Serial No. 105-87


Printed for the use of the Committee on Education

and the Workforce










































The subcommittee met, pursuant to call, at 1:05 p.m., in Room 2175, Rayburn House Office Building, Hon. Peter Hoekstra [chairman of the subcommittee] presiding.

Present: Representatives Hoekstra, Ballenger, Mink and Kind.

Also Present: Representatives Goodling, Scott, Kildee, Hinojosa, Kucinich and Stupak.

Staff Present: D'Arcy Philps, Professional Staff Member; Mary Clagett, Professional Staff Member; Andrea Weiss, Legislative Assistant; Shannon McNulty, Minority Staff Assistant; and Brian Kennedy, Minority Labor Coordinator/Counsel.




Chairman Hoekstra. The subcommittee will come to order. Ms. Mink and I, I think, have reached an agreement. I ask unanimous consent that Members from Michigan who are members of the full committee will be treated as members of the subcommittee for today's proceedings. Any objections?

All right. Mr. Kildee, welcome to the subcommittee.


Mr. Kildee. It is good to be here, Mr. Chairman.





Chairman Hoekstra. I will begin with an opening statement.

I have called the hearing today to examine issues surrounding the Department of Labor's suspension of Wagner-Peyser or employment service funds from the State of Michigan and the impact this ruling could have on other States. I will leave it to the witnesses here today to provide the specific details of how we arrived at this situation, only to say that I feel the overall facts are quite clear.

The State of Michigan, having concluded that their employment system was woefully ineffective and unsuccessful, decided to dramatically reorganize the delivery of their employment services. As part of this reform, Michigan focused on increased local control and accountability, expanded access to services, and a commitment to a high level of customer satisfaction.

If these themes do not sound familiar, they should. The President, the Vice President, the Secretary of Labor have all repeated them frequently in pushing for reform of Federal employment and training programs. In fact, just a few weeks ago, the President called on the Senate to pass a job training reform bill which streamlines services, enhances accountability and provides flexibility from burdensome Federal job training rules.

Given these statements, I am perplexed as to why then the administration would go so far out of its way to put a stop to Michigan's efforts, which are the very reforms they seemingly support.

I truly hope that in the course of this oversight hearing today, we are able to better understand exactly what is going on here.

With that objective in mind, I am pleased that we have with us here today a representative of the Department of Labor who will be able to share with us the specific reasons for the Department's withholding of Wagner-Peyser funds from the State of Michigan. I am also pleased we will have the opportunity to hear Representatives from the State of Michigan give their views with respect to the Department's arguments and provide Members with additional details of their reorganization efforts.

The real impact of Michigan's reforms is at the local level, where services can be tailored to meet the needs of local employers and where individuals are able to have greater access to higher quality services. It is for this reason we will hear from several witnesses who will comment on the positive impact of these reforms within their communities.

Finally, it is important to have a clear understanding of what is at stake if the Department is successful in putting an end to Michigan's reforms. In addition to requiring the State to revert back to a failed system, it could also force other States to undo their reforms and prevent others from even trying to improve their employment services. For this reason, we will hear from Representatives of Texas and the Commonwealth of Massachusetts, who will discuss their work force develop initiatives and the impact the Michigan situation could have on their efforts.

I want to thank all much the witnesses for being here today and look forward to an informative and productive hearing.

[The statement of Mr. Hoekstra follows:]




Chairman Hoekstra. Ms. Mink?





Mrs. Mink. Mr. Chairman, this hearing is about the State of Michigan's refusal to comply with the Federal law governing the implementation of the Wagner-Peyser Act and establishment of their employment service programs. The State of Michigan has filed suit against the Federal Government challenging the need to have a federally-approved plan in order to be entitled to the Federal funds under this act. I find it a very dangerous precedent to be calling hearings while a matter is in litigation, particularly when the final rebuttal briefs are due next week and the matter is set for a hearing in early May in the U.S. District Court for the Western District of Michigan.

One could argue that this is a politically charged matter in which the Republican Governor is challenging the authority of a Democratic national administration. Support for this charge is found by the fact that two esteemed colleagues from the State of Michigan, Members of the Minority party, Congressmen Sandy Levin and Bart Stupak, were denied the usual courtesy of making a statement at the beginning of these hearings.

The duty of a congressional committee is to be sure that we establish a balanced record. Accordingly, Mr. Chairman, I ask unanimous consent that the balance of my time be yielded to my colleague, Congressman Bart Stupak.


Chairman Hoekstra. Bart, come on up.

I have no objection.







Mr. Stupak. Thank you, Mr. Chairman, and thank you, Ms. Mink, for yielding me time and giving me the opportunity to participate in today's hearing.

Last fall, Governor Engler issued an executive order which replaced the State's employment services with a private system. This new system has failed to provide a comprehensive quality-based job placement service. Unemployed workers are now having a difficult time receiving benefits and finding a new job under the reorganized plan. Employers are not receiving the same services, and in some situations, they may have to pay to have their job openings posted on the employment service's Internet.

When the State of Michigan decided to move forward with the reorganization plan, many of the employment service's offices were unprepared. In my hometown, shortly after a paper manufacturer laid off 220 workers, the Department of Labor found, and I will quote, "the employment services office in disarray and incapable of processing unemployment insurance claims and not equipped to process trade adjustment assistance claims."

The State insisted on this reorganization, even though the new employment offices were unprepared to do the job. Even the Department of Labor's rejection of the State plan and announcement that they would withhold $16 million in the Wagner-Peyser funds did not deter the State from moving forward with their reorganization plan.

The new State plan relies heavily on the delivery of services through computers, eliminating most of the personal contact with the employment services staff and employment seekers. This highly automated system has created a great deal of difficulty for a number of unemployed workers in my district. One unemployed carpenter was unable to enter his resume into the computer system because he doesn't know how to type. He went to the market employment office with the hope of finding a new job. When asked for assistance, he was informed by the staff they were prohibited from helping him type. Under the old system the carpenter would have received assistance registering with the office, identifying job openings, preparing for job interviews and other related job services, and would have received, if needed, job counseling. The new system told him that if he could not do it himself, he was out of luck.

Employers have also had a difficult time with the new system. I recently heard from a manager of a banquet hall in my district about the problems she has with the new system. Under the old system, the manager routinely used the employment services to locate dishwashers and wait staff. The staff at employment services helped her locate potential employees by identifying all the individuals who had registered at the offices interested in wait staff jobs and contacting them by phone and by mail. The employment services office then helped set up interviews for candidates with the manager.

When a manager wanted to fill the position that she recently had, she was told by the new employment service office that she would now be required to post her job opening on the Internet. Since she does not have Internet access at the banquet hall, she was told she would have to come into the office and enter the job onto the computers. When the manager asked how the office might help her locate potential candidates, she was told the employment services office would no longer be able to identify unemployed workers for her job opening, and she was on her own. This new system is inefficient for the employer because she does not have a computer and does not have the assistance of an experienced employment service office to help her find the best possible employee.

In one of the new for-profit employment service offices in Kalamazoo, Michigan, employers are now being informed that they may be charged for services such as job positioning and screening resumes. These are the same services that employers paid for with their FUTA tax under the old system. Now employers may be asked to pay the FUTA tax and fees for the same services.


Mr. Chairman, these are just a limited number of examples of the kinds of problems my constituents and employers throughout Michigan are having with the new employment services. There have been numerous other complaints made about the system, and I hope the committee may hear from other witnesses today about the problems Michigan is experiencing.

Before the reorganization, unemployed workers could count on job counseling, job placement services, assistance preparing for interviews, and help in applying for unemployment insurance, trade adjustment assistance and other programs. Now they get access to a computer.

Employers used to get help identifying eligible workers and potential candidates, assisting with screening potential candidates, and help posting job openings. Now they get access to a computer. Employment services have gone from a full-service office to just a resume bank, accessible only if you know how to use a computer.

I appreciate the need to bring employment services onto the Internet, but for many, their first experience with the computer has been at the employment service office. It is important to make our work force computer-literate, but we shouldn't make it a sink or swim system. It should be treated as a learning situation, not as a struggle to find work.


Mr. Chairman, thank you for the opportunity to address the subcommittee. I look forward to working with members of the subcommittee on this subject and welcome the opportunity of any questions you may have. And once again, thank you, Ms. Mink.


Chairman Hoekstra. Thank you, Mr. Stupak. Any other opening statements will be submitted for the record.

On our first panel today, we have Mr. Ray Uhalde, the Acting Assistant Secretary for Employment and Training with the U.S. Department of Labor. Good afternoon, Mr. Uhalde.






Mr. Uhalde. Thank you, Mr. Chairman and members of the subcommittee. I am pleased to have this opportunity to discuss the Department of Labor's recent dealings with the State of Michigan under the Federal Wagner-Peyser Act and the Department's decision to take remedial action to ensure the Wagner-Peyser Act funds are used in ways that are consistent with the requirements of the act. I will summarize my prepared statement.

The Wagner-Peyser Act provides universal access to employment services for the American public and requires the Department of Labor to oversee and maintain the national system of employment services using Federal funds in partnership with the States and under the direction of Congress.

Rules governing this partnership are well-established. This partnership is continuously evolving as we attempt to keep the employment service responsive to a changing economy and changing labor market conditions.

Two weeks ago, Secretary Herman announced a national dialogue on unemployment insurance reform. That dialogue will address all programs whose funding is derived from the Federal Unemployment Tax Act, FUTA, to make sure that they keep pace with the changes in the American work force and American workplace. This includes dialogue on providing employment services to job seekers.

Several States have used One-Stop and technology improvements to revitalize their employment service programs. For example, Wisconsin has established 74 One-Stop centers statewide to provide a mix of self-service and staff-assisted activities available to all job seekers and employers requesting them. Approximately 120 Wagner-Peyser-funded field positions are available to provide the staff-assisted services in these centers.

The current dispute between Michigan and the Department of Labor began with Michigan's decision to act unilaterally in reorganizing employment service. The step was inconsistent with the Wagner-Peyser Act; so was the nature of Michigan's new system. Under the reorganization, Michigan's local employment service system relies on computers only, without providing staff-assisted job finding, job placement services, or job search workshops to the people who need them, except for specially targeted groups. In addition, automated employment services are provided not by merit-staffed public employees, but by private contractors hired by 26 local work force boards.

The Labor Department has an obligation to uphold the Wagner-Peyser Act, and in my written testimony I explain how the Department has acted on its legal duty in the case of Michigan. Let me add, however, that the Department has also offered to work with Michigan to improve its employment service in ways that the law allows. That offer remains open.

Michigan's plans to reorganize its employment service have led to litigation brought by the State against the Labor Department in the United States District Court for the Western District of Michigan. A hearing is set for May 1. Because we believe the courts are the proper forum for resolving legal disputes, Labor Department's policy is to avoid detailed public discussion of matters in litigation. That is why I wanted to emphasize, my testimony today is not intended to add to or subtract from what the government has told the court.

My prepared statement details the dispute, the litigation, how it unfolded, and the many meetings and letters.

I would like to submit for the record the collected correspondence between myself and the State as well as the briefs for the record.


Chairman Hoekstra. So ordered.

[The information follows:]




Mr. Uhalde. On February 10th, the court denied Michigan's request for an injunction blocking the Department from withholding Federal funds. The court stated, "The Federal Government has funded Michigan's employment services program for over 60 years. The State could have continued to operate its employment services program under the current plan until a modified plan is approved. The State, however, has chosen to alter the status quo by unilaterally initiating its new program prior to its approval by the Department of Labor and dismantling its old program, even though it was on notice that the Department of Labor had not approved the new program. The State candidly admits that rather than using the regular deliberative channels, it created this crisis situation."

The issues affecting the Department's approval of Michigan's plan are the following: First, Michigan has not shown that it has met the statutory consultation requirement in developing its plan. While Michigan claimed in writing to the Department that the Governor's Work Force Commission had approved the plan, the State has not submitted certification required by law.

Second, Michigan's plan fails to ensure that all persons seeking job placement services would be served. Michigan proposes to fully automate its employment service program, relying exclusively on an Internet-based computer system to provide job search and job placement assistance. Such an approach presents a barrier to job seekers who are not familiar with computers, who are unable to access computer-based employment information because of literacy, physical impairments or other impediments.

Third, Michigan's proposed plan does not demonstrate that all critical components of employment services will be provided. Employment placement services entail much more than job referrals. Resume writing, interview techniques and other job readiness skills are critical components of employment services and must be delivered to job seekers with special needs, such as disabled workers or workers with language barriers. We believe that these staff-assisted job-finding placement services should also be made available to all job seekers.

Fourth, Michigan's proposed plan does not adequately provide for the employment service's administration of the unemployment insurance work test, a work test requiring that an unemployment compensation claimant be able and available for work. Michigan has not demonstrated how it would determine whether workers are able and available for work by relying solely on an automated system.

Finally, the use of nonmerit staff to provide employment services was also a basis for denying Michigan's plan modification. As I have said, this is the issue before the court. I have described the current dispute. Michigan's decision to implement its employment service reorganization also affected the State's Federal grant to implement a One-Stop Career Center service delivery system.

The merit staffing issue also has arisen in Massachusetts and Texas, about which you will hear today. Although we believe the Wagner-Peyser Act generally requires merit staffing in employment service programs, the scope of that requirement remains open for careful consideration and testing.

Massachusetts was awarded a 3-year One-Stop implementation grant in 1994. Massachusetts' grant allowed the State to implement a system based on a competitive model in which private and public entities would compete to be operators of the One-Stop Centers in the State pilot.

Texas proposed privatization of their employment service program in 1996. The Department of Labor offered to let Texas authorize its local work force boards to set policy for Wagner-Peyser activities in their areas that did not affect merit staffing. This local responsibility is consistent with the intent of the Texas plan, and the State took the Department up on its offer. Local boards that have been certified to date have been given such authority.

In closing, I think it is important to stress the Department has offered at every turn to work with Michigan to modify its plan so that it will meet our concerns and ensure adequate services for Michigan's job seekers. We have offered to work with the State to develop a limited pilot program to test certain aspects of the proposed reorganization. Michigan has declined our offers and has proceeded to implement its plan without a single change. Under the law, the Department has no choice but to take the administrative actions it has taken.

Yet, despite Michigan's lawsuit and the controversy surrounding it, the Department remains willing to work with Michigan and with other States to improve the national system of employment services. We intend to address with our State partners and other work force development stakeholders many of the issues we are discussing today, including how technology and automation can be used to further improve basic employment services in a one-stop environment.

Once the pending litigation is finally resolved, the Department expects a broad dialogue to begin with the States and other stakeholders on issues related to the employment service. Our goal will be preserving the Wagner-Peyser principles of universal access and commitment to quality service, as well as the impartiality provided by merit staffing, while permitting innovations that hold real promises for both job seekers and employers.


Mr. Chairman, this concludes my prepared testimony.


Chairman Hoekstra. Thank you.

[The statement of Mr. Uhalde follows:]




Chairman Hoekstra. You use some interesting words in describing your critique of the system that Michigan is putting in place and requirements that all people be served, that Michigan is in crisis, and they may have put in place barriers to job seekers.

We are going to hear from people from the State of Michigan who, by their own admission, say that the previous system had a 95 percent failure rate with respect to placing unemployed individuals into jobs. Is that a number that you would think would be about accurate?


Mr. Uhalde. We acknowledge Michigan has had a poor-performing employment system for the last several years. Performance has deteriorated over the last 4 years.


Chairman Hoekstra. If I took a look, if you rank this by all 50 States, what kind of success rates would we see here? Do does the Department have numbers by State?


Mr. Uhalde. If we want to characterize it, we can use the measure of entered employment.


Chairman Hoekstra. That is the one that has Michigan at 5 percent?


Mr. Uhalde. Well, entered employment also accounts for people who use the system, but get jobs on their own, so they are not actually placed. Michigan's success is 8.6 percent of applicants.


Chairman Hoekstra. But that has been expanded by people who got jobs through this system.


Mr. Uhalde. In comparison, neighboring States, Wisconsin, 38.2 percent; Iowa, 31 percent; and New Jersey, 25 percent for comparables. So no doubt the performance in Michigan is very poor and over the last 4 years has practically collapsed.


Chairman Hoekstra. I would argue that it is not necessarily--what is the national--what is the standard that the Department has in place within its annual plans as to what is the benchmark that we are shooting toward?


Mr. Uhalde. We don't currently have performance standards. We are developing them with the States.


Chairman Hoekstra. There is not a performance standard?


Mr. Uhalde. We have it in all our job training programs. In Michigan we are developing one.


Chairman Hoekstra. I mean, do you have for other Wagner-Peyser States, do you have a target?


Mr. Uhalde. We don't have targets. Targets within the States in their plans they develop, but we don't have a national standard as we do, for example, with our job training programs.


Chairman Hoekstra. So there isn't a national standard that people come back and benchmark. So it is pretty hard for the Department of Labor to determine whether you are actually doing a good job or a bad job?


Mr. Uhalde. Well, we know 8.6 percent is not a good job, and we know--


Chairman Hoekstra. How do we know?


Mr. Uhalde. We know the trend over time is very poor. We know we have many States doing far better in that process.


Chairman Hoekstra. 31 percent is a good number?


Mr. Uhalde. Well, many applicants register for the employment service along with many other ways of looking for work.


Chairman Hoekstra. I am just trying to find out is 31 acceptable?


Mr. Uhalde. 31 is good.


Chairman Hoekstra. That is good.


Mr. Uhalde. But we don't have a standard. I would say there are other ways to measure performance. 48 percent of job openings are filled nationally, for example.


Chairman Hoekstra. 31 may be good, but we don't know how we get that standard, and it says 30--it interests me we have a 60-year-old law where we don't have a standard in the Department.

Has the Department ever taken corrective action against a State for poor performance?


Mr. Uhalde. Yes. The Department takes corrective action to help correct and develop corrective action plans and strategies with States. We have taken corrective action, for example, most recently in the issue of the State of Massachusetts with regard to an issue regarding veterans.


Chairman Hoekstra. This is under the Wagner-Peyser Act?


Mr. Uhalde. Under Wagner-Peyser. But I don't believe we have a dispute with Michigan on the poor performance of Michigan and the deteriorating performance of Michigan over the last 4 years at least.


Chairman Hoekstra. You don't have an issue?


Mr. Uhalde. We don't have a disagreement with Michigan. I think they acknowledge as well as we do that their performance has gotten worse. Just the traffic into the employment service has dropped from over 1 million in 1994 to under 500,000 in 1997. People are voting with their feet in the State of Michigan.


Chairman Hoekstra. In going in there. How do we know that is good or bad?


Mr. Uhalde. If fewer people are using the program, just in terms--


Chairman Hoekstra. If 1 million was good, and 500,000--how do you get to 500,000 in calculating unemployment rates?


Mr. Uhalde. We know nationally just the applicants into the employment service system have not declined by over 50 percent nationally. Something is different in terms of the performance in Michigan historically over the last 3 or 4 years.


Chairman Hoekstra. Do we know what that is?


Mr. Uhalde. It is relatively much poorer. Do we know why the performance has been poor?


Chairman Hoekstra. Right.


Mr. Uhalde. Well, part of the approach that Michigan has taken in terms of using technology and stuff is an attempt to address that performance problem.


Chairman Hoekstra. But do we know why it is bad, if it is bad?


Mr. Uhalde. I personally do not know why Michigan's performance--


Chairman Hoekstra. Can you provide me with a document within the Labor Department that has reviewed this issue, the people in the Labor Department who have reviewed this decline and have reached the conclusion that that performance is unacceptable or is bad? Has that study been done?


Mr. Uhalde. I don't think that study has been done.


Chairman Hoekstra. Oh. So that study hasn't been done. So you are guessing?


Mr. Uhalde. I am guessing that their performance has gotten worse over time? No. I have reports from Michigan that their performance has gotten much--


Chairman Hoekstra. That their numbers are down, the number of people walking into their office.


Mr. Uhalde. The number of people walking in the office, their placement rates, their placement of unemployment insurance claimants, all of this performance is poor.


Chairman Hoekstra. Okay. Mrs. Mink.


Mrs. Mink. Thank you, Mr. Chairman.

The state of the employment service in Michigan, I think, is generally acknowledged as having been very poor, and the statistics that you have given indicate that, substantiate that. I think the people who are now implementing the program also acknowledge that.

Now, in the course of the administration of the Wagner-Peyser funds, until this controversy began, was there any account taken to the dismal record of the placement of these individuals in jobs, and was that one of the reasons that Michigan got one of the Talent Bank contracts or grants?


Mr. Uhalde. I am not aware that that--I don't believe that is the reason why they got a Talent Bank.


Mrs. Mink. What is the philosophy and guidance behind the Talent Bank grants that were awarded?


Mr. Uhalde. The purpose of the Talent Bank grants was that a consortia of States, working with the Department of Labor, would develop the new technologies, in this case America's Talent Bank. America's Job Bank was developed by a different State consortia. The philosophy was that we are a Federal-State partnership, and we wanted to do that in concert with States, because they are going to implement and use that system.

It wasn't based on Michigan's particular performance, with regard to it’s overall employment service. A Consortia of states developed this technology for use and ultimately dissemination to all States.


Mrs. Mink. But Michigan was given the opportunity to help develop this new technology, and is it really an indication of the Department of Labor's interest in developing other techniques in order to reach out to the private sector and also to help the unemployed; is that correct?


Mr. Uhalde. Absolutely. The U.S. Department of Labor and the Employment Training Administration have been the strongest advocates for the use of technology in the One-Stop systems and the employment services and unemployment insurance. We have promoted America's Job Bank, innovated in terms of suggesting and using the technology, and put out technical assistance in this area. We advocated funding from Congress and sought appropriations for it, and defended our appropriations, precisely because we think technology is the important cutting edge for purposes of improving the entire work force development system, including the labor exchange.


Mrs. Mink. Reading some of the rhetoric about this particular impasse between the State and the Federal Government, one would come to the conclusion that the accusation against the Federal Government is your rigidity, reluctance to change, inability to see that there can be new ways to approach the issue of unemployment and service to the workers that is our obligation, and, therefore, with this rigidity, the bureaucracy and so forth, you are unwilling to allow the State of Michigan to have a new way of approaching this problem.

Now, can you comment on that rhetoric that we hear about the Department, and try to relate it to what you have been doing in the field of change?


Mr. Uhalde. Well, I would believe that if one polled the States, I believe that the States would say that in terms of technology, the Department's role in promoting technology in the One-Stop and the entire employment service labor exchange area, we have been a leader in that, a catalyst for that. We don't do it alone, we work in partnership with the States to do it, but we have been very aggressive in trying to promote that.

We have picked up and promoted both legislatively and through administrative and appropriation actions the entire One-Stop effort which States are using to overcome the barriers that exist under current laws to integrate programs and provide universal service. We have aggressively used the waiver authority; we sought waiver authority from the Congress, received waiver authority, and have applied it in over 35 States.

So we have tried to be very aggressive in providing States with the tools and authorities.


Mrs. Mink. The bottom line in your decision-making as to whether someone meets the standards of the law in your Department is the adequacy of service to the worker. Isn't that the fact of this whole issue? And part of the disqualification was the lack of showing of quality service to the workers.


Mr. Uhalde. The issue with regard to Michigan, the instant issue in the declining of the money, was obviously they proceeded forward without an approved plan, where we manage the resources, and they proceeded forward without an approved modification to their plan.

I might add, even the State of Michigan, with regard to their local work force boards, requires an approval of the plan from the locals to the State, and in any government grant management function they require an approval of the plan.


Mrs. Mink. Thank you.


Chairman Hoekstra. You talk about providing waivers to 35 States, but let's talk, you know, what we have in the State of Michigan is we had a plan that had a 95 percent failure rate; 95 percent of the people coming in. I don't know what the number is nationally, but it appears that we may be having a failure rate nationally of somewhere between 70 and 80 percent, if you average them out, without seeing all 50.

We are going to hear from Michigan, and they are going to talk about some of your arguments. Michigan has never had to provide an official certification for their employment service plan, but is willing to do so. They will talk about how Michigan provides universal services, about how Michigan provides the one-to-one services for those needing more assistance; and will talk about the work test, and they will continue to do that.

What about this whole issue of nonmerit-staffed to provide employment services? You said it is generally required.


Mrs. Mink. Mr. Chairman, whose time are we on? That seems to be my red light.


Chairman Hoekstra. We are on my time. Mr. Ballenger is not asking questions and has yielded his time to me.

Any other questions?


Mrs. Mink. I just wanted that on the record, because I was confused.


Chairman Hoekstra. Well, we would hate to have that happen. But let's go on.

It is generally required. Is it required, or isn't it? Doesn't this sometimes look like the real issue is here the preservation of merit-staffed employees rather than focusing on customer service?


Mr. Uhalde. Well, we have laid out very clearly with the State of Michigan that we have four issues.


Mr. Hunter. I think something happened to your mike.


Mr. Uhalde. We have four issues in the State of Michigan, not one. One issue is clearly with regard to the administration of the unemployment insurance work test by employment services; an issue that employers and claimants very much care about, and we need to make sure that that unemployment insurance work test is administered adequately.

Secondly, the issue with regard to universal access to employment service. It is a unique dollar total; serve anybody regardless of their characteristics. It is not categorical. With regard to relying exclusively on automation, there are certain individuals that may not be able to access and utilize the system and weren't satisfied we had appropriate answers.

Third, the issue with regard to other services. We can't have a one size fits all, that everyone who walks in the door, the only thing they get is computer services. We know that group job search techniques, job placement, job finding techniques are very effective in moving people to work quicker. And with moving people to work quicker, we save unemployment insurance benefits, and we collect higher taxes. Those are documented, and those are important issues.

Merit staffing is the fourth issue that is very important, and we are very clear and have been for 64 years that the law requires merit staffing with the employment services.


Chairman Hoekstra. We have a letter from the employment training administration, and it is from 1986. "It is the opinion of this office that nothing in the act or regulations prohibits the subcontracting of Wagner-Peyser-funded activities."

Where in the legislation does that come out? That is from Steven Singer, the Regional Administrator. I am not sure that the Labor Department has had a standard policy on that.


Mr. Uhalde. The Labor Department has had a standard policy since 1933 on this. Steve Singer was the Regional Administrator with the Department in Chicago. That was a position by that regional office. It was not a legal opinion. He is not an attorney. It wasn't cleared from the national office. It was wrong. It is also not clear what subcontracting , what functions he was referring to, because, in fact, ministerial and ADP functions could be contracted out.

The Department's position has been clear since 1934 when this was first challenged by the State of Missouri, where a minimum standard of efficiency was determined to include as a minimum standard requirement of efficiency the merit staffing. It has been included in the 1940s and 1950s with regard to appropriation language by the Congress, and the Congress ratified it in 1970 with the Intergovernmental Personnel Act.


Chairman Hoekstra. The Labor Department will certify in all 50 States the Wagner-Peyser funds are implemented by merit staff employees?


Mr. Uhalde. As far as we are aware, except in those instances where, in fact, the Department of Labor has authorized pilot or experiments.


Chairman Hoekstra. So you are authorized, and you have authorized nonmerit employees in other places; is that correct?


Mr. Uhalde. The issue arises with the State of Massachusetts in a One-Stop grant that was provided under--One-Stop funding, and in that, Massachusetts proposed to do competitive bidding in One-Stop services, including labor exchange services.


Chairman Hoekstra. So the Labor Department has the discretion to waive that; is that correct?


Mr. Uhalde. We should be clear on this. The statute for Wagner-Peyser, in combination with the Intergovernmental Personnel Act and the Social Security Act, require by statute merit staffing.


Chairman Hoekstra. That is debatable, but, yes, okay. That is the Department's position.


Mr. Uhalde. That is correct. And that is the issue before the courts. The Massachusetts pilot arises from the authority that the Secretary has by virtue of whether or not all functions carried out by the employment service are required to be merit-staffed, and to make that determination, the Office of Personnel Management relies on circular A-76, which says that one could contract out those functions that are not inherently governmental, and the Office of Personnel Management defers to the cognizant agency, in this case the Secretary of Labor, to make determinations on what is inherently governmental or not. And we have from time to time, for example, determined that ADP services are not inherently governmental, and, therefore, ADP services, our ministerial services, janitorial services, could be contracted out.


Chairman Hoekstra. We will recess. We have some votes on the floor. We have two votes, so we should be back hopefully shortly after 2 o'clock.



Chairman Hoekstra. Thank you for bearing with us. It looks like we will have a period of uninterrupted subcommittee time now. Mr. Kildee.


Mr. Kildee. Thank you, Mr. Chairman. Secretary Uhalde, let me ask you this hypothetical question. If the State of Michigan had submitted a plan using only State employees, providing only the computerized services, would the U.S. Department of Labor have rejected such a plan?


Mr. Uhalde. Mr. Kildee, if Michigan had submitted the plan that we currently have before us, but had used State merit-staffed employees, we would still have rejected the plan. The issues that we have cited in terms of access to the computerized system and augmenting it with services for people, by people, and additional job search and assistance services, and the concern we have about the administration of the work test, are real issues that we would have rejected the plan on, just in their own right. I think these are issues that we have offered to work with Michigan on and are issues that we ought to be able to work out, but we would have denied the plan based on those issues.


Mr. Kildee. I noted in Mr. Rothwell's written testimony, he indicates that you, in private, indicated to him that the real reason for turning down Michigan's request was because of the merit pay issue. Can you comment on that?


Mr. Uhalde. I have actually never had conversations with Mr. Rothwell. I have with other State employees, and I have had private conversations with Doug Stites, and I am sure that I didn't say that; I am sure I have said that the merit staffing issue is a serious and real and important issue.

We have always had other issues with Michigan. They were stated in the letter. I think they are issues that can be worked out, and we, in private conversation, explored a lot of other alternatives, but the issue is not just merit staffing, the issue is also the UI work test and the use of technology alone. We never anticipated in our promotion of use of technology, where we are the leader and the advocate in that process, that anybody would say that would be the exclusive service for individuals, other than the special targeted groups they have set aside. We think it is a powerful instrument, we want it used, but there are other services that are important and need to be provided.


Mr. Kildee. Looking at the Massachusetts plan, it seems to me that there are three differences from the Michigan plan. First of all, the Massachusetts plan is still a pilot project; is it not?


Mr. Uhalde. That is correct.


Mr. Kildee. Also, public agencies can bid under the Massachusetts plan to perform these services?


Mr. Uhalde. That is correct.


Mr. Kildee. And another difference I noted in looking at the plan is that you have more than just the computer stations, you actually have workshops and assistance to these people who are seeking employment?


Mr. Uhalde. That is correct. There is a heavy reliance on computers in the Massachusetts operation. But that is also augmented by individual services and group assisted services for people.


Mr. Kildee. Okay. Did you discuss with Michigan the possibility of exploring something like the Massachusetts plan, did that ever enter into discussions?


Mr. Uhalde. Well, we had several conversations about augmenting the services and what other services are, and trying also to understand Michigan's plan; and I think there have been a lot of conversations. In fact, the written plan, though, has never changed from the draft that we saw in September to the final that was submitted to us, and then was withdrawn; and then another plan was submitted to us in January. The plan has remained unchanged, despite the conversations. And we did offer to Michigan a pilot to be able to conduct, in a substate area, in limited portion both verbally and in writing, a proposed pilot to test out some of the issues that are in question, but they did not want to do a substate pilot.


Mr. Kildee. Thank you, Mr. Secretary.


Chairman Hoekstra. Just a couple of comments. The Department of Labor has visited Michigan no fewer than, I believe, 10 times in the last 2 months on field visits; is that correct?


Mr. Uhalde. We have visited them and I have had regional office staff visit them, yes.


Chairman Hoekstra. This has been done without the consultation of the State or without the consultation of the local work force boards, I believe.


Mr. Uhalde. Well--


Chairman Hoekstra. You maybe visited them, but it was not cooperative. Are there field reports written on these visits?


Mr. Uhalde. There are reports that staff have prepared in the regional office; there are reports that the staff at the regional office have prepared, and are continuing to work and refine them. We did notify Michigan the first time we went in; we have not had a continuing, ongoing relationship at the State level on that.


Chairman Hoekstra. Would you please confirm for the subcommittee the number of trips that have been made to Michigan? Do you know?


Mr. Uhalde. I don't know, but I will be glad to get that information.


Chairman Hoekstra. Would you please submit the field reports for the record?


Mr. Uhalde. I will be glad to when they are completed, yes, sir.


Chairman Hoekstra. How long will it take for them to be completed?


Mr. Uhalde. Relatively shortly, within a few days.


Chairman Hoekstra. There should be some ready?


Mr. Uhalde. There should be some we can get to you very soon.


Chairman Hoekstra. I would like to get those and we will leave the record open for those to be submitted as part of the record, without objection. Thank you. So ordered.

[The information follows:]




Chairman Hoekstra. I want to reflect back on what Vice President Gore has said, that in Reinventing Government, we want to put customers first; we want to inject competition into everything we do; we want to search for market, not administrative solutions; we want to work with public, private, nonprofit partners. This is out of the Department's annual plan to achieve common goals.

The Department will employ flexible, innovative and coordinated responses to meet our challenges. But just recently, you know, the--at least from a congressional standpoint, the Department received an F on their strategic plan.

I am disappointed in where the Department of Labor is. We have a system that is not serving the people of Michigan. It has a 95 percent failure rate, and I believe that, you know, that--I am not sure we are adding a lot of value here in Washington in serving the needs of our constituents. And the people in Washington, who are out getting jobs, were focused on rules and regulations. The Department has the power to make Michigan eligible for a pilot program or a waiver, and the focus is on bureaucracy in telling Michigan what to do, and not on serving the--not serving our constituents.

I am disappointed at where the Department is and in the attitude that they are taking, and I think the attitude in this case is inconsistent with what the Vice President or what your own strategic plan calls for.

Those are all the questions I have. I think we will go to our second panel. Thank you.

Oh, you are back. Mr. Kind.


Mr. Kind. Thank you, Mr. Chairman. Mr. Uhalde, is that how you pronounce your last name?


Mr. Uhalde. Yes, sir.


Mr. Kind. A couple of quick questions.

We keep hearing from our chairman that Michigan was experiencing about a 95 percent failure rate before they went to the new plan that the Department of Labor didn't approve, the privatization plan, non-merit staffing. If a State is interested in improving the performance of the employee service program, is privatization the only route or the only avenue that they could pursue to do that?


Mr. Uhalde. No, of course, it is not. Virtually all of the improvements that Michigan is seeking to do are improvements that other States can and are doing in many respects. In your own State of Wisconsin, as I indicate in the testimony, there has been much more substantial performance in the system, and taking advantage of the utilization of the one-stop career centers, and the technology advances. But maintaining, for example, merit-staffed employees and also providing augmented services to job seekers beyond what they would get out of computers.

And so there are a variety of ways, there are a variety of States, as I pointed out, that have significantly improved performance.


Mr. Kind. You mentioned Wisconsin. I am very familiar with the success rate that State has enjoyed in recent years. I think you also mentioned Iowa and there are a couple other States that are doing very well.

Is part of the function of the Department of Labor to share information across States, if States are looking to improve their employment service programs, to point them in the right direction, as far as States that are doing very well and sharing that information.


Mr. Uhalde. Absolutely. Two efforts speak directly to this. One is the Jetcom Conference, at which we had nearly 2,000 attendees, from every State, and we explored how to use technology in the building and the workforce development system; the latest state-of-the-art States demonstrating their use and their technology in that area; and our one-stop implementation grants, of which both Wisconsin and Michigan and other States--we have 47 States, and we share best practice across the States in that area, and a lot of States are getting significant improvements and obviously maintaining merit-staffed employees.


Mr. Kind. I know in my conversations with the Secretary and Deputy Secretary for the Department of Workforce Development in Wisconsin, they indicate sometimes it is a parade coming through their office every week; people from other States coming in to see what they are doing, monitoring, and taking back ideas to implement in other States.

Do you know if the State of Michigan had any contact with the State of Wisconsin before it went with this new plan?


Mr. Uhalde. I don't know whether they have or not. It is true that Wisconsin, the Kenosha office, for example, is a very dynamic example of what can be done in this area. They have integrated 16 different agencies in their one-stop system, have resource rooms, like Michigan does, but both employers and job seekers can have additional services, provided to assist them, by merit-staffed and other employees.


Mr. Kind. It is always disturbing to see any State suing the Federal Government, especially in this area where it seems like the law is clear on any sign-off on any new plans that have to be approved by the Department of Labor.

Is there an administrative grievance procedure the Department of Labor already has in place that States can utilize short of or before filing an action in Federal court against the Federal Government?


Mr. Uhalde. We have an administrative procedure that can be done in the disapproval of a plan. Then there is an administrative review process up to administrative law judges, for example.


Mr. Kind. Were all those exhausted first by the State of Michigan before it decided to file?


Mr. Uhalde. No. We put Michigan on notice several times through letters and correspondence between myself and the State of Michigan, alerting them to the issues that we had, and that ultimately we would have to change the financing arrangement and withhold funds if they implemented an unapproved strategy. They proceeded to implement their plan and then they took us to court.


Mr. Kind. Again, based on my contacts with the various folks in the State of Wisconsin, they indicated they have always enjoyed a very good working relationship with the Department of Labor and the officials in your office. I assume you are as cordial with the people in the State of Michigan and willing to work with them, as far as any difficulties you had in their new plan before they went forward and implemented it.


Mr. Uhalde. We have a good relationship with all the States in that region. We work very closely with them. We had several meetings and conversations with the State of Michigan, and we have a lot of other business to do in Michigan.

During the course of this process, Michigan was one of the first States we approved for their Welfare to Work grants. It is not like we don't do business with Michigan. We have a good, working, professional relationship, and are open to working with them to continue this. But, in fact, the plan has never changed, the plan modification has been the same as it was from day one, and we need to--you know, we have a fiduciary responsibility and we need to get an agreement to a plan before they can change it.


Mr. Kind. Thank you.

Thank you, Mr. Chairman.


Chairman Hoekstra. I would remind the gentleman from Wisconsin, Wisconsin has been a leader in a number of areas, and Wisconsin actually blazed the trail for attacking a Washington bureaucracy in serving its customers and its citizens, first when they challenged the Washington bureaucracy on changing the welfare system. And I still remember going to the floor of the House with a number of my colleagues from Michigan and saying it is about time Washington gets out of the way on welfare, and lets Wisconsin do what it feels is best for its citizens; and they jumped through all the hoops, and we had the same arguments then.

HHS and all these people wanted Wisconsin to jump through all of the same hoops, because we have an answer for every complaint. Texas has tried this on this area, and the end result is, you have Washington blocking change that is focused on serving customers. We changed it in welfare, and it is about time we move the responsibility for this kind of service back to a State level as well. Mr. Scott.


Mr. Scott. Thank you, Mr. Chairman. I just had a couple of questions, Mr. Secretary.

Let me clarify this. Have you cut off funding for Michigan?


Mr. Uhalde. What we have done is changed the financing arrangement in the State of Michigan. We have put Michigan on a cost reimbursement basis, rather than an automatic drawdown. Michigan had, up until February 2, drawn down a little over $14 million of their grant. They have $10 million remaining for the year; and now Michigan must submit funding requests on a cost reimbursement basis. Then we would authorize a drawdown. We made it clear that if they would operate under their approved plan, we would put them back and they could draw down 24 million dollars to operate.


Mr. Scott. When do you expect a court decision?


Mr. Uhalde. The hearing is May 1st. I assume 30 days after that. I don't know.


Mr. Scott. I understand that before I got here, you discussed whether or not the private employees would be in compliance with the Wagner-Peyser Act. Can you tell me what value there is, and continuity and organizational structure, in having State employees, rather than contracts that may be here today and gone tomorrow?


Mr. Uhalde. Well, the principal importance of the merit-staffed employees, and the reason that was originally instituted, was because of the operation of private employment services at the time, back in the 1930s; and the issue of making sure the needs of the employer and the needs of the job seeker were paramount. One of the criteria in merit staffing is that the foremost interest of the employees is the public interest, and so merit-staffed employees are important to make sure the public interest is the primary consideration in carrying out the functions, and making decisions with regard to government authorities.


Mr. Scott. Are you suggesting some of the contractors have conflicts of interest, or other interests, rather than the--have other interests involved?


Mr. Uhalde. Well, there is the potential, there is the risk, in that area. And that is something that both in the interpretation and in the establishment of Wagner-Peyser, in the establishment of the merit staffing criteria, and in Congress, ratification of that, 1970, intergovernmental--I think it is important for merit staffing.

But we should recognize, that we have a statutory requirement with regard to merit staffing. That is our interpretation, and has been for 64 years, so this is not an arbitrary and capricious decision. That is not to say in the workforce system--more generally, we don,t deal with private vendors extensively in our job training system.


Mr. Scott. Is there any organizational advantage in dealing with 50 State groups, rather than an infinite number of contractors?


Mr. Uhalde. Well, it is clearly within a State to have a State merit-staffed system; or a local merit-staffed system is probably easier, from a management point of view, than the multiple vendors or contractors in that area. But I think the principal issue is statutory with regard to merit staffing, and secondly, ensuring that the public interest is foremost in the operation and the key decisions that are made by these government officials.


Mr. Scott. So if you were to change a regulation, it would be easier to implement by just a directive to the States, rather than to tell the States to redo all their contracts and renegotiate their contracts under the different regulations. Would that be another reason why you would like to have State employees, rather than private contracts?


Mr. Uhalde. I am not sure that that is valid.


Mr. Scott. Thank you, Mr. Chairman.


Chairman Hoekstra. The gentleman's time has expired.


Mr. Uhalde, thank you very much. I think you outlined it very well for us, that, you know, public interest is paramount. We have a system that is hard to describe, that the public interest is being served when it has a 95 percent failure rate, but you have given a valiant defense of the indefensible.

But you did a good job, and I hope that Michigan and the Department of Labor can work through this quickly and that we can focus on the 95 percent of the people that aren't being served today; and that is what needs to happen.

Thank you very much.


Mr. Uhalde. Thank you, Mr. Chairman.


Chairman Hoekstra. We will take a short break as we invite the second panel to come forward.



Chairman Hoekstra. Let me introduce the second panel: Doug Rothwell, who is the Chief Executive Officer and department director for the Michigan Jobs Commission. The National Alliance of Business honored him as the workforce development system of the year, in 1997. Not him, them.


Mr. Rothwell. Right. Thank you.


Chairman Hoekstra. John O'Reilly, Jr., Executive Director of The Southeast Michigan Community Alliance. Welcome.

We have Diane Rath, Commissioner of the Texas Workforce Commission in Austin. Welcome.

We have Mr. Jonathan Raymond, Deputy Director of Workforce Development for the Commonwealth of Massachusetts.

We have Mr. Don Gillis, Executive Director of the Massachusetts Regional Employment Board Association in Quincy, Massachusetts. The association is comprised of 15 local workforce development boards.

We have Mr. Gary Moore, a veteran of the United States Air Force in which he served as a staff sergeant from 1968 through 1972. For the last 15 years, Mr. Moore has been working in systems consulting in Michigan and is also a member of the Michigan Jobs.

We have Mr. Fred Radtke, who is a small business owner in Michigan. Additionally, he serves as a chairman of the Leadership Council of the National Federation of Independent Businesses.

And we also have the Honorable John Freeman, who is a representative in the Michigan Statehouse, who has consulted me and advised me on fast-track and college football, I believe. So welcome and good to have you here.


Mr. Rothwell--and did we get all three mikes working? We have got four of them now. Go ahead.





Mr. Rothwell. Thank you, Mr. Chairman, members of the committee. I am Doug Rothwell, CEO and Department Director of the Michigan Jobs Commission. We oversee the workforce development programs for the State. The system, as the chairman has recognized, was named the workforce development system of the year by the National Alliance of Business.

For years, the U.S. Department of Labor has encouraged the development of what they call "one-stops." In fact, they even provided Michigan with approximately $5 million in 1997, to develop those one-stops. It is ironic, therefore, that Michigan is now being targeted and harassed by the U.S. Department of Labor for following their direction to its natural conclusion.

What we have done is to move our employment service, under the same system that runs virtually every job training-related program in our State with the exception of our vocational rehabilitation services. That system is our local workforce development boards and their local offices, which we call Michigan Works. Our previous employment service, known as the MESA, was highly ineffective, a fact the U.S. Department of Labor knew about and chose to ignore for years.

By the way, this agency, the MESA, the governor had no control over until December of 1996, after the State Supreme Court ruled he could reorganize it. Of those receiving unemployment insurance and seeking employment services from the State, only 4 percent received jobs in the last program year. That, Mr. Chairman, represents a 96 percent failure rate.

After a detailed study, we decided to have one place where everyone looking for a job could go, the same place, by the way, that places nearly 50 percent of welfare recipients in jobs, those people with less skills than those who are unemployed. This should sound familiar as it is a goal shared by and pushed by the USDOL.

Unfortunately, the leadership of State and national unions were in the midst of a campaign of misinformation designed to prejudice the USDOL against our plans before they were even finalized. I have here with me letters from John Sweeney of the AFL-CIO, Frank Garrison of Michigan's AFL-CIO, Stephen Yokich of the UAW, and Diana Ceresi of the Service Employees International Union; all to Secretary Herman. They flooded the Labor Department with prejudicial letters because if Michigan succeeds in reorganizing the MESA without using often unionized State employees, other States will certainly follow.

I found it patently offensive and disturbing that unions, ostensibly the protectors of America's workers, have forsaken the unemployed in the name of increased dues and revenue, I might add, while not one State employee was laid off.

What is more, I find it chilling that Secretary Herman and her staff have been so swayed by the political pressure. They have succumbed to the pressure, overstepping their powers by denying our plan on capricious grounds, by inserting their opinions and preferences in place of laws, and actively working to derail our efforts to better serve our State's job seekers.

Secretary Herman denied our plan on the basis that Wagner-Peyser requires all ES work to be done by merit-staffed employees. She cannot, however, tell us what section of Wagner-Peyser requires that, nor have they explained why Massachusetts has operated a system without merit-staffed employees for 3 years. Finally, she cannot explain how USDOL was empowered to allow us to pilot such a program in our State, an offer they made to us more than once if such a program in fact would be illegal.

Throughout this process, the Department of Labor raised an ever-changing, ever-growing list of so-called "objections" to our system. This, despite the fact Mr. Ray Uhalde, Acting Assistant Secretary of Labor, told us in a closed-door meeting, the only real objection to our plan is the merit-staffed employees issue. Yet, publicly they raise continuous phony objections.

For example, USDOL says our plan has not been certified. It has. We would be glad to send them a letter saying that, even though we have never been required in the past to do so. They say our plan fails to ensure that all people seeking employment are served. The fact is, we are providing universal services and in fact the agencies providing these services, ES services, now also serve the disabled and welfare recipients.

Third, Michigan's system, they say, relies on computers alone and will not provide resume writing and interviewing techniques.

The fact is, people will get whatever help they need to get on the Internet-based system they talk about; and these services were never provided universally before. They act as though resume writing and interview services were something that was the norm; in fact, it is not even a Federal requirement and in fact the Federal budget cuts to the employment service over the last decade or more have limited the ability to provide these.

And last they say we don't meet the work test requirement. Again, the fact is that our system does, and that we have claimants registering for work on the Talent Bank.

So Mr. Chairman, DOL, we think, is putting politics in front of people, sacrificing jobs for the unemployed on the altar of their supporters' membership rolls. Again, I would urge you to investigate the abuse of this power thoroughly, and to allow the people of the State of Michigan to move forward in providing a quality job search service for our job seekers.

Thank you, Mr. Chairman.


Chairman Hoekstra. Thank you.

[The statement of Mr. Rothwell follows:]




Chairman Hoekstra. Mr. O'Reilly.










Mr. O'Reilly. Thank you, Mr. Chairman, members of the committee. I would say it is a pleasure to be here today, but I am a little anxious about that, because I know this has a very partisan flavor; and I was advised by many people, I would be better off to stay home.

But people who know me know I have a passion about what I do, and that passion drives me to come here and share with you the fact that, particularly from what I heard in previous comments, that just isn't the case, that service to individuals is in fact the primary focus of the system we operate. And in my remarks to you, I attached an addendum which laid out for you the system we developed; and the last page of that part has a draft or diagram of our system, and this was developed by our local workforce board, which is what I represent; and in that system, everyone, at the initial point of contact, initial intake is through a toll-free phone number, so if you need service, you want help, you call the toll-free number.

The agency, which was, through competitive bid, selected to perform that service has been in the information referral business in our local area for 25 years. They run senior help programs, all kind of programs related to hot line programs for assistance and referral. That agency now does all the preliminary intake counseling and referring for our entire one-stop system, which is actually called One-Call, One-Stop. Individuals who call in, if they are directed and they know what they want, they will be directed right to the agency, whether we have a contractual relationship or not, the agency best or most likely to serve their need. If, in fact, they don't have a clearly identified need, they don't know what their plan is, they don't have a plan of action, they just know they need help, they will be referred to one of our one-stops where they will have a full array of assessments, individual opportunity to work both in a self-directed way or an assisted way.

Now, we have wanted to do this for years. One of the things that characterizes this is, this process didn't begin last year, 2 years ago; this process began over 10 years ago as we tried to develop this model, and we actually began the development under another governor of a different party, Governor Blanchard, called the Opportunities System at the time, and many of us locally involved worked very hard to try and create the kind of coalitions and partnerships with collaborative efforts.

That program went away with time in the sense of a policy, but it didn't go away at the local level, so when the opportunity came to go forward with the one-stop and the No Wrong Door, as it was called in Michigan, we simply were able to pick up the pieces and do some things we wanted to do, but were not allowed to, based on the regulations and so on in place, because one of the things is that normally, in this process, when that customer--you know, talk about policy, but I am here to talk about the customer.

The customer walks in the door, and in the past we had to say, we need to know about you, your background, income level, how many in your family, we need all this stuff before we even get to whether or not we can serve you. Now on the system we have, we serve them, they come in, we give them service, and then based on those criteria, we can give them more service, we can do more for them because we can determine in fact they are available for a second tier. But everybody that comes in gets the first tier of services.

Now, you know, the issue comes, okay, the system was going to go forward whether the ES was changed or not. What is the advantage? The advantage--and there has been a lot of talk about it, and I have notes and I know my 5 minutes is going to go very fast--the advantage is, in Michigan, what was happening is the system at MESA ended up being a Wrong Door, if we are talking No Wrong Door and Wrong Door, it was a Wrong Door for many people.

That is not me saying it. I got my first copy of the 9002 report; that is the report the State of Michigan sends every year to the Federal Government to comply with the Wagner-Peyser. I had never seen it, even though for the last 8 years I was on the local Job Service employment council in my area, meeting with their council to help improve employment services in UA services. And when I looked at this--and I see my time is running out--I learned a great deal, and I advise you to look at it closely.

The services talked about earlier that seem to be missing in the system just weren't really offered to people or not to any substantial number. We are offering them now. And for the things like extra services, we have all the JTPA in our one-stop, so we have IIC, dislocated workers, Title III, older worker, we have veterans, we have Michigan rehab services, we have vocational services. We have all of the programs in there, and if they are eligible, they will get the services, and they are targeted.

When a person walks in, there is a greater--instead of a plexiglass wall--when I had to go to the meeting, I had to go past security to get past the plexiglass wall, and, believe me, the majority of people that went there never got through that plexiglass wall; but when they come to ours, there is a live, breathing person whose job is to make sure they get what they want.

If they want to walk in and say, I am a veteran, they are put in contact with a special veterans representative to get that service. If they are disabled, they will be put in contact with the Michigan rehab service.

I have to tell you, we are on the verge of really moving this to a system we have always dreamed about; and this is a component, however it ends up being delivered.


Chairman Hoekstra. Thank you, and thank you very much for taking the time to come today. This shouldn't be a partisan dispute. It should be focused about serving our constituents.

[The statement of Mr. O'Reilly follows:]




Chairman Hoekstra. I know that I have been hosted in Texas recently on our American Worker Project, and met with people in both Dallas and Houston, met with people who were involved in workforce development and job placement; and I got a strong message from the people in Texas, especially in the areas where you have low unemployment: Provide us with some more flexibility, because we want to serve the customer, and we have some different needs that are different than high unemployment areas, and we want to go out and we want to focus on the customer, and if you give us the flexibility, we can do it.

So this will be at least the second or third time that the people from Texas have been helping us in shaping labor policy and evaluating the effectiveness of current policy, so Diane, thank you for being here, and we look forward to your testimony.




Ms. Rath. Thank you, Mr. Chairman, Representative Mink and members of the committee. I appreciate the opportunity to be here with you today and offer comments.

In Texas today we are making sweeping, positive changes in the delivery of workforce services. The Texas Workforce Commission is leading the effort, and I want to share with you our experience.

For those of you unfamiliar with the Texas system, we have made significant changes over the past 2 years, and these changes occurred when our State's leadership recognized the system of job training and employment services that existed did not address the needs of either our State's employers or its job seekers. They recognized that 28 different programs, among 10 separate State agencies, caused a fragmented and confusing approach to service that resulted in a duplication of services, a waste of scarce resources, a lack of clear accountability for results, inappropriate training, and in some cases, training for jobs that didn't exist.

Fortunately, the Texas legislature and Governor Bush acted and passed a law not only consolidating all the programs into the Texas Workforce Commission, but also allowing for local control. Specifically, they charged the Texas Workforce Commission with supporting the development of a new voluntary service delivery system.

These voluntary workforce development boards were designed to replace private industry counsels under JTPA. The boards were also directed to design and coordinate workforce education and training services, tailored to meet the needs of businesses, and workers in each area through a network of one-stop career centers. As strong business-driven entities, these boards will generate new and stronger bonds between business, education, and job training sectors that will result in a strengthened economy that will benefit everyone. It is important to note that our local workforce boards are also required to include organized labor, and other groups, as members.

Our vision of local control is strong and it is working in Texas. To date, of the 28 workforce development areas in Texas, 26 have elected to form local workforce boards and nine are fully operational, meaning they are responsible for the delivery under the following programs, the Job Training and Partnership Act, the Employment Services for Welfare Recipients, under TANF or the former JOBS program, the Food Stamp Employment and Training Program, and child care programs for low-income families. We are also allocating funding to local workforce development areas for other programs.

Now I want to talk about the heart of why I am here and about two of the major difficulties we encountered.

First, our Texas law provides for local workforce boards to have the responsibility for the basic labor exchange services under the Wagner-Peyser Act, or what is generally considered employment services. By doing this, the State would better implement the congressional goal of connecting "profiled" unemployment insurance recipients, who are likely to exhaust their benefits with dislocated worker services under JTPA, Title III, for which they are already qualified, and those services are under the control of local boards.

The Department of Labor has, however, determined that these services must be performed by State merit system employees, instead of allowing it to be a local decision. This makes it appear the Department of Labor is prohibiting us from implementing our State law, which block-grants this program to the local level and would allow us to integrate the services and better serve our clients.

We eagerly await the Michigan court decision on the merits of their employment service lawsuit, or other action that is forthcoming, because it will greatly help us in Texas.

Second, the current Federal system still requires us to follow a bewildering maze of regulations. This requires local boards to spend more time on coordinating bureaucracy and less time on delivering services. Instead of focusing on results, they must instead focus on the process. One solution to this problem is increased block granting with fewer regulations. We want to be held accountable, but for results, not for process.

Let me make a special note. We have found that it is not enough for Congress to block-grant programs to States, because Federal regulatory agencies often follow up this action with new libraries of regulations. This is helping today with Federal welfare reform. Instead of the broad latitude promised, we are now faced with hundreds of pages of Federal regulations.

We need true block granting, coupled with regulatory reform, perhaps including a page limit on the regulations allowed. This is of particular importance as the House goes to conference with the Senate on workforce legislation. It is crucial this legislation not provide a new opportunity for DOL to micromanage States and local boards. Block granting and consolidation works only if statutory changes are complemented by a new Federal regulatory role.

Texas has made so many positive changes over the last 2 years, it would be tragic if new Federal law actually set back what we have accomplished. By integrating workforce training and services, we can build and strengthen our Texas workforce and the Nation's workforce as a whole. By developing a highly skilled workforce, business and industry can expand toward new horizons, and I am confident that through a transformed work system, we can forge a new economic era, ensuring a prosperous new century for the businesses.

I will be happy to answer your questions.


Chairman Hoekstra. Thank you.

[The statement of Ms. Rath follows:]




Chairman Hoekstra. Mr. Raymond





Mr. Raymond. Good afternoon, Mr. Chairman and Mrs. Mink and other members of the committee. On behalf of Governor Paul Cellucci, I am pleased to be here today to talk about the Massachusetts one-stop career center initiative and the employment service prior to that time.

This morning, as I left for Washington, I took the water shuttle from downtown Boston, and as I moved across the harbor, I couldn't help imagining at the time when our country was being founded, the water off the coast of Massachusetts and New England were teaming with cod, so thick in some places that you could walk from shore to shore. One didn't have to be a very good fisherman to be successful and to provide for their families.

But as you know, Mr. Chairman, today, much of the cod is gone and we are having to retrain not only fishermen, but whole industries. The point is that Massachusetts' competitive advantage has, and continues to be, the skill of its people. If we are to compete successfully with other regions in New England and in other States and regions throughout the country, it is important that we have a skilled workforce and that we are providing employment services for those businesses that are looking to provide jobs for those people.

With that said, what was the employment service like prior to the one-stop career center initiative? Largely structured in the 1930s, it was an adjunct to the unemployment insurance system, that being--it was to provide for short-term relief for workers as they moved from one job to the next, often in the same industries or in similar businesses. That was called the Job Service in Massachusetts, and to its credit, as the world of work began to change, the Job Service expanded to provide counseling and assessment, but it was clear, by certainly the nineties, that that system was not being utilized, and it was not as effective, and what had once been responsible for 30 percent of placements was down to roughly 5 percent. So when the Department of Labor in 1994 offered Massachusetts and other States the opportunity to participate in the one-stop career center, Massachusetts seized on that initiative; and was awarded a grant in 1994, and began implementing in 1995.

We sought not only to reorganize and restructure our employment system, but to completely reinvent it, that is, to turn it upside down, to make what had once been a very centralized, monopolized service into a very locally controlled one, in an attempt to, from the bottom up, empower the local employment, the regional employment boards, of which there are 16 in Massachusetts, to provide services focused on quality and performance.

In 1995, we began with two REBs, the Hampden County REB and the Boston REB. The grant was awarded to implement competitive standards, competitive from the standpoint the REBs would have to repeat and prove they were based upon certain readiness criteria, ready and able to initiate one-stops. They could also go out and compete and have individual entities chartered to operate one-stops and they would, in turn, compete among each other across the State for customers and for quality.

At present, we have three regional employment boards operating seven one-stop career centers, and I think the real strength of this initiative is in the dynamic mix of entities that are involved in the one-stops. We have public sector entities, the former employment service operating in two of these centers; we have community colleges, we have nonprofit community-based organizations and for-profit corporations operating and delivering the services. The emphasis, again, has been on performance, has been on quality, and I think the numbers, as we are beginning to show, reflect when you build it, people will come.

I invite you to come up to Massachusetts, and if you have some extra time, I invite you to take the Amtrak train because when you get to the end of the line, you will come to South Station in Boston, and at that point you will have what many customers who come and use one-stops do every day. They have a choice. If you take a left and go into Chinatown, you can visit one of our centers; if you turn right, you go and visit another one of our centers, and that has been the cornerstone of the Massachusetts one-stop career center initiative.

I look forward to your questions.


Chairman Hoekstra. And you did that all without a written statement. Not bad.


Mr. Raymond, we may take you up on the offer to come visit Massachusetts. We have gone around the country and had 26 different round tables with government, business, and local officials, identifying innovative things they are doing, you know, to satisfy and to grow the economy; and we may take you up on that offer. Thank you very much.


Chairman Hoekstra. Mr. Gillis.









Mr. Gillis. Thank you, Mr. Chairman, and members of the committee. It is an honor to appear before you today. I am happy to be here with my colleague, Mr. Raymond, from the Department of Workforce development.

I would like to spend a few minutes, if I may, outlining the issues in this committee hearing, between the State of Michigan, United States Department of Labor, Commonwealth of Massachusetts and our system.

I am here today representing an association of 15 local workforce development boards, known in Massachusetts as Regional Employment Boards or REBs.

Congress has established in both the Job Training Hardship Act and the Welfare-to-Work effort, as part of the balanced budget act of 1997, and soon we expect an enactment of workforce legislation, the centrality of the private sector led workforce boards in our national system. This is the basic principle at stake here today. I think Mr. O'Reilly spoke about that as well, in terms of a principle that is at stake in Michigan.

Who is in the best position to design programs that meet the real and pressing needs for a fast changing labor market? Is it the Federal Government in Washington, or is it partnerships of employers, elected officials, and educators who reside in our counties, our cities, our towns, who best know those needs, because they live with them every day?

Surely a program that was designed in the industrial economy of the 1930s does not meet our needs in 1998, the facts bear this out. As Mr. Raymond has already indicated, in 1960 in Massachusetts, 30 percent of job placements were made by the employment service, while in 1990 less than 5 percent of job placements were made by the same employment service.

Congress, in its successful administration consistently asks States and localities to reinvent themselves, improve the quality of service for training participants, job seekers and employers; and in Massachusetts, we took the charge literally. Three regions have taken the challenge to develop high-quality, customer-driven competitive centers. The results would be seven centers in seven unique partnerships, as Jonathan already indicated, ranging from the State employment service to private companies to community colleges, and government agencies.

While one-stop centers in the three regions provide quality labor exchange and workforce development services, we have 13 other regions in Massachusetts that are gearing up to open such centers. In fact, in Massachusetts this was not without controversy; many regions were concerned that the dictate by the Commonwealth of Massachusetts, that they must choose to implement the competitive model, may not meet the needs of all labor markets. Our association led a broad-based dialogue resulting in a change in State policy, which allows for local REBs to choose between a collaborative or competitive model.

It was also agreed if any center did not meet or exceed mutually agreed upon performance standards, the REB would be required to conduct a competitive bid process to replace the centers. This compromise resolution was adopted and endorsed by the Commonwealth of Massachusetts, U.S. Department of Labor, the USDOL, the REB and SDA associations, and our State legislature.

The selection of one-stop career centers through a competitive, collaborative or co-located model, has been supported by the members of the Massachusetts AFL-CIO. The chair of the Career Center Committee of the Boston Private Industry Council, which competitively selected three one-stops, is the president of the Massachusetts AFL-CIO. In addition, the chair of the MassJobs Council Strategy and Measurement Committee, charged with developing performance measures, all one-stops, is the secretary-treasurer of the Massachusetts AFL-CIO and its president-elect.

The members of organized labor in Massachusetts who have supported competitive one-stop career centers did so because they wanted to see the best possible employment in reemployment services available to their members. The Massachusetts one-stop career center process is not about privatization, nor is it about business as usual. It is about customer choice, high quality and professional services. In fact, in Massachusetts, as in Michigan, not one public employee has lost or will lose their job as a result of competitively selected one-stop career centers. The REBs and organized labor sought and received that assurance from the governor.

So what is the status of this bold experiment? Seven one-stop centers are currently operating and 13 regions are poised and are ready to open 25 more centers in the next 18 to 24 months.

Career centers are working. In the last State fiscal year, more than 29,000 individual customers visited one-stop career centers. In the first quarter of this fiscal year, an average of 2,500 individual customers received services per month, 1,000 individuals were placed in jobs and nearly 20,000 job orders being posted.

Primarily, what is at stake is the ability of the local REBs to determine how best to organize and provide service to their communities. In fact, at risk in Massachusetts are our seven existing centers, which is what brought me to Washington today. Those centers have made the determination to proceed through a competitive model, all in reliance on the U.S. Department of Labor's approval, support and encouragement of establishing a new way to do business. Other REBs seeking to follow this path of change may not be allowed to proceed.



Mr. Gillis. In fact, Mr. Chairman and members, we just recently heard the word "pilot" you heard about today. When we applied for a grant, it was an implementation grant. It wasn't a demonstration grant. It wasn't a pilot grant. It was to implement a change in a system.

We are concerned that, one, if the model as it has been implemented in Massachusetts were determined to be outside of or beyond the discretion of the United States Department of Labor, the Massachusetts competitive model, its centers, its systems enhancements, and achievements would be jeopardized.

Two, a reversal of USDOL approved policy in Massachusetts would return the system to a monopoly service provider and eliminate customer choice.

Third, of the seven existing centers, only one is currently operated by the State Department of Employment and Training. The other centers would likely be closed.

In closing, I have included as part of my written testimony accounts of real job seekers and employers across Massachusetts and provided a snapshot of where the system is and where it hopes to go. But we cannot only have three regions proceeding. We need to proceed with all the regions of the Commonwealth of Massachusetts.

As Acting Assistant Secretary Ray Uhalde said in his recent testimony to the House Appropriations Committee, "The One-Stop Career Center initiative is at the heart of the reform efforts to encourage States and local bureaucracies to reinvent themselves, consolidate service at the street level, where it matters most, and focus on customer and restructure accountability."

Just as we have started to reinvent ourselves and see the result of this reinvention, we ask that the United States Department of Labor not pull the rug out from under us. All we are trying to do in the end is give the taxpayers and working people of this country a good shot at good jobs and economic stability for their families.

I want to thank you, Mr. Chairman and members of the committee, for the privilege of being before you today.


Chairman Hoekstra. Actually, you gave part of my talk on the American Worker Project, is that labor law developed in the 1930s and 1940s maybe doesn't work in the 1990s and the year 2000 and beyond. I think this may be one more example where we are finding that to be the case.

[The statement of Mr. Gillis follows:]




Chairman Hoekstra. Mr. Moore.












Mr. Moore. Good afternoon, Mr. Chairman, distinguished members of this committee.

I don't want to read my statement. You have a copy of it. What I really want to explain is that I am not a Democrat, I am not a Republican, I am a veteran. I am here on behalf of the veterans in my State. I have been a veteran advocate for many years the working in various capacities. My concern has been veteran issues.

I do not understand the inner workings of the Michigan Jobs Commission, their former system or their newly implemented automated system. I do not assume to fathom the various and sundry laws concerning the operational aspects of such governmental entities. My concern is and will remain issues that affect veterans in the State of Michigan.

My question and concern is simply, are veterans being serviced with every possible opportunity available? And are veterans receiving the preferred status and treatment due them?

As a person in the high-tech industry, and I have been in this industry for many years, I see the disadvantages of what has happened. I see the consternation among the veteran reps, and I have talked to many face to face throughout the whole State in the last several weeks. I have asked them to give me input. They have been at a disadvantage where they have not had availability to do some of the things that they have done in the past. They have been dropped out of this new system.

I have had a commitment from the upper management in the Michigan Jobs Commission that these inadequacies are going to be addressed, that these things will be taken care of, and that they will be able to function in their capacity.

There are still many concerns. There are many concerns that I have heard addressed today that are very real with technology, where not everybody is up to that level.

But in a venture I made into Sweden in 1986, I observed what the Swedes were doing; and they were retraining their entire work force not to be manufacturing but to be service-oriented, technology-oriented. I think that is where we need to go.

That has been my message to the veterans in the State of Michigan. I think that it is very important that they have a good background. I think that the vet reps have to have good training so we can get good jobs for these people.

There are parts of the law that I do not understand, but it kind of aggravates me when you see a law that says, by the way, government contractors only have to interview and not hire veterans. Those parts of the law, I am sure, are in there for a certain reason, so you don't have too many mandates and people can go on and function.

But I think that veterans, as a whole, have sacrificed years of our lives. I took out the years 18 to 22 in service of my country. Many others did the same thing. I volunteered in 1968. I do not have to give anybody a history lesson on what was going on. When I got out, I did not admit that I was a veteran because people would not hire me.

In my own interaction with the NMSC, in the former State it was, I did not have any opportunity for employment. The 95 percent kind of rings true for me. I think that what is there in its current state needs to grow, needs to develop. The Governor has put forth the opportunity to various veterans groups in the State and has brought them into a committee, and we report directly back to them on our concern for veterans.

I stand by the Governor in saying I will give him this chance. I will give him this opportunity. If we do not like something, we think we are being treated unfairly, we can tell them right then and there.

I guess I would ask this committee to maybe ask the Department of Labor to look at this. If they have suggestions, let us let them work it out. That is not my presence here. My presence is to let the veterans community know they do have a voice. We are speaking that voice. I have been heard. Any of the veterans in the State that know me know that I am not going to be quiet about this particular issue or any other issue that affects veterans.

At that particular point, I just come back to that I have been in this business, assistance business. It is very complicated. I am constantly having to assure people they need to get part of technology in their blood. They have to be able to do things.

No, not everybody is going to be able to do it, but I volunteered my services, I have extended them to many veterans; and we have, hopefully, a new plan to help our brothers, our sisters, to be able to use this system; and I think it will work out in the long run.

I thank you very much.


Chairman Hoekstra. Thank you very much.

[The statement of Mr. Moore follows:]




Chairman Hoekstra. Mr. Radtke.









Mr. Radtke. Thank you for the opportunity to share my thoughts with you today.

My name is Fred Radtke. I am a small business owner from the State of Michigan. My business provides unemployment compensation administrative and educational services to the business community in Michigan.

With me today is Charlie Owens, the State Director of the National Federation of Independent Business. NFIB of Michigan is the State's largest small business advocacy organization, with over 23,000 members. I am currently serving as the Chairman of its Leadership Council.

I also serve on the Business Advisory Group, which helped with the Plant Moran study that initiated the reorganization of unemployment services delivered to our State. My comments are based on what has been learned during 26 years of experience in this field.

I believe the unemployment compensation system, when working correctly, provides a valuable safety net to workers throughout our country. By placing workers first, it provides short-term economic assistance in the form of unemployment benefits and assistance to find other work in the form of employment services.

This system has Federal requirements and standards, yet by recognizing each State has different market-driven challenges, it wisely allows flexibility when paying benefits and providing employment services.

Over the years, I have learned employers support this process, but what they do not like is abuse of the system, when it becomes easier to stay home and draw unemployment benefits or when the employment services simply do not work.

In the past, Michigan's job service has made it extremely easy for workers to meet Federal job search requirements but failed miserably at getting them back to work. Employers have gotten better candidates and faster results through the private market or on their own. Job service simply didn't meet the demands of increased speed and accuracy until the recent changes.

I support Governor Engler's plan to reorganize the delivery of these employment services to our State. Change was not only needed, it was developed and implemented to better serve both worker and employer communities. We now have a better, easier, quicker access to job opportunities, more efficient, timely and informed responses for employers. This is exactly what employment services should be.

Employment services are funded by Federal unemployment tax dollars; and in Michigan, as in other States, we are entitled to get something for that money. Something is seriously wrong when the USDOL sends a letter dated Friday asking--pardon me--demanding a response in 2 days or administrative funding will be pulled, giving no factual reason, no solution, filled with subjective interpretations using words like not adequate, inadequate, something is not in sync. Workers and tax-paying employers deserve better than that.

My research found absolutely no precedent to support such an action, and I believe it is totally wrong. It is my hope this committee will rectify this abuse of administrative power, protecting the rights of Michigan's workers and business community by returning the funding for an efficient delivery of employment services.

I thank you for the opportunity to express my views and both Charlie and I will answer any questions you may have.


Chairman Hoekstra. Thank you.

[The statement of Mr. Owens in conjunction with Mr. Radtke follows:]




Chairman Hoekstra. Mr. Freeman.












Mr. Freeman. Thank you, Chairman Hoekstra. It is a true honor and a pleasure to be here.

I want to begin by first stating for the record that the Michigan House of Representatives does not go along with what the Governor's proposal has been. I think there has been a lot of testimony kind of implying that all of State government is behind the Governor's proposal, and it is very clear by the Michigan House action on January 14th where we passed a resolution opposing the Governor's executive order.

There are two reasons why that occurred. The first reason is process, that not all the stakeholders that have a valid reason to be part of this debate were consulted; and, frankly, when the Michigan Jobs Commission is not working with the Department of Labor and we jeopardize $15 million in funds, that is something that the Michigan House of Representatives cannot support or go along with.

The second major reason is the substance of the new program. We are very concerned, as you indicated earlier, about making the most effective, efficient use of tax dollars for our constituents; and we contend that, by the proposal by the Governor, that two additional layers of bureaucracy have been created which will eat of up a fair amount of administrative tax dollars, which leaves less money available for services.

To be more specific, there are now 26 different workforce development boards which have administrative costs; and they, in turn, will be contracting out to agencies who will take a slice of additional administrative funds for their overhead. So there will be less money available for the services.

The other two reasons, in terms of the substantive end of why we are opposed to the Governor's proposal, is we feel there is poor value for the employers as well as poor value for the employees.

Let me go into more specifics in terms of the latter two comments. The first one is poor value for employers. Because there are less tax dollars available because of increased overhead, we contend that there will be less services available.

There has been some comment today about the impact of loss of job screening and loss of assessment of skills and relying upon the Internet system and the jobs bank system. I would contend that a business will get a flood of resumes when they post a job, and they will not have the benefit of the previous system where they would screen applicants and try to measure applicant skills with the requirements of the job.

So an employer, I would contend, will have to do one of two things: They will have to hire more internal staff to go over these resumes or they will have to contract with another outside agency and pay additional funds to do services that, in fact, were done under the prior system.

But by having to spend additional tax dollars or additional business dollars, I would contend that employers, in essence, are being double taxed.

As Mr. Radtke just indicated, he feels that a business ought to get back what they pay into the FUTA tax; and I would certainly agree with him. But under the old system, they got back a lot of additional services for those tax dollars than they will under the new proposed system, where essentially all they are getting is a place to put their job resumes and be able to get resumes into their offices.

Again, they are going to have to hire additional staff to go through those; and that is going to eat up a lot of time and money, which is going to be a form of a double tax.

In terms of the work test, I am very concerned that we are able to meet that work test standard. Because one of the key things that I wanted to do as a legislator is to make sure that businesses are not having their experience rating driven up by the fact that people are collecting unemployment longer than they otherwise should be.

Under the old system, I think, at least from what I have heard so far, there was a better way of making sure that people were, in fact, seeking work and were not abusing the unemployment program. Under the current system with the computers and then resumes being placed on the Internet, it is unclear to me how one meets that work test. I think there is more potential for abuse by having people collect unemployment benefits longer than they should be, in which case the experience-driven rating of the business may in fact go up, which I would contend is inappropriate.

My time is running out.

The poor value for job seekers. People with no experience on a computer are going to have a really difficult time with this program. I think there are probably a fair number of people in this room that are not particularly experienced with computers, much less people that are unemployed or get laid off.

Privacy problems. I have heard a lot of calls in my office about the fact that unemployed people are concerned about having their resumes be open to the public with a lot of private information and personal information going to be available to everybody. I think that is a very serious issue.

I am also concerned, as I indicated earlier, about lack of assistance for these people seeking work in terms of how to write a resume, and how to do a job interview; and I think these are very important services that we ought to provide for unemployed people, which are two other concerns that we heard from the veterans in their concern about this new proposed program.

I am also concerned about the migrant farm workers who a lot of times don't speak English or write English. This is all going to be done on English systems, so they are going to potentially be at a disadvantage.

To summarize and make my final closing comments, you know I am very concerned about the 95 percent failure rate. I do think things ought to be improved. I don't think anyone in this room would argue that the current system is appropriate. But I think there are a number of other models around the country where we didn't have to play brinksmanship with the Department of Labor and we didn't have to jeopardize Federal funding.

The example that was talked about earlier, the Wisconsin example, where the Republican Governor there worked with the Department of Labor, and worked with the public employees to come up with a better system and, in fact, it had a much greater success rate. I think that is a much more appropriate approach. Because rather than creating an adversarial relationship, we are trying to do it on a consensus basis, which I think is a much more appropriate and effective approach.

Thank you.


Chairman Hoekstra. Thank you.

[The statement of Mr. Freeman follows:]




Chairman Hoekstra. Commissioner Rath, has Texas been working with the Department of Labor or trying to go through a process of getting approval for some of the things you would like to put in place?


Ms. Rath. Yes, sir. We had a very close working relationship with the Department of Labor.

After our legislature first enacted our law block granting these programs to local boards, we started a dialogue with the Department of Labor. In April of 1996, we were informed that, because of the Federal statute requiring a merit system, that that must be provided by State employees covered by a merit system, so we have not moved forward with transferring that responsibility to our local boards, and it has caused a hole and we have not been fully able to integrate delivery of those services and, in our opinion, much better serve our clients.


Chairman Hoekstra. Mr. Freeman, we have traveled around the country and had all of these roundtables; and workforce development, workforce employment, seems to be a fairly localized problem or issue that--that the conditions in Seattle are different than Silicone Valley which are different from Dallas which are different from Houston, and we have actually seen a lot of energy at the local level.

In Michigan, we maybe have it with Mr. O'Reilly. We see a lot of energy with business, community college, not-for-profits coming together to try to address the issues. Number one, so that they can help these people, so they can help people get employment.

At the same time, in many of these markets, business has a desperate need for qualified services. They have almost all reached the same conclusion that Michigan and Wisconsin and Texas and Massachusetts have all reached and said, you know, this system just doesn't work, the one that has been in place; and you need a dynamic system that allows a lot of flexibility and latitude and has to be focused on the customer. Whether it is you lost COD or outsourced some auto industry jobs or you are developing a high-source industry, do you really want--

Let's say the Michigan legislature wants to develop something. Where are you going to go and look? Are you going to work and move power to Mayor Archer, move it to Mr. O'Reilly, people who understand their communities and what they want to do, know what they can get to you a lot quicker? Or do you want to look down or do you want to look up to Washington and a set of rules and regulations? Which way are you going to put the primary focus?


Mr. Freeman. I totally agree with you, Mr. Chairman. I think that local makes a lot more sense. They understand the conditions, they understand the needs of the employers, and they have a better sense of the needs of the employees.

But what I am suggesting isn't that we shouldn't have change. I am not suggesting that we shouldn't work with the local stakeholders. What I am suggesting is we have all of the stakeholders be involved, come together with a plan that takes into consideration all of the factors.

What the Michigan Jobs Commission has done is come up with a plan, last December, and jammed it through without taking into consideration a lot of other thoughtful individuals, including the Department of Labor, which has therefore jeopardized $15 million.

I think there are other examples, sir, where that approach has not been taken, where there has been fundamental change brought about which has led to much more effective use or results in terms of placing unemployed people with employers who are seeking those individuals.


Chairman Hoekstra. I am not sure how much knowledge--and we will find out--but how much knowledge there is in the Department of Labor about what is going on with Mr. O'Reilly or Mr. Archer. Mr. Rothwell, is it a quick slam-dunk that you went through in developing this process?


Mr. Rothwell. We have been in the development of this process for over a year. We started our study, which was an outside consultant that we brought in, which worked with an advisory group, which Mr. Radtke talked about, to get local input to the plan. We have been in consultation with the Department of Labor during the course of that development of that study and sought their input to the process.

The Governor's Workforce Commission, which included a broad representation of different groups within the State, both business and labor and other constituency groups, approved this plan and voted for it to move forward to the Department of Labor.

The fact is that there were extensive consultations, but, granted, there is one key group that objected to it, and that is the State employee unions.


Chairman Hoekstra. Mr. O'Reilly, do you have a comment on this? Who do you have involved at the local level?


Mr. O'Reilly. We have everybody at the table including, of course, the Employment Service was on the Board, along with the Family Independence Agency, which would be through Health and Human Services. It used to be DSS. We have everybody on the Board.

But the notion is somehow the services were being delivered, and they really weren't, and the data from the Department demonstrates that. That is a fundamental change.

The other thing is that people don't make contact with the office. Right now in Michigan, if you go in and register for unemployment insurance, your first visit is often your only visit. You don't have to repeat. You go through the phone, the MARVIN system. So you don't have repeat contacts. So the notion you are going to come back in and get these other supportive services is just not true. It doesn't happen.

When you look at the numbers of people served and categories, you look at the jobs filled and the wage rates and so on, it is just not acceptable, given what is happening in the economy. Part of that is because it is the same problem. It isn't just the MESC. It has always been fundamentally that there are silos of funds; and, through those, you have this program.

If you came to my door and you were right for my program because you were eligible, you got the service. If you weren't, went away. Sometimes you would be referred, but it would be informal or maybe not. Nobody followed up.

On our system, we follow up every referral within 30 days to find out what happened: Did you get in? Were you successful? If not, what do we have to do?

So we are trying to make the system better. We are trying to use the ongoing quality improvement to try and evaluate what we are doing.

But the thing is, for anyone to say the system was working, it wasn't. The Plant Moran study, probably one of the most knowledgeable in Michigan in terms of public accounting, indicated it clearly wasn't working. We knew that, at the local level, it wasn't working.

It isn't about the staff. It is about the system. And, in part, the system is directed by the U.S. Department of Labor. They say, you have to capture all this data. This data is the thing that shows that the system was flawed. Yet the system was designed to capture data, not serve customers. There is the fundamental flaw.


Chairman Hoekstra. I am going to yield to Ms. Mink. My time is up.


Mrs. Mink. Thank you very much, Mr. Chairman.

I have been sitting here now for about 2 hours, and I certainly can't pretend to understand all of the forces and nuances of the various points of view that you have brought here. I certainly thank you for coming to help this committee understand some of the things that are being done in the employment service area, particularly in the State of Michigan.

I think the facts are stated well by Mr. Rothwell and others, and they indicate that the services were very poor in this employment system, and that something had to be done.

What troubles me is the conclusion that I am driven to, which is that once you decided that you needed to take action because of the dismal record, that somewhere along the line a decision was made not to abide by the process which had been in place and which Michigan had followed for 60 years to submit a revised plan and to go through that process of getting the departmental approval. That is what I don't understand.

Is there a plan in place and why was that not adhered to? Secondly, if you wanted to change it, why didn't you follow the regular procedures to get that amended?


Mr. Rothwell. Well, first of all, we did go through a process with the Labor Department to try to understand what they would accept and what they would not; and, as I pointed out earlier, in fact we did not hear any real objections from the Department of Labor until the letters started to flow into the Secretary of Labor from the different union organizations.

Then, finally, in December, December 23rd, 2 days before Christmas, we did get a definitive letter from the Labor Department saying we would not approve your plan because it did use non-merit system employees.

We also knew from Texas' experience what they had been going through for the last 2 or 3 years that the Labor Department philosophically was just not going to move in this direction.

So we went through the administrative process with them, but they had already proven through Texas where that was going to lead. So we felt there was a fundamental legal difference of opinion here, and the way to resolve it was to bring it to court and have the matter reviewed.


Mrs. Mink. You wanted to interject?


Mr. Freeman. Yes, Congresswoman. What I am hearing essentially from Mr. Rothwell is that, because the Department of Labor would not do exactly what they wanted, they were going to openly flaunt the known law for the last 64 years. They were directly going to challenge it and see if they could win. That is what I am hearing.

I find that he uses in his testimony very emotional language and accusations against the State employees' unions, but I think his action is the most insolent behavior I have ever heard, where they are jeopardizing $15 million of Michigan business money in a plan that they knew probably in advance wasn't going to be accepted by the Department of Labor, and they are openly trying to challenge them and openly flaunting the law.

I find it unacceptable as a public policymaker who feels that we pass laws and we have to comply with the law.

Furthermore, what is ironic is that the Department of Labor has said they are willing to cooperate and put together a pilot project, and yet they still ignored them. They still ignored all those overtures and jeopardized $15 million.

One final point. In Michigan, there is all this talk about how we send all these dollars to Washington and don't get that much back in Michigan, especially in terms of the roads issue. It is ironic that Governor Engler's staff is openly doing something, risking $15 million, compounding the problem that we are not getting back in Michigan as many tax dollars as we send to Washington.


Mrs. Mink. I welcome your interjection, but my anxiety is that I only have 5 minutes to ask my questions.

It is also I think at this time appropriate for me to note that seven of the witnesses were called by the majority side, and our side was permitted to send only one. As a consequence, our arguments, our concerns, our questions cannot be properly elaborated on.

I have a very great concern about why the laws were just thrown aside, why there was not conformity, why there was not an adherence to process and going through the regular methods of trying to get a plan changed. In fact, your plan is in existence, I think, until the end of June. So what you have done is to repudiate this plan, which was approved, and, in effect, completely, unilaterally, decided that you were not going to follow the law that the Congress enacted and has been providing these funds all these years. That is what I find disturbing.

Obviously, the way the way we implement the program needs to be changed. We have to be able to make these changes. If the Department is unwilling, then they are at fault.

But it seems to me that they have been willing to look to different methods of implementing these services, illustrated by what the Massachusetts witnesses have indicated. I think that that is an exemplary program that they have there in Massachusetts, and I hope that it will continue and will succeed in providing better services. The bottom line is, are you going to have the people of Massachusetts have a better service in the end product?

Thank you, Mr. Chairman.


Chairman Hoekstra. I always get excited when people who see that government is pouring money down a rat hole say, no more.

You know, for a system that served 5 percent of the population, and taking a look at what was going on and saying, I don't care, I don't know what the Governor said, but look at it. What good does it do to send $15 million to Michigan if it is going to serve 5 percent of the population, and take the risk and say, it is my job as the Governor and it is our job as elected officials to serve the constituents in our State.

I wish the House of Representatives would get behind it and send a strong message to Washington and say butt out of what we are doing in Michigan. Give us some latitude. Then you guys work out the details with your Governor.

That is where we need to go. We don't know that much about Michigan up here, all right? I don't even know whether anybody even reads the reports that Mr. O'Reilly has to send to Washington.

You know, one of these days we are going to put somebody from Massachusetts--if you can send us a little chip that we can implant in the paper that Mr. O'Reilly has to send to Washington, we will track it and see who reads it and what they do with it before it ever gets anywhere.

I will yield to Mr. Kind.


Mr. Kind. Thank you, Mr. Chairman. Mr. Rothwell, did I hear your testimony correctly, that there was very little notice of any indication that there was a problem coming from the Department of Labor to you until just around Christmastime last year?


Mr. Rothwell. First of all, we did not hear any concerns from the Labor Department during the course of developing the study which recommended the split of the agency and turning over the employment service to the local workforce boards. We heard concerns expressed by the Labor Department in the fall, starting in August and then leading through the fall, but no definitive statement that we could not proceed with the direction that we were headed in. We did not hear that until after the letters appeared at the Secretary's office.


Mr. Kind. Mr. Chairman, we do have some correspondence from the Department of Labor to the Michigan Jobs Commission starting in August, as Mr. Rothwell just indicated. I would like to enter that into the record at this time, without objection, just so the record can speak for itself.


Chairman Hoekstra. Without objection, so ordered.


Mr. Kind. Thank you.


Chairman Hoekstra. Can you pass the documents over?

[The information follows:]




Mr. Kind. Mr. Rothwell, Mr. O'Reilly, obviously, I am not intimately familiar with the details of the Michigan Employment Service or your one-stop service, but I am familiar with what has been taking place in the State of Wisconsin and the type of one-stop career system that gives all of the residents in our State access to employment and job training information and services.

In Wisconsin, they have proven it has been a very effective collaborative effort between the State and local agencies, with universal coverage, including those under vocational rehabilitation. W2, the welfare-to-work recipients, are included in this; and it has been very successful. It is leading the other 49 States, the Nation.

I would like to know what your department did along with Governor Engler in order to try to support or revitalize the public employment service system that was in Michigan and that was performing so poorly, as everyone here seems to indicate.


Mr. Rothwell. Well, Congressman Kind, we did exactly that in Michigan. We worked with the local communities to come up with this system, and we did it in a very collaborative way.

In fact, as Mr. O'Reilly could point out, the different contractors that are being used to provide these services were selected by his board, which includes a broad cross-section of representation of the local community. So I think we went through a very similar process.

We may have reached a different conclusion in terms of what that model should look like than you did in Wisconsin, but I think that is wholly appropriate, to be able to reflect the different needs of different States. We, in turn, feel there are different needs within our State; and we don't feel that Lansing should determine what Mr. O'Reilly's workforce board should be delivering in terms of the model of services versus, let's say, somebody up in our upper peninsula which has a different labor market to address.


Mr. Kind. Part of the key to Wisconsin's success has been local control, giving local jurisdictions your PIC offices, local government, county agencies that type of flexibility as well. I just can't believe there is going to be that much difference between the State of Wisconsin and the State of Michigan.

I am wondering whether or not you have consulted with any of the officials in the State of Wisconsin about what they were doing, and what they have been doing, very well for a very long time.


Mr. Rothwell. I don't know whether at the staff level we had some conversations with Wisconsin. We regularly participate in all of the different national organizations on this matter.

But I think the issue is in Michigan we believed it was appropriate for the State to not provide those services with State employees at the local level. We felt, from a management standpoint, that should be the prerogative of the local workforce development boards, to select people, to select contractors, that they felt were the ones that should be best to deliver those services.

In fact, our local workforce boards have been prohibited from delivering services directly because we feel it is a conflict of interest. We feel that these boards should be dispassionate policy-making boards and should not be rewarding themselves by awarding contracts to the very staff that work for them.

They have to contract out every service, just as it is, by the way, with the Job Training Partnership Act and welfare-to-work programs which Congress appropriates.


Mr. Kind. The conflict of interest can certainly work the other way, too, with the privatization scheme that Michigan is now pursuing and that Massachusetts has under a pilot project.

But, again, taking a look at the Wisconsin public system, it increased from 23 percent, as far as the entered employment rate is concerned back in 1994, up to 38 percent in last year alone, which is the highest in the Nation. This increase is twice the national average, which is roughly 17 percent among the 50 States.

The State of Wisconsin was able to accomplish this by nurturing the public system, rather than scrapping it and trying to privatize the whole system.

I was looking at some numbers involving Massachusetts as well, which has had this pilot project since 1994; and for the past 3 years, as far as the entered employment rate is concerned, Massachusetts went from 20.7 percent in 1994, the beginning of the pilot project, down to 11.8 percent. So they seem to be heading in the wrong direction as well as far as this experimental program in Massachusetts.

I am just wondering, maybe Mr. Raymond can respond to this since we have him here, what have you been finding with this privatization program in Massachusetts, even though it is on a limited scale? What type of success or failure are you discovering with it?


Mr. Raymond. I am happy to respond.

First, I want to point out there is not a pilot status in Massachusetts. That was first heard today when we were down here. As far as we know, at least when we left Boston this morning, it was not a pilot program.

There is not a privatization going on in Massachusetts. In fact, the Massachusetts One-stop Career Center initiative has the support of the Massachusetts labor AFL-CIO. It is an attempt to reinvigorate, to bring in new partnerships and develop partnerships between public entities, private entities, nonprofit entities and community colleges.

I think we would be remiss to sit here and say we haven't been without our problems. It has been a bumpy road, but we have worked together as a system.

I think, as was pointed out by my colleague Mr. Gillis here, and as you have experienced in Wisconsin, what might be different in Madison, Milwaukee, and Green Bay, is also different in Boston, in the Berkshires, in Worcester, is that, in certain areas, there are different needs, different relationships. And in an attempt to be responsive to the local regional employment boards and what they need, we have heard that, in some instances, they want to collaborate; they have good working relationships; they want to pull together and form a new partnership.

So we listened, and we are in the process now of reinvigorating, reorganizing the day-to-day operations of that initiative to move it forward. But again with the emphasis on creating a system, a new system to develop and be responsive to the needs of the worker and the working community.


Mr. Kind. Thank you.


Chairman Hoekstra. It is a very complex process. The question is whether we are going to top down or bottom up, is really the focus here. Mr. Scott.


Mr. Scott. Thank you, Mr. Chairman. Mr. Rothwell, maybe I missed something. As I understand it, you determined that you could come up with a better procedure than that required by Federal law, so you just implemented the new procedure?


Mr. Rothwell. Not a bit. What we do is we have a difference of opinion over what the law is. The Department of Labor believes that the merit system employees are required by that law. We do not that is why we are in court.


Mr. Scott. And the law, as it has been interpreted for 60 years, is consistent with the way the Department of Labor is interpreting it; and you are trying a new interpretation?


Mr. Rothwell. We believe it is not an interpretation, but, in fact, fact. We believe the Department of Labor is not on solid ground here, and they are very concerned about the precedent it would set nationally for a good reason, because Texas and other States would like to move in this direction. We are simply the first State out there willing to challenge it.


Mr. Scott. Mr. Freeman, you had mentioned some concern about the access to resumes. Once you put the resume on the computer, who has access to it, if you know?


Mr. Freeman. Well, my testimony earlier indicated that I thought the entire public has. I have been since corrected that anyone with a Federal employee identification number can, therefore, review resumes on line.

The point I was trying to make is that--


Mr. Scott. Which is any business.


Mr. Freeman. Right. So I think it is fairly easy. It is going to be out there.

I had gotten several calls in my office when the Jobs Commission first went public with this whole concept of putting the resume on-line. And, face it, put yourself in the shoes of someone laid off or out of work, looking for work. It is a very humbling experience being unemployed. Because in our society we put so much worth on whether you work and where you work and how much money you make and the status associated with it.

For an unemployed person to have to put a resume on the Internet, which is very accessible, as you indicated, sir, it is a very personal thing for a lot of people. I think a lot of people are very uncomfortable with that.

I think, in terms of the effectiveness of their approach, it may be undermined by the fact that some unemployed people who may have skills may decide that their pride is too much at stake, and they refuse to place it. Under the old system, they develop relationships; they can go in and talk to somebody one on one; they can match up their skills. I think it was easier to save face, so to speak, for a person.

Don't get me wrong, Mr. Scott or Mr. Chairman, I am not advocating we don't use new technology. I think technology in the proper balance can be very helpful. I am just not convinced that technology by itself is a solution; and I think there has to be additional services that will enable the employee to find the appropriate job, as well as helping the employer find the appropriate employee.


Mr. Scott. You mentioned value to the employer. The employer under the old system, I assume, would discuss the requirements of a job opening that he has; and the employment service would find a person somewhat reasonably qualified for that position. What does the employer get under this system?


Mr. Freeman. It is an excellent question.

Based upon Doug Rothwell's testimony, which you have a copy of, the only thing they guarantee in terms of staffing is that they will help make sure, whatever it takes--that is the slogan I heard today--that we will make sure we will get that resume on the Internet. But, beyond that, his own testimony indicates they will provide nothing more.

So that is why I go back to my comment about double taxation. Because, under the old system, there is an element of screening that goes on by the service entity. They will try and match the employee with the employer's needs. They will do that screening in house, so-to-speak. In other words, that will become a job down. That will be paid for by their FUTA taxes.

Now, based upon his testimony, the employer, especially a small business, will not have that service available; and I make the argument that they will then have to hire someone or hire an additional firm to go through the sifting of the resumes to figure out what is the proper match.


Mr. Scott. All they will get is a list of resumes, a pack of resumes, that may or may not be at all qualified for the position?


Mr. Freeman. That is exactly right. I think we can be honest with ourselves as well, that people who are seeking work are probably going to say things in their resume that may not be entirely accurate in order to try to find work. If I was a small business or a large business, I would not want to necessarily assume that what is on the resume is 100 percent accurate. I would want to go one step further, to go through a filtering mechanism.


Mr. Scott. And what does the employee get? Does he get referred to jobs that he might not even be qualified for?


Mr. Freeman. It is unclear. Based upon Mr. Rothwell's testimony, the only thing that an employee gets is the opportunity to place his or her resume on the Internet; and then the individual will get help, whether it is manually typing the resume or actually helping to get it on the thing.

What they will not get, which I think are very important skills in seeking work these days, is, for instance, what is the appropriate way to frame a resume, because when you do an Internet computer search, you have to touch upon key words. So if an employee doesn't know how to properly frame their skills, they may not be picked up by an employer seeking that person.

Secondly, they may not understand how to go through a job interview or job counseling. Both of those are very important skills to have. If a person is not capable of articulating why they are good for that position, they may not make a good impression during the job interview process and lose out, which I think hurts everyone in the State.


Mr. Scott. Thank you, Mr. Chairman.


Chairman Hoekstra. Just a quick question.


Mr. Rothwell, Mayor Archer, does this fall under his area of responsibility in the City of Detroit?


Mr. Rothwell. Mayor Archer appoints all of the individuals to the local Workforce Development Board for the City of Detroit, yes.


Chairman Hoekstra. So, Mr. O'Reilly, we have moved from a system where we had individually--where individuals would come in and receive individual attention from people in the office and through this personalized attention we would get five out of 100 people a job, that people like you and Mr. Archer, all you are doing now is sending these people behind a computer and putting their resume on the Internet? How much money are you taking from us to do that?


Mr. O'Reilly. I don't know what everybody else is doing, Mr. Chairman, but that certainly is not the case in our situation.

In the past, as I said before--and I wish we could get on a plane and go back to my region. Because I would love to have you come and visit the offices in question, both sides, and see what you encounter. But, in my area, what you would encounter is a security guard who would be there; and everyone else is behind plexiglass; and most people never got beyond the plexiglass wall. It was a wall.

There were huge waiting areas that go back to the period when we had high unemployment. Mostly now they would be a large, vacuous space. That is what was encountered. The amount of personal, one-on-one contact was very limited.

You mentioned before the report I sent. I want to make it clear. This report was put together year after year after year by the Michigan Employment Security Commission because it was mandated to be sent to the U.S. Department of Labor to tell them what was happening in Michigan with regard to Wagner-Peyser money. This is the report. It was the official report from the State of Michigan to the Federal Government.

This report says the counseling wasn't happening, that people who needed it were not getting it. 61,000 people out of 489,000 who registered for employment service in one year, 61,000 were high school dropouts, by this report. Only 151 got referred to any educational services.

Less than that, if I can find the number, not 200 were referred to JTPA, a program designed by Congress to serve those people.


Mr. Rothwell. I think Representative Freeman needs to go to one of these representative worker centers for himself. I don't know if he has been to one or not. I would suggest, before we criticize a new system, that we get some firsthand view ourself what is going on.

We have got, for the first time, these programs that Mr. O'Reilly referenced connected to one another.


Chairman Hoekstra. I wanted Mr. O'Reilly to finish and tell me what he does. I want to know if all he is doing is putting people on the Internet.


Mr. O'Reilly. When people come in, they are greeted; and the first thing is we determine what their needs are.

One of the things that gets lost in this is, when people talk with about services, everybody who registers for unemployment insurance who is eligible is eligible for title 3 dislocated workers. Every one of our centers has those funds. They can do resume writing, they can do job search assistance, job club. All of those services are available to any of those people.

According to the data, 25 percent of the people who have historically registered for assistance with the employment service over 1996, 25 percent of those were economically disadvantaged, according to their own data. That means they are IIA or IIC eligible. We have funds in every one of our one stops to help them.

We talk about public employees. There are merit employees in every one of our one-stops. The vocational rehab employees, the family dependency agency employees and the veterans counselor and an additional counselor for media services are all merit employees; and they are in every one of our centers.

So the notion I am hearing here is really a misconstruction of what is in place in Michigan and really a misconstruction of what was in place prior.

But in our center, when an employer contacts our center, even by phone, they not only can register their job order--and, again, the Federal employment information, the identification number, that number is used to qualify, but that person has to wait 2 days, an employer has to wait 2 days to be qualified, or it is usually 24 hours, but up to 2 days. Because we qualify and record that as a bona fide employer, so there is a record, and we have some way of making sure nobody abuses these people.

But then the employer not only can put in their job order and give the job order over the phone but, in addition to that, we talk about economic development. We have connected with all the local economic development and they are in place, about capitalization, about renaissance zones, about all the different things available to businesses that want to expand, relocate and so on. All of a sudden, that is a single source for them, too.

We are trying to be a single source for job seekers and employers on a broad basis. We wanted to be all-inclusive. That is our goal.

Again, however, it mixes--when we bid this out for one-stops, we bid it out with a notion that what would be in our center was an ES employee from the State. That is how we envisioned it, because at that time that is how it was. I mean, the system was designed without reference to this change.


Chairman Hoekstra. Thank you. Mr. Kildee.


Mr. Kildee. Thank you, Mr. Chairman.


Mr. Rothwell, what legal authority did the Governor of Michigan use to unilaterally proceed with his plan on employment services without Federal approval, which is required by law?


Mr. Rothwell. Well, Representative, the Governor issued an executive order which required the split of the MESC into two different State agencies and the turnover of the employment service to the local workforce development boards.

As Representative Freeman pointed out, while the House rejected that executive order, the Senate did not, which means the executive order has the force of law in the case of the State of Michigan, which means, as a State agency, the Michigan Jobs Commission was required under that law to implement that provision.

We, as I said before, had a disagreement with the U.S. Department of Labor over an issue, and that issue is whether or not State merit system workers have to be used to provide that service. That is why we are in court today.


Mr. Kildee. But there is a requirement that you have Federal approval before you proceed. Should not that have been decided in the courts rather than by gubernatorial nullification?


Mr. Rothwell. Well, we looked at the experience that Texas went through. It went through almost an identical process to what we have been going through for the last 2 or 3 years; and it seemed to us quite fruitless to allow a system that has only placed 5 percent of the folks looking for work, to have that system stay in place for another 2 or 3 years while we went through a bureaucratic process with the USDOL, where Texas is still yet to hear whether or not they would be granted permission to November in this direction or not. So we challenged them legally and said, you decide this issue in court.


Mr. Kildee. But when does an executive order take precedence over Federal law, especially when the dollars are flowing from the Federal Government?


Mr. Rothwell. The executive order does not take precedence over Federal law, but we did move forward to implement that executive order.


Mr. Kildee. The law requires approval of the plan. You did not get approval of the plan.


Mr. Rothwell. We did not, and we believe that approval of the plan was denied for one reason only, and that reason needs to be resolved in court.


Mr. Kildee. That should be decided in court. It is the opinion of the Governor; does it take precedence over Federal law? The Federal law requires approval.


Mr. Rothwell. We were not prepared to be in the administrative process with the U.S. Department of Labor for an undetermined period of time, knowing the position that they had taken with Texas, and to allow still a failed system to exist for an indefinite length of time.


Mr. Kildee. South Carolina tried that under Andrew Jackson, a nullification, but they didn't get away with it.

What bothers me more, if they really felt they had a good case, they should let the courts decide it, not have gubernatorial nullification over Federal law. Federal law requires approval.


Mr. Rothwell. Again, Representative, we are not in a position, we believe, to--


Mr. Kildee. What is the court system for? It is there when we have these disputes.


Mr. Rothwell. We are not prepared to allow failure to continue. There is failure in a system. The Department of Labor has known about it for years. They have taken absolutely no action to correct the problem, and this State is not prepared. The Governor is on the line to make sure that these services are provided appropriately and that the unemployed people, our citizens of the State of Michigan, not just citizens of the United States of America, we are prepared to make sure those people are placed in jobs and placed in jobs quickly.


Mr. Kildee. It is inconvenient for the Governor to go to court prior to implementation?


Mr. Rothwell. We did go to court.


Mr. Kildee. After implementation.


Mr. Rothwell. We went to the court after implementation.


Mr. Kildee. I will give you a treatise on nullification and let you read it. It hasn't worked in other States.

I would like to address a question to Mr. Moore.

Mr. Moore, you mentioned the Commanders Group, for whom I have enormous respect, as I know you do. I was Chairman of the Subcommittee on Appropriations on Veterans and Military Affairs and used to work with them.

They passed a resolution in December saying the Commanders Group shall actively oppose and not support the executive order of August 6, 1997 and November 17, 1997 as they affect the veterans employment and training program in Michigan. This position shall continue until such time as the Governor provides written assurances to demonstrate that veterans will be protected in this process.

Has that resolution been rescinded by the Commanders Group?


Mr. Moore. Sir, I am just a representative from VVA on that particular function, as a legislative liaison, just like Jerry Newberry is. At this particular point, Jerry was in attendance of the meeting with the Michigan Jobs Commission, as was a representative of every other organization represented by the Commanders Group. The legislative liaisons were all there. I think it was February.

From my understanding with Sandy Wilson, who is the President of the State Council of VVA, with her permission, Jerry and I went to hear out what they had to say. The Governor has guaranteed that there will be preferences under the system, and I think that is what that was talking about, that particular point that they passed. I think it was in December.

At this particular point, I am not overly happy with the veterans indicator on the system, the way the veterans preferences are indicated, sir; and I am willing to work with the State of Michigan on that. But that is something that I am definitely involved in; and I don't believe a little American flag next to a resume is a veterans preference, sir.


Mr. Kildee. I would agree with you. I have a son who is a captain in the Army, active, and one who is a first lieutenant in the Reserves. I certainly believe strongly in veterans preferential, as I know you do. I think we should do more on this.


Mr. Moore. I do, too, sir. That goes with the contractors as well. Because I think that is a two-way street. I think they should be obligated to look at us first, sir.


Mr. Kildee. I notice the VVA did send me a letter this week still showing their deep concern over the Governor's plan, and the resolution passed by the Commanders Group has not yet been rescinded.


Mr. Moore. As far as I know, sir, the next time the Commanders Group meets is September.


Mr. Kildee. You think then it might be rescinded?


Mr. Moore. I am not very happy about a September meeting. I think that we probably will come to some resolution. We will meet again in April.


Mr. Kildee. I appreciate your deep concern for veterans, and I know you have a good reputation in the State on that, as does Jerry Newberry on my staff. I appreciate your working on that.

I am very concerned, as you are, as to the effect on the veterans and wanted to make sure about that. My main concern is that the Governor is defying Federal law and not using its court system to try and resolve that.

Thank you, Mr. Chairman.


Chairman Hoekstra. Thank you. Mrs. Mink, any closing comments?


Mrs. Mink. I have a couple more questions. Can we have another round?


Chairman Hoekstra. Another round? Hey.


Mrs. Mink. Mr. Chairman, you had 5 minutes after each one of us, so I think we should have at least another round.


Chairman Hoekstra. I pay my members not to show up so I can ask all the questions by myself.


Mrs. Mink. Is that what happens when my members don't show up? I get their 5 minutes?


Chairman Hoekstra. If you read the rules, check in the rules. If you have got some other questions you would like to go through--


Mrs. Mink. I will make a closing statement then.


Chairman Hoekstra. Okay.


Mrs. Mink. Thank you, Mr. Chairman.

I am very deeply troubled at the actions taken by the Governor of Michigan. I can understand the frustrations of people who want to move ahead faster than the law allows, but there is a system that is in place that should be adhered to. And it is very troubling that, with an executive order, the rules and regulations and the laws enacted by the Congress can be simply swept aside.

Now, having said that, I understand that some of the points that Mr. O'Reilly made with reference to how the groups have come together and attempted to serve--it seems to me what you have done is to try to find a scapegoat in the inability of the State of Michigan to provide services as they should to those who are unemployed and seeking assistance, and that scapegoat is the public employee.

Where in any of the discussion today have we been able to prove or significantly illustrate that it was the public employee in the employment service that was at fault for the non-delivery of the services? There is nothing to illustrate that.

So what it seems to me is a determination made by the State that you were just going to overhaul the system, find new people to perform the jobs that had not been performed in the past, and then you are unwilling to test this matter out before the Department of Labor, to go through the regular mechanisms. If it was denied, you had administrative remedies to follow.

You are now in court, but even being in court you have implemented this plan. I find that very, very disconcerting.

We have the Massachusetts illustration. Some people are not satisfied with it. The results may not be as good as one would like. But the point is that the rigidity that you seem to imply in the Department of Labor is simply not there. They have allowed the system in Massachusetts to develop. They have implemented it through grants. So that should indicate they are willing to make some allowances.

They have also gone into technology. I understand in this new world you have got to use all the technological advantages to help the employees.

So I think what I have learned today, and I thank Mr. Freeman for coming, is that it has even more graphically made me conclude that the problem here is the Governor of Michigan being unwilling to allow the system to follow its course.

You, Mr. Rothwell, indicated that it has only been a year since the plan was evolved. It seems to me that a year with the plan being submitted only in the fall, having worked with the Department and understanding these are Federal funds that are being utilized, that the government should have been given at least some time to hear your arguments and to work out some sort of a compromise. So I regret that very much.

The last point I want to make is that, in the unemployment compensation area, I have some very, very grave concerns about your plan, if what I have heard is true, that there is no way to determine whether a so-called claimant is actually out there looking for work.

Under a computer system, there is no ability to follow through. In my State, they have to report back to the employment service every week to demonstrate that they have been out there looking for work. So if you don't have that fail-safe system in place, you are jeopardizing the employer, whose rates are determined by this experience of the number of people that are unemployed from their company, who are on the unemployment compensation list.

So I think there are concerns, and whether you have a very deep dispute with the Department of Labor, I think that these things should be worked out and brought to some resolution.

So I am very unhappy, Mr. Chairman, that the State, your State, has gone to court on this matter. Because I think the parties ought to get together, and certainly everything I have heard today doesn't alter that conclusion.

Thank you, Mr. Chairman.


Chairman Hoekstra. Thank you.

Only a year? A year is a long time. It is a long time for the people not being serviced. It is a long time for the 95 percent of the people not being served.

Mr. Raymond and Mr. Gillis, I appreciate you coming here today and finding out that the Department of Labor has now perhaps made you a pilot program. I apologize for that, if your testimony in any way is jeopardized the status of your program or what you are trying to do and how you are trying to serve your constituents. We will stay in dialogue with you on that to make sure that what you have contributed today in no way jeopardizes the direction and the work that you have been doing.

The comments about the State of Michigan, you know, the Department of Labor--you know, Michigan doesn't have to do what the Department of Labor tells them to do. The only power--they don't have ultimate power of approval or disapproval on how we handle these kinds of issues within the State of Michigan. The only power that they have is, if you don't do what we tell you, you may not be eligible for Federal funds.

If the State of Michigan looks at the dollars that are coming to it, and they say that they are willing to risk forgoing some dollars, either permanently or temporarily, because if they accept the restrictions the money is going to go into a failed system that is only serving 5 percent of the people, that is their decision. It is the State of Michigan's decision to make that.

So all they are doing is jeopardizing that. They are saying, we don't want to participate in this Federal program because, with the strings that come along with it, we can't serve our citizens and we are going to go in a different direction. That is the direction and that is a decision that the State can make.


Mr. Freeman. But it doesn't have to be an either-or situation. We have two examples today where two States worked with the Department of Labor, came up with innovative plans, and they have--


Chairman Hoekstra. The gentleman is familiar with committee procedure. The gentleman is out of order. I am not asking a question. I am making a statement. I am making my closing statement.


Mr. Freeman. Excuse me.


Chairman Hoekstra. There may be other ways. But I think Michigan has looked at it, and they have looked at the people that they are trying to serve and said, this isn't going to work, and we are not going to go down the route. Our Governor maybe doesn't have as much patience as the Governor of Texas in going through this process. They want to solve it, and they want to address the problems of their constituents today.

Thank you for your testimony. It has been very enlightening, again, on one more Federal law that is trying to tell the States what to do, and I appreciate all of your testimony.

The committee is adjourned.

[Whereupon, at 4:23 p.m., the subcommittee was adjourned.]