for the smaller boats, and i got to see them dealing with one of the smaller boats. i'm sure it was not the same barge that addresses the larger vessels. two quick questions. how do you clean the larger vessels and who decides whether or not they have to be cleaned before they continue up the mississippi so that they don't take some of the oil with them? >> with the response that we have, you have several different options. the first one for an inboundes have cell off the southwest paths so the barge pilot would board thees havel and there are two off-shore tugs which are equipped with high pressure water nozzles. they circle one on the port side and one on starboard and go around the vessel and blast it off and it's in the southwest pass and there's another station

there just inside the jetties near the bar pilot station, and they view the vessels and the one that anchored offshore, and when it came inside and checked by the cleaning crew there was no need for it to be cleaned further. you also have a further up the river that is moved several times. within the anchorage where a heavily contaminated vessel and they would boom it off and break it down with high pressure and maybe use some type of steam or chemical to break it down and then skim off inside the booms before when they go. our experience after the dm 932 collision is the booming off may take about half a day or longer whereas water canons and the secondary crew would take anywhere from an hour or two on a vessel about 850 feet long.

who determines if it has to be clean cleaned? the coast guard crew and pilot associations offshore and determine vessels and inbound vessels and what's a vessel self-assessment form and a master would submit that and say our hull looks clean. we see a little bit of a sheen. can you look at it as you come in? >> thank you. >> yes, ma'am. >> you mentioned, mr. duffy, difficulty disposing of some of this dredge material and waste. is oil classified as hass douse under louisiana law? i believe oil is hazardous and that is is a big issue and in this case i believe what we're doing is moving oil that's come from the gulf back to the gulf. after the same collision they represented a minute ago with the oil spill that was just out

the window here, we did have hopper dredges that got fouled over. 100 and 110 miles down river from here and what happened those hoppers had to be dumped in a special site and cleaned and that basically reduced them down to one hopper load of material per day, whereas normally they use ten. so if we get to that situation, we will need more dredges and many of them are working off-shore only nine and three government dredges. one of them is here. the wheeler and the other two ones on the east coast and ones on the west coast. we have real issues with a number of dredges available and hoping that those assigned to the berm plan can stay with the berm plan, but there is a big concern that if we had to do special handling, moving

everything up to pass a loutra that we'll lose cycle time, if you will, and if the material has to be cleaned it will reduce it significantly, about one-tenth. again, we believe the sheen is on top of the water and not in the sediment. the corps has a testing kit that can show that, but according to the epa standard, they have to do biological testing which takes about 30 days. >> let me ask a question, mr. dixon and mr. collins, maybe. in the nuclear industry there is an organization called inpo, i think it's international nuclear power organization, which is an indice industry organization which they pay dues, $150,000 a ye year, substantial dues and they send in teams of inspectors to examine reactors and they look

at every aspect of training of people, adequacy and the modernization of equipment and response capablity and so forth and they give a numerical grade to the reactor. the numerical grade is taken seriously by the reactor owner and it's by the commission and it affects the insurance rates and the insurance premiums that are then charged. i've been impressed and seeing this up close, how respected those investigators are when they arrive at a reactor by the other people they're investigating and they investigate them to not do enforcement actions or assess fines simply to try to make sure that they raised the reactor operation to the best practice in the industry. one obvious reason of self-interest is if something goes wrong in one reactor it affects the industry and attitudes for it. >> the same is now true with

respect to off-shore oil and gas and a lot of companies that are entirely innocent of any kind of malfeasance or poor decision making are suffering along with anything else as you described very vividly as a consequence of one company's set of decisions. how does it strike you to create the proposal to create such an industry association to essentially police itself and not to replace regulation any more than it's replaced in the nuclear field or to buttress it so that one company has the capacity to influence others to upgrade his performance and keep it there? does that sound like a realistic idea? >> i think that makes some sense. i think something like appear review, perhaps, that i've seen

in other industries. the problem with regulation or any type of review sometimes is it becomes easy to verify things and you go out to the rig and make sure the rails don't have a burn in them or separation, but there are real issues on making sure and we want to keep the pointy end up and want to keep the oil in the hole and a third one about lifeboats. and i think the advantage of an organization and the peer review which is what i'm thinking. he may be thinking that they hire their own inspectors and that's the way to go is if you have people there are intimately involved in the business you have the best chance of stepping up above, just checking the handrails and going after the

real things that have the most potential to go wrong and cause a big event. >> are there any conversations under way with industry that might consider something of the sort? we' >> we're -- we're meeting and talking all of the time. i think we're in the mode right now of constantly responding right now as we should. i'm not being critical of it, but of the pronouncements coming out from the department of interior. we're dealing with a moratorium where, frankly, sometimes we're at odds with our customers over what the definition of force major is and those are things that are working if we can get past this transition period, whatever it's like, i think the industry stands ready to step up. there are lots of recommended practices that come out of the api on well design. idc which is international association of drilling contractors and it is very active on well control and they issue certifications and on

that. i think there's apparatus that could be beefed up and could step in and make a pretty graphic response and do a quality job. >> there's also some thought or some proposals to have third-party verification and signing of responsibility with respect to various of the key systems on offshore rigs. is that something that's taken seriously by the industry? >> yes. right now with what's happening we're considering anything. we made a proposal that there should be somebody from the regulatory environment and perhaps certainly in the interim period when it's important to reassure people that is being reviewed. i think that would make sense. >> several comments on that. first of all, to be sure that the commission is aware that

there are two major task forces under way at moment that are operated by api and noia and ipaa that one is focused on the containment and it is focused on the spill once it's not contained and it's available in the interior department on the preliminary scope and study from those groups which are working hard to get serious recommendations to you and to the government as soon as possible, but certainly in the month of august. >> api has the lead on that, all together and working together and certainly they're the source of prime ear expertise in that area. so one on containment and one on response. i happen to co-chair the one on response, and i know our team is working very hard on that. so i just want to be sure that you're aware of the two task forces. we are consulting that closely. do you have impressions yourself

on the technology of containment? i'm just learning. i'm not an export that. there is work to be done on the whole skimming operation and that area, and i'm not sure that technology has moved ahead as much as we would have liked to have seen in other areas. >> but that is the subject of one of these two task forces. >> absolutely. absolutely. what happens once the oil is not contained and it's in the water column and on the surface, what can we do better? an assessment of how we had been operating and what we could be doing better and any recommendations that come out of that. there are obvious things that our group will have. >> what's your timing for the report on that? >> end of august. final report, end of august final report. >> end of august. >> last week the joint report for both these two groups together, and really it's more like a work scope.

there weren't conclusions and we were just getting started. we are extremely comprehensive and working as quickly as we can to make as good recommendations that we can. what's the response part of it? again, everything about the oil, once the oil escapes it's not -- it's not produced through a vessel and so we're talking about dispersing, skimming, burning and how to deal with it as it reaches the shore and the cleanup on the shore. >> we look forward to that. i think the industry is working very hard and i would comment the industry is is taking this very seriously and as it goes back to the initial recommendations from another task force that are already in the ntl5 which is part of what oil companies are focused on right now. specifically with regard to oceaneering that i will need to certify that they are trained to

understand vop operation and they're well trained to do their job and we're upgrading our training program right now to be able to do that and we'll have no trouble complying with that and we are quite prepared to. >> so you're looking at sub-service. >> on the separate subject with the oceaneering and the robotic vehicles and the idea that oceaneering may need to certify that our people are trained to do the task that we're train to interface on the dop on the rig they're working on and they know what to do and they're adequately trained and competent and we are looking at our training program right now and anticipate that we'll be able to do that. we anticipate we can do that. >> we would appreciate having a relationship beginning this week with whoever is doing that work with you to develop some of the data if that's possible. we're on a tight timeframe, too.

we have six months for the whole exercise and we'd like to know what you find. >> we'll be happy to keep you informed. >> on that team going forward, i know this is an immediate response, can we get the industry going again, but do you have any suggestions or have you thought out of this crisis what percentage of revenues would you be willing to as an industry put in research to these things. containment and response and what is the best safety practices as a whole industry. >> i don't have a number. i think, in our group, there is a group looking at funding, and i think as someone mentioned before this is something that's been an industry-wide approach, and i see the members of my committee taking a serious look.

how will this be funded? >> i don't think we have the answers yet. >> we would very much like to hear from you what you think is reasonable. there's something the industry could do itself. >> we look forward you to chief executiving you good recommend digs on that. >> mr. collins, the nation, most of our citizens had those suvs -- >> rovs. >> there's vegas suvs and rovs down there who are capable of these remarkable things, and i gather if we heard right on the news that you were able to remove the bolts on the flange? >> i would say our people, our operators and our equipment have done some remarkable things and when this is all over we'll have a great story to tell.

unfortunately, we haven't done enough, but -- >> my question is the other part of that is we've become aware of this remarkable technology with rovs and yet the american public is somewhat surprised and frustrated by the fact that the government doesn't have any capacity to stop this or to control this at all. we were completely reliant on the industry, and i think going forward, thinking beyond this tragedy and thinking of the long run, what do you think would be approapriate for governmental investment in the technologies necessary and not only to manage these sort of things, but to give us the ability to understand the deep water environment and to continue to go deeper into the ocean, and i'm noting the thakt that although we have some limitations, we have, i believe only one vehicle, a manned vehicle in this country that's capable of operating at those

steps. do we ned more capacity as a nation? in terms of advancing our research, indeed and truly understanding the environmental risk if this area? >> that's a very good question, sir. i wish i had a very good answer. i really don't know. i think the rov technology is well understood and commercially available by many suppliers to the government and to industry at this point in time. i'm sure you're quite capable of the expertise for whatever purpose you may have. whatever task that you have that you would like to have accomplished that private industry is better able to accomplish it, but that's just a personal bias. >> thank you. >> another question? mr. collins, mr. dickerson,

thank you. we look forward to sharing information to the extent that that's possible in the month ahead and learn from what you're doing and encourage you to do more of it. >> thank you very much. >> thank you very much. >> we are going to take a 15-minute break. we'll be back here at 3:30. we expect senator landrieu and congressman scalise to open the conversation at 3:30 and then at 4:00 we're looking forward to two hours of public comment. so back here at 3:30, please. what's the national commission will continue its next public hearing with the bureau of ocean energy management, local elected officials, have the economical and social effects of the bill. you'll be able to watch that at

o'clock eastern. we spoke with the protesters outside of the hearing today. c-span[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> what are you protest and? >> this is a huge environmental disaster, and bp has been censoring the truth and is refusing all accountability and full transparency, and they have not mobilized to protect the public health or the

environment. we need a massive response from the people, to fight -- a battle with all of society to save the environment here, to demand that the government and bp bring all the resources necessary. why are they forcing everyone to be cleaning up oil, to helping -- to help stop this? why are they not telling people the full scope of the environmental disaster? why are they not supporting the local efforts to prevent the oil from getting ashore? why are they not given the workers respirators, and just today, we are learning that 20% of the workers have been exposed to high levels of very dangerous chemicals. and we are demanding -- we are

demanding that there is no cover-up, and there is no excuse and the criminals that caused this disaster. this is not even legitimate. how can they investigate themselves in any kind of real way? >> i was wanting to be part of the solution, taking some kind of a proactive role to do something. we cannot allow the government to destroy the country and the planet. >> i am here to support the lifting of the moratorium in the

gulf. this is a mistake to punish all of the oil companies and all of the louisiana. >> this affects the oil and the dass industry, the commercial fishing industry. they'll be affected by this moratorium. >> i would like to see the moratorium lifted, and hopefully, we will garner enough support to lift the moratorium. >> like hurricane katrina, we

have not had the road map. there has not been an experience of this magnitude in the past. i think that everybody involved is cutting new territory, and they were working through this. what is enough at this time? i think that everyone is doing their best to try to find the best answer, including president obama. and he is not an oil and gas expert, he has to match his disposal. and i think that he is doing his best to make the use of these experts as he possibly can. in the long term, we have to look at this and this should be sited much more closely, the impact of the moratorium. they are driving with the

energy-related jobs. and we are not yet out of the hurricane katrina proximity. the businesses have not return from this experience. and to go into another loss such as this, detrimental is an understatement. >> the federal reserve chairman and small business administrator speak at a forum on credit held for small companies. the nation's governors will hear about the federal deficit. and after that, we will have portions of the first day of hearing -- hearings over the gulf oil spill. tomorrow morning on washington journal, will read about credit for small businesses, from a blogger with the atlanta business channel.

a former republican representative will take your calls about politics and the congressional agenda. and we will look at the future of the u.s. postal service with the chairman of the postal regulatory commission. washington journal is live every day at 7:00 a.m. eastern. >> our public affairs content is available on television and radio, and online. and you can also connect with us on twitter and facebook, -- >> ben bernanke says that making credit extensible to small businesses is crucial for the economic recovery. speaking at the federal reserve finance conference, he says not enough has been done to help the small companies. this is about half an hour.

>> thank you, everybody. i am the director and the community affairs officer, and i would like to welcome you. we have the director of the committee on consumer affairs and she walsh -- she will begin today. >> thank you, joseph. i have a couple of things to do this morning. i would like to welcome you to the federal reserve board. i am very happy to be here for this very important forum. this is for the 43 small business forums, produced by the federal reserve banks across the country.

these were held on different topics and aspects of small- business lending. synthesizing the information from these areas has been quite interesting, and what we have found is that there are some areas -- there were some specific themes that emerged, and there were a number of consistent themes that appeared across the spectrum. and this has been summarized and it is in the hand out in your folder. we will be discussing this in more detail today. as with all of these forums, they are planned and executed by a large number of people. throughout the federal reserve system, this entire project has been a very unique collaboration, with staff from the committee affairs programs, the supervisors and the research council. the main partners have been the

small business administration, and the community development financial institution fund. specifically for the day, i would like to thank the people and the teams that made this possible. but i should also say that the timidity affairs offices from the 12 federal reserve banks. without their efforts to produce these forums across the country, there would not be the capstone. several of these officers will serve as panel moderator's today. last, i would like to thank all the panelists, and this terrific offer -- audience that have attended all the prior forms as well as today. i was looking at the list of people attending this over the weekend, and this was a list of the interested parties in

creating jobs with small business. i am looking forward to the discussion today. we now go to the main business, it is my great pleasure to introduce our chairman, ben bernanke, deliver some opening comments. he has been very interested engaged in the small-business initiative, and the other efforts undertaken by the federal reserve to make certain that everyone has access to safe credit. he has personally attended one of the credit discussion forums in detroit, as well as the program in enrichment that was focused on development. we have appreciated his efforts and we know that his support will continue as we move forward. join me in welcoming than bernanke.

>> thank you, and good morning. let me begin by thanking the staff, and the board of consumer affairs, especially the division director, for the hard work that they have done to approve access to credit for small businesses. and i want to thank the many partners who came together to organize this, like the small business administration. i am happy to welcome all of the to the federal reserve board. this gathering serves as the capstone of a series of more than 40 meetings conducted across the country, starting in february, by the community affairs offices. this provides a forum for the small business owners, trade

associations, lenders, bank supervisors, and the other stakeholders to exchange ideas about the challenges facing the small businesses. some of these meetings involve discussions and others suggested specific topics. this included a guaranteed loan programs. i attended a meeting that included credit issues with the session focusing on the specific case of the auto industry. participants in this sector spoke about the crucial role of stable financing for small businesses ranging from suppliers of parts, to the independent automobile dealers in the recovery of the auto industry. this was one meeting in one city. the meeting in miami focused on

the role of hispanics in small business. a similar discussion took place in new york and san francisco and chicago, among many others, including omaha, nebraska and little rock, arkansas. the objective was to gather information that we and others would be able to use to develop policy to support giving loans to small businesses. identifying and addressing the credit caps, when pat missed the landing, or improving the access of small business to critical support services. this information serves as a discussion of the net steps, that the policy makers will be able to undertake to make certain that small business is able to contribute to the economic recovery. before we get to the next up, i

would like to provide context of discussing the importance of small business to job creation and the economic recovery. and we will talk about the steps that have been taken to support financing of small business. small businesses are essential to creating jobs in the economy, employing one half of all americans and accounting for 60% of gross job creation. the newer small businesses are especially important. over the last 20 years, these enterprises accounted for one- quarter of the job creation even though they employed less than 10% of the work force. the formation and growth of small businesses depends critically on access to credit. and unfortunately, credit conditions remain very difficult. the percentage of small business

respondence -- credit conditions have tightened over the last three months, and this number has remained elevated by historical standards. in one measure -- this dropped from $110 million in the second quarter of 2008, to less than $670 billion. an important question is, how much of this has been driven by the weaker demand of loans for the small businesses, and how much of the deterioration of small businesses. the economic downturn, and how much by the lack of credit availability. no doubt, all three factors played a role. we have to find a way to make certain that credit-worthy borrowers can make access to these loans. over the past couple of years, the federal reserve and other agencies have been working to stabilize the financial system

and the economy. this has included working to facilitate credit for small business. at the federal reserve, we were helping to build capital and the securities market to the asset- backed securities loan facility. more than 850,000 small-business loans were financed by securities issued through the troubled bus the relief program. and we would like the banks to resume normal lending as soon as possible. the stress tests that we project -- we took last year allowed the banks to raise the capital that they need to offset losses and ultimately, to provide a basis for lending. we have heard the often- expressed concern that the bank examiners have prevented banks from making good loans. we take this very seriously. the federal reserve has to

working with the other banking regulators to develop policy statements on this issue, and that the bank examiners. the message is clear. consistent with maintaining prudent standards, the lenders should do everything they can to meet the needs of the credit- worthy borrowers. this is good for the economy. to make certain that this is heard, we have conducted an extensive and training program as well as that which with the bankers. we believe that our efforts and others -- that additional action requires hearing first hand, this requires knowledgeable people who can speak about the challenges now facing small businesses. the insights retain from the

small business owners in this series of meetings has given us a more nuanced or understanding of the problem and will help us to identify errors -- areas where we may be able to do more. facilitating small-business demand is not simple or straightforward. notably, the term small business encompasses a mix of enterprises, ranging across many different kinds of business and each one has a unique -- economic condition and a complex relationship for customers and creditors and suppliers. we should be wary of the one- size-fits-all solution. one of the most important things _ during the meetings, is that solving these issues will require collaboration. the series of meetings itself was a model of collaboration, with interactive discussions and

problem-solving. participants included community affairs officers and bank supervisors, economists and policymakers from the federal reserve. we also have the bank regulators and the small business administrators. and of course, small businesses and lenders played an important role. there was stimulating conversation, as the lenders hold -- heard from the small business owners, and likewise, the lenders were able to explain the considerations that go into making a small business loan. and regulators heard in detail the effects of the procedures and the guidance for small- business funding. some common themes came from the discussions. like the declining values of real estate post a severe challenge. at the detroit meeting -- one

person said that if housing has declined in value, look to the equipment. the business owners spoke about working capital as the most critical financial needs, followed by refinancing projects with low interest rates. many reported having had to result -- resort to borrowing from their personal credit cards into their retirement accounts. several mentioned the need for small-value loans, as well as the need for patient capital. they were willing to commit funds for 5-10 years, without the expectation of immediate concerns. some expressed the view that current lending conditions do not represent credit-tightening as much as a return to more traditional underwriting standards -- and some lenders said that they were emphasizing cash flow and the pending less

on the credit value -- it appears that some of these businesses, have lost value, but the cash flow remains strong. they have had difficulty maintaining the credit to continue operating. the challenge ahead, will be to determine the quality of businesses in an uncertain and difficult environment. it is in their interest, after all, to listen to people who are worthy of credit. this is how they will learn their profits. and regulators need to work with lenders to help them do all that they can, to meet the needs of credit-worthy small businesses. making credit accessible to small businesses is crucial to the economic recovery and this should be front and center to the policy challenges. we're happy that you have come

to be part of this discussion to promote small business and finance. you bring valuable insight to this issue. i would very much like to thank you for willingness to share your ideas. thank you for the good discussion. >> thank you. we are going to move quickly to the next segment. and as we are getting ready to this -- ready for this, i would like to say how things are set up. i would like to say thank you to all the partners. for the audience at these different forms, i like to thank you for helping us put this together. we really did -- they really did

a tremendous job of making this meeting possible to help organize a regional meeting. in your packets, all of you have the agenda. at the division of research statistics -- she is going to be going next and she will provide the national economic outlook. one panel is focusing on small finance issues, and the second on non-profits, and research and data. the final panel is going to focus on the net step. all of these discussions will accomplish a couple of goals. the first is to share with you and discuss with you, what we shared at the regional meeting, and to look to the next up, that all of us can take, to make certain that we will be able to address this important issue. and this will go to the next speaker.

robin will provide perspective on what this information's says, and the outcome of the findings that we have made at the regional meetings. i would like to thank her and her staff for the job that they have done in helping us to plan this meeting, and also give us the inside into the divisional meeting. please join me in welcoming her. >> thank you, joseph. i would like to add my own welcome to everyone. this is a pleasure for me to have the opportunity to be here today, to participate in a very interesting and productive meeting. since joining the federal reserve board 60 years ago, my work has focused on issues

relating to the structure of the financial-services sector, the nature of competition among the banks, and between the banks and other financial service providers, and factors affecting the depository institution. i have been interested in understanding community banks, and a special role that they play in the financial system, providing loans and other financial services to small businesses within their local communities. a couple of years ago, the director of the research division as for me to be more involved in analyzing and providing policy support on small business and finance issues. i gladly took this responsibility, having no idea that the availability of credit to small business or the lack thereof, was going to become the hottest topic in washington.

economists and policymakers and the discussions -- their understanding of what small businesses are facing is based on regulatory reports and surveys conducted by a number of different entities, including private sector firms and trade associations, and government agencies. these can be extremely valuable, as this provides the opportunity to gather information from a large number of market participants in they systematically sound way. however, as he noted a moment ago, there are limits to what we can learn from these sources. supplementing this with the case-specific information provided by the participants, by the federal reserve system over the last several months. we can have a much more complete understanding of small business credit conditions.

in some cases, what we have learned to leverage what we had already seen. the meetings brought to light issues and problems of which we would not have normally been aware. this outcome is not surprising. and this is indicative of the efforts to acquire information. it is my hope that some the issues that have been raised by the participants in the small business meetings will help to shape the questions asked. with that in mind, i would like to begin today's discussion by briefly summarize in what some of the latest information suggests regarding the current state of credit conditions for the small businesses and highlighting the findings of these meetings. overall, it seems to suggest that the current economic conditions for the small

businesses, although quite challenging, are not as bad as they were in 2009. the senior loan officers survey indicated that the loans to the small businesses were essentially unchanged in the first quarter, but the terms on these loans, the premiums for the risky borrowers -- this was a tightening somewhat. this first slide shows that the trend over time, for the respondents with the tightening of standards, the increasing spreads, and increasing premiums on the riskier loans to the small businesses. as you can see, all of these indicators have been trending farther down for several quarters. in addition, as shown in the next slide, although a significant number of domestic banks continue to tighten the

standards on commercial real estate, the percentage of those doing so has declined sharply since the fourth quarter of 2008. at the same time, the modest percentages of banks have said that the demand for these loans and the demand -- the demand for the green line has continued to get weaker over the prior three months. although these percentages were much lower than those seen over the past three quarters. the supply constraints and the weakening demand has contributed to the decline for small businesses, mentioned earlier. but the rate of the deterioration in these efforts has diminished in the last few months. turning next to the small business economic trends, the

data from 2010 shows an increase in small-business optimism to law level that is still somewhat weak is the highest that this has been since 2008. among the 36% of those who have reported that they have borrowing needs before the survey, slightly more than one- fifth, 8% of all the firms, have said that their needs were not satisfied. the interest rates that were paid were on average fairly low by historical standards. the data also indicates that only 3% cited finance and interest rates as the most important problem. this is the green light on the draft, with 30% showing weaker sales. when considering this data, it

is important to recognize that even though a very small percentage of the firms said the financing is a single-most important problem, there are likely more firms with this is a significant challenge. the takeaway message from this survey seems to be the fourth american small business, the worst is over, but the word at -- the road ahead is likely to be difficult. another source of information with credit market conditions is the quarterly global business outlook survey. the most recent survey concluded last month and generated responses from about 1100 chief financial officers, 500 of them from the united states. the survey suggests that business conditions in the united states are improving at a very slow rate. responding to the survey, they said there was no net change in

borrowing conditions compared with 2009. among the smaller firms, there was a modest percentage reporting a worsening of conditions over the same time. just over one-third of all of them and the identical frenchman -- the identical fraction said that their company had restricted capital spending below the desired level over the last year because of funding difficulties. now, i would like to switch gears, to talk about some of the things that we have learned from the federal reserve system of 40 small business meetings across the country. the small businesses and the banks reported that there were a variety of factors, contributing to a contraction in the supply of credit to the small businesses. the meeting participants generally have said that the underwriting standards have tightened, to the level prior to

the recession. the specific forms that were mentioned most often include stronger collateral requirements, greater attention to cash flow, and the higher personal-threshold for business. a question that remains unanswered is whether the tightening represents a return to the normal underwriting standards or whether the pendulum has gone too far, leading to the excessively high standards that prevent credit- worthy borrowers to grow their business. much attention has focused recently on the effect of capital restraints on the ability of banks and the need to have policies that will eliminate those constraints. many said that labor constraints are also an important factor. a number of banks have noted that the experienced staff members have been stretched very

thin, spending much of their time dealing with problem loans to keep up with regulatory changes. and as a result, senior bank employees have had less time to process bank applications and some are less willing to engage in the labour-intensive -- labour-intensive activities. some small businesses have said that credit availability has been kent -- has been constrained in areas experiencing failure. this is an issue that we have been concerned about since mid- 2008 when the number of failures in banks began to rise, significantly. we have been tracking the areas affected and we have a number of failed institutions in each state from july 1, 2008, through march 2010.

a few states, georgia and florida, illinois and california were hard-head. going to the more local level, it is clear that within each of this espy in a small number of areas. the potential impact in these local areas is particularly worrisome. a number of bankers have said that increased regulatory scrutiny of the small business loans and the uncertainty with classified assets has limited the ability to lend. and several bankers have said that this has led them to be extremely cautious about lending to the small businesses with huge prospects but are tainted by less-than-perfect credit and a recent history of uneven cash flow, or reduce

collateral value. to address these issues and others related to small-business lending, they issued a statement supporting prudent lending to small business borrowers. the picture emerging from the meetings, with the demand for small-business loans is mixed. the demand for small-business credit has declined. and they indicated that many small firms, have little reason to borrow because of the unique set -- the lower sales, with the long-term business prospects that have caused them to postpone the demands that they have had for capital expenditures, with the expansion of operations. many credit unions and financial institutions have noted the increase in the demand for small-business loans, and many

said they had difficulty getting credit. the reduction in the lines of credit, have left some small businesses struggling to meet financing needs. many small businesses find it difficult to refinance their loans, especially those associated with commercial real estate. firms requirement -- requiring less than $200,000 are having trouble finding lenders and financing for the start-ups is virtually impossible to obtain. the survey data and the story's third in 40 meetings held across the country over the last few months -- they illustrate the value of obtaining information about market conditions from different sources. as joseph indicated earlier, the

goals for the day are to address the key themes and the issues that emerge from this series of meetings and to consider the net steps for the financing needs of small business. we are fortunate to have a very distinguished group of people and analysts who can take us through this process. they bring a wide range of expertise and diverse viewpoints to the questions at hand. i am looking forward to hearing what all of them have to say. thank you. [applause] >> the federal reserve conference also included comments from the head of the small business administration. this last half hour.

-- this will last a half hour. >> thank you for keeping us on schedule. i am happy to welcome a member of the consumer affairs staff. he has attended the most regional small business meetings of anyone on the staff, and he was summarize and the small business meetings. he has been extremely busy. and it was possibly due to his relationship with others on the staff that really -- this was the key reason that we were able to have such a close partnership. with that, i will turn it over to him. >> good afternoon. i am with the federal reserve board, and this is a privilege to introduce the keynote speaker. two years ago, when we began to

look into the credit challenge of small businesses, we began to work with the leader of policy and strategy. they were incredibly helpful, playing a key role in the first small-business meeting that we held. since this time, this has been an important formal collaborator with our effort, and 45 meetings later, and i attended 10 of these meetings, we are excited to continue this collaboration. this has some of the principal agencies in the obama administration, responding to the needs of small business. car speaker, who was confirmed in april 2009 has provided by the leadership as the head of the small business administration has worked to make certain that all of these

concerns are addressed. program changes and enhancements were rapidly made that filled important gaps in credit for small businesses. in the federal reserve meetings, many bankers said that these enhancements restored confidence so that they would be able to lend to the small businesses. having worked with them, i know that they're looking for new ways to meet the needs of small business. .

>> her other accomplishments include the creation of a woman phoned venture-capital firm. she served as the director of several large companies and worked at mckinsey and company as a consultant. she is a graduate of harvard university. at this time, please welcome administrator karen mills. [applause] >> thank you, very much. thank you for the kind introduction. i have to say that it is a great group, here.

as i look all around, i see all kinds of our partners and our friends and i particularly want to think chairman bernanke and the whole staff of the fed for what you just heard described. several months ago, the fed approach to the sba about holding 40 round tables. i guess john has been busy traveling. we were very happy to be part of this. we were able to attend, we were able to help organize, we were able to hold conference calls with bankers and with bank examiners in the field to explain what all of you know, which is how the sba products work and how they can help in this particular situation and provide the loan guarantees that

we provide which do not go against some of the ballot sheets. that is an important piece of information in the last year for banks around the country. it is a great partnership. we very much hope that this will continue to grow. the reason why this partnership is so important is no surprise to anybody in this room, but i will say it again. small businesses are the engine of growth in this economy. they create 64% of the net jobs in this country. half of the people that work in this country own or work for a small business. if we are willing to be competitive, if this economy is going to grow, it is going to be because we provide small businesses the tools that they need so that they can go out and compete in the global economy

and create jobs. what is the big challenge right now? one big challenge is among the biggest. it is that there is still an issue with capital for small businesses. we have made a lot of strides and things are better than they work in october 2008, but there is still a gap. according to the nsib, 61% of small businesses had all of their numbers met, but now it is 40%. big businesses are less affected. they can tap into capital. small businesses, it is really about their bank and a bank credit. that is allowing them to start, sustain and to grow businesses. that is why october 2008, when the credit crunch hit, they were stopped in their tracks. today's poll, and i will quote

chairman bernanke put it quite well. he said that meeting the needs of credit were -- credit worthy borrowers were good for our economy. we could not agree more. this morning, we heard some good news from the panel on private sector lending. there is a lot of really good movement and ideas out there. the surveys are showing that lenders, nationwide, have stopped tightening their standards. not really easing, that is still a small bit, but they have stopped tightening. there are a number of bank ceos, some of them are represented here, i am sure that you heard kevin waters talk about the commitments that they are making at j.p. morgan chase. they have reinvigorated many of our partners in their small-

business lending. they are very aggressive in some cases. but, once again, we still have a gap. when i travel around, which i do a lot, as many of you do, 27 million small businesses are still saying that they cannot get access to credit. i want to make a point. this is not businesses who are about to fail. to been years ago, we were hearing that they need a loan or else they will go out of business. for the last year, we are hearing that they need a loan because they have an order that they would like to take, but they need the working capital and the growth capital and the sustaining capital so that they can move forward. that is despite the current economy. many firms in every sector are

growing and taking customers and hiring more workers. they need our support. if he's healthy and credit were the small businesses cannot get loans, then they can not create jobs, then we need to fix that. what is the agency doing? let me give you an anecdote. i was in seattle couple of weeks ago. i went to a pet food store. how many of you have a cat or dog. i don't, but my husband is allergic. let me tell you, you would love this store. they specialize in natural foods for cats and dogs they will give you the sample and tell you to try the one with the right nutrient bland and the taste that your cat or dog would like.

they had about 1 million in revenue and a couple of locations. now, they have had for sba loans and they had 17 locations and they have 24 million in revenues and 170 employees. there are businesses like this that i see all over the country. we work with tins -- with thousands of banks every year. we guarantee a portion of the loan and we share the risk with the lender so that the lender can reach out and make a loan that they would not otherwise make. if your bank gives someone a loan and the market says that person should get that credit, then there is no reason for the taxpayers to subsidize, but if it is still a great small business and there is a reason that the bank middle extra support, that is where we come in. the pet food store, their most

recent sba loan was made possible with the recovery act loan which allow us to raise our guarantees to 90% and reduce or eliminate our fees. that was to so many -- of that was important to so many small businesses. thousands of stories over the last 16 months. in fact, we have made about 70,000 recovery act loans. there are 70,000 stores like that out there. that is because of these increased guarantees and the waving of the fees. we have turned out $30 billion in recovery act loans. the taxpayers got a pretty good bang for their bank. for us to put $30 billion into the hands of small business, it

cost about 380 million in subsidy. that is the good news. here is the bad news. we ran out of money. in fact, we ran out of money a few times. we ran out of money in november and congress gave us more. we ran out of money for or five times, but this time we have not gotten the funding. our loan volume is down over 50%. we have over 500 businesses in the queue. we have established a queue. we have a portal, and you can look at where you are in the queue. people are in the queue, waiting for that recovery act funding to be extended. it is part of the extension program. as passed the house a couple of times.

now is not the time to pull back. we have a program that we know works and we know that it drives volume right into the hands of small businesses who are good and creditworthy and they need those loans. we have, in addition, in that recovery act, something else i am happy with. we have over 1300 lenders back into the sba program that had not made a loan since 2007. 1300 lenders. also in there are more than 100 credit unions. all kinds of banks on main street, in their communities, ready to provide s.p.a. products, sba guarantees to those small businesses. it is important that we get back this recovery act funding. that is actually one of the steps. even if we get that back, we have more gaps to fill.

that is why we have the president's small business jobs built right now before congress. in that jobs bill, we have many tools that small businesses need it right now. let me give you a couple of examples. one is working capital. how many of you heard from a small business that they need working capital. their credit line got pulled. we have a product for that. s.p.a. express loans. we asked congress to increase the limit to $1 million because right now it is capped at for hundred $50,000. we have a lot of small businesses who have owner occupied and commercial real- estate. that is the dentist that owns the dentist's office. that is the manufacturing company that owns the warehouse. we want to use our 504 program that many of you for dissipated in in order to refinance

existing loans. right now, it can only be used for expansion. we think that a lot of owner occupied real-estate took 500 for mortgages in 2006. those are one to come to an we are going to have a lot of people who have never missed a payment who go to their bank and the bank will say that they need to reduce their portfolio and they will not refinance. we want to be able to use our 504 project to in order to do that. we have some permanent changes that we have a asked for. we see that our programs cap of $2 million is too low. we have franchisees' that want to buy the additional franchise. we have manufacturers that need specialized equipment. we have exporters that are getting that makes big order.

we have asked to increase our loans to $5 million. our micro loans limit, it is now $5,000 limit. we want to do $50,000. we know that the sba loans cannot fill all the gaps. we are only a portion of the market. we need the conventional market to be fully operational. that is why we are supporting the small business lending fund. this is from main street community banks that do not have the capital. they are out there, as you know, looking to lend more money to small businesses. if they do, if they increase

their small-business lending, their small-business lending fund could be available to them at a cost as low as 1%. that is also before congress. we very much see this as a big event. together, we hope it will ease some of the gaps that are out there in the marketplace. our principles in all of these things that we have before congress are built on what works, like the recovery act. do it quickly and efficiently and give the taxpayers a pretty big bang for their buck. we talked a lot about credit. i want to talk about little about data. as we continue to look at and monitor the situation, we have recognized -- i think everyone in this room has recognized that there is a gap in timely,

meaningful and accurate data. there is a panel on this this afternoon. you are going to talk about it. we have reports that only show data for loans outstanding. the not have any data on loan origination. a lot of things bounce up and down between them. we only get data once a year. we need data every quarter. what gets measured gets done. we have to be able to make solid, small business policy based on good and accurate information. that is what we are hoping to do. on the demand side, we need better information about loan applications, amounts of credit requests on the supply side. we need day on loan origination, not just on the balance sheet. we need quarterly data not

annual data. we need data that is a segmented by loan size so that we can understand how to design our products so that they meet those needs and we need data to eliminate what is going on in the underserved markets which is an sba mandate. there is still a need for access and opportunity. as you all know, this is the country of entrepreneurship. this is how we provide opportunity. we must make sure that we have those avenues available. we are seeing gaps exactly in that sector in this recovery and we need this data and the programs in order to move forward. i do want to say that we do not want to put undue burdens on lenders and regulators and others in the collection of this data, but this is a missing piece of the puzzle.

we will work with everybody and with congress to press forward and see how we can gather the kind of information that will help policy and help us make smart decisions based upon the facts. we are very happy to be here, to be working with you all to address the needs of small business financing. small business owners need us. they need us to be working hard on this program. they have done the hard work. they have gone through this recession and they have reinvented themselves and now they are gearing up to expand and to hire workers and they are ready to leave us, once again, at of the recession as they have done time and time again. once again, it is not government that creates the jobs, it is business is. more often than not, it is small businesses. both of those on main street and those high growth entrepreneurs

to create the next large company that competes globally . their own to create the jobs. our job is to give them all of the tools that they need so that they can create jobs, grow our economy all around the globe. thank you very much for having me. [applause] >> i am told that i have some time to take a couple of questions if anybody has any. there are mikes' around -- there are microphones around. we will start with that young lady. >> stand-up, say who you are.

i am with harvard college. i really appreciate all the information on credit. i have a question on equity. there was discussion of the lack of start up funding and i noticed this was a forum on credit. do you want to say anything about that? what's the question is about start up funding and equity funding. patient capital. as you heard from my background, i come from a world of growing companies, very often with other kinds of capital than bank debt. it is very important that we have all kinds of patient capital. we looked at small businesses at the sba in two categories. the first is main street's small business. your dry cleaner, your restaurant, your car repair

operation in, they are part of the fabric of our daily lives. the sba serves them with long products up to $2 million. we are going to be there for main street small business, even though many of them open and close. we have to be there for the next restaurant, otherwise you will have an empty storefront on main street. on the other side, the data shows us that most of the jobs are created by a much smaller number of high-growth businesses. we are spending a fair bit of time understanding and learning more about those entrepreneurs and their job creation activities. we know that they need different things. we talk about the three c's. capital, counseling and contracts.

these businesses need capital, they need counseling, and any contracts, but they need different kinds. we have a number of programs to help them. small companies offer capital to earlier stage companies. we have a program that provides research dollars and we have a mentoring programs. there are capital gaps, particularly, as we have seen, in the valley of debt. we are working very hard on how we do that. at the same time, we are working hard on taking our existing platform like small business investment companies, where we have the ability to create even more funds under our authority, and we had a goal of putting funds through half the time.

we have our first fast-track fund which is a repeater fund go through in two months. that is one of the first things we are doing. we're working with treasury for early stage capital. yes? >> jeff rose with huntington bank. i want to compliment you for the leadership that you have brought to the sba. i have been this business for 25 years and is run better than it has ever been run in my career. my question is around timing. a number of bus bar probably wondering the same thing. you talk a little bit about the queues and additional stimulus. is there anything that we can do to help move things forward

quicker as an industry or any thoughts on your mind about the timing about moving forward? >> as you know, i would not ask you to lobby for to do any of that. in fact, the president has been asking for a small business jobs bill before congress. i think he talked about it at the state of the union. we are very eager for these activities to become part of what we can execute. we think that we work hard to make and cost effective. right now, there are a number of bills and a lot of them have passed the house and a lot of them are before the senate and we are hopeful that those will come to pass very quickly. >> dinky for coming today.

your presentation is really great. your point about the entrepreneurship in the sba, my question is about the new mortgage tax credit. to emphasize that we have been working with the white house and the department of treasury and the sba to some extent on making the credit more compatible to small business financing. it has not been as robust. it is a great program. it has bipartisan support. we have established a safe harbor concept on how to do this more effectively. the question that i have, and i do not know if you have investigated this or if you could answer this, whether an sba guarantee against a small business loan could be used and qualified as part of the basis for the tax credit in that

particular structure. i know that it is a bit of a detail to think about, but that would marry the two programs quite effectively. >> we have just the person that we should work with that is one to be on the panel later. he is from the treasury and that is something that we work very closely with them with. we can take that up then. >> what -- alicia with the kauffman foundation. you talked about quarterly data on the supply side. i guess i am not sure where that originates from because we are a proxying firm size and we are using loans of $100,000 and less to proxy credit-card

lending. the research that i have read and the research that i have done, it seems that these are not great proxy'ies. why are you not advocating for small business lending data by firm size rather than by loan size? >> your point is exactly right. these are rough proxies. why not say we want to collect data on small business on loans to small businesses. we would like to. we are trying to put forth a set of data collection requests that will not be overly burdensome and that can be implemented quite quickly and give us data within existing bank systems. yes, we would love it. i think we're trying to be realistic about the burden that

this would put on banks. it is hard to have banks know whether a bar work has certain qualifications. it is very easy, actually. they already collect the data on loan size. maybe this could be phase one and then we could go to what you have correctly identified as the more optimal second phase. i think i have time for two more. >> frank with community reinvestment fund. i truly appreciate your remarks. i want to focus on the point that you made about areas of underserved communities. i think that there is an opportunity to partner with community-based organizations around the country.

i think that partnerships are beginning to be discussed, but there is a real opportunity to help move the sba product into these communities. taking what ron phillips said, there are other tools that are out there that could be benefited by a closer partnership. the you have any thoughts on that? >> stay tuned. a lot of thoughts on that. we are working very hard and a lot of you all in this room have led the way and shown that you could make responsible loans that have a very strong repayment rate in these communities and that they do enormous benefits to the entire community, not just to that one small business. we have some activities and conversations.

the last question? i think that i promised you. >> i am with the milken institute in los angeles. thank you very much for your presentation. we have done a lot of work around data and a few years ago, the ford foundation asked us to look at this particular area which is underserved communities. interestingly, there are so many data pulls out there. there are so many people collecting data. we looked at the prospect of whether or not you could create a process to have data be shared to match the data were no confidentiality would be breached, but to get at it were -- without having to spend a lot.

i was wondering if there were any thoughts along those lines to try to pull it together. you'll have a data set and there is so much that we do not need to reinvent the wheel. >> that is a great question. it is something that we would be very happy to partner. i think that there is a great need for a focus on the right kind of data right now. thank you very much and thank you all for all the work you're doing for small business. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> in a few moments, a discussion of the economy and the federal deficit. in about an hour and a half, a

commission on the gulf oil spill. later, comments by the federal reserve chairman and small businesses minister karen mills on credit health for small companies. >> a couple of live of dance to tell you about. the national commission on the bp deepwater horizon oil spill and offshore drilling continues its first public hearing. it includes a panel on the ecological and social effects of this spill. that is on c-span at 10:00 a.m. eastern. also, on c-span the senate judiciary committee is scheduled to meet. consideration of the nomination will probably be postponed until next week. >> watch world leaders from the

white house and around the globe from this week and the past 25 years from the c-span video library, on line, all free. it is washington and the world, your way. c-span is now available in nearly 100 million homes, bringing new washington your way. a public service created by america's cable companies. >> the nation's governors summer meeting included a discussion on the economy in the deficit. they heard from the co-chair of the national commission created by president obama to reduce the national debt. former wyoming senator and the former white house chief of staff will speak. this is about one hour 20 minutes. >> i am by the governors to find their seats and all of our

guests to take a seat, as well. we will get our final session under way. we have two distinguished guests to talk about an important topic. we will handle reports and recommendations from our committees. handle reports and recommendations from our committees. we will have the election of next year's executive committee and officers. please find a seat and we will get the session under way. we are honored this morning to have senator al simpson for the co-chairman of the fiscal responsibility and reform. they will talk about some of the options we need to consider to rein in the federal deficit. they have not been given an easy assignment. i think that is an understatement, but we're grateful that have undertaken it. everyone here is well aware that not since the end of the world war when our ratio to debt -- a

ratio of debt to gdp rose to about 9%. at that time we were able to grow our way out of the debt crisis, but given current global conditions the prospect is not as likely today. our federal debt to gdp ratio ranged between 25% and 50%. it is now to 62%. the gao projects if we maintain our current spending that we will surpass the high we sent -- was set in 1946 within a decade. that is about 115%. that is not a formula for long- term economic success. the commission faces a daunting challenge and is suggesting a path forward towards is the responsibility that is both realistic and politically achievable. it is not easy, but something that governors are used to doing

it. as we have said a number of times to write our meeting, we have to balance our budget and as we have been working for the greatest fiscal crisis since the great depression, a lot of governors have been getting some practice implementing a lean government. we have some ideas will come out this morning with our distinguished panelists that will be helpful to them and helpful to the future of our country's this condition. on to call on our colleagues to introduce their constituents who are our distinguished presenters today. we will begin. >> thank you. it is a delight to get to introduce out. -- introduce al. have known him for a long time. we are very collegial. if you have heard him before, you are likely to hear it all again today. [laughter]

i first became acquainted with governor since then when i was 24 years old and working for a democratic governor in wyoming on his staff. senator simpson, then in the wyoming house, in the republican leadership he would sit around and plot the course of the state in a bipartisan fashion. i would never accuse al of being non-partisan, but he does know how to work in a bipartisan manner. i think he is the right guy for the job. she has both the knowledge and wisdom, but he also has a trait which is a sense of humor. you have to have humor in order to get through what it is what we deal with and the seriousness with which we take it. i am proud without. i am glad he is no longer in politics in wyoming. [laughter] if you turn up your hearing aid, you could hear me.

[laughter] we are delighted. he is one of our own and he was a successful senator. he has done lots of things in his life. most of what he does is try to do the right thing by his country, and our state. we are delighted. i think i look forward to hearing you, al. [laughter] >> thank you, governor. >> i think we all look forward to hearing senator simpson talked, too. you will love hearing from one of north carolina's strongest leaders. you have known him probably in his role as head of the small business administration under president clinton. he was the president's chief of staff. after that, we lured him back to his house state where he now serves as president of the greater university system. he has taken on this role as co-

chair of the national commission on this responsibility and reform because he believes in this. i have had the opportunity for several years and almost 1.5 years as governor of north carolina to watch his every moment, his decision making, the fact that he is not just going to talk the talk with us. he has walked the walk. that me tell you what i mean. as president of one of the largest constituent university systems in the country, we would like to tell you is the best because it is. he has had to cut his own budget. this is what he has done. she has cut $575 million over the last three years. the system today is 30% smaller than it was when he was sworn in as president five years ago. 23% of the cuts came from administration. i can attest as someone who loves the system and understands the value of education in a new

economy that he has not harmed teaching and learning. he has simply done things that really in lieu of destroying our academic core. -- he has simply done things differently in lieu of destroying our academic core. we have laughed and said this is painful. he has gone forward in lots of critical storms and has endured the criticism. he will do that as the co-chair of this committee. he has figured out a different way to incentivize teachers compensation, for the professors, the work force. she has developed in a paradox around health care. he understand in our state, one of the fastest-growing states in america, that he cannot rely on the old way, the bricks and mortar to educate the people. as a result, he has been passionate about distance learning. we have not when her 35 distance

learning degree programs -- we have 135 distance learning degree programs. as larger than the university of the phoenix. we have done that very quickly with his leadership. the best thing i can tell you as someone who calls erskine bowles, what will you do? he understands the seat we are all sitting in. he understands the jobs, that we have to continue to grow this economy now we continue to downsize government. he is a great leader. he is a great american. i am so proud he is a great north carolininian. he, too, as a sense of humor. just tell them that right now i am at the chairman and president of the university system but i am actually between forces. i have lost one and a need to make another one. erskine bowles, thank you for doing this for our country.

>> thank you and welcome, gentlemen. [applause] i bough>> i wish you had introdd me. [applause] [laughter] it would have been much more charitable. the introductions -- of all of the introductions, that was the most recent. [laughter] i will tell you a little bit about dave. he was a 24-year-old chief of staff for a wonderful democratic governor, the longest serving governor in our history, 12 years. people look at wyoming as a republican state. that is not true.

anyway, they think with the dave is his father and mother were our co-chairman when we ran in 1978, we being the woman i lived with for 56 years. but she said living with me was like a living experience of living in hell. [laughter] dave has been a wonderful governor, a tremendous force. he has a lot of guts and it takes on the tough ones. i admire him greatly. i got to know his wife. she is a district -- a federal district judge. she is a superb woman from my home town. this last 10 minutes, hang on tight. erskine and i travel only as a pair. we ride shotgun on each other. it is a lonely life out there in hostile territory. all of you know the feeling. i did want to address when i

walked in here, someone made a comment and i was taken aback. yes, i did sleep in this suit. [laughter] i hope that takes that off of the table. [laughter] i could not have a finer companion in this cause than erskine bowles. he is a man i trust completely and admire and respect. he is a grand gentleman come in the. a personal note, my dear dad was the governor of wyoming. he was also a u.s. senator. he loved the office of governor. he could lead and he could see the results. he said in the senate he could never see the results of anything. after everything disappeared into the rabbit hole, usually from a brilliant staffer on either side of the aisle.

as governor, he loved the fray. he loved self-deprecating humor. his favorite was this. he would tell it often. this old guy is out driving his pickup down the road. he has everything in it that he owns. highway patrolman stopped him. he says, "you're going a little fast." who would believe that? you have a lot of stuff but there do you? where are you going? haven't you got a governor on that cutbacks -- on that truck? he says, "no, that is manure used now -- you smell." [laughter] this commission has one tough goal. i have been addressed as a republican toadied covering for president obama to get him off the hook. i honor the office of president. if the president asks me to do

something, to pitch in and help our country, i will always respond regardless of party differences. [applause] i think it is called being a citizen of a fine country and doing your share. in this one, i am in for my six grandchildren and erskine is in for his seven. the president has won tough job, as do each and every one of you. if one is a leader, you take a ton of guff from people who know little and are motivated by, but i always said, four great charges -- emotion, fear, guilt, or racism. that is how you pass or kill a bill in the u.s. congress. emotion, fear, guilt, or racism. is that, but that is the way it is.

. good people of deep differences knowing the possibility of odds of success are rather harrowing to say the least. but i do have the naive belief and i think erskine has it to stabilize social security and insure its solvesy 75 or more years out.

but as we address it, the keening wail of cut goes out through the lavend, or gut. good heavens. it's -- if people can't grasp that disability inshurns will be unsustainable in less than ten years, it's grown double since 1980, i won't go into figures, that just makes people's eyes glaze over. but old age and insurance, will only pay out 75% of its benefits in 3e7. it won't go broke. just going to pay out 75 instead of 100. and that date will keep moving closer with population growth and aging. unsustainable, unconscionable, and predictable. but there are many options out there. over two dozens options out there will work and we'll work on them all. and i think if we could resolve

that, there would be a sense of confidence in the land that would be good to portray. we have dr. coal burn and andy stern, union member and very conservative member of the senate from oklahoma, very two very good men with sharp minds and sharp knives going over the defense budget without hurting our troops and the mission. plenty of fat in that baby. and then they say, well, republicans never want to touch the defense budget. that's not true. we're going to go wherever the fat is, and that will be the tough part. but here's where we are. every shred of tax revenue at this point goes only to three things, medicare, medicaid, and social security. i see him scratching out. he was going to cover that but i took care of it for him. you'll have to work on -- i'm almost through.

and so the rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, the whole -- veterans, the whole rest of the discretionary budget is being financed by china and other countries who are slowly building and china now is at 920 billion bucks of our little ious, and we do that, we're just borrowing to do everything but those three items. medicare is the monster of the midway. it's hard for us even to get around it, our hands around it, but we're going to have to have some trigger device in there. medicaid, boy, you people get the whole load on that one. working groups are at it one on discretionary and one on mandatory and one on revenues.

we have a fine staff. i think with patience, what we're trying do first in the commission is establish patience, do your homework, comedy, and the biggest one is trying to establish trust in each other on this commission. that's tough to do in this world, in this country. trying to lessen suspicion. and we're working on all that now. well, if you thought i was going to go on, i'm not. but we want to hear from you. you're in the trenches. i just say one other thing as to the magic flash word of tax. the other day, one of the more zealous -- a zell lot is one who, having forgotten his purpose, redoubles his efforts. so one of the great zell lots of our time talked about one of

his great anti-tax president, rond reagan. i said, i knew ronald reagan. you're not ronald reagan. and i quoted the four big tax increases done by ronald reagan, seven lesser ones, and a total of $132 billion in tax increases under those eight years. and why? to make the government run. and that was his fine eight years as one of our most beloved presidents. so, with that, i will then receive mail tonight and tomorrow that i spoke again to raise taxes and put a vat on top of the income tax plus something else, i don't know what it will be, but it will be a royal hammer blow, and i thank you for listening but we want to hear from you. [applause] >> as you can see, i have no need for a joke writer any

more. i just steal everything al says and it seems to work perfectly. i will tell you, al, i do know one rule of politics that you don't, and that is always be introduced by someone that you contributed to. >> that is not true. >> governor purdu has been my friend, i have been her supporter. i believe in her. she is strong, she is tough. and, by god, she gets the job done. and last night, she signed a balanced budget for north carolina, and she's got a lot to be proud of. al simpson is the best partner i've ever had. we are trying to do one thing, and that is on this commission, to build the same kind of trust with our fellow commission members as we have built among ourselves. and i'm confident that's what

it takes to be successful. in 1997, as some of you know, i negotiated the balanced budget with knut gingrich and trent lot. and i had to spent months and months locked up in conference rooms with them, and you democratic governors owe me a lot for that. but we did build up trust, we built up confidence, and we got the job done, and we got it in the long run done by trying to look at what made sense for the country as opposed to thinking about parties. i'm going to try to just add to what al said. i think it is a fact that, as a nation, we face the most predictable economic crisis in our history. this crisis that we just are going through now, many people didn't bre dict this one is as clear as a bell. this debt is like a cancer, it is truly going to destroy the country from within.

and like al said, it is basic arithmetic. today, if you just look at the mandatory spending which is principle medicare, medicaid, social security, it does consume 100% of the federal revenues. that does mean that every dollar we spend on homeland security, the military, defense, education, energy, infrastructure, transportation, all borrowed and half borrowed from foreign countries. that is a formula for disaster. over the next ten years, spending is forecast to grow by $2 trillion. 500 billion of that will come from social security, 500 billion from medicare, about 300 billion from medicaid of which you all participate, and about 650 to 750 billion from interest. by the year 2020, if we leave things on automatic pilot, we

will be spending $1 trillion a year on interest. just think about that. all that money going summer else to create jobs and opportunity somewhere else. we can't grow our way out of this. we've had every economist you can imagine look at this and we could have decades of double digit growth and not grow our way out of this enormous debt problem. we can't tax our way out. that doesn't solve the aging problem of america. it doesn't solve the fact that health care is growing at a faster rate than the economy is. the reality is that we've got to do exactly what you all do every day as governors, we have either got to cut spending or increase revenue or do some combination of that. if we want to get to a balanced budget by 2020, and there's no magic about 2020, we have to take $1 trillion out of the

deficit in 2020. $1 trillion. if we want to get to a deficit to gdp ratio of 2%, then we've got to take $665 billion out of the budget in this year alone, not between now and then but in that year alone. i thought it was interesting as i thought about what i would say this morning that the g-20 met two weeks ago in toronto, and they're dealing with the same exact problems that we deal with in the states, and that is how can we protect what is a truly very fragile economic recovery? at least it is in our state. and, at the same time, slow and then stop and reverse the rising level of debt that i believe jeopardizes my grandkids' future and our country's standard of living.

and the g-20 approved two goals. the first is a relative walk in the park, and that's to cut the deficit in half as a percent of gdp by 2013. and when you start at a 10.6% deficit to gdp, that ain't any heavy lift, believe me. but we should be able to do that and that's not a heavy goal for the u.s. what is a very heavy goal is the second one, which is to stabilize the debt as a percent of gdp by 2015. and to do that, we have to get the deficit to gdp ratio down to 2.8% by 2015, and that means we have to take in 2015, $250 billion out of the federal budget. and it's doable, but it's tough. and i want to talk about some of that, specifics. president obama i think has made it clear, he's been clear when he's met with al and me in

private, he's been clear i think to the american people and public, he said that he is going to make recommendations next year that have real budget cuts in them, that will reduce the cost of the entitlements and help restore our nation's long-term fiscal health. i think there is a can ard out there now that says, well, you can't do both. we can do both. in fact, since the recommendations we're making don't take effect until 2012, we've got about 18 more months of this economic recovery for it to gain a foothold before any of our recommendations take place. so we think that's enough time for our recommendations to take place, enough time for us to get the fiscal house in order and then begin to balance the budget. i thought i would tell you the

principles that are going to guide my own decisions are on the committee and al and i discussed these, and i think we're in agreement on most of them, but they're all pretty simple. the first is i don't want to do anything that doesn't protect the truly disadvantaged. i think that's an obligation of government and one that i'm willing to shoulder. second, i think while we balance the budget, we've got to continue to invest in those areas that make america strong and competitive, whether it's education or infrastructure, or research or innovation. it's no sense having a strong balance sheet and also not having a strong country. we've got to be competitive. it's a knowledge-based global economy. third, i think we've got to make sure that america is safe and secure. but i do think that means we have to be the world's global policeman or that we have to be involved in nation-building.

i think other nations have to do their part. our military budget now exceeds the military budget of all the other g-20 put together. fourthly, i think we've got to reform the tax code to broaden the base and simplify the code, and to make america more competitive. we can talk about various ways to do that, but clearly we've got to close the tax gap. and i wish mitch daniels was here because he can talk about it more clearly than i can. but most importantly, i think we have to eliminate or sharply curtail these things that are called tax expenditures but what they really are is just spending by another name. and if you look at the total cost of tax expenditures, they actually equal all of the income tax that flows into the federal government and they equal 50% of the revenue. i have put on the table that we ought to establish caps that

keep revenue at or below 21% of gdp. i didn't just pick that off the ceiling. it's the number that we have had every time we balance the budget in this generation. i also have called for instituting a plan to reduce overall spending to not more than 21% of gdp by making some really tough choices. if you look at the forecast in the cbo's forecast, spending is projected to go to 25.4%. so that's a big, big jump to get it down to 21% of gdp. we can do that but we have to reduce discretionary spending, and we're going to have to make some tough choices. as i was telling one of the governors a minute ago, what we do is not so hard to figure out. it's the political consequences of doing it that makes it really tough, the same decisions you all have to make

every day in the states. if we can't agree on specifics, then one of the things we can do is freeze all discretionary spending between 2012 and 2015. that would generate $125 billion in 2015, and will get us halfway home to president obama's goal. we also have to reform the entitlements and reduce mandatory spending. as al said, one of the things we're going to try to work for is extending the solvesy of social security for 75 years. as it relates to health care, there's lots of recommendations that we are considering now. but the one that we really have to tackle is how do we pay for quality and not quantity for health care as you all see every day. like the brits just did, my goal for what percent of deficit reduction should come

from spending and what percent should come from revenue, i would like to see something similar to what the brits did where they had 74% of a deficit reduction on the spending side and 26% on the revenue side. whether it's that or two-thirds-one third, but i think it has to be something where it's disproportionately large on the spending side. and lastly, i would just say that none of these recommendations that we're going to make should take place prior to fiscal 2012 in order to protect a very fragile recovery. that's where we are. i think we've made a lot of progress. we have three different working groups. one on revenue, one on mandatory spending, and one on discretionary. we've been meeting. it's been as bipartisan as you can imagine. i don't think you could tell the recommendation that come

forward so far whether it came from a republican or a democrat. so i'm really pleased with the progress we're making. i think we are establishing trust and confidence, and i hope we can make some real progress. i know i like working with this guy. [applause] >> governors, feel freedom to jump in. >> mr. chairman. >> mike. >> two or three observations. i don't know that i've ever heard a gloomier picture painted that created more hope for me. i mean, if there is any hope, it's the approach that's been taken. and i'm not trying to be obseek wess. brian, i will tell you what that means later on.

but you two and the whole team and the objective and honest approach actually creates hope, at least it does for me. so if it's possible to tell us how bad things are and make us feel good about it, i think both of you have done that. and i appreciate the fact that while you have plenty of other things to do, you have taken on this monumental task. i only wish we could put you in every corner of the country for everyone to be able to listen to and particularly those who are strident on one extreme or the other, because the honesty with which this came across i think has to at least affect enough people that americans would have enough courage to do

what needs to be done based upon the leadership and the recommendations. senator simpson, if you and dale bumpers and david prior could go with joe mantion, could go into the senate chamber and spend a few weeks with the folks we've got there now and teach them about honest debate and collegial disagreement, instead of the rhetoric and the harshness that at least from the outside appears to exist, what a better place america would be. thank you, sir. [applause] >> wonderful person, wonderful lawyer. if you remember the final pitch towards president clinton was

done by dale bumpers which should be recorded. it was about loyalty and it was [inaudible] and barbara, very dear and special friends come to see us in wyoming. i went into the chamber a few years ago, and bumpers was wondering around. i gave him a big hug and some guy came and said what were you doing there? i said getting a hug from dale, who is a great dear friend. he says, i wouldn't do that again. great stuff. let me just tell you one other thing about those tax expenditures. there were two 200 of them. and you know what they are? they're [inaudible] they are employer deduction of health care premiums and they go on and on, and they went on the books as a tax cut.

and to get them off they're called tax increase. i don't know who they've got out here but they sure [inaudible] because tax expenditure appeared as a tax cut which everyone -- and to get them off. and we got them all off or a lot of them. some of them. we'll be well toward home and they would be called tax increase. >> governor. >> first of all, i want to second mike's evaluation of that presentation, i think it was excellent. i would only ask that in a spirit that we as governors have to have a balanced budget amendment and our forecasters and economists come to us and lay out the not so encouraging news financially of our states, we have to do what you just laid out that should be done. i would ask respectfully what is the impedment why the

urgency is not there for this country to get its financial house in order? and how may that be done? >> we don't have a balanced budget amendment so we don't have to do it and there's probably good reasons not to have one when you have the military responsibilities that we do from time to time. but my experience has been the congress generally acts when it has to and only at the very last minute. and we can go on and survive as a nation for three or four, five more years, and do nothing. but every day we delay, that old compound interest catches up with us. and every day we delay more and more dollars go out of the country. and every day that we delay, we have fewer dollars to spend on

education and infrastructure. every day we delay, there's another small business has been crowded out of the capital markets by the government's borrowing. and when that happens, as you know, small businesses in west virginia can't grow and can't create jobs without money. so when it becomes a crisis, then you're going to have to act. what we're trying to do is get ahead of what i'm confident i can show you just in arithmetic is the most predictable economic crisis in history and try to do something now when the pain would be relatively small. because if we wait, it will be really, really tough. >> governor. >> thanks. first of all, aagree with my colleague. really an outstanding presentation. two quick things. we've got a very strange way at the federal level of investing and paying for infrastructure. it's something that you

mentioned briefly. but it does seem to me that unless we end up separating -- i know in delaware and i assume in most states, we've got a separate capital budget which we don't seem to have at the federal level. until we do that it does seem we're going to be short-changing those investments. and were governor rendell or governor schwarzenegger here, they would probably make the same pitch. and then you mentioned briefly the issue of lk, and we've got to find a way to pay for quality and not just pay for quantity. and you mentioned it briefly, but i do think that there's a disproportionate amount of money in there. and if we dent figure that out, it's going to be really difficult to get to some of the targets that you're trying to get to. >> i certainly agree with both those comments. this health care is the big

even lada. just to tell you how big it is, today medicare and medicaid spending amount to approximately 5% of gdp. if we don't fix it, medicare alone is on a glide path to get to 22% of gdp. now, remember, i said i want to hold all spending to 21% of gdp. and the average revenue in this country historically has been at about 19% of gdp. so we've got to get it under control. and because medicare and medicaid are growing at such a fast rate it causes the interest on the debt, our deficit, to cause us to have to borrow more and more capital. and interest will be at 38% of gdp if we don't get off this glide path. we've had -- we've gone to see, alan and i have, every interest

group i think in the country to listen to what their recommendations are. and most of them have told us what you can't cut. we haven't had many people, i'm sure you governors don't, either, have people tell you, cut this. but we do have a lot of good recommendations on the health care side that we're exploring, some that i think make a lot of sense, and we're getting them from both sides of the aisle and i think we'll be able to come up with some recommendation that is governors will say, thank god. >> governor, as long as you're not obseek wess. >> i'll stay away from that. >> as governors, chief scuteyoifs, we find very early in our careers that there are an infinite number of good ideas and they all cost a bit of money. and our responsibility is to say no to most of those. most of us have the ability to do a line item veto. some of us have a mandatory

vetos. and so at the end of the day, we balance our budgets by saying no to somebody, almost everybody. my concern is that we do have a blue ribbon commission. we have some of the finest minds, including the two of you, in the country that will make recommendations. but we all have commissions and boards and they all make recommendations, and some of us think they're good ideas and some of you don't. but then you have a congress that has to move on it. what is the prosssess? is this a recommendation does it have some teeth? what is he going to do about the house and the senate? >> we have baby teeth, which is better than no teeth at all, i guess. unfortunately, seven of the senators who have been sponsored of what would have been a legislatively mandated commission walked at the very end and it only got 53 votes instead of 60 votes.

and that would have been much more impactful than what we can do. >> i can that's fair to say. >> that was the saddest thing. they wouldn't have gone to the floor with setting up the legislative commission instead of this one as an executive order. they wouldn't have done that. but seven of the co-sponsors voted against it when it came to the floor, including a remarkable array of people who were co-sponsors but they had fought for it for three or four or five years. some said what was the purpose of that? as far as i can discern, it was to stick it to the president. that's where we are in washington now. our baby teeth are that if we get 14 out of 18 votes. so 60% wasn't high enough for the senate. we've got to get 80%. and we have six members of -- six senators and six congresspeople, three republicans and three democrats

from each body. but if we can get 14 votes, then senator reid has agreed to bring up our recommendations for an up or down vote. and if it passes in the senate, then the house has agreed to vote on it, too. but we've got to get 80%. and we've got people at every extreme you can imagine. so we have some teeth and we're trying to build the trust and confidence and the sense of urgency that will make people agree that we have to act on that now. >> senator simpson wanted to jump in. >> i would just say that those seven, though, have now come to us and said we're ready to help. and -- >> of course they have. >> very helpful to us. >> but if we had 12 governors, i guarantee you we would get to an answer tomorrow. because you all are used to making these decisions.

you know the importance of them, and you wouldn't put it off. >> well, thank you. maybe baby teeth and baby steps here. as i hear it from people of utah, the biggest concern is this growing debt. and just the lack of sustainability. we just feel like we're going towards a precipus that there's no retreat from and we're going to go over the edge. i know the phrase that seem to have been coined in politics is fuzzy math. and it appears, as we've just pierced this $13 trillion debt here this past few weeks, made national news, but we get different numbers from different branches of government. the executive branch says one thing, the congressional branch says something else. is there any ability for us to have a frank and brutal and honest discussion on what the actual debt is and the ongoing liabilities?

is it 13 trillion with an ongoing liability of 50 trillion? can we get everybody on the same page and have reality triumph over politics to take off the rose colored glasses and really get everybody on the same pages? these are in fact the real numbers and real obligations, so that we can in fact address it. >> well, we knew that was the problem from the beginning, so we with social security we used only the act wurry. gentlemen, i believe has been there about 30 years, steve. people don't like to read that report. and it's all there. and then there are two trustees that are yet to be appointed hung up in the senate confirmation process. these trustees were to report in june, it's a bipartisan group, they tell absolutely these hard figures. those two people haven't been

appointed yet. but we use only the actuaries of the health care system. we're not out to use any other thing. and people are irritated by that because that's where the meat is and that's where the authority is and that's where the honesty is, is the act wary. and then with regard to the rest of ut it we use the congressional budget office and not the office of management and budget. so we stick, but youk -- >> we've made it the two of us before we agreed to do this, because you're exactly right. there are a zillion different ways to look at numbers in washington. but artsdz metic is something i can do, and the key is the numbers guide. you know, i just sit here and watch them. we absolutely, we agreed we were going to use cbo numbers, we told them we weren't going to use the administration numbers under any circumstances, and we are going to use only the act wary numbers as related to social

security, medicare, and medicaid. >> governor stanford. >> let me just say up front that again, i echo the sentiments of a variety of colleagues who have praised both of you guys. i remember when i was in congress, i was always particularly impressed when your chief of staff, the way you would return a call that day which i think is just can incredibly impressive. and i have long admired your work. that having been said, tell me what's wrong with the skept 86's viewpoint? it leads to some throvel what governor switeser was getting at. which is you know, we've seen a loot of commissions come and go through washington. you know, you have a prescription that's built on the presumption that the economy will get better by 2012. if that does not materialize, and i think that there are very

reasonable grounds under which it might tot materialize, then what happens to the recommendations if the economy is still weak and you haven't seen it take off, lift off in the economy over the next 18 months? two, is it not impossible? if you look at the 50-year moving average, debt to -- revenue to gdp has been about 20%, very consistently post world war ii, that's been the moving average, to bump it up to 21%, isn't that going to be awfully tough given that average? and, frankly, losing home deduct ibility on one's house, you can call it a tax extender, tax whatever, but a lot of people would see it as a tax increase and fight against it. and then three, again going back to governor switser's comments. you know, a commission alone without the heat of the president and the bully pull pit of the president i think is going to matter very, very little.

so you have a president who at this point is not out in front of this i think we're running out of time. there's an interesting book, i think it was rine hart and ro golf, professor from the university of maryland and from harvard who wrote a book "this time it's different" which chronicles the last years of history and once you get to 90% of debt to gdp, really bad things happen to one's economy. and we're close to that number. aren't we too late given the fact that the president isn't engaged and we're still at the commission level? >> alan said he couldn't quite hear. >> i have a hearing aid, but i would left it in the hotel. and somehow, the reverb ration, i can hear all that here but i don't quite get the corner. so it was a tough question and therefore i'll give it toers kin. >> we finish each other's sentences, we have dinner together the two of us all the

time. we are partners completely. all good questions governor sanford, there are lots of skeptics. some commissions have worked, some haven't. al served on one that worked very well on the iraq study commission where i think now 59 of the recommendations have been adopted. as i said, i did personally negotiate the first balanced budget in our generation so i know it can be done. and if i could remind you that when we set out to do that, there wasn't news organization in the country that believed it was possible and we got it done. and we did it by building up trust and confidence and a sense of urgency. >> secondly, on the debt to gdp ratios, when i left washington in owe, the debt to gdp ratio was, this is the public debt, that's where you get confused, governor, because some people talk about the public debt, some people talk about the

gross debt, and then some people talk about all the unfunded libletteds. the public debt now is about 9.6 trillion. the gross debt is about 13 trillion as you just said, and if you count all the unfunded liabilities, it's about 52 trillion. so it gist you a pretty wide spread. but when we left the public debt was about 35% of gdp. today it's 64% of gdp. the average since 1957 is 45% of gdp. and it kind of, to understand what the gross debt is just add 30% to all those numbers i just gave you. there are lots of scollarly work. in fact, we had the people who wrote the article governor sanford spoke to come to speak to us, professor rinehart.

and when debt to gdp gets to 90% you can believe you're going to start to lose about 1% of gdp is going to fall tauf wayside so it really does have a real negative impact called reverse leverage. all of us in the business world have dealt with it. but it's a real problem. i do think if we -- i think we have a small chance to be successful. and again, the reason we have a small chance is i think we have built up confidence in each other and we do have these baby teeth that will allow us to get this to the congress and get an up or down vote if we can get a recommendation to come out of the commission. >> governor bald atchi. >> just a lot of ground to cover. but let me also echo along with what governor beene has said. it's been refreshing. it's been sobering.

and we don't hear it enough. and we all ought to be in all quarters of the country talking on a regular basis. we were there in 94 and we were there to balance the budget for the first time in a generation. and i want to compliment you and the administration and being able to do that because it seems, though, during that 94 period with the shutdown and everything that it was really bad, until they started writing stories in the 18030s when members of congress started to shoot each other. it wasn't a as bad as that but it was pretty bad. but at the same time, i seems like it's gotten a lot worse. it seems like it's gotten harder than it was back then. and you two are kind of just the only two voices out in this whole area where it seems to be so negative. and it's kind of following along with what governor switser said.

unless you folks are prepared to take a full court press and get out there on a more public stage and use all the opportunities you can and then more so and the president embarking on grabbing this and just show casing it that much, i don't know really how your recommendations are going to be able to go very far. >> we were -- we hoped we might be able to get to legislative ludge in our report, which would be the master stroke if we could do that. but that would be an important goal. i think that we have that we would do some legislative language as we submit the report. but it is -- we don't have, we feel if we went around the united states and had hearings now, right now, to people, would see a bit of discord in the commission that would not be helpful.

the thry working groups report to the full commission at the end of each month. the working groups meet in private and they have to because they talk about all the flash words that you've just heard. and then, of course there was a request that we come out with our report in october instead of november. therefore, every politician running could cherry pick the report and go home and say do you know what these nuts are up to? that would be the result of that. so we can't do -- well, we stick with the december 1st. but someone mentioned how did we really get here. we were trained all of us for the last 60 years to bring home the bacon. and when we went home to our districts, we had a staff person or two or three and when the guy got up and said we need a new dam down there on henry fork, great, write that down will you harriett or harry?

we'll get that for you. and we need a new airport terminal, we need this. and your job was just to go home and get it and then run, and then worship at the great god of reelection. and that's how we got here. but now, the pig is dead. and there's no more bacon to bring home. and it is, you just -- it's there and it's shocking. >> governor doyle. >> thank you. i'm interested in a couple of your sort of visions of where this is headed into the future. there isn't a big spender among any governor here any momplet maybe there were originally. and we may call each other names. but given every budget that we've been through. so what we're going to confront i see, many of us won't be in

office. but the economy is going to rebound, we hope sooner than later, and the amount of unmet need, then the need that we've cut is real. so senator simpson mentioned the dam and the terminal. well, there are some dams and terminals that with do need to get built that we have been defering because of the situation we've been in. demands noticing in higher education that we've deferred because of the situation. i think the governors in the next couple of years, one of the great pressures that they're going to have, and this will be, i'm interested in ow you see it playing out over time, is that these resources are going to be a bit little bit better and the demands that have been deferred over the last four years are getting so intense that the claims on that money, the little bit of money, the little bit of increase

that's coming in is going to be enormous. the people you've said, well, all of the nos that we've said, there are going to be a few that are very, very important that we've said no to not because they were bad ideas but because we didn't have money. so as you see the economy rebound and we can argue an economist i guess will know and only time will tell how quickly it rebounds. but the demands we have also i think we could -- i could and i assume most governors here could give you a long list of unmet things of things, very legitimate needs, that we have had to defer. so it's going to be -- it is the economic crisis that has people cutting and the rebound as you all know from your experience is going to have people moving towards trying to meet some of these needs. i guess what i'm interested in, a little bit of what's been asked already but not just

where your recommendation goes but how over time, over a 5-, 10, 15, 20, 25 year period of time if the country agreed on a certain course that we should go which i would assume would be a balance of the new investments that we would have to make, but the can you tell us that have to be made. but how do you enforce that over a 10 or 15 or 20 year period of time that is going to happen? so your recommendations are in many ways in this economic climate pretty easy to at least on a state level, we have agreed on every cut anybody could come up with because we have to. but it's going to be a lot harder with those in the next few years. so i'm interested in your thoughts. i recognize you say your chances for success are slim even in getting this adopted. but what is your vision about if we have a pathway we should be on and we agreed on? it's one that isn't going to happen in one or two years.

it's going to happen over decades long period of time. and what's the mechanism to see that that would occur? >> i think you are partially right. the part that i think you ought to be concerned about is i don't think you can anticipate, no matter how much the economy improves, any additional help from the federal government. they just simply do not have the resources. if you look at the ten-year forecast, and it gets worse as you go out, not better, you're looking of deficits of at least $700 billion every year. so those of you who have balanced your budgets by using the federal stimulus dollars which run out this year and you're going to be left with a darned big hole to fill. i know in north carolina we have a $3.5 gl hole there plus

we have taxes running off. and that's going to place a huge responsibility on us. i think about what governor purdu has had to do in order to make us more efficient and more effective and make the tough choices he has had to make. they're no different than the ones at the university. i have cut last year administrative costs by 23%. i do have 30% fewer employees today in administration than i had 5 years ago. i did fire 900 people last year all on the administrative side of the ledger. i did increase the workforce. we froze the salaries, we put in furloughs. we're going to have to make use governors and we as mrs.s of other areas, we're going to have to continue to make really tough choices if we are going to have resources left over to invest in education and

economic. but i don't think we can depend on additional resources from the federal government to bail us out again. >> i think one thing, there's so many people out there who come to the town meetings and so on and they'll get up and there will be great applause, and i'll till you what you need to do, congressman or governor. not you guys. you have to balance the budget. we don't out there. but they'll get up and say i'll tell you what you ought to do. you get rid of all earmarks, get rid of all foreign aid to anybody, and get rid of all waste fraud and abuse and that will get us there. that will get you 5% of the whole. so when you say get rid of air force one and cut pensions and just tell them to quick playing around, they're just showing off because if you did those three things all of it, eerks, foreign aid, waste fraud and

abuse will get us 5% out of this hole. and yet, when you go out in the land, there's so much heavy ludge and cheers from the crowd , if half the people there with gray hair and 65 pitches about the government are on medicare. so should with say, well then, you mean you're out of the touch here. we're going to cut that off? but dave over there, what was it a year ago dave, you said to the state of wyoming you go back into your own agencies and you cut 15%. wasn't that it? and we're not going to do an across the board. you're going to figure it out. they all know where the fat is. you know, people achieve, not only the first thing they say is when i came here i had a staff of 10, but now i have 30. that means you've succeeded. it's a great thing. well, i don't want to say anything more. >> i'll just add to that. you all have made a lot of the

tough decisions that may haven't made at the federal government. let me just give you one easy example that's difficult to do. it's been, i don't know how long but it's been a long time since we've had a pay raise as civil servants in north carolina. and governor has had no choice. she's got to balance the budget. in washington, they've had pay raises of 2%, 3.9% and 3.5% over the last three years, and president obama has proposition for an increase of 1.4% next january. no way. now, how much did we save if we freeze federal civilian pay at 2010 levels? we save about 2 billion a year. is that going to get us to the promised land? no. but those are the kinds of decisions that you've already made that we have to make as recommendations in this budget. >> i saw four hands.

if i could ask my colleagues to be as expeditious as possible. we're a little beyond our allot time. >> thank you, sir. gentlemen, thank you for your service. governors have the responsibility constitutionally to balance their budget. they cannot borrow money in most cases. the federal government has to have the ability during times of emergency to be able to take care of national issues. but at the same time, is there any structural change that can be made that would -- other than a constitutional amendment, which would bear or pul congress, and these are good people. we send them there. they're solid individuals. but is there a way to structurally change the makeup to make congress accountable for the promises which they make but the next generation of congressmen have to pay for? at some stage of the game there

has to be some accountability for what you promise that you're going to deliver. is there anything in the recommendations other than constitutional changes that would allow that to occur? >> alan is a legislature. but that's the whole problem we have with something like social security. talk about something that's a third rail. you know, we promised more than we can deliver. the same thing with health care. you know, we did a great job of accessing of taking up access this last time, but boy we didn't do very much on the cost side. i can tell you that. and you can see by the forecast i gave you what a significant issue that is. but on health care, i mean, on social security, we're going to run through this, quote, trust fund by 2039 and the trust fund will be gone, all the interest

on the trust fund will be gone, and by law the payments to social security recipients have to drop that day by 20% in order for the revenues to match the outlays. and pretty soon they'll have to drop by 24%. so what you're going to get from social security is going to go down if we do nothing. so what we have to do is figure out a way that we can fix it, which we believe we can, so that those payments drop in a much more gradual manner, or that we get additional revenues to maintain that level of benefit. but it's going to go down because they promised more than they can deliver. and you can find that in er single area of the federal budget. >> let me just add one thing. there is, and this is not about partisanship. i have no idea what's going to happen on election day but it's going to be disruptive. appropriators are resigning.

both parties, people who are on the appropriations committee, that's a whole new game to watch appropriators begin to step aside because they're the money guys. they're the guys that have been stepping up and sholing it out. and that's an interesting thing to watch. i have no idea what's going to happen. i don't cherish any result over another. but it's going to be a big wakeup call around the whole united states. and i have no idea where it's going but thank heaven we have a month to work through the wreckage and see what happened and then watch for a lame duck session where people who have just been saving stuff in their back pocket for years and resigned after 20 years, and said here's this baby i never could get there and i'm working it. but the other one with regard to social security, there's a phrase called scheduled benefit and pable benefits.

schedule benefits in 2013 will not be made. pable benefits will be made. there will be enough to make pable benefits and they will be substantially 20 to 25% different than scheduled benefits. and that's the way it is if you do nothing. so when you hear people say we're going to do zeal with that, each year you wait, this is just a bolder rolling. >> governor. >> well, i join my colleagues in saying thank you for your service and leadership and for joining us today. i have to share was, there's isn't a person here that doesn't want you to succeed. behind all that is a concern i'm sure by all of us, does that mean that it's going to result in more demands on the states? in other words, more unfunded mandates, more rolling downhill, the concern of most governors here are we goible to be able to do health care

reform or are we being asked to pick up a tab that we otherwise wouldn't be sk to be picked up? so with that in mind, we want you to succeed very much. what can we do to help you be successful? how can we partner but or that your efforts will not result in the kind of skepticism that you've heard here but real reform and real change for all of us? >> governor, you're exactly right. one of the ways we balanced the budget in 1997 was that dirty word devlution. and we did devolve a lot of services without the appropriate funding down to the state, and that helped fix up the federal budget. it caused you a lot of headaches. i don't think you're going to see a lot of devlution coming from us because stakes are all broke, all in the same situation the federal government is. so devlution is in my opinion not the answer.

how you can help us is we don't have the resources. we're a deficit reduction committee so we're not spending hardly any money. but so we don't have the resources to do one of these national campaigns. and we've got to get the word out. so our hope is to meet with people like you all, we're meeting with the national chamber, anybody who will let us come meet with them. and then we hope that you will spread the word that we've got to take action, and take action now. and defering it to some later period of time is just irresponsible. >> i think one of the things that we've already been hammered with is how much are you guys making? that's a wonderful treat. because i get a coach fair out of coddy, wyoming, and i get get in first class because i can't work my emashe nated frame in there and i've got a new knee. so i'm paying a spread between the coach and first class.

don't feel sorry. and then we get a whole per deem for one night, government rate and we pay that and we pay everything else from our own pocket. and people chip on us, how much you make sng you guys are making a ton out there. that's always a good one. and then our budget for the whole thing is $500,000. and with that, we've hired bruce reed, a very able guy, and a final staff. we have young college students, we have borrowed from agencies of the government. we can't borrow from congressional staff. the house budget committee has 75 people and a budget of 10 million. we have, what, 18 staff and a budget of 500 grand. but if we had any more, we would in in peril. we have to look like we're in rags and stagger through the village with a tin cup. and that's what we're doing

beautifully, although we wear good clothing. . h >> i think that would be a helpful piece of information for

you to have to include in your report, the trimming of the bureaucracy and the red tape that people, like the governors, have to go through if to do any kind of change in their states. i have a medicaid waiver that has a and 2. five years in the process of being authorized. -- 2.5 years of being authorized. i know it is the leadership of this organization. we have some core solutions do things that would really help the bankrupt states be more efficient. >> thank you. that is what we came for is your ideas. to talk about something really controversial -- let's talk about medicaid. i mean, medicaid is an enormous cost. from the numbers i gave you earlier, it is a cost that will grow and grow and grow. you all are paying a big portion of that. i personally think that we have overpromise. we have promised more than we

can deliver. i think the taxpayers can afford to make sure that everybody has a darn good chevrolet, but nobody should get a cadillac at the taxpayers' expense. that is a very controversial opinion, but it is also based on reality of what we can actually afford to do. and so we are looking for ideas on the medicaid side that can help us bring down the cost of medicaid so that we can actually give people what we can actually afford. >> and don't forget, the new health care bill is on the table. we did not take this on if the president had said, what we just accomplished there is off the table. and it he did not challenge. he said it is on the table. here is something that is on the table, i think. in the year 2014 under the spill, and they are sorting through the stack, the states

can throw their medicaid back to the federal government. and some states, if i am not mistaken district of columbia said we want to accelerate that , throw it back right now and went to court. to be sure that bergmann would go back. if that is the truth, -- to be sure that that would go back. i am not certain, but i think there is some trigger mechanism in this new bill that enables estates to track or portions thereof to the fed's which makes the problem greater from the standpoint of what we all are pressuriortraying. >> governor reeder has yielded his time so we can get back on schedule. as we wrap up this discussion, i wonder as an association if we might follow up on a points that

the governors made. first of all, think about specific recommendations we would have based on our own experience in managing in difficult times. we talked a lot about that at our roundtable yesterday and conveyed it those ideas as to our guests and the commission. to the extent there would be helpful in informing their double ratiodeliberations. later in the year, when the commission gets to the point of recommendation, 14 of the 18 votes, a very diverse group of people from different walks of life, perhaps nga would care to endorse the process and urge the congress to support the recommendations of this bipartisan commission as an important step to get our fiscal house in order. i do not know how you would feel about that, but i think we have expressed a lot of support for the work they are doing into the need to move towards some fiscal

stability in the country. but if there is interest in that, we could draft a letter and circulated during the coming months and move forward. why don't we do that? well, this is been a great discussion with two great americans who have stepped forward to undertake a very difficult task. i know all the governors are grateful to you for doing that and wish you well on your deliberations, and we want to be here to help. we are all in this together as we serve to improve the lives of the people of our states and make sure that future generations can bear a fiscal burden that is not a precedent. thank you so much for being with us today. it is great to have you. [applause]

[captioning performed by national captioning instit >> over the next 3.5 hours, the first day of hearings by the commission investigating the gulf oil spill. you will hear from a yeptive of bp and the effect on the gulf of mexico. after that, federal reserve chairman ben bernanke and karen mills speak as a forum on credit health for small companies. >> on "washington journal" tomorrow morning, more about lending and credit for small businesses. from the editor and blogger with the atlantic business channel. former republican

representative tom davis of virginia will take your calls about politics and the congressional agenda. and we will look at the future of the postal service with ruth goldway, chairman of the postal commission. "washington journal" is live on c-span every day at 7:00 a.m. eastern. >> c-span, our public affairs content is on television, radio and online. and you can also connect with us on twitter, facebook and youtube. and sign up for our schedule alert e-mails at c-span.org. >> you're looking at a live picture of the well that has been spilling oil into the gulf of mexico. in the last hour a new cap has been put in place, several tests will be conducted to check for other leaks. this could take from six hours to several days. the commission on the disaster

held its first meeting. the president established the commission to find ways to prevent future spills. >> we thank you for the opportunity to talk about our efforts in this response. i have a brief presentation which will cover the timeline of the response and what has been taking place since then. 's then. i've also provided you with two pieces of information. one is an overall timeline to date, as well as an outline of the current organizational structurfor the command. and i believe that those copies were provided to you, but i brought extras with me if you don't have those. and i do have a presentation, but i'm not sure how that pops up on the screen. so i'm -- there it is. all right. and i think i can control it from here, i'm told. the -- as noted, i am the deputy national incident commanderment i wa named as such biard miller

thad allen. i serve as deputy. my primary responsibility is to ensure there are strong linkages among federal, state, and local authority there authorities, as well as reaching out to public and nongovernmental organizations and private community individuals. ultimately, we ensure that the response organization has the appropriate strategic direction and clear objectives to enable a response to proceed at its best purpose. this response, as you've noted, is the most complex in our nation's history. certainly the most complex i've ever dealt with in my 29-year career. it is further complicated by the lack of human access to the source, the challenge in measuring the total volume of oil discharge. the fact that the oil is spreading out in all directions, and that you have a new, major oil spill every single day. it's not a single monolithic spill but rather thousands of smaller spills that in total threaten all five of the gulf states and the environmental

health of the gulf waters. if i can pull up that presentation againplease. so this is just an initial timeline, and i'll walk quickly through this because i'm interested in e questions that you may have, given the time that you spent down here. the -- as you know, on the 20th of april, there was an explosion on board the deepwater horizon mobile offshore drilling unit. it subsequently sank on the 22nd with the loss of 11 lives. the initial response was primarily a search and rescue, and we spent a fair amount of time looking for those 11. those 11 lives were never recovered. 11 individual were never found. on the 21st of april, the first incident command post was established in homer, louisiana, to respond to what was a that time projected to be as much as a 700,000 gallon spill from the mobile offshore drilling unit because that of the amount of fuel oil that was known to be on board, with an unknown with respect to the well itself.

on the 23rd ofapril, the unified area command was established in robert, louisiana. it subsequently moved to new orleans. that wasecause it was rapidly seen as a major event that would require a laer brokerage of resources, perhaps, and the potential to effect more than one area of operation. the 29th of april it was declared a spill of national significance by the secretary of homeland security, secretary napolitano. and what that declarati did was establish the procedure for assigning a national incident commander, among other things, to broker a national level of resources. prior to that, there was -- there had been confusion when the drill rig initially sank as to whether or not there was indeed any spill coming off the well head. that's because the assumption was made that the blowout preventer had worked. the depth was 5,000 feet. so it took some time for oil to reach the surface and be seen,

as well as a fair amount of p turbidy that was stirred up as a result of the sinking of the rig. took 24 to 36 hours the nays are turbidity to set and remote vehicles to what was happening down there. and so the initial efforts were to start at the drill rig itself and follow the riser pipe, the 5,000 feet of riser pipe back to the source of the ll. and it was at that point that three separate leaks were discovered over the course of that 24 to 36 hours. subsequent to that, of course, was that declaration of the spill of national significance. immediately following that was the naming of admiral thad allen as the national incident commander. then commandant, now retired, but still the national incident commander. and then there were a number of initial attempts to secure the source that as those of you who followed this know were not successf. those included a containment domet