>> guest: thank you. thanks for covering it. [inaudible conversations] >> next, a house subcommittee hearing examines energy department loans to solyndra and other energy companies that have filed for bankruptcy. then, u.s. solicitor general donald verrilli. after that, live remarks by vice president biden on his assessment of the republican congressional budget and its impact on senior citizens. and later, the senate returns for work on a judicial nomination and a campaign finance bill known as the disclose act. ..

>> good morning, everybody. and welcome to the joint convening of the energy and power subcommittee and the oversight investigation committee and i join my distinguished subcommittee chairman, mr. whitfield from kentucky, in convening this joint legislative hearing. we have two bills before the subcommittee. i will be addressing my opening statements to the no more solyndras act and then relinquishing the chair for the first panel to my colleague, mr. whitfield. and i yield myself four minutes for my opening statement.

with chairman upton, i am a proud sponsor of the no more solyndra act. the act is the product of an 18-month investigation by the subcommittee on oversight and investigations. today marks a turning point in this investigation. we gather to consider a bill that will fix the problems we uncovered during our investigation. the solyndra investigation and the introduction of the no more solyndra act, is a great example of how congressional oversight should work, ask tough questions, collect all the facts, identify problems, and offer legislative solutions. solyndra was the first recipient of a d.o.e. loan guarantee under title xvii of the energy policy act and the poster child for president obama's stimulus-driven green energy program. it was also the first stimulus-backed recipient of a d.o.e. loan guarantee and the first to file for bankruptcy, just two years after the loan closed and six months after d.o.e. restructured the loan and subordinated its interest to solyndra's private investors,

all but ensuring taxpayers won't see a dime. three of the first five companies which received loan guarantees issued by the department of energy loan guarantee program have now filed for bankruptcy and hundreds of millions of taxpayer dollars will never be recovered. the reason the committee initiated the solyndra loan guarantee investigation are simple. the democrat majority in 2009 and 2010 conducted zero oversight of d.o.e.'s loan guarantee program even after it received a massive injection of funding from the stimulus. just one year after receiving the first loan guarantee, trumpeted by d.o.e. and the white house, solyndra closed its manufacturing facilities and laid off hundreds of workers. on behalf of american taxpayers, we have a duty to figure out what went wrong with the solyndra loan guarantee and whether the program was properly managed. the subcommittee's investigation has been thorough and methodical. the committee requested, received, and reviewed documents

from every executive branch agency connected to solyndra and interviewed more than a dozen administration officials who played key roles in the loan guarantee. some members of the minority had contended that the investigation of solyndra only showed that the loan guarantee was risky. this investigation has shown far more that that. for example, the investigation has shown that several red flags were raised in 2009 by d.o.e. and omb staff about the company's financial condition in the market for solyndra's products, but the administration ignored these warnings. d.o.e. failed to consult with the treasury department as required by the energy policy act prior to issuing a conditional commitment to solyndra. the administration's desire to highlight the stimulus impacted the quality of omb's review and resulted in d.o.e. rushing the loan guarantee out the door. d.o.e. failed to adequately monitor the loan guarantee,

blindly writing checks to solyndra as the company hemorrhaged cash throughout 2010. d.o.e. restructured the loan guarantee in early 2011, and then, in violation of the energy policy act of 2005, offered to subordinate its repayment position to solyndra's private investors in the event of a liquidation. omb staff raised serious questions about the legality of the restructuring and whether it would improve the government's recoveries after immediate liquidation. treasury played no role in reviewing the restructuring but advised d.o.e. to consult with the department of justice about the subordination which d.o.e. refused to do. and right up to the bankruptcy filing, the administration was willing to take extraordinary measures to keep solyndra afloat for political reasons and ensure that the first loan guarantee was not a failure. with chairman upton and other members of the o&i committee, we

are sponsoring the no more solyndras act to make sure -- to make sure, my colleagues, that these mistakes and misguided decisions never happen again. and i give the balance of my time to the chairman, mr. whitfield -- six minutes for mr. whitfield. >> well, thank you, mr. stearns, and i'm delighted that the oversight and investigation and energy and power subcommittees are joining together today in this important hearing. everyone in america is very much aware of solyndra. and solyndra is troublesome for many reasons. first, the federal government chose to give half a billion dollars loan guarantee to a company so inapt that it is gone bankrupt and left the american taxpayer holding the bag.

second, fact that george kaiser, a major investor in solyndra, was also a major fundraiser for president obama, cast a questioning motivation of this loan. and solyndra is not the only company that received a loan guarantee that has gone bankrupt. you've got beacon power, you've got abound solar, and there are others. all things considered, there is more than enough evidence to declare this program a failure. in fact, some people said it really was a slush fund for the president. it's been a failure for a lot of reasons. one, lack of transparency. two, costly for taxpayers at a time when we have a horrendous federal debt and annual deficit. and then the fact that in the

case of bankruptcy, the lawyers of solyndra and the lawyers for the department of energy and the administration agreed to supporting the taxpayers so that the private investors would get their money back first and the taxpayers last is really almost unbelievable. and then what role did political connections paid in the received -- receiving of these loan guarantees? a solyndra? certainly raises that issue. and a loan guarantee program, as far as we know, has not developed many technological breakthroughs at all that would benefit the american people. now, the administration talks a lot about all, we've created 4 million new green jobs. and yet chairman issa and others have had hearings, and you found out what is declared, or what is defined as agreeing energy job,

someone nearly filling up a bus with fuel, that's considered agreeing jobs now. so, they didn't create new jobs. they simply changed the definition of agreeing job and mislead the american people. and that's precisely what has been done in this instance. and so, this legislation, no more solyndras act, introduced by chairman stearns and chairman upton, is finally important to protect the american taxpayers that we pass and we adapt this legislation. and then another bill that we're going to be considered today is the smart energy act, which is introduced by mr. bass of new hampshire, and we all know that in order to conserve energy there are a lot of different ways to do it. wanders through inefficiency. and mr. bass is bill focuses on the government becoming more

efficient in its use of energy. and so i want to applaud him for that legislation. and i would also just point out that we've had major innovations throughout the history of our great country. you think about alexander graham bell, henry ford, the wright brothers, bill gates, steve jobs, and others. and yet they were able to develop these new technological breakthroughs with private dollars and not government money. so i'm delighted we are moving in on this program. at this time, i'd like to yield time to the chairman, mr. fred upton. >> thank you, thank you both chairman. will want to see innovations and breakthroughs in energy sector, and i believe that the federal government can play a constructive role in encouraging them. but when a department of energy program is not delivering on the goal while costing hundreds of millions of dollars, we go into

the american people to pull the plug. unfortunately, we've reached that stage with a loan guarantee program which is one the reasons why i co-authored the no more solyndras act. again, i want to thank mr. stearns, chairman of the oversight and investigations subcommittee, for his very hard work and determination in getting to the bottom of the story. let's not forget that when her team started the investigation, both the administration and the company itself strongly denied there were any problems whatsoever, and right up until its bankruptcy last summer. celinda was advertised to the american people as a stimulus success story. some even accused us of witchhunts and fishing expeditions. i believe there is a legitimate role for the federal government and funding basic research but with bankruptcy starting to pile up, our message to the american people has to be clear, there will be no more cylinders. i yield the balance of my time. >> thank you, mr. chairman. i think this is a positive step today, the fact that we've got a draft bill on no more solyndras

act. it's a good bill that i think mr. bass bill is also a good bill. i would slightly diverge from the party line to say that i don't necessary think we had to throw the baby out with the bath water. i do think we can reform the program. the screen energy loan programs, without totally terminated and. and i hope in the process of this legislative hearing, that we could discuss some ways to have a win-win on both sides, keep the program but make it more open and transparent, person penalties in for nonperformance. and as the chairman's and mr. stearns draft bill does, make it absolutely clear that they have to work with the treasury department, and if they don't, there will be penalties. so in any event i want to commend mr. upton and mr. stearns for their draft bill and also mr. bass for his bill, and i look forward to a productive hearing today.

>> thank the gentleman from texas. now recognize for 10 minutes to ranking member, ms. degette, from colorado. >> thank you very much, mr. chairman. i yield myself three minutes. >> so recognized. >> mr. chairman, since i joined this committee i've learned a very simple lesson. good oversight results in good legislation. and in contrast, biased and partisan oversight result in biased and partisan legislation. in the no more solyndras act, the legislation we are considering today proved that lesson. let me be clear. the loss of taxpayer dollars in the solyndra bankruptcy is a serious problem. we should have conducted a full and fair investigation so we could find out what happened and make sure it doesn't happen again. instead, the d.o.e. and solyndra oversight have been designed to make cheap political points in an election year instead of following the evidence where it leads. unfortunately, mr. chairman, i have to respectfully disagree with your characterization that this committee has conducted a thorough investigation. despite our requests there were

no hearings to understand what u.s. policies are necessary to ensure that u.s. manufacturers can compete in the global clean energy market. there's been no testimony from the largest private equity investors in solyndra to understand why the company attracted over a billion dollars in private capital. we've refused to investigate the d.o.e. loan guarantee program, loan guarantee programs loans to nuclear projects, and we've refused to invite d.o.e. witnesses to discuss the legal and financial rationale behind the subordination of the solyndra loan guarantee. the oversight that the minority for would have provided the proper factual background for legislative action to actually improve the d.o.e. loan program. instead, the majority has conducted a political investigation ignoring the benefits of the d.o.e. program, making a series of inflammatory and misleading statements, blocking the release of the

exculpatory evidence, and abusing witnesses who invoke their tenth amendment privileges. given the inadequacies of the committee oversight, it's no surprise to me that this legislation is also problematic. it's a political statement rather than a serious policy for puzzle. it begins with six pages of findings including the unsupported statement that the review of the solyndra loan application was quote, driven by politics and ideology, end quote. mr. chairman, the statement is not submitted -- supported by our committee's oversight were. in fact, our investigation revealed the opposite to be true. the key decisions on the loan guarantees were made purely on the merits. the discussion draft ignores the findings and recommendations of independent consultant, herbert allison, who conducted a thorough, detailed analysis of the program. he found that it was largely successful and stable but he did make a series of recommendations to improve performance and program management. d.o.e. is working to implement

these recommendations, but the legislation ignores this fact. mr. chairman, i would have loved to work on bipartisan legislation to improve this program, just like i would have liked to work on bipartisan oversight of the program. but instead of that we had a series of very bipartisan hearings which have led to this very -- or very partisan hearing which led to this very partisan legislation, and i hope we can shift course after that and change this legislation in a bipartisan way. with that, i yield two minutes to mr. dingell, the chairman emeritus. >> mr. chairman, i have find opening statement which i'm going to ask to be put in the record. this is a -- we been suffering through this on many occasions, having wonderful set of hearings, totally unrelated to the facts, with about the same reality as alice in wonderland, on a bill that was supported strongly by the leadership and

the members of the republican party. and now we hear how we are going to correct this whole legislation by a new piece of legislation. committee under the leadership of my republican colleague has been blundering around, crashing into walls, finding nothing, issuing the most inflammatory press releases imaginable, and thinking apparently the constant repetition of this nonsense is going to make somebody believe it. the harsh fact of the matter is that nothing wrong has been found except things that are low and fail because the chinese cut the prices of, of in film electrical generating stuff from, that draws its power from the sun. and so my republican friends are crashing around, issuing press releases that sound like jewels burning in their imagination, but demonstrated to be wisdom and vision of an earthworm. and so now this morning we're out to repeal legislation which

afforded the united states some opportunity to see to it that we can compete with chinese, koreans, japanese and others whose governments wisely and prudently funds are national efforts to develop new systems of energy use. and i would just note that the volt which is a superb piece of american engineering was driven just recently out of an american factory, using an american technology on batteries which are manufactured, guess where, in korea because the koreans are stealing the technology that americans have taken because they have government support. the same thing is true with regard to the chinese. so let me simply observe, mr. chairman, this is a waste of time, waste of opportunity, loss of opportunity for the united states to really become competitive, and it's my hope that the republicans will finally realize this is a political exercise and not something which is conferring any good upon the united states.

i think you. >> i yield the balance of our time to mr. waxman. >> mr. chairman, my colleagues and members of the audience, yesterday know is absolutely right. this is a hearing for politics. that's all it is. and i guess it's an election year so we can excuse it, but this nation faces an urgent energy challenge. the recent wildfires, drought, heat waves come extreme weather events tell us that we must act to address climate change. these are exactly the types of extreme events that scientists have been predicting, and that congress has been ignoring. according to the national oceanic and atmospheric administration, more than 40,000 hot temperature records have been set this year. at the end of june, this year, more than a hundred million people in the u.s. were in areas

under extreme heat advisories. two-thirds of the country is experiencing drought. more than 2 million acres have burned in wildfires this year. we need to act to reduce carbon pollution, and there are a range of options for doing that, from putting a price on carbon, sensible regulations, to incentives for clean energy. but house republicans oppose every potential solution. they say no to market-based solutions like cap-and-trade, noted cost effective regulations, ma no to loan guarantees or financial incentives for clean energy, even if they would improve our nation's global competitiveness. and they even say no to simply understanding the problem. representative rush and i have written to chairman upton and chairman whitfield 15 times this year to request hearings on various climate change reports

and topics, and we've yet to even get the courtesy of a response. denying the science and refusing to recognize the laws of nature is completely irresponsible. regrettably, today's built are just more examples of the same. no one should mistake the loan guarantee bill we will be considering for a serious effort at reforming the program. in fact, most of the bill is composed of inaccurate and misleading congressional findings. i'm sorry solyndra happened. we lost $500 million. that's a shame, but that's why loan guarantees are provided because these are risky enterprises and not all of them are going to succeed. but there has been no showing of wrongdoing i anybody in this administration do to the solyndra loan-loss.

no showing of wrongdoing despite the claims being made by the republicans. that is no evidence for it. so what are they proposing? legislation that would, they say, into this loan guarantee program but instead provide billions of dollars still into -- they create a winner of about 50 projects that are eligible and then if any new innovative idea comes up this year or next, they wouldn't even be eligible to seek a loan guarantee. even technologies republicans claim to support our abandoned. if an application for small modular nuclear reactor or next generation nuclear plant is submitted, d.o.e. is required to reject it. i don't think this is the way for. i don't think this a way to address the problem. even energy efficiency, which is

essentially part of any serious plan to address climate change. it's low-hanging fruit that reduces pollution while saving americans money and creating jobs. whether it is building codes or appliance standards or industrial efficiency improvements, we should be doing much more in this area. and yet are not moving forward in any energy efficiency opportunity to both of the bills we will be considering have serious flaws. we need to step outside the bubble of being in washington, and being consumed by the quest for political power and recognize that happened that extreme weather is causing around the nation and develop together solutions to climate change and the real energy challenges facing our nation. thank you, mr. chairman. >> i think the distinction ranking member of the full committee and i would just point out that it took us almost eight

months since my subpoena back in november to get information, and finally the white house was compliant, but this was an arduous task and we were sort of, we felt very methodical. with that we -- >> we are having more time to go by where we are not even get asked to her letters from the leadership spent we are moving forward, mr. waxman, and we appreciate your concern. at this point, the opening of the first panel will be handled by the chairman of the subcommittee on power, energy and power, and so with that i turn the gavel over to mr. whitfield. >> thank you, mr. stearns. and i want to welcome the members of the first panel. we appreciate your taking time

to be with us this morning on what we consider a very important issue, because our responsibilities to the taxpayers are very important, particularly at a time when we have a gigantic federal debt. our two witnesses on the first panel our first, mr. david frantz, who is the acting executive director at the loan program office at the u.s. department of energy. and the second is the honorable doctor kathleen hogan, who is deputy assistant secretary for energy efficiency, office of energy efficiency and renewable energy at the department of energy. so once again, thank you for an being with us. we appreciate it. i'm going to call on each one of you to get a five minute opening statement, and then at the end of that time we will give members an opportunity to ask questions. so mr. frantz, we will begin with you. you have five minutes for an opening statement. >> chairman whitfield and

stearns, ranking member's rush and get, and members of the subcommittee, thank you very much for the opportunity to testify before you today. my name is david frantz. and acting executive director of the department of energy's loan programs office. in a way of an introduction i make remember of the senior executive service of the u.s. government. i was the first employee of the lpo in 2007. prior to joining the department to stand up the lpo i previously served over 10 years with the overseas private investment corporation any senior management project finance position underrunning and structuring major energy infrastructure projects around the world. prior to this government service, my 40 year career has been entirely devoted to project finance in the private sector, and previous to that i served as a u.s. naval officer, and i am a vietnam combat veteran. at the onset i want to particularly express my thanks to all of you, and a respective

staffs, for your continued interest and attention to the program over the past five years. it is important to reiterate the point that this was a program initiated by the u.s. congress with strong bipartisan support in 2005, and we have continually welcome suggestions from the committees during the course of the development of the lpo. before highlighting the progress we've made over the past five years, i would also like to acknowledge and commend the lpo staff whether unswerving commitment and diligent work associate with the confidence of the program. the staff is one of the finest project finance teams assemble in the world today, and its record over the past year is unprecedented by world standards. i would hasten to add the gao and its recent audit of the d.o.e. loan programs guarantees acknowledged that commercial lenders interviewed by gao stated that lpo's underwriting and due diligence standards are as rigorous as or more rigorous than those in the private sector. it is noteworthy that in 2011

the department of loan programs office was recognized as the largest single source of debt financing for clean energy projects in the united states, public or private. this occurred during a period time in which private lending market did not have the ability or willingness to finance the innovative and large-scale clean energy projects that the lpo supports. in addition, two transactions were recently recognized by the exceptional structure by preeminent journals in the project finance field as deals of the year. at this time the lpo is committed or close 35 billion in direct loans or loan duties which financed nearly three dozen projects. to support more than 56 billion total project investments. when it ended on september 30, 2011, the 1705 program includes a portfolio of over 16 billion for 28 renewable projects. electively, the lpo projects are expected to support over 60,000 jobs. while we have faced challenges in our activities, we've always

make financial decisions based solely on what we believe at the time will result in the best outcome for the united states taxpayer. we also have reacted on a continuing basis to apply fundamental lessons learned. as i emphasize in my written testimony before you, our work is at substantial and far-reaching impacts that are beyond the contributions of the projects themselves. whole new subindustries have been fostered through supply chains. with respect to the specific legislation, the administration starbury doing it, and does not reach an official position. while we certainly share the goal of protecting taxpayer dollars, that is always our primary objective in the program. the department is concerned that this legislation will not accomplish that goal. in fact, we are concerned that this legislation potentially could have unintended consequences that would limit our ability to fulfill the mandate that congress gave us and could potentially put taxpayer dollars, frankly at risk. ..

>> would extend the consultative role the treasury department when originating and restructuring loans. each agency in the loan guarantee process plays a particular role based on its existing interest and expertise. the legislation's additional requirements on the treasury department may increase the transaction cost to the government by requiring duplication of responsibilities, and i would note that we have

worked very closely and on a continuing basis with the office of management, budget and treasury on each transaction throughout the approval and closing processes to best utilize their specific areas of expertise. finally, the legislation would prevent the department from subordinating our loans during a restructuring. this provision would weaken b the taxpayers' investments by eliminating a tool that may be the best option for saving projects at risk and, n., protecting the taxpayer. herbalson, who -- allison who conducted an outside review and has decades of experience in the financial world stated in his testimony before the senate energy and natural resources committee that if the paramount issue is taxpayer recovery, he believes the department should have some flexibility, and i emphasize flexibility, to subordinate when necessary. in conclusion, mr. chairman, with your support we look forward to continuing to promote opportunities for the united states to stay at the forefront

of innovation and clean energy generation and manufacturing while supporting projects that create jobs and reduce pollution. in administering the title 17 programs, we are continuously striving to improve our systems and processes in order to manage loans, transactions and portfolios in the most effective and efficient manner possible, all the while with the interests of the u.s. taxpayer as our foremost concern. thank you very much again, mr. chairman, for inviting me here today. i look forward to responding to your questions. >> thank you, mr. frantz. dr. hogan, you're now recognized for five minutes, and there is a little box on the desk that when it says red, that means stop. i won't stop you immediately, but it'll give you some semblance where you are. thank you. >> thank you. chairman whitfield and sterns, ranking members rush and degette and members of the subcommittee, i do thank you for the opportunity to discuss the department's efforts to improve the energy efficiency of the federal government and the

industrial sector and to comment briefly on the legislation being considered by the committee today. president obama's all of the above energy strategy is designed to reduce our dependence on oil, save businesses and consumers money, make us more energy secure, protect our environment and position the united states as the global leader in clean energy. and in pursuit of these goals, doe supports a broad range of efforts, research and development for new advanced energy technologies, works to accelerate the adoption of efficient products and services and also assists the federal government in leading by example in these areas. we do want to thank you for your efforts and do support many provisions of the smart energy act, though we would also like the opportunity to provide technical assistance in several places to offer greater clarity or adjustments based on what we know is already well underway. i will now go on to talk about doe efforts related to the

draft act. first, i want to highlight that the federal government is making great strides, leading by example on energy and sustainability goals set by congress and the executive branch and, indeed, performance contracting is very important to these efforts. we have executive orders enacted legislation such as isa 2007 which establish a number of goals for energy intensity, greenhouse gas reductions, renewable energy, sustainable procurement and data center efficiency. doe's federal energy management program, or femp, provides assistance across the government to help achieve these goals cost effectively as well as reporting on progress. the results to date are significant. we are seeing reductions in energy use per square foot by about 15%, reductions in water use intensity by more than 10% and use of renewable energy

sources for more than 5% of electricity. and, indeed, performance-based contracting has been important to many of, to much of this progress. since 2006femp has assisted federal agencies in saving over $5 billion in energy costs. over the average life of the efficiency measures implemented through these contracts and is now working with federal agencies to help them achieve the president's directive under the better buildings initiative of engaging in an additional two billion or more in performance-based contracting. here we look forward to working with the committee to see how we can continue to use this mechanism as effectively as possible. i also would like to highlight what we're doing with electric vehicles. they can certainly make a tremendous contribution to energy security, environmental and economic objectives and the federal government is doing a lot here. while doe supports a broad

portfolio of vehicle technology work, we do also have a strong emphasis on electric vehicles, their broad use can have a big impact on reducing our dependence on foreign oil, provide stable and low fuel price for american families while they also have the convenience of just plugging in at home, and they can reduce the overall environmental impact of transportation. across the administration charging infrastructure is being adopted into the federal fleet. clearly, there is more opportunity particularly as the costs for evs continue to come down, and we are available to work with the committee to figure out the best approaches for continuing to advance evs in the federal fleets. we also do do important new work to bring down the cost of evs. we have the new ev everywhere grant challenge where doe is working with the public and private sectors to set aggressive goals to develop the

next generation of vehicle component and charging technologies to assure cost competitive plug-in electric vehicles. this initiative also aims to put the u.s. in the lead to manufacture and export the next generation of advanced plug-in evs and its components to create high-paying, american manufacturing jobs. continuing on the theme of the importance of american manufacturing jobs, we are also working to strengthen the nation's manufacturing sector in ways that can create more jobs and enhance u.s. competitiveness. the doe's advanced manufacturing office supports high-impact manufacturing and materials research and development. we work and coordinate well across the national institute of standards and technology, nsf, the defense department and other government agencies, and we are particularly prioritizing those cross-cutting technologies that are common to many clean energy technologies and really many

industries so that we can engage, um, in these high-impact areas. we also are working with today's industry to help them save energy and increase profitability. one example is our better buildings, better plants program where energy leaders agree to set goals to improve their operation, um, energy use by 25% or more over ten years. this program now includes 110 companies representing 14,000 plants across more than 20 industries, and they are making great progress. finally, i just want to comment on our continued support for combined heat and power development. chp is an efficient and clean approach to energy generation instead of purchasing electricity and burning fuel separately, you can do it together with much higher conversion efficiencyies, recognizing the benefits of chp and its current underutilization

in the u.s., we are focused on accelerating the deployment of new and cost effective chp. for example, through our regional clean energy application centers where we assist in transforming the market for chp, waste heat to power and district energy technologies throughout the country. the centers focus on assessments, education outreach and technical assistance. so just in summary, we are making a lot of progress improving the efficiency of buildings, the federal sector, vehicles, industries, but there also continues to be large, additional opportunities in each of these areas where we can have important impacts for improving security, saving energy and protecting our environment. we really appreciate the opportunity to be here and happy to answer your questions. >> thank you, dr. hogan, and thank both of you for your testimony. i'll now recognize myself for five minutes for the purpose of asking questions. mr. frantz, when i back in my

district and i've talked to civic clubs in kentucky and elsewhere, and when they find out that i'm involved in the energy policies of the united states government, inevitably this question comes up about slip that. solyndra. it's almost becoming an example of many people's feeling of incompetence in government, and you know there's a lot of anger out in the public anyway about taxpayer dollars. and in your testimony you indicated that protecting tack payer -- taxpayer dollars was one of the primary responsibilities that you feel as the acting director at the lpo program. and so i want to ask you some questions regarding this subordination issue. now, director of o o mb at that time jacob lew sent out this

a129 guidance document to executive departments which basically prescribed policies and procedures for designing credit programs including the loan guarantee program. and it specifically said the government claims should not be subordinated to the claims of other creditors because subordination increases the risk of loss to the government and to taxpayers. now, circular a129 would apply to doe and the loan guarantee program, wouldn't it? >> yes, sir. >> and since it does apply and it specifically says what it does, how did you all feel like that you could subordinate taxpayers to the interests of private investors? >> mr. chairman, first, i'd answer your question in two

parts very quickly. the first part is that the career civil service attorneys both on our staff and the general counsel's office of the u.s. department of energy made a determination in advising us that, in fact, it was legal for us to subordinate under the circumstances that we were confronted with with the the solyndra project. so that is the fundamental decision that was taken. the other thing, part two of my answer would be quickly that as i indicated in my oral testimony and this congress has heard from another very senior expert, herb allison, this tool would only be used in extremist situations where we have a very distressed project. and the important point i tried to emphasize in my oral testimony was that, in fact, by doing it it's the one last chance we have to rather than liquidate -- >> okay. so this was a distressed, this was a distressed project, and you all subordinated in the hope

that you could save the project? is that correct? >> that's correct, sir. >> i might also say that in the language of the energy policy act of 2005 it also strictly prohibited subordination in that act itself. what do the lawyers say about that? >> the determination as i just indicated to you, mr. chairman, was that we acted perfectly legally within the requirements that were at happened and the law. >> but do you feel like that that is placing a priority of protecting the taxpayers of the u.s.? >> we certainly do. as i indicated in my oral testimony to you, this is a last resort. this is not a tool that's taken lightly. >> how much money has been lost in the solyndra case? >> i don't have the figure right in front of me, but we can get -- >> how much money did you all lope to them? >> um, roughly it was -- i don't remember the exact number, but for the record i'll get it.

>> was it, like, $538 million? or how much it was? >> in that range, sir. >> well, yeah. how much do we expect to recover? >> 527 was the number -- >> 527. and how much do we expect to recover? >> we don't have a determination yet. there's still a possibility, as you know it is in bankruptcy, so it's being handled -- >> we know the taxpayers will be paid back last, right? >> not necessarily last, but they're not going to -- they won't be first. >> private investors will be before the taxpayers, correct? >> pardon me? >> private investors will be paid back before the taxpayers? >> i don't know the precedent, the order of precedence, but -- >> for the purpose of subordination in the language. >> it is. >> on doe's web site, they talk about jobs being created, and they said that abound solar would create about or save 1200 jobs. so many would be created or saved by solyndra can and also

by beacon. and since all of them have not turned out as planned, it looks like a total in this 1705 project has been, like, 1,744 permanent jobs have been created a total loans have been made of $16 million which comes to 13,738,075 for every created job. do you feel like that is a good return for the american taxpayer? >> mr. chairman, i think you've got to think about that issue in context. um, from the industries i come from, i come from the major energy infrastructure industries. you have to remember that these industries by definition are capital intensive, not labor intensive. we have very few manufacturing plants which are more labor intensive in our portfolio. the predominance of our

portfolio and the objective really of the act is to be creating large infrastructure utility-scale projects. and by definition they do not, they are not a multiplier for job creation -- >> so they're pretty risky, would you say? >> we feel that just the opposite, mr. chairman, that solar energy generation projects are just the opposite. they have long-term -- >> let me just say the record shows quite clearly that taxpayers have lost a lot of money, you all have deliberately subordinated them to the private investors, and the jobs created are unbelievably expensive. and that's why we feel like that this program is a total failure. at this time i'd recognize the gentle lady from colorado, ms. degette. >> mr. chairman, i'd just ask if you or your staff have this circular a129 that you referred to, if we could put a copy of that into the record, that would be helpful. >> oh, good idea. yes, we'll do that. >> thank you, mr. chairman. mr. frantz, i want to ask you a couple questions. first of all, the chairman referred to this circular a129.

that circular bans subordination in making the initial loans under this doe loan program, correct? >> i don't have -- >> in the making of the initial loans, not in the restructuring. >> that is our interpretation. >> okay. >> clearly, the provisions provided to the origination -- >> the energy act of 2005 that the chairman referred to, that also prohibited subordination in the making of the initial loans, not restructuring, correct? >> correct. >> and the do o e lawyers -- doe lawyers looked at this, and they decided that it would be legal to subordinate the taxpayers' interest in the restructuring of the solyndra loan, is that correct? >> correct. >> and can you tell us briefly what, i mean, none of us likes the idea of the taxpayer position being second, to be honest, because in a situation like the solyndra situation where the company goes bankrupt, then the private lenders have a

superior position to the taxpayers. and we don't like that. so i'd like you to explain to the committee very briefly why it was determined in the restructuring of the solyndra loan that it would be a good idea to subordinate the taxpayers' interest. >> thank you, ms. degette. as i said and indicated in my previous comments, this is a tool of last resort in restructuring. but it is used specifically to attract new i, refreshed -- new, refreshed debt and/or equity into the transaction with the hope of saving the project. that's precisely what it's used for. >> so -- >> and those investors' new money coming into an already-distressed property almost demand to mitigate the risk they have a senior position. >> so in other words because the solyndra project was in trouble, it was doe's hope that they could save this project by restructuring it, is that right?

>> emphatically. emphatically. >> and, and it was the determination of the doe that the only way they could do that, they could attract that new capital, the only way people would invest, private investors would invest is, in fact, if they had the secure -- was that your decision? yes or no? >> yes. >> okay. and so in the findings, and so it didn't really work out, but we still might recover something, is that right? >> hopefully. >> can and one of the reasons why we have these doe loans is because these are by nature risky businesses, is that right? >> correct. >> and for solyndra one thing we heard in the subcommittee investigation was that because of changing market conditions mainly caused by china, solyndra's business model really had trouble. is that what doe found as well? >> absolutely correct. >> and that was what, that was what caused the whole thing to fall apart, is that correct?

>> correct. >> now, in the findings, in the six pages of findings in this bill that we're talking about today, one of the findings claims that the doe loans review process was, quote: driven by politics and ideology and divorced from economic reality. now, mr. frantz, you've been the director of the loan guarantee program since 2007 under the bush administration, and that's a career position, is that correct? >> correct. >> now, in many your position -- in your position do you believe that the statement i just made from the findings is an accurate statement, that it was driven by politics and ideology? >> to the very best of my knowledge through the whole history of the program from its inception to today, it has not been driven by any political considerations whatsoever. >> okay. >> all of our work in all of the projects are represented by career and due diligence, and they have been awarded on the merits of the transactions themselves. >> now, is it fair to say at the time you approved the loan you

conducted a thorough analysis and believed that the company would be a worthwhile investment for the doe loan program? >> in the time that we did the due diligence, that is absolutely correct. in that time frame. >> can you assure us that the solyndra decisions were made on the merits and that there was no favoritism shown towards solyndra or any other loan recipient? >> i can absolutely make that assurance. >> now, sitting here today -- of course, hindsight's always 20/20 -- do you think there are improvements that could be made to this loan program? >> there certainly are. and we are, as e indicated in my testimony, we're employing fundamentally lessons learned all the time throughout the -- >> we would really appreciate it if you wouldn't mind supplementing your testimony today to give this committee some recommendations of what we can do to strengthen the program rather than to just be pounding on it for political reasons. >> we certainly will take -- >> thank you very much, mr. chairman.

>> at this time i recognize the gentleman from florida, mr. sterns, for five minutes. >> thank you, mr. chairman. mr. frantz, i heard you say in your opening statement that the doe needs to have the ability to continue forever almost to subordinate taxpayers' interest on these loan guarantees. is that your position this morning? >> it is. >> just yes or no. >> yes. >> okay. and it is doe's interpretation that subordination is perfectly legal, in your opinion? >> yes. it is. >> okay. let me, mr. frantz, read from the department of energy act of 2005 to you. on subordination. the obligations shall be subject to the condition that the obligation is not subordinated to other financing. do you recognize that language? >> i do, sir. >> does doe intend to subordinate other loans? yes or no? >> mr. chairman, you have to -- the question can only be answered in context, and --

>> your opening statement it appears for other loans in the future, you'll subordinate again. >> your staff has the detailed memo to this -- >> no, but the point is -- >> our view and our position is that that language pertains ott origination of the transactions, not to projects which are -- >> okay. so what you're basically saying is you're interpreting the word "is," the meaning and tense of the word "is." the obligation is not subordinate to other financing. you're saying is applies only at the beginning and not later on. so your interpretation of the word "is" is the focus of your interpretation? >> as my older son who is an attorney constantly reminds me, i do not have a license to practice law. >> no, i understand. >> so i can only rely on the civil service professional legal staff that is advising -- >> okay. but your legal staff is making the decision on the word "is" and the tex being it's -- the tense being it's okay later on

but not in the beginning. do you intend to continue to subordinate other loans? just yes or no. >> again, i can only -- it has to be done in context. it's a tool of last resort. >> do you need to have this continued ability? that's what your argument is -- >> yes, yes, i do. very definitely we do because if a project is in distress, we want the opportunity to safe the project -- >> if this is true, have you subordinated any other loans? have you subordinated any other loans? >> not to my knowledge, sir, at all. and we hope not to have to do it. it is as i emphasize in my comments -- >> are there any other loans out there that you're considering? >> not to my knowledge this morning. >> well, you subordinated solyndra, and how did that work out? >> well, again, in time -- >> didn't work out. >> i think hindsight is always more valuable than foresight. >> the question was asked, how much money will taxpayers get because of solyndra. your answer was you didn't know.

can i tell you what the answer's going to be? they won't get anything more until $75 million of the two hedge funds that you subordinated get theirs first, isn't that true? >> as i've expressed, i don't have the details in front of me in terms of the precedent for each of the -- >> now, i don't understand. you work for the administration, they have publicly announced they don't think taxpayers will get one thin dime back. haven't you heard their arguments? >> well, but, i mean, the final settlement hasn't been done. it's still in investigation and discussion, sir. >> don't you agree that the loan guarantee program has had a tough record? >> quite to the contrary, sir. i think -- >> okay, all right. >> -- it's an enormous success. >> okay. we have solyndra, we have beacon, the third recipient went bankrupt in 2011. that's true, isn't it? >> it is. >> the fifth doe loan went bankrupt just a few weeks ago, isn't that true? >> we have third -- >> i'm asking the questions, please.

isn't that true? the second recipient of the loan guarantee, first wind, has withdrawn its ipo and has senate debt. the fourth recipient was also the recipient of a growing concern letter from its auditor. three of the first five are bankrupt, and the other two seem to have significant problems. what do these loan guarantees say about the loan guarantee program's portfolio based upon what i just told you? >> well, i can give you the numbers, sir. the losses on disbursed funds represent 2.59%, and that includes a recovery that we obtained 70 cents on the dollar for the beacon project. >> do you feel the future loan guarantees are going to be strong, there'll be no more bankruptcies? >> i cannot guarantee that, sir. i think the point is that this, in this space there's a high risk in new and innovative -- the employment of new and innovative technologies. and that, n., was accommodated by the 10 billion that congress authorized for us for loan loss

reserves. >> mr. chairman, my time has expired. >> thank you. at this time i recognize the gentleman from michigan, mr. dingell, for five minutes. >> thank you, mr. chairman. i would note that in the fall when we had our earlier hearings, we didn't have the department of energy here when we needed 'em. today we need the department of treasury, we don't have them. it's kind of a curious mix. we do need the treasury to discuss the questions we're addressing today. i note just by way of history that seven of the leadership on the majority side of the aisle supported the legislation. seventeen of my republican colleagues voted for it, and i did too. i still think it's a good idea. having said this, i'd like to address this question. now it is not proper to subordinate u.s. interests to those of other lenders in, under the legislation in the initial

loan or loan guarantee, is that right? >> correct, sir. >> okay. but you do need the authority to subordinate in the event that the company gets into trouble. >> yes, sir. >> because at that point you have to refinance. and it's pretty hard to refinance and can -- and bring in a new investor unless he knows his money is going to be as safe as it can be, is that right? >> yes, sir. >> all right. now, this is an essential tool in avoiding bankruptcy and avoiding seeing the company go under, isn't that right? >> that is always our hope, sir. >> it's a standard tool, it's been used going right back to the beginning of the financial world. right. now, so it is not unusual to have then the financing, the new financing take precedence over financing already in place. that's standard practice in the financial industry, is that right? >> yes, sir. >> all right. now, will this legislation then

jeopardize future or current doe loans, and will it make it impossible for there to be a proper restructuring of a loan? >> we are of that opinion. >> okay. >> yes, sir. >> now, in your opinion does the department of treasury have the current expertise to review the technology that would be developed under a section 17 loan? >> congressman, it's not -- >> no, the answer is they don't have that authority, that skill, do they? >> we -- >> but you folks at doe do, isn't that right? >> we have particular expertise -- >> okay. so we need doe to tell us about the technical questions, and we need the treasury to tell us about financing. >> yes, sir. >> but we don't have treasury here. now, in your time as acting director of the loan program office, have you received any political pressure from the white house to approve a loan your office deemed not qualified for a loan? >> no. emphatically, no, sir. >> you understand the question? >> yes, sir.

>> and you stand on your answer? >> i do, sir. >> all right. how many pages of documents has the department of energy turned over to this committee? >> thousands, i'm sure, sir. i don't have the number. >> have you rejected the turnover of any documents to -- >> to the best of my knowledge, we have tried to fully cooperate with your committee here, sir. >> were the documents turned over on a voluntary basis, or were they subpoenaed? >> i can't answer that question. they were voluntary, i'm told. >> thank you. well, now, i note, mr. chairman, that we have now the expertise of a witness down there that you called in which he points out that this sets a bad precedent and that it has the potential for further jeopardizing taxpayer funds. so let me just ask, if one of these companies to which you have a loan guarantee gets in difficulties, if this legislation goes into place, you wouldn't have the capacity to negotiate a restructuring of the

entity in such way as might make it possible to save it, is that right? >> that's my assertion. >> because you wouldn't be able to draw additional investors in to help save the public's investment and to keep the jobs and other things that are necessary. >> yes, sir. that's our interpretation. >> all right. now, there were some bad decisions, i think, made and misinformation in the case of solyndra. but not every application for a doe loan is like this, and could i ask you this question, have -- since this big fuss started about solyndra, have you folks down there at treasury -- at doe reviewed and corrected your, the problems that you found with regard to solyndra? just yes or no. >> yes, sir. >> all right. so the legislation before us today proposes to give new authority to the treasury department, but i note we have no witnesses or representatives for the treasury here. before we go forward in this, we ought to hear from the people

who have the financial expertise in addressing this. now, i'm a strong proponent of oversight, and i think that we do need oversight, and i would note that as the chairman of both the energy and power committee and subcommittee and the full committee and as the chairman of the oversight subcommittee i did an awful lot of investigation, and we pulled a lot of folks from both administrations, republicans and democrats, and we pulled the skin off them. but we did a careful job of seeing to it that we got the facts and we got the witnesses that we needed to tell us what was going on. i've seen none of that happening today, and i think that if the committee really wants to do a good job, we ought to proceed in that direction so that we can be proud of what we're doing rather than having to walk shame-facedly out of here. i yield back the balance of my time. >> i might say, mr. dick -- dingell, we did invite members of the treasury department.

>> i've been a member of this committee for a long time. i was always able. if the gentleman doesn't know how to do it, i'll be able to assist him. [laughter] >> maybe we can meet when this record's over. >> mr. chairman, just for the record, we did invite members of the treasury department. they couldn't come on the day -- >> well, the fact is we did invite them. >> but we could have scheduled them to come a different day. >> recognize the gentleman from texas, mr. barton, for five minutes. >> well, i just know i'm glad to be here. [laughter] and i was invited, and i did accept. [laughter] this should be a solutions hearing. i don't think anybody on either side of the aisle think that is the solyndra loan program -- regardless of the political debate -- thinks that the solyndra loan program has been run very efficiently, to be as mild as possible. and the draft bill that

mr. sterns and mr. upton have put out an attempt to address legitimate concerns about preventing future solyndras from happening. it's not a perfect bill, and the reason we're having a legislative hearing is because mr. upton and mr. sterns want to go through the regular order. we can, we can debate the political issues ad infinitum, but at some point we should focus on solutions to protect the american taxpayer in the future. my first question, we have the deputy assistant secretary for energy efficiency, dr. hogan, but my understanding is you're not here to talk about the solyndra bill, you're here to comment on mr. bass' bill s that correct? >> that is correct. >> have you been authorized at all to comment on the solyndra, or you're just here for mr. bass' bill?

>> i believe we have mr. frantz here to discuss the loan guarantee program as that's his area of expertise. >> well, i note mr. frantz has been discussing it, but you're a career civil servant, is that not correct? mr. frantz? >> yes. yes, sir. >> and at least theoretically, you're not supposed to be political, is that correct? >> that is absolutely correct. >> so you really don't speak for the obama administration, do you? >> i speak as a civil servant. >> civil servant. and i understand that. um, my first comment on policy is going to be on subordination. mr. dingell and i were on the conference committee when we passed the energy policy act. i was the chairman, and he was the ranking member of this committee. and we didn't put a lot of debate into in this particular part of the bill, but it was clear that we put the

subordination language in to mean exactly what it says. you don't subordinate. there has never until this loan been a taxpayer-backed loan that was subordinated. and if i and others on the committee have anything to do with this, there never will be again. when you, mr. frantz, say that, well, in extreme you may do it, that's taxpayer money. you subordinate taxpayer dollars that are at risk that investors have put forward. in the public sector, these are taxpayer dollars. you do not want to subordinate period. there's no exceptions. and there's no outside legal opinion that has ever been rendered on in this loan that says it's appropriate. you have an e-mail there an attorney at the law firm that's general counsel to department of

energy where an attorney in an e-mail says, well, maybe it's okay. you don't have a written legal opinion from an outside counsel that's signed on the letterhead by the senior partner. you haven't, you do have a doe general counsel memorandum that's about as tortuous as it's possible to be. so i would hope on a bipartisan basis one thing we can agree on is that we're not going to allow subordination. and i hope we put some penalty -- one of the reasons you got away with it is there's no penalty. there's no penalty. i guarantee you if you as a loan program officer or had been subject to a $50,000 fine, you know, you might have thought twice about agreeing to subordination. so don't, don't insult the common sense of the american people. we knew what we were doing on subordination, we put it in a

plain english language, and you violated it. that's wrong. and we ought to be able to stop that. now, on the general loan program i happen to agree with what ms. degette said and mr. dingell and mr. waxman, i don't think we need to throw out the whole program. i think we can clean it up, i think we can make it more transparent, i think we can put some penalties in, put some caps. you know, so i guess since even though you're a career civil servant, you are here for the department of energy. does the department of energy continue to support that there be a loan program for alternative energy projects? do you support it or not support it? >> we absolutely support the gsh. >> you do support it. do you also support reforms to make sure solyndra does not happen again? >> to answer that question, we are constantly working on improving the program, congressman. >> so you do support some reforms to the program? >> certainly we do.

and i offered that in my oral testimony. >> all right. i'm sorry, mr. chairman, my time's expired, but i yield back. >> at this time recognize the gentleman from california, mr. waxman, for five minutes. >> thank you, mr. chairman. mr. frantz, i want to ask you about the republican loan guarantee bill. this bill momentum end the -- this bill doesn't end the loan guarantee program. under this proposal billions of dollars in new loan guarantees can be issued in the coming years, but this bill prohibits doe from crring any new applications for loan guarantees. it freezes those that can be considered by those who came in and applied by the end of 2011. well, that's an arbitrary decision of picking winners and losers. it creates a winners' list potentially of a few dozen projects that were submitted before the end of 2011. those are the only applications doe can look at. everyone else no matter how

ground breaking or promising their technology loses. this program was created to support innovative energy technology, that's its whole purpose. but under the republican bill, new breakthrough technologies need not apply. is in the right way to structure the program if we want to support innovative energy technologies? >> it certainly is not. as i indicated in my oral testimony, congressman, we feel that it would preclude us from proceeding on new and innovative technologies particularly in the fossil area as well as the nuclear and new renewable applications other than those we've already received. >> i want to understand the practical implications of this bill. if someone develops a new technology this year that dramatically reduces the cost of solar or wind or geothermal power and they submit a new application, can doe award them a loan guarantee under this bill? >> we could not. >> even the technologies that republicans claim to support are

abandoned. we keep hearing about the importance of innovative coal and nuclear technologies. mr. frantz, earlier this week the committee received testimony from a research administrator at west virginia university emphasizing the importance of loan guarantees for advanced coal technologies. let's say an electric utility submitted a new application for a power plant that utilized a better, cheaper carbon capture technology. under this bill could doe consider that technology for loan guarantee? >> we could not. >> and if an application for a small modular nuclear reactor or next generation nuclear plant is submitted, doe is required to reject it, is that right? >> that's correct, sir. >> and instead of considering the new technology, doe would have to dig through the pile of nuclear reactor applications that were submitted by the end of last year, is that right? >> correct, sir. >> and so the republican proposal is to prohibit doe

from considering any new applications for new technologies. doe currently has the authority to issue tens of billions of dollars in loan guarantees for innovative fossil fuel projects, uranium enrichment projects, other nuclear projects and renewable energy. is there any public policy reason to think that the applications already submitted are the perfect projects and that there are no new ideas out there that will be worth considering in the years to come? >> no. we agree, sir. >> this republican bill, it seems to me s is a terrible idea. it's just the latest republican assault on clean energy. it provides no answers to our energy challenges, it would stifle innovation instead of boosting it. now, mr. barton made a whole big to-do, very passionate, that we should not allow subordination of these loans. what is he talking about when he talks about subordination?

>> are well, the subordination question is raised in the context, in our opinion, only and exclusively in prompts that are in severe distress in which we're trying to attract and save the project for the u.s. taxpayer. >> so you look at a proposal for a loan guarantee. it looks like it has a lot of promise, it look like the business is sound enough to succeed, and you give them a loan guarantee. which means if they can't pay their loans, the government's going to pay for their loan. and then they run into financial problems such as their competitors suddenly drop their price, and so even if they come up with this new way of providing in this technology, they're not going to be economically viable, is that the kind of situation we're talking about? >> yes. >> and it looks like there's some way they can still succeed, but they need more money.

and they go out and find lenders. is what mr. barton is objecting to is the government standing behind those additional loans? >> well, i think, again, from the general benefit of the entire committee, congressman, i think it's an excellent question. the point is that this is a tool that we would employ in the last resort. even in the negotiations in restructuring, this is not something that we would and do take lightly. it is a tool that is used in extreme mis, and it is only used after we have failed in negotiations to attract other investments to save the project without using it. it's the last thing we would do. >> so it's the last thing you might do to save a project, and if you can't do that and save the project, then the taxpayers have to come up with the money for the learn guarantee. >> yes, sir. >> so you either try something out to succeed or just let all the losses roll. >> in my oral testimony, that was the assertion that i made. you would be hamstringing us and taking a very important,

critical tool that could, in fact, save taxpayer money. >> thank you. >> gentleman's time has expired. at this time recognize the gentleman from illinois, mr. shimkus, for five minutes. >> thank you, mr. chairman. thank you for your service. as a veteran, i appreciate that, and it's very frustrating for me when sometimes i have to agree with mr. waxman on some of his points, and i start worrying about my district. [laughter] and what's going on here in the water many washington. so, but a couple concerns. i did vote for the 2005 energy and policy act which had this provision, and i side also with chairman barton in that we've just got to be careful throwing out the baby with the bath water. but the congress has changed significantly. and the whole loan guarantee issue with the new federalism and deficits and debts there's really a debate. is it the government's role? and if there is, as mr. waxman

said, a new technology, i'm a big coal guy. there's no current technology for carbon capture and sequestration. i don't believe there ever will be economically feasible. that's the whole climate change debate. but if there was, why wouldn't the private sector return on the investment, assume the risk? and that's this whole debate. now, i guess the other concern that those of us who haven't spent all the time that the oni committee has on this stuff, i chair an environment and the economy subcommittee, i do a lot with nuclear waste. i see too many times where i believe the administration, the language of the law is black and white. it's on paper. and so this subordination issue really has us concerned.

um, and to the authors of the legislation, should we -- if we don't ever want to subordinate anything else again, should they then adjust the language of the legislation to say if it's a failed loan provision, you really, can't subordinate? i mean, that's what you're saying because you have used -- i'm not a lawyer, and i know you shop around and try to find a lawyer that may then give you some impetus to do this. but i think this subordination issue does have traction with the american public. they wonder how it was done with the clear, concise aspects of law. and i'm going to yield my time. but i want to go to ms. hogan one second. in part of your statement, you talk about -- and this is the vehicle, you talked about electric vehicles and all this stuff. and i just want to make sure people understand, you've got electricity is cheaper, but you

never -- what people have to understand is that to use electric vehicles you have to generate electricity. and there's varied prices for purchasing electricity per kilowatt hour from, you know, coal being -- nuclear power being cheap now, coal being cheaper, wind, solar, expensive. so high cost electric vehicles based upon charging capacity on green power is more expensive than traditional, major generation, and you should have that as part of the analysis. now, i yield the remaining time to mr. griffith from west virginia. or from virginia. >> thank you, mr. shimkus. here's the bottom line. the common language of the land is english. the obligation shall be subject to the condition that the obligation is not subordinate to other financing. your counsel dances around it and says the word "is" makes it only apply for those five or ten minutes or hour during the closing and immediately after that, not when the loan is in

distress. if you read her opinion, footnote two makes it clear you don't have to be in distress, the secretary can do it anytime. but that's inconsistent with other provisions of the law as well. first n this particular case with solyndra, the da was not notified as i believe they should have. but your counsel dances around that, too, and says notwithstanding the fact they were in default, it wasn't a payment default, it was another kind of default. and last but not least, when you look at what the secretary's powers under g2b, it says the rights of the secretary with respect to any property pursuant to related agreements shall be superior to other property. that section makes no sense if you can subordinate anytime you want to. and further when solyndra went into default in december of 2010, secretary chu testified to the o and i committee under oath that he knew in december, he knew in february when this loan

was subordinated that the chinese could sell their product cheaper than solyndra could make it. where were we looking out for the taxpayers of the united states of america? many i submit to you we were not. wouldn't you agree? >> did you want a reply -- did you want to reply, mr. frantz? >> when we conducted our due diligence, as i've indicated without being defensive at all, hindsight is always much more valuable than foresightment on my level and at the staff level, western take -- we were taken completely by surprise. clearly, in hindsight the solyndra transaction was appropriate in that time. given what we now know we would, obviously, have not proceed with the the transaction. >> even the subordination? question mark? >> the subordination, again, in context respectfully, mr. congressman, the

subordination is a tool that we would use, we would use only under extreme is. it is only to save u.s. taxpayer dollars in the last resort. >> gentleman's time has expired. at this time recognize the gentlelady from california, ms. capps, for five minutes. i'm sorry, i've been told it should be ms. schakowsky of illinois for five minutes. >> thank you, mr. chairman. um, mr. frantz, i wanted to ask you a few questions about the doe's response to the recommendations of herb allison, the independent consultant brought by the white house to review the loan guarantee program. as you know, mr. allison's credentials and impartiality are well known. he previously served as the assistant secretary of the treasury for financial stability and as the national finance campaign chair for senator

mccain's presidential campaign. he produced a serious report with constructive recommendations. his report, by the way, found that the doe loan portfolio as a whole was strong and that the program was largely working as planned. but mr. allison also suggested that doe place more emphasis on proactively protecting taxpayer interests and establish a comprehensive early warning system for loans that may be in trouble. so i wanted to ask you what types of improvements. we've talked a lot, and you've said that you've done them, but what types of improvements has the program made in these areas? >> thank you very much, congress woman. it's a very good question. i would, first, at the top of the ledger indicate to you and to the full committee that with the department of energy is in the process of virtually implementing all of mr. allison's recommendations as they might appropriately be done just as quickly as we can. so that's in place.

with respect to your specific question, we were very blessed, quite frankly, with a program of attracting france's chuka from the the ex-im bank, she is our director. with her he brought imported over systems that were already decades tried and true and proven from the ex-im experience as well as those that we, obviously, operated at opec as well given my background. we have -- there's a total watch system that is in place, what we call, you know, an oversight. it involves weekly interface with all of our projects and their sponsors. it's now in the process of being fully systematized and will be completed by the end of this fiscal year. there are monthly reports. we have independent engineers in the field on these projects on a monthly basis.

so all of the best practices in the industry are being employed by our program in terms of portfolio management, and all of them were very consistent with mr. allison's views and oversight. >> so this would include setting very specific benchmarks as well for these kinds of applications? >> yes, ma'am. we do. >> okay. what about the internal management and reporting structures in the loan programs office? have these changes been made yet? >> they -- we are in the process of making them. they will be completed by september 30th. we will have a state-of-the-art system comparable to all the u.s. governmental agencies by that date. the system is up and running, and we're right now migrating all of the information into this single system of retrieval, information retrieval. >> so you're saying if you came back on september 30th, you would be able to report that all of these systems are now in

place -- >> yes, ma'am, that is our -- i hope i will be able to. that is our objective. >> thank you. um, mr. chairman, i, i think we both agree that the mission of the loan programs office is an important one, and i think that's why the discussion draft before us today does not eliminate the program, i'm happy to say. it's clear to me, however, that this legislation is poorly crafted and has been pointed out in terms of the benefit to the taxpayers as well. and i don't think the legislation before us is a serious attempt or at least an adequate attempt to improve the doe loan guarantee program which it is my understanding, mr. frantz, from your testimony is, in fact, implementing the improvements that have been recommended. so we need to do better. everyone agrees with that, and i hope that we can work on a bipartisan solution to help protect taxpayers and advance the goals that we all share.

i yield back. >> thank you. at this time recognize mr. terry for five minutes. >> thank you, mr. chairman. and, mr. frantz, as the gentleman from california, mr. waxman, ranking member, had mentioned when he was discussing the issues with you that the proposed bill would allow all those that are in the pipeline to go forward but that the loan program, 1705, would cease after that. that's how you read the bill as well? >> yes, sir. we would not be able to receive new applications other than those. >> and mr. waxman suggested that that's picking winners and losers. do you, do you agree with that? >> i'm not sure. there might be a non sequitur. my view is that, which everybody i think here acknowledges, we're not claire soy grant enough to know the new technologies that might be right around the corner

that would be -- >> so do you agree that that's a fair statement, that the bill is picking winners and losers? >> it would certainly preclude us from having an open forum for the projects, that's for sure. all we have -- >> for new projects. okay. >> if it's picking -- >> so would it be fairer then if we're talking about fairness to just eliminate all of the current ones that are in the pipeline? just deny going further on those? >> no, no -- >> because then you're not picking winner and losers. >> no. i think the ones that are in the pipeline, we're in the process of reviewing those that did not make the deadline -- >> but if there's unfairness to that, and you can't say to mr. waxman there would not be unfairness of not going forward. he accused us of being unfair. >> no. i think the point is, and it's in my oral testimony, i mentioned it, i think we have serious concerns if there is a

sunset date of december 31, 2011, because that will all new implementation of all new technology. >> but doe's authority to issue loan guarantees under 1705 expired after september 30, 2011. >> that's correct. >> and there's several that are in the pipeline that were filed before then, and you're going forward, correct? >> yes, sir, and the point -- >> and you were allowed to follow through on those if they had, quote-unquote -- commenced construction? >> well, we're -- >> correct? >> not necessarily. these are projects that were 1703 eligible, and there was no sunset date on the -- >> so, basically, then you took some of those programs and switched them from 1705 to 1703? >> yes, sir. as long as they were eligible -- >> now, in many 1705 in the last three weeks before december 2011, there were $10 billion issued to projects.

is that correct? >> i don't remember the exact number, but -- >> well, maybe your staff guy that helps you out behind you could help you out. >> in all fairness, sir, if you'll permit me, i submitted to my staff when i gave my private testimony, my private interviews that all of the projects that were credit concluded under the5 2011 timeline, experienced due diligence periods. the median was 320 days, 320 working days. every single one of those projects. >> i'm talking about -- >> there was no rush to judgment. we were able to do it in a very responsible way. >> doe -- true or false, dod approved almost ten billion in projects in the last three weeks of the program? >> i don't remember the exact number, but i can assure you the due diligence reflects the analysis that i -- >> well, did all of those --

you're not saying yes or no, so it's hard for me to go forward. did all of the projects that were commenced construction by september 30th, all of those that were funded within the last three weeks -- >> they did. according to our guidelines. >> all right. and what is, how does doe define commence construction? >> i don't have the precise language in front of me, but we can get that for the record for you, sir. >> okay. i would appreciate that. and then of the approximately ten billion that was authorized in the final weeks before the stimulus deadline, how much has been drawn down? do you have those numbers? ..

any of those that received in the last three weeks, having missed any deadlines or milestones? >> no, not to my knowledge. >> all right. my time as -- >> thank you. at this time i recognize that generally from california, ms. capps, for five minutes. >> thank you, mr. chairman. i'm glad the committee is seeking to address bipartisan legislation on energy efficiency through one of the topics we are considering today, the smart energy bill. and one of the important advantages of energy efficiency

is that it spans all the regions of the country. and regardless of what energy source you support, efficiency is the cheapest, fastest way to address our energy needs. and we know that energy efficiency efforts lay directly to jobs created, which we know also is very important, especially not that a time when the economy is still struggling. the other important aspect of energy efficiency is that these technologies are all readily available. we don't have to wait on some new magic technology. we can take advantage of existing ones that we know about right away. so their statements potential for this committee to take action on energy efficiency and to help our constituents save money, and that's why i'm pleased with the legislation that's been proposed, and that's what this is all about. i thank the witnesses, both of you, for your testimony today. dr. hogan, i wanted to talk to about improving efficiencies and our homes. i went for a project on my own

home, santa barbara, california, about a decade ago. now i've started a process to complete another upgrade. this time i had the damage of an energy audit of my home which is part of a county or local, locally based in sentence structure. it uses a local veteran owned small business which comes through and then recommends energy-saving projects. i believe there's a tremendous amount of potential with programs designed to encourage a homeowner, well, any building owner, to make upgrades. we actually need have this done on a regular basis, as new technologies become available. this is countless jobs you can think of. it will also help to jumpstart a whole industry for home energy retrofit. so, dr. horrigan, can you describe for us what the department is doing with -- dr. hogan, can you describe force for the department and with home energy efficiency? and maybe you can give us a

status update on the home energy scoring system that are now available. >> yes, thank you. so truly there is a tremendous amount of savings that can be delivered to homeowners in their homes through energy efficiency. there's opportunities up 10 to 20% savings on the average home energy bill, average home energy bill being, you know, for the average home $2200 or so. so that sort of $400 a year that is really out there for almost each and every family in an older home. and so the department of energy, the administration has been very focused on these opportunities for many years. one of the areas we are working very closely with a number of organizations across the country, is something called the better building neighbor program where we are working to pilot programs that can really take home retrofits to scale. some of the programs of the past

have been slow to get traction in the marketplace because you need a homeowner to want one and unique delivery system to be able to come in and provide, you know, high quality audits, and then follow through on the projects. so it's because of that that we're doing things like the program that you just mentioned, the home energy score. we see that as a great way to bring homeowners information on the efficiency of their homes, whether it's highly efficient or very inefficient. and to give them objective, credible information on the low-cost savings they can do to improve their home such as added insulation, home ceiling, the things that are very low cost back and get them good portion of those energy savings that are there to be gotten to we're also working to pilot the program across the country with 20 or so partners, looking to refined over the next year, and then being able to offer it up much

more broadly around the country after the. >> thank you. i just wanted to get in to underscore what you been describing, and this is a company, but i want to share a company by company and my district. it's called deals done you any kind of onion should be with your hamburger next and probably came from this country. they grow, cut, and process a lot of onions but the company is also known for its technology to produce energy from onion ways. they use that electricity to run their operations but they are totally self-sufficient. this company is in federal grants to design and build this project but they also partner with another company, prudent energy, to develop a battery system that will allow gills onion to store some electricity that is asked and use the power in peak hours when electricity costs the most. gills onion uses a lot of power for their quick and the refrigeration. said project like this takes a lot of sense to them, and a good lesson caused by hundreds of thousands of dollars a year. it's a big deal and i think it's

a good example of local economic development. you can talk about the home use. you can talk about companies using innovation and technology to help them with their bottom line, but also to create jobs, and we can help businesses this way. oh, i've already overused my time. i'll take your not as, that you agree. thank you. >> thank you, ms. capps. at this time recognize the gentleman from pennsylvania, mr. murphy, for five minutes. >> thank you. mr. frantz come is it your testimony that loans the close in september of 2011 have not missed any milestones? >> i beg your pardon, congressman? >> is it your testimony that the loans to close september of last year, 2011, have not missed any milestones? >> we have milestones, some of them have come in a manufacturing base, and we are working with them. >> have they missed them? specifically have been a summit of milestones because we haven't funded and yet. and it's not even, we haven't

even funded that projects that can you get is a get is a list of all the loans that are pending? >> certainly we can do that. i will do it for the record. >> do you have any closing scheduled for the sheer? >> nine right now, no, sir. >> not at all? okay. i get concerned because folks over the place talking about subsidies as picking winners and losers but i think the difference between doing this right and doing it wrong. you look at countries like france and subsidize nuclear china seems to support everything massively. and will consume a great deal is families in this country have been funding opec to the tune of $127 billion trade deficit. they are building palaces and we're trying to get by here. there's so many indications that something is wrong, and what really puzzles me is i don't get a sense yet of the loan program that the department of energy gets it. when i look at all these programs that are failing, solyndra, the first recipient went bankrupt, deacon, the third

recipient went bankrupt. abound the fifth do you belong guarantee went bankrupt if used -- a few weeks you. first win has withdrawn its ipo. nevada geothermal, the fourth recipient as a going concern but when you look at the things we've learned over time from these hearings, they were so many signs that solyndra was having problems. all these federal agencies and departments were saying this is a bad investment. omb, treasury, justice, d.o.e. employees, investors in solyndra, pricewaterhousecoopers, lawrence summers, the president's economic adviser were all saying this is a problem. and yet with all those indications, i think what could've been a loan program turned into a white house and department of energy earmarked program saying, we're going to do this anyway, despite all the signs that know what's going to get it back. and didn't ignore the law about, but taxpayers getting paid less.

what concerns me here, and the reason why we need to look at this law, is department of energy is still not admitting problems, still not admitting failures in how the department of energy handled this, how they ignored the warnings of failure, and continued on anyone the secretary of energy is here, having an attitude which concerns the taxpayers with regard to throwing money down a hole, even though we knew that whole have no bottom. if we could make a movie of how the department of energy is handling this, of how the department of energy would have a typical staff meeting to discuss all these failures and how they handled it, it would look something like this. could you play the clip, please? >> remain calm, all is well. all is well. remain -- ♪

>> i yield back. >> at this time i'd like to recognize the gentleman from texas, mr. green, for five minutes. thank you, mr. chairman. and not enjoyed that movie, too, but i don't know if you relate to the department of energy, but thank you to my colleague from pennsylvania. one of the issues i think i have is, and my colleague mentioned it, we have competition for going to more energy efficiency, whether it be solar or wind power, and i'm frankly successful in my part of the country, texas, the biggest growing wind power in the country. but unlike some of our competitive countries, if you do what would happen with solyndra, and some of our countries you would be taken out and shot but we don't do that in a country. we call you the worst legislative hearings.

so i want to welcome you. i join my colleagues on both sides of the aisle in frustration and anger on the failure of solyndra, and i participate in oversight hearings before, and was on the committee when we wrote the law that created this loan duty program. remember it was under a republican house and a republican president. we originally authorized the program. so my friends and colleagues on the madurese a champion is provisioned in 2005 we worked in a bipartisan manner and we had our fight, to come to work together and actually legislate. in that spirit i want to invite both democrats and republicans to work to fix the slope from -- don't program. we can learn from mistakes that we've made and strengthen the program that once enjoyed bipartisan support. but i cannot support legislation which is truly tragic. it's a transparent attempt at political messaging and i serious effort to solve the problems that allow the taxpayers be on the hook for

solyndra. the bill stands no chance of being taken up by the senator, or even the chance of being signed by the president. instead, let's not waste this opportunity. we can write a bill that fixes this program. the american people elected us to govern, and on something like this it's our obligation to find consensus and not create irreconcilable political differences. however, bipartisan differences can be solved by eyewitnesses. my goal is to do for solar what we've done in wind in our country. like i said, and a state of texas we've done great with wind and we're going to do with solar if we can find some state money to do it. but mr. frantz, i thank you for appearing today. i know the d.o.e. acknowledges some mistakes in the case of solyndra, and one of the issues that concern me greatly is the subordination of the loan. when we passed the 2005 energy bill i remember the language being included saying that taxpayers interest not be subordinate to that of any investor. deal we did some legal gymnastics to justify under the law that the restructured loans

subordination was permitted. mr. frantz, what was the reason to seek outside counsel to draft that subordination memo instead of going to the department of justice? >> i can't answer your question, sir. that was handled by our chief counsel's office, and the general counsel's office of the department of energy. >> we want to avoid another situation like that. we had with solyndra, and i understand the we believed they were doing their best to save taxpayers money by subordinating alone. but it turned that in retrospect a judgment of the agency was flawed in this regard. is in current policy of the we that loan guarantees can be subordinated after restructuring? >> that's, that's the position we've taken. we'll never have to do it, and as i've indicated in my testimony as follows and questions in questions from the committee, it is a tool of last resort on our attempt to save taxpayers money from a pure liquidation scenario. >> well, learning what we've learned from solyndra, does

restructuring seem like a risky bet now? >> i guess i don't understand your question. >> well, you can we talk talking $500 million, and i basically threw good money after bad. and it seems like somebody on to say hey, that was a bad decision we made. >> the decision that we took, congressman, again was in the time, at a time and in that place. hindsight is always more valuable than foresight, for sure, and it is a very appropriate transaction at a time. obviously, would not do it again doing the circumstances we do pretty good in the marketplace. >> my concern is the '05 energy bill that put in there that you couldn't subordinate, and it was efforts to do that by getting some great drafted letters, and i practice law, too, but you get three lawyers, i can get you for opinions depending on how much you want to pay. but i think this committee ought

to work in making sure that subordination is not allowed, and i thought that's what the '05 energy bill did. but obviously it didn't so that's what i would of our legislation would be, that we make sure that the taxpayers dollars always come first before the private investors. mr. chairman, i know i'm almost out of time. i thank you for the time. >> thank you very much. at this time a recognize the gentleman from texas, dr. burgess, for five minutes. >> i thank the chairman for the recognition to mr. frantz, but stay on the subordination issue. the energy policy act of 2005 i'm sure you're familiar with it because you one of the original higher loan project office in 2000 administered this program. in 1703, the clause under subordination reach the obligation shall be subject to the condition that the obligation is not subordinate to other financing, simple, straightforward statement on even a nonlawyer like myself can understand it. the difficulty that i think mr. green is exactly right in

his life question is exactly correct, but the difficulty goes to them, the law does not go on to prescribe any penalties, civil or criminal, for violation of this. so while i believe the secretary to been in technical violation of this passage of the energy policy act of 2005, there is no penalty. so for that reason earlier this year, i introduced another bill, 5863, to prescribe civil monetary penalties between 10 and $50,000 for people who violate this statute, the bill is based on the anti-deficiency at it has over a century unprecedented i was oblivious maybe a better way to get at this problem. you reference that, well actually secretary chu from our committee, he reference of the committees that were on the watch list. can you provide us with a list

of those companies? i'm sorry, companies who were on the watchlist? can you provide -- i don't expect you to have after in the disposal. will you provide that to the committee? spent i will take that question for the record. >> and the reason i want you to be responsive, the reason why it's important because the whole purpose of this is no more solyndras, maybe he should be no more loans subordination. are we at risk for the department of to look at courtney alone as a last ditch effort to save taxpayer dollars as you describe. i want to help you here. you keep talking about hindsight is perfect. i want to sharpen your foresight so that we can anticipate the next loans subordination activity, either have it not happen or if it does happen, nature would follow the letter of the law. or if we don't, that people understand our penalties for not following the letter of the law. now, also on the issue of hindsight or foresight, or whatever site we're on right now, we heard several people talk about the fact that it was

the chinese that actually sandbagged solyndra. they dump a bunch of stuff on the market. do you recall that as being part of the discussion? >> well i mean, factually it is a part of the discussion. >> no. actually, four days prior to the closing of the loan, there's an e-mail from energy branch chief of office of minutes of the veggie, tab seven in your evidenced by comparison enough from energy branch chief, and also in disappear that describes the problems. he wants them to slow down to cases you going to fast. you're not following the rules. and then referencing at the bottom of the e-mail, chinese solar firm revises price. as prices slump, solar industry suffers. more sun for less. solar panels drop in price because of chinese imports. this was known. this was not a surprise. this was not new information. your own office of the management of budget was saying we need to slow this thing down and follow the rules. but instead it was speeded up

for reasons that this committee, to the best of my knowledge, still has not been able to discern. and actually where this whole investigation has hinged. the administration would've done itself a favor to get out in front and be honest with the committee if this is a mistake. if we accept the fact that people make mistakes, then we can improve our policy from recognizing those mistakes. a big mistake was major, and then it was, you papered over it. you glossed over it and went ahead. you have any comment about that? >> i don't. i have a look at that. >> you have the evidence binder in front of you? >> i do not. >> where is it? sorry, we will get it for you. i want you to look at that while you are still here if i could. dr. hogan, i have one question on energy efficiency. you spoke a lot a good husband about electric cars but in effect is kind of interesting on the less energy and water probation still there was an amendment from a representative from california who wanted them she said people suffered from anxieties and electric cars and she won't help them with. i don't know what you do short of a tournament extension cord.

but there are other technologies, and this whole concept of picking winners and losers down in my neck of the woods, t. boone pickens talks a lot of it using natural gas to power especially the big rigs on the road. why would we pick electric car technology when there are competing technologies that of people are investigating, why pick a winner over a loser in this instance? >> first as i said in my testimony, the department of energy has a full portfolio of are indeed in a vehicle space. we are interested in natural gas and would enjoy having a conversation with you on the. but as you look at the different vehicles that are out there, the different because we use in our economy from light duty to heavy duty, it does seem that different technologies have sweet spots in different areas spent and i recognize my time has expired, but the difficulty that you have is consumers don't want what you're trying to make. and we'd be far better served if we let the market absorbed the

appropriate signals and respond, rather than us try to force an issue on the american people. mr. chairman, in the interest of time i would go back. i know we have a vote thinking. >> thank you. anyone on your side? okay. who do we have over here? this time to recognize the gentleman from georgia, doctor gingrey, for five minutes. >> mr. chairman, thank you. mr. frantz, i know it seems like we beat this horse to death, but i don't think quite so. so i want to go back to this issue of subordination. particularly in light of the fact that you have said repeatedly before this committee this morning that you believe that under this loan program, you have the authority to subordinate in an extreme situation. you have said that a number of times, and i'll be happy to have

you either refute that more than permit. hit -- or confirm it. but here is the situation. in the private sector, if they alone were to be subordinated, and it's a scenario that you describe that the borrower is about to default, to declare bankruptcy, or whatever. and the person that made the original loan that's in the first position is going to likely lose all their money because of the bankruptcy that is likely to occur. and a deal could be struck, maybe the original lender has no more money, or is unwilling to put up any more money, throw good money after bad, as the expression goes. and somebody else though is willing to do that.

maybe because they get a high rate of interest to come in and pony up some more money. you might be able to restructure a deal like that, i would think, now you've got a legal team behind you of young, bright looking people, and you've been in business use of a long time, and may be done some of these deals. you would have to go to that lender that's in the first position and get their approval before you could restructure and subordinate them to a secondary position, we do not? >> you do. you're in consultation with them, as we were. >> you were not in consultation with me. i'm a taxpayer. you were not in consultation with we the taxpayer. that is the problem here and that's the thing that just amazes me, that you don't seem to get. now, there was a memo that our committee obtained that jacob lew, the former director of omb

said, not only to the department of energy, but as i understand, to every other agency in the department of the federal government, very specifically says, it was circulated a-129 this, to be exact, this guidance documents a center then director of all the jacob lew to heads of department, you cannot do this. under these of those programs, whether the other department of energy, department of agriculture, or where ever throughout the federal government. this cannot be done. and you guys were told repeatedly, consult with the treasury. after all, it was in the department of treasury where the money was being the land. -- being event. and you repeatedly refused to go to the source of the funding to say, to ask the question if this is okay.

it just as my colleagues pointed out, as some rookie, junior council in the department of energy to give you a quick and dirty opinion so you could go ahead and get this done and get it out the door. and that's where you, and i say you, and i use that term, mr. frantz, generically. i think you've been a good witness. i think you've been honest with us. but i think you were honestly wrong in thinking that you could continue in this loan program. and i like some of my colleagues on both sides of the aisle are i'm not ready to say that we should throw the baby out with the bathwater and just eliminate the loan programs entirely. i want to thank very long and hard on that before i would vote to do that. but if you're telling me that if we continue the loan program, and you're the guy there, you're

the straw that stirs the drink in regard to this loan program, and another extreme situation comes up, in your judgment you would subordinate the taxpayer. if that's the case, then i would say let's get rid of the damn thing. i don't think you have the authority to do that, and if you're, you know, i want you to respond to me, and if you're unclear about it, you get together with your team and y'all better look at the documents i said this long and hard, because i think you're flat wrong on this. >> welcome my own response at the expense of just the reiteration of my comment, we would hope to never have to subordinate. it is a tool of the last resort. i have more experience in the private sector quite frankly -- >> let me interrupt you for just a second, because you're going down the same path. it is not a tool of last resort. in your quiver, in your toolbox, you don't have that tool.

don't you understand that? >> the advice, and i again do not have a license to practice law, so i have to depend on civil service advice of our general counsel's who reached a different conclusion, serve. >> well, i suggest that you go back with your counsel, and i suggest that you talk with the attorneys and the bankers in the department of treasury, and maybe even, you know, we will sidebar with jacob lew himself and look very carefully at circular a-129, because mr. chairman, again, i apologize to my colleagues or, as i say, going back to this issue over and over again, but the gentleman just doesn't seem to get it. and that's the reason why i think we just need to make sure that he does get it. and with that i would yield back the. >> thank you. at this time i recognize the

gentleman from kansas, mr. pompeo, for five minutes. >> thank you, mr. chairman. indeed, mr. frantz, for being here today. i've heard two different, we've got this bill, i think it's a good bill, trying to mature that would let anything like solyndra. i've are two different descriptors of the problem. mr. frantz, you cite the prom as inadequate foresight, not enough dedicate a guide to do it again you would do differently. you might not make the loan, you might not do the subordination. that's what identification. the psycho whenever from folks on both sides here today is what you think a few more processes and procedures, and gosh, we won't ever end up here today. those are both wrong. the government has no business having to in section 70 know five or seven -- section 1703. you testified here today, it's inevitable that there will be loans go back. i came from the private sector. ..

>> i r i want to talk to you about we've got a provision that does let some folks continue in the 1703 program, those folks that have already filed applications. if we went further and said you couldn't disperse funds to people even in those, tell me what that would do to you in the loan office. >> well, i think, congressman, the point is that the program was established as a bipartisan program to bring new and innovative technologies that also reduce, sequester greenhouse gases and pollutants.

having spent my whole career in the energy infrastructure industries, this is high-risk business. the other point i'd like the make for the benefit of the entire committee is that this involves what we call discretionary capital expenditures. major corporations don't have to do this. what has happened, though, the success of this program has, is that we have brought small investors as well as large investors forward to take very high-risk decisions in employing and bringing new and innovative technologies to the marketplace. we have done it very successfully. and otherwise that would not have happened. >> you didn't answer my question. >> other testimony here -- >> i don't want to debate the policy. i have more confidence in the private sector, you have more confidence in government. i understand that distinction. i asked you a specific question. if we denied any further guarantees from being made, even those folks who had provided applications to you so far, tell

me what that would do -- >> well, we have a group of projects which i've indicated which are 1703 qualified, that did not make the sunset deadline of september 30, 2011, and within that cadre there are new and innovative project that is we want to bring to commercialization. >> how much money have these companies expended? i'm concerned about the private entities that have already put in money and relied on what i think is a terrible government policy. nonetheless, i want to try to avoid doing harm to them to this transition of what the new world might look like. >> i'll have to do it for the record. i don't have those numbers right if front of me. >> good. thank you. with that, i yield back the braps of my time. >> gentleman yields back the balance of his time. at this time i recognize for five minutes the gentleman from colorado, mr. gardner. >> thank you, mr. chairman. appreciate your time and to

mr. frantz and ms. hogan, thank you very much for being here today. just a couple of quick questions for you. when it comes to solar prompts, how many -- projects, how many loan applications do you have in this program. not how many projects, how many applicants do you have right now? >> in solar generation there are 12 projects. in solar manufacturing we have four projects, but only two of those four have been disbursed or we have gone forward with. two are on hold for the reasons identified in this hearing today. so those are the major -- so it's, essentially, 12 plus 4 for 16. >> does that include solyndra or bound -- >> it does, sir. >> it does. >> yes, sir. >> what -- you set a number of benchmarks and milestones. >> yes, sir. >> and so are those just major

milestones, or are you actually monitoring compliance with the terms of the contract itself? >> we're doing both, as a matter of fact. >> so you're making sure they're complying with every term of the contract? >> yes, sir, we are. on a weekly to monthly basis on every project. now, there's a reasonableness, and that is what we've done now going forward, we're putting phased disbursements against absolute, hard milestones. and we will cease disbursing if, in fact, they're not meeting their milestones. >> okay, but in terms of the terms of the contract, are all 12, 14 however in existence today, are they meeting every term of their contract? >> to the best of our knowledge. don't confuse the milestones with defaults. they're not in default. the only ones that are in default are the ones you've identified, the committee's identified. >> but if they're not complying with the term of the contract, are they in technical default? >> no. we're working with them, if we can, to permit them time to make -- i mean, for example, a

perfect example, you're familiar with if there's a turbine that has some blades that aren't working, but if there's a fix, it might delay the schedule. >> what about the terms of the contracts? every single one of these are complying with the terms of the contract to the t? >> to the best of our knowledge. i mean, we're -- as i said, we're monitoring them on a weekly basis. >> all of this are paying davis bacon wages as required? >> to the best of my knowledge. i don't know of any that aren't. >> was solyndra or bound paying davis bacon wages? >> i'll have to take that information for the record. i don't have that information in front of me. >> the loan was closed for about ten months before funding was cut off. what changed in those ten months? >> the marketplace was the deciding factor. they -- >> months you didn't know it would happen, you didn't see it coming? >> we didn't until after we had closed. >> the, i'll just switch to questioning of ms. hogan.

talk about energy savings performance contracts. i helped lead a letter to the president and over 20 republicans signed this letter actually commending the president for his work on $2 billion worth of investments in energy savings performance contracts, making sure we encouraged those projects to actually go forward and happen. but there have actually been 55,000 potential energy conservation measures that have been identified. can you tell me where we are in reaching those? >> [inaudible] >> where are we in terms of reaching -- there's 55,000 potential energy conservation measures agencies have identified. >> right. >> can you tell me what we're doing to advance these measures? where are we? >> yeah. certainly, we're working with all the energy conservation measures they have identified. certainly, one cannot fund all of the measures just because they have been identified, so one of the big, um, conversations is where does the funding come from and what appropriations that agencies have to put toward that as well

as what use we can have of the energy performance contracting. >> and, of course, the energy performance contracting you don't need to have funding because it's all done through the private sector. >> correct. so with the energy performance contracting, our big effort right now is to help the federal agencies be successful with the president's challenge for the $2 billion by december 2013. >> but we know in 2011 energy savings performance contract project investment was $253 million, but that's the lowest level, actually, since 2007. can you talk a little bit more about why we're not actually encouraging more energy savings performance contracts to actually get to the $2 billion? >> um, so we are encouraging them as aggressively as we can. the president's challenge to the federal agencies has been a great way to get everyone focused on what performance contracting can do, and we've got a tracking system in place where each of the agencies is

being measured toward their piece of the commitment to the president's goal with sort of monthly tracking to see where they are. and we are right now on track to get there. so we're feeling pretty good about that. >> thank you, miss hogan. mr. chairman, i yield back my time. >> at this time i recognize the gentleman from louisiana, mr. scalise, for five minutes. >> thank you, mr. chairman. i appreciate you having this hearing. i know we've been looking into solyndra and the entire loan program for a long time now, and the committee, i think, has done tremendous work in uncovering not only this scandal related to solyndra, but a lot of the flaws in the loan program. i want to ask mr. frantz when we had, and you've had some conversations with other members about subordination in general. where in the law is it that you feel you have the tort to sub ord -- the authority to subordinate taxpayers? >> again, congressman, i have to

defer to the opinions of the civil servants and the general counsel's office in the department of energy and our chief counsel. i do not have a practice -- >> well, you're hiding behind civil service, but it's my understanding, and i'm not sure how much you've reviewed a lot of the documents that we've reviewed on this loan program especially as it relates to solyndra. but going back to prior to the decision to subordinate the taxpayer, we uncovered some communications it seems like with an outside law firm that department of energy was having on subordination, whether or not it was legal. and it was our understanding that there was a draft of a legal opinion from outside law counsel that it would not be legal to subordinate the taxpayer. and at that point the department pulled back and said, no, we're just going to go find somebody in the-house to give us the opinion we wanted. and that's where this memo came from. are you familiar with that -- >> with all due respect, i can't really comment on your question. >> are you disputing that any of that happened? >> i'm sorry? >> we've seen some of that

information. are you disputing that there was outside come -- >> i'm not -- >> -- counsel talked to about subordination? >> i'm not disputing it one way or the other, i'm just not familiar with those communications. >> well, let me ask you because we've talked about some of these other problems, and many of us have disputed whether or not you even have the legal authority to subordinate. you're saying here today that you still think you do have the legal ability to subordinate. again, if you can show me in the law where you have it, that's one thing, but you're hiding behind one legal opinion. so then you went and, i guess, forum shopped. that's forum shopping in the department of energy. but even within the obama administration we've got, we've got e-mails from the department of treasury telling department of energy that we don't think it's legal for you to do this, you ought to go talk to the justice department. did you see those e-mails? >> i did not, sir.

>> i don't understand how you can sit here and tell us you're serious about reform in this loan program. you told mr. barton we don't want to make the mistakes of the past. you don't even know what happened. this stuff was broadcast on c-span. you can go find the list. we had to subpoena some of these documents, and you're telling us you didn't even go look at this? and yet you're serious about reforming a program when you didn't review the record of what we've uncovered in this investigation? there's stuff you can read in the newspaper about the problems leading up to this subordination, and yet you're telling us you don't even know what happened, you don't even know this history, but you're serious about reforming the program, and you don't even know how it got to this point? >> i'm familiar with what we did and how we did it. i'm not familiar with the background information -- >> but the background is part of what got us to this point, what got the taxpayers to having lost $535 million in money. it wasn't just on this committee saying it shouldn't have been

done. you had others in the obama administration saying you shouldn't do it. and there are e-mails saying this. and you're telling me you haven't even read those e-mails? >> no, i have not, sir. >> well, you better go back and read them. it's part of your job to know how we lost $535 million of taxpayers' money. you're admitting how many more billions of dollars in the taxpayer money are out there at risk in these loans? >> as i've indicated to you and to the full committee, this is a high-risk business -- >> that's a question, how much money? many how many billions of dollars are at risk? >> i don't have that -- not particularly clairvoyant enough to know what the future holds. >> no, how much money, how much taxpayer money is invested right now in these loans? i would think you'd be able to give me an answer. you run the program. >> will yeah. i can tell you under the 1705 program, 16.1 billion is committed. >> so there's $6.1 billion of --

$16.1 billion of taxpayer money. private sector said we probably don't think these investments are good enough, so we're not going to invest in them, so these companies went to the taxpayer, they went to your agency, and they got taxpayer money. and so you're now the steward of that taxpayer money. i would hope you would go back and look at the history of how we've lost hundreds of millions of dollars of taxpayer money because there's still billions out there. i mean, do you understand why it's important that you know this history? >> i -- sure. certainly, i do. >> well, then i just find it perplexing you're going to sit here and tell me you haven't looked at it yet. because we've had hearings on this stuff, members on both sides that are read this. some people fought us, but we passed it anyway. we got subpoenas, we got the documents. and many of those e-mails said don't do it. and yet you're sitting here still saying you're going to do it. you'd subordinate the tax taxpayer -- go with all due respect, congressman, this is a tool of the last resort.

we hope to never have to use it again. >> but you said you're still willing to use it? >> until the attorneys advise me it's a tool -- >> which attorneys? some attorneys were going to advise you not to do it, so you went and found other attorneys. it's your job to look at this history because there's billions of taxpayer money still at risk not to mention what was already lost with solyndra, beacon and -- >> gentleman's time has expired. >> we don't, apparently, have a document notebook for this hearing, and i would just request that mr. scalise place the documents that he's referring to, the outside counsel opinions saying that the subordination was illegal into the record so we could know what he's talking about. >> we've got many documents in the record, thousands -- >> that would be helpful, thank you. >> we'd be happy to continue to go down this road -- >> all of these documents in the record of prior hearings of oversight investigation, we'd be happy to put them in the record of this hearing. at this time, i'd like to recognize the gentleman from california, mr. bilbray, for

five minutes. >> madam -- ms. hogan, would you clarify something? we talk about electrification both for transportation and for generation, and both of them in the most efficient form need a quantity of rare earth to be the most efficient out there. my question is, when you guys are talking about this, how much discussion do you have with the interior department about be we want to go to electrification, if we want more wind generation, if we want to produce this domestically, we've got to have or we should have domestic sources of essential components of this. how much interrelationship or communication do you have with the interior department about opening up public lands for mining of these rare earth or other components that are essential? what is it, 70 pounds of rare earth in a prius. is there any discussion at all

about assuring their sources for the raw materials that ought to be able to produce these strategies, things like electrification? >> yeah. so we're dealing with the rare earth issue, um, in a number of ways. and that includes having put together a strategy on rare earth materials, um, so that we can actually understand the criticality of them and the things that we need to do. we are engaged broadly across the federal government in what the opportunities are to sort of assure those supplies -- >> you're aware that china is already using the rare earth strangle on japan for their foreign policy stuff based on the fishing. okay. let me go right to the thing. we all agree that conservation overwhelmingly tends to be the most cost effective way of saving energy and saving money, right? we require mileage efficiency out of our cars, don't we? do we require under our

transportation funds energy efficiency out of our roads? university of texas, university of missouri, shown studies that inappropriate traffic control can be adding as much as 22%. and i know i sound like a broken record on this, but when we point fingers at the local businesses and we point fingers at consumers and say they must change the way they do business, how can we walk away from one of the largest, um, opportunities we have to reduce fuel consumption and pollution when is it just because government so we just don't hold government to that standard? >> i believe what you're referring to are ore strategies -- other strategies you can use to address transportation dealing with vehicle miles traveled, dealing with congestion issues. again, that is, um, an area where the department of energy is actively engaged with the department of transportation and others and addresses those

issues through sort of a clean city -- >> what kind of outreach do we do to local governments, county, the league of california cities, counties. things like a stop sign is five times more polluting than not having one. why are we continuing to not only pay for, allow, but pay for local government putting up four-way stop or putting up instead of yields or not synchronizing traffic signals or not using more round abouts which are one of the most efficient? why aren't we as aggressive with our local, county and state government as we are with our automanufacturers with our cafe standards? >> well, certainly we can have a conversation about what the role of the federal government is in this base. what we have been doing very actively, um, for a number of years is working with our states and our local governments to bring forth the best practices to actually show them what the benefits are with these various strategies so that they can adopt them, and, you know, that is having a fair amount of effectiveness. >> okay. i will just tell you because i

come from the local side. but i'll tell you we have spent decades talking about fuel efficiency in the cars, and i would challenge that this committee has held more than a few hours or even a few minutes' discussion about how to require traffic management to be modified to be the more efficient. and that when you talk about studies showing as much as 20% of mobile sources, this is a big deal that i think our credibility is destroyed if we say we're going to do this to the private sector, but if it's the public sector creating the problem, we're just going to overlook it. it looks like rather than being pro-environment and pro-conservation, we're anti-private sector. i think we can gain a lot of credibility by being as tough on our fellow government agencies as we are on the private sector. i've been on dan lundgren and the local about the fact that we can't even allow a blinking amber light next to this building because it's just so much easier to just have a blinking red light.

and it's just why bother because every one of those blinking red lights forces consumers to burn more fuel and pollute more, but we stand by and don't bother because it just seems too small to bother with. and i think when we talk of up to 22%, don't you agree, it's something that we need to go revisit and should be more aggressive on? >> i think we should always look at those types of opportunities and figure out how to share the best strategies that can get those types of savings, and we'd be glad to have a conversation with you on that. >> i appreciate it, mr. chairman. i'll just say to the ranking member, you remember in the '70s people said cars have to be big and heavy to be safe, to be polluting to be safe, and you find people who use, government will use the same argument that we have to have stop signs everywhere, we have to stop traffic. i think it's time that we put the pressure on our mayors and our county supervisors and state officials just like we put on our automobile manufacturers. and that's something both sides autoto be able to -- >> mr. bilbray, that's when i got my driver's license. i was just glad to have a car. [laughter]

>> we look forward to working with you on that. we have votes on the house floor, and i understand we have, like, seven votes. and so we're going to dismiss the first panel. mr. frantz, dr. hogan, want to thank you for taking time to be with us this morning. we appreciate your testimony. and we look forward to working with you as we move forward. those members, those panelists on the second and third panels i do apologize in advance for this delay. finish we're going to make every effort to be back here within one hour which would give everyone the opportunity maybe to go have a wonderful meal at the cafeteria, and then you can all come back refreshed, and we'll meet you back here, hopefully, at 15 til one. so the committee is in recess until then. thank you.

[inaudible conversations] >> coming up on c-span2, u.s. solicitor general donald verrilli on the supreme court's health care ruling and other major decisions of its recent term. then we're live as vice president biden speaks to community leaders about retirement security and other senior issues. and later, the senate returns for work on a judicial nomination for the u.s. district court of new jersey as well as a campaign finance bill known as the disclose act.

now, u.s. solicitor general donald verrilli gives his assessment of the supreme court's health care ruling and other major cases from the court's recent term. he's joined by michael carvin who argued on behalf of the national federation of business in the health care case before the supreme court. the hourlong forum was held at the heritage foundation in the washington d.c. [applause] >> thank you, rachel, and thank you, ladies and gentlemen. i have joined in welcoming all of you here to the heritage foundation and to this annual event looking at the most recent supreme court term. we've had, as you know, over the last several weeks a number of rather momentous decisions by the court, and so we have the scholars in this panel and the scribes in the next panel to analyze them and put them in perspective and to give their opinions and their analysis of

what the supreme court has done. we have as the scholars here three excellent attorneys, people who have themselves participated in either actual appearances in advocacy before the supreme court or extensive writing about it. our first speaker who has requested to lead off the pack is the honorable donald b. verrilli jr., the solicitor general of the united states, and we appreciate very much, mr. solicitor general, that you will be here to talk about the cases. the solicitor general has been held various offices within the department of justice. before that he was in private practice, and in that capacity with gender and block, was in charge of their appellate practice. he also has been active in pro bono work, helping to serve the

community, and has received several awards for that effort. in addition to all of this, he has been a commentator on supreme court advocacy and graduated from yale university and has received his doctor of jurist degree from columbia law school. he served there as editor-in-chief of the columbia law review and later was a clerk at both the courts of appeals for the d.c. circuit and also for the honorable william brennan, then-justice of the united states supreme court. our second speaker will be mike carvin. mike also has extensive appellate experience. he served in the department of justice and handled a number of cases there and now is in private practice again heading up supreme court advocacy there. he was one of the lead lawyers in the famous case of bush against gore and argued in that case. he has been involved in a number of other major cases, and we're

pleased to have him with us this morning. and our third speaker is professor richard epstein. he is a distinguished professor both at the university of chicago law school and also at new york university. he is also, started his career really in california at the university of southern california where he started teaching and is also a fellow, a colleague of mine at the hoover institution at stanford university. he is an extensive writer on legal subjects having published many books and even many more articles of various sorts and specializes in teaching in a variety of legal subjects including constitutional law and legal history and law policy. we're very pleased to have all three of these speakers with us and, please, join me in welcoming the first speaker, the

solicitor general of the united states. [applause] >> thank you. i'm just going to take a sip of water here. [laughter] and having done that, thank you, general meese, for that gracious introduction. i'm sure you all understand that because of my position i'm not going to be offering any personal views today about the court's decisions or the term. i'm going to stick pretty close hi to what the government said in its briefs and in the argument and the summary of the court's rulings. i'll kick us off by touching initially on three cases; the health care case, the arizona immigration case and united states against alvarez. on health care at this point, it's not clear how much i can add to what everybody already knows given the saturation coverage of the last couple of weeks. i think it's safe to say that everybody knows that the court

upheld the affordable care act's minimum coverage provision which, and the insurance reforms of which it's a part which will make affordable insurance coverage available to millions of people who cannot now obtain the health insurance they need to gain access to the health care system. everyone knows that the court also held that congress has the authority under the spending clause to enact the affordable care act's medicaid expansion. but that the states could not be required to give up their existing medicaid funding as a condition of declining to -- if they were to decline to participate in the medicaid expansion. i'm sure that mike carvin and professor epstein will have more to say about the decision, and i'm sure we'll get into it in a little more detail later. the bottom line is that the court held in the main that the act is a legitimate exercise of the federal government's constitutional authority. i'd like to spend a little more time on the arizona case which

was, you know, also quite significant decision over the last week of the term, and it had a couple of days in the sun but then was very quickly obscured by the health care decision. the court held in that case that three provisions of arizona's s.b. 1070 immigration law were preempted by federal law and declined to hold that a fourth provision which required state officers to check the immigration status of anyone lawfully detained for other reasons was preempted, at least in advance of seeing how that provision would work in operation. the three preempted provisions were section three of the state law which made it a state crime to violate a federal immigration requirements, section five of the law which made it a crime for unlawful aliens to seek employment in arizona and section six of the law which allows warrantless arrests of people officers had probable cause to believe were removable

under the immigration law. the constitution vests authority over immigration in the national government and that each state is not free to impose its own regime for deciding who may lawfully be in the state. i think that's best seen in the court's ruling on section three of the law. there the court held that congress had occupied the field regarding registration and removal of aliens and that states could not enforce their own sanctions even if the substantive standards that the state was purporting to enforce were identical to the federal substance standards. and i think it's significant that six of the eight justices participating in the case joined that bottom line conclusion on section three of the law. section five of the law, i think, is also significant. there the court held that because congress had stepped in and enacted a very significant set of standards to govern the sanctions for employment of

unlawfully present aliens, that the state couldn't add sanctions over top of what congress did absent the specific savings clause authority that the federal act had previously granted. and then you also had section six of the law. so, you know, i do think that those rulings, particularly the ruling about section three, is really quite significant. court, of course, did allow section two of the law to go into effect, that's the provision that requires state officers to check on the immigration status of persons who are lawfully detained for other reasons. unlike the decisions that the court found preempted, the court thought this was capable of being implemented in a way that was consistent with the federal government's immigration authority. what did can include caveats indicating how the law was actually interpreted by the state courts and enforced and practiced could have a bearing, ultimately, on whether it was a lawful exercise of the state's authority. but the court did allow it to go

into effect. a couple of minutes on the united states against alvarez. i think it's fair to say that it's of considerly less practical significance than either of the two decisions that i've mentioned so far. but it is a case of doctrinal first amendment significance. the court struck down the stolen valor act which had made it a crime to have falsely claimed having won a military honor. alvarez had made a false claim that he was a medal of honor winner. one thing significant about it was that there was no opinion for the court. there was an opinion by justice kennedy for four members of the court which built on, of course, the decision a few terms early in the stevens case to hold that there was of no categorical exemption from first amendment protection for false statements of fact and can that false statements of fact that fell into historically unprotected categories such as defamation or

fraud were beyond the protection of the first amendment but that the broader category of false statements of fact were not. two members of the court, justice breyer and justice kagan, did not join that opinion, and it's stevens-based analysis and instead suggested that this kind of case was something that called for something approaching intermediate scrutiny. but they found that while the government had significant interests in the law, that the law would not, that there were other means by which the government could have achieved it interest and, therefore, the law was unconstitutional. justice alito wrote a dissent for himself and justice scalia and justice thomas who upheld the law on the ground, essentially, that false statements of fact have been held to be beyond the protection of the first amendment in numerous contexts, and there was no real risk of chilling of constitutionally-protected speech here. the government's argument was really the argument that was

encapsulated in the dissent, but we didn't prevail in that one. anyway, those are three cases that i put on the table, and i'm sure we'll have an interesting discussion about them later. >> thank you very much. [applause] now if you'll join me in welcoming mike carvin. [applause] >> um, unlike the solicitor general, i will be offering my perm opinion. [laughter] one of the luxuries of being in private practice. i don't know, i did argue the case for the nfib against the individual mandate, so it's sort of like the old saying, right in the operation was a success, but the patient died which is sort of how -- [laughter] you know, some really good commerce clause rulings and then the chief justice in what the dissent accurately characterized as an act of sophistry rewrote the statute and gave congress

all the power that had just been removed under the commerce clause power. so i thought i'd walk through it pretty quickly to explain why this was clearly a judicial rewriting of the statute and not an interpretation of the statute as chief justice correctly noted. the test between what is a penalty and what is a tax has always been relatively straightforward in the law. if you have a legal violation that you can't offend, then whatever monetary consequence is attached to that, that's a penalty. if it says don't do something and you do it and they put a penalty on top of it, that's a penalty, can't be a tax. if they ban cigarettes across the united states and say if you sell them, the penalty is a $5-a-pack fine, that's fine. that's a penalty. if they say go ahead and sell cigarettes, we're not making that illegal, but went you do, we'll attach a $5-a-pack surtax, same economic consequence but one is obviously a tax and one is obviously a penalty. chief justice roberts looked at

a provision and said you shall buy insurance, and you will pay a penalty for failure to adhere to this legal requirement. and he interpreted that to mean you may pay a tax if you don't do what the government suggests. so he clearly rewrote the statute, he didn't look at the structure of the statute which had different exemptions for the penalty on the one hand and the mandate on the other which conclusively as the defense pointed out that they weren't the same. just a high level of generality. obviously, the federal government didn't want money in from the individual mandate. they wanted people to buy insurance. so the last thing they wanted to do was to have them pay the penalty and forgo the insurance. and the chief justice made much of the fact that this was being enforced through the irs, so it looked and smelled like a tax, but that sort of overlooks the obvious point which is who else but the irs can monitor

enabtivity -- inactivity by its citizenry? you can't establish a new bureaucracy to say have you bought your health insurance, have you bought your broccoli? the only way you're going to be able to do it is to have the americans who have to send in these things every year to the irs tell you whether or not they bought the mandate, right? so, again, some conservatives are taking solace in the fact that, well, really all the chief justice did was rewrite the statute. he didn't rewrite the institution. he made some good commerce clause law, but i really don't think that survives scrutiny either because everything he said that the commerce clause was designed to prevent the federal government from doing, ie imposing a mandate to buy a particular product, he then turned around and said they can do that under the taxing power. and they don't have to call it a tax. it's not a question of labels, this is a question of, again, whether or not there's legal violation. so tomorrow they can pass a law saying you will buy broccoli or pay a penalty. the chief justice will rewrite

that to say if you buy broccoli or don't buy broccoli, you'll pay a tax and, therefore, everything that they couldn't do under the commerce clause they're now empowered to do under the taxing power. so i don't think it was a victory either in terms of limited government in the long term and certainly not in terms of the provisions of this act. i don't really think contrary to what some people have said that there's any real limits on his newfound principle that penalties can become taxes. some people are suggesting the penalties can't be too big, that doesn't make a whole lot of sense. you would think the bigger they are, the more the government would want the revenue. and also he said the outermost limit was 10% of your annual income. so they've got pretty, very serious ways of imposing these penalties by attaching a civil penalty to literally any activity or enact it. you could -- inactivity. you could repass the violence against women act and say if you commit violence against women,

you'll pay a civil penalty, and that will now come within the taxing power. so, and my final point on this for people who think this engenders respect for the court have a different attitude about how the judiciary's supposed to behave than i do. i don't think it engender ors respect for the court when you rewrite a statute in a way that enacts a law that congress, a, would never have enacted and, b, could never have enacted because they couldn't have passed this law if they'd honestly told the american people it was a tax. and i think that concern about independence of the judiciary is compounded, at least some of the stories that have come out about the timing of it, and it makes it look like -- hopefully wrongly -- that president obama's wholly improper and wholly unprecedented attack on the court while they were deciding the case somehow did influence the adjudication of the third branch which would give legitimacy to this kind of lobbying in the future, and i think it was a very unfortunate precedent, and i'm sad to see at least some reports about the chief justice's activities have

confirmed that it could happen again. after that happy note, i'll switch to two cases i actually did like the result in. one of of which don has already mentioned, the u.s. v. alvarez case, and all i'll add very quickly was i think it was very significant in which the court said false statements are protected by the first amendment. you had six justices opining on that quite clearly. they said the prior comments about false statements always were made in the context that you libel someone's reputation, you defraud them out of money, they weren't going to extend that into the political arena which i think is very significant because there are a number of state laws that require and create causes of action if you tell an untruth during a political campaign. you can imagine the court, the work that would create for federal courts if that was ever accepted on the federal level. and then finally, i'm running quickly out of time, but there was a significant decision, i

think, in the knox v. seiu case which involved can unions take mandatory fees and send it for political expenditures. and the law prior to knox had always been as long as you gave the nonunion employee the opportunity to opt out of the fees, that comported with the constitution. i think there was a strong indication in justice alito's opinion that from now on the constitutional rule is not to allow the employee to opt out of the payments that go for political advocacy, but to make him affirmatively opt in to endorse it. and if that's where they go with the law, i think that could have a significant effect on public union employees' ability to engage in politics and would have an even more significant effect if it was extended to private sector unions you should this case. but i'll leave it at that. thank you. >> okay. [applause]

>> and now, please, join me in welcoming professor richard epstein. [applause] >> thank you so much for having me here. again, i'm obviously going to have to say something about the nfib case. i should say i wrote brief on three parts of it attacking the mandate, speaking about sever and the also going after the medicaid extension. and i think the one point i would like to make is this: when i drafted the brief on the question of the medicaid exemption, everybody just kind of laughed. they said, look, this argument was so bad that it did not carry a single vote anywhere in the united states, republican or democrat. the argument was so pathetic that the state of texas and the state of florida refused to raise it before the supreme court. and they were halted against their will when the supreme court said we'd actually like to hear this kind of thing. with that kind of pedigree, seems you actually have a pretty

good chance of winning. [laughter] because the last fact is actually more important than all the others. the interesting feature about it is i actually regard this as a relatively easy case as a matter of first principle, but i thought it was an extremely difficult case as a matter of constitutional law. one of the worst cases ever written in the history of the united states supreme court, i will not mince words, was study south dakota v. dole because it was justice rehnquist, as was often his case, being too clever by half and saying, yes, we do have a principle which means that certain conditions that are attached to government grants are illegal, but i will draft that condition so it is never satisfied in the history of mankind. and he did it in that particular case by introducing a distinction between inducements on the one hand and coercion on the other. it's the correct distinction, only he drew it in the wrong place. so in his view if i stick my gun to someone's head and say give me all your money, that's coercion, but if i say give me 75% of what's in your wallet,

that's a mere form of inducement. [laughter] and you can't draw the line between what you ask for when you use coercive behavior. if i say, carvin, i'd like to get your wallet, and i'm willing to pay you x dollars for it, that's coercion. so the chief justice managed to repeal the law of property by not being able to understand the difference between coercion and inducement. in this particular case, the chief justice never wanted to attack the fundamental distinction. but what he did do was to make an argument which was completely inconsistent with what he said about the way in which you'll look at the tax. he said we're going to treat this thing as a tax because it's different from making a direct order to somebody or only saying if you don't do this, you have to pay. he's just dead wrong on that. the entire law of preemption says a penalty, in effect, is about the mount to an order particularly if you make it large enough u. but when he got to the other half of this thing, he said, looks, there's serious conditions you can and can't detach the government grants, and if we require you to

sacrifice something, then the action is not solen tear even though you may well choose to do it like many of the blue states were willing to do. so he takes a completely different view on the relationship and understands that the sacrifice of what was previously an entitlement would, in fact, count as o coercion under these cases. and under these circumstances what you're sacrificing is a government grant under terms of a contract where, in fact, you were allowed, the government was allowed to insist that they alter them in the arrangement. but thinking, i think, in this case more like an antitrust lawyer than a constitutional lawyer, he said just as a tying arrangement it's not going to be a defense, that's going to be the case here. and he came up with, essentially, the right conclusion; that you can condition the way in which the money you give them may be used, but you cannot tell them they have to give up billions in money unless they want to play ball with the government. everybody will realize that the larger the dependency you have on government on other programs

are the more hopeless you are in trying to deal with anything else. and so i think he made the right decision on that particular case. and what was desperately wrong, i think, on the taxing power. now, talking about some of the other things, i thought in the arizona case what struck me was when i read the scalia dissent, my eyes nearly budged out of my head was it's clear -- because it's clear in just looking at this hines and da vin wit says conflict frustration, everything's working in favor of the government, and mr. verrilli ought to win this one in a walk, and i thought he was going to win all four parts. but scalia says the states are equal sovereign, the federal government never had or exerted any power over immigration. in fact, if you look at the naturalization clause, naturalization does not mean immigration, at least in ordinary english. it only means the same thing by the time you get to the 1870s o 'l 0s, so he thought there was a dual sovereignty issue in

this particular case and unless you could show a reason why the state sovereignty should be displaced, then in effect he was willing to let the thing ride. i mean, it was an eye-popping decision. i think actually in the end he has to be wrong and that the preemption analysis would work. and on that basic score, i'm not even sure that the court was right in saying that it's okay to say that the state can refer people under cooperative arrangement. that would be fine, i think, if it turned out that the federal government was willing to have the cooperation. but the moment they announced we don't want you doing this thing, we regard this as an increase in the federal enforcement levels that we do not accept, it seems to me you could make a reasonably credible argument that the case could go in the opposite derek. now, how is it that any sane people could wish to bring the kind of action that the government brought in sack et against the epa? i'm not here talking about the law and whether it's a final

judgment under the epa, but you've got a guy who's about four block away from the water sitting on a piece of land which is rocky and stony, and he tries to build a foundation like those of his neighbors, and all of a sudden we understand this guy is discharging pollutants into the waters of the united statesment i mean, this is intellectual double talk of the absolute worst nature. the fundamental mistake in every piece of environmental legislation known to man is that instead of waiting for imminent harm when you shut people down or suing them for damages, you have all these anticipatory remedies which apply to cases which in one case in a million will generate the kind of harm in question. so you have this surreal discussion as to whether or not the kind of rock he's using on this particular park will change the ecology so a single drop of something will end up in a river 800 feet away or whatever it is. it is a classic case in which the federal government aided by the united states supreme court has given grotesque interpretations to things like the unnavigable waters of the

united states. and what should have been done in this case was to revisit something and say you cannot use these kinds of clubs to beat people up. and speaking about clubs, the last case i'll talk about, again, the federal government in my view had no sense in bringing this, to try to prosecute a religious organization which has its own definitions of who is or is not a member of its organization. and the great danger of using the handicap in anti-discrimination laws which i've always been opposed to on april is it forces the -- it puts the courts and the government in a position of telling a religion you are or are not practicing. the obama administration's effort to try to narrow the protection of the free exercise of religion to say it covers worship and nothing else is, i think, one of the great constitutional miscarriages of time which is going to play out, of course, in the medicaid context in connection with, as we ale know, the question as to

whether or not catholic institutions can participate in federal programs. i think the government is completely and inexcusably wrong on that question. thank you. [applause] >> well, we've now heard an analysis of several of the major cases during this term in court. we'll give each speaker a minute or two to respond to anything they may have heard from the others, and we'll start with the solicitor general. >> sure, thanks. so picking up where professor epstein left off, sack debt and hosanna tabor, no doubt those were tough cases for the united states. just factually so that we're clear about this, although those were tough cases for the united states, they were tough cases based on enforcement policies that each of the relevant agencies had adopted a long time ago and had been enforcing in each of the particular

instances, actually, in the prior administration as well as this one. and, you know, part of the job when you're the solicitor general and you're in the solicitor general's office is to defend the enforcement decisions of federal agencies, especially when they're longstanding and well established. and sometimes you're going to lose those cases. and those are tough cases, we understood them to be tough cases. but in terms of thinking about the policies that were at issue, i do think it's important to understand that they were actually longstanding policies. >> mike carvin. >> i'll pick up on that last thought, i guess. i, look, it is true that the solicitor general's often in the unenviable position of defending some of the agencies' more egregious policies, that's why they make their way to the supreme court. um, and i think it's quite clear the eeoc was seeking to expand their ability to regulate churches' hiring decisions or employment decisions.

there had been this exception that was pretty well formed throughout all the lower courts that your ability to eliminate employment discrimination didn't apply to somebody who was a minister. and admittedly, there was a lot of confusion about who qualified as a minister and who didn't, and i think that was the eeoc's enforcement policy. i will say, though, i think the thing that got most court watchers' attention on the brief the government filed was not so much the bottom line position as the motive analysis where they argued that the free exercise clause didn't give churches or religious institutions any special autonomy against government interference, even making their most basic decisions that go to the heart of who's going to run the ministry. and that position was rejected 9-0 by the supreme court. i think the solicitor general's position was that you could get some protections through the general right to associate that you can find in the first amendment, but the court said, look, there's a specific provision here that deals with religious institutions and the notion that they've got only the

same rights as everybody else under the religion clause just doesn't make a whole lot of sense. and i fully agree with that. i will point out that there's a bit of confusion in the wake of this decision because under this oregon, smith v. oregon decision of the court in terms of eliminating religious practice, it is sort of a nondiscrimination rule. so long as it's pursuant to a generally applicable rule, you can stop people from exercising their religion which if taken literally would mean if you have prohibition, then catholics can't have sack rental wine or communion which is, in my mind, unthinkable. so i think there's a lot of tension in the court's latest pronouncement that churches do have greater rights than other citizens in terms of resisting the nondiscrimination commands of the government, and some of the things you saw in the oregon v. smith line of cases which seems to have wiped away some of those rights, all of which will be implicated in the catholic church's and affiliated catholic institutions' challenge to the

contra senttive mandate under the affordable care act. >> look, in terms of long-term enforcement, i really have lots of uneasiness about it. i think that might apply to the doma case, it's quite clear there's at least some selectivity. actually looking at the particular statutes, i think that it is not a longstanding policy to give as narrow an interpretation of what the free exercise clause is as under earlier administration, and even if it were, it's such an utterly indefensible position intellectually that one ought not to take it. i'm going to go one step further which is i've always thought freedom of association should dominate except in cases of monopoly, and i'd go so far as to say all this stuff is completely unconstitutional. and the reason that one wants to do is this you do not want the government or anybody to have to say as mike carvin rightly says we now have to do is that

religions get themselves greater preferences from everybody else. after all, you've, got an establishment of religion. either you're establishing religion on the one hand or prohibiting it free exercise. no matter what you do, you're always wrong. if you have the freedom of association provision apply today all people at all times in all as, you don't have to worry about those kind of embarrassments. these guys just have to go home, and you return to contracts that will as opposed to the government's imposed mandated terms which, essentially, never make things work. so the thing to understand about this is that the bad structure of the anti-discrimination laws which are unquestionably accepted in respectable circles. mr. verrilli, i'm not a very respectable person -- [laughter] >> i'm getting a sense of that. [laughter] >> but these things, i mean, the central theme here is every time the congress does something which gets the common law distinctions backwards or wrong,

they get into trouble. the nondiscrimination principle is an antidote with respect to monopoly. it never should be applied in competitive markets. and when you do apply it, you're going to end up with things like this. they get it backwards in a case like sackett. when the republicans ran this operation, navigable waters of the united states meant navigable wall streets of the united states. you actually had to send a boat on them. and then it becomes anything which has an effect on navigable waters. they did to that statute what was indefense my done to the commerce clause by using a substantial effects test instead of saying are you an interstate commerce which is what the constitution asks. and then you get an administrative policy which, essentially, when it comes to injunctive relief cares about only one kind of error. the one in a million chance that a pollutant will drop into navigable water, and they don't care about the 999,000 times in

which this is overprotection. and it seems to me the injunctions should apply with equal force to the government in its environmental stuff. collectivization of remedies is designed to handle coordination problems. it should never allow the government to have more force than a group of private individuals who own the river or whatever properties are deemed to be polluted to get things that they themselves could not get if organized. and so the fundamental mistake of the modern environmental movement is the moment you bring this into government area, it becomes, essentially, unlimited powers. and you see what's going on in these cases. only as the tag ends because the only suits that are brought are those about cases that are so egregious that people are willing to do it. but if you actually fought back the first principle, most of the permits that are issued in the united states are professional busy work which, essentially, destroyed the industrial fabric of the united states while doing precious little to protect the environment and, indeed, i'm going to go one step further. given the fact that the

structure of all the clean air act is so crazy and so forth, if every time you have tough standards against new pollutants, you perpetuate the use of older and dirtier ones so that the net effect of the epa and its various crusades for a pollution-free environment has increased the total level of pollution in the united states probably by tenfold because they similarly don't understand how the whole system is put together. >> okay. you've heard from the scholars -- [laughter] and now it's time to hear from the audience. please, wait until the microphone has reached you so you can then give your name and your organization if you wish, and then ask your question. and let's start in the back there. get a microphone. and, please, give your name and then ask your question. >> [inaudible] >> see if microphone's on. >> stand up. >> sure.

talk louder? >> that'll help too. >> [inaudible] well aware of your performance during the oral arguments, and i was wondering if afterwards -- [inaudible] and i was wondering when the court upheld -- [inaudible] what were the emotions that you were feeling? >> i will repeat the question for the audience that is watching us, and that is a question about your performance where there's second thoughts about your performance and how might it have been upgraded if you see it that way. and also what were your thoughts, were you vindicated by the decision? >> so i'm going to answer that question this way. you know, we have a first amendment, we talked about it a little bit here today. one of its primary purposes is to protect criticism of government officials in the

exercise of their -- [laughter] professional responsibilities and official responsibilities. i'm a government official. i've got a weighty responsibility. i ought to be subject to criticism like any other government official with a weighty responsibility. and i guess i was. [laughter] and i'm okay with that. and, you know, that's just, that's just the nature of the process, and that's the way it should be. >> can i -- [laughter] >> don's being too -- look -- >> he can't say -- [inaudible conversations] >> all four people talk at once. >> look, i just want to make two points. one is i went through this with bush v. gore. you get these high profile cases, and automatically in america there's 100 million experts on hanging chads and the exercise clause. [laughter] and i'm always like, look, if you gave me three days to sit down and type out an answer to what had just been shot at me by nine very aggressive justices, maybe everything would come --

>> only eight. .. they attack the messenger. site don't want to get any of the other nonsense but you want to make those two generic points that the guys who were in the arena are always going to get a disproportionate amount of artillery shells shot at them. 99% of the time it is completely unfair. that is my perception of what happened. >> someone who has not involved,

but -- i thought he made good arguments, some bad arguments. but was so noticeable i was on the "charlie rose show" the night before the argument. and jeff was in his swaggering best style. we were winning and all the rest of this stuff. and i look at him like the man was slightly crazed, which, in fact, he was. [laughter] that mike said that -- [inaudible] [laughter] >> my the is the government should have lost cool because the supreme court should have -- but i don't expect him to make that argument. that's a different game. but then the next day comes around, and all of a sudden, he's kind of embarrassed about it. takes it out on don. what is interesting about it is every one of these guys who said that mr. verrilli made the wrong argument in pursuit to make

arguments which were so incompetent themselves that is almost reasonable and their effect. so i mean you read these explain why insurance markets must necessary fail. paul krugman, he supposed to know some economics. [laughter] >> it turns out they put this mandating question. they didn't want to market. there's a long history in the sort of health insurance debates about the difference between social insurance and insurance. social insurance is not a substitute interest. it's a completely different beast. with social concerns what you wish to do is first pool risk and then transfer risk from those people who are less risky, more affluent or whatever does to other individual. no voluntary market will ever create a private uncompensated transfer. what markets can do is they can pool. that if you're high risk person, your insurance has to reflect your risk. they didn't want to do that in this particular case.

they want to socialize the risk. at that point you have to views some degree of coercion. so to say in fact that insurance markets will always fail is to make the following propositions, is that markets only create wealth. when they therefore start like about the failures of the private market, what they forgot to do was talk about the difference between the two forms of interest to the reason why the case is a difficult for the government under the circumstances is they made two arguments simultaneously. on the one and it said all these young folks were freeloaders on the system. but, of course, if that's the cure the net require them to buy market-rate insurance against future losses. but the bill requires them to subsidize everybody at the other end by limiting the difference between the top and the bottom. it's not an easy thing to say that you've got to inconsistent purposes, and i think the correct answer for the government is we don't have to do both. and we aren't doing both, but it's a hard argument to make. if you put too much weight on one and you ignore the other it's going to make the things

have very, very awkward. the scheme i might add as designed by the administration is the epitome of insurance and competence. the way to handle this problem is to do two things. one, to require waiting periods before preexisting conditions kicking. and secondly to require you when you bite insurance to keep it for at least a year and to allow the insurance company to put that they'll be honestly don't have to get itself involved -- the difficulty is not mr. verrilli small. when they put this thing together was not a single market-oriented economist the inviting administration is prepared to talk to you. a piece of economic gibberish that can put itself in the name of an injured situation but it's just a terrible piece of substantive legislation. and mandate is the least of its problems. god knows when you watch the way this thing works it will be the rocky road horror show. [laughter] please raise your hand high so i can see them over here. in the back row.

>> this is a question that -- >> your name and then ask the question. i'm at the competitive enterprise. good to see again. i was wondering if you would discuss the possibility of a discriminatory effect in the enforcement of the provision of the arizona law which was upheld? basically will people who look like they might be legal or more likely to be pulled over for going to mouse over the speed limit, that sort of thing? >> look, my general view about most public officials is that they been so schooled the dangers of discrimination with respect to enforcement, that they bend over backwards to try to avoid these kind of situation. we had a little incident within the louis gates, and it turned out the guy who is calling discriminatory was, in fact, the master of teaching people how to avoid these problems. i think across -- the correct answer is, -- and tell you can find serious deviation of the

standard will. in a state like arizona where there is only people of hispanic origins who are citizens, this would be a very reckless policy to undertake. so i do think an effective there's always, but there's also the other risk which people bend over backwards to avoid these kinds of conflicts. and that which you don't do is try to upset the scheme on the ground of potential abuse, until given the fact that it is in operation if you actually see some evidence of that abuse. and they don't think in this particular case anybody who is arguing on either side of the case has said the arizona police and public officials have misbehaved in any systematic fashion spent anyone else want to comment? if not will take the next question right down here. >> i name is joel and i am an attorney who filed one of the amicus briefs in the future? but i want to ask the panel, in light of justice roberts opinion in the affordable care? no, do you see any reasonable

limit or any limit at all on the government's authority to coerce you to do something by imposing a tax? if you don't, could the government now say, you must by general motors or chrysler cars come if you buy anybody else's car there's a 10% excise tax on it because we got a stake in gmac ricer. we don't have a stake in anybody else. >> i don't receive anyone serious limits on the. in fact, they don't have to call it a tax. they can call it a mandate. you will buy gm car and pursued the same same statutory interpretation that was engaged in this, you will just say well, it's just enforced like a civil penalty so we will call it that. again i don't know why they can't require anybody to buy a car, or broccoli tomorrow and so you are mandated to do it or you'll pay ability to the chief justice alluded to some limits, as i said, the one you can't,

one of the old cases invoked 10% of annual income. that's not much of the limit. then, of course, he said by the with abandoned his whole analysis of whether its ability or tax to all these cases i'm siding are no longer good law. i didn't come around with a real warm and fuzzy feeling to a google of be a political check people not wanting their taxes raised, but again you to get into these debates i think you will see more about whether or not be -- eating broccoli is good thing whether you call it a penalty or tax i don't even know if there'll be much of a political accountability cost to be paid in the future. >> we do have mayor bloomberg. this would be my reaction. on the political front, it is i regard a complete power of decision. just so far wrong that it's almost painful and it's interesting that is wrong on exactly the same kind of question that the tax is wrong. the definition of what counts as a public usage and what counts as public purposes is expanded

so far that any kind of ridiculous transit since he ought to put into place is perfectly okay. but the reaction to kelo was states had tightened up the rules and that the level of actual condemnation of property had gone down not up because of the stuff. my view about is i think that anybody tries to introduce the kind of -- it would be harder to get politically that it would've been before this tragedy because of the much more difficult to keep this thing underneath the radar. somebody is going to instantly see what's going on. in fact, my hope is, i may be involved in one such treachery is that what you do it if you look at the way in which the government sort of its its various programs, these are hhs and so forth, these are all domains which are sovereign unto themselves, they churn out regulations, nobody cares about what they say in chevron cannot notice of commonly. they say if you don't like it, so as. if you see which will delay your application and you will lose. i do think now that after the

medicaid extension, that there will be more attacks on the way in which the government promulgates its obligations and its regulation. and so that may well be the silver lining. there's nothing in the robertson? what i think helps anything by to think there is a great deal into publicity to let people feel sufficiently uncomfortable about the whole situation, that the political price going forward will be higher, not lower. >> one final silver lining, now that it is a tax and presumably it is subject so you would need a super majority in the senate to repeal. >> so for both, get out there in november. >> this was a hypothetical question but you get one free opinion. do you want to comment? >> the course of being in our brief discussed limits. i think they speak for themselves. >> all right. the next question. raised a hand high, please. over here.

>> my name is marco. i'm a writer at "national journal." what you guys think about the material coming out of the quarterly the last week starting the leaks that an coming out of course, whether you think, what you think about them, what you think this be a continuing problem, what is good but bad for the court and the public's understanding of how the court works. >> the question has to do with the leaks coming out of the court. comments on that. >> since i have no connection whatsoever with the court, i don't like the leaks running out of the court. one of the things that i try to do is as an academic is try to concentrate on the academic issues raised in the cases and not on the personalities associated with them. in the end the leaks make the judges seemed all too human. the effect on its overall performance and his prestige will have to be negative. i always wish they would not take place. if they yell at each other and they don't like each other, that's fine but let them do it in private.

i wish the journalists would back off of those kinds of stuff. it's very easy to destroy the credibility and goodwill of any public institution. it's extremely easy, extremely difficult to build it back up again. >> mike, any comments, or don? >> no. i endorse all that. i'm feeling a little left out because usually i'm the one making the controversial comments. [laughter] >> i'm glad there's no desert after this spicy mexican meal so i have nothing to say. >> any comment? >> i'm sure would not be appropriate for me to comment on sort of the speculation involved in that issue. >> that's one thing, question that will also lead to a second panel when they come aboard here, since those are members of the news media that can react to richards suggestion. over here.

>> i understand the need for -- >> your name? >> george, university of maryland. i understand the need for solicitor general's office to defend existing federal laws. but why did the obama administration enter the fisher versus university of texas case on the side of the university, and in the administration position on any limits at all on the use of race in admissions? >> well, you, i wasn't at the department when the decision was made to file the brief in the fifth circuit. if i was i probably wouldn't be able to add to your question anyway because that would be subject to a deliberative privilege that justice department guards very zealously. [inaudible] >> and you know, the department's got judgment to

make about whether to file in the supreme court and what to say. >> i have a view on affirmative action. [laughter] which is not the conventional view. i take strong exception to what the supreme court did in the seattle case. the basic problem is that the government does two things, and ought to be two standards that are applicable to its behavior. one of them is basically enforces laws. and under that situation the thought of a colorblind constitution seems to me to be not only emulate plausible but to be completed record. you can't have differential punishment. but the government unfortunately runs all sorts of things that should not run, including public schools. and particularly public universities. these these were private universities they could have come in mighty whatever racial policy they wanted, and what would happen is today everybody would wish that brown v. board would disappear from the face of the universe so they could run to affirmative action programs

without any kind of interference whatsoever. and my own view is, a bit of an extreme position, but the correct position i think, if you're running one of these complicated organizations, the business judgment rule, not the strict scrutiny of will, out to apply to the way in which you decide to organize your resources. i was actually at the university of chicago and i did not come forward and said look, i think the constitution requires that everybody public funded, colorblind. i think private institution should be colorblind. where abolishing all of primitive action. not my view. i think i can run these things better than the federal government. you guys just don't bother me anymore. let me do it. and i think when you public universities, they have to be given at least some of the discretion that you would give to the direct private competitors. and so that the basic level that i would want to apply there is that the universities taxes should be free to organize

essential programs the same way as any private university out to be. this in effect is very different from the current situation where you have is completely stupid situation in texas where, when you have a direct prohibition against sensible of primitive action programs, which you can organize, you now take the top 10% from every school. which to educate a student -- in various student body by losing -- using lose profit. no one is going to make happening on the question of how much affirmative action you can do and you do not have. anyone thinks there is a universal solution is the same guys think you can solve the israeli arab problem in the middle east tomorrow by just reasoning with a few people. the key feature to doing this thing is to have decentralized decisions. let each particular campus go its own way and decentralized judgment will outperform course of judgments by whether it is

trying to -- >> we will break away from the last couple of minutes of this tips program and take you live right down to the eisenhower executive office building, which is right next-door to the white house. you see a crowd of seniors there from around, seniors from senior groups run the nation. they are here to hear from vice president joe biden. live coverage on c-span2. >> how old are you? seven years old. well, honey, you are, please, have a seat. you are so good to be here to somebody owes you a big surprise. for having to sit through all this. it's okay by me if you read your book while i'm speaking, okay? [laughter] it really is. you're such a good girl. hey, everybody. how are you all doing? welcome. welcome to washington to know you all know, i know a lot of your from washington but i'm told some of your from out of town. now you know what i was told, i think, i was told that back in the '20s and '30s and

actually earlier than that, any diplomat representing great britain in washington, d.c. got tropical duty pay. you understand why that's the case, but although, the places you came from, probably almost as hot as we are here. but i thank you all for being here. let me start by quoting my dad. the phrase my dad used to always use, whenever you would say something and someone would say this is what i found you, this is what i support. my dad would go like this, he would say look, don't tell me what you value. show me your budget and i will tell you what you value. seriously. show me your budget and i will tell you what you value. don't tell me you value women in your office space, in your corporation, if you have a budget we don't have any women that are being paid like men.

don't tell me that you value, and are deeply concerned about seniors if, in fact, you eviscerate the things that you know they rely on. not only for their well being, but for the dignity, for their dignity. and their pride. rock-bottom, joe biden starts, i come from a different angle that is usually discussed in this town, or anywhere for that matter. i have a great privilege, like many of you, of having my mom and dad live with me in their last years. my dad would only move in with my mom when hospice was necessary. and it turned out, god love him, he beat the odds. he always did. instead being six weeks it was five months. i have a great pleasure like all of you, like every child who

wants to take care of his parents, of being able to kiss him good morning every morning and kiss him goodnight when i came home. my mom after that moved out. she insisted she is going to stay in her home. because we always had a parent, and uncle, and and, someone living with us the entire time but for three years that i was in my parents household from the time i was born. she said she never wanted to do that. finally, we convinced to mom to come and moving. move on to where we live. and she lived for a number of years, and till age 92. the reason i mentioned that to you, you'll understand better than most people, and this town understands, that this is about more. this is about more. than just whether or not is going to be the financial wherewithal to care for people. obviously, that is the core of the debate.

but about preserving their dignity, preserving their pride, preserving their sense of being able to care for themselves, even if a little bit of it is a fiction, for as long as they can. because they know something you know. that again we don't talk about. they know there's very few children out there, grandchildren, who would give their medicare, medicaid, social security which going to be cut, that those children won't step in and fill the void. and they know what a burden that is for the children. that sandwich generation, trying to help mom and dad, try to take care of the kids in the middle of this god-awful recession that we inherited. so i do this, i come at this rate very different place. doesn't mean i'm right or wrong, but i just view it differently. i do this as a family affair. i really mean that.

i view this as a family affair. and quite frankly i resent when i see on television, usually the other team committed once about some of them are team. not in the white house but a democrat. will say something like well, we have to cut it to preserve it. for the other generation. there's a tendency, i'm not even sure, to get one generation against the next. that's bizarre. i don't know anybody i grew up with in my neighborhood who isn't going to do whatever it takes to make sure their mom has her prescription drugs. i don't know anybody. i don't know anybody in my neighborhood that i grew up, that is going to do all they can to make sure mom has a place to live, no matter how much pressure it puts on my children. or your grandchildren.

you guys know any people like that? i don't. i don't know these guys who sit there, young people and say hey, let's cut it now so we are going have it your so i want to be up front with you all. i view this learned as a family affair. i view this as a value set. i view this as about people's dignity. people who have built this country, people gave us everything we have. my siblings and i come as i said, we couldn't separate the security for my mom and dad from her own well being, and we were well off. you pay me a lot of money as vice president of the united states. as the president said when we had a first meeting a couple weeks after we were all sworn in, he thanked everybody for the sacrifices they make it any look and got my eye and he said

except joe. he got a pay raise. [laughter] and i haven't -- i have successful brothers and sisters. and it still was a stretch. i don't know how people do it. i don't know how they do it. but tell you what, no matter what their income, they will try to do it. i think that what's really missing in this whole debate is that we really are in this together. i don't see any automatic separation. based on generations. so there's no question, to state the obvious, that there are new pressures on medicare and social security, and they are real. you can't play a game that these

aren't real. the question, in my view, as vice president of the united states, getting to be the last guy in the room with the president, i can see the president shares my view, or i share his view on this, this is were i can speak for him without worry that there's any space between what i'm saying to you and what he believes in his gut. see, i trusted most when it starts and you got and goes to your heart. and then as articulated by your intellect. they are the guys, the women who don't change their minds under pressure. it starts here. with my president, with your president, it starts here, in his gut, and then it goes here. so, question is, what do we do to strengthen this, sustained

these programs? now and for the future. question also is, are we going to lead other, others use this challenge, and it's a real challenge, as a pretense to dismantle these programs? i was speaking about a year ago in florida to a group, and i pointed something out. it's not accidental, that the other team from the beginning on every one of these issues has been need to but not as much, or shouldn't have done in the first place. look, when you get to be our age, and i know a lot of you are a lot younger, you can smell it. doesn't have to wonder if all of a sudden the guy who has been against social security or

against, or wanting to make massive changes, or not happy about medicare in the first place, or not thinking medicaid, they think it's too much of a burden. and all of a sudden they get religion and tell you how they're going to save it. this is not our first rodeo. [laughter] take medicare. no matter what the other side says, we know we can fix medicare without gutting it. we've already started it. in our health care always to in the life of medicare by eight years. by 2024, not nearly enough. what do we do? we asked hospital to take steps to help ensure that seniors to leave the hospital don't come back. don't have to come back. you know the studies. i'm preaching to the choir here.

fundamental changes in the way hospital care is delivered, without fundamentally altering it, accountability of the care, actually saving it, hundreds of millions, and over time illusions of dollars can be safe. we cut 100 billion in payments to insurance coverage the independent study said were excessive. we stepped our others against fraud, and we've already, begun in earnest covered $10 billion. i won't bore you with the details but there's a whole lot more we can do, and there are more ideas. right now, for example, drug companies give discounts on drugs for people on medicaid. we've been pushing and continue to push the ability to save $100 billion just by getting