the Congress and the GSA, to please work quickly to resolve whatever needs to be resolved so that we can get some clarity into where this agency is going to be housed.

    Mr. ROGERS. What was your objection to the GSA when they negotiated this lease?

    Mr. KENNARD. I think there were numerous objections. Principally, the one that I recall was the matter of accommodating our space needs at the time. They entered into a lease for a building that was not large enough for us. Is that right, Andy? Oh, yes. And the other is we objected to the date that the rent would start, which as you know has become an issue of some controversy.

    Mr. ROGERS. I am told that on August 12, 1994, the FCC sent a letter to GSA requesting that they not proceed to sign a lease. They did not know that GSA had already signed the lease, apparently. Is that not correct?

    Mr. KENNARD. That is correct.

    Mr. ROGERS. So when the letter was sent on August 12, 1994, requesting that they not proceed to sign a lease, apparently GSA had already signed the lease, is that right?
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    Mr. KENNARD. Yes. I remember that date very clearly. That is correct.

    Mr. ROGERS. And then on August 12, the same date, they signed the lease and agreed to use ''vigorous efforts'' to cause the FCC to be the initial occupant, including assigning FCC to space in the building, is that correct?

    Mr. KENNARD. That is correct.

    Mr. ROGERS. Why would they have proceeded over your, not your passivity to this but over your active objections to signing the lease? Why would they——

    Mr. KENNARD. I cannot answer that question, Mr. Chairman.

    Mr. ROGERS. To your knowledge, has that ever happened before?

    Mr. KENNARD. I have never been involved in a situation like this, Mr. Chairman. I think you would have to ask GSA that question. I believe that lease was entered into before Mr. Haney, the Portals developer who is the subject of the investigation, was an investor in the Portals project. So I think that the lease agreement did pre-date that situation, for what it is worth.

    Mr. ROGERS. The lease agreement did what?

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    Mr. KENNARD. Pre-date.

    Mr. ROGERS. Oh, pre-date.

    Mr. KENNARD. Pre-date Mr. Haney's participation.

    Mr. ROGERS. I am sure we will come back to this.

    Mr. KOLBE. Would the gentleman just yield for one moment?

    Mr. ROGERS. Yes.

    Mr. SKAGGS. Mr. Chairman, I have to chair a meeting elsewhere and I realize that we want to fully develop this issue.

    Mr. ROGERS. I have a conflict here, too. Mr. Regula, Chairman of this subcommittee, has a conflict, as well.

    Mr. REGULA. I have my colleagues in the chair, so I am okay.

    Mr. ROGERS. All right.


    Mr. SKAGGS. Thank you, Mr. Chairman. I will not take much time.
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    As I understand it, the current regulatory arrangement for cable television goes out of effect in about a year. I am wondering if you would explain how your proposed staffing level dealing with the cable TV regulatory scheme comports or not with at least the current state of the law, which would see deregulation occur at that time. You are still asking for almost as many people for 1999 as you asked for in 1998.

    Mr. KENNARD. Yes, but not in the Cable Bureau. The Cable Bureau, when it was originally formed after the 1992 Cable Act, was authorized at approximately 240 employees. It has been cut in half since that time. It is about 120 employees today.

    We still do at this time have a lot of work to do in that Bureau. We are still receiving complaints that need to be resolved and there are a lot of fairly important policy rulemakings that that Bureau has handled. They just worked on the V-chip, for example. We have to deal with a very important question, to redefine the must-carry obligations of broadcasters in the digital era.

    So to answer your question——

    Mr. SKAGGS. But the staffing level does not presume any particular state of statutory affairs a year from now, on the regulation-deregulation issue?

    Mr. KENNARD. That is correct. This Bureau still has a lot of work to do. We are still getting complaints. We still have jurisdiction to handle those complaints until March of 1999 when the cable rules are sunsetted, if they are sunsetted at that time.
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    Mr. SKAGGS. You mentioned in your opening that you see no inherent conflict between the mission of universal service and the mission of competition. Interpreting that in my own way, I assume that means because you see it as practicable to have a consistent set of universal service obligations imposed on new entrants so that, in the telephone industry in particular, the local net people are not at a disadvantage in their obligations. Is that a fair reading?

    Mr. KENNARD. Yes, I think that is fair, Congressman. The challenge that we face is taking a system of universal service subsidies which are implicit and contained in various cross-subsidies in the current system, and making them explicit so that new entrants, new competitors can provide service and get universal service support as the incumbents have for years.

    Mr. SKAGGS. It is easier said than drafted, I suspect.

    Mr. KENNARD. Yes, it is a big challenge.

    Mr. SKAGGS. One facet of that that concerns me is I think we tend to think of universal service from its origins in the 1930s, in particular with rural electrification and wiring rural parts of the country. At least in my part of the country—and I know we are not unique in this—we have a lot of rural demand now stemming from relatively well-to-do people who want to have their 20 or 30 acres in the Colorado mountains; a phenomenon which is more than a little different in terms of its public policy objective than the way we think of universal service in high cost, low income areas.
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    Is there value or legitimacy in to trying to make that distinction in any new regulatory scheme? It just strikes me as inappropriate for a poor, urban residential telephone consumer to have to bear part of the cross-subsidization, if you will, of a rich ranchette owner in the foothills.

    Mr. KENNARD. This is a question that has swirled around universal service almost since its inception, and it is a very difficult one to resolve. A couple of points. One is, it is important to note that most of universal service is paid for at the State level; about 75 percent of universal subsidy money is paid by the State jurisdictions. So we at the Federal level do not have direct control over how those programs are administered.

    But we can, through our jurisdiction over the interstate telephone networks, use whatever incentives we can to get the States to use universal service funding in the most explicit and efficient way.

    One of the things that we are doing is working with the States now to come up with models to figure out how much universal service costs the country, because no one really knows exactly because it has been an implicit, sort of hidden subsidy. In that process, it is my hope that we can target universal service to those areas that are most needful of the subsidy, particularly the most rural, high cost areas so that the subsidy money that flows to universal service is used in the most efficient way.

    Mr. SKAGGS. The most rural, high cost areas, at least in Colorado now, that are not served are rural, high income areas.
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    Mr. KENNARD. Some of them are, that is right. It has been the policy of the Congress and the FCC for decades now that universal service includes a subsidy for those people. If we are to change that, that would involve a very, very significant change in the policy.

    What we are trying to do at the FCC is to target the subsidy so that at least it is going to places that truly have the most need for the most high cost support, which may include wealthy ranchers in Montana and what-not.

    Mr. SKAGGS. I think it is time to reexamine what we are really trying to accomplish there. If you are saying that has got to be made in this forum and not in yours, I accept the advice. But it is distorted social policy to be looking at it just in terms of the cost of service in some of these areas.

    Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Regula.


    Mr. REGULA. Thank you, Mr. Chairman.

    Mr. Kennard, I am getting a lot of contact from constituents who see a universal service charge on their bill, and when they call they are told that this is mandated by Congress and/or the FCC. I find no evidence in the Telecommunications Act that says that it has to be levied. I think it is a cop-out on the part of the phone companies to blame either the Congress or the FCC.
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    What is the basis for their charge? What legal basis do they have to put on these access fees?

    Mr. KENNARD. The Telecommunications Act of 1996 did have as its major premise making these subsidies explicit. And some carriers have chosen to recover the cost by actually putting a line item on the bill that says national access charge.

    Mr. REGULA. I have a copy of a bill where that is evidenced.

    Mr. KENNARD. My view is that, first, consumers do have a right to know what they are being asked to pay for. That is fundamental.

    Mr. REGULA. And why. Why they are being asked.

    Mr. KENNARD. Yes, that is right.

    Mr. REGULA. In other words, who makes that decision.

    Mr. KENNARD. But the second point is that consumers should also know that overall, costs of long distance service have continued to decline. So the carriers, unfortunately, are disclosing that there are new universal service charges, but they are not disclosing the full story, which is the bottom line of your bill is lower. You are able to make more calls for less cost than you ever have been able to make in history.

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    I would urge the carriers to make the fullest disclosures. If they are going to disclose half the truth, they ought to disclose the full truth.

    Mr. REGULA. But are they mandated? They are saying to the customer, we have to do this because of Congressional action, which I have no evidence of, or because of FCC requirements?

    Mr. KENNARD. No.

    Mr. REGULA. So they're really distorting the facts when they get these inquiries.

    Mr. KENNARD. Yes. They have chosen to recover the costs in this way. This was not mandated by the FCC or the Congress.

    Mr. REGULA. The other part of this is that there seems to be a great disparity as to what is being levied. We have had constituents who are getting from 4 percent, up to 52 percent charge on their bill as the universal service fee. I do not know how they arrive at these charges. It seems they do not indicate any basis other than just they do it. Is that a problem?

    Mr. KENNARD. This is a problem, and we have been in discussions with some of the long distance carriers about how they are recovering these costs because it is creating an awful lot of confusion. It may be that the FCC or the Congress will have to reassert some regulatory oversight over the way that these charges are disclosed. It is my hope that we will not have to do that, but if it continues to be a significant problem we might have to entertain that.
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    Mr. REGULA. So you are saying the company is relatively free to charge whatever they feel they can get away with?

    Mr. KENNARD. Well, in the long distance marketplace, because it is fairly competitive now, the FCC has not imposed a lot of regulatory oversight over the way these charges are recovered and the carriers are pretty free to recover them in any reasonable manner. But if they are misleading customers about these charges, then we might have to take some further action.

    Mr. REGULA. But the bottom line is that the carrier is making the decisions, both as to levying the fee and as to the amount; is that correct?

    Mr. KENNARD. That is correct.

    Mr. REGULA. So where does a customer complain?

    Mr. KENNARD. The best advice I have for customers is that, in the long distance marketplace at least, you have some choice. Most of us have been disturbed at dinner time by people calling from the long distance industry asking to sell the latest package of services. That is a good thing, because you can shop around these days for long distance services and get a pretty good deal.

    So the best advice to consumers is, shop around, because rates are declining and you can get a good deal. And second, understand that overall you are paying less today than you were a year ago, and certainly a lot less than you were paying five years ago. Unfortunately, many consumers see only the line item and this sets them off. But if they got the full picture, I think they would be quite satisfied that rates have been declining and will continue to do so.
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    Mr. REGULA. Yes, you can negotiate your long distance service, but where you are on the standard phone service you have to pretty much use the company that has your area, franchise.

    Mr. KENNARD. Yes, and that is a big challenge for us to introduce more competition in local phone service. We are working hard to do that through a number of policies and tools that you gave us in the 1996 Act.

    Mr. REGULA. Thank you, Mr. Chairman. Appreciate getting that information.

    Mr. ROGERS. Thank you, Mr. Chairman. Appreciate your being with us today.

    Mr. Dixon.

    Mr. DIXON. Thank you very much, Mr. Chairman. You indicated in your opening statement that the Chairman of the Commission had a significant challenge before him.

    Mr. Chairman, if I could just get your attention just for 30 seconds here? As I said, you indicated that the Chairman had a significant challenge before him. He certainly does. He is well prepared by training and experience. But the reason I wanted to get your attention is because Mr. Kennard is a third-generation Californian, and is from Los Angeles.

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    Mr. ROGERS. Did he go to UCLA?

    Mr. DIXON. No, he did not. He went to Stanford and they may be in the Final Four, Mr. Chairman.

    Mr. ROGERS. Like UCLA would have been. [Laughter.]

    Mr. DIXON. Notwithstanding Mr. Cunningham's statement yesterday that California is 50th—and I quote him—in literacy. Those were his exact words, that California is 50th in literacy. Certainly Mr. Kennard is an outstanding representative of California. We in Los Angeles in particular are very proud of him.

    Mr. KENNARD. Thank you.

    Mr. DIXON. Mr. Kennard, perhaps you realized before you came in today that one of the significant challenges you have is being in the middle of two distinguished cardinals of the Appropriations Committee and their differences about the Portals building. And certainly, the authority to and the wisdom of establishing a policy through your commission versus what the Congress sees as their role in establishing a policy as it relates to free television for campaigns. So you do have significant challenges before you.


    My questions are really parochial; they deal with Southern California. The first one I realize that you cannot comment on, as an appeal process is ongoing.
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    But as I understand the facts, the South Bay Police agencies have made a request for certain spectrum space and they were denied. In the interim, Ms. Harman placed in a piece of legislation, the Balanced Budget Act, language that became law dedicating certain spectrum space to public safety agencies. Thereafter, it is my understanding—it could be entirely wrong—that an award was made by a division of the FCC, the commercial division, to a commercial company.

    All I am asking you is just two questions. One, is after the Commission has decided this case on appeal, if it does not include the history of what occurred and any correctional measures that have been taken to avoid that kind of impropriety, if it did occur, would you communicate to the committee what your finding was?

    Secondly, could you tell me today how soon you think that appeal process will be completed and the Commission will give a decision?

    Mr. KENNARD. Certainly, Congressman. First, thank you for your remarks. I will certainly ensure that once the Commission reaches a decision that you and your office are briefed on the matter. I am familiar with the matter. I understand that it has been pending for quite some time too long in my view. I have directed my staff to do everything that they can to make sure that we get this done in the next 30 to 60 days.


    Mr. DIXON. Another parochial concern that we have and we have briefly discussed, the PUC in California is entertaining splitting up geographic jurisdictions once again to develop area codes. Obviously, it is a great inconvenience to people in the commercial area, and indeed costly.
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    One of the suggestions that several cities have made to me was that if there was a dedication of an area code to a specific unit—in this case, cellular phones—that in fact there would not have to be another division of the area code.

    When we talked earlier I thought your impression was that the Commission had not given an exemption to any State or city. But I went back and looked at a Times article, which is not necessarily always correct, and I am told by this article, that in 1992 an exemption was given to the city of New York. I understand the rationale is that it is discriminatory.

    I guess I would just like you to amplify on that. Is it correct that the Commission did give an exemption? And is it appropriate or fair now to change that decision which may cause hardship to other communities that are having such a difficult time.

    Mr. KENNARD. Congressman, I do not know what the Commission did in 1992. I do know that in the 1996 Act Congress made clear that the administration of telephone numbers and area codes should be done in a way that is competitively neutral and does not discriminate against any carrier. And that is a particular challenge because we have so many new services in the marketplace now, with wireless, and faxes, and pagers, and what-not. We do not want to have a regime where any one provider or type of provider is discriminated against.

    We are working on two things. One is rules on number portability which will hopefully ensure that there is no discrimination in the use of numbers. And second, we are trying to come up with some national standard on the pooling of numbers so that these numbers—that no one hordes these numbers and that they are more available.
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    But I continue to believe that not only the 1996 Act, but just common sense would dictate that we should ensure that no competitor is somehow singled out or discriminated against in the administration of numbers.

    Mr. DIXON. Would you have your staff go back and look to see if there was a decision in 1992 and what its rationale in fact was?

    Mr. KENNARD. Absolutely.

    Mr. DIXON. And what factors caused a change in the opinion of the Commission?

    Mr. KENNARD. We will certainly do that.

    [CLERK'S NOTE.—The response to questions from Mr. Dixon concerning New York wireless-only overlay have been included with other questions for the record and follow at the end of the transcript.]

    Mr. DIXON. Now this hording of numbers, as I understand it through only cursory reading, deals with the switches and their inability to make distinctions in groups of less than 10,000?

    Mr. KENNARD. Yes.

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    Mr. DIXON. Is that because the technology is not available, or that people in these businesses do not want to buy the more sophisticated equipment?

    Mr. KENNARD. I cannot answer that question, Congressman. I do know that just anecdotally I have been told by some industry groups that have talked to me, that there are more efficient ways to use numbers on a basis less than 10,000. The wireless industry, for example, likes to tout the fact that they use numbers more efficiently.

    So we will look at the technical issues here and work with you and see if there are ways that we can at least stave off this area code exhaust problem so it is not as much of a problem as it has been.


    Mr. DIXON. Finally, Mr. Chairman, in the area of competition in cable TV. How do you respond to the argument that is put forth by the cable TV industry that they entered into what they thought was going to be a competitive environment, and in fact they geared up for that environment, but others, in particular the phone companies, have not engaged in competition, and now it would appear that they are being penalized because they prepared to engage in competition and found that there was none? I have heard that argument. I am not advocating it, I am just wondering what the answer to that is.

    Mr. KENNARD. I think the premise of your question is certainly correct, that long term, the best solution to the cable rate problem is more competition. All of us expected in 1996 when the Act was passed that there would be more competition to cable. That the telephone companies would—at the time they were gearing up to provide more competition and it just has not materialized. I know there are a lot of reasons for it, but the bottom line is that it has not arrived.
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    So the one thing we have got to do is do whatever we can to promote competition to cable, and we are working to do that. We have sent some recommendations up here to Congress on how we believe some legislative changes could make it easier for competitors to get into the marketplace and compete against cable.

    Second, I think it is important for us to have a really good understanding of why rates are going up, because we hear very conflicting things about this. The cable industry tells us that the rate increases are the result of higher programming costs. Some of the programmers tell us that it is because the cable industry is taking monopoly profits. The consumer groups are telling us that the cable industry should be passing along more increased revenues to—they should not be passing these programming costs directly through to consumers is the point.

    So I have asked the Cable Bureau to work with the cable industry to try to get some fundamental answers to why these rates are going up, and I certainly hope that the cable industry will be cooperative with the FCC so that we can develop a good and useful record for you in the Congress if you want to address this issue.

    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Forbes.

    Mr. FORBES. Thank you, Mr. Chairman.

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    And Chairman Kennard, thank you very much for being here today. I appreciate your extensive remarks and comments. I think they have been very, very helpful.

    I would like to pick up on what you were just talking about because I think you—and I appreciate the sensitivity that the chairman has in regard to this issue. There are certainly a lot of things on the plate at the FCC. We have seen in my part of New York, for example—and I will be a little parochial myself—where, as a free market person who embraces all of the competitive efforts that you have alluded to here, I have been very frustrated by what I think is—and I hope it is not true, but the playing out of the 1996 Telecom Act. I note your remarks that you have admonished those who think that it has been a failure, to revisit their position.

    I do not want to come to that conclusion, but on my part of Long Island we have seen, for example in the cable industry, where there is an absolute monopoly now. I know that is something that we were hoping that the 1996 bill would deal with and competition would break that up. A monopoly not just on providing service, but when you look at the fact that in this, Cablevision of Long Island also has an ownership of Madison Square Garden. They have an ownership of several packages that are provided on cable TV. And it just seems that one company is having an unbelievable possessive approach to the marketplace, and running counter to everything that was intended under the 1996 Act.

    I do know that there is limited ability for FCC because of the amendments to the 1992 Cable Act, to step in. As I understand it, the FCC can only really step in when local authorities and cable entities cannot come to an agreement basically; is that——

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    Mr. KENNARD. Yes, we would lose our jurisdiction in March of 1999 over rate increases on the enhanced tiers. The local authorities would still have some role in policing rates at the basic tier level. But we would only handle appeals from those——

    Mr. FORBES. We have seen, frankly, almost on a consistent basis where local authorities are not able to renew with cable companies because there is just an outright refusal by the cable company to negotiate. So that is a problem, and I know that largely that is dealt with on the State level.

    But I am just wondering, are there opportunities or occasions when the FCC would even consider—and I know this is somewhat dramatic, but consider referring to the antitrust division at Justice some of what we think might be taking place across the country? I do not think it is just on Long Island. There are, frankly, questions of antitrust here in some instances where they are buying up whole portions of the industry and creating a problem.

    Obviously, it is a broader question than I would expect you to deal with here today, but I do think that I would appreciate the FCC's continued sensitivity, at least until the expiration of your authority in 1999 on the cable end as it deals with some of those issues.


    You talked about the increased competition on the long distance end, which I think we have all seen personally and professionally I suspect. Competition on the local end, I think is certainly an area that I know that the FCC has been concerned about. I know there was an order in May of 1997 to try to reform access charges and universal service charges.
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    I think it is fair to say, at least from my perspective, that access charges, if they are not at cost, serve as a way to keep others out of the local telephone industry except for the incumbents. Is the FCC doing more than just hoping that the marketplace and competition will deal with this question, and that in fact the FCC—I have got to believe, looking across the country you must see numerous instances where the competition on the local side is being thwarted because of the access charge question. Could you speak to that?

    Mr. KENNARD. Certainly. The FCC, in the May order that you referred to, did order some fairly significant reductions in access charges. The question is whether that order went far enough. The FCC set in place in that order a process for further reductions in access charges based on the hope and expectation that as competition is introduced in the marketplace access charges would be driven closer to cost.

    By the way, there is a huge debate in these industries as to how you define costs in this context. But ultimately, the best way to resolve the access charge issue is through more competition, because that is the best way to drive those costs down.

    Mr. FORBES. If I may, Mr. Chairman, how do you get competition if you cannot get in the game in the first place because access charges really make it very difficult for you as a new competitor to do that?

    Mr. KENNARD. That is the nub of the problem. As I said in my opening statement, we have to do everything we can to promote competition in these markets. Really, as I survey the landscape in communications, there are two areas where we have incumbent companies who have monopoly power. It is in cable television and it is in local phone service.
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    We cannot look for the silver bullet here. We have got to promote new entry any way we can, through wireless services, for example, through eliminating regulatory barriers for long distance companies to get into these markets. That is the best way to deregulate and to get access charges down.

    Now if this does not happen, we may have to entertain a more regulatory solution.

    Mr. FORBES. Can I follow up on that? When the local companies are filing Form 271 to get into long distance—and I assume that a lot of them are filing multiple applications, probably making your folks crazy because of the paperwork—is there an attempt in the review of those forms to deal with the access issue in judging those applications as well?

    Mr. KENNARD. Not directly, no. The Section 271 process sets forth a fairly specific set of issues that the FCC must look at to determine whether the Bell operating company should be allowed into long distance, and access charges is not expressly one of the things we look at, but it is sort of implicit in a lot of the pro-competitive checklist requirements. Because if you allow new entrants to get into the local loop and to be able to provide service and use the incumbent's network at an appropriate cost, then, again, you should be introducing a regime where access charges should come down.

    Mr. FORBES. It seems to me that is one of the biggest stumbling blocks we have in effectively realizing where the 1996 Telecommunications Act wanted to take us, which is to provide a balanced playing field so that—and you know this certainly far better than most of us—but a balanced playing field so that the long distance companies have to open up that marketplace to the local providers, and the local providers have to do likewise.
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    I can't help but, to be honest with you, think that there seems to be a real tilting of the scales in one direction now. People are getting long distance access, but on local telephone service it has really been far slower than we wanted, and I acknowledge that this is a slower process than anyone would hope for, anyway. I just hope, Mr. Chairman, that you and your regulators take a long hard look at this problem because I think it could ultimately lead to the unraveling, in a large sense, of the 1996 telecommunications bill.

    We go home and I hear from my constituents who are really upset that, yes, costs have gone down for long distance service, but they are frustrated because they were waiting for this great competition that we all talked about over the last several years to reveal itself. They are not seeing it on the cable front, a 78 percent increase in local service on Long Island alone. They are not seeing it on local telephone service. And I think there is a growing frustration.

    I came into this Congress, frankly, very much committed to what we were doing in the 1996 bill and feeling great criticism for the 1992 act because it went so far the other way and it thwarted investment in cable and telephone service in providing that competition.

    So to the extent that your able staff and yourself, sir, can, please focus on this—and I know you have been focusing to a degree on this. It is, frankly, something that I am watching very closely, and I suspect other Members of Congress are, too, because the last thing we want to do is go back to our chairman and ask that we revisit the 1996 act. I want to give it time to work, but we are very, very frustrated that local service is being thwarted, both in cable and telephone.
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    Mr. KENNARD. I appreciate those remarks.

    Mr. FORBES. Thank you for being here today.

    Thank you, Mr. Chairman. I have other questions, if I may, for the record.

    Mr. ROGERS. Sure.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. ROGERS. Mr. Latham.


    Mr. LATHAM. Thank you, Mr. Chairman.

    Just for clarification for my own benefit, on the universal service charges, they are not required, but if they are charged, does the company have to put that on the phone bill? Do they have to show the changes?

    Mr. KENNARD. No, they have discretion to show it on the phone bill, but it is nothing that was mandated by the Congress or the FCC.
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    Mr. LATHAM. Is it true that the funds derived from the charges cannot go to another Government entity?

    Mr. KENNARD. I am not sure I follow your question. There is a mechanism for collecting universal service contributions, and they are collected by—traditionally, they have been collected by a corporation that was established by the FCC in the mid-1980s which distributes the funding. But the statute is silent as to whether the money can go to a Government authority or not.

    Mr. LATHAM. Well, the reason I ask, you know, I am from Iowa, and we have a State fiber optic system.

    Mr. KENNARD. Oh, yes, I am familiar with this.

    Mr. LATHAM. Which hooks up all the schools in Iowa, and all the libraries, but apparently they are not able to access these funds. I am not saying whether they should or not.

    Mr. KENNARD. Right.

    Mr. LATHAM. But I am more concerned about what I tell my constituents if they are paying these charges and Iowa has no way of getting any benefit.

    Mr. KENNARD. You have a very innovative commission there. I am familiar with what is happening in Iowa, the technology commission. And they had come to the FCC and asked that the Commission allow them to take universal service funding directly as opposed to through schools and libraries. And that is something that we are looking at actively now.
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    In fact, someone just handed me a letter that we sent you on this just yesterday or the day before, it looks like.

    Mr. LATHAM. In anticipation of this. [Laughter.]

    Mr. KENNARD. Yes.

    Mr. LATHAM. Good job.

    Mr. KENNARD. No, I am familiar with the problem, and we put their request out for public notice, and we will be addressing that soon.

    Mr. LATHAM. Again, I mean, to me it gets back to the question of the constituents who are screaming about these charges. Currently, they are not able to get any benefits out of it. Iowa taxpayers have spent a tremendous amount of money.

    Now, philosophically and personally, I don't think the State of Iowa ought to be in the phone business. I think it is wrong to begin with. But since we already are, I guess it is something that we obviously need to address.


    One question I have asked at almost every hearing this year, what about the year 2000 problem? Are you prepared?
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    Mr. KENNARD. We have been working on it. We desperately need funding in order to make sure that the program works. We have asked in our budget for about $5.3 million to make sure that we can solve this problem and we don't put the telecommunications networks at risk in the year 2000.

    Mr. LATHAM. What would happen if you didn't make it by the year 2000? What would happen?

    Mr. KENNARD. Well, we have, as you know, an extensive licensing system where we have to keep track of all of the people in the country who use the electromagnetic spectrum for paging and television and radio and cellular phones. And it would be devastating if our computer database were to fail and we were not able to track who has licenses and where they are in the system. So it is really crucial that we address this issue.

    The bright side of year 2000 issues for the FCC is that as we automate our systems and allow electronic filing in our licensing process, we are solving the year 2000 problem. So not only are we solving that problem, but we are doing it in a way that makes the agency run more efficiently and works better for the public. So it is really a win-win.

    Mr. LATHAM. And you can assure the committee that with the $5.3 million you will not have any problems in the year 2000?

    Mr. KENNARD. Yes. If we get support for the $5.3 million and if we are able to carry over approximately $3.4 million in regulatory fees, it will be sufficient.
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    Mr. LATHAM. I know it has been brought up before, but I just cannot help but mention the real concern I have as far as free time for candidates. Sioux City, Iowa, is the major media market in my district. Sioux City also borders with two States. South Dakota is right there. Nebraska is right there. If they had to give free time to candidates in all three States, which is their market, they wouldn't have time for anything else. They wouldn't be able to sell any advertising and survive.

    I know it has been addressed, but——

    Mr. KENNARD. Congressman, that is why I think it is important that we have a proceeding that addresses the various proposals on how to solve this problem, because I think you will find that many people who have thought about this issue have come up with some very innovative ways to decrease the demand that candidates have to pay so much money for television time, but in a way that does not require broadcasters to give away all their time. Most of the proposals contemplate only about 1 percent of total ad revenues per year. So it is a very modest proposal that has been advanced.

    Mr. LATHAM. What would you say to a station in Sioux City that had three States to cover? Would it be subject to regulations based on the total station revenue, or would it be based on the individual market it serves in each of the three States—actually, four States, some in Minnesota, it serves?

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    Mr. KENNARD. Well, my own personal view is that we should require broadcasters to provide some time close to the election for candidates to get access. Most radio stations and television stations today have candidate forums and candidates debates. So many of them are doing some of this work already.

    It is important that candidates have some access to communicate with their public, and the proposals that I have seen, which I find interesting, don't require broadcasters to give away a lot of revenue to make this happen. So I think it is important we just get a proceeding going where we can move from the abstract concepts to the more concrete so that people can have a better understanding of what we are talking about.

    Mr. LATHAM. I would suggest there is a big difference between doing candidate forums and giving free commercial time. There is a public service as part of the one, and I am not sure that by dramatically reducing the income from small stations that are going to be in tremendous stress with the mandates that are going to be placed on them in the very near future as far as the digital situation, a lot of them are going to be out of business, anyway.

    Thank you, Mr. Chairman.

    Mr. ROGERS. Thank you.


    Again, I want to go back to the Portals, if you don't mind for a little bit here, this tar baby that we all have our hands stuck on. What is the rate per square foot that you are being asked to pay down there?
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    Mr. KENNARD. If you would permit me, Mr. Chairman, I would like to defer to my Managing Director, who has these figures.

    Mr. FISHEL. The rate per square foot at the Portals building?

    Mr. ROGERS. Yes.

    Mr. FISHEL. It would be close to $45 a square foot.

    Mr. ROGERS. What are you paying where you are?

    Mr. FISHEL. We are in a number of buildings, but the average rate is $25 a square foot.

    Mr. ROGERS. So you are going to double your rate per square foot.

    Mr. FISHEL. Just about.

    Mr. ROGERS. Now, how does that—how much per square foot is Portals, $48?

    Mr. FISHEL. $45 is what we were told we would be charged.

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    Mr. ROGERS. How does that compare with the going rate around town for comparable space?

    Mr. FISHEL. The only experience we have, Mr. Chairman, is our existing buildings where we are paying, on average, $25 a square foot.

    Mr. ROGERS. You don't have any information about what the going rate is around town?

    Mr. FISHEL. We are only in the Dupont Circle area, and so the only experience we have is renting space in that area.

    Mr. ROGERS. Well, the $45 a square foot is a pretty high rate of rent, is it not?

    Mr. FISHEL. It certainly sounds that way to us.

    Mr. ROGERS. Yes. In fact, it sounds like it is terribly high.

    Now, you will have fewer square footage in the building than you have now; correct?

    Mr. KENNARD. That is correct. Right now we have 604,000 square feet, and we would be going down to 535,000 square feet in the Portals.

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    Mr. ROGERS. And how much more rent would you be paying at Portals than you pay now?

    Mr. KENNARD. It is about a $9 million a year increase at the Portals.

    Mr. ROGERS. And you are getting less space.

    Mr. KENNARD. That is correct.

    Mr. ROGERS. And you objected to GSA signing a lease as far back as 1991.

    Mr. KENNARD. That is correct. I think, Mr. Chairman, it is appropriate to state that there has been a difficulty in communications between the FCC and the GSA, and I am hoping that we can solve some of those problems and have a better communication than we have had in the past, and hopefully they would take some of our needs into account.

    Mr. ROGERS. Now, have the folks from the Justice Department talked to you about the investigation that they are doing into this matter?

    Mr. KENNARD. Not me personally, no, sir.

    Mr. ROGERS. Have they talked to personnel at FCC or previous personnel at FCC?
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    Mr. KENNARD. I only know what I read in the press about this, Mr. Chairman, and I have read press accounts that they have been talking to some former FCC officials.

    Mr. ROGERS. Who were around at the time this took place that are not there now.

    Mr. KENNARD. I beg your pardon?

    Mr. ROGERS. People who were there at that time who are no longer there.

    Mr. KENNARD. That is correct. And they have requested documents from the FCC that cover the issues that they are looking at.

    Mr. ROGERS. Now, who else besides Justice is investigating the matter, do you know?

    Mr. KENNARD. Yes. I understand that the Oversight and Investigations Committee in the House is looking at this under the leadership of Chairman Barton.

    Mr. ROGERS. And is not Chairman Tauzin at the Commerce Subcommittee also looking into the matter?

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    Mr. KENNARD. I know he has a great interest in this, but to my knowledge, he is not conducting his own investigation.

    Mr. ROGERS. Do you know what the focus of either one of those investigations is?

    Mr. KENNARD. Again, as far as I know, based on what I have read and based on the documents that we were requested to provide, they are looking into the very question that you had raised earlier, which was how this lease was entered into and whether there were some improprieties.

    Mr. ROGERS. Yes. Have you an opinion?

    Mr. KENNARD. Not on that, Mr. Chairman, no. My only opinion about this whole matter is that it needs to be resolved quickly—I think it can be resolved quickly—so that the agency is not held hostage to this matter.

    Mr. ROGERS. Well, it is not fair to ask you if you have an opinion, but it is strange, isn't it, the way this came about, GSA's deal with the Portals? It is a strange thing, is it not?

    Mr. KENNARD. Well, I will tell you what I think is strange, and that is the difficulty from my perspective of going out and leasing a building for an agency and not being able to make a lot of the basic decisions yourself.

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    Now, GSA is our leasing agent, and they are charged by the Congress with doing this. But I think part of the frustration arises from the fact that we have an agency, and that it is my responsibility to sort of chart its direction and ensure that its employees are well housed and taken care of. But so many fundamental decisions I can't make directly. I have to go through GSA, and that has been awkward for me and my predecessors.

    Mr. ROGERS. Well, what I want you to do is to prepare for us a timeline of significant events in this whole story, going back to whenever it first began, that is, the proposed move and all of the significant events that took place down to the present time. I think the chronology of those things would be helpful to us to understand how we got where we are.

    Mr. KENNARD. We can certainly do that.

    Mr. ROGERS. And who may be at fault here. I don't want to let it rest that there was miscommunications. I don't think it was that. The FCC was communicating in very strong language as early as December 1991 that you did not want this lease. Right?

    Mr. KENNARD. We had problems with the lease. I want to be clear that we were not telling the GSA—''do not move to the Portals.'' It has been my position and, I know, the position of my immediate predecessor, that if the basic needs of the agency are met, we can and we should move to the Portals.

    Mr. ROGERS. But in December 1991, GSA was proposing the move to the Portals, and you, the FCC, protested saying it didn't appear the Portals could be finished in time for the proposed move and that there was not adequate space there under what they were talking about. Right or wrong?
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    Mr. KENNARD. Yes, that was an issue, the adequacy of the space, as I recall.

    Mr. ROGERS. GSA at that time refused to cancel the award of the lease to Portals. Then FCC requested GSA to seek an amendment for more space. Is that right?

    Mr. KENNARD. Yes.

    Mr. ROGERS. And GSA had agreed to do that. And then they refused to request the additional amendment. Right?

    Mr. KENNARD. Well, Mr. Chairman, all these dates were well before my time at the agency, and certainly as Chairman.

    Mr. ROGERS. These are according to the record. Right?

    Mr. KENNARD. Right.

    Mr. ROGERS. I understand. Is that right what I asked, what I summarized there?

    Mr. KENNARD. Yes, Mr. Chairman. Based on the information I have, that is correct.

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    Mr. ROGERS. So FCC continued to object to that lease being made. Correct?

    Mr. KENNARD. Yes, Mr. Chairman.

    Mr. Chairman, if I might?

    Mr. ROGERS. Yes.

    Mr. KENNARD. There are a lot of events in this 10-year-old history where there have been disagreements and tension between the FCC and the GSA, and certainly the timeline will reflect that. But I think the important thing is that we are where we are today and we need to move forward and make some basic decisions whether we are going to move or not.

    Mr. ROGERS. I understand that. But what I am getting at here is if, in fact, the Criminal Division of the Justice Department concludes and proceeds on some action, presumably some criminal action, that GSA and the Portals developer illegally entered into a fraudulent contract, a lease, which is exorbitantly high or should not have been done for some other reason, I am not about to recommend to the Congress that we pay the bill on a criminal act. You wouldn't want that to happen, would you?

    Mr. KENNARD. Well, Mr. Chairman, I am sure that there would be recourse against the individuals who were committing criminal acts, and there might be some recourse against the developer as well.

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    But I don't think that the FCC should be penalized for the misconduct of any individuals.

    Mr. ROGERS. Well, neither should the taxpayers.

    Mr. KENNARD. Well, I am sure that there would be recourse.

    Mr. ROGERS. You are caught in an impossible place here. I fully appreciate the predicament that you are in and the obligations that you have. We also have our obligations, and we can't reward criminals with taxpayer dollars. So we are going to have to hope that the appropriate investigating agencies do their work quickly so that we can discharge our obligations and that you can discharge yours. So it is an unfortunate circumstance that we are all in. So we will proceed to the best of our ability to relieve you of your pain. I feel your pain. [Laughter.]

    But I have seen a chronology of the events, a rough chronology of what happened. And repeatedly over these years, FCC has protested to GSA not to enter this lease, and GSA proceeds headstrong, still is, and is going to extraordinary lengths to secure your move into that building, even to this day, agreeing to pay your rent and advance their own monies, and if you can't get appropriations you wouldn't have to pay it back, agreeing to all sorts of concessions and monies and advances for the FCC to get them in that building. To me it is strange. To me it stinks. It smells to high heaven.

    So we are going to get to the bottom of it. I don't know whether it is GSA or the developer, whose name I don't even know. We will get to the bottom of it. In the meantime, we cannot pay ransom with taxpayer dollars, and I sympathize with you.
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    Now, you will give us the chronology.

    Mr. KENNARD. Yes, Mr. Chairman.

    Mr. ROGERS. And I would like that to be filed with the record.

    Mr. KENNARD. Okay.

    [The information follows:]

    [CLERK'S NOTE.—The response to the request from Mr. Rogers concerning the Portals chronology has been included with other questions for the record and follows at the end of the transcript.]


    Mr. ROGERS. Now let me quickly run through a couple of other things. CALEA.

    Mr. KENNARD. Yes.

    Mr. ROGERS. This has been a matter of great interest and concern by this subcommittee because we also fund the FBI and all of the Justice Department, so we have jurisdiction over a lot of players here. But just to summarize, over 3 years ago, on behalf of law enforcement and to ensure public safety, the Congress passed and the President signed the Communications Assistance for Law Enforcement Act, intending to preserve law enforcement's ability to intercept communications pursuant to court order in view of the change to the digital system and other advances.
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    Both the Attorney General and Director Freeh have told us of the absolute vital importance to public safety that telecommunications carriers upgrade their systems pursuant to the law. We responded by providing funding and the legislative provisions to establish a funding mechanism to pay for the costs of that.

    We also tried to move that process along of defining law enforcement requirements in the new age by including legislative provisions that addressed disclosure capability and capacity needs.

    I think both sides are at fault here. The FBI I think has been perhaps too demanding, and I think the phone companies have been wanting more money than we had been prepared to pay.

    So we have tried to midwife the process of getting those two interests together because the public interest is paramount here, and that is the ability to catch criminals. So we have convened meetings of industry and law enforcement to facilitate resolution of the outstanding issues with the Attorney General, with Director Freeh, with the heads of the big phone companies and the like. We have required progress reports. You can almost reach out and touch the solution at times. Then it falls away from you. And you reach out and grab it again, and it falls away. It has been frustrating for several years now.

    Unfortunately, apparently negotiations between the industry and law enforcement have reached another impasse, and it looks like it is not going to happen agreeably. And I understand Justice intends to file a petition with the FCC this week turning the whole matter over to you to rule on the standard that is to be required under the law.
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    Are you aware that you are going to be receiving such a petition?

    Mr. KENNARD. Well, Mr. Chairman, this is a petition that I am not looking forward to getting. I was hearing as early as March 13th that a petition would be filed with us, and it wasn't filed on March 13th, and my hopes went up that maybe the parties were working to a solution again.

    Of course, if it is filed, we will do our job under the statute and try to work out a solution. But I am hopeful that that will not be necessary.

    Just so you are aware, Mr. Chairman, in October of last year, we initiated a proceeding under CALEA which we have sort of put on hold, hoping that the parties would work this out. But, of course, if they cannot, we will have to step in.

    Mr. ROGERS. Well, I am with you. I keep praying and hoping that they can work it out amongst themselves, and we have tried to nurture that process. In fact, when the Attorney General testified before us here early March, I guess, or thereabouts, we made her at that time agree that if it could not be worked out agreeably that she would file a petition with you by March 13th. And consequently they began negotiating again. And then she informed me shortly before that deadline, as I recollect, that they needed an additional 10 days. And I reluctantly agreed that we would lay off, giving them additional time, because apparently they were making some progress. And then—like you, I had my hopes up, too—but apparently it broke down.

    So the question is: How expeditiously can we expect something to be resolved? And you understand the crunch of time here. The Attorney General and the FBI Director told us in the hearing the other day that they are already being harmed in their criminal prosecutions by the impasse. So I know this is—I may be getting too inside the operations of the FCC here. I don't intend that. But can we get an expeditious review?
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    Mr. KENNARD. Well, we will certainly do our best. I had a briefing on CALEA in the last couple of days, and it is a difficult problem to solve and will require that the FCC throw a lot of resources at it, a lot of technical resources, in particular engineers. We will do the best we can.

    I will have to get back to you with a precise timetable, because I do not know offhand how long it will take to resolve. But I do know it is a difficult problem.

    Mr. ROGERS. I would appreciate it if you could give us some guidance about the timetable.

    Mr. KENNARD. Okay.

    Mr. ROGERS. That could impact us and our deliberations here on the amount of money that we are having to deal with.

    Mr. KENNARD. Okay. I would be happy to do that.

    [CLERK'S NOTE.—The response to Mr. Rogers' request concerning the FCC handling of the CALEA petition has been included with other questions for the record and follows at the end of the transcript.]

    Mr. ROGERS. Well, I appreciate that very much, and I sympathize with you on the matter. I tried to help you, but I couldn't do it.
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    Mr. KENNARD. I know you worked hard, Mr. Chairman.


    Mr. ROGERS. Now, Year 2000, you are asking an increase of $5.8 million. How much of that increase would go toward mission critical systems?

    Mr. KENNARD. If you will permit me, Mr. Chairman, I would like Mr. Fishel to address that question.

    Mr. FISHEL. Mr. Chairman, the request for the additional money for Year 2000 goes both for administrative systems, licensing systems, as well as the additional software and hardware for those systems to run. All of those are critical.

    Just to give you an example, administrative systems are those that are financial systems that the agency uses to keep track of money, paying employees, paying its bills. It is also the type of systems that are used to keep track of the votes that are actually taken and documents filed with the Commission. And so all of them, if they don't get made compliant by Year 2000, in time they will cause a key aspect of the agency's operation to be disrupted.

    Mr. ROGERS. I guess what I am trying to drive at is we want to help you with the Year 2000. But I don't want you using that as a way to get better equipment without calling it that. Do you follow me?

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    Mr. FISHEL. Yes, I certainly understand, Mr. Chairman. What has happened to us—and we have explained this in briefings with staff—is that as we redesigned the systems to be Year 2000 compliant, we are making use of most recent software that is not compatible with our older, slower, small-memory equipment. In order to make those solutions work, we do in those cases, where we are replacing systems, need to buy new hardware and new software in order for those systems to run. And if we didn't do that, we would actually have a solution that we could not implement.

    Mr. ROGERS. Are you saying that in order to get the software that would cure the Year 2000 compliant problem, you have to get other software and hardware that would not work without——

    Mr. FISHEL. Yes, Mr. Chairman. As we redesigned the existing systems to make them work more efficiently, they are being designed with the current versions of software, and those versions of software do not run on our older computers. So to make the system run, we do need to replace some equipment as well.

    Mr. ROGERS. Are you saying that you are not redesigning entire systems rather than simply making existing systems Year 2000 compliant?

    Mr. FISHEL. In some cases we are simply making existing systems Year 2000 compliant. In other cases, we are, in fact, using this as an opportunity to reengineer and redesign how we do business. And in those cases, we are, in fact, developing new software to track the new processes.

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    Mr. ROGERS. Well, what I am getting at here, or trying to get at—and I am not doing a very good job of it—we are going to be short of money here again this year. We are still under the budget caps that were agreed last year, and we are having to prioritize everything. And I want you to do the same. I want you to prioritize your needs, and we will try to take care of your high priorities. But I don't want to, under the guise of Year 2000 computer compliance, spend money that would otherwise be low priority. So I want your assurance that to comply with Year 2000 you have to have this kind of money for Year 2000 compliance, whatever it takes to do that.

    Mr. FISHEL. We will be happy to provide the committee with the various systems that are being redesigned and the impact of not redesigning them by 2000, and we can work with the committee to decide which ones we defer.

    Mr. ROGERS. Good. That is what I want to hear.

    [CLERK'S NOTE.—The response to the request from Mr. Rogers concerning prioritization of Year 2000 Funding has been included with other questions for the record and follow at the end of the transcript.]


    Now, the National Call Center, you are asking for almost a $1 million increase for the National Call Center.

    Mr. KENNARD. Yes.
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    Mr. ROGERS. And you are going to relocate 20 FTEs to that activity. Correct?

    Mr. KENNARD. Correct.

    Mr. ROGERS. As I understand it, $700,000 of the total is requested for a reconfiguration of space. Isn't that a lot of money to reconfigure for just 20 people?

    Mr. KENNARD. Well, Mr. Chairman, that includes all of the technology that the Call Center would require, including all of the electrical cabling of the workstations. So it is not just housing of the employees. It is also making sure that they have a space that has the technology that runs the Call Center.

    Mr. ROGERS. Well, apparently, according to your justifications, reconfiguration of space is $700,000, and then on top of that are systems furniture for 20 workstations, $135,000, and equipment $125,000, and then training $15,000.

    Mr. KENNARD. Right.

    Mr. ROGERS. What is the $700,000 reconfiguration of space? That is not equipment.

    Mr. KENNARD. You will have to address that.
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    Mr. FISHEL. In order to properly house the unit in a way that allows the staff to interact while they are on the telephone and have access to the information that they need to actually answer the questions, we have a very particular design that we use to allow them to access all the information and access other members of the Call Center staff. And we have made use of this design and have it already in our Gettysburg office, and this is to replicate that type of physical configuration for them.

    Mr. ROGERS. Now, would this alleviate the additional flow of calls that you expect?

    Mr. KENNARD. What it does, Mr. Chairman, is it allows us to consolidate in one location all of the people who are providing information to the public, and to do so in a much more efficient way. Since the Call Center came into being a few years ago, we have saved $3 million in salaries and benefits because we have been able to more efficiently use resources in our public information and outreach effort.

    Mr. ROGERS. But, apparently, part of the increase would go to begin a similar satellite capacity here in Washington, would it not?

    Mr. KENNARD. Yes, that is right.

    Mr. ROGERS. Why is that?

    Mr. KENNARD. Because it is cheaper to do it that way, because if we weren't to have a satellite office in Washington, we would have to relocate employees up to the Gettysburg facility, and that is more expensive than transferring employees who are already in Washington.
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    Mr. ROGERS. Now, will there be additional requirements in the future to complete the Washington satellite facility?

    Mr. KENNARD. Not that I am aware of. I think we have asked for everything that we need. Is that right, Andy? Well, subject to call volume in the future, but we think that this will serve our immediate needs, yes.


    Mr. ROGERS. Now, in your testimony, you mentioned your progress in both streamlining the FCC and in deregulating telecom, and yet for 1999, the third year after the act, we still have seen no decrease in your staffing. Why hasn't deregulation translated into fewer regulators?

    Mr. KENNARD. Well, the short answer is that in the 1996 Act Congress directed us to undertake a number of rulemakings, some 80 rulemakings, many of which are still in process, either on reconsideration or in various stages of litigation.

    And, in addition, much of the work of the FCC is changing in character. As markets become more competitive, for example, we have to deal with many more consumer complaints. This has placed considerable stress on some parts of the agency, which in a monopoly environment were not used.

    Mr. ROGERS. I think I can submit for the record the remaining questions that I have.
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    Mr. KENNARD. Okay.

    Mr. ROGERS. Is there anything you would like to add to your testimony?


    Mr. KENNARD. No, Mr. Chairman, but I do thank you for your time and attention. It is clear that you have taken our budget request quite seriously, and I appreciate that.

    Mr. ROGERS. Thank you very much, and we will work with you. This is not the only chance for us to communicate.

    Mr. KENNARD. Sure.

    Mr. ROGERS. And we hope that you will.

    Again, we are working on a tight string this year, I don't have to tell you, so we are asking you to prioritize your request. And if we can't give you the entirety of what you have asked, we want your participation in telling us the most important things as we go through the process.

    Mr. KENNARD. We will do that, Mr. Chairman, and please feel free to call on me at any time or my staff for any additional information you need.
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    Mr. ROGERS. I shall do that. Thank you very much.

    Mr. KENNARD. Thank you.

    [CLERK'S NOTE.—The response to Mr. Rogers concerning prioritization of the FY 1999 Budget request has been included with other questions for the record at the end of the transcript.]

    [The following questions were submitted for the record.]

    "The Official Committee record contains additional material here."

Wednesday, April 1, 1998.




    Mr. ROGERS. The committee will come to order.

    We are pleased to welcome Paul Igasaki, the Acting Chairman of the Equal Employment Opportunity Commission. Today, we will be discussing the 1999 budget request for the EEOC. You are seeking $279 million, an increase of $37 million over the 1998 enacted level. EEOC is responsible for enforcement of Federal laws that prohibit employment discrimination based on race, sex, religion, national origin, age, or disability. We will want to hear today about the progress you are making in the efficient processing and resolution of discrimination charges.
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    We also want to discuss the impacts of the program increases that you are requesting. It will be difficult to find any additional resources within the amounts that are likely to be available to this subcommittee. We are still operating under the budget caps of last year and those are constraints that we do not have ways to avoid. So I would like your help in identifying the top priority items in your request and working with you to come up with ways to maximize your effectiveness within our funding limitations.

    We realize that the request that has been made on the budget, every cent of it, I am sure, is justified. Our problem is trying to fit that into everybody else's request who likewise feel they are justified, as well, and if we gave everybody all they wanted, there would be none left. It would be worse than that.

    Chairman Igasaki, we will insert your full written statement in the record, and if you would like to proceed with an oral summary, we would welcome that.

    Mr. IGASAKI. Thank you, Mr. Chairman. I am pleased to testify before you today in support of the EEOC's fiscal year 1999 budget request of $279 million. In my testimony today, I hope to provide you with a fuller understanding of why the funding we are requesting is so vital to improving the Commission's ability to provide faster, more reliable service to employers, charging parties, and the general public. I will summarize my remarks, as I have formally submitted a more comprehensive statement.

    As you know, I assumed the role of chairman of the EEOC on an acting basis on January 2 of this year, having served as Vice Chairman since October of 1994. During my years at the Commission, we have embarked upon a course of profound change. We began the process of examining the Commission's operations with an eye clearly focused toward getting the maximum benefit from our limited resources.
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    Through our public process of self-evaluation, including broad stakeholder input, the Commission identified, adopted, and implemented a series of reforms designed to improve the agency's overall effectiveness. Today, I am proud to announce, as a result of these efforts, the Commission is becoming a more efficient agency.

    For example, our inventory of private sector charges awaiting resolution has been reduced by more than 40 percent due to new charge handling procedures implemented in June 1995, from 111,345 charges to 65,658 charges. We have reduced the average time it takes to process our charges. We have introduced voluntary mediation to our existing investigation, conciliation, and settlement processes, giving individuals a promising additional option for the timely resolution of employment discrimination complaints.

    All of our field offices are expanding their education, technical assistance, and outreach activities to better educate those covered by Federal equal employment opportunity laws and to promote voluntary compliance.

    The development of potential violation cases for both administrative resolution and litigation is being enhanced through greater interaction between EEOC investigators and attorneys throughout the investigative process, and we are making every attempt, despite serious underfunding, to modernize our outdated and overburdened information systems, to build an adequate telecommunications infrastructure capable of facilitating enhanced caseload management.

    The challenge faced by the Commission is to continue to build upon recent successes. Although we are heartened and proud of our initial reforms, we also recognize that we have a long way to go to fully realize our enforcement and customer service goals. With the additional funding proposed in this budget, we can accomplish a watershed reduction in the agency's charge inventory, be able to resolve many more cases with voluntary mediation, and to significantly improve our technological capabilities and enhance our overall customer service in the future.
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    I believe that we can all agree the budget levels for the Commission have not kept pace with increased enforcement and education responsibilities which have been given to us over the past several years. We at the Commission understand the tremendous pressure the committee faces as it constructs a balanced budget. We, therefore, are grateful that this committee, as well as our oversight committee, has worked diligently to sustain EEOC funding and to provide increases when possible.

    Everyone at the Commission is particularly encouraged that discussions regarding EEOC's fiscal year budget request are being approached in a constructive and cooperative manner. I believe that this process is due in part to the perception that the Commission is acting responsibly and prudently in making the best use of funds and that it has demonstrated that it is capable of further improving on performance.

    Such progress, however, will be difficult to sustain if the Commission continues to confront steadily decreasing staffing levels and steadily increasing workloads. EEOC has a heavy workload that is labor intensive. The intake, counseling, investigation, and resolution of charges of discrimination, the principal part of the agency's work, must be performed by individual staff people.

    However, despite the significant increases in enforcement responsibilities and charge filings, EEOC's funding has resulted in steadily decreasing staff levels. In fiscal year 1980, EEOC was staffed at 3,390 full-time equivalents. During fiscal year 1998, the level had fallen to 2,586 FTEs, a decrease of more than 25 percent.

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    Let me place this in context. During the same period, the Americans with Disabilities Act alone increased our caseload by about 25 percent and charges in other areas increased significantly, as well. This situation seriously constrains EEOC's ability to devise and implement responsive programs and provide timely and quality service to our constituents, charging parties, employers, and the general public.

    The requested $37 million would support, among other things, an additional 253 positions at the Commission. Because our funding levels have been only able to support a decreasing number of staff, the Commission's field office have been left with uneven staffing patterns and inadequate levels of personnel to handle the volume of work being received. For example, we are now operating with almost 100 fewer investigators than were available just four years ago. These additional positions, therefore, will be filled primarily by hiring field personnel who will work on further decreasing the Commission's charge inventory, clearly the most important priority we live with year in and year out.

    Another portion of the increase, $13 million, will be devoted to an expanded mediation program, using both internal and external mediators to resolve complaints. The program being proposed would allow the Commission to significantly increase the number of charges resolved through voluntary mediation and thus avoid lengthy investigations and costly of litigation. To develop a credible and high-quality mediation program, funding at the proposed level will be needed.

    Our plans also call for $9.6 million to be used for enhanced technology. It cannot be stressed enough how important it is for the Commission to have the technological tools to support our work. As we inch along in our efforts to improve our systems, we continually fall further behind in advancement in today's technological market. We have yet to provide all our field offices with the ability to communicate with each office through local area networks.
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    Equally important are our efforts to integrate all the Commission's information systems to allow for centralized tracking, consolidation, and management oversight of all data related to the processing of charges of employment discrimination. This includes the ability to track a charge from the point of initial inquiry to the investigation, litigation, and the compliance monitoring stages.

    The proposed increase will greatly advance our efforts to build a solid and comprehensive information telecommunications infrastructure. This, in turn, will enable the Commission to work more effectively and consistently with employers of all sizes.

    Finally, the fiscal year 1999 request includes a small amount to support voluntary compliance through more coordinated and targeted education and outreach activities. This level of support will also enhance the agency's ability to expand its education and outreach efforts, particularly to underserved constituencies and small businesses. These activities are critical to the Commission's work, to promoting an understanding of the rights and responsibilities imbued by this nation's equal employment opportunity laws.

    We have worked diligently to bring a coordinated, balanced, and comprehensive focus to our vast enforcement responsibilities. Our efforts, while far from complete, are being met with praise, even by those who have traditionally been critical of the agency. The Commission is making progress, and with additional resources, we will be in a far better position to face the critical challenges ahead.

    I look forward to working with you on the EEOC's budget and would be happy to answer any questions.
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    [The statement of Mr. Igasaki follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Thank you, Mr. Chairman. I appreciate your nice statement.

    Thirty-five percent of the increase you seek for 1999 is for the expanded use of alternative dispute resolution, ADR, which I understand involves bringing in a neutral mediator to work with both the employee and the employer to arrive at a voluntary resolution of a discrimination charge, is that accurate?

    Mr. IGASAKI. That is correct.

    Mr. ROGERS. Are there other aspects to ADR besides mediation?

    Mr. IGASAKI. Well, currently, that is the mode that we have chosen to operate under, so that is the approach. I would say that our traditional resolution processes involve a host of efforts other than litigation. We are required to do conciliation before litigation is even considered and we press that more firmly now than ever before. We also look at the possibility of pursuing settlement opportunities at any other stage in the process. But for our own ADR processes, mediation other than increased settlement efforts is the primary mode.
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    Mr. ROGERS. Your current caseload is what, roughly?

    Mr. IGASAKI. The current overall volume of charges is about 65,000.

    Mr. ROGERS. And is that a static number, or is it increasing or decreasing?

    Mr. IGASAKI. Well, it has been decreasing. In this quarter, it has bumped up slightly. But as I was mentioning, it is a seasonal thing. So we expect it will continue to go down, although at a slower rate than we have been able to bring it down so far.

    Mr. ROGERS. You have been working on bringing it down. Tell us how you have done that in terms of settling easy cases, and I say ''easy'' in quotes.

    Mr. IGASAKI. Right. Basically, by going to the priority charge system, which I proposed to the Commission in 1995, we are basically asking our staff people to make decisions early on in the cases, as early as possible, based on the facts of the case. By prioritizing the cases and urging our staff to make quicker decisions, we are seeing the overall caseload go down generally.

    In terms of the dramatic cuts that we have been able to do so far, part of that is because previously under the so-called full enforcement program that was in existence prior to now, basically, the investigators felt that they had to investigate every possible issue that might be involved in the case. So those cases that were stockpiled were the ones that we focused on first, so those reductions were the most dramatic in the early ones.
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    Mr. ROGERS. Those—excuse me. Go ahead.

    Mr. IGASAKI. Those cases have largely been eliminated from the system. At the same time, it is our feeling that some of the cases in the so-called B category requiring further investigation are cases that we probably could close, too. So we are urging people to look at those and we are also urging our staff to be more and more confident in making strong, early decisions.

    Mr. ROGERS. Would I summarize it accurately if I say that in reducing the huge number of cases that you are waiting to decide, that you have already worked off the easiest ones to work off of the caseload and from here on out it is going to be a lot harder to reduce the caseload than it has been?

    Mr. IGASAKI. I would say that, generally speaking, that is correct. I am still pretty confident that we can go a ways and still continue to decrease that amount, but I think you are correct in saying it will be more difficult.

    Mr. ROGERS. You have been using ADR on a limited basis up until now.

    Mr. IGASAKI. Yes.

    Mr. ROGERS. I am told that the number of charges resolved this way was only 67 cases in 1996——
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    Mr. IGASAKI. That is correct.

    Mr. ROGERS [continuing]. And that grew to 841 in 1997 and you estimate, I am told, that you have 1,111 in 1998.

    Mr. IGASAKI. That is correct.

    Mr. ROGERS. That you will do that many in 1998?

    Mr. IGASAKI. Yes, that is our expectation, maybe even a little higher than that.

    Mr. ROGERS. Then you propose with your increases that you would jump that to 8,000-plus next year, correct?

    Mr. IGASAKI. That is our hope, yes.

    Mr. ROGERS. That is a dramatic increase.

    Mr. IGASAKI. Yes, it is. But as you know, Mr. Chairman, the size of the increase in terms of the financial increase that is being asked for here will allow for a substantial number of cases to be handled through contracts outside. In addition, a sizeable number will be handled by a substantially enhanced professional mediator pool from within the agency, two things that we have not had.
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    Mr. ROGERS. Do you see the ADR as a way to reduce your caseload?

    Mr. IGASAKI. Well, I would say I do not see it as a panacea for caseload reduction. I think, given the amount of resources that we are talking about, it would clearly be a reduction. But if you look at the overall picture, our hope is to make an offer of potential ADR in some 15,000 cases with an influx of cases of, say, 8,000 a year. It takes care of a significant portion of the workload. It is not the only way we are going to be able to keep the backlog down.

    Mr. ROGERS. How many cases do you resolve a year, on average?

    Mr. IGASAKI. On average, I think it was like 100,000 last year, 106,000.

    Mr. ROGERS. When was that, last year?

    Mr. IGASAKI. Last year.

    Mr. ROGERS. Nineteen-ninety-seven?

    Mr. IGASAKI. Yes.

    Mr. ROGERS. A hundred and six?
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    Mr. IGASAKI. Yes.

    Mr. ROGERS. How many of those 106 were resolved by mediation or some other form of processing other than the regular process?

    Mr. IGASAKI. In terms of actual ADR, I think we are only talking about those 800, 823.

    Mr. ROGERS. And all the others were resolved the normal way?

    Mr. IGASAKI. The normal way, though most of those would be done either through dismissals based on the facts or settlements.

    Mr. ROGERS. If you do not mind, if you would file with the record, and maybe you have it so you can file now, would you file with us a table showing how all the cases were resolved, by category.

    Mr. IGASAKI. Okay.

    Mr. ROGERS. Could you file a table showing the number of cases for 1997 and how they were disposed of, ADR, whatever?

    Mr. IGASAKI. We can do that.

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    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. ROGERS. What has been the reaction from employees and employers on the ADR process?

    Mr. IGASAKI. I think for those people who have gone through the system, the results have been very positive. For example, one employer sampled it through a number of cases and is now requesting, in every case where the charging party will agree, that cases be sent to ADR automatically. I think the employees feel very strongly about it. Most of the charging parties do, as well. I think that one of the advantages of ADR is that the satisfaction level of the immediate parties is always pretty high.

    Mr. ROGERS. And then you have been very limited in the number of cases that you could send to this process because you do not have staff to handle it——

    Mr. IGASAKI. That is correct.

    Mr. ROGERS [continuing]. Or money for contract mediators to handle it, either, do you?

    Mr. IGASAKI. That is correct.

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    Mr. ROGERS. What about pro bono mediators?

    Mr. IGASAKI. We have been using them and we have had some help from the ABA, particularly, in coming up with those. But one of the difficulties, both in terms of contract mediators, professional mediators, and volunteer mediators is availability of outside mediators varies substantially from one part of the country to another.

    For example, if you go to a big city like New York or Los Angeles, you see very large pools of both private mediators we might contract with as well as a large Bar Association. For example, in California, the Bar requires a certain amount of mediation of just general cases. So the familiarity of the Bar with mediation is very high. In other parts of the country, there is less familiarity with mediation in administrative settings, so it is more difficult to get that level of volunteers. So it varies from office to office.

    Mr. ROGERS. Now, in 1999, you want to terminate the use of pro bono mediators, correct?

    Mr. IGASAKI. Well, I think we want to move away from that as a primary mode. I think it is something that we would use as a supplement to our existing program. I do not think we would back away from it entirely.

    Mr. ROGERS. But you would use $13 million for a combination of staff, ADR staff and contract mediators, correct?

    Mr. IGASAKI. That is correct. Part of the reason for that is that right now, in our mediation program, the efficacy of the mediation option depends so much on the local circumstance that we would like to be able to say we are offering mediation across the country. To do that, we do need an internal and an external paid source of mediators.
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    Mr. ROGERS. How does the demand for mediation compare with the level of effort you are proposing for next year?

    Mr. IGASAKI. You mean in what proportion of——

    Mr. ROGERS. Yes. Are you currently able to offer mediation as an option for all of your charges?

    Mr. IGASAKI. No, clearly not.

    Mr. ROGERS. You are asking money to hire 67 new mediators in 1999, correct?

    Mr. IGASAKI. That is correct.

    Mr. ROGERS. Do you foresee any difficulty in recruiting and hiring that many qualified people in one year?

    Mr. IGASAKI. Well, I think that in terms of people who are pre-trained, that would be difficult, but I think what we are willing to do is to provide training for those people. So I think we can do that. We are looking at this as hiring a professional mediator pool, as a professional legal pool. That is something I think is the wave of the future, really, around the country.

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    Mr. ROGERS. It is not realistic, though, is it, to expect that all of these 67 people will be on board from day one of the fiscal year?

    Mr. IGASAKI. No, although——

    Mr. ROGERS. You will hire them during the year.

    Mr. IGASAKI. You are right. You are correct. In the same sense, it is unrealistic for us to propose that from the immediate first day where we had the contract mediators in place, either. We have to set up both the hiring process for the employees and the bidding process for the contractors to be able to move ahead.

    Mr. ROGERS. You say that more than 8,000 cases would be resolved by mediation. How would you manage and monitor that volume of casework?

    Mr. IGASAKI. It would depend on what our resources are. For one thing, if we are able to have the overall information technology to monitor all the cases, we would be able to monitor them both through our district offices and through Washington. But even if we do not have the funds available for the technological ability to do that electronically, we would have staff in Washington specifically devoted to tracking the ADR cases and how they are going. In addition, each of our district offices would have internal staff dedicated to following the progress of each case.

    I think, especially when we are talking about outside mediators, whether they are contract mediators or volunteer mediators, it is especially important for us to be able to monitor the success rate and customer satisfaction. For example, if our mediators are being fair and objective, whether they are exhibiting the necessary knowledge of EEO law, as well. That is something we will do through internal staff.
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    In terms of the extent that those programs are within the agency, it gives us the capability to have a fallback that we can control, as well, if there is a difficulty in finding significant or enough external mediators.

    Mr. ROGERS. Your request for funding for your automation upgrades; is that critical to monitoring and bringing on the new mediation effort that you want to do in 1999?

    Mr. IGASAKI. I think it is very important to it. I think we would pursue it whether we got that funding or not. It is just that our ability to report as quickly and comprehensively as I would like to would be affected.

    Mr. ROGERS. It would not, though, affect your ability to handle the caseload that you expect?

    Mr. IGASAKI. It would have some effect, but I think we can still handle that caseload.

    Mr. ROGERS. Would your eligibility requirements for mediators change with the new funding in 1999?

    Mr. IGASAKI. They probably would, because right now, we have not set up a specific professional category of mediators. It is a fairly new program. We are still feeling our way. I think we really would be much clearer about the standards we are looking for, and that would be true both with volunteer mediators as well as contracting or staff mediators.
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    Mr. ROGERS. As I mentioned briefly earlier, as we go through this process this year and when we find out what our spending capabilities are when we get the budget resolution passed, as we go through the process, we want to stay in touch with you and find out your priorities as they relate to the dollars that we have so that we can hopefully fund your highest priorities. We may not be able to fund everything you would like to have, but we want to focus it where you think it would be best used and we will talk with you as we go along.

    One of the great defenders of this agency sits on our subcommittee and he is a great resource for all of us and especially for EEOC. Mr. Dixon?

    Mr. DIXON. Thank you, Mr. Chairman.

    I too am interested in the mediation process. What are the qualifications for the mediation process?

    Mr. IGASAKI. Do you mean for the mediators?

    Mr. DIXON. Yes.

    Mr. IGASAKI. Right now, we are basically looking for people of analytical ability to understand the cases before them and basic knowledge of EEO law, whether they come in with it or we provide that training. But the most important thing is someone who has the skills to perform the mediator role; one, to be objective; two, to be able to help the parties get past the things that are separating them. That is basically what we are looking for in mediators.
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    The thing that I think has been historically difficult is to assume that one profession necessarily provides that background. So, for example, with attorneys that we bring in as mediators, a lot of them will have the EEO information, the understanding of the law, but not necessarily the strengths—some of them do, some of them do not, and as a lawyer, I can say that—at bringing people together. In places like California, where there is mandated mediation in the court process, I think it is a much more available skill than some other places.

    Mr. DIXON. I guess I am asking you will external mediators have to have some kind of certification or belong to some kind of mediation association or society?

    Mr. IGASAKI. I think that is certainly something that we would look for. I think that there may be, if we are going to use external mediators, some places where it is going to be very hard for us to get people if we set that up as a standard. So we may need, in addition, to allow for some training opportunities and look for filling the gaps between what someone might have who does not have that mediation experience.

    Mr. DIXON. Tell me, how does the process work? Is everyone offered the availability of mediation?

    Mr. IGASAKI. Well, not at this time. As I told the oversight committee, the biggest bar to mediation is not a substantive bar but simply that we do not have enough mediators or enough opportunities to mediate. So right now, we look for cases that look like they may be amenable to mediation and we offer it in those cases. This is a very small percentage right now.
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    Later on, if we do have the resources to go forward, it is our hope that we will offer it to all cases, except we would want to avoid cases, for example, where it is clearly not a meritorious case. The situation where an employer feels they are just being strong-armed into a settlement to end their investment in the process. And also, those cases where we believe the public interest requires an ongoing EEOC interest in the case. Where two individuals may not be sufficiently representative of all the interests involved in the case. Those are the two things we would filter out.

    Mr. DIXON. Do the parties have an opportunity to reject a particular mediator?

    Mr. IGASAKI. Yes, although one of the things I think that is, is a power balance question. A large company that really knows the system well and has a lot of caseload will know who to reject or not to reject. An individual charging party, hopefully their first charge, probably will not have much to go on, but nevertheless——

    Mr. ROGERS. That is what I was getting at.

    Mr. IGASAKI. Yes. And that is a difficulty, and one of the things that we have built into our process, given that balance. Many times a company may be sending in its general counsel to handle the case and you will have a worker who, hopefully, depending on their job, may have no familiarity with the process and the law. While we cannot have our mediator providing unobjective advice to someone in the system, we have allowed for, if someone has a concern about checking a point, that they can put a hold on the process and step away and speak with an EEOC counselor who can be more direct in answering their questions. We are trying to make sure that there is balance provided in the process.
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    Mr. DIXON. I think that is a serious impediment to mediation, that the person filing a complaint is new to the process and an individual or an organization who employs a lot of people goes through this process all the time and so they become familiar with the style and the attitudes of the people that are mediating.

    Mr. IGASAKI. I think that is one of the reasons it is important for us to have very objective mediators and people who have enough knowledge of EEO law. For example, if one of the parties—hopefully, everyone is being honest in the system—but if one of the parties is not and presents a position that states ''you are never going to get that kind of result in court,'' it is important that the mediator be able to say, ''well, it is not so clear that that is the case,'' or be able to add enough information so that if something is grossly out of step with reality there would be some opportunity for the person to get some advice so that the parties could have a balanced picture.


    Mr. DIXON. I was very pleased to see that Speaker Gingrich is supporting your increase, and, in fact, has provided testimony on March 3 about it. But in that testimony, he raised the issue that he would hope the money would be spent to diminish the backlog and not spent to create more cases, and, in fact, he made reference to the tester system and Commissioner charges. Can you tell us how you use both testers and Commissioner charges?

    Mr. IGASAKI. Well, Commissioner charges, as you know, are something that was created in the 1964 Civil Rights Act and they give us the capability, as any law enforcement agency, I believe, should have, to be able to move on information that demonstrates a likelihood of a violation existing.
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    In most cases, they are situations where someone has come forward with information to us but that, for one reason or another, does not file a formal charge or their charge fails. We may find out, for example, that a particular employer has a policy, let us say race coding, or a policy in violation of ADA in terms of questions being asked on a routine basis. When we know something like that, as a law enforcement agency, we feel the need to do something, and that is where the Commissioner charges are most necessary.

    In terms of testing and Commissioner charges, the area where I think this is most important is the area of hiring discrimination. In the world of employment law, the vast majority of cases coming into us do not involve hiring. This is natural because someone who does not get a job does not know why they did not get the job. We do not want everyone who does not get a job to file a charge with us.

    On the other hand, hiring discrimination may be the area where we can have the most impact on discrimination. We now spend most of our resources on charges dealing with terms and conditions of employment and dismissals, which are important areas, but with 80 or 90 percent of our resources pointed in that direction, we are really spending a lot of our efforts at companies that at least hire minorities, the disabled, and women—those companies where it is almost like a disincentive to hire people who might file charges.

    Hiring discrimination is something we have been always striving to eliminate, because our statutory mandate is to enforce the discrimination laws, not simply to do what comes through the door. With that in mind, we have been trying to find various ways of dealing with and learning about hiring—how hiring discrimination occurs.
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    We have been very cautious with testing. It is an area which a number of organizations have used effectively. We feel it has some promise in terms of teaching us something about how hiring discrimination occurs. So what we have done is we issued bids and we brought two organizations in that do employment testing, both for publicizing things, in some cases, even at the request of companies, to finding out how discrimination is going on. They contracted with us to teach us what they know and from that we hope to know whether we can do more with testing.

    Actually, the EEOC's experience with testing began under Chairman Kemp when the Commission authorized the EEOC to accept testing evidence in cases, and we still do that. So, for example, if someone comes before us with tester evidence of discrimination, we will pursue it. What we are now doing is investigating what are some other ways that testers might be utilized. But as I said, this is a pilot program.

    Mr. DIXON. What percentage of your cases are generated through the tester program and Commissioner charges?

    Mr. IGASAKI. Well, in terms of testing, I do not know that any case that has proceeded all the way to litigation has come from the testing program so far. I think as far as Commissioner charges, it could be anything from 20 to 40 cases a year. I think 40 is roughly right.

    Mr. DIXON. A minuscule number.

    Mr. IGASAKI. Fairly small in comparison to 100,000.
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    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. Thank you.

    As Mr. Dixon noted, the Speaker and, I think, Mr. Fawell, the authorizing chairman, both have said that their support for increased funding is conditioned upon termination of the testers program. What do you say about that?

    Mr. IGASAKI. Well, as I said, in terms of—I am not sure that, at least with my discussion with Mr. Fawell, his support was necessarily conditioned upon termination. He did want to find out what we are planning to do with it and was very concerned about its continuation. I think Speaker Gingrich expressed those same concerns. But I think he also said that he might be open to looking at testing, where we would pursue it only in cases where there was probable cause.

    I think it is likely that if we did anything with testing beyond just the responsive thing, which we are already committed to, it would be something that would be fairly cautious and based on what we learn. We actually, at this point, have no plans to move forward with anything from these pilot programs. They truly are an experiment. So it is something we are going through now to see whether it is appropriate for us.

    We may find that we agree that it is something not to be pursued using EEOC funds, but we did want to go through the pilot program. We do want to see what the results bring us and we would hope that the Congress, as well, will be interested in learning what we learned through this pilot program. It may be more useful and more safe as a reliable method than some might think. So, in other words, we do not have any plans to use any additional funds to do it, but we would like to have the opportunity to have that evidence reviewed.
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    Mr. ROGERS. I have a copy of the letter here dated March 23 of this year to Chairman Livingston and myself from Speaker Gingrich, Chairman Bill Goodling, and Chairman Fawell, which does, in fact, state that they are supporting the increases that you seek.

    Mr. IGASAKI. Yes.

    Mr. ROGERS. Quote, ''provided it institutes reforms that ensure the money is targeted for helping actual victims of discrimination.'' And then they set out six reforms in the letter that they said if made by the Commission that would justify your receiving the full 15 percent increase, and one of the six criteria is ''an agreement by the EEOC not to use its scarce resources for employment testers.'' Then they go on to say, ''We ask you to approve the $37 million increase for EEOC with these conditions. Please contact the authorizing committee to develop in a timely fashion appropriate accompanying language to ensure that the Commission implements the above reforms as a condition of receiving the money.'' What is your reaction to that?

    Mr. IGASAKI. I had not seen that letter. I based my reaction on what I heard at the hearing and my discussion with Chairman Fawell afterward. I certainly would like to look at all those conditions to see whether we can work something out in that regard.

    I think as far as the 1999 money is involved, it would not be our anticipation that—certainly with any of the increase, that nothing would be utilized for testers. As you can see from the package, none of it would be devoted to testing. It is very possible, especially since we would be just reviewing the results of the 1998 pilot project, that nothing would be expended in fiscal year 1999 on testing at that time.
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    Since we have committed ourselves as a Commission, involving the support of both Republican and Democratic members of the Commission, to move forward with this pilot project, I feel that without their vote, I cannot say that we are going to terminate that project without further evidence.

    Mr. ROGERS. You would prefer us to say that?

    Mr. IGASAKI. I would prefer that we had the opportunity to see the results of the pilot project and that perhaps we could have a dialogue about whether it is something that we should not do or whether we should do.

    Mr. ROGERS. Mr. Dixon.

    Mr. DIXON. Mr. Chairman, would you go into a little more detail on the testing? I am not really clear at this point when testing is used. In the Speaker's remarks, he indicates that testing undermines the credibility of EEOC. So start from the beginning of when testing is, in your view, appropriate and when it would be used.

    Mr. IGASAKI. As I said, it is a pilot, so we have not worked out a protocol on this. Based on my understanding of how it has been done from the organizations we have contracted with, essentially, testing is utilized to ascertain whether initial information or an initial sense that there is some discrimination going on is the case.

    Mr. DIXON. So it is generated from the Commission's desire rather than a complainant walking in?
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    Mr. IGASAKI. It could be from a complainant, as well. The reason for doing it is a sense that in this situation, we do not have enough information to know whether there is an act of discrimination going on. There is however, enough to suspect, enough to expend some resources on.

    The concept of sending the testers in would be to establish whether it is or is not. Now, the contractors have told us, more often than not, that the testers actually demonstrate that there is not a discriminatory situation going on, as opposed to that there is, so they may be focusing on one company. Whereas currently we may then proceed to a Commissioner's charge, if we had testing available, we might be able to say, well, there is no basis for that based on this testing experiment.

    Basically, the idea is to have trained people going in who present a package of traits, and this would be basically reserved for entry-level jobs where there is not a lot of complexities involved, and see how they are treated differently. If they are treated differently for the traits that we are looking at, we probably would send in an additional team of testers to make sure that it was not just something as a matter of chance.

    Information will be brought in by these testers, who would be trained to be objective and really would not know more than what they are supposed to go in and offer in return to that agency. The parties would then examine the differentials in treatment to determine if there is reason to believe something else is going on.

    Now, if all of that were to be sustained, there are a variety of things that could be looked at in terms of tester results. One could be to contact the company and say, look what we found. You should remedy this.
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    Another thing would be to look at whether it is pervasive to a given industry and whether we might want to talk about working with the leadership of that industry to make some reforms.

    Or it could be where significant enough results are brought in that litigation or investigation could result from that, as well. We have not committed to any of those, necessarily. That is why we are looking at it.

    Mr. DIXON. If I could pursue this for just a second. Mr. Chairman, is it a case where a company advertises for a certified welder and welder A goes in and has a certification, but has a club foot and he is turned down because they have just filled the job. Now, he has no way of knowing otherwise whether the job has been filled or not.

    And two weeks later, a tester goes in, or maybe on the same day. He has the same certification but does not have a club foot and they say, ''We have been looking for somebody for this job for a long period of time. We are glad you are here.'' Now, the club foot person would not have any way of knowing that he was potentially discriminated against because he just goes away.

    Mr. IGASAKI. Right.

    Mr. DIXON. Is that, in fact, a situation where you might use a tester?

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    Mr. IGASAKI. It might well be. I assume we are talking about the club foot as potentially a disability in this context. I am not sure whether it would be or not in this context, but assuming it would be, that would be an area where we might want to——

    Mr. DIXON. The reason I use that example, is that the tester may go in and decide

that he was turned down because the welder has to walk on a high wire or a two-inch board to get to the welding spot and there may not have been discrimination there, although it is a welder who did not meet the physical qualifications for the job.

    Mr. IGASAKI. Right. Well, some of this gets into complexities of the ADA, basically. We would not leave our testers to make those decisions. If we were concerned about a disability situation, we would send people in with the traits relevant to get that resolved. If we saw that there was an apparent example of discrimination, we would look further. We would not necessarily assume that simply because one person was treated differently in a situation, we have the result. We would use it to go to the next level of inquiry. In a situation like that, we may want to send in several teams of testers to maintain a consistency and make sure that we are getting an accurate result.

    Mr. DIXON. The Speaker's statement also makes reference to an appellate court, the D.C. Circuit, that has made some ruling about the use of testers.

    Mr. IGASAKI. I am not familiar with that case.
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    Mr. DIXON. The Speaker's statement says, ''Finally, the courts are also divided as to whether the concept of employment testers is even lawful. The D.C. Circuit Court of Appeals ruled that employment testers lack standing to bring claims of discrimination.''

    Mr. IGASAKI. Well, it may be. I am not familiar with that case, but I at least know that there are some courts that give standing to testers and approve testers. And as I said, the other thing is that we may not even use these things for litigation.

    Mr. DIXON. The reason I raised it is that we do not have a case in front of us, but the Speaker says that the tester lacks standing. However, it would not be the tester that would be filing the complaint in the case. I can see where a tester would lack standing to bring a filing. That is a professional person that is filing discrimination cases, and that would not be the case——

    Mr. IGASAKI. Not generally. I think that what Chairman Kemp's Commission had said is that they would look at testers as having standing before the Commission. That was asked, and we will be guided by whatever the courts will tell us. But this pilot project is not about going that route. That is something that was decided upon previously by previous Commission.

    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. How many instances of testers did you have in 1997, do you know?
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    Mr. IGASAKI. I think there may have been a couple of cases that have come through, but not supporting litigation. We have not litigated any cases, as far as I know, involving the testers.

    Mr. ROGERS. On how many occasions were testers used in 1997?

    Mr. IGASAKI. By the EEOC, none.

    Mr. ROGERS. I am sorry?

    Mr. IGASAKI. By the EEOC, none.

    Mr. ROGERS. Who else would they be used by?

    Mr. IGASAKI. Well, several nonprofit organizations have utilized testers, and as I said, under the rules established by the Commission since 1990, if an organization comes before us and wants to file a charge based on evidence gathered by testers, we will process it.

    Mr. ROGERS. And how many of those did you entertain?

    Mr. IGASAKI. Well, I think there may have been a few. I am not sure of the exact number. I can find that out. But there have been a few cases that come into the system that—
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    Mr. ROGERS. A few, meaning a dozen or so?

    Mr. IGASAKI. Oh, less than that.

    Mr. DIXON. Well, the complainants themselves may use a tester, right? They may come to you and say, I went to this job and I had my friend, who looked entirely different, go down the next day.

    Mr. IGASAKI. Probably, yes.

    Mr. ROGERS. But there have been no instances of Commission-sponsored testers?

    Mr. IGASAKI. That is correct.

    Mr. ROGERS. But less than a dozen cases that you have entertained where testers were employed or used by an outside nonprofit-type group.

    Mr. IGASAKI. There have been a few. I do not know the exact number. I can check on it.

    Mr. ROGERS. That is the few that you said were less than a dozen, right?

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    Mr. IGASAKI. Oh, yes, far less than a dozen.

    Mr. ROGERS. Who else would use testers, other than the situation that——

    Mr. IGASAKI. I know, for example, that there are some companies that use testers in their own field offices, certainly, but beyond that, I do not think there is a lot of employment testing that is going on. I think there have been efforts to pursue it, but I am not sure where else it is happening.

    Actually, one of the meetings recently of State attorneys general, a number of States have said they had begun using employment testing, but I am not sure what that means because I do not know exactly what they have done with it.

    Mr. ROGERS. You gave $200,000 in contracts to organizations in D.C. and Chicago——

    Mr. IGASAKI. That is correct.

    Mr. ROGERS [continuing]. To use testers, right?

    Mr. IGASAKI. Right. Well, basically to work with us on testers, give us a sense of how it would operate and whatever we might do. For example, since one of the offices that is working with us is based in Chicago and one in Washington, D.C., they are going to help us look for places where we might try to do it just to see what kind of results we could bring.
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    Mr. DIXON. That very well may be what the Speaker and Mr. Fawell were referring to with the active outreach of the testers program, was this $200,000 contract—is that what he was referring to?

    Mr. IGASAKI. That would be my guess, yes.

    Mr. ROGERS. What do you say about that?

    Mr. IGASAKI. I just said, this is a 1998 program. We do not have a particular line for it in 1999, so based on what we will be looking at in terms of the 1999 budget currently, we do not have any intent to carry it forward in 1999. What we seek to do is learn whether there is something that we can do, and it would have to be something useful in helping us deal with the problems.

    Mr. ROGERS. But you are not going to have any line item or contractor or authority to go outside your Commission for testers in 1999?

    Mr. IGASAKI. That is currently the way we are looking at it, yes.

    Mr. ROGERS. I am trying to find a way to thread the needle here.

    Mr. IGASAKI. One way to look at this is that when we get results from our testing program, we are going to take some time to analyze them and look at them to see what we have learned. Frankly, just in working as quickly as the bureaucracy can work, it is unlikely that would be happening in fiscal year 1999. We would do the analyzing, but in terms of any additional proposals, it probably would not even be in the next fiscal year, and it is something that Congress wants us to slow down the program enough to have input and see how we have done. That is one way we can take care of it, to say that in 1999, we will assess and analyze what we have learned. I think input from all of us is appropriate before we move further on anything else.
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    Mr. ROGERS. In our report language last year, we asked for reports preparing expenditures on charge processing to expenditures on litigation. We wanted to establish a way to identify the level of resources being used for litigation, and then specifically within that amount, how much for different aspects of litigation, including intervention?

    As you know, you cite charge processing as your highest priority and we want to be able to objectively measure whether your ongoing activities reflect that priority. I understand that the best reporting you could provide shows that direct costs for charge processing were about three times greater than the direct costs of litigation, is that correct?

    Mr. IGASAKI. That is correct, yes.

    Mr. ROGERS. And you are working on a pilot project to capture those costs more accurately?

    Mr. IGASAKI. We are working on a pilot project. We were able—the two-thirds figure does reflect the non-personnel costs. What the project is designed to do is assess in terms of the overall expenditure of time by our staff people. That portion of the resources is devoted to litigation as opposed to investigation.

    As you know, we have asked our attorney pool to spend a whole lot more time, training and consulting with our intake staff, and investigative staff. So what the pilot is designed to do is, for one thing, to assess how much time they are spending on that so that you cannot just simply say that all the attorneys are 100 percent litigation. So we are trying to assess what percentage of their time was being utilized in that way.
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    Also, in terms of the amount of time investigators spend, which would be a smaller amount, supporting litigation rather than other field staff and headquarters staff.

    Mr. ROGERS. We want to be able to evaluate the monies that you are spending for intervention and litigation as compared to charge processing. So we want you to develop that material for us.

    Mr. IGASAKI. That pilot project is underway right now and we expect to have the results, at least preliminary results, by June sometime.


    Mr. ROGERS. And you also provided a report on the criteria that you used to decide whether or not to intervene in private lawsuits——

    Mr. IGASAKI. That is correct.

    Mr. ROGERS [continuing]. Or to file parallel lawsuits, and the task force report includes recommendations in that area. How do you plan to proceed on the task force recommendations?

    Mr. IGASAKI. We do anywhere from four to eight interventions a year. Most of those are small cases. A few of them may be very large cases. I think that is why there is so much interest in the intervention area. We had a few very visible interventions.
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    We shared the language the Commission uses to decide whether to intervene with the Committee and with the oversight committee, as well, to see whether there was any input on what additionally might be needed.

    The Commission is prepared—I spoke individually with my colleagues—to formally enact these standards, which we are already using, at the Commission level, and to add to them if there are other criteria that people think we are missing.

    Basically, the criteria as they stand now relate to the public interest. Is there some interest served by the EEOC coming in? Now, as you know, the courts have standards about whether we would even be allowed to intervene in that case, and our criteria reflect those standards, and in addition, our standards in terms of how to use our money.

    Mr. ROGERS. You have said you intervened in seven private actions in 1997.

    Mr. IGASAKI. Seven? Yes, that sounds right.

    Mr. ROGERS. How many in 1998 so far?

    Mr. IGASAKI. That, I do not know. None—zero.

    Mr. ROGERS. All right. And what are the totals for parallel lawsuits both in 1997 and 1998 today?
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    Mr. IGASAKI. I do not know. We do not have it. I can get that for you, though.

    Mr. ROGERS. File that for the record, if you would, please.

    [The information follows:]

Table 3

    Mr. ROGERS. And if you do not mind, provide a summary of those interventions and parallel lawsuits, a summary of the case including factual details, the rationale for your involvement.

    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. You are asking for a $9.6 million increase for automation.

    Mr. IGASAKI. That is correct.

    Mr. ROGERS. What is your base funding devoted to this function?
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    Mr. IGASAKI. I just looked at that figure. I think we are spending—currently, in fiscal year 1997, we spent $709,000 for software development, $1.9 million for purchasing hardware and software. In fiscal year 1998, we expect to spend $500,000 for software development and $1.2 million for our hardware and software purchase.

    These are actually larger figures than historically has been true for the agency, although they fall short of what we would need to set up the national network that we would like to do.

    Mr. ROGERS. Why have you devoted so little to automation in the past?

    Mr. IGASAKI. Well, frankly, because as I explained, most of the work of the agency, taking cases, and investigating those cases, involve human resources and those are very costly. So to take any of those resources to invest in technology any more than this would require causing an even greater crisis than we already have in terms of the basic bread and butter of the agency, which is processing complaints. It would result in greater backlog and problems along those lines.

    Mr. ROGERS. What I am getting at is do you not think that maintaining an adequate annual investment in this area, would it be a better approach than dumping it all in one year? It seems like if you put a reasonable amount in every year, increase your base for automation over a period of time, rather than a crash program overnight—it would cost us less, too, I think, and serve your purposes better, do you agree with that?
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    Mr. IGASAKI. Well, I think as a general rule, that is correct, although the truth is that we had so little devotion to technological capabilities historically, that we have not been able to maintain that level. So even to get to a level of adding something additional, we have to meet certain capabilities.

    For example, some of the networking capabilities that we are talking about require certain personal computer capabilities in terms of how much—I am certainly no expert in this—those individual computers would have to have memory capacities beyond what our current computers would rely on. So we need to buy those first.

    Mr. ROGERS. The point I am driving at is, you got some pretty good increases the last couple of years while most every other agency that we funded were either flat-funded or decreased. We gave you an increase in 1997 of $7 million and a $2.3 million increase in 1998. I know those are not huge numbers, but it would have allowed you, I think, to have begun to increase your automation.

    Mr. IGASAKI. Well, I don't think that was it, because with the $2 million, while we certainly appreciate it, we ended up having to lose staff positions as opposed to gain them, so we certainly did not have any new money. Because the costs go up for us considerably every year $2 million really gets eaten up very quickly. The $7 million was larger, yes, but given the increase in costs and the fact that it was on top of many years of no increase, then it meant that, ultimately, we end up losing because we are filling vacancies in the field. We are incrementally helping our technological capabilities, but not enough to make a difference.

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    I think that your point is very well taken, being able to stay ahead of the curve on technological development, and I would like to see us do that. I think these amounts that we are spending in 1997 and 1998 might be sufficient after we get to the point where we have been able to bill the costs. But to get to the point where that relatively modest increase is useful to us, we need to make some additional expenditures. I agree that this is not the best way to go, but I do not think we will ever get there if we try to do it nickel-and-dime year after year.

    Mr. ROGERS. Mr. Dixon?


    Mr. DIXON. Just one question. I noticed that your budget does not have any additional money for the cases that you farm out to Fair Employment Practices Agencies at the State or local level, that it is flat-funded. Is there a reason for that? I mean, you do not anticipate an increase in funding?

    Mr. IGASAKI. No. We have not added in this package an increase in the State and local budget. The concept there being that in working with the White House on this project, we focused on what we needed to enhance our capabilities. Certainly, I think the FEPAs could use additional monies, and we supplement them to a tune of $500 a case. Certainly it costs them anywhere from $1,500 to $2,000 additional to actually prosecute those cases. We fund them for some of the cases and it really is up to the States to determine how much extra they are going to put in. It varies so wildly that it is hard for us to say what we are getting for those investments on a national basis.
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    California, for example, has a fairly substantial Department of Fair Employment and Housing. Some other States, South Carolina for example, only do public sector cases. There is another State, I am told, or there are two States that do not have any FEPAs at all.

    So I think there is variance in terms of that. Certainly, if Congress would like to fund them for additional resources, I think it helps the cause overall. But what we focused on here is the EEOC needs.

    Mr. DIXON. Let me ask it another way. You look at the funding for the States as a supplement to their budget rather than enforcement policy for you.

    Mr. IGASAKI. Well, it is part of our enforcement policy, but given the amount of money that we are able to share with them, it is really only a supplement.

    Mr. DIXON. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Chairman, thank you for your testimony this morning. It has been a useful exchange of information, I think. We know much more about your request than we did before and we appreciate your testimony. We will do the best we can to accommodate your very important work. If the Speaker will give us enough money with which we can do our job——

    Mr. IGASAKI. I hope he will.
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    Mr. ROGERS [continuing]. Then we will honor his obligations that he makes on our behalf. [Laughter.]

    Thank you.

    Mr. IGASAKI. Thank you.

    [The following questions were responded to for the record by the EEOC:]

    "The Official Committee record contains additional material here."