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FOIA Number: 2013-0306-F
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AFL-CIO : AFL-CIO Briefing Book [3]
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17
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1
1
PR 12/12/96 Sweeney on the World Tr.. Commitment to Core Labor Standards
http://www.aflcio.org/publ/press96/pr1212.htr
FOR IMMEDIATE RELEASE For Information:
David Saltz 202-637-5318
Deborah Dion 202-637-5036
STATEMENT BY JOHN J. SWEENEY
PRESIDENT, AFL-CIO
ON THE WORLD TRADE ORGANIZATION'S
NEW COMMITMENT TO CORE LABOR STANDARDS
December 12, 1996
The AFL-CIO welcomes the decision of the trade ministers in
Singapore that for the first time commits the World Trade
Organization's members to the observance of core labor standards.
These standards, which are understood to include freedom of
association, the right to organize and bargain collectively, non-
discrimination in the workplace and a prohibition on exploitative
child labor, are essential if the international trading system is
to raise living standards for working people around the globe.
The AFL-CIO is encouraged by the broadening consensus for
further work on these issues by the WTO.
We appreciate the outstanding efforts of acting U.S. Trade
Representative Charlene Barshefsky, which were key to progress in
the important area of worker rights. More remains to be done. We
continue to believe that the condition of workers should be an
integral part of trade relationships.
We, together with trade unions around the world will continue
to challenge governments and employers to live up to these basic
labor standards by all the means at our disposal.
AFL-CIO Home Page | Public Documents Page I Public Documents Search
Copyright © AFL-CIO
02/15/97 SAT 13:36 FAX 2024567929
4
002
EYES ONLY
WEEKLY ECONOMIC BRIEFING
OF THE PRESIDENT OF THE UNITED STATES
Prepared by the Council of Economic Advisers
with the assistance of the Office of the Vice President
February 14, 1997
CHART OF THE WEEK
Long-Term Trends in Union Membership
40
30
Percent of employment
20
10
0
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
Unions represented about a third of all employed workers in the decade following
World War II, but they represent only about 14 percent today. Through the 1960s and
1970s, union membership continued to grow, but more slowly than employment. More
recently, membership has been falling. In 1996, 16.3 million workers were union
members, down from a peak of 20.2 million in 1978. Reasons for the decline include
increasing employment in less-unionized sectors (services), regions (the South), and
demographic groups (women), as well as intensified management opposition to unions
(see Weekly Economic Briefing, September 12, 1994).
E.I.)
EYES ONLY
CURRENT DEVELOPMENT
Trends in Union Membership and Earnings
At least three aspects of trends in union membership
and earnings are noteworthy.
Union Membership
45
Membership trends. The overall
40
decline in membership has been
35
concentrated in the private sector (see
Public sector
Percent of employment
30
upper chart). While the share of private
25
sector workers who are union members
20
fell from 16.5 percent in 1983 to
Private sector
15
10.2 percent in 1996, the share of public
10
sector workers has remained roughly
5
constant at about 37 percent.
1983
1985
1987
1989
1991
1993
1995
Compensation trends. Compensation has often
changed at different rates in the unionized and non-
unionized sectors of the economy (see lower chart).
During much of the 1980s, for example,
compensation grew more slowly in the unionized
sector than in the rest of the economy, and more
slowly than inflation. More recently, the trends have
been similar in both sectors.
Real Compensation Growth by Union Status
Wage premium. Weekly earnings for
6
Unionized
the pical unionized worker were about
4
a third higher than those of the typical
3
Non-unionized
non-unionized worker in 1996. Part of
4-quarter percent change
2
this difference reflects the fact that
1
unionized workers tend to be
0
concentrated in higher paying jobs (in
-1
larger firms, urban areas, and
-2
manufacturing and public utilities
to
industries). Unionized firms faced with
1941
1963
1945,
1947
1989
1991
1083
1995
higher wages may also have the ability to
screen for and select workers with better-than-average
skills and training from the queue of workers seeking
union-wage jobs. Nevertheless, econometric studies
that try to control for these other factors suggest that
working in a unionized firm raises a worker's
earnings by 10 to 15 percent. In short, being in a
union matters, even after taking other factors into
account.
Weekly Economic Briefing
1
February 14, 1997
SENT BY:AFL/CIO LCC/LEGAL
12-20-96
;
14:22
;
LCC/LEGAL AFL/CIO-
;# 2/11
American Federation of Labor and Congress of Industrial Organizations
EXECUTIVE COUNCIL
815 Sixteenth Street, N.W.
JOHN J. SWEENEY
RICHARD L. TRUMKA
LINDA CHAVEZ-THOMPSON
WEBCAM FEDERATION OF LABOR
Washington, D.C 20000
PREGIDENT
SECRCTARY-TREABURER
EXECUTIVE VICE PRESIDENT
(202) 637-5000
Alben Shanker
coward T. Harrey
Wayne E. Glenn
James E. Hatfleld
Vincent R Sombrotto
Gerald W. McEnlee
William 11. Dywater
Marvin J. Roade
AFL
John T. Joyce
Morton Bahr
Robert A. Georgine
Gener Upshaw
Jay Muzur
Lonoro Millor
John J. Barry
Mos Biller
George J. Kourples
John N. Sturdivant
Frank Hanley
Juries J. Nurture
Michael Sacon
Ron Carey
Arthur A. Cola
Frank Hurt
OF INDUSTRIAL
Glurts T. Juliesun
Dougles H. Durity
George C Becker
Stephen r. Yukich
J. Randolph Babble
Clayola Brown
M.A. "Mac" Fleming
Carolyn Forrest
Pal Friend
Michael Cloudwin
Joe L. Greene
Bonny Hall
Sumi Hani
Carroll Haynes
James LaSala
Willam Lucy
Leon Lynch
Doug McCarron
Andrew McKenzic
A.L. "Mikc" Monroo
Arthur Moore
Arturo S. Hodriguez
Robert A. Scardelletti
Robert E. Wages
Jake West
Alfrod K. Whilehced
Andrew L Blam
MEMORANDUM
TO:
John Podesta
FROM:
Jon Hiatt fin
DATE:
December 20, 1996
RE:
Avondale/NASSCO
At Gerry Shea's request, I am sending you this memo that attempts to summarize the
disgraceful situations at the above two shipyards.
While the two situations are quite distinct NASSCO concerns a long-time contract
dispute in a unionized yard while Avondale involves a brutal anti-union campaign against
workers who have been trying to unionize for the first time -- they are related to the extent that
both companies are operating under and completely dependent upon contracts with the Federal
Government.
It is our view that the Government could and should make clear to these contractors that
it cannot accept the immoral and unlawful labor-relations policies that these two wholly
dependent contractors are conducting, and that in both cases they must immediately work out
their differences with the unions on mutually acceptable terms.
In one case NASSCO the yard has been unionized for decades. The problem
involves a contract dispute that has been going on for several years, and where the main problem
has been the company's resistance to retaining a union security provision that limits the rights
of non-members to be free-riders, enjoying all of the contract's benefits without paying their fair
share of the costs of contract negotiation or administration. This provision had been in the
parties' contracts for years. At various stages of the negotiation process, NLRB administrative
law judges have found the company to have engaged in unlawful, bad faith bargaining.
12-20-96
14:23
;
LCC/LEGAL
AFL/CIO-
;# 3/11
SENT SY:AFL/CIO LOC/LEGAL
With regard to Avondale, the union won an NLRB election in May 1993, by a vote of
approximately 1,800 to 1,200 in a unit of over 4,000. The company challenged several hundred
ballots and filed 45 objections to the election. The NLRB hearing officer recommended
dismissal of all the company's objections, and a resolution of the ballot challenges. It is
believed that the counting of these ballots will only widen the margin of union victory.
Over three years have past, however, and the Board has yet to certify the results of the
election. The company insisted on taking its challenged ballots and objections to 160 days of
hearings, Briefs were filed in May of 1995, yet no decision has issued more than a year and
one-half later.
In the meantime, the NLRB General Counsel investigated and found cause to issue
complaints on over 200 unfair labor practice charges filed between March, 1993 and December,
1994, all of which were consolidated for a hearing which concluded this past summer. These
include allegations of unlawful terminations, lay-offs, transfers, threats, intimidation,
surveillance, and other discriminatory treatment. Another consolidated unfair labor practice trial
consisting of some 85-100 charges occurring between December, 1994 and the present, is
scheduled to be heard this winter.
Moreover, Avondale has signaled, in a bid prospectus that it submitted in seeking a
multi-billion dollar contract for the Navy's LPD-17 semi-amphibious ship contract, that it plans
to exhaust all available court appeals before even bargaining with the union, once the Board
finally certifies.
Meanwhile, at both NASSCO and Avondale, Defense Agency auditors have been
approving government reimbursement for millions of dollars of anti-union activities (such as
captive audience speeches during the Avondale campaign) allegedly falling in the category of
"indirect shipbuilding costs." They have apparently told Avondale that for any of the unfair
labor practice cases that it wins, it will be reimbursed for its attorneys fees; for those it loses,
no decision has yet been made.
It is impossible to imagine the Administration standing by if a major government
contractor, over the course of three years, was found by the EEOC General Counsel to bc
engaging in a pattern of racial and/or sexual discrimination violations on 300 or more separate
occasions. Why should this be any different?
Furthermore, as noted. the list of unfair labor practice charges deemed meritorious by
the NLRB General Counsel includes some very serious discrimination allegations, including
major discriminatory layoffs, discharges, job reassignments, etc.
For your information, I am attaching an excerpt from Avondale's LPD-17 bid prospectus
summary that demonstrates the company's obvious intention to mount court challenges to any
forthcoming NLRB certification. Also attached is a letter on the subject sent to President
Clinton from several AFL-CIO affiliates' general presidents last May.
2
SENT BY:AFL/CIO LOC/LEGAL
12-20-96
;
14:24
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;# 4/11
We should stress that as misguided as the Government's reimbursement policies are, the
problems at both NASSCO and Avondale are of a much deeper nature. As indicated above, we
believe the Government needs forcefully to make clear to these contractors that its anti-union
policies are just as intolerable as Mitsubishi's sexual harassment record or Texaco's racial
discrimination. And given NASSCO's and Avondale's near total reliance on the Government,
the Administration should take whatever steps are necessary to promote a full settlement of these
disputes.
In the case of NASSCO, that means dropping its insistence on an open shop to facilitate
a settlement of the ongoing contract dispute; in the case of Avondale, it would mean no further
opposition to the NLRB's certification of the Metal Trades Council as the exclusive bargaining
representative, prompt negotiation of a first contract, and a resolution of the 300-400 outstanding
unfair labor practice charges.
Thank you for your assistance in this matter.
Attachments
3
SENT BY:AFL/CIO LOC/LEGAL
;12-20-96
;
14:25
;
LCC/LEGAL
AFL/C10-
;# 5/11
JOHN F. MEESE
EXECUTIVE COUNCIL
SEAL TRADES DEPARTMENTS
President
General Offices:
APL-CIO Bldg.
Issued
615 10th Street, N.W.,
All
OFFICE
CF
GENERAL
COD:
Washington. D.C. 20006
They
Tele. 202-347-7255
JAKE
WEST
ARGANIZED JUNE 15. 1961
96 MAY 21
FAX 202-347-0181
Power
PM 3: 02
KOURFLAS
AL
MONATOS
Eyen
Ninth
ARTHUR
Tenth
Metal Trades Department
American Federation of Labor and Congress of Industrial Organizations
May 20, 1996
The President
The White House
1600 Pennsylvania Avenue. NW
Washington, D.C. 20500
Dear Mr. President:
As we write this letter. a long-overdue increase in the minimum wage is being debated by
Congress. and if the noxious TEAM Act rider is dropped from the bill. millions of American
workers will see some improvement in their living standards. At the same time, you are preparing,
next week, to host a conference on the issue of corporate responsibility. These are just two
examples of how your Administration has lived up to its promise to help American families, and to
"level the playing field" for American workers.
You also have been a strong advocate for collective bargaining and the rights of American
workers to join unions. if they choose. This is reflected in your appointments to the National
Labor Relations Board, an Agency that, once again, $ fulfilling its statutory mandate to protect
workers who seek to organize and to promote the process of collective bargaining. Indeed, the
Agency is doing an admirable job. with & reduced staff and budget, and in spite of being singled
out for venomous and time consuming attacks by the Republican Congress.
This is the good news. We write today. however. because much of what your
Administration has sought to accomplish in the area of worker rights is being undercut by an
antiquated and blind system of awarding huge government contracts - particularly defense
contracts -- to companies with abysmal worker rights health and safety. and collective
bargaining records. This makes no policy sense. and, n these times, it certainly makes no
fiscal sense.
We would like to relate to you one astonishing example of a company that receives
most of its revenue from one federal government agency, the United States Navy, and then
spends countless thousands of those same government procurement dollars fighting the
orders and complaints of another federal government agency, the National Labor Relations
Board.
SENT BY:AFL/CIO LOC/LEGAL
:12-20-96 ; 14:26 ; LCC/LEGAL AFL/CIO-
;# 6/11
Page 2
Avondale Industries, Inc. operates a large shipyand in New Orleans, Louisiana, and is one
of the Navy's premier contractors. In 1993. alone, the Navy awarded Avondale over $1 billion in
new contracts. Also in 1993, Avondale employees sough union representation. and on June 25.
1993. the National Labor Relations Board conducted a representation election among a unit of
Avondale's employees.
-Despite an intense and intimidating anti-union campaign run by Avondale officials,
approximately 2000 employees voted in favor of being represented by the Metal Trades
Department, AFL-CIO. But this overwhelming vote in favor of representation did not deter
Avondale officials from their commitment to preventing collective bargaining Hundreds of ballots
where challenged, and the Company filed dozens of objections to the conduct of the election - a
time-rested method by which employers try to defeat employee free choice.
Normally, election challenges and objections are heard in a matter of days at an NLRB
hearing. with decisions quickly following. In this case. however. a high-priced team of Avondale
attorneys dragged out the process for more than 84 days over a six month period Largely because
of the volumes of materials filed by the Company. the NIRB Hearing Officer's Report, overruling
Avondale's objections, did not issue for another year.
In the meantime, In July, 1994. the NLRB began prosecuting a series of unfair labor
practice complaints against the Company encompassing literally hundreds of unfair labor practice
charges. To date, there have been 160 days of trial and over 2000 exhibits introduced concerning
charges of unlawful discharge and discrimination against union supporters, interrogations and
threats. and other cgregious and unlawful conduct. The cost of prosecuting these cases is
incalculable but it may well be one of the most expensive cases ever brought by the NLRB.
And. who is financing Avondalc's shameless misdonduct and "spare-no-expense"
resistance to its employees union organizing efforts? The United States Government! Mr.
President. there is something seriously wrong with this picture.
Let us be clear. The Metal Trades Department. its affiliated unions, and the Avondale
employees we represent are not asking the Navy to withhold contracts won by Avondale after a
competitive bidding process. We are painfully aware that any reduction in orders could well result
in a loss of work to Avendale employees. But the statusiquo is unacceptable.
Previous complaints about this situation resulted in a cursory Defense Contract Audit
Agency (DCAA) review allowing Avondale to charge its anti-union meetings and activities as an
allowable "indirect cost" to be reimbursed by the federal government. At the very least, Avondale
should be required to fund its anti-union campaign out of non-federal revenues. This is only one
step that should be considered. We implore you to help find others.
SENT BY:AFL/C10 LCC/LEGAL
;12-20-96
;
14:27
;
LCC/LEGAL AFL/CIO-
;# 7/11
Page 3
We ask that you immediately convene a high level meeting among officials at the
Departments of Labor and Defense. the National Labor Relations Board. Avondale's President
and CEO. and the leadership of the unions involved. We think the personal involvement of
Secretary of Labor Reich is essential.
We also suggest that a Task Force be created to consider the ongoing problem of the
federal government awarding taxpayer financed contracts to companies which then use that
taxpayer money to fight the orders of other government agencies. In view of the uncertain legal
status of executive orders debarring federal labor law violators. other options should be
considered. At a minimum. there should be government wide enforcement of "collection by
administrative offset" - the procedure which permits the federal government to withhold money
from :1 federal contractor if that contractor has failed to comply with an NLRB order to restore
: or benefits.
We appreciate your immediate attention to this problem. Avondale's employees deserve
the level playing field that your Administration has begun to achieve for so many American
workers. American taxpayers deserve a financially sound and sensible federal contracting system.
SENT BY:AFL/CIO LOC/LEGAL
;12-20-96 ; 14:28 ; LOC/LEGAL AFL/C10-
;# 8/11
TOTAL P.005
Page 4
Sincerely yours.
Mr. Deng Mollaron, Eanon President
John F. Mickal Trades Mease; Department, asidenk AFL-CIO
United Brotherhood of Carpenters
and Idders, AFL-CIO
Mr. John
John J. Barry J President Barry
Mr. Take West, President
International Brotherhood of Electrical
International Association of Bridge, Structural
Workers, AFL-CIO
and Ornamental Iron Workers, AFL-CIO
Gerge a. Kompiax
Mr. George J. Fourpisk. President
Mr. Frank Hanloy, President
International Association of Machinists and
International Union of Operating
Aerospace Workers, AFL-CIO
Engineers, ALF-CIO
A.X
Mr. A. L. "Mike" Monroe, President
Anarve Mr. Maryin J. Boede. Boede President
International Brotherhood of Painters and
United Association of Journeyman and
Allied Trades, AFL-CIO
Apprentices of the Plumbing and Pipefitting
Industry of the United States
Allens A Coia
and Cenada. AFL-CIO
Mr. Arthur A. Coia. President
Laborers International Union of
North America. AFL-CIO
Mr. Arthur Moore, President
Sheet Metal Workers International
Association, AFL-CIO
cc:
Honorable Robert Reich
Honorable William 1. Perry
Honorable William Gould
General Counsel Fred Feinstein
Mr. William G. Bernard, President
International Association of Heat and Frost
JFM/skb
Insulators and Asbestos Workers, AFL-CIO
SENT BY:AFL/CIO LOC/LEGAL
12-20-96
;
14:29
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AFL/CIO-
;# 9/11
TO
FRUM
6375323 P.02
10f-10-1596 was SKIMM
PROSEECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus and in
the Consolidated Financial Statements, including the Notes thoreto, and other
documents that are included elsewhere herein or incorporated herein by
reference. For descriptions of certain vessels and definitions of certain terms
used herein, see "Glossary of Selected Industry Terms" appearing alsewhere
herein. Unless otherwise indicated, the information in this Prospectus assumes
that the Underwriters' over-allotment option 10 not exercised.
THE COMPANY
GENERAL
Avondale is one of the largest shipbuilders in the United States,
specializing in the design, construction, conversion, repair and modernization
of various types of ocean-going vessels for the military and commercial
markets. A majority of Avondale's contracts in recent years has been for the
construction of U.S. Navy surface ships, although it has secured two large
commercial contracts in the past year for the construction or conversion of
aouble-hulled product carriers. Management believes the Company's low cost
structure. experienced and skilled work force, sophisticated construction
processes and extensive experience gained over the past 25 years in building a
variety of military and commercial vessels, position the Company as one of the
most cost-efficient and versatile shiprullders in the United states. At
December 31, 1995, the Company's shipbuilding backing (the "firm backlog") was
approximately $1.4 billion, exclusive of unexercised options aggregating $485
million held by the U.S. Navy for additional ship orders (including contract
escalation) and a commercial contract subject to financing. of the firm
backlog, approximately $1.3 billion was attributable to contracts to build
ships for the U.S. Navy.
To assure that its shipyard remains among the most modern in the world,
Avondale regularly reviews and Assessos its construction and production
processes. In the early 1980s, the-Company was the first U.S. shipyard to
successfully implement modular construction techniques that had previously been
perfected by Japanese shipbuilders. Management believes those techniques were a
major ractor in Japar's dominance of the commercial shipbuilding market during
the 1970s. Avondale obtained its modular construction capabilities and "know-
how" pursuant to an agreement with one of Japan's largest shipbuilders, which
worked with Avendale to change its manufacturing processes and IS train
Avondale's employees. Modular construction efforded Avondale significant
production efficiencies in the installation of ship systema, largely due to the
greater case wich which such systems could be installed in open modules rather
than closed-in hulls.
The Company has also embarked on a modernization program to enhance its
ability to build and deliver vessels at a lower c>et. In 1994 the company
entered into a technology sharing agreement with Astilleros Espanoles S.A.
("AESA") of Spain, regarded as an innovative and successful world-class
shipyard. After an on-site review of Avondale's shipyard by AESA, as well as a
review by Avondale of current shipbuilding technology in other countries,
Avondale invested $20 million in capital improvements designed to increase
efficiency by improving production flow. In particular, the Company integrated
certain sasembly-line techniques with its modular construction processes. To
that end, the Company has built a covered facility that houses two production
lines dedicated to military vessels and two lines for commercial vessels
Avondale believes that sheltering the production process and separating the
unit lines will enhance production efficiencies and lower unit production
costs.
The principal executive offices of the Company are located at 5100 River
Road, Avondale, Louisiana 70094 (telephone no. (504) 436-2121).
U.S. MILITARY OPPORTUNITIES
During the past 25 years, Avondale has buile 72 vescols for the U.S. Navy and
other branches of the military. ranging from vegsels such as AOs and T-AOs that
principally require large-scale stcol fabrication at
3
SENT BY:AFL/CIO LOC/LEGAL
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;#10/11
IU
6375323 P.10
INSURANCE
The Company maintains insurance against property damage caused by fire.
explosion and similar catastrophic events that may result in physical damage or
destruction to the Company's premises and properties. The Company also
maintains general liability insurance in amounts it deems appropriate for its
business. The Company is self-insured for workers' compensation liability and
employees' health insurance except for losses in excess of 41.0 million per
occurrence, for which the Company maintains insurance in amounts it deems
appropriate.
ENVIRONMENTAL AND SAFETY MATTERS
General. Avondale is subject to federal, state and local environmental laws
and regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. Stringent fines and penalties may be imposed for
non-compliance with these laws and regulations, and certain environmental laws
impose joint and several "strict liability" for remediation of spills and
releases of oil and hazardous substances rendering a person liable for
environmental damage, without regard to negligence or fault on the part of such
person. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company which are
or were in compliance with all applicable laws at the time such acts were
performed. The Company is covered under its various insurance policies for
some, but not all, potential environmental liebilities. See Note 10 of the
Notes to Consolidated Financial Statements.
The Company is also subject to the federal Occupational Safety and Health ACC
("OSHA") and similar state statutes. The Company has an extensive health and
safety program and employs a staff of safety inspectors and industrial hygiene
technicians, whose primary functions are to develop Company policies that meet
or exceed the safety standards set by OSHA, train supervisors and make daily
inspections or safety procedures to insure their compliance with Company
policies on safety and industrial hygiene. All supervisors are required to
attend safety training meetings at which the importance of full compliance with
safety procedures is emphasized.
Wasre Disposal. Avondale's operations produce a limited amount of industrial
waste products and certain hazardous materials. The Company's industrial waste
products, which consist principally of residual petroleum, other combustibles
and blasting abrasives, are shipped to third party disposal sites that are
licensed to handle such materials.
EMPLOYEES
Since September 1985, when all of its outstanding Common Stock was purchased
by the ESOP from Ogden Corporation, Avondale has been owned principally by its
current and former employees. At December 31, 1995, Avondale had approximately
5,300 employees, many of whom have been employed by the Company for many years.
None of Avondale's employees is currently covered by any collective
bargaining agreement. However, on June 23, 1993 an election was conducted to
determine whether certain of the New Orleans area employees desired to have
union representation. A total of 3,911 workers cast votes, of which
approximately 850 votes were challenged by the NLRB and union organizers on a
variety of grounds. Although the union did receive a majority of the
unchallenged ballots, challenged ballots (which remain under seal) in numbers
sufficient to determine the outcome of the election remain uncounted awaiting
the. NLRB's decision. The Company has filed objections with the NLRB seeking to
have the election set aside. The NLRB is currently reviewing the challenged
votes and evaluating the Company's objections to the election. The hearing
officer assigned to the case has recommended to the NLRB that certain of the
disputed votes be counted and that the Company's objections be rejected. If the
NLRB upholds the election and certifies the union, and that decision is not
24
SENT BY:AFL/CIO LOC/LEGAL
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;
14:31
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;#11/11
IU
6375323 P.11
overturned by subsequent judicial proceedings, the Company would be required
under the federal labor laws to bargain in good faith with the union on matters
such as wages, hours and other working conditions. Even though Avondale will
only agree to bargaining demands that can be economically justified, union
certification may result in an increased risk that the union will engage in
potentially disruptive activities such as strikes or picketing, or that the
Company may incur higher labor and operating costs.
The union has also filed numerous unfair labor practice charges with the NLRB
alleging that Avondale has committed a variety of violations of the National
Labor Relations Act principally involving claims that employees were wrongfully
disciplined or discharged. Although the Company disputes these claims and 18
waging a vigorous defense, if there is a finding against the Company, depending
on the facts of each case, the employee would be entitled to back pay from the
time of his or her claim until the resolution of the case. However, even if
there is a finding in favor of some of the claimants with respect to one or
more of the unfair labor practice claims, management believes that any judgment
would not have a material impact on Avondale's financial condition, results of
operations or cash flows.
25
American Federation of Labor and Congress of Industrial Organizations
EXECUTIVE COUNCIL
MERICAM FEDERATION OF LABOR
815 Sixteenth Street, N.W.
JOHN J. SWEENEY
RICHARD L. TRUMKA
LINDA CHAVEZ-THOMPSON
Washington, D.C 20006
PRESIDENT
SECRETARY-TREASURER
EXECUTIVE VICE PRESIDENT
(202) 637-5000
Albert Shanker
Edward T. Hanley
Wayne E. Glenn
James E. Hatfield
Vincent R. Sombrotto
Gerald W. McEntee
AFL
CIO
William H. Bywater
Marvin J. Boede
CONGRESS
John T. Joyce
Morton Bahr
Robert A. Georgine
Gene Upshaw
Jay Mazur
Lenore Miller
John J. Barry
Moe Biller
George J. Kourpias
John N. Sturdivant
Frank Hanley
James J. Norton
OF
Michael Sacco
Ron Carey
Arthur A. Cola
Frank Hurt
INDUSTRIAL
Glona T. Johnson
Douglas H. Donty
George F Becker
Stephen P. Yokich
J. Randolph Babbitt
Clayola Brown
M.A. "Mac" Fleming
Carolyn Forrest
Pat Friend
Michael Goodwin
Joe L Greene
Sonny Hall
Sumi Haru
Carroll Haynes
James LaSala
William Lucy
Leon Lynch
Doug McCarron
Andrew McKenzie
A.L. "Mike" Monroe
Arthur Moore
Arturo S. Rodnguez
Robert A. Scardelletti
Robert E. Wages
Jake West
Alfred K Whitehead
Andrew L Stem
February 3, 1997
Erskine B. Bowles
Chief of Staff to the President
The White House
1600 Pennsylvania Avenue, N.W.
Washington, D. C.
Dear Mr. Bowles:
One year ago the Administration postponed the land transportation provisions of NAFTA. That
decision was rooted in your serious concerns about the adequacy of mechanisms to insure the enforcement of
safety, security and other vital standards. Recently, we have met with your staff to discuss the pending
decision to implement the provision. Based on what we have learned in those meetings, those matters which
you correctly identified as crucial, if implementation was to go forward, have not yet fully been addressed.
In this light, I strongly urge that the postponement be continued.
Even if agreement is someday reached with the Mexican government on the broad elements of the
transportation program outlined to us--roadside vehicle inspection capability, data exchange, and safety
management oversight--it appears that adequate implementation of an agreement will take the investment of
considerable resources and years to accomplish.
Major problems that remain unaddressed include:
Hazardous Materials
In general, less than 2 percent of all Mexican trucks crossing the border are inspected, regardless of
what they are carrying. Depending on the border crossing, approximately 25 percent of all Mexican
trucks carry hazardous material. When a random inspection does happen to be conducted, less than
one in 14 of the trucks carrying hazardous material are property placarded. Up to 90 percent of
inspected shipments of hazardous material don't coincide with shipping papers carried by the driver.
Put simply, the flow of hazardous material from Mexico is so substantial and unregulated that you
could increase the number of enforcement personnel at the border tenfold and not even make a dent
in solving the problem.
Erskine B. Bowles
2
Accessibility of Data
The driving and criminal records of U.S. drivers are computerized and readily available to law
enforcement officers in the U.S. Mexico isn't even close to having this information computerized and
available to U.S. law enforcement officials.
U.S. Wage and Hour Laws
Even Administration officials admit that resources do not exist to insure that Mexican drivers are
protected by appropriate U.S. laws and regulations. With the proposed border opening, a Mexican
driver could work-full time in this country, yet not even receive the U.S. minimum wage. NAFTA's
impact on workers' wages is already severe, but under this circumstance would have the effect of
undermining legally mandated wages.
Insurance Coverage
Studies by the National Association of Independent Insurers and others have shown that Mexican
carriers are chronically under insured. The legitimacy of insurance papers are also questionable.
Insurance forms are often altered or duplicated. Inadequate or illegitimate policies can often be
purchased for $50 or less at many border crossing locations.
Hours of Service
Mexico currently has no hours of service regulations. Even if hours of service regulations were
adopted, there is absolutely no track record for enforcing such regulations. The entire burden would
fall on U.S. officials with no credible enforcement program in place.
Inspection Capacity
Texas alone had 1.9 million total Mexican truck crossings in 1995 at 15 different border crossing sites.
Official figures for 1996 are expected to increase. The current level of enforcement personnel allows
for the inspection of only one-half of one percent of all these trucks. When you add Arizona, California
and New Mexico into this mix, it is clear that adequate enforcement programs do not exist and cannot
be developed at the border.
Market Access
Reciprocal market access for scheduled bus service has not been achieved. Mexico continues to
restrict service to multiple destinations and prohibits bus terminal ownership and operation by non-
Mexican companies, thereby effectively denying market access to U.S. carriers.
Erskine B. Bowles
3
Other unresolved issues include differential air emission guidelines, the inability to enforce existing
prohibitions against cabotage, the ability of Mexican trucking companies to interfere with U.S. industrial
relations disputes, and differential drug and alcohol testing programs.
Laws and regulations addressing minimum employment standards, hours of work, job and highway
safety, and environmental quality are enacted by governmental authorities to enhance and protect the quality
of life for the citizens of this country. It is a serious mistake to believe that any presumed benefit from
premature market opening outweighs the public good. Current policy should be maintained and
implementation of the land transportation provisions of NAFTA be suspended indefinitely.
Sincerely,
John
President
PR 02/11/97 Media Advisory for Executive Council Meeting February 17-20
http://204.127.237.106/publ/press97/pr0211.htm
MEDIA ADVISORY FOR AFL-CIO EXECUTIVE COUNCIL MEETING
FEBRUARY 17-20
FOR IMMEDIATE RELEASE For Information: Deborah Dion 202-637-5036
Los Angeles, CA -- Top leaders of the AFL-CIO will meet for nearly a week at the Biltmore Hotel in
Los Angeles beginning Sunday, February 16th -- the first time in more than 30 years that the winter
executive council meeting has not been held in the resort town of Bal Harbour, Florida. After their
election in late 1995, the new officers of the labor movement announced that they would be moving the
traditional winter meeting to cities around the country where national union leaders could join working
families' struggles. Los Angeles is home to a dynamic labor movement and some of the most aggressive
new organizing in the nation. High-profile organizing campaigns include SEIU homecare workers and
Justice for Janitors, H.E.R.E. New Otani Hotel organizing, UNITE low-wage worker campaign, CWA
Port of Long Beach truckers and UC technical workers, IBT Overnite truckers, the Sheetmetal workers'
youth-to-youth organizing, and the Strawberry Workers Campaign.
Among guests addressing the council meeting are: Vice President Al Gore, Senator Tom Daschle,
Congressman Dick Gephardt, Representative Xavier Becerra, Representative Maxine Waters, U.S. Trade
Representative Charlene Barshevsky, and California Lt. Governor Gray Davis.
Press Events Include:
Sunday, February 16
4:00 pm Los Angeles workers and union activists kick off the week with a picnic celebrating L.A. work
and L.A. workers -- Union Station
Monday, February 17 Council spends all day on Organizing.
8:00 am Breakfast Briefing on the Strawberry Workers Campaign Executive Council Members, Arturo
Rodriguez, Organizing Committee Chairman Arthur Coia
12:30 pm Press Conference on 1997 organizing initiatives -- John Sweeney, Richard Pensinger, Karen
Nussbaum
3:30 pm Representative Maxine Waters Press Availability (tentative)
Tuesday, February 18 Political/Legislative plans, Administration and Congressional leader guests.
Morning Senator Tom Daschle and Congressman Dick Gephardt, U.S. Trade Representative Charlene
Barshevsky -- Press availabilities -- TBA
Representative Xavier Becerra -- Press Availability TBA
Afternoon Vice President A! Gore
3:15 Press Conference -- Vice President Al Gore and AFL-CIO President John Sweeney
Wednesday, February 19 Corporate/International Affairs and Other National Campaigns.
12:30 pm Press Conference on 1997 Corporate Affairs strategies and initiatives -- actions on other
national campaigns released.
4:30 pm March and Demonstration in support of New Otani Hotel Workers -- starts at Pershing Square,
5th and Olive Streets -- directly across from the Biltmore Hotel -- Thousands will march to the New
Otani Hotel, at Second and Los Angeles
Thursday, February 20 Communication and community outreach inititiatives. UCLA Teach-In
I of 2
02/18/97 14:36:01
PR 02/11/97 Media Advisory for Executive Council Meeting February 17-20
http://204.127.237.106/publ/press97/pr0211.hm
12:30 pm Press Conference -- Public Affairs Initiatives
7:00 pm - 10:00 pm UCLA Teach-In -- AFL-CIO President John Sweeney Kicks off Teach-In and
Addresses "The Fight For Our Future"
Friday, February 21 -- UCLA Teach-In
9:00 am 10:30 am UCLA Teach-In -- AFL-CIO Secretary-Treasurer Richard Trumka addresses
"Organizing In California"
3:30 pm - 5:00 pm AFL-CIO Executive Vice President Linda Chavez-Thompson and Working Women's
Department Head Karen Nussbaum address "Race, Gender & Class"
The AFL-CIO Public Affairs Office will be in the Regency Room at the Biltmore Hotel. Press will be to
work in the Heinfbergen room which will be furnished with phones. A detailed schedule of events and
room locations will be sent out on Friday, February 14th. If you have any questions, please call Deborah
Dion 202-637-5036.
AFL-CIO Home Page I Public Documents Page I Public Documents Search
Copyright © AFL-CIO
2 of 2
02/18/97 14:36:02
FY 1998 BUDGET Q&A
February 1997
comments to Peter
Q:
DOESN'T YOUR BUDGET AVOID ALL THE PAINFUL DECISIONS NEEDED TO
ELIMINATE THE DEFICIT?
A:
Not at all. We are locking in spending cuts of $350 billion over the next 5 years --
including $137 billion in discretionary spending and $100 billion in Medicare savings
($138 billion over 6 years) -- and cutting the deficit by $252 billion.
We have carefully examined the budget for areas in which we can achieve savings while
protecting our priorities. Our Medicare and Medicaid proposals achieve $110 billion in
savings over the next five years, and extend the life of the Medicare Trust Fund to 2007,
while maintaining the integrity of both programs. Our non-defense discretionary outlays
follow a smooth, steady decline -- falling by 9 percent in real terms between FY 1997 and
2002.
The Budget includes specific, credible cuts in many areas. As just a few examples, we are
cutting funding for the U.S. Information Agency, P.L. 480 market development activities,
the Corps of Engineers, the Bureau of Reclamation, and the Appalachian Regional
Commission. [CHECK SPECIFICS AND GET OTHER INFO FROM OMB.]
Q:
DOESN'T YOUR BUDGET ACHIEVE 75 PERCENT OF ITS SAVINGS IN THE FINAL
TWO YEARS?
A:
Our budget is not backloaded. Just take a look at our record. We've already cut the deficit
from $290 billion in 1992 to $107 billion last year. When the President took office, the
deficit had to be cut by a cumulative $2.75 trillion between 1993 and 2002 in order to
reach balance by 2002. We have already locked in $2.5 trillion of those savings, and this
budget would lock in the extra $250 billion needed. The fact is that we 've done the
majority of the work in our first 4 years.
And we are making the hard decisions now. We are locking in spending cuts of $350
billion over the next 5 years including $137 billion in discretionary spending and $100
billion in Medicare savings ($138 billion over 6 years) -- and cutting the deficit by $252
billion. Over a 6 year window, we obtain 62 percent of our savings in the last two years --
not a backloaded program at all.
Q:
DOESN'T YOUR BUDGET FAIL TO BALANCE UNDER CBO ASSUMPTIONS?
A:
We have submitted a plan that balances the budget in 2002 under our assumptions --
assumptions that have proven to be conservative over the past four years (every year, the
deficit has been lower and growth has been higher than we had predicted).
Since we took office, the deficit has on average been about $50 billion lower than we had
projected the year before. CBO has been less accurate: their estimates have been off by
$59 billion on average.
It is important that the numbers we use as part of a balanced budget agreement be credible
and conservative and that they are supported by both the markets and the public. Our
projections for GDP growth and inflation over the next five years match those of the Blue
Chip private sector consensus.
If, despite our expectations, our assumptions do not prove correct, we will pursue an
expedited process with Congress to agree on how to close any budget gap. And in order to
ensure that we are locking in a balanced budget, we have identified precisely what we do if
our assumptions prove inaccurate and the expedited process with Congress doesn't work.
Specifically, most of our tax cut proposals would sunset in 2001, and a 2.24 percent across-
the-board reduction in spending (except Social Security) would be triggered. The
discretionary spending reductions would start in 2001 and the reductions in mandatory
programs would be in 2002.
Q:
YOU HAVE INCLUDED A HOME HEALTH CARE TRANSFER GIMMICK IN THE
BUDGET. HOW CAN YOU POSSIBLY DEFEND IT?
A:
Let's be clear: our savings of $138 billion in Medicare over 6 years ($100 billion over 5
years) does not include the home health care transfer from Part A to Part B of the program.
The $138 billion is the net reduction of Medicare spending relative to the budget baseline
and thus is the amount by which our Medicare changes contribute to deficit reduction.
The policy you mentioned was in our budget last year, and it was in the House Republican
budget in 1995 that every Republican in the House voted for.
Shifting long-term home health visits (those beyond the first 100 visits following a
hospitalization) away from Part A of the Medicare program makes sense. It was also the
established policy prior to the 1980s. And it protects the Medicare Trust Fund until 2007,
while not imposing harmful cuts on hospitals or excessive burdens on beneficiaries.
[Background: Originally designed as a post-acute care benefit for beneficiaries who had been
hospitalized, home health care has increasingly become a chronic care benefit, not linked to
hospitalization. Our proposal resiores the original split of home health care benefits so that the
first 100 home health visits following a 3-day hospitalization would be reimbursed by Part A and
all other visits -- including those not following hospitalization -- would be reimbursed by Part B.]
Q:
FOLLOW: IF THE HOME HEALTH TRANSFER IS NOT A GIMMICK, THEN WHY
DON'T YOU INCLUDE IT AS PART OF THE PART B PREMIUM?
A:
We have always been concerned about out-of-pocket costs for Medicare beneficiaries.
Older Americans spend, on average, 20 percent of their income on health care and three-
fourths have incomes lower than $25,000. We have to be careful that as we reform the
Medicare program, we do not place undue burden on low-income seniors.
Q.
DOESN'T YOUR BUDGET CREATE $60 BILLION IN NEW ENTITLEMENTS?
A.
No. My budget actually saves $121 billion in entitlement spending over the next 5 years.
We are proposing some new additions to our health care programs, but they are aimed at
reducing the number of uninsured Americans and are not open-ended entitlements. For
example:
-- Our program to provide health insurance for unemployed workers is capped. The
program is structured as a grants program to States. While there are provisions to help
States that have unanticipated increases in unemployment, there is an overall Federal cap
on spending that cannot be breached.
-- There are no new entitlements in children's health as well. The children's health
initiative also contains no new individual entitlement. It provides States with grants that,
by law, will not exceed $750 million in each year. Medicaid spending itself, under my
plan, will be capped for the first time in its history. The Federal funding limits are set
based on the number of people covered so that States - not the Federal government -
make the decisions about coverage.
We are also proposing some changes to the welfare reform legislation that was enacted last
year, but our purpose is to fix unnecessary and damaging provisions in that legislation --
involving legal immigrants and Food Stamp recipients. We do not view these changes as
new spending or new entitlements.
It is ironic that we are sometimes criticized for phasing out new proposals -- such as school
construction -- and simultaneously for creating permanent new entitlements. Our phase-
outs are designed to allow an evaluation of how well the new programs are working -- and
we have been careful to avoid creating permanent new entitlements without knowing the
effects.
Q:
WHY DO YOU SUNSET MANY OF YOUR NEW PROGRAMS?
A.
Many of our proposals -- such as school construction, welfare to work, skill grants, and
health insurance for the unemployed -- are new programs. They are untried. We want to
see how they work before the government funds these initiatives permanently.
For example, our school construction initiative -- providing $5 billion over 4 years --- is
explicitly designed to jump-start $20 billion in local projects. The Federal government has
traditionally not been involved in school construction and renovation, and our proposal is
not supposed to be a permanent Federal program.
DRAFT: COMMENTS TO PETER
February 17, 1997
MEMORANDUM FOR THE PRESIDENT
FROM:
GENE SPERLING
SUBJECT:
Wall Street Journal article on the budget
Any document as important as the Federal budget inevitably attracts at least some
criticism -- either for what it includes, or for it does not. Viewed from this perspective, the
attached Wall Street Journal article ("Clinton's New Tack," February 7) represents a relatively
positive reception to your FY 1998 budget. The piece recognizes the tough choices faced in the
budget process, and validates your focus on reducing the deficit while boosting education and
training. The article includes affirmative passages on:
Deficit reduction and economic growth. The article notes that deficit reduction has
improved economic performance: " both parties now agree fiscal discipline is the one
sure avenue to improving economic growth. It has one big argument going for it: It
seems to work."
Emphasis on education and training. Your strategy of boosting education and training
was particularly well-received in the article: "Even critics of specific Clinton proposals
say he's on the right track. 'The intention to focus on education is a good one,' says John
Taylor, a Stanford University economists who advised Robert Dole in the presidential
race." Muriay Weidenbaum added that, "The idea of expanding the concept of tax-
favored investment to include investment in people is a net idea."
Coherent argument for education and training. In addition to supporting your basic focus
on education and training, the article states that you present a coherent argument: "The
Clinton budget does offer one coherent argument for useful government action, in this era
of fiscal discipline, to spur growth and arrest the widening inequality that marks the past
two decades. That, Mr. Clinton proposes, is more and better education."
Education and training plan not just rhetoric. Furthermore, the article verifies that your
support for education and training is real: "Mr Clinton's new education 'crusade' goes
beyond rhetoric. For most domestic programs, he proposes spending that fall short of
compensating for inflation, but advocates steady increases in outlays for education."
Tight labor markets and inequality. The article notes that stronger economic growth and
the resultant tight labor markets have produced substantial benefits for working
Americans: " the benefits are huge for Americans of all classes, including millions of
workers whose wages haven't kept up with inflation in recent years. 'A tight labor
market,' says Lawrence Katz, a Harvard University economist, 'is the best thing we've
got in keeping up demand for people at the bottom.
The article also raises a series of questions and criticisms, including why we have not
boosted physical capital investment; whether our education tax cuts will actually increase
enrollment; why we have not cut taxes for the poor; and whether we have taken enough of the
painful medicine needed to balance the budget while protecting our priorities.
It may be helpful to analyze these issues from an economic growth framework.
Economists have identified three sources of economic growth: investment in physical capital,
investment in human capital, and improvements in efficiency. Your economic policies --
including your budget proposals -- are intended to lay the foundations for improved living
standards in the future by bolstering all three of these growth pillars.
I. Investment in physical capital
The first source of growth, physical capital investment, includes both private and public
investment. Your strategy for boosting private-sector investment -- reducing the deficit, and thus
cutting interest rates -- has been extremely successful. As the deficit has fallen from 4.7 percent
of GDP in 1992 to 1.4 percent now, private investment has boomed:
Business investment in equipment has grown by 10.3 percent per year since you took
office -- faster than for any Administration since John F. Kennedy was President.
This additional investment is the mechanism through which deficit reduction raises growth, and
the mechanism is working remarkably well.
The other component of physical capital investment comes from the public sector. The
article argues that public investment has been sacrificed on the altar of deficit reduction. This
argument has some merit -- we have not expanded public investment in infrastructure as much as
we would have liked -- but it is overstated:
During your first term, investment in highways, transit, and other infrastructure increased
by more than 20 percent -- to an average of $25.5 billion.
Furthermore, uur deficit reduction efforts have reduced interest rates for State and local
governments, in addition to businesses, and thus helped to spur infrastructure spending.
In constant dollars, State and local investment in infrastructure has risen from $108.1
billion in 1992 to $125.8 billion in 1996 -- a real increase of 16 percent.
II. Investment in human capital
The second pillar of growth is human capital -- investments in the education and training
of the American workforce. In the article, even Taylor and Weidenbaum are supportive of your
education and training efforts. And with good reason:
We have already increased funding for Head Start by 43 percent since FY 1993, and we
are proposing additional funding for FY 1998.
We have increased the maximum Pell Grant from $2,300 in FY 1993 to $2,700 in FY
1997, and we're proposing another increase (to $3,000) in our budget.
We have raised Title I spending by almost $1 billion (15 percent) since 1993.
We have increased outlays on WIC by 36 percent -- from $2.9 billion in FY 1993 to $3.9
billion in FY 1997.
You have also worked to boost human capital by making work pay -- bringing more
people into the workforce and thus helping them to acquire new skills and hone existing ones:
Policy changes already enacted will expand the EITC by $47 billion between FY 1993
and FY 2002. Contrary to the assertion in the article, your tax cuts have not been aimed
only at the middle class: this dramatic expansion in the EITC is helping millions of poor,
working Americans.
At least partly as a result of your economic policies, the percentage of working-age
Americans who were employed reached 63 percent during your first term -- the highest
for any Administration on record.
We continue to work on new human capital proposals -- from the America Reads
challenge to the school construction initiative to the Hope scholarship. Our proposals to reduce
the cost of college, in particular, have attracted much interest along with some criticism. While
supporting the underlying intention of our proposals, for example, the article argues that they
"will increase economic growth and restrain inequality only if they actually send more young
people to college."
Ensuring that more people actually do attend college should be one of the fundamental
objectives of your second term. The key to success is raising the expectations of lower-income
students. Currently, many low-income students exclude themselves from the college market
because they believe whatever the reality -- that they could never afford college. Emphasizing
our entire package -- from expanded Pell grants, to the Hope scholarship, to the $10,000 tax
deduction, to the new expanded IRA could help to change perceptions about the affordability
of college for all Americans. And if all Americans believe that they have a real opportunity to
attend college, more of them will.
The story of Eugene Lang illustrates the power of raising the aspirations of young
students. In 1981, Eugene Lang, a New York businessman, was invited to speak to the sixth
grade at an elementary school in East Harlem. He unexpectedly told the 61 children that if they
graduated from high school, he would pay for all of them to go to college. Based on previous
experience, 25 percent of the students should have finished high school, and almost none should
have gone to college. In reality, 90 percent did graduate from high school and 60 percent went
on to college. (Since 1986, Lang's "I Have a Dream" Foundation has grown to 160 Projects in 61
cities, serving more than 12,000 children.)
Similarly, if our combined proposals succeed in making all Americans realize that they
can go to college, the effect could be dramatic. We should be more aggressive in pushing our
education package as offering an opportunity for all Americans to go to college. But it may be
worth noting that college enrollment is not the only relevant variable in evaluating whether our
proposals are successful. If our focus on education induces more students to earn 4-year degrees
rather than 2-year degrees, or to go to better schools, it can affect human capital investment and
economic growth even without changing the total number of students enrolled in college (and
therefore the enrollment rate).
III. Improvements in efficiency
The final pillar of economic growth is the efficiency with which we use and deploy our
physical and human capital. Efficiency is enhanced by research and development, which
improves our technology, and by more competition, which allows us to shift resources into more
productive areas.
Research and development. The article complains that we have shortchanged R&D
spending in order to raise education spending. It is true that Federal R&D spending has fallen
over the past few years, but only because of declines in defense R&D:
Nondefense R&D spending has risen: Real Federal spending on civilian R&D has totaled
$109.3 billion during your first four years -- up over 10 percent relative to the previous
four years.
Our FY 1998 budget proposal includes a funding increase of more than $1.6 billion for
R&D, including $337 million in additional funding for NIH, $97 million more for the
NSF, and an increase of $289 million for university-based research.
Promoting competition. The second source of higher efficiency is competition, which
encourages firms to adopt best practices and prompts labor and capital to flew to their most
productive uses. The criticism on this front by John Taylor and Murray Weidenbaum, included
near the end of the article, is simply unwarranted. The Vice President's National Performance
Review, for example, is dramatically reducing the burden imposed by government regulations.
We have begun the historic process of liberalizing the telecommunications and electricity
industries -- each of which account for over $200 billion in annual sales. We have re-invigorated
the Anti-Trust Division at the Justice Department. And our efforts to promote trade, as
illustrated by the recent signing of the WTO telecommunications agreement, provide another
source of efficiency-enhancing competition. Put simply. our economy is the most competitive in
the world, and we are working to make it even more so.
Your leadership on the budget
Finally, the article questions whether you have exerted enough leadership on facing the
painful medicine needed to balance the budget while protecting our priorities. This criticism
seems particularly unfair and unfounded:
Your courage in raising taxes on the top 1.2 percent of the population in the 1993 budget
deal was instrumental to cutting the deficit by 63 percent while continuing to invest in the
three pillars of growth. The OBRA 93 tax increase is expected to produce an additional
$61 billion in FY 1997 above what would have otherwise been collected. This tax
change took tremendous political courage, and has been essential to our deficit reduction
efforts.
In summary, the budget affects too many people for it to escape any criticism whatsoever.
Your economic team has worked hard to balance the myriad competing interests in shaping our
FY 1998 budget proposals. In general, the article is supportive of those proposals. Relative to
the reaction to previous budgets (including some of our own), the few criticisms seem mild. And
the backing for our basic strategy, as reflected in many of the article's quotations, is refreshing.
We will continue to work to garner more support for our economic policies.
FEB-18-97 14:59 FROM:OMB
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February 18, 1997
MEMORANDUM FOR GENE SPERLING
From:
Ken Apfel
Subject:
G.I. Bill Background
You asked for GI Bill background for your trip on Wednesday. As you know, we are developing
an options memo on the issue of skill grants that should be ready for review later this week. The
following memo provides more general background on the GI Bill.
BACKGROUND. As detailed in the FY 1996 Budget, the G.I. Bill included combining 70
employment and training programs into one workforce development system (see attached) with
five discrete component parts:
(1) Individual Skill grants. Financed at $3.6 billion in the Labor Department, vouchers
of up to $2,620 would support "technical education" for dislocated workers and low-
income persons. $2.1 billion of the amount was derived by transfer from Pell grant funds
used then (and now) for these purposes.
(2) Individual Pell grants. Financed at $4.5 billion in the Education Department, grants
of up to $2,620 would provide student financial aid to defray the costs of associate's and
bachelor's degree courses. Pell would no longer be used for non-degree training.
(3) A grant to States for adult services other than training. Financed at $2.7 billion in
the Department of Labor, this grant would support a State and local system of job
placement and training-related services provided through one-stop career centers, with a
limited national reserve for activities such as grants for multi-State mass layoffs, and
research. This was the major consolidation of the Labor Department's Job Training
Partnership Act (JTPA) and the Employment Service.
(4) Two State grants for youth. Financed at $2.9 billion, one grant would support
vocational education for in-school youth through the Education Department; a second
grant for at-risk and out-of-school youth would offer second chance training and work
experience through the Labor Department. All activities were to be structured within the
School-to-Work framework jointly administered by the Education and Labor
Departments.
(5) A State grant for adult and family literacy. Financed at $490 million in the
Education Department, this grant would provide GED, ESL, and basic skills instruction,
1
FEB-18-97 15:00 FROM:OMB
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as determined by the States.
The FY 1996 Budget proposed $14.2 billion for the G.I. Bill for America's Workers, an
increase in overall funding of $1 billion above 1995. We estimated that the Skill grant part of
this approach ($3.6 billion) would serve all dislocated workers who wanted training, but only
serve an estimated 60 percent of economically disadvantaged adults who needed and wanted
training. As a result, State and local grantees would be required to ration Skill grant resources.
It was (and remains) impossible to distinguish clearly between Skill grant and Pell grant
eligibility on the basis of individual characteristics, so these take-up rates are very rough
estimates. Both degree and non-degree training and education would have remained financible
through student loans and income-contingent repayment, but we did not factor these resources
into the discussion.
LEGISLATIVE HISTORY. The Administration did not transmit legislation to authorize the
G.I. Bill reforms, except for a separate bill in May 1995 to reauthorize the vocational and adult
education programs. We chose instead to work informally with the 104th Congress on bills
Republicans were moving through both chambers. Our judgment was that specific
Administration bill language would raise issues our supporters could not accept and would draw
fire from Republicans unnecessarily. Senator Kennedy supported this approach.
The proposal to move Pell resources to the Labor Department was abandoned almost
immediately because it was opposed vigorously by the higher education constituency and their
Congressional allies.
In the Fall of 1995, training reform bills -- known as "CAREERS" (Goodling) and the
"Workforce Development Act" (Kassebaum) passed both Houses of Congress with
overwhelming bipartisan support (345-79; 95-2). The Administration expressed conditional
support for both bills and organized Democratic and interest group support despite concerns with
each. We wanted to keep the issue alive in Congress and looked to conferees to address
concerns. This also helped us in the appropriations fight, where we could argue that it made no
sense to cut funding deeply with a major reform on the horizon. Of the two bills, Rep.
Goodling's CAREERS was closer to fulfilling the G.I. Bill principles.
CAREERS required, with an exception for training run by community-based
organizations, vouchers for adult training, "report cards" and performance standards for training
programs, one-stop and school-to-work frameworks for adult and youth programs (although it
would have repealed the School-to-Work Act), and private sector involvement in workforce
development programs. By contrast, the Kassebaum bill would make vouchers available at State
option; authorize a single State grant with a 25% "flex pot" for State-determined workforce
development activities, which could include supporting company training of the employed;
weaken accountability by permitting States to define success in their own terms; and greatly
diminish the role of local communities in determining training needs.
2
FEB-18-97 15:00 FROM:OMB
ID:
PAGE 4/6
As the two bills went to conference, the fierce FY 1996 and 1997 appropriation struggles
were underway. The appropriation negotiations led the Administration to advocate financing for
existing categorical programs for summer youth, dislocated workers, and vocational education to
try to preserve funding for these programs, which had been cut severely by both chambers. With
the help of constituent groups, the Administration won the appropriations battles, but in the
process, resulting of necessity, moderated the G.I. Bill reform agenda to be less specific on both
consolidation and the form of Skill grants.
In a May 1996 letter to the conference leadership the President urged the conferees to
craft a bipartisan bill that incorporated the Administration's G.I. Bill principles. The letter
advocated earmarked funding for dislocated workers and "properly targeted" resources for a
summer jobs program, adult education and training, in-school youth, at-risk youth, and the labor
exchange. The original G.I. Bill principles never explicitly stipulated these elements as essential
components.
Pressured by conservative "family groups" to resist compromise, and for other reasons,
Republican conferees excluded the Administration and the minority from the negotiations. Some
of the majority conferees believed the Administration was negotiating in bad faith, or defending
the status quo. The partisan conference produced a bill that resembled Kassebaum's flawed block
grant approach. In part, the conference bill was unacceptable because it required only a 50-State
training voucher "pilot," failed to ensure that adequate resources would be available for adult
training, and included weak accountability provisions. Former Chief of Staff Panetta made an
effort to re-open negotiations. The last effort, a June 17th offer from the Administration
representing our "bottom line issues" received no response from the conferees. Emerging in July
1996, the conference bill failed to gain the Administration's support or the vote of any minority
conferee. The bill never reached a floor vote.
G.I. BILL IN THE FY 1998 BUDGET AND 105TH CONGRESS. The FY 1998 Budget
leiterates support for the G.I. Bill principles, characterizes training reform as "essential," and
anticipates working with the 105th Congress to produce a bill. For comparative purposes, using
a program mix matching the original G.I. Bill in the FY 1996 budget, the FY 1998 Budget
request for G.I. Bill programs is $14.3 billion ($4.9 billion in Labor, $9.4 billion in Education),
$109 million above the FY 1996 Budget request. The FY 1998 Budget makes no specific
statement about the number of programs to be consolidated. The non-degree postsecondary
education supported by the Education Department's Pell grants (which totaled $2.1 billion in FY
1996 and was proposed to be transferred to Labor) continues as a major contributor to technical
education and training. It no longer is considered part of the G.I. Bill/Skill grant mix.
Training reform legislation is a priority for the 105th Congress. In the Senate, a Daschle
bill to consolidate adult training programs (S. 17) was introduced on January 21st. This bill
authorizes a State voucher system. In the House, hearings on training reform began on February
11th; Labor may be asked to testify on March 4th.
3
FEB- - 18-97 15:01 FROM:OMB
ID:
PAGE 5/6
POLICY OPTIONS. We are developing policy options on the nature of the voucher to pursue
in a second-term G.I. Bill. All options assume strengthened "gatekeeping" (efforts to ensure
high quality training) and consumer reporting of training program performance to ensure
accountability for results.
Current programs pay for much more than training. In fact, funds used exclusively for
training (a proxy for what would be converted to Skill grants) comprise less than half of all G.I.
Bill programs funds. The remaining non-training dollars-would finance State grants for a
workforce development infrastructure of one-stop career center systems and the labor exchange,
local workforce boards, gatekeeping and consumer reporting activities, training support services
(such as job counseling), and non-vouchered on-the-job training. These remain key features of
the G.I. Bill concept.
Attachment
4
9/9
G.I. Bill for America's Workers
ITPA Tide ПА Adob Training for be
ITPA THE ПА Training Programs for Older individuals
PAGE
ITPA Tide HUEDWAA (Coversin' 30% Discredorary)
ITPA Tide III/EDWAA (Secretary 20% Discredorary)
ITPA Employment and Training Pliots and Demos
ITPA Clean Air Employment Transition Assistance
*Employment Services - Governors' Discretionary Punds
Employment Services - Wagnes Peyeet Sum Orante
ITPA Defense Conversion Advertment
ПРА Defense Diversification Programs
School-so-Week Opportunities (DOL/ED)
ITPA Tkle 11A State Education Orants
ITPA This IIC Disadvantaged Your
ITPA Tide ЛА State Incordre Grants
STPA This IIC Youth State as programs
TIVA Tide IN/EDWAA (SDA Allotment)
ITPA The IIC Youth Incentive Orants
Food Storp Employment and Training
ITPA Title us Summer Youth Employment and
Sune Postaccondary Review Program (PELL)
Training
8
Labor Market Information
ITPA This IID Summer lobs-Native Americant
"One Stop Career Contern
Youthbulld
27
Women in Apprendoeship
Youth Fale Chance
Federal Pull Orant Progrem
Your Innovations
Federal Loan Progress (Direct)
Programs
Federal Low Program (Family Bd)
Labor Certification for Alke Workers
Programs
Intervate Job Bask
ITPA Employment and Truing RAD
American Semoens
Rural CEPS
ID:
HOICC (DOL Share)
School-to-Work:
Adult Workforce
Second Chance
System
One Stop/ES
School-to-Work:
Adult Education
In School
and Literacy
School-to- Work Opportunities (DOL/ED)
Add Bd State Administered Bark Orant
Voe es Programs for Criminal Offenders
National Adult Education Observetionary Program
Voe Bd Cooperadore Demonstration (all Ned programs)
State Literacy Resource Centers
Voc Ed Opportunities for Indian A Howalks Native
Not Workplace Literscy Program
Voc es Community Based Organizations
Workplace Liveracy Partnerships
Vec Ed Demo Centers for Dislocated Workers
Adults Education for the Homeless
Voc Ed Consumer and Homemaking
Liveracy Training for Homeless Adults
Vec-Ed Sure Councils
Liveracy for Encarcerated Adults
Voc-Ed NOICC
Licracy Programs for Priscribers
Voc-Es Act
Workplace transltion training for Incurrerated youth
Native Humalian es. Community-based Leaning Cri
23
12
Even Start-Sun Educational Agency
Even Start Migrant Education
Library Lheracy
Voc Ed Bask State Programs
(Transfer from ITPA Tide BA)
Voc as Technicy Education
Voc и Drmo for Integration of Voc and Academic Lng
Voc Ed Es Programs for Ped Correctional Institutions
Yee Es Ed Comprehensive Curer Coldence and Counseling
Programs
Programs
Yes is Blue Ribbon Vx es Program
Vec es Model Programs for Regional Training, sain Trade
Vec Ed- Besine m/Education/Lebor Partnerships
FÉB-18-97
Vx es Tribally Controlled Post-See Voc Bardrodons
Yoc ed State Programs and Acdrkies
Vcc Es Single Purent, Homemakers, Prejust
Vac Ed Sa Equity
BS will be retain.
parately authorized and funded program to the states; " will be an Integral part of the
top Career Center System.
One Stop Implementation grants will be available only through 1999 and School-10-Work grants will be
OPA
1195
DAIRY PRICING -- CONTENTS
Briefing Memo to the President from Daniel Heath on Federal Milk Pricing
Background E-mails from Daniel Heath on Representative Norwood's Comment to
the President that a "Milk Excess Base Plan" Would Have a Positive Impact Upon
Dairy Farmers in the Southeast U.S.
Dairy 37
Page 1
Many dairy producers are concerned about the recent decline in milk prices,
and Secretary Glickman has suggested that the issue may be raised during the
National Governors Association meeting. Despite reaching record highs during
1996, milk prices declined sharply in the fourth quarter. The price of 40-pound
blocks of cheddar cheese on the National Cheese Exchange, for example, fell by 30
percent between early October and mid-December. Over the past few weeks, milk
prices have strengthened -- but dairy state Governors, Senators, and Members of
the House are still pressing for Administration action. The Department of
Agriculture has taken several steps to strengthen milk prices, as described below,
but has resisted establishing a price floor as some dairy interests are advocating. A
price floor would be incongruous with the Congressional mandate embodied in the
Farm Bill, and would pit regions against each other since some are disadvantaged
by price floors.
Q:
What are you going to do about milk prices? Are you willing to establish a
Floor price for milk?
A:
I am aware that milk prices declined sharply at the end of last year, and that
the Department of Agriculture has already taken several steps to strengthen
milk prices, including:
Purchasing $5 million worth of cheese for use in domestic food
assistance programs, in addition to the accelerated school lunch
purchases already underway;
Stimulating exports by reactivating the Dairy Export Incentive Program
for butterfat, which has been idle since mid-1995; and
Working with private voluntary groups to boost the flow of dairy
products into international food assistance programs
In addition, Secretary Glickman announced on January 29 that he is taking
steps to
address concerns raised by dairy producers about how milk prices are
calculated.
I also understand that prices have strengthened in recent weeks. So I hope
we can continue to work together to address the concerns that have been
raised.
[If pressed on a price support: As instructed by Congress in the Farm Bill, we
are moving away from price supports and toward a consolidation and reform
of the federal marketing order system. Milk pricing is complicated and has
been subject to extensive government intervention over a long period of time.
Dairy 37
Page 2
The Farm Bill instructs us to reform this entire pricing system, and it's best
to consider any proposals for a price floor within the context of reforming the
federal marketing order system. I am confident that Secretary Glickman will
continue to work with the industry to address your concerns in ways that are
consistent with the thrust of these reform policies.]
4x
Russell W. Horwitz
02/18/97 12:50:54 PM
Record Type: Record
To:
Michael J. Warren/OPD/EOP
cc:
Subject: President's Request on Dairy: Per Gene's Request
Michael, I would include all of this in the additional reading section, including the attachment. I
don't think you need to tab this out. We can just add a sheet (table of contents) listing the
documents, but with no tabs.
Forwarded by Russell W. Horwitz/OPD/EOP on 02/18/97 12:46 PM
Peter R. Orszag
02/18/97 12:16:12 PM
Record Type: Record
To:
GREEN_MG @ A1 @ CD @ LNGTWY, Russell W. Horwitz/OPD/EOP, Michael J. Warren/OPD/EOP
cc:
Subject: President's Request on Dairy: Per Gene's Request
Please add to Gene's "reading book" for the trip. Thanks.
Forwarded by Peter R. Orszag/OPD/EOP on 02/18/97 12:12 PM
Forwarded by Daniel D. Heath/OMB/EOP on 02/18/97 10:30 AM
Daniel D. Heath
02/12/97 06:17:55 PM
Record Type: Record
To:
T J. Glauthier/OMB/EOP
CC:
Ronald M. Cogswell/OMB/EOP, Mark A. Weatherly/OMB/EOP, Alecia Ward/OMB/EOP
Subject: Sylvia Mathews' Request on Dairy
The President has requested background on Rep. Norwood's comment to him that a "milk excess
base plan" would have a positive impact on dairy farmers in the Southeast U.S. Mr. Norwood is
urging legislation to reinstate a provision that expired last year. (I'm sending you a copy of his
letter to the President.)
The comment reflects a broad and perennial dairy industry theme, dissatisfaction with the Federal
pricing of dairy products. It is provoked by the 25 percent decline in prices from September to
December 1996. (The 1996 annual average price was a record high, and even after the drop prices
remain above levels of most years and recently have risen.) The price swings resulted from market
forces (high feed prices, and farmers' responses), but the Federal milk pricing regime is seen by
the dairy industry either as the underlying problem or the solution to disenchantment with prices.
More narrowly, the "milk excess base plan" refers to a former scheme in the Federal marketing
order system for the Southeastern U.S. to smooth seasonal swings in milk production and
corresponding price and income effects of the milk price cycle. This "seasonal base plan" paid
farmers higher-than-normal prices throughout the year for a "base" level of production established
in the months of short supply, but paid below-normal prices for "overbase" production in the flush
months. The effect was to generate more milk in the Southeast from local supplies in the short
supply periods, and to boost incomes for Southeast dairy producers. The scheme was authorized
in past farm bills, was officially supported by the Administration in the 1996 Farm Bill deliberations,
but was not reauthorized in the 1996 Farm Bill due to opposition by Midwest dairy interests. The
recent price swings have provoked renewed calls by Southeastern interests for reinstating this
provision, which would require legislation.
Federal milk pricing policy usually confronts an internecine squabble of regional interests, and that
is the main story on the seasonal base plan. Its effect on Southeast producers' incomes probably
is not great; nor are those producers' incomes currently lower than those in other regions. The
provision would tend to reduce income for producers outside the Southeast (the Upper Midwest
mainly) who "export" to the Southeast when prices are favorable. While the provision might
encourage more milk production, and increase mandatory Federal purchases of cheese, it would
have minimal impact on Federal costs. Yet the Southeast dairy processing industry's goal of
regional self-sufficiency is not inappropriate, especially when the Administration reluctantly
implemented the similar New England goal through approval of the controversial Northeast Dairy
Compact, authorized in the 1996 Farm Bill.
USDA is charged by the 1996 Farm Bill with reforming the Federal milk marketing order system,
and Administration pclicy has been to consider all the various proposals, and the disparate regional
interests, in the context of total reform of the entire regime. The attached page I did with the
NEC for the President's briefing book for the NGA last week provides more policy position and
context on Federal milk pricing.
Dairy.37
Daniel D. Heath
02/18/97 11:53:02 AM
Record Type: Record
To:
Peter R. Orszag/OPD/EOP
CC:
Kathleen M. Wallman/WHO/EOP
Subject: President's Request on Dairy: Per Gene's Request
My OMB note sent to Sylvia Mathews follows. Subsequent to writing it I learned of two developments
bearing on the President's query, FYI:
1. Sen. Cochran, Coverdell and Helms have introduced S.277, which would restore the authority
to operate the seasonal base plan dropped by the 1996 Farm Bill.
2. USDA has sent for OMB clearance its own legislation to restore authority for the seasonal base
plan, which I've held up. Sec. Glickman was intending to send a memo to the President in
response to Rep. Norwood's letter. I understood last Thursday's draft of the memo urged the
President to propose the legislation. I don't know if the memo was sent.
This overall area of dairy pricing policy needs further consideration before the Administration
proceeds with ad hoc initiatives. The contentious Northeast Dairy Compact recently was thrown
back to USDA by US District Court for Sec. Glickman to reconsider his decision that there was a
compelling public interest. Legislation is being introduced on the National Cheese Exchange, and
price floors. USDA is in the midst of disputes and seeking comments on basic formula pricing, and
USDA is about to release its paper on pricing concepts in preparation for milk marketing order
system reform. Regional compacts are being prepared in the Southeast and the Midwest. A
Senate Resolution on this stuff pushed by Sen. Specter was passed last week. For the
Administration to choose amongst contesting regions with a patchwork approach will make more
difficult the real job of ground-up reform of the entire Federal pricing regime, mandated by the 1996
Farm Bill.
Moreover, the seasonal base plan was opposed in 1996 Farm Bill deliberations by prominent
Administration allies and they remain so. Midwestern dairy interests, disappointed by the
Administration for approving the Northeast Dairy Compact, would likely object to Administration
leadership in reauthorizing the seasonal base plan. An Administration policy of "no objection" or
even "support" for a proposed bill like S.277 would seem preferable to having the President
propose legislation.
The question that needs addressing, aside from the broad policy on marketing order reform, is what
would the Administration gain by taking a prominent position on this regional industry squabble that
threatens to be the first in a series? I urged USDA to address this point.
Gene:
Here's the USA Today article on the CPI that you asked about. Although the article doesn't note
it, the 96 percent who agree that the CPI is biased all thought the bias was at least 0.5 percentage
points per year.
I have also attached a survey that Michael Boskin sent out. It finds a lot of support for the
Boskin results -- but Boskin has not yet been willing to reveal the names of those who
participated.
-- Peter
4B MONDAY, JANUARY 20. 1997 USA TODAY
nflation's exaggeration exaggerated?
Bui Montague
annual inflation rate by 1.1 per-
SA TODAY
centage points.
"Above all, don't
brackets, which also are raised
"If you keep (cost-of-living
each year In line with the CPI.
changes) tied to the CPI but in-
Of 49 economists who re-
politicize the
But economists disagreed on
clude some kind of widely ac-
By an overwhelming major-
sponded to the USA TO-
the best method for adjusting
cepted adjustment, you have a
Ity, economists agree with a
DAY/CNBC survey, an over-
process by having
the CPL
better shot at being credible
blue-ribbon congressional pan-
whelming 96% agreed that the
politicians vote on
Some suggested the Bureau
with the people who would be
el that the consumer price in-
CPI overstates inflation. Only
of Labor Statistics (BLS),
affected,' says David Munro,
dex overstates the true infla-
one economist, James Coons of
how much to
which complies the CPI, should
economist for High Frequency
tion rate.
Huntington National Bank, said
discount a
adopt the Boskin Commission's
Economics, a consulting firm.
But in the latest USA TO-
the CPI is accurate.
proposals for changing the in-
Munro suggests limiting any
DAY/CNBC quarterly econo-
But only 53% of the econo-
published statistic."
dex.
CPI adjustment to five years, to
mist survey, a sizable number
mists endorsed the Boskin
BLS is working on its own
give the BLS time w work on
of economists said the panel,
Commission's figure of 1.1 per-
- Saul Hymans, director
changes, and agency officials
fixing the Index.
known as the Boskin Commis-
centage points.
of forecasting at the
have criticized some of the
But other economists dis-
sion, exaggerated the distortion
The rest of the economists
University of Michigan.
Boskin panel's findings
agree.
in the CPL
put the CPI's error considera-
Other economists suggest
"Above all, don't politicize
The panel, headed by MI-
bly lower - at an average 0.53
that Congress peg federal cost-
the process by having politi-
chael Boskin, chairman of the
percentage point.
of-living Increases and tax
clans vote on how much to dis-
Council of Economic Advisers
Reducing the CPI 1 percent-
cutting cost-of-living increases
changes to a new formula -
count? à published statistic,
in the Bush administration, re-
age point could save the feder-
for Social Security recipients
one that would subtract a set
says Saul Hymans, director of
ported in December that It be-
al government up to $261 bil-
and others, and by holding
amount from the reported CPI
forecasting the University of
lieved the CPI overstated the
lion over seven years by
down increases in federal tax
each year.
Michigan
30-year Treasury bond yield (end of quarter)
Economists make
Respondents:
Friday
6.83%
predictions for 1997
1st qtr. 1997 forecast
6.74%
James Annable, First Nati. Bank of Chicago; Richard Berne:
Mellon Bank; James Bills, Comerica Bank; David Blitzer,
2nd qtr. 1997 forecast
6.69%
Standard & Poor's; Robert Brusca, Nikko Securities Int'l;
In
the la USA TODAY/CNBC Economic Survey, the
3rd qtr. 1997 forecast
6.66%
Rosanne Cahn, Credit Sulsse First Boston; Larry Chimerine
economists consensus is the economy will remain on a path
Economic Strategy Instit, James Coons, Huntington Natl.
of
, growth and moderate inflation in 1997. Forty-nine
4th qtr. 1997 forecast
6.57%
Bank; J. Dewey Daane, Vanderbilt Univ.; Robert Dederick,
leading economists participated in the survey, which was
Northern Trust; William Dunkelberg, Natl. Fed. of Independen
conducted Jan. 9-14.
Prime rate (end of quarter)
Business; Michael Evans, Kellogg School, Northwestern
Do you think the Federal
you think no change will
Univ.: Robert Genetsid, Chicago Capital; Maury Harris, Pain
Reserve will lower rates,
be made, do you think the
Friday
8.25%
Webber, Stuart Hoffman, PNO Bank; Said Hymans, Univ. of
Michigan; Howard Keen, Cohrall; Irwin Kellner, Chase
raise rates or make no
Federal Reserve will change
1st qtr. 1997 forecast
8.32%
Manhattan; Larry Kimbell UCLA Business Forecasting
change at the next meeting
rates later this year?
2nd qtr. 1997 forecast
8.35%
Project; Nancy Kimelman Technical Data: Craig Knutson,
of the Federal Open Market
Southwestern Bell: Nancy.] ater, ISI Group; Carol Leisenring
C
(Feb. 4-5)?
3rd qtr. 1997 forecast
8.35%
CoreStates Financial: David Lereah, Mortgage Bankers Assn.
No
Yes, lower rates
8.32%
Charles Lieberman, Chese Securities: Christopher Low,
Lower rates
4th qtr. 1997 forecast
HSBC Holdings; Nancy McCallin, Colorado Legislative
0%
28%
24%
Council; Robert McGee/The Tokai Bank; Jim Mell, Eaton;
Please provide your prediction for each of the following:
David Munro, High Frequency Economics; Joel Naroff, First
Union; Elliott Platt, Donaldson, Lufidn & Jenrette; Joel
1997 corporate profit growth (as measured by the Commerce
Prakken, Macroeconomic Advisers; Maria Ramirez, Marla
Department in the GDP accounts). Average:
Florini Ramirez: Donald Ratajczak, Georgia State Univ.; Lynr
Reaser, Bamett Banks; David Resier, Nomura Securities Intl
4.9%
Stephen Rcach, Morgan Stanley, Kim Rupert, MMS Intl.;
John Ryding, Bear Steams; Jamie Seguino, Ford Motor,
Make no change
Yes, raise rates
94%
1997 compensation growth as measured by the Labor Dept.'s
Robert Shrouds, DuPont; AI Smith, NationsBank; James
48%
Employment Compensation Index. Average:
Smith, Univ. of N.C.; Sung Won Sohn, Norwest; Donald
Straszheim, Merrill Lynch; John Williams, Bankers Trust; Johr
Average projected growth in gross domestic product
3.4%
Wilson, Bank of America; Raymond Worseck, A.G. Edwards
(after Inflation, annual rate In chain-welghted terms)
Do you agree with the Boskin
If no, what do you believe is
3rd qtr. 1996 actual
2.1%
Mullins,
USA
Commission conclusion that
correct?
4th qtr. 1996 forecast
3.0%
the CPI overstates Inflation
CPI overstates inflation by
1st qtr. 1997 forecast
by about 1.1 percentage
lesser amount (average:
2.4%
points?
0.53 percentage point)
2nd qtr. 1997 forecast
2.3%
96%
NJ
Yes
3rd qtr. 1997 forecast
2.1%
47%
53%
4th qtr. 1997 forecast
2.2%
Consumer price Index (12 months ended)
December 1996 actual
3.3%
CPI is
CPI
1st qtr. 1997 forecast
3.1%
accurate
underestimates
4%
inflation
2nd qtr. 1997 forecast
3.0%
0%
3rd qtr. 1997 forecast
3.0%
4th qtr. 1997 forecast
3.0%
How important is balancing the federal budget for the health
of the economy?
Unemployment rate (end of quarter)
Very important
Somewhat important
29%
55%
December 1996 actual
5.3%
1st qtr. 1997 forecast
5.3%
2nd gtr. 1997 forecast
5.3%
7 forecast
5.4%
7 forecast
5.4%
Not at all important
Not very important
4%
12%
02/11/97 14:29 259 202 6220081
DEPSEC TREAS
a
002
STANFORD UNIVERSITY, STANFORD. CALIFORNIA 94305-6010
MICHAEL J. BOSKIN
TEL (413) 733-6462
TULLY M. FRIEDMAN PROFESSOR OF ECONOMICS
FAX: (415) 723-6494
:
& SENIOR FELLOW, HOOVER INSTITUTION
EMAIL: [email protected]
Results of Survey of Two Dozen Experts on
the Likely Bias in the CPI
Two dozen experts who are:
a)
recognized for research in the field and/or
b)
current or former government policy officials with responsibility
for understanding and acting on these issues and interacting with
government researchers in the area
:
were asked their best judgment on the likely bias in using the change in the CPI
as a measure of the change in the cost of living.
The results were as follows (20 of 24 responded; 2 said it was not appropriate to
respond):
1.
Mean M 1.2%
:
2.
Median =
1.1%
3.
89% were ≥ 1.0%
95% were ≥ 0.8%
100% were Z 0.5%
:
W850:20 DE, OE NNI
02/11/97
14:29
9 202 6220081
DEPSEC TREAS
003
What America's Most Renowned Experts Are
Saying and Writing Professionally about
the Boskin Commission Report on the CPI:
"Michael Boskin, Ellen Dulberger, Zvi Griliches, Robert Gordon and Dale
Jorgenson have written an excellent report. Their estimates of bias components in the CPI
are very reasonable but perhaps a bit conservative."
-Professor Erwin Diewert, University of British Columbia,
widely regarded as the world's leading expert on index
numbers
"The Boskin Commission Report has done a very careful job in documenting the
upward bias in the CPI. The existence of substitution bias as well as the appropriate
correction has been known for & long time; the BLS should finally fix the problem.
However, the Boskin Commission estimate of the upward bias in the CPI due to failure to
adjust adequately for quality improvements and the incorrect treatment of new goods in
the CPI is likely to be an underestimate. The reason for the under estimate is that the
consumer surplus from new goods has not been included in the Report's estimate."
-Professor Jeny Hausman, MIT
widely regarded as the leading expert in the economics of
new goods. Also, former Clark medal winner as the
Outstanding American Economist under age 40
"In my view. the overall assessment is probably accurate: the CPI currently is likely
to overestimate the increase in the cost of living by at least 1 percent per year Correction
for new products bias might indicate a significant further upward bias to the CPI would
recommend reducing the CPI adjustment by It least one half and as much as 1 percent per
year over the next decade."
-Professor William Nordhaus, Yale University
Expert on quality change and new products and former
member, Council of Economic Advisers under President
Carter.
"For reasons outlined in the Boskin Commission report we know with near
certainty that the current CPI is off There is every probability that the upward bias ranges
between 1/2 percentage point and 1-1/2 percentage points per year If we cannot find a
precise estimate for a certain biss, we should not implicitly choose zero as though that was
a more scientifically supportable estimate it is better to be roughly right than precisely
wrong recent work by staff economists at the Federal Reserve Board has added strong
corroborating evidence [to] the Boskin Commission."
-Alan Greenspan, Chairman. Board of Governors,
Federal Reserve System
W8E0:20 ts, 0E NNI
FEB-12-1997 12:59
CEA
P.003/004
January 31, 1997
Dear Survey Recipient:
As you know, the CPI Commission (Ellen Dulberger, Robert Gordon, Zvi
Griliches, Dale Jorgenson and myself) submitted our final report to the Congress last
month. We concluded that changes in the CPI are likely to overstate the change in the
cost of living by 1.1 percentage points per annum (plus or minus a few tenths, but more
likely higher than lower),
We made many recommendations to the BLS (using formulas accounting for
substitution, more hedonios, more frequent and expanded surveys to capture new products
faster, etc.) and to the Congress (allowing data sharing between agencies, increased
funding to support BLS's efforts to improve the CPI, etc).
We also indicated it was up to the President and Congress to decide what to do
about COLA's in government programs. The BLS is making. and will continue to make,
improvements especially If it receives the funding it needs, but gradually, partially and with
unpredictable timing and results, and in any event, should not be politicized in any way.
We suggested an ongoing commission be established to monitor the state of knowledge
and BLS improvements 50 as to advise the elected officials on indexing COLA's in the
future (Fed Chairman Greenspan has made a similar, and in fact, stronger, proposal).
We are writing to a group of expert economists to ascertain their best judgment on
the issue of the likely size of the blas and would appreciate your taking a few minutes to
fill out and fax back the attached with your answers to the questions.
Your answers will be strictly confidential. Only summary statistics will be used
and only economists of some standing on these issues by virtue of their own research
and/or current or former job responsibilities are being asked to respond.
I would very much appreciate your response ASAP, preferably by COB, Monday,
February 3.
I will share the results with you.
Thanks for your cooperation.
Michael J. Boskin
Chairman
CPI Commission
HEB-12-1997 12:59
CEA
P.004/004
FAX BACK TO:
Michael J. Boskin, 415-723-6494
Questions on Consumer Price Index (CPI)
1.
What is your best judgment as to the likely bias in using
changes in the CPI as an estimate of the change in the
cost of living?
2.
What would be your best judgment of the minimum
amount of bias you're fairly certain of?
NOTE: I am only inquiring about your judgment of the size of the potential bias, not
about if or how COLA's should be adjusted. You may well believe that COLA's should
not be adjusted or that COLA's should be adjusted, whether or not there is a bias, but that
is not what I'm asking. I'm asking for your best professional judgment on the size of the
blas only.
Also, if you have not received a copy of the Final Report of the CPI Commission and
would like one, let my office know.
FAX BACK TO MICHAEL J. BOSKIN
AT 415-723-6494. NO LATER THAN FEB. 3.
26
THE PRESIDENT HAS SEEN
THE WHITE HOUSE
WASHINGTON
2-18-97
February 15, 1997
MEMORANDUM FOR THE RESIDENT
FROM:
PHIL CAPLAN
HELEN HOWELL
SUBJECT:
Recent Information Items
We are forwarding the following information items.
The National Drug Control Strategy: 1997. Via Barry McCaffrey who notes, "We are
proud of this document." You are tentatively scheduled to release this on Feb. 25.
Gil Grosvenor, Chairman, National Geographic Society, letter on geography
education. He notes that your SOTU was "downright exciting." He offers the help of
the National Geographic Society to work with you, Sec. Riley, and the Congress to use
their national geography standards to develop a pilot national test. We have forwarded
opies of his letter to Rahm, Bruce Reed, and Mike Cohen.
(C)
Sperling/Orszag follow-up on Hisparic income and poverty. You commented on a
January 30NY Times article on the poverty rate among Hispanics. Gene and Peter note
that the Census Bureau is still investigating whether changes implemented in its income
survey biased the results. In addition, possible explanations for lagging Hispanic income
growth include: continuing discrimination in the labor market; the breakdown of the
traditional family structure (Hispanic families headed by a single female increased 35%
between 1990 and 1995 and female-headed families tend to have a !ow incoine); and,
lack of education and English-language skills may be limiting opportunities for
Hispanics. Existing policy responses: EITC, SBA loans, improved enforcement of the
Community Reinvestment Act, Title I spending and the Department of Education's
bilingual education and emergency immigrant education programs. NEC staff will
continue working with the Census Bureau and others to examine trends in Hispanic
income and poverty, and if you'd like, will work with DPC to explore policy options.
"God and the White House,"and other articles by Shaun Casey, Ph.D. candidate at
Harvard Divinity School. Via Flo McAfee per your request. Over the past four years,
Missy Daniel, editor of the Harvard Divinity Bulletin, and Shaun have provided
assistance to Flo on religious issues.
THE WHITE HOUSE
THE PRESIDENT HAS SEEN
WASHINGTON
2-18-97
February 13, 1997
97 FEB 13 PM10:06
MEMORANDUM FOR THE PRESIDENT
FROM:
GENE SPERLING
PETER ORSZAG
SUBJECT:
Hispanic income and poverty
This memorandum is an initial response to your comments on the attached article
("Hispanic Households Struggle as Poorest of the Poor in U.S.," New York Times, January 30,
1996). The newspaper article highlights the distressing plight of many Hispanics in the United
States. Census data confirm the tenor of the story: real median household income for Hispanics
has fallen significantly over the past few years from $24,137 in 1993 to $22,860 in 1995. The
1995 figure is more than $1,000 lower than for any year since 1972, when these data begin.
Problems with the data
We must take some care in interpreting the most recent figures for median income,
however. First, the Census Bureau is still investigating whether changes implemented in its
income survey -- including the introduction of a smaller sample and new data processing
procedures -- biased the results. Second, those data only measure what is happening to the
middle of the household income distribution. Other indicators paint a somewhat different story:
Other Census data show that the poverty rate for Hispanics. while it remains relatively
high,fell in 1995 - from 30.7 percent in 1994 to 30.3 percent in 1995.
The unemployment rate for Hispanics has fallen from 11.6 percent in 1992 to 8.3 percent
now.
Nonetheless, the data do suggest that Hispanics are not benefitting as much as other
groups from recent economic growth - especially when the focus is the past decade or so, rather
than the most recent year.
Possible causes
There are several possible explanations for lagging Hispanic income growth. One
possible cause is continuing discrimination in the labor market. The Affirmative Action Review
1
submitted to you in July 1995 reported significant, continuing discrimination against Hispanics.
Audit tests, for example, show that Hispanic interviewers receive substantially fewer job
interviews than white interviewers with identical qualifications. And Hispanic men earn only 81
percent of the wages earned by white men at the same educational level. It is not clear, however,
that discrimination has become any worse over the past few years -- and therefore may not be a
compelling explanation for the recent decline in median income for Hispanics.
Second, the breakdown of the traditional family structure seems particularly severe for
Hispanics. The number of Hispanic families headed by a single female increased by 35 percent
between 1990 and 1995 -- significantly faster than the growth rate for all Hispanic families.
Since female-headed families tend to have relatively low income (their median income was
$13,474 in 1995), the growth in those families has pulled down the income of the typical
Hispanic family. And income has fallen particularly sharply for Hispanics living alone,
providing further evidence that family structure matters.
Third, lack of education and English-language skills may be limiting economic
opportunities for Hispanics. For example, the Hispanic high-school dropout rate is substantially
higher than for other Americans. In 1994, 31.4 percent of 18-21 year old Hispanics had dropped
out of high school, relative to 13.7 percent for the nation as a whole. The New York Times article
also notes that immigration of relatively low-skilled Hispanic workers has been significant, and
could be pulling down the median income figures.
Policy responses
Ensuring that Hispanics share in the benefits of growth seems a crucial policy objective,
especially since the Hispanic population is projected to rise from 10 percent of the U.S.
population currently to almost 20 percent by 2030. We would note, however, that many of the
Administration's existing policies are helping to reduce poverty and raise incomes among
Hispanics:
The Earned Income Tax Credit lifted about 900,000 Hispanics out of poverty in 1995 (3
percent of the Hispanic population). Your expansion of the EITC in 1993 played an
important role in producing this result.
The Small Business Administration has extended more than 11,000 loans, totaling $1.9
billion, in loans to Hispanics since 1993. In the previous 4 years, the SBA had extended
fewer than 3,000 loans, totaling just $611 million, to Hispanics.
The Administration's reform and improved enforcement of the Community Reinvestment
Act has helped more low-income minority borrowers to obtain loans. Between 1993 and
1995, the number of mortgage loans to Hispanic home buyers increased by 37 percent.
About one-third of Title I students are Hispanic, and we have increased Title I spending
2
by almost $1 billion (15 percent) since 1993. In addition, the Department of Education's
bilingual education program and emergency immigrant education programs
disproportionately benefit Hispanic students. Our budget raises funding for the bilingual
education program by 45 percent, to $199 million in FY 1998, and for the emergency
immigrant program by 50 percent, to $150 million.
The Administration also has a series of policies geared specifically to Hispamics. For
example, we have established an advisory commission to oversee improvements in education for
Hispanic Americans (Executive Order on Educational Excellence for Hispanic Americans);
strengthened the Department of Justice's Civil Rights Division to protect against discriminatory
aspects of employer sanctions; and appointed more Hispanic Americans to senior level positions
than any Administration in American history.
The NEC staff will continue to work with the Census bureau and other interested parties
to examine trends in Hispanic income and poverty. If you are interested, we could also work
together with Bruce Reed to explore possible policy options -- including expansions of current
programs -- for addressing this issue. Please advise.
3
non Hispanics; Hispanic students
were doing proportionally better in
1975, when 5 percent held college
DEMOGRAPHICS
degrees compared with 11.6 percent
of non-Hispanics.
Falling Behind, and Further Behind
Just getting through high school is
a challenge for the many Hispanic
Hispanic Americans have roots in more than 20 countries and are
children in school systems as over-
the nation's fastest-growing ethnic group. Yet social scientists,
whelmed and underfinanced as the
reviewing a broad spectrum of social and economic data, fear that
Los Angeles Unified School District,
the Hispanic population is In danger of becoming an entrenched
which is 70 percent Hispanic.
underclass - the working poor.
Crowding is to bad that 40,000
schoolchildren out of 670,000 must be,
Earnings Are Lower
bused outside their neighborhoods
Median weekly earnings for full-time wage and salary workers, 1995
and most schools run on year-round
annual averages.
schedules, said Vickie Castro, a
member of the school board. Music,
BY GROUP
BY SELECTED OCCUPATIONS
art and sports programs have been
$494
WHITE BLACK HISPANIC*
cut, Ms. Castro said, and with 1 coun-
383
329
Executive. manager
$701
$585
$562
selor for every 500 children, little
drop-out prevention can come from
Engineer
929
812
852
that quarter:
Secretary
394
399
369
"There's a strong work ethic with
Food service worker
260
248
243
in Latino families," she said "and
we keep telling them education is the
WHITE BLACK HISPANIC*
Bus, tax or truck driver. 488
389
403
tool to get out of poverty, but their
immediate needs overtake it."
Schooling Ends Sooner
Those needs overtook Linda Marti-
Percentage of each group that did not
nez in Houston, a 23-year-old would-
finish high school in 1974, 1984 and 1994.
37.1%
34.7
be teacher who dropped out to go to
34.2
work when she was 15. Her first job
25.1%
was bagging potatoes to help-support
18.4
her parents and younger brother be-
14.5%
14.1
15.5
12.7
cause her father, fresh from Mexico,
could not find work.
1904
1094
1994
Now, Ms. Martinez is attending
community college while working
WHITE
BLACK
HISPANIC*
part-time at a community center.
She hopes to finish soon, she said, but
The Population Is Rising
knows that her education may be
Interrupted again.
Total number of Hispanic Immigrants by decade.
Some Hispanic scholars and com-
10 million
munity leaders are suggesting that
many problems afflicting the na-
8
OTHER
tion's Hispanic population stem from'
6
the fact that members of the poor, III-
4,478,590
HISPANIC*
educated immigrant segment tend to
4
settle in crime-ridden, gang-infested
568,110
Inner cities, where a culture of easy
2
2,417,800
1,427,240
BLACK
money might be difficult to resist.
0
WHITE
William, Mrs. Morales's son, for
example, has left the Alley Cats 13
1950-1959
1960-1969
1970-1979
1960-1989
gang and reformed, helped by Youth
Fair Chance, a training and counsel-
and WIII Go On Rising
ing program that is soon to lose most
Hispanic* population, 1970-2030
of its Federal financing. But he says
The remembers what the world looked
60 million
20 percent of total population
like-when he dropped out of high
school and had gang symbols tat-,
15
40
tooed on his back (never his neck).
"I saw friends that didn't graduate
10
from high school robbing and getting
20
THURSDAY, JANUARY 30, 1997
money," said William, who works as
5
a peer counselor and is finishing
0
school at Youth Fair Chance in down-
0
town Los Angeles, "And I kept think-
70
'80
90
8
10
'20.
30
R
'80
90
'00
'10
20
"30
ing, "They didn't finish high school
projections
projections
and look at all their money!'
He was seduced by the cash and
May be of any race
The
the parties and the girls, he said, but
Sources: Census Bureau: Bureau of Labor Statistics: Queens College Department of Sociology
in the end, "I didn't want my mother
crying every night."
The New York Times
She already. had plenty. to cry
about. William's twin sister is the
about $300 a week, to take their
Aravena has seen his $34,000 salary
unmarried mother of is toddler now
youngest, a 4-year-old son, back to
at the state hospital stagnate for
trying to finish high school while
Guatemalu and raise him there,
years, held up by union negotiations
waitressing at a steak restaurant,
"away from all this."
and wage freezes. These days, he
and his older brother, age 20, has
Over Christmas, for example, WII-
said, he can afford to send his 11-
been in jail on a gang-related murder
liam was shot in the neck in a street
year-old son to Catholic school only
conviction since he was 15.
confrontation. He is in rehabilitation
by putting in frequent 16-hour shifts.
Mrs. Morales, who immigrated 11-
for lingering paralysis of the arm.:
"We're running just to stay in
legally in 1973 and received a green
"I wish I had a better job, lots of
place, and sometimes I fall behind,"
card through a family whose dis-
money, so I could buy a house outside
Mr. Aravena said.
abled son she helped raise, is no
this neighborhood,' Mrs. Morales
quitter. But she is thinking of allow-
said of the menacing section of down-
The general pröblem of Hispanic
town Los Angeles where she, lives.
poverty, researchers agree, begins;
ing her husband, a painter who earns
But the clinic where she worked
with the low education and skill lev-
closed and housecleaning pays less
els with which most Hispanic immi-
than it used to because of the compe-
grants arrive in the United States.
tition from new immigrants, she
But the most critical barrier to im-
said: Employers who used to offer
migrants' success, numerous studies
$70 a cleaning can now often get
suggest, is language A Rand Corpo-
away with $40.
ration study released over the suin.
Because so many businesses have
mer found that Hispanic immigrants
moved to suburbs, "finding their way
come to America speaking less Eng-
outward has become harder for
lish than their European or Asian
many urban-dwelling poor and mi-
counterparts, and never catch up.
norities," Rebecca Morales and
"Limited English proficiency
is
Frank Bonilla write in "Latinos in a
the single most Important obstacle to
Changing U.S. Economy" (Sage,
upward mobility among Mexican Im-
1993). And Hispanics are already
migrants," said Wayne Cornellus,
more urbanized than most, they note,
the director of the Center for U;S.-
with 90 percent living in cities com-
Mexican Studies at the University of
pared with 75 percent of the popula-
California at San Diego.
tion at large.
Without a command of English,
Even those who do escape, like Joe
Professor Cornellus and other schol-
Aravena, 40, a plant utility engineer
are said; it matters little how indus-
who moved his family from the South
trious a Hispanic person is "Clear-
Bronx to the ethnically mixed Castle
ly," researcher Vilma Ortiz com-
Hill section five years ago, say they
mented in "Ethnic Los Angeles," a
seem to be working harder to keep a
just-published U.C.L.A. study, "the
toehold in middle-class life.
traditional ethnic saga of hard labor
Born in America of a Chilesn fa-
followed by rewards does not apply
ther and a Puerto Rican mother. Mr.
to Latino immigrants."
VDiscrimination among employ-
ers who see Hispanic Immigrants,
particularly those who speak poor
English, as disposable workers.
Hispanic Households Struggle
Experts acknowledge that the in-
flux of millions of Latin American
Poorest the Poor in U.S.
immigrants over the last 20 years -
2 million between 1990 and 1994
alone, the Census reports
have
pulled income numbers down\ be-
By CAREY GOLDBERG
cause immigrants tend to be poor.
LOS ANGELES, Jan. 29 - If he
Nor. do the data simply reflect
'Everybody' going up the escala-
dared tattoo gang symbols on his
the recent influx of illegal Hispan-
tor but there's a big queue at the
neck, Myrna Morales warned her
ic immigrants. "As we know from
bottom and the queue's getting big-
strapping 17-year-old son, Wil-
the data in other studies," said
ger, so the average number of steps
liam, she would burn them off
Manuel de la Puente, the chief of
people have gotten up has slipped,"
with her Iron. Or a frying pan:
the Census Bureau's Ethnic and
said Dowell Myers, a demographer
Such was the desperation of
Hispanic Statistics Branch, "the
at the University of Southern Califor-
Mrs. Morales, 41, a naturalized
immigrants- tend to be low-edu-
nia who has studied the region's His-
American from Guatemala who
cated. individuals, hold service-
panic population. The arrival of so
has watched three of her Ameri-
sector jobs and have little or no
many job-hungry new workers,
can-born children seduced by the
English, and all these things con-
many of them illegal and willing to
worst of inner-city culture and
tribute to income."
work for pennies, has also driven
seen her own earnings as a house-
But when Census analysts sep-
down wages in low-skill professions
cleaner shrink in recent years.
like janitor, hurting other Hispanics
With her diminishing income, she
Continued on Page A16, Column 3
in those fields, Professor Myers add-
asked, how can she promise they
ed.
will prosper like so many immi-
Continued From Page Al
A new study by the University of
grants' children before them?
California at Los Angeles, based on
"I tell them go to school and
Census data, notes that in the blue-
arated out American-bo Hispanics,
don't be like me, cleaning bath-
collar Industries of California in
rooms," said Mrs. Morales, who
Mr. de la Puente said, they found
which Mexican immigrants are con-
scrubs and vacuums for $300 a
their income levels declining as Well.
centrated - clothing and furniture
Statistics indicate that America's
week despite her degree as a
manufacture, for example - real
medical assistant from a local
Hispanic population is experiencing
earnings declined more than $6,000 a
college,
an almost across-the-board impover-
year between 1970 and 1990.
ishment.
To judge by the latest Census
Government demographers also
Bureau statistics, Mrs. Morales is
"It is the American nightmare, not
note that immigration and birth
right to be worried. The data
the American dream," said Arturo
rates have weighted America's His-
show that in 1995, median house
Vargas, who heads the National As-
panic population toward lower-in-
*sociation of Latino Elected Officials,
hold income rose for every other
come groups, like Mexicans, at the
American ethnic and racial
based in Los Angeles. Though the
expense of higher income groups,
group, but for the nation's 27 mil-
Hispanic middle class has been
like Cubans. Also, Hispanics tend to
lion Hispanics, it dropped 5.1 per-
growing, Mr. Vargas said, most His-
be younger than the population at
cent. The downturn, which affects
panics*are caught in jobs like gar-
large and Hispanic women with chil-
the American-born as well as the
dener, nanny and restaurant worker
dren are less likely to work.
newly arrived across a broad
that will never pay well and from
But for many scholars and com-
spectrum. of socio-economic indi-
which they will never advance.
munity leaders, the main explana-
cators, has baffled social scien-
The declining income among the
tion for Hispanics' plight is education
tists. And it has prompted some to
nation's Hispanic population is little
or the lack of It A 1994 study by
warn that many Hispanics, mem-
understood and requires more study,
Frank D. Bean. a University of Tex-
bers of the nation's fastest grow-
researchers say, as do new data
as demographer, and his colleagues
showing improved economic well-be-
Ing ethnic or racial group, may
found that in several age groups,
ing among blacks.
become entrenched as America's
Mexican-Americans whose families
Researchers also caution that the
had lived In the United States for
working poor.
Hispanic population, which is an eth-
Census data show that for the
three generations or more received
nic term and includes some blacks. is
first time the poverty rate among
slightly less schooling than their par
an amalgam of people, and their
Hispanics in the United States has
ents did. And people of Mexican ori-
descendants, from nearly 24 coun-
surpassed that of blacks, Hispan-
gin account for the biggest portion of
tries. They range from typically
the Hispanic population.
ics now constitute nearly 24 per-
prosperous Cubans of Miami to
cent of America's poor, up 8 per-
Another study; by the Census Bu-
Puerto Ricans. largely concentrated
reau in 1995, found that Hispanics
centage points since 1985. Of all
in New York and the nation's poorest
Hispanics, 30 percent were con-
have been falling further behind non-
ethnic group: Generalizations, then,
Hispanics in rates*of college attend
sidered poor in 1995, meaning
are often of limited use.
they earned less than $15,569 for a
ance, In 1994, only 2 percent of His-
Nonetheless, the growing group of
family of four. That is almost
panics over age 24 held college de-
scholars who study America's His-
three times the percentage of
grees, compared with 24 percent of
panics point to several factors that
non-Hispanic white people in pov-
affect most of that population:
erty. Of the poorest of the poor,
9Structural changes in the econ-
those with incomes of $7,500 or
omy that have drastically-reduced
less for a family of four, 24 per-
well-paid blue-collar jobs.
cent were Hispanic.
The failures of Institutions like
These are not just statistical
schools to retain Hispanic students
blips. Overall,householt-income
and provide them:with a marketable
for Hispanics has dropped-1
education, resulting in a Widening
cent since 1989, from about
gap in graduation rates from both
$26,000 to under $22,900, while ris-
high school and college. Hispanics
ing slightly for blacks.
have by far the highest high-school
drop-out rate of any group in the
nation: 1990 Census figures found
that even among American-born His-
panics, only 78 percent finished high
school compared to 91 percent of
whites and 84 percent of blacks.
The New York Times
THURSDAY, JANUARY 30, 1997
THE PRESIDENT HAS SEEN
AB/ Gun
2-3-97 2-3
her have to tuy to
address This -
#15 apprecing-
Prs
-
11
-
:
AUG. - 19 94 (FRI) 11:26 CFTC
TEL: 2027239437
P. 002
13
FUTURES
COMMODITY COMMISSION
A
1075
U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20561
Brooksley Born
(202) 418-5030
Chairperson
February 14, 1997
(202) 418-5520 Facsimile
The Honorable Gene Sperling
Assistant to the President
for Economic Policy
2nd Floor - - West Wing
The White House
Washington, D.C. 20502
Dear Gene:
Enclosed is a copy of my oral testimony presented at the hearings on S. 257, a bill to
amend the Commodity Exchange Act. I would like to address the first three topics outlined in my
testimony at Tuesday's meeting of the President's Working Group on Financial Markets.
Sincerely yours,
Beardealey Ban
Brooksley Born
Enclosure
AUG. - -19' (FRI) 11:26 CFTC
TEL: 2027239437
P. 003
ORAL TESTIMONY OF BROOKSLEY BORN
CHAIRPERSON
COMMODITY FUTURES TRADING COMMISSION
BEFORE THE
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
U.S. SENATE
FEBRUARY 11, 1997
Mr. Chairman and members of the Committee, thank you for
inviting me to present the views of the Commodity Futures Trading
Commission on S. 257, a bill to amend the Commodity Exchange Act.
I request that my written testimony be included in the record of
the hearing. With me here today are the other four Commissioners,
Joseph Dial, John Tull, Barbara Pedersen Holum and David Spears.
My testimony represents the unanimous view of all of us.
The Commission welcomes this Committee's review of the
Commodity Exchange Act. Rapid changes in the futures and option
markets in the U.S. require periodic review of the Act and of the
Commission's regulations to ensure that they continue to serve the
important missions of maintaining the competitive strength,
fairness and integrity of the markets and protecting market
participants and the public from manipulation, fraud, and other
abuses. The Commission is dedicated to reducing unnecessary
regulatory burdens while at the same time preserving important
public interest protections and has proposed or adopted a number of
amendments to streamline its regulations.
As stated in our written testimony, the Commission supports a
number of the provisions in S. 257 and commends the bill's sponsors
AUG. 19' (FRI) 11:26 CFTC
TEL: 2027239437
P. 004
for these thoughtful improvements to the Act. The Commission, at
the invitation of Chairman Lugar and Senator Leahy, has proposed
modest amendments to the Act which would significantly enhance the
Commission's enforcement powers. Those proposed amendments to the
Act are not currently included in S. 257, and we urge this
Committee to consider their inclusion.
I will focus my oral comments on four aspects of the bill
which the Commission believes would likely result in the pervasive
deregulation of our futures and option markets and thus would pose
grave dangers to the public interest. These changes would
radically alter the regulatory system that has allowed our futures
markets to become the strongest and most respected in the world and
would leave those who use and rely on the integrity of our markets
exposed and unprotected.
1. Professional Markets
The Commission strongly opposes the provision of the bill that
would create a broad exemption from the Act for professional
exchange markets. This provision would lead to widespread
deregulation of our futures exchanges by eliminating federal
oversight as long as exchange trading was limited to entities
including small businesses, proprietorships, pension funds, mutual
funds, insurance companies, and commodity pools of individual
investors, as well as large institutions. The exchanges estimate
that approximately 90 percent of the trading volume on their
markets currently is on behalf of such entities. We believe that
simple rule changes on the part of U.S. exchanges could convert
2
AUG. - 19' (FRI) 11:27 CFTC
TEL: 2027239437
P. 005
them into professional markets subject to no federal regulation
under the bill's provision.
This legislation would create U.S. futures exchanges with less
government regulation than any other significant futures exchanges
in the world. For more than a decade, the Commission has played a
vital role in encouraging other countries to adopt necessary
regulatory regimes for futures exchanges, and they are doing so.
The bill would send a signal that the U.S. no longer is willing to
act as a world leader in protecting the economy and the public from
the risks these exchanges pose. Furthermore, the bill would allow
exchange trading with far less government oversight and regulation
than the London Metal Exchange at the same time that the United
Kingdom is strengthening its regulatory protections to prevent a
reoccurance of the Sumitomo debacle.
The bill would eliminate all of the protections of the Act
that Congress has adopted over the years except for its
prohibitions against fraud and manipulation. Indeed,
the
Commission would lose virtually all the regulatory tools necessary
for effective enforcement of even those prohibitions.
The Commission's market surveillance over the 11 U.S. futures
and option exchanges would be eliminated, as would requirements
such as speculative position limits, large trader reporting, and
exchange recordkeeping. Thus, the Commission would be unable to
analyze aberrational price movements on the markets, including
suspected price manipulation. Exchanges would not be subject to
the current legal standards relating to their futures contracts,
3
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TEL: 2027239437
P. 006
rules or governance. Standards for trading in these markets such
as the requirement of open trading and audit trail would also be
eliminated.
The Commission currently supervises 64,000 commodity
professionals who trade on the floor of the exchanges or deal with
customers. The standards applicable to them, including
registration, fitness standards, risk disclosure to customers, and
sales practice standards, would be abolished, leaving customers
without meaningful governmental protection. Statutory and
regulatory standards relating to the financial integrity of the
markets and its participants would also be eliminated. These
standards include segregation of customer funds, net capital
requirements, financial reporting, margining of accounts and
special bankruptcy protections.
As part of its effort to reduce unnecessary regulatory
burdens, the Commission established a pilot program exempting
professional exchange markets from a number of regulatory
requirements in November 1995. To date, no exchange has opted to
participate in that program. The Commission believes that such a
pilot program would provide the necessary experience to determine
the appropriate regulatory regime for professional exchange markets
and has asked the exchanges for suggestions for improving the
program.
The exchanges have said that they should be able to operate in
the same unregulated environment as the over-the-counter markets.
However, exchange trading involves important public interest
4
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P. 007
considerations which require a higher level of regulation than
over-the-counter markets. Exchanges create a concentration of
financial risk not present in bilateral over-the-counter
transactions and therefore pose a more serious systemic threat to
our economy. There is also a strong public interest in protecting
the prìce-discovery and price-basing functions uniquely performed.
by exchanges. The prices established by the futures exchanges
affect what we all pay at the grocery store and at the service
station, what we pay for our silverware, our copper plumbing and
our lumber. That is why Congress created the CFTC and provided it
with powers to protect the public interest in these markets.
Merely restricting participation in the futures markets to
large institutions is insufficient to protect these important
public interests and cannot justify abandoning the protections of
the Act. In fact, it is the large institutions which have the
power to hurt us all by their attempts at manipulation, by causing
price distortions or by financial irresponsibility. To demonstrate
this point, I need only refer to the financial repercussione from
the collapse of Barings Plc., the effect on the price of copper by
Sumitomo Corporation's trading, Metallgesellschaft's enormous loss
in the oil market, and the Hunt brothers' attempt to manipulate the
world market in silver.
The U.S. exchanges are the strongest, most dynamic and most
innovative in the world. Their volume of trading in 1996 was the
second highest in history, and the Chicago Board of Trade set a new
world record. During fiscal year 1996, U.S. exchanges launched 92
5
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new contracts approved by the Commission. Indeed, exchange trading
in the U.S. has thrived under our current regulatory system, which
has assured market participants around the world that our markets
are fair, safe and transparent.
While the U.S. exchanges point to the decrease in their
percentage of world trading, that is principally a function of the
recent creation of new futures exchanges in countries around the
world in emulation of the U.S. success. Most of that foreign
trading supports local cash markets and does not compete directly
with U.S. futures contracts. Despite the growth of foreign
markets, U.S. trading volume has also continued to grow at a
healthy rate.
The bill would not permit deregulation of futures markets in
certain domestic agricultural products, presumably because it would
be too dangerous to do SO. The Commission believes that futures
markets in other products -- for example, crude oil and heating
oil, copper and silver, coffee and sugar, and financial
instruments - - deserve the very same level of regulatory
protection. Furthermore, the Commission is extremely concerned
about whether it would be able effectively to regulate and to
protect markets in agricultural products which would trade side-by-
side on the same exchange with totally unregulated markets.
2. Treasury Amendment
The Commission agrees that the Treasury Amendment provision of
the Act needs to be clarified and has submitted a proposed
provision at the invitation of Chairman Lugar and Senator Leahy,
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which we urge the Committee to consider favorably.
Unlike the Commission's proposal, the bill's provision would
for the first time deregulate exchange trading in futures on the
Treasury Amendment instruments as long as the exchanges exclude
some element of the general public. These products constitute more
than 70 percent of the trading on the Chicago Board of Trade and
nearly 40 percent of all U.S. futures exchange trading. With
respect to such markets, the bill's provision would not even
preserve the Act's prohibitions on fraud and manipulation, despite
the fact that the Commission's most recent manipulation case
involved CBOT's U.S. Treasury note futures contracts.
The bill's Treasury Amendment provision would also for the
first time endorse the sale of futures and option contracts to
members of the general public without the protections of the Act.
Fraud in this area is rampant. The Commission has brought 19 cases
involving fraudulent off-exchange sales of foreign currency futures
and options since 1990, involving more than 3200 customers who had
invested over 250 million dollars. In light of this situation,
more regulatory power may be needed -- certainly not less.
With respect to over-the-counter transactions in Treasury
Amendment futures and options between sophisticated traders, it is
the Commission's view that federal law should prohibit fraud and
manipulation, whether enforced by the Commission or other federal
authorities. The bill does not include such prohibitions.
For these reasons, the Commission opposes the bill's provision
on the Treasury Amendment.
7
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3. Private Transactions
The Commission has provided legal certainty to the
over-the-counter derivatives market by the careful and responsible
exercise of the exemptive authority granted to the Commission by
Congress in 1992. The bill would codify those exemptions. While
the Commission has no plans to modify its exemptions, the
Commission opposes transforming them into a blanket statutory
exemption. Both the Commission and the President's Working Group
on Financial Markets have been watching and evaluating this
enormous and evolving $53 trillion market. The bill would
eliminate all regulatory flexibility to respond quickly if
developments in that market required.
4. Contract Designation and Rule Approval
The bill's provisions on contract market designation and
exchange rule approval are both unnecessary and unwise. The
Commission, as part of its commitment to streamline its rules and
to reduce unnecessary burdens, has proposed fast-track approval
regulations that would permit most new contracts and exchange rules
to go into effect within 10 or 45 days. This approach is far
preferable to the bill's provisions, which would effectively
eliminate the Commission's ability to improve defective contracts
and rules before they go into effect, to insure their compliance
with the law, to seek public comment if they impact on important
public interests and to coordinate with other interested government
agencies.
*
*
*
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Thank you very much for the invitation to express the views of
the Commission. I would be happy to answer any questions you may
have.
9
PRESIDENT CLINTON
FIRST FOUR YEARS:
AN ECONOMIC KEPORT CARD
First Clinton Administration
Best Since
Related Facts
Only Administration
Faster growth rate than any Republican Administration since
Employment
11.5 million new jobs
to exceed 11 million
the Roaring 1920's. 93 percent of the net new jobs were in the
private sector.
Fastest growth since
Construction Jobs
1 million new jobs
Four times more new construction jobs than during the
Truman
previous 12 years.
Fastest growth since
Automotive Jobs
114,000 new jobs
The United States is once again the world's number 1 producer
Johnson
of automobiles -- for the first time since the 1970's.
Deficit Reduction
From 4.7 percent of GDP in 1992
Largest fall since
Deficit narrowed for four years in a row under one President for
to 1.4 in 1996
Truman
the first time since before the Civil War.
Fastest growth since
Investment Growth
10.3 percent per year
Business investment averaged 7.7 percent of GDP -- the highest
Kennedy
share for any Administration since before World War II.
Most interest rates were low. For example, rates on 10-year
Lowest average
Mortgage Rates
7.9 percent per year
since Johnson
Treasury bonds averaged 6.5 percent -- the lowest average since
the Johnson Administration.
Rose from 63.7 to 65.4 percent of
Largest increase on
Homeownership
households
record
Reached its highest level in 15 years.
The Dow Jones Industrial Average
Fastest growth since
Stock Market
The real growth rate was higher than for any Administration
rose from 3242 to 6844
World War II
since World War II.
Unemployment and
Lowest average
Combined rate: 8.8 percent
Unemployment fell from 7.5 percent in 1992 to 5.4 percent in
Inflation
since Johnson
1996 and has remained under 6 percent for 29 months.
Lowest average
Inflation
Underlying inflation -- excluding volatile food and energy
2.8 percent per year
since Kennedy
components -- was lowest since the Kennedy Administration.
College Enrollment
62 percent of recent high school
Highest average on
The high-school dropout rate was the lowest of any
Rate
graduates
record
Administration on record.
Median Family
Fastest growth since
2 percent real growth since 1993
Up $1,600 since 1993.
Income
Johnson
Construction
Automotive Job
Business
New Jobs
Job Growth
Growth
Deficit
Investment
Mortgage Rates
(Change in
percent of
(Thousands)
(Thousands)
(Thousands)
GDP)
(Growth)
(Average)
Clinton
11500
1017
144
-3.5
10.3
7.9
Bush
2533
-667
-35
1.7
2.0
9.5
Reagan II
10742
633
-13
-1.7
3.0
10.7
Reagan I
5246
285
98
2.1
5.2
14.9
Carter
10486
723
-124
-1.6
6.2
11.0
Ford
2039
-424
5
4.0
1.6
9.1
Nixon
9206
481
12
-2.6
6.1
7.9
Johnson
12146
456
153
1.7
9.8
Kennedy
3592
199
109
1.4
11.2
Eisenhower
3489
142
-250
-0.5
Truman
5421
1580
137
-23.2
Based on data from the
Based on data from the
Based on data from the
Based on data from the
Based on data from the
Based on data from the
Bureau of Labor
Source:
Bureau of Economic
Bureau of Labor Statistics,
Bureau of Labor Statistics,
Board of Governors of
Statistics, Department
Congressional Budget
Department of Labor.
Office.
Analysis, Department of
the Federal Reserve
Department of Labor.
of Labor.
Commerce.
System.
Combined
Unemployment
College
Median Family
Homeownership
Dow Jones
and Inflation
Inflation
Enrollment Rate
Income
(Real growin,
(Real growth,
(Change in rate)
percent)
(Average)
(Average)
(Average)
percent)
Clinton
1.7
15.6
8.8
2.8
62.1
2.1
Bush
-0.2
5.7
10.7
4.2
60.9
-1.9
Reagan II
-0.2
12.0
9.7
3.5
53.1
1.7
Reagan I
-1.5
1.5
14.4
4.9
56.8
0.9
Carter
0.8
-9.6
16.4
10.4
49.8
-0.5
Ford
0.2
5.2
15.9
7.0
49.0
0.6
Nixon
0.5
-9.9
10.7
6.2
50.3
0.8
Johnson
1.2
1.6
6.8
2.9
51.3
4.1
Kennedy
47
7.1
1.2
47.3
3.1
Eisenhower
8.8
6.3
1.4
45.1
2.4
Truman
9.7
6.9
2.6
Based on data from the
Based on data from the
Based on data from the
Based on data from the
Based on data from the
Source:
Department of Treasury
Bureau of Labor
National Center for
Bureau of the Census,
Bureau of Labor Statistics,
Bureau of the Census,
analysis.
Department of Commerce.
Department of Labor.
Statistics, Department
Education Statistics,
Department of
of Labor.
Department of Education.
Commerce.
DON'T TAKE OUR WORD FOR IT:
ASK BARRON'S
Barron's recently compared overall economic performance during every Administration
since Would War II. The study concluded that President Clinton's first term was better
than any Administration since John F. Kennedy was President, and that "the economic
achievements of the Clinton Administration are impressive." [Barron's, August 12, 1996]
Other experts agree.
Money Magazine: President Clinton has "presided over the kind of economic progress
any Republican President would be proud to post." [Money Magazine, August 1996]
Paul Volcker, former Chairman of the Federal Reserve: "It's been a remarkable
period of steady growth, low inflation and low unemployment." [8/3/96]
Allen Sinai, a leading economic forecaster: "When the history book on this business
cycle upturn is written, it will go down as the best ever, compared with other post-World
War II upturns." [10/23/96]
Donald Straszheim, chief economist at Merrill Lynch: "The U.S. fundamentals are
better than at any time in the last 25 years and that is no exaggeration." [12/17/96]
Barron's Economic Report Card
8
6
5.5
4
3.4
3.4
23
2
1.2
Total score
0.6
0.7
0
-0.5
-2
-1.8
-4
-3.4
-5.0
-6
-6.1
-8
Clinton
Bush
Reagan II Reagan
I
Carter
Nixon-Ford Nixon
-
Johnson
JFK-LBJ
Eisen II
Eisen 1
Truman
Source: Barron's, August 12, 1996.
How you can participate in
Education at a
circulate:
Education
Ratna
at a
Crossroads
Crossroads
We want
Hilley SONIE
What Works and What's Waste
any information which will
Sylvin
Big Bureaucracies
help us identify what works
Parents Rights
Washington
and what is wasted in
Bruce
DC
Local Schools
education in America.
Gewe
Forward your comments to
Congressman Pete Hoekstra
propolesta
1122 Longworth Building
e-mail: [email protected]
Repub.
A comprehensive plan to evaluate when
Washington, D.C. 20515
ive are and where we must go to take oi
recess
children into the 21 century
Package
Congressman
Building the Case
Pete Hoekstra
for Rational Government
of Michigan
The Problem
The Education at a
One-half of all adult Americans are
functionally illiterate.
56% of all college freshman take some
Crossroads Project
kind of remedial education class.
IT'S ABOUT HELPING STUDENTS LEARN.
64% of 12th graders do not read at a
proficient level.
Report after report on the state of American education details the need for dramatic improvement to
prepare our nation's children for the 21st century. This project is about examining how it can be im-
SAT scores have dropped nearly 60
proved to enhance student learning.
points in the past three decades.
IT'S ABOUT WHAT WORKS.
Combined SAT Scores
975
Members of Congress will listen to Americans around the country about how to provide a quality
950
education to America's youth that focuses on basic academics, parental involvment, and sending dollars
to the classroom.
925
900
IT'S ABOUT WHAT'S WASTED.
Young Americans are clearly not performing up to their full academic potential-despite the more than
1970
1980
1990
760 federal education programs which span 39 agencies at the price of $120 billion annually.
Washington's
IT'S ABOUT RATIONAL GOVERNMENT.
For too long, we have relied on Washington bureaucracies to solve all our nation's problems. This
Response
project is all about creating a more rational approach to education based on what actually works.
IT'S ABOUT WORKING TOGETHER.
760 Programs
America has a stake in improving education. Therefore, over the next year, Members of Congress will
39 Bureaucracies
travel the country in order to learn from teachers, parents, and school leaders-Americans from all
walks of life-what they think needs to be done to improve education. By working together, we can be
good stewards of the taxpayer's money while ensuring that all children receive the education they need
$120 Billion
to have a productive future.
Is there
BASIC ACADEMICS, PARENTAL INVOLVEMENT,
AND DOLLARS TO THE CLASSROOM.
better approach?
February 13, 1997
MESSAGE FOR FEBRUARY 1997 RECESS
I. THREE OVERRIDING THEMES:
A.
Five goals we share with the President:
N. Helping welfare recipients find jobs;
2. Improving education;
3. Combating juvenile crime;
4. Providing tax cuts;
5. Making Washington, DC, a model city:
B.
Three questions we need to ask our constituents:
1. What specific ways does the government prevent businesses from moving
people from welfare to jobs?
2. What changes must be made to the Tax Code to simplify it and end the IRS as
we know it? (If a $4 billion computer system can't figure out the Code, maybe
it's too complicated!?)
3. What works and doesn't work in education?
C.
Overarching these issues is achieving a balanced budget:
Overarching all of this is the need for a balanced federal budget. It is a "moral
imperative." And we need a constitutional amendment to ensure that a balanced budget
is guaranteed for future generations.
II. FRAMEWORK FOR COMMUNICATING SPECIFIC IDEAS:
Values first
(Yes, a sound education is vital for our children and
fundamental to our society)
Goals second
(And every child should read by 8 years of age)
Solutions third
(So we need to learn what works and what doesn't to help
students succeed. It will require less money in the hands of
Washington bureaucrats and more money at home for
teachers, classrooms, and computers, as well as more input
from parents and studying from our children.)
III. SUMMARY:
By highlighting these issues now and asking these key questions, we will lay the
groundwork for implementing our agenda later on (i.e. overhauling the Tax Code). It is
important to educate first before we can bring about change.
Anytown, USA
Education at a Crossroads:
Parents
What Works and What's Wasted?
What is the Crossroads Project?
IT'S ABOUT HELPING STUDENTS LEARN. Report after report
on the state of American education details the need for dramatic
improvement to prepare our nation's children for the 21st century.
This project is about examining the federal role in education to see
how it can be improved to enhance student learning.
IT'S ABOUT WHAT WORKS. Members of Congress will listen to
Americans around the country about how to provide a quality
education to America's youth that focuses on basic academics,
parental involvement, and sending dollars to the classroom.
IT'S ABOUT WHAT'S WASTED. Young Americans are clearly
not performing up to their full academic potential -- despite the over
760 federal education programs which span 39 federal agencies at the
price of $120 billion annually. This project will attempt to find out
why.
IT'S ABOUT WORKING TOGETHER. America as a whole has a
stake in improving education. Therefore, over the next year,
Members of Congress will travel the country in order to learn from
teachers, parents, and school leaders - Americans from all walks of
life -- what they think needs to be done to improve education. By
working together, we can be good stewards of the taxpayer's money
while ensuring that all children receive the education they need to
have a productive future.
Committee on Education and the Workforce
U.S. House of Representatives
Room B346 Rayburn House Office Building, Washington, D.C. 20515 202/225-7101
Anytown, USA
Education at a Crossroads:
Parents
What Works and What's Wasted?
History of the "Education at a Crossroads" Project:
At the beginning of the 104th Congress, the Committee on Education and the
Workforce (Committee) initiated a far-reaching project to evaluate the extent and
quality of federal involvement in education. During 1995 and 1996, the Committee
devised the most comprehensive list of federal education programs that has ever been
compiled, using information provided by the Office of Management and Budget's
Catalogue of Federal and Domestic Assistance. In addition, the Congressional Research
Service (CRS) identified over 100 additional programs which OMB did not include
under their heading of "Education Programs" in the CFDA. The initial list amounted to
760 federal education programs that span 39 separate agencies, boards, and
commissions at the cost of $120 billion (based on 1995 figures).
Next, the Committee then contacted each of the 39 agencies and requested
verification that the programs were within their jurisdiction and, if so, that they provide
the Committee with essential information on each program that will allow the
Committee to properly oversee these programs. Since February 1996, these agencies
have added over 100 programs to the original list of 760. While it may be true that not
everyone would agree that every program on this list is focused on "education" in the
traditional sense, it is clear that to this day the full extent of the federal government's
involvement in education is unknown.
During 1997, the Committee will build upon this first phase of research by trying to
better understand the positive and negative impact of federal programs and regulations
on state and local education reforms. Additionally, we hope to help call attention to
examples of educational excellence and educational improvement throughout the
nation. By identifying the positive changes that are happening, states and communities
can learn from the success of others and strengthen education for all our children.
Committee on Education and the Workforce
U.S. House of Representatives
Room B346 Rayburn House Office Building, Washington, D.C. 20515 202/225-7101
IMPORTANT FACTS ABOUT AMERICAN EDUCATION
SCHOOLS AND STUDENTS
Number of Schools
There are over 111,000 public and private elementary and secondary schools
in the United States.
Number:of Students
In 1996, approximately 51 million students were enrolled in primary and
secondary schools. Of those, over 45 million students were enrolled in public
schools and almost 6 million were enrolled in private schools."
Enrollment in Targeted Population Programs
During the 1994-95 school year, almost 5 million students with disabilities
were served under the Individuals with Disabilities Education Act (IDEA). M
During the 1993-94 school year over 6 million students were receiving Title 1
services."
TEACHERS
Number of Teachers
There are approximately 3 million elementary and secondary school
teachers."
Student Teacher Ratio
The average student teacher ratio in the United States is about 17 to one."
Salary
In 1992, the average salary range for an elementary or secondary school
teacher was $21.000 to $38,000 per year.
SPENDING
Amount Spent on Elementary and Secondary Education
The United States spent $287.5 billion dollars on elementary and secondary
education in the 1993-94 school year. Of that, 83% was spent by state and
locai government and 6% was spent by the Federal Government. The
remaining percentage.came from private contributions and miscellaneous
sources. viii
Percent of Gross Domestic Product
Approximately 3.5% of the United States' Gross Domestic Product (GDP) is
spent on primary and secondary education. In comparison, the United
States spends more than 11 of 12 other comparable countries on elementary
and secondary education.
Amount Spent Per Student
The United States spends approximately $6,000 per student in elementary
and secondary schools, over $1,500 per student MORE than was spent in
1980 (adjusted for inflation). The United States leads other comparable
countries in spending for elementary and secondary education. Within the
States, the District of Columbia spends the most ($10,200 per student) and
Utah ($3,400 per student) spends the least per.student in elementary and
secondary education.*
STUDENT ACHIEVEMENT
Literacy Rate
Almost 20% of Americans are considered functionally illiterate, reading and
writing below 8th grade level. 13% are considered totally illiterate, reading
and writing below 4th grade level.xi
Reading Test Scores
Between 1992 and 1994, NAEP reading scores have not improved by more
than two points. xli In 1992, United States' 14-year-olds scored an average of
535 on reading literacy tests. Eight other comparable countries - including
Sweden, Hong Kong and Switzerland - achieved higher scores. xill 60% of
12th graders cannot read at a proficient level.xiv
Mathematics Test Scores
Between 1992 and 1994, mathematics scores on NAEP dropped by one
point for students aged 17.xv The average score for 8th grade United States'
students on the math portion of the Third International Mathematics and
Science Study (TIMMS) was 500, thirteen points below the international
average of 513. At least 20 countries scored higher than the U.S.xi
Science Test Scores
Between 1992 and 1994 science scores on NAEP for 9, 13 and 17-year-olds
remained approximately the same. xvii The average score for 8th grade U.S.
students on the science portion of TIMMS was 534. Some countries, such
as Singapore, Japan and Korea, achieved scores over 600. xviii
History Test Scores
Only 17% of American fourth graders, 14% of eighth graders and 11% of
twelfth graders are proficient in history as tested through NAEP. xix
Time Spent in Formal Instruction
The average 13-year-old spends approximately 5.6 hours per day in formal
instruction, 178 days per year and a total of 1,000 hours per year. China,
Korea, Taiwan, Japan, Germany, Israel, Italy and Switzerland all spend over
200 days per year in formal instruction.** The United States spends fewer
days in school than more than 15 other countries. Within the States, New
York spends the most number of days in formal instruction and Minnesota
spends the least. xxl
Time Spent on Homework versus Time Spent Watching Television
Sixty-one percent of 13-year-olds spend one hour or less on homework each
day, and 29% spend two hours or more. xxii 84% of 13-year-olds watch two or
more hours of television each day. The U.S. ranks among the lowest
compared with other countries for number of hours spent on homework and
among the highest on number of hours spent watching television. xxiii
Scholastic Assessment Test (SAT) Scores
In the 1994-95 school year, 41% of graduates took the Scholastic Aptitude
Test (SAT). Of those, the average combined score was 910. This has
dropped from 937, the average score in 1972. xxiv
Advanced Placement Tests
Over 500,000 students took Advanced Placement (AP) tests in 1996, slightly
less than 4% of the students enrolled in grades 9 through 12. Fifty-five
percent of the test takers were women. Minority students made up 29% of
the pool, which is an increase from recent years. XXV
International Comparison
A recent international education comparison found that United States'
students scored far below both Japanese and British students in all subjects
for which there were comparisons. in fact, Japanese students came close to
doubling scores of U.S. students in certain subjects. XXVI
HIGHER EDUCATION & EARNINGS
Cost of Tuition
The average cost (tuition and fees) of higher education has risen by over
$5,000 since 1980 when it cost just over $3,000 to attend school. In the
1995-96 school year the average cost was almost $9,000. The cost of
private schools have gone from approximately $5,500 in 1980 to $17,000 in
1995. Public school costs have only risen to $6,000 in that time period, less
than a $4,000 increase. xxvil
Earnings
The median annual income for men who are full-time workers aged 25 and
older with no high school diploma is $22,048 as compared with $28,037 for
workers who graduated with a high school diploma, $32,279 for workers with
some college experience and $43,663 for workers with a bachelors degree.
For women, the median income with no high school diploma is $15,133 as
compared with $20,373 for workers with a high school diploma, $23,514 for
workers with some college experience, and $31,741 for workers with a
bachelors degree. xxvili
SOURCES:
i
National Center for Education Statistics, Digest of Education Statistics, 1996
ii National Center for Education Statistics, Digest of Education Statistics, 1996
iii
To Assure the Free Appropriate Public Education of All Children with Disabilities, 18th Annual Report to
Congress of the Implementation of the Individuals with Disabilities Act, 1996
iv State Chapter I Participation and Achievement Information, 1993-1994, Summary Report
V
National Center for Education Statistics, Digest of Education Statistics, 1996
vi National Center for Education Statistics, Digest of Education Statistics, 1996
vii National Center for Education Statistics, Education Indicators: An International Perspective, 1996
viii National Center for Education Statistics, Digest of Education Statistics, 1996
is
National Center for Education Statistics, Education Indicators: An International Perspective, 1996
X
National Center for Education Statistics, Digest of Education Statistics, 1996
xi
United States Department of Education, Division of Adult Education and Literacy, Basic Data on Literacy, 1990
xii
National Center for Education Statistics, Report in Brief, NAEP 1994 Trends in Academic Progress
xiii
National Center for Education Statistics, Education Indicators: An International Perspective, 1996
xiv National Center for Education Statistics, Reading Report Card for Nation and The States, 1993
XV National Center for Education Statistics, Report in Brief, NAEP 1994 Trends in Academic Progress
xvi National Center for Education Statistics, Pursuing Excellence - A Study of U.S. Eighth-Grade Math and Science
Teaching, Learning, Curriculum, and Achievement in International Context, 1996
xvii National Center for Education Statistics, Report in Brief, NAEP 1994 Trends in Academic Progress
xviii National Center for Education Statistics, Pursuing Excellence - A Study of U.S. Eighth-Grade Math and Science
Teaching, Learning, Curriculum, and Achievement in International Context, 1996
xix National Center for Education Statistics, Digest of Education Statistics, 1996
XX National Center for Education Statistics, Education in States and Nations, Indicators Comparing U.S. States with
Other Industrialized Countries in 1991. 1996
xxi National Center for Education Statistics, Education in States and Nations, Indicators Comparing U.S. States with
Other Industrialized Countries in 1991, 1996
xxli National Center for Education Statistics, Education Indicators: An International Perspective, 1996
xxiii National Center for Education Statistics, Education in States and Nations, Indicators Comparing U.S. States
with Other Industrialized Countries in 1991, 1996
xxiv National Center for Education Statistics, Digest of Education Statistics, 1996
KXV College Boar Online, Almost One-Fifth of Students Entering Four-Year Colleges are Eligible for Credit
Through Advanced Placement, August, 1996
xxvi National Center for Education Statistics, Education in States and Nations, Indicators Comparing U.S. States
with Other Industrialized Countries in 1991, 1996'
xvii National Center for Education Statistics, Digest of Education Statistics, 1996
xxviii
National Center for Education Statistics, Digest of Education Statistics, 1996
Anytom
Education at a Crossroads:
Parents
What Works and What's Wasted?
Through this project, we want to listen to Americans around the country about how they are
providing a quality education. So far, much of what we have heard is that a quality education is usually a
result of:
mastering basic academics;
engaging and involving parents; and,
sending dollars to the classroom where they can do the most good.
Examples of What's Working
The Vaughn Learning Center in San Fernando, California. This is a school where the principal, Dr.
Yvonne Chan, took what was once the worst school in the LA Unified School District and turned it
into.a place where children love learning, parents claim the school as their school, and parents are
intimately involved in their child's education. In her first year as principal of this school, Dr. Chan
saved 1.5 million dollars by cutting bureaucracy.
The ATOP Academy. This school in Phoenix, Arizona is an example of what can happen when parents
and teachers put their minds together to improve education in their community. The ATOP Academy
concentrates on basic academics and parental involvement. They have an office for the parents to use
and assist in running the school. The students at the ATOP Academy are unbelievably inspiring. For
example, there is a young man who was misdiagnosed as learning disabled and became a discipline
problem at his previous school. Refusing to take "no" for an answer, the teachers at ATOP found his
niche - they found out that he could repair computers that even certified technicians couldn't fix.
Today, this young man holds his Lead high and is now an positive example for the other students.
The Harrison, Arkansas public school system. This district spend far less per pupil than most districts
in the country, yet its student test scores are among the highest and 70 percent of the graduates go on
to college.
In major cities across the country such as Los Angeles, New York, Milwaukee, and Detroit where in
many cases the odds are against the children, these students are excelling. Many inner city schools
have set the example of how to ensure students receive a high quality education. For example, the
Barclay School in inner city Baltimore, and the Wesley School in inner city Houston. The two schools
have defied conventional wisdom and are educating the hardest to serve poverty stricken children to
excellent academic results.
Lewis and Clark Elementary School in Pocatello, Idaho. This five year reform effort has paid off for
this once-troubled school. Attendance is up, as are test scores for these 590 students (33 percent in
language arts and 50 percent in math).
Sace Elementary School. In Sace, Montana this school with a student population of 64 hasn't been
stopped from being put into the driver's seat on the information superhighway. Computer lessons
begin in kindergarten and Spanish classes are beamed by satellite to students in all grades.
Standardized test scores are up 23 percent.
The list goes on, and on, and on but our list is not enough. We would like to hear from you on what is
working in your district. Please fill out the following form called "Great Schools Doing Great Things" and
send it to the Committee on Education and the Workforce. We look forward to working with you to
improve education for our children. We hope that these great examples will soon become the rule rather
than the exception.
TEN THINGS YOU CAN DO TO
Anytown, USA
IMPLEMENT THE
Parents
CROSSROADS PROJECT IN YOUR
DISTRICT
1. Visit several local schools of excellence (use objective measures of proven academic
improvement wherever possible.) Be broad-based include public education, private
education and home schooling options.
2. Visit early childhood development programs (i.e. Head Start) and observe how school-
readiness is encouraged.
3. Visit adult literacy, family and child-literacy programs. Talk with volunteers and new
readers about their experiences.
4. Circulate the "school superintendent survey" to several superintendents in your district.
Publish the findings in your district newsletter, release to the press, or write an op-ed. If
you would like to participate in the superintendent survey, please contact Derrick Max at
202/225-7101.
5. Conduct town meetings on education invite parents, students, teachers, school leaders,
school board members, and interested citizens to identify what works and what's wasted
in local, state and federal programs.
6. Write an op-ed for local media talking about the Crossroads projects and your interest in
finding out what works and what's wasted.
7. Establish an education advisory board and meet with them regularly on education issues
in the district and state.
8. Set up a delegation meeting with your governor and state superintendent of education.
Find out what the state is doing, and how it is impacted positively or negatively by
federal programs and regulations.
9. Speak about educational excellence at high school, community college, and university
commencements.
'0. Ask the Committee on Education and the Workforce for information and sample
materials, and share relevant information about your district with the Committee.