[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENTS OF COMMERCE, JUSTICE, AND
STATE, THE JUDICIARY, AND RELATED
AGENCIES APPROPRIATIONS FOR 2000
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
________
SUBCOMMITTEE ON THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE
JUDICIARY, AND RELATED AGENCIES
HAROLD ROGERS, Kentucky, Chairman
JIM KOLBE, Arizona JOSE E. SERRANO, New York
CHARLES H. TAYLOR, North Carolina JULIAN C. DIXON, California
RALPH REGULA, Ohio ALAN B. MOLLOHAN, West Virginia
TOM LATHAM, Iowa LUCILLE ROYBAL-ALLARD, California
DAN MILLER, Florida
ZACH WAMP, Tennessee
NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full
Committee, and Mr. Obey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
Jim Kulikowski, Jennifer Miller, Mike Ringler, and Cordia Strom,
Subcommittee Staff
________
PART 8
THE JUDICIARY
Page
The Supreme Court of the United States........................... 1
Architect of the Capitol......................................... 59
The Federal Judiciary and the Administrative Office.............. 103
RELATED AGENCIES
Legal Services Corporation....................................... 265
Small Business Administration.................................... 329
Securities and Exchange Commission............................... 369
Federal Communications Commission................................ 405
Equal Employment Opportunity Commission.......................... 489
________
Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PRINTING OFFICE
57-911 WASHINGTON : 1999
COMMITTEE ON APPROPRIATIONS
C. W. BILL YOUNG, Florida, Chairman
RALPH REGULA, Ohio DAVID R. OBEY, Wisconsin
JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania
JOHN EDWARD PORTER, Illinois NORMAN D. DICKS, Washington
HAROLD ROGERS, Kentucky MARTIN OLAV SABO, Minnesota
JOE SKEEN, New Mexico JULIAN C. DIXON, California
FRANK R. WOLF, Virginia STENY H. HOYER, Maryland
TOM DeLAY, Texas ALAN B. MOLLOHAN, West Virginia
JIM KOLBE, Arizona MARCY KAPTUR, Ohio
RON PACKARD, California NANCY PELOSI, California
SONNY CALLAHAN, Alabama PETER J. VISCLOSKY, Indiana
JAMES T. WALSH, New York NITA M. LOWEY, New York
CHARLES H. TAYLOR, North Carolina JOSE E. SERRANO, New York
DAVID L. HOBSON, Ohio ROSA L. DeLAURO, Connecticut
ERNEST J. ISTOOK, Jr., Oklahoma JAMES P. MORAN, Virginia
HENRY BONILLA, Texas JOHN W. OLVER, Massachusetts
JOE KNOLLENBERG, Michigan ED PASTOR, Arizona
DAN MILLER, Florida CARRIE P. MEEK, Florida
JAY DICKEY, Arkansas DAVID E. PRICE, North Carolina
JACK KINGSTON, Georgia CHET EDWARDS, Texas
RODNEY P. FRELINGHUYSEN, New Jersey ROBERT E. ``BUD'' CRAMER, Jr., Alabama
ROGER F. WICKER, Mississippi JAMES E. CLYBURN, South Carolina
MICHAEL P. FORBES, New York MAURICE D. HINCHEY, New York
GEORGE R. NETHERCUTT, Jr., Washington LUCILLE ROYBAL-ALLARD, California
RANDY ``DUKE'' CUNNINGHAM, California SAM FARR, California
TODD TIAHRT, Kansas JESSE L. JACKSON, Jr., Illinois
ZACH WAMP, Tennessee CAROLYN C. KILPATRICK, Michigan
TOM LATHAM, Iowa ALLEN BOYD, Florida
ANNE M. NORTHUP, Kentucky
ROBERT B. ADERHOLT, Alabama
JO ANN EMERSON, Missouri
JOHN E. SUNUNU, New Hampshire
KAY GRANGER, Texas
JOHN E. PETERSON, Pennsylvania
James W. Dyer, Clerk and Staff Director
(ii)
DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED
AGENCIES APPROPRIATIONS FOR 1999
----------
Wednesday, March 10, 1999.
SUPREME COURT
WITNESSES
HON. DAVID H. SOUTER, ASSOCIATE JUSTICE
HON. CLARENCE THOMAS, ASSOCIATE JUSTICE
JAMES C. DUFF, ADMINISTRATIVE ASSISTANT TO THE CHIEF JUSTICE
DALE E. BOSLEY, MARSHAL
BILL SUTER, CLERK
TONY DONNELLY, DIRECTOR OF BUDGET AND PERSONNEL
Opening Remarks
Mr. Rogers. The Committee will come to order. This
afternoon we will hear testimony regarding the fiscal year 2000
budget request of the Supreme Court. We welcome before the
Subcommittee Justices David Souter and Clarence Thomas. Justice
Souter has been here, I think, five times before. Justice
Thomas, this is your first appearance before this Subcommittee
in this unique process in your position on the Supreme Court,
although you were here when you were head of the EEOC, I
recollect.
Justice Thomas. Just a few times.
Mr. Rogers. A few years ago.
First of all, let me offer my deepest condolences to you on
behalf of the Subcommittee and your colleagues in the Court
family and to his family on the passing of Justice Harry
Blackmun who served for 24 years on the Supreme Court. We, too,
were saddened at his passing, as was the rest of the country.
Justice Souter. Thank you, Mr. Chairman.
Mr. Rogers. This hearing is an extraordinary opportunity
for the Congress to interact with the Supreme Court, the
highest court of a separate and independent branch working
within the system of checks and balances envisioned by our
Founding Fathers. It is unique.
One of the constitutional bases of our government is that
no money can be spent from the Treasury except as a result of
an appropriation enacted into law, to paraphrase Article I,
Section 9. And that is what leads to your appearance here, and
we are, of course, pleased to welcome you.
Our role is to exercise oversight over the expenditure of
funds, but obviously not over the deliberations of the Court.
The Supreme Court is the highest court of the independent
branch of government. That independence, that integrity of the
judicial process is, of course, a principle of our government
that this subcommittee holds dear. We know that this hearing
always sparks some media interest, and we suspect that it has
more to do with your being here than our being here, and we
welcome you in that respect as well.
After hearing from you, we will hear from the Architect of
the Capitol, who has responsibility for the care of the
building and grounds of the Supreme Court. We will entertain
your testimony momentarily.
Mr. Rogers. Mr. Serrano, any opening comments?
Mr. Serrano. Thank you, Mr. Chairman. I just want to join
you and other Members in welcoming these two gentlemen to our
hearing today. It is not every day that you get to meet with
members of the Supreme Court, so I stand here in high regard
for both of you and for the work that you do, and we look
forward to your testimony and to assisting you in any way that
we can in making sure that you carry on your deliberations free
of so many of the other things that always surround these kinds
of deliberations; i.e., budget considerations and other things.
So I stand ready to assist you and to work with you in any way
that I can.
Mr. Rogers. Mr. Justice Souter, we will make your prepared
testimony a part of the record, and we would be happy to hear
any summary remarks you would care to make, and then Justice
Thomas.
Statement of Justice Souter
Justice Souter. Thank you, Mr. Chairman; thank you all,
gentlemen. I will do just as my predecessor Justice Kennedy did
and make the summary a brief one. You have, of course, not only
the budget, but the introductory remarks that were submitted
for the record.
I would note, as you have already done, that with Justice
Kennedy's retirement from this position, I have succeeded him,
and I have been succeeded by Justice Thomas. We also have with
us, as we always do, the people who really make the Court run
across the street. So if I get stuck on detail, I will be able
to listen over my shoulder and find out what the answer should
be.
With respect to the budgets themselves, of course, as usual
there is a submission from the Architect for purposes of the
Supreme Court, and I will leave that to him subject to your
questions.
From the Court's side in a strict sense, there is some
change from prior years. There is a request for funds for
security purposes, including the supplemental budget for this
fiscal year to beef up the amount of patrolling that is going
on across the street, and all of that is in response to last
summer's events which have affected all the branches of the
government.
And then there is also a request this year for four new
positions. I think in Justice Kennedy's tenure, it was very
rare that we asked for a position. I can remember one, but
there weren't very many, and he is probably sitting across the
street saying, after me, the deluge. But this year we have
requested four apart from the security requests. They are all
in the field of technology, two programmer analysts, a library
technician, and a composition specialist for the publications
unit. In all respects, we offer the requests feeling somewhat
captive to technology, and I will leave it to you to get into
such detail as you see fit there. But those are the major
points of interest.
[The information follows:]
Mr. Rogers. Mr. Justice Thomas.
Justice Thomas. I have nothing to add, Mr. Chairman.
SECURITY SUPPLEMENTAL
Mr. Rogers. Now, you are currently requesting a fiscal year
1999 supplemental of $921,000 to hire an additional 36 police
officers, which is a 42 percent increase in the size of the
police force. Would you like to explain why the very large
increase?
Justice Souter. Well, the reason I will give you is the
same information I asked for it when I first saw the number,
and that is that the actual number of positions that the Court
seeks to add was 13. And the fact that we get from 13 up into
the thirties is simply a function of the fact that they have
got to be staffed through three shifts a day and through
weekends and vacations, and that is what gets up to that
number.
The primary emphasis on the new positions is going to be on
patrolling. I think this is probably true in all three branches
of the government that there is simply a perceived need for a
greater overt security presence, and we wish that were not so.
I personally find it regrettable that the institution across
the street needs it, but I am also reminded of the fact that a
week ago Saturday night, about 15 or 20 minutes after I had
gone out to mail a letter in the mailbox after leaving the
Court about 6:30, somebody was walking down the street by the
same letter box and got robbed, and his two assailants got
caught by a Supreme Court police officer who turned out to be a
pretty good sprinter. So I felt a little bit less irked by all
the law enforcement presence around me, and that is the world
we live in.
POLICE PAY AND RETIREMENT PARITY
Mr. Rogers. Now, in addition to the $2 million required in
fiscal 2000 to support those additional police that you are
asking in 1999, the request includes $212,000 for police pay
parity and $300,000 for radio enhancements. We don't begrudge
that; in fact, we encourage that. But how do you go about
determining your security needs?
Justice Souter. Well, a couple of things on the financial
side. The benchmark for pay parity is that of the Capitol
Police. What we have done, what the Chief Justice has done
under his statutory authority this year, is to get our pay
scales up to that of the Capitol Police.
Mr. Rogers. What I meant was how do you determine the
people that you need for security?
Justice Souter. I can't give you a formula, but I can give
you an example of the extremes to which we realize we can no
longer resort. Up until very recently, the number of patrols
available at night around the Court, without getting into too
much detail, was pretty low, and we realize after last summer
that we simply cannot take those chances anymore. As I said, I
can't give you the actual formula that our security experts
have employed to get to the numbers that we have requested. I
can get them for you, but just in gross terms, we have clearly
been understaffed in terms of the threat that we have got to
face today.
Mr. Rogers. Do you have consultants that are helping you
with security?
Justice Souter. Yes.
Mr. Rogers. Now, you are seeking legislative authority with
respect to the pension and retirement policies of the police.
Justice Souter. That is right. I understand there is no
bill in yet, but we hope there will be.
Mr. Rogers. Why do you seek that?
Justice Souter. Once again, it is to bring the Supreme
Court arrangements up to parity with that of the Capitol
Police. My best recollection now is that the pension
arrangements for the Capitol Police are what is actually quite
standard for a lot of law enforcement, and that is 20 years--a
payment would be in order after 20 years of service and age 50.
Ours at the present time, I believe ours runs on a structure of
30 years, age 55.
It is, as you well know, a very competitive market right
now for law enforcement, and quite apart from competition, it
is a question of basic fairness. Our officers ought to be doing
as well as their counterparts across the street here. We place
great demands on them. So the benchmark, in fact, has been the
benchmark that has been set on this side of the street, in
which I believe just based on old experience elsewhere is
probably pretty much standard for law enforcement in this
country.
AUTOMATION POSITIONS
Mr. Rogers. Now, you are asking an additional four
positions as well in 2000, four in technological support. The
rest of the judiciary is requesting essentially no new
positions except for 11 magistrates for the rest of the Federal
courts in recognition of the tight fiscal situation, the budget
caps that we have been trying to operate under. Tell us about
the priority for those additional four people.
Justice Souter. What I am going to do, if I may, Mr.
Chairman, is just give you the rough outline of who these
people are that we want, and to the extent that you want to get
into technological detail, you are unfortunately addressing an
ignoramus. At my right is someone who is not. If you permit, I
may defer to my brother here before we are done.
Two of the four positions are described as programmer
analysts. In fact, our own people wanted four, and the
budgetary process has cut that down to two. We want to see how
we can do with two before we ask for more than two. Those
people are concerned particularly with the development of
software for the particular requirements of the Court.
One of the four positions is that of a library technician,
again who is going to be an expert, we hope, on the software
and other technological requirements of the library itself; and
then a fourth one is, as I think I mentioned, for the
publication unit, a composition specialist using, again,
electronic equipment.
I know in prior years we have mentioned that the Court
itself has been taking on a lot more of its own printing than
it ever did in the past. We have contracted out the printing on
the U.S. Reports, which has brought the punctuality of the
final versions of those reports much closer to an acceptable
level than it had been before. And we are doing a lot of
printing within the house itself, including the so-called bench
opinions, the first things that get released when an opinion is
announced, and the composition specialist is going to be in aid
of that effort. That, as I think Justice Kennedy has mentioned
in prior years, has saved us some money. And so we think the
composition specialist is going to continue to save us some
money over what we would be paying if we went outside for it.
Mr. Rogers. Justice Thomas, anything you would like to add?
USE OF MODERN TECHNOLOGY
Justice Thomas. Just, Mr. Chairman, to underscore that the
Court is in somewhat of a catch-up mode in the area of
technology. And at the same time, we have a fairly complicated
system. We have not only to communicate with each other, but we
also have to produce our work product in such a format that it
is capable of being printed in-house.
We are also in the position of having to edit and to do the
kind of quality work that could only have been done after a
decision had been handed down, but now we have to do it before
a decision is handed down. So we are moving at a much faster
pace, and, quite frankly, I have been in the position of
automating an agency, and I think the Court has been rather
cautious and quite conservative in the manner in which it has
gone about it. When I was in the Executive Branch, I was fairly
aggressive about it, but the Court has to be cautious so that
it does not run the risk of collapsing its entire printing
system.
Mr. Rogers. Well, I ask these questions, but I don't mean
to imply that we are in any way critical of that. In fact, we
hope that you will modernize and bring your systems into at
least the 18th century. In fact, this Subcommittee has been the
one that has been pushing over the last few years the judicial
center to teleconference and to try to save travel monies by
using the modern means of communications that exist, and they
have done a wonderful job of doing just that, so we are in the
business of promoting and pushing and shoving the people we
deal with to modernize their communications. Far be it from us
to tell you what to do, but we like that idea.
Justice Thomas. If I can give you one example, Mr.
Chairman, just in the last year or two, it is not that atypical
for members of the Court to work in various locations. I, for
example, during the summers work at home and work in the
evenings at home. One of the difficulties is that you don't
have your library there that is as extensive as you have at the
Court, nor do you have the working documents, and I am very
uncomfortable traveling with those documents.
One thing that we can do now that we couldn't do then is to
simply, with an encrypted and secure e-mail system, download
the draft documents at home, work on those documents, and
retransmit them. That has taken quite a bit of development. We
also have available in a laptop form Lexis and Westlaw, and,
again, the communication is instantaneous. The availability of
the working documents is instantaneous. So that change itself
is something that was developed in-house with the assistance
that you have provided us with.
Mr. Rogers. Do most of the Justices utilize those machines?
Justice Thomas. We are sort of at odds, even here, with
that.
Justice Souter. Not all of them do.
Justice Thomas. There are some of us who are proud of being
Luddites. It was only through the force of time and the shame
inflicted by my law clerks that I eventually moved over.
Justice Souter. I am shameless.
Mr. Rogers. Mr. Serrano.
FEDERALIZING CRIME
Mr. Serrano. Thank you, Mr. Chairman.
You know, the temptation, to discuss other than budgets
when you two gentlemen are here is always there, but I will
refrain from discussing issues. However, there is one that I
think impacts on budget and on workload, which then could also
touch on issues, and it is this trend, as put forth very
recently, February 23, in the Washington Post, where we are
federalizing more and more crimes all the time. I am tempted to
ask, of course, what impact that has on local States rights and
so on, but maybe that is another issue. But what impact may
that eventually have on the Court, if more and more crimes may
end up before you? Is that a problem already? Is that something
that you envision being a problem? How does that go into your
planning for your workload and for what you need to do your
job?
Justice Souter. Well, what you described is part of the
nightmare, I guess, on our side of the street. The Congress
cannot, in effect, federalize more crime without increasing the
size of the judiciary. I mean, at some point it is still true,
you can't get blood out of a turnip, and there is a limit to
what your judiciary is going to be able to do if its
jurisdiction keeps being increased.
There is no way to look at the issue except in the terms
that you have alluded to as an issue of not only the size and
cost of the judiciary, but as an issue of federalism, too. I
used to be a State court prosecutor, I used to be a State court
judge, and I know perfectly well that to the extent that the
Congress federalizes crime that could be prosecuted and has
traditionally been prosecuted in the States, not only will the
expense of that prosecution flow on to the Federal side, but
the governmental responsibility which underlies that
prosecution is going to flow on to the Federal side, too.
In fact, the Congress of the United States has what really
cannot be described in any other terms but as a crucial role in
federalism. You take away the jurisdiction, and the
responsibility is going to go with it. It is inevitable given
the cost of prosecution today. So I don't think any of us can
look at it as an issue strictly of judiciary size or strictly
judicial budget size. We have got to look at it as an issue of
federalism, too.
The Chief Justice alluded to this in the year-end report
that he gave. He made it the subject of his speech to the
American Law Institute last year. There isn't anything new to
say about it. We have to come back to saying the same things,
that there has been a concept of federalism which probably can
be pretty well summed up by saying that what the State courts
and the State judicial systems can do they ought to do, and
what the Federal courts and the Federal judicial system ought
to do are those that the States cannot, those things that the
States cannot. And if that basic conceptualization is lost
sight of, then I don't know where we stop in increasing the
size of the Federal judiciary or increasing the thickness of
the Federal Criminal Code.
Mr. Serrano. If you allow me to stay there for a second and
tread on those careful waters, it seems to me--and I say this
with all respect to those people involved--that some of the
folks who support the idea of federalizing more crimes are the
same folk who also support the idea of a smaller, Federal
Government. Where do you think that happened? I mean, do you
think there was a feeling that the local courts were not doing
the proper thing? Did something break down somewhere that
created this trend? Because there seems to be a contradiction
from folks who want a lesser Federal presence in our lives, but
who are turning crime into a Federal situation where there will
be a bigger Federal presence.
Justice Souter. I don't know the answer to that. I know I
mentioned it in colloquy that I had here a couple of years ago,
the fact that there is a certain financial gravitational pull
involved in this phenomenon. There are moments when without any
question the State systems sigh with relief when they see the
Federal jurisdiction expanding because they have got to find
the money somewhere, too, and they are having a tough time
doing it. But beyond the--let's say beyond the gravitational
pull of money, I am afraid I can't see the issue as anything
but the old problem of wanting to have it both ways, and you
can't.
Mr. Serrano. Thank you.
Mr. Rogers. Mr. Latham.
JURY NULLIFICATION
Mr. Latham. Welcome, both of you, here. It is a pleasure
and honor to have you.
I just have one question. I think last year we talked
somewhat about federalizing crimes. However, I understand the
caseload in the judiciary last year was actually down somewhat
as far as civil cases.
Justice Souter. But the criminal is up.
Mr. Latham. Right. I thought it was interesting that civil
cases were actually down last year.
Justice Souter. Please don't ask me why.
Mr. Latham. No, why is that, please?
There is kind of a trend towards the doctrine of jury
nullification in criminal law. If you have seen an increase, I
would like to hear your thoughts on that. Juries are more
inclined, I guess, not to enforce the law and render their own
verdicts. Has that affected you at all, or have you seen more
cases overturned?
Justice Souter. I have not. I have not seen more of it. I
am not an expert on the day-to-day phenomena in the district
courts, but it is not apparent to us. That, of course, is a
fact of life and has been since there were juries. I have been
in situations myself years ago in which I saw some jury
nullification, and I didn't like it, but prosecutors rarely do.
But with a somewhat changed perspective from the one I had 25
years ago, I have to recognize, and we all do, that the fact of
the jury power to nullify is, I think, one of the conditions of
the stability of the criminal law in the Anglo-American system.
It is a price, but it is a price that probably buys a pretty
good return in the long run of centuries.
Mr. Latham. You wouldn't say it has had any real impact on
the increase at all?
Justice Souter. In any given case it always does. Over the
system and over time, I am not prepared by any means to condemn
it, and I do not personally have an experience to indicate that
the use of that power is somehow changing in a significant way
today. If it is, it has not gotten to the point where I see it
yet.
Mr. Latham. Justice Thomas?
Justice Thomas. I think I am in the same position. From my
perspective, we simply couldn't tell.
Mr. Latham. That is about my brevity.
Mr. Rogers. You want us to give you a hand?
Mr. Latham. It is a first.
Justice Souter. I will.
Mr. Latham. I think that is all.
Mr. Rogers. Mr. Dixon has gone to vote. In the meantime,
Mr. Miller, you are recognized.
ACCESSIBILITY OF SUPREME COURT INFORMATION
Mr. Miller. Good afternoon. This is my first year on this
particular subcommittee, so I find it very interesting.
I had the opportunity to go to a hearing of the Supreme
Court last November. It was on the census issue, and I was
impressed by the tradition that was there that I heard about.
The question came up about the technology, how high-tech the
Supreme Court is. I am just curious. Justice Thomas is pushing
that area of technology and the use of the Internet. How do you
rate yourself we have got the Thomas system in Congress. The
day we introduce a bill, it is immediately available on the
Internet. How far along are you on accessibility to information
on the Internet?
Justice Thomas. We are not as far along as we would like to
be. We are developing a Web site, and there are other sites
that, of course, are developed that have the opinions almost
immediately, and we have our own internal Intranet, all of
which are--well, particularly the Intranet is--even as we work
on it, we are working with it. It is a matter of further
developing that and at the same time using it and expanding it
to other parts of our building.
But I would not say that we are high-tech yet. We are
getting there. I think in time you will see a Web site from the
Court that is up and running. You will also see things that we
are looking at, filing, scanning briefs on to the Web site,
having the opinions up immediately. So as information and the
rest of the society moves more quickly, we will hope to do the
same thing.
But I might add that we have the same security concerns
that other parts of the government and other parts of the
country have. I saw something that caught my eye this morning.
I am not a regular paper reader, but this did catch my eye, and
it had to do with how hackers--there are these packages so that
amateur hackers can hack into Web sites. I think one point was
they could simply load in the program, turn their computer on,
and let the program search around for vulnerable sites. Well,
we have to be concerned about that before we begin to tie our
systems or let people have access into our systems.
Mr. Miller. We have within our system, a security system
where from my home in Florida, I have to use a special security
code to get into the system, and I can do that, and we had a
concern. One thing we find very beneficial in Congress is the
ready availability on the Internet of public information. When
a bill is dropped, it is immediately available on the Internet
through the Library of Congress. The Library of Congress has
been very helpful in disseminating information and making it
more accessible.
I don't know how it is organized within the Supreme Court.
You have a directory of information system, I guess. But if you
work with the Library of Congress, we found them very
worthwhile to work with.
Justice Souter. On that score I think you are doing all
right. You can get an opinion from my Court within minutes. I
have had the experience when we hand-down opinions on a
nonargument day to come off the bench and go back to my
chambers and get a phone call from someone I know saying, I
started reading it; what did you mean on page 5. But it is
moving fast.
Mr. Miller. Great, thank you.
Thank you, Mr. Chairman.
Mr. Rogers. Mr. Dixon.
LAW CLERK HIRING PROCESS
Mr. Dixon. Thank you very much, Mr. Chairman.
I certainly join the members of the committee in welcoming
you, Mr. Justice Souter and Mr. Justice Thomas. I want to raise
an issue that I hope that you are familiar with. It is based on
a series of articles that appeared in the USA Today and the Los
Angeles Times and I think several other newspapers. I certainly
understand the idea of separation of powers and know that you
can only speak about this within limits, but I do feel that
either in the bill that will come up on the floor, or in some
other vehicle, there will be discussions about the
representation of women and minorities as it relates to the
hiring of law clerks. I understand that it is not the Court as
a whole that does that, but each Justice is responsible for the
selection of their own law clerks.
So my first question is, in the general nature is this
codified somewhere? Are there some Court rules that lay out the
procedures that are to be followed, or does each Justice have
within his own discretion the ability to hire whomever they
want?
Justice Souter. No, that is an issue that is left strictly
to each Justice. There is no Court control. Of course, we are
aware of what the others are doing. We are aware of what the
pattern is when everybody is finished, but the hiring decision
criteria and their application are strictly up to each Justice.
Mr. Dixon. So there is no point of reference as it relates
to a memorandum of understanding as to how Justices will
proceed?
Justice Souter. No, there is not.
Mr. Dixon. I am wondering if, Justice Souter, you would
describe to me the process that you use in this process.
Justice Souter. I think in many respects what I do is
probably representative of what the others do. In fact, just to
say up front, I think the only point on which we probably vary
much is some members of the Court will hire two years in
advance. Some like me do not hire until the late winter or
spring before the term, but with the exception of that, I think
the way we go about it is pretty standard.
You really can't probably understand the hiring process
without getting into a little bit of the criteria that we all
do use. Let me start with the criteria.
LAW CLERK SELECTION CRITERIA
The problem that we have in the clerk selection is the fact
that the clerks are not--they are not trainees. They have got
to come on board and basically be ready immediately. There is
no break-in period. And given the work they do and their roles
in the research work, you know as well as I, I won't go into
it, but the need for the very highest of the high caliber is
just unconditional.
We therefore have to go through a winnowing process
vicariously. There is no practical way in the world that we
could, for example, start at, say, the middle level of law
school passage and try to identify people in advance that would
be good prospects. What we have to do is basically rely on the
law schools and the other courts to make a lot of the cuts for
us. Nobody can seriously be considered who has not come to the
very top of the law school classes in the most demanding law
schools.
Secondly, no one can be considered, I think, for practical
purposes today who has not had a Federal clerkship. Some of my
colleagues--
Mr. Dixon. I am sorry, I didn't hear.
Justice Souter. Had a clerkship in one of the other Federal
courts, the district court or court of appeals. I know that
some of my colleagues have hired out of the State system in the
past, and probably there will be occasional exceptions in that
respect, but particularly the work on cert petitions in our
Court is such that a clerk has got to come with a familiarity
with the sort of bread-and-butter Federal statutory work simply
in order to be off and running in time.
So there are two levels of distinction. Somebody has got to
hit the top in law school, and out of the Federal clerkships
somebody has got to hit the top there, too. We, for example,
today have in excess of 800 Federal judges in the district and,
of course, the courts of appeals. Each of them has several law
clerks. The nine of us will end up with slightly less than 36
every year. So we have got to rely on the process of selection
within those two levels.
There is also a third level of selection, and it is one of
self-selection. I think my experience is probably
representative here. I get between--I don't know the exact
number, but between 2- and 300 applications a year. Well,
again, bear in mind the number of Federal clerks that there
are. There is obviously a lot of self-selection going on. It
goes on in part because I suppose there is no question that
some clerks realize that they are probably not going to be at
the top of the eventual heap, and they don't apply. There is, I
am sorry to say today, an increasing number of people who do
not apply for clerkships because they don't think they can
afford to.
Mr. Dixon. Afford to?
Justice Souter. A clerkship is not going to make you very
rich, and these kids are getting out of law school today with
debts that are appalling by our standards, and a lot of them
feel they can't afford any years clerking. A lot of them, and I
know of examples of this from circuits where I have friends,
will not apply to the Supreme Court because they figure they
can't take 2 years at the salary.
So there is a lot of self-selection that goes on there, but
we all end up, I think it is fair to say, just as I do, through
that process with about 200 to 300 applications. My first cut
is made by my own law clerks. They know what I am looking for.
I have got to have somebody with a demonstrated ability to
research fast, to write coherently for the drafting work that
gets done, and I tell the clerks to go through the resumes and
take the grade transcripts, the accomplishment lists and get me
the cream from that. They reduce it down depending--I vary from
year to year. They usually reduce it down to somewhere between
25 to 50, and then I go through them, and out of the 25 or 50 I
will probably select about a dozen to interview and hope that I
can get my four out of the dozen. And as I said, with the
exception of the timing, which does vary from judge to judge, I
think that is probably pretty standard.
Mr. Dixon. Mr. Justice Thomas?
Justice Thomas. Well, I think I differ just a little. I
agree with Justice Souter. One of the differences at this level
is you simply can't take chances, so we tend to be belt-and-
suspenders people on this. I think we all live with the fear
that we are going to have a clerk one day who doesn't work out,
and at this level and speed at which we work, we simply can't
afford a mistake.
I hire four law clerks, as does Justice Souter. There is a
vicarious winnowing process, as he so aptly terms it. All of my
clerks have clerked on the court of appeals. I think it would
be self-defeating to take a clerk who does not have Federal
experience when so much of what we do is either codified, or it
is certainly Federal Constitution and you have to have a
working knowledge. There is no start-up period. Our clerks come
on during the summer, and when we come in in September, they
have to be up and running. There is no window to learn. There
is no learning curve. There are many of us who when we went to
law school simply could not that quickly after law school be
able to run at that pace that quickly. Well, these are the kids
who are able to do it, and these are the ones we select.
We may also differ, and again, it depends on the member of
the Court, on which law schools we look at. I tend to look
beyond the Ivys on a fairly regular basis. That doesn't always
show up in the hiring, but the effort is not to limit it to
certain law schools. But there is nothing we can do about the
kids who select out of the process for whatever reasons. I
certainly was selected out by my performance in law school.
There are individuals with very heavy debt who do not
apply, and there are some who just aren't interested. It is a
lot of work and perhaps areas in which they are not interested
in. And it is 2 years at low income, court of appeals at least,
and then the Supreme Court at about $41,000, $42,000.
Beyond that, there is no manual. There is no hiring
process. I tend to hire 2 years in advance. I finished hiring
for October term 2000. I also hire clerks who have been out 4,
5 years, so there is no--some members of the Court hire clerks
who have just gotten out of law school. I like to mix mine a
bit.
Mr. Dixon. I am sorry, Mr. Justice, you hire lawyers that
have been out of school 4 or 5 years? Is that what you are
saying?
Justice Thomas. That is right. It depends on the
individual. I have one clerk now, for example, who initially
applied to me in October term 1992, but could not--I had no
room for him, and I asked him whether he could be with me in
October term 1998, and he agreed, so here he is. I have clerks
who have for whatever reason worked a number of years. That
depends on the member of the Court, and it gives you that
flexibility. I am more comfortable with clerks who have--some
of whom went straight through and are younger and others who
are a little bit older and who have other experiences. But they
are all uniform in that they are, where there has been class
rank, in the single digits in class rank.
LAW CLERK SELECTION-LAW SCHOOLS
Mr. Dixon. I recognize and I think several of the USA Today
articles have pointed out exactly what you are saying--that
there are a lot of factors involved here. Some young men and
women opt out on their own and may be very good clerks, but
they have other goals and desires.
But let me ask you to comment on what I would call the old
boy network here. I don't know if these statistics are correct,
but the article pointed out that those currently on the Court
have had 394 clerks, and half of those have come from four
schools. If I were to take your testimony and put it with that
statistic, it would suggest to me at least that it is only
these schools that can produce young men and women, ``up and
running.''
I know that, Mr. Justice Souter, you are from Harvard, and,
Mr. Justice Thomas, you are from Yale. Harvard and Yale have
the two highest number. Of the 394, 92 come from Harvard and 64
come from Yale. University of Chicago has 47, and Stanford has
35. That is about half of them. So is the suggestion that only
those schools can produce the caliber of person that you are
looking for? Because some of the problem, I think, is the
school selection part here.
Justice Souter. I think to answer your question directly,
no, that isn't the assumption. You will find actually a
spectrum of belief about that. The Chief Justice, for example,
said somewhere--I remember reading it. It had gone into print.
His view was that although schools like Harvard, Yale, Stanford
and so on are going to be stronger overall simply because of
the fact that more people want to go there, so their own
selection is going to be more rarified, he nonetheless believes
that if you get to the very top of the classes in any major law
school, you are going to find people who in quality I think he
used the term are pretty fungible. They are going to be about
the same.
I think he is right, and I would add one qualification to
it, and it is a practical one with me. I have never been over
this with other members of the Court. You may get a different
view from Justice Thomas, but my qualification to that is this:
I not only assume, but I believe that not only in the other
large law schools out of the ambit of those that give us the
great bulk of our clerks, but in a lot of smaller law schools,
too, you will find people who are just as good as the best that
I have hired. The rub is in finding them.
Mr. Dixon. In training them?
Justice Souter. In finding them. I have to work, basically
we all do, on a probability judgment. Hiring for all of us, as
Justice Thomas said, is meant to be a risk-free business. We
cannot afford a mistake. I know that if somebody comes from
Harvard Law School, Yale, Stanford, Chicago, the ones where I
tend to have experience in the past and from whose faculty
members I get a lot of letters, letters that over the years I
have assessed, I know who to pay attention to, and I know who
to be a little bit wary of. I can make a sounder, less risky
judgment than I can make if somebody is coming from a law
school that I have not had a lot of experience with and whose
references are from people whom I do not know so well.
And I think probably you would get universal agreement in
the Court that if any of us was in a situation where we could
be absolutely certain of our references from people who knew
what we have got to have, that we would probably feel
comfortable in going outside the more well-trodden paths, but
absent that, I will tell you personally, I am not. I wouldn't
dare to.
LAW CLERK SELECTION-WOMEN AND MINORITIES
Mr. Dixon. Am I correct in assuming your comments are
directed both to minorities and women? The reason I ask that is
because it would appear in looking at this, that Justice
O'Connor has done very well with hiring women as compared to
any of the other Justices. So is it that she is particularly
sensitive to looking for women? I mean, of her 68, 29 have been
women, but the other Justices don't come close to that.
Justice Souter. I don't know what she does. I don't know
whether she looks specifically for women on resumes or not. I
take them as they come. I almost always have one--last year I
had two women law clerks. To the extent that they are looking
out for each other, they have got a friend in my chambers, but
I do not say I want you to give me, you know, x number of women
within the 25 or whatever it is that you may end up, or 30 or
40 that you give me.
And the fact is undeniable that you get a lower
representation of women in the applicants whom I see than you
do in the general law school population, and I have batted this
around with women law clerks, and male law clerks for that
matter, but the fact is undeniable that it works out that way.
Mr. Dixon. Well, at least according to this article, in
1996, 44 percent of the total population of law school
graduates were women, almost half.
Justice Souter. Yes.
Mr. Dixon. There is a Justice--as low as the number of
minorities African Americans, Latinos and Asians--it would
appear that that Justice makes an extra effort to find
qualified minorities. I mean, when I look at this Justice, he
has hired three African Americans where many have hired none.
So does he have a particular sensitivity toward this? It is a
spotty record. Justice O'Connor has hired almost half women.
This Justice has hired five Asians. Are they putting forth an
extra effort? Are there clerks that are more sensitive to this,
because it appears that the first screening would be from the
existing clerks?
Justice Souter. I don't know the answer to your question.
Mr. Dixon. Excuse me, Mr. Chairman. Is this the second
vote?
Mr. Rogers. Yes. Five minutes.
Justice Souter. I don't know the answer to your question.
There is one variable, and this is undeniable, and this is
something that I have thought of. The fact is we have--to the
extent that we have got any numbers, and we don't have them,
from any systematic study that we have done, but outsiders
have--the overall representation--taking the Court as a block--
of minorities tends to be about the same representation that
shows up through the winnowing process, through the law schools
and the lower Federal courts, so that what we tend to be hiring
it seems to work out is basically a reflection of the
proportions in the pool.
Given that fact, there is one undeniable difference that I
know my hiring pattern takes. I don't like to hire until
basically the spring before the term because I not only want
the courts of appeals to have made a selection, but I want some
experience in the court of appeals so that I can actually talk
to a judge and find out how somebody is working out. Given that
fact----
Mr. Dixon. Could we put a period there, Justice? I have got
to go vote, but I want to come back to that on my second round.
Thank you very much.
Perimeter Security
Mr. Rogers. Now, let me ask you, Mr. Justice Souter, the
budget request for the care of the building, which is an
Architect of the Capitol responsibility, but certainly you have
a deep interest, contains a request for $5.9 million for
construction of perimeter construction improvements. I don't
want to get into the details of that here in the public forum,
but have the Justices agreed on all the details of what those
perimeter improvements will be, or are you still considering
some of the options that have been presented by the Architect?
The reason I ask that is we have got to appropriate here
pretty soon, and I don't want to do that until we know that the
members of the Court are through with it. I don't want to start
something and then have to change it later on.
Justice Souter. What we have done up to this point is this:
There are a couple of security proposals that we have
definitely eliminated, and I am sure you can go into them with
me or the Architect in a forum that you would be comfortable
with. There are some that we have approved in principle.
The reason I put the qualification ``principle'' on there
is that the package tends to make sense as a package, but not
in individual parts. We ourselves, the Court itself, is an
individual part of the larger security picture up here on the
Hill, and some of what we may ultimately wish to do will depend
in part on what the Congress may wish to do with its own
environs and its own grounds. So what we have done is to take
some interim steps in the direction of being interested and
approving in principle, but we have not got to the point of
saying on a come-hell-or-high-water basis, there are things
that we necessarily have got to have. I think we are moving in
the same planning direction that probably the Congress is.
Mr. Rogers. Are you saying you won't decide until we
decide?
Justice Souter. On a couple of points, yes. On a couple of
other points, we simply need more study on sort of the physical
options for our own building.
Mr. Rogers. Do you have any notion of when we might be
informed of the final plan for your security improvements?
Justice Souter. I am assuming well within this fiscal year.
I know part of the money that you have alluded to in the
Architect's budget is for the conclusion of the study of some
options that we have got before us, and we are assuming that we
will be able to sugar off on them during the coming fiscal
year.
Building Improvements
Mr. Rogers. Now, last year we discussed with you a possible
Court building system modernization plan, to modernize the
Supreme Court building. At that time we were thinking in terms
of some $20 million, and we provided $1.5 million for the
design monies. It is my understanding now that the Architect
will be presenting options for that modernization project that
now ranges from $85 to $120 million. Can you tell us the status
of the Justices' deliberations on that matter?
Justice Souter. The Court's deliberations as a body have
not really begun. There is a committee consisting of Justices
O'Connor, Kennedy and me, who are meeting with the architects
and their consultants, and we in due course sometime in the
course of the next year are going to be going back to the Court
with recommendations.
The inflation of the figure came as much as, I think you
probably know--as much as a surprise to us as it has to you.
There is no question that one reason the figure has turned out
to be a lot higher than we thought is that there are some yet
longer-range structural security issues that the Court has got
to face now that no one was expecting it was going to have to
face 5 years ago, and that accounts at least for the
possibility of some of the--possibility inherent of some of
that upward spiraling of the figures.
Mr. Rogers. When do you anticipate that the Justices would
come to a conclusion on the project that would be recommended
then to the Architect?
Justice Souter. I am going to give you a guess because that
is all it is. My guess is it is going to be next fall.
Mr. Rogers. This coming fall?
Justice Souter. Yes.
Mr. Rogers. Well, we will get into this more with the
Architect in a minute, but there has been, as you suggest, a
very drastic change in the scope of the proposal. First, 2
years ago when it was first proposed or presented, it was a $7
million project, and then last year it was described as a $20
million project dealing with modernization of the mechanical
systems, but now apparently plans are being put together for
$120 million renovation of the entire building. I wonder how
did it evolve from a fairly modest project to one of some size?
Justice Souter. I think there are only two things that you
can say. The high figure that you have mentioned is high--as I
understand it, is a high figure on the outside range of what
some independent consultants have come in and said you ought to
think about doing.
Mr. Rogers. Sometimes those high ranges become the norm.
Justice Souter. I don't think this one is going to. The
Court wants to get a lower figure rather than a higher figure.
I say I can't speak for the Court yet. I can on that score
because we have talked about numbers.
The second reason for a change in the numbers is the one I
alluded to a moment ago. We are at least being told to consider
some structural alternatives for Court security, that no one
was dreaming about 2 years ago, and I don't know where we are
going to come out on that.
Mr. Rogers. Well, as I say, we will have a chance to hear
from the Architect this afternoon on that as well as other
things.
Now let me get back to one of your favorite topics and that
is----
Justice Souter. What could it be?
Mr. Dixon [continuing]. Diversity of the Court.
TELEVISING COURT PROCEEDINGS
Mr. Rogers. Well, diversity, but also televising court
proceedings.
Justice Souter. I am still a Luddite.
Mr. Rogers. But there has been a sea change at the Court.
We do understand that live broadcasts, as you alluded to a
moment ago, announcement of opinions are now being relayed to
the Public Information Office. That is a first for
representatives of the public to be able to have access to an
audio feed. Is that a first in terms of opening up the Court to
coverage by modern technology of other sorts?
Justice Souter. That is as modern as it is going to get,
Mr. Chairman, if my view prevails.
Mr. Rogers. Mr. Justice Thomas, do you have a different
opinion?
Justice Thomas. I don't have a much different view. I read
the testimony from prior years on this, and I think Justice
Souter is close to reflecting my views. I just simply don't
think that our process will be enhanced by it. In fact, I think
it would be compromised.
Mr. Rogers. Are either one of you or both of you using as a
yardstick for your opinions about whether or not television
sometimes tends to bring out the ham in people, are you using
the Congress as a possible example of that?
Justice Souter. Far be it from us to use----
Mr. Serrano. Or anything that happened in the last couple
of months?
Justice Souter. No. You know, the yardstick that I have
used is in part--let's bear in mind that we are talking--as a
general proposition we are talking about trial courts as well
as appellate courts, so there is no question that part of the
yardstick does involve some experience in what happens when
trials get broadcast, but confining the thinking strictly to an
appellate court and strictly to ours, if you will, my yardstick
was partly forged by some experience that I know I have
described to you in the past and seeing how it works in an
appellate court.
To me at least, the principal drawback is not the
temptation to ham up, but the temptation to tailor what can
sometimes be an extremely vigorous process, dialectical
process, by fear of how it is going to sound and turn out if it
is excerpted. And I think I have described to you the
experience that I had in the past of simply not going as far as
I wanted to go with certain lines of questioning because I knew
what the effect was going to be if I did it.
And my yardstick is also formed by a perception which I
have from--which I believe is a very fair one, and that is the
courts are not, under our system, reporting to a constituency
in the way that the political branches by definition are doing,
and I find it a positive value that the courts do not utilize a
process of familiarization which basically would tend to give
the impression that it was much more of a political institution
than it ought to be. And I have heard the argument that the
very fact that the Congress has led an example here should be
an example to us, and that is a premise that I don't accept for
that reason in principle. But that is where my thinking comes
from.
Mr. Rogers. You have the same feeling about live radio
broadcasts?
Justice Souter. Yes, I think, for live radio broadcasts
from the Court. As you know, we have talked about this in the
past. The tapes are made of the arguments, and they are, I
think, released for all purposes to anybody who wants to listen
to them at the end of the term, but that very salutary time
lag, I think, makes a difference in the significance of the
taping and the ultimate accessibility to Court.
Mr. Rogers. You might be interested to read in the Kentucky
Law Journal of 1962 an article written by yours truly, the
title of which was Cameras, Courts, and Confusion.
Justice Souter. Sounds like a good title.
U.S. SENTENCING COMMISSION
Mr. Rogers. As you know, the U.S. Sentencing Commission
currently has no Commissioners. The terms of all Commissioners
expired last fall, and no nominations for new Commissioners,
let alone confirmations, have taken place. Is that a serious
situation for the Federal criminal justice system?
Justice Souter. It is generally, and it is going to have
its impact on my own Court. The staff, of course, of the
Sentencing Commission has gone on with its work, but the
Commission can take no initiative at all. The way it will
impact on the--let's say there are two impacts, one of which
will be particularly felt, in particularly felt, in my Court.
The truth is in the sentencing guidelines, there is a
constant experiment going on, and that experiment calls for
midcourse or in-course adjustments from time to time. The
object of the adjustment is what we popularly refer to rightly
as justice. The people who can make those course changes don't
exist right now.
There is a practical effect on the people who come before
the Courts for sentencing, and it is a regrettable one. The
impact on the Supreme Court is simply this: Up to this point,
the Supreme Court has tended not to take under discretionary
review cases that come to us out of the circuits on issues that
involve the interpretation of the sentencing guidelines.
Circuit one may read the guideline one way; circuit two another
way. We have tended not to take those cases on our jurisdiction
because of the fact the Commission is there to make the choices
for us, and the truth is we are probably going to get a better
sentencing system if those choices between the interpretation
that circuit one and circuit two put on them are made not
merely as it were on a lawyer's reading of which one is coming
up with the best interpretation of an existing guideline, but
with the quasilegislative objective of seeing what the
guideline ought to be in a perfect world in the light of the
experience we have had.
Well, that is the best way to solve the problem of circuit
conflicts. If the Commission, in effect, remains out of
existence the way it is, the Court or my Court is going to have
to start taking circuit conflicts on some guideline issues, and
the truth is we are not the best agency to be doing it. The
Commission can do a better job at this simply because its
purview is broader than ours can possibly be, so one hopes that
a year from now we will have seen a sea change in this
situation.
Mr. Rogers. Mr. Justice Thomas, any thoughts?
Justice Thomas. I think that is reflective of my views. We
do tend to allow some of the very intricate workings of the
sentencing guidelines to be worked out by the Commission. Its
absence is a problem in that respect. We simply do not immerse
ourselves in the guidelines on a regular basis. From time to
time we do, of course. And the Commission is more equipped, as
Justice Souter has indicated, to make sure that the guidelines
reflect the intentions of Congress at this point.
Mr. Rogers. Mr. Serrano?
law Clerk Selection Women and Minorities
Mr. Serrano. Thank you, Mr. Chairman.
Gentlemen, Mr. Rogers and I along, with the other members
of this committee, and in my case with the very important
support of Mr. Dixon, have to take this bill to the House
floor, this whole bill, and defend it and get it through to
support everybody that we feel has to be supported.
Let's make two assumptions here. If Mr. Dixon's figures are
correct, and I assume they are, and if we reach those figures
based on your desire to hire people, if I may paraphrase, who
are up and ready to go, if that assumption is also correct, and
I imagine it is, it still gives us a situation where this year
we may see Members of Congress discussing strongly on the floor
the issue of the lack of minority representation in the
positions we have discussed. Keep in mind that you are hearing
this from a Member of Congress who is still waiting for the
first Hispanic on the Supreme Court, so I understand this issue
well. I need to be prepared to deal with this in defense of the
bill. That is the role I play as a Ranking Member.
I also understand I am talking to the one entity, if you
will, that comes before us that above any other entity should
be free of any political pressure. But lately in this country,
we have gone after entities that usually were supposed to be
free of some pressures, and so some people on the floor may
bring this subject up.
So my question to you is, assumption one is that Mr.
Dixon's figures are correct, assumption two is that these
figures were reached by doing what is best for the Court. When
you look at this, do you see something wrong with it? And is
there a way that we can begin to approach it--if the political
process assigns members to the Court, then why shouldn't there
be some consideration of the political needs of all communities
in making the Court staff look more like the rest of the
Nation?
Mr. Rogers. Would the gentleman yield on that?
Mr. Serrano. Yes.
Mr. Rogers. Is the question should we have a quota?
Mr. Serrano. No, Mr. Chairman, the question is should we
have fairness, and a quota has never been in place of fairness.
A quota has been a word that some people have used when they
are needed to deal away from the issue of fairness.
We do have fairness at times. People understood the need to
have a woman on the Supreme Court. There is a clamoring in the
country at times to have a Hispanic on the Supreme Court. There
is nothing wrong with that, and if the idea is then to have
individuals working within the Supreme Court, in view of what I
know is coming as an argument on the floor, I just need to know
from the Justices if they feel the picture as it appears now--
if there is something wrong with that picture--and is there
something that we can do.
So in answer to your question, we don't support quotas on
this side, but we do support fairness.
Justice Souter. I think the answer to the question, is
something wrong with the picture, there is something incomplete
with the picture. There is, so far as I know, no minority that
has not clerked on the Supreme Court of the United States.
Someone told me the other day that we may not have had an
American Indian. I don't know where that figure came from, but
that point came from, but that may be true. But the fact is
there has been, so far as I know, no part of the ethnic or the
racial spectrum that has not found its way into clerkships over
the years.
There has been no inkling that anyone on the present Court
is engaging in either racial or ethnic discrimination. I will
personally attest to my belief that no one is. The question,
without using the word ``quota,'' therefore, is not should
minorities--and I will include women as well as racial and
ethnic--should the minorities be represented in the spectrum
that one finds among the clerkships? The answer is obviously
yes. The question is simply what are the numbers, and how
should the numbers change?
The assumption of my rephrasing is that they ought to
change. It is fair to say that there is no one on the Supreme
Court today who would not like those numbers to change. The
question is, I guess, then, the best way to go about changing
them. If we were in a position to walk into law schools or for
that matter, I suppose, to walk into conclaves of clerks in the
other Federal courts and start recruiting, that would be the
way to do it. The trouble is that there is no practical way to
do that. This process of selection that goes on in the law
schools and in the Courts is something to which I will say we
are captive not in the sense that I necessarily regret it, but
in the sense that it has consequences for us sometimes that we
don't like.
Change in the Law Clerk Feeder Process
What I would ask, and what we have asked amongst ourselves
in discussion this year, is are we going to start seeing
pressures for change in the process that feeds these people to
us? I will give you a better answer to that question probably a
year from now or 2 years from now, but it is inconceivable to
me that we are not going to see that.
I know personally of a couple of instances of law school
professors who have told colleagues of mine that they are
simply going to push the minority high-achievers in ways that
they have not done before. I think the assumption has been
throughout much of the system that everybody understands how
you get to that point of being the cream of the cream, that
everybody will naturally want to get there, and nature will
take its course. Well, I know there are people in the law
schools today who are saying, we have got to shove a little.
I think shoving, if I know of a couple of instances of it,
there are a lot more instances of it out there in the country,
and I have no doubt that that shoving is going to take place,
and that it is going to show up, and it is going to show up in
the pool of people from whom we do our hiring. And I don't know
of a better practical way for it to happen than essentially for
it to happen that way.
Mr. Serrano. Well, Mr. Chairman, certainly at this point of
this conversation, and I suspect that this will become a
conversation as we go to the floor later on, I am encouraged by
your statement that you don't know of anyone on the Court who
wouldn't want to change those numbers.
And it is certainly not, Mr. Chairman, an issue of quotas,
but I must tell you there are ways to deal with that. If you
were to ask me, ``I need to hire someone who speaks Spanish and
English, who is bilingual, should I go to the center of
Manhattan to look for that person, or should I go to East
Harlem or the South Bronx?'' it would not be a quota statement
if I told you you are better off going to the South Bronx or to
East L.A. to find that person.
So perhaps it is not that the Court hasn't tried to find
some people, it is that the Court has been looking in the wrong
places, and I assure you, I am sure, the same people who now
promote candidates would be able to promote excellent minority
candidates.
Justice Thomas. May I add a word there?
Mr. Serrano. Yes.
Law Clerk Selection--Law Schools
Justice Thomas. I think there is just still a bit of
misunderstanding about how we hire clerks. We don't look
anyplace, and that is the point. We are not like an employer
who recruits, who sends out representatives, as Justice Souter
suggested. We just don't do that. We are passive in that
process. We look at what comes to us, and the point that we are
making is that it is some self-selection who applies.
There is some, I think the word that was used earlier,
suggestion that there is an old boy network. Well, I am not an
old boy, and I am not part of that network. You look at people
whose words you trust, and you look at indicators of
performance, again recognizing that we simply can't make a
mistake.
Now, I perhaps differ. I am more in the line of the Chief.
There are some adjustments you can make. I don't hire
exclusively from the Ivys. Even though I went to Yale school, I
am not particularly enamored of clerks only from those Ivy
League institutions. The clerks this year I have are from
Chicago, which was on your list, and again, those schools you
named are among the creme de la creme of the law school. They
are the most exclusive, they are the hardest to get into, and
they tend to have a collection of the best students. But again,
even from those, we only hire from the top. I have one clerk
from Yale Law School. I have one from the University of Texas
and one from the University of Virginia. In fact, the one black
clerk I have was also from the University of Virginia and was
an outstanding achiever there and at the Court. The following
year I have one from NYU at the top of the class; one from
Texas; I think two from Chicago. The following year I have one
from KU, one from Chicago, one from Harvard. I can't remember
where the fourth is from. I may have those mixed up a little.
But I do have the opportunity to change the schools, the
institutions, and to take recommendations.
There are people in night law school who are brilliant, but
as Justice Souter said, how do you know that, because the
tendency would be to go to the safe spot. You would say go to
South Bronx if you want a certain person speaking a certain
kind of Spanish, et cetera. Well, I do think you can make that
as particularly on--I think for me, I think I can make that
change, and I do like people from diverse backgrounds, but I
don't do it at the expense of performance.
And one question that is never asked in this discussion is
there are some institutions that are required to prepare these
kids. No questions are ever asked of them, in 3 years why is it
you haven't prepared any minorities to be at the top of the
class, or why aren't any pushed in the selection process. There
are 8-, almost 900 judges in this country who are Federal
judges, they are State court judges, magistrate judges. What
are you doing to include them in that process? There are 36
slots at the Court. No one is talking about the hundreds
elsewhere.
So we are looking--I am willing to look at different law
schools; again, high level of performance and recommendations.
You also look for, as Justice Souter did not touch on,
people with whom you can work. There is no need to have someone
there with whom you are going to be in tension, antagonistic.
You don't choose friends that way. You choose friends to work
with. These are our friends for a year and then perhaps for
life, as was evidenced yesterday at Justice Blackmun's memorial
service. You become friends. These are your kids. These are
people who debate with and you get to know and who do very
sensitive work for you. So there is a high level of trust
there.
I am willing to say that virtually all of the
considerations, the law school, perhaps the individuals from
whom we receive recommendations, the place these kids are from,
the parts of the country, all of those are up for grabs. The
one thing that is not are the indicators of performance. You
simply cannot risk that, and that is a question, that is a part
of the equation that is not provided by us. That is a done
deal, and it is a done deal before they get to us, but it is a
sine qua non if they are going to come to us, and there cannot
be a variable.
And it seems that oftentimes, and it is a little bit, I
think, offensive in some of the discussion, that if you--I can
hire Asian clerks, and they are at the top of their class. I
hire women clerks. They are at the top of their class. I have
got a young woman coming in from Texas. I think she was number
one in her class. But the suggestion seems to be implicit there
that, well, if you go to a black clerk, that person doesn't
need to be there. And I am not saying that that is suggested
here.
Mr. Dixon. I am glad you said that.
Justice Thomas. I am not suggesting that you are suggesting
that here. You have been very fair, and I am just simply saying
that the other things are variables, but that can't be, and I
don't think that the clerk or the member of the Court would be
very comfortable if that were. But I do think that, as Justice
Souter recommended, that this matter, there isn't a single
member of the Court--I would love to see the day when I have
just under these requirements four minority clerks who can hold
their heads proudly and high around that Court and say that I
am here under the same criteria, doing the same job, and I am
just as good as anybody else here. It is under those
circumstances, and I think any member of the Court would be
proud of that.
Mr. Rogers. Mr. Dixon?
LAW CLERK SELECTION--WOMEN AND MINORITIES
Mr. Dixon. I want to thank the Ranking Member for laying
out the picture that in our world we will have to deal with
this issue, as I am sure you understand, as I understand, the
independence of the Court.
My strong belief, which may not be relevant at all, is that
it is not exclusively a matter of race. There are obstacles
that come along the way that inhibit a person of color or a
woman, and when you have traditionally selected out of four
schools, it is very difficult to include people of color.
If I look at the whole picture, none of us can ignore that
white males have predominated in society over a long period of
time, sometimes justified and sometimes not justified. And so
when we look at statistics, it raises an issue.
The Chairman raised the issue of whether it was a quota or
not. The suspicion is that there is a quota, a quota to keep
out Asians, blacks, and Hispanics. So there is a suspicion of
that.
And, Justice Souter, I really liked what you said there,
and I think that without some probing by the press and the
NAACP and other organizations, there has been no reason to
believe that this would have ever been a concern of the Court.
I have been on this panel for 6 years, I believe, and neither
Justice Souter nor Justice Kennedy have ever raised this issue
that we are looking at ways to involve more women, more
minorities. Until we push, it is the only time that it gets on
the scope, and so that is the reason for raising it.
I would call your attention to--you may or may not have
seen this--Justice Rehnquist wrote a letter to three Members of
Congress and to the NAACP. The only reason I raise it with you
is because he says he has discussed this with you. ``As the
demographic makeup of this pool changes, it seems entirely
likely that the underrepresentation of minorities to which you
refer in your letter will also change.'' I don't know what that
means. If there are more blacks or Hispanics going to law
school? When I look at the numbers, not unless they are going
to the University of Chicago or Harvard or Yale.
And so this letter concerned me because it seemed it was a
recitation of the independence of the Court and was kind of a
stiff-arm when it ended with that and you look at the
statistics of where you come from. So I don't think it is your
fault personally, I think there are barriers put up that occur
long before it ever gets to a Justice of the Supreme Court.
Class is one thing. A minority that gets through Harvard
Law Review who doesn't have the pedigree, or the background, or
the inheritance from his grandfather, or is not an
institutional person, so he cannot dedicate himself immediately
to public service. He wants to go to the firm that is going to
make him the best offer. Now, that is not the Court's fault.
But it does seem to me without a push by someone, and the
Ranking Member said it well, that this is an issue that is
going to be dealt with on the floor of the House, and so it was
for those reasons that I have raised this particular issue.
And I see Justice--Mr. Justice Thomas shaking his head. We
may disagree on a lot of things, but we are both black, and we
both understand that. We may have a different perspective on
it.
The second thing, I was very pleased to see Justice Thomas
suggest that he is looking at perhaps a little bit different
method of selecting. He has selected someone who has been out
of law school, who has maybe had a chance to demonstrate
himself somewhat, as I believe you said that this person had
been out. And so I would just encourage, nothing about quotas,
to start looking at some alternative methods of selecting some
of these people.
The last thing is that if Chief Justice Rehnquist had just
said that he was going to``cc'' or talk to the feeder system
about this, and finally when I raised the issue, everyone made
the point that these people have to hit the ground running. The
inference clearly to me was that minorities and sometimes women
can't hit the ground running; otherwise why raise that issue.
I am not talking about people in the middle of their class.
I am not talking about some unqualified person, but when the
first thing you say is they have got to hit the ground running,
and I am asking you about minorities and women, I think it is
fair to draw the inference that women and minorities cannot hit
the ground running.
And finally, Mr. Chairman, as we look at this record, which
I don't think is good, it is clear to me that certain Justices
for either their sex, Justice O'Connor, or in the case of
another Justice must have reached out, because their record
pops out, 28 out of 35 women. She was looking for women. And
the other Justice had three African Americans. He must have
been looking for people that can hit the ground running, and he
found them.
And so I just want this to be a healthy conversation
because, as Mr. Serrano says, this issue is going to hit the
floor, and we have moved past this in our society for example
with the Intelligence Community, which is sacred and very
valuable to our country; even to the Supreme Court. We just
can't stiff anymore and say the independence of the Court. I
don't want to intrude on that. But just as things are rapidly
changing in our society, as attitudes towards institutions
change, we have got to talk about these things sometime. I will
give you any response, Justice, that you would like.
CHANGE IN THE LAW CLERK FEEDER PROCESS
Justice Souter. There are a couple of things. One is the
matter of the implication that you raised. The implication of
hitting the ground running was a preface to my discussion of
the fact that we are creatures of our feeder systems, and as a
practical matter, what we can take is what we get from there,
and our safety in selection is a safety for which we have to
look to the feeder systems. That was the point that I was
leading up to.
Mr. Dixon. The point that I raised about that, if the Chief
Justice could have said, we are going to talk to the circuit
judges about this. I mean, there obviously is a give and take.
There is a Federal judge out there in Virginia that had 20
clerks go onto the Supreme Court. There must be some dialogue
that goes on; this person I have identified, Hal Rogers, he is
one of the best, I would like to recommend him to you. There is
that give and take if someone would reach out a little bit.
That is my response.
Mr. Rogers. I want us to continue the conversation as long
as necessary. I would point out we do have the Architect of the
Capitol hearing after this one.
Mr. Dixon. I understand that. I am through after this, and
I will shut up. Mr. Justice.
Justice Souter. I will be brief.
The second thing is something which has already come up,
but I think it is worth underlining, underscoring, and that is
I have been on this Court for, well, going on 9 years now, and
the conversations about what it is practical for us to do have
been going on for as long as I have been on that Court. They
have gone on between me and my clerks in prior years.
I know I have had--I can think of specific conversations,
for example, with some of my women clerks. I would say to them,
why don't I see more of you? And that has without any question
ultimately led in the case of a number of my colleagues with
close law school contacts back to conversations with the people
in the law schools from which, as I said a moment ago, I think
we are going to see the fruits of some pushing, because there
is pushing being done today which without doubt was not being
done when I first came on the Court.
When I first came on the Court, the law schools, including
the ones from which I do the bulk of my hiring, probably had--I
don't know the statistics--but they probably had excellent
records so far as their class composition was concerned in
recruiting minorities into the classes. What I think was not
going on then, and what I think we will see in the future is
the pushing of the people who are doing well when they got
there into the pipeline which ultimately gets to us, and that I
think unquestionably we are going to see.
Oh, and one last thing. This is irrelevant. I think it is
irrelevant to the minority question, but Justice Thomas, I
don't want to take any credit away from him, he is not the only
one who hires old-timers. I have had a couple of them myself,
and a couple of years out of law school can make a real
difference in what you get. So I guess there are some who
don't, but that is happening.
Mr. Dixon. Justice Thomas, I will give you the last word. I
apologize for ``the old boy network.'' It was inappropriate,
because what I wanted to say is the old school network, and you
are part of the old school.
Justice Thomas. I knew what you were trying to get at. I
really appreciate the manner in which you handled this in a way
that we can do something about it. I think that is sometimes
unfortunate that we don't.
When I was in law school, I knew nothing about clerkships.
I didn't know how they were gotten. It was a foreign land. I
understand exactly what you are saying about that. And there is
so much that can be done about that. That process at the law
schools also is informal. It is not just minority clerks who
don't necessarily know. There is sort of a--it is almost
secretive in some instances.
Mr. Dixon. A cultural thing.
Justice Thomas. I understand that.
I do want to make this point. I do think that the Chief
Justice and my colleagues on the Court, I stand in defense of
them on this issue. There is not a person at that Court who
would not want to change this, but again, I know that we have
had a generally passive process. You do work--if we have a
fault, it is that we are quiet about it. Everything is
informal. It is a phone call. It is talking to people whose
word you trust, friends you have at law school. That is the way
we hire clerks, and that is the way we send messages back the
other way.
Mr. Dixon. And you and I have been exposed to that all of
our life. We don't know how it happened, but it happened. As
you said, it was a phone call or something else that went on.
Justice Thomas. One of the things that I had suggested
early on in these discussions was that people be informed about
that, but it seems to go by the wayside. There is work that can
be done at every level, but I do have to stand in defense of
the Chief Justice. By the demographics, he meant the
demographics of the very pool from which we select clerks, the
kids from the Courts of Appeals that Justice Souter talked
about earlier.
And Justice Souter also made the point that our hiring rate
reflects the representation in that pool, and his point was
because there is a relationship between our hiring and that
pool, that as that pool--the demographics of that pool changes,
so will our hiring rates, because it is reflective not of the
law school admissions process or the law school attendance
process, but the Courts of Appeals pool and the individuals who
apply to us.
The final point, there are many of us who prefer kids from
modest backgrounds. All of my clerks this year are from modest
backgrounds. I particularly have a preference, if there is one
preference I have, are kids who perform against the odds, these
obstacles that you were talking about, because you can have--as
you and I both know, and there is some discussion about it
these days, every member of our race isn't from a modest
background. My preference even there is for the modest
background.
And a final point as I reiterate that I must stand in
defense of my colleagues because I do believe that they would
love to see more minorities at the Supreme Court in every
capacity.
Mr. Dixon. I thank you, Mr. Chairman, for your indulgence.
This is a very important issue to many of us.
Mr. Rogers. I understand. I appreciate your bringing it up.
We do have the Architect of the Capitol waiting, and we are
seriously out of time here. I don't want you to leave without
us bringing up another of your favorite topics, and that is the
ninth circuit. And I am not picking on you.
Mr. Dixon. Judge Reinhart I bet has some good scholars for
you.
Justice Souter. I have had one.
Mr. Dixon. Have you?
Justice Souter. You bet.
Justice Thomas. I haven't.
Mr. Dixon. I am surprised Justice Souter has.
NINTH CIRCUIT COURT OF APPEALS--HABEAS CORPUS COSTS
Mr. Rogers. I want to ask you about the ninth circuit. We
have got a serious problem. You have got a serious problem. The
ninth circuit is out of whack in so many different ways, but I
am only going to point out one of them: Habeas corpus, capital
habeas corpus cases and other habeas corpus cases in general.
Eighty percent of the costs of cases, habeas corpus capital
cases, are composed of attorneys' fees for time spent out of
court. The cost of cases in the ninth circuit is four times
greater than the cost of cases in all other circuits. Average
cost in the ninth is $289,000 per case compared to $62,000 for
all other circuits combined. The average cost of California
costs is more than $370,000 compared to about $70,000 for non-
California cases. The median cost of California cases is
$307,000, compared to the median cost of non-California cases
of $48,500. The combined impact of the sheer number and high
average cost of California cases--California cases have
generated more than 57 percent of the total CJA panel
attorneys' payments in the last 6 years. Almost 2 out of $3 go
to California, and all the rest of the country gets 43 percent.
Is there some magic that I am missing here? Do you have a
thought about this, either of you?
Justice Souter. I really don't have a thought. I knew
nothing about these figures before coming here today, and I
have no intelligence that I can offer on it. The place that one
would begin to look, I suppose, if one were looking at factors
that would be totally neutral would, of course, be in the case
composition, and we do realize that the increase in the
criminal filings in the Federal courts this year have included
a significant increase in criminal matters involving the
immigration laws.
But, you know, it is one of those points that one has in
mind when one starts looking to try to get an answer to what
you are describing. And beyond that, I don't have a thought. I
don't know how to explain what you have described.
Mr. Rogers. They only have 20 percent of the cases, but
they are generating 57 percent of the costs.
Justice Souter. I have no idea what the answer to that is.
Mr. Rogers. Attorneys in that circuit spend almost three
times as much time working out of court as their counterparts
in other circuits. Expert costs are more than three times as
much in the ninth circuit as other circuits. Do we have an
administrative problem?
Justice Souter. I don't know the mechanics which are in
place today for monitoring those costs. It is not a subject, as
you know, that the Supreme Court deals with as an
administrative matter, and I don't know how they do it. I just
don't know how to answer your question.
Mr. Dixon. Mr. Chairman, while you catch your breath, this
issue, as you know, has been raised before. I think the
Administrative Office of Courts said, in part, that most States
provide that a State habeas corpus petition is handled by the
judge who presides over the trial, the capital trial in this
case. In California, State habeas corpus petitions in such
cases are filed directly with the California Supreme Court.
Thus, since cases are more likely to be resolved at the court
trial level rather than the Supreme Court, which has close to a
100 percent denial rate on habeas petitions, more cases make
their way to the Federal court for resolution, and it goes on.
I am not suggesting that that is the only reason.
Mr. Rogers. We thank you for your appearance here today. We
have kept you longer than we had planned. We thank you for your
time and your work. We take this responsibility on the
committee very seriously, as you can see, and we are very much
aware that with the division of the government into the three
branches as our Founding Fathers have dictated, somebody has to
control the purse strings, and that has fallen into our lot.
We are very aware that the normal operation of the
statement, he who controls the purse strings controls, should
not apply in this instance because we don't want to dictate,
obviously, what the Court does. But we do have the oversight
responsibility for spending, and we have always taken the view
that we will give the Court what you ask. We only ask that you
be mindful of the shortage of change that we have at this point
in time.
So thank you very much for being with us. Our regards to
the Chief Justice and your brethren and sisters.
We will take a short recess while we get ready for the next
hearing.
[Recess.]
Wednesday, March 10, 1999.
SUPREME COURT OF THE UNITED STATES
CARE OF THE BUILDING AND GROUNDS
WITNESSES
ALAN M. HANTMAN, AIA, ARCHITECT OF THE CAPITOL
MICHAEL G. TURNBULL, AIA, ASSISTANT ARCHITECT OF THE CAPITOL
STUART PREGNALL, BUDGET OFFICER/DIRECTOR OF FINANCIAL SERVICES
DAN HANLON, DIRECTOR OF ENGINEERING
LYNNE M. THEISS, EXECUTIVE OFFICER
JAMES MILLER, FACILITIES MANAGER
Opening Remarks
Mr. Rogers. The hearing will come to order.
The budget request before us is a very ambitious one not
only for fiscal year 2000, which includes $22.7 million, an
increase of nearly 400 percent over fiscal 1999, but also for
the outyear appropriations, it assumes some $130 million over
the subsequent 4 years. So we have got quite a bit to chew on
today.
Mr. Hantman, welcome. We will make your statement part of
the record. We would be pleased to hear from you shortly, if
you care to summarize your statement.
In the meantime, Mr. Serrano, any opening thoughts?
Mr. Serrano. Just to welcome the Architect, Mr. Chairman,
probably the only person to come before us who used to come
before me when I was Ranking on the Legislative Branch
Appropriations Subcommittee. So I guess wherever I go, he is
going to come. I think that is fine.
We welcome you and look forward to your testimony.
Mr. Rogers. We are pleased to hear from you.
Opening Statement
Mr. Hantman. Thank you, Mr. Chairman. May I introduce first
our new Assistant Architect, Michael Turnbull. We hired him
from the Art Institute of Chicago some 7 or so months ago. He
is in charge of architecture, engineering and construction work
for our agency and a very welcome addition to our staff.
Also to my left, Stuart Pregnall, our budget officer, joins
us today. We have Mr. Miller here, who is in charge of
facilities for the Supreme Court.
As you mentioned, Mr. Chairman, there is a significant
increase over fiscal year 1999. There are two major components
to this request, $5.8 million for a perimeter security program
and $13.5 million related to a detailed design and the
beginnings of a systematic renovation of this 65-year-old
monumental building. These projects may ultimately range up to
$106 million in addition to the fiscal year 2000 request.
The cost estimates will be refined further as we proceed to
more detailed design work. I brought kind of an overview
report, Mr. Chairman, and if it pleases you, we can review this
page by page, which gives you some of the background of how we
got where we are at this point in time. Let me just walk
through page by page.
[The information follows:]
COURT BUILDING RENOVATIONS
Mr. Hantman. The first sheet talks about the project
itself, why is it necessary to renovate the United States
Supreme Court building. In simplistic terms, the building was
completed in 1935. Since its opening the building has remained
the same, with essentially no significant building renovations
or systems upgrades. Many of the original building systems are
now over 65 years old, and they are very much still in
operation.
As you may be aware, normally when buildings are built, if
you can get a 40-year life out of the business building
systems, you are doing very well. Mr. Miller and his staff have
done an excellent job in managing with Band-Aids and bailing
wire to keep things together. They are in good shape, but the
systems do need, in fact, replacement at this point in time.
In the mid-1950s, there were some partial systems upgrades
basically to minor electrical systems, and they, too, have
exceeded their life expectancy.
So I would like to review the following key issues: Life
safety, security, antiquated systems, indoor air quality and
space assessments.
Basically on life safety systems, there are several related
deficiencies that have been identified to date, and it really
comes back to just what we are talking about in all the House
office buildings as well, the installation of sprinklers, smoke
detection, smoke evacuation systems, improving egress
capabilities in certain areas, all of the life safety systems
that we are trying to deal with campuswide.
Antiquated systems. It is imperative that all building
systems receive a comprehensive renovation and new systems are
installed as necessary.
Mechanical systems. The age of the electrical systems,
again, range from 40 to 65 years old. A new distribution
network is needed for power, data, voice, and other emerging
technologies. Right now conduit is running all over the
building, and they need to be coordinated and well-integrated
into the nature of the building itself. The existing
distribution of systems needs to be replaced and updated. The
quality of lighting needs to be improved. Plumbing improvements
are needed in all public and staff bathrooms.
The next sheet really just talks about what we know today.
The project is basically a renovation and a systems
modernization. This is good news from one perspective and bad
from another. It is not a restoration. The building is
virtually in original condition. That is wonderful from a
historical perspective, but from the perspective of base
building systems, that means we have a lot of work to do.
The work is going to have to be phased because there is
going to be continued occupancy while renovations are under
way, which means we will be playing musical chairs. We finish
off one area, move one group into that area, finish off another
area, et cetera.
It is imperative that the new mechanical, electrical,
plumbing, fire protection, fire alarm, smoke detection,
evacuation, et cetera, need to be installed. It is imperative
that we proceed with these works to avoid the risks of systems
failure. They are beyond their life expectancy already. The
basic issue is if it happens, without a proactive involvement
on our part, it is going to be a major systems failure, take a
lot longer to replace, rather than going in and doing it before
it fails.
This is a perennial problem for any facilities manager, Mr.
Chairman. When do you replace the roof, when it starts to leak,
or when you know it has exceeded its life expectancy and you
can expect you are going to have problems down the road? We
need to be proactive in some of these systems, sir.
While the project is a systems modernization, the character
of the building is to be protected. This is an icon, an
American monument, and we need to be sensitive to how we do the
work. That is one of the reasons for the magnitude of the
project budget as well.
Additional assessments and investigations are, in fact,
ongoing. We basically have just completed our master plan
study, so we are going this year to get into schematic design.
We are asking you for funding to get into design development
and construction documents.
RENOVATION PROJECT BUDGET DEVELOPMENT
In developing a budget for the project, we really used two
methodologies. The first is a compilation of comparable case
studies. It mentions the National Gallery of Art, West
Building, where their estimates at this point are in the range
at the master plan phase, again, of about $167 a square foot.
That is without full replacement of all systems.
Philadelphia City Hall is mentioned. Partial work has
already been done on that project. It is 500,000 gross square
feet, and the cost per square foot is $350 per square foot.
Just as a point of reference, the highest budget estimate
we are looking at right now for the Supreme Court, we are
talking about $257 per square foot. So that relates to $350 for
the Philadelphia City Hall, $167 for the partial work at the
National Gallery of Art.
The Pennsylvania State Capitol Annex, which is now
completed, was $260 per square foot, a much smaller building,
at 65,000 square feet. The Constitution Center in Philadelphia
is in design now; new construction, new building at 136,000
square feet. The estimate is $345 per square foot; again,
related back to the $257 on the high end of what we are looking
at right now.
In addition to this benchmarking, if you will, with outside
facilities, we are talking about a discipline-by-discipline
analysis of the needs and the development of costs for this
project. It is something that has not been done before. We have
talked about it in the past, a $7 million project and a $22
million project. Those were all based on benchmarks that really
had nothing to do with work that was done specifically in this
monumental building. They were benchmarks related to partial
work, electrical and mechanical work for the $7 million, and
more total work that was done in the Dirksen Building for the
$22 million. But it really didn't relate, again, to the fact
that we have floor-to-floor heights that are basically twice
the height in the Dirksen building. It is a much more
monumental building in that the finishes on all surfaces,
walls, floors, ceilings, are much more quality oriented in
terms of stonework, bronze, finishes of that nature.
Looking at these two sources, we have come up with a range
of costs, if you will. They are all-inclusive, containing
escalation, phasing premiums, professional fees, et cetera, and
more estimates will be done as we get into the next phases of
the work.
The overall project budget that we look at, the next sheet,
tries to put all the numbers down in one area and talk
intelligently to them. The second column then talks about the
fiscal year 2000 appropriation. The first segment of it totals
$10 million. There are four basic components to that $10
million cost. The first, which is under electrical systems for
$2.2 million, includes $1.5 million for smoke detection and
fire alarm systems in the attic and basement. We feel these
spaces need immediate response even before we complete a master
plan and complete full design documents. We intend to get into
that building if appropriations are given and make sure that we
treat these spaces, which really are in need of it.
In addition, there is some $700,000 in that $2.2 million
for telecommunications support for the ongoing projects that
are underway in the Supreme Court.
Line number 4 on plumbing calls for public and staff
restrooms to be renovated at $550,000.
Line number 5 is window security enhancement at $2 million,
which basically allows us to take care of the windows on the
first floor of the Supreme Court at this point in time.
The last budget line in fiscal year 2000 in this category
is for building repairs, which includes some $4.8 million for
total design work through construction documents for the full
renovation of the Supreme Court, plus about $450,000 for mock-
ups to determine the constructability issues we are looking
into, to test design solutions, identify any unanticipated
conditions so that we have a very firm estimate before we get
into the construction phase at all.
Further down that column, we have a $3.5 million marker, if
you will, relocation of hazardous work areas and other uses,
various programmatic needs currently being reviewed by the
Court. A full program has been developed interviewing all of
the Court officers, looking at the fact that we are told the
Court has grown from 160 people to over 410 people at this
point in time within the same space. We have some desks in
corridors, people doubled up in areas where they have problems
working and have acoustical issues. This is a marker for the
magnitude of the program that the Court finally requests to
relocate it outside the building to give us the elbow room to
do the musical chairs and to remove some of the buffer groups,
if you will, that don't need to be in the main building. That
totals the $13.5 million in the fiscal year 2000
appropriations.
RENOVATION PROJECT SCOPE OF WORK
To the right of this sheet, we talk about Scope of Work A,
Scope of Work B, and Scope of Work C. Basically we have gone
into these three charts to basically take a look at what we
could accomplish, what our priorities would be if various
levels of funding were appropriated other than the full scope
of work, which is defined in Scope of Work C. For instance, if
for the base building itself we are estimating that if we were
given somewhere between $58 to $66 million, we would be able to
accomplish all the work you see under Scope of Work A. But at
the bottom of that column, you can see that while option A
upgrades most of the systems, it neither fully addresses the
electrical and plumbing systems, nor includes lighting
improvements, or electronic and internal security.
If we jump to the next category, this now goes from $72 to
$83 million, and again, this is a range of costs, Mr. Chairman,
because we have done master planning at this point in time, and
we need detailed design to really see where in that range these
numbers might fall. Option B upgrades all building systems, but
does not improve the space utilization. This basically relates
to the interviews, the programmatic information we have been
getting from the officers of the Court, which are being
reviewed right now by the Justices.
Scope of Work C is basically $3 million more than B, and we
anticipate that that would include all of the upgrades and the
efficiencies of use of space that the officers are asking for
within the Court. So that is the first line.
The next line down below, which is work outside of the
building envelope, would include three or four elements. The
first element we talked about. The $3.5 million in the fiscal
year 2000.
The next one is a secure entrance and screening area. The
Court is basically trying to deal with the same issue we are
looking at relative to the new Capitol Visitors Center. They
have multiple entrances which people come through. Visitors
enter the building essentially before they are screened. And we
are looking at various options so that screening would occur
outside the base building structure to avoid any damage to the
base building structure if something should happen in those
areas.
What we have identified here is one of the four schemes in
the $4 to $6 million range. This scheme perhaps looks at what
we would do if we had a visitor entrance under the existing
grand stairs on the west front of the main entrance of the
Court so people would be screened under that area and would be
led very succinctly and quickly into the areas where tours
would begin. We are also looking at the north side of the Court
and areas that are available there for either an above ground
or below ground entrance where screening could occur before you
get into the Court.
So this again is a marker. We think this is a very viable
option, and we will be examining this further and presenting it
to the Court for their review and approval.
SITE REPAIRS
The next line item is for site repairs. This basically
again is a marker that relates to the area between the
perimeter security and the building itself, including the
forecourt of the center of the Court. By the time this project
is finished and ready will be 5 or 6 years down the line, and
the main entrance to the Court has been patched and repaired
several times already. There may be some major stonework that
needs to be done, and there is a mark for this area as well as
the planting areas between the perimeter of the site of the
building itself.
The last line item, number 4, exterior building repairs,
deals with the fact that we need repointing, cleaning, checking
of the roof, all of the stonework on the perimeter, and whether
or not we do this as part of this project or we do it as an
annual appropriation down the line is something that we
certainly can talk about. But again, being proactive, we would
like to be able to come back, and if we are going to expend
anywhere near the type of dollars inside the building, we need
to make sure it is waterproof and it is protected so that it
again can go on for the next 50 years before we do any major
work there.
So bottom lines, if we were looking at Scope of Work C,
which is, in fact, what we would like to aim for in our design
work, we see $75 to $86 million within the building, somewhere
between $14 and $20 million outside of the building, for a
range of $89 to $106 million, in addition to the $13.5 million
we are looking at right now. And the only thing missing from
this chart is the $5.8 million for the perimeter security
itself. So that pretty well runs through the ranges that we are
talking about and the rationale behind it.
PRELIMINARY RENOVATION PROJECT SCHEDULE
The next sheet, Mr. Chairman, talks to preliminary project
schedule. Fiscal year 1999 the area at the top of this scheme
talks about the master plan, which we are basically finished
with in fiscal year 1999. Building testing and assessment will
be utilizing the fiscal year 1999 dollars that we have to do
the building testing and assessment in advance of going ahead
with the construction documents in fiscal year 2000. Schematic
design should be able to be completed this year, and perimeter
security design should also be able to be completed this year.
We have presented to the Supreme Court, and the Justices
have basically recognized the fact that the security on the
perimeter needs to be enhanced. They want us to look at further
studies for the refinement of this before they zone in on what
this perimeter security program needs to be and what they are
comfortable with. Basically they recognize the same type of
philosophy that the Capitol recognizes in that the Capitol is
the people's building, and the Justices feel equally strong
that the Supreme Court itself be accessible to all people.
So these are the type of design challenges we face there as
well, and what we would recommend, that despite the fact that
the Justices haven't signed off on the details of the project
yet, that these dollars be appropriated in this fiscal year so
that we don't miss a whole funding year cycle going forward,
but we certainly would want to come back to this committee with
the plan that is finally approved by the Justices before any
such dollars would be expended.
Going down to the next phase, it talks about year 2000, the
design work we would do, the schedule for it; and then going
into 2001 and beyond, it begins to show the phasing that we
would do once all bids were in and we started actually
constructing, starting with the basement and attic areas, first
and second floors, another section of the first floor and
second floor, et cetera, going out to 2006 when we project this
entire project would be finished.
The last page basically summarizes again the fiscal year
2000 elements we just talked about, begin life safety
improvements through the installation of smoke detection
devices, sprinklers in the attic and basement, security-related
features, constructing mock-up prototypes for the new building
systems, renovation of the six bathrooms or so for the public
and the staff, relocation of maintenance shops to off-site
locations and continuing our investigations.
That is pretty much the summary of where we have come from,
and we would be more than happy to answer any questions you
might have. We do, of course, recognize it is very ambitious,
but a mixed blessing. This is a pristine building. Very little
has been done to it in 65 years, and we have a lot of catch-up
to do to prepare it for the next 65 years.
[The statement of Mr. Hantman and the budget request
follows:]
RENOVATION PROJECT CONSTRUCTION FUNDS
Mr. Rogers. How do we appropriate construction funds for a
project without having a final agreed-upon plan and cost
estimates? This has to be approved finally by the judges. They
have not signed off on this as yet, have they?
Mr. Hantman. The basic issue is relative to life safety
within the Court, relative to security issues within the
building itself, recognition that the base building systems all
need to be replaced. I think they are very much on board with
all of that, Mr. Chairman. The major issues that they are
looking at right now that are unresolved are the programmatic
issues relative to whether or not they need 15,000 square feet,
20,000 square feet outside the building, which is that $3.5
million marker we have, and the exact components of the
perimeter security plan.
PERIMETER SECURITY ENHANCEMENT
Mr. Rogers. I am really talking about the perimeter
security enhancement project. Has that been approved finally by
the Court?
Mr. Hantman. The Court has recognized, Mr. Chairman, that
we need to do something on all four sides of the building. We
have looked at issues similar to what we are talking about with
the Capitol Visitor Center, such as bollards, concrete walls
perhaps concealed in hedges, things that would not be
obnoxious, but yet would give them that level of security. And
the issue of stand-off distance is something that we are
looking at right now, and that is one of the issues that we
need to talk about within the Court.
Mr. Rogers. When do you think there will be a final plan
for the perimeter project?
Mr. Hantman. What I have done, Mr. Chairman, is I have
opened a dialogue with the Capitol Police Board. Quite frankly,
the perimeter security of the Supreme Court in and of itself is
really part of the Capitol Hill community, and I think it
really behooves us to take a look at how the issues relative to
the Court fit in with the concerns relative to both the Senate
side and the House side on the perimeter as well.
I would hope that we are going to within the next 6 months
take a very serious look at that as a larger issue
incorporating the Court's needs at the same time.
Mr. Rogers. What are the current plans for a continuous
barrier around the Court grounds?
Mr. Hantman. Well, we recognize that certainly on the north
and the south sides, which would be East Capitol Street and
Maryland Avenue, that the barriers we are talking about will be
concealed in hedges. We have choices of whether or not we are
going to do bollards that are not as decorative as the ones we
are talking about for the Capitol Visitor Center or Capitol
Square. Those are the White House bollards basically, but
bollards that would basically really not be visually detected
within the shrubbery itself; either that or low concrete
reinforced walls within shrubbery on those two sides.
We also recognize that on the east side relative to the
Court building itself, that some combination of bollards and
barriers will be necessary there as well.
One of the things that we are still working through with
the Court is just what is appropriate at the main entrance to
the Court itself. The combination of bollards and perhaps
concrete benches that people could sit on that do not appear to
be barriers themselves that could serve a dual function are
things that we are discussing with the Court, and I do not
think there is unanimity on their part in terms of where they
are going with that yet.
SYSTEMS MODERNIZATION
Mr. Rogers. In 1998, when the Court building systems
modernization project, the big project, first surfaced, it was
described as a $7 million project. Last year, when $2 million
in design money was requested, it was described as a $22
million project. Now you are asking for $13.5 million for what
are you describing in your budget as a $120 million, give or
take, project.
How has a $7 million project grown to $120 million, and has
the scope of the project expanded from what was originally
envisioned until this complete total overhaul?
Mr. Hantman. Well, perhaps, Mr. Serrano, you would remember
one of the issues we talked about on the legislative branch
appropriations committee. I think there is an analogy here.
Before I was appointed, there was some $3 million appropriated
for renovation of the House Cannon garage. This was basically
because there was a structural issue with the floor slabs. They
were deteriorating. The reinforcing steel could be seen. Pieces
of concrete were falling on cars down below.
I think that budget before I got here was developed in a
time when the Architect's budget had been consistently cut back
from $30 million in capital improvements down to $28 or $24
million. When I came in 1997, that budget was $14 million, and
the philosophy was, basically, to take care of what you had to
take care of at that one point in time and not really do the
full project cost because you probably could not get the
dollars.
I have submitted in my fiscal year 2000 budget to the House
legislative branch appropriations committee the request to make
this $3 million project an $11 million project. That is because
my philosophy really is you should be going into a facility
once, doing everything that is necessary, try not to
inconvenience the users of the facility, whether it is a court
building or whether it is a garage. And now we will be doing,
if the money is granted, mechanical exhaust systems, which do
not live up to life safety code right now; sprinkler systems,
which do not exist; security conduits, which are not there now;
the issue of changing the lighting, which is well below the
level that we should have in those garages for security as well
as just basic seeing.
So the philosophy, Mr. Chairman, kind of goes back to, I
think, those numbers. The first $7 million number was really
for electrical and telecommunications type of modification and
was based on the Longworth and the Cannon House office
buildings projects. It was not looking at all systems at that
point in time.
When I first came in, I had the same philosophy, we cannot
just look at basic systems.
RENOVATION PROJECT DESIGN COSTS
Mr. Rogers. We are not looking for your philosophy. Your
philosophy could matter less to me. We are looking for getting
this building fixed. We do not want to put bells and whistles
on the building. We want a solid building that is basically
sound and safe, that restores the integrity and the beauty of
the building, and we want it to work. We do not want bells and
whistles, and I think we got a bunch of bells and whistles
here, and we are going to ask you to go back and come back with
something more realistic.
We cannot find that kind of money. In last year's budget
request, you asked for $2 million for design of the project.
You indicated at that time that that would cover the design
phase, which would take 2 years. We gave you a million and a
half. This year you are asking another almost $6 million for
continuing design of the project. Design costs have grown from
$2 million to $8 million in just one year's time.
Mr. Hantman. Mr. Chairman, those were not total project
design costs. What we are talking about is full design cost for
total renovation of the full Court. What we were talking about
then is getting into the design process. There are many phases
through the design process that we need to go through to
clarify design and get approvals.
But among the reasons we structured this overall budget
chart, Mr. Chairman, in this way was so that we could eliminate
things, given the issue of what monies might be available
through appropriations. For instance, under the work outside of
the building, the site repairs and the exterior building
repairs, which go anywhere from $3 to $5 million and $7 to $9
million respectively, if funds are not available, those would
be the first things that would be cut out of the budget.
The issue if we cannot rearrange the building inside and we
go back to Scope of Work B, there is another several million
dollars that would go out, and we lose some of the efficiencies
and space utilization within the building itself. But whatever
monies are available, we will work to use those monies as
efficiently as possible.
As we have refined the work over the last 3 months after
our first submission, we have also refined down the budget from
a very loose number, which had been $140 million dollars. We
think the numbers can range up to $120 million. But it could be
much lower. It could be $95 or so million.
SYSTEMS REPLACEMENT PROJECT
Mr. Rogers. Well, we had originally talked about the
original scope of the project was a systems replacement
project, not a complete renovation of the building, which is
your philosophy. Our philosophy is we want a systems
replacement project that makes this building safe, efficient,
and does not do harm to its architectural beauty and all of
that. We did not ask for all of these extra things. And I am
going to ask you to come back at some appropriate time when you
have had time to reflect and give us a more realistic figure
and project.
Mr. Hantman. I certainly can do that, Mr. Chairman, but I
did want to make the point again that the work within the
building is all related to the systems. Where we have to chop a
wall and run a conduit, we are just repairing that wall and
repainting it. That is all we are talking about doing. There
are very few frills in this budget at this point in time. But
clearly, the easiest things to remove from the budget would be
the site repairs and exterior building repairs, and as
necessary those can be dealt with down the road.
Mr. Rogers. I think we need to do some refining work in
further conversation about this. We are having to live under
budget caps that are straining us even before today, and we are
going to have to find ways to do this at a more economical
cost, doing justice, to coin a phrase, to that building.
Mr. Serrano.
ADA COMPLIANCE
Mr. Serrano. Thank you, Mr. Chairman. I do not know if I
missed it in your presentation, but do you in this work have to
take into consideration ADA compliance? Is that dealt with
already in this building, or is this something that has to be
done now?
Mr. Hantman. It has not been dealt with, and part of the
work would be involved with ADA. We do have appropriations of
$25,000 per year for ADA, but there are other related issues,
including the bathroom work, that would be ADA-related.
CAPITOL VISITOR CENTER AND COURT ENTRANCE
Mr. Serrano. Also, is there any relationship between the
underground work and the Visitors Center and any proposed
underground entrance to the Court at all?
Mr. Hantman. To the new Capitol Visitors Center?
Mr. Serrano. Yes.
Mr. Hantman. There had been some discussion about that by
the Justices.
Mr. Serrano. Is there an old Capitol Visitors Center?
Mr. Hantman. I am not aware of that, sir.
One of the concerns that the Justices had was that some of
the buses that pull up between the Court and the Capitol, some
of the people just get out of those buses and run across the
street. They were concerned about the safety of that. And so we
had talked at one point about a tunnel under First Street to
allow people to go underneath and come up.
I think the reality shows that if people can run across the
street, they will run across the street even if there is a
tunnel there. So the concept of tying the Supreme Court into
the Capitol Visitors Center, I believe, has been rejected by
the Justices, recognizing that the volume of people that might
come through that visit the Capitol right now could not be
accommodated within the Supreme Court.
RENOVATION OF THE BASE BUILDING SYSTEMS
Mr. Serrano. Speaking of the Justices, you did tell us that
this has not been approved by them, but yet you are working on
this plan. So are you working with somebody from the Court that
has some ideas as to what this should look like?
Mr. Hantman. No. May I, please? I am glad you brought that
up again, sir. The Justices have been working with us. We have
been meeting with a three-Justice committee every 2 weeks
basically to review every step of the way. They have signed off
on the need for the renovation for the base building systems,
for the life safety, for the security issues inside the
building.
The two issues that are really looking at being refined is
the scope of the programmatic space needs over and above what
we can accommodate in the building right now and what has been
asked for by Court officers, how many square feet do they need
outside the building, 15,000 or 20,000 square feet, aside from
that, the only other issue is the refinement in the security
program. I believe all the rest of this the Justices have seen
and they are comfortable.
Mr. Serrano. Obviously your statements were along the lines
of bringing up to date a 65-year-old building that has
supposedly had very few renovations.
Mr. Hantman. That is correct.
SAFETY PRECAUTIONS
Mr. Serrano. One, have there ever been major renovations of
any kind that we may be interested in knowing about? And two,
what percentage of this project would you say is related to
safety precautions, which is something that we have to be
concerned about all the time now?
Mr. Hantman. If I could refer you back, Congressman, to the
overall project budget. One of the reasons we broke it down
this way is it talks specifically. So if we are talking about
mechanical systems, it is $24.5 million to $26 million.
Electrical systems has a cost, sprinklers, plumbing, window
security. All of these issues are specifically spelled out in
ranges of what we estimate they would cost.
And then again, if, depending on the dollars that are
available, for instance, in Scope of Work A, the lighting
improvement would not be done, the electronic internal security
issues would not be done. It is basically 50 percent of the
budget that is related to code requirements for mechanical,
electrical, life safety systems and 20 percent of the budget is
roughly related to security-related issues.
Mr. Serrano. Fifty to code and 20 to security?
Mr. Hantman. Yes. And then lighting improvements would be
an addition to something that the Court is looking for; window
security a part of security as well.
Mr. Serrano. What percentage of the projects are the bells
and whistles that the Chairman is looking for?
Mr. Hantman. The bells and whistles, again the first
recommendation would be, depending on the site repairs, the
exterior building repairs. We can go back and repaint the
building years down the road if we needed to. We would recaulk.
We could fix the roofs. We could do the exterior work and
request those appropriations as part of ongoing annual
appropriations rather than in this major request. So those
would be the first that we would eliminate here.
The secure entrance, the screening area, that is a very
important issue. The $4 to $6 million we are identifying would
be, in my professional judgment, money well spent. And clearly
we are trying to do that with all of our other facilities as
well. Lighting improvements again; if the funding weren't
there, they would not happen. And that is basically why we
estimated this way.
If you could see that window security replacement, we would
do less windows under item number 5 if we needed to cut back.
We would do less plumbing work. We could be less proactive with
the plumbing and see that when a pipe failed, we would go back
in and try to fix the pipe as opposed to replacing systems that
are 65 years old. And in electrical systems, we can try to get
a few more years out of some of the components that we have
over there and take a chance on their not failing again and
move forward. That is why Scope of Work A for electrical has
$2.8 to $4.8 million, as opposed to $4.6 to $6.3 million for
total restoration or renovation of those systems.
The bottom line is there are not really many bells and
whistles in the top section. All we are doing is chopping the
walls, running the conduits, replastering it, painting those
walls, and trying to give the Court a strong foundation for
going into the next millennium.
SYSTEMS FAILURES
Mr. Serrano. Have there been systems failures before, any
major ones?
Mr. Hantman. In the electrical system. And certainly Jim
Miller, our facilities manager, can talk to that, that we have
had burnout of significant lines. The insulation on wiring that
is 65 years old begins to dry up and deteriorate, and you just
do not know when you are going to get a short circuit and fire
in the system.
Mr. Serrano. Let me just in closing, Mr. Chairman, say that
I recognize that the Chairman has to live within some caps. I
tried to make his life easier by voting against those caps, but
I did not get my way, so we have those caps to deal with.
I guess the bad news is he is telling you to go back and
come back with some new figures. The good news is he is not
telling you what he might tell some other people, not to come
up with any plan at all for anything.
So I personally have not found the bells and whistles yet.
But I understand the caps, and that is a real problem. And I
think that we need to be able to approach this with the full
understanding of what we are dealing with here and not have
anyone over there think that they are being turned down, but
rather just renovate the renovations package.
DETAILED DESIGN
Mr. Hantman. Mr. Chairman, essentially, of course, what we
are asking for at this point in time in the fiscal year 2000
appropriation is the $10 million so we can get into the real
detailed design and see what we can do to cut back on costs.
And maybe we drop ceilings and eliminate chopping walls and
things of this nature.
There is a good deal of design work that still needs to be
done, and clearly the ultimate cost that results from those
designs are things that we would be going forward with in the
future and coming to this committee again to see. But again, if
we break down the $10 million, $2.2 million for electrical
systems and smoke detectors, telecommunications, that is
necessary.
The $550,000 for plumbing, there are health issues relative
to the tiles and the cleanliness of the bathrooms, and ADA
issues. Window security, that is a $2 million item and very
much necessary at this point in time. And under the building
repairs, the big $5.2 million really allows us to get into the
detailed design as well as looking at doing the mock-ups to
short-circuit and try to identify short problems, unanticipated
conditions, before we go into a full renovation.
So the $10 million we are asking for, Mr. Chairman, would
allow us to go forward and give you more detailed information
and better sense of puts and takes as we go forward.
Mr. Rogers. Before we appropriate a penny, though, we need
to know here about where we are headed. I have always said, Mr.
Serrano, and you are new to the committee, but I always said
this committee's jurisdiction is mind-boggling. We go from
embassies abroad--and I said this jokingly in the past--from
embassies abroad to the toilets in the Supreme Court. And we
are there. We finally got there.
CLOSING STATEMENTS
So thank you for your testimony and the workup. We will be
talking further as we go along here, but we do want to talk
more about where we are going finally before we do anything up
front.
Mr. Hantman. I appreciate that, Mr. Chairman.
Mr. Rogers. Thank you very much.
Mr. Hantman. By the way, if anybody would like a walk-
through of the Supreme Court, we could certainly show you the
existing conditions and what we are talking about.
Mr. Rogers. I think we will probably do that.
Thursday, March 4, 1999.
THE FEDERAL JUDICIARY
WITNESSES
JUDGE JOHN G. HEYBURN, II, CHAIRMAN, COMMITTEE ON BUDGET OF THE
JUDICIAL CONFERENCE OF THE U.S.
JUDGE LAWRENCE L. PIERSOL, CHIEF JUDGE, UNITED STATES DISTRICT COURT,
DISTRICT OF SOUTH DAKOTA
LEONIDAS RALPH MECHAM, DIRECTOR, ADMINISTRATIVE OFFICE OF THE U.S.
COURTS
JUDGE RYA W. ZOBEL, DIRECTOR, FEDERAL JUDICIAL CENTER
Introduction
Mr. Rogers. The Committee will come to order.
We are pleased to welcome the panel today to this hearing,
a distinguished panel of jurists from the Federal courts to
defend the fiscal year 2000 budget request for the Federal
court system. The panel is being led for the third year by
Judge John Heyburn, who sits on the United States District
Court in the Western District of Kentucky, and who has brought
great distinction to the bench and to his position with the
Federal judiciary.
He is here in his capacity as chairman of the Judicial
Conference Committee on the Budget, and has the task of
representing the entire third branch before the Congress, to
make the case for the resources necessary to assure that the
Federal courts can carry out their duties. It is again a
pleasure to welcome you, Judge Heyburn, to the subcommittee.
He is joined at the table by Judge Piersol, Chief Judge of
the District Court for the District of South Dakota, also a
member of the Budget Committee; Judge Zobel, Director, Federal
Judicial Center, who has been here several times; and Leonidas
Ralph Mecham, Director of the Administrative Office of the
United States Courts, who has been here for even more times.
As you know, fiscal year 1999 was a difficult year in which
we struggled to find every dollar that we could find for the
needs of the courts. Fiscal year 2000 is a year in which the
spending caps still in place will tighten significantly, and
once again we will have a very difficult row to hoe, in fact
more difficult than the previous year.
We will make your written statements a part of the record
and I will soon ask Judge Heyburn to summarize his statement,
but first let me yield to my friend, Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman. Just to welcome the
honorable folks here. I had an opportunity to meet with some of
them in the past week, to get acquainted with the work that
they do, and I am looking for their testimony. And I am looking
forward to working with you, Mr. Chairman, and especially now
that we don't have to discuss the census today.
Opening Statement
Judge Heyburn. I am not going to discuss the census.
Mr. Rogers. Let me thank you also for accommodating our
changing schedule in the last couple of days. Judge Heyburn,
you are recognized.
Judge Heyburn. Thank you, Mr. Chairman and Congressman
Serrano and other Members present. I would like to make a few
introductory remarks.
It is indeed my distinct pleasure to represent the third
branch in the appropriations process and to appear before you,
Mr. Chairman, for whom I have such high regard. It is always a
great honor. I want to congratulate you on your announcement,
of course. I don't know about the protocol within the
committee. Did you have to get consent from the gentleman from
Tennessee before your announcement? Congratulations.
Mr. Rogers. Thank you very much, Judge.
Judge Heyburn. I am very happy for you.
Mr. Serrano, after our meeting yesterday and learning about
your commitment to equal justice for all Americans, I feel very
confident that we can work with you as well as the rest of the
committee in reaching our common goals.
This is such an interesting process. The Founding Fathers
created an independent judiciary for the purpose of maintaining
a just and a civil society, and the men and women of the
judiciary, I can assure you, are dedicated to achieving exactly
that goal.
Mr. Chairman, we have always benefited from your prodding,
your constructive criticism, as well as from your deep
understanding of the delicate constitutional issues that are at
play here, and we look forward to working with you.
Also I want to give you my thanks for the appropriation
that you gave us last year and of course, quite frankly, if the
Senate had seen fit to go along with the mark that you gave us,
we would be in a lot better shape than we are right now.
I am fully aware of the tight budget situation that we all
face, and we are committed to working closely with you and your
good staff to determine what resources are necessary for the
judiciary to do its job. This year our overall budget request
is about 8 percent more than the obligated funds for fiscal
year 1999. The appropriations request is unavoidably higher due
to our declining carryover, which I hope everybody understands.
The Judicial Conference this year has made a conscious
decision not to request funds for increased workloads,
specifically out of respect for the tight budget caps. This is
a current services budget that we are presenting to you, which
nevertheless requires an additional $310 million in the main
accounts over the obligations authority for fiscal year 1999.
The appearance of that I think is quite deceptive. The
budget actually freezes overall staffing levels, and this is
for the second year in a row. The increases, as I think you
will see when you look at it, are largely uncontrollable. They
are things like rent; regular pay increases; mandatory costs
associated with certain increases in cases, such as defender
representations; and certain other increased security needs.
In reality what we are doing here today is pledging to you
the hard work of the many men and women of the judiciary to do
more work with the same resources. As you know, our job is
essential to law enforcement. That work is dramatically
increasing, and let me just give you a couple of examples:
Criminal filings up 15 percent this past year. Pending
criminal cases, which is really a better indication of our
actual work load, up 33 percent since 1996.
The judiciary through its probation and parole supervises
95,000 people who are either charged with or convicted of
crimes. That is almost as many people who are incarcerated in
the entire Federal prison system, and most people don't
recognize that or know that.
Presentence reports, an indication of the work that is
being done by those people in the field, up 22 percent in the
last two years. We did 63,000 of those last year.
Violations of supervision, up 11 percent over two years, to
32,000 violations of supervision. The reason that they are up
is because more of the people that we are supervising now are
those who have already been incarcerated rather than as a
group, a less dangerous group, those who are pretrial or
presentence.
The number of people under supervision with mental
conditions of one kind or another has quadrupled over the past
four years.
The actual criminal defendant representations since 1995 is
up from 78,000 to over 100,000 now.
Basically what we are asking for is the funds that we think
are necessary to do this ever-increasing job.
Now, there are a couple of things that I think you are
aware of, but I am going to say them anyway because they are
important. The judiciary doesn't have the luxury of closing
down a program or not performing a particular service. Our job
is what the statutes and the Constitution require. And we do
our job because the Constitution and those statutes require it,
and we do it because a free and ordered society requires it.
Another thing that I know that you know, but I want to
mention anyway, and that is that nowadays there is a lot of
emphasis on catching criminals, on getting convictions and
putting people who are convicted in prison. And I know that you
know, but sometimes people forget there is something that
happens in between catching the criminals and convicting them
if they are guilty, and that is a fair and adequate proceeding
conducted by judges, and that is something that all the
automation and all of the efficiencies in the world doesn't
necessarily help us do it any quicker.
It takes the hard work of judges and it takes, more
importantly, the careful work of judges. And we want the
resources to do the job, so that the judges and the people who
work with them are not overwhelmed by the torrent of cases and
can't do the job of protecting the rights of the people who are
in the process. When all is said and done, and I know that you
understand this, it is the process and not the obtaining of the
convictions which is what legitimizes our process and the
American justice system to our citizens. Again we ask for the
resources to do that job.
I said at the beginning that most of the requests in the
main accounts, $310 million, is what we believe to be sort of a
mandatory request. It is not anything that we can do anything
about. About 90 percent of our requests are really things
beyond our control. Admittedly, there are some things that are
in theory discretionary, but we believe that they are
absolutely vital nevertheless. I am going to mention them. We
have talked about these before. They involve a COLA for judges,
an increase in hourly rate for defenders, and some security
enhancements.
We think that you should provide a COLA for judges and a
COLA for yourself and a salary increase, when appropriate, for
the President of the United States. It is unfortunate that we
have gotten away from the annual COLA for judges, but we really
believe that it is essential to maintaining the highest
possible standards in the judiciary. The failure to do so is
beginning to have very real consequences. It is effectively
putting a cap on some of the salaries in the Senior Executive
Service, and more and more of those in the Senior Executive
Service will be affected every year. Quite frankly, to many
judges the failure to get a simple COLA is demeaning and
demoralizing. I don't necessarily speak for myself, but many
people feel that way.
The hourly rate for panel attorneys we think needs to be
increased to $75 an hour. It is not a large amount of money in
the overall scheme of things. These panel attorneys have
received one increase in 15 years. Attorney General Reno and I
believe all of the organized bar are in support of this. The
Judicial Conference believes that it is essential to provide
the kind of representation that criminal defendants need in
Federal court.
I am here also today, and of course with me are a number of
other people, to represent important accounts within the
judiciary. On behalf of the Federal Judicial Center, Judge
Zobel is present. I think you know what I believe to be the
success story of the FJC, again with your prodding and I think
very constructive criticism. They have made a major effort to
provide better and more inexpensive ways of doing the education
programs that they need to reach out to people in the
judiciary. They have done a wonderful job, made a lot of
progress over the last few years, and I would encourage you to
grant their modest increase.
The Administrative Office of the Courts of course is the
heart of our administrative and policy apparatus, and Leonidas
Ralph Mecham is here. They ask only for an inflationary
increase in order to keep on doing the work that they are
doing, and I would encourage you to grant that increase.
I will submit my written statement, as well as those of
Judge Mayer of the Federal Circuit, and Judge Carman of the
Court of International Trade, and Tim McGrath, who is the
interim staff director of the Sentencing Commission. I will
submit those for the record, and again it is a pleasure to be
here. I am delighted, as well as everybody here, to answer any
questions that you have and get you any information that you
need.
[The information follows:]
FY 1999 Financial Plan
Mr. Rogers. Well, Judge Heyburn, thank you very much for
your excellent presentation. We appreciate the work that you do
as a volunteer in this capacity. It is a lot of work, and most
people don't realize what takes place to get a budget like this
prepared.
For fiscal year 1999, in allocating the appropriation that
we provided, which included a $130 million increase for the
court salaries and expenses account, your financial plan made
$50 million in reductions in the court's current services
operating level in order to create a fund to provide for high
priority needs?
Judge Heyburn. Right.
Mr. Rogers. What were the reductions to the current
services operations of the court made by that plan?
Judge Heyburn. What we did was, when we get our
appropriation, a certain amount based on the staffing formulas
is allocated to each court unit. What was done was that 1
percent, approximately 1 percent of the amount that would have
been allocated to all of the court units was not allocated to
them; it was taken back, and that was used to create the fund.
We did not mandate how they would handle the 1 percent
reduction. We think that the strength of our organization is
the management at the court level. So I suspect that that
reduction was handled in a variety of different ways. Perhaps
travel was decreased, perhaps an employee was not hired here
and there, perhaps they let additional time go before rehiring
a person who had left, perhaps there were other savings that
were initiated.
But rather than mandate it from Washington, we have had
over the years excellent managers at the court level, and we
feel that the decisions as to what would be the priority in
each district are best made by them. So I don't think that we
have done a study of how they handled that reduction, but they
accepted it, and as far as we can tell, so far have done very
well with it.
We have used the fund that was gathered from that 1 percent
reduction to grant additional resources to areas that have
unusual work load increases.
Mr. Rogers. First, any negative impacts on the operations
of the courts that you have noticed or heard about?
Judge Heyburn. Only in isolated cases, and there we have
tried to help them with the fund. I don't think we are in a
situation yet where any impacts are obvious. I think the
impacts are likely to be more subtle. For instance where the
huge workload increases are occurring in probation, they may,
as a discretionary matter, have to make choices about how they
are going to conduct their work, if they don't feel they have
quite enough personnel to do the job.
The problem that we are having, and it is not necessarily
an immediate problem but it occurs over a period of time as
people become overworked, is in the probation and parole area
and the criminal caseload area where we are having our big
increases. It is not exactly like the bankruptcy situation,
where as you know we had huge increases in the bankruptcy
filings, but those bankruptcy filings were particularly suited
to accommodation by automation techniques and uses of office
efficiency, where you can handle large masses of paper that
come through in a bankruptcy filing.
But probation and parole, when you have the kind of
increases that we have, is not the kind of thing that a
computer can take care of. It is really on-the-job supervision.
It is going out to the places where these people live, checking
up on their references, and in some cases where there may be
potential danger, it requires a lot of work. It is not
something that is routine kind of work. It is not something
that you can easily make more efficient.
Mr. Rogers. You were preparing to tell us, I think, what
high priority needs are being funded with this special fund.
Judge Heyburn. Yes. Mr. Mecham could comment more
specifically, but most of the needs that were funded were in
the probation and pretrial area. There were some districts that
had particularly unusual increases in civil or criminal
workload, and those were funded. There may have been a couple
of bankruptcy courts which had unusual increases that we felt a
need to take care of, but I would say 75 percent of the fund
was used in the probation and pretrial area.
Mr. Mecham. Seventy-three and a half.
Judge Heyburn. Seventy-three and a half.
Mr. Rogers. And the balance?
Judge Heyburn. And the balance was allocated between a
couple of appellate courts that had unusual increases, a couple
of District Courts, and the bankruptcy courts split pretty
evenly, I think.
Mr. Mecham. Mr. Chairman, in addition to the general
remarks that Judge Heyburn referred to, there were some
specific mandated cuts as well. In furniture, even where
furniture was needed in new buildings, and also what is
euphemistically called tenant alterations, where it is
necessary to remodel or make changes in offices and so on, and
also in automation projects, they were all flatly cut. Only in
personnel were there emergency funds allocated.
Mr. Rogers. Who decides who gets what from the fund?
Judge Heyburn. From the fund, I believe there is a working
group at the AO that basically reviewed all of the requests
that came in, and we had far more requests. I think there were
requests for over 400 additional personnel and we only had--
were able to grant about 250 or so, something like that.
Mr. Rogers. Who decides?
Mr. Mecham. In addition to my staff, we also had court
staff involved in making those allocations, and then we acted
subject to policy discretion given to us by the Executive
Committee of the Judicial Conference.
Mr. Rogers. You decide?
Mr. Mecham. I didn't make the personal decision, but I
approved it.
Mr. Rogers. Somebody has to sign off on it.
Mr. Mecham. The buck stopped with me under the supervision
of the Judicial Conference.
Mr. Rogers. Don't be shy about this.
Mr. Mecham. I want to be humble, Mr. Chairman. We
bureaucrats have to be careful around the judges.
Judge Heyburn. My impression was that there was a lot of
cooperation. Even though the courts asked for more resources
than we had available, they understood that we were in a tight
situation. I don't think that anybody got what they asked for,
but we gave them attention.
Mr. Rogers. I will have a series of other questions, but I
will yield to Mr. Serrano.
Use of Technology
Mr. Serrano. Thank you, Mr. Chairman.
One of the discussions that we seem to be having with a lot
of heads of agencies that come before us from the Federal
Government is the new use of technology and how that will pan
out, what the plans are and what the costs eventually will be.
Have you folks also been moving in that direction, and, if so,
which way and what is your proposal?
Judge Heyburn. We have a very innovative, far-reaching plan
of automation and the chairman has been very involved with
that. We have an automation fund which we have worked
cooperatively with this committee to establish, so that funds
that are appropriated can be used in successive years without
having to be returned. Our automation program, to summarize, is
far-reaching and has many facets.
We have a number of programs which attempt to better
organize and automate the filing system so we can keep track of
cases. We have a program where we are trying to equip
courtrooms on a systematic basis with the kind of equipment
which can be used in trials.
At chairman Rogers' urging, we are beginning to have now,
in 35 courts a video conferencing system. So, for instance,
when you have prisoners that are involved in litigation, rather
than having to bring them to the court to have a conference,
you can have a video conference between the United States
Attorney or the attorney general of the State and the prisoners
directly from the prison.
We are getting into electronic filing, which can be
particularly advantageous in bankruptcy courts where you have
huge pleadings and rather routine pleadings.
We are advancing with Internet technology for
communications among courts and to provide access to the courts
for citizens through the Internet.
Judge Zobel can discuss the extensive efforts that they
have made on the technology front to provide television
educational programs to members of the judiciary and the staff,
so we get lower cost educational programs more broadly
distributed.
I know that I have left a lot of things out, but technology
is advancing so quickly and I think in my view you don't want
to be ahead of the technology because you end up wasting money.
You want to be somewhat behind the technology, not too far
behind, and I think we are doing an excellent job of picking
out where advances in technology can be helpful.
Part of what we do is simply not subject to that. The work
of the judges is personal and the technology, from my
experience, Judge Piersol can comment, helps you to focus on
the job that we have to do. We are not worrying about the
management of the cases so much and other things, so we can
focus on the job of doing justice which is what we ought to be
doing.
Mr. Serrano. So what part of your job would be handled by
video conferencing, for instance?
Judge Heyburn. Well, for instance in our district a
substantial portion of our cases are filed by prisoners at the
various different State institutions, alleging constitutional
problems with the conditions of their incarceration. We may
have at any one time 300 or 400 of those cases, and typically
in a case you would have a pretrial conference among the lawyer
and among the litigants. In this case the litigant is the
prisoner who is not represented by a lawyer. The defendant is
represented by the attorney general of the State.
Rather than transport the prisoner to the courthouse and
have the attorney general come, you can have a video conference
if you have a conference room equipped with video equipment at
a prison, particularly a large prison where most of the
litigation comes from. You can have the prisoner and the
attorney general discuss the case.
Often they can resolve it, because as a practical matter
many of these cases are not true constitutional cases. They are
gripes about what is going on in the prison system, which
doesn't mean that they are not important. They are just not
constitutional cases, and the best solution--in our court we
have a mediation system also to resolve these things, is not to
litigate them to a constitutional certainty, because the bottom
line is that they are really not constitutional cases. We
should not be deciding them. It is in a sense not a good use of
our time and not a good way to get it resolved for the prisoner
or the attorney general. So that is just one example of how we
use the video conferencing.
Freeze in Court Staffing Levels
Mr. Serrano. There is a point of your presentation--either
I just did not find what I was looking for or you didn't tell
us, but there is obviously a workload increase.
Judge Heyburn. Yes.
Mr. Serrano. But it seemed that the budget increase did not
include funds for additional staff.
Judge Heyburn. That is correct.
Mr. Serrano. How are we going to handle that? And one of my
concerns, as we federalize more and more crimes, what effect is
that going to have on your workload?
Judge Heyburn. Well, it definitely has a workload effect.
It has an effect of increasing our workload. The reason that we
didn't ask for the additional resources to handle the workload
is because, number one, we think and hope that we can handle
the additional workload in 2000, as we are this year, without
the additional resources. If we didn't think that we could do
that and didn't hope we could do that, we would have asked for
the additional resources.
But also, quite frankly, we recognize the difficult budget
situation. And although our obligations request, and this is
getting into a little arcane budgetary, although our
obligations requests are very consistent with what we have
asked for in the past years, in the 7 to 8 percent range,
because our carryover is less, the appropriations increase we
are asking for is about 13 percent. If we asked for the
additional resources that we normally have in every other year,
to cover the additional workload, our appropriations request
would have been 17 to 18 percent.
We just felt in this climate, as justified as we think that
request is, that it was unfair to the committee to ask for that
amount. Although we felt that we could justify it, I guess in a
political sense it would create more problems than it was
really worth in the end, and we understand the tight situation
you are under.
We need the request that we are asking for. We will try to
do the work with the resources we are given. If it turns out
after our experience over the next year we feel that we have a
fundamental problem that can only be resolved with additional
resources, we will come back and ask for those resources, and
we will have specific reasons why what we thought was going to
work didn't work.
Judge Piersol. Personally, with regard to my own
experience, in South Dakota we have a very heavy criminal
caseload. We have a lot of people under supervision and a very
diverse group, from Native Americans to others that are not
Native Americans, that are drug dealers and so on, and our
pretrial services people will be at the outer edge but still
able to do the job, but we will be at the outer edge.
Mr. Mecham. I commend the judges and the Budget Committee
for not playing the usual budget game which often prevails in
Washington. They didn't come in and ask for more than they need
on the assumption that they would get less; therefore, less
would be just fine. This is about as tight a budget as you can
get. When you freeze personnel two years in a row, when you are
looking at major increases in workload, I think it shows the
good faith of the judiciary to try to do their job
economically.
The corollary of that is, if we don't get the full amount
this year, and because the judiciary is intensely personnel and
labor oriented, the only place I can see where we can make
significant cuts is by RIFing people, because we are in for no
personnel increases at all despite the workload increases.
USE OF SPANISH IN FEDERAL COURTS
Mr. Serrano. This is something I probably should have asked
you when I met with you, but I am just curious. In my
birthplace in Puerto Rico the Federal courts are handled in
English; am I correct in that?
Judge Heyburn. I am sure if there is a need for
interpreters, they are provided.
Mr. Serrano. That is my question. I know that there are
interpreters provided. That has always been a discussion; we
have a place under the American flag where most of the people
speak Spanish on a daily basis and the courts are all handled
in English. Do you have any idea what the cost is of providing
these interpreters, and how does that compare to Texas or New
York?
Judge Heyburn. Judge Piersol may be able to comment on
that. The courts provide the cost of interpreters in
proceedings where it is needed. In Kentucky we don't have too
much of a use for that, only now and then, but in certain
districts it is a huge expense, I don't know what it is over
the entire country, but it is of course a requirement that the
people who are before the court in criminal cases be able to
understand the proceedings that are ongoing. So any
interpretive service that is necessary, we provide.
Judge Piersol. I have quite a few interpreters in South
Dakota, and I can't give you court figures, but I can tell you
that the requirements for becoming a certified interpreter are
very steep. And given what the courts pay, which isn't a lot,
and given those requirements, it is very difficult to get
certified interpreters. We have had them very often that are
Spanish-speaking, also Russian interpreters and others, but not
very often an interpreter that is certified.
Mr. Serrano. The whole idea of having the Federal courts
conduct their business in English, is that something in law? We
don't have an official language in the country, although there
is a movement to do that, but we don't have an official
language. The State and local courts in a place like Puerto
Rico conduct their business in Spanish, and yet it is under the
American Constitution and it has to follow the Constitution.
I am wondering how that decision was made. I am not trying
to knock out interpreters, but I am just wondering how that
came to be. So if any of you folks in any of your travels finds
out how that happened, I would like to know.
Judge Heyburn. I think in most circumstances the judge and
the people presiding and involved might not all have the same
language. In Puerto Rico maybe they would, but not in all other
areas.
FY 2000 S&E FUNDING
Mr. Rogers. Let me get back to the operating levels. You
are asking for an increase in the salaries and expense account
of $400 million. That is a 15 percent increase, and yet that
would only sustain you at your current levels?
Judge Heyburn. I think the obligations increase in the
salaries and expense account is $310 million. What the
appropriations request is, I am not sure. Once we determine
what the obligations requirement is, then the appropriation
level could be adjusted depending on what the carryover level
would be.
Mr. Rogers. We are saying the same thing.
Judge Heyburn. Exactly.
Mr. Rogers. But that would only sustain you at your current
operating levels, and not provide any program increases except
for 11 magistrate judges?
Judge Heyburn. Yes.
Mr. Rogers. And I am told that the reason for that is that
you are anticipating much lower carryover monies.
Judge Heyburn. That is correct.
Mr. Rogers. A carryover of $22 million?
Judge Heyburn. No, it will be higher than that. Right now
it is $51 million.
Mr. Rogers. We are talking salaries and expenses now.
Judge Heyburn. Yes, you are right that we currently have
$22 million in hand that will carryover into FY 2000. I was
thinking of the overall projection that by the end of the year
we anticipate a carry over of $51 million.
Mr. Rogers. That compares to a level of $200 million-plus
over the last three years.
Judge Heyburn. Right.
Mr. Rogers. Normally that carryover has resulted from such
things as slippage in filling judicial vacancies, hiring court
employees below the authorized level, slipped delivery of new
court space, and what have you. Why the big reduction this time
in your anticipated carryover?
Judge Heyburn. There are a couple of reasons for it. Number
one, the appropriation that we received last year was less than
we anticipated. It wasn't your fault. The Senate mark was low,
and so we have less money to work with. It is just a much
tighter situation overall. The courts are aware of this, and
with the increasing workload we think there is simply going to
be less money turned back.
Also, the budget overall was just tighter. As you know,
there are lots of different areas where carryover can be
created from lapsed personnel, resources, benefits. All kinds
of things end up being carryover funds.
Mr. Rogers. Is this going to have any negative impact on
operation of the courts, if you have no additional personnel or
program increases?
Judge Heyburn. We hope that it won't. If we thought that it
was going to have a negative impact, we would have asked for
more. It is a risk. We don't exactly know what the consequences
will be a year and a half from now of the probation and parole
folks having to work under these circumstances.
We hope, assuming that we get something close to what we
are asking for, and there continue to be increases in
probation/parole workload, we will be able to provide them with
the resources to do the job, and it may be necessary to reduce
the funding to the rest of the courts. Now that is a risk. I
can't sit here and tell you that there is no risk.
NEGATIVE ALLOWANCE
Mr. Rogers. Let me ask you, this is the first time that I
have ever seen this happen; perhaps Mr. Mecham and others might
be able to correct me on this. You submitted a request to the
President of a $400 million increase for the S&E account. That
is just--normally the President's budget simply transmits
whatever you sent to him. I have never seen it otherwise.
This time they cut your request. They said, ``Hey, we don't
think that the courts need this much money,'' and they cut your
request by $159 million, reducing your $400 million increase to
$241 million. What do you think about that?
Judge Heyburn. Well, I don't think much of it; and of
course you shouldn't think much of it either, because they did
the same thing to the legislative branch.
Mr. Rogers. Have you ever seen this happen before in any
administration?
Mr. Mecham. Yes, we have had it four times before, and they
have twice succeeded.
Judge Heyburn. Last year we had extensive conversations
with Frank Raines, who is a friend of mine, and ultimately they
decided not to do this. And this year we met with them, and
they went ahead anyway. We think that it is contrary to law,
contrary to good policy.
It would be one thing if they analyzed our budget and said,
``You know, we think that you can really do the job with $150
million less.'' They did not do that. We are not like the
Secretary of Agriculture who can come in and plead the case
with the director of OMB. We are not part of the executive
branch. They just very arbitrarily created the negative
allowance.
Mr. Rogers. What business is it of the President to say how
much money the Federal courts can get? There are three branches
of government, as I best recollect. Is that still true?
Mr. Mecham. We hope so.
Judge Heyburn. I hope so.
Judge Piersol. We believe that.
Mr. Rogers. And the Constitution says that the Congress
shall appropriate the funds for all branches of government, but
where in the Constitution does it say that the President has
any say-so at all in the court's budget? Tell me.
Judge Heyburn. It doesn't, and I would only amplify that by
saying it is an interesting constitutional situation. I have
had extensive conversations with Jack Lew, and Frank Raines
before him, and our position has always been if they want to
come up here to your committee and tell you that we are asking
for too much money or you should appropriate less to us, as far
as I am concerned, that is their prerogative. It is a free
country, and they can analyze our budget and say we are asking
for too much if they want to.
What we think that they can't do under the law is, when we
as a matter of statute send our budget up to OMB, as a matter
of statute we think that they are supposed to pass it to you
unchanged and that is the legal requirement. If Jack Lew----
Mr. Rogers. I resent it terribly. OMB is overreaching in
every aspect. They are overreaching on the census question, and
trying to tell the Federal courts how much money you can have.
It is outrageous, and it is also stupid. This is a level of
ignorance that I didn't realize still existed.
Mr. Mecham. Mr. Chairman, the statute is very clear. As
Judge Heyburn pointed out, Congress in its wisdom and the
President who signed the bill at the time it was passed said
that ``the President shall send the judiciary's budget to
Congress without change.''
This negative allowance in my estimation is a devious
device to get around the plain meaning of the statute. Congress
decided that it was unwise to have the principal litigating
branch of government control the budget of the judiciary.
Congress has the fiscal powers to do that. I personally think
that we have a good lawsuit against OMB at some point, but I am
more of a militant than some of the judges.
Mr. Rogers. I will pay your filing fee.
JUNE 15 FUNDING CUTOFF
While we are on the subject, Mr. Mecham, aside from the
budget resolution which is coming up, the next potential
calamity is the cutoff in funding for the judiciary which is
set to take place on June 15. The appropriations run out on the
Federal courts, the Supreme Court salaries, expenses, paying
the water bill at the Supreme Court, paying all of your
salaries. All of the Federal courts, all of the operations of
the Federal system are set to shut down, not to mention the
U.S. Attorneys, the Drug Enforcement Administration, the
National Weather Service, the State Department's operations
around the world, and payments to the United Nations, all set
to go out of business on June 15, unless legislation is passed
to continue the funding for these offices for the balance of
this fiscal year.
And it was caused because the administration insists, in
the Commerce Department, upon using a particular procedure to
fund the census, the decennial census, which the Congress has
disagreed with them on. Their position is, okay, just shut down
everything, including the Federal courts. Deny justice to all
Americans because we can't get our way on the census. What do
you think about that?
Mr. Mecham. Since you addressed the question to me, we
don't think much of the idea with respect to the judiciary. The
judiciary would prefer to remain neutral in a contest between
the White House and the political parties in Congress and we
think that we ought to be neutral, and for that reason we think
we should not be included under this limitation. If you don't
do anything else, Mr. Chairman, we hope that you and your
committee will exempt the judiciary immediately from being
under that provision.
Just Monday I talked with the Chief Justice and he
underlined his concern about this. He said that the courts are
supposed to be neutral. Why are we being projected into this
political fight? I suppose it is because by accident our budget
appears before you in the form of the Commerce, State, Justice
budget, and by accident the Census Bureau is there. So we are
facing the unprecedented prospect, I don't think it has ever
happened in history, where the judiciary could have its money
cut off in the middle of a fiscal year.
We would hope that the supplemental or whatever you want to
do, that you would exempt the judiciary from that provision.
SAMPLING FOR THE DECENNIAL CENSUS
Mr. Rogers. Well, you know, it is ironic that the cause for
the cutoff, the question of sampling for the decennial census,
is a question that will be decided by the courts eventually, no
doubt. And I wonder, does that cause you any embarrassment, or
do you get the idea that somebody is trying to pressure you to
make a certain decision?
Mr. Mecham. I would rather have the judges comment on that.
I have my own view.
Judge Piersol. It has crossed my mind.
Mr. Rogers. And it has crossed my mind. Judges?
Judge Heyburn. I don't have a census case so it hasn't
pressured me.
Mr. Rogers. But you are speaking for the judiciary.
Judge Heyburn. I suspect to the extent that a case comes
before the Supreme Court, they are perfectly capable of
deciding a case without any concern for whatever pressure might
be placed on them. So the ultimate answer to your question, I
have no doubt in my mind that they would not be affected by any
pressure, assuming for the moment that there is some.
But it is not a good situation. We should not be in the
middle of this thing. We do our very best to stay out of
politics in every way that we can, the courts and the judges
do. Sometimes we are unavoidably dragged into it; but where it
is avoidable, we ought to be out of it.
Mr. Rogers. Have you ever seen an instance like this where
one could conclude that the President's insistence on a certain
way to conduct the census or any other type of issue of that
sort is being coerced upon the courts, it would seem at the
expense of cutting off their salaries and doing away with the
Federal courts, unless he gets his way on the census sampling?
It is absolutely, fundamentally a serious question. What do you
think?
Mr. Mecham. Well, as I said, I have a personal view. The
judges deal with the cases and they don't feel any pressure,
but I guess as a one time political scientist and a student of
government, it worries me that impliedly the judiciary's
appropriation is being held up until a decision is made on the
census.
Mr. Rogers. Until the right decision is made on the census.
Mr. Mecham. Arguably you could say that. I don't know which
side wants us to rule which way, but it does look like a little
pressure to me.
Mr. Rogers. Is it extortion, do you think?
Mr. Mecham. I would not wish to go that far, Mr. Chairman.
Mr. Rogers. Thank you. Mr. Latham.
IMPACT OF FEDERAL LEGISLATION ON CIVIL CASELOAD
Mr. Latham. Thank you very much, Mr. Chairman, and I
apologize for being a little late here. I had another hearing
right across the hall going on this morning. I welcome the
panel here this morning.
Judge Heyburn, as you know, last year we spoke about the
increased federalization of crime and its impact on the court
system and your resources. I really would be interested in
knowing today about your thoughts as far as the impact of
Federal legislation on the civil caseload.
And I am not a lawyer. I am not really looking for a growth
industry here, but I would like to get your thoughts on whether
you think the steady increase in the Federal civil caseload--I
guess there was a dip last year--is that a result of increased
legislation here in Congress, and specifically what type or
what area, and are there some other explanations?
Judge Heyburn. That is a very good question, and the answer
is somewhat complicated. The civil caseload has had its ups and
downs over the past five or six years. It is generally up, but
it does bounce around, and whatever Congress does has an
impact.
It could have an impact to increase the caseload when
statutes are passed which create a Federal cause of action. It
can also have an impact to reduce the caseload. The habeas
reform, some of the reforms in prison litigation have had--and
we discussed this at the hearing last year--a tremendously
beneficial impact, we believe, in getting some cases out of
Federal court that should never have been there in the first
case.
So it is true that anything Congress does can have both
positive and negative influences. I shouldn't say positive or
negative influences. It may be that you decide there are
certain claims that ought to be decided in Federal courts, and
we have no problem with that as long as it is a considered
judgment.
But when you create additional cases, unless there is some
other action taken, then that is going to increase the overall
caseload. If it is important enough, then it ought to be done,
but there ought to be a sense of balance.
And of course everybody understands that a huge majority of
all of the civil cases that are conducted in the United States
occur in State courts, and the Federal courts ought to be
reserved for those special circumstances which are best decided
in Federal court or where our citizens need an alternative to a
local forum. As long as Congress bears that in mind when they
pass the laws that they pass, then we are prepared to do the
work that is a consequence of it.
Mr. Latham. Is there any specific area where you have seen
a real explosion on the civil side?
Judge Heyburn. We see an increased number of discrimination
cases of all kinds in my district. Judge Piersol could comment
also. It does vary from year to year.
Judge Piersol. That is the area where I see, in
discrimination cases. My huge increase is criminal, not civil.
Mr. Mecham. There have been quite a few immigration cases
under the new law, and from time to time there are student loan
cases and Social Security, in addition to the ones that you
might think of otherwise.
Judge Heyburn. The system is somewhat self-correcting. When
there becomes a surge of cases, someone will recognize it and
Congress will tinker with the system to bring it back into
order. The good thing about our American justice system is that
there are a lot of avenues for release. The Federal court
system is not the only court system.
For instance, a lot of our jurisdiction is essentially
concurrent with the State diversity jurisdiction. You can file
in the State or you can file in the Federal courts, and
discrimination cases are much the same. A lot of those cases,
you can file them in State court or Federal court.
When the Federal courts become too crowded and it becomes
difficult to get a trial, lawyers and litigants make logical
decisions. They will go to a court where they think that they
can get to trial faster, and then they will file in State
courts. And when it balances the other way, we will see them
coming back into Federal court. The court systems work well
together in that way.
INCREASING CRIMINAL CASELOAD
Mr. Latham. Judge Piersol, you are from South Dakota?
Judge Piersol. That is correct.
Mr. Latham. Obviously, being from Iowa, you are directly
impacted and share the increased burden of what we are seeing
with the drug problem in our part of the country, especially
with meth. I guess my question to you would be, do you think
the request is sufficient for the increased work load that you
are seeing? What do we need to do?
Judge Piersol. As I commented to Mr. Serrano earlier, we
are very similar to you. Our criminal caseload went up 36
percent, and yours in Iowa is up 29 percent. We have a big
influx of methamphetamine cases, as you do. One difference is
that they are cooking it themselves pretty much in Iowa, and we
are importing it from California; but the result is the same.
Mr. Latham. Ninety percent comes in from California to
Iowa.
Judge Piersol. If we get all that we are asking for this
time, we can handle it, but we are at the upper edge. I suspect
that Iowa is in the same situation. I am so close to Iowa, we
have some feedback with the Sioux City probation officers
particularly. We have to get everything that we are asking for,
and then we are getting close to the red line but I think we
can handle it.
Mr. Latham. We have a new presence of INS in the area, too,
are you seeing more cases from the increased presence?
Judge Piersol. Yes, because we have an INS enforcement
office in Sioux Falls, and there wasn't one before.
Mr. Latham. And we have two in Sioux City that we didn't
have before.
Judge Piersol. That immediately pushed up the INS cases,
and I know that the judges in Sioux City are having exactly the
same experience.
VIDEO TECHNOLOGY
Mr. Latham. That is a problem that we need to work on to
make sure that you have the resources, because the caseload is
going to be much worse. We have a lot more resources on the
enforcement side, and obviously that is going to directly
affect you.
I think the question, Mr. Mecham, was approached earlier
somewhat as far as savings through video conferencing
technology. Do you have any specific numbers as to what kind of
savings you expect, or where your savings will come from?
Transportation costs, staffing, or elsewhere?
Mr. Mecham. Well, I can give one example.
Mr. Latham. We can reduce your budget because of all of
these savings?
Mr. Mecham. We do have a Federal judicial television
network, and Judge Zobel will talk to that. But just in the
case of our own budget for the salaries and expenses for the
judiciary, we anticipate that we will save more than $1 million
dollars in travel because of the training that we are doing on
TV. We have about 30 hours a week that we now put over that
network. I think the FJC puts out about 10 of those, and we do
about 20. We are doing a lot of our training over the network
that we were not able to do before, and we are saving money.
But in the video conferencing that Judge Heyburn talked
about, the courts are able to save significant amounts of money
when they can do as he described. Particularly in that area,
Judge Zobel would be able to amplify on that. Those are some of
the savings that we see, and we expect more will come.
Mr. Latham. I appreciate that very much.
Thank you, Mr. Chairman.
Mr. Rogers. Judge Zobel, do you want to comment on the
question?
Judge Zobel. Well, I can't speak for reductions in travel
with respect to the S&E account or the Administrative Office.
We have done, Mr. Chairman, what you have asked us to do, and
we have since 1995 reduced the FJC travel budget by 40 percent.
We went from over $5 million to just over $3 million. The
travel budget, which was 30 percent of our entire budget, is
now 15 percent. It was 16 percent of the entire judiciary's
travel; it is now 8 percent of the entire judiciary's travel.
So we have saved, and we have put some of that money into our
distance learning technologies.
Do you wish me to go on with this now?
Mr. Rogers. Please.
FEDERAL JUDICIAL CENTER FY 2000 BUDGET
Judge Zobel. We do seek a program increase for eight new
positions. We at the Federal Judicial Center are the managers
of the Federal Judicial Television Network. Four of our
employees do just that, and we took those employees from the
cadre of those who were producing videos, both for broadcast
and also video tapes that we use in various of our in-court
training programs. And what we are looking for is four new
positions to replace and add to those that now run the
television network, so we can have these people again assist
with the production of videos for the various purposes that I
mentioned.
In addition to that, the technology that is really emerging
to assist us in training and education is that which is web-
based, and we seek four additional employees to help us to do
more with the J-net. We did produce one program, for example,
with a browser that allows employees in the courts to process
requests for tenant alterations and the like. There is a need
for much more of that, and we can do it if we have the staff to
do it, but we don't have enough staff now to fill all of the
needs in this area that we should be filling.
So those are the program requests that we seek, which total
only $563,000. The other piece, the $700,000, is for
adjustments to base. As you know, our budget was for one year
cut and for two years frozen, and last year, despite your great
efforts, we received a minimal increase. So we have cut our
personnel in order to allow for the regular increases in salary
and fringe benefits that we have to give every year.
We went from 158 FTEs in 1994 down to 135 now, and we can't
keep doing what we are doing if we don't get our adjustments to
base and then we just have to cut staff even more.
Let me just briefly add to what Judge Heyburn said earlier.
One of the ways in which we assist the courts to be more
productive is with the training that we do for the courts. We
provide programs on maximizing productivity for clerk's
offices.
We have also developed what we call a risk prediction
index, which probation officers can use to assess how they need
to supervise each of the defendants who come out on supervised
release from prison. It has a benefit in allowing probation to
assign maximum supervision to those who need it and minimum
supervision to those who don't need more, but it is also of
administrative assistance to the chief probation officer in
figuring out the maximum that any particular probation officer
can do by being able to predict the kind of workload that this
officer will have with a series of offenders that that person
needs to deal with.
We put out a bulletin that helps probation officers in the
field understand the special need offender populations. This
one happens to be on sex offenders. We have done it on gangs.
This is just a piece of it. They get the bulletin that
describes in detail what this population looks like. It is then
supplemented by a video that we also produce. It is for that
kind of purpose that we need the video specialists, as well.
We have two video conferencing facilities as part of our
network now that are used by the Administrative Office, by the
Sentencing Commission and by us for all kinds of conferencing.
For example, not too long ago when we were looking to fill a
senior position, we interviewed one of the candidates by
television rather than paying her way from California to
Washington. I know that the Administrative Office similarly
uses our facilities in order to minimize the cost of bringing
people together. We do it with courts, we do it for
administrative purposes, and we do it for teaching purposes.
I do wish to thank you for all of the courtesies that you
have extended to us in the past. As you know, this is my last--
my swan song with this committee. I will say that I will miss
you guys, and I will be going back to my court.
I will inquire, Mr. Serrano, about the question that you
asked. Juan Torruello is my chief judge, and he will certainly
know how it happens that the Federal court in Puerto Rico
speaks English. I know that they do, and I know that all of the
proceedings are subject to being interpreted, every one of
them, and for criminal cases it is the judicial branch budget
that pays for the interpreters. For civil cases usually it is
the parties who provide the interpreter, if they have the means
to do that.
So I wish to thank you Mr. Rogers, for your courtesy, for
helping us out last year, both with the mark and in particular
with playing a starring role in launching our system. You
should know that we have shown that video many times because
every time another court comes online, we need to explain to
them what the system is all about, and there you are. It is
great. Thank you very much. I am happy to answer any questions
that you may have, and I hope that I have answered yours.
FEDERAL JUDICIAL CENTER DIRECTOR
Mr. Rogers. Well, Judge Zobel, I want to congratulate you
on your accomplishments at the Federal Judicial Center. When we
first started dealing with you on your budget, the FJC looked
more like a travel office than anything else, and now I am very
pleased to say it looks like a training machine which is what I
think it should be. You have presided over the transformation
of that Center into a very modern, technologically up-to-date,
up-to-speed organization, and I want to thank you for doing a
wonderful job. We are very sad that you are going back to your
old job.
Judge Zobel. Now I can be efficient in Massachusetts.
Mr. Rogers. That is correct.
Judge Zobel. But I think you need to be clear how much you
are responsible for what we have done. Really, it was very much
your prodding that got us there, but I thank you for your kind
words.
Mr. Rogers. I look upon our relationship with the Federal
judiciary, this subcommittee, as sort of a model of how a
funding subcommittee ought to work with an agency, not that you
are an agency, but it is a model of how we should be working
with all agencies--collaborative, and, constructively critical.
Before you leave us, though, we want you to leave us some
advice about how your successor should look at this job and the
direction the new person should take for the future. If you
would like to give us a quick summary now, and then if you have
the time, if you could prepare something more detailed that you
would submit for the record if you would like.
Judge Zobel. I would be pleased to prepare something for
the record. I think that the job of director will have to be
defined to some extent by whoever my successor happens to be. I
think it is clear that we will continue to take advantage of
technologies. I think we are moving more toward computers and
the web without question.
I think Judge Heyburn is absolutely correct that we can't
be ahead of the curve, that the judiciary as a whole and the
Center as part of the judiciary will need to work with tried
technologies, those that have already proven themselves in the
private sector. We can't afford to be too experimental, but we
do need to be imaginative and innovative always.
I have no doubt that whoever my successor will be, he or
she will carry on the very important work of the Center. The
Center I think is often not seen to be as important as in fact
it is. The kind of training and the kind of research that we do
for the judiciary is essential for the judiciary to be able to
do what it is asked to do, and to do it with the fewer dollars
that, we know, are going to be the way that it is in the
future.
So I hope, I hope that this committee and others will
continue to recognize the very important role that this very
small and inexpensive institution actually does play.
Mr. Rogers. Well, you have certainly elevated its
importance and its notoriety, and you have done a wonderful job
there. I know all of the judges in the Federal judiciary thank
you and appreciate what you have done, and that includes us
here on the subcommittee.
Judge Zobel. Thank you, very much.
[Clerk's note.--Subsequent to the leaving, the following
information was provided:]
You asked my views on how my successor should look at the
job of Federal Judicial Center director and the direction in
which that person should take the Center.
By statute, the Center's Board, which is chaired by the
Chief Justice, determines its overall policies and direction.
In 1997, the Board adopted a strategic plan for the Center,
which provides ``that the Center must continue to rely on its
strong automation capabilities to support its administration,
its research activities, and its educational activities, and
that it should devote its technological resources exclusively
to serving those needs. In particular, the challenge of using
technology to bring education and training to the third branch
will only grow.''
Thus the new director will operate within the guidance of
this and the plan's other mandates and additional guidance the
Board offers. I envision no major change in the direction the
Center has taken in recent years. The Board fully understands
the necessary role of technology and the importance that this
subcommittee, and the Congress in general, attach to modern and
efficient ways of providing education and research to the
judicial branch.
Of course, the new director will face many challenges in
determining how to carry out these general policy directives.
These include:
1. Staying current with new technologies but avoiding
costly ventures in unproven methods--We know, for example, that
the satellite network is in some ways an interim step toward
the day that we will be able to send video signals by other
means.
And, as I said during the hearings, web-based education and
training through the internet and the judicial branch's
``intranet'' (the J-Net) are emerging as very powerful tools,
which is the reason for four of the eight FTEs we requesting.
2. Embracing technology while realizing that it is not an
end in itself--Our goals are quality education and research,
provided in a cost-effective manner. Both high and low
technology can produce these results. For example, even before
the satellite network, the Center was providing the bulk of its
education by means other than travel, relying heavily on self-
contained curriculum packages that courts could use for in-
court training. The satellite network has complemented our in-
court training, not replaced it.
3. Persuading judges and staff to embrace technology--As
you have said, the legal culture does not always welcome
change. Our challenge is not to preach to judges about the
virtues of new methods, but rather to be creative in finding
new methods that judges will accept and will use.
In that regard, I attach my introductory message to the
Center's 1998 Annual Report, which encourages judges to come up
with creative ways to use the Federal Judicial Televisions
Network.
4. Continuing to inform the Center's education with the
findings of its research--Although the Center is thought of as
an education agency, because about 80% of its resources are
allocated to that program function and the support of that
function, in fact the Center's research activities play a very
important educational role.
For example, we are a national leader in analyzing the use
of alternative dispute resolution to save litigation costs and
time and improve the process. That research contributes
directly to our education. Similarly, we have a multi-faceted
science and technology research project, the results of which
teach judges how to deal more effectively with expert
testimony.
5. Appreciating when traditional forms of education are
necessary--Although we have dramatically reduced our use of
travel, there are, as you have noted, some types of education
and training for which face-to-face interchange with colleagues
and skilled faculty are essential. The challenge is to identify
those needs and reserve our scarce travel dollars for them.
Mr. Rogers. Ms. Roybal-Allard.
ILLEGAL ALIENS
Ms. Roybal-Allard. Thank you, Mr. Chairman.
As I was sitting here, I was thinking this whole mess
dealing with the census probably could be solved if both the
administration and Congress stop meddling and let the experts
at the Census Bureau, based on their education and training, do
their job, and the result would probably be that we could solve
your problem and at the same time come up with a fair and
accurate census by using the expertise that is now at the
bureau.
Judge Heyburn, in your written testimony on page 9 you say
that there is a decline in the average annual costs of the
criminal cases, and that part of that is being driven by more
emphasis on the criminal prosecution of illegal aliens and the
de-emphasizing of the higher cost criminal cases such as drugs
and violent crime.
Could you explain to me what that exactly means? Does it
mean that we are not vigorously----
Judge Heyburn. I don't think that I said de-emphasize.
Maybe I did.
Ms. Roybal-Allard. That was my wording.
Judge Heyburn. In fiscal year 1998 the number of criminal
cases increased from about 49,000 to about 57,000. As far as I
know, the proportion of all the cases remained pretty much the
same. There maybe were general increases across the board.
Where we saw a difference was a dramatic increase in
immigration cases, so I don't think that there was a de-
emphasis on other cases. There does not seem to be any dramatic
change in the proportion of the other cases brought. There were
increases across the board, but there was a dramatic increase
in the number of immigration cases that were brought.
Now, what we are beginning to see is that many of those
cases appear to be handled, and Judge Piersol can comment from
personal experience because we don't have a lot in Kentucky,
but many of those cases seem to be handled rather expeditiously
one way or the other. And many of these defendants are
indigent, so a Federal defender or a panel attorney must defend
them, but the cost of that defense is much less than a drug
conspiracy case.
So what we are seeing is that because these cases are
proportionally a greater portion of our criminal caseloads, and
those defended by panel attorneys or the Federal defender are
an increasing share of that cost, the per case cost is going
down.
Ms. Roybal-Allard. So when you say, and I will read it so I
don't misquote you, ``Should the DOJ decide to de-emphasize
immigration in favor of other more complex, higher cost
criminal cases, such as drugs and violent crime, the average
annual cost per case will likely grow again,'' is that implying
that we are not as vigorously investigating and prosecuting
these higher crimes?
Judge Heyburn. No.
Ms. Roybal-Allard. I wasn't clear what that meant.
Judge Heyburn. I didn't mean to imply that at all. It is
just if you have however many United States Attorneys out
there, somebody has to decide how we are going to use those
resources. And let's just say, for instance, and this is a
theoretical situation only, someone decided we are not going to
handle immigration cases in Federal court, we are going to make
it an administrative procedure, so we would have all of those
United States Attorneys out there, and they would either be
fired or they would do something else.
In the drug areas, over the entire United States you
basically have concurrent jurisdiction. It can be a State case
or a Federal case, within reason. And in every jurisdiction
they divide up those cases, and typically the more complicated,
more complex, bigger cases the United States Attorney takes,
and the lesser cases, typically, not in every jurisdiction, the
State will take.
If the administration or any administration decided we want
to put more Federal resources into prosecuting drug cases as
opposed to INS cases, then they could go further down the food
chain, if you will, in bringing more drug cases in Federal
court. And if we had the same number of cases brought, that
would increase our defender costs tremendously because the cost
to defend each one of those, to provide an adequate defense on
each one of those drug cases, would be a lot more than it would
be to provide the defense in an INS case.
But of course all of that is a matter of policy and what
the resources are at any particular place to do the job that
the administration believes is important in the war, the fight
against crime. It is certainly not my intention to take a
position. We are here to do the job. It does emphasize that the
workload that we take care of is uncontrollable from our point
of view.
We have no say in the policy of this administration or any
previous administration as to how they want to direct the
resources of the Justice Department in the area of crime. And
if they decide to bring a lot of complicated environmental
cases, we handle those. If they decide to bring a lot of
relatively uncomplicated INS cases, that is less work for us
and less work for the Federal defender. It sort of emphasizes
the point, we handle what comes to us.
Ms. Roybal-Allard. You don't feel we are letting these more
serious criminal cases go by the wayside?
Judge Heyburn. I have no evidence of that.
Judge Piersol. An INS office opened just very recently in
my jurisdiction and we had a big upsurge in INS cases. All of
the rest kept going up, but at the level that I would expect
the others to go up. I have a lot of drug cases, too, and there
is no reduction in the zeal in which those have been
prosecuted.
COURTHOUSE CONSTRUCTION FUNDING
Ms. Roybal-Allard. Thank you for clarifying that.
Mr. Mecham, you recently wrote a letter to the Chairman of
the Appropriations Committee in support of courthouse funding.
Could you tell me what prompted you to write that letter and
what the need for courthouse construction is, for the record,
please?
Mr. Mecham. I have written quite a few letters on that
subject, but I assume the most recent one would have been
calling attention to Congress that for the third year in a row
the Office of Management and Budget has chosen in the
President's budget to zero out the judiciary sponsored
buildings. The budget is included under the General Services
Administration funding. We work closely with GSA, and by and
large we have been in general agreement on which buildings were
needed and when they ought to be built, and so we have had a
pretty good partnership with GSA in developing priorities to
meet the burgeoning needs for new space for the judiciary.
The Judiciary went about 40 years without any buildings
being built, and there has been a vast expansion in the
judiciary, not so much in the number of judges but in staff,
probation, pretrial and court staff. There are also unique
security problems that we didn't have before. A lot of the
buildings are totally inadequate, and most of them were
designed without technology in mind.
So there has been a great pent-up need. From fiscal year
1991 to fiscal year 1997 the judiciary was well-treated by OMB
and by Congress, but for the last three years OMB has decided
that they shouldn't build any buildings, and it has been very
clear why. In my view it is clear why: Because of budget caps,
they see every dollar that goes to the judiciary as a dollar
they don't have to take care of their priorities. So there are
about $579 million in buildings ready to go, scattered
throughout the United States.
Ms. Roybal-Allard. L.A. is number one.
Mr. Mecham. I am well aware of that. I understand one of
your colleagues raised that question with Mr. Lew, the head of
OMB----
Ms. Roybal-Allard. Mr. Hoyer raised it first and I
supported him.
Mr. Mecham. Well, I congratulate you. I didn't know it was
you. We feel that Congress should effectively overrule OMB and
appropriate the money which was requested by the judiciary and
the GSA. These projects are based on good solid planning. The
process has now gone on since about 1990. We have tightened
that up. The guidelines have been worked out closely with GSA
and the committees of Congress. We feel that they are justified
and ready to go and we need them, and we hope that you will do
what you did last year.
Abuse of Female Inmates
Ms. Roybal-Allard. This is in regards to an article that
was in the Washington Post this morning where it reported
that--it highlighted a report by Amnesty International--that
said that women inmates in prisons and jails are routinely
being subjected to sexual abuse by male guards, and I know that
you do not administer the Bureau of Prisons, but what can be
done to address this accusation? Are you seeing more actions
brought against guards and the conditions in Federal prisons?
Did you see the article?
Judge Heyburn. I did not see the article. In my experience
I have not seen any significant number of those kinds of cases.
I am not sure that I have seen any, as a matter of fact. That
is an area where if there are claims, lawsuits filed, the
judiciary responds appropriately to handle the cases. Of course
we don't have the direct responsibility in any way, shape or
form.
Ms. Roybal-Allard. I understand. But you are not seeing
anything? It talks about not only are they subjected to sexual
abuse, but there are serious problems in terms of medical care,
where they have examples of women being put in shackles when
they are delivering a baby.
Judge Heyburn. I have not seen the article, and of course I
would hope that is not happening.
Judge Piersol. Let me speak to a part of that. I have a
Federal prison but we don't have female inmates, and I don't
know if the article spoke specifically to Federal prisons.
I am aware with regard to pregnant women, there are
programs at least in the 8th Circuit, which is where I am,
where when somebody is pregnant, if they can meet certain
requirements, they can be accorded a treatment where they get
prenatal and postnatal time for bonding. We have been able to
have that with a number of pregnant women. So they at least get
accorded care during those important times.
Ms. Roybal-Allard. I will be talking to the Chair of the
appropriate committee and perhaps we can look into this more.
Thank you very much.
Bankruptcy Filing Fee Increase
Mr. Rogers. Thank you.
Now, your proposal seeks to increase bankruptcy fees by $25
which would raise $28 million, and you would have the proceeds
go to the U.S. Trustees in the Department of Justice. Do you
have a position on the increase in bankruptcy?
Judge Heyburn. That is not our proposal, that is the
Department of Justice's proposal.
Mr. Rogers. How did it get in your budget?
Judge Heyburn. I don't know that it is in our budget
exactly. The U.S. Trustee is not controlled by the judiciary.
This would be funds that the Justice Department would use with
the additional fee to run the U.S. Trustee's office.
Mr. Rogers. Let me get this straight now. This proposal is
in the budget that we received, but it was not something that
you all proposed? This was an administration add-on to what
your budget proposes to do?
Judge Heyburn. Well, it is not in our budget. We didn't
know about it. The position of the Judicial Conference
generally is to be very, very careful about additional fees
because they tend to deny access to Federal courts. So although
there are a number of fees that the judiciary does administer
and form a part of our fee income to the extent of about $150
million a year, we are very cautious about increasing those
fees, and generally are opposed to increases in fees for the
reasons that I have stated. They tend to deny access to courts.
Mr. Rogers. If they are raised, do you support all of the
revenues going to the U.S. Trustees?
Judge Heyburn. Mr. Mecham is more familiar with the
feelings of the Judicial Conference on that.
Mr. Mecham. Well, first of all we were not consulted on it,
and it is sort of a forced role, forced on the Federal courts
to tax the litigants for the benefit of the Justice Department.
They may have need for it. Since they didn't consult us, I
don't know if they need that money or not.
I would just say that the position of the Judicial
Conference for many years has been that the trustee program
should not be located in a political department of government.
It ought to be an independent agency. We fear that it invites
conflict of interest and perhaps corruption. I am not saying
that there is corruption presently but there is that danger. I
couldn't comment on whether this is useful money or not. I can
say that they didn't consult us, although we would be required
to collect the fees and give the money to them.
Defender Services
Mr. Rogers. For the Defender Services program, the huge
run-up in the cost appears to be moderating to some degree. The
requested increase is more moderate than in the past several
years. In part this is a result of carryover from 1999, in
which estimated costs are now projected at $29 million lower
than what you projected last fall when we were in conference.
Judge Heyburn. Right.
Mr. Rogers. To what do you attribute that slowdown in the
growth of the defender program?
Judge Heyburn. Well, all across the board, the things that
we were concerned about and had discussions with you about over
the past couple of years, the dramatic increases in capital
defense costs. We have put a lot of effort into making sure
that we had better qualified attorneys representing capital
defendants, that the billing procedures were better organized,
and so the result has been that the per case cost of capital
defense has declined.
Also we had a staggering increase, as you know, over just a
few years, an increase from 23 to 150 in the number of ongoing
Federal capital cases, and that dramatic increase has leveled
off now. So the cost of capital cases is less.
As you know, in the capital habeas area we had huge
increases there which, after many discussions with you and
hiring a consultant, we did a systematic study and determined
that many of these cost increases were related to problems in
the 9th Circuit. So over the last year and a half the 9th
Circuit in cooperation with the AO has instituted a number of
programs, training for lawyers, research assistants, much more
detailed fly specking of bills, with particular attention to
the cost of habeas defense in certain areas of California and
also in cases that involve over $100,000. The result has been a
30 percent decrease in the average annual cost of habeas
capital defense and an actual $1.7 million decrease in the 9th
Circuit's budget for habeas capital defense.
You had several years ago really a not very healthy
situation, in which the 9th Circuit was accounting for about 65
percent of all the money spent on capital habeas cases. It was
really not a good situation, to put it mildly, and that has
turned around. Now the percentage of money that goes to capital
habeas in the 9th Circuit is below 50 percent, so we think that
we are on the right road on that.
Mr. Rogers. But you are barely on the right road.
Judge Heyburn. You have to take small steps before you can
achieve proper results.
California Capital Habeas Case Costs
Mr. Rogers. We are not looking for small steps. California
is hogging the money, and that isn't going to happen for very
long. We got after you last year about it. We put in report
language, and here is where it was. That report that we
requested indicated that the average cost of California cases
was $370,000 each, compared to $70,000 for a non-California
case. And between 1992 and 1998, cases originating in
California, which are 20 percent of the cases, accounted for
almost 60 percent of the total panel attorney payments.
Now, you are making a little progress, but with one State
still getting half the money out of all 50, something is wrong.
Now either 9th Circuit straightens this out or we will
straighten it out for them. Which do you prefer? And more
importantly, which does the 9th Circuit prefer--a circuit with
which there have been interminable problems for years. A lot of
things about that 9th Circuit are screwy, and they are taking a
lot of our fundings, and that can't last very long. Shall you
fix it or shall we?
Judge Heyburn. We would prefer to fix it ourselves, and I
know that the 9th Circuit would prefer to fix it.
Mr. Rogers. It has not been happening fast enough. I
suspect that we are going to do something in this bill, unless
between now and markup time the 9th Circuit comes around and
says "Here is what we are prepared to do." I know that it is
tough on AOC, it is tough on you, but it is not tough on me. I
would enjoy it.
The 9th Circuit is nothing but trouble, and we saved their
butts last year. People wanted to divide up and carve up the
9th Circuit, and we stood in the way and we said no, let's let
the courts study how to do this. I see nothing reciprocal
coming from the 9th Circuit. They are taking a lot of our
funding. They are arrogant. What shall we do? Will you convey
to the 9th Circuit folks that we are demanding immediate action
on this problem?
Judge Heyburn. It will be the first thing I do.
Mr. Rogers. Before we mark up, and if they don't come
forward with a reasonable proposal so that the rest of the
country can have some funds with which to spend for Defender
Services, then we are going to do it for them. Is that a deal?
Judge Heyburn. That is a deal. I will certainly convey
that, and we understand your sentiments, and we think we are
making progress.
The only thing I would say, and I understand precisely your
sentiments and agree with many of them, but the way to get a
handle on this problem is with case budgeting at the beginning
of these cases. Many of these cases unfortunately last years,
and if you try to get in the middle of it, it is very difficult
to achieve dramatic savings. So we think a 30 percent decrease
over 1 year is a pretty darn good start.
9th Circuit Split
Mr. Rogers. There is no reason why we should be doing this
for a border case in California, that we are not doing the same
thing for an equally expensive case in New York City or in Iowa
or Kentucky or anywhere else. They are hogging the money, and
it is not going to last.
While we are on the subject of the 9th Circuit, we let you
all last year recommend what you wanted to do about dividing up
the 9th Circuit rather than us doing it, and the report comes
back apparently recommending that the circuit be maintained but
be divided into three regional divisions. What is going to
happen to that recommendation? And if you don't act, do you
mind us involving ourselves in the 9th Circuit?
Judge Heyburn. That recommendation is going to be presented
to the Judicial Conference. Of course, ultimately Congress has
the prerogative, after hopefully adequate consultation with the
judiciary, to do whatever it thinks is best for the system as a
whole. It is a complicated issue, and men and women of goodwill
disagree on what would be the best solution or solutions.
Mr. Rogers. I have a solution in mind, and that is to break
it up. It is a mess. Things are a mess out there.
Judge Heyburn. There are a number of people who agree with
you, and then they disagree over precisely how it should be
broken up. I know at last year's Senate hearing Justice Souter
said the 1st Circuit would be glad to take on Hawaii if that
would help solve the problem.
Mr. Mecham. This circuit study was not done by the
judiciary. Although the Chief Justice appointed five members,
it was a report from the commission established by Congress to
report to Congress. So you have already received the report.
Mr. Rogers. You are correct.
Mr. Mecham. And the Judicial Conference may review it, but
ultimately Congress will decide.
Mr. Rogers. Unless the 9th Circuit is quickly able to get
their house in order, we can't afford them. We simply can't
afford them. They are going to have to find another home.
Mr. Serrano.
CENSUS SAMPLING
Mr. Serrano. As I sit here in front of these distinguished
judges, I remind myself of when I fulfilled a dream and played
a judge on TV on Law and Order. I had told the whole world that
I was interested in being an actor all my life, and they called
me in and I read for the part and they said, ``You are fine,
but there is one problem.'' I thought, ``They are going to ask
me to play a corrupt Hispanic judge, something I don't want to
do.'' But they said that this judge was very, very liberal, and
I told them for me that was typecasting. The show has been
played a few times on A&E, so I guess I wasn't that terrible,
but they haven't called me back, so I guess I wasn't that good
either.
I guess that is some way of telling you that I am troubled
by something that I heard, and the tone of what I heard, in
your exchange with the Chairman over the census issue, troubled
because I do, not only on one evening of my life, have
incredible respect for the judiciary at all levels. I led an
early fight in my political career to bring about the
appointment of judges in New York, because I felt that electing
them and submitting them to political clubs is not the proper
thing to do, only, incidentally, to find out later that
electing them was the best way to get black and Hispanic
judges. The system would never appoint them at that time.
But on the census issue, I heard one of you say it had
crossed your mind that the White House was trying to force
people to make decisions on the census. And no one was outraged
when the Chairman in his very dramatic way used the word
``extortion,'' so I thought that maybe I should either caution
or advise as a friend against getting involved up front,
although you have a constitutional right to do it, in a fight
that is more than what some people think it is.
This census fight to some of us is a very, very serious
fight. It is about what the Constitution intended the census
count to be, and it is about what the courts interpret the
Constitution to say. Let me preface by saying that the Supreme
Court didn't make this easier by saying that you can do both,
so maybe it is the judiciary that put us somewhat in this
fight. But for some of us this is a very, very serious issue,
and we don't appreciate people taking sides where you don't
necessarily get the whole picture.
I represent the most undercounted congressional district in
the Nation, and you should know that 28 of the 35 most
undercounted districts in the Nation are represented by African
American Members of Congress or Hispanic Members of Congress,
and therein lies the story. Twenty-eight are represented by
people like me. That also means that the people we represent
are sent fewer Federal dollars for education and housing and
women's issues and caring for children and perhaps the courts.
And so if I may be so outrageous as to make a suggestion,
an educational suggestion to people of your intellectual
height, it is that this issue goes beyond politics. This issue
is at the center of the next struggle in this society between
the haves and the have-nots. An accurate count means more
justice for my district, and justice is what you are all about.
Having said that, I would go as far as to join the Chairman
in seeking a way in which you could be excluded from this
fight, because that is how much I respect what you do and what
you have to do. But in the process of being angry, as I would
be if I found out that this fight prevented me from getting
paid next month, let's be careful that we see the whole
picture, because there are people you will never see who live
or die by that census count. There are people who may only come
before you as criminals if they don't get the right education,
if they don't get that census count, and the district that I
live in in the South Bronx lives or dies by that census count.
I hope that you don't think that I am out of order. In another
place maybe you could rule me out of order.
Judge Heyburn. Not at all, and I hope that nothing that was
said from this table made you think that we want to in any way
inject ourselves into that process. Certainly it is just the
opposite. I think everyone at this table recognizes that it is
a political and policy dispute, a legitimate one that is being
fought out in the traditional way that these things are being
fought out, and we presume that it will be resolved at some
point.
As I suggested, regardless of what anyone else thinks, I
think that no judge wants to be in the middle of it, and no
judge would be intimidated by whatever situation exists. They
will make the correct decision that they believe is correct
under the law. I haven't reviewed the Supreme Court decision,
but certainly if they had an ideological bent they could have
resolved it for one side or the other. I presume that they
reached the decision that they did because they felt that
irrespective of any political consequences, this was the right
decision to make.
We don't want to interject ourselves in it. We have been
very sensitive to, as I indicated in my statement, the
judiciary being drawn into politics in any direct or tangential
way, and we seek to avoid it where at all possible.
I appreciate your comments about getting us out from under
the June 15 cut off because that does cause us some problems.
But personally I understand that this is a fight which we are
not in, and we are, just as other departments of government,
innocent bystanders who are, if you will, effected
tangentially. The State Department may feel the same way. We
accept that, and we hope that we are going to keep on doing our
job and hope that there is going to be no interruption, and
personally I don't anticipate that there will be any
interruption.
Mr. Serrano. Neither do I. Thank you.
Judge Piersol. That was just an aside. Obviously we want
judiciary to be no part of the dispute, and I was only speaking
personally. I am personally concerned about the precedent of
the judiciary being involved in any way in this because we
don't wish to be, other than cases which come to us. That is
the only way in which we would want to be involved in the issue
at all.
Mr. Serrano. Thank you.
Mr. Mecham. Mr. Serrano, since I responded to the question
about pressure, I was very careful not to say which side was
putting on the pressure. My concern was that there was
pressure, I felt, implied in that funding decision, from
whichever side or both, I wasn't sure.
Mr. Serrano. Pressure comes every day to the judiciary, and
that particular issue should not be the one that everybody is
outraged about. On any given day an elected official condemns a
judge who didn't give out enough time to a guy that he wants to
be put away forever. We apply pressure, or try to,
unfortunately on the judiciary. This is just an issue that will
leave a major political blood trail, and as many people as can
save themselves from it should.
DEFENDER SERVICES
Mr. Rogers. In Defender Services, in fiscal year 2000 you
anticipate Defender Services attorneys will represent some 88
percent of all criminal defendants. There is some dispute about
whether or not that percentage has been increasing. Let me ask
you, that is nearly 9 out of 10 criminal defendants. Is there
something wrong in a system where the Federal Government pays
for 9 out of 10 criminal defendants' defense?
Judge Heyburn. Well----
Mr. Rogers. Specifically, does it say that we are missing
situations where the defendant is able to pay and we are not
catching it?
Judge Heyburn. Depending on your point of view, there could
be lots of things wrong with it. That we are indicting indigent
people, certainly there is something wrong if we are paying for
the cost of those who otherwise have the ability to pay. I am
not here to say that has never happened. We do check pretty
thoroughly the financial backgrounds of those who apply for
services of the Federal defender or for a panel attorney, and
that is a reasonably rigorous check.
When we find out even in the middle of a case that it turns
out that someone has assets that we were not aware of, we
require them to get their own attorney. It is not always an
easy process, as you can understand. But it is I think true
that in many respects those who are indicted are those who have
less of the advantages in life for a whole variety of reasons.
Some relate to their criminal background and some relate to----
Mr. Rogers. The question is, can we do more to ensure that
criminal defendants are not fooling us on their assets?
Judge Heyburn. Well, I think we are doing everything that
we can. The other problem, it is not in the overall scheme of
things a big problem, but when the hand of the law comes down
upon those who are indicted, it comes down in many ways, and
sometimes those who actually have the resources to take care of
their own defense find those resources forfeited.
So those folks who would otherwise have resources to pay
for their own defense, in some cases we are funding lawyers for
indigent defendants whose resources we have just maybe not
forfeited but we have seized so that they can no longer use
them. So it is a complex dynamic there, and sometimes these
laws have unintended consequences.
I am not here to of course testify for or against the whole
forfeiture concept, but I know from my own personal experience
that has come into play in a number of cases.
COURT SECURITY
Mr. Rogers. Let me talk about court security, because we
are nearing the noon hour and we have a vote on the floor as
well. On court security you request a $31 million increase.
Judge Heyburn. $21 million in obligations. I'm sorry.
Mr. Rogers. $31 million in appropriations?
Judge Heyburn. That is correct.
Mr. Rogers. And that is for 120 additional contract
security officers?
Judge Heyburn. Yes.
Mr. Rogers. How many of those officers are for new space
versus existing space?
Judge Heyburn. We can provide you later the exact detail. I
believe almost all are for new or renovated space.
Mr. Rogers. For existing facilities, we would like to know
the rationale for the increases since last year, for the second
time the committee fully funded positions at existing
facilities to bring those facilities up to current standards.
Judge Heyburn. You did.
Mr. Rogers. Can you help us out?
Judge Heyburn. We will provide that information to you.
[Clerk's note.--Subsequent to the hearing, the following
information was provided:]
The fiscal year 2000 budget submission requests $3.1
million for 120 new Court Security Officers (CSOs). While the
formula used to determine the staffing levels for a facility
has not changed, the increase in new CSO positions is based on
the opening of new facilities and changing circumstances in
existing facilities requiring additional positions. 26
positions are requested for new facilities opening in fiscal
year 2000. 94 positions are requested for existing facilities
due to changing circumstances.
A variety of factors drive the need for additional
officers. These are:
Expanded hours of coverage--Includes expanded hours for
screening and operations. (14)
Control room credit--To staff control rooms that are
currently unstaffed and/or staff them for an expanded number of
hours. (21)
Increased staffed entrances--Increases in staffed entrances
(i.e. loading docks, garages and handicapped entrances not
previously staffed). (10)
Expansion of space to include additional judges and/or
floors.--Expansion from small to medium facility, or medium to
large facility. This category could also provide additional
credit for roving posts. (13).
Increased Grand jury usage--Additional credits are allowed
for instances where grand juries are active for more than 2
weeks per month. Grand jury usage is based on the number of
days a grand jury is in session. For small and medium
facilities it's 0.5 staffing credit for a minimum of one grand
jury panel meeting twice a week and for large and extra large
it's 1 for a minimum of two or more grand jury panels meeting
more than twice a week. (6).
Change in building status--Additional credit is provided
when a judicial officer begins holding court part time at a
visiting facility. Further, where a judicial officer goes from
holding court part time in a visiting facility to full time in
that same facility, additional CSOs are required as the
building is occupied full time. (24)
Technical errors--Increased requirement due to errors made
in the original formula calculations. (2)
Unallocated postions--Positions will be used for unforeseen
requirements that may occur during the fiscal year.
Historically, changing circumstances have required this type of
flexibility. (4)
Mr. Rogers. On security equipment, this is the first year
of an attempt by the committee to establish an equipment
tracking system, equipment purchases on the basis of life
cycle, and provide a means to monitor what the U.S. Marshals
are doing. All we have to do is get the numbers to match.
Your financial plan and your budget request indicate that
you are spending $27.2 million on equipment and Y2K compliance
in 1999 and you are requesting $22.6 million in fiscal year
2000. Your equipment plan that you submitted to the committee
on March 1st indicates that you are spending $18 million in
1999 and requesting $27.5 in 2000. You are going to have to
help us straighten those numbers out.
Judge Heyburn. We will get you something that hopefully
will reconcile that. I don't know the answer to that particular
question right now.
[Clerk's Note.--Subsequent to the hearing, the following
information was provided:]
For FY 1999, the financial plan indicated that we are
spending $26.6 million, not $27.2 million, for equipment and
Y2K compliance. The equipment plan submitted on March 1
indicated that we are spending $18 million in 1999. The
difference between those two figures is $8.5 million which is
the cost of security systems contracts; this cost was not
included in the March 1 equipment plan.
For FY 2000, you indicated that we are requesting $22.6
million. In fact, that is our requested equipment enhancement
for FY 2000 in addition to a $2 million increase for associated
installation costs, offset by a $15.2 million reduction in non-
recurring costs. The total FY 2000 request is $34.1 million.
That is $6.6 million more than the $27.5 million included in
the March 1 equipment plan. As in 1999, the $6.6 million
difference between the March 1 equipment plan for 2000 and our
2000 budget request is for security systems contracts.
Mr. Rogers. We don't want to mess around with court
security. We want to be sure that we are doing all that we can
do.
Mr. Serrano, any final comments?
Mr. Serrano. Just to echo your last words, what we have to
do for court security and to make sure that everything is fine
there, just have enough support, and let's do the right thing.
ACCOMPLISHMENTS OF JUDGE ZOBEL
Mr. Rogers. Judge Zobel, again we thank you for your
service to your country and to the court system and to this
Committee.
Judge Zobel. Thank you very much, Mr. Chairman.
Mr. Rogers. You have been a joy to be around and be with,
and we have watched you renovating and bringing up to at least
the 19th century----
Judge Zobel. We are well beyond that.
Mr. Rogers. We have a ways to go yet. They say that the
difference between a pat on the back and a kick in the rump is
about 18 inches, so I want to give you a pat on the back, but I
want your successor to feel that there are kicks coming to keep
modernization taking place because it saves us so much money
and it is so much more efficient and it helps the
administration of justice. Thank you for your wonderful
service, and good luck in the future.
To the judges and Mr. Mecham, thank you again for your
splendid work. We will be working with you as time passes to
help you realize your ambitions for the courts, and ours as
well.
Judge Heyburn. Mr. Chairman and Mr. Serrano, thank you very
much.
Mr. Rogers. The Subcommittee is adjourned.
Wednesday, March 3, 1999.
LEGAL SERVICES CORPORATION
WITNESSES
DOUGLAS S. EAKELEY, CHAIRMAN
JOHN N. ERLENBORN, VICE-CHAIRMAN
JOHN McKAY, PRESIDENT
Chairman Rogers Opening Statement
Mr. Rogers. The meeting will come to order. This morning
the Committee will begin our hearings for the fiscal year 2000
appropriations cycle.
We would like to welcome the Chairman of the Board of the
Legal Services Corporation, Douglas Eakeley; the Vice Chairman
of the Board, a former colleague of ours in this body and very
highly respected, John Erlenborn, originally from Illinois,
still from Illinois; and the President of the Corporation, John
McKay. We are pleased to have all of you with us today to
discuss the fiscal 2000 budget request for the Legal Services
Corporation.
LSC is requesting a budget of $340 million for Fiscal 2000,
a 13 percent increase over the amount provided in Fiscal 1999.
This Committee will face the difficult task of doing its part
to implement the balanced budget agreement which is still in
place, while at the same time finding a way to fund a number of
competing and equally important priorities, everything from the
War on Crime, the War on Drugs to the 2000 bicennial census.
So it is going to be another year of tough choices. We will
be looking for ways to maximize scarce resources.
In addition, there are numerous policy issues which we will
face as we continue to debate how we insure that indigent
people have access to our civil legal system. Clearly, this
Committee is well aware of recent actions related to
implementing the reforms adopted by the Congress over the last
three years. We continue to be interested in closely monitoring
how LSC implements and oversees these restrictions.
I would also like to thank both the Members and the
witnesses here for their patience while we have had to modify
our hearing schedule this week due to the full Committee markup
tomorrow. So we will try to accommodate you as best we can.
At this point we will insert your record into--your written
statement into the record. We ask that you then proceed with an
oral summary as briefly as you would like to make it.
[The information follows:]
Mr. Rogers. Before we do that though I would like to
recognize Mr. Serrano for any opening remarks he would like to
make.
Mr. Serrano. Well, thank you, Mr. Chairman. I'd just like
to tell you that I am looking forward to the testimony. I
welcome them here. As a political child of the 1960s and early
1970s it is almost impossible for me not to be aware of the
work that you do and I am looking forward to your suggestions
on ways we can continue to work together.
I thank you, Mr. Chairman.
Opening Statement of the Legal Services Corporation
Mr. Eakeley. Good morning, Mr. Chairman, Members of the
Committee. It is a pleasure to be here again to plead our cause
of access to justice on behalf of all Americans.
This is the 25th year since President Nixon signed the
Legal Services Corporation Act into law in July of 1974 and
this past year we have continued to build on a base of
bipartisan support an institution that we hope will survive and
thrive during the next 25 years.
Some of the results of our work are presented in our budget
request, but they include the third year of implementation of a
new system of competitive grant making. We have now completed
the first year of a new program focused on state planning
designed to maximize the efficient and effective use of federal
funds to be applied for the purposes intended by the Congress.
They include continuing regulatory reform, to streamline our
operations and also to assure that we have a system that is in
compliance with restrictions imposed by the Congress.
We have continued to improve upon our compliance and
monitoring systems with the active assistance of our Inspector
General, again, nothing finished, everything continuing to be
worked on on the theory that it is never, that there is always
room for improvement and I think the past year, we have shown
we have continued to improve under the leadership of John McKay
and his management team.
We have also successfully and vigorously defended the
restrictions imposed by the Congress three years ago in federal
litigation both in Hawaii and in the 9th Circuit and then in
New York City and in the Second Circuit. And we are here today
to request, as the Chairman indicated, a $340 million
appropriation for FY 2000.
That appropriation essentially breaks out into a cost of
living increase of 3 percent for our basic field grants which
would come to about $297 million. And then three new
initiatives, two in the areas of unmet legal needs of children,
and of course, children are the largest single segment of our
poverty population in the United States today and they are our
most vulnerable. Twenty percent of all American children today
live in poverty. Roughly one third of those live in families
with a working parent or parents who are still unable to earn
enough to get above the poverty level, but we seek funding to
increase our ability to serve those children's needs.
We also are back with a renewed request for further
initiatives in the area of aid to victims of domestic violence.
With the encouragement of the Chairman last year, we initiated
a very effective engagement with the Justice Department and I
think that the results of that collaboration continue to be
demonstrated as a number of our grantees have been able to
qualify for grants under the Violence Against Women Act.
Thirdly, we are seeking funding for client self-help and
information technology, both in terms of some hardware
increases as well as funding to help clients help themselves,
both through self-help clinics, through legal education and
through the use of kiosks and other interactive informational
technology.
That in a nutshell is our request. We are seeking nothing
more than a very small cost of living increase for our
management and administration line. No new staffing at any
levels of the Office of Inspector General or the management and
administration.
And with that I will turn the table over to our
distinguished Vice Chair, if I may.
Mr. Erlenborn. I think the Chairman has given a very good
overview of the current situation at the Legal Services
Corporation. Let me repeat what I have said here a couple of
times in the past. First of all, I have served on the board of
the Legal Services Corporation, appointed by President Bush, in
1989 and 1990 and I served as Vice Chair at that time. I was
appointed about three years ago by President Clinton and I have
served now for about three years again as Vice Chairman.
These two periods of service are starkly different. In the
1989 and 1990 time frame about half of the Board was dedicated
to destroying the Corporation and the other half to saving it.
And the President of the Corporation was on the side of those
who wanted to destroy it. They were not successful, but it was
a very trying time to be on the Board where everybody seemed to
be at someone else's throat during that period.
Joining the Board about three years ago, I came before this
Subcommittee about a few months after I joined the Board, maybe
six months or so. One of the observations I made is still true
today and that is you could not tell Democrat from Republican,
conservative from liberal, my sitting in and listening to the
Board conduct its business. We are all working together.
That means also and the Chairman has touched on this that
we are all working to see that the will of Congress is
expressed and the enactment of restrictions is carried out. We
have been very successful in doing that. He mentioned two of
the cases. He did not mention that we were successful totally,
I believe, in one case, and almost totally in the other case
with the use of pro bono counsel, without using a lot of funds
that had been appropriated by the Congress for the Legal
Services Corporation.
I am now going to be heading a Commission, looking at the
issue of what does the limitation on appropriation mean when it
says that the Legal Services lawyers, grantee lawyers, may
represent aliens who are in the United States, who are present
in the United States. It does not say when present. Present
when the cause of action arose, present when they contacted the
attorney, present when the case is tried. This issue has never
been addressed before although this limitation has been in the
law for a number of years.
We have through the Board's action in authorizing the
appointment of the Commission a very distinguished panel of
mostly law professors and in fact, I think only one is not
currently practicing as a professor, either fully or as an
adjunct, as I do at George Washington Law Center, or Georgetown
Law Center.
But these professors have an awfully good background in
immigration law and statutory construction. We are going to
have hearings in North Carolina and California and on the basis
of what we find out as being the real impact of this limitation
language, we will advise hopefully the Corporation how to
interpret this language and in what way.
I have nothing further to say. I am happy to be here. Happy
to have the opportunity to answer whatever questions you might
have.
Mr. Rogers. Thank you.
Mr. Eakeley. Mr. Chairman----
Mr. Rogers. I wanted to introduce----
Mr. Eakeley. But I forgot one thing so let me interrupt at
any event. We were very fortunate after a nationwide search two
years ago to find John McKay, then private attorney in Seattle,
Washington who had Washington, D.C. experience to serve as
President of the Corporation and just last week Mr. McKay and I
signed a contract extending his term of office so that he can
continue with the many reforms and institution building that he
and his management team are about and I am very pleased and
proud to be with both Mr. Erlenborn and Mr. McKay today.
Mr. McKay. Mr. Chairman, good morning, Members of the
Subcommittee. I appreciate very much our Chairman's remarks and
wanted to let the Committee Chair know and all Members here
present that we take our charge very seriously to continue the
mission of the Legal Services Corporation which is to provide
legal services to those in terrible need in this country.
We are not here to tell you that the need has decreased for
our services. We are not here to tell you that we have stopped
leveraging the federal dollars and bringing many more resources
into the lives of low income and disadvantaged people who are
otherwise kept out of the justice system because, in fact, we
have been successful at that in adding state dollars into our
system in bringing nonfederal funds into the system. But we are
here again to tell you, I believe I made this point last year
when I had the privilege of testifying before the Subcommittee,
that the federal investment is a key part of our public/private
partnership that keeps the doors of the courthouse open for low
income and disadvantaged people. We believe in this mission
very, very strongly. Our Board supports us and we are very
pleased that the Congress continues to demonstrate very strong
bipartisan support for the mission of the Legal Services
Corporation.
As our Chairman mentioned, we are in the 25th year of the
Legal Services Corporation beginning in July. We look to the
future with great anticipation. We are proud to be the
guardians of the door of the courthouse for low income and
disadvantaged people and we are here really here before the
Committee asking for the opportunity to earn your trust again
as we have, I think, developed a very strong record of making
sure that we comply with the refocusing the Congress asked us
to undertake beginning in 1995 and 1996. I think our record of
compliance has been very good. We administer a large system
here to keep those courthouse doors open. And in any system you
will have some errors, but I hope that in my relatively brief
tenure, I have demonstrated to the Committee my intention to
make certain that those congressional requirements are met
fully by all of our recipients.
I am here again today to pledge that we will both keep in
mind our mission and the focus that Congress intends us to keep
on our mission.
I appreciate the opportunity very much to be here today and
I know all of us are available to answer any questions.
Thank you, Mr. Chairman.
Mr. Rogers. Thank you, Mr. McKay and Mr. Eakeley. I want to
say at the outset here that we have seen improvement from our
perspective and the operation of LSC over the years that you
have been involved and I do not hear as many complaints as we
once did. Maybe they have grown hoarse, I do not know. But I
think we can say that you are making some substantial progress
of being aware of the problems that the Agency was facing as it
worked at in the countryside. Not to say it is perfect, but I
think we made some real positive progress.
FUNDING FOR DOMESTIC VIOLENCE AND CHILDREN
Now you are asking a $17.5 million new initiative, targeted
primarily at domestic violence, as you indicated.
First off, let me say that this Subcommittee has been as
supportive of anti-domestic violence as anybody in the country,
in fact, more so. It was us that increased funding for domestic
violence programs in the Department of Justice by over 1,000
percent for $26 million in 1995 to $283 million in Fiscal 1999,
$12 million above the previous year. And two years ago, this
Subcommittee created and funded a new program within the
Department of Justice specifically for civil legal needs of
domestic violence victims. That program alone grew from $12
million in Fiscal 1998 to $23 million in the current fiscal
year, a near doubling of that program.
We also cleared LSC grantees so that they can receive and
do receive funding from the Violence Against Women Act,
domestic violence grant programs. In fact, LSC grantees have
received about $7 million since we spoke last here last year
and we had, if you recollect, a discussion about that, about
why in the dickens nobody had applied for it. But since you are
now eligible to receiving funds that we have flooded the
Department of Justice with for those grant programs for
violence against women grants, why do we need a new program
that you are requesting $12.5 million for?
Mr. Eakeley. I will defer to Mr. McKay for a moment. It is
a new initiative, but it is really a chronic constant problem
that is most severely visited upon low income women and Legal
Services attorneys who deal with domestic violence day in and
day out are the legal experts out there in the country doing
this work.
Most or a lot of the grant that the Committee has
appropriated is not available to be taken down. We have been
able to take down some of the direct legal assistance grants, a
significant portion of that, but the request for funding in
this area is intended to supplement and complement the work
that is being done through the Justice Department grants. And I
will let Mr. McKay supplement that, if I may.
DEPARTMENT OF JUSTICE GRANTS
Mr. McKay. Mr. Chairman, we do bear in mind very directly
your comments from a year ago and our management staff have
worked hard with the Department of Justice. I think the numbers
indicate that we had a significant increase in LSC grantees in
1998. Those numbers are not all yet in completely, but we
expect to have received a somewhat significant increase over
recipients in the past. Some of those funds, of course, as the
Justice Department administered them go to other Legal Service
providers. In fact, they go to pro bono programs and work in
concert with shelters, for example. They do not all come to LSC
recipients. But we certainly appreciate the efforts of the
Committee and the Chairman in helping us to access those
following last year's hearing. We will continue to do so.
The truth of it is that all LSC funds go toward this
problem in one way or another. It is a little bit of an
overstatement, but really 60 percent of our efforts in terms of
our case statistics relate to domestic cases in one way or
another, and most of our priorities in our field offices are
set so high that when we handle a domestic case in some place
in that case you find either violence or threat of violence.
That is what it takes these days to get the attention of a
Legal Services lawyer.
What we are hoping to do in this special request is to ask
our field programs to put together new requests, new programs
which we would then have the opportunity to fund. And there are
some very interesting things that are occurring out in the
field, in particular, around technology which we think can be
very, very helpful.
Before I came to the Corporation, I served as a pro tem
judge out in the State of Washington, and I issued many
restraining orders to victims of domestic violence, to women
who have come in without representation. In many cases, Mr.
Chairman, I think that victims of domestic violence are first
looking for information. Our Inspector General, I think, is
doing some tremendous work with consultants, and has led the
way for us in helping to put forward ideas that information
technology can address some of these needs.
So the hope is in this special request in our new budget
that we will encourage ideas coming up from our field which we
can then replicate around the country.
So this is not by any means our sole funding source for
domestic representation. In fact, the effort here is to try and
create new ways, in particular, around information technology.
Mr. Rogers. Sixty percent of your cases have some domestic
violence connection.
Mr. McKay. Yes.
Mr. Rogers. And I would assume that a big portion of those
are violence against women?
Mr. McKay. Yes, that is true.
Mr. Rogers. So of your total cases, what percent would you
say are violence against women?
Mr. McKay. Well, when I give the 60 percent number, we are
talking about representation involving children. We are talking
about----
Mr. Rogers. I asked you about women. How much of the
casework pertians to women?
Mr. McKay. I could not tell you exactly. In most cases, we
are representing families, Mr. Chairman, so we have a woman and
her children. Whether the children have been abused or only the
spouse has been abused----
Mr. Rogers. Where I am coming from is in funding the
Violence Against Women Act in a huge way, this Subcommittee was
the driving engine on that and we did that because there was a
problem, one. But two, we felt there needed to be some place
where it is coordinated from, some headquarters, some place
where we could go to and say why have not you done so and so?
We wanted some discipline in the system. So we went through
DOJ.
And we flood them with money. They got plenty of money. In
fact, they got more money than they can spend. We chewed them
out last year too because they had not spent the money we gave
them. And they still have not.
Nevertheless, there is vast amounts of money laying there,
available for grants to LSC grantees as well as anybody else.
Now, DOJ program requires a comprehensive State plan and
competition within the various grant applicants for providing
those resources. Now am I to take it that you have not been
competing very successfully in those State competitions for
those funds. Is that the problem?
GRANT RECIPIENTS
Mr. McKay. Well, I know we had about 80 of our recipients
receive grants in 1998 and only 16 the year before. We had an
increase in the funds that went to our program.
Maybe another way to look at this, I think clearly we had
an increase in the number of applications, Mr. Chairman, by our
recipients after our discussion last year and the Justice
Department, in fact, awarded more grants to our recipients. But
the numbers, when you look at them, we project in 1998 to be
somewhere around $5.5 million to our recipients.
The money is getting out there, I think, for the Department
of Justice. They are doing a good job. They are not giving all
of their money or even most of their money to our recipients.
I think of it this way. The bread and butter representation
of women who are victims of domestic violence, today continues
to be done by LSC recipients. They either train the pro bono
programs to do that work, or they do it themselves. And so a
significant portion, the point I am trying to make, is a
significant portion of our current appropriation from this
Subcommittee actually goes to representing women who are
victims of domestic violence who often have very complicated
legal issues that go beyond a restraining order. They may need
an order of separation. They may need some issue with regard to
custody. They may need some help with the legal issue regarding
housing and their home.
I think it is helpful for the Subcommittee to think of the
Legal Services recipient as the day to day bread and butter
agency repreesenting women who are victims of domestic
violence.
Mr. Rogers. We do on legal matters.
Mr. McKay. Yes.
Mr. Rogers. But you mention in your testimony at least two
examples where some of this money was used to hire social
workers into those programs. Now I do not have anything against
social workers, but we have already got that going in the
Department of Justice. We wanted you to get all the money you
can for legal representation. That is what your specialty is.
You are not social workers.
And so what I am trying, maybe I hammered at you too hard
last year and got you too enthused because you are going beyond
where I think you ought to go now, in my opinion. So I would
like to see your grantees go after the monies as best you can
and be the legal representator of people in court.
But we have got other programs in DOJ that we are counting
on to do the social work and that end of it.
Mr. McKay. Yes. I completely agree with you, Mr. Chairman.
With respect to the VAWA grants, it is my understanding that we
have now instructed our recipients in the use of the VAWA
grants that are strictly for legal representation.
In most of our recipients, and I think I visited 50 more
offices now, where we have a staff individual who interacts
with clients, they are much more along the lines of a paralegal
who is doing the work more cheaply than a member of the bar can
do in terms of contacting, finding, assessing the current needs
so that the lawyers can do that work.
We are also urging our recipients to get out there and
interact with those agencies so they do not have to be sort of
the one stop shop for low income people. We want them focused
on individual client representation. That is our philosophy.
That is what we should be doing and you are right to mention it
and we will continue to make sure that we stay focused as we
should.
Mr. Rogers. Well, I expect you to keep your grantees in
line too.
Mr. McKay. Yes sir.
Mr. Rogers. I mean you are nice people and they are nice
people, but sometimes they do not like what you say.
Mr. McKay. I think they have heard from me perhaps more
than others in the past and I want to just assure the Chairman
that they will continue to hear from me on these specific
issues and I appreciate your highlighting it for me again.
Mr. Rogers. Well, we have plunked a lot of money into this
Violence Against Women, domestic violence period, but we are
doing it through DOJ. That is where we want it to go. That is
where we want it to be coordinated from. That is where we want
the big picture to be seen. You are a part of that big picture,
but you are not the big picture. Do you hear me? Are we
communicating?
Mr. McKay. We are communicating, Mr. Chairman. I think what
we are trying to say though is that this $17 million supplement
that we seek deals with the complexity of legal issues
affecting children, in particular, as well as women that go
beyond what we can draw down, or grantees can draw down under
the Justice Department programs. And that this would complement
and supplement that work but not be a substitute for a new
program for the Committee to have to launch in competition with
that which you have already done with the Justice Department.
Mr. Rogers. Well, that is what I am afraid of.
Mr. McKay. That is not the intent of this request.
Mr. Rogers. Yes. Well, we can talk further. Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman. I have been listening
to the Chairman and I know where--I think I have a feeling
where he was going with these questions. I respect him. My only
concern is that perhaps some of your initial contact with
people, some of that may look more like social work than it
does like legal services, but in fact, it is part of what you
have to do in order to deal with the issues at hand.
LSC UNMET NEEDS
In addition, it seems to me from the testimony that the
bulk of your increase will go not into domestic violence
against women, but also into unmet needs, which I would like
you to elaborate on, unmet services to children as well as
technology and promoting client self-help.
So I would like you to respond to that and tell me what are
the unmet needs for services to children that we have to
address. And I will go also in the same category as the
Chairman has discussed, needs that are being met or attempted
to be met by someone else.
LSC SERVICES TO CHILDREN
Mr. McKay. Yes, thank you, Mr. Serrano. Let me just say
that to introduce this, to tell you that I think the legal
needs of children are oftentimes very complicated and bound up
in other issues that they face. A child client, if you will, a
Legal Services lawyer often has issues involving criminal
conduct and maybe wrapped up in the juvenile courts. There may
be a question of housing. Many of the children that are
represented have been--are homeless. They have either been
kicked out or they are runaway and so there are issues about
where they are going to live.
Many, many times they involve whether they can continue in
school some place and they are shuffled from agency to agency
and what we are hoping is that by receiving this supplemental
funding that we can begin to address some of those issues.
There is a wonderful program called Team Child, for
example, I think it has gotten terrific reviews, bipartisan
interest in different parts of the country where we actually
work much more closely with prosecutors and with judges on the
criminal side because there is a difficult bridge that is
necessary to cross when you are representing children who do
not present the way other clients present and it requires sort
of interdisciplinary activity to try and protect their legal
rights which is our principal interest, but to keep them from
falling into drug abuse or crime. And that if we can help them
in advancing their legal rights, that we really are going to be
an important player in making sure that they do not end up
someplace else in our system like in jail or again being
shuffled from social service agency to social service agency.
It is somewhat an unfortunate comment on our times, but I
think a true comment on our times that these problems evolve
into legal issues and they evolve into civil legal issues.
We feel that the system has not really been designed in
many cases, including, unfortunately, in a number of our
offices, to address these special needs, and so we are looking
for ways like the Team Child program which is a tremendous
resource to advance those legal rights.
We have, I think, in our budget request submitted a number
of potential ideas that we have at LSC, but we think one of the
strong features of our system is that ideas come to us from the
field which would be the streets or it would be rural America,
places where the kids really are and where they really need our
help. So Team Child is one example, but another is simply to
develop the expertise in some of our offices for the unique
educational issues that face children, homelessness issues,
interrelationship between drug treatment programs, for example.
These are complex issues and they require specialization.
We hope through this budget request to focus on those
needs.
Mr. Serrano. And those needs in many cases, I imagine, or
in some cases, are not related to domestic violence as we know
it, they are separate suffering that a child has, not
necessarily related to that kind of a situation.
Mr. McKay. I think that is correct although I would say in
my experience as a volunteer lawyer which is how I came to be
associated with Legal Services as many private lawyers have, in
many cases although it is not the legal issue that presents to
you, there are--it begins with violence in the home or a
breakdown somehow in the home and violence is just too
prevalent, as you know.
But you are right. It may present as a legal issue in
denial of education which would be unlawful and therefore
require legal assistance. Special education needs: many of
these kids are troubled and eligible for special education.
Health care, disabled kids are often left out of our system and
we are attempting to begin to address those issues and again to
seek the appropriate leveraging with state and private
resources.
COMMISSION ON ALIENS
Mr. Serrano. On another subject you mentioned that there
was a Commission, I think, set up to look at the issue of the
undocumented aliens, am I correct?
Mr. Erlenborn. Not necessarily undocumented. These could be
permanent resident aliens who have a job. They have small
incomes and some legal problems and they may be qualified
clients of the Legal Services program, but the limitations in
the appropriation says that the Legal Services lawyers may
serve these qualified legal resident aliens if they are--when
they--I have forgotten the exact language. When they are
present in the United States.
The issue has been raised that these are not necessarily
all agricultural workers. You take a permanent resident legal
alien who is qualified and has a Legal Services attorney
representing him. If that alien crosses the border into Canada,
takes a week long trip down to Mexico, goes home to some place
in Europe, do they lose their right to be represented by a
Legal Services attorney, is that the intent of that limitation?
It is not clear and that is why we were going to have these two
hearings, one in North Carolina and one in California to find
out what the real impact of this language and its
interpretation would have out there in the real world.
Mr. Serrano. Now that limitation does not exist for
American citizens?
Mr. Erlenborn. That is right.
Mr. Serrano. You could be represented regardless of where
you are.
Mr. Erlenborn. Right.
TECHNOLOGY-BASED DELIVERY MECHANISMS
Mr. Serrano. One last point, we have mentioned quite a few
times here the area of using new technology, but I would like
you to just very briefly elaborate how you would do that, and
would you do it in conjunction with local courts or how would
that work?
Mr. Eakeley. It is a combination of both, but I think
John's probably the best to address that.
Mr. McKay. Yes. We know that Legal Services and those who
do Legal Services work, in general, not just our recipients are
reaching probably one in five of eligible clients with serious
legal needs. Some of those we believe are seeking information.
Some need a referral to a source maybe other than our Legal
Services recipient and some will need direct Legal Services
from one of our attorneys.
We want to take advantage of the information boom that is
out there, this revolution that is sweeping the world, and be
in a position to provide not only information, but also brief
advice that might be able to intervene before someone's problem
becomes so severe as to require them to be in court.
One of the things I think we do very well, but we do not
get much focus on is we advise our clients of their legal
responsibilities, not just enforce their rights and in advising
them of their responsibilities, we often say well, you know,
you have to pay the rent. And we will help you do that. Or we
will tell them what their responsibilities are in terms of
their educational components.
So we advise about responsibilities and not just rights. We
want to get that information out there, so there are--yes, we
want to link up with courthouses who I think are going through
tremendous change today in the way that they make information
available to any citizen, but certainly someone who may be
involved in the court system and we are working closely--this
was what I referred to with our Inspector General working
closely now with our recipient in the State of Georgia, and the
idea is to try and replicate that.
We have a number of programs that are just beginning to
work with 1-800 numbers with the computer technology that will
allow a quick referral to someone with expertise. For example,
a pro bono lawyer. So the people are not falling through the
cracks.
We think we can greatly expand our ability to provide key
and critical legal information where it can be used by people
without having to take them into court or wait until they have
got a subpoena in their hands.
This is exactly what we are hoping to do and in our
request, in our FY 2000 budget we are asking for the
opportunity to create special grants which will allow us to
administer them, encourage replicability so that we can run
these programs elsewhere and then report back to the Congress
on our success.
We think this is a good way to leverage federal dollars and
to get to more of these eligible clients that we have been
missing.
Mr. Erlenborn. Mr. Serrano, I would like to add to that
that there are many different ways that technology can help.
For example, there are quite a few people that have said why
you do not have more pro bono attorneys who are doing this
work? And to a great extent pro bono attorneys are used, but
you have to have an intake point and there is where technology
can be very helpful. You cannot manage pro bono attorneys just
by having a list that you give to a prospective client and say
maybe one of these attorneys can help you. You have to have an
intake point to manage putting the prospective client in touch
with the pro bono attorney who has the capability of
representing them in the problems that they have. That is just
one other use of technology.
Kiosks, where they can get forms, they can fill them out
and represent themselves. There are many different ways that
technology can help to make these dollars, precious dollars
that we get from the Congress go a lot further.
Mr. Serrano. Thank you.
Mr. Rogers. Mr. Latham.
PROGRAM CASELOAD STATISTICS
Mr. Latham. Thank you, Mr. Chairman. Legal Services
officials have used the number of cases produced each year in
testimony, in their reports to Congress, as justification for
receiving the federal funding for the program. Last year, the
fact book to Congress indicating that in 1997 LCS served about
1.9 million cases and closed 1.46 million cases with an
investment of $283 million.
There was also testimony last year that LSC would be able
to increase the total number of resolved cases by 200,000 if
the Congress increased program funding for the fiscal year
1999.
How did the Corporation determine the number of clients
receiving legal assistance, the number of cases closed and the
amount of additional monies that would result in 200,000 case
increase?
Mr. Eakeley. The Corporation has a basic 20-year-plus old
information statistic gathering system called the CSR Report,
which is in the process of being upgraded and expanded, and it
is through the medium of the CSR Report that we get from each
grantee the statistics that we report to the Congress.
Over a year, more than a year ago, we started focusing on
the accuracy and reliability of that information gathering and
reporting function and issued an updated and new handbook
advising grantees on what we expected them to report in the CSR
report. We are also doing a survey to expand the report itself
so that we collect more information from our grantees. And our
Inspector General has been in the process of auditing a number
of grantees to make sure that the information we seek and rely
upon and provide to the Congress is also reliable.
We are in the period of transition now and we are finding
that the older system needed improvement and I think that the
handbook and the revised reports have addressed that particular
need, but what we have not yet done is figured out how to
capture the other information about what grantees do that helps
those in need that do not meet the definition of a case the way
we require them to be reported.
Mr. Latham. How did you get to the number, $1.9 million?
Mr. Eakeley. I think it is--I will let John McKay answer
that.
Mr. McKay. That is strictly a counting of the number of
cases reported by our recipients and they report them to us and
we report them back to the Congress.
What our Chairman has just pointed out is that through an
initial contact through our Inspector General we looked at our
definition of case because there can be some confusion. In
fact, it gets a little surrealistic, actually, as to what a
case is. Some might think a case would be an appearance in
court, but that is never been how we define it.
What we are trying to capture is the service that we
provide eligible clients so that you and others in the Congress
can determine what they are getting for their investment.
We are in the process, based on the Inspector General's
comments of making sure that we are tightening up our reporting
requirements. We do not anticipate a real significant change in
the number of cases we handle which is substantive discussions
or representation with clients. Sometimes a case may be handled
purely on the telephone. And we found in this review that we
did have some confusing instructions for our recipients.
Therefore we issued very recently a new--handbook which
describes to our many recipients how to report cases. And so we
have tightened up those provisions which we thought were vague
and which our Inspector General has begun to report back to us
now that we do have some small errors in how these cases are
reported to us.
We do not expect that number to change dramatically, but
again, we are very committed to making sure that we accurately
report the services provided.
Mr. Latham. Could you explain how the Corporation defines
and uses the term client and case? I think you probably touched
on some of that. A case is basically someone calls up--just
calls on the phone, and that is a case?
What is a client?
Mr. McKay. The client has to be eligible. In other words,
we open a file and we make a determination that the client is
an LSC eligible client and that that person has a matter which
fits within the parameters of what Congress tells us we can
represent.
Once a case is open in one of our programs around the
country, and once a service is provided, it is under our
reporting requirements incumbent on the recipient to eventually
close that file. So what we report to the Congress basically
are case closings, so once we provided a service we determine
that we have concluded that service and report that as a matter
that has been reported on.
Mr. Eakeley. But I think my understanding of this
complicated issue is that the--our definition of case does not
capture a lot of the brief advice and referral services that
grantees do day to day and that is one of the reasons why we
are in the middle of another survey.
Mr. Latham. You are saying if someone calls up, you do not
report that as a case?
Mr. Eakeley. That is my understanding.
Mr. McKay. It should not be reported that way and we have
made that clear in our revised handbook that a telephone call
asking for directions to the courthouse is not a case. But we
are convinced in having looked this matter over----
Mr. Latham. In 1997, were those considered cases in your
request?
Mr. McKay. I would be shocked to find that that occurred in
a significant way, but literally when you have got millions,
when you have a million and a half cases, there are going to be
some errors and I have welcomed the Inspector General's inquiry
in this area. I have supported it out in the field to our
recipients. The Inspector is independent of my office, but I
have--he knows he has my support in terms of doing this work
and the reason is we want to make sure that we report
accurately to the Congress the work that we do.
I just want to emphasize our Chairman's comments. Part of
our review has revealed that we are not asking some of the
right questions of our recipients. They are performing more
work than the categories that we provide allow them to report,
including public education matters where you may have 150
senior citizens and you describe what their legal rights and
responsibilities are in a nursing home and those are not--I
think that is tremendously valuable work which we do not
report.
So we are going to tighten those things up and I will
certainly make sure that the Committee and you, Mr. Latham, are
made aware of our efforts in that regard.
Mr. Latham. Do many clients who are accepted into the local
Legal Services program have more than one case?
Mr. McKay. Yes. Oftentimes, it presents as one case, but
will end up being, well, let me be careful of that. We have one
client. There may be more than one matter that we work on for
that client.
Mr. Latham. As a result, would that not result in an
overstatement of the clients served in the way it is reported?
Mr. McKay. It does and we have had some confusion in our
programs because what we have asked them to do, you may have a
client that comes in, you work on a matter for 8 months. You
conclude the matter, but something that came up during that
time then becomes another case. This happens many times when we
are dealing with kids on education matters, for example. It may
turn out that there is an issue involving violence in the home,
and that may come under our prior definitions more than once.
Mr. Latham. So they would be double counted, basically, or
triple counted?
Mr. McKay. I would not think that is double counting. If
someone has got a----
Mr. Latham. If they are counted as clients, they would be
counted two times.
Mr. McKay. That is possible. That is possible. There has to
be a way to capture the distinction between cases for a client
and I do the same thing in private practice in my own practice.
If I represent a corporation on a particular matter for two
years and a completely different matter arises in the meantime,
I have just handled two cases. I have billed them separately.
They may involve different subject matter and so as far as the
client is concerned, I have performed two services for them.
We will handle it any way the Congress wants us to. We want
to be as accurate as we can, but you can see there is an issue
there between cases and clients. ``Clients'' would probably not
be revealing of the efforts that our offices undertake.
Mr. Latham. Well, I mean, you understand that when you come
before Congress, the way you determine your numbers is
basically that you simply add up the open and closed cases and
if you have duplications of clients, if you are double
counting, the numbers are not accurate then.
Mr. McKay. Absolutely. We do not want to have double
counted cases, but I want to make sure we are not
misunderstanding each other and the problem would be mine and I
want to make sure I am addressing your question.
We do have clients with multiple cases under our guidelines
and those are counted separately and that is why we report
cases and not clients.
Mr. Latham. And you have never questioned the reports from
the local Legal Services grantees as to the quality of their
information, their report to you?
Mr. McKay. Again, that responsibility initially is ours in
terms of making sure that the distinctions are clear to the
recipients and I have indicated to you I do not think we have
been as clear as we should have been. But the enforcement of
that is the responsibility of the Inspector General in making
sure that those programs are reporting accurately. As I have
said, I think the Inspector General has correctly launched a
series of audits out into the field to check the accuracy and I
support that.
LSC STRATEGIC PLAN
Mr. Eakeley. Actually, Mr. Latham, could I just add to
that? The Board of Directors adopted a strategic five year plan
according to the GPRA over a year ago, and part of that
strategic plan included just precisely the point you just asked
about, namely, not only questioning grantees about the accuracy
of what they report to the Corporation, but also establishing
an independent basis for verifying the accuracy.
It was pursuant to that five year plan and the annual
performance plan of the Inspector General that we now have,
that actually set in motion a process that has already
generated a new handbook, new instructions, clarification of
reporting formats and statistics.
Mr. Latham. Are you aware of any specific cases where the
numbers were way off, going into the 1997 submittal?
Mr. Eakeley. We have received verbal reports from our
Inspector General as part of the process that generated a
thoroughly revised new handbook on reporting and also generated
a subsequent staff effort that is now under way to do a survey
and get out to the field.
We have not gotten any audit reports yet though. That is in
the process.
Mr. Latham. Have you reported inaccuracies to Congress like
you are required to?
Mr. Eakeley. My understanding of the audit process is that
the Inspector General does an investigation, opportunity is
given to the program that is being audited to comment on the
audit. Then that is sent to the Corporation's compliance unit
for verification, follow up, enforcement, whatever. And then
we, the Board, get the report and then we provide that to the
Congress.
My understanding is that we are a couple of months away
from receiving any reports from the Corporation management
which means that they, well, let me ask Mr. McKay whether he
has received anything from the IG?
Mr. McKay. We have received one report which would be on
the one program in Northern Virginia which did indicate some
substantial concern in that program about cases reported.
We have oral indications from the Inspector General on some
others as well. This, of course, led to our request on the
management side that we reissue the case reporting handbook. It
has been completely reissued to the field as I have just noted,
I want to note also that of the three principal areas
addressed, by us, one of them was, in fact, to make more clear
when you report separate cases where you have a single client,
separation of time, separation of subject matter, different
attorney working on it, that sort of thing. So we have
clarified that to the field.
I think the key is our response to the Inspector General's
initial findings and they are very, very initial at this point.
I think we have been as aggressive as appropriate.
Mr. Latham. The Virginia case is the only one that you are
aware of that has been reported?
Mr. McKay. Yes, that is the only one that has been
delivered to management. I have been in contact, of course,
with the Inspector General so that we can make sure that we are
very supportive of his efforts out there.
Mr. Latham. Is that correct, is that the only case that you
are aware of is the Virginia case?
Mr. Eakeley. No, there are two different----
Mr. Latham. That you reported?
Mr. Eakeley. I anticipate----
Mr. Latham. That you are aware of.
Mr. Eakeley. No, there are about, I think there are six
audits in process. I think he is done; he has submitted one to
the President. At some point in time this comes to the Congress
through our semi-annual report to you.
It has not gotten--these are audits that are in process and
I think the Northern Virginia one was the first one. There is a
second one, I think, in San Diego and I do not know where the
other three or four are, but these were planned out about a
year and a half ago as part of the annual performance plan of
the Inspector General. We are just getting, or management's
just getting, the results of that and the interactive process
that yields a written report to the Board and then to the
Congress.
But we are in regular--the Inspector General reports on the
process of these reports of these audits in the course of each
one of our board meetings and in between as well.
Mr. Latham. I would like a second round here, Mr. Chairman,
but in the one case were the inaccuracies significantly off?
Mr. Eakeley. Yes, they were enough to be, enough to take
immediate corrective action.
Mr. Latham. Did you report that to Congress?
Mr. McKay. No, we did not.
Mr. Latham. Did the Inspector General report it to
Congress?
Mr. McKay. I think the mechanism for reporting is the semi-
annual report to Congress.
Mr. Latham. I do not think the way the Inspector General
Act is stated that that is the case.
Mr. McKay. Well, I cannot speak for the Inspector General.
INSPECTOR GENERALS' REPORT
Mr. Quatrevaux. I would be happy to answer any questions.
Mr. Rogers. Identify yourself?
Mr. Quatrevaux. I am Inspector General of the Corporation.
My name is Edouard Quatrevaux.
Let me say to you, Mr. Latham, that we conducted these
audits in 1998. We published one report that is final, that
dealt with our grantee in Northern Virginia. We saw a 13
percent overcounting of closed cases there.
We also saw problems with the open cases and other types of
case management problems, basically administration problems.
We will publish next week a final report on another grantee
and this may be the one that you are referring to. There, we
saw that the grantee should have reported under LSC guidelines,
approximately 10,000 cases and they reported 32,000, so a very
significant overstatement.
This is a category, most of that error rate came from
reporting in a category known as referred after legal
assessment. The cases, 14,000 of the cases reported did not
qualify under LSC requirements to be reported as such.
Mr. Eakeley. I am sorry to interrupt. Those are real cases,
but these are the referrals we were talking about before. These
are people with real needs coming in, but the substance of the
engagement was not sufficient to qualify as a case?
Mr. Quatrevaux. That is correct. Under LSC guidelines you
have to have some meaningful contacts and legal assessment and
you have to establish eligibility and that was not done in
these cases. In another 5,000 cases that were reported they
were actually conducted with non-LSC funds and should not have
been reported, in that particular case.
We are aware, to give you some perspective, out of 1.4
million closed cases reported in 1997, only 176,000 were
reported in this category referred after legal assessment. We
are aware of two other situations, one where we have conducted
the audit and we are about to put out a draft for comment where
once again, these kind of contacts that while they consume
resources and may have been necessary to screen and that sort
of thing, did not warrant reporting under LSC guidelines. I do
not have the numbers handy on that, but it is a pretty severe
overstatement.
As to reporting, we are in this audit process. We follow
our standards and we have to finalize those reports before we
can issue them. Next week we will issue one report and then
five more by May. Of course, the regular semi-annual report to
Congress will also report on this, but we will see to it
knowing now the Subcommittee's interest in that, we will make
sure you will get those reports expeditiously.
Mr. Latham. Okay.
Mr. Rogers. Before we move to Mr. Dixon let me ask one
question in this respect, is it to the grantees' financial
benefit that these numbers are higher than true?
Mr. Quatrevaux. No, not to my knowledge.
Mr. Rogers. They get no financial rewards based on the
numbers?
Mr. Quatrevaux. That is correct.
Mr. Eakeley. As I understand it, Mr. Chairman, these are
actual clients in need with legitimate legal problems who
actually are served by the local programs, but should not have
been reported as cases as the Corporation in this earlier
handbook defined those cases to be.
Mr. Rogers. But there is no financial reward for them to
overstate it?
Mr. Eakeley. No, but it is part of the leftovers of this
20-year-old information gathering system that we are taking
pains to improve upon.
Mr. Rogers. Mr. Dixon?
Mr. Dixon. Thank you very much, Mr. Chairman. It is
certainly a pleasure to welcome the three of you gentlemen here
and Mr. Chairman, it makes me feel kind of old because I had
the pleasure of serving with Mr. Erlenborn.
Mr. Erlenborn. It was a long time ago.
Mr. Dixon. That is my point. But it is nice to see that
there is life after Congress. John looks very prosperous and
very happy and it is nice to see all of you, but in particular,
John.
I know that last year Mr. Taylor raised some very important
issues, one that John has touched upon. I think you have got a
panel of distinguished men and women to try to sort out what
the law is as to when a cause of action can be brought by Legal
Services.
PRO BONO ACTIVITY
The other issue that Mr. Taylor pursued last year and one
that has been pursued by this Committee is can the private bar
do more? There have been several articles on that and we have
talked about it in Congress since 1965.
Mr. McKay, I asked you last year if you would be prepared
this year to talk about that. I think in 1965, before you came,
there were 150,000 cases that you could identify that were
served by the private bar. There are many of us that think that
a plateau is reached in pro bono recruitment, but the issue
will come up time and time again.
Although Mr. Taylor is not here, could you offer some
guidance as to whether there are a great deal of law firms or
individuals out there that you have not exhausted that will
take these cases?
Mr. McKay. Thank you, Mr. Dixon. Yes. We are required under
our own regulations to expend 12.5 percent of our funds in each
of our programs for private attorney involvement, for pro bono
work. I think it is a very important part of our responsibility
to leverage federal funds, to bring in investment from the
private sector and it is probably the best way that we do that
and the most effective way is by bringing in pro bono
attorneys.
Many pro bono cases are handled for low income people that
have nothing to do with the Legal Services Corporation. They
are referred out from our office. There may be pro bono
programs for the elderly run by a local bar association. In
many of those cases, trainings occur by Legal Services lawyers
who have the expertise, but they are not directly related. The
12.5 percent number is a funding requirement and it requires a
lot of programs to build the capacity in every single Legal
Services recipient to refer cases out to private attorneys and
not use paid staff.
I come from the private bar with a pro bono history of
doing legal work for low income people and a lot of private
attorneys do that. I am not so sure that it is a plateau, but I
suppose if you look strictly at the numbers in terms of the
private attorneys who handle cases and I am sorry, I do not
have the exact number of cases. I will supplement that to you,
if I may, but we really are seeing a fairly flat number through
Legal Services recipients and I think the reason for that is I
have always said you have to have a place with the lights on
and a place where low income people can find you and those like
churches who often refer people in the community to us and my
law firm was on the 70th floor of a building in Seattle and I
would say in a not very nice joking fashion, it is difficult
for a low income person to find me on the 70th floor. And the
way it really works is they are referred out of other agencies
including Legal Services.
So we are kind of caught between a rock and a hard place. I
think that private lawyers in the organized bar do a tremendous
job in focusing on the needs of low income people. Many of
their needs are highly specialized. When you get to issues
involving disability benefits that may have been improperly
denied someone, that is not something that a lawyer who is
often working for paying clients understands and it needs to be
undertaken by someone with expertise.
So I think there is a reason why we see a plateau, despite
all of the efforts of the bar association, despite the efforts
coming from our recipients who have a requirement to reach out
for pro bono assistance and to leverage federal dollars. We are
at a place where we are using them in the most effective and
the greatest way and yet the need out there continues to be
overwhelming.
So my hope always is that we can do better. I think you are
astute in pointing out that we, in fact, seem to be at a place
in which we are using private attorneys in the best way that we
can to try and encourage new and younger lawyers to do this
work, but they are not going to solve the problem of access to
justice for low income people alone.
Mr. Dixon. Thank you, Mr. McKay. Mr. Inspector General, Mr.
Latham raised an issue and was follow up of Mr. Rogers on the
issue.
One might argue that there is an economic incentive to
overreport cases, in that you may have a larger staff. Although
you are not being paid by the case, perhaps you only need three
attorneys in this particular facility and you have got six or
eight.
I do not know if you looked at that, but did there appear
to be overstaffing of any of these Legal Services?
Mr. Quatrevaux. We have not done any work that would
attempt to get at that issue, but I can tell you that the
grants are established in the appropriation. The size of the
grant is based on the poverty population in the service area,
so there is no correlation between the size of the grant and
the number served or reported as served.
Mr. Dixon. So although, perhaps inaccurately reported,
there is no incentive, either per case or in staffing, as it
relates to the size of the grant. The size of the grant is
determined by the population that meet a certain threshold. Is
that fair?
Mr. Quatrevaux. That is how it is determined. I suppose
there is a theoretical or hypothetical advantage in some future
competition that the case load appear larger.
Mr. Dixon. Did you reach any judgment as to why this
overreporting occurred?
Mr. Quatrevaux. Yes.
Mr. Dixon. What is that?
Mr. Quatrevaux. We have, again, part of it is coming from
reports that have not yet been issued and are not subjected to
our normal quality controls, but it is a variety of sources. I
think the most prevalent is just insufficient attention of
grantee management to the accuracies of these reports.
We have seen frequently that that requirement is just
handed off to an administrative person, that is, a grant
requirement to be satisfied without the kind of management
oversight that would have said, this cannot be right, we need
to go back and check it.
We have seen, as was alluded to earlier, some vagueness in
guidance provided by the Corporation. The Corporation has
revised that guidance in an attempt to clarify it.
We have seen some interesting things like the Corporation,
to its credit, is collecting this data over the internet, which
has lots of savings associated with it. Unfortunately, the
grantees automated case management systems are not connected.
They simply produce an annual report and then someone takes the
output of one automated system and enters approximately 500
elements into the Corporation's reporting mechanism and there,
as we saw in one case, 4,000 cases, some figures were higher,
some figures were lower.
Those are just some of the--as much as you might imagine
with any administrative reporting, the usual kind of excuses or
reasons.
Mr. Dixon. Thank you, Mr. Chairman.
WELFARE REFORM LAWS
Mr. Rogers. Thank you, Mr. Dixon. As we discussed last
year, a group of LSC grantees and outside parties filed suits
challenging the constitutionality of the restrictions that the
Congress faced on LSC funding. Those restrictions, except for
one, were upheld on appeal. The one remaining issue is the
restriction on challenging welfare reform laws which you
indicate in your testimony that you are appealing.
Do you have an idea of when that----
Mr. Eakeley. Actually, petitioned the Second Circuit for
rehearing en banc and the Solicitor General of the United
States has joined in that petition. The actual petition for
cert., if that petition is denied, does not start to run yet
and our General Counsel is here. I am not sure we know when the
Second Circuit will decide the petition for rehearing.
Mr. Rogers. Do you have a general idea?
Mr. McKay. I would think that some time in the spring we
would be facing a question of a cert. petition to the Supreme
Court.
From our standpoint, Mr. Chairman, we intend to pursue the
defense of those restrictions because they are our regulations
and if we are unsuccessful in the rehearing before the Second
Circuit, then we intend to pursue that.
Mr. Rogers. All right, that is what I was driving at.
Prior to the enactment of those restrictions on grantee
activities, LSC had not defunded or severely sanctioned any LSC
grantee in over 15 years. The IG has conducted a number of
audits, but no real sanctions.
Now have you performed any sanctions, administered any
punishments, any grantees since we last spoke?
Mr. McKay. Yes, Mr. Chairman.
Mr. Erlenborn. Mr. Chairman, the President, Mr. McKay, can
certainly answer the last part of your question. Let me address
your premise and that is that no sanctions have been imposed
earlier.
The fact is it was built into the law prevention of
defunding. There was a right for recipient to be refunded and
it was a long complicated process to overcome that presumption
with appeals and so forth. And it was one of the restrictions
enacted by Congress requiring competition that made it possible
for the Corporation to effectively introduce sanctions and
defund. But with that as a preface, I would like to now yield
to our President.
Mr. McKay. Mr. Chairman, yes, and our recipient, our former
recipient in Oakland, Alameda was essentially defunded in a
decision that I made based on a series of errors there,
including, we believe, violations of the LSC regulation. Their
funding was terminated. An interim provider is currently
providing those services.
I also terminated effectively the funding to the North
Carolina farm workers' program. That funding ceased as of the
first of this year for violations of the LSC Act.
You are right. To my knowledge, this had not been done in
over 15 years. We also substantially fined and admonished the
program in South Texas, Texas Rural Legal Assistance, based on
their handling of the case known as Casarez. We have imposed
requirements for their continued receipt of LSC funds,
including being subjected to spot audits by our team led by our
Compliance Director, Mr. Danilo Cardona, who just recently
returned from Texas to indicate that they have imposed the
requirements that I ordered, shortly after becoming President
of the Corporation.
We have also, there are a number of programs in our
competition process who were not refunded. Some of those based
on what I think the Committee would be pleased to hear based on
what we felt were better competitors, higher quality legal
services and in some cases poor performance, and so we were
able to replace the recipient. They are no longer receiving
federal funds. That has occurred in several places, but in
terms, I think your question really went to have we disciplined
people and so yes, I think we send a pretty clear message, in
particular, in the Alameda case and in the North Carolina case
that no violations of LSC regulations will be tolerated by
Corporation.
Mr. Rogers. Now what are you doing to maintain oversight?
INSPECTOR GENERAL'S OVERSIGHT
Mr. McKay. Well, as you know, Mr. Chairman, the structure
of oversight shifted significantly in the expansion of
responsibilities by the Inspector General and the Inspector
General's oversight of independent auditors who must audit
every single recipient.
That, I think, it is fair to say is the principal oversight
responsibility in terms of compliance with congressional
regulations, with financial accountability to recipients,
etcetera. However, we take it as our responsibility on the
management side. My responsibility as the President to make
certain that we expend our funds appropriately, that when we
receive complaints or we receive knowledge of inappropriate
behavior or conduct, that we will respond. If the complaint
involves a violation of the law, if it is a criminal violation
we refer it to the Inspector General. And those, of course,
have been very rare.
If it involves a violation of our regulation and it is a
complaint, then we follow up on it and take appropriate action.
Often, we will send an auditor or team of auditors out to the
field. That is what happened in Alameda. That is what happened
in North Carolina.
We also have undertaken to recover funds and question cost
proceedings which we also did in North Carolina, which we also
did in Texas, effectively fining those programs and questioning
costs. So we very aggressively take on the management side, not
just the direct responsibility of the Inspector General, but on
the management side, to make certain that we fulfill our
responsibility in assuring compliance.
Mr. Rogers. I think it is been the idea of the Subcommittee
that for all those years, once you became a grantee, regardless
of what you did, you would be refunded and that breeds
sloppiness, to say the least. So now that those grantees know
they have got to compete the next time, it will force them
hopefully to do a better job now in anticipation of trying to
get refunded. Is that the general scope within which we are
operating?
Mr. McKay. Absolutely. And we also have more leeway now to,
I think, as Mr. Erlenborn pointed out, within competition to
deal with programs who we think have exercised poor judgment or
violated our regulations or the Act.
It does give us, and it gives me as the manager of this
network, much more opportunity to let people know that if they
violate, there will be a response. I want to assure you that
our actions in Alameda, in North Carolina and in Texas have
been very well publicized by us and once they were taken, our
recipients, I think it is fair to say, sat up and took a lot of
notice beginning with Texas, continuing with Alameda and North
Carolina. I take every opportunity to inform programs that we--
as I said in my initial remarks, we are completely dedicated to
our mission of keeping the courthouse door open to low income
people and we are on fire to do that. It is our job, but we
also take very seriously our responsibility in making sure they
comply with the will of the Congress and the way they provide
those Legal Services. I think they know that I am committed to
that.
Mr. Rogers. Let me talk briefly with you on the IOLTA
funds, LSC grantees receive almost 40 percent of their total
funds from nonfederal services, the largest source, nonfederal
source being the States' interest on lawyer trust account
programs, which the Supreme Court has now said those funds are
the private property of clients and may not be used for the
purposes for which we have been using them and they sent the
case back to the Texas lower court for a hearing on whether or
not the State has quote taken end quote private property.
What do you think?
Mr. McKay. Well, if I may, Mr. Chairman, we continue to
view this as a tremendous threat to the viability of our
programs and our ability to provide legal services.
As you correctly point out, we are a private/public
partnership and this is another source of funding that LSC
recipients have utilized. Again, they cannot expand those funds
in any other way than Congress has indicated they must. In
other words, even if the funds came from a congressional
appropriation, they could not spend them on a non-LSC
authorized event. But they are a very important source of
funding. It varies in different programs, but they are very,
very significant. I think it points up the importance of the
federal investment in this system. Most of our programs provide
basic legal services, some more successfully than others in the
sense that they are able to reach those who need it through a
combination of funding sources, the congressional
appropriation, in many States, a State funding share, through
United Way contributions and other private sources and IOLTA.
And we know that if we lose IOLTA, we are going to be in
substantial trouble.
My understanding of the time frame involved now that this
has been referred, that we are still a year or two away from
this matter coming back to the Supreme Court and it will have
to come back to the Supreme Court, depending on what the
District Court in Texas does. So the United States Supreme
Court did not throw IOLTA out in the sense that we are not
receiving any funds. In fact, our recipients received a slight
increase last year.
So we are watching it very carefully and I think from our
standpoint, as the agency responsible for the careful
marshalling of federal funds in this system, that we know that
the burden very likely will fall even greater on us.
Mr. Rogers. Could not the Supreme Court rule that, in fact,
the State has taken private property, given it to Legal
Services grantees, could they not rule, the Supreme Court, that
you have got to pay that back for the last several years,
however long you have been taking it?
Mr. McKay. You are sort of outside my--I suppose the United
States Supreme Court could order just about anything. My
understanding is that that is not perceived to be a risk by the
lawyers who studied this very carefully. That we are really
talking about a going forward issue here.
Mr. Rogers. Well, we are talking about a substantial chunk
in some States. Kentucky is not a big deal. It is 5 percent of
the grantees of monies, but in some States it is upwards of 40
percent IOLTA funds of the total budget. So we are talking a
pretty good chunk in some States.
Are some of those--are you aware that some States are
trying to replace the IOLTA funding as a result of the Supreme
Court challenge?
Mr. McKay. No, that has not yet occurred in any States to
my--I understand that there are one or two States that for a
period of time stopped paying out IOLTA out of the concern that
that might be the decision, but I believe that every State that
has an IOLTA program--and I think that is every State, is
continuing to pay out IOLTA funds. So I know there was some
consideration, Mr. Chairman, but I think most, in fact, every
State is convinced that that is not a significant risk and the
two that considered it a risk have now changed that viewpoint.
In other words, it will be a going forward problem and not a
past problem.
Mr. Rogers. Well, given that the States created the IOLTA
program, it is a State problem. You are not saying it is our
problem, right?
Mr. McKay. Again, I think our problem will be the pressure
it will put back on us if we lose it. I mean we will have
substantial impact and we are very hopeful that that is not the
final result in the United States Supreme Court, that we would
lose that funding.
Mr. Serrano.
Poor Performance of Grantees
Mr. Serrano. Thank you, Mr. Chairman. I am not a lawyer,
but you spoke about grantees who had committed illegal acts. I
probably would look at that and determine that they were pretty
illegal too if they are blatant. But you also spoke about poor
performance. Without getting into specifics, if you can, about
any particular group, tell us what poor performance is? I mean
it seems to me that with the case load and so many cases,
somebody can say poor performance is you have not taken care of
my file yet, similar to what happens in our offices, when
people come to us and say I went to your office and they did
not take care of me. I say what do you mean? They threw you
out? They say no. They did not solve my problem. I say well,
they took care of you. They did not solve your problem. It is a
different issue altogether.
Anything you can tell us about poor performance?
Mr. McKay. I have fielded and our staff have fielded a
number of those complaints directly at our office in Washington
and the complaint is you people are no good, you would not help
me. And the real answer is we do not have the resources to help
everyone, even those who are eligible for Legal Services.
I do not consider that to be poor performance. I prefer
not, and I hope you will not ask me, to single out any
particular program.
Mr. Serrano. No, I will not.
Mr. McKay. I think that one of the benefits of competition
has been that we are able to in some cases select a provider
who simply does a better job. I mean they have better training.
They have better standards. They have better technology. They
simply serve their clients better in our judgment. And that is
one of our responsibilities. We administer a grant system. We
believe it is our responsibility to seek the highest quality,
most efficient use of our funding and so we are out in the
field, if you will, we are out across the country trying to
encourage programs in different geographic areas to do a better
job. And one of the ways that we are able to do that is to say
if you do not do a better job, we will award the grant to
someone else in your area to do that work. And that is what we
mean.
In some of those instances, under our competition
regulation, we are, where we have two live competitors, for
example, we perform assessments. And in some of those places we
found that in relation to the competitor, the performance of
the current recipient has been poor.
I think it is relative. It is poor in relation to the new
competitor. But I think that is a positive comment on the
system of competition. That is what I meant by poor
performance.
Mr. Serrano. So we are not talking about you being able,
although in same cases I am sure you do, to look at someone in
a vaccum and say I would not want to be represented by this
group or they are not doing what I think they should be doing.
Mr. McKay. I am completely unaware of a situation where
that is the case. Where we can match a lawyer up with, for
example, a woman who is not safe in her home or her kids are
unsafe in their home, she has got a tremendous advantage over
the pro se individual person with no lawyer who shows up in
court, no question about it.
Mr. Serrano. Okay. One last point, there is a rumor
floating around, and I know on this Committee we are not
dealing with rumors, Mr. Chairman, but there is a rumor
floating around that the Senate may decide to fool around with
$13 million for fiscal year 1999 from your Corporation as an
offset to the supplemental for Mitch. More than just saying oh,
that would be devastating, do you have an idea of how it would
impact immediately if that was the case?
Mr. McKay. Oh yes. I think that you would see, once we
received our FY 1999 appropriations, our recipients hired
staff, made a decision to keep an office open, made a
determination as to what priorities that office will undertake
which are established by local boards at the local level and
they did it based on the assumption that the FY 99 budget was
the FY 99 budget. And every dollar in that, if it is $13
million and I have not heard the specifics of the rumor, but if
there were a rescission, if there were a take back of the funds
from 1999, you would see staff layoffs. And of course, I would
not know exactly what those are, but you would certainly see
staff layoffs and you would see office closings where we have
managed to get doors opened and lights turned back on again.
I just returned from Alaska where an office was opened in
Nome, Alaska, previously for a geographic area covering
thousands of square miles. A lawyer had to come from Fairbanks
by plane to serve the Inuit peoples there who were low income
and they had not seen a Legal Services lawyer up there in four
years. And I spoke with clients there and the difference of
having that place open is going to make a huge--that is the
office, figuratively, but I think we are at literally in that
case, that is the office that would be closed.
Mr. Serrano. That is Fairbanks and Nome?
Mr. McKay. Yes, Fairbanks to Nome.
Mr. Serrano. I used to make that trip.
Mr. McKay. You know what I am talking about then because it
is--I will bet you did not stop in Rose Hill which is the third
airport going up a hill like this. I did that. That is tough.
Mr. Serrano. Yes. Mr. Chairman, I have no further
questions. I just want to tell you, in my initial comments last
week I remarked that I would be leaning to my left here to Mr.
Mollohan and Mr. Dixon, and in 30 seconds Alan has explained
IOLTA to me, the case. Previously I thought it was something
that is going to give us fat-free cookies or something. And in
30 seconds Alan explained it. Already, I appreciate his
assistance.
Accuracy of Client Case Data
Mr. Rogers. Well, he is a good man. Mr. Latham?
Mr. Latham. Thank you, Mr. Chairman. When I asked earlier
about being aware of any problems with the accuracy of the
client case data, you talked about the Virginia case. I would
just like to know, are you saying that the Corporation had
never received audit briefings on the results of case report
reviews from Northern Virginia, the Houston programs in 1998,
the San Diego program in August and November of 1998, the Miami
program of 1998, in 1998. In addition, the July briefing, the
Inspector General and his staff informed the Corporation
management that there were serious problems with client and
case statistics provided by the Florida Rural, and San
Francisco programs. Are you saying that did not happen? Are you
aware of that?
Mr. Eakeley. No, the Board has received periodic briefings
by both the Inspector General and management as to the progress
of these various audits and the corrective actions being taken
by management in the form and particular of this new CSR
Handbook and the tight reporting regulations.
We have only gotten one audit report so far, but this is an
on-going process and my understanding from the Board level is
that this is an interactive process between management and the
IG that has been on-going and working the way it is supposed to
work for the past six to nine months.
Mr. Latham. I mean my specific question was what are you
aware of or what information have you got, and you said you
talked about the Virginia case and that is it. And I just cited
six instances here where you have been informed of real
problems and cases that you did not mention. I would like to
know why?
Mr. Eakeley. Mr. Latham, let me--I said that I was aware of
six audits in process, only one of which had been completed
which was Northern Virginia.
Mr. Latham. Can you discuss what the problems were and the
magnitude of the problems that you were briefed on?
Mr. Eakeley. Just there seemed to be problems in these
areas that needed (a) to be further audited, and (b) that
corrective action should be taken while awaiting the final
audits.
Mr. Latham. Can you give us any kind of numbers as to the
magnitude of the problem, on those six cases?
Mr. Eakeley. My understanding is that as a result of the
tightened reporting requirements imposed by the new CSR
Handbook, the new reporting requirements, we will be looking at
approximately 5 percent reduction in case load reports.
Mr. Latham. And you are saying that that is all that you
were ever told that may be inaccurate?
Mr. Eakeley. Overall, that will be a correction of about 5
percent in the however many hundreds of grantees we have. But
no doubt, this Northern Virginia program had serious problems
with numbers of cases reported closed. So too, in San Diego.
Mr. Erlenborn. If I might address your original question,
my understanding is that we have one draft report from Northern
Virginia. We have had one oral briefing about San Diego. That
is the extent of what the Board has had.
Now the question is not what would we do with an oral
briefing of San Diego, for instance, why has not that come to
the Subcommittee. There is a process that is followed. After
the oral, oral briefing, the audit is concluded. The draft
report is produced. That will be given to management. It will
also be given to the program that is being audited and they
have an opportunity to respond. And then when the final report
comes out, that goes to management.
We certainly will know on the Board as well. But as far as
I know, it is not our function nor has it been our process to
send reports up here as to oral briefings on audits that are
underway.
Mr. Latham. If I may, is it not the responsibility of the
Inspector General to report to Congress?
Mr. Erlenborn. He does with semi-annual reports and he
could answer better than I.
Mr. Latham. This was not reported to Congress.
Mr. Erlenborn. What is that?
Mr. Latham. This was not reported to Congress as required
by the Inspector General Act.
Mr. Erlenborn. I will have to ask the Inspector General to
address that.
Mr. Latham. All right.
Mr. Quatrevaux. First of all, we do not typically report on
incomplete projects and until an audit report is issued, is
final, it is an incomplete product.
We have because of what we saw, briefed LSC management as
the audits progressed on what we were finding. We cautioned
that these were draft, that our findings still had to be
staffed with the grantees that we audited, get their comments
and then issue the reports.
As far as the semi-annual report to Congress, the last
report period closed on the 30th of September 1998 and none of
those audits were finalized. However, I believe we did make
mention and I may be wrong, but I thought we had made mention
of the fact that we had initiated these audits. But it is
simply premature and I am even loath to discuss draft findings
with the Board of Directors simply because they are draft and I
do not want to make the mistake and that is what the Government
auditing standards are about, to insure that what we report is
indeed accurate.
Mr. Latham. Let me just say you are aware of the Inspector
General Act, to keep the head of the establishment and the
Congress fully informed, fully and currently informed and also
to prepare semi-annual reports summarizing the activities of
the office during the immediate six month period before that.
The Chairman is also very well aware of this, that we were
basing the appropriation at that time on the information we
were given as being valid. Maybe you can clarify, since you
were reported to, was it not a fact that the staff from the
Inspector General reported that in the six programs, there were
149,000 open and closed cases to the Corporation in 1997
specifically and that nearly two-thirds of those were deemed to
be invalid.
Were you aware of that?
Mr. Eakeley. That is not accurate. I am just saying that I
have not seen some of these draft reports which apparently make
up the total here.
Mr. Latham. You do not think that would be significant?
Mr. Eakeley. Well, it would be, but I was not informed----
Mr. Latham. If you were informed?
Mr. Eakeley. I am telling you, I was not----
Mr. McKay. You have the Inspector General here, Mr. Latham,
who has indicated to you he did not inform us of that number
because his audits are not completed.
If I may----
Mr. Latham. The briefings that you had in July of last year
and August and November, you never were briefed and told of up
to two-thirds of the cases being misreported
Mr. McKay. No, I do not believe that is right. It was maybe
50 percent, anywhere from----
I was advised by the Inspector General of his concern, and
I agreed with him, at that time did not have an audit, which I
think he appropriately cautioned. He has only completed one. We
have received it. I take the one audit he has very seriously,
which is why we reissued our CSR guidelines, redrafted them to
try and make sure, get out in front of this issue. It is a very
important one.
We created a new unit within our office to work directly
with our programs to try and make sure that our data was
accurate on a going forward basis. So I have been alerted by
the Inspector General of his impression that there are issues
regarding accuracy of cases. But, again, all we can do is
respond to the reports of the Inspector General, and we have
one out of 262 in our hands.
Mr. Quatrevaux. Let me also say that we met with
management. I presume you are speaking--we have periodic
meetings with management--my office, my leadership, with
management. And to the best of my knowledge, we did not cover
with them some of those audits, one you mentioned in Houston,
for example, with them.
It may be that an individual auditor doing the work
discussed it with an action officer in the corporation's
management team. But no, officially, as part of our activities,
no, we have made no reports. We provided no totals of that
type. And, in fact, I would welcome the opportunity to review
that information and see how it compares with the information
that we have and get back to you.
Mr. Latham. And with the briefings you had, as far as the
six programs with the inaccurate '97 statistics, did you ask
anybody to correct those figures?
Mr. Eakeley. I am not--I do not recall briefings on all six
of the audits in process. Let me get--Mr. Erlenborn, as Vice
Chairman of the Corporation, is also head of the liaison with
the Office of Inspector General.
But I do not recall--from the board perspective, Mr.
Latham, we were--first, we reinforced the idea that both Mr.
McKay and Mr. Quatrevaux were suggesting that we look at the
accuracy of the case statistic reporting and look at it
carefully.
Secondly, when the first verbal reports started coming back
of what Mr. Quatrevaux's office was finding, we supported this
change in the case reporting, case statistic reporting handbook
and process to correct what was coming up without waiting for
the final audits. And my understanding of the audit process is
that the grantee itself reacts to, or is given an opportunity
to respond to the audit before it gets to management.
So it does not come up to the board for me to go back to.
The way I see it, the board is either--it goes from the OIG to
management, and management either reacts in a way that the
Inspector General approves and the matter is resolved, or it
comes to the board as an unresolved matter. We have no
unresolved matters, as I know of, in any of these case
reporting audits. And as I understood it, the next report to
the Congress, if, and when we got a final audit, would contain
those audit reports.
Mr. Latham. My question was: did the corporation ever ask
any of these programs to correct their figures, that you were
reported and informed that there were some real problems with?
Mr. McKay. My only hesitation is whether we have informed
the North Virginia program, which is the only one we can
specifically follow up on. We have issued a number of
advisories to all of our programs alerting them to this issue,
and asking them to go back and look at their numbers and make
sure that they are accurate based on the new guidelines.
So, again, we are trying to stay in front of these audits.
We will have an audit follow up process that is established
with regard to North Virginia. And then when he gets us the
other audits, we will follow up on them.
So I think that the Inspector General would agree that we
are very aggressively responding to this issue, and I do not
think it is--I think it is falling into a problem here when we
talk about responding to specific information. We may have an
advisory from the Inspector General, but we have no audit
report to follow up on until he gives us one.
Therefore, our response to you, Mr. Latham, is that we
are--our response has been system-wide. We are trying to solve
any problems that are resulting in accurate audits. From the
management side, we think that the end result is going to be a
fairly modest decrease in the number of cases that we report to
you, not that we did not provide services but that cases, as we
defined it, were slightly overreported. That is how we think it
is going to work out, but we await the audits.
Mr. Latham. Are you aware--you say slightly overreported.
Florida Rural reduced its reported case number voluntarily by
over 39,000 cases. The San Diego and San Francisco reduced
their reported numbers voluntarily by over 34,000 cases.
Mr. McKay. Right.
Mr. Latham. And you are saying this is a minor
overstatement?
Mr. McKay. Well, they are--
Mr. Latham. Those are two cases, and we are at about 75,000
out of, what, 1.9 million cases. Those are just two of the--how
many, 260 some grantees, right?
Mr. McKay. Well, as I said, when we became aware of this as
an issue, without the detail of the audits, we advised our
programs to go back and look, and these programs are responding
to that advisory. That does not--I do not think----
Mr. Latham. They were never asked to change or to revise
their numbers, though. I mean, that is your testimony?
Mr. Quatrevaux. Mr. Latham, I think what you are seeing is
the deterrent effect associated with the knowledge that we are
conducting these audits.
Mr. Latham. No, this is revising '97 numbers. These are
numbers that we based your appropriation on with bad
information at that time. And there is very reliable
information that says that the board was aware of it,
management was aware that these numbers were cooked, and that
we based the appropriation on it. And it is outrageous, as far
as I am concerned.
I mean, there are 263 programs, and we have two cases here
where there are voluntarily about 75,000 bogus cases. And you
were aware of it, and you have never informed us of this at
all. Is that correct?
Mr. Quatrevaux. We have----
Mr. Latham. Have you ever informed Congress of this?
Mr. Quatrevaux. No, because I am not supposed to under
government auditing standards.
Mr. Latham. On what basis do you say that?
Mr. Quatrevaux. We have to staff that report with the
people who have been audited.
Mr. Latham. Are you aware of the Inspector General Act at
all?
Mr. Quatrevaux. I am quite familiar with it.
Mr. Latham. That you are to keep management and Congress
currently informed and fully informed of what is going on?
Mr. Quatrevaux. I believe I have a great track record in
that regard.
Mr. Erlenborn. And accurately informed. And that is why
they have standards. That is why they have audit standards.
Mr. Latham. And would not the fact that there were two
programs where they have voluntarily changed their numbers
dramatically, if 75 percent of cases were bogus, would that not
be accurate, knowing that those numbers were changed by the
local organization? Would that not be, in fact----
Mr. Erlenborn. It might. I think the accuracy is based upon
the auditing standards, government auditing standards, and the
GAO standards, which are being followed by the Inspector
General. And to release individual changes in numbers, on a
piece-by-piece basis, just dribbling them out, I do not think
is going to serve anyone very well at all.
Mr. Eakeley. And I do not think the board has ever
intentionally misinformed the Congress or saw a statistical
reporting fluke and tried to pump up numbers so that we could
get more money out of the Congress. From our perspective, we
are trying to improve the system and the information that we--
--
Mr. Latham. Then, you are not being--someone is not
informing you, then, of what is going on.
Mr. Erlenborn. They are in the regular order of business.
Mr. Latham. The regular order, under the Act, would say
that the report should state to you and to Congress what is
going on in activities, and accurately report that and
currently report that.
Mr. Erlenborn. Right.
Mr. Latham. As we were going through the process last year
appropriating dollars, in fact, that did not happen.
Mr. Eakeley. Well, may I--I do not think--I learned a long
time ago that it is not--I do not mean to even suggest an
argument here. We are not disagreeing with you. To the extent
that these audits show that the information that was reported
as inaccurate, they will be revealed in those audits, and those
audits will be conveyed to the Congress in our semiannual
report.
Mr. Quatrevaux. It was my decision to commence these
audits, and no one else's.
Mr. Eakeley. No, but we approved--I mean, we approved it as
part of the strategic plan.
Mr. Quatrevaux. Well----
COMMUNICATIONS WITH CONGRESS
Mr. Latham. Why were we not informed? I would really like
to know. As we are in the process of appropriating dollars, and
we are seeing up to two-thirds of the cases--I do not even know
how many nationwide are bogus or cases that are double
reported, misrepresenting contacts, referrals? I mean, it is
hard to believe that we can appropriate dollars in an honest
way knowing that the information is not valid that we were
given.
As you know, Mr. Chairman, we are going through the process
and trying to find the dollars available.
At the time the questions about the client, the
unreliability of the client data, was not forthcoming to
Congress, was there ever any dispute between the board and
Inspector General as far as his performance appraisal? Was
there ever any concern in terms of performance appraisals, the
board or the Inspector General?
Mr. Eakeley. Well, we had a--not this year, last year, we
had a disagreement about communications policy.
Mr. Latham. About communicating with Congress?
Mr. Eakeley. Yes. And Mr. Erlenborn took the lead on that.
Mr. Erlenborn. Correct.
Mr. Latham. What raised those concerns, if you are now
saying that communication was there? Why was that an issue?
Mr. Erlenborn. Why is it an issue? Because there were a
number of times that the board and the Inspector General
disagreed, that wound up with letters going to the Congress.
The matter went to the General Accounting Office at the request
of House committee staff, and the General Accounting Office
helped us conclude that we do not need to dispute the
communication policy. We are in tune now.
I chaired the Performance Reviews Committee this year, and
we gave Mr. Quatrevaux an unqualified pass on each one of the
items in the review. Last year we had one qualified pass. He
was passed in every one of the categories, except one was
qualified because of this dispute we had as to communications.
And let me add, by the way, that there was never any
question of restraining Mr. Quatrevaux from notifying the
Congress or being forthcoming to the Congress with any question
they had relative to the Corporation.
Mr. Quatrevaux. I might add that the GAO told me that I am
the most independent IG that they have encountered.
Mr. Latham. Obviously. And I am going to stop, Mr.
Chairman. But to have any confidence in these numbers here is a
real stretch, and I think we have real concerns, and we have
got to look into this further. So thank you very much.
Thank you, Mr. Chairman.
Mr. Rogers. Thank you, gentlemen, for your appearance here.
Mr. Latham has raised a legitimate concern that we have. And I
think it needs not to be said, but I will say it anyway, we
want accurate information, and we want you to report to us any
discrepancies that are there.
Rest assured, we will find it out, you know, one way or the
other. And I know you want to be truthful in representing to
the Congress, and we want you to be truthful, and we want to be
truthful with you.
We do make our judgment based on the volume of the load
that is represented to us, and so it is important that we know
what volume you are having to deal with on an accurate,
objective basis. And we look forward to the IG's reports, and
yours as well.
You may want to put an asterisk on the instructions you are
sending out to the grantees about sending accurate information,
an asterisk that says, ``The Committee would love to find
someone who is misrepresenting facts to Congress.'' And we
would. We would like--if there is somebody doing that, I would
like nothing better than to bust them. Whoever it is, your
agency or the Justice Department, or the Supreme Court, does
not matter--if they are misrepresenting, they are going to pay.
Thank you all for your testimony, and we look forward to
seeing you again soon.
Mr. Eakeley. Thank you, Mr. Chairman.
Mr. Rogers. The Committee is adjourned.
Thursday, March 25, 1999.
U.S. SMALL BUSINESS ADMINISTRATION
WITNESSES
AIDA ALVAREZ, ADMINISTRATOR
JOHN L. GRAY, ASSOCIATE DEPUTY ADMINISTRATOR FOR CAPITAL ACCESS
GREGORY A. WALTER, DEPUTY CHIEF FINANCIAL OFFICER
BERNARD KULIK, ASSOCIATE ADMINISTRATOR FOR DISASTER ASSISTANCE
Opening Statement of Chairman Rogers
Mr. Rogers. We are pleased to welcome to the Subcommittee
today the Administrator of the Small Business Administration,
Aida Alvarez. The fiscal year 2000 budget request for SBA
totals $762 million, an increase of $43 million from the 1999
level. The administration is also requesting an additional $233
million in emergency appropriations to support the fiscal year
2000 Disaster Loan Program. We will want to hear today about
how SBA is improving its lending and other programs to support
and assist the Nation's small businesses in a climate of
limited resources. We would like to know what programs and
administrative efficiencies are being achieved and what you see
as the major opportunities and challenges facing SBA in the
coming year.
So shortly we will entertain your opening statement.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
I have no formal opening statement; I'll just do something
that embarrasses the heck out of the Administrator all the
time, and that is just to tell you how proud I am that she is
here today, and that I confess to the fact that she is a friend
for a thousand years, and I confess to the fact that in my
community we have always led a fight to try to get some members
of our community in important positions in the government of
this country, and she is one of those people we are very, very
proud of.
Now I will completely embarrass her by telling you that
once upon a time, before she became a much better human being,
she was a journalist.
Ms. Alvarez. Don't hold it against me.
Mr. Serrano. I had been interviewed some 20-something years
ago by a few people for the Spanish language newspaper, but
never in English. It was a big deal for me to be interviewed by
an English newspaper, and they sent a cub Puerto Rican reporter
to interview me.
Ms. Alvarez. Just in case you had a language problem.
Mr. Serrano. And the big picture that I have in my
scrapbook, Mr. Chairman, is Ms. Alvarez and me pointing at a
roof, a ceiling that was falling apart in a public housing
project, and that is how this career began. And she quickly
learned that the reporter wasn't supposed to be in the picture.
I welcome you here, and I join the chairman in his welcome.
I look forward to your testimony, and now that I have
embarrassed you, I apologize.
Mr. Rogers. We are pleased to have you here, and we will
make your written statement a part of the record.
[The statement of Ms. Alvarez follows:]
Opening Statement of the Small Business Administration
Ms. Alvarez. Thank you, Mr. Chairman. Thank you,
Congressman Serrano, and all the folks here today.
I appreciate the opportunity to testify about the SBA's
budget for the year 2000 which, as the chairman said, is a
budget that in total requests $994.5 million, and, which I
believe any budget should be, is a blueprint for the future,
for the future success of small businesses in the 21st century.
It is a modest budget, and requests nearly level funding
for the current programs when you take into consideration that
a significant part of the increase is the lack of carryover
funding available in previous years--carryovers due primarily
to fluctuations in the demand for disaster loans and for the
7(a) loan program. Even so, it is one that will offer
unprecedented levels of credit and capital to small businesses.
We are requesting $10.5 billion for the 7(a) program, up
from $10 billion; $3.5 billion for the 504 program, and $2.4
billion for the SBIC program, which is an increase of $1
billion in program level. This also will enable us to carry out
a number of statutorily mandated programs, including $9 million
to support an expanded Women's Business Center network, and $4
million for the HUBZone program, which we just kicked off this
week, and we are very proud of that.
The budget also contains modest requests to carry out the
New Markets initiative, which is an initiative that we have
been working on for some time, focusing on filling the critical
gaps that exist for smaller sized loans, smaller amounts of
equity investments, and much needed technical assistance for
newer and smaller businesses. This will be very helpful to
rural businesses, to inner city minority-owned businesses and
women-owned businesses, the start-ups.
This is, I believe, also a sound and fiscally prudent
budget. We will respond in more detail to the chairman's
inquiries about efficiencies, but this budget continues the
trend towards lower credit subsidy rates, which of course
allows us to extend credit to small businesses at a lower cost
to the taxpayer.
As of today, since the beginning of the Clinton
Administration, we have reduced the number of employees at the
SBA by about 18 percent, and the budget that we are proposing
for the year 2000 would further reduce our operating budget by
an additional $10 million. With significantly fewer employees,
we are actually doing a lot more. We have delegated much
greater authority to our lending partners, so that right now we
rely on the credit decisions of our lending partners for about
75 percent of the loan portfolio. But that loan portfolio has
grown to almost 500,000 loans, worth about $40 billion, which
is nearly double what it was 6 years ago when it consisted of
260,000 loans worth just over $20 billion.
This budget requests $8 million to continue the systems
modernization. It is a multiyear modernization at the SBA,
which we need in order to go into the 21st century, and be able
to better identify and manage portfolio risks, to have systems
that are integrated with those of our private sector partners,
and of course it also is necessary for us to carry out staff
training that goes along with the modernization.
I am proud to say that SBA was the first credit agency in
the Federal Government to receive an unqualified opinion from
an independent auditor, which is the highest rating attainable,
and that we received that opinion 2 years in a row. We are
confident, notwithstanding the new requirements placed on us in
the auditing process, that when all is said and done we will
once again attain an unqualified opinion.
We believe the $8 million that is part of our request for
modernization will go a long way towards helping us achieve the
sort of modernized systems that are necessary for us to respond
in a timely way to the newer requests in the auditing process.
As the chairman mentioned, there is $761.5 million
requested in regular appropriations, and $233 million in
contingency appropriations for disaster assistance. The budget
also includes $1.4 million for the Office of Advocacy and $11
million for the Office of the Inspector General.
I believe that this is a fiscally sound blueprint for how
the SBA can help small businesses going forward. I am
especially pleased about the ideas contained in the New Markets
initiative, which, as I said, will couple not only smaller
sized loans through our regular 7(a) program, through the
microloan program, but much needed equity investments and
technical assistance. I look forward to continuing to work with
this committee to meet the needs of America's small businesses,
and I certainly welcome your questions.
Mr. Rogers. Thank you. Before we talk about your budget
request, I need to follow up with you on a 1999 issue that we
have talked about, you and me.
Ms. Alvarez. Yes, sir.
Mr. Rogers. As you know, I have a problem with the way you
are reallocating the 1999 appropriations that we talked about.
Ms. Alvarez. Yes.
DISASTER LOAN PROGRAM
Mr. Rogers. In fact, we postponed an earlier hearing
because I wanted you to have your counsel talk about this.
Last year, it should have been clear to everyone that the
congressional intent was to provide funding for the disaster
program, if necessary, at the expense of other SBA activities.
For that reason, we included report language that the funds
provided for disaster loan administrative costs were
specifically for the direct costs of loan-making and servicing.
It is no coincidence that we provided the exact amount
requested for that purpose, $116 million. I mean the intent was
as plain as the fingers on your hand.
Now, you decided to divert $34 million away from those
direct activities, and instead use it for regular SBA operating
expenses, without the approval or even knowledge of the
committee. How do you explain that?
Ms. Alvarez. Sir, we did talk about this, and I did bring
counsel here. When the supplemental was approved a few days
later, the Chief Financial Officer requested an opinion from
the General Counsel about the transferring of these funds. We
received an extensive opinion from general counsel basically
supporting the transfer, based on the way in which we have done
transfers for the past many years, since credit reform. There
is a cost associated with delivering the disaster loan program
that involves overhead and administrative support, which is
ongoing, and the opinion provided by counsel, which is somewhat
lengthy, bases its recommendation on the consistent decisions
that have been made in the past.
So we felt that----
Mr. Rogers. But in the past, there was explicit report
language prohibiting such.
Ms. Alvarez. There is a whole statutory history and
practice we followed. We were in consultation with the staff of
the committee about what we were doing and what we were
proposing to do. There was an agreement that if we did not
transfer this funding, we would have to reduce our staffing by
anywhere from 500 to 1,000 employees, which would have
significantly affected the program.
Mr. Rogers. But no one on the committee staff said it was
okay, did they?
Ms. Alvarez. I think that they had an understanding that
they told us that they did not want to see that kind of a
reduction in force, and therefore, we needed to take this
action.
Mr. Rogers. Well, the chairman didn't. There was no
reprogramming request, much less any reprogramming approval,
and I have to insist that that be done.
Ms. Alvarez. Yes, sir.
Mr. Rogers. Enough has been said about this. I think that
you will see some very explicit language because of your
actions. If you want to make it specific, we will make it as
specific as you want. This shall not be done.
That brings me again to the disaster loan. I don't know
what it takes, a sledge hammer maybe, but you know that we are
going to find the money for these disaster loans and you are
sandbagging us. This is the third straight year that you have
come up here with a budget that has not enough money, and last
year no money, for the disaster loans that we all know that
Congress is going to have to try to find the money to fund. So
last year you suggested that we raise the interest rates on
disaster victims to finance this loan fund. You knew we
wouldn't do that. We are not going to raise the interest rates
on people who can't get a loan, even at the bank. The most
destitute people there are, having been wiped out, and you
would go even further in raising their interest rates on these
government loans, and we obviously said no way.
This year, you are requesting only enough regular
appropriations to support one-fourth of an average annual
disaster loan level. I made it clear last year that we expect
serious proposals to provide base funding for that program. Why
do you continue to play games and sandbag the Congress with the
disaster loan program? It puzzles me. Can you help me?
Ms. Alvarez. Sir, since the beginning of credit reform, we
have, as an agency, been funding disasters through a
combination of regular appropriations and supplemental
appropriations. So again, what we are doing is consistent with
historical practice. We, the Administration, believe that there
is certainly an unpredictability to disasters and the amount of
funding required. The Administration prefers to fund these
through an emergency fund and allocate existing limited funds
to programs where we can actually estimate the impact on the
lives of Americans.
Mr. Rogers. Well, the Congress has always put forth a
reasonable average program level from regular appropriations,
and then where there is extraordinary needs we then pass
emergency supplementals. But what you are doing is requiring
that we finance all or three-fourths of these--this regular
loan program out of emergency supplemental appropriations,
which we don't do, we don't like to do. And so you are not
going to change our ways. So what you are doing is you are
forcing us to do as we have done in the past and find the money
for the disaster loan program out of your hide.
Ms. Alvarez. It is a difficult situation.
Mr. Rogers. Now, if it causes RIFs, you caused it. I am
sorry. I thought we had gotten this straightened out last year.
Now, you are going to be hurting again, except this time
the language is going to be so strict that you can't take money
out of the disaster loan program to fund your salaries and
expenses. I don't know what it is going to take to get you
people to understand that we are not going to put up with this
game-playing with disaster loans. You are playing games with
the people who are at the end of their rope, and that is
unfair.
Now, what was your request to OMB for the disaster loan
program? Is it their fault, or yours?
Ms. Alvarez. Well, we are all part of the same
Administration.
Mr. Walter. Mr. Chairman, my name is Gregory Walter, and I
am deputy CFO. We requested a 10-year average funding from OMB,
but we didn't specify the source of the funds in our request.
Mr. Rogers. How much did you ask for the full 10 years?
Mr. Walter. We calculated the 10-year average a little
differently than OMB did, so we asked for $1 billion in loans
and approximately $100 million for the direct costs of the
loan-making activity.
Mr. Rogers. And OMB passed back enough in regular
corporations to provide only a $225 million program?
Mr. Walter. That is correct, sir.
Mr. Rogers. And you, Ms. Alvarez, you have to acknowledge
that that is not even close to an adequate level of funding, is
it?
Ms. Alvarez. Well, when we looked back, sir, at the way in
which the disaster program has been funded, every year since
credit reform, one-third of the funding has come through the
regular appropriation, and two-thirds has come from
supplemental funding. So what we are proposing is actually
consistent with the history of the funding of this program
since the beginning of credit reform.
Mr. Rogers. Well, those were extraordinary events. The
North Ridge earthquake, we don't have one of those very often.
So the North Ridge Earthquake is not an historical--it doesn't
represent an historical dollar figure for that account in this
committee's history.
Now, what makes it even worse is that you are using this
gimmick in order to fund a bonanza of program increases that
you have requested, a whole host of new programs. By any
account, you are asking for at least $56 million in new
programs, many requiring new legislation which has not passed
and is unlikely to pass, and $82 million in increases for
existing programs. All of this, as usual, made possible by a
sham disaster loan request.
How can you put anything higher in your priorities than
helping people who are at the end of their ropes after a
disaster?
NEW MARKETS VENTURE CAPITAL FUND
Ms. Alvarez. Of the new programs that we are proposing,
there is actually only one that requires legislation, and that
is the New Markets Venture Capital Fund because it differs from
our Small Business Investment Company program. In fact, the
other day Chairman Greenspan gave a speech following up on a
study that was just done by the Fed, which highlighted the real
discrepancies in access to capital and credit, particularly for
minorities, as well as for women. He pointed to the fact that
this probably goes beyond discrimination to certain structural
problems and certain inefficiencies in the financing system. We
are proposing a program that will make equity capital, which he
said is every bit as important as credit, available to smaller
sized businesses, and that that equity investment would be
accompanied by technical assistance. That is the new program we
are suggesting.
Mr. Rogers. But do you put that on a higher priority than
helping someone who is just at the end of their rope in a
disaster, a flood or an earthquake?
Ms. Alvarez. They are two totally different circumstances.
One, we have----
Mr. Rogers. But it is the same dollars. You have a certain
amount of dollars. We are going to fund the disaster program,
and that money is going to come from somewhere. Now, if we were
to take the $138 million for program increases that you have
asked for and redirect that to disaster loans, we could get to
a program level of over $800 million. The 1998 program was $639
million, so we would be in the ballpark of a reasonable annual
level. I would welcome your suggestions about where we get the
additional funds to fill a hole that you have left for us in
the disaster loan program, and we will be happy to take them
from the least important of your activities, but they are going
to come from somewhere.
Ms. Alvarez. I understand. The parameters of the budget go
beyond the SBA's budget, which is a very modest one in terms of
funding. I do think that the new proposals which include a
small loan proposal, a reduction in fees so that there will be
an incentive for lenders to make smaller sized loans, are a
critical part of our blueprint for the future.
Mr. Rogers. Well, I have to say that I am going to buy you
a copy of Carnegie's book, How To Win Friends and Influence
People. I mean you ignore the Congress' intent for the last 2
or 3 years; specific, written intent. Again, you have come to
us underfunding the disaster loan program, knowing that it is
at the top of our priority list, and then on top of that you
suggest $82 million for new programs, while you gut the
disaster program. I don't understand that kind of logic.
We will get back to the authorization for these new
programs on another round.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
Before we begin with some questioning, could you tell me,
Ms. Alvarez, when there is a disaster and you go in and FEMA
goes in, can you tell me the function of each one and how they
differ and how they complement each other?
RELATIONSHIP WITH FEDERAL EMERGENCY MANAGEMENT AGENCY
Ms. Alvarez. FEMA has the overall responsibility for
coordinating the entire Federal response in times of disaster.
They land, if you will, first on the scene and try to
immediately get an assessment of the conditions and bring in
the various agencies. We actually colocate with FEMA, and, we
are the screeners. We screen requests from disaster victims and
make determinations as to whether those victims are either
eligible for our loan program, or eligible for a grant, or
perhaps they can get private support for their needs.
It is a complementary relationship, our focus being the
providing of loan assistance to disaster victims. We had an
infrastructure that was able to be transferred to the disaster
program.
Mr. Serrano. And in the last couple of years, due to the
many disasters that we have been having in this country--either
I didn't read the right newspapers or watch the proper TV, but
when I was growing up, I remember that most disasters were in
other countries, but it seems that something has happened where
in the last few years most disasters, if not major disasters,
are right here in this country--we call on you and FEMA to play
a role you never played before, and it seems to me at times you
don't get credit enough for what you are doing quietly, even
when you are supposed to be doing it quietly.
So can you give me just a brief description of some of your
latest ventures in assisting people? I know Mitch and Georges
and all the others.
RECENT DISASTER ACTIVITY
Ms. Alvarez. Actually, I would like to ask Mr. Kulik to
come and join me, because he runs our disaster program and has
done so for many years.
We initially had to deal with Hurricane Georges, which had
a tremendous effect on Puerto Rico and the islands and in Texas
and parts of the Southeast. Mr. Kulik, would you like to speak
to the work that we have done?
Mr. Kulik. Mr. Chairman, my name is Bernard Kulik,
Associate Administrator for Disaster Assistance at SBA.
Thus far this fiscal year, our major activity was as a
result of Hurricane Georges in Puerto Rico and in parts of
Florida, Louisiana, Mississippi, and Alabama. We have approved
for that hurricane a total of $352 million in loans, the
largest single amount being in Puerto Rico where we approved
13,600 loans, for over $157 million. The balance of our
activity for the most part this year was as a result of Texas
floods that were a major disaster, and a number of tornadoes
occurring around the country. Thus far in the year we have
approved total loans of just under $600 million.
If I may answer or expand on an answer of our relationship
with FEMA, FEMA's basic purpose at the outset of a disaster is
to provide the immediate response necessary. They provide
temporary housing, they provide meals, they provide health
matters, health needs, et cetera. When it comes to response
that is rebuilding, SBA is the prime factor for all private
sector, nonfarm recovery efforts. We, as the Administrator
said, serve as a filter for FEMA in that individuals who are
not eligible or don't qualify for an SBA disaster loan, get
referred to a joint FEMA-State grant program.
Also, FEMA does repair work and replacement work with
State, local, city, county governments, that SBA does not do.
Mr. Serrano. And prior to this year, your agency also, I
don't know how long you have been there yourself, but----
Ms. Alvarez. A few years.
Mr. Kulik. Lots.
Mr. Serrano. You have been involved in just about every
disaster plan, right?
Mr. Kulik. That is right.
Mr. Serrano. In fact, I remember debates on the floor a few
years ago where the issue was not a disaster, but it was to
tell you to identify people's green card in the middle of the
flood before you gave them any aid. I remember luckily we were
able to defeat that. I remember how the idea was you get a
person in water up to here and ask them for a green card before
you give them aid. But such was the mentality.
Very quickly, what were some of the other disasters?
Mr. Kulik. Disaster, unfortunately, became a growth
industry in 1989 with the occurrence of Hurricane Hugo in the
islands and in South Carolina and North Carolina, and 30 days
later the earthquake in California. Since then we have had such
things as the grandaddy of all, the North Ridge Earthquake in
California. We have had Hurricane Andrew in Miami, South Dade
County, the Midwest flooding which covered some 9 States in
1993, the Los Angeles riots in 1992, the Red River-Upper
Midwest flooding in 1995, and just a litany of sizable
disasters that we think we handled pretty well.
Mr. Serrano. Well, let me tell you that obviously in a
legislative body like ours there are always concerns about how
to make an agency better, and I am no different in that sense
and I want to make every agency better. But I also want to take
the time to commend people for the fact that they are always
there and not getting publicity. SBA is not one of the agencies
that you see on the 6 o'clock news. You see the President
declaring a disaster and after he speaks you see people, but
they don't show SBA. With all due respect to the FBI agents in
the room, they always wear their logo on their back. You guys
never do. So I personally thank you for that.
Ms. Alvarez, am I correct in saying that the transfer of
money for indirect expenses is consistent with the Credit
Reform Act, and how do you find it as to cost?
Ms. Alvarez. There is, and Mr. Kulik can certainly speak to
this, an ongoing cost associated with the disaster program. We
do temporary hires for individual disasters, but we have not
only permanent staff assigned to the disaster function, but our
other officers perform disaster functions in an ongoing way. So
we have some fixed costs, if you will, from year-to-year to
maintain a structure that supports this program. There may be a
year that is busier than another year, and that will affect
what we need for loans and direct service. But there is always
an ongoing cost to have an infrastructure for disaster.
Mr. Kulik, would you like to respond?
Mr. Kulik. The disaster cost is really made up, on the
administrative side, of three pieces. One is the indirect cost
that the Agency assumes with respect to disasters. For example,
the amount of the Administrator's time that is devoted to
disaster matters; the amount of General Counsel's time, et
cetera. Also, we obviously take up a good bit of the Agency's
computer effort, and just the general administrative effort in
handling our locations.
There is also an ongoing expense for disaster loan
servicing. That does not vary as much from year-to-year as
disaster loan making. The service loan function is a fairly
steady function that may go up or down, slightly depending on
the amount of activity that we have in a given year. It is the
disaster loan making side that is variable, and while we do
have obviously fixed expenses to begin with, our costs and our
personnel go up and down with the demand for disasters. At one
point in the North Ridge Earthquake we had a total of over
3,500 employees in the disaster program.
Ms. Alvarez. Which is about the size of the agency.
Mr. Kulik. That is right.
Mr. Serrano. Thank you, Mr. Chairman.
Mr. Chairman, I have no further questions at this time.
Mr. Rogers. Mr. Mollohan?
Mr. Mollohan. Thank you, Mr. Chairman.
ACCESS TO VENTURE CAPITAL IN WEST VIRGINIA
One of the most difficult problems that we have run into in
West Virginia in our efforts to diversify our economy is access
to venture capital. I know that your specialized small business
investment company initiative in some ways addresses our
efforts. Could you talk a little bit about this initiative in
the context of rural areas like West Virginia? Our rate of
access to venture capital money is abysmal, and we would like
to improve that. I would like to hear you talk about our needs,
and how this program fits in.
Ms. Alvarez. We are trying to address this need for venture
capital in a number of ways. Most recently, this week we kicked
off a series of workshops that will occur around the country.
We have invited investors, Small Business Investment Companies,
and many of the CDC's and the community development
organizations from around the country to talk about targeted
investments in low and moderate-income areas. Within the
construct of our existing SBIC program, we are proposing a
debenture, an LMI, a low and moderate income debenture, which
will be focused on areas, rural and urban, that have higher
unemployment and poverty rates, and where there is a need for
venture capital. We would like to direct that venture capital
there.
In addition, we see that there is a real gap, as you said,
for equity-type investments in smaller businesses. Our current
SBIC program makes investments in the range of a quarter of a
million to $5 million. The New Markets Venture Capital Program
proposes investments in the range of $50,000 to $300,000. It
also proposes that type of investment be accompanied by
technical assistance. In order to make it feasible for the
investor, because they need to get a return on their
investment, we are proposing an appropriation for grants which
they would then have to match in order to ensure that those
investments are successful.
There is a lot of interest on the part of many community
development organizations that are already trying to find ways
to do equity investments. Many of them attended our meeting the
other day, and we think that it is an unmet need that could be
easily addressed through this proposal, this New Markets
Venture Capital Program proposal.
Mr. Mollohan. Where is this request reflected in your
budget?
NEW MARKETS VENTURE CAPITAL PROGRAM
Ms. Alvarez. This is the request we have for New Markets
Venture Capital Program; specifically, that is the name, and
what we are requesting is about $45 million--$30 million for
the technical assistance funding, and $15 million for the
subsidy, for the equity investment. That is the New Markets
Venture Capital Program, specifically.
Mr. Mollohan. Now, that is a part of a different fund that
specialized in the small business investment company
initiative?
DIFFERENCES FROM SMALL BUSINESS INVESTMENT COMPANY
Ms. Alvarez. Yes, it is. Because there are sufficient
differences between the New Markets Venture Capital Program and
the SBIC program we felt that we needed legislation.
Mr. Mollohan. How are they different, and how are they the
same?
Ms. Alvarez. Well, the key component of course is the
technical assistance component, which does not exist in the
SBIC program.
Mr. Mollohan. You mean, hands-on, showing you how to do it?
Ms. Alvarez. Grants where there is money allocated to be
used by the investor himself or herself to do hands-on work,
which will take time and money, or they can purchase the
technical assistance, depending on the nature of the need. That
doesn't exist in the SBIC program. In the SBIC program, often
the investors target high-growth companies that require much
less involvement from a management standpoint, and there is a
substantial return. This New Markets Venture Capital Program,
we expect, should produce a return, but a much more modest
return. There is a need for investment capital accompanied by
technical assistance to make it work. As I said, many of the
likely candidates to become New Markets Venture Capital
companies are existing community development organizations.
Mr. Mollohan. That sounds like an interesting program. I
would like to follow up with that.
In your New Market initiatives, you mentioned that you are
going to be working with HUD on its America's Private
Investment program.
Ms. Alvarez. Yes, sir.
Mr. Mollohan. Could you elaborate on that?
Ms. Alvarez. HUD will be the lead and develop a proposed
legislative package. Our folks have been meeting with them to
support their efforts. The reason for HUD's leadership on this
is because the focus is on big businesses, going into
communities, these low and moderate-income communities, and
receiving a package of incentives that would allow them to make
investments. The idea is that with some incentives, big
companies, working with small companies, can provide an
infrastructure that is needed in certain communities.
I think the legislative package from HUD is still in the
works.
Mr. Mollohan. So to get this program off----
Ms. Alvarez. They would be the lead.
Mr. Mollohan. Do you have an authorizing requirement here?
You are suggesting that you do not, but HUD does?
Ms. Alvarez. HUD does, yes. If it were passed into law, we
would help them with the implementation.
Mr. Mollohan. All right. Okay.
Thank you, Mr. Chairman.
AUTHORIZATION OF NEW PROGRAM
Mr. Rogers. So but this is not authorized; it would require
an act of Congress to authorize it to be done?
Ms. Alvarez. Yes, sir.
Mr. Rogers. Well, in fact, there is $117.5 million in your
budget request that is dependent upon enactment of separate
authorization legislation; is that correct?
Ms. Alvarez. Yes, that is about right.
Mr. Rogers. And since we are looking for disaster loan
money, if those matters aren't authorized by the time we mark
up this appropriations bill, I guess we will assume that they
are not going to happen and we can look at that $117 million
roughly to the disaster loan program.
7(A) LOAN PROGRAM
Ms. Alvarez. Sir, I have a proposal from the President's
budget, and I think we have suggested ways in which we can fund
this package.
Mr. Rogers. Now, the bill has passed the House and the
Senate authorizing a new loan guarantee program for small
businesses to address Y2K problems. But doesn't the existing
7(a) program already provide loans for that purpose?
Ms. Alvarez. Yes, sir, it does. The Congress wanted to take
it a step further and designate as much as $500 million in
loans to those businesses that needed help with the Y2K issue
and raise the limit. Currently we have a limit, a loan
guarantee limit of $750,000. This would allow exemptions for
sources with 7(a) loans to have a guarantee limit up to $1
million.
Mr. Rogers. I gather you don't feel that a separate
category of loans are necessary to address the problem, since
you didn't include it in your request.
Ms. Alvarez. This would be a part of our existing 7(a) loan
program.
Mr. Rogers. Are you recommending that the President sign
the bill to pass then?
Ms. Alvarez. The Administration has no objection to that
legislation.
Mr. Rogers. I understand that CBO estimates the subsidy
costs of those loans at $16 million in fiscal year 2000. That
estimate, though, is dependent upon demand. Do you believe that
the demand will be manageable within the overall 7(a) program
level that you are requesting for fiscal year 2000?
Ms. Alvarez. Well, we certainly hope so. We certainly hope
so.
Mr. Rogers. Now, in fiscal year 1999, you received an
appropriation of $4 million to conduct a drug-free workplace
demonstration program. Can you tell us how you are doing?
Ms. Alvarez. There have been meetings for some time now
with other agencies to discuss the implementation, and very
shortly an RFP will be going out that describes the nature of
the program and requests proposals for implementation.
Mr. Rogers. But you didn't request any money for fiscal
year 2000 for this?
Ms. Alvarez. Well, we have $4 million, which we have yet to
spend, and we think we need to go ahead and do that and
evaluate the effectiveness.
Mr. Rogers. Well, you were authorized at $10 million in
both 1999 and 2000. It is not up and running yet, is it?
Ms. Alvarez. The drug-free program? No, sir. We are in the
process of releasing an RFP, which would result in the
implementation.
Mr. Rogers. We are halfway through the fiscal year and you
are just now requesting an RFP?
Ms. Alvarez. Well, it is a brand-new program, and it
involves a number of agencies, and there was a fair amount of
discussion about the implementation and how to most effectively
do that. Because it is a new program, it often takes a while to
get it up and running.
Mr. Rogers. Now, staffing, let's talk about staffing. Your
staffing was reduced about 20 percent in the 1992 to 1996
period, and then in 1998, your on-board staffing increased
dramatically. We have been told that that was due to an
aggressive filling of vacancies. But I now understand that you
have recently put on a hiring freeze. Can you tell us why the
freeze?
SBA'S HIRING FREEZE
Ms. Alvarez. SBA has operated under a freeze for about 5 of
the past 6 years. It is true that last year we looked to
strategically fill certain vacancies because the Agency has
been evolving and we wanted to make sure that we were covered
in areas related to the mission, to new legislative programs,
and also to meet the needs of the Small Disadvantaged Business
certification program. So that is where the hirings occurred.
We are operating under a freeze right now, and we are sorting
through our hiring priorities, because again we need to make
sure that we fill the jobs that are priority positions.
There are any number of reasons for having a hiring freeze,
not the least of which is that Congress has not authorized
spending for SBA for the final quarter of this fiscal year, so
we don't know at this moment what circumstances we will find
ourselves in on June 16. We also don't know if our budget will
remain the same as was appropriated last year. We understand
that Congress has been considering ways to pay for the
emergency supplemental appropriation to provide aid to the
disaster victims in Central America by making cuts to agencies
that received emergency appropriations last year, and we have
heard a number as big as a $5 million cut.
In addition, we are proposing $10 million less in spending
for salaries and expenses for fiscal year 2000. So I felt that
it was the responsible thing to implement a hiring freeze to
take a very hard look at where we are, which is a somewhat
tenuous place, and where we need to be next year, which is a
reduction from where we are.
We have had a very decentralized hiring process at the SBA.
Hiring decisions have been made in 130 locations, and I really
felt that we needed to have a much more strategic hiring
process for the Agency. We needed to put a stop to that so that
we could get some control over it.
Mr. Rogers. Well, this staffing increase over the last year
is something that we have been following. It seems that you
were adding more staff than we had funded. Is that more or less
what has happened?
Ms. Alvarez. Well, we hired staff--a net increase of about
120 hires for a period running from about June of last year to
January. About 88 of those hires were for the Small
Disadvantaged Business program, and that funding came from
other agencies and didn't come out of our budget. Of course we
felt that we needed to do some hiring for a number of other
programs, particularly, to ensure the oversight of our lending
programs, to staff the Women's Business Centers, to staff
LowDoc centers and other servicing centers. We felt that this
was responsible strategic hiring that was accounted for in the
budget.
Mr. Rogers. Now, your request includes an unallocated
reduction of 71 positions in fiscal year 2000. We don't know
where they are coming from. Where do you anticipate that those
reductions will take place?
Ms. Alvarez. I want to look at the impact that the asset
sales will have on our staffing. I want to look at the impact
that the outsourcing of the servicing of our loan portfolio
will have on our staffing. I am contemplating some other
proposals to centralize functions that are currently
decentralized. I think we are going to make some strategic
decisions.
Mr. Rogers. Now, SBA's role is changing. Your role now is
primarily oversight and monitoring. There is more delegation to
lending partners. There are pilot projects underway to set off
loan assets and to privatize loan servicing.
Ms. Alvarez. That is right.
Mr. Rogers. Will those changes affect how you allocate your
staff reduction?
Ms. Alvarez. I think they should.
Mr. Rogers. And how does that impact staffing beyond 2000?
Ms. Alvarez. We are discussing that right now, sir. We
realize that we need to have a longer range view of this.
Transitions have to be managed, because often, at the end
of a period of time, you will see a need for a dramatic
reduction. But in the meantime, we have some ongoing
responsibilities that need to be staffed. That is what we need
to discuss.
Mr. Rogers. Now, you also are asking for $5 million to
facilitate quote, ``a work force transition, including
buyouts.'' Assuming you get the buyout authority, how many
buyouts do you figure you will have in fiscal year 2000?
Ms. Alvarez. We are discussing that right now. I think a
buyout strategy has to be very much tied to a plan for
reduction, based on the changing functions of the SBA. That is
precisely what we are discussing right now.
Mr. Rogers. Does your plan for reducing the 71 positions
depend on vacating those positions through buyouts?
Ms. Alvarez. I think buyouts can play a role in vacating
some of those positions. The buyouts need to be tied to
strategic downsizing.
Mr. Rogers. Well, it looks to me like you staffed up by
allowing managers to fill vacancies across the board, and now
that you need to cut, I don't think it is wise to just take
those cuts wherever there may be a vacancy occurring. The
changes in the SBA role, and I think you agree, require
strategic management of staffing and reductions.
Ms. Alvarez. That is right.
Mr. Rogers. And we want to work with you and make sure that
that is the policy that you are following; is that correct?
Ms. Alvarez. Yes, sir. That is the policy we are following.
DIFFERENCES BETWEEN EXISTING AND NEW PROGRAMS
Mr. Rogers. Now, to the New Markets initiative. It doesn't
seem that different from what you are already doing in the 7(a)
and the SBIC programs. Why are we getting into these new
activities, ones that require new authorizing legislation which
I hear is dead on arrival in the committee over there?
Ms. Alvarez. My job, I believe, is to have a vision for
what small businesses need going forward and to address gaps
that exist for small businesses. If you look at our 7(a) loan
program, which is a very effective and important loan program,
the average loan size last year was $229,000, and growing. And
so you have to ask yourselves, how many newer, smaller
businesses are going to benefit and take advantage of a loan
that is that large. That is a loan that normally goes to more a
sophisticated, more mature firm. When we look to the future, to
the 21st century, we have got to help those newer, smaller
sized businesses that are laying the foundation for being the
successful businesses in the future, and that means smaller
sized loans, which is why we are looking to reduce fees for
smaller sized loans. We are working with the lenders to create
some financial incentives as well as some efficiencies so that
they can make the smaller loans that these newer, up and coming
businesses need. The rural businesses, the minority-owned
businesses, the women-owned businesses, they are the ones that
need the smaller sized loans. So that is part of the focus.
Likewise with the Small Business Investment Company
program, a terrific program that helps create jobs by
supporting fast-growing small businesses that need venture
capital, but the level of investment is fairly large relative
to some of the newer businesses. That is why we need
legislation to create that program.
Mr. Rogers. Since it is going to be, it looks like
impractical to--or it looks like the effort to authorize the
so-called New Markets initiative is probably not going to
happen, why don't you just call the 7(a) program a New Markets
initiative and go ahead and use the 7(a) program to do what you
are talking about. I mean you have the authority under 7(a) to
do micro loans and small loans.
Ms. Alvarez. Most of what we are asking for, sir, doesn't
require any new legislation. The only legislation is for the
New Markets Venture Capital Program. We are actually working
very well with our 7(a) lenders, and the reducing of the fees
for both the borrower and the lender would be within the
confines of the 7(a) loan program. Just the other day, we
entered into an agreement with 10 major lenders, our preferred
lenders, in which are working with them to do smaller sized
loans, loans under $250,000. They are going to be providing
technical assistance free of charge to the borrower. They
recognize that there is a gap for smaller sized loans, and they
are going to be working with technical assistance providers to
ensure that these businesses can pay back their loans and grow
their businesses. We are doing that, sir.
Mr. Rogers. Now, on the Inspector General, you are asking
for $11 million. To maintain what we have had in 1998 would
take about $12 million. You would eliminate the provision under
disaster loans that provides additional funding for the OIG,
oversight for that activity. Why is that?
Ms. Alvarez. I am sorry, the provision----
Mr. Rogers. In your request, you would eliminate the
provision for disaster loans that provides additional funding
for the OIG, from that fund, for that activity. Can you tell us
why?
Ms. Alvarez. Well, actually, the Inspector General
presented a budget directly to OMB. We do not in any way pass
judgment on the Inspector General's budget, and they basically
negotiate what ultimately becomes part of the President's
budget. So we don't have a position on that.
Mr. Rogers. Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
Ms. Alvarez, on the Y2K issue, could you just give me some
feeling as to, first of all, how it will affect your agency,
and what you are doing to make sure that it doesn't affect the
agency? I mean, after all, you also have a need to deliver
services and those services could fall apart at a given time.
And secondly, what is the agency's perception of what is going
to happen to the small business community, and could you
elaborate on what their needs are and what we can do to help
them through your agency?
Ms. Alvarez. We have really been very vigilant and active
in speaking to the small business community about the Y2K
issue. We have a web page that is a very good one, and it
provides a diagnostic for small businesses to identify whether
or not they might have a problem. They can also tap into a
whole list through Pro-Net of small firms that could assist
them with their needs.
Greg just passed me a note to tell me that we have the Y2K
outreach effort. There is $4 million in funds in 1999 for the
Y2K outreach effort. In fact, we are about to embark on a Y2K
action week, and we have already done one. When we do that, we
have activities all around the country, hundreds of activities
at the local level, which our district offices organize, to
create an awareness and bring the small business community in.
We have worked with other Federal agencies.
Mr. Serrano. What do you provide at that awareness session?
What are you telling them? What do they need to know from you?
What can you do for them?
Ms. Alvarez. What we ultimately can do for them is they can
come to us for an SBA-guaranteed loan of up to about $750,000,
I believe. Basically, what we do is we say, let's help you do a
diagnostic. First you need to be aware that it is a real issue.
Secondly, let's go through a checklist of what you need to
assess to know whether you are ready or not. Very often, it is
not just a matter of the kinds of systems and computers they
have, but who their vendors are, who their providers are, who
their banks are so that they can be sure that they are not
going to have to shut down or be delayed because they are
interacting with other institutions that are not Y2K ready.
Then we suggest that they can also obtain an SBA-guaranteed
loan if they have problems within their own business.
It is hard to really get a handle on the numbers, but we
have been very active from day one. As I said, next week we are
kicking off yet another series of events. Fred Hochberg is here
with me, he is my Deputy, and he has been the lead on the Y2K
action that we have taken. We have also worked with utility
companies, banks, our private sector partners, and have asked
them to put mailers, flyers in their mailings, in their bills,
so that when the customers get bills, they are made aware of
our web page and are made aware of what is available to them.
We also have a Y2K classroom on-line, so that a small
business can get on-line and learn about Y2K.
Mr. Serrano. Now, that is what you are doing, providing for
small businesses. That sounds very encouraging. Now, how about
for your agency itself. You can't come up with a Y2K problem
which then will create a problem for the rest of the world.
Ms. Alvarez. We actually have a very proactive Chief
Information Officer, Larry Barrett, who has us ahead of
schedule in terms of testing our systems, and we have been
working closely with the Inspector General on our Y2K. They are
part of the team that looks at Y2K for us internally. We work
with GAO. So we feel that we are Y2K ready.
Mr. Serrano. I was thinking the other day, Mr. Chairman,
that the Y2K problem may be worse on paper than it is in
computers.
Ms. Alvarez. We hope so.
Mr. Serrano. My son has a varsity baseball high school
jacket that says he is going to graduate in the year 2000,
right, the class of 2000. It has the name of the high school
and 00. And each ball player is calling each other a big zero.
There is no I.D. as to when they graduate. It is a terrible
thing.
You know, unfortunately in the last few years in this
country we have spent a lot of time, a lot of energy, wasted
energy, in what I call immigrant-bashing, and yet we know that
those immigrants are playing a major role in becoming part of
our society in general.
Could you give me just for my information a little overview
as to how new Americans are becoming a part of the small
business community?
Ms. Alvarez. Our focus as we go forward with the New
Markets initiative, which again really focuses on smaller,
newer businesses, is the recognition that there is actually a
tremendous growth rate of new small businesses being formed by
women and minorities. As we look at the Census Bureau
projections for the year 2050, the Census Bureau projects that
there will be no single majority in this country.
Mr. Serrano. Oh, no. Somebody brought up the census issue.
Ms. Alvarez. But that is a different Agency.
Mr. Serrano. That is an ongoing thing here.
Ms. Alvarez. You led me into that.
Mr. Serrano. That is an ongoing thing between the chairman
and me.
Mr. Rogers. And then we will talk about Cuba.
Ms. Alvarez. I have no comments about Cuba.
But there is an enormous diversity, there is an enormous
diversity in this country that reflects itself in the small
business activity. It is good, productive activity, and we need
to not only help the existing small businesses, but the newer
ones.
Mr. Serrano. One last question, which is the dumbest of
them all, but you know, every day we have arguments in the
press about what constitutes the poverty line. So what
constitutes it officially now within the Small Business
Administration?
Ms. Alvarez. Oh, dear. Well, a small business can be a
self-employed person, and many, many of them are. We actually
have an office of standards that looks at small businesses and
what qualifies small businesses is based on any number of
different indicators, including the number of barrels of oil
produced----
Mr. Serrano. I am sorry I asked the question.
Ms. Alvarez. But generally the maximum is about 500
employees.
Mr. Serrano. Five hundred employees, okay.
Well, thank you very much.
Thank you, Mr. Chairman.
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman.
Following up on Mr. Serrano's question about equipment, do
you have major information systems challenges in the agency? Do
you want to speak to those?
MODERNIZATION EFFORT
Ms. Alvarez. Well, we have, I mentioned earlier, a
multiyear modernization effort under way, which we have
estimated over the course of 5 years is about a $40 million
overhaul. We have an $8 million request in our budget this
year. We have been working very closely with GAO in following
the steps required by law to develop a plan in advance of
spending the money. We don't want to spend money without a
plan, and we have pretty much completed the eight planning
steps, and we are getting ready to go forward.
Mr. Mollohan. With purchasing?
Ms. Alvarez. Yes, sir.
Mr. Mollohan. Have you----
Ms. Alvarez. We have monies that we have not spent, but
that we have committed. But we will not do that until----
Mr. Mollohan. Have you begun the contracting process?
Ms. Alvarez. Not for the systems acquisition on
development.
Mr. Mollohan. Do you plan to do that this fiscal year, or
next fiscal year?
Ms. Alvarez. We are ready with the steps this fiscal year.
We will be spending this year.
Mr. Mollohan. What will this first solicitation be for?
Mr. Gray. Mr. Mollohan, my name is John Gray, Associate
Deputy Administrator for Capital Access.
The first proposal that will go out will be for a loan
monitoring system which integrates the loan application process
with loan servicing and loan liquidation.
Mr. Mollohan. That is for software?
Mr. Gray. Well, we are not exactly sure if it will be
software and hardware or just software. We hope to find a
system that exists today.
Mr. Mollohan. Well, in your budget summary, you cite, major
problems with your mainframe systems, or you describe it as
being very old.
Mr. Gray. Yes, sir. We are operating off of an old
accounting system which we are trying to use for lender
oversight, and rate analysis. The new loan monitoring system
would be an integration of all of the systems we have today
with a new key component for gathering information.
Mr. Mollohan. Okay. Thank you.
What key requests are part of your budget request, new
fees?
NEW SBA FEES
Ms. Alvarez. New fees. The SBDC--well, yes, how could I
forget?
The only area requiring a legislative change is for the
Small Business Development Company program, SBDC, where there
is currently in law a prohibition against their charging fees
for counseling, notwithstanding the fact that they do charge
training fees. We believe that they can meet the needs of the
American people and their own budgetary needs by charging fees.
Mr. Mollohan. So you are asking for some $20 million in
fees to be generated by charging SBDC customers, is that
correct?
Ms. Alvarez. Yes, sir.
Mr. Mollohan. And that requires an authorization?
Ms. Alvarez. Well, yes, because Congress put into law a
prohibition against the charging of fees a couple of years ago.
Mr. Mollohan. Was that in the authorization bill, or was
that carried in an appropriation bill?
Ms. Alvarez. It was in the authorization bill.
Mr. Mollohan. How do you propose to now charge fees under
SBDC----
Ms. Alvarez. Part of our legislative package would strike
that.
Mr. Mollohan. What is the status of your legislative
package?
Ms. Alvarez. It is over at OMB.
Mr. Mollohan. Do you expect to have it before the Congress
this year?
Ms. Alvarez. Yes, sir.
Mr. Mollohan. Have you talked with the authorizing
committees about this issue?
Ms. Alvarez. Yes.
Mr. Mollohan. Are they sympathetic or unsympathetic to this
proposal?
Ms. Alvarez. I would say that the SBDCs have been very
effective in making the case for the status quo.
Mr. Mollohan. Are the authorizers, to your knowledge,
sympathetic or unsympathetic to this proposal? You may not
know. I am just asking. Do you know?
Ms. Alvarez. I don't have a solid answer for you there.
Mr. Mollohan. You are not asking this committee to approve
these fees, are you, or you don't anticipate asking us?
Ms. Alvarez. We would like to----
Mr. Mollohan. You would like to charge the fees, and
anybody who will give you permission, you would like to have
it?
Ms. Alvarez. We would like to work with the SBDCs to
develop a plan----
Mr. Mollohan. I know that I am looking at the legislative
side of this. How do you expect to get this authorized?
Ms. Alvarez. We would love to have your support to get this
authorized.
Mr. Mollohan. If you aren't successful before the
authorizing committee, do you anticipate coming to this
committee, and asking us to impose these fees?
Ms. Alvarez. I would anticipate coming to this committee
and working with you to develop a fee schedule, because we
don't have a specific fee proposal for you.
Mr. Mollohan. Okay. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Latham?
ENVIRONMENTAL COMPLIANCE PROJECT
Mr. Latham. Welcome.
As you know, in the last few years the subcommittee
provided $1 million for the small business development centers'
funding for a pilot regulatory compliance program to increase
coordination of environmental, OSHA and IRS compliance
requirements and to avoid duplication within the programs for
compliance assistance to small businesses. I believe the SBA
received a proposal on how to carry out the provisions of the
legislation.
Would you please provide me with an update on the SBA's
implementation of the program and to whom, in fact, the dollars
are distributed?
Ms. Alvarez. I think you are referring to the environmental
compliance project?
Mr. Latham. Correct.
Ms. Alvarez. We have an RFP that will be released by April
1 for the implementation of that project.
[Clerk's note.--Subsequent to the hearing, the following
additional information was provided:]
As you know, $1M was appropriated in FY98 for a regulatory
compliance simplification program. That money was awarded to
the Iowa SBDC which developed a multi-state program to increase
coordination of environmental, OSHA, and IRS compliance
requirements. The Iowa SBDC is responsible for the
administration, coordination, evaluation, and teting of this
program. It has subcontracted with the Iowa Waste Reduction
Facility to develop the environmental regulations component,
the Nevada SBDC to develop the OSHA regulations component, and
the South Texas Border SBDC to develop the IRS regulations
component.
An additional $1M was appropriated in FY99 for this
simplification program. SBA requested a proposal from the Iowa
SBDC on February 12, 1999. We have not yet received the
proposal.
Mr. Latham. Okay. You did not request funding for the
initiative in the 2000 budget. Are you expecting to continue it
with fees, or how would you provide funding in the future?
Ms. Alvarez. I think that once we actually implement the
project, then we are in a position to evaluate its
effectiveness and any future need associated with it. We are
not there yet.
Mr. Latham. But you--obviously don't have it in the budget,
so are you looking at fees to pay for it?
Ms. Alvarez. Our budget is very tight, as the chairman
knows, and we need to find as many ways as possible to support
these programs.
Mr. Latham. I am glad at least the hearings lasted longer
than last year, anyway.
The Small Business Development Centers provide a return of
investment of about $2 for every $1 spent. Do you have a cost-
benefit ratio or return on investment data for the SCORE
program or the 7(a) programs?
Ms. Alvarez. I think this is what GPRA wants us to do and I
think it is one of the things that many agencies are continuing
to work on since there is no tradition of providing this kind
of analysis.
Mr. Latham. I think I asked for it last year.
Ms. Alvarez. Did you get it? Well, we will do our very best
to get it to you.
Mr. Latham. Okay.
OFFICE OF ADVOCACY
As you know, according to the SBA's GPRA submission, the
SBA's Office of Advocacy is the only office within the Federal
Government responsible by congressional mandate for evaluating
the state of small business and its contribution to
competition, as well as the impact of regulations of small
business. As a small businessman and farmer, I know how
critical this tiny office is to working for the interests of
small businesses, so I am pleased to see the request for an
increase in funding. In fact, there is so much important work
to do and you are doing it so well, I will go so far as to
request that this subcommittee at least double that request in
the year 2000.
One of the submissions listed in Advocacy's area of study
for the year 2000 is mergers in selected industries. Will
agriculture, that sector, be included in the study,
particularly with the vertical integration that is going on in
different aspects of livestock, as well as mergers of biotech
companies, and within the seed industry--will that be included?
Ms. Alvarez. I don't know the specifics of their proposal.
I know that Advocacy does a very fine job and has been
following the effect of the mergers of the banks and the
lending institutions and the possible impact that that will
have on small businesses, and we are very interested in staying
on top of that, because we don't want to see a reduction in
access for small businesses.
AGRICULTURALLY DEPENDENT SMALL BUSINESSES
Mr. Latham. Well, you realize a lot of small businesses in
my State, at least, are agriculturally dependent, and there is
real concern out there within a lot of small businesses. My
family is in the soybean seed business, a family operation, and
we look at the huge mergers out there and we need to, I
believe, find some way of quantifying the impact.
Ms. Alvarez. I agree with you. I am concerned about the
mergers as they affect small business in general. Clearly, as
they merge, they are looking to big business globally, they are
not necessarily focusing on the small businesses, and we don't
want to have the small business interest lost in the process.
Mr. Latham. And it is frustrating. I recently questioned
the Attorney General regarding this and it was not really on
her radar screen as far as what is happening in the industry in
its entirety. They are finally getting some focus now. But you
know, this is critical to rural America. It really is.
Ms. Alvarez. There is, in the course of these
restructurings, so much going on that a focus is lost on
existing programs. Some of the lenders I have spoken to assure
me that once the dust settles with the integration that has to
occur with these mergers that they will, once again, focus. But
we need to remind them to focus. In the meantime, opportunities
are lost.
Mr. Latham. Thank you, Mr. Chairman.
Mr. Rogers. Thank you.
Well, thank you for your testimony.
Ms. Alvarez. Thank you, sir.
[Recess.]
Wednesday, April 14, 1999.
U.S. SECURITIES AND EXCHANGE COMMISSION
WITNESSES
ARTHUR LEVITT, CHAIRMAN
JAMES McCONNELL, EXECUTIVE DIRECTOR
Opening Remarks
Mr. Rogers. The Committee will be in order.
We are pleased to welcome today Mr. Arthur Levitt, Chairman
of the Securities and Exchange Commission. He is accompanied by
James McConnell, the Commission's Executive Director.
The fiscal year 2000 budget request for the SEC totals
$360.8 million, an increase of $30.8 million over the 1999
enacted level.
The Commission is responsible for the oversight of the
Nation's financial markets. We are now in the midst of the
longest bull market in history. The numbers are staggering. The
Dow has eclipsed 10,000, up 300 percent since October, 1990.
Between 1983 and 1995, the share of American families who own
stocks directly or through funds doubled to more than 40
percent.
In addition, Internet technology is changing the ways and
the rate at which securities markets do business. This has had
important benefits for investors but also has opened up new
opportunities for fraud. We will want to hear today about how
the SEC is maintaining market integrity and protecting the
interest of investors in such a climate. We would also like to
know what program and administrative efficiencies are being
achieved at the SEC.
Chairman Levitt has appeared many times before the
subcommittee. We have always enjoyed his presence, and we look
forward to his testimony today.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman. Just a couple words
to welcome both Mr. McConnell and Mr. Levitt.
Mr. Levitt is a very distinguished person from a very
distinguished family and a very distinguished State that I live
in, and I take that very seriously. We had an opportunity to
chat about my beginnings in politics, his family and their
contributions to our State. So not only do I look forward to
his testimony, both of your testimonies, but I am also
delighted that he is before the committee today.
Mr. Rogers. Mr. Levitt, we will put your written statement
in the record and we invite your comments.
Introduction
Mr. Levitt. I appreciate the opportunity, Chairman Rogers
and Ranking Member Serrano, to testify here today in support of
the SEC's budget request for the year 2000. I am deeply
grateful for the support the subcommittee has given to the
Commission and its work, and I come before you this morning to
ask that you continue your commitment to America's investors
and to our capital markets. I think that commitment at this
point in time has never been more crucial.
Precedent-setting trading volume, tremendous market growth,
increasing complexity and volatility, globally integrated
markets, and continual advancements in technology have become
the defining characteristics of our markets on the eve of the
21st century. These changes present tremendous challenges for
the Commission. To meet them we seek an appropriation of $360.8
million for the year 2000, which represents an increase of
$19.5 million and 55 staff years over last year's spending and
staffing levels.
Today, approximately 5 million people trade on-line on a
typical day, accounting for approximately 25 to 30 percent of
all retail stock trades. That is men and women all over America
with computers just pounding keys and executing orders, a
phenomenon that existed to a much lesser extent, hardly at all,
as recently as 2 or 3 years ago.
The number of investors in our markets has grown to the
highest level in history. The value of mutual fund assets is
now nearly double the total value of deposits in U.S.
commercial banks. One out of three Americans today invests in
mutual funds. As recently as 1980, that number was one out of
18.
The Commission needs additional resources simply to keep
pace with the demands and the developments of our 21st century
marketplace. Already we are instituting new measures to crack
down on fraud on the Internet, stopping abuses in the microcap
sector, pursuing complex litigation, and protecting the
fundamental building block of investor confidence in our
markets by aggressively pursuing accounting fraud. We are
asserting effective oversight of the exchanges and of new
technologies for trade, reviewing companies' financial
information, initial public offerings and merger and
acquisition filings.
Our request is not just for additional staff. We really
desperately need additional technical resources. It is awfully
difficult to monitor securities fraud on the Internet if you
don't have the technical capability to keep up with the
fraudsters. Our examiners in the field need the tools to
analyze mutual fund data, and our litigators need document
management capability comparable to that of opposing counsel.
Without additional resources, it is obvious that we simply
cannot keep up. I don't say that lightly.
For over 60 years, the Commission has been known as an
efficient and an effective agency. We have leveraged our
resources wherever we can; we have worked with the industry to
create the conditions necessary for strong capital formation,
while passionately protecting the interests of investors.
Today, the Commission is confronted with an almost
unprecedented confluence of challenges that are pushing our
resources beyond their limits. Our fiscal year 2000 request
will help but, quite frankly, only for a short while. I expect
that similar staffing increases will be needed in subsequent
years.
U.S. capital markets are the strongest, deepest and most
liquid in the world. They are fair to investors, they are
efficient for business, and they are vital to our Nation's
economy. I say to you this morning that we cannot take for
granted our international supremacy in terms of capital markets
in the face of unprecedented competition coming at us from
abroad.
I know that you share my commitment to ensuring that our
markets retain their primacy and their supremacy, their
fairness to America's investors, which is our primary mission
and goal. I continue to look forward to working with you as we
try to collectively meet these issues.
Mr. Rogers. Mr. Chairman, thank you for your testimony and
your appearance. We do also this morning have the FCC. That
hearing will take place immediately following, so we will by
necessity be keeping it brief.
[The prepared statement follows:]
FISCAL YEAR 2000 REQUEST
Mr. Rogers. Now, your 1999 appropriation gave you a base
operating level of $330 million, plus additional one-time Y2K
funding of $7.4 million, and your next year's request is for
$360.8 million. That is a base increase of $30.8 million, 9.3
percent. Beyond adjustments to base, you include program
increases of $10 million, including 42 new positions, and $5.9
million for information systems.
As you know, as we talked, our allocation from Congress on
this subcommittee for the year 2000 is going to be very tight.
In fact, it is probably going to be less than last year. So
that means we have to make some very, very tough choices over
here. In the event that that takes place and that we are faced
with some tough choices, we need to know your priority resource
needs. We need to know what you need the most out of the
shopping list that you have given to us. Help us out there.
What would you do?
ENFORCEMENT RESOURCES
Mr. Levitt. I think that, as far as priority is concerned,
by far and away our most compelling priorities are resources
for our Enforcement Division, and those are resources not just
in terms of people power but also in terms of technology. In
the budget we called for an additional 42 positions, 25 of them
going to the Enforcement Division.
INFORMATION TECHNOLOGY NEEDS
Resources for technology will better enable us to not only
monitor Internet transactions, but also using our Division of
Market Regulation, to stay on top of changes that are taking
place in our electronic markets these days. There are now no
fewer than nine electronic markets in America, with new ones
coming on stream almost by the month. Plus some 144 firms are
trading on-line.
So our responsibility is, how do you surveil that activity?
And, more important than that, how can we plan for it? Rather
than thinking in terms of just patching holes in the dike, we
have to make certain assumptions about the future. How many
Americans will be trading? What are the risks involved? What
kind of capacity can these electronic markets handle; and, if
they can't handle it, what backup is there to account for the
kind of disruption that could occur?
Mr. Rogers. Now, you asked for $5.9 million to improve your
information systems--that would be on top of the base funding
of $25 million--and $7.4 million in emergency funding to meet
the Y2K problems. Is that $5.9 million a one-time need or a
base increase?
Mr. Levitt. I think that would be pretty much a base
increase.
Mr. Rogers. Well, that would be a 24 percent base increase
for systems. Is this an area that has been neglected in the
past that we need such a big increase overnight here?
Mr. Levitt. I think if I could relive the past number of
years, I would have made a greater priority of systems
development early on. So much has changed in the country in
terms of what markets and firms are doing that, to some extent,
we are trying to close a substantial gap.
Y2K COMPLIANCE
Mr. Rogers. Now, the money we gave you for Y2K compliance,
how are you doing? Are you compliant?
Mr. Levitt. I sure hope so.
Mr. Rogers. A lot of us hope so.
Mr. Levitt. Probably no issue before the Commission has
consumed more of my emotion than Y2K. We are really placing
great emphasis on it. We meet with regularity with responsible
people within the Commission and vendors. I am cautiously
optimistic, but I have learned that when you deal with
technology, saying anything more than cautiously optimistic is
absolutely inviting problems. I think we are on top of it.
Mr. Rogers. When will you know?
Mr. Levitt. I will have a better idea next week, still a
better idea a month later, and I won't be totally confident
until January the 2nd, 3rd and 4th. I think the 1st is a
holiday.
In August, we will have tested everything, but I will
believe it when I feel it and touch it.
Mr. Rogers. So you are going to have a simulation?
Mr. Levitt. Yes.
Mr. Rogers. In August?
Mr. Levitt. Yes.
Mr. Rogers. Will that be publicly dealt with?
Mr. Levitt. I believe so.
IMPROVED INFORMATION SYSTEMS
Mr. Rogers. Now, investments in systems could only be
justified by demonstrating how they will improve efficiency and
productivity. How will that additional $5.9 million translate
into the real world?
Mr. Levitt. Well, in terms of what we are going to use that
money for, a large part of it will go toward new automated
tools, including automated mechanisms to track and monitor our
examinations. The examination program is particularly important
in terms of new markets, new stock exchanges, new problems in
terms of self-regulatory organizations, broker dealers, and a
multitude of investment companies and advisors.
Second, we are using part of those funds to establish an
infrastructure replacement program and to improve data
distribution to our regions. We have become far more efficient
in terms of improving our regions as part of the overall
structure of the Commission, rather than having separate
fiefdoms in different parts of the country. We are in the
future going to transmit our Commission meetings, our closed
meetings, electronically to most of the major regions in the
country so there can be an up-to-date interface with them.
We are going to further enhance our document and
correspondence management system. We have been inundated with
correspondence since we placed greater emphasis on investor
education. We are getting hundreds of thousands of letters a
year, and a decision that I have to make as a manager is: do I
divert people from our enforcement effort or our market
regulation effort to respond to letters? And, I really believe
that response to letters is absolutely critical. When we go to
these town meetings, I am constantly being called to task by an
investor who said, I wrote you a letter 2 months ago, and you
didn't respond to it. That is intolerable.
Mr. Rogers. You get those letters, too?
Mr. Levitt. We are also going to use part of that money to
improve our imaging, storage and retrieval capabilities. The
paper era is largely behind us. For us to really stay on top of
our responsibilities, we have to use electronics. So that will
account for the bulk of this $5.9 million.
PERCENT OF ELECTRONIC TRADING
Mr. Rogers. Now, tell us, if you know, what percent of all
trades are now taking place electronically?
Mr. Levitt. Twenty-five to 30 percent, and growing.
Mr. Rogers. What was it 3 years ago?
Mr. Levitt. I don't know the answer to that. I would guess
that it was under 10 percent. Probably under 5 percent. I will
get back to you with that answer. It is an interesting
question.
[Clerk's note.--Subsequent to the hearing, the following
additional information was provided:]
On-line trades accounted for approximately 5 to 6 percent
of all retail stock trades in 1996.
INTERNET TRADING
Mr. Rogers. Can you characterize the people that trade on
the Internet?
Mr. Levitt. There is an astonishing array of people; and
they purely anecdotally, range from serious-minded academics to
taxi drivers, every conceivable kind of person--the people that
you generally see accessing the market at the top of constantly
rising market activity, people that are ill-equipped to
understand markets. Day traders in particular are operating in
an environment where fundamentals such as earnings and the
history of the company are totally irrelevant. They are moved
almost entirely by emotion rather than intellect.
Mr. Rogers. Is that somewhat akin to the horse race they
have on the first Saturday in May sometimes?
Mr. Levitt. I think the same emotional impetus is certainly
there. We have developed a culture in America of deifying the
trader. The trader has been written about in books, and we have
seen movies about them. I have the feeling that when they get
before a computer and have the ability to buy or sell hundreds
of thousands of dollars with the stroke of the key, they fancy
themselves as professional traders. However, they lack the
resources, they lack the experience, they lack the temperament
of professional traders, and they operate, in my judgment, at
considerable risk.
Mr. Rogers. I gather that you think it is of great
importance to a person investing in the market to have the
advice and oversight of an experienced trader on the exchange?
Mr. Levitt. Not necessarily. I think some individuals are
prepared to do their own homework, to do their own research, to
ask the right questions. Those people are fully equipped to
make their own investment decisions. But the individuals that
operate on the basis of innuendo or rumor, I think would do
well to seek professional advice.
I think our markets have more than ample room for investors
that do their own research and are prepared to make their own
decisions, investors that wisely seek out the aid of financial
counselors, investors that deal with a combination of both. I
think investors that operate on the basis of emotion will find
that the market is a harsh disciplinarian, and what concerns me
is the large group of investors that have never experienced a
down market. How will they react when our markets cease going
in one direction?
INTERNET ENFORCEMENT
Mr. Rogers. Now, last year we approved a reprogramming
request that you had made to establish an Office of Internet
Enforcement. Last month, GAO testimony to the Senate warned
that increased Internet securities fraud may overtake the SEC's
capacity to respond to that. For example, just last Thursday, a
fraudulent Internet posting, elaborately designed to look just
like a Bloomberg news page, broke a false story about a
takeover of Pairgain Technologies. All of a sudden, a 32
percent surge in that stock based on that false information.
How are you equipped to respond to that type of a case?
Mr. Levitt. We have set up an Internet office within our
Enforcement Division. We have also set up an office in the
Enforcement Division to address microcap fraud. We have also
assigned lawyers in our regions all over the country,
approximately 150 of them, to surveil the Internet.
I am satisfied that we presently are on the track to having
the ability to refer more cases than our Enforcement Division
can handle with their existing resources. By that, I mean a
combination of investor education efforts, a fairly creative
website, and the determination of the Internet fraud office
within our Enforcement Division has developed an unprecedented
number of possible Internet fraud cases. We need more lawyers,
more resources within the Enforcement Division to turn those
cases into real action. But the Internet, at the same time, is
open for everyone to see. If there is fraud out there, no one
perpetrating that fraud can tell when someone from the SEC will
be watching.
So a combination of what we are doing and our investor
education program, which has prompted many, many people to
refer Internet fraud to us, has given us a backlog of cases. We
have brought 66 cases to date. We are going to bring many more
Internet fraud cases in the future.
ADEQUACY OF BUDGET REQUEST
Mr. Rogers. Now, is your fiscal year 2000 request adequate
to address the problem?
Mr. Levitt. I think it probably is adequate. We will
undoubtedly be asking for additional resources to supplement
our Enforcement Division. We need more people power in
enforcement and more technology.
Mr. Rogers. Did you request more from the OMB than we see
today?
Mr. Levitt. We have had some discussions with OMB about
this kind of allocation.
What is the status of that, Jim?
Mr. McConnell. It is ongoing. We did request slightly more
from OMB than is in this request.
Mr. Rogers. For this particular activity?
Mr. McConnell. Not for this particular activity. This is
sort of a new one.
Mr. Rogers. Well, the GAO says you are behind the curve on
this, and we are interested in making sure that you are on top
of the Internet fraud problem. So we would be interested I
think to know what it would take in your judgment, above your
request, to make us feel comfortable and make you feel
comfortable on the Internet fraud issue. If you could reflect
on that and perhaps get back with us with an idea, we would
appreciate it.
Mr. Levitt. I will do that.
Mr. Rogers. Mr. Serrano.
INVESTOR EDUCATION
Mr. Serrano. Thank you, Mr. Chairman.
Thank you for your testimony.
I have a thought and a question, and you sort of spoke to
it but coming at it totally from the other side of where I
wanted to go. You showed concern for people who use the
Internet to invest, play the market, if you will, who may not
be equipped to do so. And I wanted to go in a similar direction
without causing those folks any problem, and that is to find
out what, if anything, we could be doing to add to the base of
investors that we have in this country.
You know, I represent a district, as you know, in the South
Bronx which is a poor district, but there are people there who
are beginning to make their way into the society and beginning
to reach that point where they have perhaps a decent or a
middle income salary. And they don't know the market, no one
ever told them that that was for them, and other than savings
bonds and perhaps a retirement account they never go into that
area.
First of all, my first question, is there anything within
your agency that could be done to educate or to alert other
folks in our society to the fact that there is a stock market,
that there is a way to invest money? Then, on the other hand,
how do we protect them from what you are talking about, the
fact that they may buy a computer and that computer may be the
way to have become then investors and lose their shirt?
Mr. Levitt. I think that the answers to those questions are
related. I think our Office of Investor Education and
Assistance is the best enforcement tool as well as the best
educational tool to protect and enhance investors in our
markets.
In a couple of weeks, I am going to Los Angeles for one of
our periodic town meetings. We expect 6,000 investors to come
out and ask questions about how to pick a broker, how to choose
a mutual fund, how to protect yourself on the Internet. The
Office has produced a variety of terribly important brochures
on how to buy a mutual fund, how to buy a municipal bond, and
how to trade on the Internet. So I think education is a much
better tool than regulation in terms of protecting investors.
People in your district, through 401(k) plans and access to
mutual funds, are in the market more than we may suspect. I
think it is terribly important that they understand both the
opportunities and the risks in the market; and I think the key
to this is taking the time to try to educate them to protect
themselves.
There is no agency in government that has the resources or
the people power adequate to protect people against their own
foolishness, their own unwillingness to take the time to study
the risks and opportunities of investments. I think we are
making great progress today. American investors are better
informed than ever, because the media focuses on it more and,
there is more information out there. But I worry because our
markets have recently become, in my judgment, more emotional
than intellectual and, because of that, the need for education
is greater than ever.
Mr. Serrano. Now, would it be possible then to provide
those educational materials right on the Internet to make it
possible for them to access that as they get into the market,
so to speak?
Mr. Levitt. Yes. We have a site on the web that provides
all kinds of information. Some of the principal questions asked
of me at these town meetings around the country were, ``How do
I determine which mutual fund is best for me, and how do I know
what a mutual fund is actually costing me because I can't
follow what is in the prospectus?''
As a result, our chief economist developed a mutual fund
cost calculator, that we put on the web last week, where one of
your constituents can just get on the computer, put in certain
information and find out precisely how much money he or she is
paying for a mutual fund. Tools like that, I think, will be
very useful to investors. And you are absolutely right, we
should be using the web for education as well as meetings,
brochures, and all the other things that we are trying to do.
BASIC INVESTOR EDUCATION
Mr. Serrano. One last point here. What you are talking
about obviously is to deal with that individual who has taken
that step of deciding that there is a market to invest in. I
also have a concern, and I don't know that it falls within what
your agency does, to introduce a whole new community to the
market. We in this country spend quite a bit of money, not as
much as I would want to, but certainly more than some people
think we should spend, on educating people on everything from
what is in a good education to what vaccines your children
should have and all proper things. But there is at the center
of our existence as a system, as a society, this capitalist
system that we have that functions well for so many people and
could function well for all people, and yet there is a segment
of our society that has no clue, other than paycheck to
paycheck, what it is that they could be doing.
I am suggesting that there are some people, even in my
district, who have now reached the point where they could set
aside a little money every month or whatever to invest, but the
retirement fund that you talk about, that is really not what I
am talking about, because somebody is handling that for them.
So all they know is, I have a retirement account. They have no
clue what it is, and the fact that they can take some extra
money they come across and put it in there on their own.
Mr. Levitt. You are right, and it is something of great
concern to the Commission. We are spending time and effort and
resources on education in the schools. We are having seminars
and meetings in various colleges and high schools around the
country to develop job fairs in those communities to bring
people into the investment business. We are producing our
education brochures in Spanish specifically to get some of
those communities.
Later this month, we are going to have a major savings
campaign to help people understand how they can use our markets
to save for retirement and education. We are combining with
other government agencies to spearhead this effort, so this is
very much in mind.
I also intend to spend time in the schools as well. Last
year, I talked to a group of high school students in Manhattan
and answered questions about the industry, how they can get
into it, what it means to invest, and how important it is to
them and to their families and futures. Yes, we have a role to
play.
Mr. Serrano. Well, I appreciate that.
Let me just close Mr. Chairman, by saying that I certainly
would like to follow up with you on that. There are plenty of
high school students in my part of the world that should know
these things. I invite the Army recruiters to come in. I think
it is okay to invite someone else to come in.
Mr. Levitt. Absolutely.
Mr. Rogers. Mr. Wamp.
INTERNATIONAL ELECTRONICS TRANSACTIONS
Mr. Wamp. Thank you, Mr. Chairman, and welcome. Of the
estimated one-third of the transactions that are electronic,
how many of those are overseas transactions?
Mr. Levitt. Let me seek some counsel on that.
Mr. Colby. Do you mean that come overseas or that go
overseas?
Mr. Wamp. Either way.
Mr. Colby. This is primarily a U.S. phenomenon, primarily
focused on U.S. securities, but--I will have to do a rough
estimate. I would say less than 10 percent involve foreign
securities.
Mr. Rogers. If you don't mind, identify yourself for the
record.
Mr. Levitt. This is Robert Colby, Deputy Director of the
Division of Market Regulation.
Mr. Wamp. Thanks.
I was interested about the Y2K compliance, because all the
hearings that I have sat through, we become more and more
comfortable domestically about the preparation but less and
less comfortable about preparations abroad. And I just wonder
if there is a risk that that percentage becomes a problem for
all of your electronic transactions in the event of nonY2K
compliance, whether it is either--a sale either way. Is it a
problem?
Mr. Levitt. I would be surprised if that was a problem. I
think U.S. broker-dealers are having to go through the process
of determining whether counterparties abroad are Y2K compliant
and how to handle that in the event----
Mr. Wamp. So they protect themselves on the front end to
make sure that their transactions are secure.
Mr. Levitt. They should be.
Mr. Wamp. Either way.
Mr. Levitt. Yes.
Mr. Wamp. What is the percentage of investment from
overseas interest in our markets?
Mr. Levitt. Again, I would ask Mr. Colby to respond to that
question.
Mr. Colby. I don't have a specific number. There is a
considerable investment by large money managers from abroad in
the U.S. markets, but I don't have a number.
Mr. Wamp. So it would be hard to determine exactly where
that money comes from?
Mr. Colby. It comes typically from Europe and the Far East.
Mr. Wamp. Is it mostly public monies or private monies?
Mr. Colby. It is mostly pension monies.
Effect of Market Downturn
Mr. Wamp. In the event of a sharp downturn in the market,
who gets hurt the worst in our society? Who takes the bat
first?
Mr. Levitt. If there is a sharp market downturn, the
investors would obviously be the ones.
Mr. Wamp. I mean, which investors? You talked about the
taxi drivers and the electronic transactors that really don't
know what they are doing. I mean----
Mr. Levitt. I would say careless investors are the ones who
would be affected first.
Mr. Wamp. The rookies, the new guys?
Mr. Levitt. The ones who are investing by emotion, the ones
who haven't had the experience of understanding that markets go
two ways, the ones who haven't adequately considered balancing
their portfolios, the ones who have invested on the basis of
rumor rather than analyzing companies. Everybody will get hurt,
but some will get hurt much worse than others.
Global Impact on Market
Mr. Wamp. Will a prolonged engagement in the Balkans have
an effect on your management or your long-term planning or is
it not really an issue as of yet?
Mr. Levitt. I think at this present point in time it is not
an economic issue. Depending upon the magnitude and duration of
the engagement, of course that could have some economic impact.
But it is very difficult to assess that, except to say that, as
of this point in time, it has not had an economic impact.
Mr. Wamp. In, say, the last 10 years, has there been a
dramatic increase or pretty much status quo in foreign
investments in our market through these pension funds that you
referred to?
Mr. Levitt. I would say there has been an increase.
Mr. Wamp. A dramatic increase?
Mr. Levitt. I rarely use that word when we talk about our
markets, but there has been a considerable increase.
Mr. Wamp. Is the increase from Asia or from Europe or both?
Mr. Levitt. Both.
Mr. Wamp. Thank you, Mr. Chairman.
Thank you, sir.
Mr. Dixon. No questions, Mr. Chairman.
Fee Collections
Mr. Rogers. Now, the budget authority you request for 2000
would come entirely from offsetting fee collections.
Mr. Levitt. Yes.
Mr. Rogers. But I understand that the rate for 6(b)
registration fees continues to decline, as planned, in the
authorizing legislation. I know that the volume of market
activity has so far resulted in greater than anticipated
section 31 transaction fees, but are we nearing the point where
your offsetting fee collection may not be adequate to cover the
requirements of your operating budget?
Mr. McConnell. This is obviously a very difficult area to
estimate because it is based upon market activity, but OMB has
in their long-term estimates identified that as early as 2001
it will be quite close; and, in 2002, there would be a negative
difference in the offsetting collections against what our
appropriation would likely need to be. CBO can give other
estimates as well, but it is certainly coming, and it could be
fairly soon.
Mr. Rogers. What is your reaction to the proposals to cap
fees or to change the fee rates that were put in place in 1996?
Mr. Levitt. That is a very difficult issue. I don't know
what the answer to that should be. I think a cap is a possible
response, but we are dealing with so many different committees
on this and so many different interests, that to balance them
all is almost Herculean. All I can say is that a cap appears to
be the least unreasonable of the solutions that have been put
forward.
Status of Edgar Modernization
Mr. Rogers. Now, last year we approved a very large
reprogramming request for a multiyear investment of $22.5
million in the modernization of the EDGAR database. Are you on
track?
Mr. Levitt. I believe we are on track.
Jim, would you want to respond?
Mr. McConnell. We are in the first year of the 3-year
modernization. The first major deliverable came in on time. It
was a new text management system and a whole new dissemination
system. We are still probably 2 years away from finishing.
Mr. Rogers. Now, that reprogramming was for 3 years.
Mr. McConnell. Correct.
Mr. Rogers. We would like to know annually how you are
doing, and we understand that you will give us an update on
that.
Mr. Levitt. Yes.
Social Security Investments
Mr. Rogers. It is very vital.
Quickly, before we conclude here, there is some discussion
these days about Social Security investments in the market by
the government. What do you think about that?
Mr. Levitt. Well, boy, that is a big, loaded question. In
the event that it is decided to invest some of the Social
Security funds in the equities market, my major concern is
seeing to it that America's investors are educated to
understand exactly what that entails and, depending upon the
number of choices they are given, that investors are educated
to make those choices intelligently. If they are given no
choices, this becomes irrelevant, but it is hard for me to see
any of the plans that I have heard about to date not involving
some level of choice.
Mr. Rogers. One proposal would have the government invest a
portion of the Social Security Trust Fund in the stock market.
What is your opinion on that?
Mr. Levitt. I think that--having the government do it--
entirely by itself creates certain problems in terms of how the
selection of securities would be made. Would the government
then be in a position to politicize the choice of investments?
I think the issue is in sufficient controversy at this time
that I am trying to work closely with both those that, on the
one hand, would give investors the total responsibility for
investing their funds and, on the other hand, those that would
give the government total responsibility for investing funds. I
think both of those poles are practical and political
nonstarters, and I would opt for some balance between the two.
I think giving investors total responsibility creates other
problems. I don't think America's investors are prepared to do
that. I think the cost of doing that would be considerable. So
without weighing into this argument any more, I feel that there
should be a balance between what government and the private
sector do, but I have no inherent objection to Social Security
funds being invested in equities.
Conclusion
Mr. Rogers. Anyone else have any questions?
We thank you, Mr. Chairman and Mr. McConnell, for your
testimony, and we thank your staff. You are riding a wild
bronco over there these days, the market. It is zooming
upwards, and people are trading in so many different ways these
days that no one anticipated.
I know it is a rat race to try to keep up with the
electronic world. You are not the only agency that is suffering
from that dilemma. But certainly we want to help you to do just
that, and we would be very interested to know what additional
monies it would require for you to feel comfortable and make us
feel comfortable in preventing fraud on the Internet
especially.
Mr. Levitt. Thank you very much. I appreciate that level of
support and the depth of the questions that have been presented
this morning. Thank you.
Mr. Rogers. Good to see you. Thank you for being here.
We will stand in recess for 5 minutes.
[Recess.]
Wednesday, April 14, 1999.
FEDERAL COMMUNICATIONS COMMISSION
WITNESSES
WILLIAM E. KENNARD, CHAIRMAN
ANDREW S. FISHEL, MANAGING DIRECTOR
Chairman's Opening Statement
Mr. Rogers. The Committee will be in order.
We are pleased to welcome today, in his second appearance
as Chairman before the subcommittee, William Kennard, Chairman
of the Federal Communications Commission. He will testify
regarding the budget request and activities of the FCC.
For fiscal year 2000, you are requesting a budget of $230.9
million. That is an increase of $38.9 million, or 20 percent
over the 1999 enacted level.
It has been more than 3 years now since the passage of the
landmark Telecommunications Act. In that same 3 years, there
has been unprecedented growth in the telecom sector of the
economy. But there is dissatisfaction with the results so far.
Deregulation and competition have been delayed in many sectors.
Anticipated consumer benefits such as cheaper rates and more
options have not met expectations. There is debate now about to
what extent shortcomings result from deficiencies in the Act or
from the ways the FCC is implementing the Act.
So, we will want to hear today about how FCC resources are
being used to encourage competition and to bring better and
less expensive services to Americans.
Mr. Serrano.
Mr. Serrano. Well, I welcome the gentlemen here. I am very
fascinated by all the work that the FCC does. Such as overseas
communications in this country, and I am very much interested
with this testimony. I may have some areas of concern that
probably are slightly unexpected. Thank you.
Mr. Rogers. Chairman Kennard, we will make your written
statement a part of the record; and we welcome your statement.
Opening Statement of Mr. Kennard
Mr. Kennard. Thank you very much, Mr. Chairman and members
of the subcommittee, for the opportunity to discuss with you
the FCC's fiscal year 2000 budget estimates. I would also like,
with your indulgence, to share with you some of the major
points that are set forth in my written testimony and outline
for you our vision for implementing the Telecommunications Act
and what is happening out in the marketplace and what has
happened in the last 3 years since the Act was passed.
In 1996, we began the process of updating the rules for
what we call the ``new economy,'' which is really an economy
driven by information-age technology. It is centered on skilled
workers, broad access to technology and entrepreneurial
markets. We recognize that, as we make this transition from a
monopoly environment to a more competitive environment, as the
marketplace changes so must the FCC. I sincerely believe that
the old top-down regulatory model of the industrial age is as
out of place in this new economy as the old rotary telephone.
So what are we doing about it? We are working very hard to
change and restructure and update the Federal Communications
Commission. I recently released a report entitled, A New
Federal Communications Commission for the 21st Century, which I
have submitted for the record in this proceeding; and with your
indulgence, Mr. Chairman, I would ask that it be submitted with
my testimony.
Mr. Rogers. Without objection.
Mr. Kennard. Essentially, the plan outlines a 5-year vision
for how the FCC must change with the marketplace. It sets forth
the core functions that the FCC would revolve around, which
would be universal service, consumer protection and
information, enforcement and promotion of pro-competition goals
domestically and worldwide, and our core function of spectrum
management.
The steps we are taking to transition to this model include
restructuring, streamlining and automation, deregulation and
implementation of this 5-year strategic plan.
Our primary goal must be to continue opening markets to
competitors to bring more choices at affordable prices to all
Americans and, at the same time, we have got to make sure that
the public is provided with clear information so that they can
make sense of all of these new technologies and services so
that they can choose what is best for them. We will continue to
enforce the law that you have written, resolve industry
disputes, manage the spectrum and work in international
coordination.
Finally, we will monitor the competitive landscape on
behalf of the public, implementing important policies such as
universal service in ways that are compatible with competition.
Of course, we can't do this alone, and we look forward to
your continued support and working closely with you as well as
industry, consumers, and State and local governments as we move
into the next century with a new and updated FCC.
Now, of course, this will also require budgetary support.
As you mentioned, Mr. Chairman, the FCC is requesting a fiscal
year 2000 budget of $230 million. That would allow us to have a
staff of 1,930 full-time equivalents. This represents an
increase of almost $39 million over the FCC's fiscal year 1999
funding level but no increase in staff.
That increase really falls into two categories. One is the
money directly related to the FCC's recent relocation to the
Portals Building, approximating $20 million, and the remaining
increase covers mandatory salary and benefit increases, $6.8
million, and $11.3 million for increases in automation
enhancements. These automation enhancements are very important
to the FCC as we try to transition to a new structure, because
we need to ensure that the people that have to get licenses
from the FCC and deal with us day to day can do so in a
paperless world so that we can speed service.
We are also paying for this increase through regulatory
fees and not a direct appropriation, which I believe is
significant. We are anticipating an increase in our regulatory
fee collection from $172 million in 1999 to $185 million in
2000.
Also, to make this transition we are going to need
additional tools. We are requesting buyout authority so that we
can redeploy our resources and bring in a different mix of
employees as the mission of the agency changes. We have also
requested legislation to be able to get licenses out of
bankruptcy, licenses that have defaulted in the auction
process.
In sum, Mr. Chairman, I do believe that the 1996 Act is
working. We see this every day in the marketplace. All of the
economic indicators in the telecommunications and information
sector are up--job growth, stock values, revenues. Consumers
are enjoying in most cases more choices and lower prices,
particularly in long distance and wireless services. We are
working hard to bring those same benefits to local phone
service and cable television service.
We are also pleased to report that the FCC has made
substantial progress in alleviating its Year 2000 compliance
problems. By the end of this month, we will be 93 percent
compliant. That is, 93 percent of our systems, internal
systems, will be compliant; and we fully expect to be compliant
well before the end of the year for 100 percent of our systems.
The bottom line, though, is that this transition from
monopoly regulation to open markets is not complete. The job
that you gave us in the 1996 Act is not complete. We still have
much work to do to promote competition in all sectors of the
communication's marketplace, to protect consumers in this new,
more competitive marketplace, and to ensure that all Americans
have access to the wonders of the communications revolution.
So our agenda in all of these areas is a full one, Mr.
Chairman. I believe it is a very important one, and with your
support I am confident that we will succeed. Thank you.
Mr. Rogers. Thank you.
[The statement of Mr. Kennard, the Chairman's Agenda for
1999, and a report entitled ``A New Federal Communications
Commission for the 21st Century'' follow:]
PORTALS COSTS
Mr. Rogers. Now let's talk about the Portals II building
again. Let me summarize for those who may have missed the last
few years.
In 1997, in an arrangement that we found out about after
the fact, GSA and FCC had secretly entered into an agreement
where GSA would front all the money for the costs of the move
to the Portals, knowing that we refused to fund it, and FCC
would pay 80 percent more rent per square foot and that the FCC
would seek increased appropriations to repay those costs.
Well, we were never a party to that agreement; and, as a
result, the Congress did not approve those increases in fiscal
years 1998 and 1999.
Now, you held up your end of that bargain with GSA. Your
request for fiscal year 2000 again includes $20.3 million for
Portals-related costs and indicates that you intend to request
an additional $70 million over the following 9 years.
Well, I can tell you right now that as long as I sit in
this chair we are not going to provide that money. Last year,
you were concerned that the FCC's appropriations could be
debited for the amounts owed for rent, necessitating deep
program cuts. It seems that, instead, you arrived at an
understanding with GSA and that FCC operations will not, in
fact, suffer despite the absence of appropriations for those
Portals-related costs. Is that correct?
Mr. Kennard. Well, we have--I hope you will understand, Mr.
Chairman, the predicament of the FCC. When I was here a year
ago testifying before this subcommittee, the FCC faced a very
difficult dilemma. We were ordered by GSA to move. We had no
choice. GSA has the legal authority to order us to move, and
they did just that. We did make the move.
I was concerned then that not having any certainty about
how we would be able to pay for the move would put us in
jeopardy. I still am uncertain about that. We are working with
GSA closely to make sure that our programmatic activities are
not jeopardized by this move. I am cautiously optimistic that
we will be able to work these details out with GSA, and I would
be happy to report back to you in about a week's time hopefully
with something more definitive on that.
Mr. Rogers. Well, before your tenure, GSA and FCC made
their bed. Now let them sleep in it. This subcommittee all the
while said, we would not pay the costs of the move, and you
went ahead anyway. So if that is the way you want to do it,
then that is the way it will be done. But don't look to us to
bail you out. And we are not going to provide $70 million on
top of everything else to pay for somebody else's mistake.
And there has been an arrangement made, as I say, that
protects the FCC from taking these monies from other places in
order to pay the GSA for this exorbitant rent, so we are not
going to stand for that.
So we look forward to something better out of it. I realize
you are stuck in the middle here, but--and OMB is calling the
shots here. I understand that, too. And it seems like every
hearing we have, it is the OMB that is doing some damage, and
they are not here. They ask agency heads to come, having
written their script for them, and you have no leeway.
And I think--I have said this before to our other
agencies--I think from here on out on this subcommittee we are
going to ask the relevant OMB person to sit here beside you so
that we have somebody to pick on. We ask you, and you say,
well, it is OMB; and OMB is not here to say, no, it is not us,
it is him. So I want both of you in the room at the same time.
Because this just is not going to work.
So just relay the message to OMB. It is not necessary to
ask us to foot the bill for the Portals in 2000 or beyond.
Because it ain't going to happen.
Mr. Kennard. Well, it is very clearly understood, Mr.
Chairman. But I hope you understand that my duty, of course, is
to implement the law and to follow the law. And the Federal
Communications Commission was ordered to move by GSA. We didn't
have any choice in the matter. We have worked closely with GSA
to try to make this situation work so that the agency that I
head can continue to operate and serve the public and fulfill
our statutory duty. I don't see that we have any choice in the
matter, and we will certainly do everything we can to cooperate
with you and this subcommittee to make the best of this
situation.
Mr. Rogers. Well, at first, the previous cost estimate of
the move was $40 million. We objected to that price tag as
being too high; and we urged that it be brought down, which you
were never able to do. We declined to appropriate any funds for
that relocation in the last 4 years.
The costs are still estimated at around $40 million, but
because of this deal with GSA and FCC, you would front the
money. Supposedly, we would give you the money, and they would
amortize this payment over 9 years, but that would increase the
cost to us to $78.3 million. And I will not participate in that
kind of a fraud, especially since we were never consulted about
it, the Congress. And so I think you can see why we feel
strongly about this, do you not?
Mr. Kennard. I beg your pardon, sir?
Mr. Rogers. Do you see why we feel badly about this?
Mr. Kennard. Yes, I do understand your frustration. And I
must say that I have had my share of frustration as well, Mr.
Chairman; and what we are trying to do at the FCC is make the
best of this situation.
Mr. Rogers. Mr. Serrano.
minority-owned and minority-formatted broadcast stations
Mr. Serrano. Thank you, Mr. Chairman.
Obviously, we could discuss quite a bit about the physical
aspects of your operation; and we will do that, given time. I
want to touch on some of the issues that you deal with.
For instance, I understand that the FCC earlier this year
released a study, conducted a forum on the impact of
advertising practices on minority-owned and minority-formatted
broadcast stations. Could you please tell us a little bit about
this study and what will happen now?
This issue, incidentally, is one that is taken very
seriously in my home State in terms of some allegations and
some information about how people advertise on these stations.
Will you fill us in?
Mr. Kennard. Certainly. The FCC commissioned a group to
study the impact of advertising decisions on minority-formatted
broadcast stations and minority consumers, and what we found
was really quite remarkable. We found that advertisers are not
advertising on minority formatted stations. We are not talking
about minority-owned stations, but minority-formatted stations,
stations that serve minority communities.
In some cases, advertisers are issuing outright dictates:
Don't advertise on Hispanic stations or Spanish language
stations or stations serving African-American communities. In
other cases, we found that they were advertising on those
stations but only after receiving a fairly steep discount.
We found that this was a situation where stereotypes among
some members of the advertising community were really hurting
consumers, because consumers weren't getting the information
they need that should be provided over the broadcast airwaves.
And so we issued this report. We have held a lot of meeting
cooperatively with some advertisers to try to shed more light
on this situation so that we can rectify it so that consumers
get their fair share of information.
Mr. Serrano. Now, I am on the side of some folks who want
this issue to be handled. I mean, we can't force people to
advertise on WAD and WSKQ in New York to a Spanish audience or
LIW to an African American audience, but we know they should.
So what is available to us, to all of us, to get them to do the
right thing?
Mr. Kennard. Well, there are a number of things we can do,
Congressman.
First of all, we can shed light on the problem. I have
talked to a number of advertisers who didn't even know that
these what they call ``no-urban dictates'' or ``no Spanish
dictates'' practices exist. I have worked with the American
Advertising Federation to urge them to educate their members to
adopt voluntary codes of conduct.
We are not talking about government mandates here. We are
talking about getting the advertising industry and the
broadcast community to work with minority communities to try to
understand better this problem, why it exists and try to
address it.
Mr. Serrano. You know, it is interesting to me that this is
happening, and maybe you could shed some light on why this is
happening. Some advertisers would have no knowledge basically
that this market may exist or it exists in the form that they
should be in it. It comes at the same time that you see more
and more advertising directed at my community and at the
African American community.
There are now more African American actors and actresses
working in commercials, pushing products, and there is more
Spanish thrown in along with salsa music or Tejano music in the
background. While this is happening, there is one other
problem. I can't believe that these people are just totally
dumb to the market. Is it just that they haven't paid
attention?
Mr. Kennard. Well, in conducting this survey we surveyed
some 3,900 radio stations and advertisers and found that their
reasons varied. It is a somewhat complex problem.
In some cases, advertisers were not relying on quality
demographic information. They didn't know who exactly was
buying their products necessarily or didn't realize that, in
many minority communities, there was untapped purchasing power
for some products. Some advertisers admitted that some of these
decisions were based just on stereotypes about who they wanted
associated with their product, some of the really most
outrageous and cruel stereotypes in our society.
So by shedding some light on this situation I think that we
are making progress. Some advertisers have agreed to adopt a
voluntary code of principles that I proffered, and I am hoping
that others will and that we can, at least for a good segment
of this marketplace, make some progress.
Mr. Serrano. I encourage you to let them know that our
community is just as good at drinking Coke and Pepsi as
everybody else. They should know that.
Mr. Kennard. Thank you, Mr. Serrano.
Y2K COMPLIANCE
Mr. Serrano. I know you touched on it, but just to fill me
in a little bit more, how secure do you feel that your agency
will take care--not take care of the Y2K problem, but be in
shape for it? Because, I can't picture you guys falling apart.
Mr. Kennard. We are in pretty good shape. As I mentioned
earlier, by the end of this month we hope that 93 percent of
our systems will be Y2K compliant and validated as such. There
are two systems that we are still working on, but we expect
that they will be fully compliant well before the end of the
year.
MONITORING THE AIRWAVES
Mr. Serrano. I have, Mr. Chairman, one more subject I want
to touch on at this moment. It is something that has always
fascinated me as to how these decisions are made.
My understanding is, and I hope I am talking to the right
agency, that you oversee, you monitor, if you will, you accept
complaints about monitoring what goes on the airwaves; and,
therefore, you at times levy fines for behavior on the
airwaves. And I know in the last 2 years you have made--you,
the Treasury, whatever--made a lot of money off Howard Stern
and the Howard Stern conglomerate. Yet I wonder how those
decisions are made and who determines what is offensive to
them.
For instance--and I am giving these people free publicity--
I don't know that Jerry Springer has been fined. I know Stern
has been fined. And, I don't know that HBO's total lewd
programs after hours--and let me preface by saying that, I am
your classic liberal who believes that you just have to turn it
off. You don't have to be taken off the air. But, I don't hear
that they are fined. I know Stern has been fined in the
millions. How are those decisions made?
Mr. Kennard. Well, we make those decisions based on a
provision in the law which requires the FCC to act on
complaints for indecent broadcasts over the airwaves. It is an
area that has evolved over time.
In the case of Howard Stern, in his broadcasts, the
Commission went through a period of about 5 or 6 years ago when
there were a lot of complaints, actionable complaints against
the Stern show. We worked with that company to make sure that
they put some controls in place to tone down the program. They
have a 7-second delay on the Stern show, and the complaints
subsided somewhat.
But we still are levying fines against indecent broadcasts.
I believe that we have at least one complaint that I know of
against the Springer show. I don't know exactly--I haven't
looked at it personally. I don't know how it will be disposed
of, but it is a delicate area because, obviously, there are
First Amendment concerns involved there, and we have a
definition of indecency, and we apply it in a given case. It
only applies, though----
Mr. Serrano. But, the definition of indecency is one that
we have discussed over and over in this country. In fact, it is
perhaps, I think, at the center of the debate between many
political people in this country, and you interpret that,
right? So you could interpret it one way one time and another
way another time.
Mr. Kennard. Yes.
Mr. Serrano. And in the case of the Stern show, it was
interpreted very heavily against that show while not heavily
against other shows is my point. I mean, we are talking about
millions of dollars in fines, right?
Mr. Kennard. That is right.
Two points: First of all, we react in response to
complaints. Some shows just don't get complaints. We don't have
a team of people monitoring the airwaves and deciding to act on
our own motion.
The second point is that this definition is somewhat of an
evolving one because, under our law, we have to apply
contemporary broadcast standards, and that standard evolves
over time.
So I don't want to give you the impression that we have
only focused on Howard Stern. He has probably been the most
high-profile target of complaints over the past several years,
but we have processed complaints against many, many other
broadcasts, and those complaints have been acted upon.
Mr. Serrano. Let me, just before I turn over my time, Mr.
Chairman, say that while it may not seem like an important
issue it certainly was a New York issue since the program was
based in New York, and I do believe that your predecessors, or
whoever did target that program--and I am shocked to find out
that it is based on complaint. I thought you monitored
yourself.
Mr. Kennard. No.
Mr. Serrano. So if I dislike a program--it is interesting,
it is ironic that people listen to the program to complain
about it, and as they fall down on the floor with laughter then
they come back and are outraged by that laughter. So I am
surprised and shocked that the FCC doesn't monitor it, rather
than accept complaints.
Mr. Rogers. Mr. Latham.
E-RATE PROGRAM
Mr. Latham. Thank you, Mr. Chairman.
Welcome, Mr. Kennard. I just have one question.
On January 29th, the Commission adopted a declaratory
ruling which essentially prohibits the Iowa Communications
Network from being eligible for Federal E-rate funds under the
Telecommunications Act of 1996. I would just say it is bad
enough for Iowans to have to pay the E-rate tax, which I don't
think is legal anyway, but not to be able to benefit from the
taxes that we pay really adds insult to injury. Even
Commissioner Furchgott-Rott thinks the ICN should be eligible;
and he said, and I quote,
the Commission should not support such a strict interpretation
of the rules that disadvantages State-based networks when the
Commission continues to allow noncarriers such as large
computer companies to receive money for providing other
services under section 254.
He goes on to say that
these State education networks are closer to being eligible
telecommunication carriers than many of those who are receiving
universal service support today.
So can you tell me, why are Iowans paying taxes to the fund
when they are basically penalizing the State for being forward-
thinking and setting up a telecommunications network, but we
cannot access the funds?
Mr. Kennard. Sure. I would be happy to.
First of all, let me say that I hate the result in that
case. I don't like the result in that case, and we struggled a
lot with it. At the end of the day, though, we determined that
we just did not have the statutory authority to reach any other
result.
The Communications Act is very clear that in order to
qualify for funding for this program, for the E-rate program,
the applicant must be a telecommunications provider, and has to
be a common carrier. One way to solve this problem would be for
the Iowa legislature to determine that this particular network
is a common carrier, and that would clearly solve the problem.
We had a lot of contact with the governor in Iowa and the
governor's people to see how feasible that was, and we were
told that it wasn't very feasible, and we had to go ahead and
issue our decision.
I agree with you. I don't like the result, but we are
ultimately bound by the statute.
Mr. Latham. So what do I tell my constituents when they pay
this, I think, illegal tax, but they can't get the benefits?
Mr. Kennard. Well, I think the solution is pretty clear for
Iowa, and that is that if the State legislature would pass a
bill that would determine that this network is a common carrier
for all purposes, we would easily, happily, include them in the
E-rate program. But, unfortunately, until we have that change,
we are boxed in by the statute.
Mr. Latham. I am not sure I am going to buy that either.
Thank you, Mr. Chairman.
Mr. Kennard. Thank you.
INFORMATION TECHNOLOGY FUNDING
Mr. Rogers. Mr. Dixon is next, and he has gone down
temporarily to vote. Until he comes back, I will fill in with a
couple of questions before we recognize Mr. Wamp.
Now, the only program increase you are seeking that is not
related to Portals is $11.3 million for information technology.
Mr. Kennard. Yes.
Mr. Rogers. Last year, you asked for an increase of $5.8
million for Y2K and indicated that the funding was necessary to
keep Commission-critical systems functioning. You got more than
that, $8.5 million, in fact, from the fiscal year 1999
emergency Y2K funding. $6.5 million of that money was for
replacement of Commission modernization critical systems.
We also last year approved a reprogramming of $3.9 million
in excess fee collections, again for Y2K-related improvements.
Finally, you are devoting $11.3 million to information
technology from your fiscal year 1999 base.
So all of that totals $21.7 million within the last year
that you have devoted to base, one-time funding to improving
and surveying your automation systems and get those systems Y2K
compliant. We assume that the funds for Y2K should represent
one-time needs and that those fixes should be accompanied by
streamlining and linking systems. How is it that you require an
additional base increase of $11.3 million in fiscal year 2000?
Mr. Kennard. Well, first of all, Mr. Chairman, let me thank
you for the support that you gave us last year in enabling us
to upgrade our systems and make them Y2K compliant. The reason
for the additional increase really falls into the category of
continuing system upgrades and maintenance requirements.
The FCC does a lot of its business electronically. In 1996,
just 3 years ago, we would get about an average of 19,000 hits
per month on our e-mail system, our web site. That number is
now over 400,000 hits per month. In addition, we do an awful
lot of our licensing electronically. In fact, we are in the
process of trying to convert and have converted a number of
these systems electronically. So our telecommunications needs
have increased.
I do think, though, that the budget is quite modest. For
example, if you compare the FCC's expenditures in the
information technology area with an agency like the Federal
Trade Commission, for example, we have significantly more
employees, and significantly more electronic filing
requirements, but our budget request is about the same.
Mr. Rogers. Well, as you know, we are under extremely tight
budget caps, and we will have less money to deal with this
year, so we have to be very careful on how we spend our monies,
and we have to insist that you do the same. We don't want to--
we want to make sure that you are not using Y2K funds as part
of your recurring base. It truly is a one-year expenditure.
So we want you to look through your list of planned
expenditures. Some are probably more crucial than others, and
we would like you to scrub that list and let us know which
items are of the highest priority in case we don't have the
funds to fund all of them. We want you to focus, of course, on
your truly mission-critical needs as you rescrub that list.
Mr. Kennard. We will absolutely do that.
If I might comment, first of all, I wanted to emphasize
that the funding for our IT needs would be from regulatory
fees, and we are not requesting a direct appropriation to do
that. Second, as we go through that list, I am sure we will
determine that--in fact, I know we will--determine that much of
this is for upgrades in maintenance, for not inputting in new
systems.
Mr. Fishel.
Mr. Fishel. As we have worked to put in place the Y2K
systems, and they will be in place by this year, they now will
need to be maintained and continually upgraded as new software
developments come out. So even after you put those systems in
place, it can't be the end of the funding for those new
systems.
Mr. Rogers. Mr. Dixon.
STATUS OF PORTALS MOVE
Mr. Dixon. Thank you, Mr. Chairman.
Chairman Kennard, may I just gingerly return to the Portals
issue that is continually raised every year. As you can see, it
is a festering issue with the committee, and it certainly
impedes progress to come up every year on what I would consider
a losing battle.
First, what is the status of the move? As I understand it,
there is only a partial move at this time, but I may be totally
incorrect.
Mr. Kennard. Well, virtually all of our organizational
units have now been moved to the Portals. We will be completed
with--everyone will have moved into the building--by June of
this year.
AMORTIZATION OF PORTALS FUNDS
Mr. Dixon. And as the Chairman indicated, there is a
proposal to amortize this over 8 years at roughly $8.7 million.
Now, where did this come from? I mean, was this something your
staff came up with, or was this something imposed by OMB?
Mr. Kennard. Well, Mr. Dixon, we have had to work very
closely with GSA to figure out how we were going to be able to
make this move. As you know, this move has a long and tortured
history; and when GSA ordered the FCC to move, we were in the
position of having to find out how we could make the best of
this situation. We didn't have the money in order to make this
move out of our appropriations. GSA has offered to make the
move possible by basically loaning us the money, with the
understanding that we would continue to press for money out of
our appropriations, and we have continued to work out those
details, and out of that process came this decision.
Mr. Dixon. Assuming that your bill moves forward and you
receive no money through conference, what is the impact on your
budget? I mean, is there a direct impact? If you don't get the
$8.7 million--and there is express language in the bill that
says that no money shall be paid to GSA for reimbursement for
moving what position does that place you in? Because I would
think it should not impact your budget at all and you just tell
GSA to go talk to Chairman Rogers and the committee. Is that a
fair assessment?
Mr. Kennard. We would be severely at risk in that
situation, because the money has to come from somewhere. If the
money is not appropriated in our budget and GSA doesn't agree
to pay the money, my understanding is that GSA has the legal
authority to pull the money out of our appropriated funds, in
which case that could have a devastating impact on the FCC. We
are a small agency, as you know. A $9 million hit from our
budget, unplanned for, would be devastating; and, basically, a
lot of the work at the agency would just halt.
Mr. Dixon. Well, Mr. Chairman, I really think that your
suggestion is a good one. If the Senate feels as strongly as
this committee, I think it is unfair to Mr. Kennard, and it is
certainly a policy issue as to whether GSA or the executive
branch wants to cripple another agency of government by taking
$8.7, million out of its budget. Maybe we could be helpful by
making it clear to them that we are never going to pay this,
and that they should not penalize the FCC and leave you as a
have a man in the middle here.
OVERLAY OF AREA CODES
Mr. Dixon. I would just like to move on to a couple of
other things, and one that I think your staff has talked to you
about, and I raise it because it is a local concern in
California and Los Angeles, but I suspect it is ultimately a
national concern. That is number allocation. In my community in
particular, but in other communities as well, people are
complaining about what they perceive as an additional technical
burden, and that is the aea code overlay.
As you may know, the California PUC has ordered an overlay
starting on July 17th, one of probably more to come. And as I
understand it, and we have had some brief discussions, in part
it is a shrinking of alternatives of State utility commissions
based on a ruling that you have made--not you personally--but
that the FCC has made as it relates to segregating an area code
or codes for cellular or particular phones. It appears to be
creating some hardship on communities with what we call an
overlay.
The first thing, as I understand the law, there is a
procedure for a waiver, and that all waivers thus far have been
turned down. But before your ruling, New York went ahead and
issued, in fact, an edict that in your view is discriminatory.
Is that about where we are?
Mr. Kennard. Well, the----
Mr. Dixon. I think it is of national concern. If I call my
neighbor right next door, I am going to have to go ultimately
to, what, 10 digits or something.
Mr. Kennard. Yes, the broader context here which you put
your finger on is that we are running out of numbers, because
more people are getting computers and faxes in their homes,
more people are getting cell phones and PCS phones, and so we
just don't have enough numbers to go around. So we have in
place what is, in effect, an interim plan. We are trying to
give as much authority to the States as we can to deal with
these number administration problems on their own.
But you gave us exclusive authority over this issue, and
you delegated some of our authority to the States with one
important caveat, and that is, we want to make sure that the
States administer numbers in a way that doesn't frustrate
competition, and that really creates some problems. For
example, if the State decides that if you are a wireless
provider and that your customers have to be stuck with the new
area code, that would be a competitive issue. So we have to
work with the States to make sure that they are exercising
their authority in a way that doesn't frustrate competition.
The second thing we are trying to do, which is very
significant, is to come up with new ways of administering the
numbers in smaller blocks. Right now--
Mr. Dixon. Other than the 10,000 block?
Mr. Kennard. Yes, right. This spring we are proposing rules
that would hand out numbers in 1,000 blocks, and that would
significantly increase our ability to conserve numbers. In the
meantime, though, we will continue to work with States to give
them some flexibility in doing splits and overlays and dealing
with the number exhaust problem.
Mr. Dixon. Do I understand that you are trying to work out
an arrangement where you will be issuing numbers in less than
10,000?
Mr. Kennard. Yes. In order to conserve numbers.
Mr. Dixon. Right. And will that substantially alleviate the
problem?
Mr. Kennard. It will help. It is one of a number of
proposals to help with the problem.
The other thing that we have done is to require 10-digit
dialing when there are overlays or splits; and we've found that
in many States, although there is a lot of initial concern and
publicity around this, once the 10-digit dialing is
implemented, people adjust to it quite readily, and it is not
the problem that people anticipated. So knowing that and
dealing with the 1,000 block conservation----
Mr. Dixon. Where do you get that information, Mr. Chairman?
Mr. Kennard. This is what they tell me.
Mr. Dixon. Well, for instance, if my neighbor moves and
after a certain date a new person moves in, they will have, as
I understand it, a different area code.
Mr. Kennard. Depending on where they live, yes.
Mr. Dixon. Right. So it does cause confusion if another
friend of mine knows my neighbor and knows that I am 310 and
assumes because this person is next door that they are 310, but
it turns out they are really 424. I am not saying that it is
anyone's fault, but I think it is a tremendous political
football that maybe the FCC should be more aggressive in
explaining.
I don't think it is your fault, but I raised the issue once
and now even my staff is telling me, no, this is FCC's fault
because they have limited options.
The States are going to continually say that it is your
fault. I have a letter here where the California PUC says they
are coming back here in the latter part of April, if they
haven't been out here, to ask for a waiver. One member of the
State legislature has introduced a bill that prohibits the
issuance of new area codes. Now, he is a lawyer, and he knows
that he can't get away with that.
I just think somebody has to be more aggressive in
explaining to the consumer what is happening. I am in an area
code that is affected; and other than a few small articles,
everybody is passing the buck.
Mr. Kennard. I think that is a very good suggestion. We
have sought to work closely with the States and to delegate
more authority to the States on this issue because, frankly, we
feel that they are closer to the situation, and they know more
about the local politics.
Mr. Dixon. Yes, and their position is, we only have three
bad choices. One is to split an area code; one is to overlay;
or, three, to realign. And they are saying, they are being
restricted.
All I am saying is that this is a festering problem in more
and more communities--and New York is always cited as getting
in before the barn was closed, and it is leaving a bad taste in
Massachusetts which has tried to make an appeal. California is
going to try to make an appeal, and pretty soon we are going to
be marching on New York trying to destroy all of their
equipment because it is unfair.
Mr. Serrano. You are lucky I wasn't listening.
Mr. Dixon. So I am just raising it because I know that, in
my local community, we are going to get a lot of phone calls
about, one, I have to dial all of these digits and, two, the
woman down the street has a different area code than I have.
Mr. Kennard. I was just handed the web site from the
California PUC which does a fairly good job explaining on their
web site what consumers need to know about these changes. But I
take your point. I think that we need to do more. For example,
in Florida they do media campaigns and the people on the Public
Utility Commission actually take to the airwaves and explain
what is happening with some of these consumer issues. So I take
your point; and when we meet with the California PUC later this
week, we will be sure to raise this concern.
Mr. Dixon. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Wamp.
Bell Operating Companies' Long Distance Applications
Mr. Wamp. Thank you, Mr. Chairman.
Welcome, Mr. Chairman.
Two points here. Three years after the Telecommunications
Act, it is my understanding that Bell Operating Companies'
long-distance applications are still held up; and I just
wondered what the status is on trying to break that logjam.
Mr. Kennard. Certainly. Well, we don't have a Bell Company
application before us right now. We are optimistic that we will
see some applications very soon. We are working very closely
with the Bell Companies and various State regulators.
As you know, the States have a strong role in this process
as well, and I expect that this year we will see applications
from a number of States, and hopefully we will get applications
which we can really work with.
Mr. Wamp. Is there any reason that a State public service
commission should withhold approval of a meritorious Bell long-
distance application right now, based on a recent Supreme Court
ruling?
Mr. Kennard. Well, the short answer is no. The more
complicated answer is that the Supreme Court issued an
important decision in this area in late January which remanded
an issue back to the FCC for further consideration. And we are
working with the States to explain that process and try to give
them a little bit of certainty so that it doesn't slow down the
271 process. My goal is to keep this process going.
Products Targeted to Minors
Mr. Wamp. Okay. Secondly, and this is much more
complicated, I met with you last year on an issue that I really
think hasn't gotten enough attention, and that is the fact that
in the last 4 years we have heard a lot about Joe Camel, but we
haven't heard much about the Budweiser frogs, and the issue is
whether or not beer wholesalers or beer companies are targeting
their product to minors.
If you go, as I did last year, to Florida for spring break,
granted you can go to the right place or the wrong place, but I
went to the wrong place. I saw a sickening tendency of minor
consumption of beer to the point of people being injured, just
sick, just ridiculous behavior, and I can't help but believe
that that is taking place, that being the targeting of beer
products over television at our kids, young kids. And I just
wondered if the FCC is monitoring this, if they are studying
this, if there is a major effort to determine what kind of
devastation this can cause. I just think that it is getting out
of hand.
The cigarette attention in many regards to me is not near
as important as this attention. Because alcohol kills people,
abuse of alcohol; and, frankly, beer by teenagers is every bit
as deadly as any drug that they can consume if it is abused;
and it is being abused by teenagers, by minors. I just wondered
what your role is there or what help you need to determine
whether or not these beer companies are acting in an improper
way.
Mr. Kennard. I think it is certainly a serious issue, and
one that may warrant further study.
I know that Congress directed the Federal Trade Commission
to look into the issue of distilled alcohol advertising on
television, and I am not exactly sure what the status of that
review is, but I know they have a few proceedings going. So I
know that the Federal Trade Commission is doing something in
this area. If there is sentiment in Congress that the FCC, in
its role of evaluating public interest obligations of the
broadcast industry, should have a role in this area, then I
would certainly suggest that the Congress make those views
known to the FCC through legislation or otherwise.
Mr. Wamp. Thank you.
Thank you, Mr. Chairman.
Fee Collections
Mr. Rogers. This committee provided you with an overall
funding level of $186.5 million, after we stipulated that it
would be offset by fee collections of $162.5 million. I
understand that in fiscal year 1998, for the first time, you
were not able to collect the amount of offsetting fees that we
designated in bill language. We asked you to look into it, and
I wondered what you found out so far.
Mr. Kennard. Well, on the collections issue, we are still
trying to collect some of the fees that we assessed last year.
I will allow Mr. Fishel to give you more detail on the status
of that.
Mr. Fishel. We continue to review who has paid and how much
they have paid. Since the beginning of this fiscal year, we
have collected over $1 million in fee payments that should have
been paid last year. So we continue to try to collect that.
The fee process is established in statute and provides a
rather complicated formula by each of the licensees on how much
they should pay, and we continue to work inside the agency to
make sure that all of the licensees understand their
obligations.
Mr. Rogers. Well, we asked you to look into why it took
place. Can you tell us why it took place, why they didn't pay?
Mr. Fishel. In some cases, the industry projections about
how much earnings would be made and therefore, how many people
would be taking part in that particular industry, particularly
in the telephone area, there was a substantial reduction in the
amount of revenue coming in, which constitutes about half of
the shortfall that was not paid into the regulatory fee
program.
Mr. Rogers. And what are we doing to avoid another
situation like that in fiscal year 1999?
Mr. Kennard. One thing I think it is important to point
out, Mr. Chairman, is that in order to accurately collect these
fees we have to make some assumptions about what is going to
happen in the marketplace. We have to make assumptions as to
deployment of technology, assumptions as to what rate levels
consumers will be facing, and this marketplace is so dynamic,
it is changing so fast, that we are being challenged
increasingly to make these projections when the target is
moving.
Now, the only silver lining in this cloud that I might
point out is that the reason why our collections in the
telephone industry were not what we projected is that consumers
saw rate reductions that were more than we anticipated. I think
as a result of more competition in the marketplace, rates have
been going down for telephone services, so our projections were
off. We will continue this year to try to make more accurate
projections.
Mr. Rogers. Well, is part of the problem the inability of
your systems to adequately track who has paid and who has not
paid?
Mr. Fishel. Yes. We are aware of that, and we are actively
working on a process that would actually allow us to identify
all of the licensees and more accurately match up whether or
not they paid and how much they paid.
Mr. Rogers. I understand GAO is also looking at this, so we
will get their report later in the summer, and we would like to
hear from you as well.
Mr. Kennard. Certainly.
CALEA
Mr. Rogers. Now, on CALEA, this matter comes to this
subcommittee from two and three different places--namely, the
FBI and the Justice Department, DEA and the like and, of
course, the FCC--and for 4 years, industry and law enforcement
have argued about CALEA, what it means, what it requires. This
subcommittee has taken the lead in trying to hammer it out, get
it over with.
Last year, to try to break the stalemate between industry
and government, we asked the Attorney General to petition the
Commission to rule on the technical standards that are required
by the CALEA Act, and I encouraged the Commission to act as
quickly as possible on the petition. It has now been 1 year
since that petition was filed. I am not asking you anything
about the substance, just the procedure. Have you completed
your final ruling on the technical standards; and, if not, when
can we reasonably expect it to be completed?
Mr. Kennard. Certainly.
First, Mr. Chairman, let me commend you for the work that
you did on CALEA. I know that you wrestled with this problem
for 4 years; and by the time the issues did come to the FCC,
thanks to you, a lot of the issues were narrowed somewhat; and
it has made the job somewhat easier.
It still is a difficult job. Last year, we put out proposed
technical standards. We have been working closely with the
Department of Justice and industry and privacy groups to narrow
the issues for decision, and I expect that we will have final
reporting ordered in the May-June time frame.
We did have a breakthrough on this in the past few weeks.
The Department of Justice, working with Nortel, was able to
come together on some software licensing standards which
ultimately should lower the cost to the industry, which has
been, you know, the major bone of contention here. So I am
hopeful that we will have a good set of rules for you in May or
June.
Mr. Rogers. Well, it is all hinging upon your ruling.
Because we will insist that both government and industry abide
by how you rule.
One of the key disputes over CALEA has been the costs
associated with the additional capabilities included on the
punch list. I understand that just last month the Commission
decided to attempt to include cost estimates as part of your
ruling on the technical standards. Is that correct?
Mr. Kennard. Yes. We have been working to get more and
better quality cost estimates from the industry, because this
has been the gravamen of a lot of the arguments, that it is
just not cost-effective for them to use the cost requirements.
So we are endeavoring to get much better financial information.
And I know that they have been tussling with the Department of
Justice over this as well.
Mr. Rogers. How can you independently verify the cost,
since it is purely up to the industry, is it not?
Mr. Kennard. Well, what we can do is independently evaluate
the basis of their cost estimates, and we have our own
engineers who have a fairly good sense of what it costs to
deploy this technology. We can get a fairly good sense of
whether the industry's cost estimates are within a zone of
reasonableness.
Mr. Rogers. Well, do you believe that you will be able to
resolve that cost dispute or will we simply have to come up
with three different numbers now, as opposed to two?
Mr. Kennard. I am hopeful that we will be able to wrap this
up comprehensively by June at the latest.
Mr. Rogers. And will your decision try to include cost
estimates--will that cause any delay in issuing a final ruling
on the standards?
Mr. Kennard. Hopefully not. If that changes, I will
certainly be back to you well before we make a decision on
that, Mr. Chairman.
Mr. Rogers. Well, I think we have the broad parameters of a
grand deal for the industry, for the government; and,
hopefully, in utilizing the FCC as the arbiter of the technical
cost advantage that we will be able to provide software at a
more reasonable cost to all of the companies, that we will pare
off and not worry about the smaller companies, smaller
exchanges that likely would never have court-ordered wiretap,
so why deal with that now, and then concentrate on the larger
exchanges--larger companies where 70 percent plus of the
wiretaps take place, and then give some flexibilities to the
companies in view of the delayed decision here and implementing
the standards that the FCC comes down with.
So we have, for the first time, I think, a grasp of a final
solution here, some light at the end of the tunnel. It is a
matter that has to be dealt with, because the FBI and the law
enforcement agencies clearly must have the capability to
conduct court-ordered wiretaps and listening posts, because it
is vital to our national security and people's well-being.
So I thank you for expediting that decision as quickly as
you can.
Mr. Kennard. We will certainly do that.
Free Air time to Political Candidates
Mr. Rogers. Now, last year we disagreed over the
Commission's involvement in the issue of providing free air
time to political candidates. You decided not to pursue a rule-
making absent some consensus in the Congress. But the last time
we talked you indicated your intent was to go forward with a
notice of inquiry. What is the status of that?
Mr. Kennard. Well, we haven't proceeded with that notice of
inquiry to date. I continue to believe that because there is
interest from a number of Members of Congress about this issue
that perhaps the FCC, as the expert agency, could develop a
record which we could present to the Congress which could
certainly include legislative proposals in this area as well.
But we have not proceeded with any proposed rules at this time.
Mr. Rogers. Do you intend to bring that to a Commission
vote this year?
Mr. Kennard. It is quite possible that we will release a
notice of inquiry, a general notice of inquiry, but it would
be--we probably would not bring that to conclusion by the end
of this year.
Mr. Rogers. Well, I would hope not. I would continue to
strongly oppose any further action by the FCC on that issue
absent some legislation from the Congress. Quite simply, the
Congress makes policy, the FCC implements it, and the Congress
has not yet spoken on that issue. I know you differ on that
point.
Mr. Kennard. Yes, we do. I fully appreciate your views on
this, Mr. Chairman; but, again, one of the benefits of a notice
of inquiry proceeding is that we can assist those Members of
Congress who are interested in this issue in helping to
formulate some views on that.
5-Year Reengineering Plan
Mr. Rogers. Now, in your testimony you mentioned your plan
to submit for the record a 5-year reengineering plan.
Mr. Kennard. Yes.
Mr. Rogers. Can you give us a sneak preview of that,
particularly how you plan to incorporate the mandate of the
Telecom Act regarding deregulation?
Mr. Kennard. Certainly. We have outlined what I think are
the major challenges in restructuring the agency. As the
marketplace moves to a more competitive model and away from the
old monopoly model, the role of the FCC is going to be much
more focused on consumer protection and consumer information
and enforcement. I want the agency to get out of the role of
being the gatekeeper, who decides who gets in and out of the
marketplace, and focus much more of our attention on the back
end, enforcing those rules of competition that are required by
the Act and also making sure that consumers have the
information that they need in some marketplace.
We are seeing a tremendous amount of consumer confusion out
in the marketplace, Mr. Chairman. It is the result of more
competition, more providers out there vying for consumer
dollars. In fact, tomorrow we are coming up with new guidelines
on how telecommunications providers communicate with their
customers on the bills. We have received about 30,000
complaints about phone bills, people who say their bills are
too confusing. So tomorrow we hope to come up with guidelines
in this area.
This is an example of the changing role of the agency. Less
of the top-down, rate-of-return, regulatory approach and more
of the back-end consumer protection approach.
So our blueprint calls for the creation of an Enforcement
Bureau to consolidate all of the enforcement activities of the
agency under one bureau, streamline that operation, to beef up
the consumer outreach and consumer information requirements and
also, over time, to try to deal with the problem of
convergence. As we see the marketplace becoming more
competitive, providers dealing with consumers and providing all
sorts of bundled packages and services, we want to make sure
that the agency's regulatory structure facilitates and doesn't
inhibit that process.
Mr. Rogers. Well, we will be anxious to see what you are
proposing. I think you are right in that convergence is a
phenomenon that the FCC has not kept up with. Don't you think--
I think you are saying that convergence is going to have to
take place within the FCC?
Mr. Kennard. Yes, I think so. Increasingly, we are seeing
the challenges of convergence as cable operators, for example,
are starting to provide telephony and telephone companies are
providing cable and other services. The market is not divided
into these neat little regulatory niches anymore, and I am
committed to making sure that the FCC changes to accommodate
that change in the market.
Mr. Rogers. When would we expect to see that?
Mr. Kennard. Well, we submitted for the record the outlines
of a process for developing a more complete plan that we will,
of course, work with you on. We have established a deadline of
July for establishing our more comprehensive blueprint,
hopefully with your input as well.
Mr. Rogers. We will look forward to working with you on
that.
Mr. Serrano.
Mr. Serrano. No questions.
Mr. Rogers. Well, thank you very much, Mr. Chairman----
Mr. Kennard. Thank you.
Mr. Rogers [continuing]. For your testimony, and your
staff. You have a big challenge ahead of you. There is probably
no sector of the economy that is changing more rapidly than
what you deal with, and you are dealing with an agency that is
still operating under 1934 laws and rules. That is as old as I
am. So no wonder it is archaic over there.
Mr. Kennard. You are in much better shape, Mr. Chairman.
Mr. Rogers. Well, sometimes I don't feel like it.
But if you have something that you want to deal with us on,
be sure and let us know.
Mr. Kennard. Thank you.
Mr. Rogers. We have a very tight budget this year, of
course. I mentioned that earlier. And we don't know yet what
the dollar figure we are going to deal with is, we just know it
will be less than we had before. So for that reason we want you
to tell us the most important things that you would like to see
rather than the whole list, because I doubt we can do the whole
thing. So stay in touch with us.
Mr. Kennard. We understand your constraints. We appreciate
your support. Thank you very much.
Mr. Rogers. Thank you.
[Questions for the Record follow:]
W I T N E S S E S
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Page
Alvarez, Aida.................................................... 329
Bosley, D.E...................................................... 1
Donnelly, Tony................................................... 1
Duff, J.C........................................................ 1
Eakeley, D.S..................................................... 265
Erlenborn, J.N................................................... 265
Fishel, A.S...................................................... 405
Gray, J.L........................................................ 329
Hanlon, Dan...................................................... 59
Hantman, A.M..................................................... 59
Heyburn, Judge J.G., II.......................................... 103
Kennard, W.E..................................................... 405
Kulik, Bernard................................................... 329
Levitt, Arthur................................................... 369
McConnell, James................................................. 369
McKay, John...................................................... 265
Mecham, L.R...................................................... 103
Miller, James.................................................... 59
Piersol, Judge, L.L.............................................. 103
Pregnall, Stuart................................................. 59
Souter, Hon. D.H................................................. 1
Suter, Bill...................................................... 1
Theiss, L.M...................................................... 59
Thomas, Hon. Clarence............................................ 1
Turnbull, M.G.................................................... 59
Walter, G.A...................................................... 329
Zobel, Judge, R.W................................................ 103
I N D E X
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Page
The Supreme Court of the United States
Accessibility of Supreme Court Information....................... 35
Automation Positions............................................. 31
Building Improvements............................................ 42
Change in the Law Clerk Feeder Process...........................47, 51
Federalizing Crime............................................... 33
Jury Nullification............................................... 34
Law Clerk Hiring Process......................................... 36
Law Clerk Selection Criteria..................................... 37
Law Clerk Selection Law Schools..................................39, 47
Law Clerk Selection--Women and Minorities....................40, 45, 49
Ninth Circuit Court of Appeals--Habeas Corpus.................... 53
Opening Remarks.................................................. 1
Perimeter Security............................................... 41
Police Pay and Retirement Parity................................. 30
Questions for the Record--Charles H. Taylor...................... 55
Questions for the Record--Julian C. Dixon........................ 58
Questions for the Record--Tom Latham............................. 57
Security Supplemental............................................ 30
Statement of Justice Souter...................................... 2
Summary of Budget Request for FY 2000............................ 13
Televising Court Proceedings..................................... 43
U.S. Sentencing Commission....................................... 44
Use of Modern Technology......................................... 32
Supreme Court of the United States--Care of the Building and Grounds
ADA Compliance................................................... 98
Capitol Visitor Center and Court Entrance........................ 98
Court Building Renovations....................................... 70
Detailed Design.................................................. 100
Opening Remarks.................................................. 59
Opening Statement................................................ 59
Perimeter Security Enhancement................................... 95
Preliminary Renovation Project Schedule.......................... 74
Renovation of the Base Building Systems.......................... 98
Renovation of the United States Supreme Court.................... 61
Renovation Project Budget Development............................ 71
Renovation Project Construction Funds............................ 95
Renovation Project Design Costs.................................. 97
Renovation Project Scope of Work................................. 72
Safety Precautions............................................... 98
Site Repairs..................................................... 73
Statement of Alan M. Hantman..................................... 76
Systems Failures................................................. 100
Systems Modernization............................................ 96
Systems Replacement Project...................................... 97
Courts of Appeals, District Courts, and Other Judicial Services; Admin.
Office of the U.S. Courts; Federal Judicial Center; U.S. Court of
Appeals for the Federal Circuit
Abuse of Female Inmates.......................................... 250
Accomplishments of Judge Zobel................................... 259
Bankruptcy Filing Fee Increase................................... 251
California Capital Habeas Case Costs............................. 252
Census Sampling.................................................. 254
Congressional Budget Summary for FY 2000......................... 167
Court Security................................................... 257
Courthouse Construction Funding.................................. 249
Defender Services................................................ 252
Defender Services................................................ 256
Federal Judicial Center FY 2000 Budget........................... 242
Federal Judicial Center Director................................. 243
Freeze in Court Staffing Levels.................................. 233
FY 1999 Financial Plan........................................... 230
FY 2000 Salaries and Expense (S&E) Funding....................... 235
Illegal Aliens................................................... 248
Impact of Federal Legislation on Civil Caseload.................. 239
Increasing Criminal Caseload..................................... 240
Introduction..................................................... 103
June 15, Funding Cut Off......................................... 237
Negative Allowance............................................... 236
Ninth Circuit Split.............................................. 253
Opening Statement................................................ 104
Question for the Record--Rep. Julian C. Dixon.................... 261
Question for the Record--Rep. Tom Latham......................... 260
Questions for the Record--Rep. Lucille Roybal-Allard............. 262
Sampling for the Decennial Census................................ 238
Statement of Gregory W. Carman................................... 154
Statement of Haldane Robert Mayer................................ 151
Statement of Honorable John G. Heyburn II........................ 107
Statement of Leonidas Ralph Mecham............................... 134
Statement of Rya W. Zobel........................................ 128
Statement of Timothy McGrath..................................... 157
Use of Spanish in Federal Courts................................. 234
Use of Technology................................................ 232
Video Technology................................................. 241
Federal Communications Commission
5-Year Reengineering Plan........................................ 467
Amortization of Portals Funds.................................... 460
Bell Operating Companies Long Distance Applications.............. 463
CALEA............................................................ 465
E-rate Program................................................... 457
Fee Collections.................................................. 464
Free Air Time To Political Candidates............................ 467
Information Technology Funding................................... 458
Minority-Owned and Minority-Formulated Broadcast Stations........ 454
Monitoring the Airwaves.......................................... 456
Opening Statement of Mr. Kennard................................. 405
Overlay of Area Codes............................................ 461
Portals Costs.................................................... 453
Products Targeted to Minors...................................... 464
Questions Submitted to the Record by Chairman Rogers............. 470
Questions Submitted to the Record by Rep. Charles Taylor......... 474
Questions Submitted to the Record by Rep. Dan Miller............. 488
Questions Submitted to the Record by Rep. Tom Latham............. 482
Statement for the Record of Ida L. Castro, EEOC Chairwoman....... 489
Status Of Portals Move........................................... 460
Y2K Compliance................................................... 456
Legal Services Corporation
Accuracy of Client Case Data..................................... 308
Chairman Rogers Opening Statement................................ 265
Commission on Aliens............................................. 292
Communication with Congress...................................... 313
Department of Justice Grants..................................... 288
Funding for Domestic Violence and Children....................... 287
Grant Recipients................................................. 289
Inspector Generals' Oversight.................................... 304
Inspector Generals' Report....................................... 299
LSC Services to Children......................................... 291
LSC Strategic Plan............................................... 297
LSC Unmet Needs.................................................. 291
Opening Statement of the Legal Services Corporation.............. 284
Poor Performance of Grantees..................................... 306
Pro Bono Activity................................................ 300
Program Caseload Statistics...................................... 294
Questions for the Record--Dan Miller............................. 327
Questions for the Record--Rep. Charles Taylor.................... 315
Questions for the Record--Rep. Tom Latham........................ 321
Statement of Douglas S. Eakley................................... 266
Technology-Based Delivery Mechanisms............................. 293
Welfare Reform Laws.............................................. 302
U.S. Securities and Exchange Commission
Adequacy of Budget Request....................................... 397
Basic Investor Education......................................... 399
Conclusion....................................................... 403
Effect of Market Downturn........................................ 401
Enforcement Resources............................................ 394
Fee Collections.................................................. 402
Fiscal Year 2000 Request......................................... 394
Global Impact on Market.......................................... 401
Improved Information Systems..................................... 395
Information Technology Services.................................. 394
International Electronics Transactions........................... 400
Internet Enforcement............................................. 397
Internet Trading................................................. 396
Investor Education............................................... 398
Percent of Electronic Trading.................................... 396
Social Security Investments...................................... 402
Status of EDGAR Modernization.................................... 402
Testimony of Arthur Levitt, Chairman............................. 372
U.S. Small Business Administration
7(A) Loan Program................................................ 350
Access to Venture Capital in West Virginia....................... 348
Agriculturally Dependent Small Businesses........................ 360
Authorization of New Program..................................... 350
Differences Between Existing and New Programs.................... 353
Disaster Loan Program............................................ 342
Environmental Compliance Project................................. 358
Modernication Effort............................................. 356
New Markets Venture Capital Fund................................. 345
New Markets Venture Capital Program.............................. 349
New SBA Fees..................................................... 357
Office of Advocacy............................................... 359
Opening Statement of Chairman Rogers............................. 329
Opening Statement of the Small Business Administration........... 341
Questions Submitted for the Record--Rep. Roybal-Allard........... 364
Questions Submitted for the Record--Rep. Tom Latham.............. 361
Recent Disaster Activity......................................... 346
Relationship with Federal Emergency Management Agency............ 346
SBA's Hiring Freeze.............................................. 351
Statement of Aida Alvarez........................................ 331