>> but they get credit elsewhere. >> the credit elsewhere is they are responsible for the tax payer money and the reason for the uptick is that if there is a private sector mechanism, a banker, where they can get credit elsewhere in the market should provide it. if they can't, then that is our job, and that is where we step in and try to get the most -- >> i guess the problem i'm having is we did pakistan $215 million for flood disaster relief. socialite all the people in northeastern pennsylvania they would have been better off if they were in pakistan than if they were right here at home? i don't know. i think at some point we should take care of america and americans first and american businesses. we can't afford to lose any more jobs. i introduced a bill, this has changed my life. i walked with these people, i cried with them and watched them as they put their life positions

on the kerb to be taken away. i introduced a bill of the change the way america handles disasters by introducing a bill the would give a 1% loan for 40 years enough to cover hour at the ministry of costs. if we can help other people i think we can help americans at a time of disaster first. >> would you yield? i really welcome your position. in fact after katrina i tried to reduce the interest rate and even provide a bridge loan, zero interest rate and it didn't happen. i didn't have the support from your side so maybe this time around -- >> - we can change the way we handle disasters. thank you. >> thank you mr. chairman. i'm pleased to hear some people on the majority party are beginning to rethink having required to pay for the reimbursements of front when there is a disaster real people

are hurting and mr. barletta was one of those not willing to hold up the fema bill than have it paid for the time so i appreciate. >> would you yield? >> no, i want to talk -- i think the success that this small business administrator has had over the last few years when i came here administrator mills came at the same time and i was a little bit aghast at the status of the small business administration it had been cut back to radically by the previous administration not just the one before with the one over the years and was in total disarray. we had a lot of testimony about waste, fraud and abuse that we've had several subsequent sessions with the administrator and it looks like it has gotten frankly a lot better. there's a new sheriff in town and i appreciate that, madam administrator. and i think that there is misinformation here. i mean, people are talking about going -- they have been here i

guess, but there is talk about what the role of the sba is, and i assume that you are not trying to supplant private enterprise. you're trying to work with private enterprise. if receive movies and banks, mortgage lenders can't stick and that is where you step in, and so there is going to be some people. there's going to be some de fault. but - i need to cure clarity. you mentioned it, but they're seems to me that a lot of the subsidy rates that we have endured paying back the treasury for the bad loans were under the previous administration's watch and actually the rate of default since you have to get over is down even though the economy is worse he think he would have higher default rates. am i incorrect? >> thank you. on your point about the current rates, we have turned the corner on our default rate and a peak in august, 2010 and now has been

reducing it each month, and our current default rates over all are actually quite low. our rates tend to be under 5% coming default rates tend to be under 10% and the loss rates actually tend to be much lower. they are about two points higher than the normal federal reserve credit because we are giving credit where you can't get credit elsewhere. >> i appreciate that. that is the bottom line. you hit the nail on the hand we have to get small businesses back and the businesses of hiring and growing the economy and growing america. so you take a risk and i am amazed to desalt rates are where they are. i also remember some of the members on this committee are new one of our big angst when the business took over as the process is too bureaucratic, trying to get the loan is impossible, the applications we asked again and again can't you streamline the application

process, can't you make it simpler so that people can actually get in and get the loans they need? we also were worried about the value of debt where a lot of small businesses you get a little startup and then you try to get to the next level and all of a sudden you can't get the credit. you've developed some pilot programs or controversy about that. i appreciate that but i assume they are in response to the direct request. am i not correct on that? >> that's correct. if we look at the small business investment company program, i do want to thank the team and note not only did they have a record year, they took the processing turnaround time for the licensing of the new funds down from over 15 months to 5.5 months. they are bringing in new funds, bringing some of the best and putting more money into the funds and those funds are putting more and more money into the smaller businesses.

we do have some gaps, but we have orchestrated to other sets of funds under the fbic authority. it wasn't being fully utilized. it is a zero sum program that pays for itself, and therefore we want to make sure we put as much money through as the authorization has so we have a new impact on which is designated to go to areas that are hard hit. the first one was in michigan and then we have a new early stage equity fund that will be launched this year to the estimate i appreciate your efforts there. the last comment it doesn't have a lot to do with you but i can tell every one of their how disappointed i am and the treasury department and the way they are not run as efficiently as you and small business is having created horribly when small-business need access to

the capitol at the critical time and the regulators are beating up on the banks for having too much of this kind of a loan this is a great opportunity to free up capital and my state not a single bank got a loan and a ton of the up applied and i'm sure some of them are probably in tough shape than they let on. so i'm very disappointed in the treasury. i would like to have a hearing with officials sitting right where administrator mills ase if that is not atta boy and i yield back. >> mr. walz? >> thank you mr. chairman. welcome. ms. mills, thanks for coming today. my colleague mentioned that it's the purpose of sba to help small businesses access capital when they cannot do that in the private marketplace. what is the sba's mission in 20 seconds, 24 seconds? >> and the access to capital

area we also have a disaster operations. we've run small business and hundred billion dollars of federal contracts go to small business and that is just a win-win situation coming and we have a network of counselors, mentors, advisers that are equally as important as the capitol. under access to capital where the market is functioning, where small business can get a loan from the market, why should taxpayers subsidize that activity because the market is handling it? there are many small businesses out there that don't have access and opportunities? and that is where we have been able to step into the market as you just saw in this credit crisis and provide access and opportunity. >> i actually chair the access to the subcommittee and we held a hearing a couple of months ago

and brought in kids of community of small banks and asked them pretty directly why they were not lending to small businesses knowing full well this is where the bulk of the small business gets their capital, and their answer was fairly clear and equally direct. our hands are tied. government regulations have made it darned near in possible for us to lend to small businesses. i'm curious have you heard the same sort of thing? >> as i said earlier, we worked very closely with the regulators on guidance to small business. and out in the field we hear the same thing you have, which is that the guidance that has come down from washington has been interpreted more tightly at the regional levels, and when we have had these conversations we have gone very strong assurances that the regulators will work with us to make sure that the

guidance they think is proper is the guidance that is being affected at the community bank level and in the regional level. we want to make sure the pendulum is in the right place and that it hasn't swung too far back to the estimate take that pendulum to read you feel that it swung too far? i can tell you the life probably spoken to the heads of 20 or 30 community banks in my district in the last six months and to a man and a woman, they all say that it has the last couple of years. they have seen a noticeable uptick. are you sensing any of that? >> that is a matter for the regulators but our role was to bring it to their attention that we were hearing the concerns and to make sure that they took their guidance all the way down. our job is actually to make sure that we also provide the product that can take some of that risk

out of the system and allow them the opportunity to make some loans they want to make for various reasons can't fulfill the total risk profile on the books right now. >> but you have heard that concern at that level? >> we have communicated -- i go out every week somewhere different in this country and every week i have a roundtable of bankers and small-business owners and so i have a pretty good sense that in the middle of the summer i think everybody come small-business owners, bankers, everybody had a moment of pause and we did go to the regulators and have conversations to make sure that everybody stays on the same page and access to capital is within the proper constraints available by small businesses as much as possible. >> if you are out there as you say coming and i believe that you are, i am convinced that you have heard the same thing most

of us have heard when you say you speak to small community banks that they are suffocating right now. their hands are tied. many of them elude specifically to dodd-frank. >> dodd-frank will apply to those banks whose holdings are less than $10 million, and those are the community banks that are in our districts. i am a member of the financial services and i work on dodd-frank. islamic will close with this and i guess they are not convinced of that. thank you mr. chairman. >> thank you mr. chairman and administrator mills for being here. going back to what the ranking member velázquez was talking about, the spike in net lending that you had at the end of the first quarter of fy 11 and then as december 31st, 2010, the precipitous drop in lending that

i think the figure she used was half of your landing took place in that first three months for the entire fiscal year, and some of the information that i've been given is that sba used to come to the congress so that you would get an appropriation to cover to waive the up front border were fees on the 7a program but you didn't do it this time and i've been told to have $500 million of money you might have been used to alleviate some of that and i just curious as our economy was going the way that it was why you chose not to ask for that appropriation at that point or why you didn't use the 500 million in the jobs that money to the estimate i assure you we used every penny of that money for the reduction that we possibly could. >> is there a reason you didn't ask for a waiver or didn't ask us for an appropriation to waive the opponent borrowing fee?

>> we did with all of the upfront borrowing fees through the end of the jobs act period and we used every single penny and we are very grateful for it. thank you. >> one quick thing and this builds on what mr. walsh said. in your statement you say you brought all hundred lenders back to the sba lending, and obviously some of my banks, community banks must be over that 10 billion of assets because they are asking and talking about how some of the regulations that they are having to meet or rendering them lending money or some of the capitol requirements they have to keep are hurting. i was listening to you as you say that you convene round tables and talk to banks all the time. i would be curious to hear what your suggestions are on the way that we can be more detective or help you to be more effective in

getting money and getting the small businesses energized. >> thank you. i want to make sure that you are properly connected and i think that you are in your location to all of our resources or on the ground. so we have district offices, we have small-business development centers coming and we have a flow of small businesses that we match with banks to the extent you come in contact with banks and small business owners who have concerns who are struggling who want to make more small-business loans we can help them with our programs. so we are in high al khaleej -- high outreach mode. >> i know that you are the administrator in pittsburgh is a friend of mine and can tell me where all the sbdc's are in my

district so you're pretty well plugged in. it's just my banks are talking about having troubles with lending money. it's not just sba money. i have a letter from one of my thanks but it's the treasury program that mr. schrader was mentioning that one of the rules to get the treasury loan is that the company has to certify that they are not child sex offenders and it was a parliamentary trick played last year to defeat this bill and actually got included so they are having trouble lending the money because of this provision because of the small business loans are a little bit insulted that they have to certify. ..

>> she is the representative, and instead of asking questions, i want to report back briefly to you what we heard because it was very educational for me. this was an area that is literally driven by small business, that takes up an enormous size of the economy in that part of southern california. there's very few large national fortune 500 company, but a very, very active small business community, entrepreneurs, in large part from the immigrant community, and here's what we heard. we had small business lenders there, small banks, and one of the things they told us was they were doing lots of lending to small business, but no small business lending. twhai were not using any of the programs available to them, and when we asked them why, they said it was too hard, and they

said that the large banks were doing it, and really what the large banks had done was put together teams of profess and a -- professionals who did nothing but small business lending so the banks would have small business units and it was a specialty, and it had to be because it was so complex, but they didn't have the human capital or money available to develop that area of expertise, so they asked us to do whatever we could to simplify the process. we also heard that one of the things they focus on is microlending. we heard great stories about loans under $100,000 and how successful they were used, and when asked if they knew about the program was they had looked at it, but the paperwork for a $50,000 was about the same for a $1 million loan. in terms of the return and time of investment they had to make was not worthwhile. they asked us to please look at

anything to make microlending streamlined to do more of these things. this was a large majority of the loans issuing to the businesses in that area where under $150,000. we also learned about the difficulties of opening a small business development center. that area lost its sbdc in the recent past, and there were a couple organizations interested in reopening it only to find it was going to take at least three years to go through the paperwork necessary to open another, a new sbdc, and win of the things we suggested or talked about was suggesting to you a grandfather process so if lfs an organization that was an sbdc that closed, that maybe they could be put on a fast track to reopen. since knave already gone -- they've already gone through the process at some point in the past. i guess the last thing that we heard was that many of them had not heard of many of the programs that you offer.

they were not aware of the mentor protege program, and only one had been to the sba website. i don't know what you're doing in terms of outreach to the small community banks, and maybe they dismiss it because it's too difficult to work with the sba because of past history. i'm not laying blame here because that's not the point of the presentation, but if the opportunity exists to reach out and educate lenders because, again, the basic message i took away is they are lending to small business, and they want to do more, but they are not using the tools made available to them through the small business administration. not a question, but comment back from the field, and i appreciate your tapings. thank you, mr. chairman, i yield back. >> absolutely. mr. peters. >> thank you, mr. chairman, and administrator mills, great to have you here with us. i appreciate all you're doing, especially in the state of michigan. i thank you for the programs in the state, and we have been hit as a result of what's happened in the economy and thankfully

the auto industry is responding and been adding jobs in the area, but we all know it's not just the auto industry or large industry in any region that's important, but the small businesses that are in the region that need to grow and prosper, and you're key to making that happen in michigan, and i wanted to thank you for that first off. before i ask specific questions, i want your sense on a statistic you mentioned in the opening committees that job creation started by over 100,000 i believe is the quote you had, and we, obviously, on this committee are big believers in small business and understand small business is the engine of growth in the economy, but job creation is heavily scwiewed towards startups to get that creation. i just want your assessment. you have been a very successful business person prior to your current position as to what do you think accounts for that. is it just as a result of a 4r5bg of demand in the economy, a very weak economy, or are

there structural impediments like financing here today. how do you weigh those and what sort of things should we be thinking of as members of the small business committee to address the start up issue in particular? >> thank you, and i enjoyed working in wishes with the great small businesses there. we focus on small street businesses that could be part of the next, you know, large public company and employer. we're down 100,000 starts, and that's contributing to part of the employment problem. we do know that access to capital for a start up business and for small growth amounts for those businesses is constrained, and as they say the valley of death has widened we. do have some programs, particularly, the new one we're going to launch,

but there's still a need for continued focus on getting more access to capital, particularly in underserved communities, particularly in disstressed areas and in places that had not traditionally had venture capital because there's small innovative businesses and entrepreneurs waiting to start up in all of those areas. >> now, along those lines, and you mentioned the success you had in the recovery act as a result of that, you were able to increase lending considerably with higher guarantee rates as well as the waiver of fees, and i know your activity was dramatic. any announcements to what is more important? waiver of fees or the guarantees, and given a choice going forward, how should we weigh that as perhaps a program going forward because we know the track record of the success? >> that's a good question. we have done some analysis. we have certainly asked -- i

asked that every focus group for a long period of time, and usually i get half of them saying it's the fees, and the other half says it's the guarantee. i think the jury is out. >> so we have to find that out. >> the combination, actually, we think clearly worked. >> now, certainly the combination worked, and i guess in thinking of how the jury's hot, i don't know who is in the focus groups, probably smaller companies in particular are impacted by fees more than anything else, and i'm very concerned about the access for underserved communities. i serve a community with an unemployment rate of 20% and urban areas 234 detroit suffer. you talked about the programs of bringing large banks and it's going to target underserved markets in particular, and i'd like you just to tell us what does it mean by "in particular," and how do you define underserved, and how are we going to really monitor what is

going on with these banks have reports on the success they have and i want to know what it means by "in particular," and what is your hope for that program, and how will you assess it? >> well, once again, this is a voluntary program -- >> right, right. >> that private sector banks came in because we asked hem to step up. each bank has a different set of activities and commitments that they are interested in pursuing. many of those banks have said -- have demonstrated that part of the commitment will be around underserved markets. we are going to partner with them making sure community developments and financial institutions and making sure their contributions go as much as possible to help proven programs to get money in the hands of small business. it's a wired array of programs. >> great, well thank you very much. thank you for your time, and i think my time is up.

>> mr. chovet from ohio. >> [inaudible] >> mr. west, florida. >> thank you, mr. chairman, and ranking member, welcome, and administrator mills, good to have you here. i wanted to give comments with the sba in recognizing the great director in rhode island and his staff doing excellent work, and i want you to be aware of that. as you know, the sba has $3 billion in authorized leverage annually through the sbic program and each year between $1-$2 billion remains uncapped, and understand the early stage innovation fund and the impact investment fund are intended to

leverage a portion of that existing, and yet untapped authority with the hope of propelling into the hands of start ups the capital they need to be successful, and i know there's studies that indicate that the unmet need for early stage capital equity financing for small businesses is somewhere in the neighborhood of $60 billion annually. this is a really important issue in my state where, and i think all of us are trying to encourage new start ups, and those typically are small business, and so there's a particular, you know, just to use an example, a constituent of mine with his partner is forming a business that developed an antimicrobial material tab -- to be used in health care to generate huge savings in health care and improvements in health, and they are working with programs like sbdc.

can you explain how the early investment and impact fund helps a company like that access start ups to really get through, as was just described, this valley of death, the most challenging time, and get to the place where they can create jobs and grow our economy? >> well, thank you, and as you know, i'm a person who spends quite a bit time in rhode island, and my husband's family is all there. i know you have fabulous entrepreneurs. the sbdc fund had a record year, and it had a record year in a number of ways. number one, it had a record year in the financings that went out the door to small businesses, and number two, it had a record year, as you see in the charts in the back of my testimony, in sba commitments to the funds. we want to fully utilize that commitment because as we said earlier, this is a zero subsidy

program, and it directly impacts jobs. we have built a great pipeline of credible funds who are applying, and they can come into the regular program or they can apply to do an impact fund which is really very much similar to the regular program, but it is our way of directing potential investors to areas that are disstressed and trying to turn around and have had a difficult impact by this recession. the early stage fund will be run slightly differently. it will be a one deadline fiscal 2012 activity, and for each of those two programs, we have committed a billion dollars $200 million per program per year for five years, so those will ramp up.

we are doing it, you know, as expeditiously as possible. our licensing time has gone down from 15 months to five and a half months, so we are taking up pipeline through faster, but that said, we need to get it into the hands of these terrific private partners. they need to then deploy it out to their small companies. they have been doing it remarkably quickly, and i'll you'll hear that in the next testimony, but we're also doing it thoughtfully because we want to maintain this program as its positive levels. >> and will that be acting as early stage equity funding from those two funds? >> correct. our current funds are actually mezanine funds, but within the early stage, there's a deferral mechanism where they can essentially be an earlier stage equity contribution. >> well, i thank you, and i hope that the sba will really focus on both innovative and creative

ways to do this financing because i think we have a lot of financing tools that were designed during a different age of industrial and manufacturing, went we need this nimbleness in government to respond to the new economy and have financing mechanisms to provide the support that our small businesses, entrepreneurs, and early stage capital is one of the examples, so i applaud you for that and look forward to the results. i yield back the second that i had. >> ms. hahn? >> thank you, mr. chairman. ranking member, ms. mills, it's wonderful to listen to you today, and i know while we're bringing forward problems and issues we've heard in the districts, it's clear that you and the entire small business administration is working, i think, you know, daily to try to do what you're intending to do

which is to really support our small businesses and try to get the capital into the hands of start ups, of current businesses, and i think you're doing a great job. since i've been on the small business committee, i've done what many of the members have been doing longer than me, and that's actually going and meeting with small businesses in my district. i think i'm up to 80 just in the last month that i've met with personally, and i've held round tables, i walked into their businesses unannounced, and i'm beginning to hear sort of a common theme which, i think, you've heard today which is, you know, the paper work that is needed to apply for the small business loans is many times daunting, and as we heard, some feel it's not worth really their

time. you know, as of february of this year, the sba preferred lenders can approve loans using the new small loan advantage process, and the goal of this program is to expand the availability of small dollar loans by allowing existing sba lenders to make loans under $250,000 using a two-page application. sba shortened the approval time to minutes if the application is submitted online and from 5-10 days for non-delegated lenders. seems to me this small loan advantage program is exactly the type of solution that i think small businesses are looking for. what do you think we can do to expand this program and make it accessible to everyone? how can we ensure that preferred lenders are using the small loan advantage process for all of their small loans? >> well, thank you,

congresswoman, and thank you for your letter. i know you met with over 50 small businesses. >> up to 80 now. >> well, and clearly you just said it better than i could, we have a product that we have designed. we reducing our paperwork, increasing turn around times, keeping the level of underwriting to be sure we have riskover sight, taking the principles and broadening them exactly as you had asked. >> you know, one of the other things i heard from my small businesses is that under the loan guarantee program, the criteria that sba has to qualify for the loans is sometimes broadened when they actually go to the banks to, you know, access the loan. the banks put on more criteria

than sba requires. one of the issues they brought forward to me was while sba, the loan guarantee program, doesn't require real estate as collateral, when they go to the banks, the banks say, by the way, we are going to require that you put up real estate as collateral. what can we do in working with our banks that are our lenders, you know, to not add criteria or add restrictions to these loans when sba is clearly not setting these criteria forward to small businesses as the means to qualify? >> we work with about 5,000 of the 8,000 banks. there are partners. the first line in the credit process is generally the bank. the bank will make a credit

decision, and because they are on the hook for somewhere between 50 and, you know, 25% of the loan as well, so they have to have an independent credit decision. we have tried to, you know, coordinate with our paperwork production, but we have to be sure we are both satisfied in risk oversight because we share risk. >> well, again, i would urge you to maybe work with some of our partners out there, and because many -- again, that clearly stops many of these small businesses, these start up companies from accessing this capital, so if you can work with them on maybe trying to keep their cry criteria at least the same as yours, and the last thing i'll just say that i'd love to invite you to sunny southern california and come to my district. i know it would be a great honor

to have you there, and i think there would be a lot of folks out there that would really enjoy listening to you and really hearing more about the programs that are available to small businesses. >> thank you. >> come during the winter. [laughter] >> yeah. >> mr. richmond? >> thank you, mr. chairman, and thank you, add min -- administrative mills. one thing we're talking about is making sure our small businesses have the capital and the access to capital so that they can flourish and they can fulfill their mission and they can continue to employ people, which is an important aspect of it, but the other aspect of it that i think drives all businesses is demand. how do we increase demand so that those businesses can continue to sell their products

or widgets or gadgets or whatever it is they are doing? >> well, what we've seen in the small business -- in the american jobs act, we want to put more cash in the hands of small business right now because what we've seen is that when they have more cash available like in the payroll tax deduction, reducing the payroll taxes they have to pay in half, they can take that money, and they can put it into advertising, inventory, and that creates more demand for the products, that creates more jobs, and then they can come for financing expansion so that's one of the first things to prime the pump. >> also, let me thank you for your administration and coming down and participating in my small business fair that we had.

right over 437 businesses signedded up, and i talked about 320 of them that night, and many of them sing the praises of our local sba office in terms of jut reach and assistance they give, and now the new push which i think is very important -- helping them understand that 95% of the consumers in the world are outside the united states and china, help them get to a point where we can sell our goods over there, and a few of them are taking us up on the offer on attempting to do that, and many left the small business fair with contracts, with new venders, so that was a very good thing. part of their -- two issues and two suggestions given to me, and i think we submitted them to you, and i'll just give them to you. when the president announced expedited pay for contractors

working with the government, they wanted to make sure that that trickled down to the sub contractors to be sure when the prime contractor was paid, that they don't understand necessarily hold up the subcontractor's money, and there was a program ten years ago where the prime contractor had to indicate that the subs were paid or would be paid in a short period of time so they expressed that would help because if they don't have access to capital, they don't have the time -- well, they don't have the resources to float payroll and all of those things waiting on that payment. the other suggestion that was made was that i'm sure it would ease a lot of members of congress' workload was if we could put this status of 8a and other programs, the application process online, almost like colleges can do now, where they can log into a secure account

and see if all of their documents are turned in, see if they need anything else, see if they are in the background check phase or whatever because a lot of times if they know, then they can make better decisions, and i think now that with technology, we can offer that so that they can keep up with that. other than that, i don't have much else to offer. i just, again, thank you for what you're doing and give you an opportunity to offer anything that you think you can need or what we need to do to help, and i will say that we're looking forward, at least in louisiana, to working more and maybe another round of teaming grant opportunities which we were not successful in the first round, so maybe we can look at second and additional rounds to see if we can't participate. thank you, mr. chairman.

>> mr. coffman has one more. >> thank you, mr. chairman. ms. mills, i think you had mentioned the issue about banking regulations and impact on small business and your view was as it filters down, that at the top, that there's certainly clarity and there's balance, but that as it filters down, perhaps, there's not balance, and i just want to say that there isn't balance, and i think it hurt small business lending, particularly the small bank level where you do have a wide latitude for what's the regulators can go be that they obviously take thee most conservative approach just in case anything ever happens, that their finger prints are not on it, and you have performing loans out there that are being

downgraded, causing these institutions to increase their capital requirement and pull in their ability to lend, and i just think that's a huge issue impacting small business at the community bank level. one thing i was visiting businesses last week in the district, and you always wondered if you got the right cross section, but it seemed like there were signs of life, and although we were skipping along the bottom, that the firms that survive -- survived this seems to have adapted, and, you know, some adjusted their business model. they made changes, and adding some employees, i visited manufacturer and probably three services companies last week -- very different picture from 2009 when the economy was in free fall, and these small businesses

were getting their credit lines just cut off. i mean, and everybody was just going down, and so that was tough. i'll get the other -- probably a better picture next week when i'm doing a job fair back in the district because i know there's a lot of unemployed folks who have been out of work for a very long time, and just the last point, and if you can just respond to these, and that is i've had small businesses that are service related companies come to me, and they will very concerned about the impact, and these are kind of relatively low wage employees. one was a dry cleaners who had a chain of stores, but incorporated under the same entity, had about, you know, had well over 50 employees. the other was a janitorial firm with well over 50 employees and what is the impact on the health care bill going to be on their firm and their ability to keep these employees, and i'll turn

it over to you then. >> well, number one, i think you characterized it exactly right. we are seeing signs of life among small business. we still have -- but we have demand now, and we have to make sure that they get access and opportunity, in october 2008, i was hearing a need a loan to save my business. now i hear i need a loan to buy that next piece of equipment, hire the next worker, make the next expansion e and that's good news, but that means we have to be there with access and opportunity. >> i want to say real quick i was able to visit, one, in fact, i mentioned was a restaurant being built, and, in fact, that's with an sba loan, so i thank you for that. >> thank you. i ask the small businesses also to come to the website where we can walk them through the affordable care act. small businesses now pay 18%

more than large businesses when that exchange is open, that premium will go down or disappear, so there are many good prospects. there's also the health care tax credit. we have a tool on the website to see if they qualify, and those would be opportunities that i would suggest. >> thank you, mr. chairman, i yield back. >> ms. mill, are you recognizing the need to increase lenders in your loan programs? last year, you had 2,000 lenders, 1349 made three loans or less, and my guess is that some of the lenders who came into the program were attracted by the provisions was recovery act, so once those provisions expired, i just wondered how many of those lenders are still active and making those loans,

and the second panel we're going to have a credit union testifying, and my question to you is what will you do to retain the lenders that are participating in sbdc's programs -- sba's loan programs, but what are you doing to increase union participation in your loan programs? >> thank you. credit unions are about 10% of the current activity. we love credit unions, and we think they can do a very good job with sba. we bring them in through training, participation, active participation with their association, and on the ground you're exactly right. we have to work very, very hard now to make sure we continue to meet one of our base goals which is active lenders. we have about 5,000 of the 8,000 banks actually holding an sba

loan, but we track how many have made a loan within that year, and that's that number that is around 3,000, in the high 2,000s, so we need to keep that number up, and we're going to be working, you know, we hold lender education, lender round tables, we simplify our program, we walk them through applying, we do everything we can so if you have lenders in your communities, particularly those who are on the ground and know those good small businesses, we'll bring them in. that's why we're opening our doors to community development financial institutions who have good lending track records, and we want to be there with as many doors, points of access as possible. >> well, the challenge i see when it comes to either community banks or credit unions is that you need the personnel,

and they don't have that type of capital and expertise, so what will you do to help them? it's just not walking through. it's because of the pressure coming from regulators to make sure that they are complying with credit standards. how do you balance that? >> well, as you know, we are looking -- we have a product for a lender that's only going to make one or two or three or four loans allowing them to use much more of their own documentation, and that product, we continue to streamline so that they are able to come into our program without undo burden. >> okay. thank you. >> thank you, administrative mills for being here. i think that's the end of the questions. we'll seat the second panel if we could.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> we'll go ahead and get started, and i'll take a moment to explain the lights to you. you each have five minutes to testify, and the lights will be green during that time. at one minute, they'll change to yellow, and then when the five minutes is up, they'll go to red, and with that, i'll introduce the first witness today which is lynnette, the community banking at regions bank located in birmingham, alabama as one of the full financial service providers with 1800 bank offices in 16 states across the midwest and south. she joined regions in 1992 and manages the credit underwriting documentation and administration for small businesses, and she's testifying today on behalf of the community bankers'. thank you for soming. look forward to hearing your testimony. you might turn on your mike,

too. there you go. >> thank you. >> and if you want to go ahead and give testimony, then we'll go through each one and open it up for questions. >> yes, sir. chairman graves and ranking member and other members of the committee, i'm the vice president and division head for community banking for regional financial. regions is a full service company headquartered in alabama with over 1800 branches and over 22atms in the 16 state print. i'm a member of the small business committee including top small business bankers who share the goal of improving the state of small business banking including sba programs. we are facing challenges with weak economic conditions, high levels of unemployment, and low consumer confidence have led to low sales valueups resulting in a lack of demand for small business loans. despite the decline in overall loan demand, we see healthy sba

lending the the 7a and 504 programs were effective during these difficult economic times. the sba supported $30 billion in fiscal year 20 # 11, bringing the three year total to over $70 billion in support of small business lending. regions recognizes the value of the partnership with a proven track records with the programs having being a preferred lender since scene of this accident. in 2010, regions identified increase lending as a tray teggic initiative. significant resources have been devoted to the initiative to improve the driverly and efficiency of the lending efforts. as a result, we doubled the lending staff. regions ranked in the nation's top five for overall loan approvals for the past two years. we've also dramatically increased our lending over the past year by 82%. in addition to the sba 504 # and 7a programs, regions

participated in the americas recovery capital loan program when it was in place and recently added the export working capital in export programs as well. we intend to implement the newly named working capital cap line program in the first quarter of 2012 and strongly considers the cap line program as well. so what can be done to make things better? the loan enhancements provided under last year's small business jobs act allow the sba to raise grn tee on 7a and waive certain fees on both 7a and 504 loans. these had a tremendous impact on the act of banks and small businesses to utilize these important programs. for example of this effectiveness, in the fourth quarter of 2010, regions application trends and approval trends increased by more than 25% over the prior quarter. also, the small business jobs act permanent increase in 7a and 504 limits from $2 million to $5

million and permanent increase in microloan limits to $25,000 to $50,000 was helpful. however, the act only temporarily increased the act from $350,000 to a million in order to expand access to much needed working capital. a further streamlined 7a loan process would help borrowers attain loans more easily. the sbdc did a good job in enhancing the project in many ways, but there's adjustments to the process to expedite originations of small business loans. for example, allowing financial institutions to use their own application and notes for all sba loans would be helpful. the sba currently allows lenders to use their own notes on express loans that greatly improved that prosays. effective sba lender oversight is another crucial area of concern. while their needs to be strong and consistent lender scrutiny, flux waiting economic conditions call for flexibility.

overall, sba's members reported increased efforts to improve access capital. many members hired new small business bankers, initiated second look programs to ensure that every possible loan is being made, and incorporated other initiatives to improve delivery of sba programs. i could cite many good jut comes for sba programs, but as we look forward, we encourage the sba guarantee levels. it is also important that they have the funding and authorization necessary to continue to work with the private sector in financing american small businesses. in conclusion, we support improvements in the sba loan structure, but there's a need for greater certainty in sba programs, especially during these difficult economic times. we look forward to working with the committee to improve lending to small businesses. thank you for the opportunity to appear before the committee to discuss the sba and the current state of small business

lending. i would be happy to address any questions you may have. >> thank you. next witness is sally robertson, comeef executive officer of business finance group community development company located in fairfax, virginia. she's testifying on behalf of the national association of development companies. she has served business finance group as present ceo for 15 years, also been involved in several cdc organizations and corvees as vice chair of the board of director of the national association of development companies. thank you for being here. >> thank you very much. i'm salary reportson, president of business -- sally robertson, president of business, a business company. i'm very pleasessed to provide comments regarding the niche filled by the 3504 program seeking long term capital to grow and create jobs. successful small businesses are innovators who buck the trend in order to realize the market

advantage. many small businesses are now ready to take that next growth step, but banks are constrained by impact of losses on capital and face regulatory contribute siesm for -- criticism for their real estate and small business lending. as the need increases, conventional sources of financing are less available. what's the real impact? without capital, even successful businesses cannot grow. capital is the greece that enails businesses to grow. without new jobs, america can't pull itself out of the jobless recovery. 504 is a leverage program incentivizing banks to lend small businesses by sharing the risk of a long term loan. small business owners benefit from a 20-year loan with an atacttive fixed rate to have short term deposits as the source of funds, banks can want offer the same term to small businesses, but as a participate in the 504 project, they can

provide a return to the stockholders. it's an excellent match of the public and private sectors working together to grow small businesses. 504 projects create new jobs and save jobs in communities across the country. the 504 program is the most successful, economic development financing program provided by the federal government. a study completed by california state university three years ago demonstrated that in just a two year period, 504 loans created 54,000 new jobs, and indirectly led to another 66,000 jobs. further, for every dollar sba spent to operate the 504 program, federal, state, and local governments realized $94 in new tax revenues. we'd like to note that nadco supports the oversight, and we applaud sba's steps to improve the fungses. sba is staffing managers for the

office the management and encourage them to rethink the oversight systems. there's two different portfolio systems operated by two different departments. .. banks are at very inflexible and work out situations, however the cbc and sba have flexibility with the second trust deed the successful workout situations have resulted in the business surviving that might otherwise have failed resulting in more

lost jobs in a fragile economy. the 504 program has become one of the most successful and largest economic development programs and the federal government by leveraging its guarantee authority in private sector capital sba has assisted in the creation of millions of jobs to more than 150,000,000,050 for first mortgages by banks and 50 for second mortgages by cdc. the public-private partnership is a unique program feature that encourages the investment of private capital in growing small businesses. the value of the 504 program can also been seen in successful businesses who've used the 504 program to finance the next level of growth. every cdc in every state can provide small businesses who would not have achieved theirgn current success without the ability to use the 504 program. and as we begin to climb out of the terrible recession, there are many small businesses whose continued existence as a result of successful workouts hammered out by cdc and sba on their

behalf. we are excited to be working closely with the skill and innovative sba management team to look carefully at how the 504 program can continue to be benefit and relevant to small businesses. we hope that this effort will lead to improved oversight, in processing command more flexibility to encourage more banks and borrowers to participate in the 504 loan program. small businesses are nimble and forward thinking will lead us out of this recession by treating the new jobs we need. let's help them do it sooner, working together we can get america working. my thanks to chairman, ranking member paul velázquez and the committee for the leadership and support for american small businesses. thank you. >> thank you very much mr. chairman. i am pleased to welcome to the committee this afternoon a constituent of mine from cincinnati, ohio, rodger davis. mr. davis is the founder and managing director of north creek a small business investment company located in our community. mr. davis is testifying on

behalf of a small business investor alliance, the industry association for small business investment companies. mr. davis has 25 years of experience in the banking sector including commercial banking, real estate, leveraged finance, direct equity and formed investing to name but a few areas of expertise. we welcome you here this afternoon, mr. davis. look forward to your testimony. >> thank you, congressmen and the rest of you for giving me the chance to talk today. i'm proud to represent a small business investor the alliance as congressman chabot pointed out that is for those of you that don't recognize the name. my name is roger davis and the co-founder and managing partner of north creek. we are a $70 million fund located in cincinnati and to put it in perspective that puts us of the smaller end of the range for the farms and frankly we think that's a good thing. we can focus on smaller companies. my partner barry pederson and i are lifelong bankers of small businesses and when providence was sold in 2004 we set off to

create a fund dedicated to lending and investing in small businesses really continuing what we love to do at the bank. the credit crunch and 08 and a no nine really served as a catalyst for the creation of our fund. our research quickly lead us to the fdic program for many reasons. we were comfortable with the regulatory oversight and licensing process. the program is targeted exclusively toward small business where we felt there was really the greatest need and to amplify our private capital through the use of low-cost leverage from the sba program. to me, the sba program is a perfect example of a public-private partnership that works. in the spring of 2010, we opened our doors for business. the biggest surprise i think that we have experienced so far as the overwhelming response to the nation's small-business need for capital. we reviewed over 350 business plans from company owners nationwide seeking capital. we originally thought we would

see a lot of companies losing money that frankly didn't deserve the capitol but it's been quite the opposite. there are many companies that we have been unable to help that we would have liked to. unfortunately, for most small businesses, traditional credit markets remain constrained or closed altogether. i have a few thoughts on why that is still the case. many companies reside in the bordoff area of the banks because the revenues and profits decline in the recession. in the end of that backlog clears, these companies would have a very difficult time growing has all dedicated cash flow would be dedicated to paying down the bank debt. i call this the hangover from the credit crunch. bank consolidation, although there hasn't been as much in recent years, continues to have a negative impact on lending to small business. as a former banker and a understand the need for process ratios, systems, credit scoring, but for us it's about meeting management teams, listening to the story and determining if they deserve capital. regional and small community

banks are helping but it's not enough. so here in lies the value of our program and the firm like north creek. in a year-and-a-half, we have made seventh loans to five companies. the companies are located in cincinnati ohio, austin texas veldt cord indiana, boulder colorado and florida. i find this statistic remarkable myself when we put the data together but these five companies have added over 200ç5 new jobs and really less than a year as a 20% increase over the base employment. you can see the impact on the management teams now has the capitol to grow. the industries in elkhart were here they would tell you bank lending is still very tight. they would think for the fdic program because of the capitol they've received from last year now in position to grow and prosper. randy of the jordan fire missiles services would tell you the capitol they've received from north creek puts them back on offense and they can now to get in touch of growth opportunities in the market.

troy augustine in cincinnati would tell you the acquisition he's made to more than double the size of his company would not have been possible without the fdic program in north creek. just a few thoughts on the future of the program. we need to make sure we keep successful fund managers in the program and congressman chabot bill would help by raising single and family fund limits. what happens is the fund's growth a bump up against single and family fun the limits, and those need to be kept modernized to keep up with funds as they grow so we keep him in the program. second we need to make sure banks continue to be active investors in the program. banks have been longtime supporters of the fdic. it's a great partnership we can work with their stuff and they can work with us to a less mature they stay on the program and a big way. lastly i just want to make sure you understand by raising taxes on a carried interest for small fund managers like mechem buhle the impact will be that i will have less capital to put into small businesses. the management fee that we heard

pays for the overhead of the business, and we only make money on a carried interest if our companies prosper and grow, so think you. >> mr. chairman it's my pleasure to introduce to the committee the president and ceo of the credit union located in corning new york. he's testifying on behalf of the national association of the credit unions a leading advocate of america's credit unions and all of their members to respect and good morning, tramp, ranking member velázquez and members of the committee. my name is gary grinnell and i'm testifying we appreciate the opportunity to participate in this discussion regarding financing programs under the small business administration. cornyn credit union we have a well diversified lending portfolio with minimal delinquencies. for the last two years we have been recognized as the top small community lender by the small business administration in the

34 counties that make up the sba district in which we are located. we started our business service program in 2006 and have been an important source of funding for small businesses in our areas of persons. during the recent economic downturn, many banks the market stop lending to their clients. corning and credit union has been able to fill the void and provide these businesses with the funding they need to continue to grow and create jobs. since our sba programs inception, we have made a 71 sba loans totalling over $8.2 million. our average sba loan is about $116,000. we participate in the sba 7a, sba express and patriot programs. many of our sba loans are for entrepreneurs wanting to start a new business and create new jobs. in 2011 study commissioned by the sba indicated that credit union small-business lending has increased in terms of the percentage of their assets both before and during the recent

financial crisis while banks' small-business lending has decreased. this demonstrates the credit unions continued to meet the capital needs of the business members during the most difficult times. fortunately when congress passed the credit union member access act in 1998, it put in place an artificial cap on the ability of credit unions to offer the member business loans. it should be noted that dimond guaranteed portions of the sba loans count toward this arbitrary cap. at corning credit union we are approaching the cab and expect to reach it next year. this will ultimately impact our ability to make a member business loans including sba loans to the small businesses we serve. fortunately, there is bipartisan legislation in the form of h.r. 1418, the small-business lending enhancement act pending before the financial-services committee that would address this issue. we urge committee members to support this important bill. some members tell us they have scaled back a number of small sba loans as a response to

comments are rising from sba examinations. these credit unions feel that the sba winder evaluation and scoring process disadvantages those that make a number of small, less or collateralized loans as it compares them with those institutions making large fully collateralized loans in the evaluations and scoring. if this type of evaluation process is not changed, it may even chile drive a number of small loans from the portfolios. few members have requested that the sba address this deficiency and we hope the small business committee will be able to help as well. at corning credit union we are an improved sba lender and fortunate that we have hired an experienced sba lending officer now to assist on the program. still, one of the hurdles that we see is that our local sba 7a applications are sent to national offices for review by underwriters that do not understand the local economy. this in personal step adds time to the approval process for the small business owner. furthermore, the lack of having

a local sba underwriters to interact with and they discouraged the lenders who do not have the expertise we do on their staff. this makes it harder for those institutions that may want to do sba loans but only have limited volume that doesn't justify higher house expert. as a result, some credit use in this situation may have not yet to get involved in sba lending adel. there is a way that this concern can be addressed with the for the injured and some of the credit union small-business lending act. this bill would make it easier for credit unions to become more involved in sba lending and open the door to more access to credit for the small businesses and communities served by credit unions. in conclusion, small businesses are the driving force of our economy, and the key to its success. the ability for them to borrow and have improved access to capital is vital for job creation. while the sba's financing programs are provided a much-needed opportunity to businesses, there are still obstacles withholding the

programs from their full potential. we are confident this committee will do what is necessary to ensure that these programs are successful. thank you for the opportunity to testify before you today. i welcome any questions that you may have. >> thank you to all of our witnesses and i have one question for each of you actually pick it out of curiosity, how responsive is the sba when if you come to them with problems within the program, how responsive are they trying to rectify those and are the very open for suggestions for criticism? steve? >> i will start. i would say that the sba is more receptive today more than ever. and addressing issues that the community faces for lending. an example would be the reading of the 504 refinancing provision we talked about earlier. that will have a dramatic effect on a lot of these small businesses who have conventional loans that are ballooning and allow them to access their

capital -- access their equity to use for capital. in a timely given feedback to than they've been very responsive and very helpful. >> i would certainly have to concur. the fda has been extremely responsive any time we've got to them with issues and concerns. it is a large agency. it may not happen as quickly as we would like, but i think they have tried their best to listen and actually come up with workable solutions. >> i found them to be very responsive. i think people in the industry find them not to be responsive it's probably because of something on their end. >> we've found them to be responsive as well. the main change that we've seen from a negative perspective is the consolidation to the national offices, as i mentioned in my report, as opposed to the local focus of where it used to be. >> how about when it comes to loans getting approved not having people come to me and

talk about the fact that particularly if they're doing -- if it's a new startup and the have construction issues and its delay in getting that loan approved and as the delay spreads out then the costs go up and the contractor costs go up where does that break down? is it sba approval? is it just a requirement you all have in the process because in some cases it seems to just drag on and on and on and you have to ask for more money or apply for more money on the loan that creates more problems because the costs are going up. >> i can speak to that. we would certainly like to see the process quicker. again, it goes back to trying to work with somebody out of one of the national offices who does not understand the local economy. we've seen in the less experienced people over the last couple of years and we think that slows down the process. sometimes it can to get to three or four weeks to get a loan approved. if we were doing that in house it would take a couple of days.

so that is an area for improvement. >> from the 504 standpoint, we are now required to provide construction bids at the time of the 504 application submitted on a construction project for approval. a commercial reasonable standard would be that construction documents are provided at the time of the construction loan closing with the bank rather than at time of sba approval. so that is certainly deleting the approval process and likely causing the borrowers funds only delaying the settlement on their property but also if the contractors are charging them fees for those kind of things they are having to pay those in advance of having the loan approval. >> thank you, mr. chairman. you heard a lot of the members here asking questions to the

administrator regarding the need to have more small loans. those defined as $150,000 or less. since the jobs at increased the maximum sba loan size to 5 million, the percentage of smaller loans as a key point from 17% of total lending in 2009 with just 8% in 2011. and the administrator, when i asked why this is happening, she said that banks are not making those smaller loans. my question to you is why. >> i can't speak for all banks. i can only speak for my bank and the members that i sit on in the small business committee with the cba and we are not finding it difficult to fund those customers. it's a opportunity that we have

for our 7a experts programs. it's a core program we already have in place today and we have a small loan the advantage. we do not participate in that would separate of regions because we have the corporates that accomplish the same thing. as we are not finding that to be a standard of in sending them to kind of get in the game, make sure they have the business plan to support. >> the sba loans that your bank makes, what is the percentage of smaller loans 150,000 or less? >> i don't have it off the top of my head. >> last week the sba released final rules for the 504 refinancing program that will allow cc lenders to make loans in excess of $12.5 million. with no requirement that they create a single job. as we all know with this jobless

economy, the challenge that we have his job creation. so given that fact, was it a good idea for the agency to abandon this critical element of the 504 program? >> i think the intention here is to save businesses that might not be able to find financing or alternatively provide a financing structure that's more appropriate to the business and improving their cash flow so hopefully they can add jobs. >> the intent of the program 504 always being economic development and job creation, and to me this lies in the face of the original purpose of 504. the fact that it requires to create jobs doesn't take away the debt refinancing even if you tell me welcome it didn't create new jobs but i guess we are

preserving. mr. davis, the program has had a proven success for helping businesses but has struggled to reach early state and stirred up firms since the participating securities program was eliminated. are they aware that the program could be adopted to help meet the needs of the earlier stage businesses? >> i think the first comment the venture program because it has a current paid feature we need to be sure that we have portfolio companies that are paying our investments current now. some firms can take lower leverage and so they can sprinkle in some additional equity investments that could go towards more early stage, but the plastic tube-1 of leverage which we are is really incumbent upon us to stay away from those. we need to be financing

companies that are just going to the next level. so i think the lower leverage could be an avenue, and maybe some of just look at what was wrong with the participating securities program and will get a retrospectively and say what could we have done differently. >> in your testimony you emphasize the continued need for credit, especially among the businesses who are seeking smaller loans. do you believe that the sba large bank lenders over emphasize more profitable loans like loans to establish businesses with larger credit needs to the detriment of smaller firms? >> in terms of our credit union, we like to make small loans to help our members and i think the credit unions in general like to make small loans. we have seen a strong demand for the entire financial crisis. as i mentioned before, we are

almost at our member business loan cap and we are going to have to stop lending. from what we've heard from our members, the banks have turned them away. we have helped some of entrepreneurs get started with very small loans that the banks were not interested in. and those members are now hiring additional individuals, additional employees in the communities and making a positive impact on the communities. >> i do have some numbers here about how the bank increased by 58% in terms of the average loan by 146 it seems to me making much larger loans to the expense and i would encourage the bank at least there you are doing 7a loans that you tackle the gap that exists because you

have a responsibility. you are participating on a program that is a guarantee by the federal government, and the same is true with a lot of the of the banks. beginning this year taxpayers will be paying $90 million to subsidize 504 athlone speed in the past some have provided their executive staff with salaries and benefits that decided the status as a nonprofit company. and i just would like to hear -- we know that ig did an investigation. what is it that your members are doing, you're companies to insure that this type of practice doesn't take place any more? you have executives making or a

police were making $800,000 in salary. so i would like to hear what you're saying because we have to protect the taxpayers' dollars. >> absolutely. i think our trade association is extraordinarily concerned about this practice. we've provided guidance to our members on the i.r.s. requirements for nonprofits come on board governance. we've talked to sba about oversight and enforcement. unfortunately the tree association is not really in enforcement or police vehicle but is doing its best to provide training to the members on those topics. >> to have that discussion because i know that you cannot enforce how much salary you are going to provide any of the executives, what if a good puerto it might benefit the entire association. >> absolutely. >> thank you mr. chairman.

a few quick questions to make sure i heard it correctly the first time through do you say that your organization told sba lending staff over the course of the last period of time? >> yes, sir. >> do they specialize in sba lynndie where are they doing sba lending part of the time and regular commercial lending? >> the specialize in sba lending. it's a buildup from underwriting packaging, everything so that the process is streamlined, reeducating our relationship managers out on the field with this new streamlined process because that is a negative connotation. we heard earlier today when administrator mills was speaking. it's cumbersome. what we are doing as an industry and the claim is streamline so when you have opportunities you don't have to reinvent the wheel every time. that is dedicated to read >> it is a large bank. they have a presence in my district. >> they are a regional bank. >> i'm from south carolina so

you have a presence there and i guess what i'm struggling with this -- here's my question -- in your opinion has sba lending got into the point that it's so complex you have to do that in order to do it in a cost-effective manner? >> i think the impression is that is the impression from the borrowers out there and the bankers to reeducate them is important. you can streamline it you just have to get back out and reeducate because the perception is out there.8p0p >> thank you three much. >> you also mentioned i think that the sba now allows you to use your own notes, is the right? >> for the express' program. we are suggesting that can be something we can look for all of the core programs to streamline it. >> i used to do core work. tell us why it's important. >> you don't have to duplicate your efforts. it's one application, one time. when you have extra documentation from the sba site you seem to be duplicating your efforts and this just makes it very convenient and very fast to

get the loan fund. >> in the standardization of them allowing you to use your own documentation which is critical, is it just in 7a or are you seeing it in the other programs as well? >> i believe it is just 7a express' and we are trying to get that brought. we are making that suggestion. >> thank you very much. mr. grinnell, use it some of your members -- and again, i come from an area textile communities are very strong presence where i'm from -- and you said that some of your members have scaled back on their smaller loans; is that correct? did i hear that right? >> i said that -- >> loans and so forth? >> well, we have very strong demand. we continue to make very large numbers of small loans as a credit union. what i've heard from other credit unions is based on the way that the sba does the risk ratings coming and it doesn't really compare apples to apples, it compares institutions that do a lot of small loans with institutions that do very few

large loans, and based on that, so if you have a lot of -- if you have more small loans that go past due, that can be sickly hurt your reading. so it can potentially discouraged institutions from making the smaller loans. >> is there a fix to that? >> i believe that should change their risk rating system. >> give me an exit line not familiar with the risk rating system used. >> i should say that is also what we have heard talking with other credit unions and other members as a credit union, corning credit union we haven't had a particular challenge with this issue. sali, i'm not an expert on exactly what needs to change. but we have definitely heard that it just doesn't make -- just a common sense approach, and you are comparing -- you're not comparing apples to apples. >> gotcha. mr. davis, i think i heard you say that there was some level of consultation going on with the new industry, and i think you

said that led to less small business planning; is that accurate? >> you know the statistics probably may or may not support that. what it does the ways significantly changes it. >> in what fashion? >> for symbol if you have fewer assets and a service company for the disabled, a lot of the larger banks now they will be happy to give you an asset load. very simple, very easy to standardize. so it's different. i am sure that the large banks would say we are making small business loans but they are not making small-business loans to companies that have a wrinkle in the past, while a lot did. i call it asset light companies to service companies, especially manufacturing companies. those are very difficult for the large banks to make. so, you know, again, we are in the market day in and day out. we are finding -- we have a portfolio company that went to

the market, a great company. a very light in terms of assets. they went out to ten banks, about one proposal. great company but they didn't fit the box. if you don't fit the box you are in trouble, so you're going to need a firm like us to step in and work with the bank that can do a small piece that is simple, straightforward and doesn't have a wrinkle to it. >> thanks free much. thank you mr. chairman. >> thank you mr. chairman. ms. davis i just a couple questions. first, how will increase in the sba leverage and let for the fdic has proposed in the legislation that we've introduced to h.r. 3219 as you had mentioned, how will that affect the ability to provide capital to small businesses? >> what happens is you get fund managers like ourselves, this is the first fund. it's a 70 million-dollar fund.

if we are successful, and i hope we are and i'm confident we will be. we will go for a second loan and probably be able to raise more capital in the second fund. so, our family of funds can start bumping up into an aggregate limit that the fdic program currently has. in addition, there are simple aggregate limits, and so there's a lot of successful fund managers that start in the fdic program and then they graduate out of it and move on to a non-fdic program. and as the move out, they may or may not stick with small business. they may move on. so by expanding the family of funds limit, you will keep more managers dedicated to small-business. >> thank you. you mentioned i think you have 70 million available funds, and i you had seven loans out five companies. how much of the 70, flexible, would you have used in those loans approximately? >> 12.3 million.

so we are making, again, we are on the small and of the range for the fdic and i think it is a good thing especially for our market there's a lot of small-business owners that don't need $10 million or 20 million. we are making an average loan size is about $138 million we have got half a million dollar loans. as the first one that turned out to be great flow and the company now has made to subsequent acquisitions and they've doubled the number of employees they have. >> that's great. now, as far as i think you said to have about 350 companies then you looked at. those are naturally applications they've gone through the process or what it was basically. >> we manage a pipeline database, so every transaction that we evaluate is logged and entered so we will have received information on the company. if we get a phone call and it's not as if we don't enter it into the pipeline, so i think we put in our business plan to the sba

we would review 200 -- 250,000 business plans and a year and it's almost double that. the interesting part is we thought we would get a lot of trust no right of the gate but we are not seeing that. we are seeing a lot of companies that are making money that have a business that deserves capital we can't choose the ones we think are best for our fund but we are seeing a high percentage of viable candidates. >> what with the other ones missing or wanting if there were only seven loans and you have, you know, 350 applications, and they are good, but, you know, what -- >> it may be the structure, it may be the business. again, we've got private investors so our job is to take the best of what we see coming and we do that it could be we lost to a competitor somebody saw it different than we did and was willing to price it differently. there is a whole host of -- we have some bias.

we've been in this industry a long time so i've seen certain industries be good candidates and some not quite so good candidates so we make the distinction as well. >> thank you to read just a broader question i would be happy to anybody that might want to take this one on. there's been a lot of talk lately whether it is the president's jobs bill or talk that was related to the debt ceiling debate that occurred last summer and the various things about increasing taxes in one capacity or another on investors or the top 1% are paying their fair share but i don't really think it's the top 1%. they talk about a lot bigger percentage of the people that aren't paying their fair share. what affect would actually increasing taxes, especially in these economic times -- what sort of effect do you believe that would have on the economy

overall and small business investing in particular? >> that is actually a topic that we watch in the banking industry quite closely. we were starting to see an increase in our application volume this summer and then when the media started to have a lot of attention to the debt ceiling discussions that were happening you could literally watch the application volume drop. what's happened is the small business owners are turning into anything that creates a level of uncertainty and responding to it by holding back may be sitting on the sidelines, not expanding, not hiring new people. they've learned to do more with less because they are just not sure what's happening. anything we can do to keep certain tiahrt foundage that's taxes, that's in the regulation, anything that's coming out that's creating a level of the unknown of the year during the wait and see and that is in helping us to get motivated to get back in the game. anybody else have time to

answer? >> i would china. we heard the same thing from our business members. it's the uncertainty with. this taxation or regulation and it just puts them more on the sidelines from the borrowing and the spending perspective. so we definitely hear evidence of that. >> thank you very much. i yield back, mr. chairman. >> i have a question for mr. grinnell. you told us that your credit union hired an expert on 7a. >> correct. >> so how could we encourage credit unions who might not have may be the resources to hire someone to be able to participate in a the sba loan program? >> well i think there's a couple different ways. one of the line mentioned was the increasing of the mbl cap

because they can only lead at 12275% of their loans, so that does not in sent the credit unions to get into the business lending game. only about 2200 credit unions out of 7300 offer business loans so that in itself would help credit unions do more sba lending. the other would be the -- the reintroduction and passage of the credit union small-business lending act. there are provisions in there that are designed to encourage more sba lending. back to your comment about our expertise. if we did not have the expertise on the staff, we wouldn't be giving the number of sba loans we are doing today and winning sba awards if we did not have the expertise on staff but it's critical because the paperwork intensive process. >> let me ask you a question or for you to clarify to me. the guaranteed portions of sba loans to not count against the membership, right? >> that is correct.

>> thank you. >> with that i want to thank all of you for participating today, and this has obviously been a very enlightening and timely hearing as a matter of fact. with that, i would ask unanimous consent all members have five legislative days to submit material for the record and without any objection so ordered. with that, the hearing is adjourned. thank you. [inaudible conversations]

the supreme court heard the case earlier this month that takes privacy rights against the strip searching policy in jail. elbert florence from new jersey was wrongfully arrested in 2005 for an unpaid fine, take into two different jails, strip search that each and released six days later after the charges were dropped to read the court will decide if the fourth amendment against unreasonable search and seizure places limits on strip searching people entering jails. the court will decide this case sometime before the end of the term. mcwhorter we ask the court to hold that the jail may strip search in cases of reasonable suspicion. it is the rules applied

throughout almost the entire country and in the three decades after without either administrative difficulty or any apparent increase in smuggling. we are here today of course because both the jail and the county jail require every arrestee to stand 2 feet in front of a correctional officer and stripped naked. >> do you apply the reasonable suspicion rule and all arrestees i thought you were making a distinction between less serious offenders. >> we do apply to all the arrestees. the respondents in the prisons to draw a line as the major versus minor offenders. i think they do that because they think that people who commit more serious crimes might be inclined to greater criminality that our rule is one of reasonable suspicion. the question presented drawls the line because the class definition is only people who were arrested for minor -- >> is there reasonable suspicion

more easily met if it is someone detained for a serious felony? >> it is in the view of the courts that have considered this question -- >> then you are going on a case by case basis based on the offense to we estimate there is a categorical and that is adopted by these respondents by the bureau prisons and courts of appeal that says if you are arrested for a more serious offense, categorically there is a reasonable suspicion. our case by case ruled it's true applies with respect to minor offenders and that is the class -- >> how would this work with respect to individuals who have been arrested for serious offenses let's say someone has been arrested for assault. let's say is a case of domestic violence assault would that be enough to justify the search?

>> i think you have to ask. i know you want me to answer the question. let me be very clear. this is their rule. the respondents to all the major offensive line. the respondents of like a reasonable suspicion. >> i understand. you say you don't want to draw that line. you want to apply it to everybody in by asking you whether the mere fact that somebody has been arrested for a violent offense with in your judgment be sufficient to provide reasonable suspicion to read >> if the jail made that judgment we would think a court would overturn that. we think that illustrates a contrast when someone is arrested for not paying a fine there is no justification whatsoever because the logic of their own policy is that this is a person who is inclined to violence. >> but i take that what we are trying to do is protect the individual dignity of the detainee, but it seems to me that you risk compromising the individual dignity if you say we've reasonable suspicion as to you but not as to you.

you're just setting us up. for a classification that may be questioned at the time and will be seen as an affront based on the person's race, based on what he or she said with the developers coming in so it seems to me that your role in perils individual dignity and that in a way of the blanket rule does not. estimate a couple of points i think it is an incredibly important issue. they don't have a blanket rule. respondents apply the reasonable suspicion standards. if they are going to work for contraband the district of the persons now, look at their speed of the applied a reasonable suspicion standard. to your concern that maybe we are inviting discrimination or at least an appearance of discrimination, remember that their rule is going to produce more of that problem than ours because their rule is not that they have to strip search everyone for contraband but it is that they can.

they can make a choice. this court in the forthright, they say -- >> it is ultimately going to be our role. [laughter] >> first let me say i hope not. i hope it is that there has to be reasonable suspicion standard which is the rule that was applied almost everywhere in the wake -- >> to do what clacks you just said it's different from a strip search? so what is permitted? there are very vv to various things. one is showering in the presence of officers? >> showering in the presence of officers doesn't require reasonable suspicion. the course of uniformly concluded if you are just generally in an area in which you were being monitored by the officer that is not a fourth amendment search the fallujah leads a reasonable expectation of privacy. >> that you can be inspected without their clothes, just and

more than that? >> there are two different scenarios. one is a common room where everyone is standing enough for jail security purposes, a common room, common shower area and for security purposes this is different, justice ginsburg. you asked what is prohibited in the absence of reasonable suspicion. what is prohibited is standing 2 feet away from the person -- too i want to know what is permitted. >> what is permitted is what is not to the reasonable suspicion standard is anything other than looking at a close inspection of the person at arm's length. with the courts of appeal uniformly recognized in the lower federal court was what i think concern of the court in this effort case is when you were standing so close to the person inspecting their genitals, looking directly at their most private parts of their body that is a direct intrusion on their individual privacy. >> are you suggesting with of the three different levels stripping naked it's okay to stand 5 feet away but not

2 feet? >> i don't think the courts have to confront five seat versus 2 feet. but if confronted is the acknowledged jails are places that require security so if you are just observing a shower room that does not implicate -- >> so are you taking the position it is the purpose of the search that is at issue? >> it is the closeness. there is not a problem with the question of two, three, four, 5 feet. they are done the same way and that is the officer stance directly in front of you the testimony is 2 feet away it seems to be a common -- >> i'm still not sure. if it is okay to shower and have an officer watched you shower naked what is the greater intrusion that you are standing as opposed to 5 feet away? >> to versus ten or observing -- >> this doesn't make much sense to me. let's go to the next line which

is -- that's one kind of search. the second is i think what some have called a visual cavity search whether you are going to have the individual open or expose private parts. can you make an argument that that's different from just the visual search? >> you can. so let me just say -- let me try to close my answer to the question of the five versus 10 feet and then turn immediately to this body cavity search. remember the court will recall that this is a reprise of the argument in the stafford case where the schools argued that while there is an observation of the students in gym class the shower together naked, the undress and the court said it's quite a different when you are standing right there looking over the student. now, as that is what in the case before the end of the privacy and the distinction that makes sense. to your question, yes there is a material difference although we think that both should be covered by the rule. but a visual body cavity

inspection as occur in the facility here where you require somebody to bend over and cough which is what the testimony is in this case. >> one, not the other. >> that's correct. that the second jail had a slightly different search protocol in which the testimony is required to bend over and cough and expose his anus for inspection and the respondents regard that is a more significant intrusion and the of on a reasonable suspicion standard themselves to that. >> what you propose some states could adopt that kind of a protocol instead of with the half. what you are asserting is the fourth amendment prohibits them from adopting it, and the obstacle that i see is that the time the fourth amendment was adopted, this was standard practice. to strip search people who were admitted to prisons.

so how can it be deemed an unreasonable invasion of privacy when it was done all the time and nobody thought that it was unconstitutional? stomach we don't believe the premise is correct. if you read the history different than any i'm not going to be able to persuade you but our understanding is the history is the closest they can come is two things. first peoples troops searched, arrest and that is not the rule under the fourth amendment and that in certain jails at the time of the founding of their inmates in the process of evolution which is in on the merger will cleansing would strip search new inmates that have nothing to do with the jail officials themselves or to the amendment. >> that is somehow less of an intrusion on privacy to be naked in front of a whole bunch of inmates rather than one j-lo official inspecting? >> first, it wasn't the nearly uniform practice i think your question assumes and it's just a different kettle of fish entirely. we don't believe obviously that that is a historical lesson that obtains today that the prisoners

can strip search new inmates, new arrestees if they come in. i do agree on the basic premise of your question that it's our position can't just be that i've got a reasonable rule i do have to under the terms of the attorney for the turner established this is an exaggerated response that this is much more, materially more than is necessary to accomplish their goal. >> but the search of bell involved pretrial detainees? >> no, justice ginsburg we disagree with that. we think that there is no difference between the degree of intrusion here and in build there is another significant reason that not just in the nature of the search, but a big difference between this case is the inmates in that case made a voluntary choice. they decided to have the contact visit -- >> do we know if the detainees

in holmdel were also inspected on entry into the facility? >> we do not. i've tried everything i could to check the record of the case and there was no record of an admission strip search at the time. >> there is a distinction between the simple strip search and the visual body cavity search. you say that they apply reasonable suspicion standards to the visual body cavity search. so is the visual body cavity search their for off the table? >> no, it is not. we have contended that the fourth amendment prohibited the visual body cavity search at the facility. >> so you would say that they have to have a reasonable and particulate position before they could do that. >> we say that under the policy they should have but they didn't really feel the evidence about a conclusion of the jail about the reasonable suspicion is that the burlington county officer filled out a form saying there is no

reasonable suspicion and essex i don't think contends the there was reasonable suspicion to engage in a visual body cavity search. they deny it happened. >> so do you see a distinction between what they do and the written policy? >> i do with respect to the essex -- well, i apologize. no, what happens here is that essex -- after this search occurred, and this is described in the essex brief in opposition in case you want to look at it later at three and one -- essex after the search in this case changed its policy. we were denied an injunction going forward under a lease versus line, so it is just a question of damages for the surge that occurred at that time under the old policy. suppose the jurisdiction has the policy of requiring every inmate who is arrested and is going to be held in custody to disrobe and take a shower and apply medication for the prevention of the spread of slice and is

observed while this is taking place from some distance by the corrections officer let's say 10 feet away. does that require a reasonable suspicion? >> it does not. you're only concern is the searches that go further than that. >> that's right. it's a close inspection of the individuals genitals' which can occur absolutely so long as there is some middle all of all suspicion it's created. i do want to return to justice kennedy's concern of the dignitary interest and whether drawing -- >> can i follow on that. is there a disputed effect as to anything beyond that occurred in burlington county? >> in burlington county there is a dispute about the so-called genital left whether mr. mr. florence was required to lift his genitals or not. he was required to strip naked despite the officer having made a finding which is in page 390 in the appendix there was no reasonable suspicion to conduct

a strip search that is the only dispute. >> can you clarify to points for me? first is he to the general population at burlington? >> the record is not entirely clear. what the record says is that for the first few days -- remember he inexplicably was kept for six days. the first several he was kept in the cell with only one other inmate or possibly two and one time he had lunch with other people to beat in essex he was admitted to the general population. >> the prior charge against your client was the use of the deadly weapon. assuming the prisoner new this wouldn't provide a reasonable suspicion that you argue was missing? >> no because of the breadth of the phrase, the possession of a deadly weapon as illustrates the record shows the possession of the deadly weapon and that is why the charge was not pursued by the state is he was pulled

over a traffic stop and drove away to read some of your screen into your adversaries argument that what you're asking the police to do what intake with the corrections facility on intake is to investigate and devotees tell the can't even look at the rap sheet on the use of a deadly weapon and say he could be dangerous? >> no, justice sotomayor. with the rap sheet does show and we are perfectly fine with them looking at the rap sheet, it is in the joint appendix and says that a single charge he pleaded guilty and got a term of probation. there is nothing about the jail would have had any information stressing that he had some charge involving did deadly weapon and that is why they themselves certify that there was no reasonable -- >> was the rap sheet always available immediately? i thought it was rather common, correct me if i am wrong, based on the practice some years ago that it would take maybe 24 hours, 48 hours for the wiretap,

for the services to report he was wanted for questioning for a very serious crime in some other state cracks in my practice at least county jails were much more dangerous than penitentiaries because you don't know who these people are. an arrest them for traffic and they may be a serial killer. you don't know kristen it is not the view of the jail in this case. the applied a reasonable suspicion standard. they did not find any concern in their own policy neither does the marshall service, rac ebe. we have no prospect of an offense to read as to what the rule is and how common it is and whether this works in practice, the jail looked him up in the criminal justice system. they're required by the new jersey law to do that to read every single one of the jails has computer access to the new jersey and also the nci. they just taken his identified information and they were able to pull him up without any

difficulty and they have not complained that they didn't have enough information about him. they fill out a form saying there is no reasonable suspicion here. and remember, or will be offered rates and the system, justice kennedy in which the rule does have enough information. when our plate is this if the jail has the fact as it is here to affirmatively determined that there is no reasonable suspicion which is what they decided about mr. florence is an intrusion on the dignity and autonomy to strip them naked when they have no reason to do so. >> mike understanding of the statistics, and correct me if i'm wrong is to get about 70 new people going through the process each day. is their anything in the record about how much additional time would require to look at each one to look at their record to determine which category they should fall into to strip search or not as opposed to having a blanket rule? >> sure, there is because they do this already. it is not in the administrative

problem. the applied world today. remember mr. chief justice when he approved of the burlington county jail they did determine there is no reasonable suspicion to the gills in this case did pulp the prior, all industry and have no problem doing that. they apply the standard today and it is not a difficult one. >> do you acknowledge that when you have you may be stripped searched after the visit in the same kind of close examination that you object to hear. your explanation to that is that it is voluntary. >> i have -- >> that you don't have to have visitors. can you really condition you're having visitors on your waiver of your fourth amendment rights? >> yes it establishes you have no right whatsoever to have contact versus of course you can

say i voluntarily relinquish my fourth amendment rights in exchange for this privilege but i have a second -- >> you can condition certain privileges upon the waiver of the constitutional privileges? .. >> there was no evidence that smuggling came about as a result of these visits.

well, can i just read to you what the court said about that? the court had a different take, i think, and this is from page 559 of the court's opinion that there's been only one instance where an inmate was attempting to smuggle contraband, maybe more a testament to the technique of a deterrent to secret such items. when you have an unexpected arrest here, remember, he e showed the paper work he was not wanted for arrestings and that's true in traffic stops and the like. >> imagine -- i thought you were saying you always -- [inaudible] i imagine a case where a person's going to be arrested, put into the general population, there's a warrant for second degree murder, and the policeman arrests him because he knows

he's wanted in another place, and the jail has a policy that says when you come in here because of second degree murder, we strip search you. okay? they do that under your rule or not. that's all they know. >> yes. >> you are not saying it always has to be reasonable suspicion. >> it's just a debate where we think that is reasonable suspicion. >> oh, all right. that's not helping me. >> sorry. >> it helps me to know what the category of things is that the jail, in your opinion, is going to have to look a the characteristics of this individual person, and when i look at the aba, they talk about minor arrests, and when i look at some of the cases, there's a long list like violence, drugs, and so forth where you don't have to, where you can just use general fact that he was arrested. >> right, right. >> for the thing, but there's other than ones, minor ones 245 you do. what's your rule on that? >> our rile that we would accept is that with respect to minor

offenders, that's when you -- >> the next question which we'll get, who is a minor offender, and how do you administer that rule? >> that's a great question for them because that's their rule. they have a rule that says for minor offenders, you have to have -- >> you keep talking about what is their rule, but we want to know the limits of the rule, and i think you've already qualified what you said opening. opening you said reasonable suspicion is the rule for everyone. the felon as well as the minor offenders, and now you are saying, well, this case involves only minor offenders so let's limit it to that. that's what i thought you were saying now. >> yeah, that's right. because the case involves minor ompedders, we articulated a rule -- >> unfortunately, i'm asking you and not them. >> sure.

>> how do you want us to write this so jail personnel all over the country have to be able to follow it and know exactly what they're supposed to do? >> for three decades the rule articulated by the federal courts and applied without difficult is one that says for minor offenses. it was basically done at a felony versus misdemeanor line. the courts accepted that if you are suspected of a more serious offense than for administrative reasons because we think you're engaged in criminality, then you don't have to have any individualized inquiry whatsoever. >> i can understand that for cavity searches, but why for the search to see if the person has any flees or cooties or other disease before he's put into the general population? are felons like -- more likely to have those than non-felons? >> no, they are not.

>> it is just to be sure we have clean prisons? >> that is not correct. what the testimony in this case establishes is that the jail guards allow any sort of medical rationale for the search fb conducted by medical person them, not the guards themselves. they are examined by a nurse or the like, and they are responsible for -- >> and that's why the fourth amendment invasion of privacy line is to be drawn? if you're examined close up by someone with a medical degree, it's okay, and on the other hand, if it's someone without a medical degree, it's not okay? >> that is correct. >> that can't be the line as to whether your privacy is being invatted. >> it can be the line, and it is the line that's been accepted for decades. >> you would have to keep the person in custody, say for 24 to 48 hours until the medical personnel could do that?

24/7 medical personnel? you say every county jail in the united states has medical personnel on duty 24 hours a day ready to do a search? >> no, i apologize, justice kennedy. i'm telling you what's in the record in this case, and that is -- >> two feet is too close, but five feet is okay. are you sticking with that? >> justice breyer, a close inspection intended to examine the individual's genitals and whether it's two feet or four feet is no line. if i can make a point -- >> medical personnel, children in school get inspected for head lice, you don't need a doctor to do that. >> no, that's right, but if that is right -- what happens is that medical professionals are the people assigned that responsibility. that's the testimony in this case, so the only last point -- >> that's not constitutionally

required. >> i agree. >> so that's another thick that you don't need to -- they can inspect for body lice and that's okay? >> if that's what they're doing, that's okay, but the court itself said that because of the handling the prospect with shampoo, which is what the jails do, that that's not a sufficient justification to require the person to strip naked. the only other point i wanted to make is this is the rule, not just of ethics, but also of the u.s. marshall service that intakes inmates every year and the bureau of immigration justice enforcement -- >> but the government tells us that's true only if they don't put the arrestee in the general population. >> that's not correct. it's just the minor offenders of

a few thousand a year. for the marshall service with a combined 6,000 people a year, they don't have a housing time. if i could reserve my time -- >> we'll give you extra rebuttal time, but do you or do not you have an objection to the superseding policy? >> we -- if the -- we do because they still have to stand naked directly in front of the constructional officer under the superseding policy. what the policy is, which is burg -- burlington's pool sigh throughout this. they do not serge for contraband in the suspicion. both jails at the time of this search and now still require the person to strip naked, supposedly for contraband even though their policy says we won't engage in the depths of search that's requiredded. we won't at the anus or the person's mouth in the absence of

reasonable suspicion. >> that's the current policy? >> that's the current policy. >> you have no problem with that? >> i do -- >> i'm the reasonable suspicion of the body cavity search? >> that's correct. >> with regard to the strip search, your only objection is the guard is too close to the inmate? >> that's right. >> okay. thank you. >> mr. phillips? >> thank you, chief justice, and may it please the court. i appreciate your clarifications brought to the case. i want to clear it up, although my colleague's movement in terms of answering the questions left me perplexed what the nature of the claims are, but the first question that the court should focus on is what policy has an issue here. obviously, since the class certification deals with one set of issue and the plaintiffs

deals with another set of issues, you have to be careful and focus on the policies that existed in 2005. that was the basis on which he was, in fact, searched under the circumstances, and the policy in burlington was primarily aimed frankly at health and tattoos, and the policy at ethics was aimed at contraband and secondarily atta toos and health, and it was largely you come into prison, you give up your clothes, they look them them, you shower, they examine you, and then they give you prison garb, and you move along the way. >> the shower and look at you are those separate things or is it during the shower? >> [inaudible] >> it places significance on how close the examination is so under that policy, how close was the examination? >> almost certainly would have

about an arm's length because i mean, the problem is if you're exchanging clothes with somebody, handing them clothes to change into it, it's harder to be more than arm's length. >> he could reach out. >> two arm's length then. [laughter] >> that's not right. you can take the clothes off and put them in a bin. >> that's what they do in ethics. the difference is ethics does have -- the problem is term logical. you know, burlington is a body visual observation, and the district court says that's unconstitutional that just observing at all is unconstitutional. my friend here has begin up that part of the district court's decision which then clearly the court of appeals should reverse that part based on that firm alone. >> from more than two feet or less than two pete? >> that was not the district

court's theory. >> what happened? do we know? in two feet or not within two feet? >> well, it depends on whose version of it. remember the distribute court granted rejudgment in this case so you have to interpret and give us the benefit of the interpretation of which it was more than two feet, but the court of appeals reversed without regard to that because if you apply this decision it doesn't matter because you can engage in a much more intrusive true body covety search that's more intrusive than what ethics county asks in this case. not asked to bend over and have a body cavity annul service, but he was asked to squat and could have because that cowses on tray band to fall out. you can catch it under those circumstances. >> if i can understand your

position, mr. phillips, you think there's no reasonable suspicion even for that more intrusive body cavity search; is that right? >> that's correct. >> does it matter to you whether the person is being introduced into the general prison population, or would you say that if the person is not introduced into the general prison population, do you still think there's no reasonable suspicion requirement? >> from my perspective, even if they were not admitted into the general prison population because the risks remain too substantial, but the truth is i don't have to defend the argument because both jails admit their inmates, end of the general population, 99.9% of the time, so that's not a line we draw. >> would you say that regardless of the offense of which the person is arrested? there's been stories in the news recently about cities that have taken to arresting people for traffic citations.

suppose someone is arrested because they have a lot of tickets for being caught on speed cameras let's say. that person can be subjected to the searches that you're describing? >> yes, yes justice alito. the deference to the jails and the administrators of the jails requires this court respect their judgment that you can't make a distinction based on that specific individual whether you're a major a minor offender is not clear. >> aba is minor offenses, not drugs, not violence, and there you have to have reasonable suspicion. i read through the briefs, and i can't find a lot of

contrabanders that were caught in that category. in fact, my law clerk thinks it's one out of 64,000 or less, so what is the justification for a rule to avoid reasonable suspicion in that category? >> if you look at the expert testimony before the court and court in this case, both the expert testimony of the plaintiff and the expert testimony of the defendant, this is a 348a of the joint appendix, a greater presence of contraband among individuals with minor offenses. that's their expert's characterization. we said misdemeanors are more dangerous. >> we have a lot of practical experience because different states have different rules, and san fransisco came in with, i think, the toughest on your side, for your side. i just say looking through that,

it's very hard to find somebody in the minor offender category who really was found to have contra band, so what do i look at to show my initial reaction from the quick reading is wrong? >> well, i mean, bell where the court said the fact there is not a lot of contraband being found may be a testament to the effectiveness of the deterrent. >> so why don't we change the policy? in bell, we found the policy was successful even though there was searches, contraband still got in, so virtually every circuit in practice, the federal system, had been following this reasonable suspicion for minor crimes, and they have been fairly successful, so why do we change the constitutional rule to let them do more? >> well, i think -- i don't -- >> invade more. >> anybody who thinks the

problems of contraband are less serious today than they were in 1978 is ignoring reality. >> i understand contraband is serious, but most of the studies point to it not being on intake, but coming in through guards, through contact visits. the great cause today is that it's from corrupt correction officials. >> we can debate that, but it cements to me that the fundamental principle comes out of that line -- >> just in terms of your rule, your rule says you're not entitled to any right in prison -- and if the prisons decide on a manual search, every prisoner who comes in,

correction officers can check their cavities? >> no. >> so there is some privacy rules. >> i can be clear about this. it seems to me hudson versus palmer and the history of the 4th amendment clearly suggested there's no reasonable expectation of privacy being viewed naked in a prison, and therefore, the ordinary burlington approach of having somebody take a shower and looking at him or her naked for tattoos and health and incidental contraband clearly constitutional, clearly does not raise the 4th amendment issue. when you get beyond that point and start to begin the -- what ethics does which is not a true annul cavity search, i think it is subject to the turner -- >> we go back to justice alito's question. suspect one of the factors we

look at under the 4th amendment reasonableness, and should we be thinking about the fact many of the people being arrested are being put into general populations or into jails, sometimes not just overnight, but for longer periods of time, like this gentleman, for six days before he sees a magistrate. should we be considering a rule that basically says you're right to search someone depends on whether that individual was arrested for a crime that's going to lead to jail time or not? whether that person's been presented to a magistrate to see whether there is, in fact, probable cause for the arrest and detention of this individual? i mean, there is something unsettling about permitting the police to arrest people for things like kids for staying out

after curfew. >> justice, i think what is disturbing about this case is, in fact, the -- that he was arrested under circumstances in which he candidly shouldn't have been arrested as a matter of state law. i understand that, but i think the change the constitutional rule and to change the turner versus staff and bell versus wolf should be here which is these policies that apply across the board hipping on constitutional protections, but nevertheless represent the jailers. >> what are we doing with the presumption of innocence? that's also a constitutional right, and 10 shouldn't the -- so shouldn't the degree to which a search is permitted be conditioned in some way on whether or not this person has been presented to a magistrate? >> if you ask me, the way i'd analyze it, if you want to adopt

a different set of standard about who ought to be arrested and who ought to be taken to jail, that's fine. i understand that, but i think once you're talking about actually bringing someone into the jail to be admitted into the general population and what is, without question, one of the most dangerous, most risky environments, and in that context i hope this court rather than asking individual jailers to make decisions where they clearly don't have the affirmation you're asking them to make, and where if they judge wrong in either direction, all it means is litigation. >> i thought your friend said that's exactly what you do with respect to the visual body cavity search, reasonable, articulate suspicion under the new policy. >> that's what we do with a true anal body cavity search. we changed the policy for sure because of litigation concerns. >> now, i understand it with

respect to -- >> [inaudible] >> with respect to visual body cavity searches, you require a search individual reason; right? >> yes. >> okay. and you don't require that with respect to simple strip search? >> right. >> okay. so you agree with your friend the only thing it issues here is how close the guard is going to be to the individual who you have no reasonable suspicion to think is different than anybody else during a simple strip search? >> well -- >> he says two feet is too close, five feet, or whatever is okay. you want to go to two feet. you don't want him to have to stand back to six feet. that's all the case comes down to? >> well, you can characterize it that. i think the better way to think about it is what ethics wants, and what ethics policy permitted it to do was to examine the --

>> i'm not concerned what ethics policy committed to doing in the past. i'm looking at the new policy. under the new policy you have reasonable suspicion for everything except simple strip search and observation. >> well, see, that's the problem is that the language there is different because the truth is that the line that the new policy draws is between a true, what i think bell versus wolfish was explaning was to beeped over for a cavity search, on the real score, we don't do that, but if -- >> [inaudible] >> sorry, could i finish? >> we ask the individual to lift his genitals and squat and cough. >> okay, you do more than a simple strip search. >> right. slightly more. >> there is still an issue in

the case beyond the ordinary visual inspection, and that is this -- even though you have changed your policy now, the question remains whether that change in policy was constitutionally required so that when you treated the plaintiff in a different fashion under the old policy, that was a violation of the constitution. doesn't that question the case? >> that question remains the case. >> so there's the question. we have to consider both, the pure visual and also the inspection for contraband. >> right, and all -- the only point i've been trying to make here is if you look at the way the district court analyzes the case, they split it up and it's the class distinction versus -- >> is this record or common experience justify an argument that if you have the person who has the ticket, but that person's going to be in custody

for five or six days, that person might well prefer an constitution where everyone has been searched for he or she is put into the population with them. >> there's testimony says in order to ensure everybody's safety, we are better off with a blanket policy saying we're going to engage in some form of the search. ethics has a more intrusive one, but it's designed to ensure the same thing, not just to assure against contraband and designed to assure there's not somebody like mr. florence -- >> i count seven or eight states anyway with some variation of the reasonable suspicion rule like what they want, roughly. any evidence at all that in the seven or eight states there is more contraband being smuggled in? >> well, there is the testimony in the record from their expert who said that in kentucky, there

is today, the single biggest problem in kentucky prisons and biggest cause of death is drug overdose suggestioning there's a serious contraband issue in kentucky. wednesday is inside one of the -- kentucky is inside one of the circuits that's had a constitutional matter forever, so, yes, there's some evidence that you can say it's worse now than it was. i ask the courts to rely on its common sense and what it takes traditional notice in other cases which this is a serious problem, and no less a serious problem today than it was more than 30 years ago. >> are there any constitutional limits in your view? you say you didn't attempt the kind of search that was done in bell versus wolffish. any constitutional impediments?

>> no, the balance would tip in favor of the constitution under those circumstances. i do think -- obviously, there's a limit between a manual physical body cavity search, and that, it seems to me, yes, that's a different balance the equation, and i'm hard pressed to just convince five members of the court. >> you want us to write an opinion that applies to just squatting and coughing, is that it? >> well, you may want to write is slightly differently. [laughter] >> yeah. [laughter] >> what i'd like is an opinion that recognizes deference to the prison and their judgment and what's appropriate under the circumstances extends all the way to the bell versus wolffish line, and i want to analyze it in which the analysis of this is, you know, there's a an nexus

between the role of the prisons and preventing a problem, and the answer is yes, and there's reasonable alternatives, and there the answer is no. >> you're saying as long as the constitution is concerned, all of these searches are permissible. >> clearly all of ours are permissible, and i think that's exactly the holding of bell versus wolfish. it was not tied in the opinion itself to the fact that -- >> but they didn't assess there was a visitor who could give the inmate contraband. i asked whether we know where the pretrial detainees in new york were searched that way on entry, and he said there's nothing that shows one way or the other. >> right. i think that's correct. we don't know, and part of the

empirical problem in that is that facility's only been open for four months anyway, so it's difficult if you're going to adopt the policy they adopted and bell insist on empirical proof. >> one significant difference between bell and this case is in bell, there was a real opportunity for people to plan, conspire together to bring in contraband, but here's somebody's air forced on the spot, no opportunity for planning, for conspiracy with respect to contraband, is there? >> no, but the policy itself -- may i answer the question? it's aimed at all people, not just mr. florence, and if you aim at all people, there's people who self-report with an opportunity to bring in contraband, and people get arrested and have drugs on them, and rather than show them they will likely stick it in their pocket or put it somewhere else. thank you, your honor. >> thank you, counsel.

>> may it please the court, the searches in bell are similar to the issues in this case, and they should upheld. i want to start with justice kagan's question. it is true that visits in bell are different from a person coming into the jail for the first time and there's a greater opportunity for planning, but as one of the justices pointed out, there was less than opportunity to actually get contraband, the person coming in was going to be searched, the inmate was wearing a one piece zip up jumper and he was watched the entire time. the contraband situation in this case at intake, the person does have an opportunity even if they were not self-reporting, knowing they will be arrested, protesters, for example, who decided to get arrested, stopped by police, see the car, might have a gun in their car and i

think i'll put it on my person, put it somewhere not found in a pat down search, and then they have the contraband. going from the point of arrest to the general jail population is not a quick one of the the person goes to a metropolitan police department, that's what happens here and the person mixes there in a holding cell with other offenders. if this court, for example, adopted a rule saying that minor offenders would not be searched in a way others would, i have no doubt there's orchedders in those circumstances all on the bus together to go to the general jail population who gives this -- >> that's not the federal rule, and by the way, the brief was really confusing when i read page one, page one tells me that the blp policy requires all incoming detainees to be subject to visual body inspections, and

not until page 30 i learned there's an exception for the very category of arresting that we're talking about here, that they are not subject to body cavity inspections unless there's reasonable suspicion that they can see the contraband, the misdemeanor or civil contempt offender is not subject. >> i'm sorry if that was confusing. the bureau of prison's policy is a perp will not be put in the general population being allowed to mix with others unless he or she has undergone the strip search. >> yes, but i wanted to know how people this this category are treated 234 this federal system? you reversed it. >> the people -- >> those people are not subject to this visual body covety search. >> those people when they go into the jail are asked if they are willing to consent to the

search. most cases they do, if they don't, and there's not reasonable suspicion, they with kept separate from the other offenders. the rule that the third circuit identified is a policy anyone going into the general jail population and mix with everyone else has to be strip searched. >> i'm sorry, i'm sure i missed something. they are asked if they will consent to a body cavity search, but put into the general population, if not, you go someplace else? who concepts to that? [laughter] >> there's computer facilities and others you don't get in a cell by yourself. this arises very, very infrequently in the federal system we're talking fewer than 1% of the orchedders. the question before the court here is you have a blanket policy saying we have to strip search everyone. is that something that's

unreasonable in the way the court considered its normal deference to prison officials. >> i understand most of the general preposition your side is advancing, but i have to say i was somewhat surprised at the evidence, the amount of weapons' discovered in this literature was somewhat skimpy. i thought there would be a stronger showing than i found in the brief. >> well, there are not empirical studies of this information. it arises with incidents at a facility, incident reports written up, they are not published regularly, and there's not a lab study you can do. they try to do with it, sometimes it makes the news, and there's some things we reported, and i hate for the court to think there's not evidence of people committing minor offenders in the record bringing in serious things in the prisons and jails. there's footnote 15 in the government's brief talking about

people arrested for traffic offenses and smuggle crack pipes in body cavities. it's both sides cited by mr. phillips and i point the san fransisco case in pull. >> the issue has to be certainly some misdemeanor, some people charge with misdemeanor crimes, tries to smuggle things in. the issue is how many of them would not have been found on a reasonable suspicion standard. i think justice breyer said in the san fransisco study, it appears only one. >> i think that's a very hazardous things for courts to do with 20/20 hindsight. they can look become -- >> well, we don't have 20/20. we have 15 years since bill? prisons have been applying the republican suspicion standard, and the most you can muster under that standard is one example of the case where

someone has entered? at some point, empirical evidence has to mean something in terms of us judging the question of reasonableness. >> i agree with you, but the individuals doing the searches, that issue has very limited information about people. this is people coming into the system for the first time, had the most contact with the outside world, least amount of information about them. >> i don't know about today, but basing your judgments on your own personal experiences. when i was a prosecutor, it took sometimes days to get a rep sheet. i understand that's no longer the case today, that they are virtually almost accessible by computers today. >> that may be true, but it's not the information that the people who do intake and do the searches have, they do not have the information at their fininger tips and system. they have the name, date of birth, and the offense the person was charged with and nothing else. the question before the court, if i may, is whether there's

reason for the rule this court should defer to. there's several. you cannot say there's some minor offenders who don't pose a contraband risk. they are documented in the record. there's individuals making quick determinations. they have large numbers of of people to get through, into the general prison population. they have little time, and if they guess wrong, those mistakes can be deadly. the rule needs to be -- >> suppose we accept the petition, the concession it is permissible to require everybody who is arrested to disrobe and shower under the observation of the corrections officer from a certain distance, and now the question would become how many people who do that will still be able to smuggle in contraband? >> there's contraband found in cavities, and we've documented in this record and others that people do that, and that's not found until they do -- >> that's my problem.

i overstated the strength of your evidence. i was just trying to draw it out, or understated it. san fransisco's point is really the 30%-60% or a high percentage of people coming in for crimes are high on drugs and there's just that footnote really which is a few examples, definitely, they are there. in this category, would it be helpful 23 you included in the excluded part, people who are high on drugs? you see, so we give you the high on drugs people. it's the drug offense, and those who are high on drugs, and those -- i mean, is there a way of drawing the rule that you can catch most of the people >> >> i think the fundamental question for the court is who is doing the line drawing? you said in case after case after case you defer to the prison officials who see it every day. >> it's the simplest thing for any prison official is do it for everybody. >> that's -- >> the fact they do it for everybody and don't make some

exclusion for traffic violaters or something may be consistent with little or no evidence. >> there's good reasons to have a policy to do it for everyone. it's easy to administer when you have a lot of people and done for protection of the commissioners. >> so much sense to that policy, why isn't it the federal policy? before you said because there's not that many offenders. if there were more, would the federal policy change so that even people who are in on a come tempt charge -- >> yes, the federal government thinks that policy is a good one. they made a modification, but, again, this is done for everyone's protection, a point justice kennedy made -- >> i didn't understand. you think the feds thinks it's a good policy to inspect

everyone? >> yes, to inspect everyone who would be in the general jail population. that's what defend in this case because with a rule that treats everybody the same, there's no security gaps. it's the judgment of the court below. >> thank you, counsel. mr. goldstein take four minor offenders. -- minutes. >> thank you. the point that the united states consistently omits is that there are 600,000 offenders going into the federal system every year. i don't understand the claim this involves 1%. the marshall service has them not in sprit housing, but 600,000 people are expert to reasonable suspicion standard when admitted to jail. the second point, justice breyer, there is a significant empirical study and that is the

county of orange case, the district judge there did an unbelievably detailed job going through the record of 26,000 missions in the system and only identified a single instance where contraband would have gotten in. there's evidence in this case, and the evidence to my surprise that my friends keep pointing to, there's a memorandum from the ethics jail from 70a to 71a saying every year they admit 25, 175 people in the jail and only found 14 instances of contraband, and they don't make the claim those 14 instances from 25,000 would not have been found under the reasonable suspicion standard. there's evidence from this particular case. third, a couple of points made about whether justice breyer, you asked whether someone high on drugs, the uniform rule, and this is not just the aba, but

the expert standards of the correctional association, what they say is essentially almost anything will do. what will not mount suspicion is when you have a minor offender. there's 700,000 people in jail in the united states every year for misdemeanor offenses. this is a lot of people having a very significant intrusion on privacy, and the expert standards, when you have people that come 234 on a minor offense, no drug history, not high on drugs, no the opportunity to hide a weapon, i don't know where they think the gun will be hidden that's not showing up in the close manual pat down they do -- >> i don't think you are arguing for an individualized reasonable suspicion standard. i think you are arguing for a rule that draws distinctions based on categories that cor respond roughly to reasonable suspicion. >> well, first, there's real

categories that are over inclusive in favor of the jails. if it's a serious offense or there's drug hi history, and on top of that, if there's individualized basis, that we'll do as well. we are not saying people will be excluded from being searched, but there's categories that will be searchable. we are saying don't throw the baby out with the bath water. when somebody is pulled over, and it's laugh out loud funny to think he's smuggling into the jail, and it's too much of an intrusion, i'm going to look at your genitals e e posed to overseeing the challenge, there no objection, and there's a lot of them they represent anything like a threat of smuggling, and this is an intrusion on individual privatety and dignity. thank you. >> thank you, counsel. the case is submitted.

>> we continue our series about your money with albert tyke this morning, senior policy adviser for the advancement of science. the topic here is science, research, and development. first question for you. how much does the federal government spend on science, research, and development, and

what's the goal of that money? >> guest: it's about $150 billion a year, and we regard it as an investment really, billing for the future by developing knowledge in the whole range of areas, medical research, defense research, and environment, energy, basic research and physics. i could go on, but the point is to up vest in advancing -- invest in advancing knowledge for the future, and the government's been doing this on a fairly large scale since the end of the second world war. >> host: details here about fy2012 funding, they request about $140 billion, defense related $80 billion, and non-defense related, $60 billion. how spread across the federal government is this spending? >> guest: well, the fed's

related is mostly in the defense department. >> host: sure. >> guest: some of it is in the department of energy and their atomic energy program there that they are responsible for nuclear weapons research. the rest of it, the 60 or so billion you cited is concentrated in about a half dozen agencies, 95% of it is in the national institutes of health. that remits about half the -- represents about half the non-defense portion of the budget for research. other agencies that have large programs include the department of energy, nasa, national science foundation, department of agriculture, and the -- leave anybody out? i'm not sure, but anyway, it's about a half dozen agencies representing 95%. there's very important agencies

that have a smaller portion of environmental protection agency which is only a small percentage of the federal budget, but they do important research. the department of interior, department of veteran's affairs, research, and, again, when you look at the larger numbers, its budget is a relatively small piece. >> host: let me jump in and get the phone numbers on the screens for viewers to ask questions for our guest, mr. teich. what we're trying to do here is track the $140-$150 billion the government spends each year in research and development and defense leads the way at $80 billion. we'll learn how this money is used, what the return is, and we'll get the phone numbers onts screen so you can phone in with your questions and comments. this figure, albert teich, how

does that compare with other countries? >> guest: we have the largest research and development program in the world, the united states economy leads the world, but in proportion to the total gdp of the country, our spending is -- doesn't stand out as well, and we're 2.87% of spending, and that includes private sector spending with its own resources, and private sector spends twice as much as the federal government does on research and development. >> host: why does the federal government have to spend the money opposed to the private sector? >> guest: very good question. the federal government funds work in areas that represent public interests. well, first of all, take

defense. it's a major mission of the federal government. well, let me start in a slightly different tack. the -- some countries have what they call an research and development budget which fits all of these programs in one basket. the u.s. has its programs distributed among the various agencies that we just mentioned, and their programs support the missions of those agencies, so we do health research to support the improvement of the nation's health. we do agricultural research in the department of agriculture as a -- as a means of improving the nation's food supply. i could go op like that, but the point is that the government has certain missions, and in many cases, the most effective way to pursue those missions is to

accumulate new knowledge that can then be applied to the solution of the nation's problem, and that's what the government does. >> host: was going to ask what your sense was, the return on investment, if you can put it down that way, what would you see? what would we know about based on this money? >> guest: some examples. >> host: sure. >> guest: the, oh, everybody's favorite example is google. google arose out of some work that was being done, funded by the national science found dation with about a $4.5 billion grant, two graduate students in staff ford were working on a grant for digital libraries. they were doing work that was developing a means of searching for data, and they came up with

a method of the page rank meth, the basic method on which google operates. this eventually turned into -- they had a new search engine, and, well, you know the story. google is now $150 billion company employing 20,000 or more people, and this all came out of a small part of a $4.5 million grant given to the university on which these students were funded. there's a wonderful example right there of a huge return on a relatively small investment. i mean, vaccines are another area where federal government put some money into, a little harder to quantity my the economic benefits, but, you know, polio vaccine, west nile virus, sars, h1n1 virus was

developed with the government support within four months. >> host: with that background, let's get the calls in. chuck, independent, you're up first. good morning, chuck. >> caller: good morning. wondering what your guest feels about the future of liquid nuclear reactors based on the fuel cycle and the nuke -- numerous advantages it offers and gets rid of the current bad stuff, thinking of nuclear waste here, and it can't melt down and all these advantages going for it, and it's one of the few things senator hatch and reid agree on. they should be doing more research on it, and i think the funding stalled. what does the guest feel? >> guest: yeah, that's not an area in which i can really come at with any degree of

expertise. the program is sponsored by the department of energy. it's got lots of priorities, nuclear is one of them. this is one method of generating electricity from nuclear energy. it may very well be an excellent method, but honestly, this is one of my colleagues that likes to say is above any salary level. >> host: glen, democrat, good morning. >> caller: good morning, and thank you for taking my call. >> host: sure. >> caller: i was wondering if the guest could comment about the national ignition project going on out at lawrence livermore having to do with fusion and how that might play into our national, future national energy policy and generation of electrical power. >> host: what do you know about it, caller? >> caller: i know that it was

supposed to be switched on and have a -- and cast about a year ago, and that it was tested successfully for a short period of time. >> host: albert teich? >> guest: then what happened? >> caller: well, i believe an industrial model of this laser system has been designed using fewer lasers than the model, the research model that's now in use out at the lab using far fewer lasers. i believe the industrial model has been paired down to about 12. >> guest: well, that's a, you know, a very interesting technology. if it's going to be

commercialized, it's got to be taken over by industrial firms. the department of energy only can take it so far. i don't know what the current status of that program is, but when i followed it in an earlier stage, it seemed like a promising approach, although the problem with fusion research in general is that it is -- well, very expensive. the facility of the national ignition facility out in california's extremely expensive investment, and it's got to prove its worth. >> host: what can you say, albert teich in approaches between the bush administration and obama administration in terms of science, research, and development funding? >> guest: well, the interesting thing is support for research in this country has been pretty much a bipartisan phenomena for a very long time.

both republicans and democrats recognize the importance of the investment. that's true now despite the relatively high level of partnership that one sees in the campaign and in congress. the bush administration, i think, put more emphasis on defense research among other things. they did -- they were quite up to government research programs, and the obama administration has included about, i think it was $30 billion of the stimulus to fund research in energy, medical research, other areas in basic research. overall, the major difference is probably the level of investment in the interest of the obama

administration in alternative energy and climate research as an area which is something that the bush administration tended to steer away from. >> host: hearing from terry from michigan, republican. good morning. >> caller: hi, sir. you know what always bothers me is whenever anything that the government does, you know, the cost is tripled. i just wondered why they can't get more control on the money they spend? they talk about $140 billion here, and it always bothers me that they don't have more control. >> host: when you say "control" -- >> caller: 80 cries they have -- >> host: when you say "control," are you saying spend less? >> caller: no, what i mean is they just -- whatever they spend, it always costs, you know, triple of what it should,

and i just wonder, you know, why they don't have more control on their spending. >> host: i guess he's talking about the cost of action -- >> guest: you're thinking probably of some of the large projects like the web space telescope. there's a tendency in these large projects for the cost to go up partly because of inflation as a program develops. it takes a period of years, and because the materials that go into it, the salaries of people, all of the things that you need increase in price, and it's a little hard to forecast those increases, and then you run into these unexpected problems that require, you know, that you go back and start over with a certain part of the device or

the experiment or the technology, and it's, yeah, the costs do add up, but what you see primarily in the news media, reports on these large expensive projects, but the average researcher and the research that's funded, say, by the national science foundation in universities, in most cases -- and the national institutes of health in the medical colleges -- those research projects are well-controlled. in fact, the reporting systems for controlling costs and they are making sure that regulations are followed and some of them are quite strine gent. >> host: meant to ask you the different between applied research -- >> leaving the last couple minutes of the washington journal to go live now to the u.s. capitol. the senate is about to gavel in for the day and will be in morning business until about

4:30 and then turning to debate for judicial nomination for the 5th circuit and vote at 5:30. they are finishing up discussion on the so-called minibus. live coverage of the senate live now on c-span2. the presiding officer: the senate will come to order. the chaplain dr. barry black will lead the senate in prayer. the chaplain: let us pray. creator and sustainer of our world, every good and perfect gift comes from you.

give our lawmakers the wisdom to use your generous gifts for the glory of your name. may this proper use of your bounty provide them with the knowledge they need to solve the problems of our time, as they remember that without you, they can do nothing. as you have blessed us in the past we trust you for our future. give all who labor for freedom a deeper insight and loftier courage that will empower them to work for the coming day of

your kingdom. we pray in your sacred name. amen. the presiding officer: please join me in reciting the pledge of allegiance to the flag. i pledge allegiance to the flag of the united states of america, and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the presiding officer: the clerk will read a communication to the senate. the clerk: washington, d.c., october 31, 2011. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable christopher coons, a senator from the state of delaware, to perform the duties of the chair. signed: daniel k. inouye, president pro tempore.

the presiding officer: the majority leader. . mr. reid: be granted floor privileges for the duration of today's session of the senate. the presiding officer: without objection, so ordered. mr. reid: following lead refresh remarks the it? will be in a period of morning business until 4:30 today. at 4:30 the senate will proceed to executive session to consider the nomination of stephen higginson to be united states district judge for the fifth circuit. at 5:30 there will be a roll call vote on the von firmation of stephen higginson. today i join millions of nevadans in commemoratingthe day 147 years ago that nevada joined the union. granted statehood during the bitter years of the civil war in

1864 our mettle was tested from the very beginning. today our state is once again tested. too many nevadans are out of work, upped water in their homes and this is during these rough times, it's all over the state of nevada. but i know by facing our challenges together, we'll once again demonstrate the collective strength that comes from our state's motto, "battle born." mr. president, this chart here appeared in last week's "new yorker" magazine. i think it's pretty evident what it shows. i've got mine, change mange, leave well enough alone, keep things precisely as they are, i'm good, thanks. an the pictures portrayed here of course are obviously caricatures of very rich people. top hats, vests, cigars, but,

mr. president, for me, this does not portray people who are as rich as much as what's going on with our republican colleagues. we know all that's been said about the 1%, how well they're doing. sea bill reported last week in the last 25 years their percentage of the wealth in america has gone up almost 300%. so there will be a lot of attention focused on the rich as it should be. but also, mr. president, i think it should be directed to the republicans here in the senate. not to republicans around the country, but in the senate. because republicans around the country don't agree.

they don't agree things are just fine. they don't agree that we should leave well enough alone. they don't agree that just because what's going on with the rich that things are okay precisely the way they are. the vast majority of americans disfree with that. mr. president, could the staff keep their voice down? it's really distracting. please talk so i don't have to listen to you, please. okay? mr. president, it's true that for a few lucky americans, things in this country are going just fine. the haves have never had more. and my colleagues in the republican party here in the senate are singularly focused on making sure it stays that way. everything on this chart applies

to what's happened here in the senate the last 10, 11 months. a gap between the haves and have-notes has never been bigger and the middle class is falling farther and farther behind. that's why while republicans advocate for millionaires and billionaires, democrats are looking out for working americans. we've not forgotten that 14 million people stirl out of work, or that millions more are struggling to make ends meet. we've not stopped fighting to create good-paying american jobs. that's why democrats will introduce the rebuild american jobs act tonight. legislation that will create hundreds of thousands of jobs by investing in our crumbling infrastructure. it would putmen men and women across this country to work, for example upgrading 150,000 miles of our highways and roads. laying 4,000 miles of train tracks. restoring 150 miles of airport

runways. and installing a modern air traffic control system that no longer relies on world war ii era technology. of course we'll reduce travel time and delays. since the economic downturn began, more than two million construction workers have lost their jobs, two million. that's happened, mr. president, all over the country. this legislation will send hundreds of thousands of those workers back to would be jiets to build $27 billion worth of roads, bridges, and other important aspects of our infrastructure. the plan would fund $250 million worth of projects in my state. and millions and millions of dollars in the state of delaware. where the deficit reduction industry in delaware and the united states, every state in the union, but especially nevada, it would support about 3,300 badly needed jobs in nevada. overall the rebuild america jobs act would invest $50 billion,

taking our citizens off the unemployment rolls, putting them back to work and ensuring our nation has topnotch infrastructure once between again. it will invest $10 billion to create a infrastructure bank to fund a wide range of long delayed projects and will do all this without adding a penny to the deficit. instead it would require millionaires and billionaires to contribute their fair share. incomes netting over a million dollars, they would be asked to pay a surcharge of less than 1%, .7% to be exact. to get this nation's economy back on track. americans overwhelmingly support democrats' plan to invest in roadways, runways, railways, 72% of the american people agree. mr. president, i don't know if i've been to jonesboro, arkansas.

i don't know. i've had a number of times i've been there, i had a case that took me quite a bit all over the state on one occasion. but a man in jonesboro, arkansas is quoted in "time" magazine, last week's "time" magazine, the return of the silent majority. i believe that drew ramy qualifies for that. this is what he told "time" magazine. i used to think i was a libertarian. but i like my roads now. eye like my public services. drew ramie, i used to think i was a libertarian, but i like my roads now, i like my public services. that says it all, mr. president. this is drew ramy of jonesboro, arkansas but he speaks for millions and millions of americans. americans of all political persuasions, even 54% of

republicans believe a world-class economy should have world-class roads and bridges. they agree with what we trying to do. the u.s. chamber of commerce and labor unions, afghanistan afghanistan so so rarely -- alf/cio rarely agree on anything but they agree on this. we should improve the he wouldful state of america's infrastructure. it's not only labor and business groups, it's transit officials, mayors and 3/4 of the american people, actually 76%, mr. president. senate republicans have supported big aspects of this in the past. i could quote a dozen of my senate republican colleagues who have spoken out in supporting the infrastructure investments. one very recently. so why aren't they lining up to support our proposal today? two basic reasons. one, republicans are determined to see president obama fail, even if it means americans fail

with him. sad but true. my colleague, the republican leader, has said his number-one goal in this congress is to defeat president obama. they would rather see the americans that are struggling so hard to find work than work together. they would rather see the americans continue to struggle as i've outlined how many people are struggle, they would rather do that than work together with the president and with us. second, republicans are more concerned with protecting millionaires and billionaires. than they are willing to work with us in putting 1 million people back to -- 14 million people back to work. i heard on the radio this morning, the national broadcasting system, public radio, that during the bush years we lost 8.6 million jobs.

we've only gotten a little over two million of those back. but -- about two and a half million, frankly. it wasn't long ago that a president was in office for eight years could boast if he wanted to do that, about creating 23 million jobs. that's what republicans have given us. they refuse to ask to rich to contribute a tiny fraction more to secure our economic future, even if it costs more jobs. in recent days republicans showed new interest in the gulf between rich and poor that has moat slated thousands to occupy parks across the country and make their voices heard. apparently they believe the staggering income inequality makes a good talking point. while democrats fight for jobs for the middle class republicans fight for tax breaks for the 1% of americans who don't need our help.

i'll bet if you could ask these very, very rich people would you be willing to give .7% more to create millions of jobs, i think most of them would say yes. where are my republican colleagues supporting this simple commonsense legislation? so i say to my republican colleagues, i would hope that they would move here and work with us. we want to work with them. if we can do something good, mr. president, there's a lot of goodwill to go around. but we have to make sure that the speeches we've heard from some of our colleagues about creating jobs really amounts to doing -- doing something about it. because we haven't seen it yet. would the chair announce the businessor the today. the presiding officer: under the previous order the leadership time is reserved and under the previous order there will be a

period of morning business until 4:30 p.m. with senators permitted to speak therein for up to ten minutes each.

mr. inouye: mr. president? the presiding officer: the senator from hawaii. mr. inouye: mr. president, i -- mr. akaka: mr. president? the presiding officer: the senator from hawaii. mr. akaka: mr. president, i rise today to introduce the stand against violence and empower native women, save native women

act. i would like to thank the quoa sponsors of my -- the cosponsors of my bill, my good friends, senators inouye, murray, udall of new mexico, begich, franken, johnson of south dakota, baucus, tester, and bingaman. mr. president, native women across the country suffer from severe threats to their safety. according to a safety study by the department of justice, two in five girls and women in native communities will suffer domestic violence, and one in three will be sexually assaulted in their lifetime.

can you imagine looking through the loving eyes of your daughter, sister or mother and know that one of them will probably be abused in their lifetime? this is the terrible reality of life for native women and their families across the country. it is an epidemic. it is unacceptable. and we must stand against it. this is why i'm introducing the save native women act. most of those who commit these terrible crimes against native women are not native themselves. yet currently tribes have no ability -- no ability -- to

prosecute nonnatives for domestic violence and sexual assault in their own communiti communities. this has resulted in a sense of lawlessness and leaves native women with few places to turn. my bill strengthens tribal jurisdiction over domestic violence and sexual assault so that all offenders, native and nonnative, can be brought to justice. my bill also strengthens existing programs that support native victims of domestic violence and sexual assault. in many communities, these programs offer only safety and support available for native women and yet these programs are

greatly strained. this bill provides programs with more flexibility and tools to address their most critical needs. finally, my bill addresses the disturbing trend of sense trafficking in many native communities. i have included provisions that improve data gathering and strengthen programs to better understand and respond to sex trafficking of native women. i have worked closely with tribes, tribal organizations and federal agencies to develop this bill. we should not let the next generation of young native women grow up as their mothers have in unbearable situations that

threaten their security, stability and even their lives. so i urge you to join me and my cosponsors to stand against violence and support passage of the save native women act. mr. president, i ask unanimous consent that the text of my bill be printed in the record. the presiding officer: without objection. mr. akaka: i yield the time. thank you. mr. mcconnell: mr. president?

the presiding officer: the republican leader. mr. mcconnell: it's no secret congress isn't winning any popularity contests these days. americans are fed up with law makers who are either focused on the wrong thing or determined to block any serious reforms that would actually get at the root of the problems that we face. and that's why republicans have been focused not only on legislation that we think has a good chance of jump starting private-sector job creation in this country but which also has a good shot at actually becoming law. put another way, since taking back the majority this year, republicans in the house of representatives have focused not only on legislation that avoids the economic missteps of the previous 2 1/2 years of democratic control but which also has a good shot of making it through a democratic-led senate. you'd never know it from listening to the president, but there's actually been a significant amount of bipartisan work that's been going on on capitol hill these days.

house republicans have passed bill after bill, many of them with solid bipartisan support, which would help spur private-sector job creation and would help get this economy moving again. but the democrats wh who've rune senate for the past five years have ignored virtually all of it. senate democrats have decided it isn't in the interest of their party for congress to get anything done right now. they've adopted a strict strategy of inaction. they simply won't take "yes" for an answer. so the contrast between republicans who run the house and democrats who run the senate couldn't be starker. since taking over the house this year, house republicans have searched for areas of common ground and then invited democrats who run the senate to take them up, pass them and send them on down to the president for a signature. and almost every single time, senate democrats have said no. house republicans now count more than 15 pieces of legislation

that would help us chart a very different path from the one the president and his democratic-controlled congress have charted over the past few years. this is legislation that would unlock america's energy resources, cut back on excessive regulations that are holding back job creation, and enable businesses like boeing to make their own decisions about how and where to expand. just last week, the house passed a bill to get rid of an i.r.s. withholding tax on businesses that do work for the government. more than 400 members of the house voted for this bill, including 170 democrats. here's how one prominent democrat described this bill. the repeal of this requirement, he said, "will free up small business cash flow, increasing their ability to add jobs and to bid on new projects."

republicans support this legislation. democrats support this legislation. the president included this legislation in his own jobs bill and he supports the bill that passed the house last week. there's no reason the senate shouldn't take it up right now. this is one small thing we can do right now to reduce the burden on employers across the country. we came together to help them earlier this month by passing free trade bills. let's build on that success and pass this bill that job creators are selling us will help protect and create jobs. like senate democrats, the president may think he benefits from the appearance of inaction in congress. that's why he's running around the country reminding people how bad the economy is instead of urging democrats who run the senate to work with republicans who run the house. but, mr. president, with all due respect, the american people

already know the economy's in bad shape. that's not news to anybody. they don't need the president to tell them that. they live it. what they need is for the president to get his party to agree to something that helps. i know that democrats will argue that our proposals for job creation wouldn't be their first choice. my response is that the democrats had three years to do something about jobs and the economy. the president's signature jobs bill costs nearly a trillion dollars. two and a half years later, there are 1.5 million fewer jobs in this country than on the day that legislation was signed. so why don't we try a different approach? let's try an approach that actually takes into account the concerns of the struggling business owners who are ultimately going to lift us out of this jobs crisis. they've told us what they want. it's not a mystery what we need to do to help these folks create jobs. temporary fixes and more

stimulus bills isn't it. so our message is this. the democrats in washington need to start taking "yes" for an answer. republicans have put forward more than a dozen concrete proposals to spur job creation in this country that avoid the economic mistakes the democrats made over the past few years. we've done the hard work of legislating and looking for areas where the parties overlap on the issues. it's time for the president to signal to democrats in congress it's okay to work with us. everyone knows the economy's in bad shape. what republicans are saying is that higher taxes and more government spending isn't the way to help it. everyone knows the federal government in washington is spending way too much money, money it doesn't have. what republicans are saying is the solution isn't to spend even more. everyone knows that if the two parties are going to come together and act, you need to design legislation that appeals to both sides.

and that's exactly what republicans are doing. so it's time to put the political playbook aside and actually take action. republicans in the house are doing their job. it's time for the president and senate democrats to do theirs. mr. president, i yield the floor. mr. sessions: mr. president? the presiding officer: the senator from alabama. mr. sessions: i thank the republican leader for his comments and would just say that the time that we can borrow to -- from the future to spend today to create some sort of sugar high to create jobs has

passed. we've tried that. the debt has now reached a level that the debt itself is a threat to our economy. it's a cloud over our economy. it is slowing the growth and job creation that we need to move out of the difficult financial times that we're in. i truly believe that. i think the debt itself now is a threat to us. so i want to speak, mr. president, about the mini-bus appropriations bill that's before us, its effect on the budget that we have and that's before the body. as the ranking republican on the budget committee, i do believe it's my committee to present, as i am able, a straightforward, honest figures about the spending bills that come before our senate. h.r. 2112 is the first of several mini-bus bills that

apparently will be used in lieu of the normal appropriations process. this mini-bus is so named because it contains three appropriation bills put in one, not one as we normally see before the senate. the agriculture bill, commerce-justice-science, and the transportation and housing bill all cobbled together in one. the democratic majority contends that this package will save taxpayers money, but this is just more washington accounting. we've crunched the numbers and discovered that these bills will not cut spending but will actually increase spending by $10 billion over last year. so i'd like to take a moment to explain, because it is very, very important. we had an agreement that we would begin the most

simultaneouslsmallest ofreductit nearly enough -- but we reached that agreement, and we should honor that at least. so this is the first appropriations bill the senate has considered after discretionary spending caps were established as part of the recent debt limit negotiations. the budget control act, which you remember was passed to raise the debt ceiling, and as exchange for agreeing to raise the debt ceiling, as president obama asked, congress insisted that there be some curtailment of spending. so we wouldn't hit the debt ceiling again so soon. so the budget creel act, as the bill was pretentiously named in august -- requires that discretionary spending be brought down this year from $

$1,050,000,000,000 to $1,043,000,000,000 in fiscal year 2012. an alleged total spending reduction of a paltry $7 billion over -- throughout the entire year. presumably the other $6 billion that was required to be saved under this agreement will be saved in other bills that come before the congress. presumably. we haven't seen them yet. so does the bill, that's before us, move us toward even this minor goal? that's the question. the majority party says it does. they contend that the bill, the mini bus, spends $128 billion, which is $1 billion less than last year when it was $129 billion. a reduction of less than 10%. they're very proud of this.

but, remember -- just remember, as an aside, that non-defense discretionary spending alone in the first two years of president obama's presidency went up 24%. so to take a $1 billion reduction is basically to hold in place this surge in spending at a time when this nation has never, ever faced such a severe debt threat to its future. and let's think -- going through the bill and thinking it through, the budget control act also created a new category of spending placed in the budget control act. if you remember, cobbled together in the dead of night, brought up on the floor on the eve of a financial crisis and demanding that it be passed and

hardly anyone had a chance to read it. unknown to most of us it allowed spending above the $1,043,000,000,000 limit. the debt limit deal provided for an allowance for disaster spending equal to the average of the 10 prior years of disaster spending. which can be assessed or spent simply by providing the proper words in the appropriations bills that come forward across the floor, as these three do. but, the majority contends that this money should magically not be counted when you decide how much is spent by the bill. why? well, it's a disaster, and disaster spending doesn't count; you don't know? as amended on the senate floor two weeks ago, the bill contains

now $3.2 billion in new spending above the caps for disaster relief, a further increase of 20% to the disaster assistance. two additional amendments were adopted just last week adding to the amount that the committees had produced as disaster assistance. and while there are arguments that the $3.2 billion should not be counted as an expenditure, you could argue that, the c.b.o. -- the congressional budget office, our official scorekeep scorekeeper -- includes it as an expenditure. it is included as an expenditure in the c.b.o. score. $3.2 billion. no one has challenged them because it appears they are plainly correct to count the $2.2 billion as spending.

only in washington can it be asserted that the government can spend $3.2 billion and it not count. the bill's sponsors contend that the discretionary spending portion of the bill, as i indicated, has gone down from $129 billion to $128 billion. but c.b.o. says it went up to $131 billion. the disaster funding represents a 2% discretionary increase at a time when spending is supposed to be going down. further, the bill's sponsors say you should not count the mandatory spending in it. mandatory programs that are contained in the bill. they insist that mandatory spending is not under the control of the appropriators. again, this is logic that only exists in washington. in truth, it's not unusual for

the appropriations committee to take actions that impact mandatory programs, and it can be done. but, of course, it was not in this bill. for example, food stamps, the largest mandatory program by far in this bill -- actually, it's larger than any other program in the whole bill; it amounts to 75% of total agriculture appropriations spending, 75%. most people think agriculture programs are bailing out farmers. those benefits to the farmers have been reduced steadily over the years. now 75% of the agriculture bill is a mandatory program, food stamps being the largest. and this program under the legislation that's before us today is set to increase by 14%

next year, $10 billion more than just last year. a $10 billion increase in the food stamp program. tbhaw doesn't count -- but that doesn't count, it's contended. this spending increase results in a doubling of the food stamp budget over the past three years -- doubling the budget in three years. and a quadrupling of it -- four times -- over the last ten years. we have golt t got to look undee hood of this program and find out what's happening to it. but nothing is seriously being done. like welfare reform. responsible changes to the way the government operates this program will improve outcomes, help more needy people achieve the goal of financial

independence -- not dependence -- and stop fraud. which most americans know is pretty common in the food stamp program. now, when i offered an amendment to save a modest $10 billion over the next ten years, a reform that would not have reduced eligibility for any of the needy but only require siments -- that the recipients s meet the minimum requirements of the program -- actually be needy -- and qualify for the program by reducing fraud and abuse, the amendment was defeated. right here on the floor of the senate, we saved $10 billion, according to the congressional budget office, by making sure that people make actual formal applications for their food stamps and sign a document saying that they actually qualify for it. is that too much to ask? senator stabenow, the

agriculture authorizing committee chair, rose to explain that we're not to worry because, while we're increasing food stamp funding now a, at some tie her committee will recommend a bill that will decrease by $23 billion. but if that were to be fulfilled, the effect on the fiscal -- fy2012 budget would be that food stamp program would have a 10% increase rather than a 14% increase. the program has indeed doubled since 2008. but now we're hearing in reports that this $23 billion in spaisks is not even in the food stamp

program, or most of it is not. we're hearing that 19% of it is a further reduction of aid to farmers and only $4 billion of the reduction in savings would be from food stamps. so here's the bottom line: when discretionary and mandatory spending are scored in this bill, the overall spending compared to last year went up by $10 billion or 4% increase, not a cut. relative to the amounts senators approved for these three bills last year, we're being asked to increase spending, not decrease spending. i believe that's fai a fair and honest analysis of the bill that's before us. and if you were to exclude the mandatory spending, just ignore that huge increase in the food

stamp prarnlg th program, the s, and even say that disaster assistance should be ignored, the reduction would be a paltry th 1 billion. so it is time to get serious. denial in this congress must end. you can't borrow your way out of debt. we are spending money we do not have. 40 cents of every dollar we spend is borrowed. -- on which we pay interest every year. it is digging us deeper in a hole. it just cannot be contended that this is serious work toward reducing our deficit. it just cannot be. our deficit in fiscal year 2011 -- last year, just sende just sd

september 30, was just should i of 1,300,000,000,000. a spending cut of $7 billion for this year is a mere pittance in comparison. in no way is it even close to a significant reduction of the projected deficit we're going to have in this fiscal year, which began october 1. we're now at halloween. we still haven't passed the appropriations bill for the year we're in. congress is not performing responsibly. it just is not. we haven't had a budget p i budr 900 days. the majority leader, senator reid, said it would be foolish to have a budget. no wonder the american people are unhappy with us. how can this be? we are responsible people. we're proposing to spend next

year $1,043,000,000,000 and act as if we're proud to have reduced the spending by $7 3w- y $7 billion when we're have over $1 trillion-plus in debt next year. the bill also contains a number of washington accounting tricks to sweep new spending under the rug. it's full of the typical gimmicks used to shove more spending into a bill that's already reached its spending limit. we've reached our limit. i remain amazed at the creativity used by spending to defeat budget limits. would that they would use such creativity to control spending? would we not be so much better off? i've already talked about the new authority granted by the budget control act to designate

an item as a disaster, outside and above the budget. it doesn't count if you call it disaster, and to spend the money without a formal vote by the senate to declare it a disaster. indeed, until the budget control act passed, you had to have 60 votes to declare something a disaster, to go above the budget. that's been eliminated. that was changed in this budget control act that reduced control over budget. it reduced the power of the budget to contain spending by eliminating this end run, at least used to have to have 60 votes to spend above the budget, by calling it a disaster. now you don't. when they first floated this idea that they were going to put disaster spending in the bill

and in the budget, it was going to be averaged out what we normally spend, i thought that was a good idea. that, well, we know on average we've been spending this much for disasters. let's put it in the budget and only have 60 votes, and only spend above that if it met that standard that we traditionally had. the idea was to arrange the amount of disaster spending and put it in the budget. but in the shell game -- that's washington -- that is not what the fine print did. the budget control act establishes in effect now a slush fund to spend money above the budget limits, eliminating the 60-vote requirement for emergency designation. there is $3.2 billion in spending under this new authority that's in this bill,

the first of the multiple mini buses we'll see. at the rate we're going the spending of $11.3 billion for disaster established under the budget control act will be exhausted and more emergency spending will be needed to further address legitimate disaster needs. but there will be no need for 60 votes to do so. that vote has been eliminated. in addition, the bill uses another gimmick to rescind discretionary appropriations provided in prior years that for one reason or another can no longer be spent for their intended purposes. that is the bill rescinds budget authority that c.b.o. estimates will not result in any cash savings over the next ten years. rather than letting the appropriations lapse and saving this money and being thankful we got the project done at less

than normal, less than the projected cost, this bill, as has been done before, pretends to be responsible and rescinds that money which is then used to pay for the spending that will in fact result in cash expenditures from the treasury. so this one gimmick in this bill would add $131 million in off-the-book spending. finally, the bill finds savings in mandatory programs that game the government's cash flow and score as savings for this bill, but don't actually reduce the cost to the taxpayers. these so-called changes in

mandatory program spending, chimps, total $8.5 billion in this bill. of that amount an astonishing 88% or $7.5 billion result in no net spending reduction over ten years. some of these chimps having going on year after year. one example is the crime victims fund. every year congress says that the crime victims will get the funds they are due under the law next year, which, unfortunately for the crime victims fund, has not yet arrived since the annual deferral began in fiscal year 2000. in other words, it's done every year. and there seems to be no prospect that this raid will continue. meanwhile, appropriators get to spend the amount deferred over and over again enabling ever higher amounts of discretionary spending. it would be like a family

delaying a single $500 home repair for ten years and then counting it as $5,000 in savings, $500 every year the repair didn't take place. in this case, over the past three years the gimmick used in this bill has enabled $14 billion in higher spending. the presiding officer: the senator is informed we're in a period of morning business for t-plts allotted per -- ten minutes allotted per senator has -- mr. sessions: i ask for one additional minute to close up. the presiding officer: without objection. mr. sessions: i'm unable to support this bill by its own standards, it fails. it represents everything that's wrong with washington today. it crams three bills into one that should have been considered individually, creating a process that curtails debate on spending at a time when we need more debate, not less. further, it does virtually

nothing to address the fiscal crisis threatening this country. it treats spending caps established earlier this summer as the most that can be saved, not as the starting point for saving, and then uses gimmicks to spend over and above that advertised limit. it's not a serious response to the explosive growth in federal spending. it falls short of the commitment we must make to handle the taxpayers' dollars honestly and responsibly. it's business as usual. the american people deserve better. i thank the chair and yield the floor. ms. klobuchar: mr. president? the presiding officer: the senator from minnesota. ms. klobuchar: i rise today to talk about a serious public health crisis facing our nation and to highlight some of the important progress that we have made today. we are currently kopbl fronting unpress -- we are currently confronting shortages of critical medications. these drug shortages impacted

people across our country forcing some patients to delay their lifesaving treatments or use unproven, less effective alternatives. in some cases drug shortages have resulted in patients not being able to get the kind of treatment that they've gotten in giving slow in getting their treatment and getting left behind. i've been working to address this problem for over a year since i first heard from hospitals, pharmacists and patients in minnesota that they were facing shortages of essential medications, particularly chemotherapy drugs. their urgency led me to send a letter to f.d.a. commission hamburg to take actions to address this public crisis. over the next few months i continued to receive calls and visits from constituents asking help to find medications in short supply. i worked with manufacturers, stakeholders and the f.d.a. to try to find an appropriate solution to ensure that patients continued to receive the care

that they deserve and they need. i would also add that while in several cases the crisis was averted, this took hours and hours of individual pharmacists' time, of individuals doctors' time. and at a time when we are trying to be as efficient as possible in our health care system, the last thing we need is to have a doctor or a nurse or a pharmacist spending half a day just looking for medication because there is a shortage. in february, i introduced the preserving access to lifesaving medications act with senator casey. this legislation, which has bipartisan support and a total of 17 cosponsors, would give the food and drug administration the ability to require early notification from pharmaceutical companies when a factor arises that may result in a shortage. and today the president issued an executive order that adopts this framework for an early notification system. the executive order will do this.

it will push drug companies to notify the f.d.a. of any impending shortage of certain prescription drugs. it will expand the f.d.a.'s efforts to expedite review of new manufacturing sites, drug suppliers and manufacturing changes. and it will direct the f.d.a. to work with the department of justice to examine whether drug companies responded to potential drug shortages or other third parties have engaged in hoarding medications or raising prices to gouge consumers. this action will help further reduce and prevent drug shortages, protect consumers, and prevent price gouging. this step enhances actions that have already been taken by the f.d.a. and it puts in place additional tools to address drug shortages. mr. president, this is something you probably didn't even hear about a few years ago, but this year we've learned that drug shortages are having a direct toll on families across america. just a couple of months ago i met a young boy named axle

zerbes. he is a cute four-year-old boy from the twin cities with a big smile. he happens to have no hair on his head because axle is being treated for lieu cum i can't. when he was -- leukemia. when he was slateed to start chemotherapy, his parents learned a potential drug might not be available for their son. they are thrown into a panic and desperately looked for any alternatives. they even prepared to take axel to canada where cytariben is still readily available. imagine you're parents to a four-year-old, find out he has leukemia, can't get a drug which is commonplace and you're starting to prepare to fly canada because our own country has not kept up with the supply of this drug. fortunately he never had to go to canada. at the last minute the hospital was able to secure the medication from a pharmacy that

still had a supply. but axel and his parents sadly are not alone. there were 178 drug shortages reported in 2010. keep in mind, mr. president, these are not individual stories like axel's. these are actual drugs, 178 different drugs across the country basically affecting millions of patients that had drug shortages in 2010. that is a dramatic increase from just five years ago. 55 shortages just five years ago. think of that increase. for some of these drugs, no substitute drugs are available. or if they are, they are less effective and they may involve greater risks of adverse side effects. the chance of medical errors also rises as providers are forced to use drugs they are not familiar with. a survey conducted by the american hospital association showed that nearly 100% of their hospitals experienced a shortage in the past year.

another survey conducted by premier health system showed that 89% of its hospitals and pharmacists experience shortages that have caused medication safety issue or an error in patient care. we want to be doing the opposite, mr. president. we want to be reducing errors. we want to be getting patients the help that they need. it is clear that there are a large number of overlapping factors that are resulting in unprecedented shortages. experts cite a number of factors that are responsible. these include market con consolidation, manufacturing problems and production delays, unexpected increases in demand for a drug, inability to procure raw materials and even the influence of the gray market, where people are basically hoarding these drugs when they find out that there could be a shortage and then upping the prices as if things weren't bad enough. financial decisions in the pharmaceutical industry are also a major factor. many of these medications are in

short supply because companies have simply stopped production. they decided it wasn't profitable enough to keep producing them. instead of the lower-priced and lower-profit generic drugs, companies are looking at more expensive brand name drugs. merges in the drug industry narrowed the focus of product lines. as a result, some products are discontinued or production is moved to different sites, leading to delays. when drugs are made by only a few companies, mr. president, a decision by one drug company can have a huge impact on the market. to help correct a poor market environment or to prevent gray market drugs from contaminating our medication supply chain, we must address the drug shortage problem at its root. the early notification system that would be established under the preserving access to lifesaving medications act and the president's executive order that is advanced today will help the f.d.a. take the lead in working with pharmacy groups,

drug manufacturers, and health care providers to better manage for impending shortages more effectively manage shortages when they occur and minimize the impact on patient care. what does this really mean? just so you know, the f.d.a. already does this with orphan drugs when there is just one drug and the drug manufacturer thinks that they're going to run out of the drug. they do tell the f.d.a. so the f.d.a. can step in and maybe look internationally for another drug. saw that happen with the h-1-n-1 virus. they are allowed to do that now but manufacturers are not required to do that in some of the situations where we're encountering the 178 drug shortage. that's what our amendment does. it says if you see a drug shortage coming down the pike, you have to let the f.d.a. now. you have to work with the f.d.a. because they have successfully averted dozens of drug shortages this year.

so we don't pretend this is going to solve everything, mr. president, but it's at least something we can do right now which will give the f.d.a. the power to go in there and work with the drug manufacturers and try to find other sources so the person isn't doing that is the parent of a four-year-old kid with leukemia or a pharmacist who is trying to serve customers at his pharmacy or a doctor who is trying to treat patients and she has to get on the phone and call a bunch of hospitals to try to find a drug. this simply doesn't make any sense at all. this is a national problem, not a problem for a 4-year-old boy. our legislation would also direct the f.d.a. to provide up to date public notification of any actual shortage situations and the actions the agency would take to address it. additionally, the bill requires the f.d.a. to develop an evidence-based list of drugs vulnerable to shortages and to work with the manufacturers to come up with a continuity of operations plan to address potential problems that may

result in a shortage, and the bill would also direct the f.d.a. to establish an expedited reinspection process for manufacturers of a product in shortage. this would allow them to get inspected sooner so we could get the drugs to market. with manufacturers providing early notification, the f.d.a.'s drug shortage team which already exists can then appropriately use their tools to prevent shortages from happening. as i mentioned, in the last two years, the f.d.a. with early notification and more information has successfully prevented 137 drug shortages, so this is something that actually works. while the president's executive order takes steps toward advancing these goals, he has made clear that we must pass this bill in order to protect patients and ensure consumers that they have access to the life-saving medications that they need and deserve. so the executive order helps, but we still need to pass this bill. i understand that this may be a

short-term solution to a long-term problem. that's why i have also been working with several of my colleagues on a bipartisan basis to come up with a broad, permanent solution, one that includes methods to address the root causes of drug shortages. this includes senator mccain and senator corker, and it includes senator burr, and i also see senator blumenthal here who has been working on this issue. we have basically senators including senator casey and others working with the health committee who have been working to get this done. at the urging of this bipartisan working group, the f.d.a. held a public workshop in september that brought together patient advocates, consumer groups, health care professionals and researchers to discuss the causes and the impact of drug shortages and possible strategies for preventing or mitigating future shortages. in addition to the work group, i have been speaking with a broad

range of stakeholders to try to discover why we have seen such a large number of drug shortages that we have not seen in the past. the facts don't lie, the numbers don't lie. there has been an enormous increase in the number of drug shortages. this current explosion of shortages appears to be a consequence of a lack of supply of certain products to keep up with a substantial expansion in the scope and demand for these products. due to the complex nature of these drug shortages, there is no single or simple solution that will solve all problems. a solution will require everyone involved to play a role in mitigating future drug shortages. we must ensure that we have the manufacturing capabilities to keep up with demand. one solution may be to provide tax incentives to incentivize manufacturers to continue to make drugs that are on the shortage list or to provide other market incentives such as including exclusivity pricing similar to those that we give to manufacturers who make orphan

drugs. in addition, i have urged the f.d.a. to improve their communication with patients and providers. this will ensure that patients and doctors are not the last to know when there is a shortage. i also favor permanent reimportation of drugs from safe countries like canada. not everyone involved in this issue thinks that is a good idea, but i can tell you if we were to allow that, that little 4-year-old boy wouldn't have had to start looking at flights to canada. one thing is clear -- this is a national public health crisis that must be addressed. the president's actions today will provide additional tools to address drug shortages, but more must be done. i will continue to work with my colleagues in the bipartisan working group for a broad, permanent solution. i will also continue to work with senator casey, with you, mr. presiding officer, and with all of the other senators involved in this including senator susan colorado intense get our legislation passed. it is common sense, it is not over the top, it simply takes a

tool that's used now to avert drug shortages for orphan drugs and expands it so that other drug manufacturers when they have drugs that are going to experience a shortage are required to notify the f.d.a., and it just gives the f.d.a. a little extra time, whether it's one month, whether it's six months, whether it's a year, to look for the drug in other locations. and i think i also -- it also would give us some insight into what actually is going on here so we can fix this. thank you very much, mr. president. i yield the floor. the presiding officer: the senator from nebraska. mr. johanns: mr. president, i rise today to honor a fallen hero. petty officer first class caleb nelson of omaha, nebraska. petty officer nelson died on october 1, 2011, when his vehicle was struck by an explosive device in afghanistan. he was on combat patrol with fellow seal team members when

the attack occurred. his desire to succeed and help others led him to military service. for caleb, it had to be the best. for him, that was the navy seals. military commanders trusted petty officer nelson's judgment and his commitment. he was typically assigned a leading role on search missions, placing the lives of many seals in his capable hands. caleb was in the lead position when he was killed. the decorations and badges earned during his distinguished service speak to his dedication and to his skill. bronze star with valor, purple heart, navy and marine corps achievement medal, combat action

ribbon, good conduct ribbon, national defense medal, iraq campaign medal, afghanistan campaign medal, global war on terrorism medal, sea service ribbon, nato service medal, expert rifle ribbon, expert pistol ribbon. although caleb's life was cut short, he had a wide circle of friends and touched the lives and the hearts of many. his dynamic and energetic personality caused people to look to him as a motivator and as a mentor. those who knew him recall his deep faith in christ, his strong interest in physical fitness and a focus on getting things done. trout his life, -- throughout

his life, caleb grew in his christian faith and quickly became a rock of support for others. there was no problem too small to lay before caleb. there was also an unrelenting love for family dwelling inside this tough, physically fit seal. his wife anna and sons david and kyle meant everything to him. when caleb wasn't training or on assignment, he was with them. caleb also benefited from a strong relationship with his loving parents larry and barb, his nine siblings and a faithful community of fellow believers who admired his strength, his compassion and his leadership. today, i ask that god be with the family and friends of caleb nelson and bring them comfort during this very difficult time.

their faith is strong, so i know they will join me in seeking god's blessings on those currently serving in uniform, especially those involved in combat operations. may god bless our service members and their families and bring them home safely. mr. president, i yield the floor. i note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

the presiding officer: the senator from vermont. mr. leahy: mr. president, i ask unanimous consent the call of the quorum be dispensed with. the presiding officer: without objection. morning business is closed. under the previous order, the senate will proceed to executive session to consider the following nomination, which the clerk will report.

the clerk: nomination, steven a.hitginson of louisiana to be united states circuit judge. the presiding officer: under the previous order, there will be one hour of debate equally divided and controlled in the usual form. mr. leahy: mr. president, the distinguished presiding officer will recall stephen higginson of louisiana who is here to fill a vacancy on the fifth circuit. now, i mention that vacancy because it's a judicial emergency. it's been that for more than a year. and i say the distinguished presiding officer will remember, because like all members of the judiciary committee, we voted for him more than 3 1/2 months ago, on july 14. every republican, every democratic senator supported him.

under normal circumstances, that would have meant within a couple of day, the senate would have voted on him too. instead, it has been delayed -- it's been delayed since the middle of july to here we are one day before november. in a way, it's almost humiliating for a nominee, especially one as well qualified as this nominee, but it also reflects so badly on the united states senate. it's because one person may decide, oh, we don't want to have a vote yet, we hold up such a well-qualified person. we have 22 superbly qualified judicial nominations that are

pending on the senate calendar. they could all be voted on tod today. i say that because judicial vacancies remain at historically high levels for well over 2 1/2 years. we owe it to the american people to work together to ensure that the federal courts are functioning. now, stephen higginson is a well-respected consensus nominee. he served as a federal prosecutor for 23 years. he serves as a law clerk to justice byron white of the united states supreme court and to patricia wall of the d.c. circuit. he currently teaches law at the new orleans college of law. the american bar association's standing committee on the federal judiciary unanimously rated him well qualified, the highest rating they can give. to serve on the fifth circuit. and the two senators from

louisiana, one a democrat, one a republican, democratic senator mary landrieu and republican senator david vitter, support his nomination. in the past, mr. president, such a nominee would go sailing through and would not just have to wait week after week, month after month after month. it's been stalled for months by the republican leadership. i should, incidentally, just so the record is clear, the day, july 14, when he was confirmed in the -- by the judiciary committee or nomination was sent forward by the judiciary committee, we cleared his nomination on the democratic side. it's been held up on the other side ever since. now, the people of louisiana -- actually, the other states in the fifth circuit, mississippi and texas, deserve an explanation for these unnecessary delays. but so do the 161 million

americans who live in districts or circumstances under the circumstances that have a judicial vacancy today. 161 million americans live in districts or circuits that have a judicial vacancy. and they could be filled today if we would just vote on the other 22 nominations that have long ago gone through the senate judiciary committee. we did our work on the judiciary committee. we held hearings on these people. we did the vetting of them. we went through the f.b.i. reports. we got the bar association reports. we debated them. we voted on them. we sent them to the senate floor and they've been languishing ever since. now, look at where the judicial vacancies are. 23 nominees covering 24 states

and these are designated a judicial emergency. now, that's kind of discouragi discouraging. if you are the person when has a case you want to bring before a court, it may be your only time to court, it may be critical to you. one way or the other, you may be the plaintiff, you may be the defendant, and you're told, "sorry, you can't come. we don't have a judge." "well, why don't you have a judge?" "well, the president nominated somebody. he or she was approved. they were voted out of committee. they were sent to the floor of the senate. every single dim democratic ser

said that we're ready to vote, vote him up or down, and they're held up." you know, that's -- these districts or circuits, 16 161 million americans, that's more than half of all americans. and these judicial vacancies could be filled today if republicans would just let us vote on these nominees. 24 states are served by federal courts with vacancies that could be filled immediately if republicans would allow votes on the judicial nominations. let me talk about some of these places. the second circuit has a vacancy, it's a judicial emergency. that's -- that includes vermont, new york and connecticut. the fifth circuit, louisiana, texas and mississippi. the ninth circuit, california,

alaska, nevada, arizona, oregon, idaho, montana, washington, and hawaii. the 11th circuit, which includes florida, georgia and alabama. they've all been designated judicial emergencies by the administrative office of the united states courts. so have vacancies in district courts in new york and texas and utah. i would hope my friends on the other side of the aisle would explain to the millions of americans of these states why the senate isn't being allowed to vote on these vacancies, especially with a bipartisan consensus nominees who've been vetted and approved by a bipartisan majority, usually unanimously, in the judiciary committee. the american people need functioning federal courts with judges, not vacancies. there is no good reason, no

explanation for the republican leadership's continual refusal to vote on these stalled nominations. senator grassley and i have worked together to ensure that each of the 23 nominations now on the senate calendar is fully considered, had a very thorough, very fair process, completed our questionnaire and our questioning at hearings. mr. higginson and the other 22 nominees awaiting senate action are all qualified nominees. in fact, all 19 of them were reported unanimously by all democratic senators. instead, they sit here and wait and wait and wait, and, importantly, as the people -- the people -- of these 24 states wait and wait and wait. and they say, when are we going to get a judge? these delays, as i point out,

are unnecessary, but more than that, they're damaging. the number of judicial vacancy remains at historic levels. they've risen above 90 in august 2009. they stayed near or above that ever since. the number of vacancies is twice as high as it was at this point in president bush's first term. the senate was expeditiously voting on consensus judicial nominations. with one in ten federal judgeships currently vacant, the senate really has to come together to address this serious judicial vacancies crisis in federal courts around the country. the only way to do that is actually fulfill our constitutional duty: vote them up or vote them down. we're well behind the pace we set to dramatically reduce vacancies by regularly

scheduling votes during president bush's first term. at this point at president bush's first term in the senate, when he confirmed 166 nominees for the federal circuit and district courts. actually, a hundred of those 166 were during -- were done during the 17 months i was chairman of the judiciary committee. now, instead of 166, because republicans have done what we didn't do to president bush because we allowed votes to go on, we've only confirmed 113 of president obama's nominees to federal circuit district courts. now, the last work period, we started to make some progress in voting on some of president obama's longest pending judicial nominees and i thank majority leader reid for working hard to schedule these votes. hope we can do that some more.

we've got a long way to go to match the 205 district and circuit judges we agreed to vote on during president bush's time, but i think if you look at this, ask the american people especially -- especially the 24 states, 161 million americans who don't have judges who should be confirmed who are saying, why don't you do anything? we can do it. i ask unanimous consent my full statement be made part of the record. the presiding officer: without objection. mr. leahy: i yield the floor. mr. durbin: mr. president? the presiding officer: the senator from illinois. mr. durbin: mr. president, we are at a significant moment in the relationship between the banking industry on wall street and businesses and consumers on main street all across america. this could be, in the words of malcolm gladwell, a tipping

point, and it could lead to a much more balanced relationship in the future. it's interesting how we reached this point. there was a time not that long ago when wall street, main street -- both played by the same rules. banks and businesses sold goods and services to consumers in a competitive market environment with transparent prices. banks performed -- and still perform -- a valuable function in our economy, providing capital and liquidity. businesses, oivelg, and the sale of goods and services are generated, the activity that fuels our economy. they were complementary, they worked together. the baifntion an successful band businesses were the ones that worked better. this system characterized by transparency, competition, and choice worked well for everyone -- consumers, banks, businesses, all their customers.

it was the basis for a free market economy and a great nation. in recent years, after the repeal of glass-steagall, though, things changed. banks started nothing of a new role beyond capital and liquidity. the level of profitability and the activities at the banks started moving in many different directions. instead of practicing transparency and competition, many banks started cutting corps of engineers, imposing fees -- cutting corners, imposing fees, and raising interest rates and creating policies that were very difficult for even the mos custo follow. we saw hidden fees pop up left and right, like overdraft fees that went completely beyond any reasonable penalty for a person who's guilty of that conduct. sudden interest rate charges on credit cards.

consumers many times didn't even know they were being charged the fees until it was too late. the banks figured that if all the banks did it, consumers had no choice. they had to live with it. perhaps no fee better characterized the absence of transparency in competition than the interchange fee or the swipe fee. this is a fee that banks receive for merchants and retailers each time a person uses a debt card for a credit card. and it is a fee unlike any more. with moas most fees you see one fee rate charged by one bank, like bank of america, another rate by another bank and another one by wells fargo or chase or whatever it happens to be. with interchange fees, all banks charge the same rate. what they did is they went to

visa and mastercard -- on debt cards, this they have about 80% of the business. they said you can dictate the fees that the banks can collect. they did. this duopoly, these two major credit card giants, set fees for all the banks issuing their cards across america. this has been a huge money maker for the banks. banks make an estimated $50 billion a year in debit and credit card interchange fees. because there is no competition and no negotiation with the retailers, visa and mastercard reward their big bank awhries higher fee rates every single year, even as the cost of processing these transactions continues to go down. swipe fees have been -- have become a huge and growing burden for main street businesses and customers. american families ultimately pay

the price in the form of higher costs for groceries and gasoline. i think of potash supermarket -- i have talked about it on the floor many times -- art potash has become a buddy of mean, owning a supermarket in northern chicago. no, sir not as big as the big boys, but what a nice story he has. art came to me and said, they're killing me. the debit card swipe fees are he will killing me. it is their second hfer o. third most expensive item when i put together the cost of my business. i have no control over it. art was one of the people, he and rich neman, down in quincy, illinois, retailers, businessmen, who got me started on this. it is interesting, mr. president. something is happening out there in america. it could be that the era of some of these banking practices is coming to and he. maybe we are reaching a tipping

point. in 2009 congress passed credit card reto remain that reined in sudden interest rate changes and regulators placed curbs on abusive overdraft fees. of course the credit card companies and banks screamed bloody murder. too much government, fooch regulation. we didn't listen to them. we listened to american families and consumers. last year congress passed a wall street reform bill and ecreated a new consumer financial protection bureau placed reasonable limits on visa and mastercard swipe fee price-fixing. no price -- the banks cried bloody murder. they don't want to make a penny less than they made in the last quarter, even if their past profits were inflated by hidden fees and anticompetitive practices. so now big banks are looking for new ways to squeeze their customers in order to maintain their record profits and ten-figure executive bonus. but in the past week something interesting has happened in

america. after years of raising fees on their customers, without much resistance, several of the biggest banks tried to stick it to their customers again with a new monthly debit card fee, and the consumers of america noticed, stood up and said, no way. after bank of america, wells fargo, and several other big banks anowfnsed these new debit fees, their customers began voting with their feet. new account openings at credit unions and community banks surged, in many cases by 20% to 50%. uma sure that's goodous in my colleague from iowa to know that there's more business at the community banks and credit unions of iowa, leaving the wall street banks and coming loam to iowa. it is good news in illinois. consumers have been emboldened. they're now saying they will only do business with banks that care about serving them instead of squeezing them. this has been a great development for consumers. it's also been great for the

small banks and credit unions which we value so much in the midwest who have never stopped playing by the rules and have always valued their customers and their communities. now, november 5 is coming and it turns out to be day i wasn't aware of, but i've read about now. they're calling it the national bank transfer day. we're seeing many big banks actually reversing themselves and abandoning their recently aons nod debilitate fees in light of the possibility that even more people are going to shift away from the big banks with the monthly debit card fees to community banks and credit unions and other bangs that aren't imposing the fees. big banks are starting to see it just isn't good business to nickle-and-dime their customers and charge theme $5 a month for access to their own checking account. that's what they were doing. can you imagine the big banks ever changing course like this a few years ago? not a chance.

but through reasonable regulation and consumers standing up and being alert, we're restoring transparency and competition to financial services. transparency and competition are part of a good functioning free market economy. it's not over by a long shot. the big banks still have enormous power and resources. they're going to continue to find ways to make money at the expense of their customers. and that's why we need to do several things. first, we need to confirm once and for all a director for the consumer financial protection bureau. now i know wall street banks and financial institutions and many on the other side of the aisle hate this new bureau, as dale bumpers used to say, like the devil hates holy water. but the fact is, this is an agency solely dedicated to ensuring that consumers have good information so they can make good choices. senate republicans should lift

their hold on richard cordery so he can be confirmed to run this important agency. they should stop doing the bidding of the financial institutions that are afraid toy of all bank fees -- for example, the pew charitable trust has developed an easy-to-read one-page model disclosure for banks to list all the fees they can charge on checking accounts. banks should immediately adopt this pew trust disclosure box so that their web sites are clear to consumers and consumers can actually comparison shop and choose the bank that best serves their needs. this type of standardized fee transparency will help drive consumer business to the good

banks, those that play by the rules and offer a good value at a reasonable priessments third, we have more work to do to bring transparency and competition to the swipe fees. for example, credit card swipe fees are still entirely unregulated and they can cost a merchant up to 3% or 4% of the trns action amount. every american should be aware of what it cost a merchant to accept the credit card because ultimately the consumers pay for it. consumers should particularly be aware of how much their local small businesses pay in credit card interchange. they should also know how much more rewards cards cost merchants than nonrewards cards. this will help consumers make more informed choices. if you are for competition and for transparency and for choice, we've got to move to a level where consumers have more information. so i call on the nation's biggest 1% of banks -- those are over $10 billion in assets -- to disclose in their monthly

statements of their cardholders the interchange fees the banks received on each credit card transaction. while it would be edial for this interchange disclosure to be made to customers directly at the cash register or on receipts, i recognize that might be difficult. so let's do it on the monthly sphaiment. however, big banks can easily modify these monthly statements to show how much the bank received in interchange on each transaction this. can happen almost immediately. this type of transparency is particularly important because we're seeing big banks try to steer their cuss mess away from baying with debit and toward credit. have you noticed the 5*des that are offering rebates on credit cards now? 1%, 2%, even 3% on gasoline. what customers may not realize is that the fee being charged by the credit card company and the bank to the gas station may be far in excess of 3%. so they've already taken the

money away from you as you paid for your gas and then they tossed three pennies back to you. it is time forea little more disclosure here about the actual relationship between these banks, credit card companies and the consumers and retailers that deal with them. in closing, i do believe we're at a tipping point bh it comes to the balance between wall street and main street. for too long main street businesses and consumers have been playing by the rules and wall street has been rigging the game. now transparency and competition are being restored to the banking industry. a member of my staff was down in georgia over the weekend, and he drove by and saw a little bank called, bank of the ozarks -- i don't know what it was doing in georgia, but it had a sign outside that said "we agree, debit coas cards should be free" we are seeing dramatic increases

in the web sites of credit unions and community banks, people transferring their money to where they think they're going to get better treatment and a better deal. transparency and competition are coming to the banking industry. consumers are getting better information and many of them are making important choices for their families and businesses. this is going to strengthen small banks and credit unions in iowa, illinois, and connecticut and many places all around america. it'll help small businesses in iowa, too, as well as illinois. who are being crushed by hidden swipe fees today. it will help the economy move inured a fair way with real disclosure. let's keep this progress moferg. i want to salute those who stood with me on a bipartisan vote, both occasions on the floor, to move forward on this important matter. just a few weeks ago major publications like "the wall street journal" and "the chicago tribune" were jumping all over the durbin fee andhe