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78–154PS
2002
TECHNOLOGY ADMINISTRATION:
REVIEW AND REAUTHORIZATION
HEARING
BEFORE THE
SUBCOMMITTEE ON ENVIRONMENT, TECHNOLOGY,
AND STANDARDS
COMMITTEE ON SCIENCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
MARCH 14, 2002
Serial No. 107–54
Printed for the use of the Committee on Science
Available via the World Wide Web: http://www.house.gov/science
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COMMITTEE ON SCIENCE
HON. SHERWOOD L. BOEHLERT, New York, Chairman
LAMAR S. SMITH, Texas
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
CURT WELDON, Pennsylvania
DANA ROHRABACHER, California
JOE BARTON, Texas
KEN CALVERT, California
NICK SMITH, Michigan
ROSCOE G. BARTLETT, Maryland
VERNON J. EHLERS, Michigan
DAVE WELDON, Florida
GIL GUTKNECHT, Minnesota
CHRIS CANNON, Utah
GEORGE R. NETHERCUTT, JR., Washington
FRANK D. LUCAS, Oklahoma
GARY G. MILLER, California
JUDY BIGGERT, Illinois
WAYNE T. GILCHREST, Maryland
W. TODD AKIN, Missouri
TIMOTHY V. JOHNSON, Illinois
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MIKE PENCE, Indiana
FELIX J. GRUCCI, JR., New York
MELISSA A. HART, Pennsylvania
J. RANDY FORBES, Virginia
RALPH M. HALL, Texas
BART GORDON, Tennessee
JERRY F. COSTELLO, Illinois
JAMES A. BARCIA, Michigan
EDDIE BERNICE JOHNSON, Texas
LYNN C. WOOLSEY, California
LYNN N. RIVERS, Michigan
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
BOB ETHERIDGE, North Carolina
NICK LAMPSON, Texas
JOHN B. LARSON, Connecticut
MARK UDALL, Colorado
DAVID WU, Oregon
ANTHONY D. WEINER, New York
BRIAN BAIRD, Washington
JOSEPH M. HOEFFEL, Pennsylvania
JOE BACA, California
JIM MATHESON, Utah
STEVE ISRAEL, New York
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DENNIS MOORE, Kansas
MICHAEL M. HONDA, California
Subcommittee on Environment, Technology, and Standards
VERNON J. EHLERS, Michigan, Chairman
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
CURT WELDON, Pennsylvania
NICK SMITH, Michigan
GIL GUTKNECHT, Minnesota
CHRIS CANNON, Utah
FELIX J. GRUCCI, JR., New York
MELISSA A. HART, Pennsylvania
WAYNE T. GILCHREST, Maryland
J. RANDY FORBES, Virginia
SHERWOOD L. BOEHLERT, New York
JAMES A. BARCIA, Michigan
LYNN N. RIVERS, Michigan
ZOE LOFGREN, California
MARK UDALL, Colorado
ANTHONY D. WEINER, New York
BRIAN BAIRD, Washington
JOSEPH M. HOEFFEL, Pennsylvania
JOE BACA, California
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JIM MATHESON, Utah
RALPH M. HALL, Texas
PETER ROONEY Subcommittee Staff Director
MIKE QUEAR Democratic Professional Staff Member
ERIC WEBSTER Professional Staff Member
CAMERON WILSON Professional Staff Member/Chairman's Designee
MARTY SPITZER Professional Staff Member
MARK ABDY Professional Staff Member
MARY DERR Majority Staff Assistant
MARTY RALSTON Democratic Staff Assistant
C O N T E N T S
March 14, 2002
Witness List
Hearing Charter
Opening Statements
Statement by Representative Vernon J. Ehlers, Chairman, Subcommittee on Environment, Technology, and Standards, Committee on Science, U.S. House of Representatives
Written Statement
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Statement by Representative James Barcia, Minority Ranking Member, Subcommittee on Environment, Technology, and Standards, Committee on Science, U.S. House of Representatives
Written Statement
Prepared Statement by Representative Constance Morella, Member, Subcommittee on Environment, Technology, and Standards, Committee on Science, U.S. House of Representatives
Panel
Phillip J. Bond, Under Secretary of Commerce for Technology, and Chief of Staff to the Secretary of Commerce
Oral Statement
Written Statement
Dr. Arden L. Bement, Jr., Director, National Institute of Standards and Technology
Oral Statement
Written Statement
Michael J. Wojcicki, President, The Modernization Forum
Oral Statement
Written Statement
Birgit M. Klohs, President, The Right Place Program
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Oral Statement
Written Statement
Dr. Christopher T. Hill, Vice Provost for Research and Professor of Public Policy and Technology, George Mason University
Oral Statement
Written Statement
Discussion
Funding MEP vs. Other TA Programs
Comparison of MEP With Similar Foreign Programs
Administration Priorities Regarding MEP Funding
Impact of MEP Budget Cuts at the State Level
Policy Direction of MEP
ATP Revenues/Recoupment
ATP Risk Incentive Profile
Why Were MEP and ATP Selected for Budget Cuts?
Impact of MEP Funding Reductions
NIST Facility/Funding Needs
NIST Needs at Boulder Facility
Defense of Administration MEP and ATP Budget Cuts
NIST World Trade Center Investigation—FEMA Funding?
MEP Partnership Programs
Chairman Ehler's Concluding Thoughts
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Appendix 1: Biographies, Financial Disclosures, and Answers to Post-Hearing Questions
Phillip J. Bond, Under Secretary of Commerce for Technology, and Chief of Staff to the Secretary of Commerce
Biography
Response to Post-Hearing Questions
Dr. Arden L. Bement, Jr., Director, National Institute of Standards and Technology
Biography
Response to Post-Hearing Questions
Michael J. Wojcicki, President, The Modernization Forum
Biography
Financial Disclosure
Response to Post-Hearing Questions
Birgit M. Klohs, President, The Right Place Program
Biography
Financial Disclosure
Response to Post-Hearing Questions
Dr. Christopher T. Hill, Vice Provost for Research and Professor of Public Policy and Technology, George Mason University
Biography
Financial Disclosure
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Response to Post-Hearing Questions
Appendix 2: Additional Material for the Record
Submitted letter from Stephen Oksala, Chairman, National Issues Committee, American National Standards Institute
Submitted letter from Donald R. Frikken, Senior Vice President, Council on Codes and Standards, American Society of Mechanical Engineers (ASME International)
Submitted letter from Donald Sayenga, Executive Director, National Association of Chain Manufacturers
Submitted letter from Becky Thiessen, President, Web Sling and Tie Down Association
Submitted letter from J. Barry Epperson, General Counsel for Associated Wire Rope Fabricators
TECHNOLOGY ADMINISTRATION: REVIEW AND REAUTHORIZATION
THURSDAY, MARCH 14, 2002
House of Representatives,
Subcommittee on Environment, Technology, and Standards,
Committee on Science,
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Washington, DC.
The Subcommittee met, pursuant to other business, at 9:25 a.m., in Room 2318 of the Rayburn House Office Building, Hon. Vernon J. Ehlers [Chairman of the Subcommittee] presiding.
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HEARING CHARTER
SUBCOMMITTEE ON ENVIRONMENT, TECHNOLOGY, AND STANDARDS
COMMITTEE ON SCIENCE
U.S. HOUSE OF REPRESENTATIVES
Technology Administration:
Review and Reauthorization
THURSDAY, MARCH 14, 2002
10:00 A.M.–12:00 P.M.
2318 RAYBURN HOUSE OFFICE BUILDING
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Purpose
On Thursday, March 14, 2002, the House Subcommittee on Environment, Technology, and Standards will hold a hearing on reauthorization of the Technology Administration within the Department of Commerce. The hearing will evaluate the President's Fiscal Year 2003 Budget request for the Technology Administration and will review the Administration's proposals to reform the Advanced Technology Program.
The Witnesses:
(1) Phillip J. Bond, Under Secretary of Commerce for Technology, and Chief of Staff to the Secretary of Commerce
(2) Dr. Arden L. Bement, Director, National Institute of Standards and Technology
(3) Michael Wojcicki, President, The Modernization Forum
(4) Birgit M. Klohs, President, The Right Place Program
(5) Dr. Christopher T. Hill, Vice Provost for Research and Professor of Public Policy and Technology, George Mason University
Background:
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The Technology Administration (TA) consists of the National Institute of Standards and Technology (NIST); the National Technical Information Service (NTIS); and the Office of Technology Policy (OTP). NIST constitutes more than 98 percent of TA's budget. The Undersecretary for Technology heads TA, and also serves as the principal adviser to the Secretary of Commerce on Technology Policy. In addition, the current Undersecretary for Technology is serving as Secretary Evans' Chief of Staff.
Issues:
NIST's role in Homeland Security: NIST has technical expertise in many areas that are relevant to homeland security initiatives within the Administration. For example, NIST has been the central consultant on mail irradiation for the U.S. Postal Service, and both the Immigration and Naturalization Service and the State Department have enlisted NIST to help with biometrics identification. The Homeland Security office has stated that they will use technology to protect Americans and secure our borders. It is unclear what role NIST will play in the development and implementation of technology to accomplish this goal.
Construction of the Boulder, Colorado Facilities: NIST constructed a lab in Boulder, Colorado, in the mid-1950s to do research on, among other things, technology for atomic weapons. Today it is used for research on state-of-the-art technology, standards and measurement techniques, but the outdated facilities in Boulder are now hampering these efforts. NIST estimates that Boulder has a backlog of safety and maintenance projects of $75 million. This figure does not include projects needed to upgrade and expand the labs. In addition to continuing the same level of maintenance funding as last year, the Administration has proposed an additional $17 million to upgrade and construct a new utility system.
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Proposed reforms to the Advanced Technology Program (ATP): The goal of ATP is to provide grants to ''bridge the gap between the research laboratory and the marketplace'' through partnerships with the private sector. The ATP seeks to develop pre-competitive, emerging technologies that promise significant commercial payoffs and widespread benefits for the nation. ATP has consistently been the most controversial program within NIST's budget. The Administration has proposed six major reforms to address criticisms of the program. The reforms are listed below, and the specific details of the reforms can be found at: http://www.atp.nist.gov/atp/secy–rept/contents.htm
Funding for ATP and new awards: ATP's funding history clearly reflects the controversy over the program. In FY02, the Administration requested only $13 million for this program—just enough to support projects that had already received awards. Congress provided $184.5 million in the FY02 Commerce, Justice, State and the Judiciary Conference Report. This year, the Administration has requested $107 million for FY03. However, the budget assumes that ATP will obligate only $30 million in new awards in FY02. The Commerce, Justice, State and the Judiciary Conference Report provided $60 million for new awards in FY02.
Funding for Manufacturing Extension Partnership (MEP): The MEP funds state and regional centers that help small U.S. manufacturers adopt advanced manufacturing technologies, techniques, and business best practices. The Administration's budget proposal cuts funding for the MEP program by 90 percent (from $106 million in FY02 to $13 million in FY03). The request ends support for all state MEP centers with the exception of two centers that are fewer than six years old (the Indiana Business Modernization and Technology Corporation and TECHSolve, in Southwest Ohio). The $12 million request will maintain staff in Gaithersburg to serve in a consulting role for whatever state centers could continue to operate without federal funding. The Administration's argues that when Congress created the MEP program, it originally intended for the centers to be self-supporting. In 1998, however, Congress amended the original MEP statute to allow for on-going support of state centers, not to exceed one-third of a center's total funding.
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NIST:
NIST's budget is broken into three main accounts: the laboratory programs, all of which are subsumed within the Scientific and Technical Research Services (STRS) account; the Industrial Technology Services Account, which houses the Manufacturing Extension Partnership (MEP) and the Advanced Technology Program (ATP); and NIST's construction account.
98
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NIST Laboratory Programs (STRS Account)
NIST provides essential measurement, testing, and standardization services, as well as advanced research and engineering, to support scientific and technical progress and promote long-term economic growth. The President's FY03 budget request includes a 21 percent increase in the STRS account over what was enacted for FY02, most of which—$35 million—will be allocated for equipment purchases for the new Advanced Measurement Laboratory, which will be completed in the fall of 2003. Other highlights:
$4.6 million increase (almost a 50 percent jump) in the Building Competence for Advanced Measurements Program, which supports competitive intramural research and development projects on new measurement capabilities;
$6 million increase for the Materials Science and Engineering Laboratory to support the NIST Center for Neutron Research;
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$3 million increase for programs within the Chemical Science and Technology Laboratory to strengthen health care measurement and standards to reduce cost and improve effectiveness of diagnosis and treatment of diseases;
$2 million increase in the Building and Fire Research Laboratory (BFRL) to begin much needed research on progressive collapse issues arising out of the World Trade Center disaster. Even after this increase, the net change for the BFRL is a decrease of $1.3 million because the President's budget request eliminates a $4 million earmark for wind research that was in the FY02 appropriations Conference Report.
The STRS account also funds the Baldrige National Quality program, which gives awards to businesses, education institutions, and health care organizations that excel and are judged to be outstanding in seven areas: leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.
The table below provides a detailed breakdown of funding for each laboratory and the Baldrige Quality Program. The largest increase is the ''Support'' line item, which reflects both the Building Competence program and equipment purchases for the Advanced Measurement Laboratory mentioned above.
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NIST Construction Account
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NIST has facilities in two locations: Gaithersburg, Maryland and Boulder, Colorado. The main campus for the agency is in Gaithersburg, which houses about 2600 employees. The Boulder lab was built in the mid-1950s and currently houses about 400 employees (or about 13 percent of the total number of employees). In addition, the Boulder lab receives approximately 20 percent of NIST's total construction budget.
The President's FY03 request funds the construction budget at $55 million, which is an $8 million decrease from the FY02 enacted figure. However, this request is actually an increase over FY02's maintenance budget because the Administration's request does not fund non-NIST facilities that were included in the FY02 Commerce, Justice, State, and Judiciary Appropriations bill. The FY02 enacted budget earmarked $41.5 million out of NIST's construction budget for non-NIST facilities, leaving $21 million for baseline maintenance.
The request does not fund FY02 earmarks, but does fund the construction budget at $55 million, which is a substantial increase over the base FY02 maintenance budget. The request specifically includes $17 million for the improvement and construction of much needed facilities at NIST's laboratories in Boulder, Colorado and includes $15 million to complete the construction of the Advanced Measurement Laboratory in Gaithersburg.
Manufacturing Extension Partnership (MEP)
The MEP provides small U.S. manufacturers with information, decision support, and implementation assistance in adopting advanced manufacturing technologies, techniques, and business best practices. The program consists of a nationwide network of over 400 manufacturing extension centers, located in each of the 50 states and Puerto Rico. These centers are linked to state, university, and private sources of technology and expertise. Funding for the MEP centers is a cost-sharing arrangement consisting of support from the Federal Government, state and local government, and the recovery of fees for services. The program leverages over $150 million in state, local, and private investments annually.
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Funding
The President's FY03 budget request ends federal support for all but two regional MEP centers (the two exception are the Indiana Business Modernization and Technology Corporation and TECHSolve, in Southwest Ohio) by only allocating funds for headquarters staff to provide consulting services to the regional centers. The Administration has justified this cut by arguing that Congress originally intended to make all of the state centers self-supporting after six years. However, in 1998 when Congress debated whether or not eliminate federal funds after six years NIST issued a report that found most centers would close if federal funding was eliminated. In addition, roughly one-third of MEP centers have provisions in their state contracts that tie state matching grants to federal dollars. Therefore, if the federal funds were eliminated, the state funds would be automatically withdrawn.
Advanced Technology Program (ATP)
Congress created ATP in 1988 to restore and enhance the competitiveness of the United States economy. The goal of ATP is to provide grants in order to ''bridge the gap between the research laboratory and the marketplace'' through partnerships with the private sector. ATP seeks to develop pre-competitive, emerging, and high-risk technologies that promise significant commercial payoffs and widespread benefits for the nation. ATP funding is directed toward technical research (but not product development). Companies, by themselves or jointly, and often in collaboration with universities or federal laboratories, perform the research.
The program is designed to share the cost of research for a fixed period of time. For up to three years, single-company awardees can receive up to $2 million for research and development activities. Larger companies must contribute at least 60 percent of the total project cost. Joint ventures can receive funds for R&D activities for up to five years.
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Based on peer-reviewed competitions, the ATP supports the development of a wide variety of new technologies. Some examples include adaptive learning systems, component-based software, digital data storage, information infrastructure for health care, microelectronics manufacturing infrastructure, manufacturing technology for photonics, motor vehicles, printed wiring boards, new tissue engineering technologies, bio-polymer repairs, and tools for DNA diagnostics.
Funding
The President's FY03 budget would provide $107 million for the program; of this, the Administration creates a $34.7 set-aside in grants for new proposals. The Administration's budget assumes that the ATP program will obligate only about $30 million in grants for new proposals in FY 02. However, this contradicts the report language of the FY02 Commerce, Justice, State and the Judiciary Conference Report, which set aside $60 million for new grants in FY02. The Administration's budget assumes that the unobligated FY02 funding would carry over to FY03 and the total funding available for obligation would be $146 million.
Proposed Reforms to ATP:
Critics of the ATP program contend that it is simply a form of corporate welfare based on an anachronistic industrial policy of the government selecting ''winners and losers.'' Critics suggest that ATP funding would best be spent on other programs to stimulate technology development that could benefit everyone equally, not just the program's grant ''winners.''
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The Secretary of Commerce, in his February 2002 report, The Advanced Technology Program: Reform with a Purpose, has proposed a series of reforms for the program to help address past criticisms of the program. Chief among these are a proposal to collect royalties on gross revenues from products or inventions developed with support of an ATP grant, a proposal to allow universities to lead ATP joint ventures, and a proposal to permit universities and other nonprofit organizations to retain intellectual property rights to products and inventions developed by ATP joint ventures in which they are participants. The most controversial of these proposals is the royalty or recoupment provision.
The idea driving this proposal is to create a return to the Federal Government on its investment in ATP-funded projects that ultimately yield profitable products or inventions. Then to reinvesting those recovered funds in ATP to create greater long-term fiscal stability for the program. Critics contend that the proposal is unrealistic because ATP-funded ventures are directed toward early-stage precompetitive research and development that is often difficult to connect in a straightforward way to products and inventions that are ultimately commercialized. They further argue that creating an accurate audit trail for a recoupment scheme would be both costly and burdensome for industry participants.
Appendix A
The witnesses have been asked to address the following questions in their testimony:
Mr. Phil Bond:
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(1) Describe the President's proposed Fiscal Year 2003 budget for the Technology Administration with particular attention to these questions: (1) What specific initiatives are you contemplating to achieve your goal ''to transform the Technology Administration into the pre-eminent portal to the Federal Government for the U.S. technology industry?'' (2) What role does the Technology Administration play in setting technology policy initiatives within the Administration?
(2) The President's Fiscal Year 2003 request for Manufacturing Extension Partnership, if enacted, would reduce funding for the program by nearly 90 percent from what was enacted for the current fiscal year. How would a significant reduction in federal funding affect MEP centers around the nation? What evidence does the Administration have that the MEP centers could continue to operate?
(3) In regard to the Administration's proposal for the Advanced Technology Program to collect royalties on gross revenues from products or inventions developed with support of the program, to what extent does the Federal Government have experience in determining what portion of a company's revenue stream results from projects that receive federal support?
Dr. Arden Bement:
(1) Describe the President's proposed Fiscal Year 2003 budget for the Technology Administration with particular attention to these questions: (1) What specific research, technology and standards initiatives is NIST undertaking to support Homeland Defense, and how much funding is NIST dedicating to these activities? (2) How is NIST coordinating these initiatives with other federal agencies?
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(2) The President's Fiscal Year 2003 budget includes $17.3 million for the NIST facilities in Boulder, Colorado. What specific projects are included in this proposal? Beyond this request, what is the Administration's long-term plan to modernize these facilities, and what projects are included in this plan?
(3) The President's fiscal year 2003 request for Manufacturing Extension Partnership, if enacted, would reduce funding for the program by nearly 90 percent from what was enacted for the current fiscal year. What initiatives would the program pursue with the $13 million in the President's request?
(4) In regard to the Administration's reform proposals for ATP, how would NIST account for the collection of royalties envisioned in the Administration's request? Based on past experience, what are the projected revenues, by fiscal year, if this provision is enacted?
Michael Wojcicki
(1) To what extent does the MEP Program support the nation's manufacturing base and contribute to economic growth?
(2) The President's Fiscal Year 2003 request for MEP, if enacted, would reduce funding for the program by nearly 90 percent from what was enacted for the current fiscal year. How would a significant reduction in federal funding affect MEP centers around the nation?
(3) The Administration argues that MEP centers should be able to become self-supporting, as was envisioned when the program was originally created. How do you address this argument? If the MEP centers support the regional manufacturing base, why wouldn't state and local governments and industry associations step in to fully fund their centers?
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(4) If the MEP program continues to receive federal funds next year, how would you expand the base of small and medium-sized business you serve? How would you ensure minimum quality standards for the delivery of services for all of the MEP centers?
Birgit M. Klohs
(1) To what extent does the MEP Program contribute to the health of Michigan's manufacturing economy? Please be specific.
(2) The President's Fiscal Year 2003 request for MEP, if enacted, would reduce funding for the program by nearly 90 percent from what was enacted for the current fiscal year. How would a significant reduction in federal funding affect MEP centers in Michigan? How would it affect the businesses that you serve?
(3) If the MEP program continues to receive federal funds next year, how would you expand the base of small and medium-sized business you serve?
Christopher T. Hill
(1) What is your view of the proposal to require ATP recipients to pay an annual royalty to the Federal Government on gross revenues derived from products or inventions developed with the support of ATP grants?
(2) What is your view of the proposal to extend the Bayh-Dole Act to university participation in ATP-funded projects?
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(3) What is your view of the proposal to allow university leadership of ATP joint ventures?
Chairman EHLERS. I now call the Subcommittee on Environment, Technology, and Standards to order in order to proceed with the hearing that is before us. We ask the witnesses to take their place at the table. We will begin. We will proceed with the Chair's opening statement.
I welcome the members and the public to today's hearing on the Technology Administration's proposed Fiscal Year 2003 budget. The role of science and technology in the lives of every American is more pronounced today than throughout history. Scientific discovery and technology utilization are key components in many of the policy debates before the Congress, from economic growth to our understanding of the environment. Before us today are two important Federal agencies responsible for driving innovation and shaping this debate: the Technology Administration and the National Institute of Standards and Technology.
The Technology Administration plays a critical role in serving as a gateway between the Federal Government and the technology marketplace. It is my hope that during the Bush Administration, the Technology Administration will continue to play this role.
Within the Technology Administration exists one of the true gems of the Federal Government: the National Institute of Standards and Technology. Over the past 100 years, NIST and its employees have not let us down. NIST's researchers cover an incredible spectrum of scientific endeavors, from the sublime and esoteric field of trapping atoms to the practical and applied field of developing better ways to construct buildings.
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While I have outlined some of the roles that these two institutions play in the Federal Government, our reason for being here today is to examine the President's Fiscal Year 2003 budget submission for the Technology Administration and NIST. I am particularly pleased with two specific items in the President's budget submission. First, the 21 percent increase in funding for NIST. Second, that the President has recognized that NIST's facilities in Boulder, Colorado must be updated and upgraded, and has allocated $17 million to begin upgrading this laboratory. I want to work with the Administration to preserve these increases as Congress works through the appropriations process.
This budget submission has also sparked debate within Congress and the manufacturing sector about two issues: reforms for the Advanced Technology Program, ATP; and the future of the Manufacturing Extension Partnership, the MEP Program.
The first issue, proposed reforms to the Advanced Technology Program, is intended to address some of the past criticisms that have plagued—and I do mean plagued—this program. Critics have assailed ATP as corporate welfare and the worst example of the Federal Government picking winners and losers in the marketplace. Proponents of the program have argued it is a critical bridge over the valley of death, the so called chasm where ideas die as they move between the mesa of basic research and the plateau of applied use.
While the Administration has put forward six specific reforms to help stabilize this program, I want to particularly applaud them for proposing to increase the role that the universities would play in grants from ATP. I have long advocated that the Federal Government needs to strengthen partnerships between its programs and the universities, as well as state governments and the private sector. I look forward to working with the Administration on these reforms if these proposals will help stabilize program funding and reduce the controversy swirling around the program.
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I am, however, deeply concerned about the other issue reflected in the President's budget, the question of the appropriate Federal support for MEP. As a champion of science, I have often found that increased funding for research must be coupled with extension activities to disseminate the results of this research. Clearly, MEP does play a dual role of supporting this activity while pursuing a strategy of bringing off-the-shelf technologies to small and medium sized business. This has enabled state MEP centers to serve as an important tool for economic growth. We must take a hard look at the Administration's proposed funding for this program and ensure that state MEP centers remain viable.
Before I turn this hearing over to our esteemed panel of witnesses, let me touch on one particular item that relates to science funding in a broad sense. Anyone who has heard me speak about Federal funding of science knows that I have focused on one particular theme, and that is of balance in funding between the physical sciences and the life sciences. I am very concerned that agencies such as NSF, NASA, DOE, and NIST suffer because our funding strategy for the research portfolio is out of balance.
We need to look no further than the agency before us today to pursue a strategy of bringing balance back to our research portfolio. While NIST is a small agency relative to NSF, NASA, and DOE, it achieves big things. NIST scientists have won two Nobel Prizes in the past five years. I know that the President's budget stresses the use of metrics to determine funding priorities. Surely, two Nobel Prizes is an excellent metric for the quality of research being done at NIST.
With that, I look forward to hearing from our witnesses and working with the Administration on the Fiscal Year 2003 budget. At this point, the Chair now recognizes Congressman James Barcia, the Ranking Minority Member on the Environment, Technology, and Standards Subcommittee, for his opening statement.
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[The prepared statement of Chairman Ehlers follows:]
PREPARED STATEMENT OF CHAIRMAN VERNON J. EHLERS
I welcome Members and the public to today's hearing on the Technology Administration's proposed Fiscal Year 2003 budget.
The role of science and technology in the lives of every American is more pronounced today than throughout history. Scientific discovery and technology utilization are key components in many of the policy debates before the Congress, from economic growth to our understanding of the environment. Before us today are two important federal agencies responsible for driving innovation and shaping this debate—the Technology Administration and the National Institute of Standards and Technology.
The Technology Administration plays a critical role in serving as a gateway between the Federal Government and the technology marketplace. It is my hope that during the Bush Administration the Technology Administration will continue to play this role.
Within the Technology Administration exists one of the true gems of Federal Government—the National Institutes of Standards and Technology. Over the past 100 years, NIST and its employees have not let us down. NIST's researchers cover an incredible spectrum of scientific endeavors, from the sublime and esoteric field of trapping atoms, to the practical and applied field of developing better ways to construct buildings.
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While I have outlined some of the roles that these two institutions play in the Federal Government, our reason for being here today is to examine the President's FY 03 budget submission for the Technology Administration and NIST. I am particularly pleased with two specific items in the President's budget submission: First, the 21 percent increase in funding for NIST. Second, that the President has recognized NIST's facilities in Boulder, Colorado must be updated and has allocated $17 million to begin upgrading this laboratory. I want to work with the Administration to preserve these increases as Congress works through the appropriations process.
This budget submission has also sparked debate within Congress and the manufacturing sector about two issues—reforms for the Advanced Technology Program (ATP) and the future of the Manufacturing Extension Partnership (MEP) program.
The first issue—proposed reforms to the Advanced Technology Program—is intended to address some of the past criticisms that have plagued this program. Critics have assailed ATP as ''corporate welfare'' and the worst example of the Federal Government picking winners and losers in the marketplace. Proponents of the program have argued it is a critical bridge over the ''valley of death''—the so-called chasm where ideas die as they move between the mesa of basic research and the plateau of applied use.
While the Administration has put forward six specific reforms to help stabilize this program, I want to particularly applaud them for proposing to increase the role that universities would play in grants from ATP. I have long advocated that the Federal Government needs to strengthen partnerships between its programs and universities, state governments and the private sector. I look forward to working with the Administration on these reforms, if these proposals will help stabilize program funding and reduce the controversy swirling around this program.
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I am, however, deeply concerned about the other issue reflected in the President's Budget—the question of the appropriate federal support for MEP. As a champion of science, I've often found that increased funding for research must be coupled with extension activities to disseminate the results of this research. Clearly, MEP does play a duel role of supporting this activity while pursing a strategy of bringing ''off-the-shelf'' technologies to small and medium-sized business. This has enabled state MEP centers to serve as an important tool for economic growth. We must take a hard look at the Administration's funding for this program, and ensure that state MEP centers remain viable.
Before I turn this hearing over to our esteemed panel of witnesses, let me touch on one particular item that relates to science funding in a broad sense. Anyone who has heard me speak about federal funding of science knows that I have focused on one particular theme—and that is of balance in funding between the physical sciences and the life sciences. I am very concerned that agencies such as NSF, NASA, DOE and NIST suffer because our funding strategy for the research portfolio is out of balance.
We need to look no further than the agency before us today to pursue a strategy of bringing balance back to our research portfolio. While NIST is a small agency relative to NSF, NASA and DOE, it achieves big things. NIST scientists have won two Nobel Prizes in the past five years. I know that the President's budget stresses the use of metrics to determine funding priorities. Surely, two Nobel Prizes is an excellent metric for the quality of research being done at NIST.
With that, I look forward to hearing from our witnesses and working with the Administration on the Fiscal Year 2003 budget.
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Mr. BARCIA. Thank you, Mr. Chairman. I want to welcome everyone to this morning's hearing. I also want to add a special welcome to our witnesses, especially the two witnesses from Michigan. With all the Michigan members on the Subcommittee, it might have been more efficient if we had convened this hearing in Michigan. I also want to thank Chairman Ehlers for convening this hearing on the Administration's budget request for the Technology Administration and the National Institute of Standards and Technology.
This year's budget request calls for significant changes to the Manufacturing Extension Partnership and the Advanced Technology Program. The Administration has justified funding cuts to these two programs as the result of having to make tough budget decisions while our nation is at war. I understand the need to make tough budget decisions, but what I would like to learn more today is the criteria used by the Administration in making these budget and policy decisions.
I am disappointed that the Administration witnesses chose not to answer most of the questions posed to them by the Subcommittee. I will use my time to address those issues raised in the Subcommittee's letters of invitation. I am sure many of my colleagues will do the same. And I wanted to thank all of our witnesses for taking the time to appear before us today, and I look forward to learning more about the views of Mr. Wojcicki, and Ms. Klohs, and Dr. Hill on the Administration's proposals. Thank you.
Chairman EHLERS. If there is no objection, all additional opening statements submitted by the Subcommittee members will be added to the record. Without objection, so ordered.
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[The prepared statement of Mr. Barcia follows:]
PREPARED STATEMENT OF REPRESENTATIVE JAMES BARCIA
I want to welcome everyone to this morning's hearing. I also want to add a special welcome to our witnesses, especially the two witnesses from Michigan. With all the Michigan Members on the Subcommittee, it might have been more efficient if we had convened this hearing in Michigan.
I also want to thank Chairman Ehlers for convening this hearing on the Administration's budget request for the Technology Administration and the National Institute of Standards and Technology. This year's budget request calls for significant changes to the Manufacturing Extension Partnership and the Advanced Technology Program. The Administration has justified funding cuts to these two programs as the result of having to make tough budget decisions while the Nation is at war. I understand the need to make tough budget decisions. What I want to learn today is the criteria used by the Administration in making these budget and policy decisions.
I am disappointed that the Administration witnesses chose not to answer the most of the questions posed to them by the Subcommittee. I will use my time to address those issues raised in the Subcommittee's letters of invitation. I'm sure many of my colleagues will do the same.
I want to thank all of our witnesses for taking the time to appear before us today. I look forward to the learning more about the views of Mr. Wojcicki, Ms. Klohs, and Dr. Hill on the Administration's proposals.
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[The prepared statement of Ms. Morella follows:]
PREPARED STATEMENT OF REPRESENTATIVE CONSTANCE MORELLA
Mr. Chairman, I am extremely pleased that you have chosen to hold this hearing on the Technology Administration at the Department of Commerce. Far and away, the biggest component of the TA is the National Institute of Standards and Technology, which is a subject very near and dear to my heart. I always enjoy the opportunity to highlight the many accomplishments of this national treasure and explore ways to continually improve their programs.
NIST is the premier federal facility for standards and the quality of its scientific research places it among the very best laboratories in the country. I was pleased to see that the Administration has recognized the contribution NIST makes to scientific and technical research by robustly funding its FY03 budget. The STRS division, which contains all of the laboratory accounts, has received a hefty increase of 21 percent. While this increase is skewed upward by some substantial equipment purchases, if these purchases are discounted the overall research portfolio is still increased by a very respectable 8 percent. NIST's track record of success is second to none among federal facilities and I have no doubt these additional funds are well invested.
I was also happy to see the Administration has committed funds for maintenance at the aging Boulder facility. We have spent many years talking about the deterioration and neglect of the buildings in Colorado. We have heard how researchers have to hang tarps to protect their expensive equipment from leaky roofs and other horror stories about the condition of the labs. That this facility was able to win last year's Nobel Prize in Physics is a testament to the ingenuity and perseverance of NIST's scientists and I glad to see we finally have an administration willing to address maintenance and operation concerns and give these scientists the resources and working environments they deserve.
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However, despite my pleasure in the robust nature of the research accounts, I was disappointed in the money and plan for the Industrial Technology Services. Disputes over the ATP and MEP are becoming an annual event between the Hill and the Administration, and I see this year will be no different. The current plan essentially eliminates the MEP and significantly reduces money for the ATP. These two programs have provided the backbone for technological development in this country and I believe that it is very shortsighted to save a few dollars now by eliminating or reducing their budgets. The loss of the return on these investments will cost much more to our future than can be gained by the paltry savings for the current budget.
The Chairman has assembled a very distinguished panel and I am eager to move on to their testimony. Their insights will prove essential to fulfilling our role of oversight. The Administration has put forth some interesting proposals and they certainly deserve a fair hearing and thoughtful review. While I have some concerns about the specifics of the current plan for the Technology Administration and NIST, I am glad to see an Administration with the courage to present new ideas and stand behind them. These dialogues can only make the agencies better. I applaud their efforts and I thank the witnesses for taking the time to appear before us today. Thank you.
Chairman EHLERS. At this time, I would like to introduce our witnesses. And once again, we have a stellar panel. I must commend our Committee Staff. They always find the very best people for these panels.
First, the Honorable Phillip J. Bond, Under Secretary of Commerce for Technology and Chief of Staff to the Secretary of Commerce. Dr. Arden L. Bement, Director of the National Institute of Standards and Technology, which I, coincidentally, praised a few moments ago. Mr. Michael Wojcicki, President of the Modernization Forum. Ms. Birgit Klohs, President, the Right Place Program, located in God's country in Grand Rapids, Michigan, and one of the stellar development directors in the world. She has done an outstanding job there. I have known her for years. And also, she is very heavily involved in the MEP program in Michigan. I know of no user who knows more about MEP than Ms. Klohs, and I was pleased that she was able to attend. And Dr. Christopher T. Hill, Vice Provost for Research and Professor of Public Policy and Technology at George Mason University.
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As our witnesses know, I believe you should have been instructed previously, your spoken testimony is limited to five minutes each, after which, a trap door will open underneath you. But after you have all testified, the Members of the Committee will each have five minutes to ask you questions, and their time includes your answers as well.
We are pleased to start today with the Honorable Phillip J. Bond.
STATEMENT OF PHILLIP J. BOND, UNDER SECRETARY OF COMMERCE FOR TECHNOLOGY AND CHIEF OF STAFF TO THE SECRETARY OF COMMERCE
Mr. BOND. Thank you, Mr. Chairman, Ranking Member Barcia, and Members of the Committee. I am pleased to appear before you today to testify on behalf of the Technology Administration, which is comprised of the Office of Technology Policy, NIST, which you have already heard quite a bit about, and the National Technical Information Service. I want to share with you TA's approach to fulfilling our mission of maximizing technology's contribution to the national economy.
A strong economy, coupled with a strong national defense, of course, form the bedrock upon which our freedoms, global leadership, standard of living, and quality of life are all built. More than ever before, technology is vital to maintaining and building these U.S. strengths. Technological innovation has underpinned sustained periods of economic growth, higher rates of investment, low inflation, high wage and job growth, low unemployment, and solid increases in productivity. It is really the true path to producing higher standards of living.
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Having said all that, and as Mr. Barcia alluded to, the world did change on September 11, and it changed as well for the Department of Commerce and the Technology Administration. In the aftermath of 9/11 and the terrorist attacks, President Bush is marshalling the Nation's technology and budgetary resources to help the United States win the war on terrorism, strengthen the homeland protections, revitalize the economy and create new jobs. To fund these new priorities, the President has had, again as Mr. Barcia alluded to, had to make some tough choices in these difficult times.
At the Department of Commerce, our resources have been focused on the all important goal of fostering job creation; that is, helping to finance the war on terrorism, as well as assisting on Homeland Security and fighting the war on terrorism. I am abundantly aware, however, that some TA programs, for example the Manufacturing Extension Program, was not able to receive a budget request at the level that perhaps every member of this Subcommittee would have liked to have seen. And as the budget process works its way through Congress, I want to make a personal pledge to work with all of the members of the Subcommittee to try to address some of your concerns in any way that we can.
As we have all witnessed in the past few months, technology is a real force multiplier in the war on terrorism and in Homeland Security. And there is every reason to believe that technology will continue to be a significant force in our economy and in the defense of our nation in the years ahead.
It is, of course, no accident that the United States leads the world in high technology, both civilian and defense. It has come from a sustained public and private investment strategy, coupled with America's unique entrepreneurial spirit. Going forward, while the private sector must assume the driver's seat in many of these areas, the Federal Government has a critical role to play in ensuring that the United States remains on the leading edge and that our companies are competitive in the world's high tech markets.
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This Administration is committed to ensuring our global technological leadership through forward-thinking policies and investments. In support of the President's priorities for science, technology, and U.S. competitiveness, TA's Office of Technology policy is developing and advocating national policies that use technology to build America's economic strength. Included in OTP's role: promoting innovation through leadership to encourage research and development; commercialization of new technologies such as nanotechnology and biotechnology; supporting entrepreneurship by representing the interest of U.S. innovators, both internationally and domestically, while also working with states, localities, and Federal laboratories to institute policies that will promote technology led economic development all across the country; improving the innovation infrastructure (this means contributing to the development of a national workforce with policies that improve education and training of future scientists and engineers, and by recognizing excellence through the program we administer, the National Medal of Technology); and, empowering citizens by working with industry to increase consumer confidence and employ technologies in new ways for greater productivity, higher standards of living, and thinking of technology, such as telemedicine and e-government applications.
We also work to encourage students to pursue high tech careers. For instance, we have a public-private partnership called GetTech, which has targeted just this need.
Lastly, in my opening statement here, Mr. Chairman, but certainly, by no means least, the National Institute for Standards and Technology continues to be just an incredible and world class organization, developing and promoting measurements, standards, and technology to enhance productivity, to facilitate trade, and to improve Americans' quality of life. NIST standards and measurements activities actively support efforts to strengthen the Homeland Security mission. In fact, NIST currently conducts more than 75 projects to support law enforcement, military operations, emergency services, first responders, cyber security—the list goes on and on. You will hear more detail from my colleague, the Director.
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Before I conclude, I have a couple of comments. One, the Chairman referred to NIST as a gem, and I guess I tend in my prejudiced view to view it more as Congresswoman Morella does, which is more than a gem, but the crown jewel itself of the Federal labs. But before I conclude, let me comment on two programs in particular that were mentioned and that were requested in the letter of invitation: the Advanced Technology Program and the Manufacturing Extension Program.
Concurrent with the submission of the President's budget, Commerce Secretary Evans submitted to this Committee a report that presented six recommendations for improving ATP. The Secretary, I can tell you as his Chief of Staff, understands that technologies developed through ATP have significant potential to bring economic growth and great benefits to the entire nation. He feels strongly that the implementation of the proposed reforms will provide ATP the proper tools and direction it needs to be effective in the 21st century. He is aware of the costs of the political controversies that have swirled around ATP and hampered its mission and contributed to the perception of instability in the program. The Secretary fully expects the reforms proposed in the report to put ATP on an importantly stable and productive footing for the future.
I would note that I was especially heartened by remarks from Dr. Charles Vesner of the National Academy of Sciences. He conducted last year's Seminole ATP report on behalf of the National Research Council, and he noted the report (Secretary Evans' report) reflects a number of recommendations made by the National Research Council, and is a positive step in the overarching goal of improving and sustaining the program.
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Of course, I am also aware that tough budget choices have made for a difficult funding climate for the MEP. Let me just step aside to say that we fully recognize that the MEP is and has been a successful program. There are almost innumerable metrics, some of which you will hear this morning, to make that point. It has resulted in increased sales, cost savings, efficiencies, investments in modernization—all part of the success story. Precisely because it is such a successful program, we believe that small manufacturers and, indeed, larger manufacturers higher up the supply chain, will have an interest in helping to supplement the funding and keep the program going.
In fact, we intend to engage, Dr. Bement and I, with the centers through the MOD forum to continue a dialogue to improve the centers. In fact, we had a positive discussion along those lines just this morning.
Mr. Chairman, since my confirmation at the end of October, I have been deeply honored to lead an organization that is serving significantly to revitalize our nation's economy and also to protect our Homeland Security. I look forward to continuing this important work with you as the Science Committee begins its consideration of our budget and would be pleased later to answer any questions that you or other Members of the Committee may have. Thank you.
[The prepared statement of Mr. Bond follows:]
PREPARED STATEMENT OF PHILLIP J. BOND
Mr. Chairman and members of the Committee, I am pleased to appear before you today to testify on behalf of the Technology Administration, and to share with you the Agency's approach to fulfilling our mission of maximizing technology's contribution to the national economy. A strong economy and a strong national defense are the bedrock on which our freedom, global leadership, standard of living, and quality of life are built. More than ever before, technology is vital to maintaining and building these U.S. strengths.
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Rapid advances in technology, especially information technology, have driven our country's remarkable economic performance for the past decade. Technological innovation has underpinned sustained periods of economic growth, higher rates of investment, low inflation, high-wage job growth, low unemployment, and solid increases in productivity—the true path for producing higher standards of living. There can be little doubt that our technology producers and technology-intensive industries will lead the way in returning our nation to a path of robust economic growth.
As we have all witnessed in the past few months, technology is our force-multiplier in the war on terrorism and in homeland security. Thanks to technology, we can put the world's finest tools in the hands of our military, law enforcement and public safety personnel, intelligence community, and others who are fighting these forces of evil around the globe. These advanced technologies are significantly reducing the risk to these American men and women in service to their country. There is every reason to believe that technology will continue to be a significant force in our economy and in the defense of our nation in the years ahead.
It is no accident that the United States leads the world in high technology, both civilian and defense. Our achievements are the dividends that flow from sustained public and private sector investments in research and development, coupled with America's entrepreneurial spirit and willingness to take risks. While the private sector must take the driver's seat, the Federal Government does have an important role to play in ensuring that the United States remains on the leading edge of technology and competitive in the world's high-tech markets. This Administration is committed to ensuring our global technology leadership through forward-thinking policies and investments.
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In support of the President's priorities for science, technology, and U.S. competitiveness, the Technology Administration's Office of Technology Policy is developing and advocating national policies and initiatives that use technology to build America's economic strength. Its role includes:
Promoting innovation through leadership and advocating policies that encourage research, development, and commercialization of new technologies (such as nanotechnology and biotechnology);
— OTP is chairing an interagency group on technology transfer to improve technology commercialization practices and realize Congress' vision in the Stevenson-Wydler, Bayh-Dole and Technology Transfer Acts.
— OTP is also leading a series of discussions on innovation in America at the start of the 21st century. We will listen to our foremost experts from industry, the labs, and universities, learn the critical issues and challenges to sustained U.S. leadership, and then lead by proposing new initiatives and policies to maintain that leadership.
Supporting entrepreneurship by representing the interests of U.S. innovators and entrepreneurs in multinational forums and international forums and partnerships;
Working with states, localities, and federal labs to institute policies that promote technology-led economic development;
Improving the innovation infrastructure by fostering national workforce policies that improve the education and training of future scientists and engineers, and by recognizing excellence through the National Medal of Technology program;
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— For example, OTP is leading efforts within the Department to better understand how U.S. businesses can use new high-speed, high-capacity applications to improve American competitiveness and productivity—the demand side of broadband.
Empowering citizens by working with industry to increase consumer confidence and employ technologies in new ways for greater productivity and higher standards of living, such as telemedicine and e-government applications, and by working to encourage more students to pursue careers in science and technology through the GetTech public-private partnership.
The Office of Space Commercialization is tasked to foster an economic and policy environment that ensures the growth and international competitiveness of the U.S. commercial space industry. To this end, the Office conducts activities in three primary areas—policy development, market analysis, and outreach/education. Recently, the Office conducted two major workshops in collaboration with the private sector. In October of 2001, the Office partnered with George Washington University Space Policy Institute to host a workshop on space economic data. In November 2001, the Office partnered with the U.S. Chamber of Commerce's Space Enterprise Council and the Space Transportation Association to host a workshop focusing on emerging space markets. In the coming months, the Office plans to release additional material concerning commercial space issues, and to continue to work through the National Security Council's Space Policy Coordinating Committee and in other interagency fora to advocate appropriate policies to enhance space commerce.
Let me say a few words about the National Technical Information Service and its role in enhancing public access to federally generated scientific and technical information. I am pleased to report that NTIS is operating on a self-sustaining basis. Part of its revenue is derived from the sale of technical reports. But, consistent with Congress' 1988 mandate to NTIS to develop new ways to disseminate information and it 1992 mandate to focus on electronic media, NTIS is also generating revenue through services to other federal agencies that help them communicate more effectively with their own constituencies online.
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For example, NTIS has developed a new web site and ''virtual library'' to make it much easier for the public to locate scientific and technical information produced by or for federal agencies. Consistent with the Administration's effort to make Government more user-friendly and accessible, the new web site will offer a ''one search, one source, one solution'' for their scientific and technical information needs. For the first time, users will be able to download full-text reports from the NTIS collection. We released a version of the new web site to coincide with National Technology Week and we expect to make ongoing improvements to its search capability.
In addition, thanks to a new e-government initiative, NTIS and the Social Security Administration (SSA) are offering the SSA Death Master File (DMF) more frequently and with fewer delays. Investigations have revealed that Social Security Numbers of deceased individuals were used illegally to commit identity fraud. Until now, financial institutions, insurance companies, security firms and state and local governments had to wait to check applications against month-old rosters of recent deaths. Now, due to the new services being offered by NTIS and SSA, they will be able to verify applications far more frequently to guard against fraud, while assuring that this verification system is designed to protect privacy and guard against misuse of the information to commit identity theft. The DMF Updates files, containing new deaths, changes and deletions, are now being distributed as a weekly subscription. The weekly and monthly updates files are also available electronically, which also reduces handling and production time. Users who opt for electronic distribution can access the DMF almost as soon as the SSA releases it. In short, Mr. Chairman and members of the Committee, NTIS remains a healthy, forward-looking organization that plays a key role in helping the Technology Administration support the Department's overall goal of improving the Nation's R&D infrastructure by enhancing access to technical information.
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Lastly, but by no means least, the National Institute of Standards and Technology (NIST) continues to be a world-class organization committed to developing and promoting measurements, standards, and technology to enhance productivity, facilitate trade, and improve the quality of life.
NIST's standards and measurements activities actively support efforts to strengthen homeland security. Currently, NIST is conducting more than 75 projects that support law enforcement, military operations, emergency services, airport and building security, cyber security, and efforts to develop new types of security technologies. The list goes on and on and Dr. Bement will provide more information on all of the initiatives and contributions that supports our belief that NIST is truly the ''crown jewel'' of the Federal lab system.
Mr. Chairman, I am honored to lead an organization that has contributed much to our economic and national security. I look forward to continuing this important work and would be pleased to answer any questions you may have.
Chairman EHLERS. Thank you. We will next recognize Dr. Bement.
STATEMENT OF ARDEN L. BEMENT, JR., DIRECTOR, NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY
Dr. BEMENT. Thank you, Mr. Chairman and Members of the Subcommittee. I appreciate this opportunity to bring you up to date on our work at the National Institute of Standards and Technology and to discuss the President's budget request for NIST for Fiscal Year 2003.
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As we enter our second century of service to the Nation, NIST remains committed to our core mission to provide the scientific and technological support, particularly, in measurement science, which is essential to the security needs of the Nation, the research needs of our scientists, and the commercial needs of our industry.
I think no single example captures NIST's ability to meet the Nation's needs better than our response to the terrorist attacks of last September 11. In the wake of these disasters, experts from NIST Building and Fire Research Laboratory began work with colleagues from other agencies to assess the structural and fire damage to the Pentagon and the World Trade Center, and to conduct a comparison of building codes. Additionally, NIST researchers met with scientists from the DOD to discuss details of a specialized DNA analysis technique that is being used now to identify remains of victims of the terrorist attacks.
And following incidents of anthrax contaminated mail, we worked rapidly with the OSTP, the Postal Service, the DOD, and industry to test and establish crucial dose standards for irradiated mail to ensure the destruction of anthrax spores and other pathogens. This ongoing research is playing a key role in enhancing the Nation's ability to prevent and respond to terrorism through more than 75 ongoing research projects in sensors, biometrics, information security, and support for emergency services and law enforcement.
I would like to mention the outstanding work of NIST's Eric Cornell in winning the 2001 Nobel Prize in physics for the creation of an entirely new state of matter called Bose-Einstein condensate. This work is already leading to some practical applications. Eric now joins another Nobel Laureate, Bill Phillips, in this most distinguished association.
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Turning now to our budget request for Fiscal Year 2003, I would like to say that if there is a single most important theme, it is to strengthen the NIST laboratories to ensure our continued ability to meet the Nation's measurements, standards, and data needs. In that vein, I want to emphasize the critical importance of our request this year for funding the special instrumentation and the construction of research facilities. We are requesting $35 million for instrumentation for the new Advanced Measurement Laboratory. In 2003, we will complete construction of the AML on schedule and on budget. The AML will be the world's best measurement laboratory, carrying out stringent measurements required by the semiconductor, biotechnology, telecommunications, and other high technology industries. This work requires not only the precision controlled environments provided by the AML, but also, modern equipment and instrumentation. Ultimately, we will need about 40 major equipment systems.
We are also requesting $54.5 million for our construction budget, including two critically important increases: $15 million for building fit-up for the AML and $17.3 million for construction at the Boulder Laboratories. I recently asked the Boulder staff to give me a conservative estimate of the productivity impact caused by the deteriorating state of the facilities. They estimate it cost NIST approximately $7.3 million per year in lost staff productivity. And if one also includes maintenance and the requirement to replace building support facilities, just to keep up, we estimate that it should be possible to get an immediate payback of the investment we are asking for in five years.
As to our research agenda for Fiscal Year 2003, we are asking for $396.4 million for the NIST laboratories. This funding increase will enable us to strengthen our core measurements and standards research in several key areas: healthcare, nanotechnology, measurement science, cyber security, Homeland Security, and neutron research.
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I would like to expand on this last item. It would go to enhance NIST's world class center for neutron research. Neutrons have become one of the essential measurement tools for materials science, biology, chemistry, physics, and engineering. Unfortunately, producing and using neutrons for measurement is highly complex and requires specialized and expensive facilities and skilled experienced staff. The NIST Center for Neutron Research is at present the only U.S. neutron center competitive with facilities in Europe and Japan, and it is the most cost effective such center in the world. We are proud of the center's record, but the demand for neutron research has expanded dramatically into new areas unforeseen when the center was designed. The increase we are requesting will allow us to take some steps to meet this demand for what is truly a unique resource for U.S. science.
Our Fiscal Year 2003 budget request for the Advanced Technology Program and the Manufacturing Extension Partnership Program reflect not so much a judgment on the effectiveness of the programs in question as the need to make hard and prudent fiscal choices in today's budget environment. I should say, parenthetically, that NIST is very proud in the leadership role we have played in these two programs.
The request for the Advanced Technology Program budget is $107.9 million, and the $12.9 million MEP Fiscal Year 2003 budget request will continue NIST's cost share funding for two centers that are less than 6 years old, and will allow our office of MEP to focus on providing a central coordination role. As part of this plan, the MEP will continue to pursue mechanisms that encourage and promote revenue generation while ensuring that the centers continue to receive web based tools, best practices, and training support.
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Mr. Chairman, the President's requested budget for NIST for Fiscal Year 2003 represents true stewardship of our resources. It requires some difficult decisions but it takes a clear look at our Nation's priorities for the coming year and recognizes NIST's unique roles in support of these priorities. Thank you. I would be happy to answer any of your questions.
[The prepared statement of Dr. Bement follows:]
PREPARED STATEMENT OF ARDEN L. BEMENT, JR.
Thank you, Mr. Chairman and Members of the Subcommittee. I appreciate this opportunity to bring you up to date on our work at the National Institute of Standards and Technology and to discuss the President's budget request for NIST for Fiscal Year 2003.
As we enter our second century of service to the Nation, NIST remains committed to our core mission to provide the scientific and technological support—particularly in measurement science—essential to the security needs of the Nation, the research needs of our scientists, and the commercial needs of our industry.
Whether it is working to ensure the accuracy of new clinical lab tests, developing performance models to help architects and engineers create safer buildings, supporting the critical measurement needs of America's high-tech industries, or providing secure data encryption standards to safeguard the Nation's information infrastructure, our broad-based expertise in the physical and computing sciences promotes technological innovation—the driving force for about 50 percent of U.S. economic growth and a key to national security.
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Through the Baldrige National Quality Program we have helped make quality a national priority and enhanced the competitiveness and productivity of U.S. industry. Thousands of organizations of all sizes and in all sectors of the economy have benefited by using the Baldrige Criteria for Performance Excellence as the foundation for performance management and quality improvement programs.
Through our Advanced Technology Program we reach out directly to industry's entrepreneurs, accelerating the development of innovative new technologies strengthening the Nation's industrial base and our economy.
To make these impacts more concrete, Mr. Chairman, I would like to share with this committee a few examples of our accomplishments over the past year.
As this committee is well aware, the NIST Laboratories are the oldest part of the agency and form the scientific and technical core that supports our wide-ranging services to the Nation's industry, its scientific research community, and the government. Over the past year, NIST's Laboratories have maintained their century-old tradition of excellence in support of the science and industry:
Last summer, NIST researchers uncovered a potentially serious optical problem affecting designs for future generations of semiconductor manufacturing equipment that were already on the drawing board. State-of-the-art semiconductor lines use extremely short wavelength light—''deep ultraviolet''—in lithography machines to fabricate complex integrated circuits with features as small as 130-nanometers. Next-generation machines are expected to produce features as small as 70-nanometers, but NIST discovered that a key material used for the lenses in these machines has an unexpected optical property at the deep ultraviolet wavelengths that could cripple their ability to make tightly focused images. The timely warning from NIST has allowed the semiconductor industry to develop technical solutions to the problem and avoid costly design errors, potentially saving millions of dollars.
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In December, Commerce Secretary Don Evans approved Federal Information Processing Standard (FIPS) 197 that made the Advanced Encryption Standard, or AES, the official government encryption tool for protecting sensitive, unclassified information well into the 21st century. That announcement marked the successful conclusion of a four-year effort by computer scientists at NIST to identify a highly secure encryption algorithm to form the basis of the new standard, the successor to the aging Digital Encryption Standard. An international competition managed by NIST examined and tested candidate formulas probing for weaknesses. While developed for the government, the private sector also is expected to use AES to safeguard financial transactions and ensure privacy of digital information, from medical records and tax information to PIN numbers. The AES can help protect the Nation against terrorists, spies, criminals, and hackers. RSA Security, Inc., honored NIST with the RSA Award in Public Policy for making ''a significant contribution to the application of cryptographic technologies towards the advancement of personal privacy, civil justice and basic human rights.'' An economic impact study estimated that NIST's involvement in developing encryption standards has saved private industry more than $1 billion.
Last July, NIST researchers reported experiments on a new kind of atomic clock that has the potential to be up to 1,000 times more accurate than today's best clock. The new clock is based on an energy transition in a single trapped mercury ion, and draws on NIST's long history of research in trapping and cooling atoms and ions—work, incidentally, which has led to two Nobel prizes for NIST researchers. As this committee is aware, there are very practical reasons behind this single-minded pursuit of better clocks. Precise timekeeping underlies much of the structure of modern civilization, including navigation, electric power management and communications; it has made possible significant advances in astronomy and physics; and contributes to our ability to make precise measurements of length at the nanometer scale.
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Also last year, Research and Development Magazine recognized two recent NIST developments as among the 100 most innovative new technologies of the year—a device to help the blind access electronic books and the most accurate and precise analytical method yet for determining the mercury content of fossil fuels, as well as other industrial, environmental and clinical samples.
Speaking of honors, this past December, the American Chemical Society designated NIST—the entire agency—as a National Historic Chemical Landmark. Their citation says it better than I could:
For one hundred years, scientists and engineers at the National Institute of Standards and Technology, formerly the National Bureau of Standards, have made broad-based and comprehensive contributions to chemical science and technology and to the economic strength and competitiveness of the United States. Through internationally recognized programs in materials characterization and standards, measurement, calibration, and synthesis—and in areas as diverse as cryogenics, weather prediction, solid state devices, and synthetic rubber—the National Institute of Standards and Technology continues to demonstrate that the intelligent application of research in physical sciences to a wide range of societal challenges contributes to a higher quality of life for everyone.
And, of course, I am very excited to recognize that last year we celebrated our second Nobel Laureate. NIST's Eric A. Cornell and Carl E. Wieman of the University of Colorado at Boulder won the 2001 Nobel Prize in physics—along with Wolfgang Ketterle of the Massachusetts Institute of Technology—for their creation in 1995 of an entirely new state of matter called Bose-Einstein condensate (BEC). Cornell and Wieman are both fellows of JILA, a joint institute of NIST and CU. In creating a BEC, Cornell, Wieman and their associates also created a new branch of atomic physics that allows scientists to study the strange and extremely small world of quantum physics at a more human scale. In creating the BEC, Cornell and Wieman built on the work of NIST's William Phillips, who shared the 1997 Nobel Prize in physics for his pioneering development of the science of using lasers to cool atoms to nearly absolute zero.
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Those were a few highlights, Mr. Chairman. I could cite more, but there is also the day-to-day work that over the years has earned NIST its place in the Nation's scientific and technological communities. A few examples:
The NIST Laboratories provide industry and the science and technology community with the measurement capabilities, standards, evaluated reference data, and test methods that together constitute the equivalent of a common language needed at nearly every stage of a technical activity. NIST provides standards-related information and assistance to about 20,000 organizations and individuals every year. A key measurement and standards function is the development and maintenance of accurate weights and measures that underpin about $4.5 trillion of retail and wholesale U.S. trade, enhance economic efficiency and lower costs.
NIST develops and disseminates national standards for time and frequency to meet critical needs in telecommunications, transportation, and positioning (including support for the Global Positioning System). Each day, NIST receives more than 300 million automated requests for time over the Internet. NIST scientists also seek to discover and measure phenomena that provide the basis for new concepts in computing, information storage, and time keeping. NIST generates, evaluates, compiles, and disseminates fundamental data on the properties of atoms, molecules, and radiation—data needed for the detection of hazardous substances, environmental monitoring and remediation, and efficiency and safety improvements for products and activities ranging from vehicles to power generation.
NIST provides national standards for the radioactive seeds used to treat prostate cancer, which strikes 180,000 men in the United States each year; for 11,000 U.S. mammography facilities, helping to assure the effectiveness of 26 million diagnostic mammograms annually; and for radioactive sources used in a promising research application to improve the efficacy of balloon angioplasty procedures. Each year, more than 1,600 researchers participate in studies at the NIST Center for Neutron Research, a world-class facility where unique instruments reveal the inner structure and dynamics of virtually any material.
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In FY 2001, NIST participated in 174 Cooperative Research and Development Agreements (CRADAs) focusing on collaborative R&D efforts of mutual interest with for-profit organizations, non-profit organizations (including universities), public and private foundations, state and local governments, and individuals. Since 1988, NIST has signed more than 950 CRADAs.
FY 2003 Budget Request for NIST Laboratories
Mr. Chairman, if there is a single most important theme to our budget request for FY 2003, it is to strengthen the NIST Laboratories to ensure our continued ability to meet the Nation's measurement, standards, and data needs. In the on-going war against terrorism, we are seeing clear evidence that technological superiority is changing the rules of war—in our favor. Technology also holds the key to meeting the Nation's goals in ensuring homeland security and long-term economic growth. And technological innovation, Mr. Chairman, walks hand in hand with measurement science.
I want to start out by emphasizing—indeed, I could not possibly over-emphasize—the critical importance of our request this year for funding for special instrumentation and the construction of research facilities. We are requesting:
$35 million for instrumentation for the new Advanced Measurement Laboratory
In 2003, we will complete construction in Gaithersburg of the new NIST Advanced Measurement Laboratory, a project which is both on schedule and on budget. The AML will be the world's best measurement laboratory, carrying out stringent measurements required by the semiconductor, biotechnology, telecommunications, and other high-technology industries. This work requires not only environments that precisely control vibration, temperature, humidity, and air cleanliness, but also new and highly sophisticated scientific equipment for making fundamental measurements and ever more precise standards, and advanced ''clean rooms.'' The AML will support the U.S. semiconductor industry in manufacturing new generations of devices that are smaller and faster, including development of new materials for a wide range of applications and certification of length measurements to an accuracy of 1.5 nanometers or better.
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For the Nation to reap the benefits of this new facility, it must be outfitted with modern equipment and instrumentation. Ultimately, we will need about 40 major equipment systems. This $35 million would buy the first 15 systems so that the equipment will be in place as the building is occupied beginning next year. The new equipment will support industrial and scientific needs such as lithography at feature sizes of 100 nanometers and less; electron beam processing that can make even smaller feature sizes and can be used to make standards for nanotechnology; one-nanometer resolution comparisons of surface morphologies and crystal structures at low beam voltages; determination of the unit of mass in terms of quantum standards; and very precise measurements of electrical quantities.
We also are requesting a total of $54.5 million in our construction budget, including two significant increases:
$15 million for building fit-up and relocation for the AML
In addition, $15 million is requested as part of the construction budget for final lab-by-lab fit-up and relocation into the AML. This is the lab-by-lab process of the design, installation, and extension of mechanical and electrical services to allow researchers to hook up their equipment and to relocate equipment and furnishings from old laboratories.
$17.3 million for construction at the Boulder Laboratories
The NIST Boulder Laboratories house several of our key facilities, including our Time and Frequency and Quantum Physics divisions, as well as labs devoted to optoelectronics, radio-frequency electronics, electromagnetics, and materials properties. The majority of the buildings in Boulder are almost 50 years old.
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Facility-related problems at the Boulder campus include severe temperature fluctuations and power interruptions that often threaten the quality of NIST data; power outages, spikes, and brownouts that damage sensitive equipment; and poor heating and air conditioning controls that have prevented the on-time delivery of specialized superconducting chips to defense contractors, instrument makers, and other NIST customers.
Mr. Chairman, I recently asked the Boulder staff to give me a conservative estimate of the productivity impact caused by the deteriorating state of the facilities there—as an example, laboratory ''down time'' due to the loss of a critical computer or power supply because of power surges. It costs NIST approximately $7.3 million per year in lost staff productivity, maintenance and repair of facilities and equipment just to keep up with deteriorating condition of the entire facilities. Providing adequate funding to upgrade the Boulder Laboratories starts to pay back with an immediate boost in productivity, and should result in an immediate payback of the investment in less than 5 years.
We have conducted thorough assessments of the situation and prepared a master facilities plan to guide the replacement, renovation, or repair of these buildings so that we can continue to provide the best possible services to our clients. The requested FY 2003 appropriation includes $11.8 million for the first phase of construction of a new central utility plant to supply filtered power, heating, and cooling to the laboratories; and $5.5 million for a new primary electrical service.
Turning to our research agenda, for FY 2003 we are requesting $396.4 million for the NIST Laboratories. Besides the funding to begin instrumenting the AML, we have several other initiatives in our laboratories.
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$6 million to enhance the Center for Neutron Research
An additional $6 million would go to enhance another world-class facility at NIST, our Center for Neutron Research.
Because of their unique properties, neutrons have become one of the essential measurement tools of materials science, biology, chemistry, physics and engineering. Low energy neutrons are used as probes to study atomic and molecular structure. They have a unique ability to illuminate the structures of large macromolecules such as polymers, composite materials, and biological molecules such as proteins; and they can probe magnetic structures, an application of particular interest to the electronics and semiconductor industries.
Unfortunately, producing and using neutrons for measurement is highly complex and requires specialized—and expensive—facilities and skilled, experienced staff. The NIST Center for Neutron Research is at present the only U.S. neutron center competitive with facilities in Europe and Japan and is the most cost-effective such center in the world. We are proud of the Center's record, but in a sense business has been too good. The use of neutrons for measurements in chemistry, materials science, biology, physics, and engineering has expanded into new areas unforeseen when the Center was designed. Over the past decade, the number of researchers using the NIST facility has more than quadrupled. In fact, although there are three other operating neutron research facilities in the U.S., all operated by the Department of Energy, almost the entire growth in neutron research in the U.S. over that period occurred at NIST.
An Interagency Working Group under the President's Office of Science and Technology Policy has examined the status and needs of neutron research in the U.S. and is preparing a report to be issued shortly. One key finding of that report is that U.S. scientists are at a distinct disadvantage in comparison to their colleagues in Western Europe and Japan in this rapidly growing research area because of the relative lack of available facilities in the U.S.
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The $6 million increase we are requesting for FY 2003 will allow us to take some steps to meet this demand for what is a truly unique resource for U.S. science. NIST will build staff expertise for the development of new instruments and capabilities that will allow us to increase the number of users by a minimum of 25 percent, from approximately 1,750 to 2,300 per year, and strengthen key program areas, including:
neutron trace analysis to develop new, ultrahigh-sensitivity methods to detect chemicals and other substances;
neutron chemical spectroscopy to study details of interactions of chemicals with porous and layered materials; and
neutron imaging to conduct two- and three-dimensional studies of materials, devices, and biological systems as well as studies of very large molecules such as proteins.
The balance of our proposed research initiatives directly impact two of the President's top priorities for FY 2003, protection of our homeland and revitalizing our economy.
NIST is playing a key role in enhancing the Nation's ability to prevent and respond to terrorism. Through more than 75 projects, NIST is helping law enforcement, military, science, emergency services, information technology, airport and building security, and other personnel protect the American public from terrorist threats. Three initiatives for FY 2003, totaling $5 million, address additional issues in homeland security:
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Standards, Technology, and Practices for Buildings and Emergency Responders ($2 million)
Last week, I testified before this Committee on the collapse of the World Trade Center towers. I discussed the possible NIST investigation and broader research program. One clear fact is that current building design standards and practices are not adequate to protect the occupants from such unprecedented events.
Current building design practices do not consider fire as a design condition or the consequences of injected fuels or other highly flammable materials. Architects, not engineers, specify fire protection in buildings, and the current testing standards are based on work carried out by NIST in the 1920s.
Progressive collapse—the spread of failure by a chain reaction disproportionate to the triggering event—is an important issue being investigated in the WTC collapse and was responsible for the high number of deaths in the 1995 bombing of the federal building in Oklahoma City. Yet there are no U.S. standards, codes, and practices to assess and reduce this vulnerability.
The requested $2M funding increase in the President's FY03 budget will enable us to support a portion of the research needs in this area, including:
developing predictive models coupling fire dynamics and structural response to account for real fire environments, performance of the entire structure, and performance of connections and interactions,
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developing operational guidance for fire and emergency responders to improve mobility and help assure their safety during chemical and biological terrorist attacks, and
providing cost-effective solutions to reduce building vulnerability based on a multi-hazard approach that exploits synergies in resisting extreme loads.
Critical Information Technologies ($2 million)
In addition to designing buildings that are better able physically to withstand major disasters, more intelligent buildings could significantly affect the outcome in terms of lives saved.
This $2 million increase for the Program for Accelerating Critical Information Technologies will support the development of networked systems of embedded devices (''EmNets'') to detect, prevent, and respond to natural and human-caused disasters. As computing device costs decline and capabilities increase, devices and sensors will be embedded in buildings, office spaces, manufacturing floors, transportation medians, and appliances and will be interconnected using wired or wireless networks. EmNets could offer enormous benefits to personnel responding to a disaster, providing substantial amounts of information in real time that could help to save lives and resources.
As part of this program, NIST will work with emergency response organizations to develop an effective prototype implementation of emerging standards for EmNets with a focus on critical infrastructure protection for cybernetic building systems; develop EmNet technologies and testbed and simulation tools; accelerate the development of relevant critical application techniques such as structured data mining; and lay the groundwork for the development of appropriate ''lightweight'' cryptographic algorithms.
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Computer Security Expert Assist Team ($1 million)
We also are requesting a $1 million increase for the Computer Security Expert Assist Team. This team is based at NIST and provides assistance to other federal agencies on a cost-reimbursable basis. The complex information systems used to ensure military security, enable financial transactions, and conduct essentially all government functions require protection from both natural and purposeful disruptions. Federal agencies are taking action to improve security, but most do not understand what actions to take or in what order. NIST staff members are recognized as world leaders in all aspects of information security issues. The funding supports the administrative cost of maintaining a small team, the methodology, and Web page.
We are proposing initiatives to significantly strengthen our laboratory capabilities in two key areas for the Nation's economy: nanotechnology and health care.
Nanotechnology ($4 million)
As this committee is well aware, nanotechnology is not so much a discipline as a cross-cutting way of looking at fundamental technological advances in a whole range of disciplines—fields as diverse as biotechnology, semiconductors, and even information technology. It is an area with tremendous potential for technological advance and the new capabilities, products, and jobs that means.
In some fields, such as semiconductor manufacturing, it is becoming an absolute necessity. Integrated circuits have been shrinking to the point today where nanoscale measurements are critical to further success. The difficulty inherent in making those measurements is impeding progress in semiconductor manufacturing.
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NIST is a partner in the National Nanotechnology Initiative, a coordinated effort of 10 federal agencies to advance nanoscience and facilitate its incorporation into a broad range of beneficial technologies. The FY 2002 budget for the National Nanotechnology Initiative is about $592 million, and the President's request for FY 2003 is about $707 million.
Against the backdrop of that investment—and of course a sizable effort in private industry—NIST plays a relatively small but unique role. This new frontier of science and technology is critically dependent on accurate measurements. Advances in measurement science are needed to analyze phenomena, to control processes, and to turn discoveries into products.
Measurement, of course, is NIST's special skill, and a relative small investment in measurement research at NIST is highly leveraged in its impact on the rest of the nanotechnology community. Or more simply put, you can not control what you can't measure.
This $4 million budget increase will be used to support the development of nanotechnologies in fields such as health care, semiconductors, information technology, national security, biotechnology, and magnetic data storage. Standard reference materials, data, and measurement systems developed by NIST for the nanoworld will enable the private sector to develop and commercialize innovative nanotech products.
Health Care ($3 million)
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Health care, of course, represents an enormous segment of the national economy, estimated at $1.15 trillion in 1999, or about 13.5 percent of the gross domestic product. It is a field that is developing and changing rapidly with regular advances in biotechnology, information systems, and nanoscale devices.
These advanced technologies have the potential to significantly improve health care and lower costs, but turning them into marketable products and services requires advances in measurements, standards, and data to help ensure the accuracy of diagnoses, improve manufacturing efficiency and market acceptance, and hasten regulatory approval.
To help meet this need, we are requesting an increase of $3 million to expand our measurement support in two particularly important areas:
in vitro diagnostics (IVD), a field including devices used for laboratory analysis of specimens, such as glucose or cholesterol monitors. Of particular concern is a European Union (EU) directive that requires products sold by U.S. companies to meet certain requirements. For many of the potential devices covered by this directive, there are no national or international standards. We will work with the U.S. College of American Pathologists and EU counterparts to establish a program to harmonize the development of IVD standards and protect the interests of U.S. manufacturers.
tissue engineering, a rapidly developing industry that creates products such as synthetic skin, prosthetic implants, and gene therapy. Further progress in this field will require measurements and standards to improve applications through better tissue typing, improved prosthetic materials, mechanisms to control the regeneration of tissues, and safe modification of genetic effects. Among other things, NIST will provide the standards needed to identify and sort different types of cells and verify their genetic health, and to establish procedures for producing and storing engineered tissues.
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Building Competence for Advanced Measurements Program ($4.7 million)
We also are proposing a $4.7 million increase to speed the development of cutting-edge measurement capabilities. Our advanced measurements competence program is used to support basic research to develop and maintain state-of-the-art knowledge in areas of science and engineering related to measurement techniques and data. It is one of our principal mechanisms for initiating new programs, including world-class facilities and Nobel Prize-winning science. New funds are needed to develop additional and interdisciplinary projects to respond to:
the increasingly complex measurement needs of advanced industries,
the shrinking time frames for technology development, and
the rapidly escalating costs associated with advanced measurements research.
FY 2003 Budget Request for Baldrige National Quality Program, the Advanced Technology Program, and the Manufacturing Extension Partnership
Baldrige National Quality Program ($5.8 million)
Last week, I watched President Bush present the Malcolm Baldrige National Quality Award to the 2001 winners, included the first-ever winners in the education category—the Chugach School District in Anchorage, Alaska, the Pearl River School District in Pearl River, New York, and the University of Wisconsin-Stout in Menomonie, Wisconsin. It was a landmark day both for American education and the Baldrige Award.
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A partnership between NIST and the private sector, the Baldrige National Quality Award is an unqualified success story. In fact, an economic study released last fall by researchers from the University of North Carolina and Dartmouth College, estimated that the total economic benefits to the U.S. economy provided by the Baldrige program since its inception came to almost $25 billion. That is a benefit-to-cost ratio of 207 to 1. And the study inflates the cost of the program by assuming that we have to pay for time that is actually volunteered by industry executives.
The Baldrige National Quality Program helps U.S. businesses and other organizations continuously improve their competitiveness and productivity by adopting performance and quality management practices. The program helps many types of companies and organizations deliver ever-improving value to customers, while improving overall organizational effectiveness. It creates a performance excellence standard that fosters communications and sharing in the private sector, building networks to deliver performance and quality management information and services and to share lessons learned with other economic sectors.
Baldrige award applicants receive between 300 to 1,000 hours of review by at least six experts on the board of examiners, giving the applicants valuable insights. The experts provide a detailed feedback report on the organization's strengths and opportunities for improvement. Since 1988, 41 organizations have received the Baldrige award, which is given in the categories of manufacturing, service, small business, education, and health care. Many thousands of organizations use the Baldrige criteria internally to assess and improve their performance.
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The proposed FY 2003 appropriation of $5.8 million will be used to manage the annual award competition, conduct a conference at which Baldrige award winners will share their performance excellence strategies, maintain a comprehensive database on state and local quality awards, and facilitate information sharing among all sectors of the U.S. economy.
Our FY 2003 budget request includes two decreases from previous years. In both cases, these decreases reflect not so much a judgment on the effectiveness of the programs in question as the need to make hard—and prudent—fiscal choices in today's budget environment.
Advanced Technology Program (ATP) ($107.9 million)
The Advanced Technology Program was established to help foster path-breaking technological innovations by U.S. industry. The program co-funds with industry early stage R&D in technically challenging, high-risk projects with the potential for significant impacts on the Nation's economy, the global competitiveness of our industries, and the health and well-being of our people.
The program actively promotes partnerships among companies of all sizes, universities, and other organizations to undertake research that is too costly or risky for individual companies.
And, indeed, it has had its share of successes. ATP-funded technologies have enabled industry to develop products and processes such as a new method for fabricating large, amorphous silicon devices for medical imaging systems that enable better and faster X-ray exams; a bench-top bio-reactor capable of growing large amounts of human cells for cell replacement therapy; and prototype bridge beams made of fiber-reinforced polymer composites—lightweight, corrosion resistant, and less expensive to fabricate and install—that will improve bridge durability.
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The economically important field of ''DNA chips''—ultra-miniaturized DNA analysis laboratories that are revolutionizing DNA research—owe much of their early technology to ATP projects.
And just last June Discover Magazine awarded an ATP project one of its 2001 Innovation Awards for the development of the first commercially viable process for producing polymers from plant sugars—the first polymers derived from an annually renewable resource to compete head-to-head in the market with polymers made from coal or oil.
More than 580 projects, including 185 joint ventures, have been announced since the inception of the ATP, involving a commitment of over $1.8 billion in NIST funds and $1.75 billion in private funds. More than 1,200 organizations have been involved as leads or formal participants, and another 1,200 as subcontractors. More than 160 universities have participated in 310 projects. More than 60 percent of all ATP-funded projects are led by small businesses.
Despite its technical successes, and a strict selection process that makes awards on the basis of peer-reviewed competitions that considers the scientific and technical merit of each proposal and its potential benefits to the U.S. economy, the ATP has suffered from continuing controversy.
Mindful of this history, and mindful too of the program's potential benefits to the economy, the Secretary of Commerce has subjected the ATP to review of its mission, procedures, and design. Based on that review, Secretary Evans has proposed changes to the ATP to:
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make it more responsive to changing research and business environments,
strengthen the program through increased interactions with the university research community,
ensure that the program does not fund product development or marketing, and
provide stability to the program's funding.
This committee has been provided with copies of the Secretary's report, which was released last month. The Department of Commerce is working on proposed draft legislative language that would implement the Secretary's changes.
While the Congress is considering these changes, we are requesting that the ATP be funded at $107.9 million for FY 2003. When combined with carry-over funds from FY 2002, we anticipate this will allow the ATP to meet all of its obligations to on-going projects and permit an estimated additional $34.7 million in new awards next year.
Manufacturing Extension Partnership (MEP) ($12.9 million)
The original blueprint for the MEP called for NIST to provide cost-share support to new centers in the network during their crucial start-up years, after which the Federal funding would be slowly phased out and the centers would become self-sufficient. The $12.9 million FY 2003 budget request would return the MEP to this original plan, which called for the phase out of federal monies to centers after six years of funding.
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The budget will continue NIST cost-share funding for two centers that are less than six years old and allow the MEP will focus on providing a central coordination role. The centers currently recover roughly one-third of their annual operating budgets of the centers through fees collected from client companies. Approximately another one-third of their operating budgets come from state and local funding.
As part of this plan, the MEP will continue to pursue mechanisms that encourage and promote revenue generation to minimize the overall federal investment while ensuring that the mission of serving small manufacturers is not compromised.
Mr. Chairman, the President's requested budget for NIST for FY 2003 represents true stewardship of our resources. It required some difficult decisions, yes, but it takes a clear look at our Nation's priorities for the coming year and marshals our talents, capabilities and means to the maximum effect.
Thank you. I would be happy to answer any questions the Committee may have.
Chairman EHLERS. Thank you. Mr. Wojcicki.
STATEMENT OF MICHAEL J. WOJCICKI, PRESIDENT, THE MODERNIZATION FORUM
Mr. WOJCICKI. Mr. Chairman, Members of the Subcommittee, thank you for giving me this opportunity to speak to you about the Manufacturing Extension Partnership, its value to the U.S. economy, and the necessary role that the Federal Government plays in holding this partnership together. I am Mike Wojcicki, President of the Modernization Forum, which is the trade association for the MEP centers across the country. We provide advocacy, research, and best practice studies for the centers.
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In 1998, Congress repealed the 6-year sunset provision. The decision by this Committee to support the elimination of the 6-year sunset clause was based on research conducted by the legislative and executive branches and independent researchers, whose studies indicated that the MEP system would dissolve if Federal funds were terminated. Congress's decision was not a contested issue. The Technology Administration Act of 1998, which repealed the sunset, was passed on a voice vote in the House and by unanimous consent in the Senate.
What would be the consequences of the Administration's Fiscal Year 2003 request for MEP? First, as many as h of the state governments could follow the Federal lead, either terminating or severely reducing their support for Manufacturing Extension centers, because the state funding is either explicitly or implicitly contingent on the Federal funding. State governments, especially in times of fiscal stress, will invest their limited resources in programs that leverage Federal matching funds. The loss of g of the partnership threatens its very existence, especially when that partner is the Federal Government providing a vital cohesive force that binds as well as leads the partnership.
Second, MEP centers that did continue operations would shift service to larger manufacturers that are able to pay higher fees. Analysis shows that even where state funding is retained, the centers would need to double their hourly rates, thereby pricing their services beyond the reach of many small manufacturers; triple the average size of projects, thereby driving centers to work with larger manufacturers; reduce market penetration rates by a factor of 3, because it is more cost efficient to serve repeat clients; and lastly, reduce the use of private consultants by half in order to retain more revenue.
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The third consequence: private consultants would not step in to serve the small manufacturer market because of the high cost of sales, thus, leaving this important sector of our economy once more largely unserved. Private consultants report significant barriers to working with small manufacturers, particularly, the inability to charge standard prices and recover marketing costs. This becomes especially pronounced when serving the many small manufacturers outside of the major metropolitan areas. The public funds offset the high cost of marketing and sales incurred by working with small manufacturers. As you know, MEP centers do charge for their services and those fees cover the direct cost of delivering the services.
Fourth, there would no longer be a national MEP system without Federal funding. NIST MEP would lose its leverage to build cooperation or ensure quality of service standards among any surviving centers. With Federal funding, however, the MEP system can be a resource for all Federal agencies' small manufacturing interests, such as Department of Defense initiatives to strengthen and integrate U.S. based suppliers of mission critical technologies and components.
Lastly, the national economy would suffer a net loss, as the significant economic impacts generated by MEP would cease to occur. For MEP projects completed in Fiscal Year 2000 alone, the client firms reported $2.3 billion in increased and retained sales (a cost savings of $483 million) and more than 25,000 jobs created or retained. These client impacts translate directly into a positive return to the Federal Government that is conservatively estimated to be $4 in Federal tax revenue for every $1 invested in the program.
To summarize, in 1988, Congress embarked on a bold experiment with MEP. What was understood at that time was the critical need to help small manufacturers become more competitive and productive. MEP has succeeded in proving the objective of the experiment, the increased competitiveness of America's small manufacturers. Program experience, however, revealed that the public mission of serving small manufacturers could not be maintained without Federal support as a catalyst. Congress addressed this concern in 1998 by repealing the 6-year sunset provision. Congress made the right decision then and we ask that Congress reaffirm that decision by reauthorizing NIST MEP and maintaining the Federal share of our partnership.
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Mr. Chairman, again, I thank you and the Subcommittee for the opportunity to appear before you today, and I will be happy to answer any questions you may have.
[The prepared statement of Mr. Wojcicki follows:]
PREPARED STATEMENT OF MICHAEL J. WOJCICKI
Mr. Chairman, Members of the Subcommittee, thank you for giving me this opportunity to speak to you about the Manufacturing Extension Partnership, its value to the U.S. economy, and the necessary role that the Federal Government plays in holding this partnership together.
I am Michael Wojcicki, the President of the Modernization Forum, which is the trade association for the MEP Centers across the country. The Modernization Forum provides advocacy, research, and best practices studies for the Centers.
Background
I would like to provide you with a brief history of the MEP Program. In 1988, Congress created MEP as a way to accelerate the transfer of advanced technologies from NIST and other federal laboratories to our nation's smaller manufacturers. A six-year sunset was established on the premise that MEP Centers would achieve self-sufficiency by licensing advanced technologies from federal laboratories. However, based on practical experience and confirmed by a 1991 GAO study(see footnote 1) recommending re-direction, MEP's focus changed from the transfer of advanced federal technologies to a market-driven mission of assisting small manufacturers to adopt modern manufacturing and business practices.
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The GAO report concluded: ''The primary need of most small manufacturers is for proven, off-the-shelf automated technologies that would enable them to raise productivity, improve product quality, and respond to changing market conditions. In contrast, most small manufacturers cannot effectively use advanced, state-of-the-art automated technologies developed at NIST and other federal laboratories because they generally do not have the resources or trained personnel to incorporate such technologies into their operations.''(see footnote 2)
In 1998, Congress repealed the six-year sunset provision, recognizing that the assumption on which it was based—centers retaining royalties and licensing fees from selling and disseminating advanced federal technologies from the labs—was no longer relevant. At the same time, Congress recognized the revised mission of MEP and affirmed its support for that new mission on an on-going basis. The decision by this committee to support the elimination of the six-year sunset clause was based on research conducted by the Executive Branch and independent researchers, whose studies indicated that the MEP system would disintegrate if federal funds were terminated. Congress' decision was not a contested issue. The Technology Administration Act of 1998, which repealed the sunset, was passed on a voice vote in the House and by Unanimous Consent in the Senate.
MEP is recognized across the country and around the world as a model of federal-state-private partnership. The National Governors' Association has a standing policy in support of MEP. The Organization of Economic Cooperation and Development (OECD) in Europe has also cited MEP as an exemplary program.(see footnote 3) Recently, Inc. Magazine(see footnote 4) and Investor's Business Daily(see footnote 5) have praised MEP as an innovative federal program filling a unique niche for small manufacturers and delivering beneficial results for them. I have included copies of these articles as attachments to my testimony.
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Consequences of Reduced Federal Funding
What would be the consequences of the Administration's FY 2003 request for MEP?
1. State funding in two-thirds of the states would be seriously jeopardized due to the loss of the federal partnership. Many of the Centers in these states would close or drastically reduce services.
2. The few Centers that did survive would no longer concentrate on small manufacturers. In order to survive, they would be forced to turn their attention to the more profitable large manufacturer market already served by private consultants.
3. Private consultants would not step in to serve the small manufacturer market because of the high cost of sales, thus leaving this important sector of our economy once more largely unserved.
4. There would no longer be a national MEP system. The states would have no incentive to be guided by federal management. The coordination and leadership for multi-state supply chain projects as well as continuous improvement within the system would be lost.
5. The national economy would suffer a net loss as the significant economic impacts generated by MEP would cease to occur.
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1. State Funding
As many as two-thirds of the state governments could follow the federal lead either terminating or severely reducing their support for manufacturing extension centers. In twelve states, the investment in MEP is contingent by statute or contract on the federal funding it leverages. Three of those states are represented on this subcommittee—California, Connecticut, and Michigan. Another twenty-two states confirm that this contingency is clearly understood although not defined in law. Several of those states are also represented on this subcommittee—Maryland, Minnesota, New York, Utah, and Washington. Only nine states suggest that their state support would not be affected by the loss of federal funding. These states do, however, note that fewer small manufacturing clients would be served and economic impacts would be reduced.(see footnote 6)
Does this mean that the states do not value their manufacturing extension centers? No. What it means is that state governments, especially in times of fiscal stress, will invest their limited resources in programs that leverage federal matching funds. The states rightly consider MEP as a partnership with the Federal Government. The loss would be not only financial but also one of leadership. The loss of one-third of the partnership threatens its very existence, especially when that partner is the Federal Government providing a vital cohesive force that binds as well as leads the partnership.
2. Mission Shift to Large Manufacturers
MEP Centers that did continue operations would shift service to larger manufacturers that are able to pay higher fees. Without the federal incentive to serve the small manufacturer market, MEP Centers would be driven to concentrate on the more profitable large manufacturer market in order to survive. A 1998 analysis of the loss of federal funding, which is still relevant today, concluded that surviving MEP Centers would serve fewer small manufacturers, charge higher fees, broker fewer projects to private consultants, and focus more on repeat customers rather than market penetration.(see footnote 7)
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Even in the scenario where state funding is retained, the report concluded that those Centers would need to:
a. double their hourly rates thereby pricing their services beyond the reach of many small manufacturers,
b. triple the average size of projects thereby driving centers to work with larger manufacturers,
c. reduce market penetration rates by a factor of three because it is more cost efficient to serve repeat clients, and
d. reduce the use of private consultants by half in order to retain more revenue.
3. Private Consultant Barriers
Small manufacturers are vital to our economy but they are an expensive market to serve. A National Research Council study in 1993 found that most small manufacturing firms lack the expertise, access to information, and financial resources to modernize through the adoption of new technologies and management methods.(see footnote 8) A 1997 survey found that smaller manufacturers are not sophisticated buyers of expert help, and therefore, private consultants report significant barriers to working with small manufacturers. These barriers include the inability to charge standard prices and recover marketing costs.(see footnote 9)
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Private consultants are reluctant to pursue the small manufacturer market because the marketing and sales costs often exceed the potential earnings from smaller scale projects. This becomes especially pronounced when serving the many small manufacturers outside of the major metropolitan areas. The public funds—federal, state, and local—offset the high cost of marketing and sales incurred by working with small manufacturers. As you know, MEP Centers charge their client firms for services. Those fees cover the direct, or variable, costs of delivering the services.
The ''invisible hand'' of capitalism is an efficient distributor of resources to maximize profit but not necessarily to serve a public mission. Small manufacturers employ 11.3 million Americans, which is two-thirds of all manufacturing employees in our country. Small manufacturers produce 55 percent of the value of all U.S. manufactured goods. But they are a difficult and expensive market to serve. MEP was created in 1988 to provide this public service and, in its absence, the important small manufacturer market would once again go largely unserved.
4. Disintegration of National MEP System
If federal funding for MEP Centers were to end, the NIST MEP Program Office would lose its leverage to build cooperation or ensure quality of service standards among any surviving and now independent state-funded or privately-funded centers. The remaining centers would not be able to leverage a national network of centers to work with supply chains dispersed across multiple states, nor would they have the driving force towards continuous improvement that comes with NIST MEP's rigorous evaluation and accountability oversight. As long as the Federal Government is an investing partner, the MEP system can be a nationwide resource for all federal agencies with an interest in the performance of small manufacturers. For example, Department of Defense initiatives to strengthen and integrate U.S. based suppliers of mission-critical technologies and components will create significant challenges for domestic manufacturers, especially small manufacturers with limited resources.
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For example, Fabritech, a small company with 20 employees in East Alton, Illinois, builds and refurbishes hydraulic, pneumatic, and electromechanical systems for military aircraft, including the Apache helicopter. Just days after the September 11 attack, the Army doubled its delivery order for a key military aircraft part needed to support the air campaign in Afghanistan. Fabritech was able to meet the surge in demand because it had just implemented a new Enterprise Resource Planning (ERP) system with the help of the Illinois Manufacturing Extension Center.
Another example is Garrett Electronics in Garland, Texas, which employs about 100 people and manufactures hand-held and walk-through metal detectors. In 2001, the Texas Manufacturing Assistance Center helped the company implement lean manufacturing techniques that reduced cycle time by 75 percent and reduced floor space needs by one-third. As a result, Garrett Electronics was able to meet a 300 percent surge in demand for security units since September 11.
5. Net Loss to Federal Government
MEP provides a positive return on the federal investment. For MEP projects completed in FY 2000 only, the client firms reported $2.3 billion in increased and retained sales, cost savings of $483 million, and more than 25,000 jobs created or retained. Significantly, the surveys also find that MEP involvement is a catalyst for additional modernization by firms, which reported over $883 million in new investment as a result of MEP services.(see footnote 10) Even if we were to reduce these impacts by half, they would still stand as a powerful testament to the success of our centers across the country.
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These client impacts translate directly into a positive return to the Federal Government. Independent analysis shows that MEP services increase corporate and personal tax payments by significantly growing the before-tax profits of small manufacturers and by stabilizing or growing the manufacturing workforce. A conservative estimate of the return on federal investment in MEP Centers is $4 in federal tax revenues for every $1 invested in the program.(see footnote 11)
Summary
To summarize, in 1988, Congress embarked on a bold experiment with the MEP. What was understood at that time was the critical need to help small manufacturers become more competitive and productive. MEP has succeeded in proving the objective of the experiment—the increased competitiveness of America's small manufacturers. Program experience, however, revealed that the public mission of serving small manufacturers could not be maintained without federal support as a catalyst. Congress addressed this concern in 1998 by repealing the six-year sunset provision. Congress made the right decision then and we ask that Congress reaffirm that decision by reauthorizing NIST MEP and maintaining the federal share of our partnership.
Mr. Chairman, again I thank you and the Subcommittee for the opportunity to appear before you today, and I will be happy to answer any questions you may have.
Attachments:
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''Made in the USA,'' Inc. Magazine, January 1, 2002.
http://www.inc.com/search/23801.html
''Manufacturers Get Tech Help from U.S. Government,'' Investor's Business Daily, Wednesday, February 20, 2002.
http://www.investors.com/terms/reprints.asp
''State Responses to Proposed Cut in MEP Funding,'' The Modernization Forum, February, 2002.
http://www.modforum.org/FY03StateFundingSurvey.htm
''MEP: A Sound Investment in America's Industrial Base,'' The Modernization Forum, February 2002.
http://www.modforum.org/Sound%20Investment%202002.pdf
''MEP: Now, More Than Ever,'' The Modernization Forum, March, 2002.
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Chairman. EHLERS. Thank you. Ms. Klohs.
STATEMENT OF BIRGIT M. KLOHS, PRESIDENT, THE RIGHT PLACE PROGRAM
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Ms. KLOHS. Thank you, Mr. Chairman, Members of the Subcommittee. I appreciate the opportunity to address you today on our work with small to medium manufacturers at the West Michigan MMTC Center in Grand Rapids. I am Birgit Klohs, President of the Right Place Program in Grand Rapids, Michigan, or God's country. We are the regional economic development organization, a private not for profit. I am also the Director of the Michigan Manufacturing Technology Center for West Michigan.
For the past 17 years, the Right Place Program has been working to retain, expand, and attract businesses to our region. At the heart of our retention work is our work with the MMTC to work with small and medium manufacturers to assist them. Our involvement with MMTC started over 12 years ago when our manufacturing community asked us for assistance beyond the bricks and mortar that a normal economic development organization provides. We became involved with MEP by coauthoring the initial grant proposal and have been an affiliate since 1991. Our constituents are 4,000 manufacturers in 17 counties, 87 percent of which have less than 100 employees. Last year, we assisted 538 of those companies directly through our programs with the MMTC.
Economists from the W. E. Upjohn Institute analyzed our regional economy for the last five years and compared it to similar sized regional economies around the United States. They learned that among West Michigan manufacturers, earnings are higher than at any of the other communities. We directly attribute these higher earnings ratio to our work with the MMTC by bringing these small and medium manufacturers new information technologies, and progressive management practices, such as lean manufacturing, to improve their performance by eliminating waste.
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Michael Gallis from North Carolina has recently done a similar study for our 17-county region and compared us to ten regions in the upper Midwest. We had the fastest employment growth, the fastest population growth, but most importantly, our manufacturing employment grew by 60 percent. We still employ 26 percent of our employees in manufacturing and 42 cents out of every dollar earned in West Michigan is a manufacturing dollar. These studies show that economic growth would not have been possible without the assistance of the MMTC.
We have industry councils, such as an office furniture industry council, a tooling counsel, and information technology council, that help to improve industry performance. We design learning programs for manufacturers, serve as the manufacturer's voice on public policy issues, serve as catalyst to reduce waste in business practices, and provide forums for manufacturers to share best practices. At the company level, we are for learning programs that raise the awareness of emerging manufacturing issues and provide an environment for companies to learn from each other directly. We provide consulting services, where the consultant actually reduces their cost to the small manufacturer because the MMTC pays for the marketing. The manufacturer pays less because they can share the cost of that consultant, therefore, and sustain their improvements after the program is over.
Our learning programs include user groups, workshops, executive briefings, tools of best practice, and industry conferences. We provide learning materials, private consulting, and economic development peers, and the MEP network links us with those resources nationwide.
Federal funds from the NIST MEP program are matched by state funds and fees for services paid for by manufacturers. The MMTC public funding is used to support our outreach activity, informational events, program development, and industry benchmarking assessments.
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Two of our customers I would like to describe to you, one is Monarch Hydraulics, the oldest continuously operating manufacturing company in Michigan, with 200 employees in downtown Grand Rapids. They manufacture hydraulic power units, and joined one of our councils 14 years ago. We have been assisting them for 11 years in purchasing, plant management, continuous improvement, and lean enterprise user groups. They have reduced their manufacturing throughput by 50 percent, giving them the shortest lead time in the industry. They had a 300 percent increase in the speed that inventory moves through their plant. They reduced their plant usage by 35 percent, giving them enough space to start another company in the company. They had a 22 percent reduction in inventory.
Chardon Rubber in St. Joseph, Michigan came to us and wanted to do a benchmarking survey, how they would compare to other companies in their industry. They make plastic intrusion and injection molded products for the very competitive automotive industry. When we had the benchmarking survey finished, we then assisted them with setup time, reduction time, and shop floor user groups. They have since reduced their scrap by 54 percent, making them one of the most productive plants in their industry.
It is this kind of work, Mr. Chairman and Committee, that we would like to continue. If the MEP program and the MEP system goes away, I am afraid that the state funding for Michigan will also cease, and much of the work that we have done in those 17 counties will come to a halt. I appreciate your time this morning and would be happy to answer any questions.
[The prepared statement of Ms. Klohs follows:]
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PREPARED STATEMENT OF BIRGIT M. KLOHS
INTRODUCTION
I am Birgit Klohs, the President of The Right Place Program, a regional, public/private economic development organization serving greater Grand Rapids, Michigan, and director of the Michigan Manufacturing Technology Center's West Michigan office.
BACKGROUND
Thank you for inviting me to speak about our work with small and mid-size manufacturers. For the past 17 years, The Right Place Program has focused on retaining, expanding and attracting businesses to West Michigan. At the heart of our retention work is the assistance we provide area manufacturers as the West Michigan Regional office of the Michigan Manufacturing Technology Center, or MMTC.
Our involvement with the MMTC started when local manufacturers began asking us to provide assistance beyond the traditional ''bricks-and-mortar'' of economic development. We responded to this request by co-authoring the state's MEP grant proposal. We became the West Michigan MEP affiliate in 1991, and as such, we serve a constituency of 4,000 manufacturers—87 percent of whom have less than 100 employees—in a 17-county region. The region encompasses both urban metropolitan areas such as Grand Rapids, Kalamazoo, Battle Creek and Muskegon, and rural communities such as Homer, Belding, Vicksburg and White Pigeon. MMTC–West has a staff of 6 people, and the manufacturers we serve are primarily in the office furniture, tool and die, mold making and automotive supplier industries. Last year, we provided direct assistance to 538 manufacturers.
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REGIONAL ECONOMIC DEVELOPMENT
The assistance we have been able to provide as MMTC–West regional office has directly contributed to the economic health of our region. Economists from the W.E. Upjohn Institute for Employment Research studied regional economic data for the past five years and found that earnings growth among West Michigan is higher than any other manufacturing community in the country. The report directly attributes that performance to the increased productivity gained by manufacturers' use of new, information technologies and progressive management practices like Lean Manufacturing—a series of tools for increasing productivity by eliminating waste.(see footnote 12)
Findings from a separate study by Michael Gallis & Associates, showed that for the past 30 years, our area has outperformed 10 other comparable metropolitan regions in the upper-Mid-West with populations of more than one million.
The ninth-largest economy of the group, with six Forbes 500 (private) and one Fortune 1000 company, West Michigan experienced:
the fastest rate of employment growth;
the fastest rate of population growth (twice as fast as the state of Michigan); and
the fifth-largest per capita income growth.
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The study also showed that during that time, West Michigan manufacturing jobs increased 60 percent, in contrast to an 11 percent to 43 percent decline for the other 10 regions.(see footnote 13)
These studies show an economic growth that would not have been possible without the support of the MMTC. By focusing on Michigan's 15,500 manufacturers with fewer than 500 employees, the MMTC supports the very firms that contribute the most to job creation.
THE RIGHT PLACE AND MMTC PROGRAMS
The Right Place Program/MMTC–West's services support small manufacturers in West Michigan through industry advancement, company improvement, and individual development.
Industry Advancement Services
Industry councils that we convene and facilitate provide a vehicle for manufacturing leaders to address issues that affect an entire industry or group of manufacturers. In this role, the Manufacturers Council and Office Furniture Industry Council may design learning programs for manufacturers, serve as the manufacturers' voice on public policy issues, the catalysts for waste reduction in business practices, and the hosts of forums for sharing best practices.
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The Manufacturers Council's mission is to promote, facilitate, and enable implementation of ''world class manufacturing'' principles and practices among manufacturers. To fulfill that mission, the council follows three basic strategies:
To provide a forum for interaction among executives to network, including:
meeting to discuss issues of importance to manufacturers,
hosting the Right Place Program's Sunrise Series of CEO briefings on emerging manufacturing issues,
hosting industry conferences, and
serving as industry champions for Right Place Program user groups and tours of best practice.
To articulate and prioritize the needs of area manufacturers by:
convening members of the public sector to provide awareness and perspective on policy issues that affect the competitiveness of manufacturers, and
participating in working groups to create strategies for addressing such issues as:
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the changing structure of the tool, die and industrial mold industries,
implementing integrated supply chain management, and
e-business strategies for manufacturers.
To improve the preparation of the local workforce by contributing to the continuous improvement of community workforce development systems including:
serving as advisors to local and state workforce development systems,
providing work-based learning opportunities for area students,
developing an introduction-to-manufacturing curriculum for high school and community college students, and
working in partnership with local media to promote manufacturing as a career of choice.
The mission of the Office Furniture Industry Council is to ensure growth by creating value and eliminating waste in the customer, supplier relationship. To fulfill that mission, the OFIC has:
participated in a Delphi Study of office furniture industry trends,
standardized business practices between office furniture manufacturers and suppliers,
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created quality standards specific to the industry,
participated in industry benchmarking studies,
advocated for the development of women- and minority-owned suppliers,
and hosted a number of industry forums, user groups, and tours of best practice.
Recently completed council projects include:
Revised Standard Color Approval System
OFI–9000 Supplier Quality Survey and supplier compliance initiative—Through this project, 249 area suppliers that did not have established quality systems, completed a process to implement a baseline quality system, thus improving their performance to the industry.
Initial Sample Inspection Requirements (ISIR)
Supplier Diversity Handbook and resource library
Textiles quality standard.
There is no cost to members of The Right Place Program/MMTC West's Councils, except for their time and the time of the companies' in-house experts in areas such as environmental management, e-commerce and supplier development.
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Company Improvement Programs
At a company level, we offer learning programs that raise the awareness of emerging manufacturing issues, and that provide an environment for manufacturers to share best practices and learn directly from one another. A content expert from our network of consultants supplies content that is not provided by participating manufacturers. These private-sector consultants reduce their fees when working with us because they do not have bear any marketing costs to reach the client. The daily rates our clients pay for services range between $800 and $1,600, depending on the level of technical knowledge required. Manufacturers save not only by sharing the cost of the consulting assistance, but also by learning how to sustain their improvements themselves.
Inter-firm learning programs offered through our offices include user groups, workshops, executive briefings, tours of best practice, and industry conferences. The fees for these programs range from $75 for an informational workshop to $300 for a multiple-day training class. MMTC–West adds a small fee, usually between 3 and 10 percent, to cover associated product development expenses.
Individual Development Programs
At an individual level, we offer certification programs, such as ISO/QS 9000 lead auditor certification, that allow an individual to improve his or her skill level in a particular discipline. In cases where another private-sector provider offers such training, we will often co-sponsor a training event to bring this program to our customers at a reduced cost.
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Individuals can also develop their skills through participation in one of the many manufacturing profession user groups we sponsor. The Right Place Program/MMTC–West has ongoing user groups for CEOs, plant managers, human resources specialists, sensor technicians, shop floor leaders, and purchasing and supply chain managers. In fact, through working with our Supply Chain Management User Group, Western Michigan University has developed a curriculum and a degree program in supply chain management that will credential individuals in the skills, practices and techniques necessary to manage a diverse group of suppliers.
The MEP network gives The Right Place Program access to:
nationally standardized training and implementation materials,
a referral network of private consultants, and
a forum to exchange information with industry experts and our economic development peers.
Through the MEP website, our staff can post a question to the community of manufacturing specialists at large and receive advice and counsel from our counterparts at other MEP Centers.
Federal funds from the NIST–MEP program are matched by funds from the state of Michigan and also by fees paid by companies who use the services. The federal portion is roughly a third of the MMTC's overall budget. MMTC's public funding is used to support outreach activity, informational events, program development, communications, and industry benchmarking assessments.
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Statewide, MMTC employs a staff of 50 in six regional affiliate offices. The headquarters and Southeast Michigan office are co-located in Plymouth (near Detroit), Michigan. The other five out-state offices are managed by contract and have rigorous reporting and performance requirements to the MMTC Central Office
EXAMPLES FROM OUR CUSTOMER FILES
In 2001, The Right Place Program assisted 538 manufacturers through these programs. The manufactures range in size from Jaco Tool & Die, an eight-person shop in Grand Rapids to the 450-person Donnelly Corporation plant in Newaygo. Allow me to give you some detail on a few of our customers.
Mitco Incorporated
Mitco is a Grand Rapids-based specialty chemical manufacturer that produces treatment chemicals for wastewater, boilers and cooling systems as well as specialized sanitizers. Mitco employs 80 people, and serves customers in a variety of industries in the U.S., Canada, Mexico, and South America.
Mitco wanted to be one of the first companies to hold themselves accountable to the ISO 14001 international standard for environmental management systems. Since the company had been a member of MMTC–West's ISO 9000 quality user groups, its management team asked us to help implement an environmental management system.
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MMTC–West drew on the expertise of an industrial ecologist in MMTC's Southeast Michigan office to assist Mitco. Working one-on-one with Mitco, MMTC's staff person helped the company identify its significant environmental impacts, work through implementation issues, and review procedures and documentation. In December 1999, Mitco became one of only 550 U.S. companies at that time to be ISO 14001 registered. Achieving this registration was a badge of honor for the company, and was hard evidence of its commitment to environmentally conscious manufacturing practices.
Monarch Hydraulics, Incorporated
I met George Jackoboice of Monarch Hydraulics 14 years ago. Monarch Hydraulics is the oldest continuously run family businesses in Michigan, manufacturing hydraulic power units for a variety of ergonomic, accessibility, hoist and tailgate applications, and employing about 200 workers in Grand Rapids.
I personally invited George, and later his brother, John Jackoboice, to join our Manufacturers Council. George was one of the early members of the Council, which started in 1989. Monarch's current Chairman, John, is now the Chairman of the Council.
Monarch's Council activity led to its involvement in our Purchasing, Plant Management, Continuous Improvement and Lean Enterprise user groups. One significant impact of Monarch's involvement in these user groups, was its ability to re-organize its manufacturing processes, making 35,000 square feet of its existing floor space available for new projects. As a result, the company combined two existing operations into one location, thus reducing operating costs and increasing sales per labor hour by 35 percent.
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Additional benefits included:
Increased employee involvement
Reduced throughput by 50 percent, giving Monarch the shortest lead times in its industry
22 percent reduction in inventory
300 percent increase in the speed that inventory moves through the production process.
Chardon Rubber Company
Another customer, Chardon Rubber, is located in St. Joseph, Michigan. Chardon is a plastics extrusion and injection molder that employs about 100 people, and sells its products primarily in the fiercely competitive automotive supplier market.
John Larsen, Chardon's General Manager, sought information on how his company was performing relative to plants like his. Our Performance Benchmarking Service provided John with a detailed ranking on a host of key performance metrics free of charge. Companies outside of Michigan pay $500–800 to take part in MMTC's Performance Benchmarking program.
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Using those results as a starting point, we developed a plan with Chardon to improve the company's performance. Using what they learned in MMTC's Lean, Set-up Time, and Shop Floor User Groups, Chardon employees have made significant improvements including a 54 percent reduction in scrap during the past two years.
Chardon's continued participation in the Benchmarking program has allowed them to monitor their improvements. John Larsen tells us that our Benchmarking reports are a key input to the company's strategic planning process, and he believes that the program helps Chardon maintain an edge over their competition.
Both Chardon Rubber and Monarch Hydraulics also participate in our Progressive Tours of Best Practice. A conference/tour hybrid, this event includes interactive tours at multiple facilities, workshops and presentations from nationally recognized speakers. We've found that this type of shared learning transfers new competitive business practices faster than even one-on-one consulting ever could, and fosters continued networking among tour participants.
Sadly, it is our network facilitation and convening of companies to work toward their common goals—whether through tours, user groups, or councils—that will be decimated if the federal—and matching state—funding for MEP is eliminated.
THE CONSEQUENCES OF THE LOSS OF FEDERAL FUNDING
Absent continued federal support of the MEP Program, the manufacturers in West Michigan—and across the country—will lose the vital assistance they need to modernize and grow their operations and our economy.
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In Michigan, the state funding is contractually tied to the federal funding, and so The Right Place Program would lose $700,000 in public support. This loss would mean:
a contraction in our service area—from 17 counties to focusing only on the greater Grand Rapids area;
the discontinuation of the outreach activity, informational events, program development, communications and industry benchmarking assessments that the public money supports;
the pursuit of larger projects with larger companies in metropolitan areas to minimize the cost of sales;
and the loss of the support staff essential to carrying on the work of our Manufacturers' Council and Office Furniture Industry Council.
Since I expect that other MEP Centers around the state and across the country would face problems similar to ours, the end of federal funding for the MEP network would mean:
the loss of access to a broad network of manufacturing expertise and resources;
the end of coordination of services to supply chains that cross state boundaries;
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the demise of one of the most rigorously monitored federal programs that ensures center performance, financial accountability, and manufacturing results;
and the death of the broad public mission to improve the performance of small and mid-sized manufacturers in the United States.
If the federal funding were to be cut, the biggest losers would be the nation's small and mid-size manufacturers. They would face:
higher fees for service;
greater obstacles in finding assistance for their modernization and continuous improvement efforts;
and the loss of coordination for network, council, and other collaborative activities.
This last point is key. I do not know of any private consultants, or, for that matter, colleges, universities, chambers of commerce, or other organizations that will coordinate shared learning and networking activities for small and mid-size manufacturers if the The Right Place Program is not able to fill this role.
CONCLUSION
Without the support of The Right Place Program/MMTC–West, area manufacturers would not have had a system through which they could learn from each other, share best practices and improve industry performance. Access to private sector consultants would have been cost-prohibitive for many of our manufacturers—87 percent of which have fewer than 100 employees. And the voice of industry would have been lost in such broad issues as workforce development, community planning, and industry collaboration.
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For these reasons, I urge this committee to reauthorize the NIST–Manufacturing Extension Partnership for $110 million. MEP Center Directors from across the country, including MMTC Director Mike Coast and Associate Director Kristin Dziczek, join me in my appeal to the members of this Subcommittee. Only by providing the federal share of the program funding will Congress ensure the continuation of the work that MMTC–West and our sister organizations in Michigan and across the country do to help improve the Nation's small and mid-sized manufacturers.
Thank you, Mr. Chairman and Members of the Subcommittee, for providing me the opportunity to address you today. I will be happy to answer your questions.
Attachments:
Biography of Michael Gallis: http://www.wm-alliance.org/index.jsp?pageID=86
Midwest Metropolitan Statistical Areas, Percent Change in Manufacturing Employment: 1970–1999. Source: U.S. Department of Commerce, Bureau of Economic Analysis
Midwest Metropolitan Statistical Areas, Percent Change in Total Employment: 1970–1999. Source: U.S. Department of Commerce, Bureau of Economic Analysis
Biography for George A. Erickcek, senior regional analyst of the W.E. Upjohn Institute for Employment Research
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BIOGRAPHY OF MICHAEL GALLIS
MICHAEL GALLIS & ASSOCIATES
Michael Gallis has created a unique program that educates regional leaders and citizens about the opportunities and challenges they face in today's global economy and provides an informational framework for them to make decisions about their area's future. Gallis' work has stood alone in the country as an in-depth program to analyze and understand the form, structure, dynamics and relationships that are creating the future of the world's metropolitan areas. He has worked with thousands of leaders in cities across the country helping them achieve success for their regions.
Gallis is principal of Michael Gallis & Associates, a strategic planning and design firm that has developed several specialties in the areas of large-scale metropolitan and regional planning, real estate marketing and development analysis, transportation solutions, land use impact planning and comprehensive multi-modal airport planning and development. The firm has been involved in major strategic planning projects for cities, counties and metropolitan regions, as well as multi-modal airport development projects including road and rail surface networks. Michael Gallis & Associates also has pioneered efforts in developing comprehensive and integrated alternatives for long-range regional land use and transportation strategies.
Regional development projects completed by Michael Gallis & Associates include those for the Charlotte, Boston, Cincinnati and Memphis metro regions, as well as a significant project for the state of Connecticut. Gallis also was selected to join a technical assistance team sponsored by the U.S. State Department and sent to Poland to provide advice on major metropolitan development.
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The firm's efforts have resulted in the building of effective, cooperative communities and regional coalitions, as well as long-term, multi-use, public-private-institutional coalitions throughout the nation. Michael Gallis & Associates has received a National Design Award from the U.S. Department of Transportation and the National Endowment for the Arts, and also has received two National Economic Development awards for its work in the Concord-Cabarrus region of North Carolina.
Before forming Michael Gallis & Associates in 1988, Gallis was an associate professor at the College of Architecture at the University of North Carolina at Charlotte teaching architecture and urban planning courses. In addition, Gallis is the first Fellow of the Urban Institute. He has more than 30 years of professional and teaching experience. Gallis also is called upon to make numerous local, national and worldwide presentations on regionalism, globalism, planning, architecture and art.
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BIOGRAPHY FOR GEORGE A. ERICKCEK
W.E. UPJOHN INSTITUTE
The W.E. Upjohn Institute is an independent, nonprofit research organization devoted to finding, evaluating, and promoting solutions to employment-related problems. In conformity with its charter, the Institute pursues three broad objectives:
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1. Contribute at the forefront of economic scholarship to issues of public and private employment and unemployment policy.
2. Link research based on evaluation, experimentation, and econometric analysis to practical issues related to the most effective design, implementation, and administration of employment-related programs.
3. Communicate new knowledge and scholarship effectively to a wide audience of policy makers, practitioners, and researchers.
The Institute is comprised of two divisions: the Research Division with a staff of 35, and the Employment Management Services Division with a staff of 15. Combining research activities with the function of administering employment programs and providing employment-related services to unemployed workers advances the Institute's original purpose of finding and promoting practical solutions to employment-related problems. The two divisions are housed in three buildings, forming a campus-like setting in an historical area of downtown Kalamazoo, Michigan.
George Erickcek is the senior regional analyst of the W.E. Upjohn Institute for Employment Research and provides research and analysis on regional economic issues concerning West Michigan. He prepares regional economic impact studies for area firms, institutions, and local development efforts. His most recent publications include the Fifth Edition of ''The Benton Harbor Area Benchmarking Study''; ''Core Cities and their Public Schools,'' in Business Outlook for West Michigan; ''Local Partnership Organizations in the United States,'' a draft report for the OECD/LEED Programme Study on Local Partnerships (with Randall W. Eberts); and ''Why Employers Use Temporary Help Employment in Tight Labor Markets: Evidence from Case Studies of Hospitals and Auto Suppliers,'' (forthcoming with Susan N. Houseman and Arne Kalleberg). Erickcek received his M.A. in Economics from the University of Pittsburgh in 1982. Prior to joining the Institute in 1987, he served as Economic Analyst for the West Michigan Regional Planning Commission.
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Chairman EHLERS. Thank you. Dr. Hill.
STATEMENT OF CHRISTOPHER T. HILL, VICE PROVOST FOR RESEARCH AND PROFESSOR OF PUBLIC POLICY AND TECHNOLOGY, GEORGE MASON UNIVERSITY
Dr. HILL. Good morning, Chairman Ehlers and Members of the Subcommittee. Thank you for the opportunity to talk with you this morning about the ATP. I am not from Michigan, but many of my friends are and I hope you will indulge me.
Today I would like to tell you about the origins of the ATP, about how it reflects and supports a national consensus in favor of government-university-industry cooperation in R&D and about why it has been so controversial. But alas, we have no time for that. Instead, I am going to focus on four of the proposals in the recent Evans report for reform of ATP.
The first one would allow institutions of higher education to lead ATP joint ventures. Currently, universities may participate in ATP joint ventures, but not in the lead. They can't organize them and they can't be in charge of the proposal. I believe this reform should be adopted. The analysis in the Evans report is sound. However, university led ATP projects should include a substantial financial and technical participation by industry if the goals of the program are to be achieved. ATP should not become simply another mechanism for the Federal Government to fund university based research.
The second reform would amend the ATP statute to permit universities and other nonprofit members of ATP joint ventures to negotiate for rights in intellectual property, call it IP, resulting from these ventures. Presently, ATP has in effect the statutory exemption from the Bayh-Dole Act. Under Bayh-Dole, universities may take title to inventions. Made using Federal funds, but ATP requires the title of such inventions to go to the industrial partners. This can be a major barrier to university participation. I believe the proposed reform is reasonable, especially since most universities that insist on owning IP will negotiate for an exclusive license to their industrial partners. Once again, there is a ''however.'' If this change is made, ATP funding of joint ventures with universities as partners should require the parties to agree on the disposition of intellectual property before the award is made. It is too hard to negotiate it afterward.
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I would point out that the proposed reform does not apply Bayh-Dole to ATP joint ventures. Instead, it would only permit the university joint venture partner to negotiate for IP rights. Bayh-Dole goes further than this.
I want to comment on the third reform, which is to retain large firm participation in ATP joint ventures. The opposition to ATP funding of large firms is understandable. Large firms, the argument goes, can surely find the funds to carry out a promising ATP type project without government help. But I believe that this attitude reflects a misunderstanding of what the ATP is supposed to do. ATP is intended to encourage the development and widespread application of new technology. It is not intended to ensure the success of a particular firm that it funds, although such success is a welcomed side effect of the ATP funding.
The firm that receives the ATP money is merely a vessel through which the public purpose is pursued. The main criterion for selecting such a vessel should be whether the applicant is the most competent to accomplish the stated goal, not how large the vessel is. Therefore, I would welcome large firms into ATP joint ventures. In fact, I recommend that large firms be eligible to receive ATP funds even if small firms are not involved.
Let me turn to the fourth reform, which requires a royalty payment of five percent of gross sales to be paid on ATP investments and profitable ventures up to 500 percent of the original award. I don't support this recoupment provision for ATP. In effect, it would convert ATP from a grant program—and I should note it is actually a cooperative agreement program, but the difference is subtle—into a conditional loan program. However, it would be difficult to administer, it would impose a usurious rate of interest, and it would create a number of counterproductive incentives. Let me explain.
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Recoupment has a superficial appeal to policymakers. In other circumstances where recoupment of a government benefit is expected, as for student loans or SBA loans, recoupment is typically limited to the benefit plus interest at a low rate. The proposed ATP reform, however, would act more like a venture capital program, with the government expecting to get back not just its investment plus interest, but five times its investment. This tells us where recoupment would lead. Venture capitalists not only invest, they also participate actively in managing the firms they invest in. If ATP were to depend on recoupment of funds from supported firms, it would be sorely tempted to support low risk ventures that would have a high probability of payoff to the recipient firm to ensure high recoupment. This is just the opposite of the program's fundamental objective to support high risk ventures in hopes of developing new technology that will be valuable to many firms.
Furthermore, ATP would be sorely tempted to intervene aggressively in the recipient's management of the project, hoping to enhance the probability of project success. It would cause the program managers to fulfill the very worst fears of the program's opponents, that government bureaucrats would seek to substitute their judgments for the wisdom of the marketplace.
Recoupment has other problems and they are outlined in my testimony submitted to you in writing, and we don't really have time to talk about all of them today. Let me just point out a couple of other problems. One, it would cause recipient firms to hide the good stuff. When they had something that was really going to pay off, they wouldn't tell the government about it. They would find a way to associate it with some other privately financed project in order to avoid the five times over repayment requirement. That would make the ATP program look like it really couldn't ever figure out how to invest in good outcomes, because it would never have high payoff projects to brag about.
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Fortunately, there is a good alternative to recoupment. It is called the tax system. Firms made successful will pay corporate income taxes on their profit. Stockholders benefit and pay capital gains and income tax. Employers pay taxes on their wages. That is how we recoup from the ATP.
You know, this problem with ATP is not a new one. In my testimony, I trace the history, but you can go all the way back to the battle between Alexander Hamilton and Thomas Jefferson over the proper role of the Federal Government in manufacturing and find the roots of the debate about ATP. I don't think we are going to settle the fight over ATP with tinkering with management reforms.
The most important thing to do is to give it a multi-year authorization and an assurance of the appropriations to support it. OMB should support a reasonable annual request from ATP for funding and refrain from recommending dramatic cuts in its budget. Some assurance of continued funding is particularly important if industry is to take the program seriously and participate effectively. Thank you for the opportunity to testify.
[The prepared statement of Dr. Hill follows:]
PREPARED STATEMENT OF CHRISTOPHER T. HILL
Chairman Ehlers and Members of the Subcommittee,
In my testimony, I will first briefly review the history of the ATP Program to provide a context for my remarks. I will then offer an analysis of the recent report of the Department of Commerce entitled ''The Advanced Technology Program: Reform with a Purpose.'' I will close with a few thoughts of my own on how the ATP might be strengthened.
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History of ATP
The Advanced Technology Program (ATP) was authorized by Congress in the Technology Competitiveness Act, which was, in turn, a part of the Omnibus Trade and Competitiveness Act of 1988. ATP was one of a large number of programs and policy changes included in that year's trade bill in response to what was then perceived to be substantial weakness in the ability of United States industry to compete with industry abroad, especially in Japan but also in Germany and a number of other rapidly advancing nations.
ATP was also one of a series of legislative actions during the 1980s that codified the rapidly emerging consensus that collaboration among industry, academia and government offered the best way to address the Nation's competitive challenges at home and abroad. It was of a piece with the Stevenson-Wydler Act, the Federal Technology Transfer Act, the National Cooperative Research Act, and others. The consensus in favor of collaboration is, if anything, stronger now than it was when ATP was adopted.
Nevertheless, ATP was controversial from the start. My view is that the Act creating ATP would not have been signed into law had it not been part of the trade bill that included fast-track trade authority that the administration was anxious to have. Regardless, the Technology Competitiveness Act did become law, and the new Bush administration implemented it in 1990 as a modest program in the National Institute of Standards and Technology (NIST).
For much of the 1990s, ATP was a focal point for disagreement between those who envision an active role for the Federal Government in seeking to strengthen the ability of American industry to develop and implement new technology more effectively and those who prefer a much less extensive role. As a result, the ATP has been under nearly continuous review, with some of its opponents seeking to eliminate the program altogether and its proponents working to preserve or even increase its budget.
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The need for ATP receded during the economic expansion and ''dot-com'' boom of the 1990s. During that period, American industry leaped ahead of the rest of the world, based on the exploitation of rapid advances in information technology and on the application of a host of management reforms that made companies more efficient, responsive and aggressive in domestic and international markets. Meanwhile, such competitors as Japan, Germany, and a number of the emerging Asian nations encountered internal difficulties that reduced their ability to challenge booming American companies. What had been seen as the inability of American companies to compete in the 1980s became, by the end of the 1990s, a widespread belief that American companies were nearly invincible. In my judgment, only the determination of the Clinton administration and of a few key members of Congress kept the ATP from disappearing altogether by the end of the decade.
This is not the occasion on which to enumerate the contributions and accomplishments of the ATP, which have been documented in a series of reports by the program staff and by independent studies by some of the Nation's leading experts in the economics of innovation, in federal program evaluation, and in technology policy assessment, including two recent reports by the Board on Science, Technology and Economic Policy of the National Research Council.(see footnote 14) It may be useful to point out, however, that ATP has generally been perceived as a well-run and thoughtfully managed program.
The Evans Report
Last month, the Department of Commerce issued a new report on the ATP, ''The Advanced Technology Program: Reform with a Purpose.'' This report made a number of recommendations for reform which, in its view, would improve the ATP and respond to some of its persistent critics. Summarizing, those recommendations include:
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— Allow universities to lead ATP joint ventures,
— Allow universities to negotiate for rights to intellectual property resulting from ATP awards,
— Limit large company participation in ATP to joint ventures,
— Require successful ATP projects to pay a royalty of 5 percent of gross sales of products based on ATP awards up to 500 percent of the original award,
— Ensure that ATP does not fund product development and marketing, and
— Determine whether additional private sector input to ATP proposal reviews would improve project selection procedures.
Assessing the Evans Report Reforms
Reform #1— Allow institutions of higher education to lead ATP joint ventures.
At present, universities may participate in ATP joint ventures but not as the lead partner. The reform is based on the observation that universities frequently do take the lead in creating successful consortia of firms to work together on R&D projects of mutual interest. The report is correct in noting that NSF's successful Engineering Research Center (ERC) and Industry-University Cooperative Research Center (IUCRC) programs put universities in such a lead role.
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In my view, this reform has merit. Under some kinds of circumstances, although not all, universities are well-positioned to organize a consortium of companies to work together in a way that they might not otherwise. Universities can be a very effective neutral meeting ground for cooperation among firms that might find it difficult to work together under the leadership of any one of them. This form of organization seems to be particularly appropriate under two rather widely different circumstances. The first is when the firms in an industry have a relatively explicit shared understanding of the important technological improvements that each of them need to make and a good understanding of how they would use such improvements. The epitome of such a case is when a sector has cooperated to produce a ''road map'' of the future of its technology. The second circumstance is when each of the firms is ''just looking'' at a new field of technology but where there is a high degree of uncertainty about whether the new technology will be technically successful and about whether there will be a significant market for the technology if it is successful. Firms will typically invest much more in a university-based consortium in the first case than in the second.
Since the ATP was established, the sophistication of universities in working with industry in cooperative R&D and in technology commercialization has increased greatly, as explained in the Evans report. It ought to be possible, although certainly not mandatory, for universities to lead such efforts under ATP funding when industry is ready and willing to have them do so. However, I am firmly convinced that university-led ATP projects must include a substantial financial and technical participation by industry if the goals of the program are to be achieved. ATP should not become simply another mechanism for the Federal Government to fund university-based research, per se.
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Finally, I would observe that if a university is in the lead role in an ATP joint venture, it is more likely that the key research results of the venture will be widely disseminated, as compared with the case when a university is not involved or is in a subordinate role.
Reform #2— Amend the ATP statute to permit universities and other non-profit members of ATP joint ventures to negotiate for rights in intellectual property resulting from these ventures.
The Technology Competitiveness Act incorporates what is, in effect, an exception to the Bayh-Dole Act for the treatment of intellectual property developed with federal funds. Under Bayh-Dole, universities and other non-profits (as well as small businesses) may elect to take title to inventions made using federal funds. Under ATP, however, the title to such inventions must lie with the industrial partners.
This provision of the ATP can be a major barrier to university participation in ATP projects. In Virginia, for example, where state law reserves the ownership of intellectual property developed by its public universities to the universities, the general understanding is that those universities are in effect barred from ATP participation altogether.
The proposed reform is reasonable, especially in view of how most universities manage their intellectual property ownership under Bayh-Dole. Universities are usually insistent on owning the intellectual property developed by their faculty and students. On the other hand, they are quite willing to negotiate with industrial partners for an exclusive license, at least in a field of use, to commercialize that property. If the proposed reform is adopted, I would expect that most ATP joint ventures would incorporate intellectual property agreements of this kind.
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I would further recommend, however, that if this change is made, the funding of joint ventures by ATP involving one or more universities as partners be made contingent on all the parties coming to an agreement on principles for the disposition of intellectual property before the award is made. Once an invention is made, it is very difficult to reach a satisfactory end to a negotiation.
Finally, it should be noted that the proposed reform does not ''apply Bayh-Dole'' to ATP joint ventures. Instead, the proposal of the Evans report is to allow university joint venture partners to ''negotiate for intellectual property rights.'' This is a much less specific and directive form of resolution of ownership of such rights than is embedded in Bayh-Dole.
Reform #3— Retain large firm participation in ATP joint ventures.
The opposition to participation by large firms in ATP is, in one sense, understandable. Large firms with multi-million dollar research budgets, the argument goes, can surely find a few hundred thousand or a few million dollars to carry out a typical ATP project without government help. Yet this view misunderstands in a profound way what ATP is trying to do.
The fundamental purpose of ATP is to encourage the development and widespread application of new industrial technology in areas of key national importance. It is not its purpose to ensure the success of the particular firms it funds, although such success may be a welcome side effect of the ATP funding. In fact, in the best American tradition, ATP seeks to harness the power of private incentive—the chance to make a profit—to accomplish a public objective—the improvement of the industrial technology base. Considered in this way, the firm that receives funding from ATP is merely a vessel, or a means, through which the public purpose is hoped to be realized. The main criterion for selecting such a vessel should be whether the applicant is competent to accomplish the stated goal, not how large the vessel is. Despite the rise of the small high-tech firm as the embodiment of our hopes for a technologically-rich future, it is still the case that the vast majority of R&D and significant invention in the United States takes place in medium to large sized firms. Keeping large firms out of ATP would deprive of it of access to some of the finest R&D capabilities in the world.
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Therefore, I would not only welcome large firms into ATP joint ventures. I would also recommend ensuring that large firms are eligible to receive ATP funding even if small firms are not involved, so long as the applicant large firm has a clear plan for disseminating the results of the ATP funded research to the larger community of companies. As presently administered, ATP has turned the traditional American political bias in favor of small firms into a self-defeating prejudice against large ones, to the detriment of achieving the program's own goals.
Reform #4— Require royalties to be paid on government investments in profitable ATP ventures.
This is the most radical of the proposed changes to the ATP and the one that is the most troubling. The Evans report proposes that ''. . .recipients of ATP awards [pay] an annual royalty to the Federal Government of five percent of any gross revenues derived from a product or invention supported by or created as a result of ATP funding. . .up to 500 percent of. . .the original funding. . .. The [recovery] would be reinvested in the ATP program.'' The ostensible goals of this reform would be to ''enhance stability, increase equity, and boost the efficiency of the program.''
The section of the Evans report that discusses this reform happens to quote from my paper in the Branscomb book,(see footnote 15) suggesting that I might support this proposal. Nothing could be further from the truth; I do not support a recoupment provision for ATP.
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In effect the proposed ''recoupment'' reform would convert ATP from a grant program (ATP actually uses the cooperative agreement mechanism to provide funding, which is quite similar to a grant) into a conditional loan program. However, as a conditional loan program it would be particularly difficult to administer, and it would impose what in other circumstances would be considered a usurious rate of interest.
Recoupment has a superficial appeal to policymakers, especially in cases in which a government program provides direct benefits to an individual or a company. Where repayment of a government benefit is expected, as under SBA loan programs, for example, recoupment is typically limited to the benefit plus interest calculated at low rates. The proposed ATP reform, however, would act more like a venture capital program, with the government expecting to get back not just its investment, but five times its investment.
This perspective points out where a recoupment provision of this type would lead: venture capitalists not only invest in new ventures; they also expect to participate actively in the management of the firms they invest in. If ATP's future were to depend on recoupment of funds from supported firms, it would be sorely tempted, first, to support LOW RISK ventures that would have a high probability of pay off to the RECIPIENT firm, which is just the opposite of the program's fundamental objectives—to support HIGH RISK ventures in hopes of developing new technology that will be valuable to MANY firms. Second, ATP would be sorely tempted to intervene directly and aggressively in the recipient's management of the supported project, hoping to enhance the probability of project success. Recoupment would cause the program's managers to fulfill the worst fears of the program's opponents—that government bureaucrats would seek to substitute their judgment for the wisdom of the marketplace. This is not an outcome any of us would hope for.
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The proposed recoupment reform is based on a simplistic model of the innovation process and of the role of particular research efforts in bringing new products and inventions to market. It presumes that a research project leads directly to an identifiable product produced by the recipient firm and that it is possible for recipients to tie their products back to the ATP award. Indeed, on occasion this would be true—an award would underwrite the development of a successfully marketed gizmo whose sales could be taxed. However, ATP is admonished constantly not to underwrite product development but to focus on generic or enabling technologies that can be widely used by many firms and/or to underlie many commercial developments. In such cases, it can be very difficult and expensive to determine which research led to which products or inventions. Accounting for the ATP contribution in order to repay an award would be an accounting firm's dream, and a lawyer's as well.
The recoupment proposal also fails to take into account that firms benefit from research and inventions in many ways other than direct sales. For example, firms operating in complex technological environments such as computers or automotive engines participate in patent cross-licensing agreements that enable each of them to make use of the tens, hundreds or even thousands of applicable patents that underlie their products. Such agreements sometimes include no cash compensation for the participants. What, then, counts as ''gross sales'' for the purposes of recoupment?
Consider further other perverse incentives that recoupment would create for the recipient firms. There would be a strong incentive for recipients to disassociate any potentially successful invention or development from the program in order to avoid the recoupment requirement. Researchers would be encouraged by their managements to ''save their good ideas'' for non-ATP projects funded solely by the firm. Thus, ATP's record of funding successful inventions would probably fall, providing evidence to program opponents that government doesn't know how to pick good projects. There would also be an incentive for recipients to tie up their ATP-derived inventions in trade secrets and to avoid sharing new knowledge with other firms through publication of research results in the literature, in order to avoid identification of their new technology as having been derived from ATP funding and, thus, subject to recoupment.
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Quite apart from the undesirable outcomes likely under a recoupment plan, it is not at all clear that it would be good public policy to establish, in effect, an ''off budget'' source of income for ATP. Programs that are funded off budget tend to develop a life independent of congressional and presidential oversight and budgetary control. All of us would prefer life under a ''trust fund'' to a life in which we have to ask others for funds. But, ''trust fund kids'' are well known for living dissipated lives—I am not sure we want to give any program, even ATP, this sort of lease on life.
Fortunately, there is an excellent alternative to recoupment to address the issues of equity and efficiency and, even, program stability. It is called the tax system. Firms made successful by virtue of ATP investments—whether they be the original recipient, a participant in a cross licensing agreement, a customer firm that benefits from an improved input from an ATP winner, or a firm whose engineers learn about an ATP-supported research result and put it to use in their own business—will all pay corporate income taxes on their ATP-supported profits. Their stockholders will benefit and pay taxes on their dividends and capital gains. Their employees will pay increased taxes on their increased wages.
In fact, those of us who think that an ATP is a good idea must also believe that government-supported technology development programs will more than pay their way through increased wealth, income and tax revenues. Not only must such programs pay their way, they must make, on average, better investments than the average private sector investment would be from the point of view of the nation as a whole. Otherwise, such a program is a bad national investment that shouldn't be made. Supporters believe that such investments are worthwhile for the nation because of the peculiar economics of private investment in R&D and innovation for which positive externalities not capturable by the firm that pays for the R&D are large. Recoupment would create incentives that would reduce the chances of such happy outcomes; it is a bad idea that should be avoided.
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How Should ATP's Problems Be Addressed?
As suggested in the historical sketch offered above, ATP's major problem is that it operates at the nexus of the debate over the appropriate role of the Federal Government in support of commercial industrial innovation. This is not a new debate—it is recognizable in the debate in the mid-1960s over the Civilian Industrial Technology Program advocated by the Kennedy Administration. It goes back further to debates about technology policy in the House Interstate and Foreign Commerce Committee in 1937. This debate is the modern form of the struggle over Henry Clay's vision of an expansive role for the Federal Government in ''internal improvements.'' You can even find the roots of this debate in the combat between Alexander Hamilton and Thomas Jefferson over the place of manufacturing in America in the 1790s. My point is that the struggle over ATP reflects a much deeper division in America over the role of the Federal Government in the economy—it is no wonder that the ATP debate persists.
The Evans report rightly notes that, ''Ongoing debates over the Program's aims and policies have hindered its stability.'' Chances are, in my view, that so long as we have an ATP, we will have these debates. Tinkering with the program's design and operations will not satisfy the critics who question its basic legitimacy. Further evidence for this conclusion is that ATP is probably the most thoroughly studied and evaluated R&D program the Federal Government has ever engaged in; surely this is so for a program of its size. Despite the many reports and studies, which typically come to positive conclusions about the program, criticism persists.
Meanwhile, the opportunity to make meaningful reforms in ATP, on its own terms, are hindered and postponed owing to the fact that its staff, managers and overseers are constantly playing ''defense,'' preparing arguments and lining up supporters in repeated efforts to save the program. And, past experiments in ATP administration, such as the successful use of so-called ''focused programs'' a few years ago, are called into question and then ended when challenged by powerful program opponents.
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In my view, the most important reform that could be made in improving ATP would be to give it a multi-year authorization and an assurance of appropriations to follow. While no Congress can bind the next, the assurance of sustained appropriations should be as strong as any that Congress is able to give a discretionary spending program. It would also help enormously if OMB were to support a reasonable annual request from ATP for funding and refrain from recommending dramatic cuts in its budget. Some assurance of continued funding is particularly important if industry is to take the program seriously and participate effectively in its planning and in the opportunities it can provide.
Thank you for the opportunity to testify. I would be glad to take your questions.
Discussion
Chairman EHLERS. Thank you for your testimony, all of you. Normally, it is the Chair's prerogative to ask the first series of questions, but since we are graced by the presence of Chairman Boehlert, who has done an outstanding job in running this Committee, I am pleased to recognize Chairman Boehlert for five minutes.
Chairman BOEHLERT. Thank you very much, Mr. Chairman. Mr. Bond, it is good to see you. I was there at the beginning, your confirmation hearing. It is a privilege to sit next to you and I was privileged to present Dr. Marberger's name before the Senate, who is now serving as the science advisor to the President. And it is good to see friends here with whom we have a lot in common. As you know, and it is not because of the proximity of the angel of NIST, but I am a big fan, Dr. Bement, of your operation. I have long been a supporter of ATP and I was there at the beginning for MEP. And so for my remarks today, I will let Ms. Morella do what she does so very ably in terms of the rest of the operation.
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Funding MEP vs. Other TA Programs
I want to focus in on MEP, because I really am a believer in that program, and I think it has served the Nation well. And I love some of the words we get from the Administration, but then I am very disappointed when I don't see the deeds follow the words; particularly, in terms of requested funding. So I guess my basic question is—I know the Administration had to make tough choices when it came to funding programs given the state of affairs these days, but we are on the recovery now and Greenspan, the Governor, the Chairman, has indicated the recession is over, so we are now moving in the correct direction. But I can't figure out why the Administration can wax eloquently about MEP and, yet, be so parsimonious in recommending resources.
And I would like to know what criteria was used when you compared MEP with the various other programs within the Technology Administration. What criteria was used, and give us some insight, how you arrived at a conclusion that I don't think is a very good conclusion, and that is a conclusion to have inadequate request for funding. Mr. Bond, I guess you are the guy I should ask. We are still friends.
Mr. BOND. You bet. Thank you, Mr. Chairman, and I need to point out that I was remiss at the very outset in not thanking this Committee for the contribution of Ben Wu, who serves as my deputy undersecretary. Thank you.
Chairman BOEHLERT. Now you are in real trouble, because we know Ben Wu.
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Mr. BOND. That is right.
Ms. MORELLA. You can see I gave at the office.
Mr. BOND. And we are glad you did on this side. Thank you. Let me try to take a stab at it. As you said, we waxed eloquent because the partnership has been a successful one and has many metrics to prove that point. The tough choices, though, that I made reference to were not about the recession but, rather, about the significant shift in resources for Homeland Security and the war on terrorism. I think between the supplemental and the shifts taking place in the current budget, it adds up to about $100 billion. So a significant shift for which all kinds of programs, budgets, whole agencies had to tighten their belts and find new ways to go forward.
When we look at a program like the partnership and look at the success it has had, the history it has had, indeed, its genesis, even though understanding the changes Congress made in 1998 on the sunset clause, all of those things kind of combine to say there seems to be a significant value here, big returns on investment, and then for that significant value there ought to be takers. There ought to be people willing to help finance the continuation of the centers.
In fact, recently, we had a roundtable on corporate R&D patterns, and one of the things that we learn from that is that the larger corporate R&D donors are increasingly interested in the success of their smaller partners and investing directly in many cases in their smaller partners. So we have some reason to believe that the larger companies higher up the supply chain, as I alluded to in my opening statement, would be willing to step up and help in financing this.
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Chairman BOEHLERT. I know we have to invest in Homeland Security, and I am the first to say aye when the request comes forward. One of my best friends in this business is Governor Ridge. We were elected together, we served together, we are very close personal friends, and I think he is doing an outstanding job. And obviously, we have to give the resources to Homeland Security required for that effort to produce what Americans want us to produce, and that is the ability for all of us to live our lives without fear.
Having said that, and just in your response to me, once again, you sort of reinforce the argument for MEP. You said it has significant value, and big return on investment. We are scrambling all over town trying to find ways to deal with ''the subject of economic stimulus.'' That is what we all want, and I think MEP has proven by performance that it does just want we want it to do. So I would suggest to you to be prepared, because we are going to treat MEP much better than the budget request.
Comparison of MEP With Similar Foreign Programs
Now, let me ask Mr. Wojcicki and Ms. Klohs, how do MEP type programs exist in what we do here compared to what they are doing in European countries, for example? Can you give us some comparison?
Ms. KLOHS. It so happens that I do a lot of work with European firms who happen to locate in my region, and the Right Place Program does a lot of marketing to European companies. And I know from the country of my birth, Germany, that the government gives a lot of investment into what we call the mittelstandische, or the small and medium enterprises, that really make up the backbone of a lot of European countries, and have between 20 and 500 employees who create a lot of the main jobs. And so in order to stay competitive as a country, I think the MEP program has been great bang for our buck, quite frankly.
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Mr. WOJCICKI. I know there are several European countries that have MEP like programs. I believe there are some in Asia, also. I think Mexico is even looking at and talking to one of our MEP centers and helping them design their program. I do not have a list of those countries with me right now. I would say I know that the organization of Economic Cooperation and Development in Europe has cited MEP as an exemplary program.
Chairman BOEHLERT. Thank you very much. And Mr. Chairman, I appreciate your indulgence because my time has expired and I don't believe in special privileges for anyone, including the Chairman, but I just want to observe that if we cut the subsidy to a program that is serving the needs and interests of small business, guess what? We will end up with a program that provides additional service only to big business that doesn't really need it.
So with that, let me assure you, Mr. Bond, that I look forward to our partnership and working cooperatively. But I am very confident that this Congress with the leadership of Dr. Ehlers and with Ms. Morella at my side, boy, that is a good team. We are going to work to see that MEP gets some more attention. Thank you.
Chairman EHLERS. The gentleman's time is expired. I now recognize Congressman Barcia, Ranking Member.
Administration Priorities Regarding MEP Funding
Mr. BARCIA. Thank you very much, Mr. Chairman. Along the lines of Chairman Boehlert's comments, Mr. Bond, if you could perhaps comment in reaction to the statement and question that I would like to make, I would just say that the MEP has been one of the most successful programs that the Federal Government has developed to date to assist our small manufacturing base. Yesterday, small manufacturers from my State of Michigan met with me to argue for the continued Federal support for the program and to talk to me about the tough economic climate that they currently face. As a former state legislator, along with Chairman Ehlers in Michigan, we are aware that our state government back home is facing about a projected $1 billion deficit in our budget back home.
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So how did the Administration—I think that is going to be very tough for them to pick up the differential in terms of the loss of the Federal funding. How did the Administration decide that supporting our small and medium sized manufacturing is the least important mission of the Technology Administration's activities?
Mr. BOND. Well, I will just simply try to reiterate that in looking at the overall squeeze during this extraordinary time, that some things had to give. And we looked at a program that had been creating some value, and knowing based on input from some larger corporate players in the country who are increasingly investing in this way, a Wal-Mart that wants its smaller partners to be as IT intensive and modern as it is so that it can integrate better, that that represented a real potential for some further funding. And there may be some things to do in the fee structures and others that the MEP staff and the cohesive abilities that they bring that we referred to earlier could help and continue to work with the centers along those lines.
Impact of MEP Budget Cuts at the State Level
Mr. BARCIA. And one last question, and then I will yield back the balance of my time if there is any left, Mr. Chairman. I would ask Mr. Wojcicki if he, perhaps, could comment on Mr. Bond's response, and just estimate for us what you think the loss of Federal funding at the state level would do to the continued viability of our MEP centers and, particularly, in Michigan, but also nationally, and what flaws do you think the Administration might have made in their assumptions?
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Mr. WOJCICKI. I think, certainly, there has been considerable research since 1991 and quantitative studies by the executive branch, legislative branch, independent researchers, all of them coming to the same conclusion, that without Federal funding, that this partnership will not hold together, that the centers that were able to survive, the way they would be able to survive would be by serving larger manufacturers, not the small manufacturers, and by charging higher fees.
Really, the research done in 1998, and I think that was research upon which Congress based its decision in 1998 to repeal the sunset, that that research detailed that without the Federal funding, even if the state funding was to be maintained, and I think that becomes an issue with almost h of the state, that the centers would have to double their hourly rates. That would price themselves out of the market for small manufacturers. It would be beyond what small manufacturers could absorb. Centers would have to triple the average size of their projects, again, driving them to larger manufacturers. The market penetration, again, if you are focusing on large manufacturers, that universal coverage to market penetration would not be nearly as widespread and there would not be as much subcontracting of projects to the private sector.
Mr. BARCIA. I just want to, Mr. Chairman, thank all of the panelists today for—and especially, each and everyone of them, and also, Mr. Bond. We appreciate your presence. We know how in demand your time is, as well as the other guests today, and it is an enlightening dialogue, and I appreciate having it. Thank you.
Policy Direction of MEP
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Chairman EHLERS. The Chair recognizes himself for five minutes. Let us start, Mr. Bond, or Undersecretary Bond, talking about policy, the policy that has developed. Because obviously, this decision that was made on MEP or the decision on ATP came out of some policy roots.
As you know, I tried some years ago to establish or work toward a policy for the Federal Government, a science and technology policy, and wrote a book on that which I deliberately entitled, subtitled, Toward a New Science Policy. I am very anxious to see someone pick that up. What one Congressman and a couple of staff members write in 1 year's time is not sufficient for a national policy, but it was an attempt to lay out some guidelines.
I find it very interesting that that work has been quoted repeatedly in many, many places, almost all outside of the Federal Government. But I am interested in seeing the Federal Government develop policy. Now, I recognize it is not strictly your ability to do that, but you can play a key role in seeing that the Federal Government gets going on that. And I am interested in your interest in that and what role you would see yourself playing. You, obviously, have to establish some policy for that is your job, to do it for the Department of Commerce as it relates to science and technology. But that can't exist in a vacuum. Where do you see this going? What can you do to stimulate it? Where do you see the center of science policymaking in the current Federal Government and what are the chances of establishing some good solid policy that is going to last well beyond this Administration, as Vanever-Bush has lasted for almost 50 years?
Mr. BOND. I believe the chances are good and I would just note, I guess, that as you will recall, we have commiserated on this in the past in my prior employment at Hewlett Packard, and the need for balancing the portfolio in R&D and so forth, and I think there are some things that we can do together to make sure that your voice and those of others on the Committee, is heard on matters like this. We certainly hear it echoed in the voices of the private sector. Our job at TA and the Department of Commerce is really to interact with the private sector and hear their concerns. Just recently from the Senate Conductor Industry Association, I had concern about the balance of the portfolio voiced to me.
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So I am interested in working with you to be a liaison to Dr. Marberger, who Chairman Boehlert noted earlier, and make sure that we have the kinds of fundamental policy discussions going on within the Administration, very much along the lines of the kinds of things I know you have been articulating for years up here on the Hill.
Mr. EHLERS. May I add, I think there has to be a policy, not just for the Bush administration, but for the Nation. I hope it would be a bipartisan policy that would set the standard, because the past few administrations, I think, have floundered considerably on science policy. And every year it is ad hoc and we end up, primarily, with the appropriators setting policy because the policy follows the money, rather than the Administration setting the policy and the money following the policy.
I would very much appreciate it if you would begin conversations with OSTP and other leaders in the Administration, and I don't expect you to have the time to do it. I don't have the time to do it, even though I tried it once.
Mr. BOND. I will make that commitment to you to——
Chairman EHLERS. But also, you can work with Dr. Hill who is an expert in science policy and you can enlist many others like him to help in the outside. In fact, Vanever-Bush had some 50 different people working on his project at one time, and I can't tell you how often I envied him when I was working on it with just a few people.
ATP Revenues/Recoupment
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Dr. Hill, in his testimony, pointed out the problems with the recoupment proposal, and so my question is to both Undersecretary Bond and Dr. Bement. What about that recoupment proposal and his objections? Are those valid objections? Are they sufficient for you to stop looking at the recoupment proposal, and if so, what other possibilities do you see for financing the program? A related question, and I have very little time left here, but has anyone calculated with any degree of certainty how much tax revenue has come to the Federal treasury as a result of ATP and MEP? And can we in some way use that—we probably can't sequester, but can at least use that as a strong argument with appropriators, that this is a money making proposition. I will start with Dr. Bement and then whoever else wants to comment.
Dr. BEMENT. Thank you, Mr. Chairman. With regard to your last question, I have not seen a detailed calculation of tax revenues and benefits from the program. I have thought about it, I have reckoned it mentally, and I feel that it has been a healthy return, but that is a calculation that we should do.
With regard to recoupment, I feel that is a manageable thing for us to pursue if it is assigned to us. It will add more difficulty and more administrative costs, but I think it is manageable.
Chairman EHLERS. Mr. Bond.
Mr. BOND. Yes. If I might, I think it would be difficult. Recoupment has taken place in other departments, the Department of Energy Clean Coal Technology Program. The Department of Defense has pursued that. It would, certainly, be difficult. I would note tongue in cheek that filling out a 1040 is difficult, too, but it doesn't stop us from pursuing it. And I think that it gets at the stability of the program. The long-term stability of the program is very much the goal, to get at the controversy that you, indeed, Dr. Hill, referenced.
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ATP Risk Incentive Profile
Chairman EHLERS. I would just comment, and I don't want to put words in Dr. Hill's mouth, but I think one of the major arguments is that it would likely steer people toward low risk projects where there is bound to be a recoupment, rather than picking the high risk ones where there is a high probability of no recoupment. How would you deal with that? One of the biggest problems of Federal funding is that bureaucrats in general—and I am not slamming. I am just saying they take the risk-free approach, because they get clobbered if they make a mistake. They don't get hurt if they take the safe approach.
Mr. BOND. I will just offer two quick comments. One would be on just the professionalism of the ATP staff, which I think would adhere to a strict line in that regard. But secondly, is an animal of the House, myself, to of course acknowledge that we would simply be proposing budgets on an annual basis, and if Congress perceives some kind of abuse like the kind described there, it would be brought to an end rather quickly.
Chairman EHLERS. And very briefly, since my time is expiring, Dr. Hill, do you have any comments to make in response?
Dr. HILL. If I may, Mr. Chairman, just briefly, in addition to the risk profile incentive, which I believe is real, and some of my best friends work at ATP, but I think it is greater than professional integrity and operation. In fact, part of professional integrity would be to implement the program you told them to implement, and if it had that provision, I think they would be driven to the low risk profile, but what is worse, the real benefit of ATP, again, is not to the company that got the money. It is to all the other companies that benefit either by learning the technology that the target company provided or by benefiting from the lower cost, more effective products they produce. You capture that in tax revenues, but you will never capture that in recoupment. And you want projects that don't generate necessarily a lot of money for the company that got the reward. You want it to spread around. And once again, the incentive will be to have it focused on the one company that you paid for, that you paid it to, rather than the entire economy, and I think that incentive would over time, again erode what the program is really trying to do.
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Chairman EHLERS. Thank you. My time has more than expired. I am pleased to recognize Congresswoman Rivers from Ann Arbor, Michigan.
Why Were MEP and ATP Selected for Budget Cuts?
Ms. RIVERS. Thank you. I have several questions. Within the last couple of years, we have had a number of reports on ATP and Department of Energy research projects. And the GAO did one, in particular, and one of their complaints was that while certain claims were being made by the programs, they, in effect, didn't show their work. Like when we were in second grade and you had to show how you got the math answer. The answer alone wasn't enough. And one of the frustrations I am feeling in this debate today, Mr. Bond, is that your department is not showing its work. It is not telling us how it chose MEP and ATP for these reductions, as opposed to all of the other programs that exist within your jurisdiction. And I would like, for the record, for you to produce in writing an explanation of the criteria that was used and the comparisons that were made between the various programs and how you ultimately decided which programs should be reduced in funding. And I have listened to everything you have had to say, but I don't feel you have actually shown the work. You have told us the answer that you have gotten, but I would really need to see how you got that answer, and so I would like to see that in writing.
Impact of MEP Funding Reductions
Secondly, you made a comment that I found very interesting, that if funding for the MEP were to be reduced or eliminated, that others would step up to the plate. And the first one you mentioned was Wal-Mart. Has Wal-Mart specifically said they would, in fact, run and fund some sort of program for their suppliers, similar to the MEP?
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Mr. BOND. No. I offered them as, probably, the leading example of the most integrated IT reliant. . ..
Ms. RIVERS. But you have no idea if they would do it?
Mr. BOND. No. We did hear at a corporate R&D roundtable from a number of private sector companies. We will give you a copy of the transcript of that discussion.
Ms. RIVERS. Okay. That would be great. And in that discussion, we would have a sense of how much money they were willing to commit, what kinds of programming they were willing to do, and how they would mesh with what MEP currently provides? In other words, if Wal-Mart were to be a provider, would they actually be doing the same sorts of things that Ms. Klohs is doing in her particular piece of the world?
Mr. BOND. The discussion was at a higher elevation than that, about corporate R&D trends. One of the trends identified was more integrated investment with their suppliers. So it was not an MEP based discussion, but——
Ms. RIVERS. One of the other concerns that I have that seems to be lost in this, and I understand the patriotic nature of things these days here on the Hill, and the concern about monies being directed toward the so called war effort, which, of course, we have not declared war. We don't have a war at the moment but, nevertheless, in my district, a lot of my MEP participants are small manufacturers who would be part of the supply line that would actually work in national defense kinds of activities. Has anybody done an analysis on what the effect of the loss of MEP would do toward the war effort or national defense efforts?
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Mr. BOND. No, not that I am aware of.
Ms. RIVERS. So we only think that moving money out of MEP to other kinds of activities would be better for our war effort?
Mr. BOND. We know that we have direct and immediate needs in the war effort that have to be funded by the Federal Government.
Ms. RIVERS. Right, but we don't know how the elimination of the MEP programs and the companies that rely on them would affect those needs?
Mr. BOND. Correct.
Ms. RIVERS. And I have only been here for 8 years, but even in 8 years, I have developed a pretty healthy cynicism. And 6 of those 8 years was on the Budget Committee. And one of the tactics I have seen used again, and again, and again by administrations—it doesn't matter if they are democratic or republican—is they take a program that is strongly supported by Congress, they label it for cut, and then they make Congress put it back in. So that way, they get their cake and they eat it, too. The program continues but Congress gets blamed for overspending. Now, maybe you can allay my cynicism on that and assure me that that is not what is happening here.
Mr. BOND. I can assure you that is not what is happening here. I can only tell you that the President's budget is offered in all seriousness and leave it at that.
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Ms. RIVERS. And the last thing I want to say is a comment. I had an opportunity a few weeks ago when there were a number of legislators here for Globe, which is a global organization of environmentally active legislators, and we were talking about programs of this nature and subsidies for new technology. And I was bemoaning the fact that it feels in this country because of our innate distrust for subsidization and our almost unwavering belief in the market system, we invest in technologies, but then almost too early, we try to push this infant technology into the marketplace and say you either rise or fall right away.
ATP has had that problem to some extent, and I was amazed that so many of our global competitors, trading partners, whatever your view is on that issue, do just the opposite. They have a very strong private-public partnership. They work very hard at developing new technology, not just the R part, but the D as well, so that it can move into the marketplace, and we just have not seemed to embrace that. And most of the criticism that I have heard of the ATP program, in particular, and DOE research is that it is not getting into the marketplace fast enough. It is not producing marketable technology. In other words, we don't seem to be willing to invest in the way that our competitors have, and I know my time is up, and if you would like to comment on it, that is fine. Otherwise, I just wanted to make it as a comment.
Chairman EHLERS. Hearing no comment, the gentlewoman's time has expired and I am pleased to recognize the distinguished Congresswoman from the nearby state of Maryland, Connie Morella.
Ms. MORELLA. Thank you, Mr. Chairman, and I am exceedingly pleased that you have chosen to hold this hearing on the Technology Administration at the Department of Commerce, and I commend you on the excellent panel that you have had come here for this and their testimonies. It also is very nice to look out in the audience and to see the Deputy Undersecretary of Technology, whom I have known well, and Secretary Bond, if you have any trouble with him, you let me know. Thank you.
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Far and away, the biggest component of the Technology Administration is the National Institute of Standards and Technology, and as has been mentioned over and over again, very dear and near to my heart. And so it is always good to highlight some of the many accomplishments of this national treasure, the crown jewel, and explore ways, also, to continually improve the programs. And I very much value having you at the helm, Dr. Bement.
Dr. BEMENT. Thank you very much.
Ms. MORELLA. And NIST is the premiere Federal facility for standards and the quality of its scientific research places it among the very best research laboratories in the country. And I am pleased the Administration has recognized the contributions made by NIST to scientific and technical research by its funding in the Fiscal Year 2003 budget. The STRS Division, which has the laboratory accounts, basically, has a nice increase of 21 percent, but I do realize that increase is skewed upward by some substantial equipment purchases. But even if you discount those purchases, it still has a pretty good respectable 8 percent increase, and that money is certainly well invested. I, also, am pleased that there is some money in there for the Boulder facility.
And I do want to pick up on the fact that some of my colleagues here have mentioned, too. Despite my pleasure at some of the funding of the research accounts, I was disappointed in the plan for the industrial technology services. Disputes over ATP and MEP are becoming an annual event between the Hill and the Administration, and this year doesn't seem to be any different. The current plan essentially eliminates the Manufacturing Extension Program and significantly reduces money for the ATP. I think you have a sense that, also, from the testimony we have heard from the other panelists, that we feel pretty strongly on this Subcommittee that we need to do more for a better budget in those areas.
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NIST Facility/Funding Needs
So now, I think I will have time for one question. Dr. Bement, NIST is to be commended for keeping the new advancement measurement lab on time and on budget. We thank you. More agencies could follow that kind of lead. Along with the recently completed advanced chemical lab, NIST has shown an almost unique ability to complete projects as originally proposed and promised. Now, last week, you appeared before the full Committee to discuss the World Trade Center and NIST's research efforts in fire and building safety and design. I would like to ask you kind of an extension of the question I had a little chance to pose the other day. To what extent will new facilities be needed at NIST to carry out this work, and is the Administration currently developing a plan to build and/or to request the necessary funds for even new facilities or upgrades to existing ones?
And obviously, Secretary Bond, you know, is welcome, also, to comment. Dr. Bement?
Dr. BEMENT. I appreciate the question. Up until now, building design has really not taken into account fire effect on structures. We feel the time has come where we have sufficient capability, and computer code analysis, and also, testing analysis, in order to base those codes on solid test data. We began developing codes that do take into account design of structures on the basis of fire. Looking forward, and I am almost confident that the results of our current investigation will bear this out, it would really be of great interest and benefit to the Nation to have a facility that would allow us to do that type of testing, where you can do concurrently dynamic structural analysis and structural testing and at the same time doing dynamic fire testing in order to look at different types of structures, like connections and floor trusses, and look at how these can be coated to protect them against fire. Protective fire coating is still not a fully developed art, nor are other types of fire suppression systems needed to build in more protection and help victims who might be involved in these types of catastrophes survive better and to prevent the types of collapses that we saw in the case of the World Trade Center, a progressive collapse, which can now, we know, be initiated by a major fire.
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Ms. MORELLA. Could I just ask, how do we go about whatever the need might be to fulfill it? I mean, do you then request to Secretary Bond, and it goes to Secretary Evans? Does this Committee do something?
Dr. BEMENT. We do have a long-range facilities plan, where we scope these types of facilities and we build them into our long-range strategic plan. We try and develop this with what we can realistically expect year by year in terms of funding. We have a similar plan for the Boulder facilities, as well, and we build this into our budget development process.
Ms. MORELLA. I just felt it was important that the Subcommittee hear this so that we are ready to assist in any way we can.
Dr. BEMENT. Yes. We certainly do use long-range strategic planning for these types of needs.
Ms. MORELLA. Thank you. Thank you, Mr. Chairman.
Chairman EHLERS. Thank you to the crown jewel of this Committee. The gentlewoman's time has expired. I am now pleased to recognize the gentleman who has the western half of NIST within his boundaries. That includes the world's most accurate time standard, that is why he is always one of the first to come to the Committee meetings. I am pleased to recognize Congressman Udall.
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NIST Needs at Boulder Facility
Mr. UDALL. Thank you, Mr. Chairman. I am not sure my staff would agree with you that I am on time always, but I think we actually have the western 16 percent if I didn't read the material right today. I want to welcome the panel and thank you for taking your time today to join us in this important hearing. I did want to direct most of my comments at Boulder, but before I do that, I want to also just affiliate myself with the concerns that all of my colleagues have expressed about the MEP program, and I know we are going to work hard on this Committee to try and work together to see that the MEP program continues to be robust and to do the good things it has done in the past for us in the future.
Let me move to Boulder. I want to thank Dr. Bement for his stewardship and leadership, and I know you had a chance to visit Boulder recently, and that is terrific you came out there. Just don't tell everybody that the winters are cold and the summers are hot, and that we love visitors, but it is really tough to live there year round. And Secretary Bond, we would love to have you come out anytime and would be eager to host you to see that facility and the good work that takes place there.
I want to let the two of you know I really appreciate your help in making sure that this 2003 budget includes $17 million in the sorely needed funds to address these construction backlogs that we have discussed in the past. It is a great start, and it signals to me and a lot of people that the Administration is really serious about addressing these problems at the Boulder facilities. But I am sure you will acknowledge this is just a down payment on what is needed. Last spring, along with Senator McCain, I wrote a letter to Secretary Evans asking for an updated version of NIST Facilities Improvement Plan, which was published in 1998. The Secretary wrote back that he would provide me with an updated facilities timeline. I never received the plan, and I do understand that it has to do with OMB's reluctance to get specific about your funding plans. I have seen at this point a list of the NIST Boulder projects, although, without a timeline, as I have mentioned—and I am not going to insist on a timeline with specific funding commitments at this point, but what I do think we need to do, and I am directing my comment as much to the Chairman, is you all as authorizers of the technology assistance efforts and NIST, we need to insist on more assistance from the Administration, especially, on Boulder as we try to plan for the future.
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Mr. Chairman, I am looking forward to our trip out to the Federal labs out in Boulder, and I look forward to working with you to ensure we have the information we need to be able to plan and budget for the future. With those comments out of the way, Secretary Bond, Dr. Bement, do you have any comments on the points I have raised?
Mr. BOND. I would just say that—and I know that Dr. Bement joins me in this—that we will be energetic in our internal advocacy and that the need in Boulder is real.
Dr. BEMENT. I would add that I really do appreciate our partnership in looking after the needs of Boulder. I might say, parenthetically, I lived for years in Climax, Colorado, so I know what Colorado winters are all about.
Mr. UDALL. They are really rough. Tell everybody. Climax, Dr. Bement, that is an interesting place to live during the winter. And you were involved, I believe, with the Amax Company. Is that right?
Dr. BEMENT. That is correct. Absolutely. That is right.
Mr. UDALL. Well, again, I look forward to working further with you, and this is exciting new, and I know my colleague, Ms. Morella, and I feel very fortunate to have these two crown jewels, and would also continue the work we have done together to promote NIST and to educate not just industry, but the general public, about the incredible accomplishments of NIST that really underpin so much of what we take for granted in our daily lives. You can in many cases track it back to the good work that NIST has done over the last hundred years. So thank you.
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Chairman EHLERS. The gentleman's time has expired. It is now my pleasure to recognize the most diligent attendee of Science Committee meetings and Subcommittee meetings, the gentleman from Minnesota, Mr. Gutknecht.
Defense of Administration MEP and ATP Budget Cuts
Mr. GUTKNECHT. Thank you, Mr. Chairman. I am not a scientist and I don't play one this Committee, but I do also, though, serve on the Budget Committee, and most of the questions that I would have asked have already been asked and answered very ably, and I won't keep you very long. But I do want to make a couple of comments. First of all, I tend to come down more on the side of the Administration in this discussion. And having said that, though, I must say that the Administration proposes, the Congress disposes, and we will have a chance to set our own priorities. I was in the Budget Committee markup last night until almost midnight, and I think, frankly, on behalf of the members of the Science Committee, we did pretty well for the science and research functions of the Federal budget, and we have given an awful lot of authority and latitude to the authorizing and appropriates committees in terms of how they want to go about this.
But I want to come back to something that—and I am sorry that she left—one of our colleagues from Michigan earlier said: we are not at war. Well, and then she later said a number of things about the war effort. I want to make it clear, from my perspective, we are at war, and this is a wartime budget. And I think there has been an attitude with a lot of our own members and, frankly, people here on the Hill, sort of act as if everything is going to go back to the way it was before September 11. Well, it is certainly my hope that 1 day we will go back to the way it was before September 11, but in the interim, we are at war. And if you don't believe it, just watch the news and listen to the reports that we are getting back from our young folks who are over there. It is a war. It is a very serious war, and it is one that we can't afford to lose. And I do a lot of work with some of our European colleagues, especially, from the German Bundestag, and, you know, it is good that the Europeans have expressed a lot of verbal support for what we are trying to do, and then sometimes not so much verbal support. But at the end of the day, we are in this alone. I mean, the British are helping and some of the allies are helping a little, but it is really going to be up to the United States of America, and it is a very important effort. And I think all of us need to be reminded—maybe we need to go back like that aftershave commercial with the slap in the face and say thanks, we needed that.
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And I look at the way some of the folks are coming in on this budget. They are acting as if that really didn't happen and we don't have to worry about that. On behalf of the Budget Committee, if you look at what we are doing right now and what happened as a result of September 11, we have, roughly, about $100 billion in unanticipated expenses between special expenditures we made last fall and will be making through this fiscal year. And I think against that backdrop, that we have been incredibly generous to the other functions and, especially, when we are under orders by many of our own colleagues to try and come up with a budget that actually balances this year. The truth of the matter is, if we get a little bit of good news from our economy, I think there is a very good chance that in the fiscal year that we will start, we are budgeting for right now, I think there is a very good chance we will have a balanced budget, which is an amazing testament to the resiliency of our economy.
Now, our Chairman has frequently said that part of the reason our economy is doing as well as it is, is because of the technology investments that we have made in the past, and I strongly agree with that, and I appreciate the work that is done by NIST, and the National Science Foundation, and the other programs that are represented here today. But I just want to put on the record that when you look at what the President has requested and what we will ultimately fund, I think we will probably increase basic research funding in this budget, in a wartime budget, in excess of 8.3 percent; probably, something like 8.5 percent. And I don't think that we should just ignore the fact that money that we are putting into the defense accounts and money that will go into Homeland Security, as Governor Ridge has pointed out, a lot of the money that we are putting into Homeland Security will ultimately go to benefit research projects. And it is amazing, if you look throughout our history, how many of the applications, notwithstanding the former Vice President's promises or suggestions that he was involved in inventing the internet, the internet came about for a lot of reasons, largely, because of things that were done for the Defense Department. So I think we are being extremely generous, and I do tend to agree with the Administration in its recommendations, but even if those members don't agree, we will ultimately have a chance to work our will.
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So I really don't have a question. I think you all gave excellent presentations. We look forward to the discussions both on this Subcommittee and the Full Committee, but importantly, I look forward to working with all of you and I thank you for the work that you do. It is important. I yield back.
NIST World Trade Center Investigation—FEMA Funding?
Chairman EHLERS. The gentleman yields back his time. Just a few wrap-up questions that I have, a few other things we would like to get on the record. First, Dr. Bement, you mentioned a moment ago in response to Congresswoman Morella's question about the additional research you hoped to do. I know that FEMA asked you to be involved in this, to take over the investigation of the collapse of the World Trade Center, which is in line with that. Are they giving you any money for it? You know, it is important work, but we hate to see the rest of your mission damaged by having to come up with the money yourself.
Dr. BEMENT. We have had very conducive discussions with FEMA, not only in some of the concerns that were raised in the hearing last week. We are coming very closely to a memorandum of understanding in our role with FEMA. We are also looking at various options to be able to respond quicker in the event of another emergency like the one that we are currently investigating. I am quite confident that the money issue will be resolved very quickly. I would like to be able to report today that we have the money in hand, but we are very hopeful. In the meantime, we are progressing with our preliminary steps in the investigation and we are not slowing down.
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Chairman EHLERS. Did this money come out of their budget or would it come out of the Homeland Security proposals?
Dr. BEMENT. Mr. Chairman, there are various options that are still in play and I can't really give you a definitive answer at this time.
Chairman EHLERS. All right. Mr. Bond.
Mr. BOND. Mr. Chairman, I just wanted to comment real quickly. Both Dr. Bement and I came into our positions somewhat well after 9/11, but I just wanted to make part of the record the fact that Dr. Bement and Jack Snell at his lab out there have responded incredibly quickly in a very expeditious fashion. They have raised the appropriate concerns with FEMA, and other agencies, and the White House, and they have been on top of this as quickly as humanly possible.
Chairman EHLERS. All right. And I have no objection to doing the work. In fact, I think it should be done. I just don't want it crippling your scientific effort as a result.
MEP Partnership Programs
Next, Mr. Wojcicki and Ms. Klohs, and I don't know if Dr. Hill wants to get into this, too. The Manufacturing Extension Program partnerships were initially assumed to be short term. They would expire, they would be taken over by states, industries, and so forth. When the expiration dates began arriving, everyone involved began screaming at their Congressman, and I experienced that myself. so Congress removed that provision. Is there any hope that these can make it on their own at some time? I know you have had that question indirectly before, but states spend a lot of money on economic development. Don't they regard this as important enough to be part of their economic development? And if they don't, why should we regard it as being that important?
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Mr. WOJCICKI. Mr. Chairman, I think the research that was done back in 1998 that I referred to earlier, I think it answered some of those questions, that without the Federal funding, without the state support, that larger manufacturing, the emphasis would be shifted to larger manufacturers. What happens here, there are really three factors affecting that. First of all, you know, just by nature, that they are smaller manufacturers, the size of the projects are going to be far smaller. The amount of revenue that comes from a single project is going to be far less. Small manufacturers are very unsophisticated users of consulting services. They are very skeptical. It is difficult to sell a contract to a small manufacturer as opposed to a large manufacturer like Boeing or General Motors, where they are very constant users of consulting services.
And then also, MEP's have as part of their mission, serving the entire state, so there is universal coverage, including rural areas, not just the larger metropolitan areas where there are large concentrations of manufacturers. Just putting it very simplistically, that it is far easier to make $150,000 in gross revenue selling one project to a large manufacturer like Boeing or GM than it is trying to sell 30 projects of $5,000 each to small manufacturers.
Ms. KLOHS. Mr. Chairman, as you have already pointed out, the State of Michigan is currently facing about a $1 billion deficit, and the state is very supportive of economic development services. And, as you know, the Right Place Program in our brick and mortar work is already privately funded by 75 percent. So what we do, we use that 75 percent leverage with the state and Federal money. In fact, the Federal Government is getting more than a one-to-one match; particularly, in West Michigan, because the Right Place Program underwrites part of this MMTC program already. However, I don't think the State of Michigan at this point can afford to take all of it over. And the Right Place Program can't afford to take all of it over either. I mean, if the funding goes away, our service will be contained to Kent County only because we cannot afford to go and service 16 other counties. We just wouldn't have the staff and the marketing capability to be doing that.
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Most of those other counties are small rural counties, Branch, Van Buren, Baryon, who have small, slightly funded economic development organizations, and not that many of the small manufacturers have the capability to help fund those programs to, in turn, then fund assistance to small manufacturers. So by housing it with the Right Place Program, you get leverage. You get leverage from the Federal Government and you get leverage from the state government, and that is really what has assisted us in helping 17 counties rather than just one large metropolitan county.
Chairman EHLERS. Doesn't the state consider it valuable enough to undertake, you know, essentially, double their funding and take it over?
Ms. KLOHS. Well, at the moment, we are also placing——
Chairman EHLERS. And not just Michigan, but other states?
Ms. KLOHS. Well, I can only speak for Michigan. We are also facing a gubernatorial election, as you know, and we don't know what is going to happen to our statewide program next year. And with each new government that comes in, just like this one, we sometimes experience ups and downs in economic development funding. So with the MEP funding, we have at least a continuance of assistance to small and medium manufacturers beyond election cycles.
Chairman EHLERS. Dr. Hill.
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Dr. HILL. Briefly, Mr. Chairman, of course, one hears that large firms will support an MEP type operation but, in fact, what large firms typically do is work with a very select group of suppliers who are very closely tied to them. And not all small firms are involved in supplying to big firms. Some small firms make things to sell to people. They don't really have a General Motors standing behind them with a supplier improvement program providing the sorts of services we are talking about here. And it is a very rare large company that would make a continuing donation on a routine basis year after year after year in the neighborhood of hundreds of thousands of dollars to keep an MEP type program running in its neighborhood. That is just, I think, pretty—stretches credibility, frankly.
Ms. KLOHS. May I add one more comment?
Chairman EHLERS. Yes.
Ms. KLOHS. About 6 or 7 years ago, the office furniture industry which, of course, is headquartered in West Michigan, came to us and said, we want you to help about 80 of our suppliers to become ISO proficient. And we said, who is going to pay for it? And they said, well, you have this MMTC program and why don't you do that for us so they become efficient users of ISO services so all of their quality standards are up to snuff, so to speak. But those companies were not willing to pay for the service. They expected us to find the leverage through the MMTC, to find consultants who were willing to do this for less, to do it in groups, and we got 80 small suppliers to the office furniture industry ISO proficient. But the big ones were not willing to help pay for it.
Chairman Ehler's Concluding Thoughts
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Chairman EHLERS. Final comment. You have mentioned, Mr. Bond, that Wal-Mart was doing that, and I have heard from their ads that you can find everything at Wal-Mart. If it will be a consistent doing away with MEP, maybe we can have Wal-Mart handling the MEP program. On that slightly facetious note, we can bring this hearing to a close. I want to thank all of you for your participation. It is an excellent panel and very good testimony. It will be a good guide for us and the staff.
Before we bring the hearing to a close, I want to thank you, of course, for testifying, but also, if there is no objection, the record will remain open for additional statements from the members and for answers to any follow-up questions the Subcommittee members or staff may ask of the panelists. And I would hope you would be kind enough to respond to those. So without objection, that is ordered.
Thank you once again for your participation. You have done an excellent job. I know, in particular, that some of you were in a particularly hot spot because decisions that you were defending were not your own. We all understand that, but you have carried yourself admirably, and I think it is fairly clear from the testimony and most of the comments you heard that the Congress is likely to work its will in this and that will is likely to be a continuation of MEP—although with whatever changes or different approaches that might encounter—and that is true of ATP. I expect the programs will survive but will be changed in some form.
You have been very helpful in this process. I thank you very much. The hearing is adjourned.
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[Whereupon, at 12:05 p.m., the Subcommittee was adjourned.]
Appendix 1:
Biographies, Financial Disclosures, and Answers to Post-Hearing Questions
Next Hearing Segment(2)
(Footnote 1 return)
Government Accounting Office, ''Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers,'' November 1991.
(Footnote 2 return)
ibid.
(Footnote 3 return)
Diffusing Technology to Industry: Government Policies and Programmes. OECD Publications, Paris, 1997.
(Footnote 4 return)
''Made in the USA,'' Inc. Magazine, January 1, 2002.
(Footnote 5 return)
''Manufacturers Get Tech Help from U.S. Government,'' Investor's Business Daily, Wednesday, February 20, 2002.
(Footnote 6 return)
The Modernization Forum, Survey of MEP Centers, February 2002.
(Footnote 7 return)
U.S. Department of Commerce, ''Review of Mission and Operations of Regional Centers of the Manufacturing Extension Partnership,'' February 1998.
(Footnote 8 return)
National Research Council, Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers, 1993.
(Footnote 9 return)
The Modernization Forum and Nexus Associates, ''Competition or Collaboration: The Role of Manufacturing Extension Centers in the Private Consulting Market,'' Working With Consultants: A Tool Kit for Manufacturing Extension Centers, Volume 3, December 1997.
(Footnote 10 return)
Independent follow-up survey of over 4,890 clients with projects completed between October, 1999 and September, 2000.
(Footnote 11 return)
''NIST MEP Program: Impact on the U.S. Economy in 2000,'' Nexus Associates, November 2001.
(Footnote 12 return)
Analysis by George A. Erickcek, senior regional analyst of the W.E. Upjohn Institute for Employment Research for The Right Place Program, December 2001.
(Footnote 13 return)
Study by Michael Gallis & Associates for the West Michigan Strategic Alliance, Fall 2001 and compiled statistics provided by the U.S. Department of Commerce, Bureau of Economic Analysis.
(Footnote 14 return)
The Advanced Technology Program: Challenges and Opportunities, 1999, and The Advanced Technology Program: Assessing the Outcomes, 2001, both by the STEP Board, NRC.
(Footnote 15 return)
Hill, Christopher T., ''The Advanced Technology Program: Opportunities for Enhancement,'' in Lewis Branscomb and James Keller, eds., Investing in Innovation: Creating a Research and Innovation Policy, Cambridge, MA: MIT Press, 1998, pp. 143–173. The chapter is on-line at www.ksg.harvard.edu/iip/techproj/chapter6.htm