Segment 2 Of 2     Previous Hearing Segment(1)

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    Mr. PORTER. Mr. Jeffress, the subcommittee is going to have lots of tough questions for you, as you know, but let me say that I have not heard a better statement before this subcommittee in a long, long time. I think you laid out the mission of your agency extremely well. You reflected the kind of thinking that I think exists on both sides of the aisle here, that we can change the old ways of doing business and improve the work of the agency. I think your predecessor, if this is reflective of the kind of approach that both he and you followed and will follow, obviously it gets results.

    So I'm very encouraged both with our earlier meeting and with hearing your testimony this morning. I would say that if everybody in the agency will think the way the boss thinks, you're probably going to make these numbers go down even further.

    Mr. JEFFRESS. Thank you, Mr. Chairman. We'll work on that.


    Mr. PORTER. You haven't really mentioned what kind of changes you would like to make in the agency. Have you given that, you've only been on the job a short time, obviously, but have you given thought to what you see that really needs changing?

    Mr. JEFFRESS. Well, I've been here three months, Mr. Chairman, and I spent about a month of that time visiting with the OSHA offices around the country, talking and listening to the staff, and hearing their outlook on things. At the same time, I took the opportunity to visit with employers that we had invited to join us in the Cooperative Compliance Program and to talk with them and listen to them about what direction they thought OSHA should take.
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    Clearly, the first priority for me is to continue the kind of reinvention that Joe Dear started. The culture change in an organization takes a while to take effect. Four years ago, OSHA was primarily an inspection agency. We went into a work place, and the usual expectation of the compliance officer and the employer was that the compliance officer would come in with a book of rules and look to see if there were any violations to those rules, and write people up if there were violations to the rules.

    What we are moving to, and what Joe started and I'm determined to continue, is an attitude change where, when the compliance officer comes into a work place, the compliance officer's goal is to assess what is it that is hurting people or could hurt people here, and what can I do to work with this employer and these employees to keep that from happening, to reduce the chances of someone getting hurt.

    We want to move from seeing ourselves as inspectors to seeing ourselves as safety and health professionals, and giving advice and assistance. I believe that's happening. I've seen it happen. The best example recently was when a Dallas, Texas newspaper did an interview with employers in the Fort Worth area and with our area director there. And he said, in his own words, that four years ago he thought of himself as an inspector. And today he thinks of himself as a professional who is coming in to help people determine what they can do to reduce injuries and illnesses. That culture change is the most important thing that I want to continue in the agency, Mr. Chairman.

    Frankly, in another area that is separate from this, OSHA is still developing standards the way we have for years. Speaking before the Senate Labor and Human Resources Committee on Tuesday, Senator Collins remarked how frustrating it was for her as a Senator to see rules take four, eight, twelve years. Senator Reid pointed out that the confined space rule took 17 years for OSHA to get out.
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    I believe we've got to find a better way to develop standards. We began doing this the past couple of years with negotiated rulemaking, getting all the stakeholders in a room together and trying to develop a standard together, with input from the people affected.

    The steel erection standard is the first big one to come out that way. The shipyard standard was developed in a cooperative

way, in a negotiated way. And that worked last year.

    I think we can reinvent our standards process so we can develop these things quicker and in consultation with the people affected.


    Mr. PORTER. The law governing OSHA was adopted, I believe, in 1970 and really hasn't been changed very much since that time. Are there any changes in the law that you see necessary at this time?

    Mr. JEFFRESS. One of the beauties of the OSHA Act, Mr. Chairman, is that it is written in a flexible manner. And I believe, as you have seen, the agency's made a significant change in the way we do business without any changes in the Act.

    So I believe that the Act itself is flexible enough as it stands to allow us to enforce it and educate people in appropriate ways. The Administration testified earlier, on a bill introduced by one of our Congressmen from North Carolina, Mr. Ballenger. We reaffirmed at the time that we shall not use quotas.
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    The Administration in the past has also suggested that the way we do consultation would be an appropriate area to endorse. And while the bill is moving through, there are still a couple of minor points that we want to work on. I believe you'll find support for that position as well.

    Mr. PORTER. Several of our members have requested that we proceed as quickly as possible and we're going to operate under the five minute rule this morning and save time for a second round.

    Mr. Stokes.

    Mr. STOKES. Thank you, Mr. Chairman.

    Good morning, Mr. Jeffress.

    Mr. JEFFRESS. Good morning.

    Mr. STOKES. Let me thank you for the courtesy visit you paid to my office a few days ago.

    Mr. JEFFRESS. Yes, sir.

    Mr. STOKES. It was a pleasure to have you visit with us.

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    Mr. JEFFRESS. Thank you. Glad to be there.


    Mr. STOKES. In your opening statement, you make reference to the fact that injuries and illnesses in the construction industry, which account for about half of OSHA's inspections, have dropped below those in manufacturing for two consecutive years. To what do you attribute this factor?

    Mr. JEFFRESS. As with other declines, I attribute the factor always to the attention paid by employers and employees in that industry to safety and health. After all, it's those people at the work site every day that look out for one another and make a difference whether someone gets hurt or not.

    So I think we should pay tribute to the industry as having made a major effort the last few years to address their injuries and illnesses. I also believe that the attention that OSHA has paid contributed to this. The fact that we make 10,000 to 20,000 inspections every year in the construction industry helps keep a focus, if you will, on safety and health in that industry.

    But we have some partnerships. We have a partnership in the Illinois-Ohio area with roofing contractors, where we've worked hard on fall protection for roofers. That seems to be going very well. We've had partnerships in a number of places with home builders, and the overall construction rate has come down below manufacturing for the first time over the past few years. But the homebuilding rate has fallen even further.
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    I believe what I've seen out there, Congressman, is much more attention to safety and health by the employers and employees in this industry.


    Mr. STOKES. Mr. Jeffress, let me ask you this. Violence in the work place is now becoming a very serious problem. I understand an average of 1,000 workers are murdered, and nearly a million are assaulted in the work place each year.

    According to the Bureau of Labor Statistics 1996 Census of Fatal Occupational Injuries report, homicide continues to be the second leading cause of death for all American workers. And, it is the leading cause of death for women.

    What specifically is OSHA doing to address this problem in the work place?

    Mr. JEFFRESS. As you say, it is one of the leading causes of death in the work place, and one that troubles all of us greatly, particularly since the violence is so frequently introduced from outside the work place and not generated from what's going on in the work place itself.

    OSHA began addressing this area a couple of years ago by collecting information and talking to employers and employees about the issue. And we issued guidelines for the health care industry. One of the leading problems in the health care industry is not death, but in fact, work place violence, particularly patient violence on health care workers. It may happen when people who are being lifted, someone slips or they get angry and they lash out and they hit someone. That kind of violence is a concern in that industry. And we did issue some guidelines on how people in that industry could protect themselves and protect their employees better from that kind of violence.
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    We have under development, and we'll be discussing with a group of stakeholders tomorrow, recommendations to prevent work place violence in late night retail operations, where these are not attacks from patients, but tend to be the homicides that occur during robberies.

    We have a whole list of recommendations. We have met with a number of staff folks from Capitol Hill. We issued a proposal for guidelines a little over a year ago, and have had a lot of input and advice from police chiefs, from law enforcement folks, trade associations, unions. We have developed some recommendations which we will discuss tomorrow and hopefully release as soon after as possible, based on our best advice to people on how to prevent this.

    So we're working through guidelines, through recommendations. It's an area where it's a tragedy for everyone concerned, and frequently very difficult to anticipate, because the problem gets introduced from outside the work place.


    Mr. STOKES. I note that OSHA is striving to work closer with small businesses. I understand that you're about to issue a pamphlet devoted to that, is this correct?

    Mr. JEFFRESS. Yes, sir.

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    Mr. STOKES. Do you want to tell us a little bit about it?

    Mr. JEFFRESS. Yes, sir. One of the things that Congress has directed that we and other agencies do is to make sure that small business considerations are taken into account in our work. I mentioned the pamphlet that was just off the press this morning that we will be distributing through Small Business Administration offices, and through the small business development centers at community colleges across the country. These are ways that will reach small businesses and folks who don't want to call OSHA. We'll try to get this information out to them so they can understand what their responsibilities are.

    Also, we have worked with small businesses and the Small Business Administration on field hearings, when it comes to development of OSHA standards, when it comes to development of OSHA policies. We've made an effort to reach out to small businesses with the assistance of SBA and to listen to their concerns.

    I'm happy to report to you that the ombudsman's office for the Small Business Administration reported to Congress three weeks ago that OSHA has made major strides in its outreach to small businesses, and that in their hearings across the country, they heard praise for OSHA. That's a big change from 10 years ago, Mr. Congressman. I'm proud of what we've done.

    Mr. STOKES. Thank you, Mr. Chairman.

    Mr. PORTER. Thank you, Mr. Stokes.

    Mr. Bonilla.
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    Mr. BONILLA. Thank you, Chairman.

    Good morning.

    Mr. JEFFRESS. Good morning.


    Mr. BONILLA. I'd like to start out by saying that I appreciate you stopping by my office yesterday. I like what I'm hearing, about the attitude of OSHA having more of a compliance agenda versus an enforcement agenda. I just hope that again, as the Chairman mentioned earlier, that this agenda is one that troops at OSHA carry out as well.

    As you know, a lot of agencies in this town do not reflect necessarily what the boss is saying. So I know that you've been around a while, working in government back in your home State. But you've got to watch for those folks that still think that it might be a good idea to have quotas and that it might be a good idea to come in with a gestapo-like attitude.

    You know, my concern is for all those small businesses out there, where people are working day and night to try to make their business more productive and create more jobs. We've had this talk before. I just want to make sure that while we're talking about worker safety, we're not making it harder for these people to realize the American dream out there.

    Again, I like what you have to say, and I hope that your agenda trickles down to everyone at OSHA. But it's not going to be easy.
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    Mr. JEFFRESS. Yes, sir, and I appreciate your concern. With approximately 1,200 federal inspectors across the country, getting consistency is always an issue. But I will say that I also think that the local initiatives are one of our strengths as well—specifically, the reinvention in area offices, where they don't just think in terms of responding to events, but think strategically about what would make a difference in their local area.

    And giving the local area offices some responsibility and authority to design a program that makes sense in their particular area is one of our strengths. But as you say, it also makes consistency an issue, and something we will need to continue to work on.


    Mr. BONILLA. I'd like to ask a couple of questions in the area of ergonomics. You know that's an issue I've been involved in for many years now. I know you mentioned the language that we put in the bill, effective this fiscal year, which prohibits the issuance of a final standard on ergonomics.

    But you didn't mention in your testimony that it also prohibits the enforcement of voluntary ergonomics guidelines through the general duty clause. This is something that concerns me greatly. We have discussed before in hearings in this subcommittee the situation with Hudson Foods. I just want to make sure that we're all on the same page here.

    My concern, as I expressed to Secretary Herman earlier, is that there could be a violation of Federal law, because this was law that we wrote last year in the bill and it looks like OSHA was trying to circumvent that law. The question I have is, how many other citations, without getting into the Hudson Foods case again at a hearing here, how many other citations has OSHA issued for alleged ergonomic violations or ergonomic hazards under the general duty clause, besides the Hudson Foods situation?
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    Mr. JEFFRESS. Over the past 10 years, we have been issuing citations under the general duty clause for ergonomic violations. This is not something new that's just cropped up in the last few years. Historically, we have been issuing citations under the general duty clause for this. And each year, some cases lead to letters of warning to employers, and some lead to citations.

    For those cases that actually lead to citations, I'll just go back the last couple of years to give you a feel for it. In fiscal year 1995, there were seven cases, in fiscal year 1996 there were three cases; in fiscal year 1997 there were five cases. And the one you mentioned, Hudson Foods, actually is a fiscal year 1997 case, because that's when the inspection was initiated. The citation was actually issued in December of 1997, which is the current fiscal year.

    There have been no cases initiated this fiscal year for which citations have been issued.

    But most importantly for us in this area, we will comply with the intent of Congress and with the wording of the restriction that we not issue citations based on voluntary guidelines. We have not issued voluntary guidelines and will not be issuing voluntary guidelines on ergonomics at this point. We're working on developing a standard.

    There were guidelines issued some years ago on red meat, but we're not proceeding with voluntary guidelines or ergonomics, at the direction of Congress. But we come upon situations where we find employees whose hands are crippled, who have suffered surgeries, and I've had employees come and sit in my office who can't hold a glass of water, a woman who has her daughter on her lap and can't brush her hair because she can't hold a hairbrush. These folks have been crippled by what's going on in their work place.
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    When we find situations where that has occurred and the employer has knowledge of it, and where the employer has not only knowledge of it, but has had internal advice or advice from consultants that he has hired on what can be done to fix it, and where other employers in the same industry have taken actions to fix these problems and kept people from getting crippled, when we find those situations where employers turned their back on crippled employees, in those situations we will cite for a violation of their general duty, their basic obligation to provide a safe and healthy work place.

    But I assure you, we will not develop voluntary guidelines and issue citations because someone didn't follow our recommendations. We work very closely with our solicitors in this area, I believe that was the intent of Congress, and we certainly will not violate that intent in terms of issuing citations based on guidelines.

    Mr. BONILLA. I believe I'm out of time, Chairman, if you would just permit me a closing, very brief comment. I'm going to submit some questions for the record, as I said, because I've got some very serious questions. In your testimony, the reference to musculoskeletal disorders accounting for one-fourth of all work place injuries and illnesses, and that's in contradiction to what the Bureau of Labor statistics cites, which says that they amount to about 4 percent.

    So I'm going to submit for the record some questions in that area, and I would appreciate it if you'd respond to them.

    Mr. JEFFRESS. Okay, one clarification. That is of all illnesses, not all injuries and illnesses.
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    [The information follows:]


    OSHA uses BLS data to develop estimates of the number of ergonomics-related injuries and illnesses. The agency estimates that there were 640,000 work-related lost workday musculoskeletal disorders (MSDs) in 1995. MSDs represented nearly 25 percent of work-related lost workday injuries and illnesses in 1995. The OSHA estimate includes all overexertion and repetition-related lost work time injuries and illnesses that resulted in musculoskeletal disorders or carpal tunnel syndrome. The OSHA data are estimates because the BLS category of ''disorders associated with repeated traumas'' is not an estimate of all MSDs. For example, this category includes illnesses and disorders that are not MSDs, such as hearing loss, and does not include all injuries that are clearly MSDs, such as strains caused by overexertion. OSHA is currently working with BLS to develop published estimates of the number of workplace MSDs (both injuries and illnesses) from 1993 to 1996.

    Mr. PORTER. Thank you, Mr. Bonilla.

    I would remind members, I've had several members request special exemption so we can move quickly, and we will have a second round.

    Ms. Northup.

    Ms. NORTHUP. Thank you, Mr. Chairman.
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    I'd like to turn for a minute to the Cooperative Compliance Program, and also the question of finalizing standards. It's my understanding that the final standards for what's included in restricted or lost work days is not finalized. Is that correct?

    Mr. JEFFRESS. We've had a rule out for 20 years that defines what constitutes a lost work day. And it does include a restricted work day. We're working on a clarification to that rule, and the clarification has been under consideration for a year, too, and is not out. But there is a rule that's been in place for 20 years on that.

    Ms. NORTHUP. Well, I'm very concerned about the fact that you would now identify out of 80,000 work places the 12 that are the most dangerous and have the highest lost work days, when you haven't finalized the definition of lost work days. In particular, this has affected an automobile manufacturer in my district who is working very hard to overcome ergonomics problems by rotating its employees.

    What happens is, if an employee has five different jobs that use different joints and parts of the body, in order to avoid ergonomic injuries, they rotate the jobs. Let's say they start to have a shoulder that acts up, so they get transferred into the four of the five jobs so they can let that shoulder rest. Currently, as you interpret it, it is included currently as a restricted work day or a lost work day.

    Mr. JEFFRESS. What the rule currently says, and has said for some time, is that if employees lose time from their regular work, cannot perform their regular work because of some illness or injury sustained, that counts as lost time.
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    Ms. NORTHUP. Well, that's basically saying what I just said.

    Mr. JEFFRESS. Job rotation is one way to address ergonomic problems. And if there is a standard rotation and the person rotates according to that standard rotation and does not lose time from anything in that standard rotation, then there's not a lost work day.

    But if they're supposed to be doing this job today, and it hurts so bad they can't do this job today, and they have to do a different job, at that point it is restricted work.

    Ms. NORTHUP. So in other words, all you do by using the best antidote to ergonomics, protecting from ergonomic injuries by rotating employees and having them do and stress different parts of the body, that's the best remedy or protection from ergonomic injuries. However, if a company does that, then they're vulnerable to any part of the body that hurts.

    If they were painting their house yesterday and had their arm up, then they might be rotated among four of the five jobs, they work a full time, get paid full rate for the day. But they're now counted by that company as being on a restricted day.

    Mr. JEFFRESS. Well, actually, Ms. Northup, while job rotation is one of the ways to address job ergonomics, it's not the best. The best way is to redo the job or change the environment so you don't have to move off of it. If that person has to reach up high on the chicken line, if they could stand on a box and reach right here, then they wouldn't have to rotate the job.
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    Ms. NORTHUP. The point that I'm trying to make is, you make yourself much more vulnerable by rotation, even though that may be the preferred for other reasons, maybe ergonomics, that what you do is you make yourself much more vulnerable for getting counted as a lost work day, when in fact it's not a lost work day, and it's very different from a lost work day.

    Mr. JEFFRESS. I hear you very clearly, and that is a point of debate within the safety and health community, when someone does work but can't do their regular job, how should we consider that. It currently is lost time from the regular job, so that's counted as lost work.


    Ms. NORTHUP. Well, what you do is you really encourage companies not to have this rotation. Because of falling into the category. The voluntary compliance, I think what a number of businesses in my district complained about is that it went from voluntary to pretty compulsory. Because in fact, you sent a letter to these 12,000, but you didn't ask, if they would like to become a part of this program. What you said is, if you don't sign up for this program by January 31st, then you are going to be subject to a whole other inspection and aggressive effort by the OSHA.

    Mr. JEFFRESS. It's really important to me to get that straight on that particular program. Because I think it is a very important and a very good program that OSHA has begun. We identified 12,000 work places as having the highest rates of injuries and illnesses, and these aren't our rates, this is information the employer gave us, so it's based on the employer's own data.
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    Ms. NORTHUP. But it's based on a standard that you haven't finalized that may use restrictive days instead of lost days.

    Mr. JEFFRESS. That standard has been in place for 20 years. And we identified 12,000 of the most dangerous work places, there are others that are dangerous as well, but 12,000 of the most dangerous work places in America.

    And we said to them, we've made a list, we've checked it twice, and we know where the highest rates of injuries and illnesses are. So this becomes our primary inspection list. And we will inspect based upon this primary inspection list.

    For those employers, though, who go beyond that and want to invest in a more active safety and health effort, who will look for hazards and fix hazards in their areas, who will invest in safety and health programs, involve their management and their employees in safety and health programs, for these employers who make an exceptional effort on their own part, there will be a reduced chance of inspection.

    But there is a primary inspection list. There is no penalty if you choose not to join. There is no penalty for failure to have a safety and health program. There is a primary inspection list. And you will be on the primary inspection list.

    If you choose to do more, then there is a reduced chance of inspection. But it's not a penalty for punishing people who don't do it.

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    Ms. NORTHUP. That's not how it was interpreted. And I think you actually have a State where somebody has gone to court and found, asked you and said you can't proceed. But I'd just like to close and say, one of the parts of that is, businesses have to form a safety committee, which I believe violates the NLRB's regulations, that unless you have a union and it's formed under that, you're not allowed to form one of those committees.

    Mr. JEFFRESS. Well, actually what it says is you need to involve your employees. And we do not specify committees or any other particular type of involvement. There are a lot of different ways that employers have of involving employees in their activities. Total quality management some years ago talked about a lot of different ways of involving employees in a lot of issues in the work place, safety and health being one of them.

    And I very much believe that having employees involved in identifying some of the problems is an important way to do business, whether it's safety and health or other aspects of production.

    Ms. NORTHUP. Thank you, Mr. Chairman. I have more questions that I will follow up with.

    Mr. PORTER. Thank you, Ms. Northup.

    Mr. Obey.

    Mr. OBEY. Mr. Chairman, before I proceed under my time, I'd like to raise a question of process. I'd like to inquire who is the camera represented by?
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    Mr. BLACK. J.R. Black, International Media.

    Mr. OBEY. And what is that?

    Mr. BLACK. A video company that records hearings.

    Mr. OBEY. And my question is, are you a public news organization or have you been hired by a private source?

    Mr. BLACK. I'm here, someone called me, I'm not sure who hired me. I'm just a recorder.

    Mr. OBEY. Mr. Chairman, let me explain why I raised it at this point. There is a long history of private economic interests trying to bring cameras in this room to film hearings that relate to OSHA.

    A number of years ago, we had a controversy when Mr. Thorne Auchter was running OSHA. And at that time, frankly, I had gotten a lot of papers over the transom from people within OSHA who were upset about the fact that the new nationally determined plan that in the Denver regional office they would have been required to inspect a number of Coors plants.

    There was great controversy about whether Washington intervened with the Denver office to prevent inspection of several of those plants. Mr. Auchter knew that I was going to be questioning him at great length about that. And when he appeared in this room, there was a camera that accompanied him. And we were told afterwards that a copy of that film had been sent on its way to the Coors people that evening after the hearing.
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    Now, I have no idea, and I'm not in any way accusing anyone of anything, but I think that when a camera is in this room, we have a right to know whether it is a straight news organization, or whether in fact some private party has used its resources to try to film the events of this hearing, events which can then be taped and spliced and cut to make any point they want to use, either for fund raising purposes or for legal purposes down the line.

    So I for one would like to have more assurance that if cameras are in this room, they are not cameras with an axe to grind, but here simply to report to the public what the actions are of their representatives.

    Mr. PORTER. Well, I think it's a point well taken, we ought to know the reason and who the camera represents. The rules of the House provide, of course, that all hearings of all committees will be open to the public and open to the press. And if the gentlemen represents the press, then he certainly is welcome here.

    But we would ask that you discover who has sent you.

    Mr. BLACK. I assure you there's no axe to grind.

    Mr. OBEY. Well, let me simply say, as I said, I'm not accusing anyone of doing anything. But I think this committee needs to know ahead of time when cameras are in the room who they represent. And I may be overly sensitive on this area, but having been burned once before and knowing of the great desire of very large monied interests in this issue, I just want to make sure that in fact there is no private purpose behind any filming.
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    And as I said earlier, I'm not at all accusing you. I just am reciting past history of this committee. We have a right to see to it that the rules are followed. We have an obligation to see that the rules are followed in a way which is consistent with the intent of those rules, which is to provide for expanded public knowledge, not expanded private interests.

    Mr. PORTER. I would ask the gentleman to inform us, and I would ask the gentleman, because we have so many members that have other assignments to proceed now and discover what the reason is.


    Mr. OBEY. I just have, I think, three questions and one point to make. It was asserted by Mr. Bonilla and moment ago that because you had proceeded under the general duty clause to inspect some plants, because of your concern about musculoskeletal injuries, that in fact you were in violation, or you might be in violation of the law.

    For how many years have you used the general duty clause to enforce egregious, against egregious ergonomics problems?

    Mr. JEFFRESS. Of course we've used the general duty clause since the beginning of OSHA in 1971. We've been citing for ergonomics problems using the general duty clause since 1985.

    Mr. OBEY. Isn't it true that you have cited, that you have engaged in over 250 such actions using the general duty clause?
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    Mr. JEFFRESS. Yes, sir, that's exactly right.

    Mr. OBEY. I would respectfully suggest then, that it's very clear to me that the agreement reached last year in no way was trying to prevent you from doing what you had been doing in the past, since I was a party to that agreement. I think common sense would dictate an understanding that that agreement was to try to make certain you do not engage in any new end runs to enforce new standards while there was a controversy about the direction that those new standards should take.

    Mr. JEFFRESS. That was our understanding, Congressman, that we would not develop voluntary guidelines. The final language actually said that we would not issue citations based upon voluntary guidelines. So it was really predicated upon new activity by OSHA, not continuing what we were doing.

    Mr. OBEY. Let me also simply make one statement. I noted this morning that a document called Inside OSHA dated February 23rd refers to the continuing difference of opinion that Mr. Bonilla and I have had on this issue. It indicates that a source close to Congressman Bonilla said that Obey is supposedly breaking the ergonomics agreement, since I am apparently attempting to kill an NAS study which he requested subsequent to our agreement.

    I just want to say something for the record. I've been in this Congress 29 years. I think I've developed a very clear reputation. And I think that virtually anyone would grant that that reputation is that I am up front and blunt, sometimes brutally so. But that I don't play sly games. And I defy anyone to cite any agreement that I have made in that 29 years that I have ever broken.
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    I think I may have a reputation for being, some people may think I'm wacky on an issue, but by God, I don't think anybody thinks that I go around peoples' backs. It's too much fun to go at them front ways. [Laughter.]

    So I would simply say that Mr. Bonilla and I can have a legitimate difference of opinion about what you ought to do. But I want to make clear, when we reached that agreement last year, it simply said that no funds would be made available for you to enforce voluntary ergonomic guidelines, and that we indicated there would be no further efforts to legislatively dictate what your agency could do on that subject.

    At that time, Mr. Bonilla indicated he was going to write a letter to try to get other agencies of Government to stick their nose into the argument. I told him he was free, as a member of that committee, to do any blessed thing he wanted.

    But I certainly never indicated that I was going to buy into any letter that he would send to anybody. And I reserve the right, just as he does, to take individual actions outside of the committee. I think that it's pretty clear that there has been no effort on my part to break any deal.

    And I want to say one other thing. While I certainly agree with Mrs. Pelosi's comments that NIH was naive to get sucked into this debate, I specifically have told NIH that they ought to make up their own mind on this issue, that I am not—and I was asked by them, because they knew I didn't like what had happened. I was asked what my advice would be to them.
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    And I said, I have no advice. I want you to follow your best professional judgment, just as you have and you're supposed to do in every other case. In this committee, Mr. Porter and I for years have resisted political invasion of scientific judgments. That's the main reason I wanted on this committee in the first place.

    So I just want to make quite clear that if somebody is trying to bust an agreement and slide around it, it sure as hell isn't me.

    Mr. PORTER. Thank you, Mr. Obey.

    I suggest, because I think it is much better that we sit down and discuss these matters face to face, as you indicated you are always willing to do, that instead of airing them in a hearing from either side, that my intention would be to invite both you and Mr. Bonilla to sit down, if you want, in my office and discuss this matter face to face.

    Mr. OBEY. I have no problem with that, but since the comment was made in public print, I felt I ought to respond to it in a public way, because I don't sneak around.

    Let me also say that I find it quaint, while I'm supposedly telling NIH what they ought or ought not to do, the only letter that I can find telling NIH what they should do was sent by Senator Specter. And it was Senator Specter who indicated, if I read that letter correctly, that NIH in their action is doing something which was not contemplated by any party to the agreement last year.
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    Mr. PORTER. Mr. Wicker.

    Mr. WICKER. Mr. Chairman, before I proceed on my time, let me just interject that although Mr. Bonilla was here earlier and did make points, he is not now present in the room to respond to anything that Mr. Obey says.

    Mr. PORTER. That's why I'm suggesting a meeting.

    Mr. WICKER. It may very well be that he would like to insert a response in the record at this point.

    Mr. PORTER. I would invite the gentleman, he's going to return, I believe, for the second round.

    Mr. OBEY. I would say on that point, I would object to any member trying to insert something in the record on this issue.

    Mr. WICKER. Well, the gentlemen——

    Mr. OBEY. If he has something to say to me——

    Mr. PORTER. He'll be back.

    Mr. OBEY [continuing]. He ought to say it in the open session and if I have something to say to him, I ought to say it in the open.
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    Mr. WICKER. My concern, Mr. Chairman——

    Mr. PORTER. He'll be back.

    Mr. WICKER [continuing]. Is that the transcript is going to reflect that Mr. Bonilla was here, that he made statements, that Mr. Obey made statements in response to that, and Mr. Bonilla was gone.

    Mr. PORTER. The Chairman will say for the record that Mr. Bonilla was not here, and he will return, according to what he just told me as he left, and have a chance in the second round to make whatever statement he wishes.

    Would the gentleman proceed?

    Mr. WICKER. Thank you, Mr. Chairman.


    Mr. Jeffress, Chairman Porter asked you earlier what needs changing in the agency, and you mentioned sort of a change already in mind, you said. And then you mentioned that the law itself is quite flexible enough to make whatever changes might be needed.

    Mr. Obey mentioned not injecting non-scientific judgment into scientific issues. So let me bounce a suggestion off of you, for perhaps a change in the law. As compared to OSHA, the Environmental Protection Agency has both a peer review process, which was created by Carol Browner, and a legislatively mandated advisory committee. EPA uses these peer review panels to review major scientific and technically based work products that may contribute to the basis for policy or regulatory decisions.
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    What do you think about that? And I guess my follow-up question is, has there been any discussion in the three months you've been in office about this type of approach?

    Mr. JEFFRESS. There's been a lot of discussion about how we develop standards. The review by peers or other outsiders has been a part of that. And let me just mention for the record, OSHA also has a legislatively mandated advisory committee under the OSHA Act that meets five or six times a year. We do regularly consult them on matters such as standard development.

    In terms of peer review, our standard setting process currently involves a significant amount of peer review. Any time that we are developing a proposal in an area, even before it becomes a proposed rule and goes out to the public, we solicit information from experts, from scientists that do research on a subject, whatever it may be, such as lockout, tagout, on what are the best ways to lock out power machinery or electrical machinery so that people who are working on it don't get hurt. We will solicit from experts in that area what is the best research, what are the best practices.

    So before we ever go out with a proposal, we solicit from experts in the area, from scientists in the area, what's the best way to address the issue. We then propose a rule, and send that proposed rule out across a broad spectrum of peers, if you will, for advice and comment, and have an extensive period for public comment by experts in this area, by laymen in this area, by employers, by employees.

    We then invite those who wish to give testimony to come to a public hearing and comment upon it. So during the course of our standards development process, we have extensive comment by peers, by experts, by scientists, by laymen on the subject before we ever get to the point of issuing a final rule.
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    So we believe we have developed an extensive period of solicitation of comment on any standards which we develop.

    Mr. WICKER. Mr. Secretary, I know that a lot of people look at these proposals. And a lot of experts and people affected by them get to make comments.

    But let me give you the example, last year, you briefly mentioned methylene chloride. We had a great deal of discussion last year on the regulation about methylene chloride. One of your own employees, the Director of the Office of Risk Reduction Technology, came to me, and sent a letter to this subcommittee, objecting to the feasibility of the new rule.

    We mentioned earlier the Small Business Administration ombudsman. Well, in this case the Office of Advocacy in SBA publicly objected to the way in which the rule was done. And while there was a lot of testimony and a lot of information gathering, no doubt; there was no panel, no peer review panel, that I could cite, or that objective people in this Congress could cite as saying whether this very experienced director in your own department knew what he was talking about.

    It just seems to me that this is quite controversial. This agency, by its very nature, is quite controversial. It seems to me that we could minimize some of the controversy by putting in place a more structured peer review panel. I hope that you and the Administration will seriously consider this proposal. I want to get with you about it. I want you to come to my office and let's sit down and talk about it.

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    It seems to me that it is a way to be more objective and to make sure that we make the decisions based on science rather than emotion or apocryphal stories or politics.

    Mr. JEFFRESS. Mr. Wicker, I'll be happy to come meet with you and talk with you about that. The whole standard setting process I think is a process that cries out for reinvention. There are so many different processes that we go through. A way to consolidate those, not add an additional hoop, but to consolidate those and get the people involved that need to be involved in that process, would make a lot of sense to me. I'd be happy to work with you on that.

    Mr. PORTER. Thank you, Mr. Wicker.

    Ms. DeLauro.


    Ms. DELAURO. I want to ask some questions about the Cooperative Compliance Program.

    Mr. JEFFRESS. Yes, ma'am.

    Ms. DELAURO. For years, employers have argued that OSHA did not adequately target the bad actors. Now the Chamber of Commerce and other business interests have filed a lawsuit preventing OSHA from doing just that. Just quickly, and I don't want the names of companies, who are the ''bad actors''? Tell us who these folks are, and what classifies them as a bad actor?
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    Mr. JEFFRESS. Well, first, I have to say I don't use the word bad actor, but I do say that when we surveyed 80,000 businesses, we identified those who had rates of injuries twice the national average as places that were the most dangerous to work. So we identified 12,000 work places in States where Federal OSHA has jurisdiction as the most dangerous places we most needed to work with to bring the rates down. And we used this average as the basis for identifying the people we needed to work with.

    Ms. DELAURO. The most dangerous places for people to work were those that were identified?

    Mr. JEFFRESS. Yes, ma'am.

    Ms. DELAURO. That's what we're talking about?

    Mr. JEFFRESS. That's exactly what we're talking about.

    Ms. DELAURO. In the absence of any kind of targeting, because all of us who run for public office deal with targeting——


    Ms. DELAURO [continuing]. You identify those who are against you, and you go after those you believe might be persuaded.

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    Mr. JEFFRESS. Yes, ma'am.

    Ms. DELAURO. And help me. If you're trying to do that, what does that save you in time and effort, and what does it mean to those who are living and playing by the rules and so forth? How does this identification, if you will, of those places that are the most dangerous places in which to work, affect the rest of the universe of companies who are out there?

    Mr. JEFFRESS. It's an enormous advance over the way that we've worked over the past 20 years. When we would pick a name out of a hat to see who to go visit, we would sometimes spend our time with folks who were doing a good job, and there really was no reason either for us to interrupt that work place or for us to spend our time that way.

    So we use employers' own data, not something we ginned up, but their own data to identify the most hazardous work places and say, this is where we're going to target, because America expects us to measure ourselves by reducing injuries and illnesses, so let's go where most of the injuries and illnesses are occurring. It makes sense to everyone.

    And we believe, the fact that over 9,000 of the businesses said, okay, we'll join with you, we do need to do something about the injuries and illnesses in our work place, that says to me we're on the right track, that this is the right thing to do. It saves the taxpayers money, it enables you to get the best bang for the dollar you invest in the OSHA program, if we can target our resources to where the most injuries are occurring.

    Ms. DELAURO. Well, it makes you a more efficient operation, and also lessens the risk to every other business out there, as I say, where people who are playing by the rules.
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    Mr. JEFFRESS. For the people who are doing a good job, it gets us out of their business. For the folks who are not doing a good job, we're going to work with them.

    Ms. DELAURO. And 9,000 of the 12,000 indicated that they want to work with you, and they've done this on a voluntary basis?

    Mr. JEFFRESS. They have written us letters, and I can quote you from the letters that say, this is the best thing that OSHA has done. We need to work with you. We're delighted to join with you. Nine thousand employers have said, yes, we will work with you.

    Ms. DELAURO. And from a recent historical perspective, as I understand it, that CCP's predecessor was Maine 200.

    Mr. JEFFRESS. Yes.

    Ms. DELAURO. And Maine 200, in fact did save businesses money and win innovative awards from Ford Foundation or others.

    Mr. JEFFRESS. The Maine 200 program was recognized as one of the most innovative programs in Government the year that it started. The Ford Foundation, and the John F. Kennedy School at Harvard University, recognized it as one of the brightest innovations in Government that year.

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    And we built upon that. We went from Maine to eight other States where we ran pilot programs on the same kind of basis, identifying through workers compensation records where the most injuries and illnesses are occurring, and working with those places to bring rates down.


    Ms. DELAURO. If we shut you down, if you will, from dealing in this way of identifying the most dangerous places, then do we open up the system again to going back to, you know, random inspections?

    Mr. JEFFRESS. One of the things about this lawsuit that makes the least sense to me, is if we block the Cooperative Compliance Program, we're back to the random inspections and the traditional OSHA enforcement that people didn't want to see. You here in Congress said to do a better job, focus what you're doing, invest your time better. That's exactly what we're doing.

    The lawsuit seems to send us back in time five years.

    Ms. DELAURO. So this lawsuit will shut you down from what you're doing, and in fact penalizes all the businesses that are out there doing the job of keeping workers and the work place safe. So it's resulting in penalizing those folks, and we're back to the random selection of businesses.

    Mr. JEFFRESS. We're going to try real hard to win this lawsuit. Again, so far the judges have only stated, don't put it into effect until we can rule on the merits. There hasn't been any ruling on the merits.
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    We believe this is a good program. We believe we're going to succeed with this lawsuit. We will find a way to work with these 12,000 employers, because they are amongst the most dangerous places to work in America. We believe that's what you want us to do, and we will do that.

    Ms. DELAURO. Thank you.

    Mr. PORTER. Thank you, Ms. DeLauro.

    Ms. Lowey.

    Ms. LOWEY. Thank you, Mr. Chairman. And welcome, Mr. Assistant Secretary.

    Mr. JEFFRESS. Thank you.

    Ms. LOWEY. I'm particularly pleased to welcome you to the subcommittee. I can remember the day when I was on the authorizing committee, Education and Labor, and some women testified who had survived the fire at Hamlet, North Carolina.

    Mr. JEFFRESS. Yes, ma'am.

    Ms. LOWEY. And frankly, I will never forget that testimony. This is what we're really trying to do, to focus on a very small percentage of employers. Most employers are trying to do the right thing.
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    But to think that those doors at the Hamlet plant were locked, because they were afraid that someone was going to steal a chicken, and then when this fire occurred, they couldn't get out and 29 people, if I recall, died. And I know that as a result of your leadership, you really transformed the North Carolina OSHA program. I just want to say how refreshing it is to have you here.

    I feel very confident that with your leadership, we'll be able to continue to answer many of the questions that have come to OSHA. I know that you're dealing with, some of the responses, frankly, that have been justified, some of the questions are justified. So I thank you very much for your leadership.

    Mr. JEFFRESS. Thank you, Ms. Lowey.


    Ms. LOWEY. And just to follow up on one of the comments made by my colleague, Ms. DeLauro, isn't it true, I recall that until this targeted process, an employer had a chance to be visited about once every 90 years? Was it something like that?

    Mr. JEFFRESS. Ninety in some States and even higher in others, I'm afraid.

    Ms. LOWEY. Exactly. So that your targeted methodology seems to me to make most sense. And this approach of the CCP, which is to target specific businesses and work in partnership with business, makes sense. I just can't understand why anybody in good conscience could object to it.
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    So I personally want to thank you.

    Mr. JEFFRESS. We appreciate your support.


    Ms. LOWEY. On another area, I was impressed with what you're doing in targeting specific illnesses in the work place. And I would appreciate your expanding upon it for this committee. First of all, we all know that back injuries are a major problem for so much of our population. Our Chairman has been very involved with this issue, and it happens to, it does have an impact on reduced work time.

    What are you doing to deal with that? Are you working with employers in this effort? Could you explain to the committee?

    Mr. JEFFRESS. Yes, ma'am. Back injuries have long been a problem in the work place. And it affects a number of different industries. You find it in grocery stores where people stock shelves, you find it in poultry plants where people slip on the floor. So it's found in a broad range of industries such as nursing homes, from nurses lifting patients.

    So back injuries are a significant problem. Matter of fact, in the poultry survey we recently did, when we looked at the ergonomic problems, back injuries were more of a problem than the repetitive motion injuries. They're both problems, but back injuries were even more of a problem.
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    The National Institute of Occupational Safety and Health, NIOSH, which is under HHS, did a study some years ago and came out with some guidelines on preventing back injuries, on how to lift and ways to reduce the impact of lifting. We've encouraged people to follow those. We have published brochures, guidelines, guide books on lifting, on how to avoid back injuries.

    When it comes to nursing homes, you always have to look at the specific type of lift going on that causes the back injuries, it appears it's one nurse lifting a patient who is at most risk. And we've encouraged nursing homes to consider and implement assisted lifting. Sometimes that might mean a

machine to help lift, sometimes it might mean two people to lift a patient. But in every case, to use assisted lifting. And we believe that will reduce the back injuries. And there are some success stories in that.

    When it comes to the poultry industry, so many of the back injuries are a result of slips on slippery floors. There's a lot of water in this industry used to wash down, so the floors are always wet. But there's also a lot of fat and grease on the floor. You can't wash that off, you've really got to scrub that off.

    So the floor is very slippery. We need to work with this industry to get some non-skid substance on the floor or to get some footwear that will increase traction and reduce the chances for slips, trips and falls. Back injuries, as you say, are a significant problem, have been a significant problem. And we're trying to go industry by industry to say what's causing the back injuries in this industry, and what can we do.
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    In the beverage industry, we have route salesmen who are lifting these heavy boxes down off of trucks. Is there some way that they don't have to reach so high to lift that heavy weight down? So we're trying to work industry by industry and look at what we can do in each place to reduce those injuries.

    Ms. LOWEY. I appreciate that, and I think it would be very helpful to this committee if you could provide some kind of documentation as to success of these preventive measures, which are really very cost effective, and could lead to some major improvements.

    Mr. JEFFRESS. Yes, ma'am. We've had great success. And particular employers will be happy to provide you with some information on those successes.


    Ms. LOWEY. Another area which I've been interested in, I've been amazed to see the increase in tuberculosis. And I know you've done some work in tuberculosis in the work place.

    Mr. JEFFRESS. Yes, ma'am. There was a significant increase in tuberculosis a few years ago. While the total number of cases has dropped off a little now, what is worrisome is that there are many more cases of drug resistant strains of tuberculosis. It's getting more and more difficult to treat.

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    The Centers for Disease Control came out with some guidelines on best practices in the health care industry to protect people from tuberculosis. In talking with folks and taking testimony and hearing from people, it was our belief, based on that information, that half the hospitals in the country were not following those guidelines.

    So we proceeded to develop a proposed rule on tuberculosis to attempt to protect health care workers from contracting tuberculosis from this increase a few years ago, in the drug resistant strains. That is now a proposed rule, we've put it on the street. We've had over 1,000 comments in response to that. We will take those comments into consideration and will be issuing a final rule on protecting people from tuberculosis in the next year.

    Mr. PORTER. Thank you, Ms. Lowey.

    Mr. Istook.


    Mr. ISTOOK. Thank you, Mr. Chairman.

    I want to echo, of course, what many people have said, we appreciate the progress on reducing the number of paperwork violations that have been issued, and therefore trying to shift focus to things that will have a greater benefit to worker safety.

    I did want to ask you some further things regarding the Cooperative Compliance Program. Looking at a copy of the directive that you've issued, and a copy of the litigation that's been filed, I find it ironic that in a program that is meant to boost cooperation, you did not go through a process, a formal notice and comment period, before issuing what the employers say is an OSHA standard or an OSHA regulation, and that there wasn't this element of cooperation in developing this in the first place.
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    The essence of the problem seems to be the question of whether you are using leverage, to say, ''you won't have to be inspected like everyone else, if you can do things which we cannot require you by law to do.'' An example was in your exchange with Mr. Bonilla earlier, when it was indicated that compliance with ergonomic standards was made a condition of avoiding regular inspections, even though you don't have authority or have not issued such standards.

    I'm very concerned that while you're talking about cooperation, there doesn't seem to have been an effort to cooperate with businesses by going through a normal process so that everybody will have input before you issued this new program. That might have avoided the lawsuit which may end up delaying new things far more than going through a comment period would have.

    So let me, having laid that predicate, I'd like to know from you how many businesses before or after the lawsuit was filed, actually indicated that they wished to participate in this program, and can you give us the comparative data on that out of a pool of how many people potentially could participate. If you would couple that with your projection on how many businesses you believe would participate, if the program is cleared and goes forward.

    Mr. JEFFRESS. I'll be happy to do that, Mr. Istook.

    First, let's go back to the question of involvement and participation in consultation prior to the implementation of this program. As was mentioned earlier, the Maine 200 program, the award-winning, nationally recognized program upon which this program is based, was conducted in 1993, five years ago. Following that pilot program, that initial program, we expanded the pilot on an experimental basis to eight other States, a total of nine, where we tried out different forms of this program to perfect it.
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    In every case, in each State that we worked in, we worked with the employer community, with associations, with trade unions, to talk about how this program would work and whether it would work, what improvements we could make on the previous one.

    There were two additional States where we wanted to do a pilot where employer associations objected. We didn't do pilots in those States. We sat and met with those folks about how to redesign it.

    Mr. ISTOOK. But you're not addressing the issue of why not have a formal notice and comment period before you issue not a State by State pilot, but a national program.

    Mr. JEFFRESS. I'm coming to that.

    Mr. ISTOOK. Well, that's what I asked about, if you could get to that.

    Mr. JEFFRESS. The involvement of people in the process is very important. And we involved folks for five years in this process.

    The formal notice and comment process is required for rulemaking, when we adopt rules. What this is, is an enforcement procedure and a targeting process. Two Federal circuit court decisions have upheld that decisions on how OSHA does its enforcement are not rules, are not subject to notice and comment. So there's not a requirement, there's not a legal requirement that there be a formal rulemaking.
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    Instead what we did was work, again, over a period of five years, with employers, with unions, with trade associations, on identifying the best way to proceed with this data.

    Mr. ISTOOK. How long would that notice and comment period have taken?

    Mr. JEFFRESS. It depends. I mentioned earlier that it took OSHA 17 years to do a confined space standard. Rules take different amounts of time. Our average rulemaking is about four years.

    It takes a while to do a rule. But this is not a rule, so this is not something that's subject to those procedures. It's a different way of involving people, and we have made a major effort over the past years to involve folks in the design of this program.

    Mr. ISTOOK. And the participation rates about which I asked?

    Mr. JEFFRESS. The participation rates currently are at 85 percent of the employers that we invited to join us in partnership. They have sent us letters saying, yes, they wish to join us in partnership. You asked how many had joined at the time of the lawsuit. I'll have to go back and look at that date. But my recollection is in the high 60s or 70 percent. Even after the filing of the lawsuit, more came in.

    Mr. ISTOOK. And that 85 percent is applied toward a base number of what?
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    Mr. JEFFRESS. Almost 12,000. I believe it's 11,700 or some odd number.


    Mr. ISTOOK. So those which do not participate, being only 15 percent of the entities, which might, does this mean, for example, that something like 80 percent of the inspections will be at 15 percent of the businesses?

    Mr. JEFFRESS. No, sir. OSHA does about 34,000 inspections per year. Of those 34,000 inspections, our anticipation was this fiscal year that about 5,000 inspections would be done pursuant to the Cooperative Compliance Program. So 29,000 of our inspections would be in construction, which is outside of that, or complaints, accidents, fatalities, referrals or outside of the Cooperative Compliance Program.

    So about 15 percent of our inspections we had projected to be Cooperative Compliance Program inspections. Some of these would be people who remain on the primary list, some would be quality assurance inspections, if you will, and some percentage would be inspections of those people that chose to join in partnership with us. But with the stay, it's unclear how many, if any, inspections we'll be able to do pursuant to the CCP.

    Mr. ISTOOK. We'll follow up with a written request on developing further numbers.

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    Mr. PORTER. Thank you, Mr. Istook.

    Mr. Bonilla has asked a point of personal privilege.

    Mr. BONILLA. Thank you, Chairman, just for 30 seconds.

    For the record, I'm going to submit some questions, since we're in a time crunch. But we worked out an agreement on this subcommittee last year involving the ergonomics issue. I understand earlier in this hearing, while I was out of the room, that a question was raised about my commitment to my keeping my part of the deal.

    And I want to clarify that I have every intention of keeping my word on the part of the deal that I made. I would just appreciate if other members on the subcommittee, if they have a question about my commitment to an issue, that they would raise it to me personally first, and rather than raising an issue that was a result of rumormongering and an inside newsletter or some article that may have been in the newspaper. As any member on this subcommittee knows, you can't always believe what you read in the paper.

    I'm absolutely committed to keeping my end of the deal that we made on ergonomics last year. I wanted to state that for the record.

    Mr. OBEY. Chairman, I never questioned whether Mr. Bonilla was willing to keep his part of the deal or not. What I did was to make the point that in an article this morning, a source supposedly close to Congressman Bonilla had said that I had not kept my part of the deal. I never questioned whether Mr. Bonilla had.
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    And I simply said that I stand on my reputation. I don't think any member of this Congress can ever cite an agreement which I have made that I have broken. And that's the point I was trying to get at. I never questioned whether Mr. Bonilla was keeping his part of the deal or not, but I'm willing to stand on my record against that of any member in this House in sticking to what I shake hands on.

    Mr. PORTER. The Chair is——

    Mr. BONILLA. I want to stand on my commitment as well.

    Mr. PORTER. The Chair is delighted to hear that both sides are going to stand on their commitment. [Laughter.]

    The subcommittee will stand in recess until the completion of this vote.


    Mr. PORTER. The subcommittee will come to order.


    As we understand it, the U.S. Court of Appeals for the District of Columbia last week ordered a stay of your proposed expansion of your Cooperative Compliance Program. Do you know why the court took this action, and when it is likely to rule on the merits of the case?
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    Mr. JEFFRESS. Mr. Chairman, we expect to be asking for an expedited hearing on this matter. I expect that motion for expedited hearing to be filed in the next few days.

    The court did not rule on the merits, did not suggest that either party was likely to prevail on the merits. They simply referred to a case, suggesting that they didn't think a great deal of harm would come from OSHA's delaying the implementation of this program until the hearing could be held.

    They asked for briefs to be filed in April and May. Given the court's procedures, there are no hearings held during June, July and August. So if they stick to what was said in their order last week, the hearing would probably not be until the fall, with a ruling some time after that, clearly after the end of this fiscal year, which is why we're asking for an expedited hearing. We will try to get a hearing in before their June, July, August recess.

    Mr. PORTER. Do you have any greater insights as to why the plaintiffs brought this suit? I can't imagine, myself.

    Mr. JEFFRESS. Well, I have read their brief, and it does not appear to me to be based upon anything they're likely to prevail on. We see this as an inspection assignment system not subject to rulemaking. And they believe it is a rulemaking, because we're asking employers to invest in a safety and health program, and there's not a rule requiring that. That's why they see it as a rulemaking. But in fact, to us, it is an inspection assignment program.
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    I am most concerned about the fact that we used employers' own data to identify the places we thought most needed attention, and we're trying to reach out in a cooperative way. The stay effectively stays us from any actions pursuant to that directive. And read literally, we would not be able to offer the partnership to employers that we sought to offer.

    So I'm very disturbed that this would keep us from proceeding down the path which we were trying to follow.

    Mr. PORTER. The Chair would say that I do not believe that we can ever reach the point of having no enforcement money or no enforcement action of your agency. There are people who attempt to get around the rules. And enforcement actions are needed. What I understand this program to be, though, is one that works on the cooperative side and simply targets those that are at the highest risk or has the worst safety or health records. And that seems to me to be exactly what we've been talking about this morning, and the way both the majority and minority party and the Administration would like your agency to proceed.

    So perhaps I'm missing something, that's entirely possible, but I find it rather strange that when you are doing exactly what everybody says they want you to do, you're being challenged in court by one of the people who I think would benefit from it.

    Mr. JEFFRESS. Thank you, Mr. Chairman. I hope the judges will listen to your statement.

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    Mr. PORTER. I think they're going to have to listen to your statement.

    Mr. JEFFRESS. Yes, sir.

    Mr. PORTER. Mr. Dickey?

    Mr. DICKEY. I've got a question, but it's being taken away from me.

    Well, I can come close to it.

    Mr. Jeffress, you have succeeded Joe Dear?

    Mr. JEFFRESS. Yes, sir, I have.

    Mr. DICKEY. Well, maybe I have gone through this with you before, but I was worried when Joe quit that he was being too cooperative with us. There's not any truth to that? [Laughter.]

    Mr. JEFFRESS. I think he enjoyed working with Congress, Mr. Dickey.

    Mr. DICKEY. Well, he did a great job. He came into my district and took some complaints. I'll never forget, he was standing up and answering some questions. One guy was a mechanic, and he told about spending three nights not sleeping, that his daughter was in college, and his son was coming up to be in college. When he finished the question, Joe stopped and he said, now, Jay, I understand what you're talking about, about the concern that people have. And I hope you'll follow through with that.
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    Let me ask you a question, particularly about an industry in Arkansas. It has to do with the poultry processing initiative. I've been warned that you will answer by referring to a court case. That's off limits.

    Mr. JEFFRESS. All right.

    Mr. DICKEY. I think it's clear we get a clear common sense answer, not a legal one.

    Why are chicken catchers now not classified as farm laborers? It seems to me chickens are on farms and chicken catchers work on those farms to catch the chickens. Can you give me a down to earth—Mr. Chairman, are you commenting on my question? [Laughter.]

    Mr. PORTER. I wouldn't do that, Jay.

    Mr. DICKEY. You were laughing at something else, all right. Help me out.

    Mr. JEFFRESS. Mr. Dickey, this is an issue that has both OSHA and Wage and Hour implications, as you know. Whether they are chicken catchers or whether they are industrial workers, OSHA would still have jurisdiction over the working conditions.

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    But these chicken catchers are generally, my understanding is, dispatched by the processor to go collect the raw materials, if you will, that come back to the plant. So to the extent they are dispatched by the processor for that purpose, it would appear they are related to the processor more than they are to the farmer who has raised the chickens.

    Mr. DICKEY. What about the location, though? Is that not a factor, where they do this?

    Mr. JEFFRESS. It is a factor in terms of what they do. But in terms of the OSHA application and the OSHA coverage, we hold the employer responsible for the conditions that the employees are exposed to. Some folks are trying to say these are independent contractors, and they're not employees of the processor. But these people are hired by the processor to go out and collect their chickens and bring them back for processing. We feel very strongly they are working at the direction of the processor, and believe the processor should take precautions to protect them from the hazards of the job.

    Mr. DICKEY. How many, in numbers, how many new regulations or rules do you foresee coming as a result of this poultry initiative?

    Mr. JEFFRESS. There has not been a suggestion of any new rules or regulations coming as a result of the poultry initiative, Mr. Dickey. Through that survey, what we did was to identify hazards in poultry plants that may not have been identified in previous comprehensive inspections, to examine what was happening with different people, with different exposures in that industry.

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    We have met with industrial representatives from the poultry industry to talk about what we found. In the course of acting on that information, when we normally do inspections within the poultry industry, pursuant to the cooperative compliance program or any other reason we might have for being in a poultry plant, we will be better prepared to know what to look for and we will have a better idea of what different plants have been able to do to respond to some of the problems.

    So it really will be for the benefit of the industry for our inspectors to be better educated about what can be done. But we don't project at this point it will lead to a new rule or regulation.

    Mr. DICKEY. So you don't think there's going to be any additional costs that are going to be imposed on the poultry industry?

    Mr. JEFFRESS. There will be no costs imposed by additional rules. Now, there are some places where we've found conditions which we believe a particular plant should address. But they should have addressed it, anyway. It's not additional cost because of this survey.

    Mr. DICKEY. Do you know of any time that you're going to go out that we could actually meet with these folks, or could we meet up here if it's necessary?

    Mr. JEFFRESS. I'd be happy to do that. We currently plan to have meetings in three different cities, in Little Rock, in Atlanta and Baltimore.

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    Mr. DICKEY. You'll be in Little Rock?

    Mr. JEFFRESS. The agency will. I don't know my schedule yet. But if you're going to be there, I will be there, Mr. Dickey.

    Mr. DICKEY. It's the other way around. [Laughter.]

    I don't want you coming to Little Rock without my watching what you're doing. Let's see if we can help these people to get together.

    Mr. JEFFRESS. I'll be happy to work with you to do that.

    Mr. DICKEY. Thank you, sir.

    Mr. PORTER. Mr. Obey.


    Mr. OBEY. Just three things. First of all, would you give us a succinct statement for the record on how many, and I know you've been asked this before in different forms, but how many workers experience injury because of the ergonomics problem, in your view? What's your best information on that?

    How many, do we know how many cases of surgery we've had to correct problems caused by ergonomics problems? Do you have any idea how much lost time from the work place has been accumulated because of those injuries? And how much lost time just recovering from those surgeries?
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    How much workmen's comp costs have been incurred because of those problems? If you could just give it to me that way for, a response for the record, I'd appreciate it.

    [The information follows:]


    Using BLS data, OSHA estimates that there were 640,000 work-related musculoskeletal disorders in 1994 that resulted in workers losing at least one day of work, MSDs represented nearly 25 percent of work-related lost workday injuries in 1995. OSHA estimates include all overexertion and repetition-related lost work time injuries that resulted in musculoskeletal disorders or carpal tunnel syndrome. OSHA is currently working with BLS to develop published estimates of the number of workplace MSDs from 1993 to 1996. BLS data does not permit estimates of the number of non-lost time musculoskeletal disorders.


    BLS does not collect data on ergonomic-related surgeries. One of the most widely recognized ergonomic-related injuries is carpal tunnel syndrome (CTS). There were 31,000 CTS cases in 1995 that caused one or more lost workdays. CTS cases averaged 30 days away from work, the highest average of all types of reported cases. Another ergonomic-related injury caused by overexertion is hernia. In 1995, BLS reported 30,000 lost workday cases due to hernias. Hernia injuries required an average of 22 days away from work—higher than amputations (average 21 days) and fractures (average 18 days).
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    Based on the median numbers of lost workdays for repetition and overexertion injuries, there were 4.5 million lost workdays associated with MSDs in 1995. This estimate does not include lost workdays that resulted from permanent disabilities caused by MSDs.


    The Labor Department does not maintain records on the percentage of worker compensation costs that are attributable to private industry MSDs. However, Webster and Snook, using the records of Liberty Mutual Insurance, the largest workers' compensation insurer in the U.S., have estimated that in 1989, upper extremity cumulative trauma disorders and low back pain claims accounted for over one third of all worker compensation claims costs. OSHA estimates that these injuries and illnesses cost employers approximately $20 million in workers' compensation costs annually.


    Mr. OBEY. Secondly, just one question, and then a statement. Your budget calls for, you've got a 4.6 percent increase for enforcement programs and a 7.8 percent increase for compliance programs. The committee has traditionally had concerns about the balance between those two. Would you tell us, what's your justification for reaching the balance that you reached between those two increases?

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    Mr. JEFFRESS. Yes, sir, and let me take the budget question first, if I may. Our effort has been and will continue to be to maintain a balance between enforcement and compliance assistance. We need both. My experience in North Carolina was, after that fire, North Carolina greatly increased its enforcement effort, and all of a sudden we had people demanding and asking for compliance assistance, and asking for consultation.

    But before the fire, when we had a very low and small enforcement effort, our consultants were going around making cold calls, begging people to ask them for advice.

    So I believe it's very important that we maintain a strong enforcement effort and keep a balance between the two. Over the last three years, there has been an increasing percentage, if you will, applied to the compliance assistance and State consultation efforts. There has been this increase in demand, and it's been helpful to satisfy that demand.

    And I affirm that it's useful to respond to that demand. But we cannot take away from enforcement, and as you pointed out, we're actually asking for increased enforcement, because we need to maintain that strong enforcement level.

    The effort in the cooperative compliance program this year is directed at both having the enforcement but offering partnership where people ask. So this year, we're asking for an increase in compliance assistance and an increase in State consultation, because we expect the demand on that side to increase this year because of the effort we're making with partnership.

    So you will find larger increases projected and requested by the President for compliance assistance and State consultation because of that expected demand from the partnerships.
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    On the ergonomics part of it, as I said earlier, we had about 6 million people hurt on the job in the United States last year. And about a quarter of all of those were from ergonomics related problems. So that will give us about a million and a half people suffering some kind of injury on the job or illness on the job as a result of ergonomics.

    Cost to employers varies depending upon the type of injury and the extent to which the employer has addressed it. For the surgeries that you mentioned, in North Carolina, we looked at the cost to employers. The

average carpal tunnel case costs over $11,000 to an employer for a single case. And we have employers with 2,000 employees in their plant, and they were having dozens of these cases per year. It added up to substantial money, cost to the employer.

    The cost to the economy, if we multiplied this $11,000 times more than a million injuries, it's a huge cost to the economy. I'd like to get with my staff and get back to you on the specific numbers, and I'll be happy to do that.

    Mr. OBEY. I just find it interesting that members of Congress sit here arguing year after year about how much we can slow down the efforts of agencies like yours to provide worker health and safety protection, yet members of Congress, near as I know, the biggest occupational health and safety danger we have is stumbling over each other to get to a microphone or television camera.
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    So I find that kind of ironic. But I just want to——

    Mr. JEFFRESS. Well, we would issue a standard, but we don't have jurisdiction over the legislative branch. [Laughter.]

    Mr. OBEY. And nothing would help.

    But let me just make one point about your agency. I was in Congress when the OSHA Act was originally passed. It was sponsored by that well-known notorious leftist, Bill Steiger, a Republican from Wisconsin. He pushed those terrible socialist ideas, such as increased capital gains tax breaks and things like that. So he was obviously an out of control anti-business leftist.

    Since that time, to be frank, your agency from time to time has given me fits. Because it has a long history in the early years of not being sensitive to legitimate concerns that the business community expressed.

    Mr. Conte and I, when he was with us, we went through a long effort to see to it that OSHA inspectors were retrained so that they would take a more practical approach. We worked to carve out some small business special consideration. And we worked very hard to start, we had to push OSHA pretty hard to get them to move into a compliance, volunteer compliance program.

    And having said all of that, I just want to echo the comments of the Chairman. I am mystified by the court suit with respect to the Maine 200 or whatever they call it. Because it would seem to me, unless it's a case where you have letters that raise peoples' hackles because the letters aren't carefully drawn and they appear to be questioning peoples' integrity or appear to be threatening, it would appear to me that this is what the business community would want you to do. You're trying to get most people out of the line of fire who are not serious offenders, so you can concentrate on the whales rather than the minnows.
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    And I just note the comments from the CEO from Wisconsin Box who indicated that he was extremely pleased with his company's participation in the Wisconsin 200 program.

    Mr. JEFFRESS. Yes, sir.


    Mr. OBEY. On CNN recently, he said this approach was indicative of a new and less adversarial OSHA, and was willing to help you find out what was wrong and help you correct the problem. To me, that's what you're supposed to be trying to do.

    So I guess the only note of caution I would have is, I recall receiving a letter from the State motor vehicle department in my State, suggesting that I hadn't, that I was understating what I had paid for a Jeep Cherokee and telling me that they were going to demand that I pay X number of dollars in increased sales taxes by return mail unless I could prove to the contrary.

    Well, the idiots had classified it as a new Cherokee rather than a used Cherokee, it was four years old. So they were wrong, but they got me mad. And I can understand a businessman getting mad, if the kind of letters they get are not considerate, thoughtful letters.

    So I guess I would simply urge you to make certain that the way in which this is being implemented is a way which does treat people with dignity, does not imply that they are lawbreakers to start out with, and does not in any way give people reason to think that they are being threatened. Because I think the thrust of what you're trying to do in this program is correct.
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    Mr. JEFFRESS. Thank you, Mr. Obey, and I appreciate your caution. This is a case where we used the data the employers provided us, rather than our assumptions or projections about their experience. We used their own data in responding to them.

    The fact that 85 percent of them, over 9,000, have said to us, we want to join with you, we want to do something about it, suggests to me that by far the large majority of businesses out there also believe it makes sense for OSHA to proceed in this way.

    But I assure you, there are a few employers that, even while we acted on their own data to identify them as belonging in this program, are now finding that, golly, they think they may have provided us the wrong information and want us to look again, maybe, at their data, and they're giving us alternative data to look at. In every case, where it is suggested the data is inaccurate or insufficient, we're going out to visit, to look at the data and help them ascertain what the records actually say and whether they belong in the program or not.

    Mr. PORTER. Thank you, Mr. Obey.

    Mr. Wicker.

    Mr. WICKER. Mr. Chairman.


    Mr. Jeffress, let me ask you what you know about an overall Labor Department initiative, and that is, the executive memoranda or proposal about deciding which contractors the Federal Government will do business with. Presumably, your agency would be involved in scoring or benchmarking potential Federal contractors, applying for Federal contracts.
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    Do you have any information on the substance of these proposals? Back during the confirmation hearings of Secretary Herman, this issue became quite controversial. And can you tell me how OSHA will be involved in this process?

    Mr. JEFFRESS. When we make inspections of employers, of course, we keep a data base that shows what violations we have cited for employers. For those employers who are Federal contractors, it has been suggested that one piece of information that the Government should consider in letting contracts is that employer's safety and health history and their experience with OSHA.

    The General Accounting Office, a year or two ago, issued reports suggesting that there were a lot of Federal contractors that had extensive history with OSHA, and a history of serious violations. That in turn led some people to question our data base, and we have in fact reviewed our data base, and have just recently updated it. There were some cases where the initial citation remained in the data base, even though a later court decision or a later decision by the review commission altered or changed it, and that we had not updated the data base.

    So we have now updated that data base and have it available once again for anyone who chooses to use it for the Federal Government as a basis for deciding whether or not to award contracts. We'll have information to base their decision upon.

    Our role in this, Mr. Wicker, from our perspective, is to provide the information to those who award contracts and may wish to consider safety and health violations as a basis for making awards.
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    Mr. WICKER. And you can assure the subcommittee that the data base will not include complaints that have not been acted on and citations issued?

    Mr. JEFFRESS. Yes, sir. We are making very sure that our data base includes only citations issued, not allegations made or complaints or anything else. But the data base shows inspections made and citations issued. We are now making a major effort to make sure we keep up with any settlements or court decisions or commission decisions to keep that data base current.

    Mr. WICKER. Okay, and if those citations have later been overturned, they are later removed?

    Mr. JEFFRESS. That we have just recently done. I'll have to tell you that when the data base first was made available to the public, it was not as clean as it needed to be. We have made an effort to clean that up now.

    Mr. WICKER. All right. Well, I certainly would ask you to supplement your answer, if you find out there's any other role of OSHA in this department-wide initiative.

    Mr. JEFFRESS. Happy to do so.


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    Mr. WICKER. Let me ask you about methylene chloride. I believe in your initial statement you mentioned that based upon some information you had received, you had made changes in the methylene chloride regulation, is that correct?

    Mr. JEFFRESS. Yes, sir.

    Mr. WICKER. Would you update us on that?

    Mr. JEFFRESS. Yes, sir. Following the issuance of the methylene chloride standard, there were a number of concerns expressed about its impact on small businesses, particularly small businesses, and particularly a couple of industries where this Congress directed us not to issue citations if it was economically and technologically unfeasible for a business to comply.

    So we've done a number of things. First, of course, we implemented what this Congress directed, and directed all of our State consultation offices to give priority assistance to small businesses that had methylene chloride in the work place, and asked for assistance in assuring that they were using the best possible and most feasible technological controls to reduce employee exposure.

    We had several businesses in the association file a lawsuit and suggest that the methylene chloride standard was improperly adopted, because we had not considered its application in different ways to their members or to them as individuals. We have been working with those employers and associations.

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    I'll have to say at this point we have a handshake on a deal, but it's not signed yet, to settle that case, whereby we are extending the deadlines that people have to comply with the provisions of the standard. With the handshake, I believe we have settled the issues that were of concern to the employers and the associations on this rulemaking.

    Mr. WICKER. When do you anticipate that a judgment will be issued, that a settlement will be filed and a judgment signed?

    Mr. JEFFRESS. I certainly expect and would hope that the papers would be filed by the parties in the next month. I always hesitate to project when a court might actually sign the order, but I think it will be very soon.

    Mr. WICKER. Mr. Chairman, I assume we're operating under the same five minute rule that Mr. Obey was just allowed? [Laughter.]

    Mr. PORTER. If you have additional questions, please proceed.


    Mr. WICKER. With regard to the Cooperative Compliance Program, I don't quite understand. I thought a court had stayed the implementation of this program. And yet your testimony seems to be that you're proceeding ahead with at least a portion of it. Is that correct?

    Mr. JEFFRESS. No, sir. We have been stayed and are not proceeding with the Cooperative Compliance Program. It is my belief that we will prevail on the merits and it's certainly our hope that we will proceed with this program as soon as the court hears the case and issues a decision.
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    But in the meantime, we are stayed and are unable to implement any of the portions of that directive. What I may have said is, we know that these 12,000 employers are amongst the most dangerous work places in the country. If we can't proceed with the Cooperative Compliance Program, then we need to go back and redesign an alternative way to work with these employers. Because this is where we need to work if we're going to bring injury rates down in this country.


    Mr. WICKER. Okay, and you talked about an official beginning to think of himself as compliance rather than enforcement, different mind set. What's the difference? Both of them go in and issue citations. What's the real substantial difference between enforcement and compliance?

    Mr. JEFFRESS. I think there are two principal aspects to this. We work hard on it in North Carolina. This is not just projection for me. This is from a lot of difficult conversations with my compliance officers in that State and a lot of thinking about how we could proceed differently.

    First, under the old OSHA, when we drew a name out of a hat and went into a work place, we didn't have any idea what the problems were in that work place. So we went in there cold on that day with our book of rules, and had to make judgment calls when we got there and saw what was there.

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    Now that we have the data, the injury and illness data, we generally have a little better idea before we go in of what's hurting people, of what's causing the injuries and illnesses. That's going to enable us to be better prepared not only to enforce the rules, but also to bring with us information and advice, referrals to other businesses similarly situated to help the employer get some idea of how they could keep people from getting hurt.

    The second aspect of this is to encourage our compliance officers to consider themselves safety and health professionals. They may see things that are not covered by the rules. They may see that the safety committee in the plant hadn't met for three months. They may see that the safety committee had made a bunch of recommendations and the management has never responded to it.

    They may see supervisors or executives in the plant walking around in areas where you're supposed to wear eye protection and not wearing eye protection. These are things that may not be violations of the rules, but may demonstrate if there is effective employee involvement in the safety program in this plant, or if the management demonstrates leadership.

    And frequently, some advice, some consultation, some discussion about ways to improve the safety and health program is helpful and could lead to fewer injuries in that plant. I would like my compliance officers to be aware of these things beyond the rules, where they could give good advice, where their assistance, their expert assistance, might result in fewer injuries and illnesses, even if it is not the subject of a violation or citation, and be able to communicate that advice to the employer and the employees in that plant.

    Mr. WICKER. Do you have any plans to shift the FTE that you initially proposed for compliance based on the judge's stay?
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    Mr. JEFFRESS. No, sir. It has not been our anticipation to shift FTE based on the stay of the CCPs in terms of compliance assistance versus enforcement. About 15 percent of our field efforts are in compliance assistance. I expect that to be maintained. We will continue to provide outreach and assistance through means that are not stayed, if we can't do it through the CCP.

    Mr. WICKER. Well, I note that you've requested an increase in enforcement funding of $2.7 million over fiscal year 1998. And that is earmarked for 23 new positions, 13 of which would be used to implement the agency's Cooperative Compliance Program.

    Mr. JEFFRESS. Yes, sir. At the time this budget was prepared, that was our intent. As I say, if we're not able, because of the stay, to do that, we'll have to find an alternative means to address these 12,000 work places.

    We have identified the places where we most need to work, and we still need to pay special attention to them. So I would suggest that these are still very necessary and important appropriations.


    Mr. WICKER. And finally, let me ask you about OSHA training grants. I'm told that a vast majority of these, the recipients of training grants, were union affiliated. Did you give any of these grants to small business development centers, which were authorized in the Small Business Act and exist in every Congressional district?
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    Mr. JEFFRESS. We have, of course, an open invitation for people to apply for and receive these grants. We have a number of grants to universities, and non-profit organizations. I'll have to check and see if any of them happen to be small business assistance centers.

    About 30 percent of the grants went to labor unions, Mr. Wicker. It's not a large majority, it's 30 percent. And that's 30 percent of between $2 million and $3 million.

    On the employer assistance side of things, we have a $35 million program of State consultation, where we go on-site to assist employers with their safety and health concerns. So there is a significant percentage of our monies, and a huge percentage of our compliance assistance monies directed to employer assistance through consultation.

    I appreciate your suggestion, though, of the small business development centers. I used them in the community colleges of North Carolina as outreach and teaching areas. I think they are a very useful thing and a way we can extend our work.

    Mr. WICKER. Well, I thank you very much for your testimony.

    Mr. JEFFRESS. Thank you, Mr. Wicker.

    Mr. PORTER. Thank you, Mr. Wicker.

    There are additional questions that we would ask you to answer for the record, Mr. Jeffress.
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    Clearly, based upon the number of members in attendance and the time of this hearing, you and OSHA are our most popular agency by far. [Laughter.]

    Mr. JEFFRESS. Thank you, I think.

    Mr. PORTER. Clearly, I say we, and I say we meaning both sides of the aisle and you are on the same track. I think that's very, very encouraging.

    So let me thank you for the fine job you're doing, Mr. Jeffress, both for the agency, for the Department and for our country. We urge you to keep up the good work. We want to work with you in every way possible.

    Mr. JEFFRESS. Thank you, Mr. Chairman. I appreciate the opportunity to be here with you for the first time, but I'll be back whenever you ask, and I'll be happy to assist the members with any questions they have.

    Mr. PORTER. Thank you very much, sir.

    [The following questions were submitted to be answered for the Record:]

    "The Official Committee record contains additional material here."

Thursday, February 26, 1998.

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Opening Statement

    Mr. PORTER. Continuing with the hearings for the U.S. Department of Labor, we're pleased to welcome J. Davitt McAteer, the Assistant Secretary for Mine Safety and Health.

    Mr. McAteer, why don't you proceed with your statement, and then we'll go to questions.

    Mr. MCATEER. Thank you, Chairman Porter.

    I'm pleased to appear before the committee to discuss MSHA's fiscal year 1997 budget request for $211.1 million and 2,243 FTE. That represents a net increase of $7.8 million and 57 FTE over the fiscal year 1998.

    MSHA's primary mission has been to reduce illnesses and injuries and fatalities in the mining industries in this country. The budget that we have submitted, we believe, will enable us to concentrate on improving miner safety and health to fulfill the Secretary of Labor's strategic goal of fostering quality work places that are safe, healthy and fair.
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    Since the enactment of the Coal Mine Safety and Health Act of 1969, the number of fatal accidents in the mining industry has fallen from 400 to 500 a year in the 1960s to a low of 86 in 1996. Last year, a good year in coal mining, deaths fell to an all time low of 30. However, last year was not such a good year for the metal-nonmetal miners. Some 60 fatalities occurred in 1997, the highest number in 10 years, up from all time low of 40 in 1994.

    MSHA is working hard to concentrate on fixing this trend and taking steps to reduce the number of fatalities that exist in the mines and the metal-nonmetal mining regions. We believe that there are several factors which have led to this increase: the increase in production in these mines, the increase in employment and the increase in the number of hours worked.

    But while no single cause can be identified for the upsurge in metal-nonmetal fatals, the appropriation rider that prohibits MSHA from enforcing the training requirements at more than 10,000 of our Nation's mines, we believe, is a significant contributing factor. Over the past two years, for example, exempted operations counted for 90 percent of the deaths at the surface metal-nonmetal mines, even though they account for less than two-thirds of the total employment hours.

    More than 60 percent of the victims, many of them young workers with limited experience, have received little or no training. All miners must receive adequate training, so that they can recognize and avoid safety and health hazards. Allowing workers to die because they lack proper training is senseless and shameful.

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    Following up with a program begun in 1997, we will continue to address this safety problem. We are resolved to find the right mix of actions to bring down the number of mining fatalities. We have attempted to reallocate resources to put front line workers where they are most needed, and conduct special programs that focus on accidents which claim unusually high numbers of victims. Our new FTE request will be targeted to address root causes of accidents and injuries.


    In the area of health, we have been working very hard in both the metal and nonmetal and coal sides of the house to address two major health problems. Deaths from occupational lung diseases, particularly pneumoconiosis or Black Lung, still result in a number of premature deaths of workers who have been in the industry for a long time and workers who have only recently entered the industry.

    In addition, silicosis continues to be a serious problem for our miners. Proposing 40 additional FTE and $2.7 million to expand the Federal dust sampling program for our Nation's mines is an effort to rid the industry once and for all of Black Lung and silicosis.

    MSHA's budget for 1999 is geared to making progress in these areas that we believe are so important to the Nation's miners. We hope that we will be able to reduce the number of fatals and improve the health of all miners in this country.

    I thank you for the opportunity to appear here today and would be happy to answer any questions you might have.
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    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. PORTER. Mr. McAteer, when you say coal mine deaths fell to a record low, are we talking about deaths per 1,000 workers, or are we talking about the absolute number?

    Mr. MCATEER. We're talking about the absolute number.

    Mr. PORTER. What about deaths per number of workers engaged?

    Mr. MCATEER. That number is at its all-time low as well.

    Mr. PORTER. It is?

    Mr. MCATEER. Yes, sir. Both the rate and the actual number, 30, are the lowest in recorded history in this country.

    Mr. PORTER. And what do you attribute that to?

    Mr. MCATEER. There are several factors. If we had the full answer to that question, we could apply it in other places quite readily. We know that education and training is a critical element, that enforcement is a terribly important element, and that new technology is an element.
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    For example, we have a very high level of production in the coal industry, similar to the level of production in the metal-nonmetal industry. But we haven't had the increase in fatalities. In fact, we've had a decrease in fatalities in coal mining.

    We attribute that to in part the technology that's in place now, and the fact that we've had a statutorily mandated enforcement program for all coal mines since 1969. I think those factors have come together to help us get there.

    I want to say for a moment that in addition to what we do, this number is also driven by the people involved, the people who are mining the product. I say that from the standpoint of both the workers and the managers of these operations. We have had good cooperation from the time that I've been Assistant Secretary from both management and labor in the coal industry, as well as management and labor in the metal-nonmetal industry. So we have had excellent cooperation in terms of getting at and addressing particular problems.

    In the last several years, in both coal and metal-nonmetal, we've had a sizable number of accidents with powered haulage equipment, primarily large trucks. For example, a large truck drives over a small truck, or a large truck drives over a person at a strip operation in large pits.

    Working cooperatively with industry and labor, we implemented a new education and training outreach program, to talk with industry and labor to identify problems. Our philosophy is not a ''gotcha'' philosophy; we identify a problem; we develop materials and education and training on that problem. Then, we have an enforcement component, which says, we're going to come and enforce on this, because this is where the problem is.
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    In coal mining, our numbers in terms of powered haulage accidents have come down. In metal and nonmetal mining, albeit similar programs, in fact, mirror image programs, those numbers have not come down. I can't explain why.

    Mr. PORTER. Do you have a method of adjusting for major accidents? In other words, wouldn't a major accident on, let's say the coal side, where a number of people are killed, change your numbers dramatically for a single year, even though you could show a trend line that they were going down for other reasons?

    Mr. MCATEER. Yes, sir. We have not had a major accident in coal, or metal and nonmetal mining for a number of years. But the risk that we have in our business is that we can have, at any moment in time, an accident of large proportion.

    We had, for example, a number of fires in the last two years, at underground coal mines in this country. Some were in Illinois. We fortunately were able to put them out without loss of life or limb.

    But can we adjust those numbers? I think you have to take the—two parts. One, it is the rate issue, and that is the number of people injured or killed per number of tons produced or number of hours worked, more likely. And secondly, you would just have to say, that is an unusual occurrence, and one that does not occur regularly, on an ordinary basis.

    We have not had to make that adjustment in the last several years. We hope to not have to make that adjustment again.
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    Mr. PORTER. Now, you said in your oral testimony that, and in answer to the question, that you're not certain why there is a significant decrease in the record low for coal mine deaths. And on the other hand, deaths for metal and nonmetal mines were up significantly last year.

    But you also said that a component of this could be the exempt operations where you aren't providing miner training. Let's discuss that for a minute.

    This bill has for many years contained a prohibition on the expenditures of funds by your agency to enforce miner training provisions in the Mine Act with respect to certain kinds of surface mining operations. You're opposed to this prohibition.

    If we eliminated—first of all, I'd like you to tell me why you think the provision got put in originally, because this is actually before my time and your time. Then I'd like to know why you oppose it, and then if we eliminated the provision from the bill, what steps would the agency take to develop reasonable regulations with respect to these very extensive statutory training requirements? How would you work with the mining industry to accommodate their concerns that these training requirements are particularly onerous and burdensome to them?

    Mr. MCATEER. Thank you, Mr. Chairman.

    There are fewer and fewer things that occurred before my time, so I'm glad that there are a few——
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    Mr. PORTER. Mine too.

    Mr. MCATEER [continuing]. Still outstanding. Your question goes to the rider and to our expenditure of funds to enforce the provisions of Section 115 of the Act. My understanding of the history of this particular provision is that its placement arose from concerns on the part of the newly integrated metal-nonmetal mining community who were brought under the same enforcement provisions as the coal mining community. The 1977 Act modified the Coal Act of 1969 to include metal and nonmetal mining.

    My understanding is that there was concern on the part of the mine operators that this would result, then, in application of requirements that were geared toward the coal

mines in places where the risks, the hazards, the concerns, or the problems were different than had been addressed under the Coal Act. It was a concern at that time that these requirements would be restrictive and would constitute quite a stiff penalty on these metal and nonmetal operators.

    The training rider has been in effect now some 20 years. We are opposed to it, and we think that it presents a significant problem to us. Because health and safety is an art, not a science, we are not able to pinpoint how much good education and training will do in preventing deaths of exempt metal and nonmetal mines. We do know that, as a general matter, training works and works effectively.

    So our suggestion is that we would be able to work with the industry if we were to lift the rider, to adapt the requirements of Section 115. We've gained enough experience under the Mine Act to be able to address the concerns that were raised back in the 1977 to 1980 time period.
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    We also believe that with the number of young people coming onto these properties, the increase in production at these facilities, and the fact that the new miners are coming on from other types of work, really presents an opportunity to help these folks by ensuring they receive education and training.

    There are some industry representatives and some companies within the metal and nonmetal industry who do adequate and good training. There are unfortunately some who do not. The removal of the rider would raise the bar for everyone in the industry, to bring them up to a common denominator and allow us to enforce that requirement.

    We think that removal of the rider would improve markedly the numbers of accidents and injuries. I cannot speak to a number, but I can tell you that over a period of time, education and training indeed works. It works for all of us.


    Mr. PORTER. Answer for me how far you have gone within the terms of the prohibition. In other words, have you developed any proposals that might lead to regulations? Have you talked to the industry officials? Have you done anything in this area at all, and then I'd like to ask you what you think reasonably we should allow you to do prior to issuing any regulations?

    Mr. MCATEER. Mr. Chairman, we have obviously abided by the rider and the prohibition. But we have shared our concerns with the associations and with the industry generally, and we have sat down with them and said, what are your problems with the particular set of regulations, and how might we address those problems either by policy or by regulation.
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    In addition, we've had conversations to try to pick out the best practices in this business. Are there companies that have developed good, strong education and training programs, that are using them, and can we model those for other folks, can we share that kind of information?

    We have made information available on our internet site about what kinds of problems we're having, about surface haulage and other particular kinds of problems. We have pinpointed individual problems. But we can't be certain that that information is getting to the places where it's needed. We are in effect preaching to the converted, we believe. Those folks who are not using this information, are the ones that we need to get to. And those, I'm afraid, are the people that we are being limited from getting to because of the rider.

    Mr. PORTER. Do those tend to be the smaller operators?

    Mr. MCATEER. As a general matter, I think that's fair to say. These are some of the smaller operators, or some of the mid-size operators who have many items on their plate. The individual who's running the plant or running the facility frequently has a multitude of jobs.

    This is not saying that they're not concerned about it, it's simply that they have many jobs and education and training becomes a lower priority or is dropped off the plate. We'd like to get education and training up to the front of this person's agenda.

    Mr. PORTER. I don't know the reaction of other members of the subcommittee, obviously we've run past the hour and we thank you for staying past the hour. But I'd be willing to see whatever materials you want to present to the subcommittee in this area that might make your case for lifting the prohibition. We'd be happy to look at those and see whether that makes sense in the current context.
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    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. MCATEER. Thank you, Mr. Chairman.


    Mr. PORTER. I would ask Mrs. Northup to take the chair.

    Mrs. NORTHUP [assuming chair]. Thank you, Mr. Chairman.

    I have a couple of questions. First of all, I'm concerned about the change in definition of what constitutes a non-significant substantial violation. And I'm really concerned about you, about your organization bypassing the regulatory process.

    I think I understand that the Secretary has asserted that you all have never adopted a definition. But it seemed to me that, I mean, first of all, the definition

was promulgated by the Federal Mine Safety and Health Review Commission, and that you picked up the definition of what constitutes a non-significant and substantial violation in several of your regulations. You specifically adopted it and pointed to it.

    Are you aware of where that exists in other regulations, that adoption of the definition?
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    Mr. MCATEER. Mrs. Northup, the definition of significant and substantial has a long history, beginning in 1965, when it was used by the Congress to describe what they felt were five or six major areas that they wanted the agency to address—explosions, floods, etc., the larger kinds of things.

    Mrs. NORTHUP. Right.

    Mr. MCATEER. When the Coal Mine Safety Act was modified, and amended in 1969, and again in 1977, the Congress gave direction to the agency as to what it was they believed was a significant and substantial violation. The Mine Safety and Health Review Commission has addressed it on a number of occasions.

    On one occasion, and the occasion to which you are referring, they defined the test for what is a significant and substantial violation. It is a two-part test that the violation posed a risk that was reasonably likely to result in a reasonably serious illness or injury to an individual.

    That test is in conflict with the legislative history and the language of the Act itself. What we have tried to do and what we're doing in the one individual case, and this matter is in litigation, is raise the fact that we do not believe the definition is consistent with the statutory provisions and the legislative history of the Act.

    But in order not to get into a position where we have surprised people in the industry, we made a public pronouncement of our position and noted that this position represented a change in what the Secretary had acquiesced to, but not actually adopted some 16, 17 years ago.
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    I want to be in the forefront by saying, we want to get public involvement in this. To that end, we have asked for public comment from industry, labor, and individuals. And we have sent that policy interpretation, although we are not required to, up to the Hill here, so that there will be input from the Congress as well.

    Mrs. NORTHUP. Well, I guess I would disagree with you that it is subject to a rulemaking, the rulemaking process. First of all, the definition of what is not an S&S violation, significant and substantial, I thought was established by the Federal Mine Safety and Health Review Commission. That's where the language first appeared.

    Now, I realize you're not bound by that. But that is an official interpretation of the law.

    The fact is, you seem to bind yourself to it, or to accept it, in two very explicit rules that you adopted, one, in the regulation of 30 C.F.R. 100.4, and then again in May 21st, 1982 in the preamble of the final rule. And then you picked it up again in another Federal regulation, exactly the same language.

    So it seems to me that while the secretary may have changed, and maybe what she wishes had been an acceptable definition, the fact is that in terms of consistency and legal standing, that that regulation and that definition had been adopted through the rulemaking process. And if it had, it seems to me that then you have to go through the rulemaking process to change it.

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    Mr. MCATEER. Mrs. Northup, the position of the Secretary is that the Congress has dictated what the S&S should be. And that the Congress has given us guidance and direction.

    Mrs. NORTHUP. And when was that?

    Mr. MCATEER. In 1977.

    Mrs. NORTHUP. And then based on Congress' direction to you, the Mine Safety Commission adopted the definition.

    Mr. MCATEER. Right.

    Mrs. NORTHUP. And it was found to be in compliance. I mean, these are interpretive judgments. But Congress' opinion hasn't changed since 1977, is that right? We haven't given you any new direction?

    Mr. MCATEER. That's correct.

    Mrs. NORTHUP. So based on the previous direction, there was a rule, and it has stood and has been used through litigation for 16 years.

    Mr. MCATEER. Yes.

    Mrs. NORTHUP. Well, I hardly think you can say you've changed your rule because Congress gave you that direction. I think you have to say you changed your rule because you didn't want to proceed under that definition.
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    Mr. MCATEER. The language to which we speak begins in the 1969 Act, that is to say, the interpretation of it begins in the 1969 Act. It was interpreted by the then Interior Board of Mine Operations Appeals, which was equivalent to or similar to the Commission.

    That interpretation stood for a number of years as well. It was reinterpreted by the Commission some 16 or 17 years ago.

    Mrs. NORTHUP. After the law changed in 1977.

    Mr. MCATEER. Yes.

    Mrs. NORTHUP. Okay.

    Mr. MCATEER. There have been several interpretations. And in fact, when the law was changed in 1977, the Congress gave very specific language in the legislative history which said, we don't agree with the interpretation of the board. So there have been several different modifications over the period of time since the Act went into effect in 1969.

    Mrs. NORTHUP. But the law changed in 1977.

    Mr. MCATEER. Yes.

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    Mrs. NORTHUP. There was a new definition established by the Commission.

    Mr. MCATEER. That's right.

    Mrs. NORTHUP. It was picked up in at least two places in the rulemaking by MSHA. It seems to me that if you plan to change that, you have to go through a rulemaking process.

    Mr. MCATEER. Madam Chair, I'm certain that if anybody in industry or labor would like to bring litigation, that they will have an opportunity to do that. We just don't believe that it is a rulemaking requirement.


    Mrs. NORTHUP. I'd like to ask you another question about your new 40 FTEs that you've requested, and for the coal enforcement program. Coal fatalities have reached an all time low. However, in other areas, fatalities have increased. And yet, you have asked for all of your increases to be in the full time equivalencies for coal enforcement program. Why is that?

    Mr. MCATEER. Let me explain first the use of the 40 FTEs for coal, and then answer the second part of your question, why is it not in the metal and nonmetal area. Those 40 FTEs are specifically requested to develop and deal with the dust problems that we have in underground coal mines and in coal mines generally.
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    You may recall, in 1994–1995, then Secretary of Labor Robert Reich empaneled an advisory committee on coal mine safety and health made up of representatives from both industry and labor, as well as from the academic community. That committee made recommendations on how to change the dust sampling procedures in the underground mines and in the surface mines of this country.

    One of those recommendations is that the Mine Safety and Health Administration, take on responsibility for sampling dust in the mines, as opposed to having the operators take responsibility for compliance sampling. We think that that recommendation is sound.

    The requirement to ask an operator or an employer to take samples of his work place for compliance purposes would be akin to asking you and me and the rest of the population here in the Nation's capital, or anywhere, for that matter, to, each time we exceeded the speed limit to pull over, fill out a ticket, and send it to the state police of your choice. Then they would send you back a ticket and a fine some two weeks later.

    We don't think that system makes sense. We think that system needs to be changed. In order for us to do that we have embarked upon a program to one, look at how we're collecting dust samples, secondly, to do some pilot projects, to see whether or not we can take over compliance sampling from the operators.

    This recommendation was, I might add, a unanimous recommendation by both the operators of the industry, the union representatives, as well as the academic community.

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    Mrs. NORTHUP. Did they ask for the additional inspectors?

    Mr. MCATEER. Yes. They knew that there was going to be additional FTEs needed. That's why we have put in place this three year plan to improve our dust program. We've initiated pilot projects in your State of Kentucky as well as in other States. And we're trying to go through a systematic process to put ourselves in a position where we can, if possible take this over.

    The Congress was generous to us last year, and allowed us to improve our FTE position somewhat. Now we're back to say this next round will put us even closer to being able to do that.

    As to the question of why not have more FTE in the metal and nonmetal area, I think there are two reasons. One is that these budgets are developed ahead. And we have been struggling with the reasons for the increase in fatalities and what is needed to bring down those numbers.

    Secondly, we're trying to use the resources that we have available currently and to fill all the FTE positions to put ourselves in a position to have full enforcement and full education and training in the metal and nonmetal area where we see the problem occurring. So we're very keen on addressing just what you've pointed out. That's our most recent problem.

    The difficulty we have, as everybody else does, is you have a bit of lag time in your budget. One of the things we've tried to do as an agency, however, is to be a little lighter on our feet, be able to move quickly.
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    When we did have this fatality increase in the last three years, we began to put more emphasis on our metal and nonmetal area. The beginning of last year, for example, we invited industry and labor to counsel with us on how we might address the problem. We've come up with a plan of action and have put that plan in place.

    I wish I could tell you today, here, it's made a tremendous difference. No, it hasn't. The numbers still are pushing us. We still are not satisfied. Nor is industry nor labor.

    But we think that by returning to the basics, by adding the emphasis that we have in all components, education, training, technical support and enforcement, we hope to be able to get at the problem.

    Mrs. NORTHUP. Thank you. That's all, and this subcommittee meeting is adjourned. Thank you very much for your time and for your explanations. I appreciate it.

    [The following questions were submitted to be answered for the record:]

    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.

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    Mr. ISTOOK [presiding]. I call the meeting to order. I am Congressman Istook. In the absence of Chairman Porter, I have been asked to preside for the first hour of the hearing this afternoon.

    We appreciate the witnesses from the Department of Labor; Mr. Anderson, Mr. Fraser, and Mr. Jackson; Bernard Anderson, the Assistant Secretary for Employment Standards Administration, and with him the Acting Administrator of the Wage and Hour Division, John Fraser, and the Acting Director of the Office of Budget, Edward Jackson.

    Gentlemen, thank you for being here. And, Mr. Secretary, I think that the first order of business is your statement. We appreciate your being here, and the time is yours for that purpose.

    Mr. ANDERSON. Thank you very much, Mr. Chairman. I welcome this opportunity to come before you today to represent the Employment Standards Administration of the Department of Labor. I submitted in advance a written statement that I would like to ask be included in the record, so at this time, I would like to make a very brief oral statement summarizing the highlights of our request.
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    As the Assistant Secretary for Employment Standards, I am responsible for both labor standards enforcement and disability compensation programs. We administer over 100 laws enacted by Congress to protect the basic rights of workers, including the minimum wage, child labor, overtime pay standards; family and medical leave protections; equal employment opportunities for employees of Federal contractors; workers' rights as union members; and workers' compensation benefits.

    We have 3,900 employees located in offices throughout the country to carry out ESA's mission, making our programs accessible to the American public. As Secretary of Labor Herman has testified, the Department has developed an effective strategy for improving the lives of America's working families.

    In working to establish a single, unified Department of Labor, the Secretary has established three strategic goals that bridge the Department's many agencies and programs. Her three strategic goals are a prepared workforce to enhance opportunities for better jobs and income; a secure workforce to promote the economic security of workers and families; and quality workplaces to foster workplaces that are safe, healthy, and fair.

    ESA's work is vital to the Department's success in achieving the Secretary's goals of a secure workforce and quality workplaces. The Departmental goals traverse ESA's strategic goals, which are to achieve compliance with the laws, Executive Order, and regulations that ESA is charged with administering and enforcing; to minimize the social,

human, financial cost of work-related injuries; and to improve customer satisfaction.
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    Our fiscal year 1999 budget request supports these ESA goals and furthers the achievement of the Secretary's goals. The overall salaries and expenses request for fiscal '99 is for $346.4 million and 3,917 FTE. This is a net increase of $19.2 million and a net decrease of five FTE over the comparable fiscal year 1998 level.

    This request includes $10.8 million and 74 FTE for new or expanded initiatives; and a financing change that will move $3.5 million and 62 FTE from the Office of Workers' Compensation Programs periodic roll management S&E account to the Federal Employees' Compensation special benefit fund account.


    I now would like to provide brief highlights of the fiscal year request for each of the four ESA programs beginning with Wage and Hour Division. 1998 marks the 60th anniversary of the passage of the Fair Labor Standards Act, which in addition to minimum wage and overtime protections, established Federal provisions to protect young people in the world of work. Our nation can be proud of the achievements and advancements we have made to eliminate abusive child labor on our shores, but there is much more to be done.

    Today in America, over 210,000 working teenagers are injured on the job each year. Of that number, about 70,000 suffer injuries serious enough to warrant emergency room treatment, and about 70 youth die each year while working. The additional resources we request will help address these problems.

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    As part of the President's Child Labor Initiative, Wage and Hour is requesting $3 million for enforcement activities in agriculture with special emphasis on the illegal employment of minors. Wage and Hour will be able to double its 1997 level of enforcement in agriculture, targeting areas where survey data and enforcement experience suggest that child labor violations are most likely.

    Another major initiative for Wage and Hour is updating the child labor hazardous occupation orders to reflect current technologies, hazards, and other workplace conditions. $1 million is requested for contract services to obtain the technical expertise required to begin this process.

    We are also requesting for the Wage and Hour Division $375,000 for contract services to help rewrite regulations to be more easily understood by the general public and for the analytical tools necessary to complete cost benefit and other impact statements that are required for new or revised regulations.

    The 1999 request supports Wage and Hour's Performance Plan aimed at increasing compliance and customer satisfaction by focusing resources on select industries to increase compliance; raising the level of compliance in new and small businesses; and ensuring that employees covered by the Davis-Bacon Act will receive prevailing wage rates that are more current and accurate.

    In the Office of Federal Contract Compliance Programs, in support of the Administration's efforts to strengthen the enforcement of civil rights laws, we request an increase of $2.1 million for OFCCP programs to implement a compliance assistance strategy in civil rights enforcement and to expand the Fair Enforcement Initiative.
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    OFCCP will provide Federal contractors with practical guidance on regulatory requirements, the skills to develop an affirmative action plan, and the capability to conduct self-analysis to identify and resolve problem areas. Special emphasis will be devoted to small and new contractors that may not have the expertise to develop Affirmative Action Plans.

    The proposed compliance assistance strategy will help to achieve OFCCP's primary performance goal of increasing by five percent the number of Federal contractors brought into compliance with the Executive Order and statutory requirements.

    In the Office of Workers' Compensation Programs, the FECA program is proposing to shift the Periodic Roll Management Project from ESA's salaries and expenses account to the Federal Employees' Compensation Special Benefit Fund account using fairshare funding.

    For the Special Benefits Fund, we project approximately $1.9 billion in total obligations of which $179 million is a direct appropriation of mandatory spending, and that is the smallest direct appropriation since fiscal year 1988.

    Since fiscal year 1995, administrative cost assessments from certain defined Federal agencies have been used to modernize the Federal Employees' Compensation Program's information technology systems.

    I should mention that over the past five years, the Periodic Roll Management Project has produced $246 million in compensation cost savings, and when fully staffed has the potential to produce an additional $426 million through fiscal year 2002. The return on investment for that relationship is 30 to 1.
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    FECA's careful stewardship of the compensation fund in the last few years led in fiscal year 1997 to the first real dollar decline in total benefit costs in decades, despite the fact that a cost-of-living increase was awarded to beneficiaries in March of 1997.


    In fiscal year 1999, we are requesting $20.3 million for capital investment and other initiatives to strengthen compensation fund control and oversight. The Black Lung Program is asking for an additional $3.3 million to replace their computer system with a totally year 2000 compliant system. This system currently provides monthly benefit payments to more than 170,000 beneficiaries.

    In the Office of Labor Management Standards, the $500,000 appropriated in fiscal year 1998 for the OLMS is included in the base for fiscal year 1999. These resources will be used for developing a system for the electronic filing of reports required by the Labor Management Reporting and Disclosure Act, and establishing a computer database to permit Internet access to information contained in those reports.

    Full implementation of the plan will be conducted over the next three years. This long-term effort will strengthen the OLMS initiatives to improve the quality of its public disclosure program.

    So, Mr. Chairman, that concludes my verbal statement. I would be happy at this time to answer whatever questions you or members of the committee might have.
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    [The information follows:]

    Offset folios 1188 to 1192 insert here


    Mr. ISTOOK. Thank you, Mr. Anderson. I want to note that we have two other members of the subcommittee, Ms. Northup and Mr. Miller, that have arrived. In Chairman Porter's absence, let me pose first one of the questions that I know is of significance to him, and I have an inquiry of my own.

    But as part of the Office of Federal Contract Compliance, you are seeking a nine percent increase in funding. The budget talks about a fair enforcement strategy, and the Chairman is certainly interested if this is going to be a new strategy. You evidently intend to step up enforcement activities, while at the same time reducing the compliance and paperwork burdens on employers, even as you say you are stepping up enforcement. So this seems like there could be some built-in contradiction to be doing those simultaneously. So how would you achieve that goal, and is it a new strategy for the Office?

    Mr. ANDERSON. No, it is not a new strategy, Mr. Chairman. It is an attempt to streamline and make more cost effective the enforcement process. We are in the process now of changing the regulations under which OFCCP operates—changing the regulations in a way that does several things. One, to reach a much larger part of the universe of Federal Government contractors.
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    As you know, the OFCCP program's responsibilities cover only those businesses that have contracts with the Federal Government to provide goods and services. And so at the present time, OFCCP conducts about 4,000 compliance reviews, which is a principal enforcement tool.

    With the changes that have been made in our 60–1 regulations, there will be a more flexible approach to the compliance and review process; that is, instead of using one type of review for all contractors, the type of review that will be conducted will be determined by the nature of the contractors' self-evaluation of their workforce and their practices of nondiscrimination.

    Mr. ISTOOK. In terms of your personnel, if you intend to step up enforcement, while at the same time reducing the burdens of compliance and paperwork, would there be a shift of the total number of personnel who are devoted to enforcement activities as opposed to compliance activities? What would be those old ratios and new ratios with the number of your personnel that are working on enforcement, as contrasted with your personnel who are working on compliance?

    Mr. ANDERSON. There are several activities through which OFCCP does its work. One activity is the identification of discrimination among government contractors. Another is the provision of information providing customer outreach, public information, technical assistance to contractors so that they know what their obligations and responsibilities are under the Executive Order and the statutory requirements.

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    Mr. ISTOOK. But is there a shift in the number of personnel who will be devoted to enforcement, as opposed to those who are devoted to compliance, and what are the old ratios and the new ratios? That is my question.

    Mr. ANDERSON. Well, the staff is not deployed in quite that way. The same people who are engaged in compliance or in enforcement at some time during their work experience at other times are engaged in the public outreach, in the technical assistance. So it is not easy to distinguish between the different activities that are conducted by the same members of the staff.

    A compliance officer in the field, for example, would do several things on several different days. One day that compliance officer might conduct a compliance review with a contractor. Another day, that compliance officer might meet with a contractor——

    Mr. ISTOOK. Mr. Anderson, you are giving a long verbose answer to a simple question.

    Mr. ANDERSON. Yes.

    Mr. ISTOOK. You are saying that the same persons will be doing both jobs?

    Mr. ANDERSON. Yes, at different times.

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    Mr. ISTOOK. As opposed to separate people. I think that is a simple answer. We can cover other subjects as well. I wanted to inquire—certainly when it comes to the Davis-Bacon efforts, the subcommittee supplied the amount of $3,750,000 as part of the effort to increase the reliability of the Davis-Bacon surveys. Most of that has been expended, and it has already been expended on computer systems.

    I am looking at the information that we have from the Office of Inspector General regarding these expenditures. Can you tell me not only including Davis-Bacon work, but including any other purpose for which the new system servers are being utilized, how many terminals or stand-alone computers are being networked together in that whole system? Because I know you are using it for other purposes in addition to Davis-Bacon. How many are networked together in that system?

    Mr. ANDERSON. I would like to ask Mr. Fraser to help me with that. I don't know exactly how many computers were purchased last year with the——

    Mr. ISTOOK. Yes, but that is not the question. The question is not how many were purchased. The question is how many, whether they be a terminal or a computer, are being served by the new servers which you purchased? How many are networked together?

    Mr. ANDERSON. Can you provide that answer?

    Mr. ISTOOK. Because I know they are not all Davis-Bacon.

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    Mr. ANDERSON. The Employment Standards Administration has 3,700 PCs, and the information processing system is one in which the ADP requirements of one part of the agency at various times will rely on equipment which supports another part of the agency. The Department of Labor, for example, has about 60 different information systems. One of the things that the Secretary——

    Mr. ISTOOK. Mr. Anderson, how many are networked on the new servers?

    Mr. ANDERSON. Well, I think most of them are networked.

    Mr. ISTOOK. 3,700?

    Mr. ANDERSON. Is that correct? By network, you mean how many of them are linked together so that they could share information and so forth?

    Mr. ISTOOK. How many are linked together and be operated—certainly. How many because the new system functions as file servers that communicate either with a terminal or a stand-alone PC that does the work. So the file servers that you purchased are being utilized to serve a network of approximately 3,700?

    Mr. ANDERSON. Well, they are linked together. Yes.

    Mr. ISTOOK. Yes. Okay. And they are functioning as the file servers, for those 3,700, not just for Davis-Bacon purposes, but for other purposes as well?
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    Mr. ANDERSON. They are connected, along with many other servers, to our ESA network for other purposes, such as information collection, analysis, and so forth within the agency. Yes.

    Mr. ISTOOK. Okay. Well, you see, the reason I asked that is the information indicates that for Davis-Bacon purposes, you purchased 50 desktop computers, 11 notebook computers, the 1.5 million for the file servers, and so forth. Will all 3,700 systems or just the new systems be used for Davis-Bacon purposes in accessing that Davis-Bacon information? I am talking about the graphics-intensive utilization where you have scanned in the WD–10s?

    Mr. ANDERSON. I think it would be helpful if Mr. Fraser will describe to you how this new equipment will be used.

    Mr. ISTOOK. Yes. Will all 3,700 be——

    Mr. FRASER. No.

    Mr. ISTOOK [continuing]. Accessing the Davis-Bacon system?

    Mr. FRASER. No, just the 50 terminals that we have purchased for Davis-Bacon applications in the regions and in the national office.

    Mr. ISTOOK. Okay. You see, here is my question. Because it appears to me that you have taken the money that Congress has provided—intended to upgrade Davis-Bacon capability, and you have purchased a system that not only coincidentally does far more, but it appears by design is a system that spent the money to serve the 3,700 network, when what you really needed was an expenditure to serve a network of approximately 60 or so, which certainly would not have been an expenditure of an excess of $2 million, and would have enabled you to use the money for its intended purpose of verifying the accuracy of the submissions and the process by which the Davis-Bacon surveys are being handled.
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    Why didn't you just buy a system to handle the Davis-Bacon ones instead of going out for a system that is going to let you handle 3,700 file servers? What would it have cost if you had just said this is the equipment cost to handle the Davis-Bacon situation? What would that have cost?

    Mr. ANDERSON. Mr. Fraser is happy to explain that.

    Mr. FRASER. Perhaps, Mr. Istook, it would be helpful to understand how the architecture of our data systems work across ESA, and that is that we have offices all over the country in all of the different programs that are linked and have been linked for years through our data systems. So we have a data system platform that supports all the program activities so all of the data flow can occur from all the programs through these systems and through these processors.

    Our new Davis-Bacon reengineering applications, which we identified as we developed those applications and identified the system requirements, demanded that we upgrade the whole system. Otherwise, we would be creating, again as Dr. Anderson indicated, individual systems for individual applications, which is not in the long run cost effective. So with the new data——

    Mr. ISTOOK. I presume then that since you were to make a determination of what was cost effective that you ran a figure, and you have then a number that says if your purpose was to purchase a system that would have been utilized for Davis-Bacon, it would have cost so many dollars. What is that figure?
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    Mr. FRASER. I do not as we sit here know that figure. I am not sure whether a stand-alone, Davis-Bacon-only network option was developed in the course of the requirements analysis.

    Mr. ISTOOK. How else would you know what was cost effective?

    Mr. FRASER. Well, I do know they looked at a number of options in terms of the requirements, and I am sorry, just as I sit here, the requirements analysis document is several hundred pages long, I don't know whether that was one of the options that was included or not.

    However, the requirements that were specified for data collection, for data imaging all led to our conclusion that the ESA network had to be upgraded to accommodate that additional load, and this was the most cost-effective approach to doing that.

    Mr. ISTOOK. But the collection of data imaging capability is for utilization at approximately 60 workstations, not the 3,700 workstations?

    Mr. FRASER. That is correct. But, again, the 37——

    Mr. ISTOOK. So you did not need that capability for the other what is it—3,640 workstations?

    Mr. FRASER. And the other 3,600 or however many workstations aren't utilizing very much of the capacity of this equipment at all. They are linked through this system, as are all of our application and access devices across the program.
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    Mr. ISTOOK. But it has become the file server for the entire system, the 3,700 system?

    Mr. FRASER. These servers expand and add to the existing file servers that we had.


    Mr. ISTOOK. Well, I think it is very important to this committee to know if you have utilized the money as we expressed that it should be, whether you have gone and bought a system not to coincidentally serve other purposes, but you have taken the money that we wanted to look into the accuracy of the Davis-Bacon submissions and used that instead to get your new file server for everything else, which means you don't have as much money left for the other expenses to verify the Davis-Bacon submissions.

    Mr. ANDERSON. May I suggest, Mr. Chairman, that there is a different and perhaps more illuminating way to look at this. The intent of this committee when it provided the $3.75 million for fiscal year 1997 and another for fiscal year 1998 I believe was to improve the accuracy, reliability, and timeliness of prevailing wage surveys.

    Now, in order to do that, we were engaged for many months in an effort to try to identify the best way to achieve that goal.

    Mr. ISTOOK. Okay. Mr. Anderson, I am going to interrupt you a moment because I am going to go ahead and go vote, and you are giving me another long-winded comment, rather than any specific information. When he returns, let us have Mr. Miller reconvene until I return here so that I can go to the floor and vote. In the meantime, perhaps you can organize your thoughts and give us some straight answers.
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    Mr. MILLER [presiding]. I am told we have another set of votes coming up which may be a series of two to three votes, which makes things even more complicated because you have to stay around there a little while. So let us go ahead and begin, and when Mr. Istook comes back, we will let him proceed.


    Mr. Anderson, the LM–2 forms—I see on the proposal you have asked for additional funding to continue the automation of that form. Can you give me the status report of that?

    Mr. ANDERSON. Well, we received, Mr. Miller, the $500,000 for this year to begin the process of trying to find a way to have the electronic reporting of the Labor-Management Reporting and Disclosure Act forms, and also to establish a way to put on the Internet the forms so that they could be more easily accessible.

    Since we received those funds in the beginning of this fiscal year, only about four months ago, we have had a series of discussions with a number of experts in the field, data systems. We have had conversations with the various stakeholders in an effort to try to identify how best to achieve that goal.

    And it is expected that certainly by the third quarter of the fiscal year, we will enter into a contract with an expert firm to begin developing the system that will ultimately be used to achieve the goal of the electronic reporting.
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    Mr. MILLER. Have you proposed anything in this appropriation?

    Mr. ANDERSON. No. The $500,000 that was provided for fiscal '98 is in the base for fiscal '99, and so there was no need for an additional request.

    Mr. MILLER. Okay. So you planned the contract out to a consultant firm that will then, come up with a way to allow for electronic filing?

    Mr. ANDERSON. Yes, and those discussions are well underway.

    Mr. MILLER. And so that is proceeding, and you think by the third quarter you will have at least——

    Mr. ANDERSON. By the third——

    Mr. MILLER [continuing]. The contract——

    Mr. ANDERSON. Well, yes. We expect to enter into a contract, and then the work will begin to actually develop the system and put it online.

    Mr. MILLER. What do you think the time line would be on getting back the report and starting to implement it? Are we talking about five years or ten years?

    Mr. ANDERSON. Well, I should certainly hope that it is much shorter than five years. It usually takes a couple of years to begin to put these kinds of systems in place. I don't think we are talking about a very long time.
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    Mr. MILLER. Yes. We have to do it for Federal election reports, and the IRS does it so, I mean, the technology is obviously there and actually on a much larger scale for issues than the LM–2. So I would hope that is not a problem.


    Let me ask a couple of questions, and I know in the past we have talked about the problems with that Sawyer case and political influencing at the Wage and Hour. How many investigations under Wage and Hour were not triggered by an employee or employee's complaints, but were initiated without a complaint by an employee as far as the investigations? I assume most of them are overwhelmingly initiated by the employee complaints——

    Mr. ANDERSON. Yes.

    Mr. MILLER [continuing]. Do you initiate them on your own?

    Mr. ANDERSON. Each year, Wage and Hour conducts about 43,000 investigations. 70 to 75 percent of those investigations are in response to a complaint, and only the remainder, 25 percent or so, are self-directed.

    Mr. MILLER. Has that percentage been constant over the past years?

    Mr. ANDERSON. It has been reasonably constant, although the directed investigations have increased somewhat in percentage terms over the past several years. We had as a performance plan goal raising the directed percentage to 30 percent over several years.
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    Mr. MILLER. The directed?

    Mr. ANDERSON. Yes.

    Mr. MILLER. The non-complaint.

    Mr. ANDERSON. The nonemployee.

    Mr. MILLER. And what is that percentage now?

    Mr. ANDERSON. It is about 26—27 percent.

    Mr. MILLER. Why would you want to increase that?

    Mr. ANDERSON. For several reasons. One is that with limited resources, in order to identify the places where noncompliance is most prevalent, and in order to target those limited resources in a way that would produce the best result with respect to increasing compliance, a targeted approach would be preferred. Many employees, for example, will not complain about the failure to receive the minimum wage or their overtime pay. Many are working in conditions in which there is some intimidation.

    And so if we relied solely upon complaints as a way to achieve the overall goal of the Fair Labor Standards Act, which is compliance with the labor standards, then we would not be as effective as we could be by identifying industries or parts of the economy where the historic enforcement experience, the demographic characteristics of the workforce and other characteristics of the industry suggest that there might be a significant rate of noncompliance with the law. And so you target on those areas.
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    Mr. MILLER. Are you expecting a large increase in your enforcement budget? I mean, to increase it to 30 percent—you are going to have to follow up on all the complaints. But to increase your percentage up to 30 percent, you know, basic arithmetic would tell me you are talking about a very significant increase in your——

    Mr. ANDERSON. No, it does not require an increase in the budget. It requires a reallocation of the resources that are already in the budget. It is a matter of how the available budget is used.

    Mr. MILLER. Individual complaints—does the total number of those change much over from year to year?

    Mr. ANDERSON. I don't think that they have increased.

    Mr. MILLER. But to go to 30 percent, you are talking about—if that stays steady, my simple arithmetic tells me you are talking about—you know, how are you going to do that without a big increase? But you say you are not increasing the budget?

    Mr. ANDERSON. No.

    Mr. FRASER. No, Mr. Miller. We have slight modifications in the number of incoming complaints depending on various things that are happening in the economy. But we did get a very significant increase in resources in the '97 budget, and, in part, that is helping us allocate resources to the directed program.
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    Mr. MILLER. I was at a hearing on the Interior Appropriations Subcommittee, and we were addressing the issue of some problems in the National Park Service. They built an outhouse that cost $333,000 in Pennsylvania, which is a little expensive. Then they talked about employee housing out at Yosemite and Grand Canyon National Park.

    And one thing we found—this is the Interior Department Inspector General and people testifying there—that the housing, which is relatively modest housing, not gold-plated—were in the 4 or $500,000 range per house. And we were trying to figure out why were we spending so much on this housing situation for employees who need to live within the National Park.

    They gave a little report showing one of the reasons is the house's cost—$65,000 of additional costs is allocated to Davis-Bacon alone. I mean, that is the Interior Departments Inspector General I guess it is that came up with those numbers, and the Interior Department worked with them on the numbers. That is rather surprising, that they say that if it wasn't for Davis-Bacon, those houses would be $65,000 less in construction costs. Have you heard of such discrepancy in numbers like that?

    Mr. ANDERSON. Oh, I have heard of estimates like that for many years, Mr. Miller. Let me say that I am a labor economist who is fairly familiar with labor market studies and wage determination and all the rest. And the argument has long been made that the cost of construction is higher because of Davis-Bacon than it would be in the absence of Davis-Bacon. There is only one problem with that. There isn't a shred of reliable evidence that would support that conclusion. The costs——
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    Mr. MILLER. You are telling me the Interior Department doesn't know what they are doing?

    Mr. ANDERSON. Well, I have not seen the Interior Department's study. We are willing to take a look at it.

    Mr. MILLER. Would you respond if we can find a copy of it?

    Mr. ANDERSON. I would be more than happy to respond to it.

    Mr. MILLER. See if you can explain why $65,000 per house is the estimated additional cost due to Davis-Bacon for these single family houses.

    Mr. ANDERSON. Yes. Sure.

    Mr. MILLER. The are basically located in rural Arizona and the rural part of California.

    Mr. ANDERSON. I think the issue is this, Mr. Miller, the Davis-Bacon Act requires the payment of prevailing wages for workers who are employed on construction projects funded by the Federal Government. Now, if the wage that must be paid to those workers is the prevailing wage, which means the wage that is paid to all workers in that occupation in that local labor market, quite apart from projects that are Federally funded, then my question would be why would the cost be higher because workers who are working on that project have to be paid the wages there.
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    Now, the other more important issue is that the cost of production is not determined solely by the cost of labor, but by the productivity of labor. And a study was done by, I believe, it was the Congressional Budget Office, when Bob Reischauer was the head of it, that indicated that the cost of production may not be higher than it would be because you must look at the productivity of the labor which the wages buys.

    Mr. MILLER. Let me conclude with this statement, and then we go to Mrs. Lowey. I think you have time before we go vote. I am going to get that information because maybe it is a good one to look at. In theory, there shouldn't be, much difference, but, Interior Department numbers of $65,000 per house, you know, those are not Republican numbers. Those are numbers from this Administration. So would you look at those and respond to why, these costs are so inflated? There should not be a difference like that.

    Mr. ANDERSON. No. We would be happy to look at that.

    Mr. MILLER. Okay. Thank you very much. Mrs. Lowey. I am sorry I took more time, but I think you have enough time before we vote.

    Mrs. LOWEY. Okay.

    Mr. MILLER. And we have a series of votes.


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    Mrs. LOWEY. Thank you for your presentation, and I do apologize that we have been on roller skates this morning. But I thank you, and I thank you for your efforts. Last year's House report, Mr. Anderson, directed the Department to ''ensure that an appropriate portion of the funds appropriated to the Davis-Bacon wage survey program is extended to randomly sample all data submissions to verify their accuracy. In addition, a sample of all data submissions should be selected for onsite data verification against actual payroll records.''

    Could you explain what you have done to implement this directive, what result has been achieved? Does this take care of the criticism that was leveled last year against third party submission?

    Mr. ANDERSON. Well, thank you, Mrs. Lowey. Of the $3.75 million that was appropriated to the Department last year for this purpose, $512,000 were devoted to onsite verification. And today all new Davis-Bacon surveys have onsite verification. And I think that that process of onsite verification responds directly to the concerns of the committee that were raised about the quality of the data received from the various sources from which it comes, from contractors, from employer associations, from trade union organizations, and so forth.

    Mrs. LOWEY. As you mentioned, one of the recommendations that the OIG made was to improve the system through onsite, rather than through the mail. Did you understand what they meant by onsite? It wasn't very clear to me from the answer they provided to me this morning. Do they mean sending a Labor Department employee to each construction site, and how many sites would you need to visit, and would this recommendation be cost prohibitive?

    Mr. ANDERSON. Well, it would certainly be cost prohibitive. I think what they have in mind is sending a
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Labor Department person to each company to actually collect information by inspecting the employer payroll records. That would be very costly. It also might not be well received by the contractors.

    This is after all a voluntary data collection system. It won't work if the contractors are not willing to cooperate. And if you make the data collection process burdensome, then one could understand how they might refuse to make that information available. And so we believe that quality data can be collected through the Davis-Bacon prevailing wage survey system in ways other than sending someone to the worksite to inspect the employer payroll records.

    Mrs. LOWEY. Well, we have a situation currently right now where there is a suspicion that a certain contractor in my community is not paying prevailing wage. And the union asked for this information. It seemed to me they are entitled to it. They haven't been able to get it.

    Mr. ANDERSON. I don't know whether the union was asking for information that was collected in a prevailing wage survey or——

    Mrs. LOWEY. No, no, no, no. This is something else. This is not a survey. This is just an instance where a party—it is not connected to the question—it is not a survey—it is just a party wanted to know were they paying prevailing wage, could they see the books, and I guess the contractor doesn't have any obligation.

    Mr. ANDERSON. That is correct. To the contractor—that is proprietary information. The contractor provides the information to the Department of Labor during the conduct of a prevailing wage survey. But——
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    Mrs. LOWEY. And you haven't had any problem collecting that information?

    Mr. ANDERSON. Well, no, we have not had—we would like the rate of response to the voluntary surveys to be greater than it is. We get a response rate of about 50 percent or so. We would like that to be higher, but many of the contractors who are asked to provide the information, in fact, do so.


    Mrs. LOWEY. Okay. I was interested in the status of the Department's effort to try to end sweatshops in America and abroad. And your garment initiative project won a Ford Foundation Award last year. How are you using these lessons in the design of the Child Labor Initiative?

    Mr. ANDERSON. I am sorry. I did not hear the last part of your question.

    Mrs. LOWEY. I just wondered how you are using the lessons that were learned in your Child Labor Initiative?

    Mr. ANDERSON. Well, in the garment industry, we think we have had a fair amount of success in moving forward to increase the rate of compliance in that part of the industry where the problem is most severe—the cutting and sewing shops.
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    In fact, surveys of compliance have been conducted in Los Angeles, San Francisco, and New York City, three of the major garment manufacturing sites. And we discovered that in Los Angeles, the overall rate of compliance during the time—1994 to 1996—the garment ''no sweat'' initiative was underway increased from 20 percent to 40 percent.

    In San Francisco, the rate of compliance increased from 60 percent to 80 percent, and in New York City, in which the survey was a baseline survey, the rate of compliance was 37 percent—slightly less than 40 percent.

    In addition to that, we have been successful in getting 100 manufacturers to agree to and sign monitoring agreements. These are agreements in which the manufacturers undertake the responsibility themselves to check with the subcontractors with whom they deal to see that those companies are obeying the law, paying the minimum wage, overtime, and meeting other requirements.

    And so we believe we are making progress. You noted the recognition that this program has received from the Ford Foundation, the Kennedy School, and the award that we received last year.

    Now, the approach to this task, that is a combination of public education, enforcement, partnerships and recognition, is a combination of tools that we are now beginning to apply in other low wage industries. Now, there probably will not be a one-to-one application of the approach taken in the garment industry to other industries because there are differences in industries, the way they are structured, the composition of their workforce and all the rest.
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    But we believe that by making information available to employers in the industry, reaching out to those employers and encouraging them to comply with the law, conducting surveys to find out what the level of compliance is so that we can come back later and see whether there is any change by trying to develop partnerships with the employers in the industry, we think that that combination of tools can be very effective in increasing the level of compliance.

    Mr. MILLER. Let me ask you——

    Mrs. LOWEY. I think we have to go vote.

    Mr. MILLER. Yes. We have to go vote. I don't mean to——

    Mrs. LOWEY. I want to thank you.

    Mr. MILLER. Let me thank you. I think Mrs. Northup has some questions, and so if you don't mind, she unfortunately is not here, and we are going to vote. And there is a five-minute vote right after that, and I don't know if there is a final passage vote or not. But if you don't mind waiting around another 20 or so minutes, we will take a break. And we won't stay very long because we have BLS coming up right after that so——

    Mr. ANDERSON. We will be here.

    Mr. MILLER. Thank you very much, Mr. Anderson.
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    Mr. PORTER [presiding]. The subcommittee will come to order. Mr. Anderson, I apologize for not being able to be here. I had a meeting with the Speaker, but let me add my welcome to the ones that you have already received. We will continue with questioning Mr. Istook.


    Mr. ISTOOK. Thank you, Mr. Chairman. Let me pick up on questions regarding the computer system that was purchased with the funds allocated by Congress for improving the Davis-Bacon accuracy. Who was the contracting officer that approved that purchase?

    Mr. FRASER. I don't know, Mr. Istook. I will find out. The Departmental contracting function is a separate function at the Departmental level, but we can find out for the record for you.

    Mr. ISTOOK. Because I believe there is responsibility and liability on the person that approves that to make sure that it is within the purview of an expressed appropriation such as this was. I think it is very important that we make that inquiry of who approved this handling of it.

    Mr. ANDERSON. Mr. Istook, may I refer to the language of the Conference Committee report, which allocated the funding for this. The Conference Committee report in the fiscal '97 Labor-HHS appropriation bill says that $3.75 million is to be used to ''test and implement process improvements either through the use of alternative wage sources or, if not feasible or cost effective, by improving the capacity of the existing wage survey system to promote participation and data reliability, primarily through investment in technology.''
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    The guidance that we received from the committee on this is to develop a system that is technologically capable of providing the most accurate and reliable prevailing wage results. And with respect to the purchase of equipment, we are under guidance from a policy of the Department not to invest in computer equipment that is used for the exclusive purpose of any given program. And I believe that there——

    Mr. ISTOOK. But the Department despite the law, despite an Act of Congress signed into law by the President—the Department has a guideline that would not permit you to have a system to service 60 users unless you purchased a system to serve 3,700 users?

    Mr. ANDERSON. Well, there is another Act of Congress——

    Mr. ISTOOK. Who was making the guideline?

    Mr. ANDERSON. There is another Act of Congress, the ITMRA, information technology guidance, which suggests that Federal agencies should not invest in systems that are exclusive systems, but rather should have systems that allow one to integrate the information needs within the agency.

    Mr. ISTOOK. Mr. Anderson, if you are trying to get us to buy an argument that you couldn't buy a system that was needed to serve 60 users without spending many times more to purchase a system that would serve 3,700 people, that dog ain't going to hunt.
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    And I don't think any Act of Congress or any act of any intelligent person would do that unless your design was to use this money, which Congress intended to try to make the Davis-Bacon system function accurately, and divert it because you wanted to upgrade the overall computer systems for the Department and chose not to take it out of the accounts which would normally be used for that purpose.

    Now, why didn't you allocate part of the money to Davis-Bacon and another portion of the money to some other portion of your budget when you wanted to develop the capability to operate for 3,700 users rather than for 60?

    Mr. ANDERSON. You are asking a very complicated question having to do with computer technology.

    Mr. ISTOOK. I am sure your Department can give a simple answer.

    Mr. ANDERSON. And what I would rather do than get into the nitty-gritty details of computer technology and how systems are developed, with your——

    Mr. ISTOOK. My question there was why you didn't pay for this purchase partly from one account and then partly from another rather than draining this special Davis-Bacon fund for the benefit of a 3,700 user system?

    Mr. ANDERSON. Well, first of all, we have not drained it, but I think Mr. Fraser would answer it. But what I would like to do is to respond to you for the record because what we need to do is to explain in some detail exactly how we believe technology systems, the computer systems can be developed to reach the goal that you have in mind and we have in mind to improve the Davis-Bacon prevailing wage surveys. But I would like John Fraser to elaborate on that point. We will respond to you in some detail for the record.
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    Mr. ISTOOK. You do agree don't you that you had the ability to pay for this system from other accounts, not just this Davis-Bacon account, to cover the portion of the cost that was attributable to serving these much more expansive needs?

    Mr. ANDERSON. No, I do not agree with that because we have an ADP budget and spending plan appropriated to us for other purposes which we are working on. There was no extra money to buy for the Davis-Bacon purposes.

    Mr. FRASER. Mr. Istook——


    Mr. ISTOOK. Just a minute. Mr. Anderson, you are telling me that you had to use the money for its intended purpose within your ADP budget, yet you had no compunctions about using the money for Davis-Bacon and, in essence, using it for your ADP budget. Now, sir, I think you are contradicting yourself.

    Mr. FRASER. Mr. Istook, if I may, the Congress appropriated $3.75 million for Davis-Bacon system improvements. That is what those funds were used for. There was no diversion of money to cover other needs. There wasn't any sleight-of-hand involved. The IG, at your request, just audited the expenditure of these funds for fiscal 1997.

    Mr. ISTOOK. Their report was not an audit.

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    Mr. FRASER. Excuse me, sir. They just reviewed the expenditure and obligation of these funds at your request for fiscal '97. They found that the funds were used as the Congress directed us to use them. They reported that to you, sir. The fact that——

    Mr. ISTOOK. I think you are putting words in their mouth that they have not uttered, but please proceed.

    Mr. FRASER. I assume we both read the report, Mr. Istook, and those words are in their report and, in particular, those words with respect to the obligations of funds for ADP hardware and software. The words in their report are, ''These purchases were for the reengineering of the Davis-Bacon wage determination process.'' Certainly, if there was any indication——

    Mr. ISTOOK. What page?

    Mr. FRASER. Page 11, Mr. Istook. If there was any indication or any intention that the funds that the Congress appropriated for this purpose were going to be used for some other purpose than improving the Davis-Bacon wage survey process, we would have been the first to tell you.

    There was no such intention. There was no such occurrence. And the fact that a computer system supports multiple users—just like the phone system supports multiple users and multiple applications—isn't any indication of any diversion of funds.

    And we will, as Dr. Anderson indicated to you, explain this in as great detail as you might like. But there is simply no ''there'' there, Mr. Istook. There is no misuse of these funds. We understood what the Congress wanted. We have been in communication with this committee's staff for the last two years in terms of what we have been doing. And that, I can assure you, is how those funds were spent.
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    Mr. ISTOOK. Mr. Fraser, we must be looking at different documents because page 11 of my report from the Inspector General doesn't have it on it. Perhaps we are looking at different reports.

    Mr. FRASER. The first paragraph——

    Mr. ISTOOK. I believe their report also outlines that these were not spent exclusively for that function because this system was designed and the equipment was purchased to be able to provide far more capability than was necessary addressing the Davis-Bacon need.

    Mr. FRASER. No, Mr. Istook. There is nothing to my knowledge in the report to that effect. The only thing that is in the report is the indication that since the Davis-Bacon applications are in development, they are not up and running, that these systems are supporting other applications. The systems are capable of supporting other applications. They were not purchased for that purpose. They were purchased and are needed and will be necessary for our Davis-Bacon reengineered system.

    Mr. ISTOOK. Mr. Fraser, I am asking for if there were any—if there was ever any effort to determine what it would cost to provide the system that was needed for approximately 60 users who would be using it for the Davis-Bacon applications. I hope that you can find some effort of that because I think we all know that it cost a lot less to provide a computer system to serve 60 users than to provide a computer system that will service 3,700 users, which is what you spent this money for. Thank you, Mr. Chairman. I look forward to further information.
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    Mr. PORTER. Thank you, Mr. Istook. Mrs. Northup.


    Mrs. NORTHUP. Yes. I would like to return where I left off last year and ask you a few questions about the Black Lung regulations. First of all, I see that in your annual performance plan book here, page 25, you said within ESA's Black Lung Program that you all will finalize the rules by 1998.

    I see on the very next page where it says that you are going to initiate a comprehensive effort to rewrite your regulations in plain language and conduct impact studies for part of the Unfunded Mandates Requirement Act, the Regulatory Flexibility Act of 1980, and the Small Business Regulatory Enforcement Act of 1996. I thought I understood though that you didn't follow that plan in terms of the Small Business Regulatory Enforcement Act in going through the process on the Black Lung Program. Is that correct?

    Mr. ANDERSON. There are a couple of things, Mrs. Northup, that I think are being mixed up in your question, and let us talk about the Black Lung first. Following your comments at the hearing last year, and I believe your discussions with the Secretary at some point——

    Mrs. NORTHUP. Right.

    Mr. ANDERSON [continuing]. We extended the length of time for comment on the proposed Black Lung regulations.
 Page 336       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mrs. NORTHUP. Yes, you did.

    Mr. ANDERSON. And we not only extended the length of time, we also held two hearings, one in West Virginia, one in Washington, in which we received testimony from a number of witnesses. We also received thousands of pages—several thousand pages of testimony in writing in addition to what was collected during the hearings. And we are now in the process of examining, evaluating, considering all of that information, which is part of the rulemaking process. And so——

    Mrs. NORTHUP. Let me just ask you specifically if you complied with the Small Business Regulatory Enforcement Act?

    Mr. ANDERSON. Well, there is a question as to whether the Small Business Regulatory Enforcement Fairness Act applies to this type of regulation. We have been in contact with SBA and the Small Business Advocate. We have discussions ongoing at the present time on this issue. I might add that the Small Business Advocate has also had disagreements with some other Federal agencies on where that requirement applies and doesn't apply.

    Mrs. NORTHUP. Why would it not apply in this case considering how many of the coal companies to which this would apply in eastern Kentucky, underground coal mining—are small companies?

    Mr. ANDERSON. Well, there is a question about the definition of small business within the meaning of the Black Lung Program, the way that is defined compared with the way the Small Business Administration defines a small business. And this is one of the issues that we are now discussing with them to find out whether or not this really is applicable.
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    Mrs. NORTHUP. Would you clarify for me what those differences are in definitions——

    Mr. ANDERSON. Yes.

    Mrs. NORTHUP [continuing]. To my office?

    Mr. ANDERSON. Well, I believe we——

    Mrs. NORTHUP. I don't mean right now but——

    Mr. ANDERSON. No, but I believe we already did in the letter that we sent to you last December. I think if you will refer back to that letter, you will see reference there to the issue over the SBREFA application to these regulations. And we certainly would be willing to provide any additional information that you request.

    Mrs. NORTHUP. Well, yes, because I cannot remember what the specifics were. But I was under the impression that it had been fairly well established that those regulations would fall under the Small Business Regulatory Enforcement Act. And the fact that what you have here specifically mentions that you are going to try to rewrite your regulations to comply with those laws. I was just trying to get an idea of why this would be the exception.

    Mr. ANDERSON. I believe, Mrs. Northup, that what you are reading there refers to the Wage and Hour rules, not Black Lung. I don't have that before me.
 Page 338       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mrs. NORTHUP. I know that you are in these discussions with the Small Business Administration. When do you think that question will be resolved, about whether these laws apply to this regulation?

    Mr. ANDERSON. I regret that I can't give you a specific date. My experience since being in Washington is that these kinds of discussions tend to take a long time. And I would certainly want to have it resolved as quickly as possible. We are now going through the information that we received during the hearings and information that was provided in writing. I would certainly expect that we would resolve it in time to have that have an effect on the development of the rule as we move forward with that.

    Mrs. NORTHUP. Can you provide the subcommittee with a summary of your readings and your discussions with SBA?

    Mr. ANDERSON. We would be happy to do that, yes.

    [The information follows:]


    In accordance with Secretary Herman's assurances to Congress that we would consult with the Small Business Administration (SBA) and determine the best course of action to insure compliance with the Small Business Regulatory Enforcement Fairness Act, we have entered into discussions with SBA. In addition to telephone conversations, an extensive meeting took place on Tuesday, January 27, 1998, between staff of the Department of Labor (DOL) and staff of the Office of Advocacy of the Small Business Administration (SBA). DOL staff included representatives of the Division of Coal Mine Workers' Compensation, the Black Lung Benefits Division of the Solicitor's Office, the Office of the Assistant Secretary for Policy and the Office of Small Business and Minority Affairs.
 Page 339       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The purpose of the meeting was to review comments submitted by the SBA Office of Advocacy in response to the preliminary economic analysis published with the proposed changes to the Black Lung Program regulations in the Federal Register on January 22, 1997. SBA staff comments focused on their desire to see a more detailed analysis emphasizing the possible differential impacts of the proposed changes upon the various sectors of the coal mining industry, including business size, type of mining and possibly geographic locations. Examples of analyses prepared by other agencies, such as DOL's Mine Safety and Health Administration and the Occupational Safety and Health Administration, were discussed as possible models for such analyses.

    DOL staff stressed that the Black Lung Benefits Act mandates uniform treatment for all miners who become totally disabled or die as a result of exposure to dust in the coal mining industry and that this may unavoidably produce differential economic impacts depending upon the size, type and location of the mine where such work is performed. It was also pointed out that the Act permits some employers to self-insure their liabilities while requiring all others to purchase insurance.

    SBA staff offered their assistance in revising DOL's analysis. Both groups agreed to continue the dialogue as work on the regulatory proposal continues. No definitive decisions were reached since DOL continues to review the comments received in the response to the regulatory proposal. This may produce changes from the original proposal which could affect its economic impact. No definitive analysis of its economic impact will be possible until the substantive content of changes, if any, has been determined.

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    Mrs. NORTHUP. I think also in the language of the bill that this committee passed last year, there was the request that your office provide the information on helpers and helper regulation by December 31 of last year. And I don't believe that you met that deadline to finalize the rule.

    Mr. ANDERSON. To finalize the rule, rather than provide information on our consideration of the rule.

    Mrs. NORTHUP. Right. I think it has been how many years—a number of years that the rule has been left not finalized.

    Mr. ANDERSON. This is an issue that, unfortunately, extends back almost two decades as various Administrations, both Democratic and Republican, have grappled with the helper issue. There has been prolonged litigation on this. One Court case just ended in the latter part of 1997. There have been various administrative actions taken.

    There has been the consideration of rules, and the very fact that it has taken this long to resolve the issue is an indication of how difficult it is. And if you would just give me one minute, not more than that, to try to just sketch for you the difficulty of the problem.

    Under the Davis-Bacon Act, the Department of Labor is obligated to recognize wage practices that are prevailing in the community in which the construction work is to be done. And in the identification of a specific occupation, there are three tests that must be met. One is that there be a very clear and unequivocal specification of the duties of a person performing that occupation.
 Page 341       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The second is that there be an established prevailing practice concerning the use of that occupation in a particular community. And with specific reference to helpers, the third test is that there must be a clear and distinct and unequivocal difference between a helper and a trainee. The difficulty in coming to closure on the helper regulation is how to define a helper.

    When we went through the rulemaking process concerning the suspension of the rule, about a year ago, and we received comments from contractors, what we discovered was that there is no uniform definition or understanding within the industry on exactly what a helper is.

    Now, in the absence of being able to clearly define the occupational group called ''helper,'' it would be very difficult for the Department of Labor to administer such a rule. To attempt to administer a rule under circumstances without a clear and unequivocal definition of what a helper is would mean we would jeopardize the occupational and wage position of other occupational groups within the construction industry.

    Mrs. NORTHUP. Mr. Anderson, am I not correct that you have already drafted this regulation? Wasn't it already drafted?

    Mr. ANDERSON. No. We have not drafted the regulation.

    Mrs. NORTHUP. The regulation has never been drafted? I thought you suspended it.

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    Mr. ANDERSON. Oh, there was a regulation, yes, in existence I think in 1991.

    Mrs. NORTHUP. What was wrong with the definition that appeared in that regulation?

    Mr. ANDERSON. Well, it is interesting that you raise that question because the Labor Department's attempt to administer that regulation created enormous difficulties.

    Mrs. NORTHUP. Don't the firms that are in the construction industry that are not unionized use helpers regularly?

    Mr. ANDERSON. They do not use helpers with a consistent definition of what a helper is. In some cases, the helper is a semiskilled person. In other cases, what they call a ''helper'' is largely an unskilled person. In still other cases, the helper is a person who appears to be in a process of training for a skilled position. And so what the industry considers a helper tends to differ all over the lot. That means that it is impossible to administer a law or a regulation with that kind of uncertainty.

    Mrs. NORTHUP. This is very much like the chicken or the egg. As long as you don't define it and apply a rule, there never will be a definition of a helper. And they will be whatever exists on a particular worksite at any specific time.

    On the other hand, if you define it, there will become an understanding of what a helper is. Of course, there is no definition. It is like that in every division of jobs. Until you begin to specify, the interpretation is whatever somebody thinks it is on a particular site. In the meantime, the regulation goes without a rule to accommodate it. My feeling is that you all don't want to implement that regulation just as importantly as the impossibility of it.
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    Surely you could pull all the sides together and finalize what a general definition of a helper is, just like you have for a mason and every level of plumber and every level of every other building trade job that exists.

    Mr. ANDERSON. The difficulty here, Mrs. Northup, is that it is not the purview of the Department of Labor to define what a helper is. Under the Davis-Bacon Act, it is necessary to look at the industry and take the experience of the industry as to what a helper is in the same way that you can look at the construction industry and see what type of duties are contained in that type of job called ''electrician'' or that type of job labeled ''plumber'' and so forth—a consistent specification of duties performed by an individual in that occupation across all of the different pursuits in which that person is employed.

    But let me say we are working on this helper regulation. It is a source of grief and difficulty. We are continuing to try to come to closure on it, and I would hope that we would be able to conclude these discussions in the period before I or my successor come back before you next year.

    Mrs. NORTHUP. Well, Mr. Anderson, I think this committee would be very interested in a summary of the continuing work that you are saying you are doing—the meetings and the discussions that are taking place. In the meantime, what I have understood is that the industry has not provided you with a definition, and that is what—it is their responsibility. So I will be happy to take that message back to the industry that their lack in securing a definition is what is causing you all the problem.

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    Mr. ANDERSON. Thank you.

    Mr. PORTER. Thank you, Mrs. Northup. I have to say, Dr. Anderson, that I find your answer terribly disingenuous. I think you know what needs to be done here, and you are simply holding up the regulation. But I would be interested in seeing in the record what you have done over the last year to advance this, and I would like a thorough explanation as to why this can't be issued since the subcommittee specifically asked you to issue it in this fiscal year.

    [The information follows:]


    The semi-skilled helper rule was suspended after formal rulemaking, upon publication of the final rule of the Federal Register on December 30, 1996. (The validity of the rulemaking and suspension was subsequently upheld by the U.S. District Court for the District of Columbia on July 23, 1997, with that court's dismissal of a lawsuit challenging the rule. Associated Builders & Contractors, Inc. v. Herman, 976 F. Supp. 1 (July 3, 1997).)

    The Department of Labor formally continued the temporary suspension of the semi-skilled helper rule while the Department has been determining whether to propose changes to the rule through additional rulemaking. The Department had hoped to complete that rulemaking process by the end of December 1997, in light of the Committee's request to that effect. Unfortunately, however, the Department's review of the rule has taken longer than anticipated.
 Page 345       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The Department's consideration during the past year of potential options for amending the rule so that it both more accurately reflects actual practice in the industry and is capable of being enforced and administered has been time-consuming, due to the complexity and difficulty of the issue. Nevertheless, the Department expects to initiate additional rulemaking on the helpers regulations in the near future.


    Let us talk a moment if we may about child labor. The President's budget proposes some significant increases related to the abuse of child labor. Can you tell us how serious a problem this is in our country. Would your Wage and Hour investigators be spending more time on this, or how would you address this problem within the context of the budget justification?

    Mr. ANDERSON. Well, thank you, Mr. Porter, and I am happy to see you here. I mentioned in my opening verbal statement this afternoon some information on this, and that is every year approximately 200,000 young people are injured while at work. About 70,000 of them are injured seriously enough to require emergency hospital room treatment. And I believe last year 70 young people died while at work.

    I think that is an indication that although this country has made great progress in reducing substantially the incidence of abusive child labor practices, and we are this year celebrating the 60th anniversary of the child labor laws, nonetheless, there continues to be a serious problem with injury, and the threat of injury to young people who are working.
 Page 346       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    And that problem appears to be quite serious in the agriculture industry. Some 65—75,000 young people are employed in agriculture as part of the migrant worker stream. These are young people who work under the most dreadful conditions. Many of them are without any educational opportunities.

    Mr. PORTER. Could I ask a question here? I think you are going down a line that I wasn't referring to. Are we talking about violations of child labor laws when we talk about the abuse of child labor, or are you simply referring to the safety regulations that apply to all workers that are being violated and children happen to be victims in this case?

    Mr. ANDERSON. No. There are special regulations affecting young people——

    Mr. PORTER. All right.

    Mr. ANDERSON [continuing]. Below the age of 16—actually below the age of 18.

    Mr. PORTER. When you cite the deaths and injuries, you are saying that those are deaths and injuries because the safety regulations are being violated by the employer?

    Mr. ANDERSON. In many instances that would appear to be so.

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    Mr. PORTER. Okay. Please proceed.

    Mr. ANDERSON. Well, with specific reference to the budget request, the funds that are requested would be used to move forward with additional enforcement activities affecting young people, especially in the agriculture industry. And I should mention that the search for possible violations of the child labor laws is part of every Wage and Hour investigation.

    And so in addition to those special efforts that are from time to time directed toward looking for child labor violations alone, there is a desire to look for such violations when other investigations are conducted in the field. These funds——

    Mr. PORTER. Is it your responsibility to look at safety violations, as well as Wage and Hour violations?

    Mr. ANDERSON. Yes.

    Mr. PORTER. Okay.

    Mr. ANDERSON. Well, the child labor laws include 17 hazardous occupations in which young people are not expected to be employed. Now, the hazards in those 17 occupations are essentially safety hazards. Young people, for example, working with dangerous machines or working on roofs; young people engaged in other kinds of employment in which an adult might not be at risk but in which a teenager would be at risk because of their age, and their inexperience, and, in many cases, their immaturity.
 Page 348       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    And so when there is an investigation initiated either by a complaint or an investigation that is self-directed, as we were mentioning earlier in response to Mr. Miller, an effort is made to find out whether there are any violations of the child labor laws, in addition to minimum wage and overtime violations.

    And the funds that are requested for the initiative in agriculture will be used to try to identify where there might be violations and to do several things. One, to work with employers in the industry to be sure that they understand what the requirements are; and, to try to develop partnerships with employer groups to be sure that young people are working safe. We want young people to be employed, but we want them to be employed under safe conditions.

    The funds that are being requested also will help in the process of reviewing and possibly revising the child labor regulations with respect to the hazardous occupations.

    Mr. PORTER. Your job though is really to determine whether or not an underage employee is employed in a hazardous occupation, not to enforce safety standards, which would be an OSHA responsibility, but rather to see that they are not performing any one of these jobs?


    Mr. ANDERSON. That is correct. Yes.

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    Mr. PORTER. All right. Can we talk a moment about the Federal Employees' Compensation Program? You are proposing some significant changes for the next fiscal year for some of the administrative costs related to the Federal Employees' Workers' Compensation Program. You are proposing to shift the financing of some of these costs from the discretionary side of the budget to the mandatory side by paying for them out of the account that is used to pay compensation benefits. Why is this a good idea?

    Mr. ANDERSON. Well, for the past three years, Congress has permitted us to use some of the funds in the fairshare account to invest in technology, to upgrade the computer systems that are used to analyze to determine eligibility and also to pay benefits out of the FECA program. As it turns out——

    Mr. PORTER. Well, could you explain what fair share funds are? Where do these funds come from?

    Mr. ANDERSON. There are about 23 nonappropriated executive agencies like the Postal Service

which do not receive appropriated FECA funds but pay dollar-for-dollar into a special benefits fund for the benefits that they have to pay their employees who are injured on the job.

    And in addition to paying the dollar-for-dollar value of the benefits, they also pay I think it is 4 percent for the administrative cost for the FECA program to provide those benefits. And that creates a fund which is available to support the FECA cost for employees of the nonappropriated agencies.
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    Mr. PORTER. Congress has allowed you to use a portion of these funds for computers and automation, but now you are proposing to use them for staff. Is that correct?

    Mr. ANDERSON. Well, the staff is staff of the Periodic Roll Management Project. This is a project which was initiated six years ago that focuses on the long term disabled population. I think it is a matter of some significance that over the past six years $246 million in FECA costs have been saved as a result of the PRM project.

    And we project that over the next four years an additional $426 million will be saved through this project. The current 62 FTE who are now funded by the ESA Discretionay S&E account would be financed by the fairshare funding in the Special Benefits account. The 58 additional FTE we requested would enable us to expand the project and move forward and gain the benefit of providing the services to the long-term disabled to get them back to work or to adjust those numbers in another way. This is a very cost-effective project.

    Mr. PORTER. Well, if there are more than ample funds in the Fair Share funds account, why should these funds not, in other words, the funds that are set aside—not be cut back and subject to appropriations? Why do we have to pay them out of a mandatory account?

    Mr. ANDERSON. Well, the funds certainly could be made available through the general fund and appropriated, but as a matter of cost efficiency and maximizing the rate of return on investment, if you have in the PRM project a rate of return on investment of 30 to 1, it seems to me that that is pretty good investment and a very wise use of the fairshare funds for the purpose of improving——
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    Mr. PORTER. So is this all income then from the investment that we are talking about?

    Mr. ANDERSON. I am using an investment terminology to show the relationship between the cost that goes into administering the PRM project with the return to the government as a result of that project in getting people back to work, reducing the cost in the payment of FECA benefits, and medical benefits. That is the 30-to-1 ratio. And the funds that go into the Fair Share if there is any difference at the end of the year, those funds would simply go back to the Treasury.

    Now, I think the Department of Labor can certainly request that Congress appropriate from S&E the $13 million a year for ADP systems and other purposes that are requested through the fairshare funding, but I am not sure with our interest in balancing the budget and trying to reduce the rate of government spending that that would be the best way to fund this, since that would require an increase in discretionary funding.


    Mr. PORTER. I guess you are talking to an appropriator who doesn't believe that mandatory spending is the best way to have oversight and control of the expenditure of any funds. We prefer to have them all subject to appropriations so we can know where they are going and restrict them if we don't think they are being spent properly.

    You have been financing the Periodic Roll Management Project staff from discretionary salaries and expense funds for several years now. Why do you want to change all of a sudden to a new financing method? Aren't you just trying to shift some of your administrative costs out of your own budget?
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    Mr. ANDERSON. Well, the number of PRM staff has fluctuated over time. The original plan I believe was for 200 staff, but if I recall in fiscal year 1995–96 when there was a very serious problem with the budget, in an effort to try to move toward balance, our appropriations were cut. And in order to balance that off within the FECA program, adjustments had to be made in the number of people who were employed in the PRM project.

    What we are proposing now is to try to get back to a satisfactory level of staffing in that project in order to benefit from the great returns that the PRM project produces in the form of FECA cost savings.

    Mr. PORTER. Doesn't the PRM project benefit all Federal agencies and not just the 23 nonappropriated fund agencies who pay the so-called fairshare costs? Why should those 23 agencies pay for the project for all agencies?

    Mr. ANDERSON. I don't believe—the 23 nonappropriated agencies you are saying would through their fairshare contributions pay for the entire FECA program?

    Mr. PORTER. No, the periodic roll management project. It benefits all agencies. Correct?

    Mr. ANDERSON. It benefits the FECA program, yes—the administration of the FECA program, the payment of the benefit.

 Page 353       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. PORTER. But not just the 23 nonappropriated fund agencies who pay the so-called Fair Share costs?

    Mr. ANDERSON. That is correct. But——

    Mr. PORTER. So why should those 23 agencies pay for the project for all agencies?

    Mr. ANDERSON. I would say that the 23 agencies are not paying for all of the agencies. You think of this as obligations that those 23 agencies would have to pay into a fund somewhere in order to provide benefits to their employees who are injured on the job or those who lose their lives, of course.

    And so there is no increase in the cost to those 23 agencies as a result of the use of some of those funds, which otherwise would be returned to the Treasury, in order to upgrade and modernize and streamline the automatic data processing systems that are used to provide benefits to all FECA beneficiaries.

    Mr. PORTER. All right. Dr. Anderson, thank you very much.

    Mr. ANDERSON. Thank you, Mr. Chairman.

    Mr. PORTER. I am sorry we didn't have more time, and we were interrupted by votes. We very much appreciate your appearance before the subcommittee and your answering our questions. We will have additional questions for the record that we ask that you answer as well.
 Page 354       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. ANDERSON. Thank you.

    Mr. PORTER. Thank you very much.

    [The prepared questions were submitted to be answered for the Record:]

    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.








 Page 355       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. PORTER. Next, the subcommittee is pleased to welcome Dr. Katharine G. Abraham, the Commissioner of the Bureau of Labor Statistics, and members of her staff—quite a few members of her staff. Would you like to introduce the people who are with you, Dr. Abraham? It is good to see you again, and then proceed with your statement.

Introduction of Witnesses

    Ms. ABRAHAM. Starting from my left, those with me are Lois Orr, who is our Associate Commissioner for Employment and Unemployment Statistics; Kenneth Dalton, our Associate Commissioner for Prices and Living Costs; Bill Barron, whom I believe you know, our Deputy Commissioner; Dan Lacey, our Associate Commissioner for Administration; and then, of course, not of my staff, Ed Jackson, the Department's Budget Officer.

Opening Statement

    I appreciate the opportunity to be here to discuss the BLS appropriation request with you. I do have a formal statement that I would like to submit for the record. I don't think I need to describe either to you or to Mr. Istook the work that the Bureau does in producing data on employment and unemployment, prices, wages, productivity, and then the development of occupational employment projections.

    With respect to our work, I would note the achievement of one important milestone over the past year. Just yesterday we released the January 1998 Consumer Price Index, which was the first month's worth of data to incorporate the updated market basket and updated geographic sample that we have been working towards as part of the CPI revision. So I am happy to be able to say that milestone occurred on schedule.
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    The budget that we have requested would provide funding to allow the BLS to continue its work on its core programs. We have requested $398,870,000 in support for just under 2,500 staff. I would note that in our budget submission that we have requested increases in funds for two programs. First, we have requested just over a $9 million increase for our CPI Improvement Initiative. This would be the second year in funding for this improvement initiative and would allow us to do some very important things towards improving the CPI.

    Secondly, we have requested $3.3 million in additional funding to launch a Job Openings and Labor Turnover survey that would provide important information on the state of the labor market that would allow us to answer questions that we can't currently answer about where things seem to be headed. With that, I will stop, and we would, of course, be happy to take any questions you might wish to raise.

    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. PORTER. Thank you, Dr. Abraham. In last year's bill, we provided the increase that you requested for additional CPI improvements. Now you are back with a larger request in this area for 1999. You just mentioned that you are asking for $9 million additional for this purpose. Last year, I believe you indicated to the committee that this CPI initiative would cost about $10 million per year in the future. This year on page 43 of the justification you state the cost would be $14 million per year. Why have the estimates gone up so much in one year?
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    Ms. ABRAHAM. There are really two reasons for that. The first is that the biggest part of the cost for the improvement initiative is the added expenditure to expand the size of our Consumer Expenditure Survey sample. That is the survey that the Census Bureau does for us where they go out and ask people about how they are spending their money. The Census Bureau had to revise their estimates because we increased the size of the sample and changed the schedule to expand the sample earlier than was originally planned. As a result, the Census Bureau estimates increased.

    The other piece of the higher cost estimate is that we have added funds to the initiative to support testing and evaluation of what we are collecting as part of the Consumer Expenditure Survey. This is a very complicated survey. It is difficult to go out and get people to give us accurate information on how they are spending their funds. And we thought upon reflection that it was important to add funds to do more than we have done in the past on evaluating what we are getting and improving the quality of the survey.


    Mr. PORTER. Isn't it amazing that a year ago and prior to that time there was a great deal of talk about either changing the CPI dramatically or deflating the figure that you arrive at in order to make our budget look better? And here we are with an economy that has made the budget look much better, and nobody is talking about doing that except to the extent that you have already done it anymore at all.

    So we hope that you continue to gather good figures for us in an expanding economy for a long time to come. Why don't you tell me what exactly the changes have been in the CPI, and reflected in this first month of the revised CPI, and how they improve the accuracy of that measure?
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    Ms. ABRAHAM. We have done two important things that are reflected in the changes introduced with January's data. The first thing that we have done is to update the market basket for the CPI. In order to construct the CPI, we need to have information on how people are allocating their funds across categories of items.

    Up until the data that we released yesterday, that market basket had been based on information from 1982 to 1984, so it was quite out of date. As of the January data, it is based on expenditure patterns as of 1993 to 1995, which obviously is much updated. Along with that, we have taken advantage of the fact that we were engaged in a revision to update the way that the item categories are put together, which may sound pretty arcane, but is important in terms of how the information gets presented.

    We now, for example, have a category for information processing equipment that has within it separate categories for personal computers and software, which we didn't have before. We just had a small category for information processing. This sort of change reflects how people's spending patterns have changed, and it means that we will now be producing information that gets at what is happening to the costs of those kinds of items. We have changed the item structure that we are using for publishing the data.

    We also have updated the sample of cities where we are collecting information. This hasn't gotten as much attention, but as you well know, the population of the country has shifted over time towards the South and towards the West. We have changed where we are collecting data to accord with how the population has shifted. So we added in data from 36 new cities effective with the data released yesterday that go along with updating the geographic sample.
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    Mr. PORTER. When you figure a market basket, if you look at any particular two-year period, it could be a period of

relatively flat or even negative growth on the one hand, or it could be a period of expansion on the other. Don't people's purchasing habits change when they feel worried about their economic future? Don't they shift from certain products to other products—substitute, in other words—to reflect their feelings about what the economy may hold for them in the future?

    Ms. ABRAHAM. Certainly.

    Mr. PORTER. And how do you adjust for that in picking any particular period?

    Ms. ABRAHAM. Historically the way the CPI has always been put together is to pick a period and use that.

    Mr. PORTER. And just use it.

    Ms. ABRAHAM [continuing]. As a reference base, and then from that point not to adjust for——

    Mr. PORTER. For anything.
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    Ms. ABRAHAM [continuing]. Changes in consumption patterns that may have occurred.

    Mr. PORTER. But you may pick a period where people like today are choosing steak because they feel good about the economy and have to apply that measure when they have changed to chicken because they can't afford steak anymore—feel they can't. And is there any way to deal with that?

    Ms. ABRAHAM. Ken Dalton is commenting, correctly, that using a three-year average rather than data for a single year probably helps with that. But I think you are raising a more general question, which is how do you take substitutions that may occur over time into account in constructing the index. In the CPI as currently constituted, we don't take into account substitutions due to changes in relative prices that affects the market basket. We are looking at a couple of things to try to get at that sort of substitution behavior.

    The way that the CPI is constructed is to first construct the subindexes for the different items and then to aggregate them up. We are looking at changing the way that we construct the subindexes to take into account substitution that may occur among items at that level. We expect to announce a decision about what we are going to do on that sometime next month.

    We also are looking at producing a measure that takes into account substitution that occurs across broader categories of the index that would augment the official CPI. BLS would produce this separately from the CPI for operational reasons that I could go into if you would like, we can't do this on a monthly cycle.
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    I would like to add that we do know something about how important all of this is. Although there have been sometimes dramatic changes in consumption patterns, the impact on the rate of growth of the index is relatively modest—important, undoubtedly, but nonetheless relatively modest.

    Mr. PORTER. '93 was a recovering year. '94 and '95 were pretty good years, were they not? And if you apply such a CPI derived from those figures to a period when we are in a recession let us say, you are going to get a bigger adjustment than may be justified by the circumstances. Is that correct?

    Ms. ABRAHAM. In very general terms——

    Mr. PORTER. Maybe that is a good thing overall. I am not sure.

    Ms. ABRAHAM. In very general terms, if you use a market basket that is more out of date, whether it is going from a good economic period to a bad economic period or vice versa, it tends to give you an index that grows a little bit more rapidly. But there is no real precise relationship there.

    Mr. PORTER. Ideally, we should change the CPI every year to reflect the most recent three-year period and keep it moving perhaps?

    Ms. ABRAHAM. Well, in fact, I think so doing that could cause problems.
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    Mr. PORTER. That could cause problems.

    Ms. ABRAHAM. To give an illustration, suppose we were to update the market basket used to construct the index every year. Imagine that we had a run-up in energy prices, we started with a given level of consumption of energy and then energy prices ran up, and we captured that. Then if over that period, people moved away from using so much energy and energy prices subsequently came back down, that price decline would get a smaller weight. You would end up with a CPI that was higher than where you had started, even if energy prices came back down to where they had started. And so that could be problematic.

    I think that what would be ideal, rather than just updating the market basket every year, would be to construct a different type of measure that is designed to capture the impact of substitution that occurs, but that isn't just updating the market basket more frequently.

    Mr. PORTER. Yes. Ideally——

    Ms. ABRAHAM. Producing that other kind of measure as part of our set of official statistics is part of the CPI improvement initiative for which we have requested funds.

    Mr. PORTER. All right. I guess you have answered, do you think the CPI should be revised more often than every 10 years?

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    Ms. ABRAHAM. I think it probably should be.


    Mr. PORTER. Yes, yes. Your other significant budgetary increase in 1999 is $3,300,000 for a job openings survey. How would the survey be conducted? Would it provide data by local area or only on a national basis? And how much will this survey cost in the future on an annual basis?

    Ms. ABRAHAM. Taking your questions in reverse order, if I could, our expectation is that funding would continue at the same level, $3.3 million adjusted for unavoidable cost increases—mandatory cost increases. The intention is to produce National data only. We would have National figures overall and then by industry divisions. There would be some industry detail. It is not designed to produce local area information at this level of expenditure.

    Our intention is to conduct the survey using computer-assisted telephone interviews. Once we have initiated them into participation into the survey, perhaps we would convert respondents over to entering their numbers for us each month, using touch-tone data entry over the telephone, the same kind of approach that we are using with our monthly payroll employment survey.

    Mr. PORTER. And how would this survey be used?

    Ms. ABRAHAM. The survey would give us important information on what is happening to the tightness of the labor market. I have started to get questions that I am simply unable to answer from various people about whether employers are experiencing more difficulty in filling jobs than they were a year ago, or two years ago. I simply don't have the information to answer that question.
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    Mr. PORTER. Yes, but don't we know that kind of anecdotally and intuitively even? I mean, what do you do with the national data on job openings?

    Ms. ABRAHAM. Well, there are some things that you don't do with National data on job openings. You don't use this kind of information to figure out what sort of job training programs you should be designing or that kind of thing at any level of detail. I would agree that intuitively, when unemployment falls, you would expect that employers are probably going to be having more difficulty recruiting people. But the extent to which that is true really could be quite different depending on the circumstances.

    Mr. PORTER. Or quite different by area.

    Ms. ABRAHAM. It could be quite different by area as well. Until now, people have been forced to try to put together information on job openings from things like help wanted advertising, which does not really give you a very good indication of vacancy trends, but is the only thing that we have had.

    The Bureau of Labor Statistics has done job opening surveys on a pilot basis from time to time. Looking back at these, we see that at any given level of unemployment, job vacancies may be quite a lot higher or quite a lot lower at different points in time. It is not just a one-to-one correspondence, and I think

what this information would tell us, is whether at a given level of unemployment things are relatively difficult for employers or relatively easy. Having industry information would start to let you focus in on where the hiring bottlenecks were.
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    Mr. PORTER. Did you suggest this survey to OMB?

    Ms. ABRAHAM. Yes.

    Mr. PORTER. And it is in response to what?

    Ms. ABRAHAM. It is in response to questions that the Secretary of Labor and others have raised about the relative difficulty that employers are experiencing in filling jobs that we have just not been able to answer.

    Mr. PORTER. And I personally just can't figure out what you are actually going to do with this data. The only thing I can imagine you could do with it is it might affect immigration somehow because it is national data.

    Ms. ABRAHAM. Well, really it is an economic indicator.

    Mr. PORTER. Oh, you are going to use it as an economic indicator?

    Ms. ABRAHAM. It is an indicator of the state of the labor market.

    Mr. PORTER. State of the economy. All right.

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    Ms. ABRAHAM. It is not something that I would envision we would use for operational purposes.

    Mr. PORTER. I see. Okay. Now I understand it better. Do you consider this one of the highest priorities for the Bureau?

    Ms. ABRAHAM. It is something that I personally have long thought was an important hole in our set of economic statistics. It is something that I do believe would be valuable.


    Mr. PORTER. Okay. You have been doing some work with the Wage and Hour Division with respect to Davis-Bacon wage surveys?

    Ms. ABRAHAM. That is correct.

    Mr. PORTER. What kind of work do you do for them, and are they transferring resources to you for doing this work?

    Ms. ABRAHAM. Yes. We are doing some work for them, and we have contracts with them to cover the costs of doing this work. We are doing two things. One thing that we are doing is testing the collection of information on fringe benefits.

    The administration of Davis-Bacon requires information on a whole set of fringe benefits, and we are testing our ability to collect that information. We expect to have data—for two cities where we have been collecting these data—published later this year.
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    As part of our Occupational Employment Statistics program, which is a program that produces data on occupational employment and as of last year occupational pay, we also are looking into the feasibility of getting employers in the construction industry to report to us on the union versus the nonunion status of workers for which they are reporting.

    Mr. PORTER. When we talked to Mr. Masten, the IG, today there was some talk about how this data is gathered—Wage and Hour data. Is that your responsibility, or the Wage and Hour Division?

    Ms. ABRAHAM. The Wage and Hour Division.

    Mr. PORTER. They gather the data. Okay.

    Ms. ABRAHAM. The data that are currently being used for Davis-Bacon purposes.


    Mr. PORTER. Roughly, how much of your annual budget is allocated to the Census Bureau for work that they perform for you?

    Ms. ABRAHAM. I believe that is about $58 million. We have an exact figure.

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    Mr. PORTER. And what do they do?

    Ms. ABRAHAM. They do several important things for us. They conduct the Current Population Survey, which is our monthly household survey that is the source of the unemployment rate figures and other information. They conduct the Consumer Expenditure Survey for us, the survey that we already discussed that provides input into the CPI on how people are spending their money.

    They also conduct for us the Point of Purchase Survey, which is also an input into the Consumer Price Index Program. So most of the surveys that support our work that involve interviewing folks in households they do for us.

    Mr. PORTER. And has the amount that you have been transferring to the Census been increasing faster than the rest of your budget in recent years?

    Ms. ABRAHAM. This year that is true because we have proposed a big increase in the size of the Consumer Expenditure Survey sample as part of our CPI Improvement Initiative. And as I indicated, most of that increase is the added cost of conducting the Consumer Expenditure Survey.

    Mr. PORTER. And will that continue in out years, the survey itself, and the costs also?

    Ms. ABRAHAM. The costs will continue, not the increases.

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    Mr. PORTER. Yes.

    Ms. ABRAHAM. There is some further planned increase but costs are not going to continue to go up.


    Mr. PORTER. The Bureau's employment level has been fairly steady for quite a few years. What happens to the staff that you have been using to do the CPI revision project as it phases down? Do they leave the agency, or do you reassign them elsewhere?

    Ms. ABRAHAM. Ken Dalton can speak to this better than I can I suspect, but the biggest part of that staff is a field staff that are out in cities where we used to collect data and are no longer collecting data. So by and large they leave the Bureau. They are typically part-time data collectors, and we don't typically have other work for them in the same locality.

    Mr. PORTER. Do you have any great difficulty in recruiting and retaining the staff that you need?

    Ms. ABRAHAM. We are starting to experience problems.

    Mr. PORTER. Just like every other employer?

    Ms. ABRAHAM. Right, though I would hate to generalize from our experience to draw general conclusions that wouldn't necessarily be statistically supported.
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    Mr. PORTER. Are you competitive with private industry on salary and benefits levels?

    Mr. LACEY. It varies, Mr. Chairman. We are experiencing some difficulty. The occupations that primarily are used within the BLS are economists, mathematical statisticians, and computer scientists and specialists. Within those categories—a very highly sought after group of individuals—it is becoming more of a problem for us.

    Our attrition rate in those ranks is, in fact, increasing. We have some anecdotal information, although as the Commissioner said, not definitive information, about our competitive edge. In the computer arena, we are falling behind in what young people can make in private industry by a considerable margin, as much as $15,000 or $20,000 of a margin.


    Mr. PORTER. How much of your annual budget is allocated each year to the states for work that they perform for you or with you?

    Mr. BARRON. It is about $72 million in aggregate if you count both contracts and grants.

    Mr. PORTER. And has that been holding fairly steady over the past several years?

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    Mr. BARRON. It has. This year we have some puts and takes. We have a decrease that is occurring due to some data collection work that is going to be handled by contractors rather than states. Then, of course, we have some mandatory cost increases, but between last year and this year it is staying at about the same level.

    Mr. PORTER. And what data do they collect for you?

    Ms. ABRAHAM. They collect a lot of our labor force data. They are involved in collecting the data for our monthly employer payroll survey and, our occupational employment statistics survey. They also are involved in producing local area unemployment statistics.

    They are involved in collecting occupational safety and health statistics as well.

    Except for our Current Population Survey, basically all of our labor market data collection programs are conducted jointly with the states.


    Mr. PORTER. Now, let us turn finally to GPRA, and tell us what impact the Act has had on your Bureau. Are you doing things differently now than you were before the Act was implemented? And give us an overview of your work under GPRA as it applies to the Bureau.

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    Ms. ABRAHAM. I guess that I would say that a lot of the things that GPRA calls for are things that we were doing anyway prior to 1993. For example, one of the things that GPRA calls for is shifting towards program-by-program budgeting, which is something that we have always done. We have had performance indicators in our budget since 1991. So many of the things that the Act calls for are things that we had been doing anyway. We have done a lot of work on our strategic plan. That was a lengthy process in which all of us at this table, as well as our other senior managers, were very involved.

    Mr. PORTER. And did the GAO look at that?

    Ms. ABRAHAM. I don't know whether they looked specifically at the BLS plan.

    Mr. LACEY. No, they did not, Mr. Chairman. They focused their attention on the Department's strategic plan and its performance plan.

    Mr. PORTER. Well, Dr. Abraham, thank you for testifying this afternoon. Thank you for the fine job you are doing. I am glad we don't have to talk about CPI deflators any longer, and I am sure you are also.

    Ms. ABRAHAM. We have continued to work hard on improving the CPI program.

    Mr. PORTER. Thank you very much. The subcommittee will stand in recess until 10 a.m. tomorrow.
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    [The following questions were submitted to be answered for the Record:]

    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.






Introduction of Witnesses

    Mr. PORTER. The subcommittee will come to order. We continue our hearings this morning on the budget for the Department of Labor. This morning we will focus on pension agencies and want to welcome Olena Berg, the Assistant Secretary, Pension and Welfare Benefits Administration, and David M. Strauss, the Executive Director of the Pension Benefit Guaranty Corporation. Thank you both for coming this morning. If you will proceed each with your statements, and then we will go to questions.
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PWBA Opening Statement

    Ms. BERG. Thank you, Mr. Chairman and members of the subcommittee. It is a pleasure to be here with you this morning to discuss PWBA's budget request for fiscal year 1999. As you know, our primary mission in PWBA is to promote and protect the pension, health, and other benefits of over 150 million participants and beneficiaries in over 6 million private sector benefit plans that all together hold more than $3.5 trillion in assets.

    Safeguarding and promoting the benefit security of American workers is an enormous challenge for all of us, but one we face with a strong resolve to succeed and a growing sense of pride in what we have been able to accomplish with the resources available to us.


    We have had a busy year since I last appeared before this committee, and I would like to tell you a little bit about some of our activities and results. For fiscal year 1997, our civil enforcement actions resulted in the restoration of over $360 million to employee benefit plans and our criminal investigations resulted in another $3 million restored to those plans.

    As of last month, we had opened a total of almost 3,000 investigations of 401(k) plans and recovered about $38 million for the participants in those plans since we started this crackdown on 401(k) fraud in 1995. We have also opened 331 investigations of health plans where employee contributions may have been misused and recovered about $10 million in those cases.
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    Additionally, we have opened over 100 criminal investigations into the misuse of employee contributions to 401(k) and health plans, and these cases resulted in the criminal prosecution of 54 people.

    In addition to these enforcement actions and our efforts to encourage compliance with the law, we have conducted educational outreach program workshops around the country to provide assistance to plan professionals about ERISA's requirements and how to avoid problems.

    We have also tried to help people get into compliance with the reporting aspects of ERISA. Our Delinquent Filer Voluntary Compliance Program, with vastly reduced fees and penalties, resulted in almost 3,000 new and corrected annual report filings that are now back in the system.

    We have been trying to help in some of the more difficult aspects of the law by providing guidance. For instance, we put out a comprehensive book on qualified domestic relations orders, known as QDROs, to assist all parties to a divorce proceedings in understanding ERISA's sometime arcane requirements and making sure that parties are able to come to the best conclusion in those kinds of cases.

    As I am sure you remember, we have major new responsibilities facing us as a result of the health laws enacted in 1996. In the past year we developed nine interim final regulations implementing the major portions of HIPAA's portability provisions.

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    We continue to try and help the public. We responded to about 155,000 inquiries and, as a result of assisting people who call with questions and problems, were able to recover almost $30 million in individual benefits for plan participants who were involved in a dispute with their plans last year. That is a 20 percent increase over the year before.

    As you know, in 1995 we launched our Retirement Savings Education Campaign with the goal of increasing the basic information available to people about pension and retirement planning issues and the importance of personal savings. In the last year, we have published 15 new helpful brochures as

a part of that campaign, some in Spanish for the first time ever.

    We have implemented a toll-free brochure request line so that people can easily access this information. We, ourselves, distributed over 450,000 copies of these materials and our private sector partners in the campaign were able to vastly leverage our resources by distributing almost 5 million of our publications for us.


    We also have undertaken a multiagency effort, along with the IRS, the Social Security Administration, and PBGC, to develop requirements for the EFAST, a new Form 5500 reports processing system. The new system will use state-of-the-art technology and be far less costly to operate than the current IRS processing system. The new system will improve the accuracy and the quality of the data processed and speed our ability to use this data in safeguarding pensions.
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    I would like to take a moment right here to personally thank you, Mr. Chairman, and the committee for giving us the resources to undertake this effort and begin the development of this new system. We expect to be able to award the development contract in the next few months and to implement the system in late fiscal year 1999.

    Finally, and again in coordination with the other agencies, we have developed a revised form 5500 series report. It is designed to streamline and facilitate compliance with ERISA's requirements by making it much easier for plan administrators and fiduciaries to understand what they need to fill out. It will be far simpler. It will save us time and effort and the business community as well.


    In 1998, we will be building on all of these activities and accomplishments. In addition we are starting some new initiatives. We held a hearing last November on the issue of 401(k) fees because, over time, one would have expected—with the growth of the system, possibly economies of scale and new technologies—to see fees for these plans going down.

    In fact, the opposite seems to be the case, and participants are being asked to bear more of the cost of fees. In many cases participants don't understand, and sometimes plan administrators don't understand, what they are actually paying because of the variety of fee arrangements out there.

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    As a result, we are beginning to look into this area. We held a hearing and are doing some follow-up investigative and research work to see what more may be required in terms of education or possibly disclosure in the area of fees.


    And as a result of the passage of the SAVER bill, we are coordinating a National White House Summit, which will be jointly hosted by the President and the congressional leadership, on retirement savings education issues. It is tentatively scheduled for early June and, again, we will build on the work of our Retirement Savings Education Campaign to see what more might be done to help people get the tools they need to ensure that their retirements are secure.


    Finally, I mentioned already the extensive regulatory work we have been doing under HIPAA. We will also be implementing the aspects of the Consumer Bill of Rights recommended by the President's Commission on Consumer Protection and Quality in the Health Care Industry for which we have regulatory responsibility.


    I would also like to briefly mention our GPRA and strategic goals. As you know, the Department of Labor overall has established three strategic goals to help America's workers meet the challenges they face today and in the future. Our plans in PWBA, and our budget request for 1999, fall under the Department's second strategic goal: A Secure Workforce.
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    Our role is to promote the economic security of workers and their families by expanding, enhancing, and protecting workers' pension, health, and other benefits. To accomplish this, we have established four major goals within PWBA.

    First, we will assist workers in understanding their rights and protecting their benefits. Second, we will deter and correct violations of the relevant statutes. Third, we will facilitate compliance by plan sponsors, plan officials, service providers, and others in the regulated community. And, fourth, we will work to encourage the growth of employment based benefits.

    In developing the GPRA plans, we selected performance measures that challenge us to improve our regulatory and compliance assistance, enforcement, educational and customer service activities. We also have other performance indicators—such as assets restored to plans—which when taken as a whole with the measures in our strategic plan and annual performance plan, more completely present the full picture of the work that our agency does.

    We realize that there is a lot more to be done in the next several years as we continue the work of refining the strategic plan and move more toward an outcome focus. But I think it is important to point out in the midst of all this that we can say that there is a good and positive return on investment to the taxpayer for its investment in PWBA.

    As I mentioned earlier, in fiscal year 1997, we restored assets to plans totaling over $360 million. If you convert that into a return on investment measure, that is a return on investment of over 400 percent of our agency's total budget, even though we do many other things as well.
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    To accomplish all of these goals, we will continue to analyze and evaluate our operations. There are areas, however, where we do need additional resources to effectively administer our new and growing responsibilities. Our budget request for fiscal year 1999 totals $91 million and 764 FTE. Included in these amounts are requested program increases of $9.6 million and 55 FTE.


    Again, there is a more complete explanation of these requested increases in my written testimony, but I just wanted to mention briefly that primarily most of the money is for health care compliance with our new responsibilities under HIPAA and the other laws that passed last year and the continuing work that needs to be done in this area.

    Enactment of the new health laws was a major expansion of PWBA's responsibilities. We have been working actively to put out the regulatory guidance that is necessary. We know from our experience with COBRA some years ago the volume of inquiries that we will be getting from the public and from practitioners as they begin to understand their responsibilities under the new law. We are asking for the resources, both on the regulatory and interpretive side, as well as the customer assistance side, to be able to meet that challenge.

    We are also asking for the funds that we will need to commit at the end of fiscal year 1999 for the conversion phase from the old IRS processing system to the new EFAST system. We will have to continue paying into the IRS system for processing the 1998 Form 5500s at the same time, an overlapping period, that we start processing the 1999 forms on the new system. This is a one-time expenditure to get us through that one year, as we are converting from one system to the other.
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    As I mentioned in my written statement, this budget request reflects our strong commitment and the commitment of this Congress to improve the lives of America's working families by promoting their economic security. We think our GPRA plans and our requested resources will help us accomplish these goals in a more efficient and effective manner. With that, I conclude my opening remarks and would be happy to answer any questions that you may have.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. PORTER. Ms. Berg, that was wonderful. Thank you very much for that very comprehensive and direct statement. We appreciate it, and, of course, we will have questions. Mr. Strauss.

PBGC Opening Statement

    Mr. STRAUSS. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you today. It is an honor for me to appear before the Labor-HHS Subcommittee. As PBGC's Executive Director, I am acutely aware of how essential PBGC's insurance program is to safeguarding the pension benefits of 42 million American workers.

    Since its creation almost 25 years ago, the PBGC has assumed responsibility for the pension plans of nearly 500,000 workers and retirees. In just the last year alone, a time when the economy's performance has been strong and ongoing pension plan assets have been growing, we have trusteed pension plans covering more than 50,000 participants.
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    Since joining the PBGC, I have set out three priorities for the corporation: one, safeguarding PBGC's solvency; two, making PBGC a premier customer service agency; and, three, promoting defined benefit pension plans.

    With regard to our first priority of keeping PBGC solvent, the corporation had its first surplus in history last year, and we fully expect to report good news again this year, thanks to a healthy economy and good asset returns. When PBGC's financial statements are completed for FY '97, they will show that our reserves continued to grow for both the single and multiemployer programs.

    But despite our good returns, PBGC must remain vigilant because there are many factors affecting our financial health that are beyond our control. For example, we are always taking on new plans and assuming new unfunded benefit liabilities even when the economy is strong. And changing economic conditions, such as a dip in the stock or bond markets, can reduce the value of the assets that we manage.

    My second priority is making PBGC a premier customer service organization, not only for the workers and retirees we protect, but also for the employers who pay our premiums and the pension professionals who advise them. In my written testimony, I have provided you with a number of examples of where we have taken steps to improve our customer service.

    My third priority is to promote defined benefit pension coverage for American workers as mandated in ERISA. Defined benefit plans can help build secure retirement savings quickly, and they are especially needed for small business employees where defined benefit coverage has declined.
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    An important step in addressing defined benefit coverage among small employers is a bill sponsored by your colleagues, Congresswoman Johnson and Congressmen Fawell and Pomeroy, which creates a simplified defined benefit plan for small business.

    There is broad, bipartisan support for this type of legislation, and President Clinton has proposed something similar in his 1999 budget request. The Administration initiative blends some of the best features of both defined benefit and defined contribution plans, such as guaranteed retirement benefits and individual pension accounts.

    These priorities—maintaining PBGC's financial solvency, improving customer service, and promoting defined benefit pension plans—are aligned with the goals in PBGC's Strategic Plan and the Secretary of Labor's priority to promote the economic security of workers and their families.


    I know this committee is particularly interested in how agencies have implemented the requirements of GPRA. And I am pleased to report to you that we are actually in our second year of integrating PBGC's Strategic Plan with our budget formulation process.

    Since PBGC last testified before you, we have further refined our Strategic Plan and are now able to better target our budget resources to our strategic goals. We are pleased that we can now report annually on five of the eight PBGC outcome measures discussed with this committee last year, and we expect to be able to report on the remaining three outcome measures by the end of this year.
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    That takes me to our FY '99 budget request before this committee. For FY '99, PBGC is requesting a total of $158.7 million for operating expenses. The need for the $10.9 million increase is primarily threefold: one, to manage the large growth in our investment assets; two, to handle the increase in the number of claims under plans entrusted to our care; and, three, to speed up our processing of final benefit determinations for participants. It is also needed to increase our productivity through automation and training and to enhance customer service.

    Our $158.7 million budget request is directly linked to PBGC's four strategic goals, and I will break that down for you here. Under our strategic goal number 1, which is to protect existing defined benefit plans and their participants and to encourage new plans, we are requesting $25 million for PBGC's early warning and legal enforcement programs. In FY '97 alone, PBGC's early warning program secured $770 million of lost prevention protection for underfunded pension plans.

    For goal number 2, to provide high quality services and accurate and timely payment of benefits to participants, we are requesting $77 million in FY '99. This goal encompasses the largest program area for the corporation in terms of both dollars and people. PBGC expects the number of trusteed plans to climb to 2,730 during FY '99, which is a 50 percent increase in only five years.

    PBGC will also be responsible for the benefits of some 565,000 people in FY '99, another 50 percent increase since FY '94. This workload growth is long term in nature because beneficiaries normally receive benefits and services for decades.
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    And when I say that it is long term in nature, I think that it is pertinent to point out that there are still two Confederate Civil War widows who are still living and collecting pensions. So when we say long term, we mean very long term. We expect to speed up the processing of our trusteed plans and final benefit determinations for participants as described in PBGC's FY '99 annual performance plan.

    Under our third goal, to strengthen financial programs and systems to keep the pension insurance system solvent, we are requesting $39 million in FY '99. This goal includes efficient premium collection, strong accounting controls, and pension asset investment responsibilities. Increased funds are primarily needed in FY '99 to manage our investment portfolio, which grew from $8.2 billion five years ago to $15.6 billion at the end of FY '97. In other words, a 90 percent increase.

    Finally, under our fourth goal, which is to improve internal management support operations, we are requesting $18 million in FY '99. This goal includes central computer systems, operation support, and specialized pension-related training for staff. Over half the amount requested for this goal will support ongoing computer operations and initiatives such as addressing the year 2000 computer issues. In closing, I look forward to working with each of you, and I thank you for giving me the opportunity to appear this morning.

    [The information follows:]

    "The Official Committee record contains additional material here."

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    Mr. PORTER. Thank you, Mr. Strauss. Mr. Obey.


    Mr. OBEY. Thank you, Mr. Chairman. I just have one question, and it involves an episode in my district. I am not quite sure how to state this and be polite about it. But I think that your agency is one of those agencies that most people ignore and are not even familiar with until they discover they need some help in a hurry. And nine times out of ten, because of the state of the law, they still don't get it. And that is not your fault, that is the fault of the Congress.

    I want to make clear I believe in capitalism. I don't believe in Ayn Rand capitalism. I sure as hell don't believe in Charles Darwin capitalism, and that is what we have got in this country all too often.

    I would like to give you the particulars of the case in my own district—my own hometown. The company is A.D. Getz, and what is happening is that the retirees in that company just abruptly saw their health benefits disappear by a successor company, T & N Industries, after T & N bought the company.

    Even though it is my understanding that T & N Industries promised the employees and the retirees a decent long-term package, my understanding is that, in fact, the notice that they were given was so abrupt that—well, my understanding, for instance, is that they were given notice of the intent to withdraw health benefits from retirees on December 22—a letter dated December 22, which retirees did not even receive until close to January 1, and January 1 was the date of termination of the benefits.
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    My understanding further is that despite the fact that the workers thought that they had and the retirees thought that they had clear guarantees of coverage, that this was having such a way that they were not even afforded any opportunity to continue coverage under the Federal provisions of COBRA or under state law. I am not certain of the details of that, but that is what has been described to me.

    I would simply like to give you the information that I have about this case, and I would ask if you could give it expedited consideration in reviewing the facts of the situation to see whether or not there is any way that these workers can get some protection under the law.

    Now, I understand also that there are many loopholes which are in these contracts which lead workers to believe that they are protected because slick lawyers wrote it that way, but, in fact, they wind up not being protected because of get-out clauses that are fairly obscure. I have just run into another case involving this in another city in my district, and that is in Wisconsin.

    What I would like you to do is to immediately investigate the situation with respect to this company and let me know whether or not there is any redress these workers have under the state of the laws that exist now. I would also like to know if they don't, I would like you to identify for me some of the common practices and the common language that is used in contracts which leads workers to have the false impression that they have protection when, in fact, they don't.

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    And I would like to ask you to go even further. My understanding is that T & N may itself be shopping around for a buyer. My understanding is that one of the potential buyers is a company by the name of Federal Mogul, which is a $2 billion global manufacturer. And my suspicion is that either T & N wants to drop these health benefits, but they can sweep them into the buyer packages for their own executives when their company is bought out, or else my suspicion is that it may be being told by Federal Mogul or someone else looking at that firm that they ought to drop these liabilities before they will buy them out.

    So I would also like your observations about what forces in the marketplace contribute to the decision of the corporations to pull the plug on benefits like this, even when the workers are under the impression that they have them.

    I know that that runs somewhat far afield of your narrow expertise, but if we are to design policy in this place that is aimed at correcting not only corporate conduct that is on the line but of correcting the wonders of market forces, which are sometimes nothing but an obscene aberration of real markets, I would like to know what observation you have on that score as well.


    Ms. BERG. Congressman, we will be happy to follow up on each of those requests. You have identified, I think, a very troublesome policy area in ERISA. When I try and describe ERISA to my daughter, for instance, in a very shorthand way to say what does this law do, what I usually say is that it doesn't require that employers provide any particular kind of benefit or that they require benefits at all. They have a lot of flexibility. But the way the law works is if they make a promise, they have to keep that promise.
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    In this case, I think the law is failing the participants as a result of some of the developments that you mentioned. The Courts for a while seemed to be all over the map on this issue, but increasingly the trend seems to be toward a conclusion that if a company has reserved anywhere in the underlying documents—even if the participants in the documents may not be aware of it at all—that right to amend the plan, the Courts seem to be holding that they are able to do that.

    So what we know at this point is out of about a million people who are receiving health benefits and retirement from their employers, about 800,000 of them think they have lifetime benefits and very many of those people probably don't if the employer decided to make a change and did indeed have that reservation of right somewhere in the documents.

    We have been trying to assist in these cases. I think about a year ago we issued a Brief for people to say here is

what to look for, here is how to try and find out for yourselves whether you are really protected or not.

    We have participated as an amicus in any number of these cases—Pabst, for instance—in trying to help the participants and trying to encourage the Court to take all the evidence into account and really look at what these participants have been promised. But, again, I have to say in general, the trend is moving against us. So, we will be happy to look into the particulars of this case to see what, if anything, we can do to be helpful and to answer your broader questions as well.
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    [The information follows:]

    "The Official Committee record contains additional material here."

    Ms. BERG. Now, in terms of what might encourage companies to drop this kind of coverage, I think a lot of commentators have looked back to the change—the FASB change—that was made some years ago in the accounting for these benefits and putting them on the balance sheet because we did see, after that accounting change, a lot of companies reevaluate what they were doing in the area of retiree health benefits.


    Mr. OBEY. Okay. Let me just ask one more question. You are asking for an increase of how much in your budget this year?

    Ms. BERG. $9.6 million.

    Mr. OBEY. Just given my experience, in Ashland, for instance, these workers—all of a sudden the plant was shut down, no notice, no cooperation from the company in terms of requests from the local mayor to leave a couple table machines or even though that would have been purchased by another company, the company stiffed the community, they stiffed the mayor, they stiffed the workers.

    And when it got to questions about promises that they were making retirees in the new contract, the union itself was strapped. It had got a lot of contracts to come out at the same time. The union itself is able to give virtually no meaningful help to that local. I find it amusing for people who talk about big labor when, in fact, it is my experience that labor is usually weak as hell when it comes to trying to protect the workers on many of these issues.
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    And I guess I would like to know how on earth you can really deal with all of your responsibilities, especially I would think your responsibilities for providing additional information to at least let them know what the traps are before them, with such a small budget increase? In your best professional judgment, what kinds of activities would you increase if you were to receive an additional $10 million above the Administration's budget request?

    Ms. BERG. I would increase, given the size of our universe—I talked about the 2.5 million health care plans and 700,000 pension plans with 150 million participants—the area of customer service, of answering inquiries and being able to follow up and help people in these areas. This is something that we have been working very, very hard to expand our efforts to make people more aware that we are there to assist them.

    And so to the extent that we have been given additional resources in the last couple of years, those resources have gone into customer assistance. We have established new positions in every one of our field offices to help people. It used to be that if someone called one of our offices, they had to be referred to an office in Washington. In too many of these cases, we told people, sorry, we can't help you. You will have to get an attorney.

    We now try and follow up on these situations and as we do more of this, and as more people become aware of the fact that we are doing it, we are seeing substantial increases in the number of calls and inquiries that we are getting. For instance, in the health care area, there was a 45 percent increase in the number of inquiries that we received in a year's period. Clearly, additional resources would help us in the customer assistance area.

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    Mr. OBEY. Thank you. Thank you, Mr. Chairman.

    Mr. PORTER. Thank you, Mr. Obey. Let me begin by giving you a very short sermonette. I doubt very much that the revenue increases that the President suggests in his budget are going to be enacted; and certainly not in my judgment this year. That means that the spending side of his budget is also under some downward pressure, given the fact that we won't have the revenues to work with.

    I would also say that if you give me a chance to raise the tax on tobacco in the way that the President's budget indicates, I would be happy to do that. But, I don't think that matter is going to come up before the Congress this year. I think the revenues are not going to be there, and that is going to make it more difficult for us to accede to anyone's budget request at the levels that have been suggested by the President.

    Mr. Strauss, doing the arithmetic, it seems to me that the Civil War widows must have been 20 years old, marrying 90-year-old veterans.

    Mr. STRAUSS. It is something like that, yes, sir.

    Mr. PORTER. Is that about right?

    Mr. STRAUSS. About right.

    Mr. PORTER. Yes, and they have got to be pretty near the end of life also.
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    Mr. STRAUSS. One of the widows is 97 and the other is 82, just for the record.

    Mr. PORTER. Yes. Let me say before we begin the detailed questions that personally I would like to see us—and this would reflect on Dave's concern also—I would like to see us over the next 25 years move from the kind of public and private pension system that we have in America today to a public pension system that would be owned by the workers, rather than owned with promises by the government, which is our present Social Security system.

    I would like to see a system where every worker owns their own account, to be used as the basis for our private pension system so that people are not given promises that they will receive a corporate pension or a union pension somewhere down the line.

    Workers will with every paycheck have money paid into their own private account that they own from that moment on and invest for themselves. They would have the protection that this new system would provide them instead of having corporations that steal their assets out of the pension fund and then go bankrupt or unions that do the same thing.

    In other words, I think we ought to now have a vision for our country that we can create this system, and that we have the resources to do this. It can be done, believe me, with not that much difficulty because of the great lack of faith that young people have in our public pension system today, Social Security.

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    If we aim for it, we can move toward a system where every worker owns their own account, and don't have to depend on anybody for their retirement. They would have it in their hand, and invest it, and have it available to them when they reach retirement age.

    That I think is something that we need to state as our national goal and work toward it very, very strongly. I think that of all the problems that you deal with every day, a lot of them must come from the kinds of pension systems that we have today that depend upon promises that often aren't kept by the government or by private industry.


    Having said that, let me ask a question of Mr. Strauss. Your testimony indicates you have about $15.6 billion in investments. What portion of those investments are in U.S. Government obligations?

    Mr. STRAUSS. About 60 percent.

    Mr. PORTER. Is that pegged by judgment or by law?

    Mr. STRAUSS. The 60% represents the assets of the revolving funds, which by law must be invested in either U.S. Treasury securities or debt obligations. PBGC's Board of Directors has directed that our revolving funds be invested in only Treasury securities. Our board consists of three cabinet secretaries, the Secretary of Labor, Secretary of the Treasury, and Secretary of Commerce. And so our investment policy is basically established by our board of directors.
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    Mr. PORTER. And that means that you have $60 billion in other types of investments, roughly?

    Mr. STRAUSS. The number in my testimony——

    Mr. PORTER. 6 billion. I am sorry.

    Mr. STRAUSS. $6 billion. And the other $6 billion is managed by about 10 private sector equity managers—10 different managers with different philosophies.

    Mr. PORTER. And the reason for that is that you would have an inordinate impact on the market if you made a decision at one central place about one particular security, for example?

    Mr. STRAUSS. I don't think that our numbers are large enough that we would have an inordinate impact on the market. I think it is more a diversification issue.


    Mr. PORTER. Okay. Let me begin by asking each of you to answer this question for the record. The GAO has expressed concern in recent testimony before the subcommittee about the Department's lack of reliable and consistent information needed to monitor performance of individual activities.

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    Are you confident that the performance data that you have for your activities will tell us what we need to know to assess whether they are meeting their objectives? This is in reference to GPRA. You can answer that for the record.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. PORTER. Describe for us your new responsibilities under the health care legislation passed in 1996.

    Ms. BERG. We have always had fiduciary obligations with respect to health plans and pension plans and going in and looking at dollars held in trust. For the first time under ERISA—as amended by HIPAA—we have responsibilities for issues that relate to regulatory plan design requirements.

    HIPAA has the portability requirements that are imposed on employers, the obligation to provide participants with certificates as they leave a plan and enter a plan that attests to their previous coverage, and all sorts of things like that, which we are now required to enforce; a whole different role for us.

    Similarly, the Newborn and Mothers Act has requirements about hospital stays for group health care plans that we are now required to enforce. So we have obligations to provide guidance to the affected providers of health care and to the participants in all of these plans on a variety of issues involved in HIPAA.
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    In addition to that, we have the customer service obligation that I talked about earlier, and we have numerous regulatory or guidance and interpretive projects that we have to undertake and studies that the law requires of us as well.


    Mr. PORTER. And are you able to handle the volume of inquiries that you are now responsible for?

    Ms. BERG. Well, again, this is a major focus of our requested increase. We are looking back to our COBRA experience and projecting from that data the kind of volume that we expect to receive by the year 1999. That is the year where we think we will be hit most heavily because at this point, plans are still coming into compliance.

    Most of the provisions of HIPAA took effect in the first plan year after the effective date of the legislation. Many plans are just now beginning to come under HIPAA's requirements, and so we expect an increase in the volume of calls, and 1999 is the year that we anticipate being hit hard, as both providers and participants are beginning to try to understand this new law.

    Mr. PORTER. But you have calls now?

    Ms. BERG. Oh, yes, yes; as I mentioned, a 45 percent increase in the number of calls on health care in the last year.
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    Mr. PORTER. Do you have an 800 number, or do you answer those at your local offices?

    Ms. BERG. No. Again, we created the ability at each one of our regional field offices and here in Washington, D.C., to answer those calls. We have one toll-free number for people to get the brochures that I mentioned earlier. Included among those materials is a book on the new health care laws and the requirements and questions and answers for both providers and participants. That has been a popular book since we put it out.


    Mr. PORTER. The justification mentions that the rise in health care fraud has been a contributing factor to expanding your workload. Can you expand on that a little bit?

    Ms. BERG. There are a number of areas where we have really been investigating health care fraud. One has been a continuing problem for us and for state authorities as well, and that is what are referred to as fraudulent MEWAs, Multiple Employer Welfare Arrangements, and this has to do with operators who take advantage of the good intentions of small business people trying to offer affordable health care to their employees.

    These operators come in and try to get out from under state regulation by asserting that they are an ERISA-covered plan because typically they maintain that they are a union—they are really a sham union—or that they are an employee leasing company in a single employer plan. These are very sophisticated people. We try to stamp them out in one state and they will pop up later someplace else. What they do is sign up a lot of people and collect premiums.
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    The reason they are trying to get out from under state requirements is so they don't have to worry about issues like solvency requirements and reserves and things like that. They collect premiums. They may pay a few claims at the beginning, but the payment of claims then gets very, very slow. By the time people discover that their health care claim isn't going to be paid, these people have disappeared. Those cases are tragic. The workers are stuck with enormous health care bills in some situations. As a result we have made a major and continuing enforcement effort to go after those kinds of operators.

    In the health care area, we are also finding situations where service providers to plans negotiate discounts with hospitals and doctors and other health care providers and don't reveal those to the plans. Now, if this is all out in the open and everyone understands that this is being done and that the premium that they are paying takes that into account, then that is fine under ERISA.

    But where it is not disclosed, you see situations where it affects the participants. If they have, for example a 20 percent co-pay and they have gone into the hospital for an expensive operation—a $50,000 operation—and the hospital has negotiated a discount where they really are only charging $25,000, but the participant is still being charged the 20 percent co-pay based on the higher amount, this is harming participants. So we have investigative efforts where we are going after those kinds of arrangements as well.


    Mr. PORTER. Do you suggest changes in the law where they seem appropriate and bring those before the Congress?
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    Ms. BERG. Yes, we certainly do.

    Mr. PORTER. And has Congress been responsive to those?

    Ms. BERG. I would say very much so. One of the early indications

was the SIMPLE plan that Congress passed last year. We are trying to encourage more coverage, and David talked about this earlier, but we know that small businesses have particular difficulty providing pension benefits to their employees.

    We know that about one out of every four employees in a small business has pension coverage as opposed to three out of four in large businesses. We have been trying to see how can we reach out to small businesses and encourage them to set up plans. In the first six months after it became effective—I don't have more recent data—something like 18,000 small companies, the majority of them with less than 20 employees, set up these plans covering about 100,000 people who did not have coverage before.

    That kind of effort is very encouraging. Also as David mentioned, the work that people have been doing in trying to design a simple defined benefit, a traditional pension that might work for small businesses as well.

    Mr. PORTER. If you had your own retirement account that you owned and invested throughout your working lifetime and your employers paid into it with each paycheck you would not have to worry about portability. You would not have to worry about vesting. You would not have to worry about any of the things that people have to worry about today and I think it would be a much, much better system.
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    To what extent on MEWAS do you interface with the Inspector General's Office who also does a great deal of work in that area?

    Ms. BERG. We work with the Inspector General. In some cases there are joint investigations. It depends on the circumstances, but we have tried to work closely with them.


    Mr. PORTER. We know that you testified recently before another House subcommittee on government reform and oversight, on the matter of limited scope audits under ERISA. This matter has been discussed by the IG and others for years now. Can you review for us your concerns in this area? Why is this a problem?

    Ms. BERG. Certainly. ERISA requires that any plan with over 100 employees receive an annual audit by an outside independent auditor and that, of course,

given the size of the universe versus the size of my agency, really is the best protection that people can have—an early outside look. I think this is a perfect private sector kind of operation where auditors come in and look at the operations of the plant.

    When ERISA was passed it allowed plan administrators to opt for what is called a limited scope audit. This was done to try and keep auditing costs down and recognize that regulated financial institutions, where many plans were placing their money, also received an audit. This is the only place in law that we are aware of where this provision exists. Therefore, to the extent that the plan had any money in a regulated financial institution, they could decide to do an audit where the auditor did not look at those assets when performing the audit.
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    After the passage of ERISA, accounting conventions changed. When auditors are asked by the plan administrator to do a limited scope audit they will not render an opinion on the safety of the overall assets of the plan—not on the assets in the financial institutions and not on any other assets of the plan.

    The assets might be in real estate or anything like that. I would be happy to show you the language that we get in a qualified opinion. It simply says we have not looked at everything so we can't tell you anything about the overall safety of these assets.

    Mr. PORTER. What leads the audit?

    Ms. BERG. These audits are no good. They do nothing for us and there are about $950 billion in assets that are subject to that kind of audit right now. The GAO and the Inspector General, as you mentioned, have been pointing out this problem for years. We are really urging Congress to act on this.

    Mr. PORTER. You have suggested that this is an area where new legislation is needed.

    Ms. BERG. Absolutely. We have proposed new legislation in this area for our third year now.

    Mr. PORTER. How much of the plan assets would that include?

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    Ms. BERG. About $950 billion is subject to limited scope audits right now.


    Mr. PORTER. All right. Ms. Berg, the Congress has given your agency $9 million over the past two fiscal years to develop a new ERISA filing system. Where exactly do we stand currently with this new system and when will you award the contract?

    Ms. BERG. We went out for requests for information, received substantial comment from the private sector, and responded to all of the comments. We think we are about ready to issue the contracts in the next couple of months. Our plan is to issue two contracts and have two vendors build prototypes at the same time. We are trying to protect ourselves from what happens too often in these cases where you start down a project with one contractor and 80% into the project you find out that you have spent a lot of money and aren't going to get the product.

    So, we are proceeding by working with two contractors, two prototypes, and we will make a decision in September of 1999 on which vendor will scale up their prototype in time to have the system operational. We are on track in using the money that you have provided to us. I think there has been a little confusion because we have been asked if we are behind schedule because, at the same time that we are moving the system along—and we are on track—we are also working on the new form that we will process on the system.

    We put out for public comment a proposed new form. The major comment that we got back from virtually everyone was that they needed enough time to adjust their systems to the new form and asked for an extra year to do so. We just recently announced that we would give plan sponsors that extra year to accommodate their systems to the new form.
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    Our movement to the new system, however, remains on track.

This actually gives us a little bit more time to bring the new form and the new system together.


    Mr. PORTER. Mr. Strauss, how much involvement has PGBC had in the development of this new automated system?

    Mr. STRAUSS. I don't know that we have had much involvement in the——

    Ms. BERG. Oh, yes.

    Mr. STRAUSS. Okay.

    Ms. BERG. I am sorry. Mr. Strauss wasn't here for most of this.

    Mr. STRAUSS. Okay. I will be happy to provide more information for you for the record on this. I have been there about seven months and would be happy to provide that information for the record.

    Mr. PORTER. How will it benefit the guarantee corporation?

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    Mr. STRAUSS. I think that I will just provide this information for the record. I would be happy to do that.

    [This information follows:]


    PBGC is part of the Interagency Working Groups headed the Pension and Welfare Benefits Administration (PWBA) that are designing the new processing system and streamlining the annual reporting forms and instructions.

    While our use of data from these reports is not as extensive as the PWBA's we use parts of the Form 5500 to analyze trends in pension plan coverage, participation and funding; monitor plans under our Early Warning Program; and determine whether a troubled plan should be terminated. Due to processing lags, however, the available data is often quite old. The new system will enable us to receive current data more quickly, and in a format that will be more useful.


    Mr. PORTER. All right. I will have some other questions along those lines also that you can answer for the record. Mr. Strauss, for many years the PGBC had a long-term actuarial deficit in its insurance fund. Now that has been turned around and you now have a large surplus as we understand it. Is that an accurate portrayal and if so tell us how this favorable situation has come about.
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    Mr. STRAUSS. This is a question that I am happy to address, Mr. Chairman. As you know, as recently as 1992 there were stories written in the New York Times about the PBGC being the next savings and loan debacle and in this year it will only be the second year out of 24 years of history of the PBGC where we will actually show a financial statement that is in the black.

    And I think that this has really been a tremendous success story. Clearly, the new tools that we were provided by the 1994 law—to provide for stricter funding of pension plans, to provide for participant notification when the funding limit drops below 90% which is a very high standard, and taking the cap off of our variable rate premiums—have all had a very positive impact on our bottom line.

    In addition to that, the strength of the economy had a tremendous impact on our investments and it has also had a very positive impact on the balances of the plans that we insure. And I think that our primary focus now is to make sure that we build a large enough reserve so when an economic down turn comes, you know, at some point down the road we have a large enough cushion there that we will be prepared for it.

    When you look at the plans that we have taken in historically, especially the big plans, it is very cyclical and so in the early '90s we were taking in significant numbers of big plans and we just want to make sure that we build an adequate cushion so if we have an economic down turn that we are prepared for it.

    Mr. PORTER. At the moment you cannot say you are prepared for that but you are on a much more sound basis than you were previously.
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    Mr. STRAUSS. We are on a much more sound basis and two years just is not a big enough snapshot to make a judgment about that right now.


    Mr. PORTER. For a number of years you put out a list of the top 50 companies who have the largest underfunding problem. Apparently you are not doing that any longer. Is that because there aren't that many?

    Mr. STRAUSS. I think it is important to explain what the top 50 list was. The companies that were put on the top 50 list were put there on the basis of their dollar underfunding, so you had companies that had pension plans that on a percentage basis were very well funded. Because they were large plans the dollar amount looked substantial.

    When you look at the history of all the plans that we have taken in, only 2% of the dollar claims came from plans that were 75% or more funded so what we were doing was putting together a list that was stigmatizing some companies for a dollar underfunding level that may have posed no risk to the participants in those plans or to the insurance system based on our historical data.

    Based on the new tools that we have in the 1994 law, if your pension plan is funded less than 90%, the employer is required to notify each participant that the plan is funded under 90% and what the PBGC guarantees would be if the plan went under. And so because of these changes the top 50 list was really no longer necessary.
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    Mr. PORTER. But you could do a top 50 list of companies whose plans were underfunded by a certain percentage?

    Mr. STRAUSS. In our monitoring program we are monitoring about 500 plans that have $25 million or more of underfunding or 5,000 employees. We are still looking at plans where we think that there may be a significant problem, but we are no longer stigmatizing companies that pose no risk to their participants or to the insurance program.

    Mr. PORTER. Would you put in the record that list of companies that seem most in difficulty?

    Mr. STRAUSS. I will consult with our counsel and give you whatever is appropriate to provide.

    Mr. PORTER. That would be fine.

    Mr. STRAUSS. Thank you.

    [The information follows:]


    After consultation with committee staff, it was decided that due to the confidential nature of this information it will not be forwarded at this time.
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    Mr. PORTER. I think you mentioned, Mr. Strauss, that you have a year 2000 computer problem?

    Mr. STRAUSS. We do not have a year 2000 computer problem but I have assigned a dedicated manager to work with the team of people that we have put together. We are looking at 15 critical systems. We are also working with our paying agent which is State Street Bank in Boston and we feel that we will meet our deadline by early 1999 in terms of our year 2000 issues.

    Mr. PORTER. And, Ms. Berg, you addressed this. You are going to meet the deadline also?

    Ms. BERG. Yes, but with the new system we will not have a year 2000 problem internally. We are also taking steps to remind our plan fiduciaries of their responsibilities so that in the outside world, as well, we are assured that the people responsible for these plans are taking the steps they need to.


    Mr. PORTER. Ms. Berg, a recent Wall Street Journal article discussed the fact that recent studies show that Americans have as much as one-third of their 401(k) savings invested in the shares of their own employers' stock. In your opinion is this a healthy situation for most employees?
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    Ms. BERG. What you have going on here are two very good policy objectives bumping up a bit against each other.

One is retirement security which of course requires, among other things, diversifying the assets that you are holding and the other is a company's desire to have their employees have a stake in the firm's fortunes.

    And one of the ways that they may typically do that is by giving a match to their 401(k) plan in company stock because they want their employees to share in the firm's prosperity.

    We need to look a little bit into the numbers because what we find is the number looks very large regarding the amount of employee money in employer's stock, but many, many of those employees have the 401(k) on top of a traditional defined benefit plan. These are typically larger companies where people have the defined benefit plan, as well as the 401(k).

    So in terms of people having no protections whatsoever that doesn't seem to typically be the case. When I have talked to plan sponsors the clearest and easiest solution to this—because I think increasingly it is a plan design issue that we ought to be talking about—is to allow people to diversify out, even if you give them the stock. Allow them, either immediately or at some point to diversify out into other plan options.


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    Mr. PORTER. I assume your answer to this question would be yes, but in your opinion are we seeing the demise of the old-fashioned defined benefit pension plan in this country in favor of a defined contribution plan like the 401(k) where the investment risk is transferred from the employer to the employee?

    Ms. BERG. Yes. We are not seeing it in the sense that we are not seeing companies terminating their defined benefit plan and starting up a new kind of plan instead. There is not a lot of that going on but clearly the growth in the system is all in the 401(k) type plan.

    In slightly more than a decade, a dramatic move in that direction has taken place, where in 1984, something like over 80% of people had as their primary pension plan, if they had pension coverage, a traditional pension plan. Now that number is about 50/50.

    Mr. PORTER. And, Mr. Strauss, how do you feel about that?

    Mr. STRAUSS. Well, as the government official, who has as part of his ERISA mandate promoting defined benefit pension plans, there are more than 40 million workers and retirees who are in defined benefit pension plans and when you look at large companies with defined benefit pension plans with 10,000 or more employees they are actually growing. This is the reason why our focus has been among small employers to create a true defined benefit vehicle for them that will give the small employer who opts to do this a vehicle where he can provide his workers with a predictable guaranteed benefit for life.

    And we have been working with the folks in industry who would be selling these sorts of packages to try and come up with something that will work for small employers to make this option available for those who are interested in providing this kind of benefit for their employees.
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    I understand the way the trend lines are going but I think that it is important that we analyze the trends correctly and among big companies the participation in these plans are actually growing. It is among small business where there is a problem and that is where we are focusing.

    Mr. PORTER. Ms. Berg, Mr. Strauss, let me thank you both very much for your very direct and candid answers to our questions. We appreciate it. We have additional questions for the record and thank you both for coming to testify this morning.

    Mr. STRAUSS. Thank you, Mr. Chairman.

    Ms. BERG. Thank you.

    [The following questions were submitted to be answered for the record:]

    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.



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    Mr. PORTER. We will come to order. We continue our hearings with the testimony of the Inspector General, Charles C. Masten, accompanied by Patricia A. Dalton, the Deputy Inspector General. We welcome both of you. Mr. Masten, why don't you proceed?

Opening Statement

    Mr. MASTEN. Thank you. Mr. Chairman, members of the Subcommittee, thank you for inviting me to appear before you in my capacity as the Inspector General of the U.S. Department of Labor. I am pleased to appear before you today to discuss our Fiscal Year 1999 appropriations request, and proposed activities.

    As you stated, I am accompanied by the Deputy Inspector General, who will participate in answering questions at the end of my summary and I ask that my entire statement be entered into the record.

    Mr. Chairman, as required for most federal agencies the context in which the Office of Inspector General (OIG) program is administered is the Government Performance and Results Act (GPRA) of 1993. In conformance with GPRA, the OIG developed a strategic plan which details our mission, vision, goals, objectives, and strategies.

    My full statement contains a list of accomplishments for Fiscal Year 1997 that helps to illustrate how we are working to achieve our goals. The OIG strategic plan also establishes performance measures and indicators that help to evaluate our success in achieving our strategic goals.
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    These measures are directed toward ensuring the quality of the work and customer service the OIG provides to the Department and the Congress. Mr. Chairman, our primary goal is to ensure that the information provided to the Department of Labor and Congress, through our work products, will be helpful in the management and oversight of the Department.

    In addition, we will provide technical assistance to help Department of Labor management address challenges and prevent problems from arising. In 1999 we will carry out activities in the areas of departmental management, employment and training, occupational safety and health, worker benefits, and labor racketeering.

    Our request provides examples of activities we will conduct in each one of these areas. I would like to briefly elaborate on the planned activities in the labor racketeering area. We will continue our efforts to reduce the influence of organized crime and labor racketeering in labor unions, union-affiliated employee benefit plans, and labor-management relations.

    Recently, the Department of Justice launched an initiative to crack down on pension abuses through a joint effort with the Office of Inspector General at labor and other federal agencies. To strengthen the attention given to the pension area, the OIG is proposing funding $1.6 million to conduct a pro-active initiative focusing on corrupt pension plan service providers.

    This is an area that we have identified through our case work as being especially vulnerable to labor racketeering activities and abuses. It is also an area that can result in large dollar losses to pension assets.
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    Mr. Chairman, we believe this is an opportune time to perform a comprehensive examination, with long-term strategies to address this problem. However, investigations of this type of criminal activities are extremely complex because the abuses are perpetrated by sophisticated investment advisors and plan administrators, who have the opportunity and ability to structure financial schemes to conceal the criminal activity.

    Therefore, our proposals to utilize the funds appropriated for this initiative is to, number 1, provide specialized training to our agents regarding the intricate financial schemes utilized to defraud pension assets, number 2, to develop a computer data base capabilities to identify problematic investment advisors who are associated with union plans, and number 3, to significantly increase the case load in our inventory at the end of fiscal year 1999.

    Mr. Chairman, that concludes the summary of my statement, Ms. Dalton and I are prepared to answer any questions you or any member may have at this time.

    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. PORTER. Thank you, Mr. Masten. How long have you been the Inspector General?

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    Mr. MASTEN. Since December of '93. I hesitated because I was acting for a period of time. I kind of got lost as to when I became the Inspector General.

    Mr. PORTER. Well, how long have you been acting as the Inspector General?

    Mr. MASTEN. I was acting from March through December of 1993.

    Mr. PORTER. Okay. Given your perspective, what programs in the department cause you the most concern in terms of either weak management or financial vulnerability? Where do we have the greatest potential problems?


    Mr. MASTEN. I think our biggest concern would probably be in the employment training area because this is the area that is focusing on preparing people for work, and providing training for welfare recipients. It is one of the highest goals in the department and for the Secretary.

    Mr. PORTER. Any others where you see problems?

    Mr. MASTEN. Mr. Chairman, there are problems throughout——

    Mr. PORTER. Everywhere, but I am talking about programs where there are more likely to be problems than other areas.
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    Ms. DALTON. I think another program would be Federal Employees' Compensation Program, and we proposed some changes in that program in terms of the benefits that are paid, and when they are paid. For example, generally when a person goes on workers' compensation there is a three-day waiting period before the benefits start. But, under FECA it is at the end of a 45-day continuation of pay period. So a federal employee has continuation of pay for 45 days and then a three-day waiting period and then you get benefits. In many other programs the three-day waiting period is at the beginning, as opposed to the end of the compensation process.


    Mr. PORTER. So you would make recommendations to departmental management concerning how to address these problem areas, correct?

    Ms. DALTON. Correct.

    Mr. PORTER. And what kind of reception do your recommendations and advice to the department get?

    Ms. DALTON. I think it varies depending on what the recommendations are. In many cases, they are very receptive. In other cases it takes some selling on our part. In some cases, there is a number of procedural hurdles to overcome. For example, in our grant and contract audits there can be a very long appellate process before there is a final resolution.
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    Mr. PORTER. Is there any particular area where the department does not take your recommendations or advice into account or ignores them?

    Ms. DALTON. I don't think they have ever ignored what we have had to say.


    Mr. PORTER. Good. In our committee report for the past two years we have asked all of the IGs in our bill to submit quarterly reports documenting the actual payments made to the government as a result of their efforts and how funds that could be put to better use as identified in IG reports were actually used by departmental management.

    Your latest report was submitted on January 30. You indicated in your January 30 letter to the committee that you have tried to work with the Justice Department to improve the reporting of fines and forfeitures but that you have not been successful thus far and are not able to meet the committee's request for accurate information. Has the Department of Justice been cooperative with you? Is there anything the committee can do to help you out in this regard?

    Ms. DALTON. The Department of Justice's system is decentralized and that has been causing much of the problem. They initially asked us to provide individual case information so that they could track the recoveries. We provided information on 700 cases. They then came back to us and said that it would be too burdensome to track this information through the individual judicial districts.
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    The Justice Department's systems are being redone and new systems are going to be put in place. They are taking our requests into consideration. It certainly would be helpful if that could be identified as a priority in any of the Justice Department bills.

    Mr. PORTER. The IG for HHS has not reported the same difficulty with the Justice Department. Why would you have this difficulty and HHS would not?

    Mr. MASTEN. Well, for one thing, Mr. Chairman, the health care bill, HIPAA, requires statutorily that this information be captured for health care fraud and that is not the case for the rest of the agencies. The majority of the recoveries of HHS are along the lines of health care fraud. That is the big difference.

    Mr. PORTER. Would you suggest that the law be changed to deal with your data in the same way?

    Mr. MASTEN. Most definitely. It is my understanding the Department of Education has similar type problems that we have so I think the law would not only help the Department of Labor but, as well, would help education.

    Mr. PORTER. So we are not going to have this information until Justice makes the changes that they are contemplating?

    Ms. DALTON. Correct. We are still continuing to work with the Department of Labor though, to accumulate information on the audit side in terms of recoveries, and adjustments are being made in the departmental accounting systems, so that as we actually collect money, it is recorded and we can reflect it back and report it to the committee.
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    Mr. PORTER. I noticed in your latest semi-annual report that there remain significant unresolved audits and disputes over funds put to better use. Can you discuss the reasons for the delay in having management resolve these issues, the impact of the failure to resolve issues and how they can be resolved?

    Ms. DALTON. I think one of the biggest difficulties is, as I said, the lengthy appellate process that can go on when we recommend that funds be disallowed or we have questioned costs. For example, I think, you know, it might be good to just illustrate it with an audit we issued back in the mid-'80s on the city of Detroit related to the CETA program. That audit was just resolved in the last couple of years.

    We had questioned costs and it was resolved for $2.2 million. The Secretary's order on resolving that disallowed $4.4 million and then DOL entered into a settlement for $2 million. That audit had been outstanding for well over ten years. One of the issues is that, in the appellate process, there are a number of steps that it goes through, in the department to ensure due process.

    As it is going through this due process there isn't any interest that is being accrued so needless to say, for grantees, it is in their interest to appeal any audit and it can be a very, very lengthy process to reach a final resolution. Often times, there are significant negotiations that go on in order to get some dollar return.


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    Mr. PORTER. How much money is currently claimed to be owed to the department?

    Mr. MASTEN. We need to provide that information for the record, Mr. Chairman, because I am not sure off the top of my head.

    [The information follows:]

    "The Official Committee record contains additional material here."


    Mr. PORTER. Your 1999 budget includes an increase of $1.6 million for a significant pension plan initiative. It looks like you are planning to hire 11 new employees as part of this project which would account for part of the money. What else will you pay for with that $1.6 million?

    Mr. MASTEN. Well, the $1.6 million that I explained would go toward helping to train our agents, regarding these financial schemes, so we can get them involved into this initiative, as well as develop a computer data base, so that we can analyze the information that we have gathered through our intelligence sources and from information we have received from the SEC or from NASDAQ. We will also increase our inventory of cases in this area. That is where that money is going.

    Mr. PORTER. And do you work with Ms. Berg at PWBA on this or is this strictly your operation?
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    Mr. MASTEN. We work some cases with PWBA. That agency was part of the initiative that the Department of Justice was putting together, I believe, in April of last year. That was one of the federal agencies that was involved in the initiative, so they are involved in it as well. We focus on the criminal side of it more so, as it relates to labor racketeering than PWBA.


    Mr. PORTER. Let us talk for a moment, Mr. Masten, about GPRA. Can you give us your overall assessment of where the Department of Labor stands with respect to the implementation of GPRA? What do you think of the criticisms that GAO has leveled at the department in this regard?

    Mr. MASTEN. I believe the criticisms early on were valid, but since that time, since the Secretary has come on board, this has been her main focus. She has had two retreats involving the executive staff at the first one, and then one involving the senior executive staff throughout the department, to explain to the staff that what she was looking for was the bottom line return on investment.

    I think the agencies are getting on board with that now. My agency is playing a consultative role in that with the department, so that we can be involved up front as opposed to on the bottom end. So, they are moving along. They have a ways to go, but they are moving along and I think if GAO would go in there now they would have a better assessment—a higher assessment than they had before.
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    Mr. PORTER. Now let us look at your own office. How is it complying with GPRA and how did you establish actual performance measures for your office?

    Mr. MASTEN. We are conforming with GPRA as well as any other agency. We have developed——

    Mr. PORTER. Who is watching you?

    Mr. MASTEN. Well, right now I believe Ms. Dalton is looking at me because the strategic plan was really part of an initiative that she headed up. We have our strategic plan in place that will cover the period between now and the year 2002 and in that plan we have articulated our five goals.

    We have established measurements to see if we are living up to those. We have them in place and look at them every year and if they are not working we will make adjustments. We are also trying to conform as well with the agencies the department.


    Mr. PORTER. Thank you. In your opinion what are some of the most important legislative changes that need to be made in departmental programs?

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    Mr. MASTEN. Mr. Chairman, I could give them to you for the record or I can give you the headlines. Some of them Ms. Dalton has already mentioned. They include strengthening the enforcement of ERISA, the limited scope audit is one area that we talked about for years. You talked to Ms. Berg about that earlier. That is something that we can do. I think there is a vulnerability out there that we have talked about. It is there and we need to shore that up.

    On the FECA program, establishing the waiting period I think that is an area that would save the government a lot of money. There is another area along with a workers' compensation program where we have employees who go out on a workers' compensation claim and they are beyond the age of the average retirement age, and they are still getting tax free workers' compensation pay. I think that is an area that needs to be shored up. I cannot recall the exact percentage of the number of recipients along those lines, but it is very, very high.

    Mr. PORTER. Do you suggest these changes directly to the authorizing committees of Congress or do you suggest them just to the department?

    Ms. DALTON. We suggest them to both. We include the discussion of suggested legislative changes in our semi-annual report and we discuss them specifically with each of the committees.


    Mr. PORTER. Have you made any recommendations for changes in the Davis-Bacon Act or have you simply suggested administrative changes to the department?
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    Ms. DALTON. We issued a report about a year ago on Davis-Bacon concerned with the accuracy of the information used in the wage determination process. Those recommendations dealt primarily with the way that the surveys are conducted, and we made three basic recommendations there. One, that the surveys be done on a statistical basis; two, that we get as close to the payroll records as possible; and three that the Wage and Hour Division work with the Bureau of Labor Statistics to develop some statistical methodologies that would improve the overall survey, but we did not make specific legislative recommendations on changing the Act.

    Mr. PORTER. Those are administrative.

    Ms. DALTON. Correct.

    Mr. PORTER. Do you believe that Davis-Bacon has a serious problem with fraud or do we just have problems with the validity of wage data collected?

    Mr. MASTEN. Mr. Chairman, we have not done anything to establish a position on the pervasiveness of fraud but we definitely think it has a problem with validity of the data. That is one of the reasons we recommended going directly to the records as opposed to using third party data. We think that is where the problem lies and we explained this in our last audit of that area.


    Mr. PORTER. There are members of the subcommittee that are very concerned in this area—as you are probably well aware—who feel that there is a serious problem there as well. On pages 17 and 18 of the justification you talk about some of the problems with the Federal Employees' Compensation Program particularly in the area of medical payments. You have
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mentioned this several times in your oral testimony.

    Is the Office of Workers' Compensation Programs doing an adequate job of monitoring the medical and hospital payments in the program?

    Ms. DALTON. We issued a report to the program in the past year where we recommended that they start using a screening program to screen the medical bills as they are being processed to identify potentially improper billing.

    In our study, we had used a sample of medical bills and processed them through a number of screening packages and identified–I believe it was approximately $7 million of potentially improper billings. I believe that the FECA program has included a screening program in their budget request for this year.


    Mr. PORTER. How much attention are you devoting to the department's information technology systems and do you have an extensive audit program in this area?

    Mr. MASTEN. We haven't established an extensive audit program in the area but we have a meeting scheduled. In fact, we are meeting with the CIO so that the OIG can work in a consultative role there, as I alluded to earlier. That is one of the areas that we want to concentrate in, up front, before a problem develops.
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    Mr. PORTER. How many major systems does the department currently have under development and is your office monitoring these as they are developed?

    Ms. DALTON. I don't know the exact number. We can provide that for the record, but we are monitoring a number of the systems as they are developed. In particular, we are watching and evaluating the EFAS system that Ms. Berg talked about earlier and are monitoring that as they are going through and developing it, and providing recommendations and suggestions through the whole development process.

    For example, we were working with them and recommending that they do prototype systems and not risk development of a single system and invest significant amounts of money and find out that they got a major problem. They need to develop it to a certain stage before making the decision on which way to go.

    We have also made recommendations related to direct filing entities as well as electronic submission of data, which they have under consideration now.

    Mr. PORTER. The GAO told our committee that they thought there was a serious problem with having so many data systems within the department, a lack of transferability of data and the like. I assume you are working with them to address that.

    Ms. DALTON. Yes.

    Mr. MASTEN. Mr. Chairman, I can answer the question you asked on how many systems. There are a total of 61 systems that we are concerned with. I thought it was 61 and I did verify that. If you have a more detailed question we can get that for you.
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    Ms. DALTON. I think that 61 mission-critical systems have been identified.

YEAR 2000

    Mr. PORTER. Well, time to address that problem. How does the department stand with respect to addressing the year 2000 computer problem? I have asked everyone this question but your answer would probably be more relevant than anyone's. How do you see it and do you have serious concern that the department will not meet its goals in this area?

    Ms. DALTON. As I said, there are 61 mission-critical systems. I believe the department is claiming 11, actually I think it is 13, as of their latest report, that are now Year 2000 compliant.

    Mr. PORTER. Are now or not?

    Ms. DALTON. Yes, are now.

    Mr. MASTEN. Are now.

    Ms. DALTON. So they have a major task to undertake over the next 20 months or so, and realistically it is probably closer to 12 months that they have to get this completed. So it is a very high risk area. As Mr. Masten said, we are working with the CIO. They have asked us to come in and assist them. We will be doing some consultative work for them.
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    We are constrained by the resources that we have available to us, but it is definitely a high priority. The department has a vulnerability here. They do have a very large task ahead of them. But they are working through the 61 systems and are prioritizing within those 61 as to which ones are most critical.

    For example, there is agreement that the most critical ones of the 61 are those that are going to be making payments, financial systems, our benefit systems, our grant systems where we have to get money out the door on January 1, of the year 2000. And then we step down from there.

    Mr. PORTER. Thank you. Mrs. Lowey.


    Mrs. LOWEY. Thank you, Mr. Chairman. Following up on the Chair's questions concerning the Davis-Bacon wage determination process. You found what you considered to be a large error rate. Could you share with us what source of data was responsible for the largest overall number of errors?

    Ms. DALTON. I think the largest number of errors came from the information that was provided by third parties. And I can give you——

    Mrs. LOWEY. That is not what we understand. We understand in our reviewing your study that the largest number of errors were from employers.
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    Ms. DALTON. I am sorry. I was doing it on a percentage basis.

    Mrs. LOWEY. So I just wanted to clarify that for the record.

    Ms. DALTON. Okay.

    Mrs. LOWEY. There has been a lot of discussion in this committee about third party and I understand that—I was surprised to see that the largest number of errors was actually from employers.

    Ms. DALTON. What we had done is we had tested—and this is from our report of a year ago, 837 wage determination form submissions. Approximately 609 of those were from employers. 227 came from third parties for the 609 wage determinations from employers, 57 had errors in them. For 227 third party submissions, 38 had errors in them.

    So, you are correct in terms of the total. In terms of numbers, on a percentage basis, that goes the other way.

    Mrs. LOWEY. Now based on the methodology you used to conduct the survey, specifically your sample size, can we conclude that your findings are statistically valid, that is, can they be generalized to the entire universe of Davis-Bacon wages?

    Ms. DALTON. No, they cannot.

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    It was not statistically drawn, so we cannot project it on a nationwide basis.

    Mrs. LOWEY. I just want to make a comment that I strongly support the effort which the Wage and Hour Division is undertaking to improve its wage determination process. We should have the most reliable Davis-Bacon wage determination system possible. And if improvements need to be made, then I certainly applaud the Department for recognizing that and making these improvements.

    And I just wanted to state for the record that the OIG's report last year did not find systematic bias in the errors. In other words, the wages were not inflated. In fact, in my review of it, as a result of the OIG findings, more of the wage rates had to be adjusted upwards than downwards. Is that correct?

    Ms. DALTON. I am not sure whether it was more or not. We certainly did find there were instances where the wages had to be adjusted upwards, as well as, the other way around. There was no skewing one way or the other, really.

    Mrs. LOWEY. In looking at the numbers of the rates that had to be decreased, only one changed by more than 10 percent. Close to half of the overall changes that resulted from the OIG report were one percent or less. So, again, I think we need to have the most accurate system possible, but in my review of it, it doesn't seem as if we are talking about major errors here. Could you comment?

    Ms. DALTON. In many instances, the errors were fairly minor. In some cases, they were larger. When we are talking, you know, a dollar an hour to someone that is working, that is a lot of money to them. So, yes, many of them were minor, but there were some that were fairly large.
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    Mrs. LOWEY. One of the recommendations that you made to improve the system was to require that the data be collected only on site rather than through the mail. Could you explain what you mean by on site? Do you mean sending a Labor Department employee to each construction site, and how many sites would have to be visited?

    Ms. DALTON. What we were recommending was, first of all, that the closer you can get to the actual payroll information, the more accurate the information would be. In conjunction with that though, we were also recommending that the Wage and Hour Division explore a statistical approach to developing their wage determinations, as opposed to sending out a general mail survey and waiting to see who responded. To look at a smaller number, by identifying them on a statistical basis, so that it would be projectable and the determination verified that way.

    So there were two recommendations that were made related to improving accuracy, and we felt that using the statistical approach would lessen the burden both on the Department, as well as, on employers in terms of providing information to us.

    Mrs. LOWEY. I am still not clear about the specific recommendation regarding onsite. And what would that cost?

    Ms. DALTON. I don't have a cost estimate for you.

    Mrs. LOWEY. Could you explain and expand upon what the specific onsite recommendation was?
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    Ms. DALTON. Basically, it would be to go and look at what has actually been paid to people. To go to the employer and get the information from the employer as to the wage rates that they had paid for the period of the survey, as well as, the fringe benefits. And currently, I believe the Wage and Hour Division is doing some data verification on a statistical basis of their wage surveys.

    Mrs. LOWEY. Isn't it true that the Bureau of Labor Statistics does collect much of its data through the mail, and it is considered statistically valid? Isn't that correct?

    Ms. DALTON. I am not sure.

    Mr. MASTEN. Neither am I. To follow up on the recommendation made, we were stating that the payroll records are the most valid records from which you can get this information. The second option to that was to come up with a statistically sound survey in accordance with some of the methodology used by BLS, to also get this information. That way you would not have to go to every site to verify the records. You could go to only some sites.

    So in keeping with trying to get valid information, we made those two recommendations. The best one is to take it directly from the payroll records. That is the most accurate way of doing it. And the next option——

    Mrs. LOWEY. And you end up with the cost——

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    Mr. MASTEN. And that is the one thing we have not determined—the cost of doing that on a statistically—sound basis. We haven't done it. I think we used seven states during the audit that we gave you the results on. We haven't used a national statistically projectable sample.

    Mrs. LOWEY. But isn't it true that the Bureau of Labor Statistics does collect most of its data through the mail, and that is considered statistically valid?

    Ms. DALTON. They certainly conduct some of their data through the mail. Some of it is done I believe onsite or, you know, direct acquisition of information.

    Mrs. LOWEY. I thought it was much, but if you can——

    Mr. MASTEN. We have not audited that procedure, and as you know, they have confidentiality agreements there. So we really don't know how much of their information they get strictly through the mail, or the complete methodology used. That is the reason we encourage the Wage and Hour people to go get with them to come up with the methodology that they used and have been very successful with, and to use whatever they were using.

    Ms. DALTON. Currently, the Bureau of Labor Statistics is conducting a number of fringe benefit surveys for the Wage and Hour Division to specifically assess the issue of whether or not information can be collected and the quality of the information. Those surveys are in the developmental stage at this point, and the Wage and Hour Division won't be making decision on those until they are completed and they have complete information as to their viability.
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    Mrs. LOWEY. I just think it is important that we get as reliable information as possible because this has been a subject of interest in this committee, and we are trying to get to the bottom. I think we all want accurate information, and what we are trying to do is wade through different evaluations as to what is the most accurate and what is the cost—how is the cost affected.

    Another point. In your February 19 report on the uses of the FY '97 and FY '98 appropriations received by the Wage and Hour Division, the Davis-Bacon improvements, you note that the largest computer purchase is presently being used by other programs within the Employment Standards Administration.

    My understanding is that more Davis-Bacon functions will be used on this system as the Davis-Bacon reengineering moves forward. However, I also understand that these systems are large enough that they can accommodate some of the other ESA program needs. Is there any reason why we shouldn't be promoting the shared use of computer systems within a single department, let alone a division within that department?

    In fact, it would seem to be a much more efficient way to do it. I continue to be amazed, and I have been here—this is my tenth year—that we keep talking about upgrading our computer systems and making them talk to each other. And it just absolutely blows my mind that there should be 61 different computer systems within this department.

    Ms. DALTON. I agree with you that sharing equipment and systems makes good sense. However, going hand-in-hand with that is sharing the cost of the systems.
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    Mrs. LOWEY. Pardon me?

    Ms. DALTON. Going hand-in-hand with that is sharing the cost of those systems.

    Mrs. LOWEY. I would be interested in following this through because the complexity of having 61 different systems is extraordinary to me.

    Ms. DALTON. We agree with you.


    Mrs. LOWEY. Just lastly, I want to say that I applaud the OIG's efforts to ensure that the taxpayer money is being spent appropriately. However, one concern I have is that the recommendations can be difficult for the Department to implement because of departmental budget restraints, such as the onsite verification of data under the Davis-Bacon program.

    Sometimes the perfect can be the enemy of the good. A solution that seems to be perfect on paper may be impossible to achieve because of practical resource constraints. What extent do you take into account the resource constraints of the Department when you are making program recommendations, and would it be possible for the OIG to better reflect these real world constraints when it issues its recommendation?

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    Ms. DALTON. We certainly do try to take into account the resource constraints and the issues facing any of our agencies as we are making recommendations. And I think that is why when you look at, for example, the Davis-Bacon report, we are recommending a statistical approach which would we would hope save resources. To the extent we can, we try to cost those out.

    Through our audit resolution process we try to make the most realistic recommendations to improve the programs and the delivery of services of the Department. And then through the entire audit process, and the resolution process, there is an ongoing discussion with the managers of the Department about what is the most practical solution, and whether these are viable. And I think, we do in most cases reach a good resolution and ultimately improve the program's delivery of services.

    Mrs. LOWEY. Thank you and thank you, Mr. Chairman.

    Mr. PORTER. Thank you, Mrs. Lowey. Mr. Masten and Ms. Dalton, thank you very much for answering all of our questions and for the job you are doing. Thank you very much for appearing today. The subcommittee stands in recess until 2 p.m.

    [The following questions were submitted to be answered for the record:]

    "The Official Committee record contains additional material here."