for help with compliance operations emergencies, line breaks loss of water setting rates and training for operator certification. i'm told that congress funds the epa's internal management budget by hundreds of millions of dollars every year small and rural communities want congress to know the only benefit we get comes from the small portion of the epa funding that is directed to on site technical assistance provided what we call circuit riders. what small communities do when they have a question or water issue, is called a local circuit rider that they know trust and can give them clearances. these circuit riders often come immediately on site to small communities and teach them how to fix their problem. there's no one at the local level providing this essential help. after katrina, two of my small communities were devastated. each served approximately 2500 people and they were without power and water.

people can get by without power for a while but not water. i called the association, and they found an emergency generator for me and delivered them to the communities at no charge. since the circuit riders know everybody in the state they were able to borrow some again ators from northern communities not impacted by the hurricane. and have the generators delivered to get the drinking water and sanitation restored immediately. the circuit riders also had the technical know how to size the right voltage and drive a backhoe if needed to clear the streets and dig up ruptured lines. all of this type of assistance is essential to restore water supply in an emergency. i called the separator out to help me. a community of about 1,000 homes to find the line break, causing a loss of water from any homes. the circuit rider came with advanced radar equipment that can precisely identify the

location of the break which on this day happened to be in the woods. congress shares this technical resource that no one community can afford on their own. we think it is the best use of our federal environmental dollars, with the federalization of the operator certification under the safe drinking water act of 1996 state rural water associations have become the main source of training for operators, and the main source of continued education credit, which are needed every year to maintain this certification. many parts of rural america have seen the industry move on, leaving behind depressed economies, in my region, the garment industry moved south after nafta. when this happens raising rates becomes overly burdensome. the town of new haven, mississippi, we need to comply with a new epa wastewater discharge permit that will cost

two to three million dollars. i will close with some comments on the federal water infrastructure programs, namely the epa state revolving funds and the usda grant program. we are appreciative to the funding of these initiatives and realize that funding constraints in the nation. notwithstanding the curtailment of federal funding continues to increase. we urge you to emphasize grants in these fnding programs. low interest loans often don't help the communities facing the most severe hard ship from federal compliance. leaving the loan funds to be confused with greater ability to afford financing. we're grateful for the funding assistance, it's allowed many rural and small communities to have excess of drinking water and sanitation that would otherwise not have been able to afford without the federal assistance. we want to be partners in the effort to make the initiative as efficient and successful as

possible. thank you very much, mr. chairman, and i'm eager to answer any questions at the appropriate time. >> thank you very much. our last but not least panelist is mr. robert stewart who is the executive director of the rural community assistance partnership, welcome sir and you're recognized for five minutes. >> thank you chairman. ranking member tomko, and members of the committee i think the previous witnesses and you all have done an excellent job of framing the issue. as someone who has worked 20 years with hundreds of communities in texas both for the rural community assistance partnership and someone who has directed a national program for ten years, i'm here to tell you the needs of small communities are many the resources are limited. the dedication and the determination of small communities to provide their citizens with the best possible water is strong and undiminished. i'm sure everyone knows a little bit about the rural community assistance partnership, i won't

repeat things in my testimony. i want to make a few points that have been touched on that maybe i can amplify a little bit. what is access to capital. there's a real issue in small communities, financing resources in order to build infrastructure, extend lines to new customers. i believe mr. gomez talked a little bit about access to municipal bond market. this is not an option at all. there's 53000 community water systems in this community. perhaps 4% of them have the ability to access the municipal bond market. they're left with the two primary federal financing programs being the drinking water srf and usda rural developments water and environmental programs. it's really critical those programs continue to be supported in a robust manner. we work a lot with rural development and the development

program, they are the primary lender, they have some 18,000 plus loans out with us small water systems, and as you probably know, there's no default on these loans, we take these matters very seriously, in repaying the loans that are made to small communities. one of the things they have going for them is they have field staff in every states. they have the ability to work directly with the communitieses they know their local folks in the district and state offices, it's just a more cooperative easier way to get funding through rural development. rural development funds the rural water association to do technical assistance and training. a lot of the staff that works for me around the country work through the application processes and all the requirements that are needed in order to get a loan from rural development. epa state revolving fundses are also a very important part of the financing scheme for small communities. i think all of you know that as a result of the 1996 amendments

to the safe drinking water act, the state revolving program was formed, and it was mainly to deal with compliance issues. if you look at who's out of compliance or where the most health based compliance issues are, 96% of those are for small communities. you would think that most of the money or a big portion of the money would go to the communities whether they're urban, rural, small or large that have the compliance issues. but as you can look at epa's own numbers, perhaps 25% of the funding goes to the small communities in this country. we would think that a larger amount of money from the srf program should be dedicated to economically disadvantaged and small rural communities. it's not funded at the authorized level that was authorized 20 some years ago, we

would hope you would consider some additional resources for that particular program. one of the things you're looking at is, what else can be done? what else can we do to work with small communities? there's a lot of other options. both of which the sharing of services, how can small communities get together? share an operator share a manager, sheer purchasing. how can we look at possibilities of actually combining systems if they're closed, it's very difficult. one of the problems funding agencies have, it hurts small communities even more with reduced staffing levels in epa and r&d, there's an emphasis for the larger loans which adversely affects small communities even more the regionalization of protests where appropriate are important. the only way those are going to happen, if you have people like the circuit riders and the

technical assistance riders that are working with our communities on a day in and day out basis work through those issues. you talk about tools. i'd like to give credit to epa for developing the variety of tools. asset management tools, tools to look at sustainability for communities. again, tools are important to be developed for use by small communities. it takes someone in the field like a rural water to bring those tools out to these communities. and i'd also -- if maybe this could be handled in the questions, i know you're interested in some of the alternative financing programs, i'd be happy to talk about that also. my time is up, i appreciate the opportunity to be here with you today. >> thank you very much. i recognize myself for five minutes for the start of the questioning. i'm in my 19th year, my first district was 19 counties my second was 30 counties now i

represent 33 counties out of 102. so we have really been able to access and use usda rural development and rural water and it's really helped and kind of forced a push to regionalism, and kind of closing the gaps of water or addressing the challenges that small communities have because they just -- in rural america sometimes these communities are shrinking, they're not growing they're shrinking, they're based to keep up especially with new capital expenses. so that's in my area it's been a very, very successful program and i just throw that, because we have great people work on that, they've done great work. i'd like to go to mr. gomez first. and you've heard some of our witnesses claiming the drinking water state revolving funds are not being made available to

provide safe drinking water to the needs of our most needy communities. is there a way to measure across the country whether the drinking water is congressionally intended purpose? >> that's a really good question. what we are aware of is that the drinking water srs are required to provide 15% of the funds to the small communities. now, the extent to which states are doing exactly what you're asking, we don't know yet. that would be a good question possibly for gao to look at. there are estimates from epa for example that about 38% of the drinking water srf's have gone to small communitieses. that's the estimate that's out there. to the extent that it's meeting small community's needs we don't know that. >> great, well thank you. >> are there any reports that show how fast this drinking

water funding is spent by whom and where it goes? including distribution to the neediest communities? >> one of the things that we are doing at the moment, we have ongoing work looking at the financial sustainability of the drinking water srf there we aren't looking at different ways in which states are managing these srf's, and we're hoping to identify best practices that states are using, that report should be coming out this spring. >> great, thank you. >> mr. stewart better managed to meet small system needs. can you elaborate a little more on that. >> when you look at the numbers epa has a difference in between the number of loans they're making and the amount of the loans they're making. so the amount of the loans is not the same as the number. there's not as much actual money

going in there. the whole purpose was to give the states the latitude to run it how they see fit. most of the members of this committee would agree with that, the conditions are different from state to state. there's some minimum requirements if we're looking at the high noncompliance rates of utilities, the problems with affordability, the problems with small customer bases, that just some great emphasis needs to be paid to provide more funding for these disadvantaged and smaller communities. some states, my home state of texas has a lot of money now that they're putting into water problems as a result of the droughts. california has done the same thing, each state has extra. i think it's good. the gao has done a terrific job of looking at these issues. >> my last question for mayor keegan can you give us briefly your success on the state revolving fund versus the rus?

or do you access that? we have wlimlimitations due to the community. our average bill doesn't meet the minimum to qualify for the fund ing funding we paid two separate consulting firms and both reported the same thing. >> thank you, mr. newman. in my experience, one of the issues with the srf has been the paperwork is considered to be cumbersome. and the added administrative costs in applying often nullifies the low interest which in turn makes the srf an option

of last resort which i don't believe was the intended purpose. >> yes, some of my systems i have, we have used -- we're drilling away right now, one of the systems because it depends on what area in the state. we were having trouble through rural development, getting a timely process of getting the money to drill this well, and it was needed. the town of monticello, we got a state revolving fund grarntnt for a sewer project we just completed. in our district, in our part of the state, we used it, it's helped. but the usda seems to be more of a grant. >> my time's expired. and i know mr. stewart wanted to answer, we need to go to mr. tomko who's recognized for five minutes. >> thank you again, chair.

for i appreciate you making the trip here today. i think every district across the country are facing significant challenges as they work to ensure that everyone, including people in small and rural communities have access to safe water. that's why i introduce the aqua act to include all of the tools epa currently has to assist these systems. i appreciate the work that my colleague, mr. harper has done on these issues, i look forward to working with him to get at least some of these changes into law. it seems like every week there's another water main break treated water, and the money we've invested is being wasted. can you describe some of the issues you have had in your town with water main breaks and the obstacles you face in representing these ruptures? >> we don't really with the recent frost, when we have a

water main break, it doesn't always pop up through the -- because the grounds is so frozen, we don't often know where the break is, and we don't have the tools or equipment to locate the break. we have to either call a consulting firm, that could be $1500 a day to come with special tools or we call the water association if they're available. that's -- it's very difficult we don't always know where the breaks are located. >> thank you. and this is such a serious issue, one that will require more significant infrastructure financing. not just technical assistance. mr. gomez. gao has studied the range of government programs that provide assistance to rural and small water systems as well as the need the systems face what is the funding gap for water

infrastructure. what's the funding for the drinking water infrastructure, and how much money does it entail? >> epa has estimated the funding gap, and they have estimated it to be $662 billion. that's an estimate from 2002. and that estimate is based on the next 20 year ss. >> thank you. and obviously greater resources are required. >> is it fair to say your village has reached the limit in its ability to borrow more for the needed funds. >> absolutely, we can't even entertain a municipal bond at

this time and right now we're only spending our budget items on repairs. we don't have enough money in our budget for replacement of old infrastructure. it's been a struggle to that. >> we encourage the refunding of that. >> and do you also support efforts to expand technical assistance initiatives? >> absolutely yeah. any -- we call on lots of different -- any technical assistance that can be provided to us is a value. >> to the other gentleman on the panel, any responses in terms of technical assistance in the relevant roll it might play? >> in my experience, technical assistance is absolutely essential in complying with the various rules and regulations of

the epa particularly because many of these rules are often complex and require innovative approaches, the training and technical assistance that's provided by our state rural water associations is indedan essential component of compliance. >> and the other gentleman in terms of technical assistance -- they need all the training they can get. the secretaries the rural water puts on for them. to certify them, every bit of the assistance we can get is very well needed. >> and mr. stewart? >> yes, sir, at one point i'd like to make, technical assistance is important, we need to ensure the investment that the federal government is making through epa and rural development. the technical assistance needs

to make sure those loans are repaid. to implement asset management program, the infrastructure and the materials that the utility has is going to maintain the top operating condition. we don't have to go back to replace things to start with. >> the act i would cover would reduce some of these. >> i can think of few topics across the country. thanks to each of our guests who are giving testimony today and also welcome mayor hill and also, just to have each of you here is something we greatly appreciate, and my dear friend kirby may field who's here who's

been a great contact. we're thankful for that. if i could mr. newman ask you in your testimony, you talked about the trust relationship that small communities have with circuit riders. as we continue discussing this issue issue, how our communities should and would comply with federal regulations would you please take a minute to elaborate the trust relationship that or water systems have with our circuit riders. >> yes, sir. >> the relationship that has been established over the years, between the rural water associations, and the utility managers, the certified water operators, mayors and small town council has been well established over many years. prime example just last evening a small community of mississippi, the water well was down due to snow.

and they lost power for a significant period of time. and the mayor, of course, customs were calling it was developing -- the mayor contacted me. and i immediately contacted the mississippi rural water association. and they in turn immediately began locating a generator for that town. and thankfully were able to get that generator delivered to resolve that situation. in essence, the experience is if you've got a problem and you don't know what to do, you call the mississippi rural water association. and they're there every time to provide the needed assistance. >> i'm also glad that you explained to some of our folks that we have snow in mississippi. that was a surprise to i think some.

thank you so much for your kind words and your testimony. and i look forward to our work together. you mentioned two water systems in simpson county and the assistance they received after katrina, would you talk about some of the tools circuit riders have at their disposal, that small water systems often don't have or have other access to. i think you mentioned radar equipment, how important are these tools to the survival of our smaller water systems. >> very important. before katrina, we hadn't had a natural disaster in south mississippi like that, since camille i reckon 1969.

we were without power about 20 days, 1920 days, and at that time some of the water system ss had started putting in. use a generator to turn the tv on or something. without water, you can't make it. they found generators in arkansas, help us get them hooked up. we had lift stations that you had to pump wastewater we hooked into those wastewater stations and got water to the lagoon or the treatment plant. the ground penetrating radar you mentioned, they keep one of those, any time we bleed to locate a line, a lot of these lines were put in, grown up in trees now, you can't -- you don't know exactly where the line is we come out there with

the machine and locate that line for us and help us tap it, help us do whatever we need. the machine is about $35,000. and you know, most of these little systems don't have the money for that. >> thanks to each of you. thank you representative tomko as we work through these issues. >> i recognize the gentleman from texas for five minutes. >> the drinking water needs smaller communities. i represent an urban district. we have some of the same problems that will not be an ex-ed on our cities the property tax could never cover the cost, and yet over the years

in texas, we receive edd money from the fund. also partnering with the county. for sewer service. it bothered me that last year, texas received the lowest amount of money from the state revolving fund. and that goes back to 1997 and that's not anywhere near inflation. like i said, a very urban district, if it's in the city they'll do it this area is not attractive to be an ex-ed and it's very poor communities. that's where we need help. septemberic tank sill. that's why this hearing is important.

do you believe that the congress should reauthorize the drinking water, state revolving fund this year. >> to start off, i -- >> it seems like an easy one. >> yes, sir, exactly, that's one of the most important mechanisms. >> for the other three gentlemen, and we ought to recognize it. >> raise the authorization for the state drinking water fund? i explained to folks, authorization, we have that, but you can raise the authorization as high as you want. do you think the authorization amount should be raised? >> we get asked for appropriations. >> the water needs around the country not only your states but others.

>> yes, sir. >> this is a capitalized fund. this is the money that can be revolved again and again for use of communities large and small. >> but should the fund be raised so we can cover more community s communities? >> take a look at the process and the community sies. i'm not sure about the process of the authorization of the law, as i am concerned about the implementation of the funds and the smaller communities in

mississippi that i'm familiar with pursuing those funds. these funds were intended to benefit these small communities. and there's a gap, and i think that we all need to figure out how do bridge that gap. >> >>. >> the biggest problem i have -- to have a revolving fund, they can hardly afford the monthly water bill and sewer bill to pay it back. that's the issue again, in my area, and i assume it's in north mississippi, i assume it is in other parts of rural texas. the -- mr. stewart you indicated you worked two decades on drinking water issues. we've had -- i have, the last few years i stopped at the louisiana border. not as much in the last year we've had good rain. in the houston area southeast texas and all the way to the rio

grande valley. that's in a drought area, how would you describe our current state of drinking water infrastructure in texas. you're talking about i think needs some resources. there's some hard hit drought areas, i think needs to be addressed. we have river authorities, progressive water development board. the voters for a constitutional amendment to provide for it, because of the problems we have. in 2011 harris county as much of our state was in the grips of the drought due to aging waterlines hardening soil, hundreds of waterline breakage

resulting in billions of loss treated water do you have any sense of the economic impact of the 2011 drought had on our state? >> that's something the gao may be better to answer i know it's been severe economic impact, because you don't have the water sources, you're not going to be able to support the businesses the growth that's occurring all over texas. water is the foundation of all the water in this country. >> way over time. >> we talk a little slow. >> i think my colleague recognizes the gentleman from pennsylvania, mr. murphy for five minutes. >> i'll talk a little fast, see what i can get in. >> thank you all for being a very informative panel. engineers who serve in some of these water rural systems in my district, for example green county and southwestern pennsylvania, they tell me that states often times impose

drinking water requirements. could you please provide some examples for me where these state imposed requirements that you've seen in your community or other communities go beyond epa standards? >> in mississippi, mr. sellman can elaborate on this i believe our state regulations are the same in federal guidelines being no more or no less string enthe than in the federal act. >> does anybody else see differences in their communities? >> i don't think our -- >> efa regulates water quality,

some states require you have a certain water treatment plant, storage and pumping capacities, in a lot of cases, those affect small communities. on an engineering basis, they're not justified on how much the water is being used. >> whether you're dealing with things like the waterline extensions, not necessarily water quality, that has to do with water delivery. sometimes the capacity requirements are a little higher to what's needed to protect public health. >> how much could the height and standards cost rural drinking water standards. you talked about consulting an engineer and what those costs are, what does this vary for

communities, rural communities, anybody have estimates here that -- the cost you would bear. >> probably save us on all the consulting fees that we spend looking for funding. >> anybody else have a lot of thoughts about this. >> you're probably talking of doubling or tripling the water bill. it depends on what kind of treatment the epa is requiring the small small community to treat for. the question i have, and you talked about some of these things, how do rural systems get the funds they need to deal with this compliance issue? do you have any thoughts of this, on what we do? i heard one comment could the federal government sends more money. i sometimes think it's unfair to say you must do all these things

and spare the costs. it comes down to a question of what else, how are these costs born often times when you have someone that lives a mile from the next person. there's huge costs associated with this anyone have any comments on how this should be set up? >> we raise our rates, we have the dec required our local school district. they passed a bond they passed that price on to the taxpayers to hook into the system at quite considerable expense. and -- >> what kind of percentage increase would you say that was? >> i'm not shire. >> anybody else have any other thoughts other than put on the rate payers. >> the raising rates is the only way like the small communities i work for. 10 to 20% range sometime. >> we have these grant systems. i know that some of my communities are asking for some

changes in the way the loans are established, rates, et cetera. any comments on those? >> the paperwork is quite cumbersome and usually we have to hire a consulting firm to help us supply for the loan. >> what kind of hours and time it adds to your costs? >> we don't have the staff who can understand what's required in the paperwork. >> we give them the data, how much water we use every day, and that kind of thing. >> is it safe to say simplifying paperwork, and if you're going to be required to also give some assistance and filling it out. >> absolutely. >> for the second time, i'm going to try to be quick around the gavel so everyone gets a chance.

>> thank you, mr. chairman. to our panel thanks for being here, this kind of strikes home to me. handled a lot of water and sewer issues, we created a regional water and sewer district when i was the commissioner, my home county was over 600 square miles. we had part of five cities 21 ville aroundages and 19 townships. it's important, and hearing all of you brings back memories of over 20 years ago, that i used to sit in a lot of meetings and hear people talk about there are really important issues in ohio alone. i think we have $21 billion right now that we're looking at that we need in infrastructure improvements from water to wastewater and storm water. what you're saying here today is very, very important. i appreciate you being here i can commiserate with what you've

all said. i've been working on legislation for at least one session. to try to help on the wastewater side, to help rural communities. if i could, because i tell you, you all had very good testimony today, and again appreciate you being here. and if i could start with mr. gomez, it's important one of the things i've been hearing out here, there's a shortage of dollars out there that we have. especially when you're talking about our rural areas. could you discussion the relationship between the epa and usda programs and whether there are overlaps out there, and what about the efficiencies or synergies that could occur if we were looking at these programs to make sure we didn't have duplication out there or anything like that? >> thank you. we have looked at those two programs in particular, and also at the other agencies. that have programs that help

rural communities, with respect to the usda rural utility service and the epa drinking water srf. they do have some similar programs. we did not find any areas where they would duplicate an effort, meaning they were funding the same project for the same purpose. projects can get funding from both programs, but they're usually focusing on different areas. now, the other thing that we've reported on is the importance for those two agencies to work together to dlab rate, but also to encourage the state srf programs to work closely with the usda utility service so they can get efficiencies, one of the recommendations we made was that they needed to come up with a uniformed preliminary engineering report so the communityings aren't firing mult inel engineering reports that cost money. those are things that we were tracking, we're happy to hear

that they have come up with a uniform preliminary engineering report, some states have already adopted it, we think those are places where if by working together they can better target the monies. >> thank you. >> this is for mr. stewart and mr. newman. you both kind of touched on it in your testimony, you had mentioned mr. stewart about bringing the tools back to the communities. and the cost of the technical assistance, i know what that would cost. what do you find -- are the tools there, are they readily available? i know we heard from some others of the members of the panel asking about the cost. do you find that you have that assistance out there to be able to get that as soon as you can get it? >> both our tools -- they're readily available, epa and rda

are working on different tools, i touched on them in my testimony. it's the access to those tools we need the technical asset to bring those tools -- whether it's owen manuals, whatever those tools might be the real expense is not just creating the tools, it's bringing it out to the small communities that can't access them. >> mr. newman, would you like to touch on that about that assistance out there in the communities. >> to reiterate the comments that i've made as well as mr. stuart from the perspective of the water system manager, the resources, the assistance was invaluable, because they're varied issues that occurred across a water system or a wastewater system, that may be beyond the scope of that

particular utility and beyond the financial capabilities so utilizing the services of the rural water association, is essential. >> thank you. >> gentleman, it's time -- the chair recognizes the gentleman from west virginia. >> thank you mr. chairman. going to go in several directions with this, i've got -- we all heard a lot of horror stories and i have mine in my district. i have a little town in west virginia, i think we have a slide, perhaps of a waterline that they've been facing can we get that up? there it is. it shows how secluded the line is, they can't. they have applied -- knowing this, they have applied ten times to try to get money. and they've been rejected ten times in 2002. it just isn't their -- we don't have the money in the srf. what i was particularly pleased about was the president this

year actually maintained the funding from the previous year as compared to what we've seen in the past, the year before, he made a 40% reduction in the srf. they said the priority was climate change we heard that mentioned in the other side of the aisle. they thought climate complaining was eye higher priority. i've got -- i'm curious, i hope we -- i hope we've seen the light with that. but the -- i'm confused a little bit about the regulatory burden because particularly a lot of you have been talking, this hearing is about rural america, not what's been offered as we have to be concerned about the big cities, i'm worried at this hearing we stay focused on rural america. here is a listing of some of the rules. i've designed a lot of water and sewer lines. as an engineer, i'm quite familiar with this, we have

things that a small city has to take care of as the arsenic rule. chemical rule, the uranium rule. the groundwater rule, the enhanced surs fass water rule. disinfect rule 1 and 2. the surface water i can go on and on these are rules that small cities have to deal with just as well as a larger community of 100,000 or 200,000. i have three other communities, they're just trying to find money for operations. let alone install in this one community, they're working on -- one of you said in here, a 19th century system. they're trying to replace it with that waterline right there. >> how can we get water for operations, because we've got one community -- they're dumping raw sewage into the potomac river, they don't have money to do the maintenance work we have to do.

i have another community they're getting water buffalos, pouring into a cistern so they have water -- this is 2015 in america. we have an administration, every year for the last three years has been reduceing money to the srf. what -- how are we failing our country when we don't put enough money into the srf. that's what i heard many of you say we need to put more money into the program. what do we have to do how much more money? where do we have to go with that? and i would also add should we be prioritizing the srf money, so we're waking them a little more heavily than the big cities? >> you're preaching to the choir here, i think all of us would agree that significantly a greater percentage of the srf money goes to small communities and they should be able to access it easily. you can't have a chance to get the srf money unless you get on

the intended use plan. for a small community how do you get on the intended use plan. all of us can tell you that's difficult to do. do you have the technical assistance. someone that's going to submit the paperwork. do you have a chance to get on the money? that's a problem. we need some assistance so these small communities can get on the intended use, which is what they do to prioritize money into the srf. >> how can we wait what would be some factors that we might be able to wait so that a small community putting in will be given better consideration than a larger community. any of your thoughts? mr. gomez. >> generally, what gao always recommends is that you target federal funds to those communities. these are the communities that's where the -- that's one of the areas that we could target. >> i guess we're running out of time. but again, mr. chairman, thank you for bringing this up i hope

we continue -- this is a small city, the big cities have their own issues they have the resources and the mass -- critical mass to be able to take care of -- our small town we're struggling, we better find it thank you very much. >> my colleague recognizes the gentleman from ohio, mr. johnson for five minutes. >> thank you mr. chairman. i represent appalachia ohio i don't have to tell you folks how rural that is. i hear the horror stories, many of which you just heard, i can site similar cases that my colleague from west virginia did. mr. selman i served 26 years in the air force, and i was stationed in columbus, mississippi, you know how rural that area is. so i've seen this for a long time. mr. gomez. does the gao track and can you tell us in regard to all urban

and rural systems how many municipalities have their systems charge the true cost of providing water to their customers? in other words, how many of them are operating in the red? >> that's a really good question. and it's only one area that's debatable. whether people are paying the true price of what the water costs. i don't believe we have done work on that, but if we have, i'd have to get back to you on that. >> would you take a look at that, please. i think the american people would be interested to know how these small rural communities are struggling. and many of them are operating in the red as it stands right now, because their residents can't even afford the cost of providing the water. >> epa has estimated that for these rural communities if they have to understate the water and wastewater infrastructure projects, their rates would be

four times what the urban rate pair would be paying. >> absolutely. >> yeah and i've got rural areas that are under that exact pressure. they don't have the money to comply with the epa's clean water mandates and system mandates today. and on top of that they're being leveled with these fines that they also can't pay. it's like trying to get blood out of a turnip. and i know you guys know what a turnip is. it's tough. let me ask you a question, mr. newman. your testimony mentions that the town of como, mississippi has 2 million in waste water needs and 1 million in drinking water upgrades it needs to undertake. what's the operating budget of como? >> the annual operating budget in the town of como is approximately $150,000 annually.

>> okay. and what's the average income of como residents? >> per capita, about 21,000. >> okay. is raising local water rates a realistic possibility? >> it's a realistic possibility from a standpoint of operation and maintenance but not from the standpoint of addressing -- >> making these upgrades. >> that's correct. yes. >> and even if you raised the rates operationally and maintenance-wise, would it be enough to cover the cost of providing the service? >> no. >> okay. what is their access to or are there limits on other funding sources like commercial lending? that's a double-edged question because the question itself kind of says why don't you go in debt to provide water. and that's certainly not a principle i subscribe to. but are you considering other sources?

>> by and large the primary source is rural development. primarily because of the grant component. other options as we have discussed include a state revolving fund. even commercial lending. however, as is the case with srf, commercial lending is 100% loan and the interest rates on a commercial loan is typically going to be higher than the srf. at either case because of the low economies of scale a community like como can't afford to borrow the money necessary to make these improvements. they just don't have enough customers over which to spread the cost. >> okay. all right. for mr. newman, mr. keegan and mr. selman, what challenges do you have in assessing the drinking water state revolving funds and how does that compare with accessing rural utility service funding?

>> well, i'll allow these gentlemen to elaborate, but one of the issues, and i think we touched on it as well, you've got more help in applying with r.u.s. as opposed to srf. the cost of applying for srf, you may have to utilize services from a consultant which adds to the cost. and that's typically not the case with the rural development process. >> okay. mr. selman. >> we've been able to use some srf money. our engineer takes whatever they allow as that consultant amount. whatever they allow for an attorney, an engineer or whatever. he does the paperwork for whatever that is. and they've got that specified in the loan. and we've been able to -- i know certain regions. maybe not. but we've been able to take advantage of sfr money. we've been having trouble getting money through rural development. >> thank you, mr. selman. my time has expired.

but mr. keegan, do you want to respond? >> we've had trouble accessing funds from either program. in new york state a lot of funding goes to communities that have some sort of citation, some problem with their system. engineers work very hard to keep our systems smooth running. so we're sort of at the bottom of the pile. >> thank you very much. mr. chairman, rural america knows how hard it is to get blood out of a turnip. and i appreciate you having this hearing so that we can shed some light on how difficult it is to do this. thank you very much. >> thank you very much. and i thank my ranking member and my vice chair, who is trying to lead this charge too. last but not least, mr. kramer from the rural state of north dakota. you're recognized for five minutes. >> thank you, mr. chairman, from illinois and ranking member from new york for acknowledging rural america and for reminding us there are other rural places

that are better known for their urban centers. it's good to have an alliance. my colleagues -- or my constituents with the north dakota rural water systems association would be very proud of all of you. you've done a great job today and i felt right at home, even with the unusual accents. but it's a reminder there are some things we work together on and that are very important. and i won't -- i won't delay except to tell you that i hear a lot about the circuit rider program from our folks and i think you raise a very important issue. i think it's incumbent upon us now as policy makers and eventually appropriators to look for opportunities to prioritize some of the programs you talked about within the context of the entire act. and given the constraints, financial constraints we have, we do have to be a little bit creative but certainly we can reprioritize.

i want to just ask for maybe a little bit of elaboration on one point. i got the gao report was fantastic frankly. and i think it was -- it's nice to see the alphabet soup as my constituents often refer to it and see that there's both recommendation, findings and then response by multiple agencies that have -- to have a tendency perhaps to create extra burden by virtue of requiring sort of uniform processes but not in a uniform way. the uniform preliminary engineering report template i think is a great tool. and i think at a time when our constituents are looking for an efficient effective government this is a good example. and i raise it because i wonder how many more times we could duplicate this throughout the system. one of the frustrations i've seen in the last two years here is not just with epa and usda rural development. certainly in fact there are many others have more.

i just hope we could as a house, as a congress, and as public officials at every level look for more of these times of opportunities. the public could go wild. that makes perfect sense. because right now they look at it and i'm sure you all do, you mean i have to hire the engineering firm to do the exact same thing for another agency and pay them? i guess mainly what i want to say is thanks for that. i will want to be monitoring that very carefully, see how it works out. and i know you will as well, mr. gomez, because i think therein lie the nuggets of opportunity to demonstrate functionality of government in a way that people expect of us that we probably haven't done so well. >> thank you. and we are tracking that, by the way. it's part of our tracking that we do every year because we want to make sure that those agencies are making progress and that it's helping the communities in need. >> thank you for that.

and again thanks to all of you. and i will leave some time on the clock and not -- and just thank you for being so patient to hang around with me this long. thank you. i yield back. >> gentleman yields back his time. looks like we're about gone. do you have anything else you want to say and take an opportunity? >> thank you, mr. chair. i just want to commend the entire panel. i think what you shared with us is not only great insight but advocacy for what is a very high priority. and you've done it through that front line experience. it provides an extra bit of impact i think on the decisions that are made here. but thank you for reinforcing what we have understood to be a problem, and this is a very high priority problem i would think for the country. so thank you very much and i was impressed by all the statements that you've made and the responses you've provided. i want to thank the ranking member for those comments and thank you for being here.

i think it's just going to energize us to try to -- i've kind of asked mr. tonko and mr. harper to now get together and try to see where there's similarities and agreement so we can kind of move forward together and you can see there's a lot of areas in our country that are kind of left behind just because they're small. it's not a political statement. it's just the nature of our country. i really appreciate the involvement of my colleagues too. so thank you. i need some business to do. i ask unanimous consent that all subcommittee members have five legislative days to submit opening statements for the record. without objection so ordered. also unanimous consent in asserting a letter from dr. ralph jones and a letter and report from the environmental working group without objection. so ordered. and remind folks that members of the committee have ten days to submit written questions for the witnesses to be included.

you may get some as follow-up. we'd ask you that answer those, or return those if you can. and that is without objection. so ordered. and with that the hearing is adjourned. >> thank you. coming up c-span 3 a senate hearing on free online music streaming. then from the democratic national committee why the committee lost seats. after that a conversation about whether the u.s. should provide arms to youukraine. later pakistan terrorist plans. the senate subcommittee looked at free online music streaming and what it means for copyright law. we'll hear from executives from pandora and a company that owns radio station.

representatives of singers and songwriters testified as well. utah senator maclee chairs the judiciary subcommittee on antitrust and competition. >> welcome. this is the first hear on antitrust policy and consumer rights. i want to thank my friend and colleague senator klobuchar in chairing this committee before me. we've always had a good work relationship and we share the same basic goals for this subcommittee which involves ensuring first and foremost that consumers are protected from those who would abuse the

marketplace and second that we form effective oversight of the department of justices antitrust division and of the competition side of the federal trade commission. i look forward to continue that bipartisan work in this congress and i would like to thank senator klobuchar and her staff for their hard work in preparing for this hearing. i want to thank senator grassley for supporting this hearing. senator grassley planned to be here but he's stuck on the floor managing some human trafficking legislation that's pending this week. >> after opening remarks we will hear from our panel witnesses who i will introduce later on and then five minute question rounds with our panelists.

today's hearing deals with a serious issue and i trust members of the public who are here will act accordingly. i want to note at the outset rules prohibit outbursts, clapping or demonstrations of any kind. this would include blocking the view of people around you. so please be mindful of the rule as we conduct this hearing. i don't think this will be necessary. i hope it won't. >> it depends on what you say. >> exactly. if it becomes necessary i'll ask capitol police to remove anyone who violates the rules. if you'll indulge me i want to provide some background on this complicated issue, an issue that perhaps could be familiar to some in the room but is not familiar to most americans.

this hearing is about market for music. specifically licenses to perform copyrighted musical composition. what does this mean? every song has an author. the person who wrote it. not necessarily the person who performed it or recorded it. that author has a copy write in that song meaning anyone who wants to perform it in public has to get a license from the author in order to do so. it turns out to be a lot of people. radio station and internet streaming services like pandora or iheart radio are the obvious examples but all sorts of other examples. we got bars and restaurants that play music to set an ambience. college football games where there's a marching band in the background and that marching

band tends to play music and that music tends to be copyrighted. all those people need a license for every song they play. or else they have to pay enormous damages to the copyright holder. but the market could not function if every neighborhood restaurant had to go look for every author of every song they wanted to play and negotiate with each of those authors for license fees. nor do individual copyright holders have time to contact every bar in america and ask them for license payments. >> as a result for 70 these they relied on pros to license music on their behalf and then collect and distribute the royalties. >> the two largest are as kansas cap and bmi.

we're pleased to have representatives of those organizations. they sell blanket licenses to all works in their inventories and between the two of them those license will cover most every song. roughly speaking and the number is debatable as kansas cap and bmi control about 45% of the market. the remaining roughly 10% belongs to two other pros, csac and global music rights. what does this have to do with antitrust law? well it turns out that virtually the entire market for the licenses we're talking about is governed by a pair of antitrust consent decrees from a long time ago. in the 1940s the department of justice separately sued as kansas cap and bmi over concerns they had violated the sherman act through aggregating control of the music license market. doj settled these cases and entered into separate consent

decrees with ascap and bmi in 1941. the consent decrees are somewhat unusual. they are perpetual in duration and function as a regulatory system for the price of these music licenses. the decrease contain requirements that look very much like compulsory license and royalty scheme. specifically they require that the pros offer a fair rate on a non-exclusive basis. any disputes about the rates ought to be resolved by the judge in the southern district of new york who oversees the decree, a process that has come to be known as rate court. for almost 75 years the consent decree ruled ascap and bmi ban

keith license have allowed consumers of music to have access virtually to the entire catalog of written music by negotiating with a few entities. the system has allowed innovative distribution methods while enabling individual songwriters to get royalties from thousands of bars, restaurants and radio stations across the country. then came the internet. things changed. in 1995 after the advent of web streaming congress decided to require internet companies who perform, publicly perform music but no one else to pay royalties to recording artists and record labels and the guys who play the songs rather than the people who write them in exchange for requiring the record labels to license their works. in other words congress set up a scheme on the sound recording side that looks very much like the scheme the consent decree set up on the musical composition side. the major difference, however, is that the price of royalties

for composers is ultimately controlled by judges, judges applying antitrust law and price of royalties for recording artists is controlled by the copyright royalty board which is a panel of administrative judges housed in the library of congress. and these two groups of people do not agree about the price of a license to play music on the internet. the royalty board sets rates for sound recordings played on internet radio that were substantially higher than those the rate court had set for the under lining compositions. for example in 2013, pandora paid approximately 48% of its revenue to recording artists and record labels and only about 5% of its revenue to songwriters and to publishers. this disparity in rates led publishers to believe they would

be able to achieve better rates outside of the consent decrees so they made a request of ascap and bmi. they asked them to change their membership rules to allow partial withdrawal, allowing to exclude digital licenses. that would require companies like pandora to separately negotiate with publishers for public performance licenses and at whatever price the market would bear. all of that led to litigation that is still pending. it also led to allegations that the music publishers who think that their judge seat royalty rates are too low were colluding to keep pandora's prices high instead of competing with each other to drive consumer prices down. in a lengthy opinion, the judge of the southern district of new york ruled that publishers have

no right to partially withdraw their digital rights from the blanket license under the ascap consent decree. the judge also rejected publishers attempts to use the prices they negotiated with pandora while they tried partial withdrawal as benchmarks for setting prices generally noting evidence that the publishers had cooperated instead of competing in those negotiations. that case is pending on appeal and even as we speak a different judge in the u.s. district court for the southern district of new york is now conducting a trial concerning similar questions under a separate bmi consent decree. meanwhile the department of justice antitrust division is currently considering an effort to modify the consent decrees to allow partial withdrawals among other things.

that would have another a number of important consequences that today's panel can ask. on the one hand the publishers say that partial withdrawal will allow them to negotiate prices with internet companies in a free market. and surely the most striking feature of the current system is that there is no free market. on the other hand others believe that have partial withdrawal the market will not really be free because a few music publishers control most of the licenses and they have been accused in the past to coldluding to drive up prices for consumers. in short what to do about these consent decrees is a hard problem. and it's one ultimately that affects many millions of americans. today we'll hear from a variety of parties affected by the consent decrees each with a

slightly different place in the market. here we have an opportunity to discuss openly the topics that doj is discussing privately. as we listen today we must remember that we have both a responsibility to encourage creativity by recognizing the value of copyrights, and we also have a duty to ensure that prices for music remain competitive for consumers. senator klobuchar. >> thank you very much, mr. chairman. i congratulate you on taking over the subcommittee. we don't have a formal passing of the gavel. here you go. thank you. and we have worked very well together as senator lee noted and i know the majesty, and i know that's going to continue. this hearing focuses on an important and timely topic. the state of competition in the music industry and a pair of antitrust consent decrease that

govern licenses for the public performance of musical works. now we're not here to talk about the sound recording side of musical licensing, that set of copyrights is governed by a different structure and set of rules. today is about lyrics and composition that congress writers create music publishers network get out in the world and licenseees like broadcasters and digital music broadcasters make a better world. ascap and bm impbi, those consent decrees under which they operate have been modified several times in their history. it's appropriate from time to time for the doj to review these consent decrees to ensure they

are meeting their intended goal of preserving and promoting competition. there are some who argue the consent decrees have run their course and should be sunseted while others argue they serve a role. the doj's review of the consent decrees is also informed by recent activities in the courts both enforcing the consents decrees decrees. there's recent litigation in the u.s. district court for the southern district of new york including, which includes some of the parties who are witnesses here today. it is against this complicated backdrop that doj is taking a fresh look at the consent decrees. our focus today is on striking the right balance between impacts on consumers main street businesses and those broadcasting content. and respecting the rights and value toed the creators of the music that we all enjoy. when the consent decrees first

went into effect, no one imagined the boom box much less the ipod and digital streaming over the internet. in addition to innovation to restructuring and new players entering the market congress has acted throughout this time to recognize new reits in music. we've acted to recognize new copy rights for sound recordings, production and distribution and most recently in 1995 for public performance of digital sound recordings. although this area is at the intersection of antitrust and copyright law our hearing today will focus on the antitrust side. i look forward to hearing from all of our witnesses today about the ongoing doj review. >> thank you, senator klobuchar. before we swear in our witnesses

we've received letters from members of the public concerned about this issue and unless there's objection those will be entered into the record. now i would like to introduce our witnesses and then we'll swear them in. we'll move from this side of the table over. first we got beth matthews who is the ceo of ascap, the full title being the american society of composers authors and publishers. to her immediate left is chris harrison, vice president of business affairs for pandora media, inc. then matt pinkus for sounds music publishing. next we have mr. mike dowdle. he is the vice president of business affairs and also the general counsel for boneville international. lee thomas miller is with broadcast music, inc and also

president of the nashville songwriters association internationaler and finally we have jodi griffin who is a senior staff attorney with public knowledge. okay. will each of our witnesses please stand and be sworn. do you affirm the testimony you're about to give before committee will be the truth, the whole truth and nothing but truth so help you god? thank you. okay. we will now hear from each of our witnesses beginning with miss matthews and all the way to miss griffin and then after that we'll proceed to questions. miss matthews. >> good morning chairman lee ranking member klobuchar and members of the subcommittee. my name is elizabeth matthews and i'm the chief executive officer of the american society of composers, authors and

publishers which was formed 100 years ago by songwriters. it operates on a not for profit basis we're comprised of more than 525,000 songwriters, composers, lyricists and represent so 6r million composition. songwriters are the unsung heroes behind american music. every song you hear comes from the heart and mind of a songwriter. songwriters created the notes and lyrics on a page. unlike recording artist, however, songwriters do not earn money from selling merchandise or touring. many songwriters do not have salaries, benefits or other reliable sources of income. they rely on public performance royalties to earn a living, feed their family and pay the rent. ascap's job is to ensure songwriters can earn a living creating music we all love

because music matters. music is not just a business. it is an important and continual contribution to our society teen our day-to-day lives. ascap licenses the right to publicly perform our music to several hundred thousand license licenseees across the united states. we process payment for 500 billion public performances in 2013 more than trouble the year before and we're only one of several market actors. in 1941 ascap entered into a consent decree with the department of justice because ascap did not have significant competition. fast forward 70 years and today competition with ascap is alive and well. we compete directly with bmi and unregulated competitors, new licensing companies, foreign pros and our own publishing

members. the barriers for entry are quite low and yet we are still governed by a world war ii era consent decree. there have been seismic changes in the music landscape. people no longer buy the music they love, they stream it. it offers more choice and control. it requires access to a massive variety of song from provide users to a content experience. this means the use of music has increased but the payments have not followed. for a songwriter this is a terrifying trend. new and innovative market players reskbirmtation and novel approaches to music licensing yet the consent decree restricts our ability to adapt because it's still stuck in 1941. some digital music services are unwilling to pay songwriters a

fair market rate making it impossible for them to earn a sustainable living. as a result major music publishers are athletening to resign from ascap and bmi entirely which is a blow to collective licensing and songwriters. we have proposed number of changes to the ascap consent decree. first rate disputes with businesses that use music should not be decided in an expensive time consuming federal rate court litigation. we propose a faster less expensive process. second, our members should have the flexibility to grant ascap the right to license their music for uses. ascap supports transparency in this regard. that approach is both pro competitive and consistent with the u.s. copyright law. third, we need to simplify the music licensing by allowing ascap to license more than just the right of public performance.

they made a single destination where businesses can secure every right they need if the consents decree is changed. the department of justice is under taking a review of our consent decree and we look forward to work with them. we've also engaged with congress. we applaud the leadership of senator hatch and others for introducing the songwriter act. if consent decrees are not changed and music publishers resign from ascap or bmi then licensing may collapse and everyone loses. copyright owners, licenseee music fans every where and most importantly the songwriters who are the heart and the soul of the music industry. thank you. >> beautifully timed by the way. you closed that out just as the final second ticked off the clock.

mr. harrison. >> chairman lee, ranking member klobuchar and distinguished members of this subcommittee, thank you for invite meg to testify. my name is christopher harrison. i'm the vice president business affairs at pandora media. launched less than ten years ago pandora is now the most popular internet radio service one america reaching more than 80 million listeners each month. the mission of pandora and more of our 1400 employees is to untlaesh power of music by offering are personalized music enjoyment and discovery for millions of the listeners. pandora sees abundant opportunities for new leadership to create a music industry that benefits the entire eco system. the recent launch of pandora's artist marketing platform which gives free access to artists to see how their music performs on our platform is the first of

many initiatives intended to unlock the power of pandora to enable music makers to grow their audience. in addition pandora represents a significant new revenue stream with royalty payments approaching $450 million last year alone and more than $1.2 billion since we launched in 2005. ensuring a vibrant and growing music industry in the years to come requires a marketplace that's open, transparent and vigorously competitive. unfortunately there are a number of significant obstacles that threaten this future and redwir attention of this subcommittee. it's been nearly three years since this subcommittee reviewed competition in the music industry with its hearing on sony's tv acquisition of ami which reduced the number of major music publishers of four three. among the most important obstacles is an alarming lack of transparency. as i described in my written testimony this lack of transparency was a key factor in

pandora's ability to obtain competitive market agreements with publishers that had withdrawn their digital performance rights from ascap and bmi. i commend mr. pincus for making the repertoire of songs available and i hope other publishers and pros follow his example. we recommend the creation of a publicly available database of records to house all relevance music copyright ownership information. by enabling services to quickly ascertain who owns which work a single database of record could identify on a cat lone by catalog basis the owners of songs they perform which enables true competition. while the transparency provided by such a database would mitigate the anti-competitive behavior pan door j recently experienced transparency alone is insufficient to solve the problems that pandora faced over

the past few years. as this hearing takes place, the largest music publishers and pro are der manding changes to the very decrees to forestall their well documented anti-competitive conduct. in the past year four different federal district court judges have found evidence of the same types of egregious anti-competitive conduct that gave rise to the original consents decrees 70 years ago. pandora experienced some of that which i detail in my written remarks. while we're open to sensible modifications to the consents decrees any modification must ensure a competitive vitality and independent pricing activity that does not exist at this time. to amend the decrees in the manner that the pros seek would hind engineer competition. permitting publishers and pros to artificially inflate price and ultimately harm consumers access to the music they love.

while we remain optimistic about the future of music streaming the government has a critical role to play to guarantee a musical licensing eco system. as heed by the behavior i described previously there's a continued need for government oversight to ensure that certain participants in this highly consolidated industry cannot leverage their market power for untaxpayer gain. thank you for your consideration. i look forward to answering any questions. >> thank you, mr. harrison. mr. pincus. >> good morning chairman lee, senator klobuchar and members of the subcommittee. i'm honored to provide my perspective as a music publisher and small business owner. the fundamental question of this today's hearing is simple why are the property rights of songwriters and publishers subject to perpetual heavy handed government regulation? i am the ceo of songs music publishing. i represent 350 contemporary song write perps the currents environment is very hard on

songwriters and perpetual government regulation is making it worse. i'm an avid user of many digital music services somewhere in the many models out there is the answer to future growth for my company. i started songs in 2004 to transact with the digital market freely and easily. however as i detail in my written testimony the current consent decrees artificially depressing the performance royalties that digit services pay because i'm unable to negotiate for my property rights in a free market. three successful songwriters i represent wrote a song for the recording artist jason. the song went number one. streamed 124 million times on pandora. as the songwriter it doesn't get any better than this. and yet their 50% interest in this song generated only $3,155.80 to be shared among the three of them.

if stream cigarette the future all songwriters and publishers should be concerned. this rate of modernization is not fair for my songwriters. like any businessman i'm best suited to determine the fair price for property rights i represent teen feel no when i feel unfairly compensated for them. instead i'm compelled to allow anyone to use my songs no matter what the terms because of perpetual government regulation. those lobbying for continued regulation cite the high earnings of top 1% of recording artists. the reality is that many of the creators i represent are struggling to meet the minimum wage. like the acclaimed writer husband and father who has been plagued by illness and unable to afford proper medical treatment his sole income comes from creating music despite achieving notoriety for a song streamed over 11 million times on pan torah he was paid only $642.

i have a responsibility to secure fair compensation for the talented songwriters i represent and i'm unable to do so due to perpetual government regulation. under the current consent decrees i have only two bad choices in seeking fair rates. accept unfair government regulation that depresses property value or withdraw entirely from the elective licensing system and incure tremendous costs and terrible inefficiencies. to the benefit of both reits holders and businesses that use our music our songs are licensed collectively through performing rights organizations. however, despite radical change in how music is used and consumed, today's songwriters and music publishers are highly regulated by consent decrees imposed during world war ii. in my written testimony i identify modifications to the decrees i believe will allow for a more competitive free and fair market for all copyright owners and music users. critical changes to the consent

decrees included amending arrest setting procedures that more closely reflect a free market. allowing directly sensing of performance rights. establishing a foamal mechanism for sunset or at least periodic review of the decrease and providing music publishers and their agents the flexibility to license digital services seeking multiple rights. i believe the department of justice has an important role in enforcing antitrust laws against any real anti-competitive actions but that role should not be used to regulate small business owners and prevent the free market development of an entire try for almost 75 years. as a music publisher my livelihood depends only sensing my songs. that's the reality. if given the freedom like any other music publisher i'll exercise it responsibly to the benefit of my songwriters. thank you, again, for the opportunity to share my views with you today.

>> thank you, mr. pincus. mr. dowdle. >> good morning. i am vice president of business affairs and general counsel for boneville international corporation which owns television and radio stations in salt lake city los angeles seattle and phoenix. my testimony will focus on the continued necessity of the ascap and bmi consent decrees. absent these consent decrees no fair competitive market who exist for the licensing of musical works. this would harm not only broadcast audiences whose access to our programming would be jeopardized, but customers of the countless businesses that publicly perform music every day including restaurant, bars retailers and sporting venues in your local communities. to illustrate tissue let me provide an example.

klstv boneville affiliate in salt lake city has music interwove convenient throughout its programming. these music performances take place in the background of music and television show live sport sporting events and local news. for its locally produced content there's editorialal discretion over which specific songs it airs. so in the event it could not obtain the rights to a certain song, ksl could take the steps to ensure the song is not performed. but for a significant portion of its content namely network and syndicated programming live events and commercials it has no editorial control. if ksl lacks the right to publicly perform a song it runs the risk of significant penalties under federal copyright law. our radio stations that air syndicated programming, commercials and live events run the same risks. they must have the public performance rights to the full

catalog of musical works in order to operate lawfully. even the right to a single musical work gives the copyright owner market power. the risk of abuse is compounded when these rights are aggregated which is exactly what the performing rights organizations or pros do. ascap and bmi control 90% of the rights. in any other industry this would constitute per se violation of the antitrust laws. but the consent decrees entered into between the doj and both organizations more than 70 years ago served as antitrust life lines that allow ascap and bmi to continue to operate in spite of their anti-competitive nature. absent the protection and framework afforded by the consent decrees ascap and bmi

would have unfettered ability to extract above market prices and returns for the rights of those works from broadcasters and other licenseees. let me be clear. broadcasters would crease operations without ability to clear these reits and consent decrees critical to that end. before i conclude i want to touch on two specific points that are central to today's hearing. first in an attempt to circumvent the consent decree large music publishers sought to withdraw from ascap and bmi to directly negotiate with digital service. two federal courts interpreted it to prohibit such partial withdrawals and now the pros are asking doj and congress to amend them. such a modification shouldn't be allowed. the fact is any music publisher with such ensize and scale to consider direct negotiations for selected rights such as digital

rights would have essentially the same power in the market as the pros and raise the same antitrust concerns. relaxing the consent decrees would enable music publishers to engaging the same behavior that prompted the consent decrees in the first place. second, this subcommittee need look no further than the recent antitrust actions brought against third major pro, csac to glimpse practices. these practices resulted in a $58 million settlement are detailed in my written testimony and provide a real world example of the antitrust abuses that would be unavoidable outside of this consent decree framework. in conclusion this subcommittee has long recognized the important role that the antitrust laws play in ensuring

free and competitive markets. ascap and bmi consent decrees remain viable for broadcasters to fairly and transparentally license music works to the benefit of their audiences. thank you for inviting me to testify today. i look forward to answering any questions. >> thank you. mr. miller? >> good morning. my name is lee thomas miller. i am an american songwriter. i grew up on a small tobacco farm in kentucky and when i was 11 i started to play piano then guitar then violin. music has a way of kind of taking you over. i knew early on it wasn't just a hobby. i went to college and instead of studying something sensible like business as my mother wished i studied classical music competition which meant i was overqualified for my job singing and playing in the bars at night. but there i was classically trained and writing honky tonk

songs on the side. i was looking for an excuse to visit nashville so i took a trip to bmi. i met with the songwriter representative who explained what bmi did. when your song plays on the radio i collect the money. i said sign me up. i made recordings of the song i had been writing and he was very blunt. you're not much of a singer and guitar players are a dime a dozen but i believe you can be a songwriter. so i graduated college, saved $1,000 and moved to music city. for years i wrote songs. hundreds of songs. i played in bands and took temporary jobs to pay the bills. i studied the songs i heard on the radio and met the songwriters who wrote them. at the time the music business was healthy. a prominent publisher took a chance on me and then real work began. my first cuts were not memorable. when bmi sent me my first check

it was for $4.69. today it is framed and hanging on my office wall. that check meant everything. that check meant that i was a professional songwriter. all in all it took 11 years after i moved to nashville to have a hit on the radio. in 2003 i received my first bmi award an award given the 50 most played songs of the year. it was a song entitled "the impossible." it was about overcoming insurmountable odds and believing anything is possible. to me earning that first award was like a ball player going from aaa to major leagues. today songwriters count on their performing rights societies. one thing keeping us afloat is that perform royalty check. we do not tour. we do not sell t-shirts. we write songs. all day every day. and when we succeed we pay self employment income tax with what

remains we buy gas and bread and white pickett fences. but since the year 2000 the national songwriters association where i serve as president estimates that america has lost between 80% and 90% of its professional songwriters whose primary income is from royalties. i'm talking about creators. and what we create is not some obsolete irrelevant product of days gone by it's music. what we create it's there when you fall in love, when your heart breaks, it heal it inspires, it time travels, it crosses party lines. so how does the bmi consents decree impact me. it puts bmi and songwriters at a disadvantage. if rate dispute kos be resolved by arbitration rather than expensive litigation that would feel like a win for everyone. new services could launch.

and songwriters could get paid quickly without spending lots of money on lawsuits. songwriters also worry bmi is not allowed to license rights other than the performance right. most new services need several rights. a one stop license from bmi would be a quick and efficient way to get those services off the ground. these aspects of the bmi consent decree, in my view have devalued the music composition to the point where the songwriters are being crushed. it is bad enough it is so easy to steal the music today but illegal framework that allows songs to be streamed for nearly free will destroy the livelihood of the american songwriter the if it is allowed to continue. tu department of justice is presently under taking a comprehensive review of the ascap and bmi consent decrees and hope they will recommend substantial changes that will allow us the flexibility we need to operate in the free market. i am america's smallest small

business. i sit down and make stuff up. i can make you laugh. i can make you cry. i can make you do both with one three minute story. that's the power of music. and it all begins with a song. but i'm here to tell you there are not many of us left. thank you chairman lee. ranking member klobuchar and members of the committee. >> thank you, mr. miller. miss griffin. >> chairman lee ranking member klobuchar and members of the subcommittee thank you for invite meg to testify today. i would like to thank you, mr. chairman, for your remarks emphasizing that competition policy is first and foremost about protecting consumers. my name is jodi griffin and i'm a senior staff attorney at public knowledge an organization that advocates for policies that promote freedom of expression affordable communication tools and public's ability to create and access creative works. before public knowledge i was a

musician. and helped launch and worked for the five time grammy nominated independent label beamont sound. the consent decrees comes at a pivotal time for the music business. now more than ever it's crucial policymakers promote competition and innovation to benefit listeners and artists alike. new music services give consumers convenient waz to legally access music at reasonable prices and they have the potential to give artists greater control over their own careers. however, this market is still new and it's still growing and it is crucial that we encourage competition and innovation where consumers and artists will only be left with fewer options and less leverage in the marketplace. antitrust and copyright policies should promote a robust and competitive music place where artists can get their music out on the market and get a fair

price for it. if all of the middlemen in the music business from publish towers labels to distributors are facing robust competition that forces them to be accountable to musicians and their audiences. if an intermediary can leverage a large catalog to come to nature the market it has the power and incentive to use that leverage to raise prices to consumers and prevent new services that would challenge its dominance. for example on the sound recording side of the music business one of the major labels negotiate licenses directly that they have been able to use their market power to obtain large lump sum cash advances and equity in the new companies the benefits of which are not passed on to artists and independent labels argue that the majors can demand royalties disproportionate to their actual market share because they have enough market foreveto new services. the very act of creating large collective licensing organizations concentrates

market power and the market for public performance rights and compositions is very concentrated. this has between case for decades so for decades we had antitrust settlements ensuring the largest perform rights organizations offer reasonable licenses despite their market power. this doesn't mean it is an appropriate to periodically review and update the consent decrees to encourage a more competitive market but at this moment we can already see multiple warning signs that dismantling the protection in the consent decree would give fewer choices for consumers. in recent years the music publishing industry has only gotten more consolidated as the bigger publishers buy out small firms. some of those mergers were justified by the argument that post-merger publishers could not act anti-competitively because we can rely on the market protection and consent decrees.

a federal judge found that they chose collusion over competition. despite the objections of some songwriters and independent publishers within ascap. a federal judge later examined these negotiations and found that the publishers behavior magnified their very considerable market power so much so that the resulting licenses could not even be honestly considered free market benchmarks. again, this does not mean we must always have consent decrees nor that they can never change but the evidence shows at this moment in time we need to protect competition more than ever. as the department of justice and congress review competition in the music licensing place it is crucial we don't support policies that encourage a competitive market in which no company as the power to pick winners and lowers.

a marketplace that allow users to compete benefits consumers and artists alike. thank you and i look forward to your questions. >> thanks to all of you for your opening statements. those were very helpful. we'll now begin our question and answer period with five minute rounds. i'll go first and then senator klobuchar and then we'll alternate on each side of the aisle. miss matthews we'll start with you. so your consent decree has been around since the early 1940s, second oldest of the two consents decrees. when we look at the music market today we can see that it has changed a lot over the last 75 years. we certainly see delivery methods in particular have changed a great deal since the early 1940s.

what can you tell me about this, about how the market has changed over the last 75 years and how those changes in your opinion, bring about the need for some kind of modification of the status quo? push the button. thanks. >> excuse me. the competitive market has increased dramatically since the '40s. we compete biowith regulated competitors such as bmi and several unregulated new market entrants have shown up on the scene in the last several years. the most important change i think that has happened in the past decade has been consumer behavior. because people are no longer buying music, a major source of revenue related to mechanical reproductions has steeply decline for songwriters. so as a result the reliance on public performance is increasing. digital service are becoming increasingly more customized and

personalized with the proli proliferation of high-speed service to the home. more music success played than ever before. so while home, more music is being paid than ever before. so while the volume has increased in terms of overall public performances the revenue is simply not tracking in terms of increase. and, at the end, the song writers are being harmered. people are threatening to resign. if they resign, collective licensing will collapse. >> thank you. mr. harrison, i'm presumptively always supportive to free market's competition issues. you've suggested that these very old consent decrees are not out dated at all. what evidence in the market leads you to believe that the

consent decrees that we're talking about today, as they're written, are necessary, even in the digital age. and even in the digital sector. >> well, i think there's two things i would point you to. first is just the structure as b.m.i. they are horizontal joint sales agents. they take works from otherwise competing publishers aggregate those catalogs together and then fix a single price across all of their members' catalogs. as it was indicated earlier that is normally viewed as an anti-trust violation. because of the protections they provide, more contemporariously pandora has experienced what happens when publishers attempt

to partially withdrawal. you alluded to the judge's opinion which the publishers and ascap chose not to, use their market power and drive rates above the competitive markt rate. >> speaking of that litigation speaking of the judge, i want to turn back to you for a minute, ms. matthews. in the pandora feed the rate judge discussed several examples of this behavior that she found to be questionable. as this issue continues to arise, i'd like to give you a chance to respond. if the publishers are committed to partially withdrawal, with ascap view them as competitors

in the marktet for music licenses? and, if so, will that result in competitive pricing? >> it's counter intuitive, i know. independent publishers, as competitors today, we only accept a non-exclusive grant of right meaning that they are always free to direct service with any music service, including pandora. if they were allowed to grant us a partial grant of rights which is supported by the u.s. copyright law because copy rights are divisible, they would simply remove those rights in their entirety. so we would not be competing for them with respect to that particular license. but it would be pro-competitive in the sense that it would create more choice for music licensing services. >> we'll probably want to follow up on that a little bit later. my time is expired and i'll turn it over to the senator. >> okay. i think i'll start where he left off there.

a cig nichesignificant amount of attention has been discussed in a recent letter the d.o.j. discussed in the second circuit friday currently written do not permit partial withdrawals. ms. matthews, you answered that in part. but, mr. pinkus why are the partial withdrawals needed in your view? >> well the current system works quite well with respect to most aspects of collective licensing. i think there's broad satisfaction with the licensing system the television licensing system, the bars, restaurants, stadiums' licensing system. but, with respect to the additional rights i believe that the rates are artificially suppressed. if you look at market comparative rates, they have

been up to three to four times higher in multiple situations. there are many companies that are doing business in an unregulated way in the digital market that are functioning just find without digital oversight. that puts us in a position where if our earnings are going down and the listeningship of radio is going down, then our businesses are going to suffer over the long time. what we'd rather be able to do, like any other small business, is to be able to negotiate directly for those rights. >> okay. do you want to respond to that? this idea of the partial withdrawal? >> yes, thank you, senator kobashar. >> there's an old adage that says bad facts make bad law. hypothetical situations make worse law.

in this case, i would just urge members of this committee not to make a decision based upon a hypothetical threat. that's first. second of all, the very fact that the music publishers were talking about are big enough to make a threat that scares ascap and b.m.i. shoumd raise a lot of eyebrows on this committee and the department of justice. those withdrawals as has been mentioned here the possibility of those withdrawals are best put in the light of what happened, if you take a look at what happened, when they threatened them. they engaged immediately in inclusive and competitive activity. if you want to see what will happen, that gives you a pretty good idea what should happen. that, i think, should really raise some eyebrows and raise a question whether or not they ought to have their own consent decrees, frankly. >> okay. do you want to respond at all, mr. harrison? >> i agree with mr. donald son.

the concern is not partial withdrawals in theory the concern is partial withdrawals in practice. when they actually believed that they had partially withdrawn, the publishers chose not to. and to the extent that the department is looking into this issue, i think it's wise for this subcommittee to be mindful of actual behavior, not what folks might say they want to do. >> my last question, there are a number of different ways that licensing rates are set throughout the industry. some of them argue that rates should be set in the free markt rather than being subject to terms administered and regulated by the government. you talk about the right of public performance is inherently a free-market right. what do you mean by that? if you could just answer briefly so i could get some other comment on that?

>> if it weren't for the consent decrees governing ascap and b.m.i., then negotiating would be between publishers and licensees directly. >> do you think that's a good idea? >> i do. i understand that there are anti-competitive concerns. i, for one, have never been concerned of acting in my scale enough. and, yet, i'm regular lated broadly by a system that's aimed to protect against anticompetitive behavior on a negative basis. >> ms. griffin do you want to respond to that? >> when i think of what a true free market is it is one that has competition, one that brings more choices and lower prices to consumers. when we look at the publishing market right now, it is hard to know what a true free market rate is because we don't have examples of negotiations where the licensee can say no and still stay in business. that is why we still need the competition protections and the

consent decrees. >> okay. anyone else want to respond to sna? no? okay. >> i would just like to point out that under the current consent decrees, the license is compulsory, meaning that there's no negotiation what so ever in order to have access to the assets. it's the antithesis of the free market asoeszuation. the licensee applies for a license and immediately can exploit those copy rights. >> all right. thank you very much. i'll turn it over to my colleagues. >> mr. tilles? >> mr. dowdle if the partial withdrawals are allowed how is this going to affect broadcasters that sighmulcast through digital channel? >> well, we'll be faced with having to negotiate, if you can call it a negotiate, we have to deal with people who don't know

much about our programming therefore we have to have those licenses. we have to come to an agreement with them. that gives them an uneven field on which we have to play immediately. we don't have a choice. we have to sit down. we can't say no. >> second of all, we've already seen how they've behaved in a "free, open system markt place." they collude. that will immediately go to the conduct, we believe, that they've already proven they will go to. they will conduct themselves in an anti-competitive way. that's what we're faced with. a gun to our head and no market power. >> ms. griffin wharks's the consumer interest here. how do con acceptability decrees help consumers. >> thank you, senator. consumers benefit when they have choices for different services, that give them