PAGENO="0001" ADEQUACY OF THE ADMINISTRATION'S ANTI-INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chicago, New York, Youngstown, and Washington, D.C.) HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS HOUSE OF REPRESENTATIVES NINETY-SIXTH CONGRESS FIRST SESSION MAY 3, 4, 5, 7, 11, 18; JUNE 18 AND 28, 1979 Printed for the use of the Committee on Government Operations 0 \9Z~L - U.S. GOVERNMENT PRINTING OFFICE 52-214 0 - WASHINGTON: 1979 PAGENO="0002" COMMITTEE ON GOVERNMENT OPERATIONS JACK BROOKS, Texas, Chairman L. H. FOUNTAIN, North Carolina DANTE B. FASCELL, Florida WILLIAM S. MOORHEAD, Pennsylvania BENJAMIN S. ROSENTHAL, New York FERNAND J. ST GERMAIN, Rhode Island DON FIJQUA, Florida JOHN CONYERS, Ja., Michigan CARDISS COLLINS, Illinois JOHN L. BURTON, California RICHARDSON PREYER, North Carolina ROBERT F. DRINAN, Massachusetts GLENN ENGLISH, Oklahoma ELLIOTT H. LEVITAS, Georgia DAVID W. EVANS, Indiana TOBY MOFFETT, Connecticut ANDREW MAGUIRE, New Jersey LES ASPIN, Wisconsin HENRY A. WAXMAN, California FLOYD J. FITHIAN, Indiana PETER H. KOSTMAYER, Pennsylvania TED WEISS, New York MIKE SYNAR, Oklahoma ROBERT T. MATSUI, California EUGENE V. ATKINSON, Pennsylvania WILLIAM M. JONES, General Counsel JOHN E. MOORE, Staff Administrator ELMER W. HENDERSON, Senior Counsel JOHN M. DUNCAN, Minority Staff Director COMMERCE, CONSUMER, AND MONETARY A1~'AiBs SUBCOMMITTEE BENJAMIN S. ROSENTHAL, New York, Chairman ROBERT T. MATSUI, California LYLE WILLIAMS, Ohio EUGENE V. ATKINSON, Pennsylvania JIM JEFFRIES, Kansas FERNAND J. ST GERMAIN, Rhode Island JOEL DECKARD, Indiana JOHN CONYERS, Ja., Michigan ELLIOTT H. LEVITAS, Georgia EX OFFICIO FRANK HORTON, New York PETER S. BARASH, Staff Director HERSCHEL F. CLESNER, Chief Counsel JEAN S. PERWIN, Counsel STEPHEN R. MCSPADDEN, CounBel FRANK HORTON, New York JOHN N. ERLENBORN, Illinois JOHN W. WYDLER, New York CLARENCE J. BROWN, Ohio PAUL N. McCLOSKEY, JR., California THOMAS N. KINDNESS, Ohio ROBERT S. WALKER, Pennsylvania ARLAN STANGELAND, Minnesota M. CALDWELL BUTLER, Virginia LYLE WILLIAMS, Ohio JIM JEFFRIES, Kansas OLYMPIA J. SNOWE, Maine WAYNE GRISHAM, California JOEL DECKARD, Indiana JACK BROOKS, Texas (II) PAGENO="0003" CONTENTS Hearings held on- Page May 3, Dallas 1 May 4, San Francisco 99 May 5, Sacramento 207 May 7, Detroit 283 May 11, Chicago 417 May 18, New York 553 June 18, Youngstown 727 June 28, Washington, D.C. 781 Statement of- Allen, Dorothy, member, senior citizens group, St. Gregory's Parish, Manhattan 683 Allenby, Cliff, program budget manager, Department of Finance, State of California; accompanied by Pauline Sweezy, chief economist 226 Anderson, Hugh B., assistant attorney general, State of Michigan___. 301 Arbitman, William A., San Francisco Regional Office, Federal Trade Commission 187 Banner, Russell 775 Bienstock, Herbert, Regional Commissioner, Bureau of Labor Statis- tics, U.S. Department of Labor 597 Bos~vorth, Barry P., Director, Council on Wage and Price Stability__ 828 Brady, Bernard, Seniors Union for Social Justice; accompanied by Helen Moore and Ruby Will 279 Brown, Frances, California Legislative Council for Older Americans_ 144 Brown, Stephen, AFL-CIO Community Services 149 Buchanan, Herbert F., Deputy District Manager, Southwest District, Enforcement Division, Economic Regulatory Administration, U.S. Department of Energy 18 Bullock, Viola 353 Bursie, Margaret, American Friends Service Committee 336 Burtch, Jack, Warren Area Chamber of Commerce 759 Chapman, William Earl, secretary-treasurer, Dallas AFL-CIO, accom- panied by James Holbrook, Communications Workers; Lloyd Cram, president, Dallas Building Trades Council; and Gray McBride, State, County; and Municipal Employees - 26 Christian, Robert, director, Youngstown Area Community Action Council 764 Coates, Patricia, executive director, Food Advisory Service 116 Coleman, Walter, cochairman, Heart of Uptown Block Club Coalition for Jobs and Housing, and president, Uptown People's Community Health Services Organization 464 Conheim, Harvey, volunteer with Senior Action Line, Community Serv- ices Society of New York 5(2 Cook, Dale, region IX, Department of Energy 169 Cook, Liz 277 Covintree, George, Jr., director, Southeastern Michigan Food Coalition_ 363 Cummins, Alden, executive director, Health Systems Agency of Eastern Ohio 777 Cunningham, Father William, Shrine of Madonna, Focus Hope 401 Curran, Frank, president of New Homes 409 Davis, Gladys, Fort Greene area 581 Dennison, Margaret, member, Trumbull County Board of Commission- ers, Warren, Ohio; accompanied by John Palermo, chairman, Ma- honing County Board of Commissioners, Youngtown, Ohio 747 Drain, Lela, resident of Chicago 430 (III) PAGENO="0004" Iv (Statement of-Continued) Page Evicci, Yred, editor, Senior Citizens Weekly 257 Fahrner, Homer 25~ Fay, Lucille 261 Feinman, Carol, director, Department of Public Interest, Community Services Society of New York 568 Ferguson, Melva, welfare mother 486 Fischer, William, Deputy Regional Commissioner, Bureau of Labor Statistics 377 Fishman, Al, Coalition for Economic Justice 346 Floyd, Aaron, president, Association of Community Action Agencies; accompanied by June Ross; Emma Carter; Thurman Dorsey; and Mike Paco; members 43 Finnigan, Matthew, housing specialist, city of San Francisco, Commis- sion on Aging; accompanied by Abe Papkoff, program staff specialist 100 Francis, Jacqueline, home management program, Willoughby House Settlement, Brooklyn; accompanied by Dorothy James 581 Frank, Maurice, Fod and Hunger Hotline, New York City 578 Frazier, Rosa, chairman, single parents family project, Community Services Society of New York 569 Gable, Justine, consumer reporter, Morristown Daily Record, New Jersey 685 Galbraith, John Kenneth, professor, Harvard University 554 George, William 778 Graham, Roberta, director, SCOPE, Inc., Warren, Ohio; accompanied by Julia Koch, member, SCOPE 735 Green, Emma, representing the Chicago Defender Advisory Board, the Englewood Community Organization, and the Hospital of Englewood 463 Greenberg, Cora, United Neighborhood Houses 564 Guerriero, Rich, Youngstown, Ohio 771 Halpern, Fannie, Congress of Senior Citizens, National Council of Senior Citizens, and Retired Teachers Chapter of the United Fed- eration of Teachers 680 Hammerman, Murray, North Atlantic Milk Processor's Association_. 688 Harris, Sheri, vice president, consumer affairs and research, Northern California Grocers Association 273 Hausey, Willie, district assistant to State Senator Albert S. Rodda___ 219 Hayes, John, American Association of Retired Persons, Dallas chapter 55 Height, Benjamin 270 Hernandez, Lenora, home management program, United Neighborhood Houses 567 Hodin, Jay, executive director, Society for the Protection of the Unborn Through Nutrition 488 Holladay, Scott, Association of Community Organizations for Reform Now 59 Hueholt, Richard L., vice president of governmental and public affairs, Dallas Chamber of Commerce, Dallas, Tex 81 Hunter, Jack C., vice president, Mahoning National Bank, Youngs- town, Ohio 755 Isenberg, Philip L., mayor, Sacramento, Calif 208 Ivancevich, Robert E., executive director, Illinois State Cost Contain- ment Committee 497 Jackson, Lee 543 Johnson, Dolores, of Self Help Action of Chicago; accompanied by Paul Ilorvatz 426 Johnstone, Weston, executive director, Youngstown Area Chamber of Commerce 757 Kahn, Alfred E., Chairman, Council on Wage and Price Stability 782 Kane, Sister Diane, Washington Heights Inwood Interagency Council on the Aged 680 PAGENO="0005" V (Statement of-Continued) Katzman, Martin, head of graduate program in political economy, University of Texas, Dallas, Tex.; accompanied by Peter Lewen, Page resident expert on macroeconomic policy, University of Texas 85 Keenan, Milton A., Assistant Regional Commissioner, Bureau of Labor Statistics 151 Kicinski, Walter T., deputy secretary to Gov. Hugh L. Carey of New York State, and staff director of Governor Carey's Affairs Cabinet; accompanied by Robert Schweikert and Jim Brumfield 657 Klein, Robert, Office of Revenue and Tax Analysis, Department of Management and Budget, State of Mit~higan 284 Kronberg, Shirley, executive director, Neighborhood Service Centers, Council of the New York Hotel and Motel Trade Council, AFL-CIO_ 583 Langford, Anna, attorney, former alderwoman of the 16th ward, city of Chicago 544 Lee, Nancy 262 Leseganich, Prank, director, District 26, United Steel Workers of America; accompanied by Robert Guthrie, recording secretary, United Auto Workers Lecal 1112, Warren, Ohio; and William Lyden, president, Building Trades Council, Youngstown, Ohio 738 Lewis, Alfred, member, advisory committee board of Self Help 430 Low, Robert A., regional representative, U.S. Department of Energy; accompanied by Herb Malik, Office of Enforcement 622 MeCusker, Philip, Illinois Job Service 538 McGarry, Sister Eleanor, director, Senior Center at St. Gregory's Parish, Manhattan 683 Mann, Reverend, Helping Hand Community Center 573 Mason, Leola 413 Minsk, Abraham, first vice president, Pommerack Senior Citizens Center 681 Moon, Louise 260 Mozell, Henry, Oakland-Alameda County Consumers Council; accom- panied by Jane Lopez and Dorothy Corbin, senior citizen 124 Murphy, Martha, director, Area Agency on Aging, Youngstown, Ohio__ 728 Murphy, Hon. Morgan F., a Representative in Congress from the State of Illinois 418 Noel, John, assistant attorney general, State of Illinois 535 Norheck, Marie 263 Novinky, Genevieve, clerk-treasurer, Boardman Township, Ohio 768 Ohlson, Joan, social worker, Henry Street Settlement, Lower East Side of Manhattan 579 Ortiz, Carmine, welfare recipient 570 Osgood, Herbert 773 Oshiro, Carl, San Francisco Office of Consumers Union; accompanied by Susan Foote 178 Parker, Delores, CEPA employee 545 Parks, Rosa 405 Payne, Nell 338 Rain, Donald, of "We the People" 185 Ratner, Bruce, commissioner of consumer affairs, New York City 693 Ribaudo, Beverly, St. Clair Shores, Mich 348 Rrice, William E., Regional Commissioner, Bureau of Labor Statistics, region V, Department of Labor 433 Rice, William E., Regional Commissioner, Bureau of Labor Statistics region VI, U.S. Department of Labor 2 Richie, Leroy C., Regional Director, Federal Trade Commisson, New York Office 709 Rosen, Sid 391 Rosenthal, Hon. Benjamin S., a Representative in Congress from the State of New York, and chairman, Commerce, Consumer, and Mone- tary Affairs Subcommittee: Opening statement 1 Ruben, Rabbi 538 Sadat, Roxanne, social service coordinator for the Near South Parent- Child Center 472 Sadler, Rosetts 415 PAGENO="0006" VI (Statement of-Continued) Sels, Marilyn, Dallas Legal Service; accompanied by JuareneHollins; Elvira Morales; Reba Akins; Roberta Johnson; Lois Christian; Cora Page Lee Sirla; and Allene Hardy 35 Severin, Sol, member, Pommerack Senior Citizen Center 682 Shavers, Dorothy, executive director, Self Help Action of Chicago_~_ 419 Sheedy, Joseph "Ted," supervisor, county of Sacramento 247 Shepard, James M., private citizen 77 Smith, Juereta, Regional Director, Dallas Regional Office, Federal Trade Commission 65 Smoke, Al, representing labor movement, cooperative fraternal orga- nizations, health care organizations of New York in the consumer field 686 Spiegel, Michael, assistant attorney general, State of California 168 Starkey, Fred 264 Steiner, Frank, executive director, Michigan Committee on Law and Housing 367 Stern, Chuck, executive director, Nutrition, Hunger, and Malnutrition Task Force, city of Detroit 407 Stocks, Dr. Anthony, Department of Economics, Youngstown State University 766 Tacklit, Warner, Highland, Ohio 770 Teague, Joe Louis, Youngstown, Ohio 772 Thayer, Leslie 354 Turley, Paul W., Regional Director, Chicago Regional Office, Federal Trade Commission 519 Turner, Thomas, president, Wayne County AFL-CIO Council 394 Vizet, Laura, citizen 571 Widdiham, Pat, general consumer home managers' education program, New York City Board of Education 686 Wilbur, Chuck, vice chairperson, Michigan Coalition on Utilities and Energy - 324 Williams, Lindell J., Deputy District Manager, Central Enforcement District, Federal Energy Regulatory Administration, U.S. Depart- ment of Energy Willis, Nezzie, welfare rights advocate 515 Woods, Melissa, Association of Community Organizations for Reform Now 351 Writtenhouse, Frances, member, AARP chapter, Dallas, Tex 58 Yeager, George, Council of Civil Service Workers, delegate for Con- gress of Senior Citizens, member of Delegation of Queens Congress of Senior Citizens, Civil Service 684 Letters, statements, etc., submitted for the record by- Allenby,'Cliff, program budget manager, Department of Finance, State of California: Prepared statement 239-246 Anderson, Hugh B., assistant attorney general, `State of Michigan: Prepared statement 307-323 Arbitman, William A., San Francisco Regional Office, Federal Trade Commission: Prepared statement -. 191-198 Bienstock, Herbert, Regional Commissioner, Bureau of Labor Statis- tics, U.S. Department of Labor: Prepared statement 606-621 Bosworth, Barry P., Director, Council on Wage and Price Stability: Prepared statement . 829-845 Brown, Stephen, AFL-CIO Community Services: Prepared state- ment 151156 Buchanan, Herbert F., Deputy District Manager, Southwest District, Enforcement Division, Economic Regulatory Administration, U.S. Department of Energy: Prepared statement - 22-25 Bursie, Margaret, American Friends Service Committee: Prepared statement - 343-345 * Carey, Hugh L., Governor, State of New York: Prepared state- ment - 672679 Coates, Patricia, executive director, Food Advisory Service: Prepared statement - 129-123 Corbin, Dorothy, senior citizen: Prepared statement 127 PAGENO="0007" VII (Letters, statements, etc.-Continued) Dennison, Margaret, member, Trumbull County Board of Commis- Page sioners, Warren, Ohio: June 20, 1979, letter to Chairman Rosenthal__ 750 Finnigan, Matthew, housing specialist, city of San Francisco, Commis- sion on Aging: Prepared statement with attachments -- 108-415 Fischer, William, Deputy Regional Commissioner, Bureau of Labor Statistics: Prepared statement -- 381-390 Hammerman, Murray, North Atlantic Milk Processor's Association: Prepared statement -- 699-692 Hausey, Willie, distri~t assistant to State Senator Albert S. Rodda: Prepared statement -. 222-225 Hayes, John, American Association of Retired Persons, Dallas chapter: Apr. 26, 1979, memorandum concerning Chairman Rosenthal's hearings Hodin, Jay, executive director, Society for the Protet~tion of the Unborn Through Nutrition: Prepared statement -- 490-496 Isenberg, Philip L., mayor, Sacramento, Calif.: Prepared statement_ 214-218 Ivancevich, Robert B., executive director, Illinois State Cost Contain- ment Committee: Prepared statement -- 500-514 Julian, Anthony (1, director, Youngstown Office of Consumer Affairs: Prepared statement -. 770-780 Kahn, Alfred B., Chairman, Council on Wage and Price Stability: Prepared statement -- 790-827 Keenan, Milton A., Assistant Regional Commissioner, Bureau of Labor Statistics: Prepared statement - 161-167 Kent, Barbara, executive director, Queensboro Council for Social Wel- fare, Inc.: Prepared statement -. 723-725 Kicinski, Walter T., deputy secretary to Gov. Hugh L. Carey of New York State, and staff director of Governor Carey's Affairs Cabinet: Prepared statement - 663-671 Klein, Robert, Office of Revenue and Tax Analysis, Department of Management and Budget, State of Michigan: Prepared statement- 289-300 Kronberg, Shirley, executive director, Neighborhood Service Centers, `Council on the New York Hotel and Motel Trade Council, AFL-CIO: May 1, 1979, memorandum to central body presidents, from Raymond R. Corbett, president, New York State AFL-CIO, re Operation Price Watch - 591-596 Leseganich, Frank, director, District 26, United Steel Workers of America: Prepared statement -- 739-744 Lopez, Jane, Oakland-Alameda County Consumers Council: Brochure on the Western Conference -- 134-138 Prepared statement -- 142-143 Low, Robert A., regional representative, U.S. Department of Energy: Prepared statement .~ 629-656 Mozell, Henry, Oakland-Alameda County Consumers Council: Prepared statement -- 128-131 Murphy, Martha, direi~tor, Area Agency on Aging, Youngstown, Ohio: Questionnaire on how to fight inflation -. 731-734 Peterson, Paul R., Regional Director, Cleveland Regional Office, Fed- eral Trade Commission: Prepared `statement -. 403-405 Ratner, Bruce, commissioner of consumer affairs, New York City: Prepared statement - 700-708 Rice, William B., Regional Commissioner, Bureau of Labor Statistics, region V, Department of Labor: Prepared statement 440-452 Richey, Bryan, Regional Commissioner, Bureau of Labor Statistics, region VI, U.S. Department of Labor: Prepared statement and addi- tional material 9-17 Richie, Leroy C., Regional Director, Federal Trade Commission, New York Office: Prepared statement -- 713-721 Rosenthal, Hon. Benjamin S., a Representative in Congress from the State of New York, and chairman, Commerce, Consumer, and Mone- tary Affairs Subcommittee: Additional statements for the record 90-76 Inflation objectives of the price-deceleration standard by broad commodity groups, table 848 State of Illinois Bureau of the Budget statement 547-550 PAGENO="0008" VIII (Letters, statements, etc.-Conti.nued) Sadat, Roxanne, social service coordinator for the Near South Parent- Pag6 Child Center: Prepared statement 476-485 Shavers, Dorothy, executive director, Self Help Action of Chicago: Prepared statement 421-425 Sheedy, Joseph "Ted," supervisor, county of Sacramento: Prepared statement -. 251-256 Smith, Juereta, Regional Director, Dallas Regional Office, Federal Trade Commission: Prepared statement 72-76 Spiegel, Michael, assistant attorney general, State of California: Prepared statement -- 175-177 Steiner, Frank, executive director, Michigan Committee on Law and Housing: Prepared statement -. 372-376 Stern, Chuck, executive director, Nutrition, Hunger, and Malnutrition Task Force, city of Detroit: Apr. 18, 1979, letter to State Senator Jack Faxon, from Harold B. Parsons, re food stamp program, Wayne County case No. K1501899A 408 Thayer, Leslie: Prepared statement -- 359-362 Turley, Paul W., Regional Director, Chicago Regional Office, Federal Trade Commission: Prepared statement -- 526-534 Wilbur, Chuck, vice chairperson, Michigan Coalition on Utilities and Energy: Prepared statement 328-335 Williams, Lindell J., Deputy District Manager, Centeral Enforcement District, Federal Energy Regulatory Administration, U.S. Depart- ment of Energy: May 31, 1979, letter, submission to additional subcommittee questions -- 45458 Prepared statement -- 469-462 Willis, Nezzie, welfare rights advocate: Prepared statement -- 516-518 PAGENO="0009" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C. THURSDAY, NAY 3, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Dallas, Tex. The subcommittee met, pursuant to notice, at 11:20 a.m., at 1100 Commerce Street, Dallas, Tex.; Hon. Benjamin S. Rosenthal (chair- man of the subcommittee), presiding. Present: Representatives Benjamin S. Rosenthal, John Conyers, Jr., and Lyle Williams. Also present: Peter S. Barash, staff director, Jean S. Perwin, coun- sel; and Jack 0. Shaw, minority professional staff, Committee on Gov- ernment Operations. OPENING STATEMENT OP CHAIRMAN ROSENTHAL Mr. ROSENTHAL. The subcommittee will be in order. Let me first apologize for being late. Congressman Williams of Ohio and I had planned to leave Washington last night, but the House was in session until very, very late, and obviously the weather and thunderstorms have impeded our arrival this morning. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight cities this month to learn about the impact of inflation on the day-to~day lives of Americans and the performance of regional Federal agencies and State and local officials in the fight against inflation. Under the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of Federal agencies charged with combating inflation, including the President's Council on Wage and Price Stability and the Council of *Economic Advisers. Earlier this year, the subcommittee held several days of hearings in Washington into the adequacy of the Federal effort. Those hearings raised questions as to the ability of the Council on Wage and Price Stability to effectively monitor price and profit margin increases in the economy. They also demonstrated that the current wage/price (1) PAGENO="0010" * 2 guidelines ignore the most inflationary sectors of our economy-energy, food, interest rates, and health care costs. We are deeply distressed that consumer prices rose at an annual rate of 13 percent during the first quarter of 1979. These regional hearings are being held because we believe it is vital that the Congress and other decisionmakers in Washington have avail- able to them a firsthand record of the effects of inflation on the lives of our citizens. We also want to examine the extent of cooperation and coordination between Washington inflation fighters and those osten- sibly working at the State and local levels of government to fight inflation. As soon as our hearings are concluded, the hearing record and a subcommittee report, and I hope recommendations, will be made avail- able to the Congress and to the President. Our first witness is Mr. Bryan Richey, Regional Commissioner of the Bureau of Labor Statistics. Mr. Richey, thank you for being here. We again apologize for being late. Why don't you bring us up to date on the cost of living situation here. STATEMENT OP BRYAN RICHEY, REGIONAL COMMISSIONER, BU- REAU OP LABOR STATISTICS, REGION VI, U.S. DEPARTMENT OP LABOR Mr. Riomy. Mr. Chairman and members of the subcommittee: I am glad to have this opportunity to briefly comment on the impact of inflation in the Dallas/Fort Worth area and how it compares to the Nation as a whole~ It is my understanding that the subcommittee seeks testimony, too, on the cost of living in a number of major cities over the Nation and how the costs are affecting consumers. Unfortunately, there is no true cost-of-living measure. The Con- sumer Price Index, more popularly known as the OPT, a widely accepted measure of inflation, tells us what changes are taking place in the purchasing power of the dollars we spend. It records the prices of goods and services which cover virtually everything an average American family buys. By quantifying these changes systematically, the index reflects one of the most important causes of changes in living costs and therefore serves as an indicator but not a precise measure of the cost of living. Despite earlier fears of economic slowdown this year, even perhaps a recession sometime this summer, the economy continues to move ahead with considerable strength. This is especially true here in the Dallas/Fort Worth area. Employment is up and the unemployment is down. Total employment in the Nation in March was 31/2 million or 3.8 percent higher than 1 year earlier, while the rate of unemployment for the United States was 5.7 percent in March compared to 6.2 per- cent a year ago. Now, based on thelatest release by the Texas Employ- ment Commission, figures for the Dallas/Fort Worth area show em- ployment up by 87,300 or 6.6 percent and unemployment for the area down from 4 percent to 3 percent over the same period. The current rate of unemployment for this area was the lowest on record since 1974 and indicative in my judgment of a relatively tight labor market. PAGENO="0011" 3 One unfortunate side effect of a rapidly expanding economy is additional upward pressure on prices. This is evident in the behavior of prices, especially in recent months. An analysis of price changes in the Dallas/Fort Worth area relative to the Nation shows the same trend in prices for all goods and services. When prices rise or decline for the Nation as a whole, these same trends usually are reflected in the measures for this area, because essen- tially the same forces affecting the general level of prices nationally are no more or less prevalent here. For both the Nation and this area, the most significant price in- creases over time have been centered in housing, food, and transporta- tion; however, in recent months, all of the major components of the Consumer Price Index of the Nation as well as this area have been rising. None of the major categories of the housing component have been spared. This is so important for housing represents more than 40 per- cent of the total weight of the market basket associated with the Con- sumer Price Index. Mr. ROSENTHAL. Are you going to give us comparisons between Dallas and the national average? Mr. RICHEr. Sir? Mr. ROSENTHAL. Are you going to give us comparisons between Dallas and the national average? Mr. RICHEr. Yes, sir. In February, the most recent month for which direct comparison of price changes for the Nation and this area is available, the national home ownership component was 13.5 percent above the year-earlier level while the same figure for this area was up by 15.3 percent. This is fairly typical of the pattern which has prevailed for nearly a year, that is, for any given pricing period, home ownership costs, when compared over the year, have been in the double-digit range. * Rents have increased more sharply in this area than nationally but not as fast as the cost of owning a home. For example, in February rents compared to a year earlier were higher by 12.8 percent for this area and 7.1 percent for the Nation. Fuels and utilities,too, for the most of the last year have been rising faster in this area than for the Nation. Rapidly rising food costs are of primary concern to the consumer because they are encountered so frequently. Food and beverage costs in February were up 14.1 percent over the year in this area compared to 12.7 percent for the Nation. Beef, fruits, and vegetables paced the advance. Beef prices have been soaring, be- cause the number of cattle marketed. has declined while consumer demand remains strong. Until recently, pork, too, was in short supply. Fruit and vegetable prices have been rising rapidly because of a combination of atypical weather conditions affecting supplies and higher costs for processing and distribution. Mr. ROSENTHAL. Do you know what the March statistics are for food increases in this area? Mr. RICHEr. Yes, sir. Mr. ROSENTHAL. What were they? Mr. RICHEr. For the grocery store prices, they were up by 1.5 percent. PAGENO="0012" 4 Mr. ROSENTHAL. And from March 1978 to .March 1979, what was the increase in food in this area? Mr. RI0HEY. It was in the double-digit range as has been the case for about a year now. Mr. ROSENTHAL. The information that we have obtained that the increase from March 1978 to March 1979 for the Dallas area is 14.3, which is one of the highest in the Nation. Mr. RIOHEY. Yes. The March figure only covered the prices of food in grocery stores, and the precise figure was 13.9 percent over the year. Mr. ROSENTHAL. Is it your understanding that it is correct-that the information we have is correct that the increase for March 1978 to March 1979 for food was higher in Dallas than almost anywhere else in the country? Mr. RIOHEY. I'm not sure whether any other place in the country, but it was among the highest areas of the United States, I know that. Mr. ROSENTHAL. Why is that? Mr. RICHEY. Well, we have a very healthy economy here in the Dallas/Fort Worth area. As I mentioned a moment ago, I believe that one unfortunate side effect of a strong economy is the additional pres- sure on prices. We have more people that work and earning higher wages probably than ever before, or close to it. This is a rapidly growing area and I believe that during periods of inflationary trends, the upward trends in prices are a little more prevalent in rapidly growing areas like Dallas than for the Nation. Mr. ROSENTHAL. Now, in some categories the exact opposite is true. For example, in medical care the increase from March 1978 to March 1979 in the Dallas area was only 5 percent, which was one of the lowest in the country. Mr. Ricirny. That's exactly right. Mr. ROSENTHAL. Why is that? Mr. Riom~y. I am afraid I cannot account for that difference. I have no way of knowing from the numbers that we have here. Mr. ROSENTHAL. Is it that there are more younger people in this area? Mr. RI0HEY. We have a relatively higher proportion of young people and they interestingly enough, given the patterns that they have established, marrying later, divorcing more frequently, representing one of the largest population groups in the country, probably exert disportionate impact on the economy, particularly for housing, than their numbers would suggest. Mr. RosnicrHAr,. Do you collect food prices and prices on products on a store-by-store basis?. Mr. Ricmy. Yes. We have agents that go out to areas throughout the five-State region here in the Southwest and actually price the goods and services that are offered in these outlets. Mr. ROSENTHAL. You have available to you a comparison shoppers guide as to all stores in the community; isn't that correct? Mr. RICHEY.. No, not really. These data are transmitted from our regional office into the national office where they are included as an aggregate in the composition of the Consumer Price Index. Mr. ROSENTHAL. I understand that, but then your office, do you have a comparison guide as to the prices in the various stores in the community? PAGENO="0013" 5 Mr. RIcHEr. Yes. We collect individual prices for individual goods and services by store. Mr. ROSEN~HAL. In other words, you know which stores are more expensive than others? Mr. RIcHEr. Well, within the sample I could determine where prices are higher in one store relative to another, yes. Mr. ROSENTHAL. Well, putting it simply, you know which stores are selling the merchandise cheaper than another store? Mr. RICHEr. Not necessarily. These data would reflect a specific price for a specific commodity or a service within an establishment~ but this wouldn't necessarily mean that I could-it certainly wouldn't mean that I would be able to identify all of the establishments in this area that were charging prices higher than similar establishments* of the same type, because it is based on a sample. Mr. WILLIAMS. You can do that for a product such as meat or produce? Mr. RICHEr. Based on the sample data there would be no way for me to pinpoint an establishment, business establishments in this area that were charging higher. prices than similar establishments for the same item. Mr. WILLIAMS. Yes, but you could tell if meat prices, compared to other parts of the Nation, are running higher? Mr. RICHEr. Oh, absolutely, yes. Mr. WILLIAMS. And you could ~probably do that, as the chairman says, broken down a little further, to specify individual outlets? Mr. RICHEr. No, I could not do that. No, we could not do that. The basic information that we have from which the index numbers are constructed would not permit that. Mr. ROSENTHAL. You mean legally you can't do it or- Mr. RICHEr. No, I am not talking about the legal ramifications, I am talking about the absolute indication of establishments throughout the .area could not be made. Mr. ROSENTHAL. When you go into a grocery supermarket, how many items do you check for market basket? Mr. RICHEr. Well, it depends. The nature of our sampling is that we are pricing for all the items included in our market basket-there are hundreds of items-throughout the month. In some stores we might price four or five items, in another store six or seven, in another store two or three. The idea is to get an adequate representation throughout the entire Metroplex or the Nation, for that matter, that is the nature of the sample design. Mr. ROSENTHAL. In other words, you don't take, say, one example, say, corn flakes, you don't check the price of corn flakes in every store that you go into? Mr. RICHEr. No, sir. Mr. ROSENTHAL. Do you have a market basket number for each store that you go into? Mr. RIChEr. Absolutely, very precise data for every store that we go into, but from that information it would be impossible to identify within a given area or anywhere else the number of establishments that might be out of line with respect to pricing. Mr. WILLIAMS; How are we ever going to monitor effectively, "we" being the Federal Government? PAGENO="0014" 6 Mr. Riciiirx. I cannot answer that question, sir. Mr. ROSENTHAL. All right. Go ahead. Mr. RICHEY. In closing, it is important to note that producer prices for the United States-and the numbers were released earlier today- are a very important indicator of inflationary trends. These are the prices that are received by producers for finished goods that are in the form eventually sold to final users, and by that I am referring to automobiles, trucks, machinery, equipment, fertilizer, foods and a host of other commodities too numerous to mention. The producer price index for finished goods released earlier this morning was up by nine-tenths of 1 percent. This was- Mr. ROSENTHAL. Tell us what that means. Many people don't know what that means. Mr. Riom~x. I was going to explain that. For the first 3 months of this year, it was increasing at an annual rate of 14.1 percent. This was the first month in 4 months that we have seen a moderation in the rate of advance for producer prices. Somewhat encouraging was the trend in consumer foods, it was down by three-tenths of 1 percent from a month earlier. It represented the first reduction since last August. We think we have good cause tobe encouraged by some of the trends that are emerging in all of the consumer finished goods, although I would not attempt to say that we have turned the corner yet with respect to our battle against inflation. Mr. ROSENTHAL. On an annual rate-on an annual number, what does that come to? Mr. RICHEY. Nine percent would be in the double-digit range, close to 12 percent. Mr. ROSENTHAL. You are not encouraged by that, are you? Mr. RiCHEY. No, sir, I am not. Mr. ROSENTHAL. What I was trying to find out, is there a way that you could refine the information that you have to disseminate to the public in some useful fashion? Mr. RICHEY. I'mnot sure I understand that statement. Mr. ROSENTHAL. The information that you gather in terms of price and comparison shopping, which is in effect what you do, is there any way that you can refine that information to give it to people so that they can know where things are costing less this week or that week or any particular supermarket or supermarket chain? Mr. Riom~r. No, sir, it would be impossible. Mr. ROSENTHAL. That's what I want to know. Why not? Mr. RICIJEY. The nature of the sample, the fact that these data ate based on a stratofied random sample throughout the Nation does not permit that type of identification, legally or otherwise. Mr. WILLIAMS. How do you view the role of the Department of Labor and the President's Council as a monitoring tool? How do you view your role? S Mr. RICHEY. Well, I could probably relate more to my role as I see it as one of developing the most precise measures of what is occurring and where it is occurring by economic sector in the economy that we possibly can, given the tools with which we have to work. Mr. WILLIAMS. Has the administration given your department direc- tion and specific duties that have been passed on to the regional officials? S PAGENO="0015" 7 Mr. RIcHEr. I think that it was unnecessary under the circumstances to reiterate or to stress the importance of our duties with respect to the development of price statistics throughout the economy. I think we do take that job very seriously. Mr. WILLIAMS. Well, I think both of us have a concern that your work is not being done in a manner that is informative to the people who are suffering most from these high prices. You may get us the information, but what about the people who are paying the high prices? Shouldn't we try to get timely information to the consumers? Mr. RIcHEr. Consumption patterns are very strong, particularly in this area, even in face of rising prices. One thing that I think has kept this cycle going is the anticipation of higher prices later on. There is some evidence to suggest that this has had a tendency to cause people to buy now in an attempt to get under the next price increase. This in turn just keeps the cycle moving. Mr. WILLIAMS. One more question. Are there major food warehous- ing movements in this area? Mr. RICHEr. I beg pardon? Mr. WILLIAMS. The warehouse type operations for food purchasing. Mr. RICHEr. For food? I would not judge that to be significant. I have not noted any. Mr. WILLIAMS. That is becoming a big industry in my district. Food warehousing can eliminate the neighborhood grocery store. There is no activity of that type in this area? Mr. RICHEr. In an area like Dallas/Fort Worth, or you could make the statement generally about the Nation because of the fairly healthy economy that we are still experiencing even though we are suffering from higher prices. The ability of the worker to pay these high prices has only begun to deteriorate fairly rapidly since the first of this year. By that I mean that the numbers that are developed by the Bureau of Statistics in connection with real earnings or the earnings of work- ers after adjustment for price increase have shown that we are losing ground only in the last 3 or 4 months. Mr. WILLIAMS. What do we do now that we are losing ground? That is the question. Mr. RICHEr. I think evidence of that is that we are having this hearing today. I don't think there is any question that the general populace is becoming much more concerned about inflation that we were perhaps 12 months, 6 months ago. I think this is the type of thing that would bring it home to us is when we get to that point when we are no longer able to cope with the rapidly rising prices. Mr. ROSENTHAL. What else do you monitor besides prices, whole- sale prices, retail prices, what else? Mr. RICHEr. Yes, the wholesale prices, or the name of that series has beenchanged to the producer price index for finished goods, but they are essentially the same series. Mr. ROSENTHAL. Do you monitor any kind of wage patterns at all? Mr. RICHEr. Yes, we have some selected area wage surveys. Gen.. erally these surveys have tended to indicate a steady upward trend in wages over time. Mr. ROSENTHAL. Sincethe wage/price guidelines have been in effect has that had an impact on the workers' ability to deal with rising consumer goods, cost of consumer goods? PAGENO="0016" 8 Mr. Riom~y. Of course, this would be a judgment on my part and the announcement was made in October, as I recall, late in October, the three things, as I understand it, called for was some restraint on the part of the Government in terms of spending, to be prudent' in monitoring physical policies, some sacrifices on the part of labor in terms of wage demands as well as the business community in es- tablishing pricing structure. As I understand it, these are rather long-term measures and I thmk it would probably be too soon to say whether the guidelines are work- ing or not. I believe it will take longer than the time period that has already elapsed to really make that determination. Mr. ROSENTHAL. How long do you think it will take? Mr. RICHEr. I really don't know, but I would imagine we ought to be able to see some effects within the year, hopefully within the next few months. Perhaps we are seeing some of the early signs in the re- duction in food prices and other finished goods that I reported on a moment ago. The fact that the rate of increase-now, I don't want to make too much of this- Mr. ROSENTHAL. I don't think you should. Mr. Ricm~y. The rate of increases are beginning to moderate some, it is an encouraging sign. It remains to be seen whether that trend will remain long enough to really turn the problem with inflation around. Mr. ROSENTHAL. Have the guidelines had any impact in moderating price increases? Mr. RICHEr. I would like to think that they have. I would like to think that the articles and all that I am reading in the major newspapers over the country where surveys are taken of key com- panies that were in compliance, the announcement by Sears Roebuck yesterday, and similar patterns- Mr. ROSENTHAL. But you haven't seen any statistical evidence here in the community? Mr. RICHEr. We have no empirical evidence that they are. Mr. ROSENTHAL. You don't even have any plain evidence? Mr. Ricm~y. We don't have any kind of evidence other than that that I just cited. Mr. ROSENTHAL. How do you know that the workers, or is it just a~ subjective judgment on your part, that workers are having more difficulty meeting their needs as a result of rising prices? Mr. Ricinm How would I know that? Mr. ROSENTHAL. How do you know that statistically? Mr. RICHEr. I would conclude that given a relatively high level of consumer indebtedness that has been reported fairly regularly in recent months, together with a relatively low level of savings, some- where around 5 percent of disposable income, I believe, together with the fact that for the last 3 or 4 months the prices have been increasing faster than wages, that the consumers would probably have to make' some adjustments in consumption patterns. So far this has not been reflected in the price measures significantly. Mr. ROSENTHAL. OK. Thank you for a very thoughtful and very enlightening statement. [Mr. Richey's prepared statement and additional material for the record follow :1 ` PAGENO="0017" 9 Statement of Bryan Richey Regional Commissioner Bureau of Labor Statistics, Region VI U.S. DEPARTMENT OF LABOR Before the CONGRESS OF THE UNITED STATES~ Commerce, Consumer & Monetary Affairs Subcommittee of the Committee on Government Operations Nay 3, 1979 Dallas, Texas Mr. Chairman and Members of the Subcommittee: I am glad to have this opportunity to briefly comment on the impact of inflation in the Dallas/Fort Worth area 1/ and how it compares to the Nation as a whole. It is my understanding that the Subcomittee seeks testimony, too, on the cost of living in a number of major cities over the Nation and how these costs are affecting consumers. Unfortunately, there is no true cost-of-living measure. The Consumer Price Index (CPI), a widely accepted measure of inflation, tells us what changes are taking place in the purchasing power of the dollars we spend. It records the prices of goods and services 52-21'~ 0 - 79 - 2 PAGENO="0018" 10 which cover virtually everything an average American family buys. By quantifying these price changes systematically, the index reflects one of the most important causes of changes in living costs and serves as an approximation of but not a precise measure of the cost-of-living. Despite earlier fears of an economic slowdown this year, even a recession before summer, the economy continues to move ahead with considerable strength. This is especially true here in the Dallas/Fort Worth area. Employment is up, and unemployment is down. Total employment 2/ in the U.S. in March was 3.5 million or 3.8% higher than a year earlier, while the rate of unemployment for the U.S. was 5.7% in March compared to 6.2% a year ago. Based on the latest release by the Texas Employment Commission, figures for the Dallas/Fort Worth area showed employment up by 87,300 or 6.6% and unemployment for the area down from 4% to 3% over the same period. The current rate of unemployment for the area was the lowest on record since 1974 and indicative of a relatively tight labor market. One unfortunate side effect of a rapidly expanding economy is additional upward pressure on prices. This is evident in the behavior of prices, especially in recent months. An analysis of price changes for the Dallas/Fort Worth area relative to the Nation shows the same trend in prices for all goods and services. When prices rise or decline for the Nation as a PAGENO="0019" 11 whole, these same trends usually are reflected in the measures for this area, because essentially the same forces affecting the gen-. eral level of prices nationally are no more or less prevalent here. For both the Nation and this area, the most significant price increases over time have been centered in housing, food and trans- portation; however, in recent months, all of the major components * of the CPI for the Nation and this area have been rising. None of the major categories of the housing component have * been spared. This is so important for housing represents more than 40% of the CPI market basket. Land, building materials, labor and financing costs have continued to accelerate, pushing the cost of homeownership higher and higher. In February, the most recent month far which direct comparison of price changes for the Nation and this area is available, the national honieownership component was 13.5% above the year-earlier level while the same figure for this area was up by 15.3%. * This is fairly typical of the pattern which has prevailed for nearly a year, i.e., for any given pricing period, homeownership costs, when compared over the year, have been in the double-digit range. Rents have increased more sharply in this area than nationally but not as fast as the cost of owning a home. For example, in February rents compared to a year earlier were higher by 12.8% for this area and 7.1% for the Nation. PAGENO="0020" 12 Fuels and utilities, too, for most of the last year have been rising faster in the Dallas/Fort Worth area than for the Nation. In part this reflects differences in the cost of interstate and intrastate natural gas. Rapidly rising food costs are of primary concern to the con-. sumers, because they are encountered so frequently. Food and beverage costs in February were up 14.1% over the year in this area compared to 12.7% for the U.S. Beef and fruits and vegetables paced the advance. Beef prices have been soaring, because the number of cattle marketed has declined while consumer demand remains strong. Until recently, pork, too, was in short supply. Fruit and vegetable prices have been rising rapidly because of a combination of atypical weather conditions affecting supplies and highe~ casts for processing and distribution. Transportation costs have been affected significantly by higher prices for new and used cars as well as higher energy costs. In February~ gasoline was up from a year ago by 12.~% nationally and 11.8% in this area. When more current figures are released later this month, they will likely be higher. In closing it is important to note that producer prices for the U.S. reflected by the Bureau's Producer Price Index For Finished Goods (PPI) have continued to increase. These are the prices received by producers for finished goods that are in the form eventually sold to final users -- automobiles, trucks, machinery, equipment, fertilizer, food and a host of other commodities too numerous to mention. This index advanced for the PAGENO="0021" 13 first three months of this year at an annual rate of 14.1%. This was the largest quarterly increase since the 16.4% rate for the 4th quarter of 1974. Food and energy items continued to contribute substantially to the advance. The April PPI for finished goods released earlier today was up by 0.9% from March -- the first monthly change under 1.0% since last December. Consumer foods declined fractionally (-0.3%) between March and April. This was the first reduction in consumer foods since last August. It remains to be seen whether or not this represents a moderation in the rate of increase in the prices of all finished goods. Until the price advance for crude and intermediate materials is slowed and finished goods reflect this deceleration in prices,, it is unlikely that retail markets will show significant improvement in the rate of inflation. While I have tried to keep my remarks brief, 1 am appending a number of tables that provide supporting data in more detail. If the Subcomittee members have any questions, I wtTl~.try to answer them now. 1/ The Dallas/Fort Worth Standard Metropolitan Statistical Area (SMSA) is comprised of the following counties: Collin, Dallas, Denton, Ellis, Hood, Johnson, Kaufman, Parker, Rockwall, Tarrant and Wise. 2/ Employment and unemployment statistics are seasonally adjusted for the Nation. However, seasonally adjusted data for Texas are not available. PAGENO="0022" 14 ir~ Bureau of Labor Statistics I" CONSUMER PRICES 555 Griffin Square Bldg., Room 221 Griffin and Young Streets Dallas, Texas 75202 February 1979 Consumer prices in the Dallas/Fort Worth and Houston metropolitan areas rose sharply from December to February, as these areas' strong economic performance continues to exert upward pressure on retail prices. The national CPI for All Urban Consumers stood at 207.1 (1967=100) in February, and was 9.9 percent above its year-ago level. The Dallas/Fort Worth Consumer Price Index for All Urban Consumers rose 2.1 percent from December to February, as the major components of food, housing, and transportation continued to pace the upward price spiral. The index stood at 205.8 (1967=100), 10.2 percent above its year-ago level. The index means that goods and services costing Dallas/Fort Worth residents $100.00 in 1967 cost them $205.80 in February. A bi-monthly increase of 3.4 percent in homeownership costs spurred a 2.5 percent increase in housing costs overall. Home pur- chase prices and mortgage interest rates continued to climb, and the homeownership index is 15.3 % above its year-ago level. Food and beverage prices rose mainly on the strength of higher prices of beef, fruits and vegetables, and restaurant meals. All food categories showed price increases. Transportation costs rose 1.6 percent from December to February, as gasoline prices continued to rise, reflecting tight supplies. The Houston Consumer Price Index for All Urban Consumers rose 2.0 percent from December to February, as all major categories of consumer prices increased. The index stood at 224.2 (1967=100) in February, 12.7 percent above its year-ago level. The index means that goods and services which cost Houston residents $100.00 in 1967 cost them $224.20 in February. Increased costs of utilities, along with higher home purchase prices and home maintenance costs, pushed the overall cost of housing up 1.5 percent~from December's level. The cost of owning a home has increased more than 20 percent in the last year, reflecting higher material and labor costs, mortgage interest rates, and energy costs. Adverse weather conditions in the Texas Valley and in Californ- ia, which affected fruit and vegetable supplies, and shortgages for most beef products pushed food prices up 4.3 percent from the December level. Meat, poultry, and fish prices have risen over 25 percent since early last year, while fruit and vegetable prices have advanced more than 15 percent. Tight supplies and rising prices of oil were mainly responsible for a 1.6 percent bi-monthly rise in transportation costs. PAGENO="0023" Urban Cle Index Wage Earner rica] Workers S Chan e from: All Items 224.2 2.8 12.7 223.1 2.2 12.1 Food and Beverages 236.2 4.2 15.9 233.2 4.1 14.2 Food 241.5 4.3 16.6 238.5 4.2 15.1 Food at hone 229.9 4.4 15.2 229.3 4.4 14.9 Cereals and Bakery Prod. 281.2 1.5 6.6 204.7 1.7 8.4 Meats, Poultry, Fish, Eggs 239.5 6.6 25.4 238.2 6.5 23.7 Meats, Poultry, 8 Fish 246.1 6.7 25.9 242,6 6.7 24.1 Dairy Products 215.2 1.6 10.9 218.6 3.4 12.6 Fruits and Vegetables 230.9 6.9 15.4 229.7 6.3 14.8 Vther foods at hone 244.6 2.6 7.7 243.3 2.1 7.1 Food Away from hone 279.7 4.0 19.5 269.7 3.9 15.3 Alcoholic Beverages 179.4 1.6 10.6 176.8 8.3 8.6 Housing 1/ 248.3 1.5 15.0 245.9 1.3 13.7 Shelter 276.0 1.1 16.7 273.6 1.1 15.5 Rent, residential 168.6 -0.4 4.5 168.6 -0,4 4.5 Other Rental Costs 220.0 -0.1 12.4 219.0 -8.1 11.8 Hoeeownership 317.4 1.6 20.8 316.6 1.7 20.5 Fuel and Other Utilities 243.4 3.7 15.0 243.4 3,8 15.8 Fuels 280.6 6.4 14.7 280.7 6.4 14.7 Fuel Oil, Coal, But. Gas 98.7 -1.1 N/A 98.7 -1.1 N/A Gas (Piped) 6 Electricity 201.0 6.7 15.2 281.8 6.7 15.2 Household FurnisHings 8 Oper. 199.5 1.3 7.6 196.8 0,3 5.8 Apparel and Upkeep 190.8 1.1 7.7 193.0 1.5 9.2 Apparel Cornodities 183.8 1.0 7.8 185.2 1.4 8,5 Men's 8 Roy's Apparel 179.8 1.3 9.2 188.1 1.7 10.0 Women's 8 Girl's Apparel 188.6 1.5 5.4 188.4 8.2 5.3 Footwear 182.2 -1.8 6.1 194.3 4.2 14.6 Transportation 183.5 1.6 8.9 184.3 1.5 9.5 Private Transportation 184.3 1.6 9.1 185.1 1.5 9.7 Public Transportation 161.1 0.6 -1.5 161.5 g,s -1.2 Medical Care 253.4 2.6 9.5 260.8 5.4 13.3 Entertainment 178.2 1.8 5.6 175.6 -8.5 3.8 Other Goods and Services 2/ 202.2 1.7 11.1 200.9 4.6 18.3 Personal Care - 221,9 2.9 14.9 218.1 8,2 12.6 611 Items (1957-59-100) 256.5 255.2 1/ Includes TO, and sound equipment, formerly Bound in health and recreaBiH6. 2/ Formerly included alcoholic beverages, mow found in food and beverages, Out now includes personal tare and education related expenses, fornerly found in health and recreation. The Houston Consuner Price loden covers the counties of Brazoria, Ft. Rend, harris, Liberty, Montgomery, and Waller. GROUP (:,,nsxwoor Price Index Dallas/Fort Worth, Tesas Stamdard Metropolitan Statistical Area 1967=1(10) February 197') Consumer Price tmdrs Houston, Texas Standard Metropolitan Statistical Area 11967=100) February 1979 index ~c)pppge from: GROUP All Urban Consumers Orhan Wage Earners Ti(Aèx 7_chapgq~rong 8 Clerical Workers Index S Change From: All Items 205.8 2.1 10.2 206.3 2.5 10.5 food and Beverages Food Food at home Cereals and Bakery Prod. Meats, Poultry, Fish, Eggs Meats, Poultry, & Fish Dairy Products Fruits and Vegetables Other foods at hone Food away from hone Alcoholic Beverages 224.7 229.0 221.0 200.3 219.2 224.2 202.5 221.9 248.0 255.4 157.5 2.8 2.9 3.4 1.9 5.0 6.2 1.9 4.2 . 1.8 2.1 0.4 14.1 14.3 13.4 8.8 19.9 20.5 14.1 14.8 7.8 16.2 10.2 226.7 4.6 15.1 231.3 4.8 15.5 223.0 4.6 14.4 212.7 2.0 11.1 224.4 7.2 22.6 238.1 7.9 23.6 206.8 1.0 16.5 222.7 8.1 15.2 244.2 2.5 5.9 258.8 5.2 17.7 165.1 0.9 0.6 Mousing 1/ 210.6 2.5 11.2 210.7 2.6 11.2 Shelter Rent, Residential Other Rental Costs Hoxeownership Fuel and Other Utilities Fuels Fuel Oil, Coal, 8 Rot. Gas Gas (piped) & Electricity Household Furnishings 8 Oper. 22S.7 167.8 223.6 251.6 195.3 237.9 99.4 237.9 104.9 3.2 2.6 4.1 3.4 0,5 1.0 5/A 1.0 1.1 14.7 12.8 14.1 15.3 -1.2 -1.7 -1.5 -1.7 8.4 227.2 3.6 15.5 167.8 2.6 12.8 221.8 4.0 13.2 254.1 3.9 16.5 195.3 0.4 -1.2 237.9 0.9 -1.7 99.4 5/A -1.5 237.9 1.0 -1.7 183.4 1.0 7.5 Apparel and Upkeep Apparel Comodities Men's and Boy's Apparel Women's and Old's Apparel Footwear 167.4 156.3 170.1 130.0 172.5 -0.1 -0.1 0.8 0.3 0.3 5.6 4.7 7.7 -0.1 6.9 167.0 1.0 5.4 156.0 0.7 4.5 169.2 1.0 7.2 137.4 -0.7 -0.6 170.3 3.6 5.5 Transportation Private Transportation Public Transportation 198.6 199.4 176.3 1.6 1.6 1.6 8.3 8.8 0.0 199.5 1.0 0.0 200.0 1.8 9.1 182.5 0.5 0.1 Medical Care 216.9 0.3 5.2 219.7 0.1 6.6 Entertainment 170.9 1.3 4.4 176.2 0.5 2.9 Other Goods and Services 2/ Personal Care - 195.3 201.5 2.5 3.9 10.2 9.2 192.5 0.1 8.4 197.7 2.4 7.2 All Items (1963-100) 222.5 223.0 __________ 1/Includes P.O. ano sound equip `formeF1,~,,,,, ::,he)lThTn:u,e,,eau,vn. 2/ For:nerly included alcoholic beverages, now found in food and beverages, but now includes personal tare and education related expenses, formerly found in health and recreation The Dallas-Ft. Worth Consumer Price Index covers the counties of Collin, Dallas, Denton, Ellis, Hood, Johnson, Kaufman, Parker, Mockwall, Tarrant, and PAGENO="0024" All Items 1.9 1.9 2.2 1.0 4.0 1.1 2.2 0.7 1.4 1.0 Housing 1/ 215.6 1.2 Shelter 225.9 1.4 Rent, Residential 171.0 0.4 Other Rental Costs 224.8 1.6 Homeownership 245.6 1.7 Fuel & Other Utilities 223.3 0.8 Fuels 259.3 1.2 Fuel Oil, Coal, & Bot. Gas 326.1 3.1 Gas (piped) & Electricity 241.2 0.7 Household Furnishings & Oper. 186.0 0.6 Apparel and Upkeep 161.4 0.4 Apparel Commodities 156.3 0.3 Men's & Boy' Apparel 156.7 -0.4 Women's & Girl's Apparel 147.7 0.5 Infant's & Toddler's Apparel 213.7 -1.0 Footwear 168.9 0.1 Transportation Private Transportation Public Transportation Medical Care 12.7 222.6 2.0 12.9 13.0 228.5 2.1 13.2 13.9 227.9 2.2 14.1 9.9 212.9 0.9 10.1 22.9 232.2 4.0 23.2 12.2 201.1 1.2 12.4 12.7 225.4 2.6 12.3 6.5 261.5 0.8 6.4 10.9 234.3 1.6 11.5 7.9 167.7 1.0 8.0 10.6 215.4 1.2 10.5 12.2 226.2 1.5 12.4 7.1 170.9 0.4 7.0 12.3 224.7 1.6 12.3 13.5 246.2 1.7 13.7 6.0 223.5 0.8 6.1 8.4 259.3 1.2 8.4 9.8 326.4 3.1 9.9 8.0 241.0 0.6 8.0 8.1 184.8 0.7 7.4 4.5 161.6 0.3 4.6 3.7 156.7 0.2 3.9 1.8 157.6 -0.3 2.3 3.5 147.7 0.3 3.5 2.4 214.6 -0.5 2.2 6.0 167.8 -0.1 5.5 1' Includes T.V. and sound equipment, formerly found in health and recreation. 16 Consumer Price Index - U. S. Average (1967=100) February 1979 All Urban Consumers uroan wage tarners & Clerical Workers Index % Change From: Index % Change From: 1-79 2-78 1-79 2-78 207.1 1.2 9.9 207.1 1.2 9.9 Food and Beverages 222.4 Food 228.2 Food at home 228.0 Cereals and Bakery Prod. 212.2 Meats, Poultry, Fish, Eggs 232.3 Dairy Products 200.6 Fruits and Vegetables 226.5 Other foods at home 261.9 Food away from home 233.4 Alcoholic Beverages 167.7 195.6 0.9 9.0 196.1 0.8 9.2 195.5 0.9 9.5 195.9 0.9 9.6 190.7 0.4 2.1 191.4 0.3 2.5 232.6 0.8 9.0 232.1 0.8 8.9 Entertainment 183.2 0.5 6.0 182.4 0.2 5.0 Other Goods and Services 2/ 191.9 0.7 7.2 191.9 0.8 7.1 Personal Care 190.4 0.8 7.1 190.4 0.8 6.8 All Items (1957-59=100) 240.8 240.9 2/ Formerly included alcoholic beverages, now found in food and beverages, but now includes personal care and education related expenses, formerly found in health and recreation. PAGENO="0025" 17 A Brief Explanation of the CPI The Consumer Price Index (CPI) is a measure of the average change in prices over time in a fixed market basket of goods and services. Effective with the January 1973 index, the Bureau of Labor Statistics began publishing CPI's for two population groups: (1) a new CPI for All Urban Consumers (CPI-U) which covers ap- proximately 80 percent of the total noninstitutional civilian population; and (2) a revised CPI for Urban Wage Earners and Clerical Workers (CPI-W) which represents about half the popula- tion covered by the CPI-U. The CPI-U includes, in addition to wage earners and clerical workers, groups which historically have been excluded from CPI coverage, such as professional, manage- rial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force. The CPI is based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and the other goods and services that people buy for day-to-day living. Prices are collected in 85 urban areas across the country. In calculating the index, price changes for the various items in each location are averaged together with weights which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. Separate indexes are also published for 28 local areas, including the Dallas/Fort Worth and Houston areas. These two indexes are available bi-monthly, for the even-numbered months, and are published during the fourth week of the month following the reference month. For the odd-numbered months, "Food at Home" indexes are available for the Dallas/Fort Worth and Houston areas. The two areas are the only areas in the Southwest Region for which local indexes are published. PAGENO="0026" 18 Mr. ROSENTHAL. Our next witness is Herbert Buchanan, Deputy District Manager of the Enforcement Division, Economic Regulatory Administration, U.S. Department of Energy. STATEMENT OF HERBERT F. BUCHANAN, DEPUTY DISTRICT MAN- * AGER, SOUTHWEST DISTRICT, ENFORCEMENT DIVISION, ECO- NOMIC REGULATORY ADMINISTRATION, U.S. DEPARTMENT OF ENERGY Mr. BUCHANAN. Mr. Chairman, members of the committee you have my prepared statement, and I was wondering if I might dispense with reading it and go into the five basic questions? Mr. ROSENTHAL. Without objection, the entire statement will be in- cluded in the record. We have never had a 3-page statement in the 17 years I have been in Congress. So you can either read it or not read it. Mr. BUCHANAN. OK, thank you. There were five basic or specific questiOns that we directed our at- tention to in your inq~uiry, and I will start with the first one. It says, "What are current prices in the Dallas/Fort Worth area for gasoline and, home heating oil ?" Of course, the Dallas/Fort Worth area is not concerned with the `home heating oil since we have no homes here basically that use home heating oil. The homes are either heated or air-conditioned by natural gas or all" electric. So we directed our attention to the gasoline pricing and based' on a survey of the area, of the Dallas/Fort Worth area, we found that the major brands or the major service station or self-serv- ice was 71.5 for regular; 76.4 for `unleaded; 77.7 for premium. Under full service, 74.3 for regular; 78.7 for unleaded; and 81.3 for premium. The independent stations surveyed was 72.4 ,for regular; 77.2 for unleaded; 78.9 for premium.' We found no independent service stations that offered the full service, so only the self-service is reflected. The next question was,' "What have been the increases in gasoline and home heating oil prices over the past 3 years?" So what we did, we took the information from our files on June 1976, and using the current prices that we established from our survey, come `up with a-for major brands or branded service stations of 19.9 increase in regular-19.9 cents increase or a 38.5 overall increase. For unleaded 76.4, and the June price was 53.8 with a 22.6 cent in- crease or 42 percent overall increase for 3 years. Premium had a 21.9 cent increase with a 39.2 percent increase overall. Full service was 18.1 cents or `32 percent overall ;. unleaded was 20.3 `cents or 34.7 percent over a 3-year period; and the premium was 20.9 cents or 34.6 percent overall. Now, the independents, the regular gasoline had an increase of 23.3 cents over a 3-year period or an overall percentage Tate increase of 47 percent. Unleaded, 26.6 cents or 52.5 percent increase over the 3 years. Premium was 26.1 cents- Mr. ROSENTHAL. I think maybe your first suggestion was a good one, I will put the entire statement in the record. I am interested in the question on the last page: "What have the investigations revealed?" How vigorous is your enforcement-investigatory capacity? PAGENO="0027" 19 Mr. BUCHANAN. We have a very vigorous investigatory-enforcement program. Mr. ROSENTHAL. What area do you take in? Mr. BUCHANAN. The Enforcement Division, we take in all the in- dependents, whether they are crude oil producers, NGL operators, wholesaler, resellers- Mr. ROSENTHAL. For what geographical area? Mr. BUCHANAN. We cover Texas, Oklahoma, Louisiana, Arkansas, and New Mexico, a five-State area. Mr. ROSENTHAL. How many people do you have working in the enforcement area? Mr. BUCHANAN. We have 157 auditors. Mr. ROSENTHAL. How many are out in the field visiting people? Mr. BUCHANAN. Approximately 157 auditors. Mr. ROSENTHAL. They all go out? Mr. BUCHANAN. Correct. Mr. ROSENTHAL. You said there were 220 notices of violations. Tell us more about the violations and what has happened. Mr. BUCHANAN. If you will back up one question there, it will give you an idea of the areas that we have worked in and the number of cases that we have worked in those areas since January 1, 1977. In taking that forward into the next question, we have issued 220 notices of probable violation for a total of $54,569,593. Mr. ROSENTHAL. I don't follow that. What kind of people were these? Mr. BUCHANAN. These people will cover firms like your independent crude oil producers, your crude oil resellers. Mr. ROSENTHAL. Retailers, too? Mr. BUCHANAN. No retailers are probably in this number. Mr. ROSENTHAL. Why is that? Mr. BUCHANAN. Well, up until just recently, within the last quarter of this year, we have not been working in the retail area. Mr. ROSENTHAL. Why is that? Mr. BUCHANAN. Service stations, unless we had a complaint from a consumer. Mr. ROSENTHAL. Why don't you go out and work the retail area? Mr. BUCHANAN. Because the dollars are not in the retail service stations, the dollars are in your crude oil marketers. Of course, the crude oil itself controls the price of what the gasoline is going to be selling at at the pumps. Mr. ROSENTHAL. I understand that, the big dollars are in the crude oil, but some of the modest pain is in the retail area. Mr. BUCHANAN. There could be some modest pain. Now, the com- plaints we have received in the last quarter, we have a formula that we run them through and, of course, in establiShing a price it can determine-froin this formula we can determine whether that particu- lar station is probably in violation from the prices that the complainant gives us over the phone. For instance, if he has gone out and he feels that he. has really been gouged at the pump, they will call in and give the station's name, the location, the price he paid, and whether or not he had the maximum lawful selling price posted on the pumps, and we take those and run them through the formula, and if it appears that they are overcharg- ing, we do send someone out immediately. PAGENO="0028" 20 Mr. ROSENTHAL. What does the $54 million represent, pricing over- charges? Mr. BUCHANAN. Pricing overcharges, correct. Mr. ROSENTHAL. This is at the producer level or intermediate level or what level? Mr. BUCHANAN. Well, it is going to be at your producer level, it is going to be at your crude reseller level, it's at your small refinery level. It is going to be out at your crude reseller level, but basically there would be no retail service stations in these numbers that you see here. Now, out of 50 recent audits that we have completed at retail serv- ice stations, we only found that 4 out of the 50 was overcharging. Mr. ROSENTHAL. I thought you said you weren't doing any retail audits. Mr. BUCHANAN. I said currently we are, in the last quarter of this year we have started, like, ~January, February, and March. Mr. ROSENTHAL. In the first quarter of this year you started doing retail? Mr. BUCHANAN. Right, as a result of the increase in prices as a re- sult of the Iranian oil crisis, you know, is the thing- Mr. ROSENTHAL. Are you continuing that? Mr. BUCHANAN. Yes, we are. We have a very vigorous program. Mr. ROSENTHAL. You said there are 220 notices of probable viola- tions and 443 consent orders. I don't follow that. Mr. BUCHANAN. OK. Many violations that we find we do not issue a notice of probable violation because the people, once we sit down and discuss with them our findings, are willing to sign a consent order and refund to~ the market place those dollars that were overcharged. Mr. ROSENTHAL. How do they refund it? Mr. BUCHANAN. They can refund it either through a reduction in price to the consumer back through the chain or they can refund-if we cannot identify who was overcharged, then that is refunded to the Treasury of the United States. Mr. ROSENTHAL. Do you make public any of these violations, prob- able violations, consent orders, any of those things? Mr. BUCHANAN. It is now our policy that we. do make public viola- tions, right. Of course, they have always been published in the Federal Register. ~Mr. ROSENTHAL. Aside from the Federal Register, I mean in the general public media? Mr. BUCHANAN. Yes, we do use the public media to publicize these. Mr. ROSENTHAL. Criminal actions, ~there have been 20 criminal investigations? Mr. BUCHANAN. Yes, sir. There has been ~20 cases that have been referred. There are other cases that are being worked. Of these 20 cases that we have referred, of course, as pointed out here, we have recouped $5.14 million paid to the U.S. Treasury, and we recouped $6.5 million which is being refunded to the consumers that we could identify and, of course, there has been l't persons indicted along with six firms. Mr. ROSENTHAL. Do you think your work has had an impact on the attitude of these people? Mr. BUCHANAN. It has had a very definite impact. PAGENO="0029" 21 Mr. ROSENTHAL. Is the situation slowing down, the overcharging situation? Mr. BUCHANAN. I think that possibly as a result of decontrol it is slowing down to some extent. Those cases are being worked. There are still substantial violations that will be pursued. Mr. WILLIAMS. You still think the violations are somewhat insignifi- cant in the retail area? Mr. BUCHANAN. From what we found from the reviews that we have made, that they are insignificant. Now, you do find occasionally someone that is gouging the public. For instance, after the tragic tor- nado up in Wichita Falls, we had reports of two service stations that were charging $1.50 a gallon. We sent auditors and an attorney im- mediately to Wichita Falls. We have issued to those two stations that was charging these people $1.50 a gallon notice of probable violations because they were overcharging, they were gouging and we will prob- ably pursue them from a standpoint of possible, even criminal violations. Mi. ROSENTHAL. Thank you very, very much. Are you moving with vigor and determination in this area? Mr. BUCHANAN. Very much so, sir. Mr. ROSENTHAL. Do you think the situation is going to continue, this overcharging, price gouging, or do you think you have got it under control? Mr. BUCHANAN. As far as the service stations, we have found very few that are overcharging. It is the fact that the crude cost has in- creased, causing the product to increase to them. Mr. ROSENTHAL. I am talking about the 200 people that are poten- tial violators and the 443 consent orders. Mr. BUCHANAN. Oh, these people here? Mr. ROSENTHAL. Yes. Mr. BUCHANAN. Yes, definitely. These people, the impact has been felt very tremendously- Mr. ROSENTHAL. Are you putting anybody in jail? Mr. BUCHANAN. Yes, sir. There have been 4 of these 17 people that were indicted have received 3-year prison terms. One of them received 6 months in jail. He was a 73-year-old man, and they didn't feel that he should serve a long term. He refunded $93,000 to the public. The other people refunded the dollars that they have gouged or over- charged the public. Of course, we have some others that have cur- rently-we have three that have pleaded guilty and they will be coming up for trial very shortly. Some have received suspended sentences with refunds in excess of $3 million. I sat in on a conference yesterday where we signed consent orders, prepared consent orders for over $10 million that will be refunded to the marketplace. The program has been very effective. Mr. ROSENTHAL. Thank you very, very much. [Mr. Buchanan's prepared statement follows:] PAGENO="0030" 22 STATEMENT OF HERBERT F. BUCHANAN DEPUTY DISTRICT MANAGER, S. W. DISTRICT ENFORCEMENT DIVISION ECONOMIC REGULATORY ADMINISTRATION U. S. DEPARTMENT OF ENERGY BEFORE COMMERCE, CONSUMER, AND MONETARY AFFAIRS. SUBCOMMITTEE OFTHE COMMITTEE ON GOVERNMENT OPERATIONS U. S. HOUSE OF REPRESENTATIVES May 3, 1979 PAGENO="0031" 23 Mr. Chairman and Members of the Subcommittee: I am pleased to testify today in regard to the five specific questions pertaining to motor gasoline, home heating oil, and other energy pricing and resolution contained inyour correspon- dence of April 20, 1979. Each of the five questions are reV-stated with the answers immediately following each question: Q. What are current prices in the Dallas/Ft. Worth area for gasoline and home heating oil? A. Based on a limited sampling of service stations in this area it appears that the current average selling prices approximate the amounts listed below: Self Service Full Service Peg. Unleaded Prem. Reg. Unleaded ~ 71.5 76.4 77.7 74.3 78.7 81.3 Major stations (branded) Independent Stas. 72.4 77.2 78.9 - - - Q. What have been the increases in gasoline and home heating oil prices over the past three years? A. The following calculation of increases in gasoline prices over the past three years are based on available information from our files and could vary from location to location within the Southwest District: Self Service ~. Unleaded Prem. Full Service Peg. Unleaded Prern. Major stations (branded) Current prices 71.5 76.4 77.7 74.3 78.7 81.3 June `76 prices 51.6 53.8 55.8 56.2 58.4 60.4 Increase % Increase 19.9 38.5% 22.6 42% 21.9 18.1 20.3 20.9 PAGENO="0032" 24 Self Service Full Service ~ Unleaded Prem. Reg. Unleaded ~ Independent Stas. (unbranded) Current prices 72.4 77.2 78.9 - - - June `76 prices 49.1 50.6 52.8 51.9 53.4 54.6 Increase 23.3 26.6 26.1 - - - % Increase 47% 52.5% 49.4% - - - Q. What investigations of energy pricing in the Dallas area and in your region have been conducted by your office from January 1, 1977, to the present? A. An inventory o.f audits/investigations of energy pricing that has been conducted since January 1, 1977, through the present date in the Dallas area and the Southwest District (Arkansas, Louisiana, New Mexico, Oklahoma,and Texas) are scheduled below: Importer 2 Producer 1,069 Crude Reseller 95 Small Refiner 165 Natural Gas Liquids (NGL5) 80 Propane Reseller 31 Propane Retailer 36 Reseller (other*) 103 Retailer (other*) 17 Total 1,598 *Industries other than propane PAGENO="0033" 25 Q. What have the investigations revealed? A. The audits/investigations that were conducted since January 1, 1977, have resulted in the following remedial actions or consent orders, and are summarized to reflect the type of remedial document issued, the number of such documents and the dollar amount of the violation by each category: a. Notice of Probable Violation 220 $54,569,593 b. Remedial Order 86 21,004,865 c. Proposed Remedial Order 62 12,574,093 d. Consent Order 443 43,196,320 Q. What action has been taken against viOlators of DOE pricing regulations? The Southwest District of the Department of Energy has referred for criminal investigation approximately 20 cases. To date, of those 20 cases, recoveries have been made in. four. These investigations resulted in approximately $5.14 million paid to the United States Government and $6.5 million refunded to consumers. Seventeen men have been indicted and 6 firms have been indicted. Additional activity continues. Mr. Chairman, that completes my prepared statement. I would be happy to respond to any questions that the Committee wishes to ask. 52_21L~ 0 - 79 - 3 PAGENO="0034" 26 Mr. ROSENTHAL. Our next witness is Mr. William Earl Chapman, secretary-treasurer, Dallas AFL-CIO `Council. Do you have any people that you want to bring up with you? STATEMENT OF WILLIAM EARL CHAPMAN, SECRETARY-TREAS- URER, DALLAS AFL-CIO; ACCOMPANIED BY JAMES HOLBROOK, COMMUNICATIONS WORKERS; LLOYD CRAIN, PRESIDENT, DALLAS BUILDING TRADES COUNCIL; AND GRAY McBRIDE, STATE, COUNTY AND MUNICIPAL EMPLOYE:ES Mr. CHAPMAN. Yes, I have a cross-section of our unions that I would like to sit as a panel. Mr. ROSENTHAL. Why don't you do it that way then. That's fine. Identify your associates. Mr. `CHAPMAN. My name is William Chapman. I am with the Dallas AFL-CIO. I have with me James Holbrook, the Communications Workers; Lloyd Cram, president of the Dallas Building Trades Council; Gray McBride of the State, County and Municipal Employees. Certainly we would like to thank you for your efforts to get public input. We feel that this is certainly needed. Mr. HOLBROOK. I hadn't counted on this weather, though. Mr. `CHAPMAN. We have had a lot of that here lately. Mr. ROSENTHAL I hear there is a tornado watch. Is this building safe or not. Mr. CHAPMAN. It's union-built, it should be safe. Mr. ROSENTHAL. This building is a union-built building? Mr. CHAPMAN. Right. We feel the effect of the voluntary wage/price guidelines may be long term, as the gentleman said a while ago, but when a worker gets a raise that is less than the cost of living, that has an immediate effect because when he gets less money and the cost of living is more, that's then and not long term. It is hard for him to understand that. Also, you spoke about health costs; they may be low in Dallas, and the unemployment rate may be low in Dallas, and the type of em- ployment that we have, I think, is important to consider, also. This is a letter I received in my office about a week ago: Dear Friends, could you please tell us if there is a nurse or nurses aides' union and if so, how does one go about joining it? If not, how do we go about starting. one? It seems that a lot of our nursing homes do things on whims, such as requiring nurses aides to switch their uniforms from white to pink. This means all the uniforms will be required to be changed, and this constitutes quite an expense when you are only making $2.90 an hour to begin with. So that lady is certainly concerned with inflation. Mr. ROSENTHAL. How are your people doing? That's what I would like for you to tell us. Mr. CHAPMAN. We see prices going up, the last reports corporate profits up 28 percent, the savings and loans in Texas are paying less than 6 percent interest on passbook savings that some of our members are able to have, yet they say they can't make money on 10-percent home loans. They need a 20-percent increase on the interest ceiling. Our people see this stuff every day, and it is hard for them to under- stand when their wage negotiations come up and the boss wraps him- PAGENO="0035" 27 self in the flag and says, "We have got to be patriotic and take 7 percent." So our people are lagging behind. We feel like rather than voluntary controls with 130 people to monitor prices all over the Nation, we'd like to see mandatory controls. We have initiated a consumer price watch to try and make available to the administration some of the information about the prices. After we announced this we got over 50 responses the next day from volun- teers, housewives, et cetera, willing to participate in this program. I wish I had some of that information to give you today, but the pro- gram is just getting off the ground and we haven't had the forms returned yet, but I think it will be an interesting program. I would like to ask these people if they have any input that they would like to give about their particular unions. Mr. WILLIAMS. Before you do, let me ask you: You say you are supporting mandatory price controls. Do you want to elaborate on that a little bit? Mr. CHAPMAN. Well, if it's a choice between the voluntary wage/ price guidelines, we have people enforcing wage guidelines. The em- ployer gladly does that. So rather than that situation, I would rather see across-the-board controls on everything so that everybody has to bear the brunt of fighting inflation. I don't think we can do it by ourselves. Mr. WILLIAMS. You feel, in fact, that labor has been mandatorily controlled by the action of the administration? Mr. CHAPMAN. I visited with a union rep that had a negotiation with a small patio awning company, and when his negotiations came up, the employer representative came out and said, "Look, I feel like these people deserve more than 7 percent. They are low-wage em- ployees, but we are owned by a large corporation that has large Government contracts. We will lose those contracts if we give them over 7 percent." So I don't think that's voluntary. Mr. WILLIAMS. In essence, you are saying that it is a mandatory control in many instances? Mr. CHAPMAN. For the worker. Mr. WILLIAMS. The argument was made, I think, Mr. Chairman, at the hearing we had in Washington where Mr. Kahn testified, that it used to be the case that the labor movement, and the labor wage increases caused inflation, and it appears now that you are in a catch- up situation with respect to pricing and wages. Would you like to comment on that? I'm sure you agree with that statement, that you are merely trying to maintain yourpurchasing power. Mr. CHAPMAN. I think we are in a catch-up situation. Mr. WILLIAMS. No question. Mr. ROSENTHAL. Incidentally, I want to introduce Congressman Conyers of Michigan that has just joined the panel. Go ahead. Mr. HOLBROOK. I am Jim Holbrook with the CWA, and on the food, I w1sh the gentleman from the Bureau of Labor Statistics was still here- Mr. ROSENTHAL. He is still here. He is in the back somewhere. Mr. HOLBROOK. I don't know how they checked this thing, but there is a couple of stores out here in the north part of town that changed PAGENO="0036" 28 the prices so fast that some of the old tags was still on it.. That is not just on certain things, but quite a fe.w items in the store. Mr. ROSENTHAL. The old marking is still on the product and they sell it at the newly increasedprice? Mr. HoI~RooK. Right. Mr. ROSENTHAL. They do that all over the country. Mr. HOLBROOK. Oh, is that right? I thought maybe it might be against the law. Mr. ROSENTHAL. Not necessarily. Mr. HOLBROOK. They leave the old one on and just keep adding to it. Mr. ROSENTHAL. The prices change and what they have in the inven- tory they don't sell at the old price, they sell at the new price. Mr. HOLBROOK. Well, you opened my eyes on that, Congressman. Mr. ROSENTHAL. How often do you check these stores that you check? Mr. RICHEY. Every month on food prices. Mr. ROSENTHAL. You go to the same stores once a month? Mr. RICHEY. Every month. Mr. ROSENTH4L. Do they know you are coming? Mr. RICHEY. Oh, yes. Mr. ROSENTHAL. They know that you are coming? Mr. HOLBROOK. That's all I have. Mr. MCBRIDE. My name is Gray McBride, with the Dallas Public Employees. We are representing the area of city and county employ- ees, and I am inclined to be a little bit more long-winded than Mr. Holbrook because I met with my executive board last night, and we put together a few things that we thought might be of interest to the subcommittee. With the general subject being the wage and price controls- Mr. ROSENTHAL. Guidelines. Mr. MCBRIDE. Guidelines; that's right. I guess our overall attitude is "so what else is new" as far as public employees are concerned. I kind of have to concur with Mr. Chapman as far as the fact that the effect upon us locally here does amount for the most part to being controlled and that they do appear to be mandatory when you are working for the Government. Mr. ROSENTHAL. Wages, you mean? Mr. MCBRIDE. That's right. Public employees and social services here in Texas are traditional political tools when you are talking about fighting inflation and cutting taxes, and these kinds of things. I guess you are familiar with we had a Governor recently elected and a pivotal plank in his platform was a 25,000 employee cut from the State payroll. The areas where those people would be cut would be determined. later and he has made a few rough attempts to get that done. We have a city council right now that has had, put before it a proposal to sub- stantially eliminate the city work force, and it was proposed by a council member, who has a long-range plan to eliminate public sector services, as provided by the city, altogether. He would have contracted- out services in competition with the private market and the local gov- ernment and city government would serve only as a regulator, monitor, contractor, whatever it might be. PAGENO="0037" 29 Our county government recently introduced the zero-based budg- eting concept which is used nationwide and highly touted by candi- date Jimmy Carter in 1976. A few of the recommendations made by the zero-based budgeting team in pursuit of a no tax increase fiscal year included the elimination of the county library system and again a substantial percentage cut in the sheriff's deputies force, which were serving a lot of the poorer suburbs to the south part of the county. Another thing that comes to mind, if you don't mind, I am just giving you a few scattered thoughts that we have put together last evening to kind of give you an overview of what is going on in Texas. City employees in the city of Dallas were offered a 3-percent raise for fiscal 1979 initially, which included the elimination of the cost-of-liv- ing rates. That was a merit increase. Mr. ROSENTHAL. The people that gave you that raise, were they aware of the fact that food costs have increased in Dallas higher than anywhere else in the country? Mr. MCBRIDE. Well, technically speaking, when you eliminate a cost-of-living adjustment program, it doesn't matter what inflation is. They are kind of saying, "The economy is an outside factor, and we are going to deal with the internal aspects only." So, in effect, they put on blinders to the economy. That was not entered into in the question of the 3-percent raise. This relates spe- cifically to the Council on Wage and Price Stability in that we have had the police and fire organizations, the associations here locally, re- fuse to accept the 3-percent offer and chose to go to the ballot box with a referendum for a 15-percent raise. Midway through the campaign we had the report from the Prési- dent's Council stating that a 15-percent raise would, of course, be in violation. The reason I refer to local employees of the government as being under mandatory wage controls is because it is my understand- ing that a local government that exceeds the guidelines is in violation of the guidelines and is endangering Federal grants. Now, this statement by the President's Council on the fact that the 15-percent raise would in fact be a violation was used considerably by the opposition to the referendum, and we had what amounted to a very heated political campaign going on as if people were running for office. As it turned out, there was an amended report issued by the council stating, "Well, that's right, the police and firefighters are simply units within an overall work force and they would be incorpo- rated into the overall raise, and you would make it by a hair," which led the city management to tell their other employees, "Well, there goes your opportunity for a raise, because we can't be endangering those Federal grants." So a lot of the guidelines handed down by the Federal Government on these have been used like a political football and for the most part the public employees are seeing them as being highly arbitrary, unfair. When you are talking about employees who have been used in the past as one way to keep prices down in the Government, they are again in a catchup situation. They haven't even begun to catch up. Mr. ROSENTHAL. How has inflation in the last year and in the last 3 months affected your people other than in wage negotiations? Mr. MoBiurnm. The inflation itself? PAGENO="0038" 30 Mr. ROSENTHAL. Yes. Mr. MGBRmE. Well, again, I am inclined to stick to the public sector arena because that is who I represent right now, and we are very con- cerned, and we spend a lot of time looking at a lot of the affairs of the Government in providing these services. This last winter and early spring we have had reports from the city government stating that due to fuel shortages and cost hikes in petroleum products, we would have to have a hike in bus rates, for instance, the bus fares. In the city of Dallas-I don't know whether you are familiar with it, but unlike most metropolitan areas, we have a very skeletal transit system that serves for the most part only downtown employees and people who don't own cars, which is a small minority of the active population and the work force. That represents for the most part the unemployed, the underemployed, and the poor. So these people are taking another blow to the stomach. They were also told that because of fuel shortages and the trucks did not have enough gas to run on, that following our New Year's Eve ice storm here, we would have to adhere to pretty strict guidelines on how to put the lumber out front for the trucks to pick up. We had a manpower shortage and a fuel shortage, a fund shortage to buy the fuel. If you have an opportunity-which you probably won't-to drive around town before you leave, if you go into some of the poor- and middle-income neighborhoods you are going to find entire lots with trees destroyed still remaining there. You will find front yards with stacks of lumber waiting to get picked up by somebody or blown out in the street that have been there since New Year's Eve. I do have one question, if you can address yourself to it. There has been some discussion about how merit increases for public em- ployees would fall under the 7-percent guidelines, and it is my under- standing that it would be left up to the local governmental and other parties that might be involved as to whether or not-outside of the cost-of-living raises-a merit increase or a seniority increase for employees would be- Mr. ROSENTHAL. We are not going to try to respond to that. I don't think any of us are experts on wage/price guidelines. I am going to give you a copy of the-I don't know if you have seen one of these things. Maybe it says in there, I don't know. Does it, Peter, do you know? Mr. BARASH. No. Mr. ROSENTHAL. We could try and help you or one of the local Congressmen, I'm sure, can help you get a ruling from the Wage and Price Council. Do you want to say anything? Mr. CRAIN. Yes, I would. I am Lloyd Cram, and I represent the Sheet Metal Workers Local 68. Our jurisdiction, our territory is 79 counties in north central Texas. Our local union operates as a busi- ness. We have six automobiles and six paid agents, so we are con- sumers in the transportation area. The recent jump in gasoline prices is having a chilling effect on our operation. Our membership in the construction area, we also represent production plants, but in the construction area it is very common for construction employees to travel 50 to 75 miles to a job PAGENO="0039" 31 site for a few months. He probably lives-a good case would be in Palestine, Tex., and he might work in Paris, Tex., or Texarkana, long range. Normally people for years in that category car pooled. One fellow will have a new car and they will all jump in and go, but the immediate effect right now of this latest jump in the gasoline pricing is having a chilling effect on supplying manpower to job sites in remote areas. This is skilled manpower, this is not available at the small town level. Now, as Brother Chapman said, our position right now, we are a reacting body; management acts, we react. We ask for a raise at the bargaining table and we are subject to the free market supply and demand of labor or whatever force we can exert to get a contract and we are locked in. This morning my local union had a 2.4 increase go into effect. By our contract language this is governed by the cost-of-living change for the period May 1977 through November 1977. The procedure of using an 18-month lag between the cost of living and the pay raise is to give the employer bidding on construction work an 18-month leadtime knowing what his labor cost is going to be. So the effect of inflation today would not affect our contract until 18 months in the future. Like I said, this morning we had a 2.4 percent raise go into effect governed by approximately a 6-month *period that resulted in a 28'/2-cents-per-hour increase, a very small increase, wage wise. November 1, it will be 61 cents per hour, which is a 5.2, governed by November 1977 until, I believe it is May 1978, which is the year previous. Now, at times our increase under this procedure might exceed the guidelines, and certainly we feel like the building trades area in the Dallas area took a 1-year extension with no pay raise, and that was from May 197.8 until May 1979. We have served our time in being reasonable, and so forth, by taking a year extension with no pay raise. So the pay raise we got this morning is the first increase our membership has had since 2 years ago. So we have, say, bit the bullet. Now, as far as the effect right now on our building construction trades membership, to carry on a conversation with them they are almost in a panic situation because just about the time they think they have caught up, it jumps away from them. It is a very slippery situa- tion. I think I speak for all the people that I represent in saying that if som~body is going to regulate our income, we want some regulation on the fellow's income that we are going to buy `from. Fair is fair. We don't feel like it has been fair and I am going back, like to 1~71, 1972, under the CISC, a very iffy situation. I think that would be about all the input I have without getting into a lot of boring statistics. Mr. ROSENTHAL. All right, thank you very much. Mr. Conyers? Mr.CONYERS. First of all, I want to thank all of you for responding to this subcommittee's visit to' some eight cities. As has been indicated to you, this `is a very important hearing in that we will take back to Washington the feelings and reactions and the problems and the ex- PAGENO="0040" 32 periences that are occurring throughout our country. So I am very grateful for your responses. I would like to deal with one major area. What are the solutions? There is a lot of misconception emanating from Washington that solu- tions have to come from the economic experts. What about solutions coming from the rest of the country. You are living with the current situation. I would like to find out from each of you what you are doing at the local level. `What are local elected officials and local organizations doing to resolve the problems that have been described here today. Mr. CHAPMAN. We are trying to educate our members and dispel the myth that balancing the budget is going to solve all the problems of this country, because the areas we have been talking about, food, shel- ter, and utilities, transportation, medical costs, clothing, I feel like you could cut out all of the CETA funds and that is not going to sub- stantially affect the price increase in those items. We don't feel like we can ignore the poor and needy of this country. The last Congress granted a lot of tax cuts and things like that to big business for an incentive, and now we are seeing the profits come up, so we don't see what the workers' incentive is to stay with this 7 percent. If they want to balance the budget, you could also tax some of these corporations and people that are millionaires that don't pay any taxes. That would have the same effect as balancing the budget as it was making the poor people bear the brunt. Mr. CRAIN. Let me say that you are dealing with a Government agency. I think I talk just as a plain citizen now. We have had very poor response in this area of Texas in trying to deal with the illegal alien problem and all of its abuses, and so forth. We have had very little response from the Federal Government area. The same with trying to prove and have updated prevailing wages in certain areas and enforcement. So if we are going to talk about some Federal program to try to get a handle on this situation, there has got to be a very definite show of commitment from the agency. The Con- gressman's question to the gentleman here about the gasoline, what is being done? Is there any fire behind all this smoke? We feel like-I think my group feels like that to try to get a handle on the situation, there should be, say, a moratorium for 6 months, 1 year, just stop everything right as is and then try to see who can justify these prices- Mr. OONYERS. You would put a lid on prices? Mr. Cm~IN. And wages. As is. Now, everybody is going to survive, nobody is going to kneel over and starve to death, you know. Just stop this mess and let's have a look at it and then if somebody is justified, if they are truly selling a product at a loss, big deal, give them an adjust- ment, but, othewise, up until then it is so much talk. Mr. CONYERS. Very good. Mr. HOLBROOK. Another thing, the legislative branch-and this is from a fact sheet from our international union, which I will give you a copy of when I leave here-the legislative branch could enact an excess profits tax to insure that business maintains fair prices. In addition, the Senate and the House could close up the gaping loopholes in the Tax Code that permit $125 billion to escape the Federal Treasury, an amount which they say is equal to the budget of the Defense Depart- PAGENO="0041" 33 ment, which costs more revenue to operate than any other division of the executive branch. We have already heard some talk about the oil deal, you know, about the windfall profits taxes, so I think this would be good. Mr. MOBIUDE. I will just say that our members for the most part have looked at-a trickle-down economic theory is pretty cockeyed and they are not accepting a trickle-down solution theory any more warmly. Again, I would just have to say that our main fear, and I don't see a solution because I don't know within what limits we have to work, I do see because we have a whole slough of officeholders right now elected on a political no tax increase, I don't see them backing off that for a couple of terms until it really gets tight. Again, I think if they have to choose between not paying their employees a living wage~ and not providing the services, even the essen- tial services, and raising taxes, I know which one they are going to pick. There is not going to be. a tax raise, there is going to be an elimination of the present level of services as we see it. Right now we have sanitation workers who complain-not so much about the wages, that's a big gripe-but the fact that they have got one man on a truck where there ought to be two or three, that they are hitting half of the routes they are supposed to be hitting. They are hitting routes once a week as opposed to twice a week. I think it is an accepted theory that employees and workers for the most part are going to be concerned first and foremost with the ability, the. authority, the resources to complete their assignment. How much they get paid for that assignment is on down the line, and that is certainly the ckse with public employees in north Texas and I wouldn't be surprised if it was the same thing in the private sector. Mr. CoNrEns. Are you experiencing an increase in the number of your members who belong to two-breadwinner' families. Also, I would like your comments about members of your unions who are sliding into increasing debt, even though they are' making rather decent an-~ nual incomes. It appears their debt continues to outpace whatever they are bringing home? Is this an expe.rienèe that any of you can report to us on? Mr. CHAPMAN. We are finding that our members, `almost every one of them have to have both members working if they `expect to purchase a home. When they go into a home purchase, you are talking about a 30-year debt, so they are not having the wife working, planning on it to be a 2- or 3-year thing to get them ahead. They are making plans fOr 30 years when they buy these houses, an average price, I think in Dallas is somewhere around $60,000. These same young people coming into our apprentice programs and coming into the jobs see that they are trying to raise the mortgage rate 2 percent, well, that is just going to price them out of the housing market. Mr. Cn~IN. I remember several years ago I made a loan at a bank and I had to sign an affidavit that I was not borrowing this money to use as the down payment to buy something, it had to be a direct pay- ment. It would seem to me it would be healthy for the country, and I am thinking about when a person is making, say, a middle income wage, yet-now, it might be meddling into his private business, but there should be some regulation on entering into debt because I feel PAGENO="0042" 34 like that the way real estate is selling in this area and until this thing about the usury limit, I personally know the first home I ever bought is now on the market. I bought it in 1953 for $7,450, and I lived there 9 years and sold and we moved on. There was an indication that it might be a good buy if somebody would buy it and fix it up. So I looked into it. The blooming thing has a contract on it for $29,500 and it should be burned down. Some consumer is going to take a note on that thing for $29,500, live there 2 or 3 years, probably de- fault and kick the windows out and move on. I feel like there should. be some governmental dampening on entering into credit because it serves no good purpose to get that fellow into something. He goes bankrupt. To me, it is another consumer trap. A fellow has got to have a place to live- Mr. ROSENTHAL. There is one thing I wanted to ask you. Recently, I think it was some 4, 5, 6 weeks ago, Mr. Meany joined with the ad- ministration and said that all his people would monitor prices around the country. Can you tell us what you are doing and who you are reporting to and what effect this has had? Mr.. CHAPMAN. We are doing this through a community service de- partment of the local council. I previously stated the day after we an- nounced this ~~rogram we had over 50 volunteers from union members that wished to participate. Our response has been real good. We haven't had time to get the forms back. What we do is our members take these forms out, fill them out, food, they will check it biweekly. Most of them check it monthly, like utili- ties, shelter costs, medical costs- Mr. ROSENTHAL. So far you have not given in any reports? Mr. CHAPMAN. No; not yet.. Mr. CRAIN. We are just starting. Mr. MCBRIDE. I really do believe we are at a level right now of still ~defining inflation. `Well, we are still at a point of education, much less action on the entire issue. The action is going to have to come with a little bit of awareness. I think that perhaps the President's guidelines are serving as one individual's or. a group of indiyiduals' definition and that is something for us to play with. Mr. ROSENTHAL. When do you think your people will have their first report? Mr. CHAPMAN. I would think within about 3 weeks we should be able to get the initial forms in. We send these on to the national AFL- CIO and they compile that. . Mr. ROSENTHAL. What are they going to compare it against, prices when? That is what I don't understand. Mr. CHAPMAN. Well, I'm not sure on the national level. Mr. ROSENTHAL. Why don't you talk to that fellow from the Bureau of Labor Statistics and he will teach you how to do this stuff. Mr. CHAPMAN. I will be glad to. Mr. HoI~RooK. He is not going but once a month. Mr. ROSENTHAL. At least you should have a conversation with him. Mr. CHAPMAN. Our response has been not on'y from union members, we are having community members also participate, any organization we are glad to have their assistance in this program. . . Mr. CONYERS. Gentlemen, I would like to ask~ you frankly if you think there is any hope, any way out of this situation? What is the feel- PAGENO="0043" 35 ing here? You are in a way elected just like we are, you are represent- ing thousands of thousands of people. What is the mood of the people around here? Mr. CHAPMAN. The mood is that we don't feel like we can bear the brunt of fighting inflation, and we are not really looking at the long- term solutions right now. It is sort of like the guy in the swamp, there's too many alligators around to think about getting out of the swamp. You have to try to stay away from the alligators. Mr. ROSENTHAL. Thank you very, very much. We are very grateful to you. Our next witness is Marilyn Sels, Dallas Legal Services, and her colleagues. Ms. Sels, are you here? Ms. SELS. Yes; I am here. Mr. ROSENTHAL. Come on up here. Why don't you bring all of your people with you, too. Thank you all very much for coming. Tell us how you are coping with inflation. Ms. Sels, do you want to begin. STATEMENT OP MARILYN SELS, DALLAS LEGAL SERVICES; ACCOM- PANIED BY JUARENE HOLLINS; ELVIRA MORALES; REBA AKINS; ROBERTA JOHNSON; LOIS CHRISTIAN; CORA LEE SIRLA; AND ALLENE HARDY Ms. SELS. I would like to say briefly for a moment, these are all low- income clients of Dallas Legal Services Foundation, and they are all currently on very low incomes and they came to let you know the dif- ficulties they are having as prices go up. Mr. ROSENTHAL. Thank you for coming. Why don't you begin one by one and tell us your name and tell us what you want. * Ms. HOLLINS. My name is Juarene Hollins. One problem that I have, the cost of living and housing, the way the housing is today. The cost of living is so expensive, I am only receiving $87 a month and getting $88 food stamps, and I have one child that lives with me. What we are living off of we can't hardly make it on the budget that we have ~oday, and the cost of living is to the extreme. WTe have to get clothing out of that, we have to pay our furniture bill out of that. We have so many little odds and ends that we have to pay out of that that we cannot come up to the budget that we have on ~86 a month. Mr. ROSENTHAL. What do you do about it? Ms. HOLLINS. Well, there is not anything because I am disabled to work and my little boy is only 15, so all we have to do is just-we ca.n't-there is a lot of bills that we cannot meet. WTe have to let them go until the next month. Like the money, what we are getting now, we are not able to buy anything, you know, out of the ordinary. All we have to do is to pay our rent and get some food to last about half of the month off the $86. Maybe get one paper sack of food and a half that we have to live off of, and then the next 2 weeks we have to go and do without the next 2 weeks. Mr. ROSENTHAL. What do you mean, "do without ?" PAGENO="0044" 36 Ms. H0LLINs. That means that we don't have any food to come up to the next month on the welfare, on the stamps that we are getting. So they fixed it so that we could get $88 worth of food stamps, and then you make up the rest, what they. cut down-say, about $100, I was getting $100 worth of food stamps and they cut it down to $88. Then they say you make up for that hundred dollars out of your welfare check. Mr. WILLIAMs. How old is your son? Ms. HOLLINS. My son is 15. Mr. WILLIA1~IS. How is the opportunity for youth employment in the summer? Is it good around this area? Ms. H0LLIN5. Well, he was working during the summer and he got sick. So this was the little income that we have to-got to bring it up. Mr. WTILLIAMS. He almost has to in order- Ms. HOLLINS. This is true. This is true. He has to buy his own school clothing, and he had to buy his own pencils and paper and because we can't get nothing out of the AFDC, out of the grant that they give us to live off of, nothing but just the eat and sleep. We can't get nothing else extra. He has to have school clothes to make it, so he stayed out of school because he was sick, and when he went back they said that he had missed 15 days because he couldn't work or do anything. Mr. WILLIAMS. How long have you been in this condition? Ms. HOLLINS. How long have I been in it? Mr. WILLIAMS. 5 years, 2 years? Ms. HOLLINS. Well, sir, I was born handicapped. I am a disability person. Mr. WILLIAMS. The only reason I asked, I would like for you to com- pare the inflation factor now, which is the thrust of this hearing, with a couple of years ago. Ms. HOLLINS. Well, just recently when I stopped working, which was in 1976 that I was suffering from- Mr. WILLIAMS. Was it easier to live in 1976 on the programs that you are on compared to- * Ms. HOLLINS. WTe11, it was much better because I was doing little odds and ends work then. Mr. WILLIAMS. How about the cost of items? Ms. H0LLIN5. Well, it wasn't as bad as it is now. Mr. WILLIAMS. Is was not as bad? Ms. ROLLINS. No, it wasn't. Mr. CONYERS. Have any of you ever tried to contact the people who are elected and represent you all, all the way up to the President of the United States about this problem? Have you ever said anything to anybody in any office or written anybody or called them up to talk with them about this? I would like you to tell me what happened as a result of that or what it was that you told them. Ms. MORALES. My name is Elvira Morales. I had to go to the Legal Aid after pleading and going to the social security about my disability. I had a fall at work and I couldn't get anything from my employer~ yet I had to get what little I got from him. By the time I got it, I owed every bit of it. Then I had to go to the Legal Aid after 3 years of trying to get social security because I was disabled. My spine had been torn in two PAGENO="0045" 37 with a plastic disk. My ribs had been taken out. All of this informa- tion had been sent to Washington. They did not respond to anything, but still said I was not able-that I wasn't disabled enough to receive anything. I had to go to a Legal Aid and take my papers, which they did not have over there. The papers that they collected here from the doctors and the hospitals and the social security office here, they did not have them in Washington because they were not sent there. Finally, when my lawyer brought them back, they were sent back to him, well, then they were different. They were the original ones which was never presented to Washington. Finally, I did start getting my social security, which isn't much, but it helped. By the time I got that little lump sum they sent. me, they had taken all-everything that was due, but then I was behind on my home, behind on everything, and I was owing the grocery store. But now I am getting $127 a month. Mr. CONYERS. How much? Ms. MORALES. $127 a month. Mr. CONYERS. Tell me your name, please. Ms. MORALES. Elvira Morales. I have a son and he is 19, he will be 19 in August. He has been working part time. He graduated from school, high school and went to college on the first and second semester, and they dropped him because he didn't have enough math. He was working part time and t.rying to get on a. full-time job. That $127, out of that I have to pay $100 for my house payment, which was reduced to $100 on account of my disability, yet my problems are my utilities. Most of the time I spent in t.he hospital, yet when I come home. one little heater in three rooms and a low ceiling, I have to pay $54 for gas, so much for water which was not used. Mr. ROSENTHAL. Do you get the same food stamps? How much do you get for food stamps? Ms. MORALES. $10 a month which started last month. Mr. CONYERS. Before that you didn't get any? Ms. MORALES. No food stamps, I didn't get any-I had to pay my own medicine until I was told to apply for SSI. I applied for SSI, and it started last month. They gave me $10 worth of stamps and then I had a hypertension attack and Iwas in the hospital 19 days. I went in the hospital April 3. Mr. CONYERS. What items in your budget have gone up that you can measure and tell us about? Ms. MORALES. What items? Mr. CONYERS. Yes. Ms. MORALES. Well, such as the ~as and the lights, it has gone up. So has my water and as far as food is concerned, it has gone sky high. You cannot get a pound of hamburger unless you go and pay $2.09. Mr. ROSENTHAL. How do you handle that? Ms. MORALES. We just make it up the best way ~re can, sir. Mr. ROSENTHAL. I don't know how you are doing it. Ms. MORALES. Well, if you are used to eating ~ $12 steak every time you sit down, well, you can~t do it. If you just save up, you know, what little- Mr. WILLIAMS. Do you have times at the end of the month before your.next check comes that you do not eat? PAGENO="0046" 38 Ms. MoItALEs. Well, no, I always manage to eat, even if it is greens, scratched out or sorted or whatever. Mr. CONYERS. Can everybody at the table say that? Ms. ROLLINS. No, I can't say that. Mr. CONYERS. Tell us about that. If we can interrupt just a minute, our colleague said, is there anyone here who at the end of the month runs out of money and food? Ms. HoLlaNs. Yes, yes. Mr. CONYERS. So what happens then? Ms. MORALES. What happens then? I tell you what happens. I have got a little store right next to the corner where I live, and I owe them $82 right now because I go and ~et on ciedit. Ho is so kind because he knows how my situation is. He is so kind and he said, "Pay me when you can or how you can." Mr. OONYERS. Well, tell us- Ms. HOLLINS. I don't have that. What I do, we use a lot of leftovers. Mr. ROSENTHAL. Did you give your name for the record? Ms. ROLLINS. Yes, my name is Juarene Hollins. Ms. AKINS. My name is Reba Akins. Ms. JOHNSON. Roberta Johnson. Ms. CHRISTIAN. My name is Lois Christian. Ms. SIRLA. My name is Cora Lee Sirla, S-i-r-1-a. Mr. CONYERS. You actually run out of food, you were going to tell, us? Ms. HOLLINS. Yes, and I don't have no store that I can `go and pur- chase food until the next month. We have to do with what we have left. That~s what we have, leftovers that I have put in foil. Just like we put it in foil and save it for later on, you know, like that, but we don't have no store that does us like that. Mr. CONYERS. Does anybody else want to tell us about their expe- riences when we get to that last week or two in the month? Ms. JOHNSON. Well, I get $189.40 a month, SSI, and veteran's widow's pension, and I have a six-room house which my husband passed and left it in bad shape. The city rides my back all the time to have it fixed, and I can't fix the house and pay my bills. I do run out of food stamps by the end of the month. My stamps come on the eighth. I have to buy food, I get them on the eighth of each month. Mr. CONYERS. How much do you get in food stamps? Ms. JOHNSON. I get $74. I was getting $100, they cut them to $74 and I ~ot a letter they are going to cut them down to $61. It is me and my little 5-year-old granddaughter-I raised her from birth-in my family. Mr. CONYERS. Have any reasons been given for the food stamp re- duction? Everyone has reported that. Ms. SIRLA. I haven't gotten mine yet. I have a letter to go tomorrow and apply again after I got out of the hospital. Mr. CONYERS. But has anybody been told why their food stamps are being reduced? Ms. MORALES. The reason mine were reduced was because I got so- cial security. Ms. HOLLTNS. The reason they reduced mine is because I didn't have to pay for them. You know, but I have to add the $18 onto that out PAGENO="0047" 39 of my check, but I won't have to go-when I go to pick up my food stamps I won't have to pay for them. I just go there and pick them up. When I get my check of $86, I take the money out of the $86 and make it come up to $100, which I haven't progressed anything. It is still the same thing that I had to pay for. Mr. WILLIAMS. Ma'am, I have forgotten your name. Ms. Snth~&. Cora Lee Sirla. Mr. WILLIAMS. You are going into the hospital? Ms. SIRLA. I just came out about a month ago? Mr. ROSENTHAL. How was that paid? Ms. SIRLA. Well, because- Mr. WILLIAMS. Who paid for that? Ms. SIRLA. Oh, I guess the State paid for it. You know, I don't have any money to pay for a doctor bill. Mr. WILLIAMS. Do you have local county or city welfare? Ms. SIRLA. I have a card they gave me to go into- Mr. WILLIAMS. Do you have a county welfare department here? Ms. SIRLA. Yes. That's where I go for any kind of sickness, you know. Ms. SELS. We have a maximum county grant of $44 a month, and they can sometimes assist on rents and utilities, but it is a fixed amount, and when bills go up- Mr. WILLIAMS. My next question: Are any of your welfare pay- ments or other Federal payments based on the unemployment figure? Ms. SELS. No. If you are saying the grants do not increase, the agency grants haven't, been raised in several years, nor the county grants. There is no cost-of-living increase. Mr. WILLIAMS. I know the Department of Labor is still here. The CETA program and certain other program payments are based on unemployment factors at various times of the year. I am trying to determine if any of your State's welfare assistance programs are based upon unemployment. Ms. SELS. We have a ronstitutional ceiling on what can be given out on welfare, and that is the reason why it is not raised. Any action would have to be through the legislature. Mr. WILLIAMS. At the State level? Ms. SELS. Yes. Mr. WILLIAMS. The State constitutional level, you cannot exceed re- gardless of the Federal program that's involved? Ms. SELS. That's right. The State of Texas could choose to supple- ment, the SSI grant does provide; they have chosen not to supple- ment. Mr. CONYERS. Can anybody else here tell the subcommittee about actual cases where prices have gone up which bear directly on the cost of living? We have had one of our witnesses, Ms. Morales, tell us how things have gone up. Can any of the rest of you contribute to that? * Ms. JOHNSON. Yes. In my neighborhood, there is a small store out on Westmoreland, a small box of crackers is now 51 cents, and let- tuce is 49 cents, and different little items has gone up here lately, where I have to go around close to get my groceries or either pay somebody to carry me. Mr. CONYERS. Anyone else .want to contribute to this discussion? { No response.] PAGENO="0048" 40 Mr. Co~rm~s. If we were trying to prove to the Congress that in- flation was hitting the poor worse than anybody else, what would you tell us to tell them to prove it? How would we go about proving it? Ms. HARDY. My name is Allene Hardy, and 1 would like to recite a case- Mr. ROSENTHAL. Why don't you come up and sit at the other chair so we can hear you better. Tell us your name again, please. Ms. HARDY. My name is Ailene Hardy, and I live in the northeast Dallas part of town, and I would like to say that inflation has really hit, particularly on the senior citizen on fixed income. For instance, my grandmother, 102 years old, her SSI is $189. Twice this year she had a gas bill of $103, $101 for the month. Mr. CONYERS. For the month? Ms. HARDY. For the month. All right, for the month of December it was $103, for the month of January $101, but still her check is $189. So she has to pay that gas bill so that she could keep warm so, consequent- ly, she did without other things. You see, that $189 fixed income, now, if that- Mr. ROSENTHAL. She gets $189 a month, and her gas bill runs $101 a month? Ms. HARDY. $101 and $103. One month is was $101, and the next month, $103. Mr. ROSENTHAL. What did she do with the rest of the $80 a month? Ms. HARDY. That's what she tried to live off of. That's what I am saying now, you understand? Every time I go to the store for her, everything has gone up, everything, whatever. Everything that she has to use has gone up. Things like clothing, things like that, she doesn't-just forget about that, you know, just the things that she has to have. No clothing, she can't do it. Mr. CONYERS. Has gas gone up itself? Is that reflecting a higher price? Ms. HARDY. Yes; it is, and not only that though, the lights is also keeping pace. It is all going up, keeping pace. The light bill is not quite as high, but it will be like for the summer, it may be around $26, $27 for lights. But utility bills is really eating them up, I mean, because you have to have these things if you are going to keep warm. She is 102, and she has to. keep warm. The house has to be warm. She is real frail and she is cold. There is no way you can put her in one room and let her be there, that's impossible, see. So with 2 months this year. then the next month it was 80-some- thing. Three month~ she had $101, $100 and then $80-something, gas hills, I'm saying. Mr. WILLTAMS. I'm just amazed-I'm not amazed, but I can relate to incidents in my district. I am listening, and how in the world can you live on $10 a day or $5 a day? How do you do that? Ms. HARDY. Well, what I am saying is- Mr. ROSENTHAL. She doesn't have $5 a day, she has about $2 a day. Mr. WILLIAMS. What would you buy with the $2 to even feed your- self? Ms. HARDY. Well, nothing, nothing. Now, I mean, actually- Mr. WILLIAMS. So you find that sometime during that month, you do not have anything? Ms. HARDY. That's right. PAGENO="0049" 41 Mr. WILLIAMS. You do not eat? Ms. H0LLINs. It's the little stuff that we have left that we have to bring it up to that month. Mr. WILLIAMS. Leftovers, I understand that. Ms. HARDY. For instance, like meat- Mr. WILLIAMS. Soup, you cook it? Ms. HARDY. Yes, things like meat, forget it. Mr. WILLIAMS. That is a direct result? Ms. HARDY. Right, no meats. Even the hamburger now is out of reach. Now, the things that I can feed her that is kind of reasonable is chicken. She loves fish, it's too high. You can't get fish, too high. Ground beef is $1.99 a pound, too high. Short ribs, too high. These are supposed to be low cuts of meat, you know. Now, we are priced out of eating meats that we need to sustain her, and she is suf- fering sometimes from malnutrition, and we do the best we can, but that's definitely it. But these people, they really don't make it. Now, when she goes to the hospital-she just got out of the hospi- tal-then she gets everything she needs, but they have to put her on high-powered vitamins. Mr. WILLIAI~IS. I just wanted to follow my colleague's question of a moment ago. Tell me what it was like 2 years ago before all these prices went up, was it just as bad, or was it easier? Ms. HARDY. It was a little easier because the price of beef and meats were not as high. Mr. WILLIAMS. You ate meat 2 years ago? Ms. HARDY. Yeah, we ate hamburger. Yeah, at that time we ate meat. It has always been a problem trying to manage, but you could have a variety. You could have maybe a pot full of stew one day. You may have some hamburger or whatever, but now all you get is-that's left out. Mr. CONYERS. Do friends or neighbors have to loan you food and assist you and share? Do you do that with some of them who are even in worse shape than you? Ms. HARDY. Yeah, we have to do that sometimes. Mr. CONYERS. Some do and some don't? Ms. HARDY. Right. Mr. CONYERS. Tell me about that part of your experience. Ms. HARDY. One of our neighbors-and she's very ingenious-she will make a pot of soup, you know, and she will-everybody, she knows her neighbors, she brings us some. You know, it's very nutritious, I mean, it's homemade, and that kind of thing. Sometimes-she's a little bit more better off, let me say it like that. She would have her club there for things, her neighborhood club, and she will share that with the people who don't come. She will bring them a piece of whatever they serve, you know, cake. She has a club once a month. She has her neighborhood club or church club or whatever. Now, she has that in her home. Now, she will share that with the shut-ins. Mr. CONYERS. That's in keeping with the Christian spirit. Ms. HARDY. Right. There is one lady in our neighborhood that 4oes that. Mr. ROSENTHAL. Thank you. Ms. Sels, was there anything else that you think you should tell us? 52_21L~ 0 - 79 - PAGENO="0050" 42 Ms. SEts. I would just like to speak to what she is saying about people helping out as an alternative to their problems. People who are on AFDC or SSI must report every assistance like that that they get. They are only allowed $60 every 3 months in support, no matter the manner of contribution, and that's built into the act. Mr. ROSENTHAL. Do you have any thoughts at all-about what we should do about all of this? Ms. SELS. Well, there are some things that are being submitted in Congress right now, and one of them is that anything that is con- tributed to a person will not reduce her grant, their AFDC grant or SSI grant, that anything they get will not make their grants less. It is self-defeating for someone to be helping you because they reduce your grant. Mr. CONYERS. You mean if someone gives you something and you report that, then, your grant is reduced accordingly? Ms. HARDY. If you report it-. Ms. MORALES. You are not supposed to take anything. * Mr. CONYERS. We are winding up. Ms. CHRISTIAN. My name is Lois Christian. I am on AFDC, and I receive $116 a month, but my worker told me that gifts, like, if some- one gave me something, that I did not have to turn in a gift. Like if someone was contributing money to me, you know, helping me pay *my bills, or something like that, I did have to turn in that, but just like giving a gift to me, they told me. Mr. WILLIAMS. A pound of hamburger? Ms. CHRISTIAN. Sir? Mr. WILLIAMS. A pound of hamburger? Ms. CHRISTIAN. No, I'm not talking about food because no one does that to me. I don't have that at all. Mr. WILLIAMS. Was that permitted? Maybe Ms. Sels knows? Ms. SELS. Well, they are permitted and most people don't report, you know, a one- or two-time thing, but a $10 bag of groceries must be reported. Mr. ROSENTHAL. I was just reading through the Consumer Price Index of the Bureau of Labor Statistics for this area, and it indicates that goods and services which cost Houston residents $100 in 1967, cost them $224 in February of this year. Have all of you found the situation becoming increasingly difficult in the last year? Ms. HARDY. Indeed, and frustrating, to say the least. It is very frustrating to try to do something about it. Mr. CONYERS. The one question that the chairman is going to let me ask is this: What has been your experience when you told all the people that -represent you. about it, and what do you think this means for the future of the country? I want you to think about that, and if you have a response, tell us; if you don't, that's all right. * . * Ms. HOLLINS. Most of the people we talk to; their hands are tied. There ain't too much they can do about. There is a certain amount that you are supposed to get and that's it. Ms. HARDY. I have talked to my representaitve in Austin, and where he is favorable to his constituents' needs, there is so many down there - that is not. -The questi6n is, Texas is very, very low. which you know, PAGENO="0051" 43 in terms of doing anything for their people, AFDC or whatever. They be right down at the bottom of the barrel, you know, in terms of that. I think they have granted an increase of about $5 to $10, after so much hassle. Now, in Texas I don't think is thinking too much about it in terms of really-you just want to know the truth. I don't think they think very much about it at all because it took all this effort, all this many years to get this little bit. I think it is about $5, or whatever it is, passed through. Texas is supposed to be a very, very rich State, and I don't think they take too good care of their people in need, AFDC, SSI, et cetera. I think that is on the bottom of their pole. This is my frank opinion about it. Mr. CONYERS. That's exactly what we want. Ms. SELS. Just in closing, I would like to say one thing about Social Security. Most of these people here are on disability benefits, and the crunch is coming now, and the President is trying to cut the rolls, or it seems to appear that they are becoming much stiffer in the num- ber of people they allow to be on disability, and they are attempting to cut them off every year when they are up for annual review. Mr. WILLIAMS. Let me ask you one question. Can you give me. a percentage of senior citizens qualifying on the basis of need as com- pared to 2 years ago? Can you do that? Ms. SELS. I really don't think I have the. figures here. Mr. WILLIAMS. Seniors on fixed income who are suffering now who never before qualified for the so-called welfare program. Can you give us anything like that? Ms. SELS. They say the cost of living has gone up 15 percent a year, and you can imagine their income, their cost-of-living increase is maybe only 6 percent. Mr. WILLIAMS. Can you get that information for us? Ms. SEts. I can try t.o. Mr. WILLIAMS. I would like to see. whether there has been a signifi- cant number of seniors on some type of fixed income, retirement, pri- vate, or social security, who have moved on to the welfare rolls in the last couple of years. I think it is obvious. Mr. ROSENTHAL. Thank you very, very much for coming. We are very grateful. Our next witness is Mr. Aaron Floyd, president, Association of Community Action Agencies. Begin as you feel free to do so. Are you Mr. Floyd? STATEMENT OF AARON FLOYD, PRESIDENT, ASSOCIATION OF COM- MUNITY ACTION AGENCIES; ACCOMPANIED BY TUNE ROSS; EMMA CARTER; THURMAN DORSEY; AND MIKE PACO; ME.MBERS Mr. FLOYD. Yes, sir. Honorable cha.irperson, members of the. committee, we are very grateful to you that youwotild schedule us in your agenda today so we talk about a problem to you and relate to you the things we know about on a daily basis, how poverty, how inflation is impacting that segment. .1 thirikall.of.vOu know how unpopular it is to be poor, and who cares about those in p~overty? This society of ours, being the richest country PAGENO="0052" 44 in the world, private enterprise oftentimes forget those people who are poor. We are here today to talk to you about-we have 54 CAA's and all but 5 of Texas' 254 counties. We serve a constituency of some 1,870,000 poor people in our State. Needless to sa.y, this segment of people-of the. population is one of the most vulnerable segments of our State's population. We know that inflation has become a grueling problem for us, our constit.uency, and all Texas. I might share just a few statistics with you. Texas has the second largest number of poor people in the Nation or 15.2 percent of the State's population live at or below t.he poverty threshold. Texas rates 10th in the percentage of poor persons. With us today are some of our colleagues. You have in front of you a prepared statement that represents all sections of this State. We called in all of the executive, directors of Community Action agencies in t.he. State of Texas and compiled these statistics, a unified statement that is representative of all of them. I would like to present to you, to further elaborate on our statement, one of our colleagues, a very able person who has been in the fight against poverty for a long time, to clearly delineate and articulate to you our problems, our concerns, Ms. June Ross. Ms. Ross. Thank you, Mr. Floyd. Gentlemen, the State of Texas is served by 54 Community Act.ion agencies, all firmly.. ~committed to alleviating the plight of some 2½ million Texa.ns who are identified as being economically disadvan- taged, or to use a more positive word, "poor." It is because these Community Action agencies are most actively in- volved with, in daily communication with, and privy to the most abject need of this group, that we would..presume to tell this body of some of the punitive effects of inflation on t.hese, the most vulnerable of .Texas. For these Texans, counted a.s poor, inflation does not mean doing with less, it means doing without. Anything that impacts the middle class is magnified 100 times in its impact on the poor. All areas of human life are affected by the monstrous rise in the cost of all living expenses, but t.oday, the State Association of Community Action Agen- cies has asked me to speak t.o a few major concerns. It is hoped that you will agree with us when we say we are. speaking only of the basic necessities for life, none of the accessory needs for creature comforts are included in t.his dismal litany of needs. Food prices in some communities have risen as high as 93 percent over previous costs for the barest of food needs. This translates into senior citizens drinking a bottle of beer in the morning because the cost of milk or another beverage is priced beyond reach and does afford more nutrition than anything else they could afford to buy. This trans- lates into the inability of senior `citizens to buy dog food by the. case as was previously the case, the cost of that commodity having risen. This translates int.o large chain stores- Mr. Coxi~Rs. For their-to personally consume? Ms. Ross. Yes, sir, personally consume dog food. Mr. CONYERS. So it is now so much more expensive- Ms. Ross. Yes, sir. PAGENO="0053" 45 Mr. CONYERS [continuing]. That they can't even- Ms. Ross. Buy it by the case, they buy it by the can. Mr. CONYERS. This is documented beyond any question? Ms. Ross. Yes, sir. Mr. FLOYD. Indeed it is. Ms. Ross. This translates into large. chain stores closing stores located in the ghettos a.nd the barrios, leaving the residents at the mercy of the neighborhood stores. Along with the closing of the larger chain stores comes the horrendous problem of transportation. At t.his point it might be inje.cted that any rise in prices, a.ny taint of inflation assumes major proportions within the poor community, and the rippling effect is felt by the whole social strata. Lessening of any service delivery, be it public or private, begins in the poor community. Thus, closing stores all but completely removes the accessibility of moderate priced foodstuffs, and can actually trigger severe nutritional problems which may never be corrected, and if corrected, it is done so at great needless expense. It has been only within the past 10 years that damage caused by malnutrition has been properly assessed and now knowing what lack of proper food can cause, we are faced with the unfortunate spectacle of little or no food. Life as we know it today in America and certainly in Texas requires the ability to be mobile, to move with ease from place to place. Trips are of major necessity; be it to the store, the doctor, the hospital, th.e clinic, and let's not omit the job. Transportation costs on public carriers have steadily risen until it behooves people to make even the most necessary trips. All the job training in the world is meaningless if the employees cannot get to their place of employment. Sick, aged, handicapped, blind, deaf, crippled persons are locked into their uni- dimensional world and find it all but impossible to get transportation to the most necessary places. The headlong rush to the suburbs has taken with it all that was supportive of less fortunate citizens in our communities. Inflation iso- lates and divides even more. Persons on fixed incomes or working for the minimum wage per hour are hard pressed to meet the least basic of needs for human living, something has to be sacrificed. During the operation of crisis interven- tion programs by the CAC's it was learned positively and shockingly that senior citizens pay their rent, or its equivalent and their utility bills. Other needs must be done without. Thus, the budget, if the man- agement of that paltry amount can be called a budget, has no room for clothing, transportation, or the most economical form of pleasure. Housing and energy, plus a meager amount of food takes all the monthly income. What can be done for this 15.2 percent of our State's population? What will become of these 1,870,000 people? Inflation is hurting all of us, but it is killing the poor. Elderly persons are dying from the heat in the summer and from the cold in the winter. The North is not t.he only section of our country with cold problems. Texans get. cold, too. We of TACAA, Texas Association of Community Action Agencies, propose the creation of a tax incentive for utility companies to provide for lifeline rates for senior citizens. This would be an equitable, pro- rated utility rate scale for senior citizens. We of Community Action PAGENO="0054" 46 will continue to attempt to render this segment of our State's popula- tion all the assistance that we can, regardless of inflation, its effects, and its ends. This is a statement from the. Texas Association of Community Ac- tion Agencies. At your pleasure, I would like to introduce to you Mrs. Emma Carter, who is a resident of west Dallas, Tex. Mr. CONYERS. Welcome, Mrs. Carter. Mrs. CARTER. How the effects of inflation impacts the poor in our locality. The income of low and middle income people is not increasing at the same rate as the rising cost of living. This has caused the lifestyle and living patterns of people to change. High food costs have resulted with the type of food purchased and the ways of preparation being changed. TJtility costs are not always met by the low-income people. Consumers are faced with notices of service interruption or discontinuance. Low cost housing is being sought. For persons who own their own homes, the cost for maintenance and upkeep and repairs presents a difficulty. Materials and/or labor for the necessary home improvements is at an all-time high. More persons are now relying upon public transportation and car pooling to help cut fuel costs. But there is an increase in the fare on public transportation and with limited or low-income people this is a strain on the purse of the minimal incorned person. Overall, the inflation of today's economy has caused a burden upon the poor. Hospital insurance for the elderly has increased. Interest rates are keeping from buying homes. Rent has increased for low-income people residing in public housing projects, but the incomes have not increased. The effects of inflation on the community action programs has caused a decrease in services being supplied to the community. Staff members are being cut; therefore, causing additional difficulty in our community and adding to the rosters of the poor. The rise in utility costs has reduced the budget for program services. The crisis intervention programs through the Community Action Agencies don't have enough money to help all of those in need of help. And when they can help the low-income elderly with utility bills, the money is so late in reaching the CAA that it lays an even bigger burden on the low-income person. Why send CAA's money to pay winter utility bills after the winter is over? Why not send the funds to the CAA before the winter so that the bills can be paid as they are created? This would help poor people. Money received in May to pay last winter's utility bills works a hard- ship on all of us, a.nd the CAA, too. Send the money in May to.pay for the coming winter's bills. Where resources have been previously donated, they can no longer be acquired or are very limited due to inflation. Budgets are limited because of the rising cost of utilities, supplies and equipment necessary for program operations. The poor are suffering due to inflation and the programs designed to relieve the poor are suffering, too. Everything is up except income. How are we to survive? = Mr. CONYERS. That is a good state~nent, Mrs. Carter. PAGENO="0055" 47 Is there anyone here from CAP, from the community action program? Ms. Ross. We all are. Mr. FLOYD. We all are. Mr. CONYERS. No, I am talking about the people who are in a dif- ferent position in terms of explaining why this money comes so late. Is there anybody here that works or is connected with CAP? Mr. ANDERSON. I think we ought to be asking you, the Congressmen, why you are sending it to us so late. Mr. CóNYERS. Well, before I can answer that, I just found out it was coming late about 2-minutes ago. Now, who is in charge of CAP that handles this? I mean, who is in charge of CAP here, anywhere in Texas? Ms. Ross. We are not. We receive our funds from the regional office, and they in turn receive it from Washington. Mr. CONYERS. I understand that. I am just asking you who is in charge. Mr. FLOYD. For our region here? Mr. CONYERS. Yes. Ms. Ross. Ben Haney. Mr. FLOYD. Ben Haney is the regional director. Ms. Ross. But he is not here. Mr. CONYERS. What is the reason that is given to you for it coming late? Mr. ANDERSON. The people at the regional office can't get it to us any quicker than they are getting it- Mr. FLOYD. Get it from Washington- Ms. Ross. It comes from Washington. Mr. ANDERSON [continuing]. Send it any quicker to the national of- fice and the CSA office cannot send it any quicker to Dallas than they get it from Congress, appropriate the money. You know, it's as simple as that, if I understand it clearly. Mr~ CONYERS. So you are saying that it is just the money is appropri- ated late and it gets to you late? Ms. Ross. Yes. Mr. CONYERS. Hold it. I have got to get names now. The court re- porter is going to have a hard time. Let me go back and get your name, sir. Mr. ANDERSON. My name is Robert Anderson. I am not from Texas. I am from Oklahoma City, with the CAP program there. This is a major problem with the timing of the money. Mr. CONYERS. All right, thank you. Now, you, sir. Mr. DORSEY. I am Thurman Dorsey, CAP Director in Waco, Tex. A part of it, along with the late appropriations and the regulations connected with the implementation of it. We get notification in the Federal Register somewhere in February. It is dated back in January. The program was supposed to be effective rn January, and we get a notification in February that the program is passed, and that type of thing. So several months have already passed before we get notification of it or even the appropriation and the ~ihng of ny. PAGENO="0056" 48 Mr. CONYERS. Has anybody ever talked to their Congressman or Senators about this? Ms. Ross. Yes. Mr. CONYERS. Before the two hapless, friendly, benign, supportive gentlemen that you are confronting now happened to come to Dallas, Tex.? Ms. Ross. Yes, we have. Mr. FLOYD. Yes, sir. Mr. CONYERS. What is the response for the record? Mr. FLOYD. The response is simply this. It is a political issue. In Texas- Mr. CONYERS. Everything we handle is a political issue. Mr. FLOYD. Well, I want to give you-not necessarily a pohtical answer, I want to give you one to adjust the problem as we know it. Obviously we must be speculating about the reason for the answers they give us, but nevertheless- Mr. CONYERS. What answers do they give, first of all? Mr. FLOYD. The answers are evasive in most instances. They will tell you that, "Yes, I am in support of such and such a thing," but when you get the Register of how they vote up there, their vote cast tells you something else. You know, it's one of those things that when you are at home and one man, one vote; when they come home, they have got to rally votes, and they are going to tell those people who are expected to go to the polls what they want them to hear, but in the Community Action world, we have learned to monitor the way they vote on the Hill and to hold them accountable at the polling place. Mr. CONYERS. Who else wants to talk about it? Ms. Ross. I would like to speak to that. I am June Ross, executive CAP director from Galveston, Tex. Mr. Floyd does speak truthfully when he says the political entity enters into it. For instance, I have talked with my Congressman con- cerning this, who is Jack Brooks, and his answer to me, "June, it's coming down I don't know when it is going to get to you, but it is coming down." The first allocation of money for Crisis Intervention was some $200 million throughout the State-I mean, throughout the Nation. I'm sure you can appreciate there. was a quandry as to how this money is going to be distributed, who is going to distribute it, will it come through the State, will the State give it directly to the Community Action agencies, will we deal with gas companies, will we deal with light companies, what will be the parameters, what will be the guidelines? It sounds very simple and very harmless, but when you have 30 days-you get it approximately on April 25, and it must all be obli- gated by May 30. That's not funny. These are some of the restrictions that have hampered us in this operation of it. The first allocation of money came at a time when any- body would know that it was a political expedient, that's all it was. We were told to move that money as fast as possible and get it out there to those people, "and we don't care how you do it." Mr. Coxrn~s. When did it come? PAGENO="0057" 40 Ms. Ross. It came to us in April and when we had restrictions on it because the State was unsure as to how the money should be moved. Mr. CONYERS. That was last year? Ms. Ross. Right. The first crisis allocation money we got was in 1977, and the question was, with no administrative costs whatsoever, we were to move this program throughout the community. Further than that, the State put a stipulation on us which said that even if administrative funds became available, you will sign a waiver saying you don't even want it. I personally called Jack Brooks' office and he had the waiver lifted which permitted us to get into contract with the State. Now following that- Mr. CONYERS. He was helpful in that? Ms. Ross. He was very helpful. Following that, we had to go through the mechanics of introducing such an innovative program to our utility deliverers, and you try to explain to utility companies that we are going to pay utility bills for senior citizens and we must have your records. Try it. You sign contracts, you have a workshop, they do it, but they are very slow because they are not very trustful of Government money. They wanted the money as soon as the bills were paid or written off. They have computer systems and we are running into this problem right now. They don't want to write off a bill that is being paid until they get the money in hand because the computer can't handle it. These are some mechanical problems that we are dealing with. But again, we get the money in May to deal with last winter's bills. Mr. CONYERS. Now, that comes through CSA? Ms. Ross. Right. Mr. FLOYD. Indeed, it does. Mr. COXYE.RS. Have there ever been hearings in the area by con- gressional committees that have oversight of CSA? Ms. Ross. Yes, sir, they have had some. They had a case just not too long ago right up there in Washington, and then there is the conflict, does DOE want the money or does DOE want CSA to have the money? Who is going to have the money? So these things are known in Washington. Mr. CONYERS. Yes, sir. Mr. ANDERSON. I think we can come back to another point. Last year, in 1978, we received the authOrization to spend-in other words, pay low-income residents' fuel bills beginning April 1. At that time you were supposed to expend it by April 30. It's obvious that we didn't have the money so we weren't going to spend it by April 30. So they extended the date to May 20, but in the Congress-I guess this is a political football up there, but the fuel payment moneys was tied in with the B-i bomber. There wasn't anything compatible about the B-i bomber and poor people suffering from high-utility costs. Mr. CONYERS. Well, I could give you more detail than you would care to hear about some of the decisions I have to make in that re- gard. I just made one yesterday about two Iranian vessels and counter- cyclical funds ties together. Ms. Ross. I would like to sa~ further on this idea that we had from our State community action agency's organization. `Crisis Interven- PAGENO="0058" 50 tion money, SKIP, EAT-we have acronyms for them, and it sounds lke you are sick sometimes-but all the money ultimately goes to the utility companies within the given area, and we would like to very modestly propose consideration by the utility companies and by the Government that they be given a tax incentive for an over-the-board or prorated bill for senior citizens for their utility services. Everybody is reading in the pa.pers today and full of information about tax incentives for oil companies and other services, the farmers and their subsidies, everybody is getting subsidized. So if the utility bills are mounting daily, daily, daily, the Government is in the busi- ness of helping us pay the bills, but we are still back where we started from. I would consider it something very useful for all senior citizens if we could enter into dialog with the assistance of the Government in getting a tax incentive for utility companies so that senior citizens meeting certain guidelines, that is, age, income, would have a prorated bill, period. That would be it., winter and summer, 12 months a year. Mr. CoXYERS. `Why don't we work it out minus the tax incentive? Why do we have to pay them something extra- Ms. Ross. Because everybody else is getting paid, why shouldn't they? I don't agree with it, but they are. Mr. CONYERS. How about just stopping everybody else since w-e are speaking about how we would like the Government-- Ms. Ross. I would like to be realistic. I mean, you know, every other industry and busiiiess is getting a tax write-off or tax incentive, and if you are dealing on that basis, but nobody has mentioned yet about utility companies. `Well, you see, here is the thing. We in Community Action Agencies have more information on utility bilis in the State of Texas-I can't speak for other States, but in the State of Texas than any other orga- nization or agency, because this is what we have done. Now, we could say, without equivocaton, just how much money it would mean for utility companies to set a prorated average for senior citizens' utility bills. We could say within a certain degree of defirnty just how much it is going to cost a company. So if we are not talking. about $50 billion, because we aren't talk- ing about $50 billion, but if we brought this within the realm of acceptance and only senior citizens meeting these guidelines, and I would propose a rough figure they would probably drop $20, 12 months a year for your gas bill and your light bill, that w-ould mean a. wonderful thing for senior citizens. Because, again, as I Eaid, we suffer from the heat, as well as the cold. Mr. CONYERS. Well, that's an excefleimt suggestion. Mrs. Carter and then Mr. Floyd. Mrs. CARTER. I want to elaborate on this. We often have the Dallas Power & Light Co. out to tell us how to conserve energy, and the day senior citizens get their social security checks or other checks that come in, well, maybe today the light bill is due and they lose that discount. So they had me to call the company and ask how could they pay the bills in order not to lose that discount every time they got a check. They suggested to me, they offered to come out and talk to the senior citizens, but they suggested to me to put the bill on a flat rate and pay $30 a year-I mean, a month, just $30. Well, it would have been too much. PAGENO="0059" 51 Mr. CONYERS. Could you afford to do that? Mrs. CARTER. No, I couldn't. I knew immediately that. I couldn't afford to do it so I told them, "Forget it." I have this-this past summer, I had a $55 light bill. Well, this month I had an $8 light bill. See, why would I put it on a flat rate and pay $30 each month when they were making more off of me than they needed to? So I don't know, they will figure how to get their money, I don't care what you ask them. Mr. WILLIAMS. I have a question. What is the State of Texas doing about this problem? Ms. Ross. Which problem? Mr. WILLIAMS. The one that we are talking about, your agency's involvement in the problem, are they giving you any financial support, the State? Ms. Ross. No. Mr. WILLIAMS. It's totally Federal? Ms. Ross. Yes. Mr. FLOYD. That's right. Mr. WILLIAMS. No local participation? Ms. Ross. We have local participation. Mr. WiLLIAMS. In what form? Ms. Ross. It's very limited, the city. governments, county govern- ments are strapped. Mr. WILLIAMS. They give you a building to operate in and they give you- Ms. Ross. Maybe. They are looking to us now because they are feeling the pinch. This again has us a bit skeptical and a bit worried. Mr. WILLIAMS. Not one dollar from the local or-- Ms. Ross. No. Mr. FLOYD. What I wanted to add was, you see, the utility com- panies don't treat senior citizens or those on otherwise fixed incomes any differently when it comes cut-off time than they do anyone else. We happen to know in the Community Action Agency world what the poor is paying per kilowatt hour as opposed to what big business is paying per kilowatt hour. Mr. CONYERS. So everybody knows that they are paying less. Mr. FLOYD. Everybody knows, but they don't get any relief when it comes time-the guy goes out with the wrench and he cuts their utili- ties off. You know, the poor is helpless at that point. The Utility Commission, as they deal with the Senate down at the State house, obviously everybody knows that the persons, the entities that has the most money to have the biggest lobby down in the State house are the people that oftentimes-not in every case-but often- times get the consideration. ~\Te are talking about some kind of home based kind of help since we are already getting moneys into-example, this year, last week we received in Dallas County Community Action Agency an allocation of moneys for the energy program to be allocated by May 30. We have a lot of people out there that we don't know who they are. We have got to outreach them, intake them, find out who they are, certify their eligibility. We have got to go through the fuel providers and find out who had a bill last year. We are talking about last winter Mr. CONYERS. What does the program attempt to accomplish? PAGENO="0060" 52 Mr. FLOYD. The program is trying to keep senior citizens from dying of heat in the summer and the cold in the winter, paying those utility bills because of the effects of the drastic winter last year. Now, that is what was being referred to a little bit ago. If we could plan ahead and do some projection on how many there are with that kind of need in the county and the CSA, or whomever, if it is the De- partment of Energy, provides the money this spring, give us some planning time to get into the program next year and pay as we go in the winter, then we would have a whole lot less problems. Mr. CONYERS. We read that loud and clear, and we are going to try to get this part of our testimony hooked up with the appropriate sub- committee in Congress that can really do something about it. I would like to recognize Ms. Ross and then the gentleman on this end. Will you tell me your name again? Mr. DORSET. Thurman Dorsey. Mr. CONYERS. We are in the windup stage now, so include all the recommendations you would want to go into this record so when the rest of our colleagues in the Congress and the Senate read it, they will know that we have been here to Dallas. Ms. Ross. Mr. Conyers, I would like to state that we have worked very closely with the utility companies in our local areas, and I would not have the record not show that they are sensitive on the lower eche- lon level to these concerns. Now, the president of the company might not understand the con- cerns, but the usual operator of that branch office has worked with us. We have had public meetings, trying to find out some of the prob- lems. It is interesting to note that some of the meters have never been read, the bills had been just constantly used from time to time. We had a meeting which turned into an actual confrontation in Galveston because the senior citizen said: My meter reading-the valve is all overgrown with grass. You have never evt~rI read it and with the vines all over the meter, so how could you say my. bill is thus and so? On the lower level the utility companies have been most willing to work with us and try to prevent cutoffs where possible and, as Mrs. Carter has said, to work out some sort of prorated scale. I feel that it is a good climate, and if we had some support on a higher level with you gentlemen, perhaps we could work this particu}a.r end out. We would like to know that our increments are being hooked up onto other bills, things that we do get increases in for us as Community Action agencies are piggybacked and sometimes we suffer from the piggybacking. I'm sure that's a good old Washington practice. Mr. WILLIAMS. I'm sure we all do. * . Ms. Ross. We thought we would register that complaint~ too, be- cause you mentioned it. Thank you, gentlemen. Mr. CONYERS. Yes, ma'am. Ms. HARDY. I would like to add one thing- Mr. CONYERS. State your name again. Ms. HARDY. My name is Allene Hardy. I have l)een lip there once before. Mr. CONYERS. I know, but the reporter can't remember all the names, and I must admit I can't either. PAGENO="0061" 53 Ms. HARDY. My name is Allene Hardy, and I would like to add about the cutoff. Now, they cut off these bills for the low income in the even- ing, after 5 p.m. Now, they go around later in the evening cutting off these people's gas bill. Now, what we have done, we have a little neighborhood group. Now, we have gone out and the men who have cut wood from the fallen ice storm and have really built fires for these people. But something needs to be done with the gas companies to keep them from cutting off the people's fuels. Sometimes there are children- Mr. CONYERS. In Dallas or beyond Dallas? Ms. HARDY. This is Dallas. This is on Thomas Avenue, on Ruth, this area. Now, we have seen that because we have an intercity coali- tion and the men go out on their own and saw these fallen branchcs. In cases they have really built fires, they had to, and sometimes they may only fire one house that has a flue and they ask other families to come over there and warm. Now, something needs to be done to keep the people from coming out after 5 p.m. and cutting off these people's gas. Because if we could get it before 5 p.m., we could call Dallas Community Action, sometimeS call there and get it not cut off. But after 5 p.m., they are closed, they go around and they cut it off. This is very, very devastating. Mr. CONYERS. Is that deliberate on their part, that they wait until after 5 p.m.? Ms. HARDY. They are out there, and we have observed this over and over again. So we need to do something about that. They have not- they do it constantly in this area. Then when they cut them off, you have got to get big money to have it turned back on. Ms. Ross. At once. Ms. HARDY. See, you do not have any deposit. Over a year's time they send it back tO whoever. Then you have to pay $50 and up, and it takes 3 to 4 to 5 days to get it back on. These are probably real-we have seen them all this winter, out there seeing it. Now, with the gas cut off, OK, nothing. You have to raise that money and sometimes the Salvation Army gives it to us and sometimes our intake workers can't get it for us, we have got to raise the money to pay this big deposit and then wait 3 to 5 days to get it turned on. Now, this is a very serious problem and it needs to be addressed be- cause this is the first year I have worked there, in my little group, in- tercity coalition. We happened to see it and we worked on it. Mr. CONYERS. We thank you, and keep up the good work. Mr. WILLIAMS. I would like to ask: How did the President's volun- tary anti-inflation program help your situation? Ms. Ross. Not at all. Mr~ DORSEY. It has not. Mr. WILLIAMS. Your suggestion was that the answer to your par- ticular problem would be legislation. moving through more quickly, appropriations moving through more quickly. What do you suggest-this is one final question. What do you sug- gest we do about controlling the prices? You said this program is not working. What would you suggest, mandatory controls, voluntary controls? Does anybody have an opinion? Ms. Ross. Mandatory controls I would recommend. PAGENO="0062" 54 Mr. Fi1oro. Voluntary control is not working as we see it presently. So then if voluntary controls aren't working, that means that some- thing else has to be in its place. Mr. PAco. I am Mike Paco from El Paso, Tex. I definitely think that mandatory controls is the only way out. Mr. WILLIAMS. Just to follow that a little further, we had testimony here this morning and at previous hearings that it appears that wages are in fact mandatorily controlled. Do you agree with that? Do you agree that pricing is still somewhat uncontrolled? Mr. PACO. Definitely so. Mr. CONYERS. Mr. Dorsey, do you have a comment? Mr. DORSEY. Thurman Dorsey. I have two comments. One, I would like to elaborate a little further on this cutoff bit in connection with some of the assistance programs that we have had to assist elderly people with. In McClennan County we have experienced the fact after we have informed the utility companies that certa~in individuals are eligible and the pay that will be forthcoming, that they then go out and cut off because this particular program has a clause in it which allowed for the payment of a reconnect fee. See what I mean? I would just like to add that. In addition to this late receiving of funds with a short period of time to implement, 30 days or 45 at maximum, Community Action agencies, as well as anybody else, but we try to be very accountable for the Federal dollars and manage it in a fashion, but we cannot expend that money until the Government has signed off on it. He has got 30 days to sign off on it. So, you see, the dilemma there, we have got 45 days' notice from time of receipt of funds and implementation and then have got to wait for the Government to sign off if we commit it. Prior to that time then we can be liable for it. Mrs. CARTER. In my neighborhood they will knock at your door and notify you that they are fixing to cut utilities off, and if you have the money, or if you can borrow it, they will give you a receipt for it and leave your utilities on. A lot of times we are able to lend somebody some money to save them from having to put up that huge deposit again, you know, to get the utilities turned on, and we are very grateful for that. Mr. CONYIERS. Well, I am very pleased that you could come before the subcommittee. This is very important. When this is read in the Congress, many Members who can help us alleviate some of these problems of timing and getting the allocations earlier, I think will be much more moved to do that when they have read what you have said to us here today. We are very grateful, and I am sure a lot of other people who are not here who are in the same fix will be, too. Thanks so much for coming. We will take a 5-minute recess. [Recess taken.] Mr. CONYERS. The subcommittee will come to order. Our next witness is Mr. John Hayes of the American Association of Retired Persons, Dallas chapter. Welcome before the subcommittee. You may proceed in your own way. PAGENO="0063" 55 STATEMENT OP JOHN HAYES, AMERICAN ASSOCIATION OP RETIRED PERSONS, DALLAS CHAPTER Mr. HAYES. Thank you very much, Chairman Rosenthal and Con- gressman Conyers; is that correct? Mr. CONYERS. Yes. Mr. HAYES. And Congressman Williams. First, let me welcome you to Texas, and especially our city. We are very proud that you are here in our city, and being a civic-minded person, I'm proud that you are here and also to put up with me. I have, had a letter that. I received, t.o Metro DallaR Presidents and Legislative Chairmen. I served as president of the Dallas Lovers Lane Chapter of the American Association of Retired Persons, and we have 320 members. The contents of the communication: Congressman Ben Rosenthal, ~ofNew York, Chairman of House Subcommittee on Commerce, Con- sumer and Monetary Affairs, will hold a hearing on the President's Program on Inflation on May 3 at 9:30 a.m.-and I can understand why we had to wait, because of your traveling and essential business of voting last night. Mr. Peter Hu~hes, head of our legislative depart- ment, has authorized our encouraging our members to appear and testi- fy. Could you please "spread the word" and ask people to let us know if they plan to attend and speak. [The letter referred to follows:] AMERICAN ASSOCIATION OF RETIRED PERSONS, Dallas, Te~r., April 26, 1979. Memorandum to: Metro Dallas AARP presidents and legislative chairmen. From: Bob Miller, ASD. Congressman Ben Rosenthal of New York, Chairman of Rouse Subcommittee on Commerce, Consumer and Monetary Affairs, will hold a Hearing on the Presi- dent's Program on Inflation on May 3 at 9 :30 am ill Room ?A23, Federal Build- ing, 1100 Commerce Street. Congressman Rosenthal would like statements from older citizens about the impact of inflation on their lives. Mr. Peter Hughes, Head of our Legislative Department, has authorized our encour'aging our members to appear and testify. Could you please "spread the word" and ask people to let us know if they plan to attend and speak. Phone numbers: Bob Miller 341-2622 AARP Area VII Office 369-9206 ROBERT F. MILLER, Assistant ,S~tate Director-Texas (Metropolitan Dallas). Mr. HAYES. I presented this communication before our meeting last night and told them at their will and pleasure, if it was agreeable, that I would be here. So, I am here to say that as a senior citizen and being one that has quite a bit of experience during hard times of the depres- sion and also during World `War II, and in our present. condition that I find myself, being 70 years of age, and being a little better off than a lot of people at my age, but due to hardships that I have suffered and some training of `having a degree from the College of Knowledge, which is a worldwide organization, a college that anybody can par- ticipate in. During the depression we had people in this city and all over the Nation that were faced with the problem as serious or more serious than this inflation, but we have survived through the will of God and good old American intestinal fortitude. and by having a good Govern- PAGENO="0064" 56 ment. I think that the late President, Franklin Delano Roosevelt, who was a great man, in my opinion, because he sort of made things equal, of giving food in breadlines to people whether they were a millionaire or what, we were all without any monetary, and we slept and worked closer together and rubbed shoulders with the millionaires who were wiped out. Now, this inflation has taken a deep toll on our standard of the best government in the world. I know you people get blamed for a whole lot and you shouldn't be blamed for it. There is a lot of people that they don't understand, no one has been able to reach them, about the monetary program that it requires to run a good gov- ernment. So I do know that we have a problem, and that is what we are here for, representing these people, to try to offer some sugges- tions to you that might help, that you can take back to your colleagues. Now, I know that we have a good city and I am proud of it and I think that it. was demonstrated here in some of the reports, we have a hospital paid for by the taxpayers that doesn't turn down anyone, whether they get money or grants, they don't turn down anyone from our county emergency hospital out there. They come pick you up and they send you a bill, and if you can't pay it, they don't go down to your next employer and tell him not to give you a job or they don't harass you too much, but they try to get it. So we do have good city government. As far as I am concerned, we have good county government, and I think we have good State gov- ernment. I don't agree with everybody that gets elected because there is some people of another party that I don't vote for, but that's be- side the point. What I am here for is to give you some information that will be helpful. Now, taking my own self, I was paying $3.50 for a haircut; we moved and it went up 50 cents. I could have drove back over there, but it would cost more money. Anyhow. the fellow that cut my hair, why, he wanted to be a barber and I worked with him and used to practice on my hair to learn to be a barber. Well, he charges me $4 now, but that is 50 cents more for a haircut. His prices are more than $4. I belong to a lodge, voted against it. but they increased my lodge dues $15. That $15 is coming out of my little income, and I'm glad that the Government can give me a social security increase. I am a 10-percent disability veteran from World War II in the Marine Corps out in the South Pacific. I want to help the country, if I can, like I did when I volunteered for the Marine Corps. So I say that we are going to have to do something and that's one good thing about this committee. I hope that they send other com- mittees out, if this job gets too big for you, because it is a tremendous job to get all of it. Everybody is going to have to start changing their ways from a financial standpoint. Maybe the millionaire., and I believe in free enterprise as long as it is made honest, and I believe in organized labor. I occupy the position from a civic standpoint that the gentleman was here. I think he is getting $28,000 a year, at least I read it in the paper. I used to do it for $15 a week, and I think I was doing a better job, but that's beside the point. I say that I know labor, I know. human beings, and I know the con- dition that this country is in and that we have got to do something or another about it. Now, we hav&tO start someplace. PAGENO="0065" 57 Mr. CONYERS. Have you ever had any opinions about the wage/price guidelines? Mr. HAYES. Yes, I feel like .1 am capable of speaking on my past experience as a working person and as a leader in the labor movement, and I am not here to make labor a whipping boy, but I know that if we are going to have any kind of control, you are going to have to work out something to where that there is no increases for everybody. Mr. CONYERS. Would you want to control the prices and the wages or just prices or just wages? Mr. HAYES. Well, the prices and the wages are going to have to work there together. Now, I know that during the depression that the utility people were as fair as they could be, and I have personal experience, that the telephone company here in Dallas told me during the depres- sion, said, "If your telephone will help you get a job, we would rather leave it on. It is cheaper, and we will take a chance of you paying us." Now, I don't think the utilities or the oil companies or any corpo- ration ought to be made a whipping boy. We have a good country on free enterprise, but there comes a time when you have got to draw the string around everybody, which in- cludes our Government. Now, if we can, I offer this as a suggestion; if we can freeze what you are giving away now-I call it a giveaway or either a substance [sic] or dole or whatever-if you can freeze what you are doing and not increase it, but don't let anybody starve or suffer from medical, but all of these people that are receiving it don't need all of that medical attention. They are not going to starve, but those that can't get out and don't have any help, you may have to deviate and I think you should, to give them, but to hold what we are doing now and don't increase it. I'm not mad because you are getting a salary up there, but you are working for it. The people think you are doing a good job, and we have got good Congressmen from Texas. I think I know most of them, but what we need to do is to take some action, and you can't do it overnight, but you must be the leaders, and that's where it has got to come from. Mr. CONYERS. Do you think that the voluntary wage/price guidelines are working? Mr. HAYES. It is not going to be effective, it may be over here, but we have got 50 States. It may be effective over here in Alabama, or it may be effective in north Daflas, but over here in east Dallas, well, it's not going to do any good, in my opinion. I don't say I'm right, but I think I'm right. Mr. ROSENTHAL. Thank you very, very much, Mr. Hayes. That was a very, very moving statement, highly personalized and very signifi- cant. That kind of statement makes this kind of trip worthwhile. Mr. HAYES. Good1 Come back. . Mr. ROSENTHAL. Not if the weather is going to be like this. Did you ever land in a tornado? Mr. HAYES. Say, listen, we have had tornadoes here that you could botttle up and take someplace else and sell them. Mr. ROSENTHAL. Thanks very much. Ms. WRITTENHOLTSE. Am I empowered to make a statement? Mr. ROSENTHAL. Well, sure. You are empowered to do anything. 52-21L~ 0 - 79 - 5 PAGENO="0066" 58 STATEMENT OP PRANCES WRITTENHOUSE, MEMBER, AARP CHAPTER, DALLAS, TEX. Ms. WRITTENHOUSE. My name is Frances Writtenhouse. I am a mem- her of the largest AARP chapter in Dallas, and am president at the present time. I think, if I may say so, that we are perhaps addressing ourselves improperly to ourselves rather than to a national matter. Somehow or other we have gotten the idea that the Government is the new parent and the only religion and that Congress is going to lead us into a prom- ised land, and anytime the Government promises you the promised land, y~u have been had. I maintain that that is when you should run for the hills, and I am quoting many people. The point on the whole thing is that the elderly of my particular group are somewhat in the nature of the queens who are running like mad in order to stay in the same place. We have so much, for that amount when rents go up, we move to smaller places. We are still pay- ing the same amount. Mr. CONYERS. Has that been happening- Ms. WRITTENHOUSE. Oh, my word, I have moved three times in 3 years, four times in 4 years, and it is not unusual. Mr. CONYERS. Have many other people- Ms. WRlrrlmNrrotrsE. Oh, yes, this is par for the course, as the say- ing goes. You move into smaller apartments which may be two rooms or three or so much less space than the other, and so forth. This is par for the course. You change your food habits, you change your purchasing habits, you change your clothing habits. You change everything. Now, when you are moving, after you get to one room, where do you go? You are the new poor. This is the thing that concerns me now. We are doing it our way, labor is doing it another way. They are running to keep in the same place by asking for higher wages. They are trying to maintain their standard of living with higher wages. We are withdrawing from charitable contributions, we are, withdrawing from that which has been our way all this time. Mr. CONYERS. That has a traumatic effect on a lot of people, doesn't it? Ms. WRrr'rENHoUsE. It scares the living daylights out of you, if you really want to know. Now, the point on that is that we lay it to many things. Of course, we lay it to big government. The thing that I think scared all of us is the fact that on April 1, the Government had to issue paper money in order to pay its bad debts. All of us wonder, what from there? The Gov- ernment money is bad. Where are we? Mr. CONYERS. Well, that's the one assurance I can bring you from Washington, that the Government money is still good. Ms. WRIrrENHOUSE. To some extent; yes. Let me quote something to you here: 148 New York hospitals, 25 percent of total hospital costs are traceable to State and Federal regu- lations. Fifteen million man-hours must be devoted each year to regu- latory compliance which is the equivalent of having 56,000 employees working full time in the matter. The total cost of such regulation is in PAGENO="0067" 59 excess of $1.1 billion a year. Where does it come from? More money printed. How else? Mr. CONYERS. That's the way the Federal Reserve Board has always regulated the supply of money in the United States. Ms. WRITTENHOUSE. Quite true. There are many ways-is tight money good? As far as I am conm~erned, tight money is probably the only answer because they are talking at the moment, my particular group voted 14 to 1 against national health insurance as long as we can pay. Nobody is empowered to pay for the type of crisis hospitalization that can occur, they never did. It is only that today we expect the Government to be the Great White Father to take over for us. Sure, we were all impoverished by this sort of thing. Of course, we didn't live that long either. To me, and I speak only as an individual and not as anything else, my feeling is that wage and price controls have never worked. I see no reason to think that it would work this time. It doesn't work on a volunteer basis, it doesn't work on a mandatory basis. I think the Government is going to have to take itself in check, and we are going to have to take ourselves in check, establish a sound fi- nancial policy which will not include raising the debt limit and print- ing money to cover the matter. All of us, particularly those of the young, who are. expecting to have pie in the sky are going to have to take another hard, long look. I went through the depression, I'm glad it happened to me. It was the best thing that ever happened to the country, as a matter of fact, because all of a sudden everyone had to take a long look at what was important and how to survive and the proper way to survive. I would rather see a depression with the money still good than in- flation with the money destroyed. Mr. ROSENTHAL. Well, both are very, very obnoxious choices. Ms. WRIrrENHOUSE. That is what I would call-this is a no-win proposition. if I may say so. I have opened by great big mouth. I am not accustomed to shaking like a leaf. Mr. ROSENTHAL. We are very delighted you could come out and par- ticularly taking into account the horrible weather. Our next witness is Scott Holladay, Association of Community Or- ganizations for Reform Now. It is nice to have you. STATEMENT OF SCOTT HOLLADAY, ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW Mr. HOLLADAY. It is good to be here. I'm sorry that my testimony isn't as well prepared as I would like. We have been working sort of overtime trying to pass a generic drug bill here in Texas to help Texas consumers save on their prescription drug prices. I would like to start off by making a few remarks about our expe- rienees in working on that bill. We found that prescription drug prices had gone ui 12 percent in the last quarter of 1978. That gives you an idea of the problem we have. The generic drug legislation offered an opportunity to the State legislature to help Texas consumers to save quite a bit of money on PAGENO="0068" 60 prescription medicines that people have to use and also to save money for the State through medicare and medicaid, but what we have found is a really stubborn resistance on the part of both the legislature and some of the other groups to making this badly needed change. Not only have the doctors and the large pharmaceutical manufac- turers opposed generic drug legislation, but a lot of legislators have cooperated with them by not supporting this. We have also found, really surprisingly, that some of the businesses who naturally should have an interest in holding down prescription costs haven't really shown any leadership or taken an active role in working on this proposition. Mr. ROSENTHAL. What kind of businesses are those? Mr. HOLLADAY. The insurance companies, the health insurers haven't done anything on the issue. We feel like if they are going to be asking for increases in their insurance rates, they need to show some commit- ment to holding down health care costs and they should be backing this. We have taken some action to try to embarrass them into cooper- ating, but so far we haven't gotten any results. We also had to push the chain drug stores to take a position on this, and we did get Eckerd's and Walgreen's to support the generic drug bill. The other chains haven't. So I think you can see that it is a little difficult for ACORN mem- bers to be sympathetic to the problems of large corporations when we read about their record profits and when they are so uncooperative in working with consumers to try to hold down costs. Mr. ROSENTHAL. What is your association, by the way? Mr. HOLLADATY. ACORN is a grassroots organization of low- and moderate-income citizens. We are organized now in 16 different States and we organize at the neighborhood level, organizing neighborhood community groups that are affiliated with ACORN, and that partici- pate at the neighborhood level, working to improve the neighborhoods; the city and State level working together on also other kinds of neigh- borhood improvement projects, and on a lot of economic is-sues like working for lower and more fair utility rates and better health care. Mr. ROSENTHAL. What kind of community participation do you have here in Dallas? Mr. HOLLADAY. We have about 1,600 member families and, let's see, about 20 different neighborhoods. Let's see. the different groups are working on a wide variety of neighborhood improvement problems as well as things like fighting for lower utility rates, neighborhood health care clinics, and State--wide concerns like the generic drug bill. - As I have mentioned, ACORN has been active ever since we have been organized working on a lot of problems that do relate to infla- tion, like working for fair and lower and more equitable utility rates. Here in Texas we have been somewhat successful in that regard, but it has been really hard for consumers to muster the influence to come take on the big utility companies. l,~Te have been successful in getting lifeline telephone rates adopted a-nd getting some changes and cuts in telephone rate increases. We have so far been unsuccessful in getting lifeline electric rates, which we feel would be- very helpful from an environmental and economic point of view. PAGENO="0069" 61 Mr. ROSENTHAL. Have you done any studies on the impact of infla- tion On your community people, or anything like that? Mr. HOLLADAY. We haven't done any studies directly like that. I think most of our members, it's obvious from their interests in issues like utility rates and different health care issues, people really do have vital concern and people are willing to get out and protest and work for things like lifeline telephone rates which would save people only a few dollars a month, but that is really important to a lot of oui. members who have incomes, Social Security, and, you know, really limited in their income. Mr. CONYERS. Have you had an opportunity, Mr. Holladay, to re- flect out of your concern on the larger dimensions of this question? Mr. HOLLADAY. Yes, I was going to proceed to that. Now, I would like to explain next some of the action that ACORN has taken specifically in regard to the issue of inflation, the broader issue, and then also discuss some criticisms that we have of the cur- rent anti-inflation programs, if that's all right. Mr. ROSENTHAL. Go ahead. Mr. HOLLADAY. ACORN began in January with an anti-inflation effort of our own. We felt that President Carter was going to need some help, and we felt like if he thought lie could hold down inflation by jawboning and embarrassing the big corporations, who could help him better than ACORN? We thought that that was really what we were good at. Mr. CONYERS. So you felt that you were in good faith and he was in good faith? Mr. HOLLADAY. Well, we were a little skeptical about his ability to control inflation that way, but we figured "what the heck? We will give it a try, and he is going to need some help." So we started off by doing a mailing to all of the major corporations in our cities and states where we were working whose products and services were in the area of basic services, housing, health care, food, gasoline, utility companies. We did ignore some of the companies, like, for instance, here in the Dallas area, Bell Helicopter is one of the major industries, and it has been a long time since any ACORN mem- ber has bought a helicopter, so we didn't really feel like they were deserving of our attention. Now, we really didn't get much response at all from any of the companies. We asked them to sign a pledge to comply with President Carter's guidelines and that, you know, if they didn't respond we would assume that they weren't interested and weren't cooperating. When we didn't hear from them, we did take some action against some of the companies. Mr. CONYERS. Did you draw any conclusion from their inaction? After all, you said that if they didn't respond you would have to infer that maybe they weren't too interested. Mr. HOLLADAY. That was the conclusion that we did draw. In Texas and Louisiana we focused first on Shell Oil Company, and ACORN members in other cities visited regional offices, and we really didn't get a lot of cooperation from them. But we did feel like we were helping President Carter by trying to expose their lack of cooperation and theii' high profits and rising PAGENO="0070" prices. We followed that up by trying to put a little more pressure on them by doing actions at a number of neighborhood gas stations, Shell Oil gas stations, in an effort to put a little more pressure on them to comply and to let them know that we weren't going to give up on them quite so easily. We did have-this wasn't as successful as we might have hoped, but we were able to get some of the station operators to put calls into the company, and I think that, you know, they got the message one way or another. Our next effort was focused on chain grocers. We found that there was really a high rate of inflation, a high rate-high increase in profits from one year-in the past year for chain grocers. So we felt like that was a really sort of basic thing for ACORN members. So we also took action here in Texas, we focused our attentions on Safeway and also I think it was Rosengarten in Houston. Now, the chain Houston did-the president of the chain did agree to sign our pledge and did take that action. We were less successful here with Safeway and really didn't get too far. Now, one of the other goals of our inflation campaign, I think we really didn't expect to stop inflation by protesting and applying direct action. I think we did hopeto make the public a little more aware of what we perceived to be a big part of the problem, which was the reluctance of the corporations to cooperate, and even with the guide- lines being as loose as they are. I think we hoped to point out the high profits that they were making and their unwillingness really to cooperate. We also hoped, too, through our different. actions, we hoped to pres- sure Alfred Kahn to meet with ACORN so we could discuss our ideas with him. Now, each time we took an action in each city we sent a Mailgram to Kahn informing him how we were helping in the anti- inflation effort. Mr. CONTERS. What would you tell him? Mr. HOLLADAY. Well, we would explain simply what we had done and how we felt about the problem of inflation in the food industry or in the oil industry, you know, how that was affecting us, gasoline prices, food prices. Mr. ROSENTHAL. Have you got copies of all of that correspondence? Mr. HOLLADAY. Not with me, but we do have copies of the Mail- grams that we sent and the letters. Mr. ROSENTHAL. Will you send me copies of everything that you sent to Kahn? Mr. HOLLADAY. Sure. Let me make a note of that. Now, our next step was to visit the offices of some of our local Con- gressmen in each of the cities where we are working and asked them to put a call into Mr. Kahn asking him to meet with the ACORN associa- tion board of directors. We were disappointed to find that Mr. Kahn wasn't able to meet with us. He did send a representative, Ron Leonard, from his office who explained that Mr. Kahn doesn't. work on weekends, and it was too inconvenient to fly in and out of Little Rock where our meeting was held because it would have taken-he had to spend the whole day there. Mr. ROSENTHAL. We have a representative from Mr. Kahn's office PAGENO="0071" 63 here, and she is going to take all this information down, and I am sure she will convey it to him personally. Mr. HOLLADAY. Now, I didn't attend that meeting. I also understand that Mr. Leonard informed Our board that direct action such as ACORN had been engaging in for t.he last 9 years with considerable success was now passe and that we needed to find some other way of expressing ourselves. Mr. CONYERS.. Who told you that? Mr. HOLLADAY. Mr. Leonard from Mr. Kahn's office. Mr. ROSENTHAL. What is his first name? Mr. HOLLADAY. Ron. Mr. ROSENTHAL. Do you know who he is? Ms. SQuni~s. I know a Tom Leonard. Mr. HOLLADAY. Maybe it is Tom Leonard. I got this indirectly. Anyway, at that point, as I understand it., they threw him out. Mr. CONYERS. Who threw whom out? Mr. HOLLADAY. Well, as I understand it, the ACORN Board at that point asked Mr. Leonard to leave or chased him out or something. They were quite riled up. They didn't feel like he was really interested in cooperating with us in trying to find a solution to the problem. Mr. CONYERS. I don't want to rush you along, but you told me that if you could meet with Kahn, you first. of all would tell him what you had been doing, but you didn't get to the point about what advice you would give him. Mr. HOLLADAY. Now, I will be happy to go over some criticisms that we have of the current anti-inflation program. ACORNgroups have been critical of the President's price control program since it went into effect in December. Some of the criticisms that have been raised by ACORN members are that the program goals are meager, companies are being asked to reduce their rate of price inflation by 0.5 percent. How much is 0.5 percent? It is.. a quarter of a cent on a loaf of bread, 5 cents or so on a tank of gas. It doesn't really seem like too much to us when prices are already so outrageously high. We also feel like there are too many loopholes, companies are allowed to get exceptions by claiming uncontrollable cost increases, and other excuses. Certain companies such as banks, insurance companies, and hospitals . are automatically exempt from price standards. No teeth in the program. It's entirely voluntary and I think we have found from ~ur own experience that a lot of companies aren't very interested in complying. TOO COMPLICATED The guidelines, written in bureaucratic style, have so many twists and turns it's hard to.keep track of them. This makes it difficult for the Government or the people to hold companies accountable to the price standard. BIAS TOWARD WAGE CONTROL The whole character of the program suggests that the real goal of the anti~inflation fight is to hold down wage increases. While the price guidelines are soft, the wage guideline is a tight, tough 7 percent with few exceptions allowed., Many have asked why wage increases should PAGENO="0072" 64 be limited to 7 percent while price increases are allowed to go up to 9 percent and higher. All of these points are still valid now as they were in December. If anything, they are more valid now than ever. Mr. CONYERS. Well, if Mr. Kahn asked you how you would revise the wage/price guidelines, what would you or your organization respond? Mr. HOLLADAY. Well, that's a more difficult question. I think as every- one else, you know, we are having trouble seeing exactly how inflation can be controlled and we are not economists. Now, I do think that. some of the- Mr. CONYERS. In other words, you are not for mandatory controls? Mr. HOLLADAY. We haven't reached that. conclusion yet, but tha.t is certainly something that we are considering. I don't think we are neces- sarily opposed to, we just haven't concluded from an organizational point of view, you know, how far we think they should go. Mr. CONYERS. Well, you should get it. together because you may end up with an appointment with Mr. Kahn sooner than you think. His representative is in the room. This may become rather important. Mr. HOLLADAY. You are right, and ACORN is working now on try- ing to reach a consensus within the organization on a number of na- tional issues which affect our constituency. Those suggestions are tak- ing pla.ce at t.he neighborhood level and~then being carried from the neighborhood level. We are going to have a national conference in St. Louis this summer to try to hash out some of these questions. I guess one of our problems is that in a grassroots organization like this, we need to reach a consensus and make sure that what we come up with is something that all of our members can agree on. Mr. CONYERS. Well, I know the Detroit chapter is going to he there with all ha.nds and feet because t.hey have very strong opinions on this subject. So we wish you `well. We really appreciate your testimony on behalf of the local chapter. Is there anything that you wanted to conclude with? Mr. HOLLADAY. Well, I would like to point out that I believe one of our ACORN members in Fort Worth is going to have the opportunity tonight to uestion Mr. Kahn on a program, television program on PBS. Her name is Pat Hutcherson, and I guess her family is going to have an opportunity on this program to ask him some questions about inflation. So I guess there is some justice in the. world. Mr. CONYERS. Good luck. Mr. ROSENThAL. I myself think, and I know we all think, it's ~bso- lutely, e.xtraordina.rily important that the citizens groups be mobilized to participate in this kind of an effort, and we as Government officials are grateful for your role.. Mr. HOLLADAY. If I could make one concluding comment, we have found it to be a little frustrating trying to work on a problem of such great scope and trying to have our voice heard. It's a little' difficult sometimes for some people to take us seriously when we are trying to take on the problem of inflation by direct citizen action. It was a little outside of our normal experience of working on various specific and localized kinds of problems, but I do think we certainly do feel like it is an issue that citizens' groups do have to get involved in and work on, and we will be trying to further our understanding of both the problem and the solution. PAGENO="0073" 65 Mr. ROSENTHAL. Thank YOU very much. Our next witness is Juereta Smith, regional director of the Federal Trade Commission's Dallas regional office. STATEMENT OP JUERETA SMITR, REGIONAL DIRECTOR, DALLAS REGIONAL OFFICE, FEDERAL TRADE COMMISSION Ms. SMITH. Mr. Chairman and members of the subcommittee I am Juereta Smith, regional director of the Federal Trade Commi~sion's Dallas regional office. I appreciate this opportunity to appear before. this body as it con- siders inflation and to offer testimony regarding the Federal Trade Commission's inflation fighting activities. My testimony here today will not necessarily reflect the view of the Commission or any individ- ual Commissioner. Mr. CONYERS. Whose views are these? Ms. SMITH. Mine. Mr. CONYERS. In your individual capa.city? Ms. SMITH. No, in my capacity as director of the Dallas office. Mr. CONYERS. But separated from anyone else's? Ms. SMITH. Right, separated from the Commission. On Thursday of last week the Labor Department announced that consumer prices increased by 1 full percentage point during t.he month of March 1979. This 12 percent annual rate of increase very vividly demonstrates the recalcitrant nature of this phenomenon called infla- tion and reinforces the need to use every available weapon in our struggle against it. Pre.sident Carter has stated that competition is our most powerful weapon in this battle, and FTC activities illustrate. just how powerful this weapon can be. Recognizing that inflation adversely affects the average consumer's budget for t.he basic necessities of life, the Commission is focusing its efforts on those factors which are most dramatically affected by in- creased prices; namely, food, clot.hing, energy, housing, transportation, and health care. With regard to food, the Commission has a long history of pro- moting competition in this industry by challenging mergers of food processors and food stores. Just last week, the Commission, through our office, challenged a proposed merger between the Southland Corp. and Knowlton's, Inc., two dairy processors in the San An- tonio area. It is alleged that the merger would eliminate competition between the two companies. My view is that the merger, if allowed, would ultimately inci~ease the cost of fluid milk to consumers of those products. Within the past few years, the Comniission has obtained consent agreements from several leading retail food firms setting standards of availability of advertised specials. The consent orders require these firms to have reasonable quantities of the advertised price specials on hand so that consumers who shop those specials in an effort to stretch their shrinking dollars are assured their efforts are not futile. The consent agreements cover such food chains in this area as Safeway. Kroeger. Food Fair, and Shop Rite. PAGENO="0074" 66 The spiraling costs of housing is another critical area of concern to consumers throughout the country. The Commission has made it clear that resources will be used to monitor this industry and correct abuse~ where found in the market. In one nonpublic investigation, this office is looking at the entire spectrum of problems encountered by the purchasers of new homes. Preliminary evidence suggests the presence of questionable market- ing practices, product representations without warranties, and op- pressive financing terms. We are concerned that some customers are sinking their entire savings into the purchase of a new home only to learn that what they've bought is not what they believed they were buying. Mr. ROSENTHAL. Tell us specifically what your office has done in this area. Ms. SMITH. We have looked-we are in the midst of a nonpublic investigation currently as a result of complaints that we are getting against a particular builder. The complaints indicate that the houses that are being constructed are not what the purchaser thought they would be in terms of the extent to which they are structurally sound. There are questions about the way in which windows are hung. We are looking at how it is financed, the question of whether or not the financing is set up in a manner that will wind up with the purchaser losing moneys that they had invested in land that they owned even before buying. Mr. ROSENTHAL. Are there any State or local agencies that these disgruntled consumers could have gone to? Ms. SMITH. The consumers have gone to the State's attorney general and they have gone to the local consumer protection agencies. How- ever, there is no strong agency at the State or local level dealing with housing, and this is why the FTC has felt the. necessity to get into the area. Mr. ROSENTHAL. In this State or all States? Ms. SMITH. Throughout the country we have a problem with con- sumers being able anywhere to find help in this problem. New housing is a particular problem right now. We have complaints of these defects across the country. We are doing a survey now to determine the extent of those defects, just how bad they are, how often they are cropping up, so by the time that is finished we will have a pretty good assessment of where that is going on and who is involved. In Texas we have a tremendous amount of building going on, and we expect that we will have a significant amount here relative to the rest of the country just because of the fact that there is so much going on. Mr. CONYERS. I want to commend your regional office for its appar- ently vigorous activity. Now, does the regional office cover areas other than Dallas? Ms. SMITH. Yes, we cover five States; we cover Louisiana, Texas, Arkansas, Oklahoma, and New Mexico. Mr. CONTERS. Are you empowered to operate with a fair amount of freedom from the national office? Ms. SMITH. I would say that we are. We are given the responsibility actually of `monitoring what is going on in our region as far as prob- lems iii the marketplace, bringing those cases and investigations that are needed to correct the regional problems. PAGENO="0075" 67 The restrictions on us has to do with the allocation of resources, so we compete with the other regional offices in terms of the dollars that are available. Mr. CONYERS. Does this surge of activity represent an increased focus on consumer affairs? Ms. SMITH. I would say that it does. We have taken special efforts to determine where the dollars seem to be going, and we find that 85 percent of the dollars, of the average consumer dollars, does go into the essentials of life. We looked around and said, "If we have to go into those areas, where can our agency with the kinds of resources that we have, make the greatest dent?" Mr. CONYERS. I only have a couple of other questions because I have read your statement and I am sure it will be reproduced in the record. Was the Federal Trade Commission, or is the regional offices ever consulted with regard to our national policies in terms of questions that bring us here today? Ms. SMITH. You mean out of our headquarters? Mr. CONYERS. Out of your headquarters office and further from the headquarters office to the chief inflation fighter and those who make administration policy? Ms. SMITH. Well, our contacts with Mr. Kahn's office specifically is not a direct one. We were invited to attend an orientation session at the time the guidelines first went into effect, but the contacts with that office are through the headquarters office. Mr. CONTYERS. It sounds like it is after everybody has decided, they tell you what the plan is. It would seem to me that, like this sub- committee representing the Congress, it wouldn't be a bad idea for the administration to find out what is going on through Government offices that have been established for decades. Ms. SMITH. We understand that-I understand that our headquar- ters office is in contact with various peqple in Washington. The ex- tent of that contact, I am not aware of. Through our annual report we are reporting to Congress as to what's going on in the regions as well as the headquarters. Mr. CONTERS. I think that's very good because my experience in the past, I don't know about my colleagues, the Federal Trade Commis- sion in Washington wasn't the most energetic agency going. Ms. SMITH. Well, someone has described our agency at one time as "The Little Sleeping Lady of Pennsylvania Avenue." In the last 2 years I think you will see there has been a tremendous turnaround, and as a result we are getting an awful lot of pressure from people who feel that perhaps we are too active. Mr. CONYERS. You can rest assured that you will be criticized for hyperactivity even when you just begin to move. Let me ask-this is my last question. I would like to just find out where this theory that is vigorously advanced in your statement comes from that competition is our most powerful weapon in the fight against inflation. Ms. SMITH. The theory is that if you have a variety of competitors in the marketplace, small, medium-sized, and large, they have inventives to do whatever is necessary in order to make it themselves. So if they can keep-if they can cut prices they are apt to draw more people in. Mr. CONYERS. Where does the theory of cutting prices come in? PAGENO="0076" 68 Ms. SMrnI. That's an economic theory. The economics is, as prices go up, the demand will trail off, prices drop. Mr. CONYERS. The law of supply and demand, which the last time it was offered was in the ninth edition of Samson's Economics Book. If it operates in Dallas, Tex., I would be delighted to take that back to Washington. Ms. SMITH. We believe that it operates, and we are working on that theory- Mr. ROSENTHAL. The reverse of it operates in Washington, you see, and many places around the country where major superniarkets in Washington, for example, at Safeway and Giant had divided up the territory to the exclusion of competition, and once they have elimi- nated the competition, there is no lid on the price rise. Mr. CONYERS. As the automobile industries in Detroit, when they have a year of producing less, they raise the prices so that the per unit volume of profits will leave them at the same point. Ms. SMITH. That is the very reason why you see an awful lot of in- terest in our agency in terms of the huge conglomerate mergers taking place across the country. We feel that when you only have a handful of companies in one industry, they can collude in a fashion, and it is essential that we look at breaking up those conglomerates. Mr. CONYERS. I agree with that theory, but relating the competition to fighting inflation, that's a different theory. I quite agree with you at this point, but the problem, of course, is that supply and demand is the theoretical concept. Now that we are in sectors which can literally control the prices without even merger and then I further remind you that the consolidations are going on at still an awfully high rate. There has been only a very small dimuntion in the rate of the biggies gobbling up the little ones in the private sector. Ms. SMITH. We are interested in what Congress will do with the legislation that will be proposed to deal with the conglomerate merg- ers all over the place because our efforts cannot be successful as long as something is not done about it. Mr. CONYIERS. Well, I am happy to know that the President is con- sidering such proposal. I didn't know that was in the works. Mr. ROSENTHAL. Without objection, your entire statement will be put in the record. I am interested in knowing, how long have you been the regional director of this office? Ms. SMITH. A little over 1 year. Mr. ROSENTHAL. During that 1 year, what things have you folks done either in fighting inflation or dealing with consumer complaints or anything in support of your charter mandate? Ms. SMITH. Well, one of the things we have done is trying to beef up considerably our consumer education program because recogrnzlng that a 30-person staff can in noway police a 5-State region- Mr. ROSENTHAL. Of the 30 persons there, how many are professionals? Ms. S~rrrH. Let's see, there are 15 attorneys and 6 consumer protec- tion specialists. Mr. ROSENTHAL, What have von done? Ms. SMITH- Well, we have had sessions where we have brought in people from the community to expose them to information. We have PAGENO="0077" 69 worked with local media, where possible, to get PSA's on stations. I have spoken and my staff has spoken at meetings whenever we get an opportunity, telling them about the rules, for example,' the eyeglass rule. We discovered that in most States where there are no restrictions on the advertising of eyeglasses, the prices for eyeglasses are anywhere from 25 to 40 percent less. So the rule then prohibits any bans on ad- vertising of eyeglasses. Second: The rule requires that a person be given a copy of his pre- scription. With those two things in mind, the consumer then can go out and shop around and get the best price. That means that the cost can go down. Mr. ROSENTHAL. Is there a law in Texas banning the advertising of eyeglasses. Ms. SMITH. There were restrictions in terms of the ophthalmic code. With the Federal Trade Commission's rule, that's knocked out. Mr. ROSENTHAL. What other areas have you worked in? Ms. SMrrIi. We have worked particularly hard on industrial life insurance. `People who are trying to protect themselves have been very concerned that they have insurance in case they die and their families not be left with it. We find that there is a particular kind of insurance that is paid for years with the door-to-door salesman and the return is very low. So we have held hearings so that people can hear those reports. We have prepared-there are news releases that come out regularly from headquarters. We make personal contacts to the local media to try to get them to use those PSA's. We have participated on panels and discussions about the generic drug susbtitution laws. Mr. ROSENTHAL. What is the situation here in Texas on generic drugs? `Ms. SMITH. Texas is currently considering the drug substitution law. We' are working with-we have `testified-I'm sorry, we worked with local groups, and we have written letters to individual repre- sentatives indicating that we are available to cOme and talk to them about the benefits of the generic drug substitution law. That bill is still in committee and we don't know where it is going to go. Mr. CONYERS. Well, then, your activity is perhaps exciting the con- cern of many in the corporate sectors, especially you being a woman and a black person as well? Ms. SMITH. That is conceivable. However, those are two things I have lived with all of my life, and it has been something that I can sometimes use to an advantage. Sometimes it becomes a problem, I recognize that, and try to work through it. Mr. .ROSENTI-TAL. Have you brought any cases here at all? Ms. SMITH. Yes, we have. Mr. ROSENTHAL. Tell me `what cases and what areas. Ms. SMITH. Well, in one nonpublic investigation I mentioned ear- lier in housing, we are looking preliminarily at the automobile in- dustry because a vast number of our complaints are about cars. Mr. ROSENTHAL. I am talking about here in Dallas. Ms. SMITH. I am talking about in Dallas, in Dallas, the housing case is in Dallas. `The `automobile preliminary investigation is in Dallas. PAGENO="0078" 70 We have another nonpublic case in which we are looking at a mer- ger between the dairy industry that I mentioned is here in Dallas. We have a study going on of the oil field industry. Mr. CONYERS. The oil industry, I would urge that you look at that with particular care. We already have indictments flowing almost like oil in terms of switched labels. `We find that there are a good number of conspiracies that may have been going on to fix prices and restraints of trade of quite a number of areas. As a matter of fact, the Department of Justice, you might want to know, is overburdened. They now need attorneys themselves merely to conduct the investigations that may lead to the grand jury hear- ings in these matters. Mr. ROSENTHAL. On the same subject, have you been working to- gether with these folks in the Department of Energy? MS. SMITH. We have liaisons in Washington with Energy- Mr. ROSENTHAL. I am talking about here, the fellow that testified this morning. Ms. SMITH. We have participated in the seminars and stand ready when it is appropriate for us to get involved in the implementation of NEA. We have not done specific kinds of tie-in programs in the region. Mr. ROSENTHAL. I was wondering if there was more that you could do in this area? Ms. S~rITH. Well, one of the problems is that we really are spread thin with 30 people, but we have tried to say, "Where can we do the most good where nobody is moving?" Health is another area where we have a nonpublic case going on. Mr. ROSENTHAL. What is a nonpublic case? Ms. SMITH. The case has not been announced to the public, the name of the potential respondent. The one case, well, you have probably heard of the Indiana Dental Association case. Mr. ROSENTHAL. We never heard of it. Ms. SMITH. In that particular case, the Dental Association boycot- ted insurance carriers who insisted that they carry out certain cost- contained programs. This is particularly important because the cost of health continues to go up and no one has a handle on it because you have an awful lot of third-party payments going on. So, in that particular instance the insurance carriers set up a sched- ule whereby the X-rays would be presented to them to see whether or not the kind of treatment being recommended was, in fact, the most feasible. The dentists banded together and said they would not cooperate. Mr. ROSENTHAL. Are you talking about here in Dallas? Ms. SMITH. This is the Indiana case. In the Dallas region we are in a nonpublic investigation that is equivalent to that. Mr. CONYERS. I think you are doing an excellent job. There is no doubt about it. Well, we haven't talked to other regional directors, but this lends me at least good reason to feel more encouraged about the Federal Trade Commission as an entity because it was really con- sidered to be a rather inactive part of the Federal Government. Mr. WILLIAMS. May I ask you something. You commented that you have 30 people? Ms. SMITH. Yes. Mr. WILLIAMS. To cover the five-State region? PAGENO="0079" 7.1 Ms. SMITH. Yes. Mr. WILLIAMS. How many regions in the FTC? Ms. SMITH. Ten. Mr. WILLIAMS. And that is 300 people? Ms. SMITH. Right. We have approximately- Mr. WILLIAMS. You say it is difficult to do the job that FTC has to do because of the limitation on staff? Ms. SMITH. Right. Mr. WILLIAMS. Just in my mind, how is the anti-inflation program nationwide going to work with a staff of 200 people? Ms. SMITH. I don't know, I really don't. Mr. WILLIAMS. We have touched on this at our hearings. It is cliffi- cult for me to comprehend whether we are seriously trying to attack inflation. I am not picking on anybody. I think the committee tried to point out to Mr. Kahn, in fact, our concern whether we are really being realistic or whether we are engaged in a window-dressing effort. I was listening to the numbers in your particular area, which is kind of a limited area. Mr. CONYERS. I believe that the morale of the citizens-of course, you are a five-State area, you can speak to this from a larger per- spective; how do people feel, which is why we came out here? Ms. SMrnI. Well, the kind of feedback I get when I talk to people is that people are very concerned. Many of them have taken sort of an attitude of, "I will do the best I can as long as I can." There is a grasping for information, any kind of information to help them to deal with the problem they want. There is not an awful lot of hope necessarily expressed that we will be able to do the job. Mr. WILLIAMS. Is inflation the No. 1 issue in Dallas? In my district it's unemployment. Ms. SMITH. From people I would talk to, I would think inflation is the No. 1 issue. Mr. CONYERS. Of course, for a person poor and unemployed, every- thing is a No. 1 issue. Ms. SMITH. Right. Inflation, makes it even harder to use that dollar to get food. Mr. ROSENTHAL. Thank you very, very much. We appreciate your testimony. [Ms. Smith's prepared statement follows:] PAGENO="0080" 72 STATEMENT OF JUERETA P. SMITH REGIONAL DIRECTOR FOR DALLAS REGIONAL OFFICE FEDERAL TRADE COMMISSION BEFORE THE COMMERCE, CONSUMER & MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS MAY 3, 1979 Mr. Chairman and members of the Subcommittee, I am Juereta Smith, Regional Director of the Federal Trade Commission's Dallas Regional Office. I appreciate this opportunity to appear before this body as it considers inflation and to offer testimony regarding the Federal Trade Commission's inflation fighting activities. My testimony here today will not necessarily reflect the views of the Commission or any individual Commissioner. On Thursday of last week the Labor Department announced that consumer prices increased by one full percentage point during the month of March 1979. This 12 percent annual rate of increase very vividly demonstrates the recalcitrant nature of this phenomenon called inflation and reinforces the need to use every available weapon in our struggle against it. President Carter has stated that competition is our most powerful weapon in this battle, and FTC activities illustrate just how powerful this weapon can be. PAGENO="0081" 73 Recognizing that inflation adversely affects the average consumer's budget for the basic necessities of life, the Commission is focusing its efforts on those factors which are most dramatically affected by increased prices; namely, food, clothing, energy, housing, transportation, and health care. With regard to food, the Commission has a long history of promoting competition in this industry by challenging mergers of food processors and food stores. Just last week the Commission, through our Office, challenged a proposed merger between the Southland Corporation and Knowlton's, Inc., two dairy processors in the San Antonio area. It is alleged that the merger would eliminate competition between the two companies. My view is that the merger, if allowed, would ultimately increase the cost of fluid milk to consumers of those products. Within the past few years the Commission has obtained consent agreements from several leading retail food firms setting standards of availability of advertised specials. The consent orders require these firms to have reasonable quantities of the advertised price specials on hand so that consumers who shop those specials in an effort to stretch their shrinking dollars are assured that their efforts are not futile. The consent agreements cover such food chains in this area as Safeway, Kroger, Food-Fair and Shop Rite. 52-21'4 0 - 79 - 6 PAGENO="0082" 74 The spiraling costs of housing is another critical area of concern to consumers throughout the country. The Commission has made it clear that resources will.be used to monitor this industry and correct abuses where found in the market. In one nonpublic investigation this office is looking at the. entire spectrum of problens encountered by the purchasers of new homes. Preliminary evidence suggests the presence of questionable marketing practices, product representations without warranties, and oppressive financing terms. We are concerned that some consumers are sinking their entire savings into the purchase of a new home only to learn that what they've bought is not what they believed they were buying. This office continues t~ work with both consumers as well as members of the housing industry to increase the availability of new home warranties so that new purchasers do not run the risk of being saddled with devastating costs to repair major structural defects in brand new homes. Turning to another important sector; overall transportation costs during March rose.l.2 percent, while gasoline prices increased by 3.8 percent during that sane.pariod of time. Consumers are facing drastic fuel cost escalations at the same tine they are paying more to buy, maintain and use transportation equipment. PAGENO="0083" 75 In this connection, the staff in the Dallas Office investigated the single source taxi contract which existed *at Dallas/Fort Worth Airport and in 1978 made recommendations for modification of that situation - modifications that, it is estimated, would have saved users of that service upwards of $700 thousand a year. Although the modifications to the contract at the airport do not track the FTC recommendations, some changes have been made. The study which was the basis of the staff recommendations generated considerable national interest and has been replicated and distributed to numerous municipalities across the country. Furthermore, our Office is currently in a very preliminary investigation concerning auto transmission repair industry practices and costs. Complaints indicate that consumers are being advised to make costly and, in too many instances, unneeded repairs to their automobile transmissions. In recognition that an increasing proportion of every consumer dollar is going to pay for health care, numerous Commission initiatives have been directed toward easing inflationary pressures in this sector. FTC investigations are exploring such issues as the effects of physician control of Blue Shield plans; alleged attempts by health insurers to inhibit the growth of lower cost health maintenance organizations; andalleged restraints by physician organizations on salaried employment of physicians by hospitals. PAGENO="0084" 76 T~ formal investigation that was the result of a task force report on prescription drugs explored the drug substitution laws of various states and generated a generic drug substitution model act. Under that ~ct, pharmacists would be permitted to substitute less expensive drugs for name brand prescriptions where such substitution was medically feasible. The Dallas Regional Office has carefully monitored the progress of generic drug substitution laws in its five-state region in light of the fact that it has been estimated that over $38 million could be saved for consumers if all of these states permitted generic drug substitution by pharmacists to the maximum extent. We are furthermore working actively with state legislatures that are considering this or similar laws. The Commission has obtained a consent agreement from the Indiana Dental 1~ssociation which prohibits that association from interfering with the cost containment efforts of insurers of dental services. Our Office, in another non-public investigation, is looking at a similar situation in this Region in an effort. to. encourage cost containment in health areas that could ultimately lead to cost savings for consumers. These types of money saving efforts by third party payers are critically important if. any significant damper is to be placed on the upward spiral of health care costs. Mr. Chairman, that concludes my prepared remarks. I would be glad to respond to any questions. PAGENO="0085" 77 Mr. ROSENTHAL. Our iiext witness is Mr. James Shepard. It is a de- light to have you. You are a private citizen; right? STATEMENT OF JAMES M. SHEPARD, PRIVATE CITIZEN Mr. SHEPARD. Thank you. Yes, sir, I am. Mr. ROSENTHAL. That is the highest honor that this Nation can be- stow on anyone. Go ahead, Mr. Shepard. Mr. SHEPARD. Chairman Rosenthal, Congressman Williams, and Congressman Conyers, I want to thank you very much for the oppor- tunity to appear here today. This is the first time in many years that I have appeared at a committee, so I may be just a little bit shy. My name is James M. Shepard, spelled S-h-e-p-a-r-d. Anyway, the reason why I am here is to acquaint you with an ob- servation of mine which I am qualified to tell you about. First of all, let me qualify my own characteristics by saying that I have a deep compassion for the very poor and underprivileged people. I believe that human rights are more important than property rights. I believe in the law of supremacy of moral law, the law of truth and love. Now, I wasa retail meatcutter for 20 years in my early years, begin- ning when I was 17 years old; therefore, I am able to describe to you exactly what I want to say that I feel is very important. I have observed recently, more so than ever, people who have food stamps, which are now free. We know up until the first of the year food stamps were purchased at, I think, a ratio of 60 percent and get 40 percent-buy 60 percent and get 40 percent free, but now they are totally free, since the first of the year. So meat prices have jumped tremendously since the first of the year, and I feel like this is the rea- son why. Mr. COXYERS. Oh, no- Mr. SHEPARD. If you will observe- Mr. CONYERS. I can tell you right now that that hasn't- Mr. SHEPARD. Wait a minute, Congressman Conyers. You don't know what I am going to say. If you will observe people shopping with food stamps now, a person comes into the store, say, with 50 dollars' worth of food stamps to buy groceries. The average food stamp recipient will buy al)out three- fourths in meat and about one-fourth in groceries. Mr. CONYERS. That's not true, either. Mr. SHEPARD. Now, Congressman Conyers, I know you have a right to your belief, and I'm not here-the reason why I said that, nobody has more of a compassion-and I'm poor myself, incidentally. I have very little bit. My wife and I are on social security- Mr. CONYERS. Well, when I am in the supermarket looking at peo- ple in front of me, they didn't do that. So how can I sit here and listen to you without just telling you that they are not buying hke that. Some do, but not the majority. . - Mr. SHEPARD. Mr. Conyers, if you will permit me this observation. All day, and it comes to the time to say what I want to say, and I am not saying this to hurt anybody, because I am in favor, of more food stamps, if that would be of interest to you. PAGENO="0086" 78 I would be in favor of more food stamps for the people who deserve them. I am not against people receiving food stamps; don't misunder- stand me at all. I am for that 100 percent. I was a meatcutter back in the years of the hard depression when anyone 0± you were not old enough to know, but it was at a time when it was really tough. There was nothing free for anybody from the Gov- ernment except for what they got from their neighbors or somebody like that that helped them, somebody like myself that helped people over the meat counter. I helped a lot of people. But what I am trying to make is the point that if you will observe the people with food stamps and how they buy, they will buy from one-half to three-quarters of the purchases in meat and about half to one-fourth in groceries. Now, the suggestion I have is this; if it is necessary, certainly issue more food stamps. So, Congressman Conyers, I hope you don't misunderstand me, and God bless you; I didn't come here for you to misunderstand me. I am in favor of more food stamps, but I am in favor of the food stamps being used in a way that will be most beneficial to everybody concerned. If food stamps are designated so many for meat and so many for groceries, in other words, when 100 dollars' worth of food stamps are issued, it would be $25 for meat and $75 for groceries. Now, that family will really eat better in the long run. As I say again, I listened to these people here, Congressman Conyers, and nobody would be favor of more food stamps if it takes them. I'm not against food stamps; I'm for it. I'm for them 100 percent, and I thank God that I lived long enough that our country came to the time where nobody is allowed to go hungry in our country. The point I am trying to make is this; if food stamps are utilized, and the meat purchases are not of such a greater ratio as they are, the price of meat would come down because I have every reason, and I have made a study of this, Congressman Conyers, Congressman Rosen- thal, and Congressman Williams, that 181/2 million people are eating enough meat for 40 million people. If these stamps were so designated, so much in meat and so much in groceries, I really believe that almost instantly when that goes into effect, the price of meat would drop 10 to 20 percent on the counter. If anyone has any questions. Mr. ROSENTHAL. No, I don't know, you know, what percentage of people spend their money on meat and food. I know in my own family we probably spend half as much money on meat as we do on the rest of the groceries. I'm not sure, but from what I see of my wife shop- ping, she spends more money on cleaning equipment and soap and Brillo than she does on groceries, which upsets me enormously. Mr. SHEPATRD. Well, I include that in the grocery department. Mr. ROSENTHAL. That doesn't do much fOr me. Also, I don't know myself whether you can designate food stamps like that. Different people have different diet habits, different interests. I'm not sure you can do that. Mr. SHEPARD. You don't believe that it could be done? Mr. ROSENTHAL. I don't know that you can do that, whether you can designate food stamps as to how people should use them, other than to say, "You can't use them for alcoholic beverages or cigarettes." PAGENO="0087" 70 Some people are on heavy protein meat diets and others are not. Many people are on diets that pretty much exclude meat; I don't know. Mr. WILLIAMS. Just to follow that a little bit further, don't you think that that's an individual choice, that we are kind of tampering with an individual decision that an individual should make? Mr. SIIEPARD. yes, you are right; but now i~t me explain. My wife and I live on social security. We wound up in our late life with practically nothing, and that was through some bad investments, which is our fault, but we don't have anything. See, I work a little bit and my wife works a little bit, and we barely make ends meet. This is the honest to goodness truth. When my wife and I go to the grocery `store, we would like to enjoy steaks and roasts and other cuts of meat that people who have food stamps buy, but I will tell you, holding my right hand and I swear before the good Lord, that many a week my wife and I wilihave oniy a soup bone and maybe a pound of liver, something like that, and that's all th~ meat that we can have for the whole week. That is because the price of meat is so high. Mr. WiLLIAi~rs. That's a good point. You have been in the business from way back in the depression days. `What can we do to control the price of meat? Mr. SHEPARD. Well, I thought that is what you all were searching for. Mr. WILLIAMS. That is what we are searching for. What, in your opinion, being a leader in that profession, has made this all happen to us, the cost of that meat going up? Is it wages that they have had to pay? Is it something else, or is it lack of competition? What is it? Mr. STIEPARD. Well, now, meat has been gradually going up, as you know, Mr. Williams, since 1973, and, of course, I think it took a little drop there along `about 1974 or 1975. Mr. WILLIAMS. Why has that happened? Mr. SHEPARD. But the reason why meat took such a big jump since the first of the year, and it has taken a much bigger jump-now, my wife and I, say, if we could afford a roast for 1 week, we were buying what is known as a seven roast out of choice beef, which most of the markets have. That would cost us 79 cents a pound. Today that roast sells for $1.49 a pound, and if it is advertised, it is advertised for $1.29 a pound. Now, there is a good example of how much beef has jumped since the first of the year. Mr. WiLLIAMS. What `made it do that? Mr. SHEPARD. Before the first of the year people who were receiving food stamps were required to buy 60 percent, they had to pay about 60 dollars' worth of food stamps and they got 40 dollars' worth free on that basis. Mr. WILLIAMS. You are saying, like critics of some other programs, that because there is a giveaway program in the food area, that this program is making prices go up? Mr. S~TEPARD. Yes, sir, they are getting those stamps free, they don't have to buy them. So. when they come in the grocery store. cer- tainly they are going to buy-I am certainly in fav~6r, if a persoui has to buy 100 nercent in meat and that is for their health, that would be all good and fine, but when people come in and shop and, for instance, PAGENO="0088" 80 my wife works in a laundry, see, and some of the people working there hat make a lot more money than my wife makes gets food stamps and they tell my wife all about how they get a freezer full of meat and it gets old and they throw it away and go down and get some more. Mr. WILLIAMS. Do you think that made the price of meat double in the last 6 months? Mr. SIIEPARD. I think that this has been a very big contributing fac- tor. Now, to prove my point, look what happened to oil when Iran cut off he world's supply- Mr. WILLIAMS. I happen to think that's ridiculous. Mr. SIIEPARD. Just the 6 million barrels they shut off all of a sud- den made a big difference as far as price is concerned. Mr. CONYERS. But that is what we are beginning to wonder, whether that is a canal connection or whether people used that as an excuse to raise prices. Congressmen are asking that question. Mr. SHEPARD. Well, we have the same amount of meat. Let me put it this way. We have got the same amount of meat for supply for a great number of people, but when 181/2 million people are eating as much meat as normally 40 or 45 million people eat, then that's why the price of meat took a very large jump, you see. Mr. CONYERS. Well, let me indicate, first of all, that I have been very sympathetic about your intentions. There is no question that you are a citizen of enormous goodwill. You have experienced poverty your- self, you reallly don't want to be deprived of the basic necessities of life. You have a recommendation to us that is probably a little diffi- cult for this subcommittee to enact. I think this ought to be really carefully examined by the Committee on Agriculture who handles food stamps and these questions. I just want to say to you on a personal basis that I have apnre&ated your testimony, and I didn't mean to intrude as many times as I did. Mr. SHEPARD. Thank you, sir. Anyway, the point is to designate so much of the food stamps for meat and so much for groceries about like the average family buys. Mr. ROSENTHAL. What would you do if my wife spent 50 percent of her money on cleaning equipment? Mr. Sm~PA1m. I would say your wife must keep an awfully clean house. Mr. ROSENTHAL. We have nothing to eat, but it is very clean. Mr. SHEPARD. Well, I will tell you. sometimes, you know, if every- thing is nice and clean you can imagine some good food in front of you even if it isn't there. Anyway, this is just in conclusion. I hope, Congressman Conyers, that you didn `t. misunderstand me he~ause let me tell you something, Congressman Conyers. My wife and I have lost more friends in Dallas on account of our love for black people here than for any other reason. So~ I don't want you to he misunderstanding me, sir. When I worked for the meat market during the depression, things got tough. as you know from history. I knew a family that was very wealthy that lost everything. They had a little boy about 8 years old and hardly ever would I see the mother, but he would come in every day after school, and he always wanted some *bones for his dog, so I gave them to him. I gave bones free to everybody. PAGENO="0089" 81 One day he came and called me down to the far end of the counter and he said, "Mr. Shepard," he says, "My momma told me to tell you that the bones that you gave us yesterday made the whole family sick, and if you will, we sure would appreciate it if you would give us fresh bones." So I knew then that they were boiling those bones and that's how they were living, you see. So I made sure that the bones were fresh from then on out, and I usually would leave a little extra meat on them. Mr. ROSENTIJAL. That's very, very nice- Mr. SHEPARD. But, you see, sometimes people don't understand people. Mr. ROSENTHAL. We have to get to the next witness. He is very anxious to go. Mr. SHEPARD. Well, anyway, I will conclude by saying thank you very much. Mr. ROSENTHAL. Thank you. It's a pleasure to see you, Mr. Shepard. Mr. SHEPARD. Well, I'm sorry you all didn't understand. Mr. ROSENTHAL. No, no, we enjoyed it, and we will convey your recommendations to Chairman Foley who is the chairman of the Agri- cultural Committee. This is Mr. Dick Hueholt, vice president for governmental and public affairs, Dallas Chamber of Commerce. Are you going to tell us where to go have dinner before we leave this town? STATEMENT OP RICHARD L. HUEHOLT, VICE PRESIDENT OP GOV- ERNMENTAL AND PUBLIC APPAIRS, DALLAS CHAMBER OF COM- MERCE, DALLAS, TEX. Mr. HUEHOLT. We very much appreciate the chance to talk with your committee, and we want to welcome you to Dallas on this day that you are almost risking your life here today, so we really appreciate this. We also appreciate what you are trying to do, so I would like to give this brief statement to you.. The Dallas Chamber of Commerce sees its role in the anti-inflation program as that of being a distributor of information and a communi- cator between the business community and the Federal Government. On August 17, 1978, the chamber scheduled a meeting in Dallas be- tween selected business and communit.y leaders and the staff of Robert Strauss, then the President's chief inflation adviser, to discuss ways in which the Government could work with business to combat inflation. In December 1978, the chairman and president of the Dallas Cham- ber of Commerce attended a White House briefing on the wage and price guidelines adopted by the administration. Since August we have kept our Dallas Chamber board and members informed on the anti-in- flation efforts. We also realize that the economic inflation spiral has been going on for 13 years, and there is no real quick remedy. In the August meeting, members of the Dallas business community expressed concern over many aspects of our economic condition. Of major concern is that Gov- ernment regulation is really overregulation, costing millions of dollars PAGENO="0090" 82 without any real benefit. Another source of concern is the Federal Gov- ernment's policy on deficit spending, which fuels inflation. Our energy problem' and the country's inability to cope with alter- native sources should be one area in which the Government and the private sector can come up with workable solutions. At a TJ.S. Chamber of Commerce meeting in Washington this week, which I just got back from, a poll was taken concerning the fight on inflation. More than 800 respondents from all over the TJnited States, business and chamber of commerce executives, gave their opinions, and they are as follows: 48 percent voted that inflation will be worse in 1980 than 1979; 83 percent voted that the primary cause of inflation is Government spending; 95 percent supported a balanced budget. To accomplish this, 78 percent favored reducing Federal programs and regulations; 33 percent thought that there would be more good times than bad times in the economy in the next 5 years. However, 53 percent thought that there is some chance of recession in 1980, and 67 percent thought that the Federal Government would be unsuccessful in establishing economic policies to fight inflation and unemployment. Also, 38 percent thought that air and water regulatory programs cost American industry the most and that 35 percent of them thought that the air and water regulatory programs should be reduced to cut their cost impact on our economy. The Dallas Chamber of Commerce has not taken a poil concerning inflation, but if we did, we believe that the response we would receive would be similar to information presented above, which we just re- ceived yesterday. The Dallas Chamber of Commerce's position on inflation is sum- marized as follows: No. 1, we believe that the primary cause of inflation is Government spending. We support a balanced Federal budget. We believe Federal programs and regulations should be reduced. We believe air and water regulatory programs should be reduced to cut their cost impact on our economy. The Dallas Chamber of Commerce remains willing to continue its role as communicator between the Federal Government and Dallas business in our effort to combat inflation. With that, I would very much thank you for your time and attention. Mr. ROSENTHAL. I am just curious-I think it is a good statement. When you say the chamber of commerce's position that the primary cause of inflation is Government spending, what programs would you recommend that we significantly reduce? Mr. HUEHOLT. Well, let me cite just one example, as you are all aware of in your own States. We. have a State implementation plan through our State of `Texas `that we will'submit `to EPA, and this will require a lot of things, or certain sanctions will come onus in the State. One of the things is* the requirement for reasonable, evadable con- trol technology on such business enterprises as our cleaning establish- ments. Let me cite an example. Say our suits take a dollar to have cleaned. Starting the 1st- Mr. ROSENTHAL. Say what? PAGENO="0091" 83 Mr. HUEHOLT. Say it costs a dollar- Mr. ROSENTHAL. Does it? Mr. HUEHOLT. I am just using that as an example, to clean a suit. Now, after the 1st of July, when they put in this expensive equipment to clean up this photochemical oxidant, they will spend about $10,000, $15,000 to put that equipment in. It has got to come from somewhere, so you know where it is going to come from; it will come from us when we have our suits cleaned. Mr. ROSENTHAL. I am just curious. In the total Federal budget, which programs do you think we should cut? Mr. H1IEHOLT. Well, here are some of the ones that were highly- they felt should be rednced. Air and water quality requirements was the No. 1. Equal employment regulations was the second one that came lip. Health and safety of employees was the third one. Federal Trade Commission regulations was next. Federal contracting regulations was the next one, and product safety regulations was the next one. That was in the order of, I guess, importance. Mr. ROSENTHAL. All of those probably don't amount to one-tenth of 1 percent of the Federal budget. Mr. HTJEHOLT. I'm sure that it doesn't cost the Government, but it costs- Mr. ROSENTHAL. When you talk of the primary cause of inflation being Government spending; if we totally eliminated the deficit, it would have virtually no impact on inflation. Eighty percent of the inflationary items, housing, food, medical care, and energy, if you totally eliminated the Federal deficit, it wouldn't affect those at all. The Congressional Budget Office has estimated that if you eliminated the Federal deficit, it would have a one-half of 1 percent impact on inflation. Mr. HtITEHOLT. Let me cite another example. You have mentioned energy. I presume you are mentioning- Mr. ROSENTHAL. All energy. Mr. HUEHOLT. Heating and the people that have- Mr. ROSENTHAL. Like a lady here testified, she gets social security of $180 a month, and she pays $103 and $105 a month. Mr. H1JEHOLT. Let's take that example for a moment. Mr. ROSENTHAL. That gives her $20 a week for food. Mr. HUEHOLT. Right. Let us take that example for a moment. We, as you know, are trying to move into fossil fuel generating units for electricity. That is one of the President's goals. Now, when we build 10 plants here in Texas to, say, burn lignite, we have to build another one, one just to take care of the scrubbers. Mr. ROSENTHAL. To take care of the what? Mr. HUEHOLT. To take care of the scrubbers. That is what cleans the air, supposedly, as these lignite plants are burned. When the air is emitted from these plants, even with those scrubbers, they can just make the standard then. There is why these energy costs go up. Mr. ROSENTHAL. Do you think that the major inflation push on energy is from the scrubbers? Mr. HUEHOLT. This is an example. Obviously, it is not the only thing that is causing inflation, but it is certainly one reason why the electric costs are going up. PAGENO="0092" 84 Mr. ROSENTHAL. You think the biggest problem is these clean air and clean water items? Mr. HUEHOLT. Well, this is one of the major areas that are causing inflation. It has a ripple effect. Mr. ROSENTHAL. Do you know what the numbers are in that area? That represents an incredibly small percent. Mr. WILLIAMS. You have stated that the chamber has said Govern- ment spending is the number one cause of inflation, according to your poll. What would you think is the number two reason? I think we have had pretty substantial testimony, as the chairman has commented, from leading economists throughout the Nation, that if we balanced the Federal budget, it would have very little impact on the rate of inflation. Mr. ROSENTHAL. That doesn't mean that we shouldn't try. Mr. WILLIAMS. We are not justifying deficit spending per se. What would you suggest; mandatory controls, or something like that? Mr. HIJEHOLT. Again, and this thing is so fresh that I haven't even- Mr. WILLIAMS. I understand it is a poll. Mr. HUEHOLT. This second reason these people felt, the second cause was labor-wage demands. Mr. ROSENTHAL. How do you feel about profits of all the oil com- panies, 200 percent, 100 percent; how do you feel about all of that? Mr. HUEHOLT. I think that our country, t.hat I personally have fought for in the Korean war, and flew100 missions-and I have been a good citizen of the Ijnited States all my life. I feel, in free enter- prise, and I think that if a company is able to make a profit and he can go and explore for more oil, there is a lot of oil here, a lot of gas in Texas, but these people are not going to use their capital to do that unless they feel they are going to get a good profit from it. Mr. ROSENTHAL. Do you think 300 percent is conscionable? Mr. HUEHOLT. Obviously, the 300 percent would be a very high profit. Mr. ROSENThAL. I saw in today's Washington Post where Mobil Oil Corp. just announced that they are against decontrolling the price of fuel. They are leading a revolt within the oil industry. Mr. HUEHOLT. I did not see that. Mr. ROSENTHAL. I'm sure that it will cause a major effect here in Texas. Well, that's what makes for horseraces. Mr. HUEHOLT. Well, we really sincerely appreciate your coming here. Mr. ROSENTHAL. We are delighted to come here, notwithstanding the weather and personal risk to our lives. Mr. HUEHOLT. You are never going to believe sunny Dallas. Mr. ROSENTHAL. I have been here a couple of times before and the weather has always been delightful and the people have been hospit- able and amiable and the ambiance has been perfect, really. We ~re anxious to find out what people think about inflation and about the impact and efficacy of wage-price guidelines, the effect it has on lives of people who don't have a chance to tell a congressional com- mittee how they are getting along. Yours is one of the many pieces of testimony that we consider significant and valuable. Mr. HUEHOLT. Thank you very much. PAGENO="0093" 85 Mr. ROSENTHAL. I assume we have covered everybody. Gentlemen, we are delighted that you are in our audience and appre- ciate whatever advice, guidance or recommendation that you have on this national problem. Why don't you identify yourselves? STATEMENT OP MARTIN KATZMAN, HEAD OP GRADUATE PRO- GRAM IN POLITICAL ECONOMY, UNIVERSITY OP TEXAS, DALLAS, TEX.; ACCOMPANIED BY PETER LEWEN, RESIDENT EXPERT ON MACROECONOMIC POLICY, UNIVERSITY OP TEXAS Mr. KATZMAN. My name is Martin Katzman. I am professor and head of the graduate program in political economy at the University of Texas in Dallas, and my colleague is Peter Lewen, who is our resi- dent expert on macroeconomic policy, also the University of Texas in Dallas. One question we have is, why would a congressional subcommittee particularly be concerned with the regional impact of inflation? Why would inflation be any different here from any other place? We appre- ciate-from seeing the process, it was important to us to realize that you are trying to get a vision of what kind of policies would be ac- ceptable to various segments of the population and what their feelings would be toward macroeconomic policy as opposed to wageprice guide- lines, and we appreciate that, but our feeling is that the solutions are essentially macroeconomic and political rather than technical economic issues. The question is, what is acceptable politically rather than what is the answer economically. Economically, inflation is not a problem, it is a question of money supply increasing faster than the rate of growth of the economy. So the question is, why is the money supply increasing that fast? What are the political forces that are leading to that increase? Here we are at a loss. As professional economists, we can't really say very much because we feel the goal is really in the political court rather than in the court of economists. Economists probably agree, 90 percent consensus, that the issue is one of the money supply increasing at a rapid rate. While we talk about the impact of increases in the money supply, we can't explain why the money supply is increasing. Mr. ROSENTHAL. You say that the answer to the whole question is to restrict the money supply? Mr. KATZMAN. Well, yes. There is an extraordinary amount of evi- dence that over time, over the long run, that the rate of inflation de- pends on the rate of increase in the money supply and that all sorts of games, price controls, wage controls don't work in the long run. We don't have good experience in that. The question is, then, why can't we reach a consensus on reducing the rate of increase? Mr. ROSENTHAL. What would happen if the money supply were reduced? Mr. KATZMAN. If you did it instantly, we would have unemploy- ment. The question is, can we do it gradually? The question you raise, Congressman, about what programs would you cut or where would you reduce, is one that is not an economic question, but it is a political ques- tion, the matter of finding that consensus, that thing that we can all agree on that will enable us to reduce the rate of the increase in the PAGENO="0094" 86 money supply. As economists, we can't give you any answers. We can just tell you the consequences. Mr. WILLIAMS. You don't feel that competition has anything to do with it? Mr. KATZMAN. To tell you the truth, no. What is interesting- Mr. WILLIAMS. Personally, I'm sorry to hear that. Mr. KATZMAN. What is interesting about the inflation today is that it brings up a lot of structural problems in the economy, not really re- lated to inflation, but good to be brought up anyway. It is a great idea we are deregulating several industries. It is a great idea to increase competition. That won't have any impact on the rate of increase in prices. It may affect the* relative prices in one sector as opposed to another, but the longrun solution to inflation has nothing to do with competition or deregulation. We may use inflation as an excuse to do things we ought to be doing anyway, but we won't solve the inflation problem by deregulating any particular industry or changing our environmental regulations or changing our structure of competition in any particular industry. Mr. ROSENTHAL. Let's go back to the fundamental proposition that you suggest, that the restriction of money supply would solve inflation. If you did it quickly, it would cause unemployment; how much? Mr. KATZMAN. It depends upon how quickly you did it. I don't think anybody, any economist would deny the drastic effect of a rapid restriction of the money supply and unemployment. The question is, what is the longrun effect? The longrun effect is that after much disruption, we would adjust, and we could avoid that pain of adjustment by slowly decreasing the rate of increase in the money supply. Mr. ROSENTHAL. What effect does inflation have on your life and on the conditions in your school? Mr. KATZMAN. Well, it's funny, we were thinking beforehand, infla- tion must be benefiting somebody, otherwise we wouldn't have it. Clearly, we are talking here with people who seem to be losing, people who claim to be losing by the inflationary process. I feel I am losing; the people from the welfare organization seem to be losing- Mr. ROSENTHAL. What effect is inflation having on your life and on the school? Mr. KATZMAN. As I say, I feel I am losing, too. My wages aren't increasing as fast as the cost of living. Mr. ROSENTHAL. What impact is it having on the school and the number of individuals that go to school? Mr. KATZMAN. The same thing, the same thing. The budgets that we have to hire people aren't rising as fast as market wages. The stu- dents who have to work their way through school are having difficulty as well, but that's across the board. That's nationwide. Mr. ROSENTHAL. Are the wage-price guidelines having any impact? Mr. KATZMAN. Not that we are aware of. I don't see how they are really affecting us. Mr. ROSENTHAL. Are they affecting anybody in society, that you are aware of? Mr. KATZMAN. The guidelines haven't been in operation that long, but the case that the union members made seems to be quite per- suasive in the short run. It would be, the wage-price guidelines would PAGENO="0095" 87 function to keep wages down ~n a collective bargaining process for just a short time. Eventually there will have to be a catchup period. I think the experience of the wage-price controls in the Nixon administration indicate that that doesn't work. Mr. ROSENTHAL. They were never really tried. Mr. KATZMAN. Well, I suppose they never were. Maybe they can't be tried; that's the problem. Mr. WILLIAMS. Do you recall the rate of inflation during that period? Mr. KATZMAN. Well, yes. We thought it was intolerable at 4 percent- Mr. WIr~LIAMs. Runaway. Mr. KATZMAN. Four percent runaway inflation. Gosh, wouldn't we love to be back in that situation where we have 4 percent- Mr. WILLIAMS. Do you feel that it was really tried? Mr. KATZMAN. No; but I don't think it can. That' the problem. Mr. WILLIAMS. Why? Mr. KATZMAN. Because there is always some industry or some group that will say, "We have got a shortage. There is absolutely no way we can meet our production demands under the guidelines. We have to have an exemption," and the system got an exemption to that. Mr. LEWEN. Perhaps I could add something to that. I can't put it more~ strongly than to say that wage/price controls and guidelines, perhaps to a lesser extent, really undermine the moral fiber of the Nation. They really deal with the symptoms of inflation rather than the causes. In so doing, they really encourage people to be devious. Most of our laws and most of our institutions are based on the principle that individuals should follow their own self-interests. When it comes to wage-price guidelines, you encourage individuals to follow their self-interests as opposed to the national interests and public interests in this particular case, and they get outlawed and chastised, and you make criminals out of people who in more normal times would be doing-would seem to be public-minded people. I guess what I am saying is, wage-price guidelines cannot be effec- tive insofar as they deal with symptoms and not the causes. The longer you keep them on, the worse it gets. Mr. ROSENTHAL. What are the causes? Mr. LEWEN. The cause of inflation is the increased aggregate amount ahead of supply, which in modern economy, the money supply ad- vancing ahead of supply growth. If you try and put wage-price controls on an economy where aggre- gate amount of money is expanding ahead of supply, and you try to keep them there, what you are in effect doing, the analogy is to turning up the pressure on a pressure cooke.r while trying to keep the lid on continuously. In the end, you are going to get an explosion. Mr. ROSENTHAL. An explosion is recession? Mr. LEWEN. The explosion is recession, and when you finally take wage-price controls off, you are going to get massive inflation. Mr. ROSENTHAL. Assuming you are correct, and assuming you said that 90 percent of the economists in the country agree that the restric- tion of the money supply is the answer, why, do you think, isn't that done? PAGENO="0096" 88 Mr. KATZMAN. I guess you as political leaders would have to help us identify who the people are who are gaining by the current rate of expansion in the money supply. There have got to be gainers; otherwise, the system wouldn't work that way. We know there are losers, but there have got to be some groups that appear to be gaining and who are unwilling to sacrifice their programs. Mr. ROSENTHAL. Who is gaining? Mr. KATZMAN. That is the question we would like to ask of you. Mr. WIlLIAMs. I probably agree with you. I thought economists would know that answer. Mr. KATZMAN. Well, I suspect that every special interest would have its particular program it would not want to sacrifice. It would want to retain it in the budget- Mr. ROSENTHAL. Let me just finish. Who is gaining? Labor is not gaining? Mr. WILLIAMS. Are the teamsters gaining? Mr. KATZMAN. Well, the question is, who would lose by reduction of money supply? Well, if it was my program that you were cutting out, if you were going to cut out, for example, aid to higher education- we don't get much-I would kick and scream. If the farmers were going to get their agricultural subsidies cut back, they would kick and scream, and you can go on and on and on. Mr. ROSENTHAL. All of these programs are not a significant propor- tion of the money supply in this country- Mr. KATZMAN. Well, the question is- Mr. ROSENTHAL [continuing]. Restricted by high interest rates? Mr. KATZMAN. Well, but you add them all together. For example, you have transfer payments, which are the largest element of the budget. If you reduced those, you would have people who were receiv- ing social security payments complain- Mr. ROSENTHAL. Do you know that maybe 60, 70 percent of the Federal budget is fixed, that there is no choice; social security pay- ments, things like that? Mr. KATZMAN. Well, it is fixed in the very short run; that is, Con- gress did raise social security schedules in the last couple of years. It is fixed today, but it is not fixed over a 10-year period. We are talking about a process that has built up over 10 years, and it is not a process that can be reversed readily; it is going to take years, I think, to reduce inflation. There is no way to reduce inflation next year. Mr. ROSENTHAL. Food prices in Dallas in the last year have gone up as high or higher than any other part of the country. Has that had any significant effect around here? Mr. KATZMAN. Well, it just means that it is more expensive to go to the grocery store. You wouldn't expect prices to increase in every item all around the country at the same rate. There is no reason to expect prices of everything to increase at the same rate. Mr. ROSENTHAL. If I asked you what your recommendations are, one, two, three, what would you say? Mr. KATZMAN. Well, I would say that the Feds should take a policy of reducing the rate of increase of the money supply. I would favor expenditure limitations at all levels, State, local and Federal Government, PAGENO="0097" 89 Mr. ROSENTHAL. Expenditure limitations' for police, fire, sanitation? Mr. KATZMAN. Well, for example, in Texas-I am a new Texan. I was from Massachusetts and lived there most of my life. I was just astounded at the high quality public service I am getting for about one-half the price I was paying in Massachusetts. Mr. ROSENTHAL. You think they are running government more effi- ciently here? Mr. KATZMAN. Yeah, to a large extent, they are. One of my special- ties is public finance, municipal, State and local finance, and I didn't believe it was possible. I am not saying that the level of public services is the same as Massachusetts, but it is 95 percent as good at half the price. The reason is, they are using more modern technology, fewer workers to do the job, and they are more serious; the professionals are more serious. Mr. ROSENTHAL. Take unemployment insurance; if a `person were unemployed in Massachusetts, how much would he get? Mr. KATZMAN. I forget the number, but it was fairly close to what the going wage was. The incentives to not work were quite attractive compared to the incentives to take a minimum-wage job. In Texas, there is a very poorly developed welfare system, as these witnesses testified, that unless you work, you starve'and, unfortunately, that is a byproduct of having a poorly developed welfare system. A lot of people are on the verge of starvation. However, the other part of it is, you have a low unemployment; people cannot afford to be voluntarily unemployed. Mr. ROSENTHAL. Does anybody else have anything to say? If not, the subcommittee stands adjourned. [Additional statements submitted for the record follow ~] 52_21L~ 0 - 79 - 7 PAGENO="0098" 90 Community Services, Inc. P. 0. Box 612 Tel. 214/874-5697 Corsicana, Texas 75110 esealed hi Se~e S~A ~ ~ May 5 :~ ~ - Representative Benjamin Rosenthal, Chairperson ~ Houes Subcommittee on Commerce, Consumer and Monetary~Affaira-..._----.._ House Office Building Washington, D.C. 20515 Dear Representative Rosenthal: I was advised of your Subcommittee hearing in Dallaa April 30, 1979 and I was not able to attend because of the impacts of inflation over the past 13 years. You see this is the result of more demands on our agencies to provide services at former levels with less and less resources to administer them. We have less staff assistance, less time to release staff to attend many worthwhile hearings and meetings where the interests of the public and our constituency should be represented, and less resources to continue services that are needed by the disadvantaged populations of the area. Note that in 1967 our allocations from OEO (now CSA) was $172,000 and in the present year in is only $186,000.--. During that period of time inflation has has doubled. In the process we have deleted many administrative positions such as assistant directors, planners, evaluators; reduced services staff or tried to substitute with CETA wherever possible; and eldminsted many services such as outreach, referral, followup and housing counseling. At the same time the area service coverage was expanded to 9 counties on the many special projects that Congress appropriates such as Emergency Energy Assistance, Weatherization, Summer Youth, Migrant/Seasonal Farmworker and other projects. The facts speak clearly, the people are feeling the impacts, and yet not anyone seems to know or have the responsibility/initiative to manage the inflation problems. These are some specifics I want to mention for consideration: --The Congress needs to put a stop to all the spending on useless activities such as HUD planning, COGs/, consultants, indirect costs to education/non-profits COG5/ and similar agencies, and the 20% discretionary spending by federal agencies. These are useless and produce no direct benefits to people. --The loopholes in the recent Carter inflation guide lines need to be closed. For example, GM coming out with a warmed over Nonza/Vega in the Citation as a new product that is exempt from the 7% increase limits, --Congress needs to provide for a manageable system to manage the economic factors impacting on inflation such as interest rates, money supply, consumer protection, wage/price controls etc... Put a driver in control and responsibility. The present situation is like letting the Budwieser horses go in every direction and the economic wagon is going down hill by itself. --Initiate a research/development program to make this nation self-sufficient in energy with renewable energy resources such. as solar, water, hydrogen etc. within ten years, so as to free the people from dependence upon oil,gas, coal, nuclear sources alone as now. . I trust your Subcommittee can initiate steps to address these problems. Jerome Vacek A Teoc, Ncc P~c~it O~gacisetice Executive Director PAGENO="0099" 91 OFFICE OF THE GOVERNOR V?LLIAM P. CLEMENTS,JR. EXECUT$VE OFFICE BUILDING GOVERNOR May 1, 1979 The Honorable Ben S. Rosenthal, Chairman Commerce, Consumer, and Monetary Affairs Subcommittee House of Representatives Room 377, Rayburn House Of f ice Building Washington, D.C. 20515 Dear Mr. Rosenthal: I regret t1~at I an unable to personally attend the hearing to be held on May 3, 1979 in Dallas. Please accept the attached letter to Alfred lZehn in lieu of my appear- ance. laths letter I have indicated areas in which Governor Clements * is working to get at the root causes of inflation, including excessive government spending and inefficiency. Thank you for inviting me to participate in your progran. Please keep in touch with me about future developments in our Texas program. will be glad to work with you and your committee in any way possible to aid in your anti-inflation efforts. SiT!=~ely, ~ Paul `f. Protcnbery, Director~...J Budget and Planning Office cc: Jean Perwin Enclosure PTW:gg PAGENO="0100" 92 OFFICE OF TIlE GOVERNOR WILLIAM P. CLEMENTS, JR. EXECUTIVE OFFICE BUILDING GOVEMSOR April 20, 1979 Mr. Alfred kahn Advisor to the1 President on lnif3atic~n The White House Washington, D.C. 20500 Dear Mr. kahn: Thank you for your letter coarntrnicating information about I'rcsident Carter's Ilnti-I,lflation Program. Governor Clesents ehares our n~tSon'S conccrn with inflation and is ~etiveIy advocating objectives and programs which will contribute to solving this most critical problca~.. Am. Texas' Covernor, he is exerting influence upon, Texmn l.op.lslatnrn and agencies. to increase the cost effectiveness of State government wherever possible. ]n addition to holding State employee nelarics to an increase within the Presidents' gnide1Sn~ of 7k, he has set an oi~jcctive of reducing the tiumber of State employees over the next four years by 25,000 or a 162. reduction. He believes that Inflationary conditions across the nation as well as in Texas point up the necc~sitv for belt- tightening by everyone, and I.ertlilps most importantly * by attn Federal and State governments. The Governor's program Iticludea the philosophy of retaining for government use only whet is needed to meet its imicreaned costS of providing essential services and returning any surplus tax revenue back to the taxpayers. We are currently reevaluating state pci ides (or the npplIcnt~on review and expenditure of Federal funds in order to ansure alignment with State and Federal objectives. I stron~3y support thin! efforts of the Office of ilanageneot and Budget to reform the grant-in-aid system. In this area of state government and others, we are considering possible ways to put automation to use. I'rograms are now being format] ated tn' mt rodueo a st rottg Management Dy Object ives syntemn coupled with itiprovemnent and expansion of our current Zero-Bane Budgeting process. litrouhh, these Irc'1~rnms covcrnor Cl ements is committed to promoting efficiency and accountability in Texas government. PAGENO="0101" 93 We are considering the establishment of an Antt-tnflatton Task Force as another step in strcuigthenlng the visibility of our efforts toward an overall Texas program. t anticipate calling on you for assistance and appreciate the suggestions thus far received. SJj~cere ty, Jf~o T~t~E&(J!cA(J PauL T. ~roteuh~ry, flirector J 8uuiget cci Planning Office PTL~:th cc:Governor William P. Ciements, Jr. PAGENO="0102" 94 May 3, 1979 The Honorable Benjamin S. Rosenthal, Chairman Commerce, Consumer and Monetary Affairs Subcommittee of the Government Operations Ninety-Six Congress - Congress of the United States - House of Representative Meabers of the Hearing Panel: I consider it a~ privilege to appear before this hearing to share with you the impact of inflation on the consumers, blacks, minorities and the poor, here in the Dallas Metropolitan area. I am Roosevelt Johnson, Jr., Executive Director of the Dallas -Urban League. For more than 60 years the National Urban League, Incorporated has attempted to serve the disadvantaged, black and other minorities across this country. For more thin ten years this affiliate of the National Urban League has directed it's attention ~o the Dallas Metropolitan area. There is no doubt in our mind, that inflation in Dallas is placing and unwarranted burden and effects the poor and working people the hardest---price rises in food, health, housing and energy. The Dallas Urban Leagues' Housing Counseling Program is a good example of the negative impact on poor people in Dallas. We receive from H.U.D., more than 500 referrals monthly of persons representing families, who are two and three month behind in their mortgage payment. More than 50% lose their homes because they are unable to pay their mortgages and feed their children. The Dallas Urban league Employment program "CETA" is ineffective because inflation has paid its toll before we are able to train people for marketable skills to receive inadequate salaries. Ex-offender programs are in difficulty PAGENO="0103" 95 because it is easier to live in prison than it is to survive outside the institutions. High school students are unable to cope with the work ethic because of no jobs, no money , etc. The above kinds of standard is in effect contradictory to our learning in school about our Junerican way of life. It gives me the impression that the most damaging effects of inflation lies in the existing, none-responsible dialogue. We often get the feeling that if inflation wasn't a problem, it would have to be invented. Inflation has been used as an excuse to cut Federal spending, to induce a recession and to put the poor working people and minorities in to an economic ~traightjacket. We can't have homes, services or jobs. Why? Because they' 11 be inflationary. We do not underestimate the importance of fighting inflation. It is firstof all, a terrible tax on the poor, and second a stick aimed at- beating social programs. - We `join the National Urban League, Inc., under the leadership of Mr. Vernon Jordan, in advocating, `that fighting inflation effectively does not conflict with meeting national needs and priorities". Continuous concentration on the demand in the battle against inflation, squeezes the economy, slows growth in personal incomes, induces unemployment and neglects urban housing, health and education needs. The Urban League movement does suggest that special consideration be given the supply side. Housing costs are going sky high because there aren't enough dwellings to meet the needs of an expanding population. Health costs are going through the ceiling because of a health delivery system that does not meet the needs of the nation while remaining irrational and without accountability. Food and energy costs are affected by the structural makeup of those, industries and by governmental actions that tilt the balance toward higher prices. PAGENO="0104" 96 Cutting federal spending on jobs, onhealth, on housing, isn't going to have any effect at all on the inflation rate. A lower federal deficit is peanuts in an economy the size of this nation's. And tightening the screws on the poorest among us won't shave a fraction of a percentage point off the inflation rate. All these actions will do is make the poor poorer, and survival more difficult and more painful. Indeed, the ultimate cost of such policies, in terms of crime, dependency, health and mental breakdowns, and shattered aspirations will inflict far more damage on the economy than inflation. So while inflation is a problem, we've got to guard against makirrg the way we fight inflation an even bigger problem. Inflation has been too big a problem for too long to expect it can be curbed by short-term measures. We should be taking a longer view, and work now to battle inflation on several fronts. Such steps would include: :Wage-price guidelines that are fair :Federal policies tilted toward increasing productivity and preserving real IflC3mes. :Selected measures that limit costs in the key areas that hit family budgets hardest. :Increasing supplies of goods and services most prone to inflationary pressures. :Increasing the ability of poor and low income families to cope with rising prices. through expanded employment opportunities. Thank you very much Roosevelt Johnson, Jr. Executive Director Dallas Urban League, Inc. 2606 Forest Avenue Dallas, Texas 75215 PAGENO="0105" 97 [Whereupon, at 3:30 p.m., the subcommittee adjourned t~ reconvene at .10 a.m., Friday, May 4, 1979, in San Francisco, Calif.] PAGENO="0106" PAGENO="0107" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) FRIDAY, MAY 4, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OrEi~TIONs, San Francigco, Calif. The subcommittee met, pursuant to notice, at 9:30 a.m., in the Cere- inonial Courtroom, Federal Building, 450 Golden Gate Avenue, San Francisco, Calif., Hon. Benjamin S. Rosenthal (chairman of the sub- committee) presiding. Present: Representatives Benjamin S. Rosenthal and Lyle Williams. Also present: Peter S. Barash, staff director; Stephen R. McSpad- den, counsel; and Jack 0. Shaw, minority professional staff, Commit- tee on Government Operations. Mr. ROSENTHAL. The subcommittee will be in order. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight cities this month to learn about the impact of inflation on the day-to-day lives of Americans and the performance of regional Federal agencies and State and local officials in the fight against inflation. Under the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of those Federal agencies charged with combating inflation, namely the President's Council on Wage and Price Stability and the Council of Economic Advisers. Earlier this year, the subcommittee held several days of hearings in Washington, examining the adequacy of the Federal effort. Those hearings raised questions as to the ability of the Council on Wage and Price Stability to effectively, monitor price and profit margin increases in the economy. For example, one of the problems is that the current wage-price guidelines ignore the most inflationary sectors of our econ- omy-energy, food, interest rates, and health care costs. We are deeply distressed that consumer prices rose at an annual rate of 13 percent during the first quarter of 1979. These regional hearings are being held because we believe it is vital that the Congress of the United States and other decisionmakers in Washington have available to them a firsthand record of the effects ot (99) PAGENO="0108" 100 inflation on the lives of our citizens. We also want to examine the cx- tent of cooperation and coordination between Washington inflation fighters and those working at the State and local levels of Government to fight inflation. As soon as our hearings are concluded, the hearing reeord and a sub- committee report will be made available to the Congress and to the President. Our first witness this morning is Mr. Matthew Finnigan of the Com- mission on Aging and his associates and colleagues. Mr. Finnigan, we're delighted you could be with us. This is Con- gressman Williams of Ohio and I'm Congressman Rosenthal of New York. STATEMENT OF MATTHEW FINNIGAN, HOUSING SPECIALIST, CITY OP SAN FRANCISCO, COMMISSION ON AGING; ACCOMPANIED BY ABE PAPKOFF, PROGRAM STAFF SPECIALIST Mr. FINNIGAN. My name is Matthew Finnigan and I'm the housing specialist employed by the Commission on the Aging here in San Fran- cisco. I have been asked to testify before this committee by its chair- man, Benjamin Rosenthal. Abe Papkoff, on my right, program staff specialist from the Com- mission on Aging, has accompanied me this morning to these hearings in case his area of specialized knowledge is needed to clarify in detail aspects of my testimony. I intend to describe the housing problems and the inflationary squeeze the elderly are experiencing in San Francisco. And I will carefully explain how we at the Commission on the Aging assist the elderly in finding affordable low rentals. Most requests for housing are from persons at the lower end of the income scale. The following facts are not something that I read some- where nor something that I heard. They have happened to me, and they continue to happen to me each day and will no doubt continue to hap- pen in the days to come. Actually, to be able to assist or relocate any elderly persons into suitable and affordable housing is asking for a miracle. The housing shortage or crisis is fast becoming a threat to the health and well-being of all individUals, but especially the elderly. San Francisco has the highest rental rates in the country for like facilities. However, we are doing something about the housing crisis and the elderly's request for affordable decent housing. I am not sure whether the program we have developed is being used in any other section of the country. The request for assistance, if rated on a scale of 10, would show that 4 or 5 are elderly females, 3 or 4 are elderly males and an occasional couple. Using the same scale of 10 would show 7 of the elderly persons are on social security or SSI, supplemental security income, with a total income approximately of $329 a month. That is important, I'd like to repeat this. This is the total income that these people have, $329 a month. The reason for requesting relocations are many and varied. For in- stance, health, welfare, safety, financial, and evictions. PAGENO="0109" 101 In following the rents, as an example of a few of the listings we re- ceive, we find that in less than 3 years, rents that were $85, $95, and $125, now the same units are $125, 145, and $175. These increases were not for improvements or services or benefits to the tenants. Nothing has changed only the new owners and the higher rents. Usually there has been no renovating or remodeling. Usually when elderly clients on SSI insist on having a private real estate listing for units that rent between $125 and $145 these are the private or comL inercial rentals that we have available, they're supplemental type of rentals that we try to make available to them that are not on any other section aid or any of the housing authority types of grants, I point out to them that it is not economically sound to pay that amount from their limited income, this is very important, and they often tell me, "I can manage if I eat less and I don't buy new clothes." This is a frequent occurrence that I encounter each day as part of my duties as a housing specialist. This is what is actually happening m San Fran- cisco. It shouldn't happen anywhere. For good management and affordable rent, an individual with an income of about $329 a month should pay approximately $79 per month or hopefully be on a subsidy program of some kind. This is one of the solutions to the rent dilemma. The rentals that I receive and offer are secured from realtors, leas- ing, agents, apartment houseowners, and hotels. Our latest attempt to get low priced rentals is soliciting for vacant rooms in private homes. This is usual.ly a privatebedroom, share bath and kitchen and the rent will range from $40 to $125. In some instances, no rent is required. However,, what is expected "is a little housework or service as a com- panion or friend. In requesting a room in a private home, we attempt to screen the applicants as carefully as possible. We provide only the telephone number and a general description of the house and neighbor- hood. They must mention that they are being referred by our office, the San Francisco Commission on the Aging. Naturally, there is no charge for this service as we are a public agency. Unless our procedure is followed, the clients seeking such service do not receive any informa- tion such as names, addresses, et cetera. This is a security a.nd safety measure. A few of the hotels we. list.. have, a subsidy program and most will help tenants:, in applying for sociai..security certification as to income and clearance through the housing :authority here in this city. Subsi- dized rents donot exceed 25 percent of their total income. Most hotels do not allow any cooking and, as..a. result of t.his rule, the renters may- Mr. ROSENTRALS. Mr. .Finn'igan, Jet's put: your whole statement in the. record. Is the situation getting better or worse? Mr. FINNIGAN. If there is a possible chance for it to get any better because of the situation and the available housing, we're interested in it because our information and referral in the Commission on Aging is housing. Mr. ROSENTHAL. Are any of these housing costs covered by any local regulation or Federal regulation or State regulation? Mr. FINNIGAN. I have it noted. Mr. ROSENTHAL. Why d'on't you just tell it to us. PAGENO="0110" 102 Mr. FINNIGAN. Beg your pardon? Mr. ROSENTHAL. Can you tell it to me? Mr. FINNIGAN. OK. Some of the types of renting that I bring out and then the fact that we have to provide this type of high cost rental. I say unfortunately, the San Francisco Housing Authority is not ac- cepting any requests for subsidized housing. The senior citizen housing program has a 2- or 3-year waiting period. If the elderly are to be helped, the rent subsidy program should be dramatically expanded, especially that part of the program that permits the recipients to find and rent his own apartment in- Mr. ROSENTHAL. Mr. Finnigan, are there any controls on housing here in your area? Mr. FINNIGAN. Rent control? Mr. ROSENTHAL. Of any kind. Mr. FINNIGAN. I think Mr. Papkoff could probably expand on that. Mr. ROSENTHAL. What is your name? Mr. PAPKOFF. My name is Abe Papkoff. I'm on the staff of the San Francisco Commission on Aging. My area is housing, legislation, em- ployment, and other factors. There is nothing locally that serves the elderly or any renter in the sense of controlling rent or in determining the effects of inflation. Mr. ROSENTHAL. Are there any rent controls of any kind, Federal, State, local., anything here at all? Mr. PAPJiOFF. There is nothing except a recent adopted temporary rent freeze, which is for 2 months. After2 months, there's a committee now working which allegedly will adopt legislation to address itself to the problem. Mr. ROSENTHAL. And how much has housing gone up in the last year or soin this community? Mr. PAPKOFF. There are various statistics on this, but we estimate that the housing component in San Francisco has gone up faster than the general Consumer Price Index. Mr. ROSENTHAL. You have no proj ecte.d numbers? Mr. FINNIGAN. Well, the only ones that we have are the people that are on from $85 to $125. For instance, I've been in this now 3 years and originally when we were getting rentals from realtors, it would run $85, $95, and $125. That same unit today is $125 and $145. And `I say there were no improvements of services or benefits to the tenants, nothing has changed, only the new owners and the higher rent. Mr. ROSENTHAL. Mr. Finnigan, you say some of the people told you that they're willing to pay the high rent and they'll do without food and clothing? Mr. FINNIGAN. Right. * Mr. ROSENTHAL. Is that a common occurrence? Mr. FINNIGAN. Beg your pardon? Mr. ROSENTHAL. Is that common for them to tell you that? Mr. FINNIGAN. What else can they do? Mr. ROSENTHAL. You tell me. That's why we came to San Francisco. Mr. FINNIGAN. They're willing to accept the- Mr. ROSENTHAL. Hold it, `this lady's raising her hand. Tell us who you are. Ms. DARNELL. I'm Edith Darnell. My rent now is $180. I live in the tenderloin because I'm compelled to live there. My total income is PAGENO="0111" 103 approximately $330 a month. I'm compelled to live in the tenderloin for lower rent; $180 a month plus my gas and utilities, my telephone and my laundry and my daily newspaper brings me to $200 a month. My food and the little extras and the little bit that I have put aside for future savings like for a television takes out everything that I have. May I tell you about the food prices and how I live? Mr. ROSENTHAL. That's why we came here. Tell us. Mr. FINNIGAN. What have they told you that your rent is going to be? Ms. DARNELL. My rent will be increased as soon as the rent freeze is over. All right, my diet, since meat prices went up. Originally, chuck steak was 89 cents a pound at the Safeway and Lucky, and I lived on chuck steak. I bought the whole piece, and I lived on that for 1 week, one chuck steak 1 week or 10 days, cut it up in little pieces, made steaks out of it and stew out of it, as you do. Carrots are 19 to 21 cents a pound. I lived on carrots and canned vegetables. Chuck steak now is up to $2.49 to $2.69 a pound. I switched to chicken. Chicken is now 52 to 58 cents a pound at Lucky and Safeway. I ~buy one small chicken, a 2-pound chicken a week that lasts me again a week or 10 days by cutting it up, doing my own butchering, cutting it up, having a leg a meal, a thigh another meal with rice or with noodles and the fricassee sauce. I'm a good cook, and I stretch that chicken out that costs me $1.50 to $1.70 for a 2-pound chicken, whatever it comes to, and that's what I live on for the week. I do not ~buy clothes. I have not gone to a movie for 4 or 5 years, I cannot afford it. What elsewould you like to know? Mr. ROSENTHAL. Do you get any help from anybody else, family or anything? Ms. DARNELL. I have supplemental, my social security and my sup- plemental insurance. Mr. ROSENTHAL. For a total of? Ms. DARNELL.'FOr a total of $330. Mr. ROSENTHAL. If the rent goes up at the end of the 2 months, how is that going to affect your lifestyle? Ms. DARNELL. Already people say that ~senior citizens are paying out one-half of their income for rent. My rent is two-thirds my in- come in order to have a clean place, a decent front entrance, a decent hail that's clean and no cockroaches and anybody that knows the tenderloin knows you don't find a clean place with a clean hail and no cockroaches..And; even, now, there's no heat. The heat's been only off and on a manual control since- Mr. ROSENTHAL. What is the tenderloin ? I never heard of it. Ms. DARNELL. The tenderloin is a certain, almost isolated area that starts at Erie and it goes down to Market this way [indicating], it's kind of a triangle where mostly the drunks and derelicts and prosti- tutes andprostitution are found on every corner. It's very undesirable looking, unclean, and unhealthy living for the most part. Mr. ROSENTHAL .Why don't you leave then? Ms. DARNELL. I told you, that's the only place that-I'm living here beèause I have to. I moved from a better area because that's the only affordable rent that I can find. Mr. WILLIAMS. What's the percentage of seniors living in this area? PAGENO="0112" 104 Ms. DARNELL. I don't know. Mr. PAPKOFF. There are about 17,000 seniors living in the area which means about 60 percent of the population. Mr. WILLIAMS. The tenderloin? Ms. DARNELL. That's our colloquial expression for the very- Mr. WILLIAM. Excuse me. About 60 percent of the people living in this section that you call very undesirable section are seniors? Ms. D'ARNELL. And the rest are derelicts. Mr. WILLIAMS. Has that traditionally been true or has that de-. veloped in the last few years? *Mr. PAPKOFF. That's developed over the last 10 years. Traditionally the tenderloin has always been a place for elderly people t.o live be- fore the crime came into it, before the dope, before the narcotics and prostitution, and they are being trapped there. They have nowhere else to go because the tenderloin is the place of last resort in this city. They are squeezed out of the desirable rental areas by the rent in- creases and they go to the tenderloin and it's there they are trapped. Mr. WILLIAMS. So there's been a marked increase in the number of senior citizens moving into the area? Mr. PAPKOFF. In the past 2 or 3 years, there's been a marked in- crease coming from other parts of the city because that's the last place they can go outside of finding another place. Mr. WILLIAMS. I asked. this question in Dallas, I would like to ask you now. Are there individuals that you're aware of, including your- self, who, in the last few days before the next check arrives, would not have money to buy food and other necessities? Ms. DARNELL. In my case I really can't say. I stay by myself and I never run out of money because-someone mentioned why don't you save your money when you're young. That's another thing I want to say. I saved a lot of my money. The money that we saved when we only made $7.50 a day through the war and all the way up to the seventies and the last wages I got was $12 a day when people are now making $30 a day. That money, since the seventies went with inflation so that that's the reason I'm forced to live on SSI. As to this tenderloin business, I wish you'd walk down it. There's trash piled up along every curb and gutter. There's male and female prostitutes on every corner. Another thing I'd like to. point out, the older citizens are forced to buy at t.hese so-called Mom and Pop stores that are spoken of affectionately. I do not speak of them that way. They are run by Arabs mostly right now. I have to walk 8 blocks now to the Safeway or to the Lucky to get my groceries. Most of these people in the tenderloin .cannot walk more than 2 blocks. They have a senior escort service that takes them to the bank because it's unprotected. Mr. ROSENTHAL. Is it like that during the day? Ms. DARNELL. It's that way day and night. You need an escort to take, for these people to take them to the bank, to .take them to wher- ever, the hospital, wherever they need. It's a scary neighborhood. At night, another thing, at night I do not go out at night. After 7 o'clock at night, one does not go out. To get back to these Mom and Pop stores so-called, they're mostly run by Arabs. Their prices are 2 to 3 times the prices for groceries that .1 quoted and their material is not choice and it's not satisfactory. PAGENO="0113" 105 Mr. WILLIAMS. How would you compare the situation today to a couple of years ago? Ms. DARNELL. I don't know. For me it's always been difficult since I've been on this. When I worked for myself, it was different. I was more independent. But having to live on this substandard income, it would really be sufficient. I can remember when $200 a month would have been a generous substantial amount for me to live on and right now that's what hurts, to think that I could have kept my home if I had anything like this amount to live on. But I had to sell my home and sacrifice other things, my furniture and everything else, because my money was lost due to inflation. Mr. WILLIAMS. Mr. Finnigan, is your agency a monitoring agency for situations like this? Mr. FINNIGAN. Well, so far as the information or referral section of it, we cover all categories, it's for the elderly, it's the Commission on Aging of the HEW. It has clothing, for instance, education, em- ployment, finances, food, housing, legal, transportation, veterinary. We have a Gold Card system of discounts for the elderly and we try to cover all aspects of it. It's beginning now to be a problem in all areas. I mean transportation, for instance. Mr. WILLIAMS. The action that you spoke of earlier, a rent freeze, I believe was your term, is that an effort of your agency putting pressure on local government? Mr. FINNIGAN. That's the general theme throughout the city. Mr. WILLIAMS. How did it come about? Ms. DARNELL. Organized tenant organizations. Mr. PAPKOFF. I would like to respond to that also. Our agency was one of the leading forces in contributing to this freeze, through di- rect propositions to the board of supervisors, through participating with community groups, and so forth. Ms. DARNELL. About that, they had hearings for this rent freeze at City Hall every week for 3 different weeks, and I attended those meetings and I saw the shambles the supervisor meetings came to before each time; there was delaying, delaying tactics until finally Gonzalez, the supervisor, had a stronger rent control bill introduced and they watered it down, until finally it ended up with a 2-month rent freeze starting April 15, which wasn't even 2 months because al- ready they passed it after April 15, and it will last till June 15, and at that time the landlords will make up for lost time and get their rent raised before a rent ordinance, such as they have in Los Angeles and Santa Barbara; this will come into effect. Mr. ROSENTHAL. How far is this tenderloin district from where we are now? Ms. DARNELL. You are on the edge of the tenderloin right now, start- ing at Golden Gate and you walk up Hyde. or starting at Larkin, Hyde, Mason, Leavenworth, any crOss street,Ellis, Eddy, Turk; they are terrible and I wish you would walk down them. Mr. ROSENTHAL. Maybe we will this afternoon. Ms. T)ARNELL. That's within a six-block walk. Mr. ROSENTHAL. Mr. Finnigan, I have just one question. Are you the only person with the city of San Francisco who works on housing for the elderly ~ 52-214 0 - 79 - 8 PAGENO="0114" 1O~3 Mr. FINNIGAN. That are actually able to produce housing other than through the San Francisco Housing Authority, yes. Mr. ROSENTHAL. You're the only person who does this? Mr. FINNIGAN. That I know of, yes. Mr. PAPKOFF. Well, I think Mr. Finnigan's referring to rnforma- tion or referrals. There are groups in San Francisco who are deeply concerned and involved in housing, and many nonprofit groups also have a housing referral setup. However, we are in a better position to handle it for the elderly. Mr. FINNIGAN. Going right back to your question, our records show that for the month of April 1979, there were 286 telephone requests for housing assistance, 286, and 189 clients caine to the office in person seeking help and information. As a result of these requests for housing referrals, 44 senior citizens were effectively relocated. That's a very, very low percentage of the people. Mr. ROSENTHAL. Yes, ma'am; you wanted to say something. Ms. DARNELL. Yes; may I add to that? I'm looking for a place desperately right now. You asked why do I live here? Let me tell you how many places are in the paper each day in the money that I can ~ iford, which is $150 to $170 a month, which I can allow out of my income for rent. There are two or three places, ads each day in the Chronicle or the Examiner and mostly by the time I get to answer them, which is: usually immediately, they are either taken or they have been run the day before or, anyhow, there are two or three listed in the paper. That's how I happen to go to them, because I was evicted from my place because 1 had a fight with the landlord Saturday a week ago because he would not have any heat in the place. At $180 he asksme why don't I turn on my oven if I want heat. Mr. PAPKOFF. Let me show you how this happens. This is the daily paper, San Francisco `Chronicle. if you'll look in the announcements, you'11 see classified ads, "Speedy eviction service to Bay County, area landlords." Ms. DARNELL. There are three of those. Mr. PAPKOFF. Another one, "Eviction aid for landlords." In the weekend edition, you'll find four or five. This is a big business in the bay area, evicting poor people, especially old people. `Mr. ROSENTHAL. Where is `the city government, the municipal gov- eminent in this situation? Mr~ PAPROFF. The'city government can't stop it because the law is on the side of the landlord. * Ms. DARNELL; Thesheriff is out immediately inS days. Mr. PAPKOFF. The tenant's rights in this city and in this State are rigged ~fl favor of the landlords, and: there are no two ways about it. There is currently legislation submitted in Sacramento to attempt to remedy: this,: but it's getting nowhere :because the California Housing Council,' the big lobbyist for the real estate and developers, are in the saddle. Mr. WILLIAMS. Just one more question. Within this monthly pay- ment, all the utility costs are in there? Ms. `DARNELL. They're extra. Mr. WILLIAMS. They're extra? Ms. DARNELL. Utilities are extra, my phone is extra, my newspaper, my laundry, and add that up; it comes to just pretty nearly $200. PAGENO="0115" 107 Mr. FINNIGAN. In the small claims courts, the high percentage of tenant-landlord issues-and that's what's happening in small claims court, and an average of evictions through the San Francisco Munici- pal Court shows a record of about 30 a month. Mr. ROSENTHAL. Thank you all very, very much. Maybe we'll take the walk-why don't you tell Mr. Barash where you live. Maybe we'll take a walk there this afternoon when we finish over here. Would you object to that? Ms. DARNELL. Right out loud or privately? Mr. ROSENTHAL. Tell him privately. You don't have to do it out loud. Thank you all very, very much. [Mr. Finnigan's prepared statement, with attachments, follows:] PAGENO="0116" 108 City ~ County of San Francisco Commission on the Aging Date: May 4, 1979 TESTIMONY OF MATT U. FINNIGAN, housing Specialist Commission on the Aging before the Commerce, Consumer, and Monetary Affairs Subcommittee of the Committee on Government Operations on May 4, 1979 at the U.S. Courthouse end Federal Building San Francisco, California Good morning. My name is Matt U. Finnigan and I am the Housing Specialist employed by the Commission on the Aging here in San Francisco. I have been asked to testify before this committee by its chairman, Congress- man Benjamin S. Rosenthal. "Abe Papkoff, Program Staff Specialist from the Commission on the Aging has accompanied me this morning to these hearings in case his area of specialized knowledge is needed to clarify in detail aspects of my testimony. "I intend to describe the housing problems and the inflationary squeeze the elderly are experiencing in San Francisco. And I will carefully explain how we at the Commission on the Aging assist the elderly in finding affordable low rentals. Most requests for housing are from persons at the lower end of the income scale. The following facts are not something I read somewhere nor something that I heard. They have happened to me. And they continue to happen to me each day and will no doubt continue to happen in the days to come. Actually, to be able to assist or relocate any elderly persons into suitable and affordable housing is asking for a miracle. The housing shortage or crisis is fast becoming a threat to the health and well-being of all individuals, but especially the elderly. San Francisco has the highest rental rates in the country for like facilities. However, we are doing something about the housing crisis and the elderly's request for affordable decent housing. "I am not sure whether the program we have developed is being used in any other section of the country. The request for assistance if rated on a scale of ten would show that four or five are elderly females, three or four are elderl~ males and an occasional couple. "Using the same scale of ten would show seven of the elderly persons are on Social Security and SSI. (Supplemental Security Income) with a total income approximately of S329.OO monthly. "The reson for requesting relocations are many and varied. For instance, health, welfare, safety, financial and evictions. PAGENO="0117" 109 `In following the rents, as an example of a few of the listings we receive, we find that in less than three years, rents that were $85, $95 and $125 for the same units are now $125, $145 and $175. These increases were not for improvements or servic or benefits to the tenants. Nothing has changed only the new owners and the higher rent. Usually there has been no renovating or re-modeling. Usually when elderly clients on SSI insist on having a private real estate listing for units that rent between $125 and $145 I point out to them that it is not economically sound to pay that amount from their limited income, th~ioften tell me, "I can manage it if I eat less and I don't buy new clothes." This is a frequent occurence that I encounter each day as part of my duties as a housing specialist. "For good management and affordable rent, an individual with an income of about $329 monthly should pay approximately $79 per month or hopefully be on a subsidy program of some kind. This is one of the solutions to the rent dilemma. "The rentals that I receive and offer are secured from realtors, leasing agents, apartment house owners and hotels. Our latest attempt to get low priced rentals is soliciting for vacant rooms in private homes. This is usually a private bedroom, share bath and kitchen and the rent will range from $40 to $125 monthly. `In some instances, no rent is required. However, what is expected is a little housework or services as a companion or friend. In requesting a room in a private home, we attempt to screen the applicants as carefully as possible. "We provide only the telephone number and a general description of the house and neighborhood. They must mention that they are being referred by our office, The San Francisco Commission on the Aging. Naturally, there is no charge for this service as we are a public agency. Unless our procedure is followed, the clients seeking such service do not receive any information such as names, address, etc. This is a security and safety measure. "A few of the hotels we list have a subsidy program and most will help tenants in applying for social security certification as to income and clearance through the Housing Authority here in this city. Subsidized rents do not exceed 25% of their total income. "Most hotels do not. allow any cooking and as a result of this rule the renters may be eligible for a food supplement from social security which comes to about $33 a month. "We use any and all media to request listings and have found that if properly informed,t newspapers, radio and television stations are most cooperative in helping us to locate housing for our clients. "Certain private realtor's rental division's will wave any rental fee to our elder~_ clients once they present a letter of introduction provided by the Commission on the Aging. This is a special arrangement that I developed and is a innovation that has helped many elderly clients find the type of housing that they could afford. `My records show that for the month of April 1979 there were 286 telephone requests for housing assistance and 189 clients came to the office in person seeking such help and information. As a result of these requests for housing referrals, 44 senior citizens were relocated. PAGENO="0118" 110 "We have afeliow-up system to determine rental satisfaction on our referrals. Our records show complete data on our clients as well as which Supervisor represents them in City Hall. San Francisco has an extremely high percentage of renters (approximately 70%) and the 1970 census figures show that of the total population of this city, 140,000 are elderly. San Francisco also has a high percentage and variety of languages and therefore much of the literature distributed from our office in regards to housing information is in Chinese, Japanese, Spanish and Tagalog. The diversity of languages contributes in a big way to communication breakdown between tenants and landlords. The buying and selling of rental units, as much as three times a year and the resulting rent increases with each sale is one of the reasons the elderly request a move due to the simple fact that they cannot afford the rent raises and still have money for *food and other necessities. They are unable to afford the rent raises regardless of the reason for the rent increase. Records from the Small Claims Court list a high percentage of tenant-landlord related issues. An average of evictions through the San Francisco Municipal Court show a record of 30 per month. Tenant and landlord disputes are often caused by re- taliatory evictions, poor and unsanitary maintenance and also poor security. The elderly are reluctant to complain to the landlord. There is a truly traumatic effect upon an elderly person when he or she is faced with eviction. Many feel completely helpless and have no where to turn for much needed emotional support and help. `Outside of what I have described there is very little we are able to do to cope with the housing and inflationary squeeze. "So far, the most practical available source for the elderly to get out of this rent crunch is a subsidy program of somekind. The primary source for this type of much needed assistance comes through HUD and the San Francisco Housing Authority. However, the private sector has on occasion contributed to limited subsidy plans for elderly clients. Through my office at the commission I was able to inform my clients that one of the largest realtors in California would take off 50% of the market price of apartments on one year lease agreements. These apartments were located in prime locations and featured many recreational opportunities at no extra cost. This was one of our most successful ventures in dealing with the private sector in securing housing for elderly clients. "Unfortunately, the San Francisco Housing is not accepting any requests for subsidized housing. The Senior Citizen Housing Program has a two or three-year waiting period. "if the elderly are to be helped, the rent subsidy program should be dramatically expanded, especially that part of the program that permits the receipient to find and * rent his coin apartment in existing units. "I wish to thank the members of this committee for hearing my testimony end will be very happy to answer your questions. I also wish to present a senior citizen who has under- gone the rigors of what I have described here this morning in her quest for decent housing at an affordable price. Again, I thank you for this opportunity to testify before your committee. ~` PAGENO="0119" 111 City and County of San Francisco Commission cn the A91n9 February 23, 1979 Gilbert H. Boreman Clerk of the Board Board of Supervisors City Hall - Room 235 San Francisco, CA 94102 Dear Mr. Boreman: RE: Your latter of 2/14/79 We appreciate the concern of Supervisors Renne, Hutch, and i'Iolinari in reference to the truly horrendous hard- ships imposed upon elderly tenants because of the cycle of massive rent increases. Indeed, we are encouraged by your letter to hope this presages a commitmont by the Board of Supervisors to take legislative action to pro- tect the interests of the elderly. The crux of the problem, as we see it, is the failure of the public jurisdiction and its relevant agencies to pre- ceive the emergency nature of what is happening to the elderly renter in the current housing crisis. There is a failure to understand and respond to the fact that the elderly, as primary victims of rent gouging by intransi- gent landlords, are in need of emergency measures to pro- tect their human rights. They need the direct interven- tion of government not only to protect their meager fixed income base, but often as a matter of life and death; many elderly persons do not recover from the trauma of forced relocation. What rights do senior citizens have in matter of excessive rent increases? The same rights as the general Population: "pay the rent or get out.' The law, as you may know, makes no special dispensation for the elderly in the matter of rent payments or in landlord-tenant relations in general. As Anatole France once wrote - "The law in its awesome majesty provides that the rich and the poor have the ecual right to sleep under a bridge at night.' Landlords do not hesitate to apply this ecuality before the law principle when it comes to ousting an elderly tenant; the legal evic- tion process is freely em~lcved by landlords regardless of the tenant's age. We have reported through various mefta that what amounts to a `htdden holocaust" is being conducted, against the e.derly tenant to enforce higher rents and cc `seice" rental prorer- ty that has been targeted for soeculaz~ve purposes. The only "rtght" a tenant has when faced with en untenable rent increase is to try negotiating the issue with the landlord or, if forced to move, seek an extension of tine beyond the PAGENO="0120" 112 the usual 30-day statutory period. Otwiouslythis slender hope depends upon the goodwill" of the.landlord, which is to say that. the tenant has no legal protection whatsoever against any kind of rent increase the landlord wishes to impose or against the inexorable mechanism of eviction. Every agency in the city offering housing counseling and referral services to the elderly, including the Mayor's Citizen Assistance Center and the San Francisco Commission on the Agings Information and Referral Housing referral service, is faced with the sobering fact that the law is on the side of the landlord (see California Civil Code 1946 on `unlawful detainer" action against the tenant, and Calif- ornia Civil Code 1947 on the question of prompt payment of rent). The failure of Proposition 13 to bring the renter relief as promised by proponents of the measure clearly indicates the need for some form of rent control. In Los Angeles the City Council instituted a rent freeze this past October 1st and recently extended it to April 30, 1979 to allow time for writing a so-called "soft control law. permitting rent in- creases of only 7 per cent, or more under certain circum- stances. Undoubtedly, you are aware of a similar proposal submitted in San Francisco by Supervisor Gonzales (File No. 349-78-1) which provides for a 12-month moratorium on rent increases and a rollback of rents to the May 31, 1978 level. An over-inflated rent structure with its outrageous rent raises leveled against the elderly obviously are interlinked with conditions of the general housing market, the low vacan- cy factorand with the general economy. The enclosed state- ments on short-term and long-term programs address themselves to these factors. They were presented to hearings held by * the U.S. Senate Special Committee on Aging and the California * Commission on the Aging. Included also is a 13-point pro- gram from the draft of our proposed 1979-80 Annual Area Plan which is intended as both a policy statement and workable conceptual plan. We believe it merits close and serious attention by the Board of Supervisors. The situation you describe in your letter, however, requires immediate action. ~`7e propose the following measures as an urgency program: 1) The Mayor and/or the Board of Supervisors should declare, proclaim or an:i;~~: in whatever form is appropriate that an e~'ergency situariom exists in the field of ~an~l housing for the elderly, and set up a Task Force on Senior Housing to deal with the problem. 2) Adopt the Gonzales ordinance for a 12-month rent freeze and rent rollback to provide tenants with immediate relief from inflationary pressure, and to provide a breathing period in which to devise * durable solutions. PAGENO="0121" 113 3) Susrand indefinitely all eviction procedures aga.nsr elderly Persons. 4) Provide all elderly tenants holding leases with the option of automatic renewal at the existing rent, or the rollback rent should this be enacted. 5) Establish a direct rental subsidy program for the lowest income segments of the elderly population.. I trust these proposals and the enclosed material will assist the Supervisors in determining the true nature of the housing crisis facing the elderly and encourage the intervention of local government in their behalf. Sincerely, Glenn B. McKibbin DIRECTOR, AGING PROGRAMS Enclosures cc: Supervisor Renne Supervisor Hutch Supervisor Molinari Rev. James Clark Brown, President Commission on the Aging Supervisor Gonzales Supervisor Pelosi PAGENO="0122" 114 CITY AND COU~NTY OF SAN FRANCISCO BOARD OF SUPERVISORS CITY HALL, SAN FRANCISCO 94102 * TELEPHONE 55S-3184 February 14, 1979 Mr. Glenn B. McKibben Director Commission on the Aging 1095 Market Street San Francisco, California 94103 Dear Mr. McKibben: `I am ~iriting at the direction of Supervisors Lcuise H. .~Renne, Ella Hill Hutch and Joha L. Molinari concerning problems faced by the elderly, relative to massive rent increases and related concerns. The Supervisors have recently received information from a good many. senior citizens indicating that, they are faced with recent massive rent increases issued on a `30-day.notice basis. The rent increases in many cases fall upon elderly persons who have been residents in apartments for many years. The sudden confrontation ~o.f what appears to be exorbitant rent increases on short' notice has created completely untenable ~situations for many of the elderly citizens involved. The Supervisors would appreciate receiving information from your office as to the rights of senior citizens in such cases as well, as any remedies which may be available to them in dealing with this situation. Additionally, the Supervisors would appreciate learning of any proposed legislation or other solutions which the Coission on Aging hays considered or may have under consideration at this time regarding the problem of massive rent increases to elderly citizens on short notice. PAGENO="0123" 115 Your early response to the Supervisors1 inquiry would be most helpful. Sincerely GILBERT H. BOR~!AN Clerk of the Board. PAGENO="0124" 116 Mr. ROSENTHAL. The next witness is Pat Coates. It's nice to have you with us this morning, Ms. Coates. STATEMENT OP PATRICIA COATES, EXECUTIVE DIRECTOR, FOOD ADVISORY SERVICE Ms. COATES. Good morning. Can you hear me? That's a tough act to follow, but one that's dear to my heart. My name is Pat Coates. I'm the executive director of Fofld Advisory Service, and we are a nonprofit food distribution program for the elderly. We have a program within the bay area currently serving senior citizens in seven out of the nine bay area counties. We have well over 85 sites. We've opened a Los Angeles office and currently in hawaii. Now, this is amazing because we are not a Federal or a State subsi- dized program. When I say private nonprofit, that's exactly what I mean. How do we lunction? Not easily. What you've heard here about the elderly is very true. When you hear people over 65-in this State 55 is elderly-tell you how severe their.. problem is regarding their hous- ing, transportation, their medicals, their food, it's. a crisis situation. Some of you who are isolated in Washington don't realize how terrible this situation is really becoming. When I say that we feed over 10,000 senior citizens in California fresh food, this is why we started. My partner Sandi and I, you can see from the written testimony, who we are and what we are, were basically housewives who, many years ago, became quite concerned over what we saw in the supermarkets regarding our family, the poor quality, the high cost, so we started a food cooperative for families. While we were involved in this, we discovered aheadline, "Senior citi- zens forced to eat dog food," so we held our own little subconunittee hearing and we investigated. We found out that it was worse than that. You have a whole social sector in this country who are forced to live below poverty level. And it is true; in many of our areas, they do eat garbage, they do eat dog food, they eat food that is not nutritious. We decided to do something about that. Of course, we were not too popular when we told our husbands that we were going to set out to help the world's problems. We rented a warehouse here locally in the bay area, and there began a long train of political acknowledgments, learning how to do proposals. There are currently in the United States no Federal or State moneys for fresh food. Now, your title VII hot meal program is heavily funded, in California $26.5 million, yet that amount serves less than 2 percent of our State' elderly. Senior citi- zens must cook for themselves. They have dietary problems that title VII does not address itself to. It's a good program, but not the end to all, be all. In the Midwest, for example, you should be thinking about freeze dried and frozen food programs. Yet when we came to Washington last year and tried to convince many of you that the need of our elderly in the food line was critical, we did not receive much compassion. Now, it's going to become worse. In the State of Hawaii, for example, we recently opened an office. Food costs soared there 13.8 percent; pro- duce is the highest. PAGENO="0125" 117 Mr. ROSENTHAL. Food costs in San Francisco have gone up 14.2 percent. Ms. COATES. Right. But in Hawaii you have a unique situation. You have isolation. You have shipping costs, and so many of the seniors there who have gone there to retire, they think there is no place else for them to go. They go there for the weather. Let's get back to the bay area. I mentioned Hawaii only as a reason why we opened there. It will become more obvious when I tell you what happened here in the bay area. Because we were not funded and because the need was increasing, we decided we had to find a way to subsidize ourselves, so we opened a second nonprofit corporation as a packaging plant. In that corporation we had the disadvantaged, juve- nile and adult ex-offenders, mentally, physically handicapped, and senior citizens themselves. We take them off welfare rolls and we em- ploy them in the packaging plant, which is nonfood. This is like clean- ing audio headsets for airlines. The small meager profits from this operation go back into the food program. If we had stayed with 2,000 senior citizens served in this bay area, we would probably be self-sufficient, but we're feeding well over 8,000, and growing. Many are the times we become frustrated in this service. We had six vans trying to serve 8,000 people on a daily basis. Our vans break down. Our food costs have soared because we are dependent upon the wholesalers. The middleman is getting way too much, and our senior is desperate at the other end. We buy an apple for 10 cents from the produce terminal, it goes to the senior for 10 cents; not very good business. We can't stay alive much longer that way, so we have been investigating going directly to the California grower. He, too, is in trouble. He says he's not making it. The elderly consumer can't afford to buy. It's pretty obvious who is making it. So now we're trying to buy directly from the grower in the valley regions of California, bringing it to our warehouse in San Francisco. But even though we serve thousands of seniors here, the market still wasn't large enough to make this viable financially, so we went to Washington again and said, "Hey, we need help. We're trying to prove to you that it can be. done and we're doing it on our own. What can you do?" "Well, you're doing a real good job, Pat and Sandi, for two little housewives in the. soft social area." They call the San Francisco Bay area a soft social area. "Do it in a hard area." "Where is that?" "Well, Los Angeles." It would be impossible to make this program function in Los An- geles. So we set up an office in Los Angeles, where we're currently feeding 2,000 seniors a week. We have 25,000 seniors on standby be- cause we have only one van down there. What we proposed to do was prove to Washington and the city fathers in Los Angeles that it can be done. Who is going to help us? Proposition 13 came through and was passed. OK, the taxpayer is saying, we no longer find it viable to support social service programs. Government is saying, "We're cut- ting back. We can no longer pack the load." So who is going to pack the load or assist the load of old people, children, people in trouble? We at Food Advisory Service have many suggestions, and it's all called commonsense. Private sector has long been at odds with Gov- ernment and it has been very helpful to us, probably because it admires the fact that without Government assist, we are trying to service as many seniors as we possibly can. If Government and private sectors PAGENO="0126" .118 would kind of learn to get along, the private sector would pick up the tab. One of those areas might be to investigate very seriously the effect of imposing further. tax restrictions on your corporations, giving them, instead, further tax incentives, only if those incentives were to go directly back- Mr. ROSENTHAL. Tell me a little bit more about the people you feed, the people you sell to. Ms. COATES. The people I feed are hungry. You heard the woman here trying to live on $329. It's impossible. Could you live on $329? The rents are exorbitant. They're forced to live in below poverty level. And it's very true, the first thing that they. eliminate is food, nutritious fOod. They try to scrimp, on everything they can find in order to pay their rent. Mr. WIIAI4IAMS. Who is making the money on the food? You men- tioned you know who's doing it. The farmers were in Washington not too long ago and they said it wasn't them. Ms. COATES. If the farmer is not making the money and the elderly consumer and/or any of us as consumers on the other end are telling you it's difficult, there again use common sense. It's pretty obvious who's making the money. It's the middleman. That's why we are cut- ting out the middleman and going directly to the farmer. We are saying to the grower we have an outlet, you have the goods, let's get together and we're meeting with terrific success. But we needed Los Angeles and Hawaii to link this up because the name of the game in direct marketing is size; it's not viable to the grower to be bringing food to you at great distances unless you can purchase a large amount. We are not a Safeway or a Lucky Discount chain. We are two crazy ladies trying to feed a lot of little hungry old folks. Mr. WILLIAMS. Do you have a warehouse operation? Ms. COATES. We have a warehouse in Brisbane just south of San Francisco and we have the two nonprofits there. Mr. WILLIAMS. Who pays those fees? Ms. COATES. We pay them out of the packaging plant, anything that we can get. Mr. WILLIAMS. You said you sold the food- Ms. COATES. At cost. Mr. WILLIAMs. If an apple cost you 10 cents, I think was your term, that's what it costs the seniors. Ms. COATES. Right. Mr. WILLIAMS. How can you paysomeone to package it? Ms. COATES. Well, we don't package the food. We buy it from the terminal, bring it back, resort it and it goes out in brown boxes. This is the no-frill package, and we pay for our help out of the packaging plant. Mr. WILLIAMS. How many employees? Ms. CoAa~s. Right now in the packaging plant we have over 100. But it takes less than 20 employees to service 8,000 seniors in need of food. We have become quite a model for others to emulate. Mr. ROSENTHAL. I just want to' ask you one final question. You say you went to Washington. Who are the people you saw there? Ms. COATES. Well, of course, one of our most ardent supporters was Leo Ryan, and last summer he hosted a congressional briefing where I was allowed to tell many of your staff people what we considered- Mr. ROSENTHAL. Well, where have you tried to get assistance from? That's what I'm tryin'g to find out? PAGENO="0127" 119 Ms. COATES. When the Older Americans Act was being revised last year- Mr. ROSENTHAL. Yes. Ms. COATES. We were trying to get them to loosen the language of title VII so fresh food programs could fall in there because the major bulk of your seniors have to, wish to cook for themselves, and they can't afford food. Mr. ROSENTHAL. And what happened? I'm not that familiar with it. Ms. COATES. What happened is it didn't happen. It's pure and simple. The Older Americans Act was revised but AOA, Administration on Aging, said they needed to cut back, the name of the game is cut back, cut back, and the prices keep going higher and higher. Mr. Wn41.IAM5. You are very comparable, then, to groups in my district like Goodwill Industries. Ms. COATES. That's more like a sheltered workshop. No, we're not really a sheltered workshop, though the concept is similar. We do hire disadvantaged, but we pay disadvantaged an hourly wage. Mr. WILLIAMS. One more question. Just following the line of the farmer producing and marketing the product, how do you suggest he produce and market directly to the consumer? Ms. COATES. Well, one way is our program certainly, and I'm sure there are other ways. We hope, in order to make this thing go, our * main thrust, of course, is to senior citizens, even though we hire dis- advantaged and we want to help the grower and we want to help the farmer. Mr. WILLIAMS. Well, is it the trucker, is it- Ms. COATES. It's all of those things that you list. You sit down and you use commonsense; start your own little list. You put your farmer at one end, you put your consumer at the other. Then you start off with the handlers and the truckers and the brokers, sometimes these brokers never leave their home, and then it goes down there to the produce terminal, there's another chunk taken out there, then it goes to the supermarket. Mr. ROSENTHAL. That is a very serious problem, one that we've been working on for years and it appears there does not seem to be an easy resolution. Did you prepare any written testimony? Ms. CoAms. You've got it. Mr. ROSENTHAL. When you went to Washington? Ms. COATES. When I went to Washington? Mr. ROSENTHAL. Yes. Ms. CoAms. Oh, yes. Mr. ROSENTHAL. I mean I'd like to look into that phase of it and see if we can be helpful in some way. Ms. COATES. I wish you would because it would really heli?. Some of the situations you heard here about the poor woman trying to live on one chicken or cut a chuck roast, if Government could assist with some fresh food subsidies and investigate very carefully how your senior citizens are forced to live. I also really sympathized with her when she said she doesn't like anyone to say she didn't save for her retirement years. I get extremely angry when people say that. They did save. They didn't count on inflation. Mr. ROSENTHAL. Thank you very, very much. It was very useful testimony. [Ms. Coates' prepared statement follows:] PAGENO="0128" 120 1Fooi~ ADvIIsoøw 5~RVIIc~ A NON-PROFIT CORPORATION GALLERY FAIRE ENTERPRISES A NON-PROFIT CORPORATION Headquarters: 185 Valley Drive, Brisbane, California 94005 (415) 467-1343 M0IIUMINIMARIcET May 3, 1979 Testimony of Patricia Coates, Executive Director, Food Advisory Service of Brisbane, Calif. before the Commerce, Consumer, and Monetary Affairs Subcommittee of the Committee on Government Operations held in San Francisco, Calif. on May 4, 1979. Dear Committee ~embers: There are nearly 3 million people age 60 years or older who live in Calif. The vast majority of. these citizens are classified as low-income or below the poverty level. Current Federal, State and local food programs serve less than 2% of these seniors. The needs of the elderly are forever growing, not only in terms of their increased population, but also in terms of their income relative to the high cost of food! Inflation has made it more and more difficult for senior citizens with low, fixed incomes to obtain a satisfactory diet. Decent food is either too expensive or inaccessible. For example, many seniors live in physically isolated neitghborhoods and/or have mobility problems that .prevent their going far from hone. This means that they are forced to purchase their food at high priced local stores. Those who can get to supermarkets find food packaged for families, with portions too large for them to use before spoilage sets in. The Food Advisory Service My partner,. Sandi Piccini, and I organized.the Food Advisory Service (FAS) in 1975 after hearing stories of senior citizens who were so poor that they had to eat pet food. Using experience we had acquired in organizing a neighborhood food co-op, we set out to develop a low cost food distribution program for the elderly. We currently distribute fresh produce, eggs, and meat at wholesale prices to more than 8,009 senior citizens throughout the San Francisco Bay area and an additional 2,000 seniors through our new location in Los Angeles. Weekly deliveries are made to over 110 Mobile Mini-Markets (MMN) set up at locations such as senior centers, churches, and senior residence complexes. Food is purchased daily, in bulk and at wholesale prices, from local produce centers, growers and other suppliers. The food is sorted at our central warehouse and then delivered by van to each Mini-Market. Each site is operated by volunteer seniors from that local community. The cost to each senior is the price that we actually pay for each and every item.. Thus, they achieve the maximum savings possible. PAGENO="0129" 121 This program saves elderly participants 30-50% of their food costs. Additional monies are saved because seniors may purchase food in small amounts suitable to their consumption and budget. Deliveries of food are also made to home bound seniors when finances permit. The needs of the elderly for this type of servi~ is far greater than our capacity to meet them. Besides the 2,000 seniors we already serve in Los Angeles, there are an additional 20,000 people on "standby' waiting for available delivery vans. We are presently organizing an Hawaii operation and it is our intention to begin serving seniors this summer. Because of the great need for low-cost food among the elderly, nationwide, FAS intends to assist other food distribution systems similar to our own MMM throughout the United States. Funding Gallery Faire Enterprises (GFE), is a sister company of FAS incorporated in 1977 as a non-profit organization whose purpose was to provide financial support for our concept of Mobile Mini- Markets. This support organization operate& under the same admin- istrative umbrella as FAS and shares the same warehouse space with FAS. GFE is a contract packaging plant and light assembly plant that employs low income youth, seniors, ax-offenders, disabled persons and other so called disadvantaged people. This diverse comb-~ination of people, ages, cultures and concerns provides a unique but effective environment for all to learn and work. Here our employees can learn job skills and improve their work habits in a humane and caring environment that assists people in becoming useful members of soctbty rather than liabilities. Gallery Faire contracts with businesses to do work such as product packaging, small assembly work, and the cleaning and repairing of equipment. The plant operates like any other in the private sector and sustains itself on the basis of efficient and competent work performed. The monies that it provides to FAS has helped us move towards self-sufficiency. Because Gallery Faire cannot fully support the rapidly expanding needs of the elderly and our attempts to meet those needs, other funding sources have been sought. For example, corporate sponsorship of Mobile Mini-Market sites have been helpful. A company may sponsor one or more sites of their own choosing, in their own immed- iate neighborhood or elsewhere. For a prearranged tax deductible cost, a corporation can underwrite a Mobile Mini-Market site for a year or longer. This is a simple and meaningful way of enhancing corporate responsibility in a community. In addition to these sources we also supplement our income and cover some of our costs by acquiring business and foundation grants as well as job training and work experience programs through agencies such as CETA. Observations on Inflation The typical lower income older lmterican is caught in the midst of an inflationary era. He or she grew up learning to be independent and self-sufficient. Today should be a day of comfort and dignity for them and they should have been able to retire with some respect for and compatibility with their needs. This has become increasingly impossible. One of the most startling and one of the saddest * statistics that I can recall is that the highest rate of suicide in 52-21~~ 0 - 79 - 9 PAGENO="0130" 122 in our nation occurs in the a~e group of 60 years and older. This statistic impies that we have much more to do than what appears on the surface and we better start doing it now! Some congressional programs in the past have attempted to deal with some aspects of the situation. Notably the Food Stamp Act was enacted to address the needs of those who cannot afford fresh foods. But Food Stamps do not adequately address the needs and concerns of the elderly. Obviously food stamps do not help a homebound senior who desires to prepare his or her own meals. The mount of money available is often insufficient to provide the required nutfition for minimum standards necessary to maintain good health. Most times our elderly are isolated from loved ones or possible sources of financial assistance in times of trouble. Their limited mobility makes it difficult to find the means to supplement their meager fixed incomes. If that were not enough there are' strict limits set by social security regarding supple- mental income, when they are available. We at FAS become angry when we hear statements from persons in the communities that we serve who complain that "they should have planned more wisely for their retirement years." They did plan for their retirement; they did not plan on inflation! Recommendations 1) Federal laws should be amended' to allow support for fröah food programs. Partial subsidies are essential to capitalize and, at times, to sustain food distribution a~stems. 2) Laws should be adopted that encourage and enhance the use of direct marketing of farmer~s produce. Present conditions create severe restrictions on the methods and techniques for marketing produce directly from the farmer to the consumer. This limits the amount of savings that the poor are able to receive and it also places an unusual burden on small farmers. Direct marketing is essential if we are to save the small farm in America and it is essential if we are to provide adequate food and nutition to the poor. 3) Regulations and laws need to be adopted that will prevent the wasting of food by farmers, canneries, produce centers and anywhere else that handles food. We know of a rabbit farm that slaughters 500 rabbits per month for the skins to be used as fur coats--they bury the meat! Canneries wast hundreds of gallons of already processed and useable food because the cans are dented! This type of waste must stop and they must be required to give or sell at cost food to non-profit groups so that the poor can be fed. 4) The amount of money available for food stamps should be increAsed to improve the nutritional value of food that seniors consume. PAGENO="0131" 123 Most of what we as citizens of this nation are enjoying is owed, in a large part, to our old folks. They laid the foundation for the systems and resources that we currently utilize for our benefcLt. I believe that we have the moral obligation--all of us-- to ease their financial burden and to bring caring and dignity into their lives in any way possible. The federal sector still has a great deal more that it can do to assist those of us who are doing all that we can to help. PAGENO="0132" 124 Mr. ROSENTHAL. Our next witness is Henry Mozell and Jane Lopez of the Oakland-Alameda County Consumers Council. It is very nice of you to come, and do feel comfortable. Just tell us what you want to tell us. That's why we're here. Go ahead, sir STATEMENT OP HENRY MOZELL, OAKLAND-ALAMEDA COUNTY CONSUMERS COUNCIL; ACCOMPANIED BY JANE LOPEZ AND DOROTHY CORBIN, SENIOR CITIZEN Mr. MOZELL. Good morning. Mr. ROSENTHAL. Tell us your name. Mr. MOZELL. My name is Henry Mozell. I'm the executive director of the Oakland-Alameda County Consumers Council. Would you like for me to speak or do you want me to- Mr. ROSENTHAL. Feel free to do whatever you want to do. Mr. MOZELL. Well, I'd like to introduce the rest of my panel with me. Ms. CoiunN. I'm Dorothy Corbin. I'm a senior citizen, three score and ten-plus. I work in the community of Oakland. I cover from Lake Merritt to 98th Avenue. I go to many centers. I listen to senior citizens and they're appalled, as is my doctor, by the way I keep up the way I do. But I'm here to ask you gentlemen from Washington and the whole United States, our Senators and our Government, to do something for the senior citizens, because some day you'll be a senior citizen, and for the senior citizens that are my age and younger, they have made this so-called glorious United States. And some of our problems I would like to bring to your attention, Hon. Mr. Rosenthal and the committee members. The following is an outline we need, and changes are necessary for local and nationwide senior citizens trying to exist on fixed income. Cuts and considerations, the cost of living. Now, this has been brought to my attention. For housing, which I know to be a fact, if I didn't get assistance from my taxes, I wouldn't be able to meet them some years. And I'm sure you gentlemen have not been cut to the quick like the senior citizens of America. And coming down to food is what the lady ahead of you said. It's terribly hard to go to your nearest supermarket, which happens to be in my area, a Safeway, yet I can walk a few more blocks to an MB or a Lucky and get things, many times, 10 cents cheaper. I have learned, because I've lived in Oakland a long time. I was many years a resident of San Francisco, so I know my cuts. And then I know everybody isn't able to shop like I do; they're not able to go by themselves and they're not able to always get the transportation because they're not able physically to walk or take the risk. Now, when it comes to medical costs, that is the most outrageous thing that I know of, and it's nationwide. We have a woman that came to our attention. She's 62 years old. She was knocked down by some unknown kid, and she only gets $280 a month. Yet, when the ambulance came and picked her up, she now is facing a bill of $90. No one knows who called the ambulance. After she got to the hospital, they just put an icepack on her and sent her home. So that is how our moneys are spent. Mr. ROSENTHAL. How are you getting along? PAGENO="0133" 125 Ms. CORBIN. Well, I have SSI assistance. I have worked and made the social security. But I'm tired of listening to the Government just putting scares into everybody, particularly the senior citizens, those who were taught to save a dollar. This past month, I had to borrow $45 and, of course, if I borrowed $45 this month, maybe I'll be in the red $80 next month. Mr. ROSENTHAL. Why-did you borrow the $45? Ms. CORBIN. Because I hadn't paid my full utility bills and they were sending me the 7-day letter, notice. Mr. ROSENTHAL. What does that mean? Ms. CORBIN. It means pay up or they shut it off. Then when you go to have it on, they charge you maybe $100. Mr. ROSENTHAL. Why did you have to borrow the $45 this month? Ms. COImIN. I just told you. Mr. ROSENTHAL. I understood it was to pay a utility bill, but what went wrong with your budgeting? Ms. CORBIN. Well, I did go campaigning and that costs a little bit of money, but I didn't have to pay the full price. But at least it was something doing in the community that was better than staying home. Mr. MOZELL. Yes, I think that Dorothy is the victim of many con- sumer problems that we have, and I hear many of the people before me speaking to the same problems. That is in today's inflation; if persons pay rent, they can't eat. If they eat, they can't pay their rent. This is a problem, especially since proposition 13 has passed in the State of California. Many of the landlords who should be giving money back to the renters, are now raising their prices anywhere from 33 to 40 per- cent increase in rent. You have a copy of my press release which I haveoutlined some of the problems in here. I don't want to read the press release because I think you've got a copy of it, but I want to talk with you about some of the problems. Dorothy is a good example of many consumers. For instance, not only do we have a problem wherein the people can't afford to pay their rent, we have one of the highest infant mortality rates in east Oakland. For instance, if you read the papers here approximately 6 months ago, the infant mortality rate in east Oakland was approximately 3 percent out of every 1,000 babies. This is because of poor health, poor nutrition, poor eating. Our crime rate in the east Oakland area is one of the highest throughout the country because of unemployment. The young youth in the city of Oakland, I should say from the age of 18 to 25, is approximately 45 to 60 percent unemployed at a time when the present administration is talking about cutting back on job training and other CETA pro- grams. These people will have no way of getting into the labor market unless there is -some sort of a training program. Also we're talking about the energy program. The energy program, if you look at it in Oakland, you can see all throughout the bay area car lines of two or three blocks long. There's no monitoring plan to control the gas prices; and now we're talking about decontrolling the whole gas pricing system, period. I think we need more controlling, more monitoring on all of these programs, with price control, your gasoline energy control. Last winter you read about across the country where senior citizens were freezing to death in Portland because they PAGENO="0134" 126 could not pay their utility bills. Simply what she just said here. Others because the temperature was down 60 degrees, they caught cold and died because they could not have the proper heat to keep them warm. AU these things are part of what I call a failure for the administration in Washington has failed to deal with. Mr. ROSENTHAL. What about your own State administration; what are they doing? Mr. MOZELL. Well, I agree with you that the State of California also has its problems. Governor Brown, whom we just talked about earlier in my press release, has frozen the cost of living for welfare recipients in the State of California to 1977 levels. These people's cost of living is already prorated a year behind. They're living right now off last year's cost of living. They can never catch up. Meanwhile, the cost of living and price index for the consumers is above last year at this time about 12.7 percent, so you see, they're. slipping farther back in the hole, while prices and other consumer amounts continue to rise. There's really got to be mandatory price control. There is no such thing as voluntarily. When you set up a voluntary price control, there should be a monitoring system in there where consumer groups like Oakland-Alameda County Consumers Council and others can help the. Government and monitor these programs by going in and taking in- ventory, or whatever there is, and make reports back to Washington saying these are in compliance or not in compliance. Mr. WILLIAMS. Do you monitor individual neighborhood store prices? Mr. MOZELL. It wouldn't do any good now. What are we going to monitor? Mr. WILLIAMS. Well, our concern was information. Mr. MOZELL. We have that, sure. We go in there and take down prices for our own personal records. Mr. WILLIAMS. Do you compare prices on a competitive basis, and make that information available to consumers? Mr. M0ZELL. Yes, we do, except when we can't. Here again, State law-there was a bill just died on the Senate floor, AB-725, which made it mandatory for all items in the store to be mandatory price items. How in the world are you going to monitor something when you can't see the price? The large corporations now have TJPC, universal productive code system, the scanning, they're called. The average per- son that goes in the store cannot tell you what that price is- Mr. WILLIAMS. You can't see what an item costs? Mr. MozELr4. You can't see what that item costs. Mr. WILLIAMS. When did this pass? Ms. LOPEZ. May 1. Mr. ROSENTHAL. I had a bill in to try and stop that, but it didn't get very far. Mr. M0zELL. I know. I am trying to say to you that, you know, there's no system-what I'm saying is that there's no system for the consumer to assist the Government to help make sure these things are in compliance Mr. ROSENTHAL. First of all, without objection your entire state- ments will be put in the record so that we have some of these rather visual stories that you told us about. [The prepared statements of Ms. Corbin and Mr. Mozell follow:] PAGENO="0135" 127 May 3, 1979 7115 Holly Street Oakland, CA 94621 Mr. Benjamin S. Rosenthal, Chairman Commerce, Consumer and Monetary Affairs Subcommittee of the Committee on Government Operations Rayburn House Office Building Room B-377 Washington, D.C. 02515 Dear Mr. Rosenthal: The following is an outline of needs-and changes necessary for local and nationwide senior. citizens trying to exist on a fixed income: Cuts and Considerations: A. Cost of Living * 1. housing 2. food 3. medical costs 4. clothing Senior citizens living on fixed incomes are becoming more and more disillusioned with government and its efforts to combat the impact of inflation. After listening to the news and other sources'of the media, not to `mention hearing* President Carters `proposals for combating inflation as well as Congress, I still don't know what causes inflation~ My feelings on the causes of inflation are: 1. Government spending moneys we don't have and getting less back. 2. Government giving false reasons' for assis tance in financing other countries. ` Those countries in turn, sell their resources back to us at in- flated prices. 3. The government has let business get `out o,f hand by extending assistance to~several nations and letting them dictate to..the U.S. government. The government needs'to change:the'system to benefit all people~ Sincerel, , /2 Dorothy ,,Corbin PAGENO="0136" 128 1; OAKLAND/ALAMEDA COUNTY CONSUMER COU>4C~L 4535 E.l4th St., Oakland, Cald. 94601 Phone 261-6522 ASS OF OS.SIE o1LuAs~S FEDERAL ANTI-INFLATION BATTLE JOE COPES 5kv... U;i~r~i3w TOD353~EY - Honorably Congressman Benjamin S. Rosenthal (D-L, NY) and committee members. I am Henry F. Mozell, Executive V.. ~~COOOS Director of the Oakland/Alameda County Consumer Council, Cos~mCGuc3cbrO/ACCC SAEEYM OWE President of Democratic Labor Caucus, appointed member of Alameda County Post Sentence Advisory Conniission, State OC~.OTH? CUWOiW ~C~rntyOrOu~zst,cn of California Consumers A airs Task Force, whose goals DL! C;AoR~OiWStat~ and objectives is Alternative Food Delivery programs for ~kES1:EE GREEt! .E.ton/Wulri2!SFroQr~rn the low-income consumers in the inner cities. ~kPHk'ELLRY .rc c/M~rcç~r Today, I am speaking before you on behalf of low- income consumers of Alameda County. The Oakland/Alameda LED WULO DOWRY County Consumer Council, provides direct services to WOWDDARYMEMOERG: consumers throughout the county, and I have a special VJ!LUAM BUSES AF.t..C.LO. RRiGRUSI!ectRr concern for and familiarity with the impact of inflation STAFF: and an opportunity to see the special problems of low- income families. Everyday I hear complaints about high prices. Inflation is an enemy to us all, but for the low-income person, inflation causes even greater suffering than for any other group. Years of studies have demonstrated a shocking fact about the economic system in thi«=' country: the poor pay more for the same goods and services. Even worse, the rate of inflation is greater for the poor than the rest of society. PAGENO="0137" 129 The welfare recipient, the pensioner, the low-income worker spends his or her income on basic necessities. It is a cruel fact that the cost of necessities has been increasing much faster than luxury items. This fact is demonstrated by the Department of Labor's statistics on the consurser price index for urban consumers in the San Francisco area. ~-!Mie the general price index has gone up 7.8% since February 1978, the cost of necessities has skyrocketed at a much greater rate. In fact, of all of the components of a poor person's budget, food, rent, other rental costs, household furnishings, clothing, transportation and personal care, only two have gone up at a rate less than 7.8% Three items, food, other rental care have shot up at rates nearly double that of the general rate of inflation. For the poor, the consequences of higher costs can be catastrophic. Because family budgets operate on such a thin margin, an increased ex- penditure at any point can lead to a serious disruption in family life. This fact is illustrated by the following case histories drawn from hundreds of similar cases in the files at our office and the nearby offices of the Legal Aid society in the predominantly poor East Oakland r~eighbor- hood. A widowed mother of one, Hazel B. receives social security in the sum of $L~25.00 per month. The owns no real property, drives a twelve year old Jodge, and has $2.79 in the bank. The rent on her Oakland house is $300.00. A year ago, she told her landlord she anticipated financial difficulties and might have problems paying the rent. The landlord gave her time to resolve these financial PAGENO="0138" 130 pro~ss, both .tht burden of tt~ying. to support herself and a child on that ~n:oma pro\~ed too ra~ich. She had only $126.00 to clotheand fceu ncr child as well as to meet the child's other personal needs. She became s~ ~ously delinquent in the face Qf Inflation and now faces eviction. Mrs. W. Is a 47 year old mother of three, she is divorced. Her source for support of herself and her three children is Aid to Families to Dependent Children (AtOC). She has no real property and no c~r. Her banc account stands at $9.95. ~it of the $435.00 she receives monthly from AFDC, she used to pay $1h5.00 in rent, leaving her $290.00 for all other expenses. In September 1978, she recaivod a hotice from her landlord announcing that the rent was to be increased from $145.00 to $185.00 over the following six months - a 37% i. ease! Other tenants received similar notices. She is now paying the fl 1 amounty of the increase which leaves her $250.00 on which whe and her three children must live. Thus at a time when food prices continue their rise to the moon, she has $40.00, almost 15% 1C55 to spend on non- shelter needs. Mrs. W. asked whether the landlord could increase the rent as he he~. She learned that he could and that she had no legal recourse. Mrs. 0. is 23 years old and a divorce mother of one child. Her only :o'ee of income is $287.00 per month in Aid to Families with Dependent Ch~;rrn (AFoC). After paying the rent on her apartment and buying other necesitien, ohe has no money ~ pay for automobile insurance, the was recently in an accident and her car totally ~estroycd. On top of that, the other driver's insurance company hs~ demanded $1,600.00 for damage to their incured `s autorsobil. I~ a ~nd~emnt is rendered against her she will face an ~e~ossible choice. She wi~ either have to sacrifice her famines lvelihood and pay the judgen'ent her license will be revoked. If her PAGENO="0139" 131 c~river'~ Hcanse is revoked ~he will be further handicapped in locating work ard face the pro~pect of more years or the welfare rofl.. There are many lessons to be learned from these stories. The first is that inflation is more enan an inconvenience for these persons. Even small increa~e in costs can jeopardize an entire budget. Furthermore, high cost~ can lead to serious social problems. Many families will face eviction and dislocation, at the very least meny children will learn to live without purchases that other children regard as necessities. Inflation hits the poor harder and drive them further into the hole, making it even less likely that we will break the vicious cycle of poverty. In conclusion, if the administration's anti-inflation program has bsen a failure for the rest of the country, for America's poor, it ha~ been a disaster. This is ironic since it was the urban poor that provided the margin of victory for the president. Yet low-income Americans have nothing to show for their support. Unemployment among urban youth remains a national disgrace. The administration has cutback benefits in the areas of housing and food stamps. Nowhere is there a propoal to confront the problems raced by persons likewomen I described earlier. The picture at the state level is even worse. Proposition 13 has cut local services and Governor Brown has frozen welfare benefits at the 1977 level. Inflation is only one way that America shows its contempt for the poor. Not since the riots of the 1960's have the urban communities had it so bad. PAGENO="0140" 132 Mr. ROSENTHAL. This young lady wanted to speak. Ms. LOPEZ. Can you hear me? Mr. ROSENTHAL. I can hear you, but you have to tell us who you are. Ms. LOPEZ. My name is Jane Lopez and I'm the financial counselor with the Oakland-Alameda County Consumers Council. I'm the one that answers the telephone and handles people that come in off the street. The outreach work I do is mainly with Spanish-speaking citi- zens, aging centers, that kind of thing. What I wanted to say today was a little bit about the Conference on Inflation that the White House sponsored at the Fairmont Hotel. Mr. ROSENTHAL. When was this? Ms. LOPEZ. This was April 18, a Wednesday, all day. The 16th, par- don me. It was held at the Fairmont Hotel. There was a $15 registration fee. Our organization, along with another large group of organiza- tions, we very quickly formed a coalition against inflation. I think there's a list of maybe 18 groups. I could give you their names. But anyway, we got together and decided that there was really no con- sumer input. We got an invitation to attend the conference. There was no information sent with it. It was held on a weekday; they wanted $15, and we felt that the consumer that was really suffering- Mr. ROSENTHAL. $15. Who ran it? Ms. LOPEZ. The Fairmont Hotel. [See invitation in app. 1.] Mr. ROSENTHAL. But who ran the conference? Ms. LOPEZ. It was the White House, Western Regional Council- Mr. ROSENTHAL. You mean the Federal Government ran a confer- ence and they wanted $15 for you to come? Ms. LOPEZ. Right. And there was no information sent with this. We didn't know what Carter's plan even was. Mr. ROSENTHAL. Whose plan? Ms. Loii~z. Let me start again. Many of the consumers that are really suffering from inflation don't even understand what Carter is talking about when he says volun- tary wage and price guidelines; I mean they really don't know. All they know is, when they go to the market, the prices are going up, if they can even see the prices on the cans or on the dry goods. So we thought, how can a person either- Mr. ROSENTHAL. Well, they gave you lunch for $15. Ms. LoI'Ez. Yes, but that's not- Mr. ROSENTHAL. Did you go? Ms. LOPEZ. I did. Mr. ROSENTHAL. How was the lunch? Ms. LOPEZ. I didn't stay for the lunch. I took a bag lunch. Mr. ROSENTHAL. You took a bag lunch? Ms. LOPEZ. Yes. Mr. ROSENTHAL. How did you get in? Did you pay the $15? Ms. LOPEZ. That's what happened is that the coalition that we orga- nized called Washington and said this is ridiculous. Mr. ROSENTHAL. How much did the call to Washington cost you? Ms. LoPEz. I didn't make the call, I don't know. PAGENO="0141" 133 Mr. ROSENTHAL. I'm just trying to find out how you-. So what happened? Ms. LOPEZ. What happened was they said, we'll let you in, we'll make arrangements, you know, like 2 days before. But the point is that the consumer who really should be represented at something like that was no way going to go to the Fairmont Hotel, pay $15 or even pay whatever, or take a day off of work, lose pay and then pay $15 to hear a lot of people who they don't relate to on an economic level and, you know, who would be afraid to speak up. Mr. ROSENTHAL. Did you go? Ms. LOPEZ. Yes, I did. Mr. ROSENTHAL. Did you pay the $15? Ms. LOPEZ. No, I did not. Mr. ROSENTHAL. You snuck in? Ms. LOPEZ. We had a press conference and we made a big stink. Mr. ROSENTHAL. Well, you should have. It's outrageous. [The brochure on the Western Conference follows:] PAGENO="0142" 134 Western Conference on Inflation ARIZONA, CALIFORNIA, HAWAII, NEVADA, and the PACIFIC REGION THE FAIRMONT HOTEL California and Mason Streets San Francisco, California APRIL 18, 1979 8:00 A.M. - 5:00 P.M. Sponsored By: * The White House * The Council on Wage and Price Stability * The Western Federal Regional Council * The City of San Francisco PAGENO="0143" 135 "There are no magic solutions in the battle against inflation. It can be won only by hard day-to-day, unglamorous, and often politically unpopular efforts, and by the voluntary cooperation and restraint of the American people. I pledge myself to the most vigilant effort. The American people deserve no less." President Jimmy Carter In cooperationwith the White House, theCouncil on Wage and Price Stability, andy the City of San Francisco, I invite you to attend a conference on the Anti-Inflation Program. The Conference will be held at the Fairmont Hotel in San Francisco on April 18, 1979. The principal speaker will be Jack Watson, Jr., Assistant to the ~President for Intergovernmental Affairs. Workshop sessions will be held on the Voluntary Wage and Price Standards, reform of Federal and State Reg- ulatory Policies, Consumer Participation in the Anti-Inflation Program, Hospital Cost Contain- ment, and Productivity Improvement. Participation will include local governments, the business communi- ty,labor organizations, consumer representatives, etc. I look forward to seeing you at the meeting. It is essential state and local officials, the business com- munity, labor organizations and consumers be in- volved in the effort to fight inflation. William C. Arntz, Chairperson Western Federal Regional Council PAGENO="0144" 136 Western Conference on Inflation - TENTATIVE SCHEDULE 8:00 am, to 9:00 a.m REGISTRATION Terrace Room 9:30 a.m WELCOME AND INTRODUCTIONS William C. Arntz, Chairperson Western Federal Regional Council OPENING REMARKS Mayor Dianne Feinstein, City of San Francisco 10:00 a.m CONCURRENT SESSIONS `Workshop I - Wage and Price Standards `Workshop II - Consumer Participation in the Anti.Inflation Program `Workshop III - Federal and State Regulatory Policies `Workshop IV - Federal, State and Local Budgets 12:30 p.m LUNCHEON ADDRESS Jack Watson, Jr., Assistant to the President for IntergovernmentalAffairs "Presidential Decisions Affecting the Anti.Inflation Program" 2:00 p.m CONCURRENT SESSIONS `Workshop V - Wage and Price Standards (Technical Session) `Workshop VI - Hospital Cost Containment `Workshop VII - Ways to Improve Productivity `Workshop VIII - Federal and State Procurensent Policies 4:00 p.m CLOSING SESSION `Reports from Workshops Workshop Panel Chairpersons `Closing Remarks 5:00 p.m ADJOURN "1 hear the argument eve,y single day - that this or that sacrifice to fight inflation svould shave only a 10th or a lOOt/i of a point off the CPL but that is precisely the point! The whole C7~I is made up of nothing more than thousands of these lOOt/i `s of a point. Unless see are prepared to fight Jbr each, we svill lose them all." Alfred F. Kahn Adviser to the President on Inflation Advance registration is requested. Please complete the attached form and mail it along with your pay. menl to the address indicated by April 13, 1979. Additional information can be obtained by calling Larry Simi, Mayor's Office, San Francisco, 415/ 558.4551. Hotel reservations should be made directly with the hotel of your choice, PAGENO="0145" Detach and Return to: WESTERN FEDERAL REGIONAL COUNCIL 111 Pine Street, 3rd Floor * San Francisco, California 94111 CONFERENCE ON INFLATION April 18, 1979 - Fairmont Hotel, San Francisco, California CONFERENCE REGISTRATION FORM Name (or Group) City & State Group Representative(s) ________________________________________________ Title ______________________________ Title _________________________________ Title______________________ Conference and Luncheon - $15.00 Amount Enclosed_______________ Make checks payable to: WESTERN FEDERAL REGIONAL COUNCIL. Payment for conference should be received by April 13. 0 Address City, State, Zip Phone :~ (over) PAGENO="0146" I/we wish to attend the following workshops: (Check one per column.) 10:00 a.m. to 12:30 p.m. * Wage and Price Standards 0 * ConsUmer Participation in the 0 Anti-Inflation Program * Federal and State Regulatory Policies 0 * Federal, State, and Local Budgets 0 2:00 p.m. to 4:00 p.m. ___________ * Wage and Price Standards (Technical Session) 0 * Hospital Cost Containment 0 * Ways to Improve Productivity 0 * Federal and State Procurement Policies 0 PAGENO="0147" 139 Ms. LOPEZ. But we asked them to change the conference to make it at a school or make it at a warehouse or make it at Oakland Coliseum and make it on a weekend. Mr. WILLIAMS. How about today, right here? Where is everybody? Mr. MOZELL. Could I answer that? Mr. WILLIAMS. Yes. Mr. MOZELL. I think, too, a lot of your problem with people par- ticipating in hearings and other Government affairs is that they have lost confidence in the Government. By the same token, you know, when you vote for someone for a president, like we did for President Carter, we would swing a margin of the low-income people to help him win and yet all his programs are disregarding the low-income people. Now, you can see why they would lose confidence in the Government. The same thing happened here in California. Governor Brown only won the election by one-tenth of the voting residents who live in California. The election in the city of Oakland here 3 weeks ago, where three city councilmen were elected, was less than 15 percent of the voters. So un- til the voters have confidence to get involved in it, you're going to see more or less medium crowds like you see when you have Government meetings. Ms. LOPEZ. Can I add something to that? Mr. WILLIAMS. Go ahead. Ms. LOPEZ. We also have a lot of trouble getting people to document what they really have problems about. They call and they come in and they're really in a bad way. They say we don't have any food in our house, we can't pay our P.G.&E. bills. I can't make them sit down and fill out a formal application form. They don't want that. Mr. ROSENTHAL. Is your coalition monitoring prices? Ms. LOPEZ. OK. We've gotten together and met with the Northern California Grocers Association to try to get specifically food prices back to, you know, shove the price back to somebody else, the cost that the people are paying at the marketplace. And they really have made some points about monitoring prices. Most people who don't know how to monitor can make a lot of mistakes in terms of, you know, what's really going up. There's all these price index books and, you know, if you make a mistake, certain stores get penalized through the media and they say our prices aren't going up. We have to have quali- fied people monitoring the prices. So they really do not want people in the stores looking through prices. So what we've tried to do is dis- cuss through a meeting with wholesalers or retailers and find out who's making the profit, you know, and we know who is making the profit. Mr. ROSENTHAL. WhO's making the profit? Ms. LOPEZ. Well, large manufacturers, Procter & Gamble for one. They don't care. Mr. ROSENTTTAL. I wanted to ask you something. You said that the Safeway was more expensive than the other stores. Ms. CORBIN. In our district because that goes even for your corner grocer. I don't know how they rate it but their prices are always higher than the supermarket and, as I say, often from one supermarket to- Mr. ROSENTHAL. No, no, is Safeway more expensive than the other supermarkets? Ms. CORBTN. Tn my district. PAGENO="0148" 140 Mr. MOZELL. Let me answer that for you. I work with the State con- sumer sales task force on setting up the food delivery program for in- ner cities. The studies that we've done show that respectively in cer- tain stores like Lucky, Safeway in the east bay area section and the Oakland areas, they were higher prices than in our suburbs. Mean- while, when it came between Lucky and Safeway, Lucky had cheaper prices when it came to meat but when it came to staple foods, Safeway had the highest price but they had higher quality of food as well. The report, if you want a copy, I've brought some where you can request it from State consumer affairs, it shows that there's discrimination of food prices in inner cities, period. Mr. WILLIAMS. They are higher? Mr. MOZELL. Right. They're higher priced in inner cities than they are in the suburbs and the reports from the Federal Trade Commis- sion, which I was involved in, prepared back in 1974 and 1975. The only way they could justify the discriminatory charges was the higher operational costs, overhead costs, high shoplifting, insurance, rents; in most stores in our area they had a robbery of some sort, but they're afraid to report it because the insurance company can .kick them out and they might lose altogether. Mr. ROSENTHAL. You wanted to say something? Ms. LOPEZ. Yes, it is really ironic, for example, in the particular areas where you have people buy certain kinds of food like ham hocks and. chitlins and all that because they're trying to cut down on this expense, it will be much more expensive in the Safeway in Oakland to buy something like that than one in San Leandro just because there's not a black community that's in San Leandro. And I don't un- derstand that. It's like, you know, what people need most, they have to pay more for even though anywhere else it would be. cheaper. Mr. ROSENTHAL. Let me just ask one question. If you want to tell the President something, you could do it later today, he's coming to San Francisco. What would you tell him if you wanted to give him some advice on how to deal with the situation? Ms. CORBIN. I would tell him that he really hasn't been honest with the average man and when I say average man, all the laborers and, boy, there are millions of them, I think. And I would tell him that the Gov- ernment is supposed to have ways and means committees. Now, where are they ? They adjust to a few families that. are millionaires, t.hat are running this country, and foreigners. In other words, charity begins at home, if there is such a thing, and you as well as I and millions of people, even just in one city alone, are paying for promiscuous hannenings. Mr. ROSENTHAL. Are these wage-price guidelines working as far as you're concerned? Ms. CORBIN. No. because why, when I went into semi-retirement at 65, what happened? My field was nursing. But they freeze your wages, your capacity for top wages for 7 years. Now, what in the hell can the average 72 or more person do at a job? Nobody wants to hire the elderly. But I can say this, that I can go back to the last employment, steady employment I had and get a job. But I don't want it. Why? Because there's more bookwork and that's what's happening all over the Nation, bookwork. and you don't get it down to the nitty gritty. Mr. ROSENTHAL. What would you say to the President if you had the chance to tell himhow things are going? PAGENO="0149" 141 Mr. MOZELL. I would say to President Carter that unless he changes his ways, I think he's going to be a one-time President. `What I'm say- ing is, otherwise, I don't think that the people are going to be fooled any more. I mean we see where he's coming from, we see that the lob training program that our people use has been cut back, we see that the energy prices, and gasoline lines are increasing. So we want leadership. We want somebody that's going to help lead the problem of the poor. If you can't provide that, we're going to have to look somewhere else. Mr. ROSENTHAL. OK, t.hank you all very, very much. [Ms. Lopez's prepared statement follows:] PAGENO="0150" 142 OAKLAND/ALAMEDA COUNTY CONSUMER COUNC 4538 E.14th Sr., OakLsnd, Ca~i. 94601 Phone 2b1-6522 00500 OF DIRECTORSL075 0011510 WILUAMS Cislrter.-D/ACC - V5~C1s1ras~C.W.A. UsOs JOE COPES 1155 CLslrasn.O/000C 0:5W.. E~t15L4 TODD 001EV t.c~js1 Cous0ocO/ACCC seell Cs. LO5EIAIES*LIRIV TL~ sIcK5Lr Tr.ssirssO/ACCC CL0 Arm Era Az~I~tI~H WARJOS1S C. WOODS Cccrctsry Carrlilsisa CasnsalorO/ACCC CASP.VAOMSI0000 SauthCo. HasOtsat MARTHA CASTILLO Dcuth CS. Haas.isrt DOROTHY CURDlE SsIdardComrnutitO DIQUUUOSH OLIVIA 5050505 Cabig OaSis Ulatitfl CEESSYIDE CROON U.C.E.0xLor.;i0n/HSt(iA0HPrrsDr~m RALPH XE LID V Atiarroyal Law JERRY KEEDALL EaibctAmesiDaIMbItaORt MICE DIIIOZAKI Ui-Rita MarArt DRIRLEYWILL00000Y OtsirmIADOrt Orita 2110 HEfIDIIARY MDMEERS: WILLIAM DUSDE A;P.L-C.LO.000IDD3I Dltacte STAFF: HOlIER F. MOZELL ExccaJmDiractatO/ACCC FEDERAL ANTf-iNFLATION BATTLE As the bilingual consumer counselor at the Oakland/ Alameda County Consumer Council (0/ACCC), deal directly with minority and low-income people. These people are suffering some serious zetbacks by the runaway inflation situation. Basic necessities are becoming more difficult to acquire everyday. Although these people vary in literacy and activism, they are suffering and representing for me a cross section of people all over the countr~'.who are really suffering from inflation. One logical step in a..~i sting these people in under- standing the inflation ..ituation could very well be a conference on inflation, but when our organization received the invitation and registration form for the Inflation Conference at the Fairmont Hotel, it was apparent that the conference was not realistically planned to educate and assist the p~ople who are being affected the most. We O/ACCC and the Consumer Coalition on Inflation, felt that if the Whitehouse was really interested in helping the consumer that much more planning a~d a basic sensi- tivity toward the struggling conpumer. is necessary. What the insensitivity of the Whitehouse produced was PAGENO="0151" 143 a slap in the face for the low-income con~umer. Does the Whitehouse think that people who must work everyday and overtime to make ends meet, are able to take a day off work, and lose a day~; pay, plus pay $15.00 and more to attend a conference at a place like the Fairmont Hotel where the~feel out of place, not wanted, and question whether their ideas will even be welcome. Does the Whitehouse think that the l~w-income consumer can understand Federal Procument Policies and Regulatory Policies. Did it not occur to the Whitehouse to discus~ Energy costs, food cost and gas prices which are the basic needs affe~ting the daily lives of low-income, consumers. I feel the if the Whitehou;e had a conTnittement in good faith to help the consumer understand hi.~ galtering situation, there would have been sensitive planning and comittment to truely set stage for the consumer to voice what they really feel. If the Whitehouse is really interested in getting consumer input they are going to have to make a real coninittment.to those consumers affected the most. In closing, I feel that the conference on Inflation held by the White- house was not only insidious and suberfuged, but reflects an intentional lack of cormnon economic sense. ( -Jane Lopez 0 PAGENO="0152" 144 Mr. ROSENTHAL. Our next witness is Mrs. Frances Brown. Mrs. Brown. Yes, ma'am, we're delighted you could be with us. STATEMENT OP PRANCES BROWN, CALIFORNIA LEGISLATIVE COUNCIL FOR OLDER AMERICANS Mrs. BROWN. I am delighted to see you here. My name is Frances Brown. i'm the coordinator of the California Legislative Council for Older Americans, a political organization, non- profit. We do not support .candidates. We're freely an advocacy organization. I'm very happy to see that you invited the grassroots. Every hear- ing that I have attended was always from the top. Even I wasn't per- mitted to speak so I'm really very thankful that you're going to hear from the grassroots. You want to know what affects the elderly, how inflation affects the elderly? The high cost of living. Mr. ROSENTHAL. How old are you? Mrs. BROWN. I was 76, October 24. I've been an activist for 60 years, so don't be surprised at my youth. Mr. ROSENTHAL. You look wonderful. Mrs. BROWN. Thank you. I take care of myself. I happen to be middle class. I can afford to live in the Marina but this lady doesn't. She pays a high rent and she can't afford it. Mr. ROSENTHAL. She'll tell us herself. Go ahead, you tell us about you. Mrs. BROWN. OK. How does the high cost of living, the high rent, the ripoff from the doctors, AMA, the lack of services, the lack of attention, the unconcern, exerything pertaining to inflation? It shouldn't exist. There are too many suits, over 2,000 in San Francisco, over 2,000 evictions, close to 3,000 in San Francisco, a city that's only 7 miles square. Mr. ROSENTHAL. If you had a chance tonight to ask the President or to tell him how the wage-price guidelines are working and- Mrs. BROWN. Too much-. Mr. ROSENTHAL. You didn't hear my question. If you had a chance tonight, when the President is in San Francisco, to tell him how the wage-price guidelines are working and how your life is going, what would you tell him that he should do about it? Mrs. BROWN. Let me tell you something. I have attended every one of George Moscone's family benefits. Tonight I have been invited, and some of my friends were invited, and we will not be there, so I couldn't tell him anything. Mr. ROSENTHAL. But if you were there- Mrs. BROWN. Wait a minute. I would prefer having a picket line but I have a lot of respect, longtime friends of the Moscone family, so that's why I'm refraining. What would I tell him? I'd tell him to stop spending on defense. He's got 50 times, we can kill our world 50 times and the Soviet Union only 11 times. I would tell him to stop cutting the incomes of the elderly. He had no right to touch the social security. It's the right ot the elderly, they have paid it in their employers. I would tell him to PAGENO="0153" 145 keep his pea-picking hands off anything concerning the elderly, and I'm sorry to say I would tell him to recognize that the blacks and the Chinese and the Japanese are also people and they're citizens of this country and not to be treated as second class, including the elderly. That's what I would tell Jimmy Carter tonight if I had the oppor- tunity. And I could go on and on and on. Mr. ROSENTHAL. How are the wage-price guidelines working? What's happening with inflation? How is it affecting your life or the life of your friends? Mrs. BROWN. OK. My life it's also affecting. My rent has been up. When I moved into San Francisco 11 years ago, I'm at middle class. I have a good income. My rent was $235, today close to $400. Electric- ity, the telephone, the high cost of living, everything, it's the same. There is no middle class, as a matter of fact., when it comes to housing. Yesterday the select committee of the supervisors had a meeting. Mid- die-class housing, secluded, they're being raised 34 percent and don't you forget it. Our landlords had a windfall. They have proposition 13, which every State in the union is trying to copy, and I'm glad that the people in Michigan have repealed it. Proposition 13 has taken away services,, programs from the elderly and the poor. Our General Hospital is facing a crisis, they're trying to close the emergency where seniors are; they're going to move, the seniors to La~runa Honda. and not another new patient, they tell us. Of course, we're organized against it and will fight it to the end. They can't get accreditation because it's been neglected by our city. There. is nOt enough money. I think there is enough money for everything. I think that we have to tell our President, if he wants to be reelected, to cut military spending and use it for human needs. It's about time we stopped killing. It's about time to tell others charity begins at home. I'm not opposed to helping the countries with rehabilitation; I'm not opposed to that or I'm not opposed to helping, but there's got to be enough left for ours. Mr. ROSENTHAL. I wonder if you-I would like your friend to say something. Tell us who you are. Ms. KING. I'm Helen King. Mr. ROSENTHAL. Go slow, Ms. King. I came 3,000 miles to hear you. Ms. KING. I hope you didn't. What did you want? Mr. ROSENTHAL. What's your name and how you're getting along, where do you live and what's happening. Ms. KING. I live on 14th Street. Mrs. BROWN. What is your name? Ms. KING. Helen King and I live on 14th Street. Mr. ROSENTHAL. You're her interpreter? Mrs. BROWN. No, but I'm helping her. Mr. ROSENTHAL. Do you need help? Ms. KING. What else do you want? Mr. ROSENTHAL. How are you getting along, Ms. King? Ms. KING. Oh, I think very well. I have all my own teeth. I'm 72. Mr. ROSENTHAL. You have all your own teeth, that's terrific. Ms. KING. One cavity. Mr. ROSENTHAL. One. cavity? Do you use Crest? [Laughter.] PAGENO="0154" 146 Is there anything you would like to tell me and Mr. Williams from Ohio? He came a long way, too, to meet you. Ms. KING. That's nice, Mr. Williams. Mr. WILLIAMS. Thank you. Go ahead, tell us; are you having any problems? MS. KING. No, not necessarily. Mr. WILLIAMS. Are you having a hard time buying food, or paying your rent? Ms. KING. Well, of course, it keeps going up, up, up and away but I manage. I just make do. Mr. WILLIAMS. You just make do. Mrs. BROWN. Tell them what your income is, how much you get income. Ms. KING. $330. Mrs. BROWN. And what. you pay in rent. Ms. KING. $250. Mr. WILLIAMS. Where do you live? Do you live in Tenderloin? Ms. KING. No; I live on 14th Street. Mr. WILLIAMs. Is it nice there? Ms. KING. Oh, yes, just lovely. It's an apartment that goes all the way through the building, and we have a little sun deck on the back porch. Mr. WILLIAMS. Do you get out and about much? Ms. KING. Oh, yes. Mr. WILLIAMS. Ride the buses? Ms. KING. No, I don't get off my beaten path or 1 can't find my way back home, but I manage. Mr. WILLIAMS. To repeat the chairman's question, what would you tell the President if you saw him tonight? Ms. KING. I think she told him everything. Mrs. BROWN. How do you live on the rest of the money after you pay for your gas and electric and your telephone and everything out of $330? Who helps you? Ms. KING. Well, I just- Mrs. BROWN. A disabled. daughter, totally disabled. She helps her with her food; otherwise.,she would be starving. Ms. KING. I have a terrible memory.. I can remember my name-is about all I can remember. Mr. WILLIAMS. You're doing fine. We're glad you came out today. Mrs. BROWN. She can't live. She's tlenying herself things and we don't want that. Just now we're trying to get her into subsidized hous- ing. It may not be as good a place as 14th. The idea of the elderly pay- ing that. high rent-Mrs. Peck who left, she couldn't sit any more, is paying also a high rent. She has a better income, but she also has to pay doctor bills and medicine and everything else because her income is ~505. She cannot even buy a pair of shoes, that crippled lady who has to be ~helped into the bed, and they wouldn't give her an attendant. Sorne~people, iike myself, they don't ~help her out because her income is $505. The fact that she liasworkedfor the Government all her life- time and just gets a pension, no one gives her a damn. I've worked from the Tenderloin, but I work rn the western addition. I've worked in Chinatown and I've worked in Bayview Hunters Point. I've worked in every one of those places, and I know what's going on, PAGENO="0155" 147 the starving. And when they come to the end of the line, they commit suicide. And I tell you something, if they close the hospital, we will have seniors dying on the streets. It's in every city, I realize it. San Francisco is no exception. Mr. ROSENTHAL. This housing problem seems to inc to be rather acute here. Mrs. BROWN. OK, I was going to tell you. We have just recently got, after fighting for months, 60 days rent control and 45 days moratorium against condominium conversion. It's hitting the middle class now be- cause the apartments that are being converted to condominiums are people who can afford to pay the rent, but they cannot afford to buy. Now, the 60 days started from April and will end June 4. In the meantime, the supervisors decided to have hearings with experts and all the rest of the bunch and do it all in 60 days. You and I know it's impossible. It's a study. The 60 days will expire, and the landlords will have a holiday. They cannot do it. After the study, after, the whole month of May are hearings, then you have to compile what you have learned. It takes another month or so, maybe more than that, and by that time it will be to late because they'll run wild. What gets me, they had a windfall in proposition 13, including my landlord. If they fix anything, they immediately want a raise, an increase in rent. The fact that they make thousands of dollars doesn't make any difference. The lady who didn't show up, Mrs. Woolsee, Adela Woolsee, she didn't show up because she's in a wheelchair. He wants to get rid of her, so he raised her rent $100 as of May 1. Of course, she doesn't have to pay it. This woman, you would say she gets $455, she's on a pension, no social security, $450 and she paying $300 now. rent and she's in a wheelchair. She's been there practically all her life. Mr. Cannon is 84 years old. He couldn't come today. He had a court order, unbelievable, he pushed the wall in, he broke the window, he annoyed the tenants. He's 82 years old, going blind, walking with two canes, and he did all of that. I wanted him to bring it in today, but he wasn't able. He's now in subsidized housing. We can do that oc- casionally. But Federal housing has no vacancies and, of course, if you have an income like mine, you can't even get in. This is the situation, and I'm. sure that you would find it in every city. Something has to be done. I was going to ask you a question. Is this hearing like all the rest of them, listen to us and then you go back to Washington, D.C., where I lived for 231/2 years, and forget it, because that has been the pattern right along. Mr. Kennedy decided to bury the Kennedy Common bill; it was too liberal, so he's cooking up another bill and he came to have a hearing. Why did he have a hearing in Orange County? I can understand it; he wants Orange County; he's running for President. I've lived there and it was impossible for me to live. I know a lot about it because I studied it. Here it is. He brought some Canada people there, six couples, and from the United States. He told us how good it is there in Canada. I was there in 1918, visiting friends in Calgary. The woman had heart surgery. She didn't have to pay a penny, $39~000. not one single penny. We have nothing here. The comnarjson is no good. I wante.d to hear his new bill. Ima~ine that, we have that rip off, insurance administering a health system, a National Health Security bill which covers only PAGENO="0156" 148 elderly. It will rob our kids. They'll have to pay through their teeth. This is the kind of a bill, and he wants us to support it? He has another suggestion that maybe we in San Francisco should try an initiative because we're so active, or maybe get one of our senators or assemblymen to introduce a bill. It would kill them politi- cally because it would never come out of the first committee. A rent re- bate was defeated on the basis of proposition 13. And this is what they're handing us out, the politicians. Why do you think Carter is here tonight and Jerry's going to be here, too, Jerry Brown? Anything for the seniors take months to pass. This is what's going on all the time, and let me tell you, when Carter monkeyed with the social security, he bit off more than he planned to, because they had an organized effort; there were over 800 calls to him and over 12,000 letters. He had to move out of there if he wants to be President again. I mean we're sick and tiredof them not realizing that the things we worked for are coming to us. My generation has helped build this country. We're entitled to something, not just crumbs, sec- ond-class citizens, people who have worked for years living on $300 ~a month when the cost of living went up last year 15.7 percent. Jerry offers us 6 percent. He's not going to get away with it, you know that. Let me tell you something. The California Legislative Council has a rally every year in Sacramento. We develop a program and we present it to our legislators. We have invited the Governor every year; he's never showed up. This year again we invited him and he had the head of the Department of Aging call me and tell me a story that he'll be there. WTe~ wrote him another letter, we never got an answer. But he wants the publicity. Mr. ~ROSENTHAL. Listen, you have been, I must say, a very refresh- ing~witness, and you,~too, and we're very indebted to you. I do want to teThyou something. This is not just another hearing. Mrs. BROWN. That's whatI want to hear. Mr. ROSENTHAL. it's not just another hearing. We are spending a lot of time going around the country, getting the views of private citi- zens and public officials so that hopefully we can direct congressional attention, the President's attention, to whether or not the wage-price guidelines are working. If they're not working, we're going to have to do something about it. Mrs. BROWN. He's t.alking about increasing military defense. This iS really a joke: $123 billion isn't enough. He added $9 billion more, $12 billion more, and now he's talking about-I don't want to mention his name, but I have to. We have to defend our shores. How much? Isn't 50 times-you've got the equipment to kill the world 50 times. Isn't that enough to defend our shores? Mr. ROSENTHAL. OK. Are you glad I came here? Are you glad Mr. Williams came, too? Mrs. BROWN. Let me just- Mr. ROSENTHAL. You know, we didn't sleep all night long coming here to get here on time this morning. [Laughter.] Mrs. BROWN. I'm glad you have a sense of humor. I have one too. I was ready to say something, but now I won't. Mr. ROSENTHAL. Don't say it; it will look bad in the record. Thanks very, very much. Mrs. BROWN. Thank you very much. PAGENO="0157" 149 Mr. ROSENTHAL. Mr. Stephen Brown, AFL-CIO California Labor Federation. Mr. Brown, it's delightful to have you here. STATEMENT OF STEPHEN BROWN, AFL-CIO COMMUNITY SERVICES Mr BROWN Thank you Mr. ROSENTHAL. You'll be a big disappointment after the other witnesses. Mr. BROWN. I don't think she left anything for me to say. Mr. ROSENTHAL. I don't think so either. Mr. BROWN. I was asked to come here by the AFL-CIO in Cali- fornia. I thought it might be a little bit more informative if I talked about what the price watch program is doing locally in a countywide situation rather than what the State, Fed or what the AFL-CIO in general is doing. So what I would like to do is give you some idea of what the AFL-CIO price watch looks like in Contra Costa County. Demographically, Contra Costa County is the easternmost of the five bay area.counties and has approximately, I believe, around 600,000 residents. About one-tenth of those are union families. Mr. ROSENTHAL. Without objection, I'm going to put your entire statement in the record. Mr. BROWN. Certainly. Thank you. The program itself is designed to do just what the title says, to monitor prices, the problem being that we have one figure to deal with, with wages, 7 percent, and that's simple, anybody can remember 7 per- cent. We don't have any problem with that. But there's no one figure for prices. And if you ask 10 people on the street corner whether or not they can tell you if a price increase met with the guidelines, they couldn't. There's no way to tell. You have to be a mathematician to understand the price guidelines. The deceleration program, I don't understand, I don't have any idea. It sounds good to decelerate. I think we need to do that, but I don't know how to figure it. So, as I under- stand it, President Meany offered to President Carter a proposal to monitor prices using union volunteers and that's what we've tried to do in Contra Costa County. Basically what we've done is to begin by passing resolutions as all good labor bodies do. We passed a resolution to endorse the concept of the price watch and then produced materials and sent them out to our 90 affiliates in the county, 90 affiliated unions. Those materials were then dispersed to those union members with a request that they actually do the price monitOring in the stores in their community. Now, the program in Contra Costa County is new, it's just gotten started. We've been working for approximately 1 month. But what we've done is we've gone back and gone through some old newspapers and collected as much material as we could to have something to show you what prices look like in Contra Costa County and surprisingly enough, the nrices that we monitored actually declined by one-half percent in the month of March, which is the only month we have figures for. That's the overall. The figures are in the record. but just to give you an idea, while there was a one-half percent decline in the overall prices, certain items, such as we've heard mentioned here this morning, hamburger, for one, was up 12.8 percent in 1 month. PAGENO="0158" 150 Mr. ROSENTHAL. On an annual basis 12.8 percent? Mr. BROWN. Pardon me? Mr. ROSENTHAL. On an annual basis? Mr. BROWN. This is a 1-month period. Mr. ROSENTHAL. In 1-month it went up 12.8 percent? Mr. BROWN. Yes. This is an average of five different stores in the Contra Costa County area. The chicken, because diets are shifting now, people are beginning to have to find alternatives, chicken was up 7.9 percent. Mr. ROSENTHAL. In 1 month ~ Mi BROWN In 1 month The main problems seems to be, and the main ob)ection that organi- zed labor has with the wage and price control, is the fact that it is one sided and, as I mentioned before, we just have no way of really under- standing price controls~ The wage controls I understand. Union wages in 1978 for the building trades increased 6.2 percent and union wages in general increased approximately 7.7 percent. If you compare that to the price index, we all know the Consumer Price Index is currently hovering around 13 percent. And you pick up headlines every day concerning corporate profits and you find that last year, in the last quarter of 1978, the average corporate profit was at the highest level in history. I think General Motors alone reported a fourth quarter aftertax profit of $1 billion. Mr. ROSENTHAL. Are you continuing your monitoring in the com- munity here? Mr. BROWN. Yes, we are. Mr~ ROSENTHAL. Who did you furnish these figures to? Mr. BROWN. These figures are going back to Washington, D.C. Mr. ROSENTHAL. You mean to the AFL-CIO? Mr. BROWN. AFL-CIO headquarters and will there be correlated and sent on to the Wage Price Control. Mr. ROSENTHAL. And how many people did you use for this monitor- ing effort? Mr. BROWN. Currently in the Contra Costa County area there are approximately, it's very difficult to say because 1 month you might get someone who will send you something and then the next month they fail to, but I'd say there were approximately 20, 25 people that are doing this on an ongoing regular basis that I can depend on. Mr. ROSENTHAL. They're reliable people? Mr. BROWN. Yes, these are reliable union people. So I think that the prices and the information we are going to get out of the price watch program is going to be reliable information. I was a little surprised myself to find out that the cost had actually gone down one-half per- cent in March, and I didn't really want to come in and tell you that the prices were going down. But that's the information we got. Mr. ROSENTHAL. That's OK. OK, thank you very, very much. The entire statement will be in- serted in the record, too~ether with the information that we have. [Mr. Brown's prepared statement follows:] PAGENO="0159" 151 PRICE WATCH PROGRAM Steve Brown Director, AFL-CIO Community Services At the request of President George Neany, the Contra Co8ta Central Labor Council has voted to adopt a resolution in support of the AFL-CIO Price Watch Program. The Community Services Committee within the Council has been given the task of organizing and impl~enting the plan in the County. The plan itself is basically nothing more than a concerted effort by consumers to do the job not being done by the Council on Wage and Price Stability. The Central Labor Council, appreciates that with only 200 ~nployees at it's disposal, the Wage and Price Council can do. little more than monitor those increases that are highly visable and whose figures are easily available. For this reason, unions find th~nselves in a very difficult and unfair position. Contract settlements receive nation wide media coverage. Executive salaries receive no such attention. Price compliance by individual firms receive no such attention. During the controls period of World War II, 63,000 people were employed by the office of Price Stability to assure compliance with the program. . PAGENO="0160" 152 While ~np1oyers eagerly enforce the 7% wage guidelines, there is no 8ingle number for prices. There are no effective methods of enforcing price controls. The general public, while being fully aware of the 7% wage guide- line, has no way of knowing if price increases are in compliance. And..... For all practical purposes the basic necessities of food, housing, and medical costs are excluded from trenchant controls. Health care, easily one of the most inflationary eloments in consumer prices, is urged to follow a voluntary deceleration plan. RESULT:? Conservative estimates show hospital costs rising at 13 to 157. per year. One dollar out of every 11 spent in the U.S. today goes for health care (u.s. News & World reports - 3/4/79issue.) The average selling price of a new home has increased 807. in the last five years. That figure is expected to increase by at least 10% this year. (Changing Times - March 1979 issue) In California interest rates of 117. are preventing many working people from qualifying for loans and discourageir&g those who can, from buying. `After soaring 10.57. in 1978, prices, in retail grocery stores show no hint of slowing. Grocery prices in January, adjusted for seasonal factors, climbed at an annual rate of 21% (U.S. News & World Reports - 3/12/79 iesue) PAGENO="0161" 153 In light of the impact of these inflationary figures on the average worker in America, consider this headline from U.S. News & World Reports February 19, 1979 issue: "American Corporations enter 1979 with their profits at the highcst level in history." General Motors reported a 4th quarter after tax profit of 1 billion dollars in 1978. Now, while I still have time I would like to explain the AFL-CIO PRICE WATCH PROGRAM campaign in Contra Costa County, including current activities and future plans. As I mentioned before the Central Labor Council has adopted a resolution supporting the program. Letters and materials have been sent out *to some 90 affiliated locals throughout the* county urging them to take an active part In the price monitoring. The Community Services representative for the county has con- tacted senior citizen and consumer groups urging them to join in the effort. Forms have been reproduced and made available to the community, along with training in their use. 52-21'4 0 - 79 - 11. PAGENO="0162" 154 The program is just getting under way. However, research of local newspapers in the county have revealed a few interesting facts. Gasoline prices for the month of March increased an average of 5.4~ per gallon with unleaded leading the way at 8.3~. Useing a survey of five major markets in the County, the follow.- ing is a list of changes over a one month period from March 179 to April `79. (attached chart) PAGENO="0163" 155 POOD PRICES: IN CONTRA COSTA Product A B C B E _y~ `74 7. `69 7. Bread.(white) .49 .39 .38 .39 .39 .41 .25 647. .29 41.37. ~Coffee (2-lb can) 4.59 4.43 4.67 4.39 3.99 4.41 1.69 160.9% 1.09 304.5% Paper Towels .53 .61 .59 .62 .59 .59 .29 103.47. .27 118.57. Eggs (one dozen) .85 .85 .82 .89 .83 .85 .63 34.97. .44 93.17. Cereal (Cheeries 1.47 1.17 .1.16 1.17 .99 1.31 .59 1227. .48 172.97. LDOZ) Potatoes (1O#bag) .69 .95 .57 .99 .89 .82 1.29 -36.47. .49 67.37. IceCream (~ga1) 1.55 1.25 1.25 1.55 1.39 1.34 .69 94.27. .68 97.0% Sugar (5#,C&H) 1.23 1.21 1.23 1.23 1.12 1.20 .99 21.27. .60 100.07. Cocoa (1#NestleQuik)1..75 1.63 1.69 1.71 1.65 1.69 .78 116.67. .44 284.0% Frozen Veget~b1es .66 .79 .96 .69 .59 .74 .43 72.0% .40 85.07. (2Ooz peas) Peanut Butter(Old F)l.19 1.03 1.20 1.29 1.15 1.17 .77 52.07. .49 138.77. Strawberry Jaxn(l8oz)1.15 .97 1.09 1.21 .99 1.08 .65 66.1% .48 125.0% Col.a(CocaCola6pk) 1.19 . 1.75 1.73 1.75 1.29 1.54 .89 73.0% .69 123.07. Hamburger (307.grind)1.39 1.39 1.28 1.39 1.28 1.33 .88 51.07. .43 209.07. Chicken(wholefryer) .69 .75 .55 .63 .53 .63 .44 43.17. .32 96.8% Filet of Sole 3.69 2.49 3.39 3.89 3.49 3.39 1.25 171.2% .85 298.8% Porterhs Steak 3.59 3.29 2.89 3.59 3.59 3.39 1.95 73.8% 1.26 169.0% Bacon (1 ib) 1.69 1.59 1.29 1.59 1.39 1.51 .89 69.6% .49 208.07. 4ples(Wash/Del) .57 .59 .45 .59 .59 .56 ~29 93.0% .25 124% Lettuce .69 .79 .59 .59 .49 .63 .39 61.57. .29 117.27. Tomatoes .49 .38 .49 .79 .39 .51 .29 51.2% .29 51.27. TomatoePaste(6oz) .25 .25 .25 .29 .25 .26 .17 52.97. .15 73.3% ChickenNoodleSoup .26 .27 .26 .26 .25 .26 .15 73.37. .14 85.77. Canned Tuna. .67 .67 .71 .69 .59 .67 .45 48.87. .32 109.37. Baby Food .22 .19 .22 .22 .21 .21 .12 75.07. .09 133.3% Potato Chips(TwiiiPk) .95 .79 .93 .89 .59 .83 .75 10.67, .43 93.07. Detergent(Tide Gtaz)1..59 .1.59 1.57 1.49 1.44 1.54 .59 159.3% .49 212.2% Toilet Tissue(4r/pk) .95 .85 .85 1.11 .79 .91 .79 15.17. .29 213.7% Tampons(Tampax4Oc) 2.19 2.09 1.89 2.25 1.79 2.04 1.39 46.7% 1.09 87.1% ~ Razor B1~dea 2~45 2.39 2.39 2.35 2.19 2.35 1.15 104.0% .95 147.3% (Gillette TractI) Diaposal Diapers 2.54 2.89 2.95 2.69 2.89 2.82 1.75 61.07. 1.50 88.0% (Pampers) Flour (5# bag) .82 .73 .69 .82 .73 .76 .89 -14.67. .39 94.8% Toothpaate(Colgatelg).89 .89 .88 .89 .79 .87 .75 16.07. .63 38.0% TOTALS $43.92 41.90 41.86 44.89 40.82 42.57 25.70 65.67. 18.74 127.17. (Source: Contra Costa Times - March `79) PAGENO="0164" 156 CONTRA COSTA_GROCERY SURVEY April March ______ ___~ ___~ __~ __~ __! ~ ._~!&_ 2.s. .39 .39 .38 .39 .39 .39 .41 -4.6% 4.39 4.49 4.39 4.29 4.29 4.37 4.41 -.9% Product Bread (white Coffee (2#can) Paper Towels .53 .58 .59 .62 .55 .59 .59 0.07. Eggs (one dozen) .87 .85 .95 .85 .85 .87 .85 +2.37. Ceral(Cheerios l5oz) 1.17 1.13 1.09 .98 1.16 1.11 1.31 -15.27. Potatoes (lO# bag) .69 .89 .59 .89 .79 .77 .82 -6.07. Ice Cream (~ gal) 1.59 1.29 1.29 1.55 1.29 1.40 1.34 +4.47. Sugar (Slbs,C&H) 1.25 1.21 1.21 1.25 1.21 1.23 1.20 +2.5% Coca (Nestle Quik 11/) 1.65 1.63 1.69 1.71 1.65 1.66 1.69 -1.87. Frozen Vegetables (20 oz peas) .65 .69 . .72 .55 .59 .84 .74 +13.57. Peanut Butter(Old F -1#) 1.23 1.23 1.05 .99 1.15 1.13 1.17 -3.57. Strawberry Jam (18 oz) 1.15 1.05 1.09 1.29 1.25 1.16 1.08 +7.47. Cola (CocaCola 6-pack) 1.89 1.45 1.42 1.39 1.29 1.49 1.54 -3.27. Hamburger (30% grind) 1.58 1.59 1.38 1.59 1.39 1.50 1.33 +12.87. Chicken (Whole Fryer) .82 .66 .57 .79 .55 .68 .63 +7.9% Filet of Sole 3.69 1.99 3.39 2.59 3.45 3.02 3.39 -10.9% Porterhouse Steak 3.29 3.39 3.08 3.49 3.79 3.40 3.39 +.37. Bacon (1 lb) 1.49 1.59 1.19 1.55 1.69 1.50 1.51 -.6% Apples (Wash/Delicious) .59 .59 .39 .59 .69 .57 .56 +1.7% Lettuce .49 .39 .39 .49 .39 .43 .63 -31.07. Tomatoes .89 .89 .89 .89 .69 .85 .51 +66.07. Tomatoe Paste (6oz) .26 .27 .25 .29 .25 .26 .26 0.07. Chicken Noodle Soup .26 .21 .24 .26 .26 .25 .26 -3.8% Canned Tuna .57 ~77 .67 .69 .59 .67 .67 0.0% Baby Food .24 .21 .22 .22 .22 .22 .21 +4.7% Potatoe Chips (TwinPack) .95 .83 1.03 .92 .89 .92 .83 +10.87. Detergent (Tide gt size) 1.65 1.69 1.57 1.59 1.49 1.58 1.54 +2.5% Toilet Tissue (4roll pk) .87 .85 .85 .87 .79 .85 .91 -6.57. Tampons (Tampax 4Ocount) 2.19 2.09 2.09 2.25 2.35 2.20 2.04 +7.87. Razor Blades (Gillette) Disposable Dia~~ ~ (Pampers) Flour (5# bag) 2.59 3.09. .82 2.19 3.05 .73 2.44 3.05 .73 2.35 2.69 .82 3.19 2.89 .75 2.35 2.95 .77 2.35 2.82 .76 0.0% +4.6% +1.3% Toothpaste (Colgate lg) .79 .99 1.04 .89 .99 .94 . .87 +8.0% TOTALS $42.98 42.02. 41.92 42.57 42.27 42.35 42.57 -.5% (Source: Contra Costs Times - March 1 79~ PAGENO="0165" 157 Mr. ROSENTHAL. Our next witness is Milton Keenan, Bureau of Labor Statistics. Mr. Keenan, nice of you to be here. Mr. Keena.n is the Assistant Regional Commissioner for Economic Analysis and Information, U.S. Bureau of Labor Statistics. Do you have a statement? STATEMENT OP MILTON A. KEENAN, ASSISTANT. REGIONAL COMMISSIONER, BUREAU OP LABOR STATISTICS Mr. KEENAN. I have a. statement and it's in the record. I think if it's all right with you, sir, I shan't read it. Mr. ROSENTHAL. Without objection, the statement will be put in the record. Mr. KEENAN. I think the statement I made will back up practically everything that's been said here this morning. Mr. ROSENTHAL. Well, go ahead. Mr. KEENAN. Our Consumer Price Index, for example, here in the San Francisco-Oakland area reports approximately what Mr. Brown. just reported about meat prices. For example, in San Francisco- Oakland area since December 1977, meat, poultry, fish, and egg prices have gone up over 28 percent. Mr. ROSENTHAL. Twenty-eight percent? Mr. KEENAN. Twenty-eight percent. Mr. ROSENTHAL For what period? Mr. KEENAN. December 1977 to February 1979. Nationwide they've gone up slightly more than that even, 291,~ percent. Fruits and vegetable prices in this area over the same period rose about 241/2 percent whereas nationwide they've gone up about 1 S percent. Mr. ROSENTHAL. Tell us about housing. Mr. KEENAN. Housing here, because of the effects of proposition 13. housing costs here in the bay area have not risen as much as they have nationwide over the period that we're talking about. They only went up 6 percent here, 12 percent nationwide. However, I think it's interesting to look at the figures on rents. Rents in this area went up 61/2 percent as opposed to 8.3 percent nationwide. Mr. ROSENTHAL. The testimony we've had here today from a few people left me with the feeling that the:situation was acute in terms of housing costs. Mr. KEENAN. It probably is for people who are on. fixed incomes, it's very acute because most of the income of lower-income people goes to housing. Approximately in 1972, I think, the figures were about, with incomes of under $3,000, almost 40 percent. of their income went to housing. Mr. ROSENTHAL. What is the average cost of rental houses in this- Mr. KEENAN. I don't know, sir. We don't have the figures in that manner. The Consumer Price Index measures a change. Mr. ROSENTHAL. How about medical care? Mr. KEENAN. Medical care in this area has risen slightly higher than it has nationwide, slightly over 12 percent as opposed to 11 percent. Here, again, these are, as you are aware, I'm sure, that inflation is the cruelest tax going. It strikes everyone, but it strikes the poor more PAGENO="0166" 158 than it strikes any other income group because most of their income goes to necessities. As you can see, there are some areas where prices have even gone down here in the bay area as opposed to nationwide. Mr. ROSENTHAL. You said in your statement that over the past ~ months the office has answered some 90,000 individual requests. That sounds astronomical. Mr. KEENAN. Well, it's the truth. That phone downstairs is going all the time. Mr. ROSENTHAL. What are people asking? Mr. KEENAN. Well, about 80 percent of those questions are on prices, what have prices done. We get calls from business organizations, labor unions as far as their escalator clauses are concerned. We just recently put in a telephone hotline. We record the message on it and what's happening to the Consumer Price Index here in the San Francisco area and nationwide. We just put that in about 2 months ago. Last month we got 800 calls on that machine and I expect they're going to go up. Down in Los Angeles, we have an office down thereand they're picking up 900 calls a month. Mr. ROSENTHAL. Let me ask you the key question. Have the wage- price guidelines had any. discernible effect or what effects have they had on- Mr. KEENAN. Yes, I think they have had some effect. Mr. ROSENTHAL. How? Mr. KEENAN. Well, for example, this morning, if I can find it, our Acting Commissioner Janet Norwood, spoke before the Joint Economic Committee of Congress and this is what she said, and I quote: "In summary, I believe it is clear that a considerable amount of upward pres- sure still exists in the nonfood sector of economy in April. The food situation, on the other hand, improved considerably, both in terms of consumer finish food prices and crude food prices. This improvement should be reflected in the retail level quickly. Mr. ROSENTHAL. Those areas are not covered by the. wage-price guidelines. Mr. KEENAN. Well, you can make your opinion from there. Mr. ROSENTHAL. No, no, I don't think so. Mr. KEENAN. Yes. Mr. ROSENTHAL. There are certain areas, energy, food, interest rates, health care, which are not covered. Mr. KEENAN. Right. I realize that, sir, and these things are going up quite rapidly. Gasoline prices at the wholesale level, for example, over the year have gone up over 24 percent. Fuel oil has gone up approxi- mately, I've got the data here if you want the exact figures, if I remem- ber correctly about 28 percent. Mr. ROSENTHAL. What's the latest figures you have for this commu- nity, that's what I'm interested in? Mr. KEENAN. For consumer prices, February 1979. The next figures will come out for April the latter part of May. Mr. ROSENTHAL. And the latest figures you have in all of these areas, tell us what they are. Mr. KEENAN. Well, I told you some, you know, that prices here, because ofproposition 13 and the rollback in electricity prices and be- cause the P.G. & E., our local, Pacific Gas & Electric Co., and otl~er utilities were allowed to increase their prices on electricity because! of PAGENO="0167" 159 the drought that we had in California in 1977, recently, while t.hey were cut back in April, May, and October, prices of electricity went down and so they're reflected in the figures that I brought here today. But leaving out those two items, I think prices have gone up as rapidly here as they have throughout the Nation. Mr. ROSENTHAL. You collect actual information in stores as to how much each store is charging? Mr. KEENAN. Right. Mr. ROSENTHAL. Do you ever make any of tha.t information public? Mr. KEENAN. As far as the prices in the individual stores, no~ sir.. Mr. ROSENTHAL. Wouldn't that be a useful thing? Mr. KEENAN. It probably would, but the information we collect is on a confidential basis. Mr. ROSENTHAL. What do you mean confidential? Anybody can walk into Safeway and look at the prices. Mr. JtEENAN. That's right. Mr. ROSENTHAL. There's nothing confidential about that. Mr. KEENAN. That's right. Mr. ROSENTHAL. So why don't you make that public? Mr. KEENAN. Because we collect it on a confidential basis and when I was employed by the Bureau of Labor Statistics, I signed a pledge that I would keep all information given to me as confidential. That's a condition of my employment. Mr. ROSENTHAL. That's a joke. Mr. KEENAN. It may be. Only the Commissioner is allowed to dis- seminate information Mr. ROSENTHAL. If I followed you around when you collected it and I made it public, it would be perfectly OK. Mr. KEENAN. It would be all right, sir, yes. Mr~ ROSENTHAL. You're afraid to make it public. Mr. KEENAN. I'm not afraid, .it'sjust that I can't. Mr. ROSENTHAL. I'm just curious. Some of these people said that Safeway charges more than the other stores I wonder if you found the same thing. Mr. KEENAN. I don't see the individual data. Mr. ROSENTHAL. You don't ~ee the individual data. Mr. KEENAN. I couldn't comment on that at all. Mr. ROSENTHAL. OK. Thank you very, very much. Mr. KEENAN. May I- Mr. ROSENTHAL. Is there anything else you think you ought to tell us for the record? * Mr. KEENAN. Let me say ~one thing. I think these hearingsare ex- tremely imnortant. I think how society treats its elderly and its poor, it judges that society. Second, T think that the information that you're hearing here is contained, the information von are hearing here, that information is contained in many of our publications. * Mr. ROSENTHAL. I know, but your publications are dull and un- readable stuff. Mr. KEENAN. I know statistics are very dull. Mr. RosENTHAr~. Even people like me who try to read them can't do it. PAGENO="0168" 160 Mr. KEENAN. Well, I would like to spend a day with you, if I could, and interpret some of the stuff that is in here. Mr. ROSENTHAL. I don't think I could handle it. Mr. KEENAN. Well, I wish you could, sir. Mr. ROSENTHAL. Thanks very, very much. [Mr. Keenan's prepared statement follows:] PAGENO="0169" 161 Statement of Milton A. Keenan Assistant Regional Commissioner for Bureau of Labor Statistics, Pacific Region before the Commerce, Consumer, and Monetary Affairs Subcommittee on Government Operations May 4, 1979 Mr. Chairman and Members of the Committee: I wish to express the regrets of Mr. Bruce Hanchett, Regional Com- missioner, that he is unable to be here this morning. I am glad to have this opportunity to offer the Commerce, Consumer, and Monetary Affairs Subcommittee on Government Ope rat ions a few short remarks on the pattern of changes in consumer prices which I hope will provide a statistical background to your deliberations today here in the City of St. Francis. Before I get into the topic of the trend of inflation here and nationwide, I thought you might be interested in some data showing the concern of people in this part of the country about inflation. Over the past six months, this regional office has answered some 90,000 individual requests for information, and a good 80 percent of them were requests for price data. The volume of requests received in this office for i,~nfornia- tion on prices has almost doubled over the past year. Recently, we in- stalled a CPI telephone hotline here in San Francisco. Monthly, we record a message containing the most recent San Francisco-Oakland and U.S. average CPI data. Users call in on ~ special telephone line to obtain the data. After less than two months operation, the number of callers last month approached 800, and we expect more this month. A similar device in our Los Angeles office is running about 900 calls a month. Naturally, the requests that come directly into our offices represent only a small por- tion of the number of data users. Many users receive the data from either the almost 18,000 copies of our monthly release "Consumer-Price Index- Pacific Cities and U.S. Average" distributed through our regional mailing list, or from secondary sources--newspapers, radio and television sta- tions, trade journals or through business and labor organizations. PAGENO="0170" 162 In covering the statistical background of inflation, I believe it best to look at consumer price changes over a long period of tine (several years) and then a shorter one. The best set of data available to measure consumer price movements is the Bureau's Consumer Price Index, one of the most used and misused statistics produced by the Federal Government. The Consumer Price Index is a measure of the average change over tine in pri- ces of a fixed market basket of goods and services. It is widely accepted as a measure of inflation. It is not a cost-of-living index but it does measure one very important segment of changes in living costs-- changes in consumer prices. The CPI does not measure differences in living costs between areas. It does, however, show if prices in one area are increas- ing or decreasing more or less rapidly than in another. Since December 1977, the Bureau has been publishing two Consumer Price Indexes: one for all urban consumers, and the other for urban wage earners and clerical workers. I have chosen to use in this presentation the. former, as it covers twice the number of people. Over a long run of time, the rate of consumer price change for most goods and services among geographical areas seems to equalize. From 1967 (the base year for the CPI) to February 1979 (the most recent data available for this metropolitan area), all urban consumer prices here in the San Francisco-Oakland Area rose 103.9 percent while the U.S. city average increased 107.1 percent. The same close relationship als~ exists for the seven major groups of consumer expenditures. Over the same period, food and beverages prices rose 118.3 percent here against 122.4 percent nationwide; housing 111.6 percent as opposed to 115.6 percent; apparel and upkeep 65.4 percent as opposed to 61.4 percent; transportation 96.8 percent to 95.6 percent; medical care 131.4 percent to 132.6 percent; entertainment 76.4 percent to 83.2 percent, and other goods and services 94.2 percent to 91.9 percent. To show how close these figures are, if we annualized the percentage change over the approximate 13-year period the major group with the greatest index point difference--entertainment, we would find that the San Francisco-Oakland index rose at a rate of 4.3 percent each year, while the U.S. average index rose at a rate of 4.8 percent each year. . - PAGENO="0171" 163 However, looking within each major group of consumer expenditure, there are a few differences which stand out. In the food and beverages group, the change in dairy products prices in the San Francisco-Oakland Metropolitan Area was 84.3 percent over the period as opposed to the U.S. average of 100.6 percent. In the housing group, a wide spread exists in the percentage change for gas (piped) and electricity--91.l percent here and 141.2 percent throughout the U.S. In the apparel and upkeep group, women's and girls' apparel in the San Francisco-Oakland area increased 61.7 percent while advancing 47.7 percent nationwide. In the transporta- tion group, public transportation here rose 60.7 percent, nationwide 90.7 percent. In the short run, differences in the rate of price changes among geographical areas are more pronounced. Between December 1977 when the Bureau introduced its revised Consumer Price Index figures for the San Francisco-Oakland Metropolitan Area and the latest available--February 1979, the all items index for urban consumers in this area rose 8.9 per- cent as opposed to 11.3 percent nationwide. Much of this difference is because housing costs here rose at half the national rate: 6.0 percent in San Francisco-Oakland area, 12.1 percent nationwide. This was due to several events in California. One was the passage of Proposition 13 which lowered property taxes in California approximately 60 percent. Another was the lowering of the rates for electricity. Gas (piped) and electri- S city in San Francisco-Oakland declined 2.0 percent but rose 10.2 percent nationwide. Electricity rates in Northern California were cut in April, July and in October 1978 as a rollback to the increases granted during the drought of 1976/77. The smaller increase in housing costs here than nationwide was somewhat offset by a more rapid advance in apparel and upkeep prices which increased 8.1 percent here and 2.0 percent nationwide. While women's and girls apparel prices declined 1.8 percent throughout the country they advanced 12.1 percent here. I've attached three tables to the copy of my remarks. The first two cover in more detail the two time periods. The third is a table showing the relative importance of expenditure categories in the Consumer Price Index for All Urban Consumers as of December 1977. These figures have PAGENO="0172" 164 been calculated for the U.S. city average and for each metropolitan area for which a Consumer Price Index is published by the Bureau. The relative importance of a component of the Consumer Price Index is its expenditure or value weight expressed as a percentage of all the items. During the intervals between major revisions the quantities and qualities of goods and services priced for the index are kept essentially unchanged so that any movement in the CPI from month to month is due to changes in prices. Consequently, the value weights and the corresponding relative importance ratio are adjusted by the different rates of price change among the var- ious items, i.e. the relative importance increases for an itemor group having a greater than average price increase and a decrease for one having less than an average price increase. These figures are important because they afford us an opportunity to measure the impact on an area's CPI of the sane percentage change in one component. For example, housing in the San Francisco-Oakland Metropolitan Area had a relative importance of slightly more than 49 percent in Decem- ber 1977 as opposed to almost 44 percent nationwide. What this means is that if housing costs were to increase the same percent throughout the country, the impact on the San Francisco-Oakland area's Consumer Price Index for All Urban Consumers would be relatively greater than nationwide. The table shows that with a relative importance of homeownership standing at 30 percent here in the San Francisco-Oakland Metropolitan Area and slightly less than 23 percent nationwide, the sane change in home'~ownership costs would have an impact of almost one-third again on the San Francisco- Oakland All Items Index as on t'he U.S. city average index. Conversely, the same price increase for food at home would have less impact here in the San Francisco-Oakland area than it would nationwide. PAGENO="0173" 165 Table 1 Consumer Price Index: All Urban Consumers Percent change from 1967 to February 1979 Expenditure Category All Items Food and beverages Food Food at home Cereals and bakery products Meats, poultry, fish and eggs Dairy products Fruits and vegetables Other food at hone Food away from home Alcoholic beverages Housing Shelter Rent, residential Other rental costs Homeowne rship Fuel and other utilities Fuels Gas (piped) and electricity Household furnishings and operation Apparel and upkeep Apparel commodities Men's & boys' apparel Women's & girls' apparel Footwear Transportation Private transportation Public transportation Medical care San Francisco- Oakland Metro Area Index 103.9 118.3 124.7 129.0 113.2 139.2 184.3 128.6 169.9 114.4 60.0 111.6 122.3 82.3 122.3 142.2 97.1 91.7 91.1 90.4 65.4 61.0 59.6 61.7 62.0 96.8 99.1 60.7 131.4 76.4 94.2 United States City Average Index 107 * 1 122.4 128.2 128.0 112.2 132.3 100.6 126.5 161.9 133.4 67.7 115.6 125.9 71.0 124.8 145.6 123.3 159.3 141.2 86.0 S 61.4 56 * 3 56.7 47.7 68.9 95 * 6 95.5 90.7 132.6 83 * 2 91.9 Entertainment Other goods and services PAGENO="0174" 166 Table 2 Consumer Price Index: All Urban Consumers Percent Change From December 1977 to February 1979 Food and beverages Food *Food at home Cereals and bakery products Meats, poultry, fish and eggs Dairy products Fruits and vegetables Other food at home Food away from home Alcoholic beverages Housing Shelter Rent, residential Other rental costs Homeowne rship Fuel and utilities Fuels Gas (piped) and electricity Household furnishings and operation Apparel and upkeep Apparel commodities Men's and boys' apparel Women's and girls' apparel Footwear Transportation Private transportation Public transportation Medical care San Francisco- Oakland United States Expenditure Category Metropolitan City Average Area All Items 8.9 16.1 16.7 18.1 15.1 28.3 8.7 24.6 8.4 13.9 10.7 6.0 5.9 6.5 18.9 5.5 -2.4 -1.7 -2.0 11.3 8.1 8.1 4.0 12 * 1 6.4 9.5 10.1 1.8 11.3 15.9 16.3 17.7 12.3 29.5 13.4 17.7 7.7 13.2 9.5 12.1 14.0 8.3 17.0 15.3 7.6 10.5 10.2 8.8 2.~O 0.6 -0.7 -1.8 5.8 9.4 9.8 2.3 .12.2 11.1 7.1 11.0 7.1 7.9 Entertainment Other goodsand services PAGENO="0175" 167 Table 3 Consumer Price Index: Relative Importance of Expenditure Categories for All Urban Consumer Components, December 1977 Expenditure Category San Francisco- Oakland Metropolitan United States City Average Area All Items 100 .000 100.000 Food and beverages 16.442 18.813 Food - Food at home 15.083 17.718 9.765 12.235 Cereals and bakery products 1.138 1.530 Meats, poultry, fish and eggs 3.159 3.943 Dairy products 1.274 1.654 Fruits and vegetables 1.479 1.759 Other food at home 2.715 3.349 Food away from home 5.318 5.483 Alcoholic beverages 1.359 1.905 Housing 49.394 43.911 Shelter 37.411 29.181 Rent, residential 6.845 5.624 Other rental costs .551 .711 Homeownership 30.016 22.846 Home purchase 13.350 9.967 Financing, taxes, and insurance 14.516 9.211 Fuel and utilities 4.249 6.516 Fuels 2.133 4.289 Gas (piped) and electricity 2.054 3.391 Household furnishings and operation 7.734 8.215 Apparel and upkeep 5.049 5.800 Apparel commodities 4.425 5.l~7 Men's and boys' apparel 1.271 1.646 Women's and girls' apparel 1.775 2.044 Footwear .611 .716 Transportation 17.181 18.027 Private transportation 15.995 16.930 New cars 2.953 4.039 Used cars 2.524 3.020 Gasoline 3.994 4.205 Maintenance and repair 1.768 1.516 Public transportation 1.187 1.097 Medical care 4.695 4.969 Medical care services 3.922 4.110 Entertainment 4.102 4.085 Other goods and services 3.137 4.394 PAGENO="0176" 168 Mr. ROSENTHAL. Our next witness is Michael Spiegel, assistant at- torney general, State of California. Do you do anything to help anybody? STATEMENT OP MICHAEL SPIEGEL, ASSISTANT ATTORNEY GENERAL, STATE OP CALIFORNIA Mr. SPIEGEL. We think we are. Mr. ROSENTHAL. Well, tell us. Mr. SPIEGEL. All right. I was asked to talk about the gasoline, what we've done in terms of gasoline prices. In that connection, as a result of the 1972-73 shortages, which we may be seeing in a repeat perform- ance now, we brought a lawsuit in the Federal courts charging the major oil companies with, in effect, price fixing. We brought that case un behalf of the State, political subdivisions, and all of the citizens. Mr. ROSENTHAL. What happened? Mr. SPIEGEL. As you may be aware of our judicial system, things move slowly. Mr. ROSENTHAL. What happened? Mr. SPIEGEL. We're still in litigation Mr. ROSENTHAL. Since 1972? Mr. SPIEGEL. Since 1975 is when we filed. Mr. ROSENTHAL. What else have you done? Mr. SPIEGEL. With regard to gasoline pricing, all we do is try and keep track of what's happening as best we can. One of the problems, of course, is that it's difficult to get information. If you file a lawsuit and use the discovery means, what happens is that you get tied up in the courts for 10 years. Mr. ROSENTHAL. I was just reading-I know all about the courts- your statement here. You say, "Despite the oversupply of crude"- without objection your whole statement is in the record-"Despite the oversupply of crude available on the west coast, gasoline prices con- tinued to rise." That's what I don't understand. What's happening? Mr. SPIEGEL. Well, I think you have to understand that the oil companies would like to make more money, and you make money by raising prices. Now, a very interesting thing happened yesterday: as part of this litigation, the deposition was taken of Mr. Otto Miller, who is the retired chairman of the board of Standard Oil Co. in Cali- fornia: he was retired in 1974. He took the adamant position that, all through his tenure as chairman of the board, the Standard Oil Co. wanted to get the highest crude oil prices they could get. They always wanted to raise the price of crude oil because that's how they make money. But the limiting factor on raising the price of crude oil is what you can get in the marketplace for the product, the main product being gasoline. So, in order to accomplish the profitmaking procedure, one has to get the price of gasoline up, so there's where the pressure is going to come. Now. one of the rea.sons that, I think, gasoline pricing is not competi- tive is that the dealers, for one thing, are required to buy their gasoline only from the one oil company whose brand is- Mr. ROSENTHAL. Is there an oversupply on the west coast? Mr. SPIEGEL. Of gasoline? Mr. ROSENTHAL. Yes, crude oil. PAGENO="0177" 169 Mr. SPIEGEL. There has been an oversupply of crude oil. Mr. ROSENTHAL. Where is it? Mr. SPIEGEL. That is a good question. The companies now say there isn't. The statistics that I've seen, that go up into February this year, indicate that if there's any shortfall in the stock, inventory stock of crude oil, it's domestic crude oil that seems to be disappearing, not foregn crude oil. Mr. ROSENTHAL. Hold it 1 second. Is Mr. Cook here? Mr. Cook, why don't you sit up here, too, so you can help answer some questions. STATEMENT OP DALE COOK, RE+ION IX, DEPARTMENT OP ENERGY Mr. COOK. We're not really here locally having our hands in all these problems. Mr. ROSENTHAL. Why don't you sit at the table? For the record, why don't you give your name and your position? Mr. CooK. I'm Dale Cook. I'm with region IX, Department of Energy. Mr. ROSENTHAL. Is there an oversupply of crude on the west coast? Mr. CooK. I have no statistics of that nature. Mr. ROSENTHAL. GO ahead. Who are you? Mr. RAIN. My name is Don Rain. I'm the voice for a team called "We The People." On KPO radio last Tuesday, on a connection be- tween Washington, D.C., and San Francisco, we spoke to Governor Brown. Tuesday morning there was a fire at the plant bright enough to shut off the street lights in the surrounding area. We asked at that time for an immediate investigation to be called to examine that re- finery and see how much gasoline and oil was stored. As evidence, I introduce Wood River, Ill., a little town with three oil refineries. I have proof from Wood River Labor Local 338 that there is gasoline under the Wood River Refinery, stored in huge caverns. My kids are living on top of more gasoline and oil stored, being taken out, and we say that Wood River, Ill., is just an example of places all over the coun- try where they have refined gasoline and oil stored. Mr. ROSENTHAL. We'll come to you, sir. Is there any way for the pubEc to know whether there's an abundance of crude oil? Mr. COOK. We're asking them to file. We have our auditors going into the refineries and checking their books, getting at it. As you know, this week we announced where they were pricing it wrong in one area. Just as fast as we can, we have auditors working, and have been working since 1977, in the various refineries, checking their books, checking their systems of operation, to ascertain these sorts of things. That information is not being accumulated at this point. Mr. ROSENTHAL. That's a key question. I can't understand it. I just can't understand it. Mr. SPIEGEL. I can give you some statistics. The oil companies report to the State Board of Equalization on their gasoline inven- tories. Now the reports are usually about 2 months late, so the num- bers I have-I can give you the opening inventories as of February 1979, 200 million gallons more than it was in the previous October. So, just looking across the line from October, November, December, January, and February, the. inventory, as reported by 10 oil com- panies, the grand total in the State of California increased 200 million 52_21Lt 0 - 79 - 12 PAGENO="0178" 170 gallons. It's on the rise. Now, what happened in March and April won't come in, it will be 2 months late on each month. But looking at that, you can look at the API weekly statistics that the oil companies put out, and you see the same kinds of things. It doesn't seem to be, again I'm talking about the west coast, it doesn't seem to be any precipitous shortage that's going to be causing people to stand in line- Mr. ROSENTHAL. But you read today's San Francisco papers, the gas stations are closed at night, they're closed on weekends, and people are panicking out in the countryside, and we got a report that four gas stations in the Mission District of San Francisco haven't had gas for a week and a half. What's going on? Does anybody know what's going on? Mr. SPIEGEL. I think you put your finger on the problem. I think that there are the people who have the information; it isn't public for one thing. Anything that the oil companies give the Department of Energy is a big secret. Nobody can find out. Mr. ROSENTHAL. Will they tell you? Mr. SPIEGEL. No. Mr. ROSENTHAL. Why won't you tell them to tell you? Mr. COOK. I don't know. Mr. SPIEGEL. It's confidential information. Mr. CooK. What we're ~doing is, the refineries are reporting to us that they have a shortfall of. what crude they have. We have taken this and the allocation- Mr. ROSENTHAL. When did they report that to you? Mr. CooK. What? Mr. ROSENTHAL. When did they report that to you? Mr. CooK. I don't know. I'm being honest with you. I came down here to fill in for somebody else. Mr. ROSENTHAL. Who is this somebody else?~ Mr~ CooK. We have nobody here on the west coast at this particular moment that is tracking this whole thing. Mr~ ROSENTHAL. How is that possible? Mr. CooK. Because each of the units that are working in here are reporting ~to entities `at Washington. We have an office of special counsel here. The office of special counsel's one assignment is going into the specific refineries and checking into it. The information is given. We collect this totally at the- Mr. ROSENTHAL. Meantime, all of the population of the west coast is at the mercy of the oil companies. Mr. COOK. We're going in and verifying it. They're giving us a percentage figure they're operating on. We have a team in Washing- ton that coordinates and puts the whole supply problem together. Mr. ROSENTHAL. How many people have they got on' this team out here? How many people have you got out here? Mr. CooK. In the Economic Regulatory Administration? Mr. ROSENTHAL. Yes. Mr. CooK. There's audit teams in the office of special counsel, teams in each of the areas where there are refineries, and they're working on detail and out of Washington to these units. Mr. ROSENTHAL. How many people have you got out here? Mr. COOK. Probably 100. PAGENO="0179" 171 Mr. ROSENTHAL. What are they doing? Mr. CooK. They're auditing refineries and completing the reports, taking the same material here, seeing that the production logs of the various refineries are correct. Mr. ROSENTHAL. When did they start that? Mr. CooK. In 1977. They are reporting it in, they are fining them, they're reporting, they're bringing court cases, and they're getting at it. Mr. ROSENTHAL. I mean it's nothing personal; I'm very sympathetic to your situation. Have you ever testified before a congressional committee? Mr. CooK. No. Mr. ROSENTHAL. Your first experience. Mr. CooK. Yes. Mr. ROSENTHAL. I'm one of the nastiest people you'll ever meet. Mr. CooK. That's fine. Mr. ROSENTHAL. But tell us what's going on. Mr. CooK. All right. What we're doing is, OK, the production run in the refineries is not being run by the Department of Energy, what he does in there. He gives us a-we set up with the individual dealers around the area an allocation, allotment of how much gasoline he's entitled to as a- Mr. ROSENTHAL. Do you know what the crude oil inventory is in California? Mr. CooK. No, sir. Mr. ROSENTHAL. Does anybody in American know? Mr. CooK. I can certainly get the information provided for you, based on our statistics. Mr. ROSENTHAL. When? The people are entitled to know what the situation is, whether they're being hoodwinked or not. Mr. CooK. The point is, the information is available. There are weekly reports on the total production and activity reports. Neither my office nor any of the people in this area prepares this report. Mr. ROSENTHAL. It's all prepared in Washington? Mr. COOK. Yes; and we have an Energy Information Administra- tion at Washington, was created by Congress after the 1973-74 em- bargo, to monitor, control these things, and to provide an independent assessment within the Government. Those people are not here. Mr. ROSENTHAL. They're in Washington? Mr. CooK. Yes; `they're there. Mr. ROSENTHAL. Listen, I could get all that information, bureau- cratic stuff from Washington, I didn't have to stay up all night to find this out. What the people in California want to know is the fol- lowing: Is there a crude oil shortage here? Mr. CooK. The refineries are telling us there is. Mr. ROSENTHAL. But you don't know. Mr. COOK. Of the 39 refineries in California, we have an alloca- tion fraction that they're telling us they're capable of producing. We supply this information. We then take the dealers. We're worrying more about the retailer, what can we get for him? He provides that fraction. If we doubt the capability of the particular refinery, we have an office of special counsel, they're going in and checking the books to make sure that the information they are furnishing us is accurate. PAGENO="0180" 172 Mr. ROSENTHAL. You don't know if there's a crude oil shortage or not? Mr. COOK. Only by based on what is reported to us and what we're putting out. Mr. ROSENTHAL. Is there a crude oil shortage? Mr. CooK. We feel from talking to our people that most of the problem in the area arises because the people are carrying it around in the top half of their tanks. Mr. ROSENTHAL. What does that mean? Mr. CooK. They're going in and buying 80 cents' worth of gas, keep- ing their tanks full. Mr. ROSENTHAL. You mean the consumers? Mr. CooK. The consumers. Mr. ROSENTHAL. Then you're putting all the blame on the consumers. Mr. CooK. No, no, no. Mr. ROSENTHAL. Is there a crude oil shortage in California? Mr. CooK. There is a retail problem at the moment. Mr. ROSENTHAL. You don't make it easy. I don't understand any- thing about this stuff, and you are confusing it. further. Mr. SPIEGEL. The consumer may well panic when he reads in the paper, statements by the Department of Energy that there is going to be a shortage and the price is going to be $1 a gallon. It doesn't take much of that kind of talk, not oniy to get the consumer nervous but it's an invitation, an open invitation, to the oil companies to do exactly what's been predicted, you're going to see a shortage and you're going to see $1 a gallon. The prediction is made and it's going to come true. And looking at the statistics, the API statistics, you can see that in 1979, the percentage of input to the refineries is on its way down. They're running less through these refineries on the west coast clearly than they are on the east coast than in the previous years. Mr. ROSENTHAL. Mr. Spiegel, what do you think the Federal Gov- £rnment should do, what information is needed? Mr. SPIEGEL. The, policy decision or statements I'm making are not authorized to be made here for the Attorney General, but I think a starting point is people have got to recognize that there are markets. You can't respond to the people in California about a shortage in California by quoting some national statistic or the fact that Exxon Refinery is making fuel oil for the wintertime. That has nothing to do with California. You've got to first have your statistics based on the markets that are affected and understand what those markets are and then you've got to have decent statistics available to people on a rea- sonably short-term basis so that you know right away what's happen- ing. You don't have to find out 6 or 8 months after the fact and look at it and say, hey, I don't think there. was a shortage-but it's too late then. Mr. ROSENTHAL. Mr. Cook, tell me again so we can understand, is there a crude oil shortage in California? Does anybody know the answer? Mr. CooK. The refineries have reported to us that they are capable of producing petroleum products in the gasoline market at 92 percent at the present moment. That's the average. Some of the refineries re- port they have a capability this month to meet 70 percent of their de- PAGENO="0181" 173 rnand and some can meet 90 percent of their demand and some can meet- Mr. ROSENTHAL. Have you verified any of these figures? Mr. COOK. No, we have no-we have people that are working at each of the refineries auditing and working with them on this thing and we have brought a number of cases to court where they've- Mr. ROSENTHAL. So why don't you just say that you don't know the answer and let it go at that? Mr. COOK. We have the answers. Mr. ROSENTHAL. Can you get the answer in the next 15 minutes? Can you call up, get the answer, come back and tell us? Mr. CooK. I doubt it. Mr. ROSENTHAL. Thirty minutes? Does anybody in your place know if there's a crude oil shortage in California for real? Not what they tell you but for real? Mr. COOK. No one knows where-other than the reports that we have- Mr. ROSENTHAL. No, I'm not making myself clear. I'm doing a terri- ble job. The companies have told you that there's a little bit of a short- age, some companies at 92 percent, others at 70, right? Mr. CooK. That's right, they have reported a shortage. And Mr. Barthouse in our headquarters has been working with- Mr. ROSENTHAL. Where is Mr. Barthouse today? Mr. CooK. He's in Washington, D.C. Mr. ROSENTHAL. He's not here today? Mr. CooK. No. Mr. ROSENTHAL. But he usually works in California? Mr. CooK. No, sir. One thing that seems to be wrong is that we have people on allocations work out here who work at the retail level. We have people who are in the office or special counsel out here who are investigating on assignment various dealers. We have another group which is the enforcement, that's all the Economic Regulatory Admin- istration people we have here. Mr. ROSENTHAL. Is there a crude oil shortage in California? Mr. CooK. According to reports, yes. Mr. ROSENTHAL. Look, you don't know, the Department of Energy doesn't know. I will tell you what you should do. Mr. COOK. And I said I would be willing to find the answer. Mr. ROSENTHAL. You go outside, get some office here to let you use the telephone, call Barthouse and tell him I want to know when they will have completely verified the allegations of a crude oil shortfall in California, right now. Mr. RAIN. One thing, not just crude but refined stored gasoline. Mr. ROSENTHAL. Am I asking the right question, Mr. Spiegel? Mr. SPIEGEL. Well, no, not entirely. Mr. ROSENTHAL. He says no. Mr. SPIEGEL. In fact, the input to the refinery is not oniy crude oil. On the west coast, the refineries run, residual fuel oil is run through as an input as a feed stock to make gasoline. They run more than crude oil. Let me point one other thing out. You know, from a week-to-week basis, there can be a shortfall and all of these companies have what they call storage and this is what Otto Miller testified to yesterday, PAGENO="0182" 174 that the way a company works is when thing~ are a little short, you pull from storage. When you correct the situation, you put it back in. So just for somebody to take one little narrow statistic and say, yes, this month we've drawn down so many barrels out of the tank doesn't mean- Mr. ROSENTHAL. What's the question I should be asking? Am I ask- ing the wrong question? Mr. CooK. No, I think is there a shortage of crude oil on the west coast. Mr. ROSENTHAL. But you haven't verified it. Mr. COOK. And that's what I'll go ask-that question. I came here to talk to you about-I understand your question and your need had to do with what was going on at the retail market and level, which is the gasoline stations, and what were we doing about it and that's the questions I had in the letter from the committee. Mr. ROSENTHAL. Is it unfair of me to ask you these other questions? Perhaps so, but the public is clammering to know the answers to these questions and you're a Federal official, I'm a Federal official, we ought to be able to give it to them because it does have an enormous impact on price and inflation and other things under our jurisdiction. Listen, you go call Barthouse. Mr. CooK. All right. Mr. ROSENTHAL. Tell him if we don't have an answer when we get back to Washington next Tuesday, we'll subpena everybody in that Energy Department, OK.? Mr. CooK. I'll get what I can. Mr. ROSENTHAL. Anything else you want to tell us? Mr. SPIEGEL. I think my statement pretty well lays out what we've been doing and if you have any questions, I'd be glad to answer them. Mr. ROSENTHAL. Do you have any other plans to mount legal attacks on anticompetitive practices? Mr. SPIEGEL. As of now-say that again. Mr. ROSENTHAL. Do you have any plans to mount legal attacks on anticompetitive practices? Mr. SPIEGEL. Other than the one we're doing in petroleum, we file cases all the time when we get an opportunity on retail price mainte- nance, on any price-fixing situation that we can. Mr. ROSENTHAL. Do you coordinate activities with other attorneys general? Mr. SPIEGAL. Yes, we work closely with the National Association, especially with the west coast attorneys general in Washington, Ore- gon, Arizona. We work very closely with them. And we try, when we're on to some kind of a price-fixing scheme, to get together and bring the actions and work together. We have more people to mount the attack. In fact, the recent Anti-Trust Improvements Act allocated some Federal funds to State attorneys general to promote the activity by the State attorneys general in bringing cases. Mr. ROSENTHAL. Well, don't expect any more money from the Fed- eral Government when your Governor is going around the country talking about balancing the budget, OK. Mr. SPIEGEL. Well, I just hope I get a fair raise this year. I haven't had one in- Mr. ROSENTHAL. Well, you ought to take that up with the boss. Thanks very, very much. [Mr. Spiegel's prepared statement follows:] PAGENO="0183" 175 TESTIMONY OF MICHAEL I. SPIEGEL FOR THE COMMER~~ CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS The subcommittee has asked me to testify about the activities and efforts of the Antitrust Section of the California Attorney General's office as they relate to gasoline prices and their impact on inflation. In 1975, as a result of *an investigation of the 1973 and 1974 gasoline scarcity in California, our office filed a treble damage antitrust action in federal court on behalf of the State, its political subdivisions, and citizens. The defendants are the major oil companies that do business in California. The substance of our claim is that the major oil companies, lead by Standard Oil of California, since at least the early 1950's, had been engaged in a illegal combination to stabilize retail prices. The need to stabilize prices arose from the competitive activity of the independent marketers who sold excess gasoline produced by the majors. The majors produced excess gasoline because there was excess refining capacity on the West Coast and large profits were made on the production of foreign crude oil that was run through these refineries. As profit on foreign crude oil production declined in the early 1970's, the majors' attention shifted to gasoline marketing. Prices during the first half of 1972 were always below ceiling prices allowed under Federal price controls. This was the result of price competition by the independent marketers. In an effort to recapture the independents share of the retail market and get prices up, the majors on the West Coast in mid-August 1972 virtually simultaneously ended price supports to their branded dealers. This was followed up with a cutback of supplies to independent marketers. The net result was that prices went up to ceiling and stayed there, and the independents began closing down and going out of business. The ostensible reason given for cutting back supplies to the independent marketers in early 1973 was that gasoline supplies were short. Although the West Coast is an entirely separate gasoline market from the United States, the oil companies relied on East Coast and national statistics to support the claim of short supply. During this time however, the refineries on the West Coast were running at 5 to 10% lower capacity than in other parts of the United States. PAGENO="0184" 176 Under pressure from Congress the majors continued a limited supply to the independents under their "voluntary" allocation scheme. Later after the onset of the Arab Embargo, the allocation system became law under the F.E.O. Ironically, at the height of the gasoline scarcity on the West Coast during the Embargo, the only thing that was really scarce was storage space for gasoline. After Alaskan crude become available in 1977 because the Alaskan pipeline opened, imports of foreign crude to the West Coast refineries steadily declined, in fact until recently, there was an oversupply of crude on the West Coast. Despite the oversupply of crude available on the West Coast, gasoline prices continued to rise. One of the reasons for this is that branded dealers can only buy gasoline from one oil company. This is true despite the fact that gasoline is a fungible commodity, exchanged by refiners; and dealer leases do not require 100% of the dealers supply to come from the lessor oil company. The reason lies in "passing off" statutes enacted throughout the country at the oil companies' behest. These statutes make it a crime for a branded dealer to sell gasoline at his station that is not sold to him by his lessor oil company under its trademark. It makes no difference that the oil company supplier may actually have exchanged or purchased the gasoline delivered to its dealers from other refiners. This system coupled with the oligopolistic structure of the petroleum industry on the West Coast makes for a minimum of competitive pricing. Thus when the Department of Energy suggests an impending product "shortage" and that prices will go up, "shortages" occur andprices inevitably rise regardless of whether or not there is a genuine shortage in a particular market. Despite the facts that no Iranian oil was imported into the West Coast during 1978, and that world crude prices have risen recently less than $2 per barrel, gasoline prices on the West Coast has gone up over 200 a gallon in three months. A 200 per gallon rise equates to over $8 a barrel. How do the oil companies manage this? PAGENO="0185" 177 One explanation can be found in the Federal Trade Commission's Fifth Report to the Congress and the President. This report discloses that the Industry Supply Advisory Group (ISAG) composed of employees of the multi-national oil companies meets in Paris to advise the International Energy Agency. (lEA). Under test conditions designed to prevent anti-competitive results, the companies simulated an exchange of information including crude oil production data, inventory data and shipment data. This sort of information exchange, according to the Federal Trade Commission, can have anti-competitive results when it facilitates collusion in output decisions. The Federal Trade Commission recommends that Congress not permit the ISAG to exchange inventory data. The type of information exchange by ISAG criticized by the Federal Trade Commission, however, takes place all the time within ARAMCO and other international joint ventures of the multi-national oil companies. The current gasoline crises on the West Coast has similarities to that of 1973-1974. We have the major oil companies, one after another, going to voluntary allocation programs on the West Coast. The reasons they give ignore the separateness of the West Coast market. For example, Iranian crude was not imported into the West Coast and West Coast refineries are not required to make home heating oil during the summer for winter use. Similarly, statements such as "Alaskan crude has too much sulfur to be used in West Coast refineries," are misleading. No refinery runs straight crudes, for crudes are blended before being run. Thus, Alaskan crude can be and is used in West Coast refineries. A result of the allocation system learned from the 1973-1974 experience is that the dealers are motivated to raise their prices and limit their hours of operation. Any extra profit for the dealers is short-lived, however, since the oil companies eventually raise the dealer tank wagon price. The result is higher prices for the public and higher profits for the companies while the dealer's margin remains about the same. An apparent problem is that neither the Department of Energy Administration nor any other government agency has sufficient information to challenge the oil companies. The investigative procedures available to the Federal Trade Commission or State Attorney General are contested in the courts when used and become ineffective as a means of dealing with the immediate crises. PAGENO="0186" 178 Mr. ROSENTHAL. The next witness is the San Francisco Office of Consumers Union, Susan Foote and Carl Oshiro. Thank you both forcoming and feel free to begin however you want. STATEMENT OF CARL OSHIRO, SAN FRANCISCO OFFICE OF CONSUMERS UNION; ACCOMPAI~IED BY SUSAN FOOTE Mr. OsHnio. I prepared a brief statement which I'd like to read. Mr. ROSENTHAL. Go ahead. Mr. OsrnRo. My name is Carl Oshiro and this is Susan Foote. We're attorneys with the west coast regional office of Consumers Union. The Consumers Union appreciates this opportunity to speak with you about the activities of our west coast regional office. The Con- sumers Union is a nonprofit publisher of consumer reports which has over. 2 million subscribers, approximately 300,000 of which are in the State of California. The west coast regional office consists of four full-time attorneys engaged in a number of judicial, legislative, and administrative actions with respect to welfare of consumers. In recent years much of our efforts have gone toward eliminating or improving Government regulations which restrict competition and result in higher prices for consumers. I would like to speak with you about our work in three of these areas-food, professional services, and real estate brokers' commissions. As~ you've already .heard today, food prices are of a critical concern to consumers. Recent increases in beef, cheese, and other food prices have hit the consumers hard, especially those who live on low or fixed incomes. Often Government regulations directly contribute to the rising .cost of food. For example, until recently, the State of California maintained regulations which set minimum prices at which retailers could sell milk to consumers. Retail price controls were part of an overall system of regulation, the original purpose of which was to stabilize the chaotic economic conditions of the 1930's and assure consumers an adequate supply of milk at prices that would be fair. However, rather than assuring consumers fair and reasonable prices, these regulations required consumers to pay higher inflated prices for milk. In 1976 Consumers Union and the Consumers Cooperative of Berkeley went to court to challenge retail milk price controls. As a result of this litigation, the State agreed to deregulate milk pricing and permit price competition at the retail level. The elimination of retail price controls is saving California consumers $50 to $80 million each year in milk expenses and consumers in all parts of the State continue to enjoy an adequate and continuous supply of milk. The State continues to. set a minimum price for milk at the producer or farm ~level. This price is of `concern to the consumers since it is passed through to the retail level. Theoretically, producer milk prices should be set ata level which will stimulate production which is adequate to meet consumer demand but not excessive. There is evidence which indicates that producer prices are being set too high. In recent years, sharply rising producer prices have caused dairy farmers to produce 11/2 times the milk needed by con- sumers. This excess production is converted into butter, cheese or nonfat dry milk and purchased by the Federal Government as part of its commodity support program. Since 1975 purchases of surplus PAGENO="0187" 179 California milk has cost Federal taxpayers hundreds of millions of dollars. Before leaving the topic of food, I should mention that similar regulatory programs exist at the Federal level. As you may know, much of the fruits and vegetables grown in this country are regulated by programs known as marketing orders. These orders may impose grading and packing requirements, control the rate at which the prod- uct goes to market and, in some instances, directly limit the supply of a product. These orders are administered by boards which consist largely of growers, handlers, and other industry members. Over the past 40 years, it has become increasingly apparent that marketing orders have outlived their usefulness and are the cause of significant harm to consumers. There is a good deal of evidence which shows that Federal marketing orders: (1) lead to higher food prices; (2) mandate the waste of millions of dollars worth of wholesome nutritious food; (3) encourage the use of chemical pesticides and additives in the production and processing of food; and, (4) facilitate the mo- nopolization of food production by agricultural cooperatives. Given this evidence and the current national concern regarding the quality, cost, and availability of food, we suggest that a thorough and im- partial review of marketing orders be performed. Where marketing orders are not needed, they should be eliminated. Where they are needed, they should be reformed so that they protect the interest of the public at large. Another area where the Government regulation restricts competi- tion and leads to higher consumer prices is the delivery of profes- sional services. In many instances, the professional groups, such as attorneys, physicians, accountants, morticians, and so on, use licensure and other Goveremnt sanctioned restrictions to serve their own in- terest rather than those of the public at large. The most telling fea- ture about professional and occupational licensure is its Origin. Rarely is licensing imposed because of some public outcry over ex- isting abuses. Rather, most licensing laws have been imposed at the insistance of those very groups who will be subject to State con- trol. The desire for regulations is often prompted less by a concern for the public than by the pursuit of prestige and economic gain. Licensing raises barriers to entry, limits competition and helps to raise and maintain prices for consumers. In some instances, profes- sional groups have used the police power of the State to restrict price in other forms of advertising by professionals. Consumers Union is committed to promoting the free flow of truthful advertising in information to consumers, and we have ac- tively supported and advocated professional and price advertising for many years. Mr. ROSENTHAL. How much do you think consumers would be saved by the kind of action you're recommending? Mr. OsrnRo. The impact on price advertising can be very sub- stantial. Recent studies have been conducted of the prescription drug and eyeglass industry and these studies have concluded that restrictions cost consumers now $33G to $380 million per year for prescriptions- Mr. ROSENTHAL. That is nationally? Mr. Osrnno. Yes, these are national figures. PAGENO="0188" 180 And $180 to $450 million for eyeglasses. So there are very measura- ble harms that result, as a result of restriction on price advertising. Mr. ROSENTHAL. Why don't you put the rest of that statement into the record and tell us what you're doing here in California. Mr. OSrnRo. In addition to price advertising and restrictions on food- Mr. ROSENTHAL. Do you have anything to do with the regional FTC Office? Do you work with them at all? Mr. OSHIR0. Yes, we do. Mr. ROSENTHAL. What kind of job are they doing? Mr. OSHIRO. We feel that they're beginning to deal with some of the problems we've outlined, especially in the area of professional services. I understand that the regional office is working on promot- ing competition in fitting of dentures. We're also worked with the Los Angeles office of the Federal Trade Commission which is pres- ently conducting a nationwide investigation into the practice of the real estate brokers. We are interested in this area because recently we filed a petition in California with the real estate commissioner asking that he take certain actions to help to promote price competi- tion in the real estate brokers market. In California 84 to 97 percent of the brokers are charging fees of exactly 6 percent for the sale of a home. And study after study has been conducted which indicates that this price uniformity is not the ~resu1t of natural economic forces but is the result of price fixing which is going on. Mr. ROSENTHAL. Have you tried to get the California attorney general's office to do anything? Mr. OsrnRo. Local district attorneys with- Mr. ROSENTHAL. No, I'm not asking about the local district at- torneys but about the California attorney general's office. Mr. OSiinto. Yes, I understand that. The attorney general's office has supported local district attorneys in actions against local real estate associations on this very matter. Mr. ROSENTHAL. Well, have you got him to try to start an action to set aside these agreements as a violation of the antitrust laws? Mr. OSrnRo. To date we have concentrated our efforts with the State real estate commissioner because he is the State official that's charged with overseeing the real estate industry. Mr. ROSENTHAL. Have you started a lawsuit to have these agree- ments set aside? Mr. OsHIR0. No, we have filed a petition, formal petition, with the real estate commissioner. Mr. ROSENTHAL. Is that the proper way to do it? Mr. OsrnRo. Yes, it is a necessary step in order to exhaust admin- istrative revenues before a lawsuit. In this case, a lawsuit may not yet be necessary because in response to our petition, the real estate commissioner has taken several steps which may help to remove some of the problems. One of the things which the commissioner has agreed to do is to sponsor legislation which would give notice to all con- sumers who sign brokerage agreements. The notice would inform consumers the brokerage fees are not fixed by law and that they should discuss and agree on the amount of compensation to be paid before signing an agreement. The real estate commissioner has also promised us that he will hold hearings early this summer for the purpose of clarifying existing laws which are on the books now. PAGENO="0189" 181 Mr. ROSENTHAL. These agreements, I don't want to spend a lot of tune on that because it's not central to our inquiry, but do you think they're a violation of the antitrust laws, the Clayton Act, the Sherman Act? Mr. OSHIR0. Yes, they are. Mr. ROSENTHAL. So why don't you start a lawsuit? Mr. OSHIRO. A lawsuit may not be the most efficient way to deal with this problem. Mr. ROSENTHAL. You sound like a Federal bureaucrat. Mr. OsHIRo. We've taken action. Mr. ROSENTHAL. Why don't you start a lawsuit. If they throw it out, they throw it out. Mr. OSHIRO. We think that that would not be the proper- Mr. ROSENTHAL. You've got such a nice lady lawyer who would do all the paperwork. Mr. Osrni~o. Well, that wouldn't be the best use of her resources or our office's resources. Mr. ROSENTHAL. What? Mr. OSHIR0. We don't think that that would be the best use of her resources or our office's resources. Antitrust lawsuits, as you know and as the attorney general can tell you, are very complicated affairs~ and they take a tremendous amount of resources. We had a real estate com- missioner in California who has the duty to- Mr. ROSENTHAL. Is he doing a good job protecting the public? Mr. OSHnmo. We think he's beginning to. Mr. ROSENTHAL. What do you mean, you think he's beginning to? How long has he been in office? Mr. OsrnRo. A year and a half years. We think more could be done. Mr. ROSENTHAL. So why don't you do it? Could the FTC office have been doing more than it's doing? Mr. OsHIRo. The real estate matters, I understand, are being co- ordinated out of the Los Angeles office. We think that their investiga- tion now into the real estate industry is appropriate. We think it's necessary that they conduct this investigation because we believe the practices we found in California may be going on in other States, that this may be a nationwide problem. Mr. ROSENTHAL. What; real estate? Mr. OsHnmo. Yes. Mr. ROSENTHAL. Well, the U.S. Supreme Court has already decided that, as far as doctors and lawyers are concerned. Everybody knows the real estate people are into it. Mr. OsHnmo. Well, it is important that we know what the facts are right now. Mr. ROSENTHAL. The facts are? Mr. OSrnRo. I think that responsible action for the FTC-- Mr. ROSENTHAL. Are you satisfied with the performance of the FTC office here in San Francisco? Are you going to say anything? Ms. FOOTE. If you ask me a question, I will speak to it. Mr. ROSENTHAL. Is there anything you want to say? Ms. Fool'E. I'd just like to say that the reason we're here is that we really feel there are serious problems with inflation, and I think you've heard some very compelling stories from people here today, and I think we have done-our Office of Consumers Union on the west coast PAGENO="0190" 182 has taken some actions which have affected consumer prices, and we're urging- Mr. ROSENTHAL. What have you done? Ms. FOOTE. I think Mr. Oshiro just spoke to the milk problem, which was a very serious problem which affected the price of milk, and I think he gave you the effects of this. Mr. Osllino. We're also attacking the problem of real estate brokers' commissions. Mr. ROSENTHAL. You already told me that. Mr. OSHIRO. We're working in the area of professional services. We've appeared before the Supreme Court in landmark decisions, pre- scription drugs, and attorney advertisement. We have sued the State bar to permit freer advertising for attorneys and, because of that law- suit, we have two progressive reforms in California. We are working hard. We want to do more. We think Government should do more. Mr. ROSENTHAL. I want to commend you. Don't misinterpret my attitude. I think you're doing a fine job. The Consumers Union is a very useful organization. I get myself personally frustrated when I hear the stories of these older people and underprivileged, under- nourished, underfed, underemployed, underhoused people. it's frus- trating because I don't think any of us are doing enough. Mr. OsrnRo. I think you've taken one of the most important steps by scheduling these hearings, coming out to various parts of the coun- try and seeing what people have to say. Mr. ROSENTHAL. Can you do anything in the energy field? Have you thought about that at all? Back in Washington all we hear about is a lot of crude oil in California. When you come out to California, people are standing in line because they can't get gasoline. Mr. OSHIRO. I personally don't know enough about the energy and gasoline to- Mr. ROSENTHAL. I don't know anything about it, either. Mr. 051111w. I think I can suggest some things which could be done in the area of food, production of food, which would help consumers, particularly in the area of marketing orders and possibly easing or eliminating some of- Mr. ROSENTHAL. But the marketing orders, here's what I'm trying to get at, and we want to finish by 1 o'clock. Marketing orders are some- thing that's going to have to be decided on a national level. Mr. OsrnRo. Yes. Mr. ROSENTHAL. When I come out to communities like this my pur- pose is to find out and to energize local community groups into doing something about their own communities. For you to change the mar- keting order pattern, you're going to need a lot more horsepower than you have, or even more than I have. I mean you're up against a very enormous structural operation. But what can you do here in California to help the people of this community? Mr. OSrnRo. I've outlined some of the things we are doing. We are very frustrated, too, because if the Government were serious about fighting inflation, if the administration were serious about helping people in this area, there are some things they could do right now. Mr. ROSENTHAL. Like what? Mr. Osmuo. One of the things they could do is review the meat im- port quota. I read something a few weeks ago where Secretary Berg- land has refused to alter the meat import quota. The reason for that PAGENO="0191" 183 is that it won't make a difference. If it won't make a difference, we don't need the meat import quota. Why have it? Another thing we should do is look very carefully at legislation and a regulation which came out of the Depression. The Depression was a period of falling prices, and legislation which came out of that, and regulatory systems which came out of that time may be out of step with the times. Mr. ROSENTHAL. I understand all of that. My only suggestion to you is, the suggestions you make are not original to me. I've been opposed to the meat import quota ever since they started. We had an oil import quota. What I would suggest to you is what you can do to direct your energies toward local community concerns. Mr. OsHIRo. These are community concerns. Mr. ROSENTHAL. Yes, but they have to be resolved at a national level. You will never have the horsepower to do that. Mr. OSrnRo. But in many cases that's where it has to be resolved. The amount of lemons which get to the fresh market is determined nationally, not locally. The price for gasoline is determined by the national and international factors, not by what we do here in San Francisco. Ms. TRUKA. Pat Truka. I would like to make a suggestion that would uphold the dignity of the elderly and not degrade them with donations and national aid or Federal aid. I think since we have closed so many of our schools, and I'm sure other large cities have done the same, since busing was in- stalled, the families with children have left. the cities and they do not intend to come back. We cannot expect to use these school buildings for schools; then they should be converted into low income housing for the elderly. Our school in my neighborhood, called the Phebe Aperson Hearst- Mr. ROSENTHAL. I don't know anything about that. I'm delighted you spoke up when you want to speak up, that's why we're here, but I suspect there are enormous code problems and technical problems in converting a school into housing, the cost, I suspect, being one of them. I think it is cheaper to build something from the ground rather than convert a school. Ms. TRUKA. I don't think so, because each classroom could be made into a small apartment unit. Between the elementary school rooms, there is a lavatory, between every two rooms. Mr. ROSENTHAL. I don't know. Ms. TRUKA. So the plumbing would be very simple, electric out]ets- Ms. ROSENTHAL. I don't know; has anybody done that anywhere in the country? Ms. TRUKA. There's a cafeteria in every school for those elderly who could not cook for themselves. Mr. ROSENTHAL. That's an interesting idea. Ms. TRUKA. Those who can cook for themselves, there are plenty of ele'1ric outlets in the walls of every classroom. Mr. ROSENTHAL. We could use the cafeteria as a central place to eat, everybody goes there? PAGENO="0192" 184 Ms. TRu1~&. They could. Those who cannot fix their own meals could eat in the cafeteria, and they could form a community where the people who are able-I'm sure they would feel needed, which they need very much in the elderly years-they would take care of the food and the cafeteria, the cooking and the management of the kitchen. Those who wanted to eat and make up their own meals, and especially those on diets, they could have an electric plate in their apartment unit. Each classroom could be a separate apartment unit. There are enough elec- tric outlets, enough lighting to take care of it. Plumbing-there's no problem because there's a lavatory between each two classrooms, and the schoolyard is enclosed with a high fence for protection. The grounds that are not cemented could be fertilized. They elderly could plant their own vegetables, their own fruit trees. They would not have to be dependent on charity. Mr. ROSENTHAL. OK. Ms. TRIJKA. They could live within their own means. And another thing, this would give competition to the realtors, who are charging such exorbitant prices. I think the solution is, to the high rent, com- petition, just good Yankee and free enterprise. Where you have more units than are necessary, then when these people who have such high rents cannot rent their places, they're going to have to come down in their price. Mr. ROSENTHAL. OK. That is a very useful suggestion. We're going to take a 5-minute break, but before we do that, my suggestion to you people, who are doing, I'm sure, a very fine job, is to put more energy into dealing with problems of a local character that could be resolved at least within the State of California. Ms. TRUKA. Yes. Mr. ROSENTHAL. Because talking in terms of milk, very frankly, in terms of milk marketing orders and things of that nature, those re- quire such a nation- Mr. OsHIno. We have done that. Our efforts in the area of milk focus on the State of California. Mr. ROSENTHAL. That's good. Mr. OSmR0. We would also like to see more competition in the brokers' fees in California. Mr. ROSENTHAL. No, no; I think that's important; don't m sunderstand. Mr. OsHu~o. That's a matter that's naturally and traditionally a State concern. Mr. ROSENTHAL. We're going to take a 5-minute break. Thank you both very, very much. [Recess taken.] Mr. ROSENTHAL. The subcommittee will continue. What happened to that fellow from the Energy Department? Is he still on the telephone? While we're waiting for the man from the Energy Department to tell us what happened, is there anybody else who wants to say any- thing? Please, come up. Identify yourself. We can go only 5 minutes a person because we're going to finish by 1 o'clock. Tell us who you are, what you are, and why you are here. PAGENO="0193" 185 STATEMENT OP DONALD RAIN OP "WE TEE PEOPLE" Mr. RAIN. My name is Donald Rain. I'm a political activist for a party known as "We the People." Mr. ROSENTHAL. Mr. Rain, you've got to talk up so we can hear you. Mr. RAIN. My name is Donald Rain. I'm political activist for what we hope will be a third party in America known as "We the People." We want to start out with this, in the words of John F. Kennedy. Mr. ROSENTHAL. We haveS minutes. Mr. RAIN. Right; and let me present it. There were further implications in the warning that I should go along, implica- tions of the rewards that would follow fulfillment of my obligation to follow party leadership whom I had helped select. All of us in Congress are made fully aware of the importance of party unity. What sins have been committed in that name. Gabriel Kolko, distribution of wealth and power in America- Mr. ROSENTHAL. I know him. Mr. RAIN. Thus, the ironic fact is that the extension of the income tax to middle- and low-income classes was the only original aspect of the new deal tax policy. We believe that the entire mechanism and cause of inflation is because vested interest was allowed through privi- lege, private law, to make 9,099 changes in the original income tax laws and that the huge amount of money that the United States of America has earned, only a small portion has ever had taxes collected on it, and that filtered down to the working people. William Randolph Hearst, in 1923, when he saw Andrew Mellon, spoke of peace in the true glow. He said all taxes are a burden upon the people, no matter where they're imposed. If you put water at the top of a mountain, it will surely flow down into the valley; and if you put taxes on the richer classes, it's only a matter of time until they descend to the pur- chasing public. That's what's occurred in the United States of America. We feel that the failure is at a Federal level, that the Federal Gov- ernment has not collected its income tax from the huge corporations that have. made a fortune off the TJnitcd States of America. We don't know what mechanism to go to to get equality of the people and to make the Federal Government go back. When you talk about windfall taxes, we want these oil companies investigated back to 1946. We want to know what windfall taxes they've made since 1946, and especially the last 3 years, before you talk about taxing them for what they're going to. do next. California is in a unique position like you stated up there and you acted like you didn't know the difference between sour crude and regu- la.r crude. I interject the story of a reduction plant in Wood River, Ill., for three refineries, and this is what started this at Shell Refinery in Wood River, Ill. When these three refineries stood around and when Anla and Sulphur Reduction Corp. was built, they knew that Shell had to take it over in 10 years to try and break the unions. And this whole garbage that the unions raise the cost of living. At the end of World War II, 10 percent of this population believed in strong unions, 90 percent believed that their Government would pro- tect them. Since 1960 if you had a $10,000 income, you now have to have $25,000 to have an equal buying power, and yet no union was allowed a raise before a cost of living increase occurred first. Ten percent of the 52-214 0 - 79 - 13 S PAGENO="0194" 186 peopie just barely stayed even. In the last couple of years they haven't even been able tO stay even, while 90 percent of the people were put down the toilet with no mercy whatsoever. The good people that fought World War II and lived the American dream, they were noteven given a cup of coffee. The one thing you said Governor Brown, you laughed and you. said Governor Brown and the balanced budget The budget is out of bal- ance because the Federal Government has required vested interest not to pay its taxes. We want an audit done to the United States of America since 1946. We want the people to be made aware of what the little 10 percent that strong unions managed to get for their people were and what they paid in lawyer fees for that pitiful bit, and we want to read the bottom line from page 103 in the constitution of the State of California when she was admitted to the Union, "But the inalienable right to alter or reform their government whenever the public good may require." California does have a legal right to leave the Union right now should the people of this State so choose in open election. Mr. ROSENTHAL. Are you recommending that? Mr. RAIN. Well, California may want to go back with Mexico. Cali- fornia may want to be independent.. There is no gasoline shortage in Washington, D.C. Gasoline is 10 cents a gallon less in Washington, D.C. You sit up there and you act like it's not allotment and right now the whole thing is- Mr. ROSENTHAL. How much is gasoline in Washington, D.C.? Mr. Rain. According to KGO Radio this morning, 10 cents a gal- lon less than here in California. Mr. ROSENTHAL. How much is it? Mr. RAIN. That would make it about 73 to 76 cents. Mr. ROSENTHAL. How much is it out here? Mr. RAIN. Right now it's running approximately 94 cents. At some stations they're selling it for $1.09 a gallon and you have to have appointments. Mr. ROSENTHAL. It's about 20 cents more here in California. Mr. RAIN. Well, I'm just saying that's the range. The highest one that we know of is- Mr. ROSENTHAL. Why is it so much higher out here? Mr. RAIN. Because it's a manipulation, it's a manipulation on the allotments. We take the story of Wood River, Ill., and how much gaso- line is stored underneath that town and Wood River's Labor Local 338 can validate when those caverns were blasted and how much gasoline is stored under the Wood River Standard Refinery. We want to know how much gasoline and oil was stored in that Richlancl Refinery, as these people attempted to manipulate an economy and to provide the force. They say, well, the public won't help. The emphasis is media. The only persons in this country that's been allowed to run for office were those that could afford to buy enough prime time television to launch a campaign. And the emphasis of our media has been to program them for violence and insanity instead of for community action. And `we want to know what the Government's going to do to protect these people. It's obvious that the Democrat and Republican parties have been totally knocked out of commission by vested interests. PAGENO="0195" 187 One oniy has to look at the tax laws you just pessed. You sat up there and you acted like you didn't know the difference between sour crude and regular crude. Mr. ROSENTHAL. I don't know the difference. Mr. RAIN. OK, it's the sulfur. Mr. ROSENTHAL. Are you disappointed in me that I don't know the difference? Mr. RAIN. Yes, I'm definitely disappointed in you, sir, that you don't know the difference. Mr. ROSENTHAL. I really don't. Mr. RAIN. OK, California's got all kinds of crude from Alaska, but it's sour crude. They say, well, we don't have the refineries. But I take the story of Wood River, Ill., they had three oil refineries and this is where it began and they did work only on those refineries that they didn't just have to do until they were able to break the union and bring in people with underunion scales. They allowed Anlon Sulfur Reduction plant- Mr. ROSENTHAL. I think we've~ gone beyond the 5 minutes, but I really appreciate your testimony. It's been very useful. Mr. RAIN. Thank you, sir. Mr. ROSENTHAL. We're waiting for the fellow from the Energy De- partment to get off the phone. Does anybody else want to say anything before we conclude? Yes, sir, why don't you come up here and tell us who you are. What's your name? STATEMENT OF WILLIAM A. ARBITMAN, SAN FRANCISCO REGIONAL OFFICE, FEDERAL TRADE COMMISSION Mr. ARBITMAN. My name is William Arbitman. Mr. ROSENTHAL. Well, you're on our list. Where were you? Mr. ARBITMAN. In here, waiting to testify. Mr. ROSENTHAL. So far we've heard testimony that you're not doing anything out here. Mr. ARBITMAN. Well, I beg to differ with that conclusion. I thmk we're doing quite a bit. I've submitted a statement. Mr. ROSENTHAL. What's your name? Mr. ARBITMAN. William Arbitman. Mr. ROSENTHAL. What are you doing out here to help these people fight inflation or anything else?* Mr. ARBITMAN. Well, let me summarize some of the things. First of all, we have some 20-odd investigations of price-fixing activities by major national consumer products or companies and to give you an example of the possible benefits that can result from these things is a case that we settled involving Levi Straus about 11/2 years ago. As a direct result of the case we brought, prices of Levi products were reduced throughout the country by anywhere from 10 to 30 per- cent and that constituted a consumer savings throughout the country of $50 million a year. Mr. ROSENTHAL. You brought that action here in this district? Mr. ARBITMAN. That's right. PAGENO="0196" 188 Levi Straus is a San Francisco company and we handled that case out of San Francisco. Mr. ROSENTHAL. How come Chairman Pertschuk let you do that? Mr. ARBITMAN. He has confidence in us. And, as I say, we have some 20-odd investigations, 2 of which have already been resolved but have not been announced by the Commission yet, and I'm confident that they can result in some great savings, probably not as great as that one did, but I think some significant sav- ings can result from that. Next we have a maior investigation in the area of deregulation as it concerns the practice of dentistry throughout the country that's being handled in our regional office here. As you know, the FTC has been a very vigorous spokesman for competition, appearing before other Federal agencies like CAB to eliminate, their anticompetitive regula- tions. And we've seen what a tremendous impetus that took when con- trols on pricing were eliminated. Prices decreased tremendously and the volume of utilization increased tremendously as well. And the FTC through Washington has also been appearing before the ICC urging deregulation of the trucking industry and Congress- Mr. ROSENTHAL. Tell us what you are doing out here. Mr ARBITMAN I want to analogize this kind of thing to what's going on in Washington. I heard an elderly citizen here this morning com- plaining about the problems with her teeth and proper dental care and just let me highlight a couple of the problems, some of the magnitude of the unmet dental needs in this country which we are attempting to address through some action which I'll describe. The dental decay, first of all, is one of the most prevalent of all chronic diseases in the country and described as such by the Surgeon General of the United States. Mr. ROSENTHAL. Tell me what you're doing out here. Mr. ARBITMAN. We are investigating the effect of restrictions im- posed by private organizations and public, organizations, principally the States, that eliminate innovation in the delivery of dental care throughout the country. Mr. ROSENTHAL. Wait a second. Do you need 5 minutes to organize your notes? Mr. COOK. No; I just want to put them in order. Mr. ROSENTHAL. Don't run away. Mr. ARBITMAN. These kinds of restrictions I'm talking about is that most State laws' preclude the infusion of equity capital to own and operate dental practice. In other words, companies like Sears and Wards can't own a dental practice and, therefore, they can't-they have to go through some legal manipulations to put dentistry opera- tions in shopping centers these days but there are restrictions on owner- ship. There are restrictions on functions that dental auxiliaries can perform that are imposed by State and by private associations. There are restrictions on the number of dental offices that can be owned by one- Mr. ROSENTHAL. What are you doing about it? Mr. ARBITMAN. We have completed our investigation now and are in the process of the next couple of weeks we'll be submitting recom- mendations to the Commission in Washington giving them options as to what they can do. PAGENO="0197" 189 Mr. ROSENTHAL. In the hope that there will be a rulemaking decision? Mr. ARBITMAN. That's one option that we're seriously considering, yes. Mr. ROSENTHAL. With what eventual goal? Mr. ARBITMAN. With the goal that these kind of restriction on inno- vation will be limited so that the high cost of dental care thereafter can be decreased and made more accessible to people who are not getting it now, particularly elderly people. Mr. ROSENTHAL. And Federal Trade Commission regulations would have to supersede State and local laws? Mr. ARBITMAN. Exactly, if that's the route the Commission elects to go. Mr. ROSENTHAL. What else are you doing? Mr. ARBITMAN. We have a major investigation of insulation, talk- ing about increasing energy costs, we've served notice on some thpu- sand-odd manufacturers and installers of insulation to watch out for any claims they make. We've notice misrepresentation in claims of energy savings claims, dollar savings claims- Mr. ROSENTHAL. By whom, by utilities? Mr. ARBITMAN. No; by manufacturers and. installers of insulation. Mr. ROSENTHAL. What are you doing about that? Mr. ARBITMAN. Well, we sent them all notices that if they should engage in these practices, we'll take them to court for $10,000 penalties for every violation they make and since that time, since the time we notified the companies, there have been dramatic improvements in the labeling and advertising of these products so that consumers of insulation- Mr. ROSENTHAL. This is only for local distributors? Mr. ARBITMAN. Well, we've coordinated this thing, we took the lead on it nationally and coordinated with all ~other regional offices of the FTC and we serve just about all of the manufacturers of the material and the local installers while the other regional offices han- dled the local contractors who install this insulation materials in their regions. Mr. ROSENTHAL. Now, you said in your statement you have 20 investigations into alleged price fixing. What's that about? Mr. ARBITMAN. That's right. These are the kinds of investigations I mentioned that we handled against Levi Straus, resale price main- tenance, alleged resale price maintenance imposed by 20-odd national manufacturers of popular consumer products from apparel to- Mr. ROSENTHAL. What companies? Mr. ARBITMAN. I am not at liberty to disclose the identities because it is Commission policy not to identify them, but they are prominent names and I think as we get corrective action- Mr. ROSENTHAL. Have there been reports made to you that there has been price fixing by these companies? Mr. ARBITMAN. We have information to that effect which would justify the start of the investigation. Naturally, we don't just go on a whim. Mr. ROSENTHAL. Do the companies know that they're being investigated? PAGENO="0198" 190 Mr. ARBITMAN. Definitely, oh, yes. We have subpenas out to them right now. Mr. ROSENTHAL. Well, why can't you tell me? We know anyhow but why can't you tell me? Mr. ARBITMAN. I would like to tell you but- Mr. ROSENTHAL. You would like to. Are you under orders not to tell us? Mr. ARBImtAN. I'm under orders to follow the rules of the Com- mission which are not to disclose nonpublic investigations. It's their rule. They seriously considered whether that's an appropriate rule and decided that it was, and I have to follow their mandate. It's as simple as that. It's the rule or otherwise I'd be happy to tell you. We also have a major monopolization investigation of a company that dominates a $500 million consumer product market that we're engaged in. We have a trade regulation rule dealing with the adver- tising and labeling of protein supplements, and I think this has an anti-inflationary effect because it will- Mr. ROSENTHAL. Are you doing anything in the energy situation, gasoline situation here in `California? Mr. ARBITMAN. No. Mr. ROSENTHAL. Why not? Mr. ARBITMAN. The energy activities throughout the whole FTC are concentrated in an energy unit in Washington, D.C. Mr. ROSENTHAL. What energy unit? Mr. ARBITMAN. In the Bureau of Competition. Mr. ROSENTHAL. Why don't you do something out here in California like quickly because it seems to me the situation is rampant with serious problems. Mr. ARBITMAN. No question that there are serious problems. I'm mystified, the public is mystified. Mr. ROSENTHAL. Why don't you do something like quickly? Why don't you announce like this afternoon you're going to start a major investigation of every oil distributor in California? Mr. ARBITMAN. I don't have that authority. Mr. ROSENTHAL. Why not? Mr. ARBITMAN. Because it requires approval of Washington for me to do that. Mr. ROSENTHAL. Well, get Mr. Pertschuk on the phone and-can you get him on the phone right now? Mr. ARBITMAN. I don't know if he's free. I can certainly try to get him. Mr. ROSENTHAL. You call him and in the next 10 minutes, come back and let us know. Tell him that I think that there should be a major FTC investigation of the petroleum situation in California. Will you do that? Mr. ARBITMAN. Sure, I'd be happy to do jt. Mr. ROSENTHAL. Go out and call. Mr. ARBITMAN. OK. [Mr. Arbitman's prepared statement follows:] PAGENO="0199" 191 TESTIMONY OF WILLIAM A. ARBITMAN, DIRECTOR SAN FRANCISCO~RLGIONAL OFFIC~ FEDERAL TRADE COiliIISSION BEFORE THE COMMERCE, CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIOMS HOUSE OF REPRESENTATIVES MAY 4, 1979 THIS STATEMENT REPRESENTS THE VIEWS OF THE STAFF, NOT NECESSARILY THE VIEWS OF THE COMMISSION OR ANY INDIVIDUAL COMMISSIONER. PAGENO="0200" 192 Mr. Chairman and members of the Subcommittee. I am pleased to be here today to discuss some of the major initiatives taken by the San Francisco Regional Office of the Federal Trade Commission to implement the Commissions anti- inflation program. This regional office has been active in instituting actions designed to restrain inflation. I think we have been particularly sensitive to addressing unfaar, deceptive and anticompetitive behavior whicn subjects the public to artificially high prices. Tee following as a summary of our recent activities: Me are in the final stages of preparing recommendations to the Commission concerning two related national investigations into alleged private and public restraints imposed upon the practice of dentistry. In 1976 dental care was an $8.6 billion industry with consumers purchasing $8.13 billion or 94.5% of all dental services produced that year. Unlike the health care market generally, where third party payment arrangements predominate, the dental service market is one in which the consumer usually pays directly, without assistance. Fewer than one-tnird of all ~mericans are presently covered by any form of dental insurance. Inflationary tendencies in dental care are teus of special importance to the American public since most of us must directly bear this necessary expendatute. Weile the rate of increase in the cost of dental core has not risen as rapidly as medical care, the gap in the rates PAGENO="0201" 193 of increase is narrowing. Moreover, a number of studies have demonstrated that the prices of and costs associated with obtaining dental care are significant barriers to meeting the public's dental care needs. In light of these facts and Congress's own expressed interest in bringing down the costs of dental care (particularly to the eaderly), the Commission has authorized the San Francisco Regional Office to conduct two investigations of the dental profession. These investigations aim to determine whether the existing system of dental care delivery may be attended by unlawful restrictions which needlessly raise the cost of or limit access to dental care throughout the country. The first of these investigations focuses on restrictions on the ability of skilled non-dentists (dental laboratory personnel or dental technicians) to provide denture care to the public. The second investigation has narrowed its focus to restrictions imposed by both private and public bodies on the permissible forms of dental practice (including dental practice ownership restrictions) and restrictions on the scope of auxiliary practice (that is, the functions that may be delegated to dental assistants and hygienists and limitations on the manner in which auxiliary services may be offered). Very shortly we shall be advising the Commission as to the possible remedies available to it to help decrease the price and associated costs of dental care and increase PAGENO="0202" 194 the accessibility to those in need of such care. In another health related matter, we initiated an investlgatlOn of the California Medical Association which recently resulted in a consent order. That association, which has approximatelY 25,000 members, published a so-called relative value study which has been used for a long time in CalifornIa and other states in connection with the billing and reimbursement for medical services. T~ relative value study sets forth comporatiVe nui~ericel values for surgical and medical procedures and services. These values are usually stated in non-monetary units., but each value is convertible into a monetary fee by the application of ~ dollar conversion factor. Adnerence to a relative value study freezes the relationship among fees for different procedures. For instance, even wnere physicians individually *set conversion factors, if they follow a relative value study that assigns Procedure "A' three times the number ofunits as procedure "B," procedure "A" will always be three times as costly as Procedure "B." In addition, publication of a relative value study makes it convenient for physicians tO fix prices across the board merely by agreeing on a uniform conversion factor. The goal of this action is to encourage pnysicians to charge for their services on the basis of their own costs, rather than using price related factors supplied by their association. it is hoped that this oution will PAGENO="0203" 195 provide a stimulus for price competition for medical services throughout this state. The San Francisco Office was the first regional office to conduct a trade regulation rule proceeding pursuant to the Magnuson-Moss Warranty-FTC Improvement Act. The Commission is now approaching the final stages of this proceeding which would regulate the advertising and labeling of protein supplements. This rule is particularly important as an anti-inflation action because it seeks to give consumers important information concerning the spending of their ever shrinking food dollar. The rule has three major purposes: First, to alert the public to the serious health hazards to infants and persons with liver or kidney diseases involved in the improper use of concentrated protein supplements. Second, to prohibit and prevent various deceptions in the marketing of these products. Third, to inform the public that protein supplements are unnecessary for most Americans because we get all the protein we need from our usual diet even though that diet may be very poor nutritionally. Based on the facts developed in the proceeding, it is the opinion of the staff that, for the vast majority of people, the purchase of protein supplements is a total waste of money. PAGENO="0204" 196 Escalating enei:gy costs have spurred dernano for home insulation. To head off the temptation of ho~ce improvement operators to take advantage of this surge in demand, our office has taken the lead role in coordinating a regional office effort to warn all manufacturers of insulation materials and many retailers that false or unsubstantiated claims for insulation efficiency would be met promptly with court-imposed $10,000 a day penalties. In following up on these notices we have observed a number of manufacturers in our region who have reevaluated and modified tneir performance claims. ~s a result, many consumers will no longer be faced with false or unsubstantiated energy savings claims when attempting to reduce their fuel bills through purchases of insulation. Much of our recent antitrust attention has focused on resale price maintenance schemes by prominent manufacturers of common consumer products. Designed tO illegally control retail prices, these price fixing programs are especially pernicious because they directly deprive tne public of the benefits of competition that should exist among competing dealers in these products. Our completed resale price maintenance actions have produced substantial benefits for the oublic in the form of reduced retail prices. For instance, the Levi Strauss & Co. matter charged the world's largest apparel manufacturer with illegally eontrolling the retail prices of its celebratud PAGENO="0205" 197 blue jeans and other products. The consent agreement resolving the litigation of this case has resulted in consumer savings conservatively estimated at over $50 million per year. In some markets, the Commission's action was directly responsible for a 30% drop in retail prices for Levi products. The significance of this case as an example of our office's response to inflation is underscored by the fact that the estimated annual savings to consumers exceed 75% of the yearly budget of this agency. In addition, weare currently conducting over 20 investigations into the alleged price fixing activities by large manufacturers in such industries as wearing apparel, footwear, cosmetics, household appliances and silverware. We feel that these actions reflect our commitment to President Carter's call `to redouble our effort to put competition back into the American free enterprise system." In our case involving *The Advertising Checking Bureau, Inc. we obtained a landmark consent agreement against the largest firm administering co-operative advertising programs for manufacturers. Among its 400 clients are some of the largest.producers of prestigious consumer products. The complaint in this matter challenged the administration and design of so-called "price restrictive" co-operative advertising programs which deny co-op funds to dealers who feature discount or sale prices in their PAGENO="0206" 198 ads. Such programs are illegal, the staff believes, because they coerce dealers into adherence to artificially high retail prices and because they deny necessary support to dealers who wish to engage in a price-competItIve marketing strategy. The matters I have mentioned constitute the major recent initiatives of the San Francisco Office which I believe have, and will in the future, contribute significantly to the fight against inflation. ~oreover, any new investigation which we undertake will be routinely scrutinazed for its potential to reduce consumer prices. klso, through our consumer education efforts we attempt to inform toe public of its rights in the marketplace so they can make intelligent purchasing decisions. I appreciate this opportunity to participate in this hearing, and I would be pleased tO respond to any questions at this time. PAGENO="0207" 199 Mr. RAIN. Can I ask you a question? Mr. ROSENTHAL. Under the Rules of the House of Representatives, I don't have to answer any question. Really, we never answer questions, hut sure, go ahead. Mr. RAIN. The people of San Francisco passed a proposition that the drug phenomenon is a medical problem, not a legal problem. We would like to request that all the confiscated marihuana in San Francisco be allowed to be sold for campaign funds to donate to the politicians- Mr. ROSENTHAL. I suggest you speak to either Philip Burton or John Burton. Mr. RAIN. I already spoke to Philip Burton. Their office said there was nothing that could be done. Mr. ROSENTHAL. Well, then talk to John, lie's here this afternoon. Tie's in Chinatown this afternoon. If you can find him, I'm positive he'll cooperate. Mr. PAIN. The. one statement we. would like to make. You all laugh. But the tax base off of the drug phenomenon in America is big enough for national health care today. We'd like to show just what the willing- ness of the people is to buy joints for campaign funds to give to politi- cians to handle this phenomenon and stand up and speak for those in America who feel that this is a medical problem, not a legal prob- lem, but we want to show that the drug phenomenon can produce a tax base for a national health care- Mr. ROSENTHAL. I must ~say that's ~a very original suggestion. I haven't heard it before. Off the record. [Discussion off the record.] Mr. ROSENTHAL. On the record. The subcommittee is in session. We will have to stop this chatter from the audience. Sir; whydon't you tell us what you have to tell us. Mr. CooK. I checked into the status, as you requested, regarding crude oil.. Comparatively, we're handling more crude oil today than we were a year ago. Mr. ROSENTHAL. So tell us what thatmeans. Mr. CooK. There are more millions of barrels of, or thousands of barrels of crude oil coming in; input to the refineries right now. .Mr. ROSENTHAL. In California, we're talking about? Mr. COOK. Yes, nationwide and in pad 5 which is, part of California is included within. The country is divided into certain accounting dis- tricts, one of which California is included in. Most of the refinery ca- pacity is within California. In January 1978, the input to the refineries nationwide was 14,139,- 000 barrels per day. In 1979, the amount was 14,821,000 barrels per day. In April~ 1878, the input was 13,872,000.barrels per day. In April this year we don't have it completed, it is over 14 million barrels per day. That's the input to the refineries. Within this particular region- Mr. ROSENTHAL. What does this region include? Mr. CooK. That's California, Washington, Colorado. I have a break- down on another sheet; Nevada, Washington, Oregon, California, Ne- vada, Arizona, Alaska, and Hawaii. Mr. ROSENTHAL. OK, go ahead. PAGENO="0208" 200 Mr. COOK. So the accumulated crude stock at the refineries- Mr. ROSENTHAL. As of when? Mr. CooK. January 1978, this is total, was 66,679,000 barrels. In Jan- uary of 1979 that accumulated stock was 56,422,000 barrels. In March of this year, per March a year ago, the accumulated stock was 65,702,000. Mr. ROSENTHAL. Was that verified or is that the oil company figures? Mr. Cooic. These are our statistics which our people feel have been audited and are verifiable. Mr. ROSENTHAL. You certify to the accuracy of those figures? Mr. CooK. That's right. Mr. ROSENTHAL. Go ahead. Mr. CooK. In March of this year it was 55,839,000. In what we call the the same pad 5, a year ago the refineries were producing at 70 to 80 percent of their maximum capacity. This year- Mr. ROSENTHAL. Why less than maximum capacity? Mr. CooK. I do not know. Mr. ROSENTI-IAL. Go ahead. Mr. CooK. In this year, currently, May 1, the pad 5 maximum ca- pacity is 80 to 85 percent. Traditionally or historically at this time of the year the refineries usually convert over to be. working on changing the systems around and normally they go down because they're not handling the winter distillate but this year they're still operating. Even so, ~ye're running at 150 to 200 barrels now per day more than we were a year ago at this time; 150,000, 200,000 barrels. We're running in this particular pad 5 approximately 4 million barrels per day. The major refineries are right now producing approximately 96 per- cent of their capacity. The four largest refineries, which I was in- formed we could not disclose specific percentages for because that is proprietary information, are above 95 percent. Between May 1977 and May 1978, the area experienced more than a 3-percent growth in pe- troleum product demand. We do not have the statistic in now but it appears to be greater than that particular demand. This is not as significant as in other parts of the country. And winter distillate in May of this year, we're producing it at the rate of 103 percent. That's the crude picture. Now, we verify these iiumbers by spot audits of the refineries. Mr. ROSENTHAL. So is there a shortage in California right now? - Mr. CooK. Yes; because our demand or our need is greater than, is growing faster than we're adding oil. Mr. ROSENTHAL. You're at 96 percent production, right? Mr. CooK. That's right, for motor gasoline. Mr. ROSENTHAL. I still don't understand what the inventory as of today is. Mr. CooK. Inventory, as I indicated, was going down. The total in- ven1ory being storcd is going down in pad 5. Mr. ROSENTHAL. And is- Mr. CooK. The increased demand is more than- Mr. ROSENTHAL. What is the shortage? You say there's a shortage in the State of California or in the region, refining capacity shortage, refining production shortage, a shortage due to the changeover or the cleaning of the- PAGENO="0209" 201 Mr. COOK. No, wait a minute. Mr. ROSENTHAL. Tell us. I may not be able to frame the question properly. Tell us in a way the public can understand what is the fuel inventory situation in California? Mr. COOK. All right, the inventory, the accumulated stocks are go- ing down. Mr. ROSENTHAL. By how much? Mr. COOK. Approximately, I believe it was 9 million barrels. Mr. ROSENTHAL. See, we don't know how to convert that into what we had last year. Mr. CooK. Well, 1 year ago the same time, I say 1 year ago was 65 million barrels. Mr. ROSENTHAL. You had 55 million barrels in inventory at this time last year? Mr. CooK. Sixty-five million. This time it's 55 million. Mr. ROSENTHAL. Fifty-five million in inventory? Mr. CooK. In inventory. Mr. ROSENTHAL. And production is at 96 percent of what it was last year? Mr. CooK. In total- Mr. ROSENTHAL. Could you tell us- Mr. CooK. Wait a minute. I understand your question. Our refining capacity is, this year it is 80 to 85 percent of the installations and 96 percent of that capacity is going for motor gasoline so that we have an in-built shortfall. Mr. ROSENTHAL. What do you mean by an in-built shortfall? Mr. CooK. Well, as I say, we're not at 100 percent. Mr. ROSENTHAL. So are we stretching this out? What's causing all this hysteria? Ar3 all the long lines in this area justified? Mr. CooK. Well, there's a growth. Mr. ROSENTHAL. Growth? Mr. CooK. There are more automobiles here now than there were 1 year ago. Mr. ROSENTHAL. I can't understand that. In 1 month there has been growth. Why aren't refineries operating at 100 percent? Mr. CooK. I do not know. Mr. ROSENTHAL. All right, tell us what are you going to do about all of this. Mr. ATIBITMAN. Well, I did speak to Mr~ Pertschuk. Mr. ROSENTHAL. And what are you going to do? Mr. ARBITMAN. He told me to write up within 48 hours everything I `could find about the situation and send it back to him and he would present it to the Commission to determine what action they might want to take since they are the ultimate arbitrators of this kind of investigation. Mr. ROSENTHAL. When are you going to do all of this? Mr. ARBITMAN. As soon as I possibly can. Mr. ROSENTHAL. Do you think the situation here is out of whack? Mr. ARBITMAN. With all due respect, I'm the wrOng person to be asking that of. I have no knowledge virtually of- Mr. ROSENTHAL. Well, you read the newspapers. Mr. ARBITMAN. Of course I do. It's just as puzzling to me as it is to 52-21)4 0 - 79 - PAGENO="0210" 202 Mr. ROSENTHAL. If it's puzzling to you and you're the highest Fed- eral official in the Federal Trade Commission, you're going to look into this matter, right? In other words, what are you here for, seri- ously? It's a matter that the public is deeply concerned about. Mr. ARBITMAN. Clearly. Mr. ROSENTHAL. And you're going to report the facts, you're going to talk to this fellow from whom we can't get a clear answer and send it all to the Federal Trade Commission and hopefully they can do something by next week. I want to be as respectful as I can and I understand your sitting under somebody else, but I may be wrong- Mr. CooK. I'm telling you the capacity and what we've got available. Mr. ROSENTHAL. Why is the capacity 96 percent instead of 100 per- cent? Why is production down 4 percent? Mr. CooK. I do not have any specific answer for that. Mr. ROSENTHAL. Neither do I. You're going to find that out and you're going to do something, right? Mr. ARBITMAN. I'm going. to. gather what information I can in the next couple of days. Mr. ROSENTHAL. It's a critical consumer problem. Prices are up 20 percent. People are standing in lines and they're entitled to have the Federal Government say they're going to do something about it. Mr. ARBITMAN. I will recommend that they do something about it. I don't have the authority to start an investigation like you say. If I had the authority- Mr.. ROSENTHAL. Mr. Pertschuk's back in Washington. He doesn't know that the prices are up 20 cents here . in the last 3 weeks and the people are standing -in~ line Tand :.you're going to wreck half of California if you `close up gas stations Saturday and Sunday. .~Haveyou gotanythingclse you~wantto tell us? Mr. CooK. Well, the otherthingis, thepoint we were trying to say is that we are inthe area trying to, through an enforcement program, we're trying.to hold the line on prices andmake sure that the price that is charged to the public is thelegal amount of bill and that's one of our major efforts in the area. That's~thequestion we were asked- Mr. ROSENTHAL. I appreciate that. Mr. CooK. We have spot auditors who are going into the refineries ascertaining that the maximum capacity attributed to this is being handled. Now, they handle other products other than motor gasoline and this probably makes up the fraction that you're talking about that's missing. Mr. ROSENTHAL. How are you doing on your spot checking enforce- ment? Mr. CooK. They seem comfortable, the people who are running the ~program seem comfortable. Mr. ROSENTHAL. Oh, of course they- Mr. COOK. Congress created after the 1973-74------- Mr. ROSENTHAL. How much is~ gasoline selling for out here? When was the last timeyoubought gasoline? Mr. CooK. Yesterday. Mr. ROSENTHAL. And how much did you pay? Mr. C0oK;I paid 88.9 ce~its. Mr. ROSENTHAL. Is that a'ceptable? Mr. Coox. It has to be. There is nothing- PAGENO="0211" 203 Mr. ROSENTHAL. What do you mean it has to be? Did you see the profits of the oil companies? What do you mean it has to be? It's not acceptable. Mr. CooK. I'm a consumer just as much as you and I don't want to pay it either, but I say that the biggest thing is that the regulatory provisions provide that you take the May 1973 price of a gallon of gasoline at a service station, that's the price, the retail price he was selling it for at that time, he is allowed to pass through the increased costs between May 15, 1973, and what he paid for it today, straight through. Now, we don't determine that. The main thing is we want to make sure that he charges that. He is then allowed to add to that an increase for rent., which is up to 3 cents a gallon- Mr. ROSENTHAL. His supplier, what is he allowed to charge? Mr. CooK. The price at the refinery is regulated. There's another series of regulations that regulate and they are subject to audit that there's no gouging in that area. We have cited over 300 cases in the last 2 weeks of people who are moved up on that. Mr. ROSENTHAL. And how many people are you going to put in jail? Mr. CooK. I don't know how many people they're going to put in jail. We have some gasoline stations that are 99.9 cents. According to our auditors who are going out to the particular place and examining their books, they're too high and we're issuing orders for them to im- mediately comply. Mr. ROSENTHAL. But they're doing it as of right now? Mr. COOK. We've got them rolling them back all over the place. Mr. ROSENThAL. Have those orders been made public? Mr. COOK. Yes; they have been made public and we have been in the papers almost daily now for the last 3 weeks explaining what they are and there is a book that's available to the public in a reading room where you may see which stations have been ordered to roll their prices back, those which we object to. Mr. ROSENTHAL. Why should California be paying 20 cents a gallon more for gasoline than in Washington, D.C.? Mr. CooK. There are places in New York, Chicago, and other places that are doing the same identical thing. Mr. ROSENTHAL. Is there any place higher in the country than California? Mr. COOK. I understand that New York City, yes. Mr. ROSENTHAL. No; it isn't. Mr. CooK. That's what we've been told. I don't know. Mr. ROSENTHAL. [Addressed to Mr. Arbitman.] At any rate, you are going to do a thorough job and get it to the Commission as quickly as you can. Do you want to be t.he last person on this hearing? Mr. RAIN. He's admitted that there was 9 million barrels dis- crepancy. Now, last year we had 9 billion more barrels of crude. What have they got ~n those tanks this year? What's in those 9 billion barrels of storage that wasn't crude last year? Is it finished gasoline? Mr. ROSENTHAL. We're going to find out. Mr. RAIN. And it's in the tanks. One of their main things is to store it in the tanks at the stations. Mr. ROSENTHAL. You're not happy. You're not happy? Mr. ARBITMAN. About what? \ PAGENO="0212" 204 Mr. ROSENTHAL. About doing something about this. Mr. ARBITMAN. Sure I'd be happy to address it. Mr. ROSENTHAL. Well, you have to do it, I mean that's our 1ob. Mr. ARBITMAN. Obviously. . . Mr. ROSENTHAL. In other words, there's no point in staying in this job any more, right? Mr. ARBITMAN. Right. Mr. ROSENTHAL. I mean don't be intimidated by these people. Mr. ARBITMAX. We will do what we can. Mr. ROSENTHAL. That might not be good enough. Mr. ARBITMAN. I don't know what you want us to do other than the best job we could possibly do to find out what's going on. We'll look at the antitrust possible remedies, that's our jurisdiction. Mr. ROSENTHAL. Right. Antitrust violations are an enormous po- tential factor in the fight against inflation, aren't they? Mr. ARBITMAN. Clearly. We will be looking at-we may not be the right agency to do it because we don't have the right remedies for price fixing. Mr. ROSENTHAL. If you don't have the right remedies for price fix- ing, then we can just bring the other departments in. Who else should we bring in? Mr. ARBITMAN. The authorities that have criminal sanctions. If there's price-fixing going on in industry like this, and the public is being gouged,some people should be going to jail for it. Mr. ROSENTHAL. Exactly. Mr. ARBITMAN. We can't put people in jail. We can tell people to stop doing it. Mr. ROSENTHAL. Once you start putting the heat on them, they'll put the people in jail. You've got power, you can stop this whole thing in 24 hours. Mr. ARBITMAN. I don't think we could prove a case in 24 hours. Mr. ROSENTHAL. Oh, come on. Will you try? It will be your impor- tant accomplishment. Mr. ARBITMAN. I will try. I'll try as hard as I can. Mr. ROSENTHAL. That's all I want you to say. Are you going to try a little harder, too? Mr.~ COOK. Sure. We're out there now. We have the auditors going- Mr. ROSENTHAL. How many people have you got out in the field checking prices, retail prices? Mr. COOK. In the neighborhood of, we have 500 people available. Mr. ROSENTHAL. From the whole country? Mr. COOK. Right. Mr. ROSENTHAL. How many people ~have you got in California? Mr. CooK. Checking prices right now from t.he hotline probably 20, 25 people. Mr. ROSENTHAL. Can you get some more people from the rest of the country if you call Washington? Mr. COOK. Washington is aware of the problem. They've got prob- lems in other places~ too. Mr. ROSENTHAL. Well, how are we going to get more people mit here? It s an emergency. Mr. CooK. AsI~ Mr.- Mr. ROSENTHAL. Ask who? PAGENO="0213" 205 Mr. COOK. I was going to say that Mr. Bardine was out here 10 days ago and his people-we're working on it. Enforcement people are out in the field all the time. We've handled almost 400 cases now in the last 2 weeks; audits, and prices are being rolled back in various areas. Mr. ROSENTHAL. You get ahold of this Mr. Spiegel from the At- torney General's office, he seems to know something about it, OK? Mr. ARBITMAN. Sure, I know him. Mr. ROSENTHAL. You know him? Mr. AIU3Pr3IAN. Sure. Mr. ROSENTHAL. Why don't you make one more call, see if you can get 50 more people out here to help him provide his material. Can you do that? Mr. CooK. We can ask. Mr. ROSENTHAL. Sure, you can do that, can't you? Mr. ARBITMAN. Sure. Mr. ROSENTHAL. OK, the subcommittee stands adjourned. [Whereupon, at 1 p.m., the subcommittee adjourned, to reconvene at 9:30 a.m., Saturday, May 5, 1979, in the District Courtroom, Sacra- mento, Calif.] PAGENO="0214" PAGENO="0215" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco,. Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) SATURDAY, MAY 5, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE CoMMIrrai~ ON GOVERNMENT OPERATIONS, iS'acranwnto, Calif. The subcommittee met, pursuant to notice, at 9 :30 a.m., in U.S. Dis- trict Courtroom No. 3, Federal Building, 650 Capitol Mall, Sacra- mento, Calif., Hon. Benjamin S. Rosenthal (chairman of the subcom- mittee) presiding. Present: Representatives Benjamin Rosenthal and Robert T. Matsui. Also present: Peter S. Barash, staff director; Jean S. Perwin, coun- sel; and Jack 0. Shaw, minority professional staff, Committee on Gov- ernment Operations. Mr. ROSENTHAL. The subcommittee will be~ in order. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight communities this month to learn about the impact of inflation on the day-to-day lives of Americans and the per- formance of State and Federal agencies and State and local officials in the fight against inflation. Under the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of the programs of Federal agencies charged with combating inflation. Earlier this year, the subcommittee held several days of hearings in Washington into the adequacy of the Federal effort. Those hearings raised serious questions as to the ability of the Coun- cil on Wage and Price Stability to effectiveiy monitor price and profit margin increases in the economy. One of the problems is that the current wage-price guidelines ignore the most inflationary sectors of our economy: Energy, food, interest rates, and health care costs. These regional hearings are being held becau~e we believe it is vital that the Congress of the United States and other decisionmakers in Washington have available to them a first hand record of the effects of inflation on the lives of our citizens. We are also seriously concerned about the extent of cooperation and coordination between Washington inflation fighters and those working at the State and local levels of government to fight inflation. (207) PAGENO="0216" 208 Upon the conclusion of our hearings, the record will be printed and a subcommittee report will be made available to the Congress and to the President. We are particularly pleased to be in California and in Sacramento today with the ranking member of our subcommittee, Congressman Matsui, and we are very, very happy to have with us the mayor of the city of Sacramento. Congressman Matsui? Mr. M~rsrn. I just have a vey short statement, Mr. Chairman. I would like to thank all of you for coming to this hearing on infla- tion today. I would like to thank Congressman Rosenthal, in particii- Jar, who is chairman of the subcommittee, for coming to Sacramento so that the citizens of our community will have an opportunity to dis- cuss the Nation's No. 1 problem, which is inflation. Inflation is a national problem which cuts across our geographic boundaries and the boundaries of race, income, and family status. It adversely impacts each and every one of us. While the prices of all goods and services have increased 10.2 percent this past year, it is the basic necessities, shelter, health care, energy, and food which are rising at the phenomenal rate. A year ago the average price of homes in Sacramento was $51,000. Today the price is $62,000, which is a 21-percent increase. The prices of meats, poultry, and other food supplies have averaged an increase in Sacramento County of 17.7 percent. And all of you know what the cost of energy is today. Unleaded gasoline, for example, 1 year ago sold for 67 cents a gallon. Now it sells for 87 cents a gallon and is rising rapidly. Government action or inaction has played a major role in creating the current situation. Both the administration and Congress have failed to bring inflation under control. The President's voluntary wage and price guidelines have had little or no effect today. Congress has yet to assert our leadership position to make tough decisions that are essential to resolve this problem. That's why Mr. Rosenthal and I are here today. We're going to hear from government officials who can tell us what is being done at the State and local level and private citizens who will elaborate on how inflation has eroded the value of their dollar. I thank you all again for being here, and we appreciate your con- cern on this basic problem. Thank you, Mr. Chairman. Mr. ROSENTHAL. Our first witness is the Honorable Philip L. Isen- berg, mayor of the city of Sacramento. Mr. Mayor, we're delighted that you could join us, particularly on a Saturday morning. STATEMENT OF PHILIP L. ISENBERG, MAYOR, SACRAMENTO, CALIF. Mr. ISENBERG. Congressman, it is my pleasure to be here. Mr. Chairman, Congressman Matsui, the city of Sacramento, as you know, is a governmental agency, and inflation strikes us. But when inflation strikes us, it strikes taxpayers because, after all, they pay the cost of government. We have prepared and submitted to you a formal statement which, if I could, I would summarize. PAGENO="0217" 209 Mr. ROSENTHAL. Without objection, the entire statement shall be included in the record. Mr. ISENBERG. Thank you. [See p. 214.] Mr. ISENBERG. Perhaps first and most important in dealing with in- flation for the cost of local government is to talk about salaries. Seventy percent of the cost of local government in California is attributable to salary of employees. As a result of that fact, we start and almost end our anti-inflationary programs with salaries. Mr. Chairman, we believe, with some slight adjustments and modi- fications, that we will be able to comply with the Presidential wage guidelines this year. I have attached for your consideration a status report that appears at the last page of the testimony regarding current salary and benefit negotiations with employees in the city. You will, I'm sure, be aware of the fact that, after passage of propo- sition 13, State legislature gave bailout funds to local government. The conditions of those bailout funds were that no salary increases could be given this fiscal year. That lasted until April when the State supreme court's decision, essentially saying that that was legally in- correct, was thrust upon us. The decision also ordered us to get back to the drawing boards and begin negotiations with employee groups. As a result, for at least half of our bargaining units, we have set- tled the salary parameters for 1978-1979 within the 7 percent guide- line, subject only to previous adjustments that were made for cost of medical care. I should add that talking to your committee about this is like carry- ing coals to Newcastle, since Congressman Matsui was a councilman and participated in most of those decisions earlier on in this year. We do, however, have considerable difficulty with some of the parts of the. wage guideline, and they are just anomalies that I think exist in any large institution. As an example, a lot of our police officers, particularly those that are on high crime and high risk details, get overtime when they go to court, and they have no control on when they are called to court. The anomalous situation exists that a police sergeant, who is doing his duty and is on call and under subpena by defense attorneys and also on call by the district attorney, happens to be the 26th highest paid employee in the city of Sacramento and higher than most of the entire police management. We are also coming out from years of involvement with prevailing wage scales and, as a result, we have anomalies there that also exist. On another area, we have, in the past few months, compared our procurement policy with the Federal suggested guidelines and have- Mr. ROSENTHAL. Mr. Mayor, have you ever seen this document put out by the White House called, "The Federal State and Local Anti- Inflation Program and Intergovernmental Partnership ?" . Mr. IsENBERG. Yes, sir. Mr. ROSENTHAL. And are you familiar with its contents? Mr. ISENBERG. Yes, sir. I also, well, I'm as familiar as I can be and I am familiar enough to try to adopt my written testimony to the pat- fern of that handbook. PAGENO="0218" 210 Mr. ROSENTHAL. There are a couple of points that I'd like to raise. There is a section called "Adoption of Anti-Inflation Procurement Policies." Then they talk about outreach and technical assistance and of anti-inflation councils. I'd like you to tell us, aside. from the wage consideration, what your community has done in some of these other areas. Mr. ISENBERG. Well, what~we've done in the procurement policy is, we've attempted to go through and use some fairly hard bargaining in negotiation with suppliers and attempted to reduce cost of purchase of materials. Mr. ROSENTHAL. Well, that you would do under any conditions. Mr. ISENBERG. We would do it under any conditions. Mr. ROSENTHAL. Have you asked your suppliers whether or not they are in compliance, a certification that they are in compliance with the wage-price guidelines? Mr. ISENBERG. Yes. We have not gotten satisfactory answers, satis- factory as affirmative. We generally find they are not and, unfortunately, most of our pur- chases are based on petroleum-based products and, frankly, the infla- tion is astronomical there, and literally beyond our control. Mr. ROSENTHAL. So, in a sense, you've been unable to meet the stand- ards established in the President's recommendation. Mr. ISENBERG. We have not been able to develop a program that controls the inflationary cost of products purchased by the city. Mr. ROSENTHAL. Have you established-it says, "State and local officials are encouraged to establish anti-inflation advisory councils." Have you done that? Mr. ISENBERG. No, sir. Mr. ROSENTHAL. Then it says, "State and local officials are encour- aged to organize anti-inflation conferences in as many cities, counties, and States as possible." Has anybody done that? Mr. ISENBERO. Not here in Sacramento, although I believe there was one organized in San Francisco. We had a representative. Mr. ROSENTHAL. And people had to pay $15 a head to get into that one? Mr~ ISENBERO. That is correct. Mr. ROSENTHAL. Which is the most astounding thing I've ever heard in my life. Go ahead; I'm sorry. Mr. ISENBERG Well, what we have been, I think, more successful in doing, whether as a result of the Presidential guidelines or not, are regulatory reforms designed to reduce the processing time for govern- mental action. * Coincidentally, the gentleman who is now Congressman Matsui's chief. of staff here in Sacramento was also the loaned executive to the city of Sacramento 2 years ago developing a more speedy processing form for buildingpermits and so forth. 1 think, it's. fair to say that the productivity improvement program ~has not resulted fromthe'wage. and price guidelines but from propo- sition 13 and a crushingTeality of what faces us. We think we've made some steps there. It's `-fair to say," though, Mr. Chairman and Congressman Matsui, that the solution, in our opinion, is not a local solution. We feel that PAGENO="0219" 211 most of these matters are, frankly, beyond the control of local govern- ment, beyond the control of the individual citizen. If a solution is to be found to the problem of inflation, it must be a national solution. We're willing to try, we're willing to help in any way we can but I think the answer lies elsewhere. Mr. ROSENTHAL. Thank you, Mr. Mayor, for a very informative, a very important statement. As far as the wage-price guidelines, you have negotiated contracts and kept generally within the 7-percent guidelines except for people who are working overtime and things like that? Mr. ISENBERG. Except for the adjustments that are necessary because of just abnormal disparity in wages, yes, we have. Mr. ROSENTHAL. In terms of the anti-inflation procurement policies, this has been a much more difficult area for you to be in compliance with? Mr. ISENBERG. With most of our purchases, almost impossible. Mr. ROSENTHAL. And do you know of any other action State or local governments have taken here in California, in terms of having meet- ings or conferences or anti-inflation councils or anything like that? Mr. ISENBERG. No, sir. Mr. ROSENTHAL. Congressman Matsui? Mr. MATSUI. Thank you, Mr. Chairman. Mr. Mayor, with respect to the issue of revenue sharing, right now there is some interest in not renewing revenue sharing in 1980, mainly because of the issue of balancing the Federal budget cost to the Federal Government. What kind of impact would that have on the city of Sacramento, in particular? Mr. ISENBERG. Well, we use our revenue sharing for a variety of pur- poses. We support, through block grants, various neighborhood orga- nizations and redevelopment areas. We also basically pay for the physical improvements of the city* through revenue sharing. We have done that for years and one of the consequences of abolishing revenue sharing would be, frankly, a de- terioration of the physical plan of the city of Sacramento. The roads, the streets, the parks, the buildings. Mr. MATStTI. Do you feel that since the Federal Government's anti- inflation program has been developed in the regulatory council and since getting rid of some of the redtape which has been set up by the administration, that some of the application requirements by the Fed- eral Government in getting programs and moneys from the Federal Government, have been less burdensome for you? Mr. ISENBERG. There is no way to believe the Federal application processes become less burdensome. If anything, it becomes more com- plicated as time goes on. Mr. MATSUI. And this is even after the last 6 or 8 months? Mr. TSENBERG. We still submit reams of paper 2 feet high on grant applications for small amounts of money. And nothing seems able to change that. . Mr. MATSUI. Following up on Mr. Rosenthal's questions, if a con- tractor that the city of Sacramento does business with is out of com- pliance and you ascertain that, because you do have that on your bid specification, I believe, who do you go to and what is the process that you take, if any, at this time? PAGENO="0220" 212 Mr. ISENBERO. Well, if they are out of compliance, we jawbone them a bit. As a practical matter, we have not been able to find in any one place ready enforcement of the Federal regulations. 11 think it's fair to say that there are very few teeth to those guide- lines. As a practical matter, the greatest impact in the wage and price guidelines has been the tactical and strategic advantage of having a figure and salary negotiations. Mr. MAT5UI. In other words, you're saying that compliance may be easier by keeping the employees' wages at 7 percent rather than keep- ing the suppliers' prices at 53/4 percent. Mr. I5ENBERO. There is no doubt about the fact that employees, the working people who work for Government, and I would assume work- ing people everywhere, are more susceptible to the control of the wage and price guidelines just by its slogan effect than our suppliers and sellers of merchandise and products. Mr. MATSUI. Have you received any communication from the Federal Government or the Council on Wage and Price Stability telling whom you should contact or your administration should contact if a supplier is out of compliance? Mr. ISENBERG. Not to my recollection. Mr. MATSUI. They have done nothing so far. You wouldn't know whom to call in Washington or in the district office in San Francisco? Mr. ISENBERG. Oh, I'd probably call you. Mr. MATSUI. But you have no one in the administration? Mr. ISENBERG. No. Mr. MATSUI. Thank you Mr ROSENTHAL. What kind of reaction do you get from your em- ployees to the 7-percent limitation? Mr. I5ENBERG. They. are not happy; Inflation here, as elsewhere, was much higher than the 7 percent last year. It will be much higher than the 7 percent this coming year. Mr. ROSENTHAL. Well, it's 13 percent for the first quarter of 1979. Mr.ISENBERG. I understand that. But as a practical matter, we have all been sobered by pronosition 13. We've reduced our work force by, roughly, 350 job slots last year. And everyone, frankly, is tempering this posture in this year because of that fact. How long that will last, I do not know. Mr. ROSENTHAL. What thoughts. do you have on this so-called gas situation here in California? Mr. ISENBERO. Well. Mr. ROSENTHAL. Or so-called shortage, whatever it is. Mr. I5ENBERG. Whatever it is, it is an inconvenience right now. At least from our point of view, there has been no effect on emergency services, whether by the city or the county or the hospitals, to our knowledge. although we are taking a look at it. I suspect that you are going to have to deal with the question of decontrol, deregulation, and windfall profits in a larger sense and all we can do around here is yell and kick and holler and scream and hope you do something. I have no answer to that. Mr. ROSENTHAL. I hope we will. Well, thank you very much, Mr. Mayor. It's an honor to have you. Mr. ISENBERO. Thank you. PAGENO="0221" 213 Mr. ROSENTHAL. And I want to tell you and all of your associates how proud we are to have Congressman Matsui with us and particu- larly with me on this subcommittee because he's obviously one of the most dedicated and hardest working members of our committee. [Ap- plause.] You brought everybody? Mr. ISENBERO. I'm told those are not his campaign committee iiieinbers. Thank you very much, Congressman. Mr. ROSENTHAL. Right. [Mr. Isenberg's prepared statement follows:] PAGENO="0222" 214 CITY OF SACRAMENTO PHILLIP L. ISENBERG Mayor City Hall, Room 202 Sacramento, California 95814 (916) 449-5400 SYNOPSIS OF SPEECH GIVEN BY CITY OF SACRAMENTO HONORABLE MAYOR PHILLIP L. ISENBERG BEFORE THE HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS. Mr. Chairman, Committee Members: The City of Sacramento is honored to testify before your Committee-today on the subject of the President's anti-inflation program. The subject of inflation is of serious concern to our City for many reasons not- the least of which is the fact that cities in California, such as Sacramento, are being forced to provide increasing levels of service on what amounts to a fixed or minimal growth revenue base. The "Jarvis/Gann" Initiative (Proposition 13) and the proposed "Gann Expenditure Limitation Initiative place significant restraints on local government. Given these facts of life, local governments can ill afford inflation. - To deal with the significant adverse impact of inflation, the City has taken (and plans to take) action in several areas. Following is an outline of these key action areas. - Voluntary Compliance with the Wage'-Price Standards Labor costs represent approximately 70% of the City of Sacramento's total budget. As the Committee is -aware, California Senate Bill 154, the so-called State Bailout Bill passed in 1978 after passage of Proposition 13, required that- local governments grant no wage increases infiscalyear 1978-79. This-mandate was complied with by our City until April 1979 when the courts struck down this specific state mandate. The City of Sacramento will not grant retroactive wage increases for this nine-month period. While the City is currently in negotiations with a dozen different bargainIng groups, i~ is anticipated-that the President's 7% voluntary guidelines will not be- exceeded for the remaining three 1Average pay increases of no more than 7% annually over the life of the contract and no more than 8% increases during any one year. PAGENO="0223" 215 nonths of the fiscal year (resulting in a 12-month effective increase of less than 2%) or for the coning fical year 1979-80. See Attachment I for detailed status of negotiations by bargain- ing unit. It is anticipated that the guidelines will be net even though significant problems exist such as past wage inequities for certain classifications of employees. For example, because of required court appearances for Police Officers, a Police Sergeant was the 26th. highest paid employee in the entire 3,700 person workforce during FY 1977-78. Only the Police Chief and three Deputies made more than this Sergeant. His salary exceeded that of ten (10) Police Captains! Also, while the City, two years ago, negotiated prevailing craft wage rates out of our labor contracts, associated problems still exist. In FY 1977-78, an Electrical Foreman was the 22nd highest paid employee in City service... .and he made more money than the City's Chief Electrical Engineer. Examples such as these are numerous. Other problems include voter approved funding increases for unfunded ~ension liabilities, Federally mandated unemployment insurance, and health benefit premium cost increases. Adpption of Anti-Inflation Procurement Policies Several months ago the City of Sacramento reviewed, its entire service and supply procurement process utilizing Federal nodel procurement system checklists. Our City's practices generally conform to Federal model program standards and thus inherently promote competitive bidding and lower prices. In addition, the City intends to modify its bidding notification process requiring prospective bidders to certify their compliance with the wage-price standards. It should, however, be pointed out that roughly one-half of the City's service and supply costs are either directly or indirectly related to a petroleum base. Recent increases in petroleum based products such as street asphalt, water treatment chemicals, fleet vehicle, petroleum, utility costs, etc. havebeen particularly high and competitive bidding has not held these costs down appreciably. ~,gulatory Reform The City has created a top management position within the City Manager's Office to work directly with commercial developers to reduce "red tape", eliminate development review duplication, and speed up the' plan review process, thereby reducing development financing costs. Also, a special Mayor's Commission has reviewed the City planning and building inspection process. This Commission review has resulted in significantly streamlining the planning 2Legally mandated benefits are excluded from the guidelines. PAGENO="0224" 216 and inspection process. The timeframe for plan reviews had been averaging 12 to 16 weeks depending on the size and complexity of the project. As a result of implementing the Commission's reforms, processing time was reduced to a more acceptable period of three to four weeks - a reduction of up to three months! Subsequent to these reforms, processing time has increased again due to heavy construction volume, but these increases would have eventually occurred anyway without additional staff. The fact remains, significant timeframe in-roads were made by these changes. Examples of this streamlining include (1) consolidated `wholesale application" reviews whereby environ- mental.reviews, tentative map, rezoning and plan amendments are processed simultaneously; (2) extensive environmental reviews of updated current community plans so that individual proposals within the community plan receive speedy limited reviews; (3) development of written planning and code guidelines related to housing rehabilitation which can be given to individuals interested in home rehabilitation programs; (4) maintenance of current up-to-date community plans thereby speeding an orderly planning process; and (5) development of planned unit development (PUD) guidelines which allow for greater developer flexibility and resultant cost savings. Finally, the City has aggressively planned its water, sewer and storm drainage system well in advance of development thereby assuring orderly development and minimal future municipal operating costs. Productivity Improvement Program Improvements in this area were almost inevitable with the passage of Proposition 13 in June 1978. Examples of recent City programs of productivity improvement include (1) consolidation of police and fire communition dispatch center; (2) conversion to a 4-day! 10-hour day and one-man cars in the Police Department, (3) centralized word processing of City clerical functions; (4) combined building inspection program whereby inspectors are cross-trained to provide consolidated electrical, plumbing, and building inspections simultaneously rather than requiring, three separate inspections, and (5) Council adopted policy to continue the ,management `searôh for more productive ways to conduct the City's business. Revision of Local Spending and Tax Policies While the passage of Proposition 13 in June 1978 significantly reduced property taxes to all property owners in California, other spinoff anti-inflation benefits are accruing to citizens as a result of the Initiative. For example, the City of Sacramento is taking cost-cutting and hold-the-line budget measures to assure that self-supporting user based operations such as water, sewer, garbage, parking, etc. areopérated without user fee increases in fiscal year 1978-79. PAGENO="0225" 217 Also, the so-called "G~nnSpending.Limit' Initiative, if passed, will create additional forces for limiting government spending and thus will positively impact inflation. Conclusion In conclusion, the Subcommittee can see fronthe foregoing, the City of Sacramento is making a serious effort in all potential areas to fight the adverse impacts of inflation. This effort is exemplified by the formal adopted City Council resolution which has translated into an ongoing program of searching for better~ and less costly ways to operate all aspects of city government. However, it is fair to say that there is a limit to the ways in which local government avoids the impact of inflation - and avoids contributing to inflation. * I am convinced that the ultimate solution lies at the Federal level. Once again, we appreciate the opportunity to testify before the Subcommittee today and look forward to providing future assistance in any waypossible in regard to this subject. Very truly yours, Phillip L. Isenberg Mayor 52-214 0 - 79 - 15 PAGENO="0226" ATTACHMENT I CITY OF SACRAMENTO BARGAINING GROUP SALARY AND BENEFIT NEGOTIATIONS STATUS Number Dates of Persons Council ~fective FY 78-79 Increases FY 79-80 Increases Bargaining Group Represented Approval Date Salary Benefits Salary Benefits Management 43 Negotiations in Progress Negotiations in Progress SPOA - Police Officers 473 4/3/79 4/3/79 7% .5% Local 39 - SCEA 1,773 Negotiations in Progress Negotiations in Progress Local 39 - Stationary Engineers & Plant Operators 51 Negotiations in Progress Negotiations in Progress Local 522 - Firefighters 440 Negotiations in Progress Negotiations in Progress Sierra Building & Construction Trades 78 4/17/79 4/1/79 7% .5% Negotiations in Progress Local 447 Water & Sewer Plumbers & Pipefitters 90 4/10/79 4/1/79 7% .5% Negotiations in Progress Local 1176 Auto, Marine & Specialty Painters 28 4/10/79 4/1/79 7% .5% Negotiations in Progress Confidential 50 4/17/79 4/1/79 7% .5% Negotiations in Progress WCOE-Western Council of Engineers 22 3/6/79 7/1/78 7.54% .5% Negotiations in Progress on 3-yr~ Contract settled in 1976. IAMAN - Machinists Aero Space Workers 76 Negotiations in Progress Negotiations in Progress Police Management 12 5/1/79 4/1/79 7% + 5% .5% 7% + Pending incentative Educational SPOA Settle- incentatives ment. 5%adv.& 5% intermed. Management Association 88 Negotiations in Progrees Negotiations in Progress APSCME - Housing CETA 88 4/17/79 4/1/79 7% .5% Negotiations in Progress PAGENO="0227" 219 Mr. ROSENTHAL. Our next witness is Willie Hausey, district assistant to State Senator Albert S. Rodda. Mr. Hausey? STATEMENT OF WILLIE HAUSEY, DISTRICT ASSISTANT TO STATE SENATOR ALBERT S. RODDA Mr. HAUSEY. Thank you, Mr. Chairman, Congressman Matsui. It's a pleasure to be here before you this morning to talk about some of the problems that exist in Sacramento County. Working with the people in Sacramento County gives me a close insight on what is taking place on inflation. I have submitted to you my testimony but I would like to give just a brief summary of some of the problems that's highlighting us in in- flation in housing. Mr. ROSENTHAL. Without objection, testimony shall be included in the record. [See p. 222.] Mr. HAUSEY. We have a problem in housing in Sacramento County, not only on the shortage, but now that we have redevelopment to come into Sacramento County and the price skyrocketing in housing, it has displaced most of the people in the lower income areas, where property lies within Sacremento County. Now that is due to the Federal Government not making an increase, I think, within the inflation overall for the people that are on fixed income. An incident in the north area here, Del Paso Heights, Oak Park, outlying areas, that is predominantly AFDC and on fixed incomes, those people were supnosed to have received a redevelopment plan that was going to put them in better homes at a low cost. That program started off in 1976. Today, those people are not in homes because the inflation has gone up so high until the time that the houses were built, they could not longer afford to move back in those homes. So they have moved out to the other suburbs and are living in a substandard home. I think inflation has effected not only housing, but food. In Sacra- mento County, the AFDC did not get an increase in their grants this last year. The people on fixed incomes got a small increase. Food costs have skyrocketed some 13 percent in Sacramento County, yet these people have not got an increase in their grant. I think this has affected, will affect the people in Sacramento County and have them on, I would say, soup lines in no time. There is one thing that I would like to bring out about Medi-Cal program in Sacramento County. It has not served the people in Sacra- mento County as it should have because of the discrimination among the people that serve Sacramento County from the medical standpoint. They take the people first that have money. Then they take the peo- Ple next that are on medicare or Medi-Cal. I think inflation has done that in Sacramento County. Skyrocketed utility bills, people on fixed income are getting no breaks on utilities. One year ago, they were paying something like $36 for utilities. Today, $62, but not the increase in their salaries. PAGENO="0228" 220 The other thing I'd like to point out, natural gas has gone up, sky- rocketed in this area. We have tried to do something about. it in the State legislature here to offset for elderly people and handicapped. Today, that has not `been put into existence, although the bill was passed. But the PUC has not put this into operation. Yet, those people are trying to pay utility bills out of the same grant that they received 1 year ago. I think inflation has really affected the low income, the people that are on the poverty roles in Sacramento County. There is no help. Mr. ROSENTHAL. What are they doing about it? You say it has af- fected them. What are they doing about it? Mr. HAITSEY. They are saying to the county, to the city, and to the State, "Help." They are saying to the Federal Government, "Help." There is no help coming their way. They are organizing, and the senior citizens, the AFDC, the people on general assistance are trying to organize to talk to their leaders about help. But, today, there is no help in Sacramento County for those people. What they are doing now is- Mr. ROSENTHAL. And how is it affecting-we'll have some other private citizens, but how do you perceive it's affecting their lives or their lifestyles? Mr. HAUSEY. Well, let me say, just to go back to the housing, the people now that were paying that rent on that house in Del Paso, Oak Park, for $185, they raised their rates to $200. They have tried to move out to Rio Linda or Alberta, to another substandard house, and that's where they are going. They are going to the slum landlords. Their food costs have skyrocketed, so what they are doing is that there is no meat in their budget, so they are going now to more produce. And they are trying to go to the stores that are selling 2-day-old bread, 2-day-old produce before they throw it. They are really eating out of the garbage cans, that's what they are doing, but they are trying to make it, and there is no help from the top down. Let me say one other thing, I think, that is really hurting Sacra- mento County. We're talking about single people that are out of work. Unemployment is really affecting Sacramento County. We're talking about cutbacks in Federal jobs, loss of contracts at the base here, no more new contracts. Those people are without work.. That's going along with affirmative action plan. They were the last ones to be hired, they are the first one to go. They are the first one downtown to get on general assistance. Gen- eral assistance, today, is $191 per month for one single man. Cost of living in this town, alone, has `been surveyed and you need $291 just to get by. Nothing has been done in the county of Sacramento to alleviate that problem' with single individuals. Mr. MATSUI. Now, I understand general assistaiice and some of the other payments normally given through the county, either through the State or Federal Governments~ have been frozen, also, and some of this has been the result of proposition 13, is this correct? Mr. HAUSEY. Right, but on the freeze. of proposition 13~ I think proposition 13 passed and most people didn't understand it. But I still PAGENO="0229" 221 think the State and Federal Governments have not been effected by proposition 13. When the State of California has $5 million surplus and we're talk ing about bailing out counties- Mr. ROSENTHAL. $5 billion. Mr. HAuSEY. $5 billion, did I say $5 million? Mr. ROSENTHAL. I don't know, maybe I didn't hear it right. Mr. HAUSEY. Oh, I'm sorry, maybe I'm getting a little too fast on the figures here, but any time a State can have a surplus and they could help to bail out counties and cities, in special districts, I'm sure that they can take care of the needs of these people that are on general assistance. Somewhere down the line we are making cuts in the State for some special interest reason. I don't know if someone is running for Presi- dent, I don't know if the President is trying to get out, but there is some reason that the President and the Governor of this State has not taken a hard look at the needy people in the State of California, the people that have not. And those are the people that we're talking about that inflation is really hurting today. Mr. ROSENTHAL. Well, thank you very much. Do you have any questions? Mr. MATSUI. No. Thank you. Mr. ROSENTHAL. Thank you very much for a very thoughtful, very informative testimony. Mr. MATSUI. Thank you. Mr. HAUSEY. Thank you both. [Mr. Hausey's prepared statement follows:] PAGENO="0230" 222 Testimony for COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE of the COMMITTEE ON GOVERNMENT OPERATIONS May 5, 1979 Mr. Chairman,. I am Willie Hausey, and I am pleased and honored to be invited to come before you today. My testimony will present statistical and programmatic information relative to the impact of inflation on the disadvantaged and on the effectiveness of federal programs to alleviate that impact. I will attempt to indicate the extent of the disadvantaged population; general increases in the cost of living; specific increases in the costs of food, housing, and energy; some of the effects of Proposition #13; and some observations on the effectiveness of relevant federal programs. In order to place the incidence of the low-income population in perspective, I would indicate that the special 1975 census indicated that 10.4% of the 21 million Californians had incomes below the poverty level. More distressingly, 5.7% had incomes that were below 75%. of the poverty level.1 Here in Sacramento County, in October of 1978, more than 64,000 people were receiving AFDC benefits, almost 4,300 received social services, and nearly, 31,000 were eligible for Medi-Cal.2 To these must be added those on fixed, private incomes who do not turn up in public sector statistics, but whose purchasing power is being eroded to the extent that formerly well off retirees are being forced into the ranks of the disadvantaged. PAGENO="0231" 223 Having indicated the impacted population, I would now turn to some descripters of inflation. Generally, the California Consumer Price Index stands at 203.9 as of February of this year. The Index reached the disturbing 5O~-dollar mark of 200 late in l978.~ More specifically, a Consumer Food Price Index is calculated for Sacramento. With a 1974 base of 100, the food-at-home index in January was 141.2, a 2.3% increase over December, l978.~ In terms of housing, the recent trend has been a 20% annual increase. In March of 1977, the average used residential home in Sacramento sold for $42,300. In March of 1979, the average was nearly $62,000.~ Energy costs have also gone up. In order to heat a home with natural gas, the amount of gas that cost $36.94 in 1976 would now cost $62.59.6 Electricity, in 3 years, has gone from l.73~/kilowatt hour to $2.l9'~/KWH. The average Sacramento household is alsocontinuing to use more electricity each year.7 Health care continues to be a problem, but for perhaps unrelated reasons. It has cone to light that Medi-Cal recipients are treated differentially by some Sacramento hospitals in that Medi-Cal patients were treated only if no other patients were being served. If this committee takes testimony from states other than California, I must underline the unique situation we are in. As the cost of living continues to increase, state contributions to welfare programs have, in essence, been frozen as a result of the passage of Proposition #13. SSI and SSP state contribution increases were eliminated. Statutorily-mandated increases in AFDC PAGENO="0232" 224 benefits were replaced bya 6% increase. General Assistance programs were frozen. A recent study in Sacramento undertaken for the County Legal Aid Society indicated the necessary minimum grant should be $291.07. The current grant is $109.80. In the nine months since the passage of Proposition #13, the Consumer Price Index has climbed 10.4 points. In California, there has been a substantial diminution of the ability of the disadvantaged to cope with inflation. In terms of the effectiveness of federal programs, the following have impact on Sacramento area residents. Law Enforcement Assistant Act funds attempt to reduce crime. Housing programs are in existance for redevelopment purposes, but increases in costs make them, in reality, housing displacement programs. Youth summer recreation, nutrition, and community development programs are also present. Federal installations have historically been a source of semi-skilled jobs for local residents. However, cutbacks in activity at McClellan and Sharp Depot have removed these sources of employment recently. This testimony has attempted to give you an overview of the impact of inflation on the disadvantaged in this area and the relative effectiveness of federal programs. Thank you for the opportunity to appear before you. PAGENO="0233" 225 REFERENCES 1. Money, Income, and Poverty Status in 1975, Current Population Reports, U.S. Bureau of the Census, Series P-60, #113. 2. Semi-Annual Report, Statistical Service Bureau, Department of Special Services, State of California. 3. Consumer Price Index-California, Division of Labor Statistics and Research, Department of Industrial Relations. 4. Consumer Price Food Index, Sacramento Metropolitan Chamber of Commerce. 5. Obtained from Sacramento Board of Realtors. 6. Obtained from Pacific Gas & Electric. 7. Obtained from Sacramento Municipal Utilities District. PAGENO="0234" 226 Mr. ROSENTHAL. Our next witness is Mr. Cliff Allenby, program budget manager, department of finance, State of California. [Applause.] Mr. MATSUI. While Mr. Allenby is arriving, Mr. Chairman, may we submit Supervisor Sheedy's written testimony for the record? Mr. ROSENTHAL. Without objection, Mr. Sheedy's statement will be put in the record. [See p. 251.] Mr. ROSENTHAL. Mr. Allenby, go ahead. STATEMENT OP CLIFF ALLENBY, PROGRAM BUDGET MANAGER, DEPARTMENT OP FINANCE, STATE OF CALIFORNIA; ACCOMPA- NIED BY PAULINE SWEEZY, CHIEF ECONOMIST Mr. ALLENBY. Thank you, Mr. Chairman, and Mr. Matsui. My name is Cliff Allenby. I'm with the department of finance. I have with me today to assist, Pauline Sweezy, who is our chief economist. We welcome the opportunity to appear before you today. We have submitted testimony. I will try to cover it, the points that we wish to cover today. No. 1: We believe that we have taken steps in California to try to deal with what we believe one of the major causes of inflation is and that is the cost of government. And some of the things that we have done are as follows: We have reduced $1.2 billion from the budget that we're currently operating under, over that which we originally anticipated. The budget that we're looking at in California for 1979-80 is about $2.4 billion less than we would have anticipated 1 year ago. We have imposed a salary freeze and a hiring freeze on all State employees. We have provided a tax reduction in the current year of close to $1 billion. We're proposing another tax reduction next year in the same range. We have indexed our personal income tax. We have proposals which we believe will reduce the number of licensing and regulatory boards. We've had a passage of legislation which expedites the permit review process by mandating accelerated consideration mandating tirneframes for decisions and interagency coordination. We've attempted and are imposing a major State building energy conservation program and we're attempting to impose programs to reduce State transportation costs and energy consumption. As you know, the Governor has made one of his highest priorities the balancing of State expenditures and programs toward a goal of substantially reduced growth of government spending. He advocated the balancing of the State-Federal budget to create nationally the same leadership and determination that we have achieved at the State level. And I'd like to go through some of the things that we've done in California. California, as a State, has 300.000 fulltime and parttime employees in the State civil service svstem~ the educational system and represents about 3 percent of all California's civilian employment. Procurement of goods represents about 11/2 percent of our State product. PAGENO="0235" 227 Mr. ROSENTHAL. State product? What do you mean? Mr. ALLENBY. It's the total activity within the State, our procure- ment activities. It's very difficult to estimate since we really do not, in California, have a formal State product like you do at the Federal level and the reason, basically, is that it's very difficult to develop one that's really meaningful. For our purposes of looking at our economy internally, we look at things like personal income, which the Federal Government looks at for California, itself. But for purposes of procurement, we believe that we do represent about 1 to 11/2 percent. Mr. ROSENTHAL. I don't know what you mean by gross State product. What does that mean? Mr. ALLENBY. It's the total level of activity within California of both the private and public sector. Mr. ROSENTHAL. I still don't understand but it's all right. Mr. ALLENBY. It is, as I said, what we believe to be the State equiva- lent to the national GNP. We represent, in our judgment, about 1 to 11/2 percent of that. Mr. ROSENTHAL. What are you doing about procurement of goods by the State, in terms of cooperation with the guidelines. Mr. ALLENBY. I will cover that. Mr. ROSENTHAL. You will come to that? Mr. ALLENBY. Yes, sir. As you know, the State administration cannot impose policies on local entities or on the private sector to insure success of the Federal program and Mr. Isenberg pointed that out in his testimony. But we do believe that we can set examples to help achieve compli- ance with published guidelines. In the area of wage-price standards, the legislature has frozen pay schedules for State and local employees and welfare recipients, except for the Federal passthrough of the SSI portion of the SSI-SSP program. As you know, we've had proposition 13 in California. Given the kinds of actions that have been taken at the State level, we believe that we've held the actual number of layoffs, which prior to the passage of proposition 13, were argued to be substantially higher than they've worked out to be, to something less than 20,000. Mr. ROSENTHAL. You said in here that proposition 13 has resulted in the loss of 120,000 jobs. Those were State employees? Mr. ALLENBY. Those are State and local. Mr. ROSENTHAL. Did anybody follow through to find out what hap- pened to these people? Mr. ALLENBY. Well, let me backtrack a little bit. We've actually had about 20,000 layoffs, according to current infor- mation. The 100,000 jobs that we talk about really does not represent layoffs. Mr. ROSENTHAL. It represents attrition losses? * Mr. ALLENBY. It represents attrition losses and it represents reduc- tion from potential. And if you look back at California over time and take the long- time trend and extend it, we would have continued in a longtime trend, we would have been about 100,000 higher than we are right now. PAGENO="0236" 228 Mr. ROSENTHAL. So the statement that you lost 120,000 jobs includes both attrition and projections? Mr. ALLENBY. Yes, sir. Mr. ROSENTHAL. So in the real world, only 20,000 people lost their jobs. Mr. ALLENBY. That's correct. Mr. ROSENTHAL. Did anybody follow through on what happened to those 20,000 people? Mr. ALLBNBY. Not to my knowledge. Mr. ROSENTHAL. How many of them are on unemployment insurance? Mr. ALLENBY. Well, if you look at the base, if you step back and look at the unemployment rate and the number of people on unemploy- ment, there does not appear to be a significant change from that point where we were before proposition 13. Mr. ROSENTHAL. Does anybody know how many of the-is there a way you could find out how many of the 20,000 went on unemployment relief? Mr. ALLENBY. I don't think that there is a way. I think that one of the things, if you take a look at California prior to proposition 13, the economy in California was very strong. It has continued after proposition 13. A good number of those people who were laid off moved into the private sector. Mr. ROSENTHAL. How do you know that? Mr. ALLENBY. Because the information, informal information with counties and cities, right after proposition 13, the belief was that the layoffs would be substantially greater. And some cities and some coun- ties took action to lay off. Mr. ROSENTHAL. I think it would be nice if we knew exactly what other services, Federal or State services, these people received after they were laid off. Then we could try to calculate the cost. Mr. ALLENBY. That would be very difficult to do. Let me complete this one point. Some cities and counties laid off at a higher level than they really needed to. Mr. ROSENTHAL. Out of the 20,000, how many of them were State people? Mr. ALLENBY. We had no layoffs at the State level. Mr. ROSENTHAL. Your State laid off nobody? Mr. ALLENBY. No, no actual job layoffs. Mr. ROSENTHAL. So the 20,000 are from Isenberg's crowd. Mr. ALLENBY. Cities, counties, special districts, and schools. Mr. ROSENTHAL. And you have no way of knowing how many of them received Federal assistance-you assume they all went to the private sector forthwith? Mr. ALLENBY. Let me finish the one area that we have had some dis- cussions in local government. Some local governments laid off originally more than they antici- pated, than they really needed to. They have gone back and went back, subFequent to the layoffs, to try to rehire these people. They were unable to do it because a large number of them had gone to the private sector. Mr. ROSENTHAL. Do you have any facts, figures, and names? Mr. ALLENBY. No. PAGENO="0237" 229 Mr. ROSENTHAL. Well, how do you know all this? Mr. ALLENBY. It's based upon discussion with county and local officials. One of the reasons expressed in that was the fact that people believed at the time that given proposition 13, it was better and would be better to stay in the private sector than to move back to the public sector. Mr. ROSENTHAL. So has there been a loss of other civil service em- ployees? I mean, the people who went into the private sector found they liked the private sector better? Mr. ALLENBY. I don't think I said that. I think that, given where we were, I think they felt it was better to Stay in the private sector than to go back to the public sector. Mr. ROSENTHAL. What do you mean "given where they were?" Mr. Ar1u~irr. Well, there was a wage freeze. The wage freeze was not in existence. Mr. ROSENTHAL. There was a State wage freeze but not a private sector wage freeze? Mr. ALLENBY. That's correct. Mr. ROSENTHAL. Now; I'm just wondering why there isn't a larger exodus from State and local government to the private sector if the private sector is so strong. Mr. ALLENBY. I would think there may be, but we don't have any data to support that, other than informal discussions with county and local officials. Mr. ROSENTHAL. There is no way to trace those 20,000 people. You could send them a letter. Mr. ALLENBY. If you knew who they were. Mr. ROSENTHAL. Nobody knows who they are? Mr. ALLENBY. Well, to give you an example, we have 58 counties, over 400 cities, over 5,000 special districts, over 1,100 school dis- tricts in California. And it's very difficult to try to organize all the ac- tions that were taken. Mr. ROSENTHAL. At any of these levels of government, do they have computer payroll capabilities? Mr. ALLENBY. They do, certainly they do, the larger ones do. The major cities do, the major counties do. But the State, in California, with the exception of counties, the interface between State and local government is limited, except for counties and school districts. Mr. MATSUI. May I, Mr. Chairman? Mr. ROSENTHAL. Yes; sure. Mr. MATSUI. When you say that there are 120,000 jobs, did you learn that mainly through discussions with the various State and local coun- ty governments and special districts, or `by just calling them up? Or by writing them a letter, asking them to give you the figure? Mr. ALLENBY. No. no, no: the 120.000 estimate that. we have is based upon data from our Department of Employment, EDD, and what we have is part of the job sample of the number of people actually em- ployed. So we know what the potential would have been under normal circumstances for government employment. We know where we are in total employment, but we don't know the mix of where the people have gone. Mr. MATSII[. When you say that the 120,000 jobs were based upon a mix of actual positions that were eliminated, projections that were PAGENO="0238" 230 no longer realized, what would you consider the percentage to be? How many jobs of these 120,000 jobs were actually eliminated rather than just based upon projections? Mr. ALLENBY. I would think that a good percentage of them would be. We know that,. given the amount of money that's been provided local government. We know that there had to have been some reduction from the actual level because the loss under proposition 13, as you know, was around $7 billion. The actual amount of State subvention to replace that loss was in the range of $4.3 billion. Cities and counties took some action to use one- time funding, but there is not enough to make up that difference. Mr. MATSIJI. But we don't know that, though, because there may have been some elimination of capital improvement projects. There was no wage increases by almost all of the governmental entities at the local level, so maybe that money was made up that way rather than through actual job reductions. Mr. ALLENBY. Well, I think the general facts would indicate that's not the case. As you know, a substantial portion of local payrolls are people. And depending upon the form of government, the property tax raised from 100 percent support down to little or none, but if it's in areas where the property tax is a major level of support, I think there were reduc- tions in terms of staff. Mr. MATSUI. I have no further questions. Mr. ALLENBY. The State of California is entering into collective bar- gaining. Given this new process, which we're still trying to figure out, the administration did not propose a specific salary increase for State employees. It is our intention to comply with the intent of the wage guidelines. We believe there have been increases and achievements in the pro- ductivity area. The best indicator of achievement is the following: Proposition 13, again, we bring up the 120,000 jobs which is a deadline of about 7.2 percent. We believe that local governments in functions are, in general, being maintained. Given that the reduction in the number of people, we be- lieve that we've had an increase in local government output per man- hour. There are obvious limits to this. If we persist in reductions, in terms of the amounts that we have right now, in terms of 100,000 to 120,000 workers per year, government will have, to reorder its priorities and reorder the kinds of services that are being provided. I think we can deal more specifically with the remainder of the questions you asked us, what we've done to deal with the anti-inflation problem. Our intent, in general, is to try to reduce the influence of government and to give the individual more opportunity to deal with his own life. And we believe that's appropriate and given, particularly in Cali- fornia, the reduction in taxes, that it's something that. has to be done. Mr. MATsU'. Mr. Chairman, may I ~ Mr. Allenhy, how would you respond in that respect to Mr. Hausey'S comments, the speaker that was immediately before you? He indicated the fact that government is no longer getting involved or no longer PAGENO="0239" 231 maintaining its involvement in some areas, especially at the lower economic groups, and with inflation compounding thai problem, how do you justify that and what is your response to Mr. Hausey's statement? Mr. ALLENBY. I think Mr. Hausey pointed out some valid areas of concern. The issue and the problem is that what we h-ave. to do is t-ha.t we have to try to maintain, to the extent that we can and it's part of the re- ordering of priorities. If you look at the budget that we proposed to the legislature this year, we had substantial reductions in program areas. The majority of our reductions did not influence, did not affect, in our judgment, the lower economic levels. Mr. MATSUI. Well, you did not affect them in the sense that you didn't cut programs, but there were not increases in their budgets, for example. Mr. ALLENBY. That's correct. Mr. MATSUI. So inflation, which is obviously what we're talking about, is running to 13 percent. How does that not impact them? Mr. ALLENBY. I can't say that it does not impact. I am just saying that, given the limits that we're operating under, given the money that we have available, that if we're able to maintain the level of funding, that we believe that we've taken the only step that we ca.n take. Mr. MATSUI. Well, I understand. It's all good and well to say you've cut the budget by $1.2 billion, and you're going to do it again next year, and you're going to give back that money to the taxpayers, but at the same time, how do you reconcile that statement with the fact that these people's needs are going somewhat unmet? At least, accord- ing to Mr. Hausey's statement. Mr. ALLENBY. I think that we have attempted to provide, given the resources that we have, for the needs. We have proposed an increase for welfare recipients. We have proposed increases in program areas which deal with the lower economic levels. You know and I know that, given the problems that we have, that government is not ever going to provide the full amount of perceived needs. Mr.-MATSUI. Well, no one is suggesting that. Mr. Hausey wasn't sug- gesting that and I'm not suggesting that. But it seems to me that Mr. Hausey's suggestion is that the needs are not near what is even sub- -adequate~ and I think that's the problem Isupp~se maybe your threshold is much higher than his, or at least the Governor's `threshold is much higher than his, is that what we're saying? Mr. ALLENBY. J don't think that's what we're saying. * I thinkthat what we're saying is that, to the extent that we can, we are -providing for the needs that are being discussed. * I -don't think that it could be argued-let me rephrase that. I think it-can be argued that we could provide more but, given where we are, I think that we're -doing the best we can. ~Mr. RosENI'iiAL. -Does anybody ever speak to H-auser's clients or as- sociates to find out how they are making it in life? Mr. ALLENBY. Oh, yes, we do. We are proposing initiatives in the budget to try to deal with the housing problem, for example. PAGENO="0240" 232 But as you know, dealing at the Federal level, given the kinds of programs you have, section 8's and these kinds of programs,. the kind of money involved is horrendous. I mean, for example, we have proposed in the budget to allocate $100 million for special low-income housing. Now there are a variety of ways of dealing with that. But if you use section 8, for example, that really won't give you very much hous- ing, so we're trying to look at ways so that Government can interface with the private side to generate more housing for low- and moderate- income people. It is a very difficult problem to deal with. Mr. ROSENTHAL. Do you or your associates or your housing asso- ciates go out into the community and talk to these people and look around? Mr. ALLENBY. Yes; they do, yes. Mr. ROSENTHAL. Do you know that to be a fact? Mr. ALLENBY. Yes; I do. Mr. ROSENTHAL. Have you ever done that? Mr. ALLENBY. Have I ever done it? Mr. ROSENTHAL. Yes. Mr. ALLENBY. Yes; I have. As I noted in the opening comments, we've made a substantial reduc- tion in taxes in the current year. The typical middle income taxpayer received a savings of about $175 or about 40 percent of his personal income tax liability in California. We believe this is a good example of reducing Government costs and increasing personal discretionary income. We believe we've done another thing which, in the long run, will have substantial anti-infla- tionary aspects. We have indexed our personal income tax in California. And index- ing is as follows: to the extent that the Consumer Price Index exceeds 3 percent, the brackets that we operate under in California will be increased by the amount over the 3 percent. If inflation continues in 1979 at the double digit level, and we be- lieve it very likely will, that the actual brackets that people use to base their income tax payments on will be increased by the amount of inflation over the 3 percent. If it's 10 percent inflation, the brackets would be widened by 7 per- cent and we believe that this is a good way of having Government tax the people only once. We'lJ tax them on their real income gains and not tax them based upon inflation. Mr. ROSENTHAL. Have you ever seen this brochure entitled "An Intergovernmental Partnership"? Mr. ALLENBY. I have not personally seen it. The people that we talked to about this presentation have seen it and are working with it and we have some comments in our presentation dealing with spe- cific issues. That is procurement, the area of, although we don't have it in our testimony, we have had a limited number of meetings with the private sector on the formation of anti-inflation councils. We're not certain yet how effective that would be and I think that our belief is that unless the private sector is interested~ in terms of meeting and if they believe that the State can do something, that un- PAGENO="0241" 233 less we have that in the first instance., that the councils really will not be very effective. Mr. ROSENTHAL. Right. Mr. ALLENBY. And it will be more for sure than it will be for any- thing else. Mr. ROSENTHAL. Have you had any State and local official confer- ences on how to deal wit.h the inflation problem and coordinate the efforts with the Federal Government? Mr. ALLENBY. We have had one meeting that included both local and private sector. Mr. ROSENTHAL. That was the $15 San Francisco meeting? Mr. ALLENBY. I think it was. Mr. ROSENTHAL. For the. whole State of California, that's incredible. In terms of your procurement policies, do you have your suppliers certify their compliance with the wage-price guidelines? Mr. ALLENBY. I'll respond to that. We are attempting to find out precisely how to deal with the Federal Government in this area. Mr. ROSENTHAL. When are you going to do it, when are you going to find out? Mr. ALLENBY. We are in the process of writing a letter to the Fed- eral Government and listing the kinds of things that we are doing. Mr. ROSENTHAL. When are you going to write the letter? Mr. ALLENBY. It should be sent very quickly, within a week. One of the problems has been that we believe that the procurement policies of the State are- Mr. ROSENTHAL. As of today, you're still buying products from com- panies that may be in violation of the wage-price guidelines. Mr. ALLENBY. Well, I think that, given the procedure that we use in California for acquisition, let me give you an example. We use the bid process to a very large degree. Mr. ROSENTHAL That has nothing to do with my question. Do you know whether the companies that you buy-what is the total procurement budget of the State of California last year? Mr. ALLENBY. I think, we believe it's in the range of $100 million. Mr. ROSENTHAL. $100 million? That's for the State government? Mr. ALLENBY. Yes. Mr. ROSENTHAL. What do you mean you believe it? Mr. ALLENBY. Well, we don't collect it in the sense that we can come down with a number. For example, the University of California is a major government employer and the relationship between the State of California and the university system is very limited. We do not have much control nor do we require much reporting. They run their system- Mr. ROSENTHAL. Is it your testimony that the procurement budget for the State of California directly is about $100 million? Mr. ALLENBY. To the best of our knowledge right now, yes, that's correct. Mr. ROSENTHAL. How about your associate, does she agree with that? Ms. SWEEZY. Yes, I do. Mr. ROSENTHAL. And as of today, what's today? Mr. MATsur. May 5. Mr. ROSENTHAL. May 5. The State of California is still not co- operating with the Federal Government's anti-inflation program in 52-214 0 - 79 - 16 PAGENO="0242" 234 that none of your suppliers are required to certify that they are in compliance with the guidelines. Am I wrong, or not? You tell us. Mr. ALLENBY. We would believe if we can get the lowest bid price, that that's the measure that we should use. Mr. ROSENTHAL. That has nothing to do with the wage-price guidelines. Mr. ALLENBY. It is our intention to report to the Federal Govern- ment on the wage-price. Mr. ROSENTHAL. You are out of compliance, the procurement por- tion of the guidelines were established 6 months ago and unless you are prepared to tell this committee that you have been asking your sup- pliers to certify their compliance, then your State has been out of compliance for 6 months. Are you aware of this? Mr. ALLENBY. Yes. Mr. ROSENTHAL. Let me tell you that even though this hearing is being held on a Saturday morning, this is a very important matter. Mr. ALLENBY. We believe it's a very important matter. Mr. ROSENTHAL. Well, when are you going to get in compliance with the rest of the country? Mr. ALLENBY. I would argue that the procurement procedures that we have are among the best in the country and I would argue that the price we pay for our goods is as low or lower than you can get at any other part in the country and I would argue that that is responsive to the anti-inflation aspects of the guideline. Mr. ROSENTHAL. Well, tell us specifically what your procurement procedures are. Mr. ALLENBY. Well, we normally use a sealed bid process. We have been attempting to move away from brand name specifica- tion, sole source acquisition, so that we go to generic, we go to per- formance kinds of standards and we believe that that is the best way to achieve the lowest cost or the least cost for the goods that are re- quired to operate our Government. We have been attempting to attract small business and minority business vendors to, over the long run, we believe, to encourage competition. Mr~ ROSENTHAL. Let me read to you what this says about adoption of anti-inflation procurement policies by the State. First item, "Goods and services above a threshold dollar amount should be purchased only from companies in compliance with the wage-price standards." Are you doing that? Mr. ALLENBY. I can't answer that. Mr. ROSENTHAL. Can you get hold of the Governor and find out if you are doing it? Or anybody? We're going to have to communicate with the Governor on Monday to find out if he is doing this and we are going to have to advise the President that the State of California is not in compliance. Mr. Matsui is.liabie to be~angry with me if we do allthese things but I don't see any choice. Mr. MAT5uT. Well, it's a national problem, Mr. Chairman. Mr ROSENTHAL California is still not in compliance after 6 months PAGENO="0243" 235 I mean they give a whole list of things that the State should do and I don't think you're in compliance with any of them. Mr. ALLENBY. Well, I've stated once and I will state again, if you will allow me to, that the system- Mr. ROSENTHAL. Let me just say this. I'll allow you to state. for this record anything you want. You can talk for as long as you want. You can say anything you want. I would just like to know if the State is in compliance. Go ahead. The floor is yours. Mr. ALLENBY. I'll restate that the procedure that we're operating, we believe, will bring the lowest price and it's our judgment that, given that, that is the most responsive way of dealing with inflation. Mr. ROSENTHAL. Let me read you the next one, "Solicitations issued on and after the adoption of anti-inflation procurement policies and expected to result in awards above the dollar amount threshold should include a notice that companies responding must certify their compli- ance with the wage-price standards. Is that provision in being in California? Mr. ALLENBY. No. Mr. ROSENTHAL. Next item, "Awards resulting from such solicita- tion should include a clause certifying that the company is in compli- ance with the standards." Is that provision being complied with? Mr. ALLENBY. No. Mr. ROSENTHAL. Next item, "Contracts should include penalties for companies that falsely certify." Is that provision being complied with? Mr. ALLENBY. Since we're not asking for the first, we're not asking for the second. Mr. ROSENTHAL. Right, obviously. You're doing terrific. Mr. ALLENBY. We believe we are. Mr. ROSENTHAL. I'm advised that letters of noncompliance from the Council on Wage and Price Stability have been sent to, for example, Crown Zellerbach and Hammermill Paper Companies. Do you buy from either of those companies? Mr. ALLENBY. I do not know. Mr. ROSENTHAL. OK, is there anything else you want to tell us? Mr. ALLENBY. Well, dealing with regulatory reform, we have sup- plied you with full testimony. Mr. MAT5UT. Mr. Chairman, may I just follow up on that? Is the Governor's office or is the administration planning on comply- ing eventually with these guidelines? Or is it that you feel your cur- rent procedures are adequate. and you're going to continue with them? Mr. ALLENBY. Our current procedures are adequate. We are in the process of working out a procedure with the Federal Government to report where we are and what's occurring and if we have any bids or prices that we believe exceed the Federal guidelines. Mr. MATSTJJ. So your answer is that you don't intend to comply with these items that Mr. Rosenthal just cited? Mr. ALLENBY. Except for the report into the Federal Government what is occurring in California and, given t.he procedures that we're using, how we are or are not acquiring goods that are within the price guidelines, that is correct. PAGENO="0244" 236 Mr. ROSENTHAL. Do YOU have a COPY of this book, by any chance? Mr. ALLENBY. I don't have one with me, no. Mr. ROSENTHAL. Anybody in California have a copy? Mr. ALLENBY. I'm sure that our department of general services, which is our procurement office. Mr. ROSENTHAL. Do we have an extra copy to give them? Will you give them one? You might read it over, over the weekend. I don't know what to say. To me, it's astounding testimony. It's nothing personal. Don't let it aggravate you. Mr. Ai~r~~wi~. No; I never get aggravated, sir. Mr. ROSENTHAL. I can tell that. I get aggravated. I mean, it's hard to believe. I mean the President is waging a war on inflation. I mean he's doing all these things and you fellows are going your own way. Mr. ALLENBY. Well, we would argue that we're on the front line and are winning. Which may be better than what's occurring at the Fed- eral level. Mr. ROSENTHAL. You're not in compliance with the rest of the country. I don't know if this is good, bad, or otherwise, but this is the way the country is going. You're probably going another direction. Mr. ALLENBY. No; I don't believe we have. Mr. ROSENTHAL. The whole theory of this is to have State and local governments support the President's effort to make sure that the com- panies that they buy from are in compliance. That's putting more pressure on them. If you're buying from Crown Zellerbach and Hammermill Paper and other companies that have been alleged to be violating the guide- lines, you may be helping these companies violate the President's guidelines. You're a big purchaser. My own guess is you're way over $100 mil- lion, way over. Mr. ALLENBY. We very well may be but, given the purchases that- Mr. ROSENTHAL. You're putting no pressure on those suppliers to comply. You're talking about regulatory reform, that's OK. Mr. MATSUI. Don't you feel you're part of this country? I mean don't you feel you are part of the entire problem? Mr. ALLENBY. Mr. Matsui, Mr. Matsui, not only do we believe we're part of the country, we believe we are being effective in dealing with inflation. The kinds of action that we're taking- Mr. MATSUI. Well, I don't know if being effective with inflation is coming to Washington via the Governor and telling us to balance our budget and at the same time ask for revenue-sharing money for cities and counties and local government. But if that's your answer, well, I have to accept that. But at the same time, it seemed to me that you would at least attempt to com- ply with someof these guidelines that are set forth here instead of say- ing you're going to do the best job you can for your particular State an~ not be concerned about the overall program of the President. Mr. ROSENTHAL. Is there Anything else you would like to say? Mr. A~m~Br. I think I've done enough. PAGENO="0245" 237 Mr. ROSENTHAL. I think you have. Mr. MATSUI. Yes, what about this, about balancing the budget? You brought up in your statement that it's really important that the State balance its budget, which it has been doing and now you're asking that the Federal Government balance. Are you talking about a constitutional amendment or convention or are you just saying we should balance our budget and when do you want us to balance our budget? Mr. ALLENBY. I think that the administration has been clear in its view that the budget should be balanced. Mr. MATSUI. By what year? Mr. ALLENBY. If possible, it could be balanced right now. I don't have, Mr. Matsui, a timetable or a guideline before~me.~ Mr. MATS1JI. OK, what shall we cut? Shall we cut revenue-sharing money and CETA money that Mr. Isenberg and Mr. Sheedy needs or shall we cut out our defense budget to make our Nation weaker over- seas? What is the administration's proposal in this area? Mr. ALLENBY. Our proposal, we made a proposal at the National Governor's Conference a year and a half ago which essentially dealt with the acceptance on. the part of the State and in this sense, the proposal was from the State of California to accept less money from the Federal Government if they would provide for us less direction of how we're going to spend it. Mr. MATSUI. Have you talked to Mr. Isenberg whether he agrees with that in terms of revenue-sharing money to local government? Mr. ALLENBY. Well, I would think that revenue-sharing is one of the few things the Federal Government has done where they haven't told us where to put it. Mr. MATSUI. Well, apparently you don't care about the revenue- sharing money that goes to the States, though, right? Because the Gov- ernor has indicated that he's not really excited about whether it gets cut out or not, at least that's been my understanding. So we'll prob- ably eliminate that. Mr. ALLENBY. I don't think that I've said that. You said that. Mr. MATSUI. What about other programs? Mr. ALLENBY. I think that the kinds of programs that you give us direction, if you're not going to give us the direction and don't give us the money, that's fine. Mr. MATSUI. OK, Mr. Rousselot just proposed a balanced budget amendment that really isn't a balanced budget amendment, but it appeared to be, which we voted on last week and that would have cut about ~5 billion out of health care programs. Is that one of the areas that you would propose that we cut in terms of balancing the budget this year? Mr. ALLENBY. No. Mr. MATSUT. How about the defense? Mr. Obey proposed one in which he would have cut out about 15 percent of our defense budget. Would you propose that? Mr. ALLENBY. I am not here to propose anything. Mr. Matsui. Mr. MATSUI. Then you really ought not to make statements about balancing the budget until you analyze the budget and understand it. I think you ought to tell the Governor the same thing. PAGENO="0246" 238 Mr. ROSENTHAL. I don't see how you can keep getting revenue shar- ing money if you're riot in compliance with one of the major efforts of national administration. We've got to get this. straightened out at the beginning of next week, OK? You'll talk to somebody and I'll talk to somebody. Mr. ALLENBY. We'll talk to the Department of General Services. I think the Department's position will be that they are in general compliance with the direction that the Federal Government wants to take. Mr. ROSENTHAL. Do you think any citizen in this country can go around saying, as far as the laws are concerned, "I think I'm in general compliance. Everybody will make their own judgment"? This is a Government of laws, it's not of men. Mr. ALLENBY. I wasn't aware that that was a law. Mr. ROSENTHAL. It is not a law, you're right. Mr. ALLENBY. OK. Mr. ROSENTHAL. It is a Federal regulation. There is not too much difference. But we've got to get it straightened out very quickly. I mean if our most populous State is not in compliance with these efforts, then the whole program is going to go down the drain. OK, thank you very much. Mr. ALLENBY. Thank you, Mr. Chairman, and Mr. Matsui. Mr. ROSENTHAL. I must say, it was very significant testimony. [Applause.] [Mr. Allenby's prepared statement follows:] PAGENO="0247" 239 TESTIMONY BEFORE THE HOUSE SUBCO~t4ITrEE ON CO~PIERCE, CONSIIIER AND IiDNETARY AFFAIRS SACRA~NT~, ~~FORNIA - WE WELCOME THE OPPORTUNIT~' TO APPEAR BEFORE THE SUBCO~41IUEE, AND TO OUTLINE THE STEPS TAKEN BY THE STATE OF CALIFORNIA TO COMPLY WITH THE NATIONAL ANTI-INFLATION PROGRAM. WE BELIEVE THAT THE STATE OF CALIFORNIA1 THROUGH ADMINISTRATIVE AND LEGISLATIVE ACTION IN THE PAST 12 MONTHS, HAS MADE SOME OF THE MORE SIGNIFICANT STEPS IN THE NATION TO REDUCE THE COST OF GOVERNMENT AND THEREBY REDUCE ONE OF THE MAJOR CAUSES OF INFLATION. THESE ACTIONS INCLUDED: 1) A CURRENT YEAR BUDGET $1.2 BILLION LOV*1ER THAN ORIGINALLY ANTICIPATED 2) A PROPOSED BUDGET FOR 1979-80 WITH GENERAL FUND EXPENDITURES $24 BILLION LESS THAN PREVIOUSLY ANTICIPATED 3) A SALARY FREEZE AND HIRING FREEZE ON ALL STATE EMPLOYEES 4) A CURRENT YEAR TAX CUT OF APPROXIMATELY $1 BILLION 5) A PROPOSED TAX CUT IN EXCESS OF $1 BILLION FOR THE NEXT FISCAL YEAR 6) ENACTMENT OF A LAW TO PROVIDE INDEXING OF ThE PERSONAL INCOME TAX 7) A PROPOSAL TO SIGNIFICANTLY REDUCE THE N1I~BER OF OCCUPATIONAL LICENSING AND REGULATORY BOARDS 8) PASSAGE OF LEGISLATION EXPEDITING THE PERMIT REVIEW PROCESS BY MANDATING ACCELLERATED CONSIDERATION, MANDATED TIME FRAMES FOR DECISIONS, AND INTERAGENCY COORDINATION 9) MAJOR STATE BUILDING ENERGY CONSERVATION PROGRAMS 10) PROGRAMS TO REDUCE STATE TRANSPORTATION COSTS AND ENERGY CONSUMPTION PAGENO="0248" 20 THE GOVERNOR I-LAS PERSONALLY MADE ONE OF HIS HIGHEST PRIORITIES THE BALANCING OF STATE EXPENDITIRES AND PROGRAMS TOWARD A GOAL OF SUBSTANTIALLY REDUCING THE GROWTH OF GOVERM~1ENT SPENDING. HE ADVOCATED BALANCING OF THE FEDERAL BUDGET TO CREATE NATIONALLY TI-F SAME LEADERSHIP AND DETERMINATION THAT WE HAVE ACHIEVED AT THE STATE LEVEL. THESE PROGRAMS ARE EXPLAINED MORE FULLY IN THE COI-T~iENTS WHICH FOU~OW. THE 300,000 FULL-TIME AND PART-TIME EMPLOYEES OF THE STATE CIVIL SERVICE AND EDUCATIONAL SYSTEM REPRESENT ONLY 3 PERCENT OF ALL CIVILIAN EMPLOYMENT. PROCUREMENT OF GOODS REPRESENTS ONLY ONE-HALF OF ONE PERCENT OF ESTIMATED GROSS STATE PRODUCT. THE STATE'S ADMINISTRATION CANNOT IMPOSE POLICIES ON LOCAL ENTITIES OR ON THE PRIVATE SECTOR TO ENSURE SUCCESS OF TI-F FEDERAL PROGRAM. HOWEVER, WE CAN' SET AN EXAMPLE TO HELP ACHIEVE COMPLIANCE WITH THE PUBLISHED GUIDELINES. IN TI-F AREA OF WAGE-PRICE STANDARDS, THE LEGISLATURE LAST YEAR FROZE PAY SCHEDULES FOR STATE AND LOCAL EMPLOYEES AND WELFARE RECIPIENTS, EXCEPT FOR THE ~ SSI/SSP PASS THROUGH, BY NOT GRANTING THE TRADITIONAL MID-YEAR ADJUSTMENT FOR INCREASES IN COST-OF-LIVING IN AN ATTEMPT TO PROVIDE ASSISTANCE TO LOCAL GOVERNMENT AND REDUCE THE NIJIBER OF LAYOFFS REQUIRED AS A RESULT OF SEVERELY RESTRICTED SOURCES OF FUNDING. PERHAPS BECAUSE OF THIS ACTION, LAYOFFS WERE I-EU) TO LESS THAN 20,000, WITH AN ADDITIONAL 100,000 EMPLOYMENT REDUCTION DUE TO ATTRITION AND THE FREEZING OF VACATED POSITIONS. THE STATE OF CALIFORNIA IS ENTERING INTO COLLECTIVE BARGAINING. GIVEN THIS NEW PROCESS, TI-F ADMINISTRATION DID NOT PROPOSE A SPECIFIC SALARY INCREASE FOR STATE EMPLOYEES THIS YEAR. IT IS OUR INTENTION, HOWEVER, TO COMPLY WITH Ti-F INTENT OF THE WAGE GUIDELINES. PAGENO="0249" 241 WE BELIEVE WE IN STATE AND LOCAL GOVERNMENTS HAVE MADE IMPORTANT ACHIEVEMENTS IN INCREASING PRODUCTIVITY. PERHAPS THE BEST INDICATOR OF OUR ACHIEVEMENT IS THE FOLLCI'IING: PROPOSITION 13 HAS RESULTED IN THE LOSS OF 120,000 JOBS TO DATE, A DECLINE OF 7,2 PERCENT. YET NEARLY ALL FUNCTIONS ARE STILL BEING PERFOF~1ED. C)N THIS BASIS IT COULD BE SAID THERE HAS BEEN AN INCREASE IN STATE AND LOCAL GOVERNMENT OUTPUT PER MAN-HOUR OBVIOUSLY THERE ARE LIMITS AS TO HOW LONG SUCH AN IMPROVEMENT WILL PERSIST. DEMAND FOR GOVERNMENT SERVICES GRONS WITH THE POPULATION. WE HAVE SEEN DEDICATED WORKERS EXTENDING THEMSELVES TO CONTINUE TO MEET THE REQUIREMENTS OF THEIR JOBS. ~NY FURTHER SIGNIFICANT REDUCTION IN STATE AND LOCAL EMPLOYMENT--SAY ON THE ORDER OF 100,000 OR MORE WORKERS--WOULD REQUIRE GOVERNMENT TO RENDER PRIORITIES ON THE KINDS OF SERVICES PROVIDED IN A DRAMATIC WAY, THE OTHER ISSUES RAISED IN THE SUBCO(4IIUEE'S LETTER OF INVITATION FOR THIS HEARING ARE PERHAPS EASIER TO ADDRESS, AS THEY RELATE TO SPECIFIC ACTIONS THAT MAY HAVE BEEN TAKEN ON THE ANTI-INFLATION FRONT. THE GOVERNOR'S PROGRAM TO REDUCE THE INFLUENCE OF GOVERNMENT IN THE LIVES OF PEOPLE, AND THEREBY STRENGTHEN THE ABILITY OF EVERY SECTOR IN THE ECON&IY TO PROVIDE FOR THE FUTURE. OF CALIFORNIA, IS ANTI-INFLATIONARY, AND IS EXPECTED TO BE A POSITIVE FACTOR IN THE NATIONAL EFFORT TO BRING PRICE CHANGES UNDER CONTROL. SPENDING AND TAX POLICIES HAVE BEEN A MAJOR CONCERN SINCE THE INCEPTION OF GOVERNOR BROWN'S AUMINISTRATION. THE STRONG CALIFORNIA ECONOMY, WHICH HAS OUTPERFORMED THE NATIONAL ECONOMY FOR THE PAST SEVEN YEARS, PRODUCED RAPIDLY RISING STATE REVENUES. AFTER EXTENSIVE CONSIDERATION, THE LEGISLATURE PASSED, AND THE GOVERNOR SIGNED, AN $865 MILLION INCOME TAX RELIEF BILL LAST AUGUST. PAGENO="0250" 242 THIS MEASURE REDUCED TAXES 17 PERCENT. THE TYPICAL MIDDLE-INCOME TAXPAYER SAW A SAVINGS OF $175, OR 40 PERCENT. THIS IS A PRIME EXAMPLE OF A POLICY WHICH HAS REDUCED GOVERNMENT COSTS, AND INCREASED PERSONAL DISCRETIONARY INCOME. THIS LAW ACCOMPLISHED ANOTHER ANTI-INFLATIONARY GOAL WHICH WILL BE EVEN ~t)RE SIGNIFICANT IN THE LONGER RUN. IT INDEXED THE PERSONAL INCOME TAX FOR ANY CHANGE GREATER THAN 3 PERCENT IN THE CONSUMER PRICE INDEX SO THAT INDIVIDUALS WOULD NOT SUFFER THICE FROM EXCESSIVE PRICE INCREASES-FROM BOTH HIGHER COSTS AND HIGHER TAXES, WHICH IN COMBINATION LEAD TO SHARPLY REDUCED BUYING POWER. THE ADMINISTRATION HAS PROPOSED A FURTHER INCOME TAX REDUCTION OF $1.2 BILLION THIS YEAR. ENACTMENT OF THIS MEASURE WOULD REDUCE 1979-80 TAXES PER DOLLAR OF INCOME TO THE LOWEST LEVEL SINCE Ti-E 1975-76 FISCAL YEAR. THE CITIZENS OF CALIFORNIA PASSED A CONSTITUTIONAL AMENDMENT WHICH SLASHED PROPERTY TAXES IN HALF, AND IN SO DOING REDUCED THE CALIFORNIA CONSUMER PRICE INDEX BY APPROXIt~tATELY 1-]12 PERCENT. TURNING TO PROCUREMENT POLICIES, THE ADMINISTRATION HAS BEEN WORKING SINCE .1975 TO CONTAIN COSTS. THIS HAS TAKEN ThC) FORMS: 1) TODECREASE CONSUMPTION OF GOODS. AND 2) TOTINCREASE COMPETITION FOR STATE PURCHASES AND OBTAIN THE LOWEST POSSIBLE PRICE FOR BOTH GOODS AND SERVICES. * THE FIRS1I OBJECTIVE-REDUCING CONSUMPTIONHAS BEEN FOCUSED ON CO~4IODITIES RANGING FROM AUTOMOBILES~AND OFFICE FURNITURE,. DOWN TO EVEN MINOR SUPPLIES. To DATE, SAVINGS FROM THIS SOURCE HAVE ~AMOUNTED TO $15 MILLION. PAGENO="0251" 243 THE PROGRAM TO PROMOTE COMPETITIVENESS HAS FOCUSED ON EXTENDING SEALED BID COMPETITION, DEVELOPING FUNCTIONAL SPECIFICATIONS FOR COfrPIODITIES, AND MOVING AWAY FROM BRAND NAME SPECIFICATIONS AND SOLE SOURCE ACQUISITION tO FACILITATE PRICE COMPETITIVE STANDARD PRODUCTS IN ADDITION, TI-E STATE HAS ACTIVELY A1TRACTED SMALL BUSINESS AND MINORITY BUSINESS VENDORS INTO PROCUREMENT PROGRAMS, THEREBY ENCOURAGING COMPETITION AMONG A WIDE VARIETY OF CONTRACTORS, A SIGNIFICANT ACCOMPLISHMENT HAS BEEN ACHIEVED IN THE ADJUDICATION OF DISPUTES. UNFORTUNATELY ThERE ARE OCCASIONS IN WHICH THE STATE AND A CONTRACTOR MAY DISAGREE ON TERMS OR REQUIREMENTS OF A CONTRACT. HISTORICALLY, SUCH DISPUTES HAVE BEEN SETTLED IN THE COURTS, RESULTING IN DELAYS IN THE DECISION PROCESS AND HIGHER COSTS FOR BOTH THE STATE AND THE INDIVIDUAL CONTRACTOR. THE GOVERNOR RECENTLY ISSUED AN EXECUTIVE ORDER TRANSFERRING THIS PROCESS FROM THE COURTS TO THE EXECUTIVE BRANCH. THE RESULT HAS BEEN A SPEEDIER RESPONSE TO DISPUTES AND A MORE RAPID PAYMENT TO CONTRACTORS WHEN APPROPRIATE. THIS HAS HAD THE EFFECT OF REDUCING THE WORKING CAPITAL REQUIREMENTS OF CONTRACTORS, HELPING TO ELIMINATE THE NEED FOR CONTINGENCIES THAT CONTRACTORS MUST PROVIDE FOR IN ThEIR PRICING STRUCTURE IN THE EVENT OF DISPUTES AND OFTEN TIME LENGTHY LITIGATION. THIS DEVELOPMENT HAS HAD THE DUAL EFFECT OF REDUCING COSTS, AND IMPROVING THE STATE'S RESPONSIVENESS TO VENDORS. A REVIEW OF PRICING SCHEDULES DEVELOPED OVER A PERIOD OF YEARS INDICATES THAT, (WERALL, COt'TIODITY PRICES ARE UP 5-112 PERCENT THIS YEAR. THE PRICE SITUATION COMES UNDER PERIODIC REVIEW. IF IT IS DETERMINED THAT PRICE INCREASES ARE SIGNIFICANTLY EXCEEDING TIE F~RAL GUIDELINES WE WILL REPORT THIS INCREASE TO THE COUNCIL ON WAGE AND PRICE STABILITY FOR *IATEVER ACTION THEY MAY DEEM PAGENO="0252" 244 APPROPRIATE SPECIFICALLY, IT IS OUR INTENT TO BEGIN REPORTING ALL INCREASES OF 10 PERCENT OR MORE AS OF JULY 1. WE ARE SENDING A LETTER TO THE WAGE AND PRICE COUNCIL TO ELICIT INFORMATION ON THE INDIVIDUAL TO WHOM SUCH REPORTS SHOULD BE ADDRESSED, AND TO OBTAIN THE FORMAT REQUIRED FOR REPORTING AND DOCUNENTATION. UNLESS THERE IS A SUBSTANTIAL CHANGE IN PRICING STRUCTURES, THE DEPARTMENT OF GENERAL SERVICES (THE STATE'S PROCUREMENT AGENCY) WILL NOT ADD ANTI-INFLATION CLAUSES OR LANGUAGE TO CONTRACT FORMS THAT ARE ALREADY TOO LONG. THE AREA OF REGULATORY REFORM RECEIVES PERHAPS THE MOST ATTENTION. REGULATION IS A FACT OF LIFE IN OUR SOCIETY, YET IT SHOULD NOT BE UNREASONABLY IMPOSED. THERE ARE TIMES WHEN ~)RTI3~HILE PROGRAMS PROVE TO BE EXCESSIVELY COSTLY GIVEN THE BENEFITS ACHIEVED. THERE ARE TIMES WHEN OUTDATED REGULATIONS MUST BE REVIEWED WITH THE GOAL OF REVISION OR ELIMINATION. THE ACPIINISTRATION IS CURRENTLY PURSUING VARIOUS AVENUES TO IDENTIFY THOSE REGULATIONS WHICH CAN BE MODIFIED OR REMOVED TO REDUCE BUSINESS COSTS AND ENCOURAGE MORE EFFICIENT BUSINESS ACTIVITY. THE DEPARTMENT OF ECONOMIC AND BUSINESS DEVELOPMENT, FOR INSTANCE, HAS BEEN INVOLVED IN A NIIIBER OF SIGNIFICANT ISSUES CITED BY BUSINESS AS OVERLY COSTLY. THESE HAVE BEEN AS FOLLGdS: -- 1~bDIFICATION OF MINIMUM APPLIANCE EFFICIENCY REGULATIONS -- RESOLVING OF DISPUTES RELATING TO HANDICAPPED BARRIERS STANDARDS -- WORKING ON SWII~VflNG POOL HEATING REGULATIONS TO PERMIT INSTALLATION OF BOTH SOLAR AND NON-SOLAR DEVICES - INTERCEDED FOR THE STATE'S SHIPBUILDING AND REPAIR INDUSTRY ON REGULATIONS RELATING TO MARINE COATINGS PAGENO="0253" 245 -- ~bRKING ON A COMPROMISE SOLUTION TO PROPOSED REGULATIONS *IICH WOULD HAVE PROHIBITED THE SALE OF GAS HEATERS IN CALIFORNIA - -- REQUESTED RECONSIDERATION OF SULFUR EMISSIONS STANDARDS FOR t'~RINE VESSELS - k4ALYZED AND IS WORKING ON POSSIBLE MODIFICATION TO REGULATIONS RELATING TO PONER PLANTS, ENERGY CONSERVATION STANDARDS, LOCAL AIR QUALITY, AND PROCONSTRUCTION REVIEW OF NEW MA~JOR INDUSTRIAL FACI LITIES IT WILL BE APPARENT FROM THIS BRIEF LISTING THAT THERE ARE PROS AND CONS IN EVERY AREA OF REGULATION. EFFORTS TO MAINTAIN OR IMPROVE AIR QUALITY, FOR INSTANCE, CANNOT BE VIEWED IN ISOLATION. EVALUATION MUST TAKE INTO CONSIDERATION THE NEEDS OF ALL SEOMENTS OF OUR SOCIETY, IN AN ATTEMPT TO REACH THE MOST REASONABLE SOLUTION. COMPROMISE IS NEVER EASY~ IT NEVER SATISFIES ANYONE COMPLETELY, YET THE PROCESS OF PURSUING A COMPROMISE SOLUTION WILL, WE FEEL, BE BENEFICIAL IN THE LONG RUN BY HOLDING D(Y,~IN COSTS, REMOVING WNECESSARY BUREAUCRATIC INTERVENTION, AND STILL PROVIDNG FOR THE GENERATIONS OF THE FU11JRE, I WISH TO REITERATE OUR OTHER PROPOSALS ~-IICH WOULD ACHIEVE REGULATORY REFORM. -- THE GOVERNOR, IN HIS 1979-80 BUDGET, PROPOSED THE ELIMINATION OR RESTRUCTURING OF 16 OCCUPATIONAL LICENSING BOARDS - LEGISLATIVE MEASURES HAVE BEEN INTRODUCED TO ELIMINATE SOME BOARDS AND COt4~1ISSIONS, AND TO ATTACH SUNSET PROVISIONS TO BOTH BOARDS AND COt~T~1ISSIONS AND EVERY STATE AGENCY PAGENO="0254" 246 II1'ROVEMENT OF 1IIE PERMIT APPROVAL PROCESS HAS BEEN PERHAPS THE MOST SIGNIFICANT DEVELOPMENT, HGV~1EVER. THE OFFICE OF PERMIT ASSISTANCE HAS BEEN ESTABLISHED IN THE OFFICE OEPLANNING AND RESEARCH TO FACILITATE TIMELY REVIEW AND DECISION ON APPLICATIONS FILED A DECISION MUST BE MADE ON A PROJECT WITHIN ONE YEAR OF THE FILING OF AN APPLICATION, WITH THE OFFICE ESTABLISHING DEADLINES FOR REVIEW BY EVERY AGENCY INVOLVED~ THIS WILL EFFECTIVELY PREVENT THE RECURRENCE OF LONG AND EXPENSIVE DELAYS WHICH HAVE BEEN NOTED IN THE PAST, FINALLY, A LEGISLATIVE MEASURE NGd UNDER CONSIDERATION WOULD CREATE AN OFFICE OF ADMINISTRATIVE LAW TO REVIEW EVERY NEW REGULATION WITH RESPECT TO ITS NECESSITY, AUTHORITY, CLARITY, CONSISTENCY, DUPLICATION AND REFERENCE IF THIS TYPE OF PROPOSAL WERE ENACTED AND SIGNED INTO LAW, WE WOULD BE ABLE TO EFFECTIVELY ELIMINATE UNNECESSARY, OUTDATED, OR OVERLAPPING REGULATIONS I FEEL THAT ThE EXAMPLES I HAVE CITED HERE DEMONSTRATE ThE ADMINISTRATION'S COI't4ITMENT TO ThE ANTI-INFLATION EFFORT, AND ThE CONCRETE STEPS WE HAVE TAKEN OR ARE CONSIDERING TO BRING ABOUT COST CONTAINMENT IN ThOSE AREAS WHICH ARE DIRECTLY AFFECTED BY STATE GOVERNMENT. MAY I AGAIN EXPRESS MY APPRECIATION FOR THE OPPORTUNITY TO BRING ThIS SUI4IARY OF OUR ACTIONS TO YOU TODAY. THANK YOU. PAGENO="0255" 247 Mr. ROSENTHAL. Our next witness is Mr. Joseph "Ted" Sheedy, supervisor, county of Sacramento. Mr. MATSUT. We submitted his testimony. Mr. ROSENTHAL. I think we've already submitted your testimony for the record but you might want to add or change some of it. STATEMENT OP JOSEPH "TED" SHEEDY, SUPERVISOR, COUNTY OP SACRAMENTO Mr. SHEEDY. Thank you, Mr. Chairman, it does give me- Mr. ROSENTHAL. This is getting to be a dangerous seat, you know. Mr. SHEEDY. I can see that. My good friend and colleague, Mayor Isenberg, instructed me as I came up here to let you know that I am in compliance and our county is in compliance with everything. But as you stated, Mr. Chairman, I just first want to thank the Congress and the subcommittee for having the hearing here in Cali- fornia and particularly in Sacramento. I think it's an excellent way for the citizens to give their viewpoints and the local officials to give their viewpoints on inflation and other matters to you and I just hope that some day, maybe, you can get the whole committee out here and have more of these people hear this testimony. But I will briefly just highlight what I had to say. The county of Sacramento and because of proposition 13 last year, but even before proposition 13, has effectuated many economy efficien- cies, which I think certainly add to inflation. The less government spending we have at the local level, the State and Federal levels, the better off we are at fighting the double-digit inflation that we've had. Before proposition 13, as a matter of fact, November of 1978, our board directed that we wanted to have a growth in the actual cost of county dollars. Now as you are well aware, most of our budget is State and Federal mandates and subventions, so of the small amount, at that time about $72 million, which was direct cost of county dollars, we wanted to keep that to a 7 percent factor, or about what the previous year's inflation was. So we instituted a hiring freeze in January 1979. As a result of that, when prop 13 came around, we were in a little better shape than most because we had about 400 positions that were vacant and so we were able to eliminate those positions without any layoffs, through attrition, which helped us and that, coupled with no salary increases in 1978 for the public employees, helped us in getting by through proposition 13. Some of the other things that we have done to keep the cost down, is the curbside refuse pickup, which certainly is a major cost through the entire unincorporated county of Sacramento, and has effected some economies and efficiencies through not having to raise the fees for garbages. The reduced costs for fixed assets, and to my knowledge, Mr. Rosen- thal and Mr. Matsui, we are in compliance with the Federal wage- price guidelines on that. We've had a reorganization and streamlined operations. particularly in the Department of Health, which our board approved last January, PAGENO="0256" 248 which is going to save about $310,000. We'll cut 21 physicians, through attrition, again. No layoffs will be involved with that, and there will be no reduction in service levels. But these are just through adminis- trative cuts at the higher level rather than the services that are pro- vided for health at the street level. Our automotive activities, we are moving very quickly, and have been for the last 3 years, to subcompacts to .get the highest gas `mileage we possibly can, although obviously we can't do this in the Sheriff's Department because many of them, although we have lowered the standards there, many of them need high performance vehicles. .We have shifted to the smaller cars which has not only helped in the gasoline situation, but helped in the overall cost of government at the local level. Our budget instructions for this year is to go back and ask the de- partments to cut 10 percent reductions below what they had in 1979 and 1978 and we hope that we're going to be able to keep with that this year. We've had other across-the-board economies, policies which severely limit travel expenditures, we've reduced training requirements. We've made use of lower level classes of positions to fill higher level needs and other efforts which I think and the county believes has reduced the cost of government. We are in compliance and we've sent the letter to the Council on Wage and Price Stability, which will meet the President's guidelines relative to the 7-percent requirement for wages for 1978 and 1979. Let me just conclude that I think, beyond what we have done through efficiencies and as a result of proposition 13, and I really think that that's irrelevant. I think our county has been trying to keep the cost of government down beyond that. And I really think that the State has done that and I think that the Federal Government ought to look at what proposition 13 meant. I think that we can implement proposition 13 without seriously affecting or affecting in any drastic way the services that we're pro- viding, social services to the community. We have cut some areas in social service but I think the county of Sacramento has been very compassionate. I don't see nor, and I think you'll hear testimony from some of the. elderly senior citizens, people today where we have cut direct services to people at that level. And I think where you can do it is out of wages, looking at those, how high they are, keeping the guidelines the President has and through the administrative fat. And I would say that, as I concluded in my testimony, that the Federal Government ought to look at what proposition 13 has meant as well and they ought to look at where they can cut positions, where they can cut some fat and I believe, in my limited knowledge of what goes on back in Washington, that there is not a lot of it there but I just have a philosophical belief that there is probably 5 or 10 percent of fat in any governmental operation that you could probably cut out without directly interfering with the services to the people. And I think we all have to use economies and efficiencies at all levels. Mr. ROSENTHAL. Thank you very much for a very meaningful and thouqhful statement. Mr. Matsui? PAGENO="0257" 249 Mr. MATSUI. With respect to the Council on Wage and Price Sta- bility, if a company is out of compliance, is there anybody in your administration who is able to contact somebody in Washington or in the regional office to advise them of the fact that a company is out of compliance with the price guidelines? Mr. SHEEDY. I don't know, but John Dray, head of our general services, has been handling that and, to be very candid, I don't know whether he has contacted anyone, he's following them out. I know that he has done everything he can to coerce them into meeting those guidelines. But whether he has actually called those people or not, I will find out from him first thing Monday morning and I'll give you a call, office call, and let you know. Mr. MATSUI. OK, I appreciate that. One of the things that I'm concerned about is whether or not the Federal administration staffing is at a level such that they are able to actually monitor prices and, of course, one of the problems is that if you people have no one to go to, all you can do, as Mr. Isenberg was saying, is jawbone the particular supplier without having any real muscle beyond that. Mr. SHEEDY. Right. Mr. MATSITI. And that's one of the reasons that I think it's impor- tant we find that kind of information out. Mr. SHEEDY. I'll find it out and I'll relay it on to your office first thing Monday morning. Mr. MATSUI. Thank you. With respect to the increase in pay, the county employees didn't receive an increase last year and this year they are under the guide- lines. Obviously that's causing some kind of a hardship on them. At the same time, I can understand the pressures upon the board of supervisors and their staff. And what kind of problems have you had because of the 13 percent inflation rate and the fact that gasoline prices are going up? Has that created a massive problem where you may not be able to resolve the contract negotiations? Mr. SHEEDY. Well, obviously last year we didn't do it because we couldn't do it. We didn't have the money in any event. But the State mandated that to us. But we are considering salary negotiations for 1978-79 at this point. They will meet the President's guidelines, as will the 1979-80. And certainly there are problems. At a time when last year we had an 8.4-percent inflation and this year it's going to be around 9. I'm talking about July 1 to July 1, so you're talking about 17 percent, over 17 percent, and the guidelines being below that, it's going to create some problems, particularly at the lower level salaries. These people, their food has gone up and gasoline and they have to depend upon those necessities. So it's impacted down at the lower level and it hurts them more than it does at the above. And one of the things that I've suggested in years past is that rather than just across- the-board percentage increases, that maybe we look at dollar amounts and we have actually done that in our county some 4 years ago. So that is something that we're going to be looking at as well, dol- lar amounts for those people that are at the lower salary levels, 52-21'~ 0 - 79 - 1.7 PAGENO="0258" 250 Mr. MATStTI. Thank you. Mr. ROSENTHAL. Thank you very, very much. What is the total amount of your purchasing budget, do you know? Per year? Mr. SHEEDY. Congressman Rosenthal, I would just have to give you a guess. Out of a $332 billion budget, I would imagine that procurement, it's probably between $10 million and $20 million annually. But that is really just a guess. I really don't know. Mr. ROSENTHAL. All right, thank you very, very much. [Applause.] [Mr. Sheedy's prepared statement follows:] PAGENO="0259" 251 TESTIMONY HOUSE OF REPRESENTATIVES COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS SATURDAY, MAY 5, 1979 U.S. DISTRICT COURT 650 CAPITOL MALL, COURTROOM #3 SACRAMENTO, CALIFORNIA 9581L1 SUPERVISOR TED SHEEDY, SACRAMENTO COUNTY MR. CHAIRMAN, MEMBERS OF THE COMMERCE, CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE, I AM PLEASED TO PRESENT THIS TESTIMONY WITH RESPECT TO YOUR EFFORTS TO COMBAT INFLATION THROUGH THE PRESIDENT'S ANTI-INFLATION PROGRAM. ALTHOUGH SACRAMENTO COUNTY IS FAMILIAR WITH THE PRESIDENT'S ANTI-INFLATION PROGRAM, WE ARE VERY LIMITED IN OUR EFFORTS TO COMBAT INFLATION. GIVEN THE MANDATED COSTS, BOTH FEDERAL AND STATE, WHICH DICTATES HOW MOST OF OUR BUDGET WILL BE SPENT, THE LIMITATIONS AND STRINGS ATTACHED TO FEDERAL AND STATE FUNDS, AND THE IMPACT THAT THE CURRENT INFLATION RATE HAS ON EQUITABLE WAGE AGREEMENTS WITH COUNTY EMPLOYEES, THERE ARE VERY FEW AREAS WHERE WE CAN SIGNIFICANTLY FIGHT INFLATION. WITHIN THESE AREAS, HOWEVER, I BELIEVE THAT WE HAVE SUCCESSFULLY TAKEN STEPS THAT SHOULD SET AN EXAMPLE FOR THE FEDERAL GOVERNMENT. THE PASSAGE OF PROPOSITION 13 HAS DICTATED THAT WE IMPLEMENT MEASURES REGARDING~ LOCAL SPENDING POLICIES, COST REDUCTIONS, IMPROVED PRODUCTIVITY, AND OTHER KINDS OF SPENDING REFORMS. ALL OF PAGENO="0260" 252 THESE ACTIONS HAVE BEEN IN KEEPING WITH THE INTENT OF THE PRESIDENT'S ANTI-INFLATION PROGRAM. MOST OF THESE MEASURES WERE BEING IMPLEMENTED IN SACRAMENTO COUNTY EVEN BEFORE THE PASSAGE OF PROPOSITION 13. SACRAMENTO COUNTY HAS ACTIVELY PURSUED A PROGRAM TO KEEP COSTS DOWN AND INCREASE REQUIREMENTS ONLY IN CASES DEEMED CRITICAL TO THE DELIVERY OF SERVICES. SPECIFICALLY, THE SACRAMENTO COUNTY BOARD OF SUPERVISORS CONSISTENTLY LOWERED THE COUNTY TAX RATE SINCE 1972. ACTUAL TAX COLLECTIONS FOR THAT PERIOD WERE LESS THAN THE COMBINED PERCENTAGE INCREASES IN POPULATION AND THE CONSUMER PRICE INDEX. THE PASSAGE OF PROPOSITION 13 HAS REQUIRED THE SACRAMENTO BOARD OF SUPERVISORS TO ADOPT EVEN MORE STRINGENT MEASURES BECAUSE OF SEVERE REDUCTIONS IN THE PROPERTY TAX AS A SOURCE OF FINANCING COUNTY GOVERNMENT SERVICES. SIGNIFICANT MEASURES THAT WE HAVE ADOPTED HAVE INCLUDED: HIRING FREEZE ON COUNTY POSITIONS - THE FILLING OF CERTAIN POSITIONS REQUIRES THE ADVANCED APPROVAL OF THE BOARD WHILE OTHER POSITIONS MUST BE RATIFIED BY THE BOARD WHERE RECOMMENDED BY THE COUNTY EXECUTIVE. BEFORE ANY POSITION IS FILLED IT MUST BE SHOWN THAT THE POSITION IS ESSENTIAL TO THE CONTINUED OPERATION OF THE DEPARTMENT. REDUCTIONS IN COUNTY POSITIfl1S - IN OUR FISCAL YEAR 1978-79 WE DELETED 331 PERMANENT POSITIONS FROM OUR BUDGET REQUIREMENTS PRIMARILY THROUGH ATTRITION AND RETIREMENTS. FURTHER, WE HAVE ADOPtED A POLICY OF AVOIDING LAYOFFS BY REALLOCATING POSITIONS PAGENO="0261" 253 POSITIONS COUNTYWIDE WHERE PRACTICABLE By USING ATTRITION AND LAY- OFFS WE HAVE BEEN ABLE TO REDUCE THE WORK FORCE WITH MINIMAL DIS- RUPTION TO EMPLOYEES' LIVES. CURBS IDE REFUSE SERVICE - THIS IS AN EXAMPLE OF A SERVICE ACTIVITY WHERE, FOR THE PAST THREE YEARS, WE HAVE HELD THE COST DOWN FOR REFUSE PICK-UP BY REQUIRING CUSTOMERS TO SEPARATE AND CONTAINERIZE WASTE MATERIALS AND PLACE THE CONTAINERS AT THE CURBSIDE FOR PICK-UP. REDUCED FIXED ASSET REQUIREMENTS - IN OUR FISCAL YEAR 1978-79 WE ADOPTED A POLICY WHEREBY WE CONSCIOUSLY DEFERRED THE ACQUISITION OF FIXED ASSETS AND MADE EXCEPTION TO THIS OVERALL POLICY ONLY IN MATTERS AFFECTING PUBLIC SAFETY AND HEALTH. PROCUREMENT ACTIVITIES CONTINUE TO BE BASED UPON COMPETITIVE BID PROCEDURES WHERE THE LOWEST BIDDER IS TYPICALLY AWARDED THE CONTRACT UNLESS EXTRAORDINARY JUSTIFICATION IS PROVIDED. REORGANIZATION AND STREAMLINE OPERATIONS - WE HAVE ADOPTED A POLICY ENCOURAGING OPERATING DEPARTMENTS TO REORGANIZE AND/OR STREAMLINE OPERATIONS TO ACHEIVE FURTHER SAVINGS ALONG WITH INCREASED PRODUCTIVITY. A RECENT UPSHOT OF THIS POLICY IS THE REORGANIZATION OF THE HEALTH AGENCY INTO THE HEALTH DEPARTMENT WHICH RESULTED IN THE ELIMINATION OF 21 POSITIONS WITH OVERALL SAVINGS IN EXCESS OF $310,000, WITHOUT ANY REDUCTIONS IN SERVICE LEVELS. MERELY SHIFTING EMPLOYEES FROM ONE DEPARTMENT TO ANOTHER OR CHANGING THE NAME OF AN AGENCY, AS HAS HAPPENED AT THE STATE AND FEDERAL LEVELS, DOES NOTHING TO REDUCE INFLATION. PAGENO="0262" 254 AUTOMOTIVE ACTIVITIES - WE HAVE SEVERELY RESTRICTED HOME RETENTION VEHICLE USAGE TO ACHIEVE ADDITIONAL SAVINGS AND MAXIMIZE MOTOR POOL RESOURCES. IN ADDITION) WE HAVE PURCHASED 150 SUB-COMPACT AUTOMOBILES WITH MANUAL TRANSMISSIONS AS REPLACEMENT VEHICLES WITH MORE PLANNED FOR THE FUTURE AT CONSIDERABLE COST AND FUEL CONSUMP- TION SAVINGS. THE SHIFT TO SMALLER CARS WILL PAY DOUBLE DIVIDENDS IN FUTURE YEARS, ESPECIALLY IN LIGHT OF INCREASING GAS PRICES. 1979-80 BUDGET INSTRUCTIONS - THE COUNTY EXECUTIVE HAS INSTRUCTED DEPARTMENTS TO PREPARE BUDGETS BASED UPON 1978-79 REQUIRE- MENTS AND SERVICE LEVELS WITH ADJUSTMENTS FOR INFLATIONARY INCREASES ONLY. IN ANTICIPATION OF STILL FURTHER REDUCTIONS, DEPARTMENTS HAVE BEEN INSTRUCTED TO IDENTIFY POTENTIAL REDUCTIONS OF 10% USING 1978-79 AS A BASE YEAR FOR POSSIBLE PRIORITIZATION AND SUBSEQUENT SERVICE CUTBACKS. OTHER ACROSS-THE-BOARD ECONOMIES - WE HAVE ADOPTED POLICIES WHICH SEVERELY LIMIT TRAVEL EXPENDITURES) REDUCED TRAINING REQUIRE- MENTS, MADE USE OF LOWER LEVEL CLASSES OF POSITIONS TO FILL HIGHER LEVEL NEEDS, AND OTHER EFFORTS TO REDUCE OUR REQUIREMENTS ACROSS-THE- BOARD. WITH REFERENCE TO THE PRESIDENT'S ANTI-INFLATION PROGRAM, THE SACRAMENTO COUNTY BOARD OF SUPERVISORS AUTHORIZED THE CHAIRPERSON TO PROVIDE THE COUNCIL ON WAGE AND PRICE STABILITY WITH A LETTER WHICH ASSURES THE COUNTY. OF SACRAMENTO'S INTENT TO COMPLY WITH FEDERAL PAY STANDARDS. I AM SPECIFICALLY NOTING THIS BECAUSE OUR BOARD IS PAGENO="0263" 255 ~CURRENTLY NEGOTIATING LABOR CONTRACTS FOR FISCAL YEAR 1979-80 AND ADHERENCE TO THESE WAGE STANDARDS IS MADE EXTREMELY DIFFICULT BY THE CURRENT OUT-OF-CONTROL INFLATION RATE. IN 1978-79 COUNTY EMPLOYEES WERE NOT GIVEN A PAY RAISE AND NOW WE ARE EXPECTED TO ASK THEM TO SETTLE FOR A WAGE INCREASE WHICH WILL EVEN FURTHER DIMINISH THEIR PURCHASING POWER. I MENTION THESE DIFFICULTIES ONLY TO INDICATE TO YOU THE EXTRAORDINARILY DIFFICULT SITUATION FACING LOCAL GOVERNMENTS. WE REALIZE THAT IF INFLATION IS TO BE CONTROLLED, SACRIFICES MUST BE MADE BY ALL SECTORS OF THE ECONOMY. BUT) FLQ1~L CAN WE ASK OUR WORK- ING MEN AND WOMEN, WHO ARE FACED WITH DOUBLE DIGIT INFLATION, TO BEAR THE BRUNT OF ALL ANTI-INFLATION MEASURES WHEN THEY SEE THE LARGEST CONTRIBUTOR TO RUNAWAY INFLATION, THE FEDERAL GOVERNMENT, OPERATING IN A BUSINESS AS USUAL MANNER? WHETHER OR NOT OUR ANTI-INFLATION MEASURES, GIVEN THE FISCAL RESTRICTIONS IMPOSED BY PROPOSITION 13, HAVE BEEN VOLUNTARY OR NOT IS NOT REALLY RELEVANT. THE FACT IS THAT THESE FISCAL RESTRAINTS HAVE REQUIRED US TO IMPROVE THE ECONOMY AND EFFICIENCY OF PROVIDING GOVERNMENTAL SERVICES AND THUS REDUCE INFLATIONARY SPENDING. OUR SUCCESSES IN DEALING WITH OUR REVENUE REDUCTIONS, COUPLED WITH THE FACT THAT THERE ARE GROWING PRESSURES TO ALSO IMPOSE LIDS ON FEDERAL SPENDING, SHOULD SET AN EXAMPLE AND PROVIDE MOTIVATION FOR YOU TO GET .YOUR HOUSE IN ORDER. PAGENO="0264" 256 THE ECONOMIES THAT WE HAVE ACHIEVED, AND THE DECISIONS INVOLVED IN CUTTING SPENDING, HAVE NOT BEEN EASY, BUT THEY WERE NECESSARY. IF WE ARE EVER GOING TO GET A HANDLE ON INFLATION THE FEDERAL GOVERNMENT MUST ALSO FACE UP TO THESE TOUGH DECISIONS. WASTEFUL AND DEFICIT SPENDING, DUPLICATION OF SERVICES, DECREASED PRODUCTIVITY, FEDERALLY MANDATED PROGRAMS, BUREAUCRATIC RED TAPE AND PAPERWORK REQUIREMENTS ON BUSINESS AND LOCAL GOVERNMENTS ARE AT THE ROOT OF THE PROBLEM. PUTTING A CEILING ON FEDERAL SPENDING AND BALANCING YOUR BUDGET ARE ESSENTIAL ELEMENTS IN CONTROLLING INFLATION. To ACHIEVE THE GOAL OF A BALANCED BUDGET YOU WILL HAVE TO CONSIDER ECONOMIES SIMILAR TO THOSE THAT LOCAL GOVERNMENTS HAVE ADOPTED) REDUCTION IN THE WORK FORCE BY ATTRITION AND RETIREMENTS, STREAMLINING DEPARTMENTS TO INCREASE PRODUCTIVITY AND ELIMINATE DUPLICATION, REDUCING THE MANDATED PROGRAMS IMPOSED ON STATE AND LOCAL GOVERNMENTS, AND REDUCING THE PAPERWORK REQUIREMENTS PLACED ON SMALL BUSINESSES. I HOPE THAT YOU WILL GIVE THESE SUGGESTIONS CAREFUL CONSIDERA- TION. I BELIEVE THAT THESE STEPS MUST BE TAKEN IF WE ARE EVER GOING TO CONTROL INFLATION. WE HAVE DONE EVERYTHING WE CAN TO CONTROL INFLATION, BUT WE ARE STILL AT ITS MERCY. IF THE FEDERAL GOVERNMENT WILL DO ITS PART, IT WILL MAKE IT EASIER FOR LOCAL GOVERNMENTS, BUSINESS, AND LABOR TO DO THEIRS. THANK YOU FOR THE OPPORTUNITY TO PRESENT THIS TESTIMONY TO YOUR SUBCOMMITTEE. PAGENO="0265" 257 Mr. ROSENTHAL. Our next witness is Fred Evicci, who is head of "Senior Citizens Weekly." Mr. Evicci, do you have any of your associates that want to sit with you? STATEMENT OF FRED EVICCI, EDITOR, SENIOR CITIZENS WEEKLY Mr. Evicci. Yes; I would like to introduce them. Mr. ROSENTHAL. Well, bring them up, feel right at home. Mr. Evicci. All right, thank you. Before I do that, I wonder if I might make a suggestion? My paper compared to the big dailies is small. We have about 20,000 circulation. But we gave these hearings quite a bit of publicity because we think that it's a nice thing for people to be able to get out and express their opinion. But there's been very little else in the media and I would suggest that with your coming, with your other hearings around the country, that you put a little more emphasis in advance and see if you can't get more people out to take part in something like this? Mr. ROSENTHAL. Do you hear that? [Laughter.] Mr. Evicci. Maybe I'm out of place in making that suggestion but I've done it and that's it. [Applause.] I want to thank you for inviting me to come here. Mr. ROSENTHAL. Is this your paper? Mr. Evicci. Yes; it is. Mr. ROSENTHAL. Let me tell you something. It's a first-rate paper. Mr. Evicci. Thank you very much. [Applause.] Mr. ROSENTHAL. It is really excellent. It is the best paper of this type I have ever seen anywhere. Mr. Eviccr. Oh, thank you very much. We appreciate that. [Applause.] In editing such a paper, we're touching on many, many things. But I make no claims to being an expert in any of them. So I took the liberty, as I told your young lady here this morning, I took the liberty of calling some other people who are involved with the senior citizens in specific areas and I asked them if they would come in and tell about those specific areas. Louise Moon is a part-time employee of ours and Louise has been very, very active in trying to get lower cost transportation for seniors in this area. And so she is one of the people I've invited. Homer Fahner's the head of Senior Gleaners, statewide, and they do a marvelous job of gathering food and redisbursing it to individuals, to seniors mostly. And to other charities around, food that's going to waste in the fields here. So I feel that he's a good expert along that line. Nancy Lee is not a senior citizen, as you'll see when she shows her- self here, but Nancy has been working with senior citizens, to my knowledge, for the last 5 years, in the area of nutrition programs and housing. And so I put her on my list. Lucille Fay is one of our very active seniors and has been very active in employment. And the fifth one is Marie Norbeck. PAGENO="0266" 258 So I'd just like to introduce them and thank you for letting me come and I think they can do much better than I can. Thank you. Mr. ROSENTHAL. Are you going to introduce these people now? Mr. MATSrn. You can have them all sit around here, Fred. Mr. Evicci. All right. Mr. MATSUI. Then they can all testify and then we can ask them all joint questions. Mr. Evicci. OK. Would my five people like to come up to the table? Mr. ROSENTHAL. Why not? Mr. Evicci. I hope my method of doing this isn't upsetting your usual procedure. Mr. MATSUI. This is fine. I think this is an appropriate way. Mr. ROSENTHAL. Well, we're delighted to have you all here and you can begin in any order you want. Mr. Evicci. Why don't we start with Homer Fahrner? You were speaking to someone else when I was talking about him. Mr. ROSENTHAL. Is this Homer? Mr. Evic,ci. Yes. Mr. ROSENTHAL. You've got to get him to move around to those microphones, though. That's the problem. Mr. Evicci. Right. Mr. MATSUI. Maybe he could sit where you're sitting Fred and then you could move. Mr. Evicci. Yes; why don `t you just move over here and I'll move up. STATEMENT OP HOMER PAHRNER Mr. FAHRNER. We can give you some relief. Mr. ROSENTHAL. That's terrific. Mr. FAHRNER. We're a group of seniors, retired seniors. We've cut the cost of living for ourselves. We go out and salvage food. We go out and pick the strawberries, pick the carrots, pick the peaches. We get enough to cut our cost down to about 5 cents a pound for fruit and vegetables, whereas in the store it's anywhere from, you know, 5 to 10, 20 times that much. If we had a little more help, as we believe charity begins at home and not overseas and we're trying to keep our cost of living down. We have to. There is only one thing to do and that is to go out and get this food. The amount of food that goes to waste is just unbelievable. I used to think, before we started this organization, I'd see a cherry tree `here or a grapefruit tree there, it used to come that way. Then it started coming by tons. Our first challenge was 3½ tons of bread that was going to go to waste if we hadn't salvaged it. They tried to give that bread away in Bakersfield, Fresno, Modesto, and Sacramento. And finally somebody said, "Have you tried the Gleaners?" Well, "Who are they?" Wel], "Just try them." And they said, "Do you want some bread?" We had all the bread we could handle here in Sacramento and Yolo Counties. And half of it we took down to Santa Cruz County. And since then it's been coming in ton lots. PAGENO="0267" 259 We're just now finishing a harvest of carrots. We got in about 5 tons of carrots, fresh carrots, carrots that are better than you can get in the store. Our people are eating better, many of them will testify they are eating better now than they ever have in their lives. And what's more important, many of them have said for the first time in their lives they've had food on the shelves, food ahead. Whereas before, they were eating from hand to mouth. Now we're a small organization. We started here in Sacramento 4 years ago-excuse me, we're in our fourth year-just a little over 3 years ago. We now have chapters in Sacramento County, in Yolo County, in Nevada County, in El Dorado County, and in Solano County. We have inquiries from Contra Costa County, from Stanislaus County, from Fresno County, and from several other counties that would like to organize there. However, we just don't have the funds. Although this food is given to us free, it costs money to find it, and it costs money to bring it home. There is very little surplus food grown in Sacramento County. We go clear to San Francisco, on the one hand, and we go to Fresno on the other hand. And we have, on occasion, been down as far as the Imperial Valley to pick oranges. So we're doing fine, but with a little help, a few more trucks, a little gasoline money, we could spread this thing clear across the coun- try. We have enough people, the retired people who have time on their hands. And instead of sitting in the rocking chair and becoming senile, they now go to work, they get the fresh air, they get the sun- shine, they eat better, and they have something to live for. [Applause.] Mr. ROSENTHAL. What happens in a place like New York City where the farms are not as accessible as they are here? Mr. FAHRNER. Would you believe that we get more food out of San Francisco than we do out of Sacramento County? They don't grow anything in San Francisco. But this farmer sends in a truckload of corn, the next fellow sends in a load of corn. Now, the brokers know how much corn the people are going to eat. And they have an excess of corn, they give it to us and we get truckloads, we got three truckloads of food out of San Francisco this week. And we had to send three trucks because we didn't have one big one. Now, if we can just get some help on gasoline and get a bigger truck or trucks, we can do well here. If we had $100,000, we'd become self-supporting because our people can contribute 5 cents a pound where they can't pay 25, 40, 50 cents a pound in the stores. We become self-sufficient here. If we had a little more money, we'd spread this thing all over California. Actually, we've had inquiries, just 2 weeks ago, we had inquiries from four out of State. We had in- quiries from Oregon, we had inquiries from Indiana, we had inquiries from Michigan, and I've forgotten the other one. As a matter of fact, we have been on the air clear across Canada. Almost any week we get inquiries from Canada. We have had them from as far away as France and Australia. But as I say, charity begins at home, and we would like to expand right here. PAGENO="0268" 260 Mr. MATSUI. Homer, are you saying that one of the problems is the fact that the fuel cost has increased and your overhead costs have in- creased now so it makes it very difficult for you to be able to provide these services, and it is very difficult for you to be able to get those additional funds; is that right? Mr. FAHRNER. That is true. Our cost has gone up and, yet, to date, we've averaged about 5 cents a pound on our produce. Mr. MATStTI. So for the return per dollar to you, it is just much mOre tremendous in terms of what you can provide to the seniors? Mr. FAHRNER. Yes; we'd like to have a contract. We would deliver $3 worth of food for every dollar we get in. We'd like to have that kmd of a contract. Mr. ROSENTHAL. Well, that's very impressive, very fine. Does somebody else want to say anything? [Applause.] Mr. ROSENTHAL. Do you want to tell your name for the record, so we know who you are? STATEMENT OP LOUISE MOON Ms. MooN. Yes; my name is Louise Moon and I'm with the Senior Citizen Weekly. One of the things I would like to point out is the area of transportation. Our local Area IV Agency on Aging, which does the planning for the eight northern counties by mandate from the State of California, in their master plan, has designated the No. 1 priority for senior citi- zens is transportation in eight counties in northern California. The No. 1 problem, as designated by the Area IV Agency on Aging, after a great many efforts, we secured what is known as discount taxi service for seniors right here in Sacramento. It's very limited, it's underfunded, and, as far `as I'm concerned, does not in any way meet the need. But it's, what we say, better than nothing, you know, in the area of that. Now we have regional transit buses here that many seniors depend on and those buses are on strike `at this time/so that there are many seniors that are now totally stranded for serving their personal needs, getting to the grocery store, the bank, what-have-you. Mr. MATSUI. How are they getting around right now? Ms. MOON. Pardon? Mr. MATSUI. How are they getting around right now? Ms. MooN. They are not Now the paratransit services that are available in the community are strained to bursting from the excessive demand as a result of this bus strike. And there is no way, then, they can possibly meet the need that was being provided by Regional Transit. Meanwhile, Regional Transit, itself, is not the be all and end all for the needs of the senior citizens, themselves, even when they are run- ning because I consider the three steps up into the bus the most danger- ous steps I know. And it breaks my heart when I see seniors carrying their bundles, their groceries and heavy packages and trying to nego- tiate those three steps. And I will say that the drivers are quite courte- PAGENO="0269" 261 ous and kind in, you know, not throwing the seniors in the aisles and things when they make a sudden start. They wait until the senior is on the bus and seated before they start out again. So I'll say that for the drivers. We get better drivers in the Regional Transit. They seem to improve all the time. But I'm saying that a lot of seniors right now are stranded, totally stranded, as a result of a bus strike. That the transportation needs of the seniors are not being met, as far as I am concerned, in any way, shape or form, in any viable degree. It's just band-aid stuff. You know, band-aid solutions and, yet this is the No. 1 priority as designated in the Area IV Agency, the planning agency designated by the State to plan for the senior citizen needs in eight northern California counties, they designated transportation as the No. 1 priority. And yet, virtually nothing is done about it. Mr. ROSENTHAL. Does somebody else want to say something? STATEMENT OP LUCILLE PAY Ms. FAr. Yes, I would like to mention-can I trade places? Ms. MooN. Yes, sure. Mr. ROSENTHAL. Tell us who you are. Ms. FAr. I am Lucille Fay and what I would like to say in addition to what Louise Moon was telling you is that about 4 years ago in our complex, which is run by., it's an apartment complex run by the Hous- ing and Redevelopment of Sacramento, we started the shopper's bus and I had met Dave Martinez, who is now gone. Butanyhow, I talked to him about the shopping needs of the senior citizens, many of them who do not drive cars or have cars to drive. So we started the shopper's bus and when it was first started, we had a bus every Thursday of each week, which would go to a different shopping mall and people could do their buying of groceries or of any- thing else that they needed. Well, then we had the energy crisis so we had to cut that down. Re- gional Transit cut it down from once every week so that now it's once c!r twice a month, the first and the third Thursdays of the month. Of course, with the strike, it didn't come this week. But eventually it will go back into service so we do have it. It hits four or five differ- ent senior citizen housing complexes and picks up the people there. They: do their shopping and then they come back. We leave at 9:30, they come back at 1. So that it has worked Pout very well for us. That's one thing I would like to mention. Another thing I would like to mention is the senior community em- ployment service; which is federally funded, and they have furnished part-time jobs for people over 50 all over Sacramento and various places in the county. And they have done a marvelous job. They are on just part-time, which is what most of them are able to do. And they are paid the mini- mum wage, which is $2.90 an hour, but they are very good at it and they have done very well and they hope to keep that going. Then another thing I would like to mention, this was when Mr. Allenby was speaking. In addition he stated, to 20~000 layoffs and no followup on what happened to them, jobwise. we have the Legislature PAGENO="0270" 262 of California vote themselves pay raises of 5 percent this year, 5 per- cent next year, when everyone else either is laid off, loses their job or can't even find one. In addition, they also have, they receive $46 per day reimbursement. Another thing that I don't like, which is affectii~tg, I have heard many, many comments and discussions on this, is our defense expenses. Why do we cut the defense budgets? Russia is far ahead of us as far as nuclear weapons are concerned. And who can `believe them? How much do you believe of what they say. And that's all I have to say but those are some of the things that senior citizens are very concerned with. Mr. ROSENTHAL. Thank you very, very much. Have we concluded this panel? Mr. Eviccr. We have just the other young lady here who has worked with the housing and with the federally funded nutrition programs here. Mr. ROSENTHAL. Why don't you tell us what your name is? STATEMENT OP NANCY LEE Ms. LEE. OK, my name is Nancy Lee and I've worked in com- munity services with seniors for the last 6 years and in the last year, I've worked with the private sector in a community service program. So I can say, for a lot of the people that got cut with proposition 13, have gone to the private sector, which one positive note to that is I think the private sector is picking up a lot in their concern and their obligation to community programs. So I will say that. I will also say that I knew Louise and Homer about 6 years ago and they were doing a little bit of good in one nutrition site. And I will say that I think that they are a growing and a good example of people, that we're recognizing that senior citizens don't have to be a victim of the communities, that they are an untapped community resource and I think that they are a good example showing that point. That they are, and every senior, can be a community resource, that nobody has to be a liability of the community. But my subject is housing and services and when I was working for Sacramento Housing and Redevelopment Agency, I was working with people on an everyday basis, those that were in housing and those that were trying to get in housing. And at that time and still at this time, the average waiting period is 1 to 3 years to get into section 8 Government-subsidized housing, where the Government pay approximately, or the tenant pays ap- proximately a quarter of their income for rent and the Government picks up the remaining portion of that. People, while they are waiting 1 to 3 years, are oftentimes living in substandard housing and run down hotels, living on a day-to-day basis of $15 a day or $5 a day and I know that there's been a lot of material in the newspaper lately of the condition of the substandard housing, which is the hotels on Capitol Mall. And that a lot of the people, every year we have a growing propor- tion of seniors who are being cut back from their regular salaries to PAGENO="0271" 263 their social security payment and a lot of people can't afford to con- tinue living in their houses so their next step is looking for suitable living arrangements and I'm sure you're aware that apartments have gone up to an average of $200 a month for an apartment. And now the next step is that apartments are turning over into con- dominiums and there was just an article again in the paper and so those that are finally able to find arrangements are being pushed out of their only arrangement and are looking for alternatives. The Government has provided some section 8 housing, which pro- vides our elderly with an apartment but, like I said before, the Gov- ernment Housing Redevelopment Agencies are filled and they have 1- to 3-year waiting periods. This brings `a point that a lot of our private sector is now interested in section 8 housing for senior citizens and we have a lot of churches and nonprofit organizations providing section 8 housing. And Ray Stone, Inc., is one of the ones that is not religious or non- profit and they are starting a trend which I hope other private sector companies will pick up. But one of the things, even when someone does qualify for section 8 housing and they do pay approximately a quarter of their income. Let's say the average social security check is $300 a month, they pay $5 for rent and then a lot of the housing provides a meal, like 7 days a week, for $100. That's $175 a month for their living arrangement. They still have to provide themselves with two meals, their medical needs, their transportation, which cuts out any hope of any kind of recreation or socialization. So I think, although proposition 13 has cut out a lot of the fat with the employees, I agree with that, that it has cut out a lot of the programs that were helpingseniors to not be an isolated part of the community but come out and socialize and do things that were keeping them active and positive. So I think we now have more seniors that are depressed and isolated. So I think that's needed. Mr. MATSUI. Thank you. Fred, did you have another lady? Mr. Evicor. Marie arrived here, just came up, Marie Norbeck. STATEMENT OF MARIE NORBECK Ms. NORBECK. My one question is why, since Mr. Rosenthal was ex- tentuating the fact of compliance of the State of California with certain regulations, particularly in the pharmaceutical area. There are a great many older people who are on drugs, different drugs Mid all of the rest of it and, you know, the prices are going sky high. This isthe only reason that I'm interested in talking to you. Mr. MATSUI. I think your concerns are well taken. Right now there are a number of different bills and proposals in Congress and at the State legislature for some kind of possible cost containment of medical costs. Ms. NORBECK. I have a very big gripe with that particular factor. And every time that you go to the grocery store, who is getting the ~money that we're paying, this additional money that we're `paying for groceries, boxed articles, crackers? Mr. MATSUI. Are you on social security now, is that right? PAGENO="0272" 264 Ms. NORBECK. Yes. Mr. MATSUL And it's very difficult for you, I would imagine, right now in terms of the increasing costs of products and what not. Ms. NORBEOK. Oh, yes it is; of course, it is. I'm just trying to get from Mr. Isenberg what is the basic income which is considered pov- erty. He wasn't able to give it to me. I think it's for a family of four between $5,000 and $6,000 a year. But where does it come in for an individual? Mr. MAT5UI. For a family of four, the medium standard right now is $17,000 a year, and that- Ms. NORBECK. And that would be about $500 and $600 a month? Mr. MATSUI. Right; and Mr. Hausey had testimony here today in which he indicated that the basic minimum level of sustenance for an individual is $291 per month and that is a very basic minimum level. Ms. NORBEOK. That wouldn't give you sustenance. Mr. MAPStJI. No; I understand that. That's just the figures that they arrived at and that's even low. Ms. NORBEOK. You couldn't even buy ground beef for that kind of money. Mr. MATSUT. Right; you're right. Ms. NORBEOK. It's ridiculous, it really is. If he's going to concentrate on compliance of States with certain formulas which have been out- lined, he should investigate some of these people that are supplying basic needs to people in the United States. Mr. MATSUL Well, I think your statements are well taken, and we want to thank all five of you and Fred for appearing here. Your testi- mony will be going into the record, and we'll be having that printed up as part of the congressional record of these hearings. Thank you very much. Ms. NORBEOK. You're welcome. [Applause.] Mr. MATSUI. I'd like to call Fred Starkey, please. STATEMENT OF FRED STARKEY Mr. STARKEY. Did he leave? Mr. MATSUI. He will be back. He had to make a call right now to his Washington office. Mr. STARKEY. OK, fine; my name is Fred Starkey. Mr. MATSUI. But the matter will be printed in the record, and he will be reading it and reviewing it when it's printed up. I can assure you of that. Yes, Mr. Starkey. Mr. STARKEY. Sometimes I think the times are too much with us. I've heard testimony today about the problems of inflation but I haven't heard one person tell me what causes inflation. What causes inflation is an increase in the amount of money and credit in the economy. The credit is, money is created by the Federal Reserve and it's created out of nothing. I have a testimony from the Monetary Policy Subcommittee, Wright Patman, who has talked to the Chairman of the Federal Reserve and it is created out of nothing; This is a wonderful thiiij. We go to work every day and we receive something of value. I have for what I work for every day. I work PAGENO="0273" 265 about 60 hours a week and I am in business for myself. Here's some- thing of value. It is called money. And I work hard in exchange for this money. Now, the Federal Reserve creates money out of nothing. They don't produëe any value behind it and they issue it for free. Now, when money is issued into the Government, it has to come into an equal, it can't come in to an equal way. In other words, not everybody gets the same amount of money. Somebody has to get the money first. And the people who usually get the money first are the people who have the most money because they are going to borrow it from the Government. Now, when money filters down through the economy, it doesn't filter down evenly. There are many oddball adjustments that take place. I want you to remember something. Somebody gets the money first. Now, prices don't go up at first. And so those people who have the money first, they are in the advantage because they are able to buy more goods at a Tower price. Now, as the money moves down and the prices even up, these people at the bottom here that you see are still at the bottom. Their incomes haven't gone up but the prices have come up. So these people have been hurt only at the expense of the other people who have the money. Their savings are taken away from them. Their social security, everything that he's worked for and put away for, is being taken away from him through Government inflation. Now, I don't know if you know it, but banks also create money be- cause when the banks get the money, they are allowed what you'd call fractional reserve banking where they can lend the money out six to seven times. As a matter of fact of 1978, I think the banks are over 70 percent and there is a very financial crisis here. In the last recession, the banks almost were at 70 percent. Bank of American went bankrupt; was bailed out by the Federal Government. We're in a worse condition now. Now, I have a couple of charts here I want to show you because this is from the Federal Reserve. This is a copy of a report of the GNP and Mr. Rosenthal had a question on the GNP. All the GNP is, is a bunch of monitored statis- tics by the Government who, with exchange ratios, add up the num- ber of dollars and figure that's what our GNP is. Mr. MATS1JT. Mr. Rosenthal's question was a State GNP, which is not one officially that we have in Washington and that's what he was asking about. Mr. STARKEY. OK; it's figured out the same way. Mr. MATS1JT[. Yes. Mr. STARKEY. OK, it's just monitored. GNP doesn't really mean any- thing because it really doesn't tell you the value of goods and services. We can't measure. value by money. We all think money measures value because if we had more money, we'd have more things. But that isn't true. What value is measured in is more goods and services. We kind of jump to the siren of this money idea, if we had more money we'd have more wealth. This is what the Government does. 52_21L~ 0 - 79 - 18 PAGENO="0274" 266 Now I want to show you this. I have a chart here. I'm going to show you the first chart. Now this is from the Federal Reserve. I also have another book here. It's called "The Federal Reserve System," it's published by the Board of Governors of the Federal Reserve System and I want io show you something on that. You know, figures don't lie, but liars sometimes figure and I'm going to prove to you that they lie. [Applause.] Mr. MATStTI. Perhaps we can just get somebody to hold that for you, right behind you, if we may. Could we.get a gentleman to hold that for Mr. Starkey here? Mr. STARKEY. OK, now this chart is put out by the Federal Reserve. All this is a magnification of this chart right here. OX, and I did the best job I could to make it as accurate as possible. Now, if you'll notice, this says "Gross National Product," usually a reflection of money supply, also. Here is another similar chart, put out by the Federal Reserve, out of the book, that shows money supply, it shows gross national product. Now when I made a chart when I was in grade school, I always had arithmetic value on the bottom and I had one going up. Now if you'll notice the same distances between 1960 and 1965 and 19~l5 and 1970, as close as I could get it. It wasn't perfect. Now let's take a measurement here. We look from here to here and that's 400. Do you see how much that represents? About that much [indicating]. Now we look from here to here and it represents, it's the same amount of distance, but here. to here [indicating] it goes to 1,200 and what are we talking about? An additional 400. The distance is shorter, Aiid here we're talking about 800 `and the distance isn't even as much as 400. So what we have is a distortion. If you don't believe that one, here's another one right out of the book that they publish. From zero to five represents two-sixteenth's of an inch. And up at the top of the scale, from 500 to 1,000, is represented by three-sixteenths of an inch, so what we're, saying here is two- sixteenths is going to represent 5 units. Now we have another 500 units. That's 500 times two-sixteenths. Or that's 1,000 sixteenths and what they've represented it with here is three-sixteenths so the chart- Mr. ROSENTHAL. Mr. Starkey, I'm not sure that I follow, which is probably my fault. What is the point you're trying to make? Mr. STARKEY. The point I'm trying to make is that the money supply is what causes inflation and I'm going to prove it to you. Mr. ROSENTHAL. And you think that inflation should be dealt with by restricting the money supply? Mr. STARKEY. That's the only way to deal with it. Mr. ROSENTHAL. Well, that is one acknowledged way. Would that cause a recession? Mr. STARKEY. You bet it would. Mr. MATSUT. Why don't you eo into that aspect, Mr. `Starkey? We're aware, at least I'm aware and I know Mr. Rosenthal certainly is aware of some of the concepts that you're presenting, but could yo go into some of the theories and your rationale behind it? PAGENO="0275" 267 Mr. STARKEY. Well, let me mention a point that in 1940, money, on a 100 index, 1940's worth of dollar, last year was valued at 18 cents. Now I don't figure another couple of years, it ought to be worth anything. This isn't theory. This is fact. Now here's what the chart really looks like. You see how they've distorted it so the line doesn't look too big, OK? That would look tolerable, it looks manageable. Doesn't it? It looks like things aren't too bad. We can get a control on it. We can stop this inflation. That's what you were talking about, wage and price controls. Which isn't going to do a doggone thing. Mr. MATSUI. Well, why don't we get into what your solutions are because I'd like to hear those. Mr. STARKEY. I'll get to the end of the solutions, OK, but first I've got to put some. data down. I haven't got all the data down yet. Here's what the chart really looks like. I don't know if everybody can see this. I want everybody to see this growth of money supply in the country. OK? You look at that. Now this isn't just a little esoteric facts or some little oddball infor- mation I picked up. This is basic firsthand knowledge as published in The Wall Street Journal. There is a published report by the Federal Reserve all the time. Now I put this chart up to right here because this is the latest infor- mation I have. This one isn't as current. This one is more current and so I took this one and redid it. But these figures are right from this book. I'm not changing the figures and I'll prove it to you in just a second. Now you see this curve keeps going up, up, up. This is what hap- pens in inflation. Inflation is not a policy you can continue. You can't continue it. It's going to kill itself and I'm going to prove it to you. Now you take the Wall Street Journal. I went back last night and picked one up. You don't think this chart isn't right? You thTnk you can stop that curve going up without having a recession? You're crazy. I'll tell you that right now. It's going to go right out the roof. `Where's my journal, Wall Street Journal? I've got it in here on page 29. I got the wrong one. That's all right, I looked it up last night. Mr. MATSUI. Can I make a suggestion? Mr. STARKEY. Yes. Mr. MATSUI. Why don't we get into some of the substantive aspects of this. Mr. Rosenthal and I are certainly aware of some of the factual information you're giving us and what we would like to know is some solutions that you might have to offer. Mr. STARKEY. I'll give you the solution. Mr. MATSUI. I think that would really be most helpful because that's what we're really looking for here. Mr. STARKEY. OK, I'll give you the solution. I have a solution. It's all down and everything. First, I've got to prove this chart. Mr. MATSUI. Well, we'll assume your chart is correct. Mr. STARKEY. Well, let's assume one more thing because I want to make sure this is true. OK, from them two, this is "Wall Street Journal" last night, M-2 supply, 1 week ended April 25, M-2, 892.4 billion, April 891.0. Here we go, M-2-NSA, I don't know what that means; 896 and 902. OK; PAGENO="0276" 268 896, let's just say 900. It was 896-902, OK; 900, 1979, it's right there. I'll make a new line on the chart to prove to you that you can't stop it. Now that's what our money supply is. It's into infinity, almost. Now all the things, the national debt, the interest on the national debt, the gross national product, what else do we have here? Con- sumer Price Index, all of these form a parabolic curve reaching into infinity. They are all going out of sight, every one. In fact the interest on the national debt is going faster than the national debt. That's the third largest item on the budget. We're paying somebody, a privately owned bank, the Govermnent doesn't even own the Federal Reserve and that's a fact and you can read that in the policy committee. Wright Patman did the testimony. The banks don't have any stock in it. It's privately owned. You talk about balancing the budget. That's nonsense. So we balance the budget. Who says we can't create more money? The Federal Reserve can create more money and they don't need any approval from Congress. Mr. ROSENTHAL. Tell me, we do have to move along. Mr. STARKEY. I'm not done. Mr.. ROSENTHAL. No, no, no, just tell me the point you're trying to make. Mr. STARKEY. I'm trying to tell you that money supply, here you people talk about having wage and price controls. That's crazy. The only way to stop inflation is to stop the increase of money. Mr. MATSUI. Let's ask this question, then. Let's assume that Mr. Mil- ler does tighten up the money supply by increasing the discount rate. Mr. STARKEY. That isn't going to tighten it up. Mr. MATsUI. Well, let's assume he does that and that does tighten up the money supply. Now what happens? We may have a mild recession or severe recession. Now what suggestions do you have in terms of that? Now one theory is that unemployment is going to occur. That people will be laid off of jobs because that will obviously slow down growth. What is your comment on that? Mr. STARKEY. There is only one solution and I testify to you, if you're ever studied history and all the inflations that have embarked on inflationary policy have gone bankrupt. Now the longer you let this thing continue- Mr. MATSUI. Well, we're trying to solve that problem. Mr. STARKEY. Very simple. You have to go on the gold standard be- cause there is no other stable `currency. Gold is value, period. The United States is officially bankrupt. There is no other answer. Because when I get a dollar, I can take down something and get value for it. Dollar represents value. You're telling me that you can create value out of nothing and yet I work for' value. You're stealing from me every day. You talk about this guy keeping the prices down, about controlling the company. Do you think `a company is going to keep producing if they can't get a certain price to stay in~ business? They are going to shut down. That's what happened the last time. It's crazy. It makes PAGENO="0277" 269 no sense at all. It's the most ridiculous thing I ever heard of in my life. I'm not knocking your committee. You're sincere men. But it isn't g&ng to do a bit of good. It didn't do any good last time. You said the interest rate slowed it down. It looked like it slowed it down any? Didn't slow it down at all. Mr. ROSENTHAL. Tell me, we do have to move along, one, two, three, what are your recommendations? Mr. STARKEY. My recommendations are: No. 1, the only answer, No. 1, is to have a complete, total, thorough exhausti~e investigation of the Federal Reserve. Mr. ROSENTHAL. That's one. What's two? Mr. STARKEY. OK, I'm going to back it up. Mr. ROSENTHAL. No, you've got to be very specific because we have a record to make. No. 2, what's No. 2? Mr. STARKEY. No. 2, OK, you have to eliminate the Federal Reserve because we can't trust politicians in Washington not to spend money to buy votes. And so we're going to take that power away from them. Mr. ROSENTHAL. That's No. 2. Mr. STARKEY. That's No 2. [Applause.] Mr. ROSENTHAL. No.3. Mr. STARKEY. And I'll tell you something, the Federal Reserve in the history of its inception has never been audited. The CIA, the FBI, the military, they've all been audited. But the Federal Reserve, who controls the money and credit in this Nation, has never been audited. Mr. ROSENTHAL. That is not exactly true because our committee passed out a bill which I introduced last year to have the General Ac- counting Office, for the first time in history, audit the Federal Reserve Board. Mr. STARKEY. Let me see, they've audited the Federal Reserve? Mr. ROSENTHAL. They are in the process of being audited. Mr. STARKEY. OK, who owns it? Mr. ROSENTHAL. WhO owns what? Mr. STARKEY. The Federal Reserve. Mr. ROSENTHAL. They haven't finished the audit. Mr. STARKEY. OK, you give me a report. I want it. Mr. ROSENTHAL. I'll give it to you. Mr. STARKEY. You bet, and I want it. And then I want it published. Mr. ROSENTHAL. It will be made public. Is there anything else you want to tell us, because we want to hear from some other folks? Mr. STARKEY. No; this is the only other solution there is. There is no solution and I'll guarantee. I'll stand here and mark my word. I've made predictions for 5 years. Mr. ROSENTHAL. OK, yes, sir. Did you want to say something? LADY IN AUDIENCE. Your prediction for the next 5 years, when is it going to happen when you say infinity? Mr. STARKEY. What's going to happen? This year, I guarantee you, and I haven't been wrong in 5 years, you re going to have runaway inflation, you've going to have the Gov- PAGENO="0278" 270 ernment enact wage and price controls, you're going to have shortages on small commodities. You want to make money on your money? Buy commodities because they are going to go out of sight. That's the other thing. And No. 2, the Government is going to go bankrupt and it will be totally repudiated, the dollar, or we will be in a war. Those are the only things that can happen. History proves nothing otherwise. I know no way to judge the future but by the past. There is not a nation that has ever survived this. Unless you get off this and come back to the gold standard, we're going to be wiped out. You talk about savings now, the longer you wait, the worse it's going to be. You talk about these people not having any food, people aren't going to have any food anywhere. People will only trade when they have something of value to exchange for and they have confidence in the dollar, but it's down to 18 cents. When it gets down to nothing, people aren't going to do anything. Mr. ROSENTHAL. OK, thank you. [Applause.] Yes, sir. Sit down and relax. STATEMENT OP BENFAMIN HEIGHT Mr. HEIGHT. OK, sit down and relax; OK. My name is Benjamin Height and I'm on the bottom of the rung, recipient of the social security. I'm 71 years old. I'll be 72 September 4. And I've went through a lot in my lifetime, worked 50 years of my lifetime hard and the pension today is inadequate for the senior citizens for the simple reason that during the last year we had a moratorium in the State of California on the cost-of-living raise for seniors or for all the recipients of public, the victims of the economy, and it just doesn't measure out. The landlord raises the rent and takes two-thirds of the income for rent in the majority of cases and most of them are renters. And this doesn't measure out. And unless it is prorated or indexed according to the cost-of-living each year, there's going to be a lot of hardships and there are hardships right now in this area. And I would like to suggest, now, you're seeking solutions. You're seeking solutions to your dilemma, cost-of-living dilemma. Mr. ROSENTHAL. We're also trying to find out what's happening. Mr. HEIGHT. What's happening? Mr. ROSENTHAL. What's happening to you and other people like you. Mr. HEIGHT. Well, what's happening to me, the so-called secure old- age pension doesn't measure out to a decent standard of living or even a subsistence. That's what happened to me in particular. [Applause.] And that's the thing I'm protesting here today. I'm not very proficient on these microphones or anything like that. Mr. ROSENTHAL. You're terrific. Mr. HEIGHT. In fact, I've very seldom spoke on one of them. Once or twice at Mr. Brady's meeting here, Seniors Union for Social Justice and the Congress of Senior Citizens and the California Legislative Council of Older Americans, once or twice I went to their meetings because I'm interested in solving my problem. And I'd like t.o see these organizations built up so they fight back. PAGENO="0279" 271 The people don't have the transportation. Even today there isn't a bus in Sacramento running. That's why, this hail would be full if you had bus service. A lot of people would be here. And the same way for other places. [Applause.] And while we're on transportation, the way you solve transportation with an inadequate energy supply is by having smaller vehicles travel- ing at lesser speeds, like motor scooters, two-seated small 2l/2-horse- power vehicles and slow the thing down. The people can start to work 45 minutes earlier and solve their problem. It seems like they are not approaching the solution of the energy problem in an adequate, practical, and permanent manner. That goes for all the other government functions. I don't think they really care about saving fuel or being a self-sufficient nation. I think they are dragging their feet. I think it's a humbug the way they pussy- foot around on all this solution of problems. During World War II, I worked at Boeing Aircraft. I worked on the test flight apron and we received a low wage, and that low wage measured out to our housing and we could save some because they had wage and price control. The only adequate solution-now, wait a minute. They don't have to go all the way. They can solve this by degrees, but no businessman is going to give you a reduction in the price of his product unless there is some rule governing him to do so where the motive of profit is involved. If I had a business, I'm going to take everybody for all it's worth if I was running a business. That's the free enterprise ethic and we have to face the fact, we have to face the situation squarely and realize where we are and we have to be a little humble about it. We just can't be arrogant and say, "Well, because the price of living went up, Pm in the bureaucracy. I get a $10,000 raise every year." They've got to look at their own situation. I'm living on $300 a month and I'm very frugal in my expenditures and I make every trip to the store count. I have an old clunker. I itemize my trip, itinerary for the day, and I can get by on like 5 gallons of gas a month. Now people go to the store for a loaf of bread with their car, 2-ton monstrosity, 2 tons of iron. They warm it up, they go to the store for a loaf of bread or bottle of milk for the baby, or something, and they will go 4 or 5 miles to the shopping center up in the north area. There is one of your problems in America. You have to solve the problem of energy, save energy, and the only way you save energy is by rationing, and you're not going to solve it by raising the prices and fooling the people with this shortage scare. I don't believe there's a shortage scare. It's only to get it in the mood to pay for gas, to get gas at any price as long as they can get gas for their urgent trips that have to go to work and so forth is why they are raising the prices. They are taking advantage of the public. They are hoodwinking the public. The people are being fooled by the biased news media, by the, oh, all the distortion in the different areas, the circumvention of explanations for certain things happening. They are pussyfooting, they are dragging their feet. They are not solving the problem. Going back to World War II, I just want a few more minutes, I just want a couple more minutes. PAGENO="0280" 272 Mr. ROSENTHAL. This is the longest you ever had, isn't it? Mr. HEIGHT. What? Mr. ROSENTHAL. This is the longest? Mr. HEIGHT. No; I spoke before the Department of Aging for 45 minutes one time in Stockton explaining some of this. Mr. ROSENTHAL. Where were they from, the people who heard you that day? Mr. HEIGHT. It's the California Department of Aging. Mr. ROSENTHAL. In California, but I came from New York to hear you. Mr. HEIGHT. What? Mr. ROSENTHAL. I came 3,000 miles to hear you. Mr. HEIGHT. You should. have listened to tha.t tape that day I ex- plained all this stuff about the conditions in our country. Mr. ROSENTHAL. Mr. Matsui has to fly back and forth this weekend just to listen to you. Mr. HEIGHT. Well, I'm flattered by that, Mr. Rosenthal. Mr. ROSENTHAL. That's our job. [Applause.] Mr. HEmHT. And I'm appreciative of yours and Mr. Matsui's efforts to initiate this thing, and I'm going to try to help in any way I can. I feel that both of you gentlemen are very sincere in your effort and I think you're on the right track in asking these questions and trying to evaluate what people think and what their problems are, which a lot of government officials, once they get that job and get elected, they seem "the voter be damned." They are really, they don't make an effort to solve the problems of the people in the dire need. And on your housing, you can't get housing here. All these public housing that they're appropriated all this money for, on my income I'm ineligible. That's a basic subsistence income in this State, the maximum basic subsistence, social security and SSI, which is my total and only income, and this is what I live on. But I live very frugally, extra frugally. I have to watch every penny, and for a person who worked all his life, to live like that, you can't go on a trip to Reno or anything like that, or you can't go on a vacation, no allowance for people's little extracurricular things, the old elders. Mr. ROSENTHAL. Let me just ask one question. Mr. HEIGHT. Yes, sir. Mr. ROSENTHAL. Last night, President Carter came into San Fran- cisco for another event. If you had a chance to tell him. what you thought should be done. about inflation and living conditions and society, if you had about a minute to do it in, what would you say, what would you tell him he should do? Mr. HEIGHT. Well, I'm not that adept at public speaking. I'd have Mr. ROSENTHAL. I think you're terrific. [Applause.] Mr. HEIGHT. Well, maybe I missed the boat all my life. Maybe I should have got into this when I was a young man. I'm 71 years old now. Mr. ROSENTHAL. What would you tell the President? Mr. HEIGHT. I would tell him the same thing Kennedy told him. That he was referring to something else instead of baloney. HE was talking about food or he was talking about some other item. I didn't quite grasp it. PAGENO="0281" 273 Well, I would ask the President to be more considerate of the lower income people which I doubt whether he's aware of the problems of the lower echelons of our society. I don't think he is. In fact, I don't think the majority of the people in Washington, D.C., are fully aware of the problems or oo all out to solve them problems. To make this a congenial society, w~rthy of the free enterprise system to live under. I would like to see those gentlemen come to my home and evaluate what I live on in specific detailed budget things. Or go in, on this hous- ing thing, they should have, public housing without any strings at- tached, without any corporation financing. These corporations running these housing projects, contractors, the rents are so exorbitant that the people in. need that they were intended for in the first place never get the help. And I speak for myself. [Applause.] You have to do like they did in World War II. They built housing projects for the workers at Boeing Aircraft. You could rent an apart- ment with your wife. I got married, met my wife there at that time and got married. I was allotted en apartment at $44 a month. We both worked at Boeing Aircraft and it measured out tO a decent living. And they didn't have inflation because they had price and wage control. And if that's communism, one guy says, "That's communism." Well, I don't know what communism is. I never studied it. Mr. ROSENTHAL. Mr. Height, your minute is up. Mr. HEIGHT. My minute is up; oh, I'm sorry. Mr. ROSENTHAL. Let me just say this. I really am very, very grateful for you and thank you very much. The things you said are extraordi- narily important, and you are a classic example of the kind of debt that we owe to our senior citizens. [Applause.] Our next witness is Sheri Harris. Ms. Harris, is Ms. Harris here? You want to bring your little girl up because she is going to dis- appear again. She wants to sit up here? Ms. HARRIS. I think I can probably do better if she sits here. Mr. ROSENTHAL. Why don't you sit down and tell us your name and what your assignment is. STATEMENT OF SHERI HARRIS, VICE PRESIDENT, CONSUMER AFFAIRS AND RESEARCH, NORTHERN CALIFORNIA GROCERS ASSOCIATION Ms. HARRIS. I'm Sheri Harris, vice president of consumer affairs for Northern California Grocers Association. And I have to tell you for a minute something about Northern Cali- fornia Grocers Association. It's a trade organization that has, as its members, independent grocers from Bakersfield to the Oregon border. That takes in 49 counties in California. We have approximately 1,200 grocer members, all of whom are in- dependents approximately 90 percent of them represent one-store operations. The other 10 percent go anywhere from 2-store opera- tions to 50-store operations. PAGENO="0282" 274 I joined the Northern California Grocers Association in 1976, to develop a consumer affairs division, which is still the only one in the country in State or local trade associations. To give you a little more background on where I'm coming from on this particular statement today, you'll notice that my comments are extremely consumer-oriented. I also have spent a lifetime trying to find out why grocers make the decisions they do and how they operate their stores, so as a resource person, I'd be happy to answer those kinds of questions for you. The division that we developed, I felt very strongly that consumer input and consumer problems can be addressed by the business com- inunity without dangering profits and sending people out of business. I felt that grocers needed help in having someone help them define or redefine their roles as a buying agent for consumers. And so we developed a number of approaches to try to get the widest possible range of consumer input into the policies of independent grocers in northern California. Some of those include consumer complaint handling systems. I also developed a weekly newspaper column and I'm happy to have the people here from "The Senior Citizens Weekly." My column is one of the things that is in their paper regularly and we get lots of letters in from consumers on their problems. But to sidestep some of the things we've done in the past and talk about specifically the projects and things that we've worked on this year to address the problem of inflation, which I think are somewhat evenhistorical in the approach that we've been taking. I will proceed from the least controversial to the most.. Probably the least controversial are the things we have done this year to develop a nutrition program, putting nutrition signs in stores, urging custom- ers to consider the fact of nutrition before they make their purchases. That has been widely received and is going on. In fact, our own program is being field tested in other States throughout the United States. The second area I got extremely concerned about was the area of senior citizens and the problems of senior citizens. Not only the senior citizens .1 have heard from professionally, but from my grandmother, who has to go and take her purse and count out her money in front of the people who see if she still qualifies for certain benefits as a senior citizen on social security. I find that, in my own opinion, understanding prices and problems of consumers, it's no minor miracle that anyone is surviving at $SO0 a month these days. So in addition to that, I began to hear from grocers this year that they didn't know what to do about the problem of shoplifting going up like 100 to 200 percent among 70- and 80-year-olds. The grocers not wanting to prosecute 70- and 80-year-old people, realizing people simply can't afford food, came to me and said, "Why aren't these peo- ple getting enough money for food?" So I held a meeting with some people from the Department of Health in the State of California to find out why senior citizens weren't getting enough and what we could do. At that point in time, I had grocers ready to open outreach food stamp centers in their own stores to say to senior citizens, "If you PAGENO="0283" 275 don't have all these benefits that are available for you, let us help you get them." Well, that was probably one of the most depressing meetings I've had, finding out that there really aren't any benefits available for senior citizens. Even their food stamps at this time being cut out and given a $10-a-month allowance for food. So we couldn't proceed far with that. We have, in the last few weeks, tried to work with a local organiza- tion in Sacramento-SAEOC-who is developing a food bank pro- gram for delivery of emergency food baskets and that type of thing to see if we can get the support of grocers and manufacturers to supply foods to those types of programs. Now I will proceed to probably what has been the most controversial, I would have to say, of those grocers who have gotten involved in the program I'm going to tell you about now. I have never seen stronger, more dedicated support from grocers. I have also never seen a larger split among some of the grocers and their opinions as to what we should be doing. But I work closely with consumer activist groups and with the is- sues that they are dealing with. About 2 months ago, Linda Akulian, who is with the California food policy project, and I began to ar- range a series of meetings between consumer activists and grocers to sit down and discuss the problems of rising food prices and what could be done about it. As we got the grocers into these meetings, we began discussing the President's wage-price guidelines and we were discussing the resolu- tions from Consumer Federation of America and COIN to monitor prices in stores and what our most effective approaches would be. We have since held more of these meetings with consumer activists and we have also involved a food wholesaler and a manufacturer in the process. And I think the best way for me to let you know what the status of the project that I'm talking about is right now is to read to you a portion of the draft which this committee-we have since formed this committee into a formal ad hoc committee on the problem of food price inflation, made up of consumer activists, grocers, who1~- salers, and one manufacturer. That committee has, this week, approved a draft to be sent to manu- facturers which will be in the mail on Monday, informing them of the program that we've developed. Let me read to you a portion of that which will tell you where we are: The committee is eager to find the most effective positive solutions toward a cooperative approach to stabilizing food prices. Presently the plan of action includes the following: To work with State Department of Consumer Affairs and State Department of Food and Agriculture to organize public hearings to explore in depth the causes of food price inflation. To date, those types of hearings and organized efforts, we have not seen coming from State agencies. Second, is to make wholesale price information available to consumer activists, an attempt to give them more indepth view of rising food prices, which is not ordinarily available. I will go back to that point when I finish. The third is "to develop a stop-inflation logo and a motto which will be available for the use of any grocer who would like to be identified with this committee." PAGENO="0284" 276 I brought with me today the new logo, which this particular com- mittee will be making available. The one I have here is artwork which can go in the form of a store banner that says, "We're in the fight to stop inflation. How about you?" The second one is camera-ready artwork to print up bag stuffers that will talk to the customers about this approach and the third are shelf signs, and I'll get into these in just a minute. To continue with the letter, the fourth point that we had to make is that: Individual grocers will utilize the committee's logo within the store on win- dows, as shelf stockers, in ad pages or bulletin boards, to begin urging their customers to join them in a stop-inflation campaign. No. 5, and I'm sure you may have questions on this and I'd be happy to fill you in on how we came to this conclusion: There will be no attempt by the committee to determine the manner in which individual grocers develop the format for his or her approach to a stop-inflation campaign. No.6: Grocers who wish to follow the model set by a number of eastern supermarkets will begin to flag items on the shelf for which they feel they have received inflationary wholesale price increases. This is what this particular shelf talker is here. It says, "In our opinion, the price the manufacturer has charged us for this item is inflationary." Mr. ROSENTHAL. Why don't they not buy that item, reject it? Ms. HARRIS. Because they have customers still asking for it. Mr. ROSENTHAL. But don't you see, nobody puts any pressure. Ms. HARRIS. Well, we're hoping to. If I can continue, I think you'll see there is some pressure in this program. If grocers can slow down, through their cooperation, the purchasingof products. We're talking not about Safeway, Lucky, Aibertson's, big stores, we're talking about little stores. Mr. ROSENTHAL. I understand. Ms. HARRIS. Whose customers will go to other stores for variety if they don't see it there. If the little stores can take the initiative to say to their customers, "We back you if you decide not to buy this item." Another reason they don't buy it, and I'd like to bring this out loud and clear, antitrust laws. The laws that we deal with in this country are a barrier to the kinds of things we are asking some small busi- nesses to do. If a large corporation wanted to say, "We won't buy these items," that's perfectly legal. If Northern California Grocers Association members say, you know, "We won't buy these items," that is illegal. Mr. ROSENTHAL. If they say it individually, there is nothing wrong with it. Ms. HARRIS. If they say it individually, and frankly, that is hap- pening. A number of members of this committee in the last few weeks and months have done that. But I am sure you understand as well as I do, individual action is not as powerful as mass action. And we have been told at the trade association, on the one hand, for quite some time, you know, don't allow your members to involve PAGENO="0285" 277 in price fixing. And now an organization called KELPS has done the same thing, "Get your members to lower their prices." And there is still collusion, price fixing connotations to that type of activity. Let me read to you the bag stuffers that some grocers will be handing out. And I have to tell you all grocers in our association are not behind this approach and will not be doing it. I'm amazed at the number who are. My own opinion is that any simple solution to the problem of infla- tion indicates to me that people really don't know what the problems are and I think that everybody has a responsibility to it and I'm hoping to urge the grocers to at least stand up and take a bit of the responsibility on their own, which hasn't been taken in the past. And consumers, as well. The consumer activists meeting with us feel the same way about urging consumers to take a strong stand against inflation and not buy everything that is available. This particular bag stuffer says: Dear Customer, help us stop inflation. We will alert you to shelf items for which we believe the manufacturer has charged us inflationary prices. Look for signs like this one below on the shelves and then think carefully before you purchase items in question. Let's work togther to put the brakes on inflation. Mr. ROSENTHAL. We have to move along. Are there any other points that you wanted to make? I think you and your group are doing some very fine work. Ms. HARRIS. Well, yes, the strongest point that I wanted to make, I guess, is that it is extremely difficult for small businesses to Orga- nize the fight against inflation. Mr. ROSENTHAL. At least they are trying. Ms. HARRIS. I think it is exciting that they are trying. My own opinion is that there are a lot of things people can do when they begin to work together. I'm proud to be here today, frankly, as an ex-consumer activist and a coordinator of antipoverty programs. I'm proud to be here and say today I am representing the private segment who, from my point of view, is doing more presently in California than anyone else. Mr. MATStTI. The private sector, you were contacted by the Northern California Grocers Association to actually set up this program, apparently. Ms. HARRIS. Yes; I was. I was working, getting my students in- volved, teaching people how to save money in grocery stores and pre- sented a proposal to Northern California Grocers Association. Mr. MATSUI. That's really commendable for the association. Ms. HARRIS. Thank you. Mr. ROSENTHAL. Well, thank you very much. We're very grateful. [Applause.] We have one more person, Liz Cook. STATEMENT OP LIZ COOK Ms. CooK. Hello, there, my name is Liz Cook. Mr. MATSUr. May I interrupt for a minute? Ms. CooK. Yes; go ahead. PAGENO="0286" 278 Mr. MATSUI. I want to apologize to Ms. Cook and, I guess, Mr. Brady back there, too. Tomorrow morning I have been asked to place a wreath on the tomb of the Unknown Soldier in Washington, D.C., and there is only one flight that I can catch from now until tomorrow morning and that is the Los Angeles flight. And that leaves at 1 o'clock from PSA Memorial Airport today and so I will have to leave at this time in order to make sure I get there. It's been set up that I am to do this tomorrow and I want to apologize to all of you. We were hoping the hearing would not last beyond 12 o'clock but there are still other people to testify. I assure you that I will review the testimony, once it is transcribed, and contact you who testify after me, should any other questions come up. And I thank Mr. Rosenthal and his committee staff who are actually staying here and completing the hearing and for the fact that they have attended all the way from New York and Washington, D.C. And, of course, I thank all of you for taking part in this program today. So, thank you, Mr. Chairman, I appreciate the opportunity. [Applause.] Mr. ROSENTHAL. See you Monday. Mr. MATSUI. OK. Mr. ROSENTHAL. You may continue. Ms. CooK. As one New Yorker to another, I would like to say, hello, Mr. Rosenthal. Mr. ROSENTHAL. Hello. Ms. CooK. I'm involved in private education and I'm just wondering why it is that we evaluate everything in the cultural sphere as well as the sphere of civil rights economically. Is the human being a commodity in the law of supply and demand or does he have civil liberties? Does he have cultural rights? And if he does, is not the economic sphere subject to these things? Or is the eco- nomic sphere subject alone to profit? Is there no criteria for standard of human life? And if there is not, can we not have a threefold sphere, a cultural sphere, a human rights sphere, and an economic sphere, which work interdependently with one another? I mean my feeling is that the economic sphere has definitely over- stepped its bounds. The quality of our lives is ridiculous. Mr. ROSENTHAL. Why don't you be more specific what you mean? Ms. CooK. More specific? Mr. ROSENTHAL. Yes. *Ms. COOK. All right, the Committee of Human Rights is set up; all right. And that according to the criteria set up with human life and the cultural assets, that the economic people, then, abide by those rules, not just price and wage control. But it's the quality of our lives, our education, our food, our housing, all these things. I mean, obviously, we are depraved, culturally. We are depraved physiologically. We are depraved in many different areas and these issues are not being addressed. The value of the gold standard again, OK, so there has to be value determined of the price of goods and services, ridiculous. I mean, I'm keeping a home with three children in a house that costs $42,000 which PAGENO="0287" 279 is constructed very poorly, is now up to $92,000 but it's ridiculous. I wouldn't pay $10,000 for it to begin with. So where. do we end up or is it just looking at how do we solve the budget? But how are the issues determined in solving the budget? Mr: ROSENTHAL. Those are very, very good questions, very good questions. I don't know the answers but they are very good questions. Ms. COOK. I have a little folder that you might look at. Mr. ROSENTHAL. I'll be happy to read it. Thank you very, very much. Did you want to testify, sir? The gentleman from San Francisco? Mr. BRADY. Yes; yes sir, please. Mr. ROSENTHAL. Please proceed. STATEMENT OF BERNARD BRADY, SENIORS UNION FOR SOCIAL JUSTICE; ACCOMPANIED BY HELEN MOORE AND RUBY WILL Mr. BRADY. I'd like to get a couple of ladies up here with me, Helen Moore and Ruby Will. Mr. Chairman, I am the chairman, Brady, B-r-a-d-y, first name, Bernard, B-e-r-n-a-r-d, also called Ben. But leave it at Bernard. And this is Ms. Ruby Will and I'll describe her role in a half minute. Mr. Chairman, I am the director of an organization that's statewide. Pardon me, this is Ms. Helen Moore. Ms. MOORE. How do you do. Mr. BRADY. M-o-o-n-E. Mr. ROSENTHAL. We've met before, Ms. Moore and I have. Ms. Moom~. Yes. Mr. BRADY. I'm the director of a statewide organization and we have a meeting every day in the year except Sundays and Christmas. Our meeting now is taking place and will continue until about 3 or 4 o'clock this afternoon. It's composed of aged, disabled, and blind and deprived people. I've been engaged with senior citizens' activities since I was first elected to the legislature about 35 years ago. When I started, the income allowed a senior citizen was $30 a month and it took me 5 years before I was able to get that income increased to $60 a month. It was my bill that did it. And I have been either the author or the coauthor or the one who put together every one of the statutes that has given us additional money from these 35 or 36 years. I mention it only, Mr. Chairman, because oftentimes, not you because of your seniority, but so many of the men in the legislative bodies tamper, as if they were operating in a vacuum, with the laws that it has taken us so many years to put together. And specifically, and this was alluded to by Mr. Height a few minutes ago, is the legislation which was deferred or which was al- lowed to not operate last year when the cost of living was denied us. The excuses are not important, whether proposition 13 or anything else. The excuses are not important to the people that don't have the money to eat on or they don't have the money for their housing. And in your role as the majority leader or whatever, we'll say your great seniority in the Congress, if you could urge . on the younger fellows or the newer men to please like specifically this year. Un- PAGENO="0288" 280 doubtedly there will be a proposal by Mr. Carter's, one of his minions, asking that again the cost of living be postponed. Well, it took us from 1945 to 1962 in California to provide a cost- of-living statute, and it took all of those years and all of the work of our statewide organization to get that cost-of-living statute on the books in 1962, and then the Congress patterned the Federal cost-of- living statute in 1974 after what we proved would work in California. So I just say please, to encourage the men in the Congress not to make the positive move, which it would have to be, to delay or to defer or to withdraw the cost-of-living statute. We're going to try to do that in California to try to save California from doing the same thing this year that was accomplished, unfortunately, last autumn when the cost of living was denied us. Another terrible situation, and the time is so late, I don't want to talk overlong, but another terrible situation, Mr. Chairman, that Government operations, and Congressman John Moss used to help us a great deal in his oversight subcommittee. Another great thing that the Congress can do is try to figure some way to monitor the perform- ance of those offices of Social Security and other parts of the Govern- ment that are supposed to serve us. And I'm speaking now of the elderly, the disabled, the blind, and the deprived. An example, a clerk in a Social Security office, for example, in Nevada City, way up in the mountains here, arbitrarily decided that one of our members should not have her food stamps. And we have moved heaven and Earth in about, over a period of, I'd say, 8 or 9 months, and we cannot get that office of food stamps to sit on that particular clerk or to do anything to mandate or force that clerk to obey the law that you made. The same thing maintains with regard to the SSI gold checks. All of a sudden, a check will stop. This happened to one of our members of the Stockton Club. This lady was getting an SSI gold check be- cause she is totally disabled. She was receiving a check ever since she was, well, let's say, 12 or 14 years. All of a sudden, a couple or 3 years ago, the. checks stopped. And it took us 6 or 7 months to get the checks started again. And of course she had a retroactive check for about $1,800, but nevertheless the terrible fright of this disabled lady and a little bit unstrung men- tally as well, this terrible fright, and the terrible frustration, and the awful situation she found herself in for that period of time. Then, what happens? Mr. ROSENTHAL. Mr. Brady, we have to conclude by 12:30. I won- dered if either of these ladies wanted to say something. Mr. BRADY. Yes, as soon as I say just one more thing, if I may, because I want the point to be made so clearly. Mr. ROSENTHAL. Well, you're doing very well. Mr. BRADY. Thank you very much, you're extraordinarily nice. I told you you had a good sense of humor, thank you. Mr. ROSENTHAL. I do in English. Mr. BRADY. Speaking of that particular lady, after she received her check all right for 3 or 4 months, then all of a sudden it had stopped again. Now the Government owes her about $2,500 that she hasn't been able to collect. PAGENO="0289" 281 Now what I'm saying, then, is, Mr. Chairman, specifically, do not allow the cost of living statutes that you have made in Washington be abrogated this year. We are watching it out here and we're sup- porting you. And we can do many things to help or to furnish infor- mation to you. Don't let the men in Washington, who are not of your persuasion or they don't think as kindly toward the older as you do, don't let them disabuse others and stop that cost of living raise from operating. And, second, the other thing is, please, try to figure some way to monitor the operation of the laws that you make specifically. Now, Ms. Helen Moore is the chairman, if I may for half a minute, Helen Moore is the chairman of our annual convention, which will be October and the organizer the coordinator of the Sacramento Club of our Seniors Union for Social Justice. So, Helen will say a word. Ms. MOORE. What I would like to say is I serve on the welfare advis- ory council board member as a voluntary member. I'm on the commu- nity block-grant board as a voluntary member. I also served on the health council board. I'm on every mailing list there is here in Sacramento. I follow transportation, I follow these peoples' lives everyday. I also write articles in the Senior Citizens Weekly that you have in your hand. One of the articles in there is mine. I keep abreast with everything that is going on that touches the human lives. I spoke at the college to students-33 students of a class on human development_-and I was received very warmly. Those students are very interested in the welfare of the seniors. Now I want to point out here one little thing. How things in the news articles can get so misled. This says "Team Finds Less Hunger in U.S. Then 10 Years Ago." Well, recently there was an inflation bite where you go into the gro- cery store, $10 worth of groceries that you used to buy in 1967, today you're paying $20.40. Now these people are getting their cost-of-living raise. There is an- other article. They are giving them a 7 percent cost-of-living raise. Now that's already eaten up. By the time they get it, it is gone. Everybody has their fist out. I have people, elderly people, call me up and say, "Helen, how can I pay my utility bills? If I pay them, I can't eat." You know, that's sad to think that these people have to live like this. Then, there's another article, "Minimum To Live." They give you $109.90, 80 cents, to live on general assistance. And you know what I was told by a director and I'm not going to repeat who he was, but I was told, "They could go elsewhere to find help." Where else can they go? These people are being told they can move out of their apartments where they are. paying $125 a month rent and find other means to live by. You can't live any place like that cheaper. That's all I have to add. Mr. ROSENTHAL. Thank you, Helen. Mr. BRADY. Ms. Ruby Will, Mr. Chairman, drives 1,000 miles a week. Mr. ROSENTHAL. I don't believe it. Mr. BRADY. Yes; 1,000 miles a week up and down the State of California. 52_21L~ 0 - 79 - :19 PAGENO="0290" 282 Ms. WILl4. The car I'm driving now I bought the last part of Octo- ber. and it has 24,000 miles since I bought it, 24,000 since the last part of October. Mr. BRADY. Every day, as I mentioned, Mr. Chairman, there is a meeting some place in the State and about 15 or 20 of them, Ms. Will drives to. Ms. WILL. I am listed totally disabled. I drew a disabled pension before I was 65. And my back is, well, a chiropractor is supposed to be looking for bad backs to work on and he said he was thankful he didn't find many as bad as mine to work on. And so I'm working for the senior citizens to try to help them to get better wages, better income, and when they cut me down $14 in September of last year and then handed me back $10 of it in food stamps, and then I didn't get all of that. And I had taxes to pay on my home, I had utilities to pay. How can you do it? Could you do it on $300 a month? Mr. ROSENTHAL. No. Ms. Wn~. Could you live on it personally? I don't mean family. Personally, could you do it? Mr. ROSENTHAL. No. Ms. WIlL We have to and in other States it's worse. Ms. Mooiu~. Can I add one more thing? Mr. ROSENTHAL. We have to conclude, we're running late. *Anyone else who is in the audience who wanted to testify will have to put it in the record. Mr. Brady, thank you very much. How did you get here from San Francisco? Ms. WILL. He drove his car to Vallejo and I drove. I live in Napa. Mr. ROSENTHAL. Well, I'm glad he was able to get connected with you this morning so he could get here. Mr. BRADY. Most of these are our members, Mr. Chairman and I just want to introduce them as members of our Seniors Union. Mr. ROSENTHAL. You want me to miss my plane? Mr. Bit&ry. Oh, no, sir; then you'd be mad and probably pass bad legislature. Mr. ROSENTHAL. No; I won't get mad but I don't want to miss the plane. Thank you all very much. The subcommittee stands adjourned. [Whereupon, at 12 :30 p.m., the subcommittee adjourned, to recon- vene subject to the call of the Chair.] PAGENO="0291" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) MONDAY, MAY 7, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, ~m MONETARY AFFAIRS SUBCOMMITTEE OP THE COMMITTEE ON GOVERNMENT OPERATIONS, Detroit, Micit. The subcommittee met, pursuant to notice, at 9:30 a.m., in room 716, Federal Building, Detroit, Mich., Hon. Benjamin S. Rosenthal (chair- man of the subcommittee) presiding. Present: Representatives Benjamin S. Rosenthal and John Con- yers, Jr. Also present: Peter S. Barash, staff director; Stephen B. McSpad- den, counsel; and Jack 0. Shaw, minority professional staff, Commit- tee on Government Operations. Mr. ROSENTHAL The subcommittee will be in order. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight metropolitan communities this month to learn about the impact of inflation on the day-to-day lives of Amer- icans, and the performance of regional Federal agencies and State and local officials in the fight against inflation. tinder the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of Federal agencies charged with combating inflation, namely, the President's Council on Wage and Price Stability and the Council of Economic Advisers. Earlier this year, the subcommittee held several days of hearings in Washington, examining the adequacy of the Federal effort. Those hearings raised questions as to the ability of the Council on Wage and Price Stability to effectively monitor price and profit margin increases in the economy. This morning's newspaper indicated that the general public has now reached the conclusion that the guidelines are in fact a failure. One of the problems is that the current wage/price, guidelines ignore the most inflationary sectors of our economy-energy, food, interest rates, and health care costs. These regional hearings are being held because we believe it is vital that the Congress of the United States and other decisionmakers in Washington have available to them a firsthand record of the effects (283) PAGENO="0292" 284 of inflation on the lives of our citizens. We will report these hearings and a record of the hearings will be furnished both to the Congress and to the President. We are particularly pleased to be in Detroit. This is the fourth community we have visited in the last 5 days, having begun last Thursday in Dallas, Friday in San Francisco, Saturday in Sacra- mento, Calif., today in Detroit, and this coming Friday in Chicago. Our first witness is Mr. Robert Klein, Office of Revenue and Tax Analysis, Department of Management and Budget, State of Michigan. Mr. Klein, sit right there. We are going to do this in as informal a fashion as we can. We hope we won't be bothered by extraneous noise. We hope to conclude these hearings by 12 noon or 1 p.m., so we would ask the witnesses to be precise and get to the thrust of their testimony as expeditiously as possible. We hope that everyone will have an opportunity to testify, who chooses to exercise that option. STATEMENT OP ROBERT KLEIN, OFFICE OP REVENUE AND TAX ANALYSIS, DEPARTMENT OP MANAGEMENT AND BUDGET, STATE OP MICHIGAN Mr. KLEIN. Thank you, Mr. Chairman. It's a pleasure to be here today to provide our thoughts on the Fed- eral Government's anti-inflation efforts and to review the action Michi- gan has taken to combat inflation. First of all, I will also indicate that I am testifying on behalf of Governor Milliken and Dr. Gerald Miller, who is the State budget director. I am going to try and summarize my testimony as best I can. Mr. ROSENTHAL. Without objection, your entire testimony shall be included in the record. Mr. Ku~IN. Thank you. To begin, I would like to indicate the great concern we have in Michigan, as every State does, about inflation and our support for the administration's anti-inflation program. I think a State can really do little to control inflation, but there are actions we can take to reduce the impact on our consumers and busi- nesses, and set an example for others. We are willing to do our part, but we also believe the Federal Government has the major responsi- bility for bringing inflation under control. `Unfortunately, Federal action all to often works in the opposite direction. Examples include the large increase in social security taxes, the increase in the minimum wage, increased regulatory requirements, such as in the auto industry, deregulation of all prices, and the large Federal deficit. I know there are many competing goals, and I am not necessarily opposed to these actions on an individual basis. But 1 believe a stronger commitment to reducing inflation must be made if we are to make any progress. It does little good to increase social security benefits and the mini- mum wage if the increases are immediately eroded by inflation. I would like to comment briefly on the Federal deficit. Although I believe it is inappropriate fiscal policy to run a large Federal deficit when the economy is strong and inflation is high, I do not believe that the deficit is a significant contributing factor to the current level of PAGENO="0293" 285 inflation. I would also like to indicate my strong opposition of a con- stitutional requirement for a balanced budget. Mr. ROSENTHAL. Do you speak on behalf of the Government? Mr. Ki~IN. Yes. I do. I believe such a requirement would be unworkable and would re- duce the ability of our fiscal policy to respond quickly to economic downturns. I think this is a matter best left to the President and the Congress, and I am pleased to see that the Congress is moving to balance the budget by fiscal year 1981. So I would just like to indicate that I don't think you are going to see a resolution-I'm fairly certain you won't see a resolution coming out of Michigan calling for a constitutional amendment requiring a balanced budget. Mr. ROSENTHAL. Why don't you get to the question of wage/price guidelines-what you have done, whether your State is participating in the intergovernmental partnership, how are you doing it, and what's happening? Mr. KLEIN. I was trying to respond `by covering the five areas that were in the booklet called Intergovernmental Partnership, issued by the White House, asking the States to do. certain things in the anti- inflation fight. First, compliance with the voluntary wage/price standards. We are making every effort in Michigan to comply with these standards. I think one ~area that is: quite interesting is that the Governor pro- posed to the Michigan Legislature that the 7-percent pay raise for State employees recommended by the Civil Service Commission be re- duced to 5 percent because, when you took the step increases into ac- count, it violated the 7-percent standard. At least that was our feeling. The Legislature failed to take action on this~ proposal, and the 7- percent pay raise did go into effect. We called on the Council on Wage and Price Stability for assist- ance in this effort to support our case here, but they really were un- willing to become involved. I attached tomy testimony a copy of a letter Dr. Miller received in response to our question as to whether the 7-percent pay raise was in violation of the ~standard. It's kind of a confusing letter because the second paragraph appears. to say that~ we do have a case and that the pay raise is in violation of the standard, but `then the rest of the let- ter appears to say we don't have a case. Mr. ROSENTHAL. What are you doing about the contracts, State con- tracts, and purchases? Mr.~Kr~IN. I don't know that we are doing anything directly, but -:we~have, for the last couple of years, been `taking efforts to control inflation by working very diligently to control the cost of commodities and services for which the State is responsible, and that includes contracts. Mr. ROSENTHAL. Do you purchase only from companies that are in compliance with the wage/price standards? Mr. KLEIN. No; we don't. Mr. ROSENTHAL. Then you, yourself, are not in compliance with the President's guidelines? PAGENO="0294" 286 Mr. KLEIN. Well, we are not in compliance with every part of the guidelines, but we are doing everything we can to reduce the cost of State goods and to reduce the effect of inflation. Mr. ROSENTHAL. But I read from this pamphlet called An Inter- governmental Partnership-Adoption of Anti-Inflation Procurement Policies, and they say as follows: Goods and services above a threshold dollar amount should be purchased only from comp~anies in compliance with wage/price standards. You don't do that? Mr. KLEIN. No; we don't. But I would say that that )ust became available to us in the last month or so. In fact, I don't think our Pur- chasing Department has ever seen those requirements. Mr. ROSENTHAL. This has been out for 6 months. Mr. KLEIN. It may have been out 6 months, but it wasn't brought to our attention until the last month or so. I don't think we have had a chance to respond. Mr. ROSENTHAL. Don't you get your `mail? Mr. KLEIN. If it's sent to us, we do, yes. I would also say that, we don't feel we are required to comply with everything in that booklet. Those are suggestions. Mr. ROSENTHAL. Have you formed anti-inflation councils as they have recommended? Mr. KLEIN. First of all, I was going to comment on that, but I would like to say that we are considering that approach, but we are not sure that would be a very productive effort. Mr. ROSENTHAL. In other words, you haven't done it? Mr. KLEIN. No, we haven't done it yet. Mr. ROSENTHAL. Have you had any State and local conferences to organize anti-inflation councils? Mr. KLEIN. We haven't yet. We have one scheduled for June 19. We have been working with the Council on Wage/Price Guidelines to set up that conference. They have been cooperative in that effort. Alfred Kahn has indicated that he will probably be here to address the confer- ence, so we are doing that. Mr. ROSENTHAL. We had testimony in California that they charged $15 for admission to that conference. You are not going to do that, are you? Mr. KLEIN. The only think we are going to do is have something to cover the lunch. But that's all. We are not going. to charge otherwise. ~r. ROSENTHAL. Suppose the people don't want to have lunch, can they come in for nothing? Mr. KLEIN. Yes; they can. Mr. ROSENTHAL. Mr. Kahn issued a press release on April 12, that 48 States had pledged compliance with the anti-inflation program. Have you pledged compliance? Mr. KLEIN. Yes; we have. Mr. ROSENTHAL. But yet you've not done anything. Mr. KLEIN. Well, I won't say we have not done anything.. Some of the things we have done, of course, have not been in direct response to these requests, because we have been doing things for several years to slow down the rate of spending in Michigan, to control taxes. We've done a number of things. We are doing a complete review of all the PAGENO="0295" 287 regulatory requirements in Michigan, to determine if we can eliminate some of those requirements because, of course, those do add to inflation. Mr. ROSENTHAL. I'm not trying to be contentious. I know there is considerable goodwill, and I appreciate your being here today. The Federal Government considers it an important part of the Pres- dent's program, adoption of anti-inflation procurement policies, and in that area you've done nothing. Mr. KLEIN. That's true; other than what we think is appropriate to control our own cost. Mr. ROSENTHAL. I don't see how Kahn or you can say you are in compliance when in fact you are not in compliance. Mr. KLEIN. Well, they think we are in compliance. We think we are putting our best foot forward and making a strong effort. As I said before, we still feel that this is mainly a Federal Government respon- sibility and they should not try to push too much on the States. Mr. ROSENTHAL. I know that. The point is: In the two States we have been in so far and heard tes- timony from Governors' representatives, both States indicate that they don't intend to comply with purchasing from only those com- panies that are in compliance with wage/price standards. You don't intend to do that? Mr. KLEIN. Well, I don't know that a formal decision has been made on that. We have not at this point done it, let's; put it that way. I think it's somewhat difficult, for one, thing, we don't even know for sure who is in compliance. I ~assume we could find out from the Wage and Price Council. Mr. ROSENTHAL. -You can ask. Every company in the country over a certain amount, over;$5 million .has to certify that they are in compli- ance. You should ask them for a copy of the compliance form. Mr. KLEIN. It's difficult to say who is in compliance when the Coun- cil uses such-strange mathematics to say that certain contracts and cer- tain things are in compliance, so that makes it somewhat difficult. Mr. ROSDNTHAL.:Are these guidelines ambiguous? Do you find diffi- culty in dealing with them? Mr. KLEIN. I don't know-that we find-well,. I would say-they are a little bit ambiguous. I think the question is, how effective are these going to be? Mr. ROSENTHAL. How effective are they going to be? Mr. KLEIN. Not very effective, we don't think. Mr. ROSENTHAL. So you are in agreement with the public around the country that they are not effective? Mr. KLEIN.Yes, I guess we are in -agreementwith that. Again, as I say, -we a-re willing tocooperate to any extent we can. But there are certain things that we may think are not appropriate,-that we shouldn't do: possibly- theanti-inflation task force may be one. Mr.. ROSENTHAL. Have, you had satisfactory cooperation with the House people and the Council on Wage and Price Stability? Mr.. -KLEIN.~-Yes, we -have, other than this pay raise issue. We got conflicting advice and little support on that. Mr. ROSENTHAL.. The;-one thing you~are really doing is keeping a lid on salaries for State employees? Mr. KLEIN. That's tru~. We are trying to reduce the number of State employees in Michigan. As you know,' State employement has grown quite rapidly, and we have put some freeze on that. PAGENO="0296" 288 Mr. ROSENTHAL. In terms of the other side of the equation, the price side, what have you done ~ Mr. KLEIN. We are trying to comply on that side, too. The Gov- ernor proposed no taxes in this year's budget. There have been very few, if any, increases in fees for State services and so forth. And so we are trying to be in compliance. Mr. ROSENTHAL. In terms of your purchasing policies, you have not done anything in buying from companies that are either in or out of compliance? Mr. KLEIN. That is correct. Mr. ROSENTHAL. Thank you very much. [Mr Klein's prepared statement follows :J PAGENO="0297" PREPARED STATEMENT OF ROBERT KLEIN TESTIMONY ON STATE ANTI-INFLATION EFFORTS Commerce, Consumer and Monetary Affairs Subcommittee, U.S. House of Representatives Detroit, Michigan May7, 1979 Prepared by: DEPARTMENT OF MANAGEMENT AND BUDGET STATE OF MICHIGAN PAGENO="0298" 290 Testimony on State Anti-Inflation Efforts Commerce, Consumer and Monetary Affairs Subcommittee, U.S. House of Representatives Detroit, Michigan May7, 1979 - It is a pleasure to be here today to.provide our thoughts on the federal government's anti-inflation efforts and to reviewthe actions Michigan has taken to combat inflation. To begin I would like to indicate our great concern about inflation and our support for the administration's anti-inflation program. Without question one of the largest domestic problems facing Michigan and the nation is inflation. All our efforts to stimulate employment growth could be for naught if we fail to bring inflation under control. Inflation destabil- izes the economy, undermines consumer and investor confidence, erodes purchasing power, and can precipitate a recession. A state can do little to control infla- tion, but there are actions we can take to reduce the impact on our consumers and businesses and to set an example for others. We are willing to do our part, but the federal government has the major responsibility for bringing inflation under control. Unfortunately, federal actions all too often work in the opposite direction. Examples include the large increase in social security taxes, the increase in the minimum wage, increased regulatory requirements, such as in the auto industry, deregulation of oil prices, and the large federal deficit. I know there are many competing goals and I am not necessarily opposed t~o these actfons on an individual basis. But I believe a stror~ger commitment to reducing inflation must be made if we are to make any progress. It does little good to increase social secul-ity bene- fits and the minimum wage if the increases are immediately eroded by inflation. I would like to comment briefly on the federal deficit. Although I believe it is inappropriate fiscal policy to run a large federal deficit when the econ- omy is strong and inflation is high, I do not believe that the deficit is a significant contributing factor to the current level of inflation. I would also like to indicate my strong opposition to a constitutional requirement for a balanced budget. I believe such a requirement would be unworkable and PAGENO="0299" 291 would reduce the ability of fiscal policy to respond quickly to economic down- turns. This is a matter best left to the President and the Congress and I am pleased to see that the Congress is moving to balance the budget by fiscal year 1981. . We have had an unacceptably high level of inflation for more than a decade and success will not be achieved overnight. A successful effort against infla- tion will require sacrifices and patience by everyone -- government, labor, business, and every citizen. We are willing tódo our part but the federal government must set the example by 1) adopting appropriate monetaryand fiscal policies; 2) avoiding, where possible, the enactment of regulatory and other legislation that adds to inflation, and, eliminating unnecessary regulation already in place; 3) adopting policies to. encourage capital investment and increased productivity; and 4) winning the. cooperation of business and labor to restrain wage and price increases. At this point I would like to review Michigan's efforts to deal with in- flation. To do this I would like to focus on the recommendations to state and local governments contained in the booklet, "An Intergovernmental Partnership" issued by the White House. . 1. Compliance with the Voluntary Wage/Price Standards We are making every effort to comply with. these standards. I recently proposed to the Michigan Legislature that the ?even percent pay raise for state employees recommended by the Civil Service Commission be reduced to five percent, partly because the recommended increase would violate-the wage standard if step increases were taken into account (step increases add about two percent). Unfortunately, the Legislature failed to take action on this proposal. I should mention that we called on the Council on Wage and Price ~ Stability .1~or ~~,si~tance in this.effo~rt, but they were uiw~i1ling_to become ~ j.2.y.2jv~,~,.(Attached Is the somewhat confusing letter they sent us in response to our inquiry on this issue PAGENO="0300" 292 2. Adoption of Anti-Inflation Procurement Policies The State Purchasing Division has in the last year redoubled its efforts to control. tnflation by working diligently to keep the cost of the comodities and services for which it is responsible as low as p05- sible. The public purchasing posture of awarding to the low bidder meeting specifications naturally encourages vendors to bid their lowest price in order to obtain the state's business. In November of 1978 the Purchasing Division was directed to, in every case where it is economical, establish longer fixed price periods, to limit price increases and when a contractor asks for a price increase, our buyers must require TE~en ~ ~ ~-~---------- -=~` ~ an Energy Conservation Office within our Stan- dards and Specifications Section of the Purchasing Division and naturally * as we reduce energy consumption,, we are reducing costs. * Probably the most significant inflation fighting tool available to the State Purchasing Division is an automated system for which we presently have requested funds. This will increase the efficiency of our purchasing system and result in savings for the state. 3. Regulatory Reform Unnecessary regulation can contribute to higher costs and strangle private initiative. The Governor has, therefore, directed the Michigan *Department of Commerce to immediately undertake a ~tudy toidentify and eliminate costly, excessive, or duplicative regulation in that department. This study will include an assessment of regulatory costs, the justifica- tion for existing rules, a comparison with regulations in other states, and the examination of alternative means of regulation and the possible effects of relaxing specific regulations. - In addition, -the Department of Licensing and Regulation has been asked to review their operations PAGENO="0301" 293 and make recommendations for deregulation of occupations or elimination * of licensing boards. The Department of Labor has been directed to analyze the impact of MIOSHA on workers' compensation costs. 4. Productivity Improvement The Governor has been concerned about improving the delivery of gov- ernment services for several years. An example of this type of effort is the Michigan Efficiency Task Force. This effort involved agroup of rep- resentatives from business and labor who identified areas where the State of Michigan could operate more efficiently. The result has been a savings of more than $100 million to date, with proposals for millions of dollars more in savings being imp~emented. Another very important area of cost containment is in the welfare program.. Since 1974, welfare error rates have been reduced nearly 50 per- cent. The new "computer matching program' has alreac~y saved the taxpayers over $60 million in welfare costs. Michigan has also saved the taxpayers about $70 million a year by aggressively tracking down absent fathers who owe child support payments. The number of state employees has increased substantially in recent years. Because of this increase.and the.tight.budget we have instituted a requirement thattwo jobs become vacant befàre one can be filled. This is having.a significant dampening effect on state. employment growth and should result in increased productivity in state government, * Inaddition, Michigan adopted budget procedur~essever~l yearsftgo that encourage the careful evaluation of programs and the establishment of priorities. We arealso currently urging the Legislature to adopt sunset legislation to insure that all state programs are reviewed per- iodical ly. . . . PAGENO="0302" 294 5. State and Local Spending and Tax Policies One of this administration's major priorities has been to improve the efficiency of state government, slow down *the rate of spending, and avoid tax increases. We have made progress in this area in recent years. During the FY 1968-1973 period state General Fund expenditures increased at an annual average rate of .14.4 percent, or 7.2 percent in real terms. In the past five years, FY 1973-1978, spending increased at an annual average rate of 10.8 percent, only 2 percent in real terms. Michigan has also been successful in holding the line on general tax increases, although the failure of transportation taxes to keep pace with inflation has resulted in two transportation tax increases since 1972. State-local taxes as a percent of persona' income, however, are 0.8 per- cent lower than five years ago Michigan's success in weathering the worst-recession since the Great Depression without tax increases is further proof of our prudeit fiscal management. Although the economy has recovered strongly since 1975, we have not allowed state spending to rise to consume the tax revenues gen- .erated by increased prosperity; instead, we have maintained a strong - coniiiitment to prudent fiscal management with the creation of the Budget Stabilization Fundwhich will improve fiscal management and reduce the likelihood of future tax increases. By exercising the fiscal discipline to set money aside in good economic years, rather than spending every dollar available to fund new programs, Michigan has taken a giant stride toward breaking the "spend-tax cycle". (The fund currently contains $230 million.) . - We have also reduced the sting of inflation by providing tax relief to those most in need. Several years ago we adopted a major property tax relief program and last year we enacted a $38 million home heating assistance program which will be very helpful to senior citizens and low ~ . income persons faced with rapidly escalating utility bills. PAGENO="0303" 295 We in Michigan have recognized for several years that we are in an age of limits. The philosophy that government can solve all of societys problems by spending more money has been a contributing factor to the high rates of inflation of recent years. Such policies are bankrupt and we must now become more prudent managers, The citizens of Michigan have indicated that they want controls on taxation and spending by approving a tax limitation amendment. The failure of the more radical `California style" tax amendment is evidence that the people recognize that Michigan has an equitable tax structure and has maintained a moderate level of taxation and spending. I believe I have provided ample evidence that we are pursuing ap- propriate anti-inflationary fiscal policies in Michigan. The White House has also made two additional requests of the states. ~ anti- nflationc f-~ We have agreed and ~ Thc White House (Alfred Kahn's office) has been helpful in providing material and ideas relevant to the conference. They have also agreed to provide several speakers and Alfred Kahn has expressed a desire to address attendees at the `inti-inflation conference. The second request is that each state organize ~an anti-inflation task force ~or the purpose of identifying measures which could be employed to help curb in- .flation. We have s~g~guestions about establishing such a group and have not yet niade a decision on this reque~t- Two additional areas I would like to discuss are health care costs and consumer cooperatives. PAGENO="0304" 296 Health Care Costs Risinghealth care costs are a major problem in Michigan, as they are nationwide. We are taking several approaches to reducing these costs. 1) The public health code establishes a method to eliminate excess hospital beds. Implementation of this landmark legislation has begun, and the potential for reducing hospital costs while still assuring adequate access is great. 2) Another proven approach to alleviating the cost problem is to encourage Health Maintenance Organizations, Current legislation regulating HMOs includes provisions which impose unnecessary barriers to their growth. The Governor will, therefore, be recommending amendments to the HMO law to remove these barriers. 3) The proposed state healti care plan contains proposals to create a com- prehensive system of health education in schools, hospitals and communities. The proposals are based on the principle that a substantial investment now can result in great cost savings and improved health in the future. Consumer Cooperatives Late last year, Congress passed the National Cqnsumer Cooperati\~e Bank Act which offers possibilities for organizing consumer cooperatives. It has been difficult for consumer cooperatives to have access toinitial capital needed to finance ventures undertaken by a cooperative. The bank, when organized, could provide these funds. The Governor has directed the Department of Labor to work closely with state agencies and Michigan State University's Cooperative Extension Service to ensure maximum use of this bank. Cooperatives, particularly those dealing with food products, often offer consumers lower prices than traditional retail outlets. PAGENO="0305" 297 rATE OF MV~OIGAN WI AM 0 MIL.LIKLN, Governor DEPARTMENT OF MANAGEMENT AND BUDGET I H ANMNU MR11:GAN 45099 AID H MIt III. L'vector February 16, 1979 Mr. Barry Bosworth, Director Council on Wage and Price Stability 726 Jackson Place, NW. Washington, D. C. 20506 Dear Mr. Bosworth: This letter is written on behalf of Governor William 0. Milliken. We are seeking clarification of the Pay Standards applicable to the Executive Branch of the State of Michigan. The State of Michigan, as the employer of some 67,000 classified civil service employees is committed to the spirit and intent of thc President's Wage and Price Standards and will, in good faith, attempt to comply with Sec. 705B-L~ and the implementing Regulations promulgated by the Council on Wage and Price Stability on December 13, 1978. Under the provisions of the Michigan Constitutional Civil Service system, increases in rates of compensation for state classified employees are deterniined by the State Civil Service Commission. On December 14, 1978 the Civil Service Commission exercised its constitutional powers and mandated a general pay increase for all state classified employees amounting to a flat 7~ in direct wages, to be effective October 1, 1979 for the ensuing state fiscal year. In addition the Commission adopted special increases of an additional holiday, an additional 52c for state prison guards and related employees (about 2000 in number), and most modest improvements in the fringe benefits package. Of particular concern to me is the possible impact of within-grade step increases on the overage pay increases allowable under the Pay Standard. Approximately 4o9~ of the employee population is anticipated to qualify next year for a within-grade step increase, each of which is in the neighborhood of 5~. My staff was informed by Mr. William Brennan of your staff that the average value of such step increases must he included in any computations made to dotermine compliance with the Pay Stanard, in his opinion. A definitive ruling is hereby requested from your Office as to whether or not the within-grade step increases awarded to individual employees as 52-21mm 0 - 79 - 20 PAGENO="0306" 298 a function of length of satisfactory service must be added to the general increase authorized by the state Civil Service Commission in measuring the State of Michigan's degree of compliance with the 7~ Pay Standard contained in Sec. 7O5B-~+. Your early attending to this matter will be greatly appreciated. Sincerely Gerald H. Miller Di rector PAGENO="0307" 299 EXECUTIVE OFFiCE OF THE PRESIDENT S COUNCIL ON WAGE AND PRICE STABILITY j~ 726 JACKSON PLACE. NW. ~ ~ 2 32 /`)J~ WASHINGTON. D.~ 20506 OEp~ 73 o ND BUDG j~/kHT R1ZCT0R March 12, 1979 Mr. Gerald H. Miller Director Department of Management and Budget P.O. Box 30026 Lansing, Michigan 48909 Dear Mr. Miller: Your letter of February 16, 1979 concerning step increases has been referred to this office for response. Mr. Brennan v~as correct to inform you that step-rate increases must be included in any computations made to determine com- pliance with the Pay Standard. The application of the pay standard to State and local governments involves a special problem because of the heavy emphasis on pay plans that incorporate annual pay increments. This type of pay plan provides for step-rate or progression increases to individuals on the basis of years of service within a grade. If these increases reflect a movement through a structural pay schedule from entry levels to established job rate levels, they are not included for purposes of measuring compliance with the pay standard. They are excluded because they would be equivalent to qua1ification~increases in the private sector (e.g., the movement from apprentice to journey- man), and are intended to reflect improvements in job perfor- mance. On the other hand, increases beyond the job rate level, which simply reflect longevity, are included under the standards to the extent that they add to average pay rate increases. While there is a clear conceptual distinction between these two extremes, their application to individual situations is complicated because it requires knowledge of the rationale for the specific incremental pay plan. ~ PAGENO="0308" 300 possi~~ka~stic1~a d ermination for the thousands of mdi- ~idual-~pa~sJ.iiationa~.tha..t_wj. occur in t e nation as a whole, ~ any attempt to do s ence in ese negotiations. Thus, Ei~ Tnfe r a-~-ioii of the .~4irr~t ~ includes annual increments must be made by the private parties. ,,ymncerel19, 1M Sean Sullivan Acting Assistant Director for Pay Monitoring PAGENO="0309" 301 Mr. ROSENTHAL. Our next witnesses are Margaret Bursie, Leslie Thayer, and Nell Payne. If you will all come up together, we will do this as a group. I'll tell you what we'll do. Is Mr. Anderson here? Thank you for coming, Mr. Anderson. Are we moving too fast for you? STATEMENT OF HUGH B. ANDERSON, ASSISTANT ATTORNEY GENERAL, STATE OF MICHIGAN Mr. ANDERSON. Just a hair. Mr. ROSENTHAL. Why don't you begin, and tell us who you are, and we will incorporate your entire statement in the record, unless you want to read relevant or significant portions of it. Mr. ANDERSON. Thank you. I am Hugh B. Anderson, an assistant attorney general for the State of Michigan. My duties consist primarily of representing Michigan Attorney General Frank J. Kelley in public utility rate and service proceedings before the State public service commission, Federal agencies, and the State and Federal courts. Attorney General Kelley had made other commitments for today, prior to receiving the committee's invitation to present testimony at this hearing. Attorney General Kelley asked me to present the follow- ing statement on his behalf, and to answer any questions the committee members might have. Mr. Kelley's remarks will first detail Michigan's skyrocketing utility rates, particular in the Detroit area, which have contributed much to the increase in the cost of living in this State. Then his testimony will talk about the burden the escalating utility rates constitute for the people and businesses of this State. He will comment on the fact that the problem has the potential of becoming worse, rather than better, because Michigan's major utilities have already increased their rates during the first year of the President's wage/price guidelines and by percentages greater than is allowable under those guidelines, with re- quests pending before the Michigan Public Service Commission and which, if granted, will break those guidelines out of all recognition. Finally, Mr. Kelley's remarks will discuss the wage/price guidelines themselves, on how they should be improved to bring about a meaning- ful impact upon the inflationary spiral. Mr. ROSENTHAL. What's going to happen then? Mr. ANDERSON. People are going to pay them, or they are going to go without gas and electricity. Mr. Rosenthal. Mr. ROSENTHAL. Is there any governmental agency that can deal with this? Mr. ANDERSON. Thus far, experience has indicated that the regula- tory commission cannot effectively deal with it. Mr. ROSENTHAL. And energy is a major part of the components of t.he wage/price guidelines. Mr. ANDERSON. Yes; gas and electricity are very much a part of the wage/price guidelines. It's just that the regulatory commissions thus far don't pay any attention to the guidelines. Mr. ROSENTHAL. You mean, the Michigan regulatory commission? Mr. ANDERSON. Yes. PAGENO="0310" 302 Mr. ROSENTHAL. Why don't you do something about it? Mr. ANDERSON. We do. One of the things we are doing is, we are trying to focus some public attention on the problem through your committee hearings here. Mr. ROSENTHAL. Why don't you go to court? Mr. ANDERSON. We are doing that, too. In the 5-year period ending December, 1978, the all-item Consumer Price Index for the Detroit area increased by 44.21 percent: However, the rates of the Detroit area gas utility, Michigan Consolidated Gas Co., went up by 148 percent in those same 5 years. The average rate of Detroit Edison Co., which provides electric service in Detroit, increased by 87-115 percent in the same 5-year period. At the end of 1978, Michigan Consolidated Gas Co. was charging an average of 2.31 cents per hundred cubic feet of gas, which meant that a typical homeowner using 2,000 ccf. of gas per year, was paying $460 per year for gas service, or more than twice as much as such a customer was paying 5 years earlier. Also, at the end of 1978, a typical homeowner was paying Detroit Edison 87 percent more for the same quantity of electricity as he was paying 5 years earlier, which meant that they were paying about $30 per month, or $350 per year. For gas and electric service combined, Detroit area homeowners were paying more than $800 per year at the end of 1978, or more than twice as much as they were paying 5 years earlier. The rate increases that I have described are two or three times greater than the average rate of inflation, do not constitute the end of the utility rate inflationary spiral, if the utilities are to have anything to say about it. Pending before the Michigan Public Service Commission are approximately $637 million in rate increase requests from the three large Detroit area utilities: Detroit Edison Co., $221 million; Michigan Consolidated Gas Co., $102 million; Consumers Power Co., $314 million. These increases are over and above the rate increases that the Big Three get under a variety of automatic adjustment clauses approved by the Michigan Public Service Commission. All increases in the cost of fuel, power purchased from other utilities, and gas, are automat- ically passed through to ratepayers. In addition, there are automatic rate increase clauses geared to the increases in the Consumer Price Index, which produce rate increases of $20 million and $21 million for Detroit Edison and Consumers Power, respectively, this January. Ignoring for the moment these automatic cost-passthrough clauses, the utilities are asking for rate increases on the remaining portions of their costs many times greater than the average rate of inflation. Detroit Edison's rate request constitutes a 25-percent increase in non-fuel-related costs; Michigan Consolidated is asking for a 40- percent hike; and Consumers Power is asking for a 45-percent increase. The rate increases being sought by the big Detroit area utilities, which I have just described, are in addition to rate increases already granted in the first program year under the Federal price guidelines, October 1, 1978, to September 30, 1979, which already exceed the Federal price guidelines. Michigan Consolidated rates have increased 8 percent already in the first program year, over the average rates being PAGENO="0311" 303 charged in the third quarter of 1978, which is the base period under the guidelines. Detroit Edison's rates are already up 10.5 percent. In both cases, I had ignored increases resulting from the automatic pass- through of fuel, purchased power, and gas costs. Under the guidelines, price increases are generally limited to 6.5 percent for the first program year, with only half of that increase, or 3.75 percent allowable in the first half of the program year ending March 31, 1978. The 8 percent and 10.5 percent price increases of Michigan Consolidated and Detroit Edison respectively, were granted by the State regulatory commission despite my advice to that commis- sion that these rate increases were in violation of the Federal price guidelines and without any analysis or justification by the commission of the need to violate the price guidelines. Mr. ROSENTHAL. Was there any legal action you could have taken at that point? Mr. ANDERSON. We have taken legal action with respect to some of these rate increases, Mr. Chairman, by appealing them to the courts. They have not yet been resolved. However, the price guidelines them- selves would not constitute a basis of legal action, at least in the State courts. Mr. ROSENTHAL. How about the action of the Michigan Public Serv- ice Commission? Mr. ANDERSON. Yes. It is the action of the Michigan Public Service Commission that is being appealed by the Attorney General to the courts. Mr. ROSENTHAL. I understand that. What do you allege is the basis of your lawsuit? Mr. ANDERSON. Various technical violations of law. Ignoring the evidence, failure to base the decision on the whole record. Mr. ROSENTHAL. Would you please skip to page 8, point VI. As I said earlier, without objection, the entire statement, it's an excellent statement, will be included in the record. Mr. ANDERSON. Thank you. Although it appears that price increases granted by the Michigan Public Service Commission to Detroit Edison and Michigan Consoli- dated Gas Co. already exceed the 6.5-percent increase generally pro- vided by the guidelines, no reports have thus far been filed by the PSC with the Council on Wage and Price Stability, explaining these departures. The so-called consumer price indexing plan adopted by the MPSC ~ Detroit Edison and Consumers Power electric rates, automatically violates the price guidelines in that the indexing plan authorizes an- nual rate increases in January, equal to the increase in the Consumer Price Index for the 12 months ending September 1 of the previous year. This resulted in an automatic 7.5-percent price increase, relating to the utilities' operation and maintenance expenses, or a full per- centage point in excess of the 6.5-percent increase authorized by the gross margin standard of price guidelines. The so-called CPI index plan is designed to guarantee that inflation in utility rates will continue at the same rate that inflation occurred in the past, which is exactly contrary to the objective of the price guidelmes to reduce the past unacceptable rate of inflation. Mr. ROSENTHAL. And nobody does anything about that? PAGENO="0312" 304 Mr. ANDERSON. Yes. That is under appeal. Mr. ROSENTHAL. You are appealing that decision, too? Mr. ANDERSON. Yes, we are appealing specifically this consumer price indexing plan. . . Mr. ROSENTHAL. What is wrong with the Michigan Public Service Commission? Mr. ANDERSON. We don't think they are doing the job. And I don't want to characterize their motivations or capacity, but we are con- vinced that they are needlessly worsening the inflationary spiral. Mr. ROSENTHAL. Are you getting any help from any of the Federal agencies, the commissions, the Department of Energy, or anybody? Mr. ANDERSON. The only help we are getting is from the General Services Administration, which has sent people in to intervene in some of these rate cases; and likewise, the U.S. Department of Defense has done the same thing. . . If we are going to bring inflation down in Michigan, prices are going to have to increase at a lower rate than the average rate of infla- tion. One big opportunity to do this in Michigan, is that the Consumers Power has a manufactured gas plant that produces tremendous expen- sive gas that boosts ratepayers' bills by about 12 percent. The gas bills of all Michigan ratepayers of Consumers Power could be cut tomorrow by 12 percent, if the Michigan regulatory commission would just say, "Stop operating that manufactured gas plant." The company itself says it has no need for the gas that is being manu- factured there before 1985. Some of the other problems that contribute to the utility.inflationary spiral in this State are the routine granting of interim rate irrcreases to utilities a few months after rate increase applications have been filed, without permitting the public to offer any evidence against such rate increases, and without even permitting the public to show that such rate increases will violate the Federal price guidelines. It's a two- sided deal. The utility comes in, presents their evidence, and the Corn- mission, based on that, grants an interim rate increase. Two such rate increases were granted last year; and the Commission is in the process of granting a further such increase to Detroit Edisoii and Michigan Bell Telephone Co., having refused as recently as last week to entertain a word of testimony from two noted utility experts from Washington, D.C., who had flown in to testify against the need for the interim rate increases, and to explain to the Michigan Public Service Commission such rate increases were in clear violation of price guidelines. In short, our experience in Michigan indicates that if enforcement of Federal anti-inflationary policies are left to the Michigan regula- tory commission, there will be no enforcement. Briefl.y, ] recommend several improvements be made to the Federal price guidelines: First, there is a loophole in the guidelines that permits exceeding all standards, if an extreme hardship and gross inequity exists, or if the utility needs to raise capital to finance needed construction. These loop- holes are a part of the guidelines themselves. I have never seen a rate case in my 17 years of experience in this field, wherein the utility company did not claim that failure to grant the full rate increase requested would not constitute an extreme hard- ship and gross inequity. Similarly, I have never seen a case where the PAGENO="0313" 305 utility did not insist that it needed every dollar of the requested in- crease if it were to raise the capital to construct needed facilities. These loopholes are virtually as extensive as the price standards themselves. These specific examples of facts required to support exemption from the price standards will likewise almost invariably permit price in- creases greater than those permitted by the basic standards. Approxi- mately half of the utility's common stock is selling in today's depressed stock market at a price less than 0.09 times the underlying book value. Yet under the guidelines, this is a rationale or excuse for increasing utility rates in excess of the normal standard of 6.5 percent. Mr. ROSENTHAL. Why do you think the utilities are given this pref- erential treatment under the guidelines? Mr. ANDERSON. Probably lobbying efforts with the Council on Wage and Price Stability. In fact, there was a tremendous lobbying effort by the industry to get the guidelines relaxed for them. They always claim they are sui generis, they are unlike any other industry in the United States, and they deserve special treatment. A second recommendation that I make is that the Council on Wage and Price Stability should specify in much clearer language that the regulatory commissions are expected to file an immediate report con- temporaneous with the issuance of a rate order, any time that rate order has the effect of increasing utility rates to a level more than 6.5 percent greater than the average rates existing in the third quarter of 1978, the base period. The regulatory commission's report should set out in detail exactly how the average base-period price was computed, and how the average price resulting from the instant rate order was computed, with de- tailed reasons and justification for any increase in excess of 6.5 percent. The regulatory commission should be further directed to make such a report a part of the rate order, so that all parties to the rate proceed- ing receive a copy of it. The Council's rules should further provide for a specified period following such rate order and report, such as 20 days, in which interested parties may write the Council challenging the regulatory commission's calculations and rationale. This would have the effect, at least we would hope, of turning some publicity on the regulatory commissions and utilities that so cavalierly violate the need for holding prices. Mr. ROSENTHAL. Let me ask you this: Have you ever made any representation to the Council on Wage and Price Stability, as to your own views here? Mr. ANDERSON. No; I haven't. Although, when we had a price com- mission under President Nixon, we. did extensive representations and presentations to that body in establishing utility prices. Mr. ROSENTHAL. I think your testimony is first rate. Probably the best I have heard so far on this whole trip. I am happy to be joined by my distinguished colleague from Detroit, Mr. Convers, who is a member of our subcommittee. Mr. CONYERS. Thank you. Mr. Chairman, and good morning. Mr. ROSENTHAL. I would like to arrange an appointment for you to come to Washington. to meet with Mr. K~hn and the rest of these peonle. either later this week or next week. Is that all right with you? Mr. ANDERSON. I would be happy to do that. PAGENO="0314" 306 Mr. ROSENTHAL. I think you have done a first-rate job, and we ob- viously aregoing to have to get some significant change in these guide- lines, or if I read correctly the public attitude, we are going to have to forget about them altogether. Mr. ANDERSON. I agree with you. Thank you. Mr. ROSENTHAL. Thank you very much. [Mr. Anderson's prepared statement follows:] PAGENO="0315" 307 May 7, 1979 TESTIMONY OF HUGH B. ANDERSON, ASSISTANT ATTORNEY GENERAL STATE OF MICHIGAN BEFORE THE COMMERCE, CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS CONGRESS OF THE UNITED STATES I am Hugh B. Anderson, an Assistant Attorney General for the State of Michigan. My duties consist primarily of representing Michigan Attorney General Frank 3. Kelley in public utility rate and service proceedings before the state Public Service Commission, federal agencies, and state and federal courts. Attorney General Kelley had made other commitments for today, prior to receiving the Committee's invitation to present testimony at this hearing. Attorney General Kelley asked me to present the following statement on his behalf, and to answer any questions the Committee members might have. Mr. Kelley's remarks will first detail Michigan's sky- rocketing utility rates, particularly in the Detroit area, which have contributed much to the increase in the cost of living in this state. Them his testimony will talk about the burden these escalating utility rates constitute for the people and businesses of this state. He will comment on the fact that the problem has the potential of becoming PAGENO="0316" 308 worse, rather than better, because Michigan's majorutilities have already increased their rates during the first year of the Presidents Wage-Price Guidelines by percentages greater than is allowable under those Guidelines, with requests pending before Michigan's Public Service Commission which, if granted, will break those Guidelines out of all recognition. Finally, Mr. Kelley's remarks will discuss the Price Guidelines themselves, arid how they should be improved to bring about a meaningful impact upon the inflationary spiral. I. UTILITY RATE HIKES HAVE GREATLY EXCEEDED THE AVERAGE RATE OF INFLATION In the five-year period eniling December 1978, the all- item Consumer Price Index for the Detroit area increased by 44.21%. However, the rates of the Detroit areagas utility, Michigan Consolidated Gas Cor~pañy, went up by 148% during the same period. The average rates of Detroit Edison Company, which provides electric service in Detroit, increased by 87%-ll5%. II. THE SIGNIFICANT IMPACT OF UTILITY RATE -- INCREASES ON DETROITER'S BUDGETS By the end of 1978, Michigen Consolidated was charging an average of 2.310 per hundred cubic feet of gas (ccf), PAGENO="0317" 309 which neant that a typical homeowner, using 2,000 ccf of gas per year, was paying $460 per year for gas service. This was more than twice as much as such a customer was paying five years earlier. Also at the end of 1978, ~a typical homeowner was paying Detroit Edison 87% more for the sane quantity of electricity as he was paying five years earlier. At an average price of 4.860 per kilowatt hour (KWH), with a relatively modest usage of 600 KWH per month, that customer by the end of 1978 was paying approximately $29.16 per month, or $350 per year. For gas and electric service combined, Detroit area homeowners were paying more than $800 per year at the end of 1978, or more than twice as much as they were paying five years earlier. III. FURTHER INFLATIONARY INCREASES PROPOSED BY DETROIT AREA UTILITIES The rate increases that I have described,, two or three * times greater than the average rate of inflation, do not constitute the end of the utility rate inflationary spiral, if the utilities are to have anything to say about it. Pending before the Michigan Public Service Commission (MPSC) are approximately $637 million in rate increase requests from the three largest Detroit area utilities: PAGENO="0318" 310 -- Detroit Edison Company $ 221,000,000 -- Michigan Consolidated Gas Company 102,000,000 -- Consumers Power Company (elec) 314,000,000 These increases are over and above the rate increases that the three utilities get under a variety of automatic adjustment clauses approved by the MPSC. All increases in the cost of fuel, power purchased from other utilities, and gas are automatically passed through to ratepayers. In addition, there are automatic rate increase clauses geared to the increases in the Consumer Price Index, which produced rate increases of $20 million and $12 million for Detroit Edison and Consumers Power, respectively, this January. Ignoring, for the moment, these automatic cost pass- through clauses, the utilities are asking for rate increases on the remaining portions of their costs many times greater than the average rate of inflation. Detroit Edison's rate request constitutes a 25% increase in non-fuel related costs; Michigan Consolidated is asking for a 40% hike; and Consumers Power is asking for a 45% increase. Iv. VIOLATION OF PRICE GUIDElINES The rate increases being sought by the big Detroit area utilities, which I have just described, are in addition to PAGENO="0319" 311 rate increases already granted in the first program year under the Federal Price Guidelines (October 1, 1978 - September 30, 1979), which already exceed the Federal Price Guidelines. Michigan ConsoU dated rates have increased 8% already in the first program year, over the average rates being charged in the third quarter of 1978, which is the base period under the Guidelines. Detroit Edisons rates are already up 10.5%. In both cases, I have ignored increases resulting from the automatic pass-through of fuel, purchased power and gas costs. Under the Guidelines, price increases are generally limited to 6 1/2% for the first program year, with only half of that increase, or 3 1/4%, allowable in the first half of the program year ending March 31, 1978. The 8% and 10 1/2% price increases for Michigan Consolidated and Detroit Edison, respectively, were granted by the state regulatory commission, despite my advice to that Commission that these rate increases were in violation of the Federal Price Guidelines, and without any analysis or justification by the Commission of the need to violate the Price Guidelines. V. SUBSTANCE OF THE FEDERAL PRICE GUIDELINES The Price Guidelines applicable to public utilities, issued December 21, 1978, as modified on March 19, 1979, and PAGENO="0320" 312 appearing on the December 28, 1978 and March 23, 1979 Federal Register, respectively, impose the following require-- ments: A. Basic Standards 1. Price Deceleration Standard: The average price in the program year shall not increase over the average price charged in the third quarter of 1978 by a percentage greater than one-half percentage point less than the average annual rate of price increase during 19 76- 1977. 2. The Gross Margin Standard: A utility is in compliance if the increase in its gross margin (total revenues less fuel, purchased power or gas costs) is not more than 6.5% plus any increase due to a growth in physical volume. B. Exceptions The Price Guidelines provide two exceptions to the ptice deceleration and gross margin standards: 1. Profit Margin Limit~tion: Total dollar profits are not to exceed 106.5% of the dollar profits in the base year 1977, plus the percentage PAGENO="0321" 313 unit sales growth since that time. In addition, no increase in the base year profit margin is permitted. 2. Extreme Hardship and Gross In~uity: The above two exceptions apply only if a utility cannot meet the basic price deceleration or gross margin standards, and if violation of those standards is necessary to permit a utility to raise capital to finance construction of facilities needed to serve customers or to comply with federal policy concerning reduced oil dependence. In determining whether these exceptions apply, the regulatory commission may consider the following three factors: a. need to comply with interest coverage ratios in bond indentures; b. common stock of the utility selling below a market-to-book ratio of .9 times; and c. inadequate cash flow. C. Reporting by Regulatory Commissions The regulatory commissions are asked to file quarterly reports on their progress in enforcing the Price Guidelines, and are further asked to explain any departures from the gross margin standard. 52_21L~ 0 - 79 - 21 PAGENO="0322" 314 VI. NON-COMPLIANCE_OF MPSC WITH PRICE GUIDELINES Although it appears that price increaces granted by the Michigan Public Service Commission to Detroit Edison and Michigan Consolidated Gas Company already exceed the 6 1/2% increase generally permitted by the Guidelines, no reports have thus far been filed by the ?SC with the Council on Wage and Price Stability, explaining these departures. The so-called Consumer Price Indexing Plan adopted by the ~iPSC for Detroit Edison and Consumers Power (electric) automatically violates the Price Guidelines, in that the CPI Plan authorizes annual rate increases in January equal to the increase in the Consumer Price Index for the 12 months ended September 1 of the previous year. This resulted in an automatic 7 1/2% price increase, relating to the utilities' operation and maintenance expenses, or a full percentage point in excess of the 6 1/2% increase authorized by the gross margin standard. The "CPI Index Plan is designed to guarantee that inflation in utility rates will continue at the same rate that inflation occurred in the past, which is exactly contrary to the objective of the Price Guidelines to reduce the past unacceptable rate of inflation. In addition, the Michigan Commission permits Consumers Power Company to continue to operate its Marysville manufactured PAGENO="0323" 315 gas plaet, at a cost of approximately $8.00 per thousand cubic feet of. gas (mcf) when more than adequate supplies of gas are available elsewhere for less than $1.50 per mcf. The effect of this indefensible practice is to add 12% to the gas bills of all Consumers Power Company gas customers. The Michigan Commission is at present considering granting a further inflationary rate increase to Detroit Edison, under the so-called " availability incentive plan," which automatically grants the utility a one-quarter percent increase in its rate of return on common equity, and boosts rates to match, when the utility meets a minimum acceptable level of generating plant availability (80%). This would add another $6 million to Detroit Edison's rates. In addition, the Michigan Commission routinely grants "interim rate increases" to utilities a few months after rate increase applications have been filed, without permitting the public to offer any evidence against such rate increases, and without even permitting the public to show that such rate increases would violate the Federal Price Guidelines. Two such rate increases were granted last year, and the Commission is in the process of granting a further such increase to Detroit Edison and Michigan Bell Telephone Company, having refused as recently as last week to entertain a word of testimony from two noted utility experts from Washington, D.C., who had flown in to testify against the need for the interim rate increases. PAGENO="0324" 316 In short, our experience in Michigan indicates that if enforcement of federal anti-inflationary policies are left to the Michigan regulatory comnission, there will be no enforcement. VII. RECOMMENDED IMPROVEMENTS IN THE FEDERRL PRICE GUIDELINES I recommend that the following improvements be made to the Federal Price Guidelines: 1. The `extreme hardship and gross inequity" and the "raising capital to finance needed construction" loopholes should be eliminated. I have never seen a rate case, in my 17 years of experience in this field, wherein the utility company did not claim that failure to grant the full rate increase requested would not constitute an "extreme hardship and gross inequity". Similarly, I have never seen a case where the utility did not insist that it needed every dollar of the requested increase if it were to raise the capital to construct needed facilities. These loopholes are virtually as extensive as the price standards themselves. The specific examples of facts required to support exemption from the price standards will likewise almost invariably permit~price increases greater than those PAGENO="0325" 317 permitted by the basic standards. Approximately half of the utilities common stock is selling in todays depressed stock market at a price less than .9 times the underlying hook value. The other half of the utilities can undoubtedly make an argument that the cash flow needed to finance tlieir often-extravagant construction programs is inadequate, absent the full rate increase requested. Utilities should not be a privileged class; they should comply with the same price standards applicable to unregulated business and industry. 2. The Council on Wage and Price Stability should specify, ~.n much clearer language, that the regulatory commissions are expected to file an immediate report, con- temporaneous with the issuance of a rate order, any time that rate order has the effect of increasing utility rates to a level more than 6 1/2% greater than the average rates existing in the third quarter of 1978, the `base period." The regulatory commission's report should set out in detail exactly how the average base period price was computed, and how the average price resulting from the instant rate order was computed, with detailed reasons and justification for any increase in excess of 6 172%. PAGENO="0326" 318 * The regulatory commission should be further directed to make such report a part of the rate order, so that all parties to the rate proceeding receive a copy of it. The Councils Rules should further provide for a specified period following such rate order and report, such as 20 days, in which interested parties may write the Council challenging the regulatory commission's calculations and rationale. 3. Within 30 days of. the regulatory commission's rate order and proposed report to the Council, the Council, if it believes that the regulatory commission's report is unsatis- factory, as to either calculations or justification, should issue a ruling to that effect, publicize the same to the maximum extent possible, and send copies thereof to all parties who have communicated with the Council in connection with the subject rate increase. This procedure would have a chance of focusing public attention upon Price Guideline violations by utilities and regulatory commissions, and thereby assist in * mobilizing public opposition to unduly inflationary utility rate increases. Appended to my prepared remarks are five charts, illustrating the gas and electric utility rate problem in Michigan in the Detroit area over the past five ~ears. PAGENO="0327" DE'FI%)IT PRICE 19E:PEI½SE DATA DEE:E24BER 1973 - DEE:E24BER 1978 ThE DPth8DIT EDISCT4 MICHIGAN CCVSOLIDATED GAS CE84PANY - GAS ~ IE:REASE CCVSUIF2 PRICE INDEX - DETI%DIT ~~!! % INCREASE DAT 0 PER KWH - EL~PR1C RESIC%NIIAL 0IHIIAL $I6~~E ~61i~T11~ SERVICE INL8JSTRIAL 0 PER PHil % INCREASE 1 DEE:. 1973 2.60 BASE 2.79 BASE 1.56 BASE $ 9.10 BASE 140 2 JUNE 1974 3.08 18.46% 3.29 17.92% 1.81 16.03% BASE 148.4 3 DEE:. 1974 3.43 31.92% 3.64 30.47% 2.30 47.44% $ 10.03 10.22% 6.00% 156.0 4 318E 1975 3.74 43.85% 3.93 40.86% 2.46 57.69% 159.7 5 DEE:. 1975 3.75 44.23% 3.98 42.65% 2.29 46.79% $ 15.11 66.04% 164.6 17.57% 6 JU4E 1976 4.09 57.31% 4.42 58.42% 2.67 71.15% 168.0 7 DEE:. 1976 4.10 57.69% 4.63 65.95% 2.71 73.72% $ 18.20 100.00% 173.1 23.64% 8 JUNE 1977 4.55 75.00% 4.89 75.27% 3.02 93.59% 181.0 29.29% 9 DEE:. 1977 4.39 68.85% 4.76 70.61% 2.98 91.03% $ 20.60 126.37% 184.4 10 J'IE~ 1978 5.75 121.15% 6.11 119.00% 4.23 171.15% 196.7 11 DEE:. 1978 40.50% :* cc C-) IN PAGENO="0328" 320 PERCENT INCREASE LAST FIVE YEARS (DECEMBER 1973 BASE) DETROIT CONSUMER PRICE INDEX (ALL ITEMS) DETROIT EDISON COMPANY RESIDENTIAL REVENUE PER KWH 100 % 80 % 60 40 ____________ 20 % 0 CHART 2 120 % RESIDENTIAL REVENUE PER ~(WH 1 9 7 3 1 9 7 4 1 9 7 5 1 9 7 6 1 9 7 7 1 9 7 8 PAGENO="0329" 321 PERCENT INCREASE LAST FIVE YEARS (DECEMBER 1973 BASE) DETROIT CONSUMER PRICE INDEX (ALL ITEMS) DETROIT EDISON COMPANY COMMERCIAL REVENUE PER KWH 120 100 % 80 % 60 20 CHART 3 40 % _____________ 0 1 9 7 3 1 9 7 4 1 9 7 5 1 9 7 6 1 9 7 7 1 9 7 8 PAGENO="0330" 322 120 % 100 % 80 % 60 40 20 CHART 4 PERCENT INCREASE LAST FIVE YEARS (DECEMBER 1973 BASE) DETROIT CONSUMER PRICE INDEX (ALL ITEMS) DETROIT EDISON COMPANY INDUSTRIAL REVENUE PER KWH 160 % ______________ 140 % _____________ INDUSTRIAL REVENUE PER KWH 0 1 1 1 1 1 1 9 9 9 9 9 9 7 7 7. 7 7 7 3 4 5 6 7 8 PAGENO="0331" 323 CHART 5 PERCENT INCREASE LAST FIVE YEARS (DECEMBER 1973 BASE) DETROIT CONSUMER PRICE INDEX (ALL ITEMS) MICHIGAN CONSOLIDATED GAS COMPANY REVENUE PER MCF 140 % 120 % 100 % 80 % 60 % 20 1 9 7 3 REVENUE PER MCF 40 % CONSUMER PRICE INDEX 1 9 7 4 1 9 7 5 1 9 7 6 1 9 7 7 1 9 7 8 PAGENO="0332" 324 Mr. ROSENTHAL. Our next witness is Mr. Chuck Wilbur. Mr. Wilbur, you are here; and then we are going to have Mrs. Bursie, Mr. Thayer, and Mrs. Payne. STATEMENT OP CHUCK WILBUR, VICE CHAIRPERSON, MICHIGAN COALITION ON UTILITIES AND ENERGY Mr. WILBUR. I will try to keep my comments brief today. I think Mr. Anderson covered much of the ground I would like to talk about in terms of abuses of utility companies in the State. Mr. ROSENTHAL. Why don't you speak on the principal points of the thrust of your testimony, and without objection, we will put the whole testimony in the record. Mr. WILBUR. My name is Chuck Wilbur, and I serve as vice chair- person of the Michigan Coalition on Utilities and Energy, known as MCUE. MCUE is a grassroots, activist organization representing those groups which suffer the most from the impact of inflation, par- ticularly energy inflation. I speak of the senior citizens welfare recipi- ents and working families who find their standard of living, and in most cases, their very lives threatened by the rising cost of essential energy sources. It is on behalf of this membership that I offer my testi- mony today. As an organization, MCUE has taken an active role in representing the interests of low and moderate-income utility consumers in Michi- gan. My experience as an active member of MCUE has consistently shown that the problem of rising energy costs has become critically important to a great many citizens in this State. The raw facts speak for themselves. In the last 5 years, utility rates in Michigan have doubled and, as Mr. Anderson indicated, that is far faster than the general rate of inflation. During that same time, family income in the State increased only 55 percent. The end result is that, despite trying to conserve and use energy wisely, most Michigan families have no al- ternative but. to devote a larger and larger share of their income to basic energy needs. Mr. ROSENTHAL. We had testimony of people in San Francisco, who were on social security, and were getting $330 a month, and were spend- ing $100 a month to heat their home. Mr. WILBUR. With the Michigan climate we have, I'm sure it's far more severe. Mr. ROSENTHAL. Are you aware of those situations? Mr. WILBUR. Yes, certainly. Mr. ROSENTHAL. Tell us, one, two, three, the points you want to make. Mr. WILBUR. Well, our organization has recently joined with 25 other groups in Michigan to form something called the Michigan En- ergy Coalition, and that coalition has 4 principal areas of policy con- cern that I think would be of relevance to the Committee. One deals with the creation of lifeline utility rates. Lifeline rates attempts to cover basic utility service at a low, fixed price that can escape the ravages of inflation. We favor the creation of those rates. We have presented those. arguments to the Michigan Public Service Commission. Since we are on the subject of the Michigan Public Service Com- mission, I must add that, and this should be of particular concern to PAGENO="0333" 325 Congress, when Congress passed the Public Utilities Regulation Pact of last year as part of the President's energy package, rather than insti- tute utility rate reforms, it requested that public service commissions consider those reforms. I must say from our angle here in Michigan that Congress didn't do enough. Telling the public service commission here to consider a reform that we have asked them to consider for the last 4 years is rather an empty act for the people of Michigan. We will be going back to the Michigan Public Service Commission, asking them to adopt lifeline rates; but what we really needed from Congress was some uniform action on the issue, and that we missed in that particular action. Another area of concern is automatic passthrough clauses, which Mr. Anderson commented on earlier. We would like to see the use of those eliminated or restricted. We would like to see effective public control of utility plant expan- sion. We find in this State that the construction of new powerplants is perhaps the leading factor in pushing utility rates up. And utilities, under their own logic of trying to receive higher and higher profits, have pushed for more and more construction each year. The way our regulatory system works, or I should say, the way it doesn't work, those decisions are now made by the utility companies themselves, with almost no public scrutiny. And that's got to stop. The fourth area of concern is in supporting consumer intervention in rate cases. I know you asked Mr. Anderson a few questions about what his office is doing to fight this battle of energy inflation in this State. Both the consumer movement and his office play a very useful role in that movement, and his office is totally outgunned by the utilities~ because they have, for whatever attorney or expert witness we can put together, they have five or six that can stand in the wings ready to rebut our testimony. Mr~ ROSENTEIAL. How many members of the Michigan Public Service Commission are there? Mr. Wir&m. There are three members. Mr. ROSENTHAL. They are all appointed by the Governor? Mr. WILBUR. Yes; they are. Mr. ROSENTHAL. When are any of the termsexpiring? Mr. WILBUR. I'm not sure when their terms expire. I believe their terms last quite a long time. In fact, I think they serve at the pleasure of the Governor. The rules in this State require that no more than two of the members of that commission be of the same political party. So our balance at this time is two Republican members and one Democratic member. Decisions from that commission, in my view, tend to favor the interests of utility companies over the interests of people in this State consistently. Mr. ROSENTHAL. What can be done about that? Mr. WILBUR. Well, I think that one step would be to increase the representation of consumer groups in front of that commission. Mr. ROSENTHAL. How about increasing the number of members of the commission? PAGENO="0334" 326 Mr. WILBUR. Well, we have been interested in the concept of having that commission elected, expanded and elected, so it's accountable directly to the people. Right now, the commission is buffered by the Governor. Unless the issue of utility rates becomes an issue in a gubernatorial election in this State, the people have absolutely no chance to impact upon the decisions of that commission and, I regret that it has never really become a substantial issue. Besides the State issues, and since we are talking about national policy as well, there are a number of national concerns to our organiza- tion. We find that, no matter how well we fight the battle here on some energy costs, certain decisions are being made at the Federal level that push rates upward. Specifically, the deregulation of natural gas, which we were very involved in fighting last year, and now the decontrol of domestic crude oil prices. We support mandatory controls in both areas; and think it is ridiculous for the President to push anti-inflation pro- grams that exempt two maj or fuel sources from any type of control. In fact, the policy works exactly in the opposite direction, to force those prices up. We think that is ridiculous, and it means that if there is a war against inflation in this country, we are just surrendered on the energy front. Mr. ROSENTHAL. It doesn't include the oil companies. Mr. WILBUR. Well, if we're surrendered on the energy front, there's no way we are going to win the war against inflation. It's too critical an area of people's lives. The phrase we have used to describe it, we borrowed from Winston Churchill, who said: "Never have so many owed so much to so few." He was speaking in somewhat of a different context, but today, I think that accurately describes the situation in the utilities and energy industry as a whole. Control of the industry seems to get into fewer and fewer corporate hands every year. And the cost we pay for that concentration of control goes higher every year. We favor, in general, I think this runs totally counter to the Howard Karcher proposal. We would support a greater Federal role in energy policy and energy price setting, not a lesser role. In fact, we would support the creation of a Federal corporation to develop, refine, and sell. Mr. ROSENTHAL. Where did you get that idea? Mr. WILBUR. Where did we get the idea? I don't think it was any- body's idea in particular. Mr. ROSENTHAL. Mr. Conyers and I have introduced a bill that would do exactly that. Mr. WILBUR. The oil-importing authority? Mr. ROSENTHAL. Right. Mr. WILBUR. This would be the domestic side of that. Whereas, I think we could support your legislation as well. We find that the oil companies not only have a monopoly of energy, they have a monopoly of information about energy. If we had a public corporation that could go into the field and say: "We can pro- duce oil with an $8-a-barrel price; how come you claim that you have to do it at $16 a barrel ?" PAGENO="0335" 327 We need some kind of public control of that industry. If we con- tinue to allow decisions in the industry, to be made by the oil com- panies themselves, consumers can only suffer higher prices. Mr. ROSENTIJAL. You are absolutely right. Do you think that~-America's natural resources ought to belong to the people? Mr. WILBUR. Well, in fact, I think they do. Many of the oil resources now actually are on officially held public lands. And if we had a public corporation to develop those resources, we would work on our own land, essentially, to develop a resource that all the people could share. Mr. ROSENTHAL. Thank you very much. It's extremely useful testimony. Very important. I want to congratulate you and your people for maintaining their vigil. .1 wish we could be more effective. Mr. WILBUR. Well, we would hope that in the year ahead, on the battle of oil price control and alternative to monopoly control of oil, that Congress will be more effective. [Mr. Wilbur's prepared statement follows:] PAGENO="0336" 328 TESTIMC~Y Before the CO~I24ERCE, CONSU~FR A~fD MONETARY AFFAIRS SUB-COMMITTEE cf the UNITED STATS HOUSE CF FE?RESENTATIVES Chuck Bilbur Vice-Chairperson Michigan Coalition on Utilities and Energy Detroit, Michigan May 7, 1979 PAGENO="0337" 329 My name is Chuck Wilbur and I serve as a Vice-Chairperson of the Michigan Coalition on Utilities and Energy known as MCUE. MCUE is a grass-roots, activist organization representing those groups which suffer the most from the impact of inflation, par- ticularly energy inflation. I speak of the senior citizens, welfare recipients and working families who find their standard of living and; in the most severe cases, their very lives, threatened by the rising cost of essential energy sources. It is on behalf of this membership that I offer my testimony today. As an organization, MCUE has taken an active role in repre- senting the interest of low and moderate income utility consumers in Michigan. My experience as an active member of MCUE has con- sistently shown that the problem of rising energy costs has become of critical importance to a great many citizens in this state. The raw facts speak for themselves. In the last five years, utility rates in Michigan have doubled, increasing far faster than the general rate of inflation. During that same time, family income in the state increased only 55~. The end result is that despite trying to conserve and use energy wisely, most Michigan families have no alternative but to devote a larger and larger share of their income to basic energy needs. What this amounts to in the. broad sense is a transfer of income, a transfer of income from thos& who use energy to those who own and control its production and distribution. At the state level, utility service is provided by monopolies which are said to be "regulated, although there is much room to question whether our regulatory system either does or can protect the public 52-2l'~ 0 - 79 - 22 PAGENO="0338" 330 interest. At the national level there is an ongoing process of concentration of energy resources in fewer and fewer corporate hands. Indeed, the term monopoly is becoming an accurate descrip- tion of giant energy corporations that so impact our lives today. We would not go far wrong in summing up the result of this situa- tion by borrowing the words made famous by Winston Churchill: "Never have so many owed so much to so few." In the face of this mounting problem, the movement for utility and energy reform has developed an agenda of key reforms necessary to stem the tide of energy inflation. Earlier this year, the Michigan Coalition on Utilities and Energy joined with twenty-five other Michigan organizations representing over 1 million members to form the Michigan Energy Coalition. This Coalition has developed a program identifying four areas of utility reform that are of particular concern to the Michigan consumer. The first area of concern is public control of power plant construction. In this state, and I would hazard to guess much of the nation, the single greatest cause of utility rate increases are the tremendous construction and capital costs associated with the rapid expansion of electric utility generating plants. Ironically, today in Michigan the decision to build new power plants; in other words, the most significant utility policy decision interms of dollars and cents impact to the consumer, is made outside the scope of the regulatory process. However inadequate that process may be, it is by. far preferable to the concept of `~management perogative" that holds-sway in Michigan PAGENO="0339" 331 today. The Michigan Energy Coalition believes effective regula- tion of utility construction is an essential part of any effort to control energy inflation in this state. A second issue of concern to the Coalition is the creation of Lifeline electric rates in Michigan. Lifeline rates, which exist in many states of the union involve pricing electricity in such a manner that power for essential service is available at a low, fixed charge; while electricity for other purposes is sold at a higher rate, often steeply graduated as use increases. Lif e- line is a crucial utility reform because it addresses both the cause and effect of energy inflation. First, Lifeline discourages the heavy consumption of electric power by charging premium rates to those customers who use a great deal of electricity. The long range impact of this rate structure is to slow the costly growth rate of the electric industry. Secondly, Lifeline rates offer direct relief to those customers, low-volume users, who carry the heaviest burden of higher rates. The adoption of a genuine Lif e- line rate structure in this state should mean an actual rate roll-back for low-volume customers and the elimination of service charges that penalize the small user. The Michigan Public Service Commission's refusal to adopt Lifeline rates represents a serious * obstacle to achieving equity and cost control in the state's utility policy. The Michigan Energy Coalition's third area of concern lies in restricting the use of automatic adjustment clauses in deter- mining utility rates. As is the case with power plant construction PAGENO="0340" 332 decisions mentioned above, the proliferation of automatic adjust- ment clauses places important utility decisions outside the range of the regulatory process. The fuel adjustment clause, the pur- chased gas adjustment clause and the operations and maintenance allowance account for an ever-increasing share of rate increases in the state. The clauses seem to take for granted the assumption that utilities will do their best to contain their fuel costs, a dubious assumption considering the recent history of utilities in the state. - One interesting example with particular relevance to federal energy policy concerns a local gas utility, Michigan Consolidated Gas Company. In the fall of 1978, Mich Con, like many other gas utilities, supported the energy industry's efforts to win de- regulation of well-head natural gas prices. On the face of it, the logic of this position escapes me. Higher well-head prices should make life tough for a gass utility. Bill collection becomes more difficult and expensive, as rates rise. Shut-of fs become more common. And for a company like Mich Con, which enjoys a gas glut, sales and revenues drop. Yet, I would suggest this gas utility felt compelled to support price deregulation for two reasons: First, the existence of the purchased gas adjustment clause makes passing on high well-head costs to the consumer a matter of little difficulty and I would add, with little public scrutiny. Secondly, Mich Con buys over half its natural.gas from its own parent company American Natural Resources. The PGA clause then becomes an easy method of transferring money from the consumer in Michigan to the parent company at the higher and higher rates deregulation makes PAGENO="0341" 333 inevitable. For other exanples of adjustment clause abuse, I would refer the committee to the Michigan House of Representatives Special Committee Study of utility problems called A Blueprint for Reform. The Michigan Energy Coalition's fourth area of concern is in àreating a funding system to support consumer intervention in utility rate proceedings. Like utility rates, the costs of inter- vention have felt the effects of inflation. In plain terms, the consumer view often is under-represented or not represented at all in many crucial rate proceedings. The utilities have no problem meeting the great costs of a rate proceeding, they simply charge their customers. In recent rate cases the bill for representing the utility's position has come to a million dollars. Consumers need a mechanism to channel their resources to support their own interests in rate cases. The Michigan Energy Coalition favors establishing a simple voluntary check-off on utility bills that would collect a small sum from consumers each month to support consumer intervention in rate proceedings. Without such a system, this state's regulatory system will continue to be a deck stacked against the consumer interest. In addition to these four areas of concern, the organization I represent, the Michigan Coalition on Utilities and Energy has several other concerns that relate to the problem of energy in- flation. As utility rates have risen in Michigan, the number of utility shut-off s has followed the same path. Obviously this is no co- incidence, rather, it indicates that a growing number of citizens PAGENO="0342" 334 cannot afford basic utility services. In 1977, Michigan Consolidated Gas shut off service for more than 31,000 of its customers. Many of these shut-of fs violate the inadequate protection given to Michigan citizens under the Public Service Commission's Consumer Bill of Rights. MCUE believes that a long term solution to this problem must accept the consumers ability to pay either as a means of setting utility rates or in developing comprehensive energy assistance pro- grams for the many consumers who are in need of it. We feel, however, that in the absence of such a far-reaching solution, the only humane policy to adopt is a ban on utility shut-of fs that threaten the health and safety of customers who cannot afford current utility rates. MCUE is also concerned about the impact the current direction of federal energy policy has on the inflationary pressures felt by the Michigan consumer. In 1978 we worked to defeat the passage of natural gas deregulation legislation. Today we are equally dismayed at the President's plan to de-control domestic crude oil. Last month we joined with ten other organizations in urging the Michigan Congressional delegation to support efforts to re-introduce mandatory oil price controls. We believe a more appropriate response to the current oil situation would be to increase rather than decrease federal in- volvement in meeting the n~ ~d for energy at a fair price. An appropriate means to ir. federal role might be in the creation of a so-called y ublic oil corporation which, operating on public lands c. the production myths perpetuated PAGENO="0343" 335 by the oil industry. We believe movement in this direction by Congress would be supported by the public. More importantly, leadership by the Congress in this area would be a signal to the consumer that we don't have to give in to energy inflation; that we don't have to acquiesce to the tremendous power of the energy industry; and that we do not have to accept energy policies that would victimize.the many to benefit the few. PAGENO="0344" 336 Mr. ROSENTHAL. Our next witnesses are Mrs. Bursie, Mrs. Payne, and Mrs. Thayer. Do we have all three here? Mrs. Bm~SIE. Mrs. Thayer is not here. Mrs. Thayer will probably be coming a little later. Sh&s an invalid, and they are trying to get her in the building. Mr. ROSENTHAL.WOUld you folks please get started. STATEMENT OF MARGARET BURSIE, `AMERICAN FRIENDS SERVICE COMMITTEE Mrs. BURSIE. My name is Margaret Bursie. I work with the Ameri- can Friends Service Committee. This is a program on education, and I am just speaking from the community part, and also for people who I have worked with. I have some things on `paper, and I am going to give them to you, like that. And I will answer any questions you may have. First, I want to greet the House Subcommittee on Commerce, Con- sumer, and Monetary.Affairs. Mr. Chairman, the Honorable Benjamin S. Rosenthal, and the Honorable John Conyers, Congressman of the First District, my congressman; other participants and speakers. I am `here to speak to an issue that affects us all-inflation. But especially how inflation affects the aged, destitute, sick, unemployed, and low-income or fixed-income persons. Inflation is playing havoc with the average family food budget; $50 buys two bags of groceries today, where once it bought four or five bags. The rising cost of food iscausing many families to squeeze their already tight budget. The constant complaining and grumbling about the high cost of food is everywhere, and it is staggering. As shoppers push their carts and greet fellow shoppers with, "It's a shame. Isn't this awful? You can barely afford to eat." Gone are the days of small talk about it being a nice day. The rising cost of food is causing many families to tighten their belts and diet. The first casualty of inflation is the stomach. You cannot reduce your house payment. There is a steady increase in utilities' cost, and you have no choice but to pay. But you can choose to buy less food. We can all feel inflation surrounding us. The high cost of food, utilities, medical costs, not to mention the price of gasoline. Last Sun- day, I paid 95 cents for a gallon of gas. Most folks in the inner city don't have cars. Fifty percent of the residents in the Jefferson- Chalmers area are without transportation, and must shop in their i~eighborhood stores. Those on fixed or low incomes can't afford to buy gas to shop in the suburbs. The high cost of food has increased in the inner city. Some of these reasons are attributed or charged to the high absenteeism of chainstores. Great Scott at Warren and Connor closed recently. The theory that chainstores leave because they pay their managers the same rate of pay no matter what the size of the store, so to cut their expenses they close the smaller stores and open larger stores in the suburbs. Or they blame it on the high rate of shoplifting. People are hungry and have no food, they will steal. PAGENO="0345" 337 The abandoned buildings of chain foodstores left vacant allows many independent stores to locate in their old buildings. Most inde- pendent stores adopt a similar name to the preceding chainstore. For instance, a Great Scott would now become a Great Savings. A large number of the inner-city population buy their groceries at the independent market, even though the prices are higher. The ex- planation of why food is higher varies from the statement that they don't purchase in bulk, to the high cost of guards for protection. Now, it is clear to me that many independent stores do purchase in low-volume bulk, because in fact, many of the independent stores are owned and operated by the same family and the small difference in price is to cover the fact that they are related. How can a store survive as an independent foodstore in a chainstore is a mystery that's beyond me. However, there are eight independent stores and only one chainstore in the Jefferson-Chalmers vicinity. We did a survey 6 months ago and compared suburban chainstores or urban chainstores and found a $1.10 difference for 11 identical items. We did a survey in March, and compared inner-city chainstore prices to the independent stores, and found a price differential of $2.23 for the same 11 items. The poor pay more. `Whether it is called profit or profiteering, all that money rolling in the ot.her direction is another feature of the dilemma facing inner-city food consumers. At a recent conference on disarmament, Seymour Melbourne, pro- fessor at Columbia University, said the militnry budget is what èauses inflation. He sta.ted that 51 cents of every tax dollar goes to the military budget. So, for every $100 paid in taxes, $51 goes to buy arms. There is a familiar, quotation that states that., "America continues to buy guns instead of butter." Everybody's searching for tips to help curb or beat inflation. We have a few toshare. Join a co-op and become the person..who shares in the profit. Shop at Eastern Market. Compare prices. Use coupons. Prepare yourmenu in advance. Make a shopping list. Buy house brands. Buy less meat. Boycott certain items; leave them on the shelves. Remember the law of supply and demand. The more there is of a product, the less it costs. Buy inexpensive cuts of meat~, if you can find any. I've found every cut of meat expensive lately, including chicken and hamburger. They may not have any other meats in the house, but they will have the "good old American' standby, ground beef." With chicken costing as much as 89 cents a pound, and hamburger costing `as much as $1.58 per pound, in some stores, we can expect little diversity in meals. How do you feel about inflation? Afraid, nervous, uptight? Are you o'etting a what's-the-use attitude? Don't indulge yourself. We need to rotest inflation now. Not because we know ,the effects of lasting infla- tion, but because we don't know the effects. We need hope to deflate inflation. Mr. ROSENTHAL. There is just one point I want to ask. PAGENO="0346" 338 You said there were certain fixed costs like housing and utilities. One of the variables is food. How are people dealing with this issue? Mrs. BtTRSIE. Many people are notbuying what they need in terms of a good diet. They have to cut their diet, in order to survive. Many of them don't have the staples. Mr. ROSENTHAL. Are they older people, or people with families? Mrs. BURSIE. They would be both. Certainly, there are older people. We have a lady coming, Mrs. Thayer, who is on a special diet, who will speak to that. It does affect people whose children-that's why I talked about ham- burger-people t.hat have a large family, the only thing they could buy before was hamburger. Mr. ROSENTHAL. What do they do now? Mrs. BtrnsIE. They buy what they can in smaller quantities, and they eat what they can, and when it's gone it's gone. They try to ge.t food from other agencies that provide that. And Mrs. Payne will talk about. that, about where you pick up other food when you are hungry, in the city. STATEMENT OP NELL PAYNE Mrs. PAYNE. My name is Neil Payne. I will tell you some of the ways inflation has affected me and my family. I ama~ mother of six children, determined t.o more than sur- vive. But I am having real problems making ends meet on $123 worth of food stamps and $378 monthly from ADC. My check has been cut four times, and prices continue to get higher. Detroit Edison and the Water Board have sent shutoff notices effec- tive today. If my check is in the mail today, and I get to pay in time, I may avoid the inconvenience and cost of getting it turned back on. When my oldest son turned 18, the.y. removed his name as a depen- dent, and took him off medicaid. and food stamps, and cut my check. But I still pay the same amount for all my utilities, food stamps, and other expenses. The same thing happened when my other son turned 18. I constantly struggle to have shelter, food,.:clothing, health care, education, .and~employment for m.y children. I have .waited long hours many times, and at home and at the Kercheval-Algonquin, Department of Social Services offices, to see a worker. I have six different workers in less than a year. One of them seemed to understand that I had gotten less than I needed, and triedto straighten things out, but wasnot on my caselong enough. One told me that if I appealed, I might get cut off altogether. I constantly:struggle against intimidation and the concern of incentive for my children to learn and to be able to get a job. It seems like there are so many guideirnes~and changes that workers ~eannot function. 1 have to keep so many records, and every 6 months must again prove my own identity and my relationship to my children, by taking my picture, identification birth certificates for everyone, and proof~ that they are living with me.. If I was paid a minimum wage for the time it ta.l~es..in waiting, ~[ would be able to make it. I don't have time leftfor anything else. In spite~ of all of this, `I .thought I was doing;~retty well until Feb- ruary 9, 1978, when I was assaulted, and all my money stolen just PAGENO="0347" 339 after I had cashed my check to pay bills. When they reported it to the police, they said the Department of Social Services would replace the check. The Department of Social Services asked for a copy of the police report, which cost me $2 or $3. When I took it to the Depart- ment of Soci~al Services, they said they could not replace it because it had been cashed; but that I could get a sundry order. I waited from about 8:30 a.m. until 2 p.m., and the sundry order was a slip of paper for $34 for groceries to last me for 2 weeks. My next check was late, and I was told it had been sent to Sixth and Howard, to have $34 deducted. This winter, my furnace needed repairs, and because of this, we were cold from October to January. I called 40 or 50 heating companies listed in the phonebook to get estimates for repairs. ]\`Iost of them just hung up when I mentioned Department of Social Services. A couple of them told me they couldn't come out, because Social Services had owed them on accounts for 4 or 5 years. I finally used the house pay- ment money for repair; but the furnace has gone out again. The gas company man told me recently that my cookstove is a hazard to my home and children. As of May 1, a phone call from the mortgage company informed me that my home is in the process of foreclosure. I had made arrange- ments in February, for vendor payments, and my worker, Mrs. Massey, said it was approved, but it has not been paid. Early this year, I had some severe health problems. While I was in a coma, my family phoned emergency medical services three times. They didn't come at all. They asked, "Do you have $45 in cash? Is it really serious?" When a relative finally said that they would pay, they still didn't come. And I was taken to the hospital in my cousin's car. I don't remember the trip. I was released the following day from Henry Ford Hospital. My daughter's doctor referred me to a diabetes specialist, and insisted that I be hospitalized. I entered Southwestern Hospital on January 19, and was treated for 3 weeks, until my body recovered enough from overmedication prescribed by Dr. Groves at Ford, and it was possible for the insulin to get my blood sugar down. The doctor said he would send some papers to my worker for food allowance, money or food stamps to purchase food for a diabetic diet. With four children in school, I need more than $123 worth of food stamps, $57 for gas heating and cooking, $165 for mortgage payment, and $378 for everything else. My children missed school this past winter because they had no boots to wear. Today, I also need shoes for two of my children, and will only have $8.66 left after I pay Edison and the water department. Mt. ROSENTHAL. Why is that? Mrs. PAYNE. Because I don't get enough money, and I'm a diabetic. And I have ulcers; I have a hernia, and high blood pressure, and I can't work. I take 100 units of insulin in the morning at 8 o'clock, and 100 units at night. Mr. ROSENTHAL. Do you get less food for food stamps today than you did 6 months ago? Mrs. PAYNE. Yes. Mr. CONYERS. Tell us about it. Mr. ROSENTHAL. How does that affect the children, or what are you doing? PAGENO="0348" 340 Mrs. PAYNE. I have six to feed including myself. I was getting $130 every 2 weeks. Beginning the first of the year, I get $123 a month for six people. Mr. ROSENTHAL. You get $123 a month to feed six children? Mrs. PAYNE. Five children and myself. Mr. ROSENTHAL. Six people? Mrs. PAYNE. Yes. I .get $378 a month to feed and clothe them, and send them to school, and pay the bills. Mr. ROSENTHAL. You are keeping them out of school because they don't have clothing? Mrs. PAYNE. I had to keep them out. They are going now. Mr. CONYERS. What was the reason for the reduction? Mrs. PAYNE. Well, they have taken two of my children off of my check. Mr. CONYERS. Why? Mrs. PAYNE. They became 18. They don't keep them on after 18. Mr. CONYERS. What about the other reduction, was that also related to the two children? Mrs. PAYNE. You have to feed and clothe them. They can't find a job. Mr. CONYERS. You have to continue to support them~ even though they hit 18, because they can't find work? Mrs. PAYNE. That's right. Mr. CONYERS. Have they finished high school? Mrs. PAYNE. No. Mr. CONYERS. Well, Mrs. Payne, did you conclude your testimony? Mrs. PAYNE. No. Mr. CONYERS. Will you continue? Mrs. PAYNE. I think inflation is affecting other people, too. Five times my house has been broken into and food stolen in less than 1 year. After waiting for my worker the last time, she said that I had to pick up the check for the mortgage payment, and had phoned me to come and get it. I waited from about 8 a.m. until 2 p.m. and then she dis- covered that she had made a mistake. My neighbor was waiting to take me home. When I told my worker that the doctor would be sending papers for authorization for a special diet, she said, "Don't bring them to me. I'm trying to get more money for myself." My children are constantly saying, "Mom, I'm hungry." Mr. ROSENTHAL. I'm not ~o sure our subcommittee has jurisdiction over everything, although we have a deep and abiding interest in those things. We have a somewhat narrow focus in terms of responsibility. We have a very, broad concern about these issues. I am interested in, within the last year: Have you received the same amount of money for food stamps or something less? Mrs. PAYNE. Less. Mr. ROSENTHAL. And does it buy more or less, in terms of food and services? MrF. PAYNE. Now? Mr. ROSENTHAL. Now. Mrs. PAYNE. It buys a whole lot less. Mr. ROSENTHAL. What are you doing? PAGENO="0349" 341 Mrs. PAYNE. I ain't doing. I'm barely making it. I went to Neighbor- hood Services and they gave me food, and they also gave me some clothes for my children. Mr. ROSENTHAL. Thank you both, very much. That's very significant testimony.. Mr. CONYERS. I would like to, first of all congratulate these two ladies for coming forward, and also commend their work with the American Friends Service Committee. They have been working hard on a variety of issues for 7 or 8 years. 1 think it is very insightful that you related the huge military budget and the fact that we can't get enough money to feed and clothe the people in this country. I think that is~ an important connection and it has not been overlooked by this subcommittee. Do you have records that you could submit for this hearing, Mrs. Bursie, that would prove your statement that the poor pay more in terms of food costs? Mrs. BURSIE. Oh, yes. Mr. CONYERS. Have you some records we could add to that, so we could demonstrate once and for all that in the Detroit area, which isn't too different from other urban areas, that that is the case? You might be interested to know that more than 10 years ago or so Congressman William Dawson-the deceased Member of Congress, from Chicago, who was once the chairman of Government Operations Committee, and subcommittee chairman Congressman Rosenthal was a member of that committee at the time-was tracking this whole ques- tion of "the poor paying more." And I don't know if it was done on a national basis and that was 10 years or more ago. And it would be interesting for our staff to examine the relationship of how prices have gone up from then to now, and are still, as a matter of fact, going up. And by the time this subcommittee will have left Detroit, some food prices in your supermarkets may be higher. Mr. ROSENTHAL. As we are sitting here, prices are going higher. Ms. BtmsTE. In the book you have there, there is one sheet that talks about the high cost of prices in the Detroit area. And the consumers committee put this together. Now, that is on a few items, and you can see the prices there. There are other surveys that we have in our office, and we did surveys for other committee groups that would support our statement. Mr. CONYERS. Two quick questions-I know we always have a time problem. The question we need to know the answer to, after we understand the pain and suffering involved, is what should we do? It's obviously true that all wisdom doesn't reside in Washington anymore. Our eco- nomic plans aren't worth 2 cents. What advice should we tell our colleagues that you told us in Detroit? Ms. BURSIE. Well, I wish I had the answer. I don't think I have the answer, either. And part of the struggle for me is to come and talk about inflation, and to talk about how it affects all of us, is that when I finish talking about it, I don't have the answers, and what we talk about hope. And you know, hope will not feed you if you are hungry; and hope will not buy your groceries. PAGENO="0350" 342 I don't know the answers. I am hoping that, together with the com- munity and your support, that we might come up with some good answers. Mr. CONYERS. I would like to meet with your organization, because I have a few modest proposals that we ought to discuss. And I want to say I didn't invent them or anything. My economist friends tell me that the largest price increases are taking place in four major areas which will affect the average person the most-their housing costs, their health costs, their food costs, and their fuel and energy costs. And they find that that is where people get hit most. And so, as they examine the continuing rise in those prices, they say, "Why doesn't the Government put a ceiling on the prices of the basic necessities?" Then inflation would at least be con- tained. Prices wouldn't be allowed to go any higher. I think we need to talk about this idea. Now, finally, in your last paragraph you said, "How do you feel about inflation, afraid, nervous, uptight? What's the use?" What about getting outraged about a Government of layers and layers of elected people, appointed people, bureaucrats, experts, acad- emicians who are burning up all of this tax mor'ey and not having any answers to the inflation crisis. Why should you feel you know any- thing less? You should be outraged! Why don't you get-and I won't use the language that Coleman Young and I used coming here-but isn't it time to do something besides being nervous and resigned? Mrs. Bin~sn~. I hope so. Mr. CONYERS. This modesty before our committee is not like you. Mr. ROSENTHAL. The committee is a specific organization. Mr. CONYERS. We are nonviolent. It doesn't stop us from getting mad and taking effective action. You have been a very good witness. The chairman is nudging me, so we have to move along. Mr. ROSENTHAL. Thank you very much. It really was very useful. [Mrs. Bursie's prepared statement follows:] PAGENO="0351" 343 Margaret S. Bursie, Director American Friends Service Committee Detroit Anti-Hunger and Youth Advocacy Center May 7, 1979 Members of the House Sub-committee on Commerce, Consumer, and Monatary Affairs. Mr. Chairman the Honorable Benjamin S. Rosenthal and the Honorable John Conyers, Congressman of the 1st Distirct, my congressman, other participants and speakers. I am here to speak to speak to an issue that affects u.s all, INFLATION. But especially how inflation affects the aged, destituite, sick, unemployed and low income or fixed income persons. Inflation is playing havoc with the average family food budget. Fifty dollars buys two bags of groceries ~Qg~ where, it once bought four or five bags. The rising cost of food is causing many families to squeeze their already tight budget. The constant complaining and grumbling about the high cost of food is everywhere and it is staggering. As shoppers push their carts and greet fellow shopper with "it's a shame, isn't this awful, you can barely afford to eat t" Gone are the days of small talk about it being a nice day. The rising cost of food is causing many families to tighten their belts and diets. The first casuality of inflation is the stomach. You can not reduce your house payment, there is a steady increase in utilities' cost and you have no choice to pay. But you can choose to buy less food. We can all feel inflation surrounding us * The high cost of food, utilities, medical costs, not to mention the price of gasoline, last Sunday, 1 paid 95 cents for a gallon of gas. Most folks in the inner city don't, have cars. Sixty percent of the residents in the Jefferson Chalmers area are without transportation and must shop in their neighborhood stores. Those on fixed or low incomes can't afford to buy gas to shop in the surburbs. The high cost of food is increased in the inner city, some of the reasons is attributed or charged to the high absenteeism of chain stores ( Great Scott at Warren Conner closed recently. The theory is that chain stores leave because the~r pay the managers the same rate of pay no matter the size of the store. So to cut their expenses, they close the smaller stores and open larger stores in the surburbs) or the high rate of shoplifting. If people are hungry and have no food, PAGENO="0352" 344 they will steal. The abandoned buildings of food chain stores left vacant, allows many independent stores locate in their old buildings most independent stores adopt a similar name of the preceeding chain store for instance. a Great Scott would now become a Great Savings. A large number of the inner city population buy their groceries at the independent market even though the prices are higher. The explanation of why food is higher varies from the statement , they don't purchase in bulk to the cost of guards for protection. Mow it is clear to me that many independent stores DO purchase in lowvolume bulk because in fact many of the independent stores are owned and operated by the same family and the small difference in price is to cover the fact that they are related. How can a store survive as an independent store and a chain store can't is a mystery that's beyond me. However, there are eight independent stores and only one chain store in the. Jefferson Chalmers vicinity. We did a survey 6 months ago comparing surburban chain stores to urban chain stores and found.a$l.lO difference for the identical 11 items, We did a survey in March comparing inner city chain stores' prices to the independent stores and found a difference of $2.23 forthe the same 11 items. The ppor pay more whether it is called profit or profiteering all that money rolling in the other direction in another feature of the dilemma facing inner city food consumers. At a recent conference of the disarmament race. Seymore Melbourne a professor, at Columbia University said the military budget causes inflation. Fifty-one cents of every tax dollar goes to the military budget so for every one-hundred dollars paid in ,in taxes fifty-one dollars of that goes to buy arms. There is a familiar quote that says "America continues to buy guns instead of butter.". Everyone is searching for tips to hr~lp curb or beat inflation. We have a few to share: 1. Join a co-op and become the person who shares in the profit. 2. Shop at Eastern Market. 3. Compare prices PAGENO="0353" 345 &`. Use coupons. 5. Prepare your menu in advance. 6. Make a shopping list. 7. Buy house brands. 8. Buy less meat. 9. Boycott certian items, ~ them on the shelves. Remember the law of supply and demand, it's easy. The more there is of a product, the less it costs. 10. Buy inexpensive cuts of meat, if you can find any. I've found every cut of meat expensive lately, including chicken and hamburger. Both chicken and hamburger are a staDle in many families. They many not have any other meats in the house but they will have the `good ole American stand-by~, ground beef. With chicken costing as much as eighty-nine cents a pound and hamburger costing as much as $1.58 per pound in some dtores, we can expect little diversity of meals. How do you feel about inflation ? Afraid, nervous, up-tight ? Are you getting a WWHAT~S THE USE ATTITUDE" ? Don't indulage yourself. We need to protest inflation NOW Not because we know the effects of lasting inflation but because WE DON'T KNOW THE EFFECTS. We need hope to deflate inflation. 52-21't 0 - 79 - 23 PAGENO="0354" 346 Mr. ROSENTHAL. Our next speaker is Al Fishman, from the Coalition for Economic Justice. STATEMENT~ OP AL FISHMAN, COALITION FOR ECONOMIC JUSTICE Mr. FISHMAN. Mr. Chairman, Congressman Conyers, my congressman- Mr. ROSENTHAL. He's a pretty good congressman, too. I've known him since when he first came to Congress. It was a long, long time ago. Mr. FISHMAN. Yes, in 1964. Mr. ROSENTHAL. He's one of the best we have. Mr. FISHMAN. I was a small part of helping that to happen, and I have been proud of that ever since. Mr. CONYERS. If we could turn this into a testimonial we could charge $25 a head. Mr. FISHMAN. My name is Al Fishman; and I am the chairperson of the People. For Economic Justice, which is a local affiliate of the National Coalition for Economic Justice. I appreciate this opportunity to speak today, and commend the sub- committee for taking this national initiative. I think that there will be adequate testimony, there has been ade- quate testimony, and there will be adequate testimony as to the prob- lems that people are facing in terms of keeping body and soul together. Mr. CONYERS. Pull that mike a little closer. Mr. FISHMAN. It will be my purpose to suggest some alternatives to our present drift, and our present policies. I think the fact of inflation is so obvious it hardly needs saying. `In March, inflation went up 1.3 percent, which is a national average of over 15 percent. I think another fact that is perhaps less obvious, except to those that are interested and concerned with it, is the fact that profits have also gone up; that they have in fact soared; thet certein industries may have had decreased profits; but that overall profits have increased tremendously. So what can we do ~ It would seem to me that the President's and the Congress' programs have apparently failed; that so far, nothing has stopped the rising prices, particularly in the four key areas that have been highlighted. It's my purpose to suggest that three things essentially have, been ignored. Mrs. Bursie spoke about one. And I want to repeat that the military budget is perhaps the primary cause of inflation in this coun- try, and it has been the primary cause for over 3 decades. The military budget not only takes so great a portion of the resources of our na- tional budget, it does not return anything of value to the economy. It provides fewer and fewer jobs, because these are capital intensive, and not labor intensive industries. It produces nothing that the community can use. Nothing that people can we~r, nothing that people can eat, nothino' that people can be housed in. It is a waste, a total waste, aside from t~e fact of the dangers it brings to us in terms of increasing the potential for world war. I think if the Congress and the President failed to do anythina~ about the military budget, then they are, as a native American said, "Speak- ing with forked tongue," because it is not possible to really tackle inflation. The recent attempt to shift a measly $1 billion or $1.4 billion from the military budget to social needs, which was defeated in the PAGENO="0355" 347 Senate, is testimony to the unwillingness of Congress and the Presi- dent to face up to this critical fact that the military budget must be slashed in order for us to maintain our security, which means our ability to live. I think a second major cause, which has been referred to here today, particularly in terms of the energy industry, is the monopoly control of prices, and the monopoly manipulation of sources of supply. I think it has been testified to in the Congress, if you please, that gas companies were withholding supplies of natural gas in the crisis of a few years back, in order to wait for and to force higher prices. It is a well-known fact that sugar was withheld until sugar prices went up; that coffee was withheld until coffee prices went up, and so on down the line. So that this whole question of monopoly control is one that the Congress and the President need to deal with, or again, they are not really dealing with the causes of inflation, because indeed, it's not workers' wages that have caused inflation. Workers are trying to catch up with this galloping ghost of inflation. A third major share of the cause of inflation is the tax burden. Somewhere back in the begii~ning of this century, we enacted what was called the "graduated income tax." It has become ludicrous; it has become a mockery to talk of a graduated income today, when Chase Manhattan Bank, for example, can pay about 4 or 5 percent income tax, and we the ordinary folk of this land have to pay 25 and 30 percent income tax. Then we no longer have a gradaated income tax, unless the English language has no meaning anymore. So I think the unfair tax burden, the inequitable tax burden has to be dealt with. I would like to make a certain number of specific proposals. First, of course, is that the military budget must be reduced even by much more than the $1.4 billion, that was suggested in the Senate the other week. It ought to be reduced, as William Wimpirsinger of the International Association of Machinists suggests, by at least $14 bil- lion. And we would still have enough to destroy the world many times over; but we might be able to devote some money to the needs of people in this country. I think that we need to go back to the principle of a graduated income tax, and start plugging up the loopholes so that the giant oil monopolies, and other giant monopolies begin to pay their fair share of taxes. It has been estimated that almost $140 billion are lost annually as a result of tax loopholes, taxes that should be paid by corporations. I would say also that I would join with one of the earlier speakers in opposing, and expect that the State of Michigan will oppose, and that the legislature will oppose the current call for a Constitutional Con- vention for a balanced budget. I am all for, as many people are, balancing the budget. I would like to see the budget balanced by cutting down the waste of the military budget,~ and by using the money for peoples' needs. At this juncture in our history, it would be a catastrophe for this convention to take place, and not only to deal with the balanced budget, but also to deal with many other questions, including our sacred Bill of Rights. And I would join with those who fear the calling of a Constitutional Convention at this time. PAGENO="0356" 348 Finally, I think that the Congress needs to act, not to provide some voluntary guidelines, because clearly, voluntary guidelines have not worked. We need effective legislation that controls prices. I am opposed to controls on wages, because I think that the bargaining process between corporations and trade unions will take care of wages; and they will seek their level. But prices must be controlled. And I think that, in addition to controlling prices nationally, and giving people effective tOols to work with locally, we can monitor prices, yes; but we have to have something to go along with that. And we can monitor prices locally if we know what the prices are supposed to. be. There is no standard for prices. In addition to price control, I would suggest that the committee look at legislation which deals with the manipulation, with the price- fixing, with the price-gouging, and with the withholding of resources from the country. I would commend the chairperson and Congressman Conyers for introducing the oil export bill. I agree with Mr. Wilbur that that legislation should be extended to include the domestic regulation of oil. It would seem to me that that can be carried even further. I think the people of this country are tired of being the victims of extortion by giant monopolies of this country. And it would seem to me that the Government ought to be on the side of the people, and that not only in the case of oil, but in the case of every industry, where they are trying to blackmail the people of this country. And that, if it is neces- sary, that the Govermnent opt to be on the side of the people to take over such industries, and to operate them on behalf of the people. Mr. CONYERS. That was an excellent statement. I want to fully associate myself with it, not only because of the logic and the force that it contained but also because it comes from one who has worked in community and political and civic affairs for his entire life. And I think it's reflected in your comments here today. Mr. ROSENTHAL. Thank you very, very much. We are going to take three people as a sort of a panel next, Beverly Ribaudo, Mario Cappolo, and Melissa Woods. Everybody tell us their name when they start to speak. STATEMENT or BEVERLY RIBAUDO, ST. CLAIR SHORES, MICH. Mrs. RIBATJDO. Beverly Ribaudo, St. Clair Shores, Mich. Mr. Conyers, you asked, why doesn't the American consumer get outraged. We are a group of outraged American consumers. Mr. CONYERS. You are outraged? Mrs. RIBATJDO. I am outraged. I represent a group of Michigan con- sumers called the "V.I.P.'s," very important people and very important protesters of constantly rising prices in the supermarket. We are doing something about it. We are acting. I worked with Benjamin Rosenthal and Fred Richmond in trying to bring about an investigation into high coffee prices. We started a boycott in Michigan, and successfully de- creased coffee prices 50 percent. PAGENO="0357" 349 In 1974 and 1975, we here in Michigan, the V.I.P.'s, initiated a sugar boycott which resulted in seven sugar firms being indicted for price- fixing, and sugar prices dropped from a high of $3.75 for a 5-pound bag, to an average price of 89 cents to 99 cents today. The solution to inflation lies in the American consumer, everyone of us here in this room. We are responsible for it, and we have to answer to it, and we have to solve it. Mr. ROSENTHAL. Tell us what's happening. Mrs. RIBAUDO. Any product we choose to show demand for auto- matically causes, as soon as we cry "demand," the industry cries "shortage." As soon as there is a shortage, prices rise, and the consumer wakes up and says, "Hey, I'm not going to pay this price. I'm not going to be taken advantage of. I'm not going to demand, and I'm not going to continue to purchase this product until the price drops." Mr. ROSENTHAL. Does it require dramatic action by the consumer? Mrs. RInAtJno. Yes; it does. Mr. ROSENTHAL. In what way? Mrs. RIBAUDO. The consumer has to be outraged to the point that they will not allow their pocketbook to be taken advantage of any longer. Mr. ROSENTHAL. There is a missing link in what you are telling us. Mrs. RIBAUDO. Where? Mr. ROSENTHAL. Why are you outraged? Mrs. RIBArmo. Why am I outraged? I don't consider myself low in- come, and I don't consider myself high income; but I have a tough time when I go to the supermarket. Mr. ROSENTHAL. That's what I want you to tell me about. Mrs. RIBArmo. I can go and buy an automobile, and I can finance it; but when I go to the supermarket, and my bill is $97, I have got to pay that bill with cash. Mr. ROSENTHAL. What do you get for the $97? Mrs. RIBAUDO. Not much. And if you are in the meat department, nothing. Mr. ROSENTHAL. Has the situation changed in any way in the last 6 months? Mrs. RIBAUDO. Yes. The situation, particularly in the meat industry has completely gotten out of hand. It's gotten to the point where I don't care what your husband makes, you can't afford to eat meat anymore. Mr. ROSENTHAL. Is the President's program working? Mrs. RIBAUDO. The President's program is not working. Our people in the Government in Washington just do not know anything about inflation in the supermarket. Do you shop in the supermarket as an individual? Mr. ROSENTHAL. Yes; I do. Mr. CONYERS. I handle that responsibility myself. Mr. ROSENTHAL. How do you feel? Mr. CONTERS. Outraged. Mr. ROSENTHAL. Lousy? Mr. CONYERS. There ought to be a law. Mrs. RIBAUDO. Are you outraged? We Michigan consumers have formed a meat protest. Join us and curtail your purchases. PAGENO="0358" 350 Mr. CONYERS. Now we are coming down to the action. This may be the missing link that the chairman was talking about. Tell us what your organization has been and is doing about it. Mrs. RIBAUDO. I've got exactly what we are doing right here to present to Mr. Rosenthal. Mr. CONYERS. Just tell me that. What are you boycotting? Mrs. RIBAur~o. We are protesting. The word "boycott" was too tough for the meat industry. They were scared. Mr. CONYERS. Maybe it was too tough for some of the housewives. Mrs. RIBAUDO. So we cooled ourselves. We had to modify ourselves. We calmed ourselves down. We are asking everybody to join the VIP's, the very important consumer protest against high meat prices. We are asking them to limit their meat purchases during May. We are asking them to use good judgment in any and all meat purchases that they might care to make. And that's, steer clear of all the high- priced meat. If you agree with us that meat prices are too high, use more imagina- tion and less meat in your menu planning. Substitute with poultry, seafood, and eggs, cheese, macaroni, meatless casseroles, salads, et cetera. Mr. ROSENTHAL. When you say "substitute with poultry and fish," what's happening to poultry and fish? Mrs. RIBAUDO. Poultry has gone up. Buy a good-sized chicken and make a good, healthy pot of soup, take the meat off the bones and make a chicken pot pie, add 10 pounds of potatoes to it, and a can of chicken soup, and the housewife can con her family into the fact that they have been to Frankenmuth for the best chicken dinner in the world. Mr. CONYERS. How long has your organization been working? Mrs. RIBAtmo. Since 1974. Mr. CONYERS. Let's be honest with ourselves. I think we have some common points of view here, and we have a common objective. Somewhere along the line, you and I and your organization are going to realize that by merely trying to change our diet and shop less, as nice as that is, and conning our family into thinking that soup and chicken is a meal, and that chicken is steak, when it all comes down, guess what, the food industry couldn't care less, because whoever is left out there that isn't doing that is still going to pay whatever they have to pay. Mrs. RIBAUDO. I don't agree. Mr. CONYERS. You don't agree? Then have you some indication that this movement will be the answer to the high prices that we are paying for food? Mrs. RIBAUDO. I think the protest against high sugar prices proved how powerful the American consumers' pocketbook can be. Sugar was $3.75 for a 5-pound bag. You won't have a problem finding it today for 88 and 89 cents for a 5-pound bag. Coffee prices are half of what they were last year. You were a very important party to that. You were a part of that investigation. You helped the consumer there. We were being ripped off by the coffee industry. We rebelled. We are the consumers, and we as a mass of people cut our consumption 25 to 30 percent, and it PAGENO="0359" 351 resulted in lower coffee prices. I am sure we can do the same thing with the meat industry. Mr. ROSENTHAL. How does it affect children and children's diets and things like that? Mrs. RIBAUDO. It doesn't affect children and children's diets. There are many good substitutes for meat. We are not telling them to cur- tail purchases completely. We are telling them to shop wisely, to use good judgment, to buy cheaper cuts, to use meat less often. You know a good omelette is just as nourishing for a child as a steak. A grilled cheese sandwich won't hurt a kid. Macaroni and cheese is not going to hurt a kid. Tunafish salad hasn't hurt anyone, either. Mr. ROSENTHAL. Mrs. Woods, what do you want to tell us? STATEMENT OF MELISSA WOODS, ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW Mrs. WooDS. ACORN is an Association of Community Organiza- lions for Reform Now. ACORN began its effort to monitoring corporation compliance with the President's announced program of price restrains in early Febru- ary, 1979. Our initial step was to write a letter to 99 major corpora- tions in the Detroit area, and an additional 82 in the Grand Rapids/ Kent County area. ACORN requested documentation of corporate price and profit data for the previous 3 years; and furthermore, requested that each cor- poration sign and return to ACORN a statement pledging support for an intent of adherence to the price guidelines. Our intentions and the initial requests were announced on February 15, 1979, at press conferences in Detroit and Grand Rapids. Over the following month a total of 29 responses were returned from companies on the original list of 181 to which letters were sent. Mr. CONYERS. What did you conclude from that? Mr. ROSENTHAL. Is that~ the lady that was supposed to testify before, that's in the back? Is that Mrs. Thayer? Why don't you bring her up, so she can get in on this testimony? Nice of you to come, Mrs. Thayer. Go ahead, Mrs. Woods. Mrs. WOODS. An effort has been made to direct those letters to cor- porations involved in food processing and retail, health care provid- ers, and major manufacturing or service corporations, since it was felt that price policies of these entities would have an especially big impact on the purchasing power of low- and moderate-income fami- lies, and the ability of the latter to afford the basic necessities of life. Of the 29 responses received, one corporation, North Detroit Gen- eral `Hospital, singed the ACORN pledge. and 14 others responded that they were in compliancewith the President's guidelines, and had notified the Federal Government accordingly. Of the remaining 14, either vague assurances of general intention to restrain `prices were given, or no assurances were given, at all. The Shell Oil Co.subseciuently notified other ACORN offices that it had been granted: an exception to the nrice guidelines altogether. The response was poor, overall. Less than 10 percent of the com- panies to which letters had been sent responded positively to our re- PAGENO="0360" 352 quest that the price guidelines be heeded. Consequently, we decided that further measures were necessary. An effort was made to concentrate on a few major companies whose price policies directly affected low- and moderate-income families. So on March 1, a delegation of ACORN members met with execu- tives from Shell Oil's regional headquarters, to discuss Shell's inten- tion to comply with the price guidelines. In the meeting, Shell basically refused to make any commitments; instead referring us to a pending response from the Shell head office, in Houston. The eventual response from Shell, as previously indicated, was to make vague statements of eoncern; and to cite the fact that it was not required to follow the guidelines. Mr. ROSENTHAL. What happened? Mrs. WOODS. They gave us a whole lot of hoopla about why they needed more money. All we wanted them to do was stay within the President's guide- lines. We weren't trying to control them. They told us the Govern- inent controlled them, and there wasn't anything they could do about it. Following this, concerned ACORN members assembled a car caravan on March 10, and visited local Shell stations, asking station owners to send telegrams to Shell headquarters in Houston, urging compliance with the price guidelines. Most of the station owners assented to our request, and sent the telegrams. What we did was, we blocked the gas pumps. We told them to send for their manager. Mr. ROSENTHAL. That's a direct action. Mrs. WooDs. Well, we already had our direction. We went to the company and we got nowhere. We thought we would go to the gas stations and block the gas pumps. We asked them to send telegrams. Some of them asked us, even our own organization, and we are from a low- and moderate-income level, they asked us to pay for the tele- grams. We did, and we got some response there. Then on our second effort, we went to the supermarkets. We focussed on two major supermarket chains in Detroit, Farmer Jack's and A. & P.~ and on Kroger's in Grand Rapids. We went to Farmer Jack's, and what we had was a shop-in. Farmer Jack's was pretty nice, and they signed our pledge. But A. & P. wouldn't; so what we did, we shopped in there and when we got through, we told them, "Oh, this is too much. Ten years ago, I could have gotten twice as much, and we don't have enough money now." And so we left the groceries there. Mr. ROSENTHAL. You did what? Mrs. WOODS. We left the groceries right there in the store. Mr. ROSENTHAL. You took the food, and left it on the counter? Mrs. WOODS. We left the `baskets lined up. Mr. ROSENTHAL. That's a very good idea. Mrs. WOODS. We told them that we couldn't afford to pay for it. They told us they would not send the telegram to their manager, asking them to stay within the President's guideline. And this is what we told them. We told them, "Your prices are too high. We can't afford them. They are going up too high and too fast. and our income is not going up at all." This is what we told them. PAGENO="0361" 353 Then, on the 25th of March, we went to the Public Service Coni- mission. We had 125 of our members present. Mr. ROSENTHAL. This is the Michigan Public Service Commission, which Mr. Anderson was talking about this morning? Mrs. Woous. Yes; in Lansing. We went there. We got to testify, which was supposed to be a first, you know; be- cause consumers are not supposed to testify against Michigan Con- solidated Gas Co. and the other utilities. Mr. CONYERS. What did you tell them? Mrs. WooDs. We told them that, "Hey, our gas bills have already gone up in the last 3 months. Why are they asking for another $40- some million? Where are we going to get the money to pay for it? We can hardly pay our bills now." We told them to do some research for us. Mr. ROSENTHAL. What are the words they used? Mr. Anderson told us the word they use~ all the time. The words the utility companies use, "severe hardship." Everytime the utility companies ask for a rate in- crease, they use the words "extreme" or "severe hardship," and "gross inequity." Mrs. WOODS. Right. Mr. ROSENTHAL. Are you having extreme hardship and gross inequity? Mrs. WooDs. We had people there on fixed incomes, senior citizens, some of them only getting $200 a month. We told them, "Hey, PSC, who did the research for me?" We told them, "You're supposed to be for the consumer. Do some research for us. Ask Michigan Consolidated Gas Co. where we're going to get the money." Mr. ROSENTHAL. Who told you that they are going to speak for the consumer? Where did you get that? Mrs. WooDs. That's what we assumed. We assumed they were sup- posed to be on our side, keeping the prices down to a level that people could pay and afford. The gas company has a monopoly on gas. Where else can you go to get heat? They pay a lot of money for lobbyists and for commercials on TV. Why? What for? You don't have but one place to go for your heat, and that's to the gas company. Mr. ROSENTHAL. Tell us your name so it's in the record. STATEMENT OF VIOLA BULLOCK Mrs. BULLOCK. Viola Bullock. We went to the gas company and paid them in pennies. Since they wanted our last pennies, we gave them to them. Mr. ROSENTHAL. Where did you get all the pennies? Mrs. BULLOCK. We had them cashed at the hank. Mr. ROSENTHAL. You had to go to the bank and get the pennies, and then you took them to the gas company? Mrs. BULLOCK. Right. Mr. ROSENTHAL. That sounds like a good idea. Mrs. WooDs. In Little Rock. Ark., we asked for someone from Al- fred Kahn's office to come and meet with our board. He didn't come, because he said he didn't fly on weekends. He sent one of his peons, Mr. Roy Leonard. PAGENO="0362" 354 We told Mr. Leonard that there should be no exception from the guidelines; no deregulation of gas or oil prices, mandatory price control on all necessary items such as food, housing, energy cost, and health care; and the institution of a windfall profits tax which would be used to develop alternative energy resources. So our conclusion was that the guidelines really just do not work. Mr. ROSENTHAL. How would you say the President's guidelines are working? Mrs. WooDs. It's not working. If anything, it seems to be skyrocket- ing. There seems to be a windfall-you know the word, "Hey, a short- a~ie of everything" all of a sudden. Just !the word "guidelines" itself sent everything up higher. Two months after the guidelines, every- thing in the supermarket was twice as high. Mr. ROSENTHAL. I just noticed in one of the Detroit papers, the American public says the guidelines are a failure. Do you agree with that. Mrs. WOODS. I agree wholeheartedly. The word "guidelines" took everything out of proportion; every- thing went up just like that. Where are we going to get the extra money? There is no extra money for a consuming person on a fixed income. Mr. ROSENTHAL. Mrs. Thayer, are you ready? STATEMENT OP LESLIE THAYER Mrs. THAYER. Yes. Mr. ROSENTHAL. That's a very famous name. Mrs. THAYER. Yes. Mr. ROSENTHAL. There is a hotel at West Point named after you. Mrs. THAYER. I go back to Dr. Rubin Thayer, a Minuteman from Concord. I'm sorry, Honorable Members of Congress, that my voice is not quite as good as it was. Mr. ROSENTHAL. Your voice is magnificent. Mrs. THAYER. I have had cancer of the esophagus, and recently my voice has been getting worse. Mr. ROSENTHAL. Do you want a glass of water or anything? Mrs. THAYER. I don't usually need it; but it might be. well. I wore out a typewriter ribbon to put something together for you; but it may not be what you want. Thank you for permitting me to report to you through the cour- tesy of the American Friends Association the problems which seem in- surmountable, and they are. While inflation affects all, inflation affects the elderly no longer in the labor market for salaries or wages, commensurate with the inflated dollars, and limiting purchasing powers of the seventies. I am 78 years of age and single. I have no family, no close kin. And I am living alone. I was born in Detroit, grew up in Port Huron with my paternal grandmother from the time I was 31/2 years of age, Mary Idumea Thayer, a Civil War widow, whb fell and had an unset, unrec- ognized fracture of the hip, and required my daily care for 10 years of 12 incapacitated years. PAGENO="0363" 355 I felt I must reenter office work, as I had obtained a teaching posi- tion, even at $40 a month, in 1932, which would not take care of some- one to care for my grandmother. I am a State of Michigan retiree who was an employment interviewer for 16 years, until February 23, 1963, when I took a medical leave of absence to May 31, 1971, when I went on mandatory retirement. I had not overcome abdominal surgery following peritonitis, and a neces- sary double-barrelled colostomy, which became badly herniated. I have cardiac conditions, plus subject to frequent viruses, all of which consume former wages with insurance for protection. Mutual of Omaha payment of $290 a month was worthless after 1 year; thus that pro- tection during the years 1963 to 1978 was lost. One policy was supposed to be for life; but a contradictory statement was made, which stated it was for only 1 year. My State of Michigan pension was merely $95.06 to mid-1978, when it was increased to $106.80. The old formula has not been changed. Mr. ROSENTHAL. Is that your total income, $106? Mrs. THAYIER. No; that is the State of Michigan. Mr. ROSENTHAL. You get $106.80 from the State of Michigan? Mrs. THAYER. Yes; that is for 16 years. When you compare that with the Federal, boy, I wish it had been Federal! One is in the State of Michigan Legislature now. If I had been with the UAW or the Federal, I would be receiving $20 times 16 years, which would be wonderful, and fringes, TJ.S.E.S., March 1942 to Novem- ber 15, 1946, plus 13 months at Fort Wayne Ordnance, being one of the first 10 hired under the Civil Service Act. This Federal annuity has magnificently increased from $11 in 1955 to $69 last month. Social security, after illness for a year, from February 23, 1963 to mid-1964, was $125.40. This and Federal annuity were the only income I had during the years preceding my retirement from the State of Michigan. I had given up on reparative surgery in 1971, when I was 70 years of age. Too many housing moves on account of a physical condi- tion can readily be seen with a very enlarged abdomen. The combined income today, with many increases in social security, puts me above the poverty line for the majority of programs for senior. The disability does not enter into the guidelines. As for housing, I am fortunate in that I was able to apply for River Towers 18 months prior to completion, on account of my high pharma- ceutical bills. I am subsidized, and this takes care of my electricity, heating, and limited use of gas. There are problems with the winter heating, but my million-dollar view of the water and Belle Isle makes me grateful for my vision. On account of emphysema and other conditions, I am very much in need of a wall-to-wall air-conditioner, as my walking and strength are limited. Marvelous sonar pours down the river, and broke a thermom- eter at 123° in March 1978. Wages. How to finance or pay wages for a domestic aide in the apartment. Mr. ROSENTHAL. Tell me, Mrs. Thayer~ how are you getting along? Mrs. TnAYER. I just dread the eiid of 1979. I don't know what I will do. I do know that with my cardiac problems, I can't get down and scrub any floors. I have been in three convalescent homes. I was fortu- nate to get into the Georgian East at one time. PAGENO="0364" 356 Mr. ROSENTHAL. How are you getting along financially? * Mrs. THAYER. That's what I mean. The end will come. How to finance or pay wages for a domestic aide in the apartment, when wages consume all my income. Then the social security and un- employment tax was added on January 1, 1978. No one informed me of this unemployment tax, and the MESC representative did not know until I told her the trouble I was in with the Federal and State Gov- ernment. Consider a minimum wage of $2.90 an hour for 35 to 40 hours week- ly, for 7 days part time, times 13 weeks, and that's over $1,000. If this occurs in any one quarter, the wage is subject for the entire year. This does not include the taxes. I am frustrated that I cannot do more. My day begins at 7 a.m., although I am awake much earlier, and ends at 11:30 p.m., or later. My feet swell during the day and I have to take a cardiac tablet and 15-minute rests. My restricted diet requires food preparation plus personal care, partial sponge bath, assistance with colostomy. SHORE services would not do all that, with a limitation of 16 hours, to which I am not entitled on account of my income, and over $1,500 in reserves. The $1,500 would not pay a woman for any time beyond 16 hours, nor cover 6 months. Mr. ROSENTHAL. I just want to try and tighten this up a little, if I can. What is your total income? You get $106 from Michigan? Mrs. THAYER. It's under $500. I can't pay $500 a month for wages; so what am I going to do? Mr. ROSENTHAL. Do you do your own shopping? Mrs. THAYER. No. I have to have my shopping done. This is the first new dress I have had since 1962. Mr. ROSENTHAL. One new dress since 1962. i\'Irs. THAYER. One new dress of my own choosing. Since March 1965, I can't cross the street. Mr. ROSENTHAL. Who does your grocery shopping for you? Mrs. THAYER. The Quakers, the American Friends Society. Mr. ROSENTHAL. How are you doing financially with the shopping? Mrs. THAYER. They do the best they can; and they are not as careful as I would be. When you shop for yourself, you can decide what you can do with- out. You will hear in just a second. I'll try and talk faster. Mr. ROSENTHAL. No. Don't worry about that. Mrs. THAYER. There has been a limitation on the type of food I can swallow since the effects of cancer on my esophagus, in April 176. Mr. ROSENTHAL. I think it would be a good idea if we just took your statement and put it in the record. That is not an uncommon thing; and that will keep you from having to strain yourself as much as you are doing. Mrs. THAYER. I can do it, sir. I will talk faster. Mr. ROSENTHAL. I don't want you to talk faster. I don't want you to knock yourself out. Mrs. THAYER. I won't. There are things you ought to know. I wrote Contact `10 about this problem of income tax, and gasoline for a woman to drive a car. And I didn't get any response from Con- tact 10. I sent Senator Griffin a copy, and also Governor Milhken. Senator Griffin tried to help me, and I'll mention that possibly later. PAGENO="0365" 357 I have not been able to swallow solid food since April 1976. Simi- larly cheaper foods prior to 1963, and restricted diet on account of con- ditions after abdominal surgery are too costly, if I could swallow with- out choking, coughing, or abdominal and intestinal distress. I have a danger of blockage. I cannot eat food with skins, or containing seeds. I cannot eat roughage. Fresh fruit and fresh vegetables must be pureed. This takes time. Baby foods are too expensive, insufficient in quantity. And food is wasted on containers. Without lower dentures, I cannot bite a mouthful. Beef and lamb are too high, and then with the added cost of a domestic to cook and puree the food, my costs double. I cannot eat bread; I cannot eat fried foods. Even costly hamburger has too much fat. I do need someone with me to assist. I've got a good woman now. She was away for awhile, and I didn't get anyone in her place. Mr. ROSENTHAL. Mrs. Thayer, do you have any recommendations for the President of the United States or the Congress? Mrs. THAYER. Yes. Mr. ROSENTHAL. What are they? Mrs. THAYER. I would suggest thatsomeone introduce a bill in Con- gress, which I hoped Senator Griffin would have done, that a person who is disabled after a long, prolonged period of trying to maintain themselves, that they haven't been subject to FICA and unemployment. It's a whole lot less expensive to keep them in their own homes until they run to zero, than to have them paying out social security. Mr. ROSENTHAL. Let me ask some of your associates, have each of you had a chance to tell the President what we should do about this inflation, and other current programs? What would you say, if you could tell us something in 30 seconds? Mrs. WooDs. I would say, make the guidelines mandatory; voluntary is just out. Mr. ROSENTHAL. What would you say? Mrs. RIBAUDO. I think President Ford had the best idea, when he started his "Whip Inflation Now" campaign a few years ago; and if he had had the guts to stick with it, and had brought the consumer into it, it would have worked there. Mr. CONYERS. What did it do? Mrs. RIBAUDO. It didn't do anything. Mr. CONYERS. What was it supposed to do? Mrs. RIBAUDO. It was supposed to whip inflation now; it was sup- posed to get the consumers working together to whip inflation. Mr. ROSENTHAL. What would you want to tell the President in 30 seconds? Mrs. BULLOCK. I wouldn't want to tell you. [Laughter.] Mr. ROSENTHAL. I want to thank all of you very much. Mrs. THAYER. Can't I finish? Mr. ROSENTHAL. We have to move on. Mrs. THAYER. I worked 16 to 25 hours on this. Mr. ROSENTHAL. I want you to give it to me, so I can read it, and Mr. Conyers can read it. Mr. CONYERS. We promise we will read it. Mr. ROSENTHAL. We will give copies to the members of our subcom- mittee. We are going to have it printed in the record, and we are going to send you a copy of the record. PAGENO="0366" 358 Give it to Peter Barash, on the subcommittee staff, and he's going to give it to me. Mrs. THATYER. Not even a visiting nurse in 1977 could complete their program. I was down to Harper Hospital for a cancer checkup, and I didn't get a checkup. I think my throat is worse. I think there are things I shoald have, that I am not having. Mr. ROSENTHAL. Will you just give that statement to Peter, and we will include it in the record. [Mrs. Thayer's prepared statement follows:] PAGENO="0367" 359 Leslie Grace Thayei. 375 01 6666 A Rier Towers Arertments, #901 7800 E. Jefferson, Detroit, Mich. L~82lL~ Valley L~-061l Honorable Benjamin S. Rosenthal, Ch~rman, Uornmerce Cdnsutn5F ~dEonetary `1 Affairs, Subcommittee of Committee on Govt. (-4- ~-v~ ~/~t~' U~;' (1?~~-e-z& ~~0perations and ~ `~ / Thank you for permitting tee to report to you through the courtesy of the American Friends Association, the problems which seem insur- mountable. While inflation affects all; inflation affecting the elderly, no longer in the Labor Market for salaries or wages commensurate with the inflated dollars and limited purchasing power of the 70t8 Bac~ground I am 78 years of age (5-l6~l90l); single; no family; no close kin; alone. I was born in Detroit, (Gerkrpan); grew up in Port Huron with the ~aterna1 grandmother from 3~a years of age. Mary Idumea Thayer, a Civil War widow, who fell and had an unset, unrecognized fracture of hip, and required my daily care for 10 years of 12 incapacitated. I felt that I must re-enter office work, as had not obtained a teach- ixfi ing position, even at $t~o a month in 1932, which would not take care of someone to cqre for my grandmother. I am a State of Michigan retiree, who was an Employment Interviewer 16 years to 2-23-1963, when Medical Leave of Absence WIThOUT SALARY to 5-31-1971, when maddatory retirement. I had not overcome abdominal surgery, following peritonitis, and a necessary double barreled col- ostomy, which became badly herniated. Cardiac conditions plus subject to frequent viruses; all to consume former wages with insurances for protection. )JTI~F MUTUAL OF OMAHA $290 a month was worthless after one year, thus that protection during theee 1963 to 1978 years was lost, ~ne policy Was supposed to btQ for life, but contradictory statement of one year). My State of Michigan pension was merely $95.06 to mid 1978, increase to $106.80. The old formulae has not been changed. One is inState of Michigan Legislature now. (If I had been UAW-CI0 OR FEDERAL, I WOULD BE RECEIVING $20 x 16 years, which would be wonderful; and FRIN~S U.S.E.S. 3-2-1i2 to ll-l5-I~6; plus 13 mc. at Ft. Wayne Ordnance, (one of first 10 hired under civil service CAF ii). This Federal anntity has magnificently increased from $ll.00in 1955 to $69.00 lest month. PAGENO="0368" 360 Income Social Security after illness for a year from 2-23-1963 to mid l96L~ w~5 $l25.(~0.. This end Federal annuity were the only income I had during years preceding my retirement from State of Michigan. I had given up on reparative surgery in 1971; aged 70 years. Too many housing movas on account of physical condition, readily seen with very enlarged abdo- men; and finances. The combined income today with many increases in Social 5ecurity puts me above the poverty line for the majority of programs for Seniors. The Disability does not enter into guide lines. I. Housing - In that I am fortunate that I was able to apply for River Towers 18 months prior to completion on 5ccount of my high pharma- ceutical bills, I am subsidized. This takes cpre of electrcity; heating, and my limited use of gas. There are problems with the winter heating, but my million-dollar view of the water and Belle Isle makes me grateful f or my vision. (On account of emphysema and other conditions, I very much need a wall-through-well air conditione. as my walking and strength are limited. Marvelous sonar heat pours down the river and broke a thermometer at 123° in March 1978. II. Wages - How to finance or pay wages for a Thmestic-Aide in the apt. when wages consume allj~iyjncome. Then the Social (FICA) and Unem- ployment tax, which was added 1-1-78. NO ONE INFORMEDNE OF THIS UNEMPLOYMENT TAX AND MESC REFERRAL DID NOT KNOW FROM STAGE OFFICE -~ S UNTIL I TOLD HER THE TROUBLE I WAS IN WITH FEDERAL AND STATE GOVT. Consider minimum w5ge $2.90 hr. f or 3~ to L~O hours weekly for 7 days part time x 13 weeks, ~nd it ds over $1,000. If this occurs in any quarter, wage is subject for entire year. This does not in- clude taxes. I am frustrated that I cannot do more on my day from 7:00 AN; awake much earlier, to 11:30 PM or much later. Feet swell, cardiac tablet and l~ minute rest. My restricted diet requie-es food prepar~ticn plus personal c5re needed; sponge bath partial; assist with colostomy, et al. Chore services would not do all that and limitation of 16 hours to which I am not entitled on account of income and over $l~OO reserves $1SOO would not pay a woman for time beyond 16 hours; nor cover ~months. Food - type needed with limitation on what I can swallow since effects of PAGENO="0369" 361 c9ncer of esophagus in L~-l97b, which left 3/16 swa1low~ng tube to stomach. I q'~m ~fraid to drop the Oster for pureefng food, as balance is often poor~ arthritic fingers, and energy aK~time, when already full day. Mofe later~ on prohibitive -costs of food. I do need someone with me to assist. III. Food - I CANNOT SWALLOW SOLID FOOD SINCE 4-1976. Formerly cheaper fpods prior to 1963 andrestricted diet account of condi- tions after abdominal surgery are~oo c~st1y, if I could swallow wi th- out choking, coughing, or abdominal and intestinal distress; danger of BLOCKAGE. NO SKINS: SEEDS: ROUGHAGE: FRESH FRUIT: FRESH VEGET- ABLES WITH FEW ECCEFTIONS, ALL MUST BE PUREED. THIS TAKES TINE. Baby foods are too expensive; insufficient in quantity; food wasted on containers. -. without lower dentures, i cannot bite a mouthful. Beef end lç~ib are too high; then 5dded cost of Domestic to cook and puree, costs double. No bread to help fill the stomach. No fried foods. Even now costly hatburger has too much fat to be skimmed off; or many~roa~s. Doubles cost of preparation. An exception Was made with seeds of strawberries; must be pureed. I can eat puddings, jello, milk, cottage cheese, vanilla ice cream, cake - or plain cookies soaked in milk until dissolved into bits. Paper products, (~L)Stnean a lot; cost of domestic to launder towels rather than cost of paper towels, ad infinitum. 1 Dehtures are needed, when I cannot bite a mouthfijl. EVEN MEDICATION TAB- lets must be crushed andcapsules emptied. I do these things myself naturally. Many medicinal preparations in liquid to avoid problem. IV. Transportation - Rarely secured. Problems of single; over $300 in- come; dont go outside city limits; dent come this far into city. My * abdominal c5re~ made Harper Hospital forenoons for ent~we denture impossible. Michigan Cancer Foundation has been wonderful to me. Headquarters and East Side have provided taxi when for cancer check-up. But I thed someone with me to push wheel chair, or assist with bathroom calls by nature. No transportation on days which doctor would be in the office. Exception has been made, but diffinolt for them. V. ORTHOPEDIC FOOTWEAR NEEDED AND TRANSPORTATION FOR SAME IN AFTERNOON. I dent like to risk en accident in someone's c8r. Feet neglected in recent years; now degenenative arthritis plus swelling of feet from circulation and cardiac conditions. (CO~ ME MOEN MONEY FOR DOMESTIC TO WRA~) MY FEET AND LEGS IN BANDAGES AFTER FOOT BATH. AM.~- ONE I HAVE DONE MYSELF. TODAY I SHALL JUST USE SUPPORT HOSIERY: SAVE TIME. Medic~tiori for swelling affects kidneys; 18-21 trips in 12 hrs. I did without today. What good to elevate feet for rest when kidneys make so much problem. / VI.Cos~c7f~ Medication by prescription W~s ~ *~1P9.141~ from HENNESSY'S PHARMACY KINDLY ITEMIZING ALL PRESCRIPTION DRTSGS Over the Counter is extra. These are not covered by Medicare. Some from Aetna. VII OSTOMY SUPPLIES WHICH ARE ONLY PARTIALLY COVERED BY MEDICARE. ONLY THE APPLIANCE: NOT OTHER ESSENTIALS TO AVOID ACCIDENT. MICHIGAN CANCER SUPPLI~S THE CANCER PADS, ROTH FOR -&,L& L~T from ~ proced- ures in t~-l97S at Harper Hospital. - 52-21k 0 - 79 - 2'4 PAGENO="0370" 362 VIII INSURANCE - NeturallyMedicere which consioers `a high risk". Blue Cross from beginninghad to be drojped when State of Michigan in l97~ gpve Ri~tirees hospital insurance. Then they dropped Blues in 1976 and substituted Aetna Life & Casualty. (I have numerous un- resolved claims as I do not get time to s~ o~_and compare what has been paid, and wj~y or why not; and then they want copies of whet Medieare paId.. When I have ftth~t is my receipt; and I do not take or have the t.dw~I{'~except late e~en~ng when too tired. (This summary has taken hours, neglecting all else.' Just too tired moat of time to accomplish)~ At 80% of what Medicare did not pay, it leaves a huge 2O~ for l~rger claims. Fortunately the ho~pital costs have been covered. (3 hospitals in 1976; a week 197~ for Bon Secour ch5rg Mutual of Omaha since 19146, a small policy(pays $5 daily for hosrital room, which keeps me fnom annoying roommate with ostomy care. American .~ssoci9tion of R~tired Persons through ~olonial Penn is a small help. Two prolonged stays in convalescent homes, it paid 80% after deductible. I cannot keep up with papr4~iork N~ed clerical help for which I cannot pay. ~r,2. 5~u ~ -~ ~ti fkfrA~Z ~(-I~s- American Community Association, Plymouth, Mich. pays $10 day when in hospital, thus gives me private room and not burdensome paper work. This has been used 3 x 1976; one week in Bon 5ecour - 1-1979. When stays are 30 days, 10, 8, and 39 that is too good to drop. There is a small Mutual for cancer, which was paid to Bon Secour in 1976, but ought to have been paid to me who kept policy many years, when polio was a danger. That saved-Aetna and Medic9re. Oh, for the $500 now for wages. Of course Medicqre is deducted from Social; and State of Mich. ~ prys Aetna I HAVE INSURANCE MATTER FROM 1976 to take up 2nd time with Colonial Penn for turning down Rehabilitatioq~I~stitute~ as a hospital, when recognized by State, BluesTTPie~dicgre, et al. That mon91y would pay wages as I was thereover 3~days, which added to Bon Secour;t~Butzel, and Harper would give me far o~~Er 31 days. Anothee thing postponed; just too tired! I took sleeping capsules 2 nights as I have tried 3 days towrite~iiis. How these are bits left over. Above composed on typewriter after re-writing earlier parts 8titnes. I do not have peoperty, nor ever had. Nor owned an automobile; no license Limited driving experience in an old jalopy in Port Huron scared me for Detroit; no money for lessons. Everyone would heve to get off the road. I would not take chances. I have done without during my life rathe than go into debt. H,,d good credit, as I could formaly pay my bills, or did without. I did not work for years; and did not have $10,000 ,,t any time. Care cbf grandmother; high school part time 5 years for Jr. & Sr. years; colige part time;... College tuition was given me by great uncles'., widow for letters and help in genealogical work in 1920's for book she was publishing. And then no teaching; depression years. X Not even Visiting Nurse Association in 1977 could complete their program in time allottèBThf 3½"hrs; nor `1½ for colo~omy c8re; thus I paid 14 hrs. dailyfor months. Problems then arose with Social Security for which I on paying for gasoline equivalent to bus tickets, at al. Wont someone introduce a bill in Congress to~bsolve a disabled person from Social end Uneployment when they cannot survive long without ~,\ stagnation in convalescent home at government expense and without HOPE. End of line. This j~s partial; I need Help; How? Capdiac AnswerS (:?~) ~ `~{~ ~ ~. PAGENO="0371" 363 Mr. ROSENTHAL. Our next speakers are Frank Steiner, Michigan Committee on Law and Housing, and George Covintree, Jr., South- eastern Michigan Food Coalition. Mr. Covintree? STATEMENT OF GEORGE COVINTREE, JR., DIRECTOR, SOUTHEASTERN MICHIGAN FOOD COALITION Mr. COVINTREE. Do you want me to go first? Mr. ROSENTHAL. The floor is yours. Mr. COVINTREE. Mr. Chairman, Honorable Members of* the House Subcommittee on Commerce, Consumer, and Monetary Affairs, and staff. I wish to thank you for giving me the opportunity to speak to you today. I am glad you have chosen to come to Detroit. My name is George Covintree, Jr. I am the director of the South- eastern Michigan Food Coalition. SEMFCO is the creation of churches and hunger organizations from across southeastern Michigan. It is also one of 17 projects in the coun- try sponsored by the National Council of Churches, Hunger, and Poverty Working Group. SEMFCO is comprised of concerned individuals, churches, ecu- menical, and community organizations and volunteers, and includes Livingston, Macomb, Monroe, Oakland, St. `Clair, Washtenaw and Wayne Counties. Serving as both an umbrella organization, and as a catalyst for action, the coalition addresses a wide spectrum of hunger issues that affect the entire region. The impact of food inflation, along with inadequate public assistance programs and food marketing, are three of the major contributors to hunger and malnutrition in south- eastern Michigan. Over half of Michigan's people live here. Southeastern Michigan has 55 percent of the State's poor families, according to the Federal defini- tion of poverty-$6,200 for a family of four. Thirty percent of these families live in the city of Detroit. The area houses the State's largest black, Latino, Middle Eastern, and native American populations. Of its residents, 8.6 percent are over 65 years of age. During the past year, SEMFCO has concentrated its efforts on the new food stamp program, emergency provider issues, and the creation of a slide/tape resource, "Bringing It Home," on hunger and malnutri- tion in southeast Michigan. I would like to share with you some of our findings and concerns. Food inflation hits us all. Food costs in 1977 and 1978 grow higher than ever. In the first 3 months of 1979 alone, food inflation was a staggering 4.6 percent. When Congress revamped the food stamp pro- gram in 1977, it estimated that consumer food prices would increase by less than 4 percent a year. This error in crystal-ball gazing would seem slightly humorous in light of today's prices, if it were not for the fact that this 4-percent project became the base for the cost ceiling, the cap, of food stamp program. Mr. ROSENTHAL. What does that mean? Mr. CONYERS. That's the limit, the amount of money available for the program to run for 4 years, has been set on a 4-percent standard of food inflation. PAGENO="0372" 364 The suggestion is, the Department of Agriculture will have to begin cutting food stamp benefits for 4.6 million families by one-third across the country, beginning July 1, 1979. It seems like somebody has been cutting food stamps already. Mr. COVINTREE. The sobering reality is, if the cap is not removed, the Department of Agriculture will have to begin cutting food stamp benefits for 5.6 million families by one-third beginning July 1, 1979. There is a good chance, that the food stamp program could be finan- cially exhausted by August or September of 1980, a casualty of food inflation, unable to give a single benefit. Throughout March and April, advocate groups like SEMFCO have been working to get the Congress to remove the cap. Last week, the Senate and then the House approved lifting the cap, but to a figure far short of what is needed to keep pace with real food costs. Because of this critical situation, a discussion of liberalizing eligiblity require- ments, or of improving food stamp benefits, is sidetracking the issue until the cap is removed. As it stands now, food stamp benefits ex- tended to one group will have the effect of reducing the benefits of another. The poor must not be divided into "deserviiig" and "not de- serving" categories. The average American spends over 18 percent of his or her total income on food, more than is spent on housing, travel, or recreation. But those with low incomes may spend up to 70 percent of their in- come to eat. Surprisingly enough, this figure is comparable to the amount spent by workers in Third World countries. The new food stamp program is based on a figure, 30 percent figure, of total income spent on food. The high percentage of income spent on food is often a reflection of the marketing options available to the consumer. In many areas of southeast Michigan, as well as in parts of the city of Detroit, there is no access to either public transportation and/or major food chain stores. The town of New Haven, in Macomb County, has only one small grocery store to service 4,000 residents and has no public trans- portation to enable its residents to get to the nearest large grocery chain store. In Detroit, the area from the riverfront to Highland Park, bounded on the west by the Lodge Freeway and on the east by the Chrysler Freeway, has not a single major chain food market. Yet the area con- tains large numbers of low income and the poor working residents. By comparison, Birmingham, Mich. has 10 major chain supermarkets for a population of 25,000 people. According to Groce~rs' Spotlight Magazine, there are one-third fewer major chain stores in Wayne County now than there were iii 1974. Redlining has had its effect on food marketing. Food prices in the small and medium stores that have remained in the city are 30 to 35 percent higher for the same products than prices in large chain food stores. Despite all of this, recent studies have shown low income and food stamp shoppers alike, contrary to popular myth, are good food budg- eters. Is it any surprise? They have to be. Since 1970, the food items most often eaten by poor and working- class families have skyrocketed. From 1970 to 1974, the price of marga- rine rose 63 percent, which butter rose only 9 percent. Hamburger in- crease 60 percent, while Porterhouse steak rose only 38 percent, dried PAGENO="0373" 365 beans rose 256 percent, and rice 124 percent. While this upward spiral in food prices may top 36 percent by 1980-compared to 1976 price levels, Congressional Budget Office. Food stamp benefits are being re- duced. The old program provided a maximum benefit of 42 cents per person per meal. The new program gives 36 cents, not enough under either program to buy an ice cream cone at today's prices. Hit hardest by the new reductions are the working poor and the elderly, especially in the northern industrial States like Michigan, where utility costs are high. According to the Michigan Department of Social Services, 115 of the State's A.D.C. clients will be cut entirely from the program, while 70 percent will experience reductions. Since January, the elimination of the purchase requirements has been in ef- fect. Conversion to the new program began March 1, and will be com- pleted in July. Figures from the Department of Social Services concerning the new program are not yet available; but there was an 8 percent reduction in the participation rate in January, while there was an increase in house- holds for the month. Simply stated, large families did not participate; small one- or two-person households did. Long lines, confusion and de- lays have marked the first 3 months of this year. Since January, I have received many calls from food stamp reci- pients, community groups, and emergency food providers, all asking the same question, "How can someone get by on $10 in food stamps?" "How can I feed my family of five on $22 a month ?" "Why should I wait in long lines for food stamps anymore ?" Mr. CONYERS. Why is it that the large families did not participate? Mr. C0vINmEE. One of the things that happened was, that for the small amount of bonus dollar the family would get, it was not worth it to wait in the long lines, or go through the hassle anymore. Many seniors have been cut to the bare minimum of $10 a month in stamps. Ideally, each is to use their cash plus the stamps to buy food. But in a Michigan winter with high fuel costs, and poor notice by the Department of Social Services to allow for it, and planning, seemingly, extra cash went quickly. As the end of March and April arrived, more families and indi- viduals depend on emergency food centers throughout the region for assistance. When inflation hits individuals hard, the effect on emer- gency food providers is multiplied in terms of the number of people to be served, and the money required to provide the service. The Lighthouse pro.~ram in Pontiac ran out of food as demands increased at the end of March and April. The Capuchin Community Center, and the Salvation Army in De- troit, both have experienced large increases at. the end of April. Since last January, the Capuchins have had to supplement their donated food by spending $900 to $1,000 per week to provide food baskets for 20 to 25 people a day. To serve a growing number of people, the Capuchins are running into tremendous financial limitations. Be- cause of the increased demands, the Capuchins have had to restrict the area they will service, to keep within their budget. They have gone from a citywide program to one that serves two zip codes on the east side of Detroit. Inflation hits us all. During the last 2 weeks of April, the Capuchins experienced a large jump in the number of people taking part in their noontime meal-from 480 to 520 a week. PAGENO="0374" 366 Are more people than ever running out of food and food stamps be- fore the end of the month? Again, figures from the Department of Social Services for the months of February, March, and April, are not in, so there is no way of knowing except by seeing what happens at local community and emergency resource centers. Advocate groups agree that it will not be until July that they will truly begin to see the effects of the new food stamp program on the poor. While people with high incomes have the option to "buy down" to cheaper foods, how can you continue to buy down on a $25 a month food budget? As one senior citizen who receives the $10 a month food stamp allow- ance stated: "I know inflation hits the big executives too; but then, they don't have to go without food." By the way, her reduction was reduced from $58 to $10 under the new program. All SEMFCO is aware that our local hunger and malnutrition con- cerns are a small part of an ever increasing worldwide food crisis, the crisis is not caused by a shortage of food. It results from a world eco- nomic order that guarantees the unequal distribution of food and other resources, and that operated for profit, had to be at the expense of us all. The military-based economy which we have developed creates a productivity that leads to uselessness, rather than meeting real human needs. And the consumer foots the bill every step of the way. Mr. ROSENTHAL. What is this chart right behind your testimony? Mr. `COVINTREE. That is a comparative shopping list. That part of it comes from the American Friends Service Committee group that did a survey in January, with additional items we used to document our slide show. Mr. ROSENTHAL. What does it show? Mr. COVINTREE. It shows the increase in food prices in the small inner-city markets. On the whole, on the items that we used, we found that there was a 30-percent, 32-percent increase in the items; but indi- vidual items could sometimes be higher, such as Del Monte green beans, there was a 71-percent difference from a suburban market to the small inner-city market-which was on the east side--based on a sur- vey of the interns and community services. Mr. CONYERS. Mr. Covintree, I get the idea and the impression that seniors are experiencing a larger reduction in food stamps than any- body else? Mr. COVINTREE. I don't know that seniors are. I k:aow there are a number of folks who are. Again, for ADC clients the automatic eligibility that used to be under the old program, has been dropped under the new food stamp program. People for whom, again, as Mrs. Thayer stated, the poverty line is now the limit for the new food stamp program. Many ADC clients who have a job and who are working, as required by their ADC grant, go over the poverty line, and therefore, they are no longer eligible for food stamps. A lot of the concern with the cap issue is, if the cap isn't removed we are going to-and some of these other con- cerns about the inequalities in the program-we are going to end up PAGENO="0375" 367 taking away, robbing Peter to pay Paul; and choosing which of the poor are more deserving. Mr. CONYERS. We are supporting legislation to raise the cap, which is working its way through `Congress. This is excellent testimony. Are you ready? Are you Mr. Frank Steiner? STATEMENT OP PRANK STEINER, EXECUTIVE DIRECTOR, MICHIGAN COMMITTEE ON LAW AND HOUSING Mr. STEINER. My name is Frank Steiner. I am the executive direc- tor of Michigan Committee on Law and Housing. I will try and summarize `my statement. Mr. ROSENTHAL. Without objection, your entire statement will be included in the record. Mr. STEINER. I have one other document I would like to have made a part of the record, if it is possible; and here are 10 copies for mem- bers of the committee. It's a report on lending activity in the Detroit metropolitan area. I will make my general two or three major points, and then give our `major illustration of the structural problem in housing and in- flation, that I would like to talk about today. First of all, we are somewhat concerned about the use of the term "inflation" in a very, very general way. The public seems to be led to think that all price increases, whether or not they pertain to this or that given item, are part of what we have come to call "a general inflation problem." And that anything that exceeds some standard of real growth in the economy is, by definition, inflationary. However, our concern today is, we have many other priorities than consistency and lineality of economic growth in this Nation. We have economic opportunities; we have a goal of a suitable home and living environment for every person. Mr. ROSENTHAL. I would like to interrupt. I had a meeting in my district in New York a couple of weeks ago, on the Community Reinvestment Act. I see you have done a lot of work on that. Have any branch applications been denied, as a result of your activity? Mr. STEINER. Not yet, as a result of ours. You may know that the FDIC united with the Brooklyn branch on the basis of that. Mr. CONYEIIS. Do you have any challenges in? Mr. STEINER. We have sent the contents of this report to the regu- lators, and it's being considered for some branch applications that are up, right now, to the Comptroller of the Currency. Mr. ROSENTHAL. We are interested in knowing whether this law is working or not. Mr. STEINER. Let me move right to that part of my testimony, be- cause I think it's relevant. The report you have, what we did on the Community Reinvestment Act, examined all the conventional and Government-insured loans, the 11 major banks and S. & L.'s that are based in Detroit, for 1977. PAGENO="0376" 368 What we found is, that for all categories of loans, less than 1.3 per- cent of all of their loan value was made in Detroit's low- and moderate- income areas. Now, today, I have gone beyond that finding; and we have figured out the average loan value made in Detroit's low- and moderate-income areas, as opposed to all other areas. And on page 3 of my testimony today, I would like to discuss for a minute the differences, and what it is costing lenders to do some business in low- and moderate-income areas, and try to comply with the Reinvestment Act, as opposed to the costs outside of those areas. The average conventional mortgage in Detroit's low- and moderate- income areas in 1977 was $28,807, and in the outlying areas, it was $34,376. So, we see approximately a one-third greater cost in terms of the use of funds in outlying areas. In home improvement loans, you would expect perhaps the reverse, that older homes in the central city would require more home improvements. In Detroit's low- and moderate-income area, it was $3,741, and for all other areas, it was $4,140. Finally, and something that surprised us most of all, the average FRA-insured or VA-insured loan was merely $10,576 in Detroit's low- and moderate-income area, as opposed to $30,639 in all other areas. What surprised us more about that was the fact that even on Gov- ernment-insured loans, the vast majority, more than 98 percent of those loans by lenders, are being made outside of Detroit's low- and moder- ate-income areas. Mr. ROSENTHAL. Even though the bank is located in the central area? Mr. STEINER. Absolutely. Mr. ROSENTHAL. And presumably they get their depository funds in the community? Mr. STEINER. They are located in the area, but they have branches throughout the metropolitan area in most cases. What we further calculated then was, that one can assume that the cost of lending in the central city is less, and yet, they refuse to make more than 1 or 2 percent of all their loans in Detroit's low and `mod- erate income areas. Mr. CONYERS. Are we talking about banks and S. & L.'s? Mr. STEINER. Yes. We are talking about 11 major Detroit-based banks and S. & L's. Mr. CONYERS. Are there any exceptions to this policy by any partic- ular institution? Mr. STEINER. In our report, the final chart is a ranking; and the one lending institution that made a significant percentage of its loans within Detroit's low and moderate-income areas, I believe, is Detroit Federal Savings & Loan Association, which made more than 30 percent. It's the table towards the end. I don't have my copy. Mr. CONYERS. Is this because it's more profitable to do it elsewhere, or what? Mr. STEINER. We are not quite sure. It obviously costs more to do it elsewhere. We believe it speeds an inflationary cycle in the housing market, the choice of suburban and exurban land, destroys farmlands. PAGENO="0377" 36g It feeds into the housing costs in the $150,000 to $200,000 range. We don't have an explanation for it. The lenders say there's just no demand. We are skeptical. Mr. ROSENTHAL. That's not true; and what they are doing in Brooklyn and New York is, they have testers go in and people apply for loans. And we are going to get an honest count on whether or not there really is a demand. Mr. CONYERS. Has your committee thought about doing something like that, so we can get a measurement here? Mr. STEINER. It's being discussed now. Mr. CONYERS. I would urge you to do that. Maybe you can examine the experiment in New York and see how it works out. Mr. STEINER. May I make one other comment? We calculated for today, that if the banks involved had made a greater proportion of loans in low- and. moderate-income areas, so as to make their average loan amounts less than $26,000, say $17,000, they could have made 50 percent greater loans in 1977, 30,000 more hoiis- ing units could have been finished with the same amount of money. And if you want to talk about inefficient use of money, that's a good example. Mr. ROSENTHAL. We are going to take a 5-minute break, to give the stenographer a chance to get a breather; and we will be right back. I have to leave to return to Washington, but Congressman Conyers will now chair the hearing. [Recess taken.] Mr. CONYERS. Will everybody take their seats, please. We are going to resume the subcommittee hearing. The subcommittee will be in order. Mr. Covintree, you had something additional? Mr. COVINTREE. Yes; Representative Conyers. I just want to add a couple of points in terms of things that needed to be done concerning food issues. In the conversation over the break, I mentioned that before I became director of Southeastern Michigan Food Coalition, I worked with the American Friends Service Committee, and got to know Mrs. Payne and Mrs. Thayer very well. One of the problems for Mrs. Thayer is that she is ineligible for food stamps, even though the testimony she was giving today sounds as if you would think she would be on food stamps; but Mrs. Thayer is ineligible for food stamps because of her resources. The food stamp program is based on the fact that if you have resources that are over a set limit, which for a senior citizen is $3,000, you are no longer eligi- ble for the program. For an individual or a family that's not over 60, the limit is $L700 in resources. The limit puts a real crunch on low-income people, who in one sense have been taught to save, taught to try and put a little away. And if you do, you are penalized by the program, and are not able to be a part of it. Mrs. Thayer is living on her resources, money that she was able to save, because she is not eligible for food stamps, not eligible to get in on those programs. Mr. CONYERE. You know, that was a real sad situation to have her tell us that her allotments are being reduced, and that she does not PAGENO="0378" 3.0 have enough money to eat on; that she hadn't bought a dress in, what was it, 15 years. I think that this testimony is shattering. If there is any humanity left in our Government, we have got to work out a better system to eliminate the reality of growing old in poverty which hangs over a lot of our citizens. Nobody here is getting any younger. You don't have to be 65 years old to realize that you are going to be old, and that if the Government isn't any more sensitive, to the seniors than they are now, that we are, all of us who are listening to them, in reality talking about ourselves. Mr. COVINTREE. One of the things that happens, too, with the re- sources, is that a person-or if the Department of Social Services feels that you have gotten rid of your resources, you can he penalized from the program because you got rid of all your resources, in trying to get on the program. So there are all sort-s of rules; and it all comes from the mentality of the food stamp cheaters and frauds that all of these protective measures have been put up. which keep people like Mrs. Thayer and others who are not elderly, from being in the program because of some of these protective devices, to attempt to stop food st-amp cheaters and cheating. Mr. CONYERS. Is there anything we can do here at the community, city, county level, the State level? Here's what I'm getting at, Mr. Covintree: Everybody agrees this is outrageous; everybody is shocked; every- body is ~moved. -Everybody wants more to happen. How do we get ac- tion? Take all of this support and make it mean something, translate it into something real? Where does our system break down? Mr. -COVINTREE. -I don't know if I have an-answer that can solve all that. I think the work done by programs such as the American Friends Service Committee, that go and can at least provide food for Mrs. Thayer are doing a service. I think the whole ide-a of food co-ops is a way to. provide food in areas where there isn't food; people working together trying to im- prove their particular situation, particularly of a co-op, a supennarket that is available in their community. As I mentioned, in this inner-city area here there are several move- inents presently afoot to set up food co-ops in some of the community churches. That type of movement needs the active support of people who live' in-those communities; so that. the food co-op movement can - benefit these `people who `live - in the community in. which they are located. Mr. `MCSPADDEN. Mr. Covintree, you are talking about senior citi- zens being penalized if they save money. hey Senior" citizens in San Francisco are-saying if they save money, t - get hurt anyway, because of inflation. Do- you have tany specific amount that you would have, that we -- might recommend that the ceiling be raised to, so a senior citizen could still have some savings, and yet receive food stamps? - -Mr. C0vINTREE. EL think in the early legislation that went to the food stamp program ceilings, it was talked about in the $5,000-to-$1O,000 level. PAGENO="0379" 371 Now, I don't have that information at hand. I could look that up and see what it was. It was something of a boost of that amount, in terms of people not being penalized, and not having to be down to their last dollar before they could be helped. Which is what Mrs. Thayer is saying about having to look at going to a nursing home. That you try to keep yourself going in your own home until you are eventually forced to go into a nursing home. It's the same type of thing with being on some of the Federal food programs. Mr. CONYERS. Thank you very much. You have been very helpful for all of us. [Mr. Steiner's prepared statement follows:] PAGENO="0380" 372 Testimony Of Frank E. Steiner Executive Director Michigan Coimnittee on Law and Housing ~fore The Subcomsittee on Co~rce, Constaser and Monetary Affairs United States House of Representatives Hearings Held May 7, 1979 in t~troit, Michigan Michigan Co~ttee on Law and Housing 23 East Adams Menus ]~teoit, Michigan 1~8226 (313) 963-2206 PAGENO="0381" 373 Ibabers of the Subcommittee and others present: On behalf of the Michigan Committee on Law and Housing I would like to thank you for this opportwiity to testify today on the issus of inflation as it is related to housing. This is a tall order -- particularly for soneone working for an organization which looks at ~ny aspects of the housing field, not just its fiscal side 50 these reserks will. in no way be an exhaustive treatoent of the topic. ~ of background, you should keow that the Michigan Committee on Law and Housing (WLH) has been in operation 11 years, working for broadened housing opportunities for all persons in Michigan, with particular emphasis on the housing seeds of the poor, minorities, and other groups who have not been well served by our system of providing shelter in the United States. We have pushed for i~roved state housing laws, improved services from our state housing finance agency, strengthened local housing ordinances and programs, and in- creased citizen awareness of their ri~ts to decent housing under local, state, and i~deral laws. Tiz'st I wish to sound a general note of caution about the use of the term `inflation5 in general. Prom the layperson' $ point of view, based upon ~oriy all public discusaions of the problems of prices today, "inflation" appears to be defined as being any and all price increases. In operating mz~r this apparemt definition, we tend to lump together all price rises as bsing "inflationary" if they exceed a given amount on an annual basis. ~1~r is usually established based upon sose actual. or intended measure of the geowt3z~of our economy in "real" terms. Professional economists and fiacal end zsooetsry policy ankara, of course, operate with much more eo~istocated definitions and measures. ~xt underlying standards of acceptability for ~ee changes are still based upon the value of "growth", conceived of in l*se*, q~~titative, across-the-board terms. in tin last several decades in particular, we have established a a~er of other rather specific national policies outside of the category of linear, çiantifiable growth, as values to be realized in our national life through specific laws and programs. Among these are concerns for the quality 0? 0* environment, safety in the workplace, equality of opportunity in all phases of national life regardless of race and sex and, more recently, in rólatiom also to age, handicap, national origin, and other factors. Achieving these values In everyday life may or may not be the same as, or even consistent with, the veime of sustained, linear, quantifiable growth of our economy. More- oser~ ~t is doubtful that the millions of citizens and their elected leaders * bsVt fought for these revisions of our social system will accept any auto- .~tic subordination of these policies and their costs to some inflexible, in- ~Itive management of the economy (by public or private powers) based solely ~fl the concept of linear growth or its variations (such as simple quantitative asewee of "productivity" per person hour or dollar of wages expended) Xn4iaenasing "inflation", therefore, beginning with its definition, we should be sear. of decisions we have already made about what it is that we want as a . ~n ~et cases, we kaàw these~decisions would cost us money to implement. *a~o~r., most of us currently involved with public policy from an independent PAGENO="0382" 374 baae have with us lists of additional decisionB we believe should be made and. ii~3amauted, in order better to protect the rights and lives of citizens today, particularly those who are still not well served by ota' public and private institutions. These, too, will cost noney if they are enacted, and they should, in order to have any seaming. As you can see, I cannot easily accept a general "anti~inflation" point of view. I do not know, for m~e, what inflation really is, and what it is not. I an muSe that at least soise of what is called inflation today is the direct and indirect result of things we have decided that we want. I suggest that before we take a "irnat~axe" approach to all price increases, for instance, and certainly before we do so in the area of wages, we attempt to determine what recent national policy advances might be endangered by such action. Pbr instance, is the re~uirenent that cities receiving EUD block grant funds for comaunity developunnt spend a greater portion of their grants to help citizens participate in planning dcvelopmant programs an inflationary factor in governLsent spending polic~r? Yes, it is cjunstionnable whether the ix~diate benefits of such a policy can be nmasured in terms of increased national pro. ductivity. ?~breover, the actual construction of a street or a housing develop- a~nt might be delayed and made more costly in fiscal terms precisely because of the increased priority the Congress has placed on citizen participation in auc1~ progeams. In this kind of case, should we label as "inflationary" the resulting increases in spending and costs Just because they may be greater than the rate at which the economy is reported to be expanding in "real" terms? Or should we ~mderstamd these costs as the result of decisions we have collectively made, and. ~ke room for them in our total list of wants? Fiscal strategier "to control inflation" run this kind of serious risk the risk of denying that we have already decided that this nation mould not run on economic values alone. An even better example can be found in the Administration' a attempts to limit our national subsidized housing programs. The Office of Management and Budget has consistently attempted to reduce HUD' B proposals for the volume of housing subsidies under the Section 8 program, end to reciuire RU?) to reduce costs in the program by concentrating mpon sub- sidies in existing housing wiita (rather than through new construction) and by refusing to subsidize units which rent for more than RU?)' a "Fair Market Rents5, especially in suburban areas. If such attempts prove successful, there will be even less chance of achieving our national policies of providing increased housing opportunities for those who need them most -- low and moderate income persons, minorities, female-beaded households, the elderly, and residents of older central cities seeking suburban employment, or better city residences. Rather than seeking to control prices and costs by attacking programs we have already agreed nationally to pay for, we should be addressing the increases in prices and other costs which are based on no national agreement, or which con- tz'ediet our national policies outright. One clear example of such i11e~itite inflationary activity can be found in the continuing process of redIiiiiiij~y private lending institutions, and the sugportive decisions of regulatory agencies and other governmental, entities, In March of this year the Michigan Oan~ttee on law and Housing released a comprehensive study of lending patterns of major i)etroit..area banks and savings end loan associations, entitled: ~, Oe~mamity Beinves~ent Act: Nev~ Hope for Detroit' a Neighborhoods. In this me re~t the finding of an appalling lack of lending activity within Detecit' a low and moderate income areas during 1977 for all categories of home ~tgages and hone improvement loans. The eleven 3i~ers studied, whose PAGENO="0383" 375 total assets exceed $ 2I~ Billion, made less than one percent of the value of their conventional mortgage loans in Detroit' a low and moderate moose areas. teas than 13 percent of their total hose in~rovesent lending oee~~red in these areas. Finally, and perhaps most astonishing, ~ ozaetenth of one ~reent of their ~vernsent insured lendin~ was made in these s~ areas. Overall, äaly 1.3 percent of loans in all categeries, a totil of $ 19.l~ Million, were made in Detroit's low end moderate lneose areas. In other areas, however, 98.7 percent of loans in all eategeries, for a total of $ 1.5 Billion, were issued in 1977. As 1CI~ staff are now examining l9'r6 and 1978 lending data under the Hose Mortgage Disclosure Act, we are finding the ease patterns as we found in the 1977 data, no there is no cisestion that Detroit's major lenders have chosen to undertake virtually all of their hose lending activity in the highest cost areas of the Detroit Metropolitan Area. To illustrate this uneconomical nature of these lending patterns, we can look at the average loan size in low and moderate incose areas as compared with all other areas for the eleven lending institutions examined: - AVEHA~ LOAN AMOUNt' IN 1977 Detroit's Low & Moderate All Other Areas Incose Areas Conventional 1. Mortgages: $ 28,807 $ 34,376 Hose Improve- 2. sent Loans: 3,74]. Gowernsent In- sured Mortgages: 10,576 30,639 X~t'AL H~ LQANS: $ 7,939 $ 26,779 Pt~ther doc~mantation of the wasteful patterns of lending engaged in by these institutions in 1977 can be seen if we consider that, for all areas, they a total of 57,237 loans with a total of $ 1,486,738,021, for an average loan ~tmt of nearly $ 26,000. However, if a greater proportion of loans hM been made in Detroit' a low and moderate incose areas in such a way as to yield an average loan amount halfuey between the average amounts in end outside thin area (line 4 in the table above a hypothetical average loan of $ 17,359), the case ca~mt of funds would 1~e yielded 85,646 loans -- 50 percent more loans tl*n actually made during all of 1977. Now, what is most important about these lending patterns for our organization and the lover moose citizens of Detroit is that the data demonstrate a nearly complete lack of hose credit availability from banks and savings and loan as- sociations for nearly half of the population and housing units within the City of 1~troit. In turn, this represents what we regard as a clear refusal on the pert of those lending institutions to comply with the purpose of the Co~ity Reinvestsent Act of 1977, which states: .. .regulated financial institutions have continuing end affirmative obligation to help sect the credit needs of the local comanunities in which they are chartered. (12 U.S.C. 2901) PAGENO="0384" 376 M~aeo~sr, given the fact that Detroit's lower incone population is ~OV ~TedO1flifl8ntly minority, these patterns may also indicate other flo],ations of federal law, such ~i Title VIII of the Civil Rights Act Qf 3968 (~ ~i>n~1 fair heusii~ law) and the Equal Credit Opportunity So here we appear to have an examj~le of activities which not only seem to violate established national priorities ~~garding the nondiscriminatory availability of hose credit, but which also can be seen to be a completely inefficient use of increasingly costly resources ,~rtgage funds, both private and insured. ~i fast, this directly inflationaz~Y aspect of private home lending in the Detroit area has many additional, indirect inflationary im~acts. The cost notable of these, of course, is j~e encouragement which such lending policies give to continmad suburban and ex.durban sprawl development. These patterns, for instance, undoubtedly account for the majority of the 200,000 acres of pri farmland lost every year in Michigan to new development in outlying areas. Stich development drasticallY increases consumption of energy in )U.chigan, adds much to the transportation costs of food products which seat increasingly be brought from outside the state, and is providing the trresistable preasme in the Detroit metro area to construct yet another *ulti~.bilhion dollar sewer system keown as the "super sewer". Finally, be- ease. of the unavailability of conventional lending in central Detroit, the City seA the federal government ~ve had to substitute vast acounts of public tflwee~nt in rebuilding portions of the city which have suffered private disinvestment. these highly inflationary patterns are duplicated throughout the nation, and yet we are asked by many officials to accept the reduction of valuable public pro~~ in order to stem "inflation", defined too generally and without re-. ta the clearly inflationary policies of many private and some public entities which are also in direct conflict with other national riorities, s~h~ as the a ty o home 0redit as needed. I belay it is time for a nationa1 accounting of costs. In our growing con- cern to control prices, costs, and consumption we mist first address those fin~neia1 bucdans which are also 0learly in conflict with established national priorities, lava, and progeams. in this sense, we are all making payment on many %ad" bills, let us decide ~OV to stop payment on these expenses. It ts high time, anyway, for us to ~ so. And if dedicated public officials and other citirans do not do so very 5oon, the institutional powers supporting such atti..aocial and often illegal practices will undoubtedly see that the "battle against inflation" becomes a war against the many social advances we have all fought so hard for over the years. I would like to thank Dr. George pickering of the University of Detroit for a very hel.pThI analytical discussion of "inflation" as an issuc, which contributed ~`eat3.y to the thinking behind ~ ~`emsrks, andeany thanks to the dedicated staff 8nd velmeteers of the Michigan Con~nittee on law and Housing for their ground- heemlng investigative work in the field of private lending activity in metro- ~3.itan Detroit. ~.e concludes ~ remarks for today. PAGENO="0385" 377 Mr. CONYERS. We are going to have two more witnesses; and then come back and hear Father Cunningham and Tom Turner of the AFL-CIO. Before we hear Sid Rosen, with the city of Detroit, we are. going to ask the Deputy Regional Commissioner, Bureau of Labor Statistics, Mr. William Fischer, to come forward. Thank you very much for being so patient. We have your prepared statement. It will be incorporated in full in our record; and you may proceed in your own way. STATEMENT OF WILLIAM FISCHER, DEPUTY REGIONAL COMMISSIONER, BUREAU OF LABOR STATISTICS Mr. FISCHER. Since you do have the prepared testimony, ~th the prepared tables and details, perhaps I can just give you an overview of why I'm here, and how we see the comparative costs of living in De- troit, compared to other metropolitan areas in the Nation; and the na- tional cost of living. I will go back to the early seventies, up through the midseventies, when the Detroit area actually led the Nation in the amount of inflation. We were just slightly behind the national rate of inflation. However, since 1977, the rate of inflation in Detroit has been much greater than that of the Nation as a whole. Mr. CONYERS. How come? Mr. FISCHER. Within the measurement of the cost-of-living, the Con- sumer Price Index, we look at a number of components which you mentioned earlier. In Detroit, it's housing and transportation which has the greatest percent increase over the national rate. Those are the two areas in Detroit which are leading the Detroit index. Mr. CONYERS. Are you talking about rentals or home purchases, or to what extent both? And in transportation, are you talking about public? Mr. FISCHER. Both; to answer your question. Under the housing, pri- manly the cost of shelter, your rent; and then as mentioned earlier, the fuel cost, utilities, gas, oil costs. With transportation, again, the purchase price of cars, used cars, and the most important is the maintenance and upkeep of the vehicles. And transportation has been very high. This is why the Detroit area, to give you some figures, over the lest year the percent increase of the cost of living, the Consumer Price Index in Detroit increased by 12.3 percent. For the Nation as a whole it was 10.2 percent; so Detroit, for the last year has been about 2 percent above the Nation as a whole. The Con- sumer Price Index has shown that the Detroit area has been leading in a number of cost items, food, which again was testified to earlier; and I think much of what I am saying has been testified to earlier, as far as burdens on people, food cost, shelter, and transportation costs are going up. In the paper that was prepared, we did address the cost of living in Detroit, as measured by the Bureau of Standard Living Budget. It does cost the person living in the metropolitan area of Detroit more than other people living in metropolitan areas around the United States to maintain their living style. Mr. CONYERS. Let's talk alout the cities. Let's compare Houston, where I was yesterday, with Detroit. 52_21L~ 0 - 79 - 25 PAGENO="0386" 378 Mr. FIsCm~R. I don't have that data specifically available. Mr. CONYERS. What are the most expensive cities in the country tolivein? Mr. FISCHER. Boston, Mass.; New York; and then we come into the Midwest. We do have Detroit and Chicago. The high cost-of-living areas. Mr. CONYERS. What about Los Angeles? Mr. FISCHER. Les Angeles is up there. Cleveland is a high-cost area. I can't give you the ranking right now. Mr. CONYERS. I understand, you don't have that data with you. Mr. FISCHER. That is right, sir. I can't give you the rankings right now. Mr. CONYERS. It sounds like, all of the big cities, it costs like the devil to live in them. Is that a general conclusion? Mr. FISCHER. No; I think it's a very sound statement, the metro- politan areas are high cost-of-living areas. Mr. CONYERS. Staff points out that housing costs in Detroit are higher than any of the other cities that we have been in, including Atlanta, Boston, Chicago, Dallas, New York, even New York, and San Francisco. Mr. FISCHER. For housing costs? Mr. CONYERS. They are higher here. Is there any place in the country that has higher housing costs than Detroit? Mr. FISCHER. The percentage increase? Mr. CONYERS. The percentage increase in the cost? Mr. FISCHER. Yes. Mr. cONYERS. Where is it worse? Mr. FISCHER. Right offhand, I don't have that data. Mr. CONYERS. Why here? What did we do wrong? What is the reason for it? Mr. FISCHER. Just the cost of shelter, of home ownership. Mr. CONYERS. Why does it cost more? There is nothing magic about the same house you build anywhere else. Why should it cost more because it's in Detroit? Is it mortgage, interest rates, the builders, shortage, what? Mr. FISCHER. I am not prepared to say just what. Mr. CONYERS. Isn't that part of the Bureau of Labor Statistics in- formation? Don't you analyze the statistics? Mr. FISCHER. We analyze it. Mr. CONYERS. Could you append a study dealing with these ques- tions to this subcommittee hearing? Mr. FISCHER. As to why. the housing cost in Detroit is higher? `Mr. CONYERS. Yes; if we don't find that out, we could mail this in and say, "Prices are up like hell, and we are all suffering," and go home. Mr. FISCHER. We can measure the increase, but the whys and where- fores are beyond our capability to determine why. Oil perhaps, or fuel costs have gone up. Mr. CONYERS. Where do I go to find out, would you please tell me? Can you name somebody? We only have a multi-billion dollar Gov- ernment. If I don't get it from the statisticians in the Labor Depart- ment, where can I go? I need some help. PAGENO="0387" 379 I'm not trying to hassle you. Mr. FISCHER. Yes; I know. I think you have to go back to the origination of the costs, where the cost increases. Mr. CONYERS. That's what I want to do. Mr. MOSPADDEN. If I might ask about the housing percentage, can you break it down? Mr. FIScm~R. Yes. Mr. MCSPADDEN. Are you talking aibout apartment rents, construc- tion materials, labor? Mr. FISCHER. Under housing, there are major categories such as shelter, fuel, and household furnishing, and operations. Mr. MCSPADDEN. What are you reading from? Mr. FISCHER. The second-to-the-last page. It's the comparison of the index of the city of Detroit with the U.S. average. Mr. MCSPADDEN. Can you explain what these figures mean? Mr. FIsc ER. Look under the "all-urban" consumer index for De- troit, the center column. It has all the items of the 211.6, which is an average of the various components that make up the Consumer Price Index. The major categories, as I mentioned before, are food, bever- ages, and cther items, and you come on down to housing. And there is a breakdown to three levels: shelter, fuel, household furnishings. The housing index reads 20.9. What we are saying is, that in the base year of 1967, the cost of housing in the Detroit area increased by that amount. Now, if you go to the right, you will see the U.S. "all-urban" aver- age, the comparable index for all cities in the United States. For Detroit, going back 1 year ago for Detroit, housing has in- creased 16 percent, compared to the national increase of 10.6. Now, getting back to your question, as far as housing, what corn- ponents, we can see that the shelter had a 20.5 percent increase for Detroit, as compared to 12.4. Mr. CONYERS. It's the horneownership that skyrocketed, and then. it's the fuel and the utilities that went off the charts? Mr. FISCHER. That's right. Mr. MCSPADDEN. Horneownership is 22.5. Can you break that down any further. What aspect of homeowner- ship increased almost 25 percent? Mr. FISCHER. I don't have that published information. Mr. MCSPADDEN. Who does have that? Mr. FISCHER. The Bureau would have it in its detailed form. I could get that for you on an annual average basis; but not a monthly basis. Mr. MCSPADDEN. We would like you to furnish as much detail, broken-down information as you could-understandable information, that is. Mr. CONYERS. We would appreciate that very much. Mr. FISCHER. Any other questions? Mr. CONYERS. Whenever I get somebody from the Bureau of Labor Statistics before me, I think about the way that we report unemployment. Have you heard about my feelings on that subject? Mr. FISCHER. I believe I have. Mr. CONYERS. We won't go into that now, since you are the Deputy Regional Director. PAGENO="0388" 380 I just want you to communicate to all of my friends in BLS that we really ought to begin reporting the real rate of unemployment, instead of these statistics that have been so refined so that their main job is to conceal the real rate of unemployment. We owe it to ourselves to report the real rate of unemployment. It may be a little bit embarrassing, but so what. Mr. FISCHER. HopefuUy, the recommendations that come out of the National Commission on Unemployment will address this issue. I hope they will be adopted. Mr. CONYERS. They are working on the methods by which that is computed? Mr. FISCHER. Yes. They are studying the whole measurement of un- employments employment, and will be making recommendations. Now, the recommendations will address themselves to the specific methodology, definitional and coverage, and method of selecting the data. Mr. CONYERS. If they don't, they will have participated in a coverup. Thank you, Mr. Fischer, for coming. We appreuiate your testi- mony. We will be looking forward to as much fine tuning as you can get in. One final question I have been asked to put to you. There isn't any statistical evidence that the wage/price guidelines are in effect check- ing inflation? Mr. FISCHER. None that I know of. I guess the problem there is: what criteria do you use to determine whether you are changing it? Mr. CONYERS. We leave it to the statisticians. If you come across any, we will be happy to receive them. Mr. FISCHER. I will be happy to submit it to you. Mr. CONTERS. Thank you very much. [Mr. Fischer's prepared statement follows:] PAGENO="0389" 381 PREPARED STATEMENT WILLIAM FISCHER DEPUTY REGIONAL COMMISSIONER BUREAU OF LABOR ETATISTICS Chairman Rosenthal and committee members, in the brief time allotted, I will try to review the cost of living situation in the Detroit metropolitan area by presenting data from several of the Bureau's measures of prices and family expenditures. First let us examine the BLS family budget series which is an estimate of comparative living costs in selected areas. It is based on hypothetical budgets for a family of 4 persons at each of three levels of living and the cost of a sample of goods and services specified for each budget. If you will refer to table 1, you will notice that costs in the Detroit area are somewhat higher compared with the U. S. all urban average but they are very close to the average for 39 U. S. metropolitan areas. Next, let us look at the Consumer Price Index which is the most widely used measure of the rate of inflation. Specifically the CPI is a measure of the average change in prices of a fixed market basket of goods and services. In January 1978, the Bureau began publishing CPI's for two population groups: (1) a new CPI for All Urban Consumers which covers about 80 percent of the urban non-institutional population and (2) a revised CPI for Urban Wage Earners and Clerical Workers which covers about half the population covered by the All Urban CPI. This morning I will be referring to the broader All Urban CPI for comparison of price changes in Detroit with the Nation. One very important aspect of the CPI is the weight assigned to the various items. The relative importance or weight of items in the CPI is based on a 1972-73 Consumer Expenditure Survey that determined what people buy. The relative importance for the 1972-73 survey period has been up- dated by price changes. Table 2 shows the relative importance or weight of the seven major expenditure categories that make up the index. PAGENO="0390" 382 In. Detroit, and the U. S. as a whole, housing has a weight of about two fifths of the index; food and beverages and transportation each account for about one fifth. The relative importance of transportation in Detroit is higher than the U. S. average but lower for the other two major categories. Relative importance can significantly affect the movement of the index in an area. For example, if the cost of transportation rises uniformly in all areas, and other categories remain unchanged the overall or All Items Index for Detroit would rise more than the U. S. average. Under the same conditions for housing, the increase would be close to the U. S. But in the case of food and beverages it would be lower. This extreme situation is not likely to occur but it illustrates the effect of differences in relative importance. During the period from 1967 to January 1978, the inflation rate was less in Detroit than nationally, 85 percent compared with 87.2 percent. (Table 4.) This was due to a lower rate of increase in the three categories, food and beverages, housing, and transportation, which account for the bulk of the index weight. Medical care costs in Detroit increased much more rapidly than nationally during this period but because of the relatively low weight for this category, it had little effect on the overall movement of the index. Currently the rate of inflation in the Detroit area is above the national rate. (Table 5.) The reasons for the change can be seen in chart 1, which shows the changes in the index from January 1978 to March 1979. During this period the increase in food and beverages prices rose to equal the national rate. Housing and transportation costs in Detroit changed from a rate below the national rate of increase to a higher than national rate. The combined effect of these changes put the inflation rate in Detroit above the U. S. average. PAGENO="0391" Table 1. Indexes Of Comparative Costs Based On Three Budget Levels - Autumn 1978 Lower Intermediate Higher Budget Budget Budget Urban U. S. - 100 100 100 ($11,546) ($18,622) ($27,420) Metropolitan Areas 101 102 103 Detroit (SMSA) 100 103 103 Table 2. Relative Importance, Consumer Price Index, All Urban Consumers - December 1977 All Food & Apparel & Medical Other Goods Items Beve~g~~ Housing Upkeep Transportation care Entertainment & Services U. S. 100 18.8 43.9 5.8 18.0 5.0 4.1 4.4 Detroit (SMSA) 100 17.8 43.4 5.6 20.4 4.7 4.0 4.1 PAGENO="0392" Table 3. Percent Change, Consumer Price Index, All Urban Consumers, December to December Year Ending December U.S. Detroit (SMSA) 1967 3.0 2.7 1968 4.7 5.2 1969 6.1 6.8 1970 5.5 5.0 1971 3.4 3.5 1972 3.4 3.7 1973 8.8 9.1 1974 12.2 11.4 1975 7.0 5.5 1976 4.8 5.2 1977 6.8 6.5 1978 9.0 9.7 PAGENO="0393" Table 4. Percent Change Consumer Price Index, All Urban Consumers - 1967 to January 1978 Table 5. Percent Change Consumer Price Index, All Urban Consumers - 1967 to March 1979 All Food & Apparel & Medical Items Beverages Housing Upkeep - Transportation care - Entertai nment Other Goods & Services All Food & Apparel & Medical Other Goods Items Beverages housing Upkeep Transportation care Entertainment & Services U. S. 87.2 94.6 93.8 55.7 79.0 111.2 . 71.9 78.5 Detroit (SMSA) 85.0 91.8 86.2 43.5 77.6 144.6 69.6 78.0 U. S. 109.1 124.4 117.6 64.3 98.1 133.9 84.8 92.8 Detroit (SMSA) 111.6 121.2 120.9 47.7 97.8 168.3 77.8 93.8 PAGENO="0394" Table 6. Detroit Metropolitan Area Pay Level Relative To Average For 262 Areas In The U. S., 1977 Office Computer Skilled Unskilled Clerical Related Maintenance Plant U. S. 100 100 100 100 Detroit (SMSA) 118 117 115 126 PAGENO="0395" 387 w U > 5- C) C) 5- U C) 5- C) 0 0~ 0 5- C) 0 C) PAGENO="0396" Chart 2. Real Spendable Earnings Of Production Workers On Manufacturing Payrolls, Detroit Metropolitan Area, 1970-78 -~ $1291 . 136 31 $29 $181 Gross Weekly Earnings 197 152 T ~ 229 1970 1971 1972 1973 1974 1975 1976 1977 1978 - 152 - 45 ~52~1249 138 47 t~7~~M252 ~1~ 136 50 ~ 81 ~ 267 148 60 - 310 155 ~ 70 Real Spendable Earnings in 1967 Dollars (For A Worker With 3 Dependents) 155 -- r k 381 Taxes Loss in Purchasing Power (Federal, State (Due to Price Increases Since 1967) And Social Security) PAGENO="0397" o m o -~ -n -~ ~ rn -~ CD U. -~ Q o = -1c -~ -~ ~ )~ -~ C -n cn o -~ -n -no CD rD p-i rn -. o -~ o -o ~- C 0- P1 P 0 CD -q C) 0 C) 0 0 CC -1 ~o ~ Cl ci- -~ & -n - 0 0o 0 CD -P CD =0 ~o CD ~- 0 0 i-U -~ U) 0 CD CD 0 o. -1> .-~ 0 0 0 0 CC) CU PC 0- 0 -C o -~ CD -~ 0- 0-0. o- o -C- CD 0' -i 0. o 0))) C C)) CD 0 -C, U) 1 )~ 0)9 CD U) 0-0 2. 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CD 0) N) C) 4 (0 P1 -J CD P1 CO ~ ~ N) PAGENO="0398" 390 N E W S ~ ~ LABOR FOR ;ELEASE NOTE RELEASE 230 South Dearborn St., 9th Floor Thursday, April 26, 1979 1EM~ARGO Chicago, III. 60604-(312)3534880 Reference this release call 353-1138 DETROIT AREA CONSUMER PRICES RISE 1.3 PERCENT IN MARCH Detroit area consumer prices rose 1.3 percent from February to March, the U. S. Bureau of Labor Statistics reported today. The latest index for all urban consumers (CPI-U) was 211.6 on a 1967 base of 100. This was 12.3 percent above the level a year earlier and means consumers paid $112.30 for a typical market basket of goods and services that cost $100 in March 1978. William E. Rice, Regional Comeissioner for the Bureau in Chicago, said that higher housing costs caused most of the monthly change of 1 .3 percent. Higher prices for food, apparel, and transportation also contributed importantly to the February to March rise. 1ii~~ costs rose 2.1 percent in March due mainly to higher home purchase and financing costs. Prices were also higher for maintenance and capital improvement services, fuel oil, electricity, housekeeping services, furniture, and appliances including television and laundry equipment. The index for food and beverages rose 0.7 percent. Half of the increase resulted from higher restaurant meal prices, up 1.1 percent (meals and snacks index). Also higher in price were some bakery products, ground beef, steak, milk, fresh vegetables except lettuce, carbonated drinks, and beer. Lower prices were notable for chuck roast, most pork items surveyed, and lettuce. Apparel costs rose 2.5 percent. Higher price tags were seen *for men's shoes and suits, and women's coats and dresses. Higher prices for used cars and gasoline pushed the ens ortation index up by 0.8 percent. Small changes for a variety of other items including higher taxi fares and auto maintenance and repair charges also affected overall transportation costs. The medical care index rose 0.2 percent. Higher prices for prescription drugs were a factor. Entertainment costs declined 1.8 percent. Cuts in prices for entertain- ment services su~hi~membership dues and participant sports were factors. Reading materials cost more. The March all items increase of 1.3 percent followed rises of 1.4 percent in January and 1.8 percent in February. Tenetative Release for April CPI Friday, May 25, 1979 PAGENO="0399" 391 Mr. CONYEIIS. Sid Rosen, long-time community leader, activist, and friend of all. STATEMENT OF SIB ROSEN Mr. ROSEN. And a relatively young man for my age, if I may say so. Mr. CONYERS. Welcome to the subcommittee. Mr. ROSEN. Thank you, Congressman. There have been some references made today with regard to the plight of senior citizens. And because I have been working in this department for 41/2 years now, I think I have some information which will substantiate many of the remarks. I think, first of all, that we have to recognize what we are dealing with. In other words: What is happening, and then perhaps we can find out what to do about it. According to the last 1970 census, and the 1980 census will not change too much in Michigan, there were 250,000 senior citizens 65 years of age and over. That is the percentage that we are talking about, as far as age. What is more important than that statistic is the fact that 20 per- cent, or 50,000 senior citizens in Detroit are living below the poverty level. And that's where the rub is. The poverty level, as you have all been told, is $3,000 for a single person, and approximately $3,600 for two persons. Mrs. Thayer's testimony should not be considered as most unusual. It's prevalent in too many cases, perhaps not as severe as Mrs. Thayer's. Elderly people are disabled. Elderly people need medicine. They cer- tainly need decent nutrition factors. And what we are dealing with now is because of inflation and the fact that utility rates have gone up, and we have a serious problem where people are being forced to defer from medicines that they need, because they can't get them. They cut down on their food supplies, as Mrs. Thayer indicated. The only remedy is time. So that at the end of 1979, it must be assumed they will pass on. I think this is tragic. I think we have no concept at all, in terms of what the needs are of the people in this group. Rather than being rewarded, respected, and admired for what they have contributed to the society, they are being cast aside. No one knows this better than those who work in our department. I might cite one case as an example of what we are dealing with, because on occasion, Congressman, I think you do the same thing. I go out on a special call and make a house visit to find out just what's happening. Let me illustrate this, and if you wish later, I have all of * the evidence, I can present the documentary evidence in regards to this particular case. It has to do with a couple that own their own home. He's 74 years of age, and totally blind. She is 75 years of age, and totally incapaci- tated with rheumatoid arthritis, diabetes, and so forth, bed-ridden. The house filled with vermin and rodents and stuff like that. The Department of Social Services cut off their medicaid, accord- ing to the rules, they said because their total income was $4~016 a year, they said it had to be no more than $3,600 or thereabout. This couple *has actually gone from pillar to post, in order to try to get medical aid for this person. The husband is blind, but is quite capable of get- ting around, and has done all he possibly can. PAGENO="0400" 392 Through our instrumentation, we were able to move things. But how do you move things if the rules say that they are not eligible for medicaid, foodstamps, and so forth, then what are you supposed to do? Disregard the rules, instruct the social service worker to shut her eyes to the situation? If we do, we are encouraging all kinds of corruption there, because we have not met the challenge of how you take care of persons in that particular group. I would like to suggest that there has been a good program in hous- ing, but limited only to a few, and certainly not hardly enough to satisfy the demands, where subsidization has helped many senior citi- zens who are qualified to pay no more than 25 percent of their gross income. It was good; it was a good law. Congress, I think, deserves a good deal of credit for having started it. The only trouble is that in January 1973, the former President, President Nixon, said it wasn't working, and therefore, put a curtail- ment on the funds. The real truth of it is, that it was working, because I happened to be in that business at that time. Now, it's coming back in dribbles. Something new has come. Utilities are going sky-high, and those per- sons who are living in subsidized housing are lucky, because the utili- ties are included in the rent. So therefore, they have a break. What about those persons who are living in single homes, and I think you, Congressman Conyers, indicated $800 a month was hardly enough. Or perhaps someone else mentioned it. It seems to me that this Congress needs to approach the problems in terms of a subsidized program that covers all necessities. I think we cannot escape the fact that when persons reach an age where they no longer can procure an income that is sufficient for them to live decently, then we have to consider this, not on the basis of being outcasts, but on the basis of, what are their needs. Thank you, Congressman Conyers, for having called attention to the fact that our priorities are lopsided. While, we are evidently in- creasing our military budget without rhyme or reason, and very few are questioning the whys or wherefores of the efficiency, it is also true, statistically, that as the $10 or $11 million increases on one side, the social services decreases, and we accept this. Am I outraged? Of course, I'm outra fred. I think we all have to be outraged to see that in this country which has the greatest resources in the world. We have not yet learned to deal with our elderly citizens. But let's pick on that group, because in this instance, time is on their side. And they need some special atention to live comfortably. Thank you, Congressman. Mr. CONYERS. Excellent statement, Sid Rosen. Of course, in this real world we are working under an economic policy that says we will balance the budget; we will reduce the deficit; we will therefore inescapably curtail every domestic program. That spells an indecent economic policy in my eyes. I am now ~scanning the panorama of Federal programs for one program that is not being reduced, and I have not yet found one- except, of course, the Department of Defense. It seems to me that this attitude is at the heart of the problem that you describe. Many people who complain of the human suffering we see all around us have not PAGENO="0401" 393 been able to connect it to the fact that it is the product of our economic policies. It's not enough to merely create a great program for seniors, be- cause you have then left out the unemployed, the youngsters, and then 29 other groups will come in and say, "What about me?" Our eco- nomic problem is a systemic problem. How often do we ask our- selves what is the $500 trillion Federal budget accomplishing, what priorities does it reflect, who is it helping and hurting? Somehow or the other these hearings, and I think the chairman of this com- mittee cannot be commended too much for doing this, we are trying to hook that up. And we know, as someone said during the break, "You mean you people are going around asking these questions? You mean there are people in Congress that don't know that this is happening?" My response is, "That there probably are. Yes. Some. There are always some that don't know; but there are some who do know. But because nobody has the evidence, they can ignore what they really know to be the case." And so what we are doing, and this is always necessary in our business, is to make it irrefutable, to make it clear there is a tremendous problem out there, to cut into the sliëe of life, in nine cities across the tTnited States. The testimony is incredibly similar. People are being hurt uncon- scionably by the policies that we have in Washington. And so that is my question and statement in answer to you, to re- spond to in any way you perceive. Mr. ROSEN. I am in agreement, Mr. Congressman; and may I make one final comment. I think there has always been a reference to things we do in Con- gress, as to how it affects the national interest. And there is a catch- word. I would like to feel that included in the statement of what is in- volved in the national interest is the health and well-being of its people. In this sense, there is perhaps a dialog taking place in the Congress, and among the people; and it ought to be in terms of what is the emphasis; what are we really doing? Are we merely just trad- ing off in guns and ammunition, being the biggest producer of arms in the world. And encouraging the sale of these things and so forth; and always deleting what our needs are? Again I say, what are the needs, and how do all of us get to address ourselves to this problem? Mr. CONYERS. Thank you. Mr. MCSPADDEN. This $4,000 cutoff for medicaid,~if your income is over $4,000, is that State or Federal? Mr. ROSEN. State. Mr. MCSPADDEN. It's not mandated by the Federal Government? Mr. ROSEN. No; it's State. It has a chilling effect, though. Mr. MCSPADDEN. How does that compare to other States? Mr. ROSEN. I cannot answer that question but I will find out. Mr. MCSPADDEN. Thank you very much. Mr. CONYERS. We now call on the illustrious president of the Wayne County AFL-CIO council, Mr. Tom Turner, who has served in many capacities at the national and local level, former head of the NAACP, Detroit chapter, member of its board; active in many civil rights ac- 52_2lLt 0 - 79 - 26 PAGENO="0402" 394 tivities; and many long years ago, he was once a steelworker in that union. We are very pleased to have President Tom Turner before us. He -has prepared a detailed statement, for which we are grateful. We will receive it into the record at this time; and permit him to proceed in his own way. STATEMENT OP THOMAS TURNER, PRESIDENT, WAYNE COUNTY AFL-CIO COUNCIL Mr. TURNER. Thank you very much, Congressman Conyers, and the staff of the Commerce, Consumer and Monetary Affairs Subcommittee for allowing me to present the views of the members of the Metropoli- tan Detroit AFL-CIO. I still pay my dues to Local 1299 of the Steelworkers. Mr. CONYERS. Yes; you have to, if I remember my bylaws correctly. Mr. TURNER. We, the Metropolitan Detroit AFL-CIO, are con- cerned, as are all labor organizations, with the devastating impact the inflationary spiral is having on our members, their families, and the senior citizens we represent. The administration's anti-inflation program, so far, has controlled only one thing-the wages of workers. At the same time prices, profits, interest rates, and dividends have skyrocketed. The proof of this is in Government statistics which show. that the real wages of workers have been steadily going down while the ~profits of corporations are hitting record levels. The Metropolitan Detroit AFL-CIO, upon the request of the na- tional AFL-CIO, is in the process of launching a comprehensive operation price watch pTogram in the Detroit area. This operation, I am sure, will prove what every shopper already knows-prices are going up much faster than the so-called guidelines which are sup- posedly in effect under the administration program. The AFL-CIO price watch program in my office will be implemented by Liflian Barrett, community services director of Metropolitan Detroit AFL-CIO; Al1derson `Corley, director of United Foundation Labor Department; Stan Lisiecki, United Foundation labor coordi- nator; and Joe Coach, United Foundation labor coordinator and the Senior Service Committee. Captains will be appointed to handle various areas throughout the tricounty area (Wayne, Oakland, and Macomb). The following people will be cochairmen in their respective loca- tions: Kenny Watson, Rev. Oscar Love, Lovella Brown, Harold Lawson, Joe Novak, Edwin Kulbach, Joe MacCarthy, Alex Bergeron, Bill Myers, Larry Jann, andRobert McReavy. The above-named committee will be responsible for volunteers in their areas. Sam Panzer, chairman of the Metropolitan Detroit AFL-CIO * Senior -Service Committee, and Adam Brownlee, treasurer of the Senior Service Committee, will be in charge of processing and moni- toring the biweekly reports. Reports will then be sent t6 Leo Perlis, director of the Department of Community Services of the AFL-CIO, in Washington, D.C. PAGENO="0403" 395 The community service director in my office will be the contact person between the AFL-CIO in Washington and the. Metropolitan Detroit AFL-CIO Council. Prices will be monitored by volunteers from all segments of labor and concerned citizens. All publicity of the AFL-CIO price watch program will be han- dled by the editor of our Detroit Labor News and other appropriate publications. Price-watch sheets will be supplied biweekly for necessary reports. There will be a meeting called by me of various unions involved with the price watch program, that hold union contracts in the various stores, such as Retail Clerks, Amalgamated Meat Cutters, Service Employees, Hotel and Restaurant Workers, as well as Amalgamated Clothing and Textile Workers. There will be a kickoff, including the press, on May 23, 1979. Congressman Conyers and members of the committee, I would like to state the AFL-CIO's position regarding the AFL-CIO price watch program. We would like to strongly emphasize that the whole idea of fighting inflation is to hold down the prices of things that people must have in order to live. That is the idea. That's what we mean when we say we are "fighting inflation." It's not to keep down people's income. It is not even designed to keep down profits. The whole basic idea is to keep price increases within a reasonable range. And there is no other idea. Of course, news about price increases will come as no surprise to the administration officials. After all, they see the statistics every month. But there's a big difference between statistics and the facts about the cost of a loaf of bread, a pound of hamburger, a can of beans, for example. We're going to provide the consumers' view-the view from the wrong side of the cash register. We're going to provide the facts that the Government doesn't get, itself, because the Government doesn't have and currently doesn't plan to have anyone out there in the stores checking on exactly what it is the merchants are doing with their price tags. That's the information our price monitors are going to supply. We in the labor movement have been and will continue to be quite critical of the administration's so-called voluntary wage-and-price guidelines. We've said time and again that they are unfair, and, of course, they aren't working. Frankly, we believe that mandatory, across-the-board controls on the price of everything, and the income of everybody in this particular period of time, would be more equitable and more enforceable. In fact, we believe that Operation Price Watch will prove that point. The union volunteers that are being recruited in communities across the Nation for this monitoring program have a definite selfish interest for participating. Their wages are being controlled by their em- ployers-the first "volunteers" in the fight against inflation-"volun- teers" to hold down workers' wages. Of course, employers are oily PAGENO="0404" 396 part-time volunteers, eager to hold down wages and forgetful about holding down prices. The completed forms will be sent to our Community Services De- partment of the AFL-CIO in Washington. Mr. Leo Penis and his staff will compile the results, make them public and available to the administration. From that point on, it will be up to Mr. Kahn and his small staff to investigate these price increases through whatever pro- cedures they have established. Our volunteers are not going to be spies. They are not going to sneak into stores. They are going to wear badges. Everyone will know who they are and what they are doing. Perhaps if the administration had provided the public with definitive price guidelines, then this massive monitoring effort would not be necessary. After all, individual consumers could do the check- ing and the complaining, themselves. If, that is, they could only under- stand the price guidelines. I'll tell you what consumers do understand. They understand that the prices of necessities, food, shelter, medical care, and energy have increased at an annual rate of 13.1 percent since the President's pro- gram was announced in October of last year. Food alone has gone up at an annual rate of 16.8 percent from October through February. Meat, poultry, fish, and eggs are up at an annual rate of more than ~O percent during the same period-40.5 percent to be exact. Energy is up at an annual rate of 12.2 percent, with gasoline prices leading the way at 23.2 percent. And that's only the beginning on gasoline prices. With the President's new decontrol program the sky will be the limit. Now, all those are necessities of life. Those are the "must" items in any family budget. What about other items, the things a family can do without or put off buying, for example? Well, all other items in the Consumer Price Index went up at an annual rate of only 7.7 percent since October. In other words, the prices of necessities are increasing at a rate nearly double for all other items. There is something else that consumers understand, and that is that the buying power of their paychecks is shrinking. A loss of 11/2 percent in~ just the period since President Carter announced his program to fight inflation. While wage guidelines are not the subject of this meeting, allow me to make this one point: If .a 7-percent wage standard ever made any economic sense-and it didn't. In fact; that figure was just plucked out of tbe air-it most certainly makes no economic sense when prices are going up nearly double that rate. If prices were going up 7 percent, then the 7 percent guideline on wages might make some sense. A couple of months back, Mr. Kahn was quoted in the newspapers as saying he was "innundated" by employer requests for information on how to comply with the wage guidelines. Well, we hope to in- nundate him with information about how prices have increased since he has been on the jth. It is obvious that during the first 5 months of these guidelines not too many companies bothered to call Mr. Kahn for information about the profit guideline. When it comes to profits, there aren't many com- panies volunteering to do their part. PAGENO="0405" 397 The profit figures for the last quarter of 1978 prove that. They are now running at an annual rate of 44 percent. And much of the. in- crea~jwas concentrated in the very companies that piously pledged to the President of the United States that business would cooperate with the guidelines. We in the AFL-CIO have repeatedly pledged that we would sacri- fice as much as anyone else, as long as anyone else; but we don't intend to sacrifice alone. We'd like to see the privilege of sacrifice passed around a little. It is easy to control wages. All an administration has to do is to ask employers to do that which comes naturally, say "no" as it re- lates to wage increases. Controlling prices is another matter. This administration has no enforcement mechanism, no price monitors of its own. We have volun- teered for that duty, even though we don't like the way the anti- inflation program is set up. We earnestly hope, and we really expect that other consumers will do exactly what we are doing. It takes no special training to be a price monitor. It only takes a desire to want to reduce inflation, to bring down the prices of those items which are essential to every family. Mr. Chairman and members of the committee, again on behalf of the working men and women in the Metropolitan Detroit AFL-CIO, I would like to thank you for allowing me to present our views on this important and timely subject matter. These unions, as you know, Congressman, hold contracts with these various people; and the reason why we are doing this independently of others is, that we are going to ask them to use their stewards in all of these stores to help us more effectively, than having people going in and out of those organized stores at random. They have the wherewithal to give us that report more compre- hensively. Then we will enter into a coalition effort with other con- sumer organizations in the tricounty area to go after those areas that are not organized with the union contract. Mr. CONYERS. Are you saying that the Wage-Price Board should be doing the monitoring? Mr. TURNER. That's exactly the way we feel, Mr. Congressman. Yes. Mr. CONYERS. What is their reason, or do you imagine why it is that they wouldn't have done this? Mr. TURNER. That is a good question that has been asked time and time again; and there has been no response from the administration as it related to putting together the appropriate staff and doing that. If, that is, they could under the price guidelines. Mr. CONYERS. The rate of profit- Mr. TURNER. How is that? Mr. CONYERS. The rate of profit is up 44 percent? Mr. TURNER. Fourty-four percent in terms of the last quarter; and much of the increase was concentrated in the very companies that piously pledged the President of the United States that their busi- ness would cooperate with the guidelines. I'd like to thank you, Congressman, for the hearings you and your committee are conducting. They are very timely, and I am sure others feel as strongly as we do in the trade union movement about the ad- PAGENO="0406" 398 ministration's prices in terms of the spiraling increase; and we would hope to put that coalition's effort together, not only in the metropoli- tan area but throughout the State, and throughout the country, and show him what we are sure he already knows, and knows that Con- gress is aware of, and that is, the whole program that he has developed is not working. And again, I don't like to say this, or make a comparison; but I know that wages and price guidelines are a real concern of yours. Mr. CONYERS. It is. Mr. TtTRNER. It's bad for me as a Democrat and as a trade unionist, to make a statement saying that even the former Republican Presi- dent, Richard Nixon, back in 1972 when he put on the controls, had a little more compassion and humanity in this whole situation, in terms of not lumping everything into the 7 percent as it relates to the work- ers. And I'm talking about the benefits package and all of that. Benefits, as long as it relates to collective bargaining, can exceed 7 percent. When we are talking about the price increase, which in Michigan and across the country is something like 13 percent or better, and the President is saying to the membership of the various unions that, "You can only go to 7 percent." And if you were president of a major na- tional union such as the TJ.A.W., the Steelworkers, or the Rubber Workers, or whatever, and you are confined to 7 percent, and take that back to your membership, I would say that you would not be president the next time the election comes around. Mr. C0NYURs. Especially when the rate of inflation is 8, 9, 10, or 11 percent. Mr. TURNER. That's right. Mr. CONYERS. You end up with a wage t.hat leaves you earning less than you were a year before. Mr. TURNER. Precisely. Mr. CONYERS. This is an excellent statement. I say that sincerely. It's been focussed on some very important points. And we want to fol- low along with your activity in terms of the price watch. The question that I have, because I know you are in and out of Washington, and you are working with your leaders, and the presi- dent of the AFL-CIO, where is your organization going on this? WThat is the botton line? What do you perceive as your recommenda- tions in terms of this entire subject? Mr. TURNER. The recommendations, as President Meany has re- peatedly said, and I alluded to in my prepared statement, Mr. Con- gressman is, that volunteerism has never worked on anything in this country, as you well know. As a matter of fact, even the mandatory situation under former President Nixon did not work in 1972. However, if we have to lead in this direction, it would seem to me that the President should present this to Congress, and allow Congress in its' wisdom to be talking to their various constituencies around the country, as it relates to this whole question of trying to get this whole question of double-digit inflation under control. I think that is the most appropriate place for it to be. It's unfor- tunate that I don't think the President has the wisdom nor the man- power in order to do that. I think Congress does have the manpower, PAGENO="0407" 399 does have the money in order to get the manpower; and it has their hands closer to the pulse of the people throughout the country than the President. Now, if that is not the way, we have other alternatives that we can speak to you about on this whole question of Humphrey-Hawkins that you were part of. It speaks to some of the things that we are talk- ing about now, in terms of getting inflation down to a certain percent- age by 1983 and beyond. It talks about getting down to zero unem- ployment at that period of time. We feel that this whole thrust that we are talking about here is really tied to the Humphrey-Hawkins bill in terms of employment. This whole question of the budget, we read where there is a small in- crease in the military budget that the President has offered to Con- gress; and by the same token, we see there have been drastic cutbacks as it relates to the domestic budget. And those are the things that we are concerned about. It's bad to say that you look at the city of Detroit, and it's just one urban municipality like other urban municipalities across the country. We are talking about more employment, and unemployment is beginning to take its toll again in the city of Detroit, and in certain pockets in the black community, for example, young teenage and un- employment among this group is steadily increasing. All of that is really tied into this situation. It's so complex, that I think it takes this committee that you are part of, and it takes Congress to really wrestle with this, and meet with the various people across the country, in the various districts as you are attempting to do at the present time. There is no easy solution to it; but if we all put our shoulders to- gether, rather than just arbitrarily doing certain things on a piece- meal basis, Mr. Congressman, it's just not going to work. Mr. CONYERS. Well, your mention of Humphrey-Hawkins, first of all, it reminds me of the tremendous efforts, and your organization's participation in getting it passed and signed into law last September. It also reminds me that in simplistic terms, that is what the argu- ment is about now, what kind of economic policies shall we follow in the land, a full-employment economic policy, low interest rates, sup- port for domestic programs, revitalizing urban centers, bringing on national health insurance, or one that reduces all domestic programs, and reduces the military budget. We are caught in what I think is quite an unusual situation. We are caught within an administration which is now saying to us, that we are going to forgo the former, and for reasons that are still not clear to me, we are going to adhere to this restrictive, conservative, short- sighted kind of program that is going to inflict more punishment, more damage upon millions and millions of people. It's really quite incredible to me. We came in with one program, and we are going out with another, that none of us would dare attach our name or our organizational support to. I think you have put it in a very good focus. This is going to be part of our record, and will be reprinted. I hope you will be able to have enough copies to distribute, in its final form, to as many of your membership as possible. PAGENO="0408" 400 Mr. TUnNER. I will. I gave Mr. Nelson Sanders that 60 copies that were requested. We have many more available for our total member- ship and for the committee, if they so desire. Mr. CONYERS. We would like to get them. Counsel has a question. Mr. MCSPADDEN. I have a few questions about the Council on Wage & Price Stability. And Mr. Kahn in the White House. How receptive are they going to be to receiving the information that you are going to amass, the price data? Mr. TURNER. About a month ago, President Meany had a con- ference in Washington, D.C., at which Mr. Kahn was present. That was April 9, in Washington, D.C., when President Meany had a conference with all of the presidents of the AFL-CIO, which is 106, and other officers of the trade union movement, and presidents of the State federation, and large central labor council, including my own was there. Mr. Kahn indicated that he was very receptive in terms of what President Meany and the Executive Council of the AFL-CIO, back in March, had passed a resolution authorizing the State Federations and the Central Labor Councils throughout the country in doing ex- actly what we are doing; and they have sent us the information, the guidelines in which we are to do it. And Mr. Kahn indicated that his small staff will cooperate 100 per- cent with the program. Mr. MCSPADDEN. What are they going to do with the information, did he tell you? Mr. TURNER. President Meany? No; he did not tell us. President Meany's hope is that all of this information that he was saying about innundated, we are going to do that, you know, to him; and hope that President Carter will see it and do something about it with the Congress. Mr. MOSPADDEN. Did you ask him what he would do with it, or did somebody ask him? Mr. TURNER. No; not at that conference. Mr. MCSPADDEN. Once you sent it, you are obviously going to want to have foflowup on it? Mr. TURNER. That is a good point; and I will get back with Con- gressman Conyers on that. Mr. MCSPADDEN. Please, if there is any followup, send the subcom- mittee on any followup correspondence on whatever you have. Mr. TURNER. Yes. Mr. MCSPADDEN. One more question. Have, in your opinion, Mr. Kahn's units been helpful to your efforts? Mr. TURNER. Thus far, yes; they have been very cooperative. I don't see them doing anything else. I think the consumer across this country is really all they have. And it seems to me that they should have started talking to us long before the President arbitrarily put this into effect. It's almost like after the horse is out of the barn, you close the door. This should have been discusseed before the fact rather than after the fact. Mr. CONYERS. Congressional Staffperson Nelson Saunders. Mr. SAUNDERS. Mr. Turner, will you be making straightout recom- mendations on the information you received? Will you be making recommendations to both Mr. Kahn and the President? PAGENO="0409" 401 Mr. TURNER. Yes; we will, of course, be making that known; and I will also have President Meany's office notified to make the same rec- ommendations known to this committee. Mr. CONYERS. Very good. Excellent. Thank you very much. Our next witness is Father Cunningham, Shrine of Madonna, head of Focus Hope. We welcome you, Father Cunningham. It's good to see you. Welcome to the subcommittee; we will incorporate your prepared testimony into the record, and then you may proceed at your own rate. STATEMENT OP FATHER WILLIAM CUNNINGHAM, SHRINE OF MADONNA, FOCUS HOPE Father CUNNINGHAM. Congressman Conyers, as a preamble, let inc stress, I suppose even as Mr. Steiner began, this is a very complex thing. I am going to hit the economics with the narrowness, because I believe its dimension deserves this kind of attention. It's not intended to be an analysis of the problem of the inflation- depression cycle. Honorable members of the Commerce, Consumer and Monetary Subcommittee of the Committee on Government Affairs. At the time of the Detroit riots or rebellion in 1967, the price of a can of pork and beans was 14 cents. Today, the same can costs 39 cents. In 1967, the cost of milk was 51 cents for a half gallon. Today, it is 90 cents to $1.05. The April Price Index states that anything costing $100 in 1967 now costs $211.20. At the top of the list is gaso- line for transportation, and fuel for heating. The cost for survival has doubled, while the ability of many Dc- troiters to purchase necessities is slipping painfully backward due to a remarkable phenomenon called inflation-recession. In 1967, the Detroit Free Press-Urban League study on the causes of the riot cited the unequal and inflated price of poor quality foods as the No. 1 cause. The 1968 Focus: Hope Survey, exhaustively documenting the axiom: the poor pay more, indicated that urban poor, mainly blacks, were charged 15 to 30 percent more for food than their suburban white contemporaries. This dramatic inequality has, in my estimate, together with other classic features of apartheid, continued to develop. The socio-economic phenomenon of depression coupled with in- flation is two sides of the new coin of racism. Trapped in Detroit and urban ghettoes across the country are blacks, browns, and other un- desirable minorities, together with the elderly poor, the marginally gifted and those who came to Detroit because it's "the place where, when you go there, they have to take you in." Detroit is home to the majority of Michigan native Americans, blacks, immigrant Chalde~ns, and a host of others es~anim~ from where they were, but unable to go anywhere else. Mostly Detroit is black, but Detroit is old-over half of the limited-income elderly from the entire State call Detroit. home. Meanwhile, in Birmingham and Farmington and other affluent sub- urban communities, heady with inflation, the poor and the aged and PAGENO="0410" 402 the blacks are kept out. Recently Birmingham, oniy 7 miles north of Detroit, recalled and voted out in subsequent elections its entire gov- ernment over the issue of building senior citizen subsidized housing, and possible accommodations for 13 black families. I am saying, therefore, that racism and exclusion of the poor lies at the base of the recession-inflation conundrum. Mr. CONYERS. They probably turned down HTJD moneys that are available. I don't know if this particular community did. You know about the practice of refusing HTJD money, because it would require that you have an affirmative action program. Father CtTNNINGHAM. That's right. The MCHTA recommendations were thwarted by the Birmingham Council and the electorate; and as a result of that, there was a loss of HTJD financing and other moneys. The price of racism in the suburbs. And the national leadership clearly and truculently supports this racial and social racking with budgetary trimming and priority cut- backs aimed mostly at the underbelly of society. There are those who argue we must first attend to inflation before we zero in on recession, support programs, and reforms. My contention is that we cannot attend to the rich getting richer, without attending to the poor getting poorer. And we cannot attend to either until we are willing to confront America's basic and historic dilemma, the dilemma of separate and unequal, the dilemma of racial intolerance and injustice. Detroit was an abondoned city, abandoned first by whites, then by white-owned industry and business. Whites left behind everything old and used and broken, both people and buildings. With the white exodus went the jobs and the dribbling-down concept of economy which supported the majority of blacks. While Detroit struggles valiantly and is regaining white affluent support, the distressed population remains either unemployed or locked in a support system years behind the inflationary demands. More than a balance of payments, discrete trimming of welfare, subsidies to the military-industrial complex, fuel shortages, the prob- lem facing Detroit and its suburbs is the moral decision to confront racism. The cost of malingering is to breed more a.nd more virulent mutants of the simple South African disease of apartheid. It is also my observation that survival has pressed the greater De- troit community to a new moral awareness of racism. Evidence, is be- coming clearer that we understand now much better than in 1967 the cost of bigotry. Detroit now has the Nation's largest feeding program for babies, children and mothers. Focus: Hope feeds with U.S.D.A. commodities nearly 35,000 persons, guaranteeing brain development, and physical health and offsetting the behavioral violence and apathy of under-nutrition. This program grew with the sunport of suburban whites, metropolitan churches and corporation efforts, once people were educated to the needs and distress of the poor and hungry. Black and white students in our desegregated public schools, both in Detroit and `several suburbs, are working together with their teachers to achieve new ideals of harmony and justice. The mayor of Detroit has brought together new and hopeful coali- tions of business and industry with a dominant black government. We PAGENO="0411" 403 have seen healthy reforms in our city departments, especially the De- troit Police Department. Focus: Hope, an integrated coalition of city and suburban volun- teers, is growing in its power of persuasion to foster interracial coalitions for neighborhood stability, better education and job opportunities. However, national priorities which ignore the etiology of the present depression-recession cycles and their heavy racial implications will only continue and increase America's primary and historic moral dilemma. Thank you for listening to this myopic view of the problem of in- flation and depression. Mr. CONYERS. Well, we are very honored. This statement tracks certain economic and social considerations in an extremely overpowering way. We here in Detroit, of course, are grateful for your leadership. It is true, Focus: Hope and the efforts of many citizens who join with you, that we have the largest free food program of any nongovern- mental agency in the United States. It comes right out of Detroit. I'm very anixous to get the idea to other cities who need it as des- perately as Detroit, that we can replicate Focus: Hope on a national basis. And I am very pleased that you joined us here today. Are there any questions of the staff ~ Thank you very much. We will also introduce into the record the statement of the Regional Director of the Federal Trade Commission, Paul R. Peterson. [Mr. Peterson's prepared statement follows:] STATEMENT OF PAUL R. PETERSON, REGIONAL DIRECTOR, CLEVELAND REGIONAL OFFICE, FEDERAL TRADE COMMISSION Mr. Chairman and members of the subcommittee, I am Paul R. Peterson, Regional Director of the Cleveland Regional Office of the Federal Trade Commis- sion. I welcome this opportunity to testify today about the efforts and activities of the Cleveland Regional Office as they relate to combating and minimizing inflation. At the outset, I should state that the views I express here today are my own as Director of the Cleveland Regional Office of the Federal Trade Com- mission, and do not necessarily reflect the views of the Commission or of any individual Commissioner. Regional offices of the Federal Trade Commissioner are responsible for the enforcement of antitrust and consumer protection laws and rules and the coordination of Commission activities with State and local groups in large multi-state areas. The responsibility of the Cleveland Regional Office, for example, includes the States of Michigan, Ohio, West Virginia, Pennsylvania, Delaware, Maryland and western New York. Because of our broad enforcement mandate, selecting enforcement matters is one of our more difficult decisions. In both antitrust and consumer protection, the anti-inflationary impact of each proposed action is one of the more important factors considered in case selection. Con- sequently, most, if not all, Cleveland office matters contribute in the war against inflation either directly or indirectly. Cases involving price fixing between manufacturers and retailers of the prod- uct: cases involving price fixing between competitors: and cases involving various other agreements by competitors not to compete have been favorite antitrust targets of my office. Such illegal conduct produces less competition, which fre- quently leads to higher prices. The Commission has recently obtained several orders against manufacturers for fixing the retail price of their goods. These orders have resulted in sizable consumer savings as increased retail price competition has led to lower prices being charged for the product; Lower prices for the product in question have PAGENO="0412" 404 produced a rippling effect leading to lower prices for competing products. For example, staff estimates that the Commission's order against Levi Strauss has resulted in consumer savings in excess of $50 million. My Cleveland office recently obtained a strong settlement against Interco, Inc., the maker of Florsheim shoes, London Fog outer-apparel and other apparel, for fixing retail prices. The order prohibits Interco from even "suggesting" retail prices for a period of 3 years and preticketing these prices. Interco is also banned from terminating dealers for discounting. Since obtaining the order, we have observed increased price competition in the retail sale of London Fog apparel. Although wide-scale price competition of Florsheim and other shoes has not yet been precipitated, signs of increased price competition have been observed in several large cities. As vigorous price competition in the retail sale of Florsheini shoes spreads to other markets, based on our experience with jeans, audio com- ponents, and other products. We believe lower prices will result, producing sizable consumer savings. Recently the Cleveland office turned over its investigation of -retail price fixing between two major food chains to the Justice Department for a criminal investi- gation. If the allegations of price fixing are correct, consumers may be paying more for food than they would be paying if the prices were determined through competition. Sizeable savings could result. Another significant antitrust area in which the Cleveland office and other regional offices are increasingly involved is the prevention of anticompetitive mergers,for they often result in a lessening of competition. Where the production, sale, and pricing of -a product is concentrated in fewer hands, prices may rise faster than normal. The Hart-Scott-Rodino Act has proven helpful in giving us -advanced knowledge of proposed mergers. Several inquiries have been, conducted by my staff of the possible anticompetitive effects of proposed mergers using sub- missions made under the act. Currently we are involved in a formal, nonpublic investigation of -the merger between two large food manufacturers. The Commission's efforts to minimize the effects of inflation also extend to consumer protection matters. Many of our consumer protection cases focus upon various - unfair or deceptive advertising and marketing practices. Often, when consumers are:misled,~they make purchases that they otherwise would not have made had they known the truth. Furthermore, consumers may be forced to buy a replacement for such goods. The increased demand and waste created by such marketing practices -is an upward force on price levels. Consumer protection cases seek to forestall such efforts. :The commission-has increased its focus on the insulation industry because the rising cost of energy has resulted in an increase in consumer demand acconi~ -panied by an increase in deception~ One of the most prevalent types of deception in the insulation area concerns false or unproved savings claims. The Cleveland office has played a -role in the Commission's national investigation. To help stop the use --of -false and unsubstantiated savings claims, we have sent warnings to manufacturers and retailers under the authority of the Magnuson-Moss Act thai use of such false claims could lead to significant court-imposed penalties. By stopping the use of such claims we are decreasing the deceptively created demand. This, in turn, should have a downward effect on insulation prices. In addition -to playing a role in the Commission's national investigation, the Cleveland Regional Office recently obtained an order against the Aluminum Co. of America, Inc. (Alcoa) for advertising that aluminum siding has a beneficial insulating effect. Our investigation established that the insulating benefit of aluminum siding is negligible. Al~oa agreed to refrain from advertising such ben- efits. The ordei~, which recently was accepted by the Commission, should not only minimize inflation by decreasing any deceptively created demand, but it should prove beneficial from an energy saving standpoint. Some consumers whose pri- mary reason for purchasing aluminum siding is based on the insulating claim instead will purchase effective forms of insulation. -. Another example of Cleveland's role regarding deceptive insulating practices involves advertisements by Owens-Corning Fiberglas Corp. overstating dollar savings in energy by using their fiberglas insulation. The order against Owens- Corning requires it to stop making such unsubstantiated claims or face large civil penalties. This order, like the Alcoa order. should have a downward effect on prices by eliminating the deceptively created demand. Another example of the Cleveland Regional Office's anti-inflationary impact regarding its enforcement of unfair and deceptive pracfices concerns our non- public investigation of a large national corporation that sells door to door through PAGENO="0413" 405 hundreds of distributors. The distributor's salesmen, in order to sell consumers, have used a variety of deceptive and high-pressure tactics, including telling consumers that they were specially selected and that if they bought immediately they would receive a special deal. Frequently they were not informed of their right to cancel within 3 days. Because of these deceptions and others, many con- sumers have purchased a product they would not have otherwise purchased and have paid more than they would have paid had they shopped around and com- pared prices. Our investigation has resulted in warnings recently being sent to the distributors explaining the law and telling them that future violations could result in large court penalties. Since mailing the warnings, we have not received any complaints of illegal conduct. The Commissibn in the recent past has been quite concerned about the inflationary impact of Government and private regulations. One of the areas the Commission has focused its attention upon is State regulation of professional services. For example. the staff's investigation of eyeglass regulations has resulted in a rule permitting advertising of eyeglass prices and requiring copies of optical prescriptions to be given to customers. Prices have dropped because of increased price competition through advertising and consumers have been able to take advantage of the lower prices because they have been given their prescription. The rule has resulted in large ~onsumer savings. In addition to eyeglasses the Commission, staff has studied dental services, accounting, real estate, dental laboratories, medical services, veterinarian serv- ices. and legal services. The Cleveland Regional Office is leading the Commission's inquiry into legal services. In particular, we are looking to see whether other nontraditional delivery systems may provide quality legal services to many consumers otherwise depyived of such services because of their costs, and whether State and private regulations are impeding the development of these nontraditional delivery systems. The types of delivery systems we are focusing upon include legal clinics, group and prepaid plans, the group practice of various mixed professionals, and the offering of legal services by large retailers. This is a summary of the Commission's and my office's recent activity that is contributing to the fight against inflation. It reflects, I believe, the Com- mission's mandate to making the consumers sovereign in the marketplace. I would be happy to respond to your questions. Mr. CONYERS. We would like to invite Mrs. Rosa Parks to make any comments that she would like to at this time. Welcome to the Subcommittee. STATEMENT OP ROSA PARKS Mrs. PARKS. Thank you, Congressman Conyers, and the staff people, and all other participants in this hearing on consumer affairs and con~ sumer problems. I would like to say that since I came through Detroit in the late fifties, and was then working for Congressman Conyers in 1965, 1 have been aware of, especially through his office, so many problems that confront his constituents. And I have felt that there had to be something very, very wrong with our system when, through the testi- mony that we have heard here; so many people who worked hard dur- rng their young and productive years for very little pay are paid only a fraction of what they are asking now, and save a little bit; and then they are penalized and punished for being thrifty. It's heartbreaking and sad to hear some of the calls that come into the office as I answer the telephone and listen to middle-aged people, people who are younger than I am, who have become ill and have no benefits, no medicare or medicaid, no money for medicine, food and housing denied them. I'm constantly aware that through his efforts in bringing this out that we should be grateful for his interest, and I know I am, personally. PAGENO="0414" 406 The question before us now is what the solution may be, and none of us seems to have a solution. Personally, I feel that we need to be more aware and concerned about those who are less fortunate, if only on a one-to-one basis, whenever we can, to share the means that we have, because sometimes the social services and other agencies just don't move with regards to the needs of people. Mr. CONYERS. What accounts for that intrasigence that you are experiencing? Mrs. PARKS. I believe a great deal of it may be from the bureaucracy, the red tape, the agencies are not, well just not moving. And while a person can call in and say they have no food at all at home, and we call the social services, then they have to refer to somebody in the office, some worker who makes it a point to go out and make it their own personal affair. But in the meantime, the person is still here and still in need. I can recall a few years ago when I was more active myself, of going to a home where a woman with two young children who was suffering with a back ailment and not able to get up. And I can remember that I went to my house and got some food out of the refrigerator, and a friend of mine and myself went to the home. It was amazing to see the home. There was not a sign of any food that had been there re- cently, not a potato peeling, not a bread wrapper, nothing. I wondered what would have been done if Congressman Conyers had not given me the position on his staff that I am now on, at that time. This is not completely isolated. Many people suffer just this way until some individuals know of their needs and help them in a crisis, until perhaps the Social Services Department will move. Many of them are trying to get social security. And that's always a hitch and a delay. If there was only some way that we could cut through the redtape and become more humanitarian toward the needs of people who are suffering, all the way from the young expectant mother to the senior citizens who actually suffer in many instances because of the system under which we live, and the bureaucracy and the redtape that will not help them in the time of need. Thank you. Mr. CONYERS. Thank you very much for appearing before our sub- committee, Mrs. Parks. We know your compassion and concern has been very large over the years. And, of course, we know that sometimes you are personally involved and have involved yourself with the prob- lems of many less fortunate in the city. And we are very grateful to you. Mrs. PARKS. Thank you. I have had many personal problems, myself; but, sometimes, when somebody else relates something that even makes my own problems small, I feel compelled to contribute if I can to relieve the suffering of as many as I can. Mr. CONYERS. Thank you very much. Chuck SternS with the city of Detroit. is the executive director of the Nutrition, Hunger. and Malnutrition Task Force. Mr. Charles Stern is very active, and has been very dedicated in a variety of programs in the city. We welcome you today before the.subcommittee. PAGENO="0415" 407 STATEMENT OF CHUCK STERN, EXECUTIVE DIRECTOR, NUTRITION, HUNGER, AND MALNUTRITION TASK FORCE, CITY OF DETROIT Mr. STERN. We are participating providers of food programs. We try and keep an eye on all the school meal programs, the summer programs, the commodity programs, the senior meals programs. The nature of our watches and our advocacy position is, we monitor the programs, we do an analysis of regs and legislation, we know about the grants, and are writing a booklet for information and referral that will be out this summer, called "How To Feed the Hungry," so every- one can understand what they can do with the particular feeding programs. It's a frustrating task. What we do, although the list sounds great, by and large what we do is crisis management. We are always behind, trying to struggle to get those folks at the bottom at least up close to even. Mr. CONYERS. What kind of challenges are you confronted with in your position? Mr. STERN. Almost any program facing normal running day-to-day operations are often catastrophes for individuals, those folks who call, each individual's program, they are faced with problems of getting into the program, the senior meals programs, the Kennedy "meals-on- wheels" program has authorized $100 million, but appropriated noth- ing. That is a catastrophe for those people who need meals at home, and can't go anywhere to get it. Mr. CONYERS. Did the program ever start in Detroit? Mr. STERN. We do have a small meals-at-home program. The large program that finally was authorized was never appropriated, so we have a massive waiting list of those people who are in need of that program. Mr. CONTERS. What happens to them in the meantime? Mr. STERN. They fend for themselves the best they can. They have food stamps, if they can get on that program. Now, we are faced with a potential food stamp cut, because we now have a cap on the program. A cap that, although the program will allow anyone in it, unlike the senior meals program, anyone who needs food stamps can get into it; but it cuts the level of funding for every- body. We are down to about 30 cents a meal on food stamps. You know what 30 cents a meal does. We are faced with a loss of chainstores in the city. The chains have gone from the city, and we are left with the ma-and-pa stores, small local markets that often charge 30 to 40 percent more for the same food item and, interestingly enough, may be owned by the same person. I call them ma-and-pa stores. They are really local markets often owned by the same people, who will charge a better rate in a more affluent neighborhood. We got a lot of people who come to us, even though we are not an information-referral organization. What I would like to do, I took one letter from the letters that come into the office, and I would like to read that into the record, because what we try to do in the task force, if we are doing what we should be doing, is speaking for those people who have less ability to get their words heard. This letter is symptomatic of things that are happening. PAGENO="0416" 408 The gentleman is named Harold Parsons, and is the person who wrote this letter. He is trying to fend, but I would like you to know what it is he has to work with. [The letter from Mr. Parsons follows:] 19901 WHITCOMB, Detroit, Mich., April 18, 1979. State Senator JACK FAXON, Senate, State Capitol, Lansing, Mich. Re Food stamp program, Wayne County Case No. K1501899A. DEAR Sin: Has it occurred to you that there is anything wrong or unfair in the new Food Stamp program? I am a senior citizen, 73 years of age, married, have been receiving food stamps for some four years, and was recently reviewed under the new rules by Mrs. G. Patterson of the Lyndon District Office in Detroit. I do not in any way question Mrs. Patterson's handling of the case. She is a most pleasant girl and was, I am certain, only following the rules. However, my total income is a Social Security check for $273 a month. As of July 1978, I was able to purchase food stamps in the amount of $96 on which, with the aid of a garden, my wife and I were able to get along quite nicely: As of January 1st, when it was no longer necessary to buy the stamps, I received $71 in stamps, which made things somewhat tighter but still manageable. Now, after recertification, I will only get $52, a loss in my food buying power of some 26 percent! Taken together with the rapidly rising food prices, currently at a rate of 14 percent or better, I have lost something over 40 percent of my ability to buy food! Would you like to face that prospect? Part of the trouble, it seems to~ me is that under new regulations, Mrs. Patter- son said she could no longer allow any deductions for our Blue Cross, which costs us $757.80 per year at present, and which is necessary because my wife is not yet eligible for Medicare. Our house and car insurance, because of redlining in the city of Detroit, amount to another $392. Electricity cost for the year was $194.12, telephone $51.48, and water $56.67. Assuming no rate increases, which is an unlikely assumption, these more or less fixed expenses, including heat, total $1,902.07. Since my income total is $3,271, you can easily see I have little to spare. Yet all I can be allowed for housing costs is $35, and I can receive only $52 for food! Surely, you can do better than that! Sincerely yours, HAROLD B. PARSONS. CC: Mayor's Hunger and Malnutrition Task Force Michigan Department of Social Service. Mr. STERN. Such is the nature of inflation for those people on fixed incomes. Mr. CONYERS. That is a powerful letter. Are you acquainted with this problem of bad food in the public schools under the lunch program? I remember an elementary school on the West Side in which the youngsters complained to me that the bologna sandwiches were frozen and unedible. Mr. STERN. We hear a lot of comments about that. Mr. CONYERS. This is a couple of years ago. Mr. STERN. We still hear the comments. Green hot dogs, foods left unfrozen, foods refrozen. There are still those complaints that come through. We are struggling to get a breakfast program into the school system for those people who cannot put a breakfast on the table. The nature of inflation causes a whole lot of families to have two people working; and if there is only one adult in the household, and that person is working, and if you have taught kids in the public schools, you know they get wired up around 11 o'clock when they have not eaten. Many of the problems in the schools are inherent in the fact PAGENO="0417" 409 that kids don't eat very well, and that is much of the problems in the schools. We are struggling to get a breakfast program in the schools. We now have a State-mandated program, and that will start in the fall, this year, in a number of schools. And every summer we go running around the State trying to fight for the legislation that will designate that program. We are working with the Detroit school system, trying to encourage them to move along quietly, but that hasn't been satisfactory. Mr. CONYERS. Then I presume, of course, that the mayor makes recommendations that are compatible with making this program work? Mr. STERN. As a director of the mayor's task force, and those food issues, the task force speaks as a task force to those issues. Mr. CONYERS. Very good. I'm glad you joined us here today. Thank you very much. The next witness is Frank Curran, president of New Homes, and he is from New Haven, Mich. We welcome you to Detroit. The floor is yours. STATEMENT OP PRANK CURRAN, PRESIDENT OP NEW HOMES Mr. CURRAN. I very seldom come to a meeting that I don't have some- thing to say. I make the rounds regularly. I want to thank the committee for permitting me to speak. I am a good man; I can hear with my eyes; I can see where your staff and yourself have taken it upon yourselves to hear the rest of us, and help us in our way. I have come a long way. I have spent a long day, and I certainly thank you for your kind consideration. I can see that, and I want to thank you for it. First if all, I want to say that I am on ironworker by trade. I earn my living with my hands and my back, and I've got the broken back and calluses to prove it. Mr. CoN1~Rs. Are you retired, or are you still at it? Mr. CURRAN. This is one of the subjects I want to bring across to you. I know you are going to hear a lot of rhetoric, if. I know the word right. I don't use it as a rule, because I'm pretty common. I understand the English language as it is spoken just as an ordinary workingman. This is the way America does it here, now. This is a good way. This is the way it should be done. By the way, I have a nephew in Poland, and his name is Jasha Cur- ran; and I understand Jasha Curran, according to the Reader's Digest, is in trouble again. Of course, this runs through my family, the Cur- ran's are dissenters; the Curran's are agitators; the Curran's are ag- gravaters. You name it; and I'm paying the price for it, right now. I should be working. I'm laid off again. I paid the price terrifically for the past 10 years. Mr. CONYERS. Do you have a union? Mr. CURRAN. Yes; it's a dues-collecting agency, called the Iron- workers. I don't mind saying it out loud, I don't mind saying it for the record. Right now, I would like to give you a bit of information about my- self. I'm 62 years old. I was hoping that I could retire this winter. I have a wife second-to-none, barring none. She's a beautiful person, 52-21~ 0 - 79 - 27 PAGENO="0418" 410 one of the best people in the world. I have raised two children; I've got six grandchildren; and I hope I can leave them something. Today, what I think this committee is missing, and I have been listen- ing for it is, there are thousands of our youngsters, literally tens of thousands of our youngsters are not going to go to work today, because I cannot afford to retire. One of the biggest things I have heard in the last 2 or 3 years that, "No, I can't retire, because I can't beat this in- flation bit." I know people in the 65-year bracket who like to travel. They would like to take a little fishing trip here and there and do this and that. They can't do it. We have made captives of them in their own homes; they are sitting tight. They are making that buck stretch. Let me talk about a favorite subject of mine, the utilities. The Public Service Commission, here in the State of Michigan is a joke; it's an absolute joke. Since they got rid of, or probably thank- fully so, they got rid of Bill Rahls on the Public Service Commission, and I took the time and trouble 5 or 6 years ago to become an inter- venor. It. was hard. My friend, Tom Morgan, and I are probably the only intervenors in Monroe County. Let me tell you this, that as far as the State of Michigan is concerned, the utilities in this State have got the politicians and the press in their back pocket. I mean it. I have seen it time and time again. Tom and I took the time and trouble to go to Lansing, to appear before the Public Service Commission numerous times. We saw one energetic news re- porter there that had this large yellow page; and Tom and I made some pretty good copy. The man approached us and wanted to know our names, addresses, and everything. We told him that he was just wasting his time, that they wouldn't print anything we had to say, anyway. The young man assured me that there was no question about it, this was news. We were good subjects. And anxiously we waited for the Detroit News the next day, to see what it had to say about the Public Service Commission meeting; and all we found is that "there were two citizens from Monroe County that appeared." I just want to point, out and caution this committee, I notice all the time that you get very little publicity, very little publicity. The news media in this town aren't going to give you the time of day. Mr. CONTERS. I was interviewed by the Detroit News rather exten- sively during the break. They wrote down all of my comments. Mr. CURRAN. Let me say this to this committee, and our friends out here. Any similarity between what you have seen and heard today and what you and I know and will read tomorrow night in the newspaper will be purely coincidental. I have seen it time and time again. Let me say this, that unless you get a secure hold on the public util- ities, they are going to bleed us to death. Today, it's the nuclear race; and believe me. I see it, because right in my backyard are the Fermi I and Fermi II. ii took Fermi I out of the ground. I took Fermi II out of the ground; and when I began to say my piece, as you can hear me today, I was laid off. I participated in the writing of the book1 "We Almost Lost Detroit." My name is "Curran," but it's mud as far as Detroit Edison is concerned. It was mud when I became an intervenor against these huge rate hikes. And I tell you this, the more the util- PAGENO="0419" 411 ities spend. the more they waste. the more they steal; the more they earn, the more they throw away; the more they make-and it's just a beautiful setup where they can't lose. I went to the stockholders' meeting approximately 2. or 3 weeks ago, and I'm going to tell you something, the flashbulbs were popping all over the place, the cameras were grinding away like, hell. And I'll tell you what I saw on television. Of course, what my friends saw, nothing, nothing. The local paper said that I was up in Detroit. The local paper follows me pretty good; but the Monroe Evening News wouldn't give me the right time of day. Now, there is something wrong with Congress when t.hey allow the public utilities to rape this country, and I mean rape. As far as retirement is concerned, my God just dig into the magni- tude of what this means! There are thousands of our kids that are not going to get a job because I cannot afford, and my friends and neigh- bors cannot afford to retire. I live in a unique area south of Fermi I and Fermi II. We have an overabundance of widows. In my penin- sula alone, we have 16 widows, 110 families. And I know what those people go through, because I try to help them every way, shape, and form that I can. Mr. CONYERS. What happens to them? Mr. CURRAN. They squeeze by. They are going hungry because they have to pay their rent, the utilities. In fact, one of our neighbors, Mrs. DeLanski, just paid 65 cents a gallon for fuel oil, 65 cents a gallon; and she has approximately $240 a month. My wife and I are helping her get over some convalescing. We are glad to do this. I think there is a reward there somewhere for people like us, if we can get satisfaction out of helping other people, I would say we are doing a lot better than a lot of these guys, because they are not going to take a dime with them-not a dime. This is the beautiful part of life. You can have it, but boy, you don't take a penny with you. Let me say this, as far as the news media is concerned, you people ain't going to get the right time of day out of them. Prepare your own news release and say, "Look, you take it or we'll put it in the form of an ad." Then they must take it. Now, as far as Washington is concerned, the chairman was here and he asked a question several times. I was hoping he would ask me, "What do I think about Carter and inflation, and will the programs work?" Well, let me just say to you, Congressman Conyers, you didn't give us much choice last time. We had a peanut farmer and a football player. I'm coming onto 63 years of age, and for God's sake, don't make me vote Republican. I have never voted Republican in my life, and you're driving me to it. Now, somewhere along the line, I'm going to crack. Mr. CONYERS. You are not going to jump out of the frying pan into the fire, are you? . Mr. CURRAN. That's the only thing that's keeping me from doing it. Mr. CONYERS. Those are the guys that are pushing the Democrats to the right. You're not going to reward them for that, are you? Mr. CURRAN. No; I can go to great extremes; but I think that would have to be the last resort. PAGENO="0420" 412 You asked a question, "why, in Detroit?" I wrote my answer, "Why have things gone up so high in Detroit? Let me tell you this, you asked the question and you didn't get an answer. Let me give you my answer. Detroit and Michigan have enjoyed high wages, good income for many years since the war. Detroit and Michigan have enjoyed high wages, good living, and the people here have worked hard. Nobody gives nobody something for nothing, not the workingman, anyway. I'll tell you this: these people know how many bucks we've got stashed under the mattress, or in the little bank somewhere. They know how many bucks we've got, and they know what the traffic can bear, and they are in here in Detroit, extracting the last ounce of blood. And I'll tell you, we are reaching the limit here in and around Detroit. There ain't no more money; and I have tried to tell it from several different points of view here, as far as some of our Government pro- grams are concerned. Let me say this to you. There is something wrong with our priori- ties. There is something radically wrong with our priorities. If this committee was called a Port Commission, you could get all the money you wanted. We have certain problems in and around Monroe, and we also have what we call a Port of Monroe. It's been there for years, to collect the gook that was coming from the papermills. So today, some smart guy's going to make this into a big port, thousand-foot freighters and every- thing else. Money is no problem. They can get all the money they want. I think we should label some of our welfare programs or our food stamp programs, the "Port of something or other," and we would get all the money we need. There is something radically wrong with the priorities in this country. I want to tell you something: the senior citizens who have worked all their lives, and I have worked since I was 17 years old, believe me, I come from a `family of eight-there are four boys and four sisters in the family-we served our country, and we served our country vol- untarily. And I would serve it again. There ain't no name they can call me, such as anti-American. I'm as good an American as any of them, and better than most of them. My God, there is something radically wrong. I don't know what it is; but there is something radically wrong, because we have our priori- ties mixed up. You have read and seen stories in the media of some of our senior citizens eating dog food. They are not without merit. The State of Michigan has set aside millions of dollars to pick up the tab for our utility bills. In other words, the utilities are guaranteed payment under this program. I told them in Lansing about 6 years ago that this was going to hap- pen. They laughed in my face. We have had many people in this coun- try, right here, that have frozen to death because they are too proud to go to the welfare. They stretch that buck just as far as they can. And when you sacrifice one for the other, you are going to sacrifice heat for eat, or eat for heat; and `by God, when I see people go to bed with the chickens at 8 or ~ o'clock, they don't even have a television. They turn the radio off at 8 o'clock and they go to sleep. PAGENO="0421" 413 The utility companies in Michigan, right here in Detroit-Detroit Edison-when they lost approximately 20 percent of their income be- cause we saved, and everybody said you must conserve; so we con- served, and what happened? They jacked up our bill, so we didn't save nothing. Let me tell you something. About 5 years ago, I quit drinking. I drank all my life, you name it, I drank it. You should have seen me when I was in my prime. I want to tell you this, it's 5 years. I've tried to do what is right; I've tried to settle down; I have tried to go the way I know I should go. By God, I'll tell you, there is something wrong here; you're going up against a stone wall. These phoney boloneys in Washington, you give them the word that they don't have Michigan in their back pocket. The Democrats had better wake up, or by God we are going to start running. Thank you. If there are any questions, I'll be glad to answer~ them. I'm grass- roots. I've got a good ear and a good eye. Thank you, again. And I appreciate your coming to Detroit to hear us. What more can I say? I'd better leave while we are smiling. Mr. CONYERS. Thank you very much, Mr. Curran. Our next witness is Mrs. Leola Mason. STATEMENT OP LEOLA MASON Mrs. MASON. Well, nobody but me, me and the Lord, and I'm being abused about my medicaid, and I was refused about this 2 years ago when I lost my home. Mr. CONYDRS. How did you lose your home? Mrs. MASON. I couldn't pay Edison and Michigan Consolidated Gas Co. Mr. CONYERS. They don't take your home away because you can't pay them. Mrs. MASON. I'm not talking about what I lost. I want that medicaid card, so I can see about myself. I lost my hearing. You have to work for 7 months after you apply for your Social Security. I've had some kind of brain damage thing. I have to be at the hospital at 2:30, and I've got to leave here and be there, so I can get in the line at the clinic. Mr. CONYERS. We'll be very happy to service. I'm very happy you are here, Mrs. Mason. Mrs. MASON. I have been working since I was 20 years old. I lost this eye when I was 33 years old. I kept on working. I was just 1 year and 9 months on A.D.C. My boy raised himself on the streets for awhile. I've never been nothing but a worker. I was born partially blind, but I work. I've never been a drunk. I think I need some justification from whomsoever I can get it from, ta get my medicaid, to see about myself, because I can't pay with $312. I can't pay my rent, which the State is helping me with now, and buy my medicine. I've got to get to this doctor at 2:30. I need to fill a prescription, I'm mixing herb with medicine, which is bad. I can't afford money for medicine out of $312. I can't eat right. I don't know why I'm fat.. I don't drink beer; PAGENO="0422" 414 but I'm getting fatter. I gained 11 pounds. I'm not worried, because I know it's going to go away. I just beg you to see about getting the medicaid card, for someone to release my medicaid card. I don't like doctors, and I don't go. I'm not a chronic complainer. For 2½ years I was in Highland Park General Hospital with a kidney infection. I was in there when they closed it down. I went to the herb store and got herbs and put a board in my bed for my back. I fell and went to Ford Hospital, and haven't paid that bill. They put me up for 2 months, and a week. I fell out again. I was there Friday. I've got some kind of brain thing. I don't know what it is. I have an oozy head and all of that. I need just a little bit of consideration from somebody. I'm not get- ting it from the authorities at the Holbrook place. I went there trying to get some oil to save my house. I went and filed for my dead husband, dead 5 years. And I'm getting $145. My bread and beans costs more in my neighborhood than it costs in yours; because when I was living at Six Mile Road, it was a little cheaper. I'm on Richton and Hamilton now. Toilet tissue was 62 cents. When I was in my home, I was in a better area. I'm no college graduate. I went to grade school. It's been a long time. Everybody's thinking about his paycheck today, and don't think about the other person. All he's thinking about is the way he wants to live, not the way the other person wants to live. He's not inter- viewed, pulled in, whether he has the ability or not. I worked for the Army once. There was some dirt there. I didn't get paid for that. They didn't hire me to scrub. They said Monday, Tues- day, Wednesday, Thursday, you have to scrub, and stay here until 2 or 3 o'clock. I said, "You didn't hire me to scrub." That was in Atlanta, Ga. I've come a long ways and I've seen a whole lot. There's a lot of people, and I'm not saying what his race was, or who; because the devil don't only get in the black man; he's in everybody. You people are after what you can possess and get, and you're not looking at God's children. We all belong to God, if you didn't under- stand it. He put us here to inspire and help one another. Mr. CONYBRS. Where is your meeting at 2:30? Mrs. MASON. I'm begging you to let me have that card, so I can see and keep my balance. Mr. CONYTERS. We want to help you. Where is your meeting, Mrs. Mason? Mrs. MASON. They want to give me a transplant. This artificial eye: I won't let them. Mr. CONYTERS. Where is your appointment at 2:30? Mrs. MASON. I guess I can be a little late. It's 211 Glendale, this here clinic. I have to go there to take another test. Mr. CONYTERS. Here's what we are going to do. First of all, hold it a minute. I appreciate your coming here to the hearings. Mrs. MASON. I wish you would give this to whosoever it can go to. Mv Lord is working on it. I need that. card very bad. I'll be 64 years old next MondayS and I need attention from the doctors. Mr. CONYERS. We are going to have Mr. Stanley Hill drive you to your appointment. PAGENO="0423" 415 Mrs. MASON. I thought I had glaucoma. I didn't. I come there with syphillis in the eye, born by a country woman. I think I need a little justice, I wanted. And I've been in and talked to a good lawyer. I'm going to do something, because he wants the money. I don't. I just want justification for that card. And I thank you. Mr. CONYERS. I hear what you are saying. I also feel what you are saying. Mrs. MASON. I'm not complaining about what I lost. I want to keep going. Mr. CONYERS. We want to have one of our staff go with you to the meeting. We are going to have one of our staff go with you to your appointment at 2:30, to make sure you get your card. Mrs. MASON. To take me there? Mr. CONYERS. Yes. Mrs. MASON. I never had nobody love me that much. Mr. CONYERS. We are getting ready to take you now. Mr. Stanley Hill is going to go with you. I am going to be waiting. They are going to come back immediately and let me know what happened; so we are going to make sure we get you some measure of justice. Mrs. MASON. Like the other ear, they can't save the ear, and I can't take no more of the medicine to keep my balance. Mr. CONYERS. I am~going to have to call our next witness. Mrs. Rosetts Sadler. Thanks for staying with us this long. You may be the last witness. I know you are not the least. I know you have some testimony about the high cost of insurance, and how it contributed to our problems here in Detroit. STATEMENT OP ROSETTS SADLER Mrs. SADLER. Yes; I have a vendetta against the Blues. The cost of insurance for senior citizens is out of this world. Seniors are hurting. My husband pays $53 a month for the Blues. We were also pushed on medicare. I never saw any sense in that, because we hadfull cover- age when he was working. We are fortunate that both of us are well. I take a medical ex- amination twice a year. and we are paying in all of that money. And because of the $50 deductible, I have to help pay for those tests, and it doesn't seem fair. Mr. CONYERS. How much do you pay? Mrs. SADLER. Well, it's according to-well, around $50 or more sometimes. Mr. CONYERS. How often do you have to pay? Mrs. SADI~ER. Twice a year I have to have a test. I'm recorrigiending that senior citizens, workers who have full cov- erage with Blue Cross, when they are retired should not be pushed onto medicare, because these two insurances hide behind one another, and a lot of times, you get those bills from the hospitals, from the doctors, and you go and pay them, and find out later that you didn't have to pay them. It's just nonsense to have us on both. I would rather, because before we got our social security checks, the cost of PAGENO="0424" 416 this insurance, medicare, is taken out of the money. I would rather give that to the Blue Cross, so I would know that I have full coverage. Mr. CONYERS. Do you ever get your money back when you pay and you didn't have to ~ Mrs. SADLER. No; I have never gotten it back. Now, my recommendation, as I said, the first one is, that the person who has been paying the full coverage in Blue CrOss not be pushed on medicare. The second recommendation, that the Blue Cross help families maintain their loved ones, their members of the family in the home, because it would be less costly than to have them in nursing homes, and it would be more humane. Those are my two recommendations. Mr. CONYERS. They are excellent, and I applaud you for carrying on this battle. It's a very uneven battle. We are trying to bring some justice into this system. It seems to me that we need a better delivery care system to help. Mrs. SADLER. I think so, too. We need more information. So many people don't have any information at all about what medicare is. I don't know whether they read the material that is sent to them or not. Maybe not; but they don't know whether they have to put their sick people into nursing homes; they don't know what they should get. And most of the time they only offer them, if they bring them home, they only offer you help 4 hours a day. And if you are a senior citizen, 4-hour-a-day help is not much help, when you have 24 hours to see after a sick person. Mr. CONYERS. Thank you very much. Mrs. SADLER. I was a member of the civil rights movement; and I belong to the Peace Coalition, and I am a person who is against build- ing more nuclear plants. Mr. CoN1~nRs. Thank you very much, Mrs. Sadler. The subcommittee is going to conclude its hearings today. We are very grateful for all of the witnesses that have come. This will be reproduced as an important part of our regional hearings. And the subcommittee stands in adjournment. Thank you all very much. [Whereupon, at approximately 3 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Friday, May 18, 1979, in Chicago, Ill.] PAGENO="0425" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) PRIDAY, NAY 11, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS Stn3coMMIrrr,i~ OF THE COMMITrEE ON GOVERNMENT OPERATIONS, Chicago, Ill. The subcommittee met, pursuant to notice, at 10 a.m., at the offices of Self Help Action of Chicago, 5940 South Ashland Avenue, Chicago, Ill., Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding. Present: Representatives Benjamin S. Rosenthal and John Conyers, Jr. Also present: Representative Morgan F. Murphy from the State of Illinois. Staff present: Peter S. Barash, staff director; Stephen R. McSpad- den, counsel; and Jack Shaw, minority professional staff, Committee on Government Operations. * Mr. ROSENTHAL. The subcommittee will be in order. We are going to have to try and deal with the acoustical and logistical arrangements. We are trying to get a PA system working here, and we will all have to try and be as cooperative as we can. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight cities this month to learn about the impact of inflation on the day-to-day lives of Americans and the performance of regional Federal agencies and State and local officials in the fight against inflation. Hearings have already been held in Dallas, San Francisco, Sacramento, and Detroit. Earlier this year, the subcommittee held several days of hearings in Washington into the adequacy of the Federal effort. These hearings raised serious questions as to the ability of the Council on Wage and Price Stability to monitor excessive price and profit margin increases in the economy. They also reveal that the current wage/price guide- lines effectively exclude the most inflationary sectors of the economy- energy, food, housing, and health care costs. The subcommittee's concern over the effectiveness of the present anti-inflation program has been heightened by the testimony we have already heard in other cities. (417) PAGENO="0426" / 418 Regional officials of the Bureau of Labor Statistics have told us there is no statistical evidence that the wage/price guidelines are working to moderate inflation. Representatives of the elderly, the poor, the handicapped, and lower middle income consumers have testified that they have run out of ways to cope with the skyrocketing cost of living. Evidence has been presented to us that the wage/price guidelines are holding down wages but not excessive prices and profits in the utility and other industries. We have learned that the State governments have failed to imple- ment many of the most important recommendations of the Council on Wage and Price Stability on ways for States to fight inflation. These regional hearings are being held because the U.S. Congress and other decisionmakers in Washington must have a firsthand record of the effects of inflation on the lives of our citizens. As soon as these hearings are concluded, the hearing record and the subcommittee report will be made available to the Congress and to the President. I wanted to comment that the subcommittee is joined by Congress- man Morgan Murphy, in whose district we have the honor to be here today. And we know that Congressman Murphy wants to say a few words. STATEMENT OP HON. MORGAN P. MURPHY, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP ILLINOIS Mr. MURPHY. Thank you very much, Mr. Chairman, and my col- league John Conyers from Michigan. I would like, to welcome the Subcommittee on Commerce, Consumer, and Monetary Affairs to my congressional district and to the city of Chicago. I am very pleased that the subcommittee is seeking a firsthand view of the effects of inflation on the daily lives of Chicagoans. This hear- ing is also important because it provides an opportunity for citizen participation in the legislative process. I commend the subcommittee for holding these hearings in a community where citizens have a chance to participate. The 96th Congress, more than any recent Congress, is committed to evaluating the success or failure of Federal programs and policies. This subcommittee is in Chicago to examine the Federal Govern- ment's anti-inflation program. The subcommittee will exercise its over- sight responsibility and evaluate those Federal agencies concerned with inflation. As everyone knows, the most pressing problem facing this Nation is the continued high rate of inflation. Every day my constitutents are faced with higher prices. Food and gasoline prices are especialy out of hand. These increases have a devasting impact on low and middle income people who spend about 80 percent of their disposable income on food, housing, health care, and energy. My constituents are convinced that inflation is get- ting worse and not better. There are a number of serious questions concerning the effectiveness of the President's anti-inflation program. I am confident that this hear- ing will help to answer many of these questions. PAGENO="0427" 419 The testimony received at these hearings will allow the subcommit- tee and the Congress an opportunity to formulate a policy that will protect consumers against the ravages of inflation. Again, I thank the subcommittee for being here on South Ashland Avenue and commend the community residents for their interest in these hearings. Mr. ROSENTI-JAL. Congressman John Conyers of Michigan. Mr. CONYERS. Thank you very much, Mr. Chairman. I would like to first of all say good morning to all of the Chicago residents, and to the members and leaders of the Self Help Action of Chicago for helping us have the hearings in Chicago. We are pleased that Morgan Murphy, our colleague, is here with us and we think we are going to have an important set of hearings when we are finished. And I just want to commend the chairman of this subcommittee, Ben Rosenthal of New York. You know, the people of New York think that that is the center of where everything is, but it is in the Midwest that you get the true feel- ing of what is going on, Ben Rosenthal. And I just want you to know that Detroit and Chicago are only an hour apart. So, we are very happy to be here, and we want everybody to tell it like it is. This is not some kind of a put-on hearing. The testimony here is going back to Congress, and it is going to be studied to determine two things: One, what we are doing wrong, and two, what we ought to be doing. So, we are very grateful for you being here. Thank you very much. Mr. ROSENTHAL. We are going to try to conduct these hearings in as informal a fashion as the opportunity permits, and everyone who is on the witness list will have a full opportunity to testify. And when we have concluded the prepared list, we want to hear testimony from any- body who is here and anybody who is so inclined and so disposed to do so. So, everybody will have an opportunity to testify. Our first witness is Dorothy Shavers of the Self Help Action of Chicago. We do want to say thank you to Mrs. Shavers for her enorm- ous cooperation and help in providing this site for this hearing. STATEMENT OF DOROTHY SHAVERS, EXECUTIVE DIRECTOR, SELF HELP ACTION OF CHICAGO Ms. SHAVERS. As you know, I'm Dorothy Shavers, and I would just like to say that we are honored to have you here today, and are sorry we don't have a fabulous ulace for you to come into, but we think it is an honor that you wanted to come here and share some of the things that we are trying to do in the low income communities. We set up food centers in low-income parts of the city where we deal with food, the job situation where a lot of people are able to work, and just community activities. What I would like to say, you know, we know that you are interested, otherwise you wouldn't be here, but some of the things that you are going to hear today, people are going to be saying what a problem they are having. And we all know everybody is feeling the crunch of infla- tion right now, but what we would like to propose to you is that you would make Chicago a model. PAGENO="0428" 420 With some help we could do. this. And we are already doing it just surviving, but I feel that Self Help could be a model in Chicago, then it could be duplicated in all other cities because it is a very little ef- fort, and it will solve some of the problems of food and employment and a lot of other problems that go along with the problems that poor people are confronted with. And again, I would like to say thank you very much for having your hearings here. Mr. CONYERS. Thank you. What do you mean by Self Help organization, what is that? Ms. SHAVERS. Self Help Action is a food program where we set up food centers in low-income parts of the city, where people can buy food direct from the farmers from 40 to 60 percent cheaper than they can in any store. And we have 40 locations in the Chicago area, and most of them in the district where Mr. Murphy is, and I have talked to him a number of times so he is aware of what we are doing here. But I do feel that Self Help could be a model for all other cities in the country once it has been established perfect here. And I feel it can be done with some Federal support. Mr. CONYERS. Do you get any Federal help now? Ms. SHAVERS. No. Mr. CONYERS. Where did you get the money? Ms. SHAVERS. Well, we get Federal help in the form of CETA, em- ployees. But we'd need funds for the building to be in shape. The coolers are here, the freezers are here, the trucks are run down, and, you know, you can't pay people on time. These are the kinds of problems we have with CETA. So, if some Federal funds were available where we could make this a model, it could be duplicated in other cities. We have been doing this now for 7 years. Mr. CONYERS. How many people do you serve, how much food, how do you get the food? Ms. SHAVERS. We have 8,000 members registered and from this we do about $20,000 a week. We have food sales 5 days a week and each sale is about 20, maybe 12 to 14 centers per day. IMs. Shavers' prepared statement follows:] PAGENO="0429" 421 PREPARED STATEMENT OF DORTHY SHAVERS, EXECUTIVE DIRECTOR, SELF HELP ACTION OF CHICAGO 5938-40 South Ashland S eli Chicago, Illinois 60636 312/2395100 )Iay 11, 1979 Pedéral Anti-inflation Fight and I~,att of Inflation on Constasrs Congressional Public leering and Testinony Self Help Action of Chicago 5940 South Ashland Chicago, Illinois 60636 The usprecendented rise in the cost of goods isd services over the past few years has seriously affected the ability od persons on liaited muons to continually struggle for survival. The Organisation Activities Self Kilp~ Action of~Chiesgo is a n t'for.prufit orgasisa- tion, providing cooperative progms of food distribution and * nutritional education to .sosidenta:of low-incone Loner-city neighborhoods. SHAC represents si: alternatiVe to a groling, * inflationary, nonopolistic food distribution systea that cur~~ rantly iseposes disadvantages in lU-iac~ns.conaiasrs as well as snail faraers. - Our' prograa hes organised over 300 coops. The ala wee to organize these centers and train than to operate independently of Self Help, S~e sffortj have been successful others have not. Presently vs operate 40 centers in the Chicago area with regiatration of s,ooo Lunar city residents. We have a n~er of fare groups that sell directly to these groups with an estiasted savings to the eanbers of approxinstely 40 to 602 on the food bill. * lash center west have a ainlaun of 50 people: for a co-op. Chicago PAGENO="0430" 422 There most be a president, secretary, treasurer and tvo order takers. One member of the officer's gro~ip isa member of the advisory group. Members of the officers group attend training sessions as well as weekly meetings of leaders from the centers. They must slso have their own center meeting from time to time. The cost of individual lembership is $5.00 per family and $2.30 per senior citizen or welfare family. This membership is good for one year. Each center must raise money for basic material and equipment (scale, adding machine, bags, tape) and plan activities for its members. Every newly organized canter receives eight hours of training which consists of: Learning structure and function of food buying clubs. * Selecting and weighing produce. Accounting and management of food buying clubs. * Comounity organization identification and approach to counity leadership. Conducting leetings/publicity * Su~ary (Functions/Operations of food centers. SHAC's 40 centers pre-order the food. The order taker arranges to take food orders from club members, then order. the food and sees to it that it gets distributed prOmptly. SHAC works with approximately 18 farm groups and establishes cooperatives. each group cOnsists Of from 3 to 10 farmers with acreage per farm varying from 2 to 15. Whenever possible food is brought from these farmers. Most of the groups arC loàated in Illinois, Michigan,and Wisconsin. Buying from these small family farmers provide then with an expanded market and increases income. Recognizing that inner-city grocery stores usually sell poor quaility food at exhorbitant prices, SHAC's system on buying directly from farmers, meat processors and other markets, wholesale for the buying club, by-passes PAGENO="0431" 423 that exploitation. Many benefit farmers struggling to make ends meet~gain higher prices for their~ produce, and the club members get fresh quality produce at reasonable prices. The center estimates it saves 30 to 40% on every food dollar in the winter and from 50 to 60% in the summer. In January, SHAC was selling lettuce for 60 cents, while it was selling for 79 cents in the stores. Eggs were selling for $1.08 in the stores and 79 cent per dozen at SHAC. During the winter, SHAC buys. produce from South Water Market, one of the largest chain stores, allowing us to purchase directly from their warehouse. Meats were purchased from a local processor. SHAC sells a total of 109 products which includes fresh fruits and vegetables, meat, poultry, grains and eggs. The center estimates that it saves each family 40% on their food bill. The Demand for Services Presently, there is no need to do outreach, in one sense because SHAC now `-"s more people wanting to become part of the center that it can handle. How- ever, last year SHAC received a $15,000 grant from the Mayor's office to re- cruit 3,000 elderly people and do a six-month survey on their eating habits. The city wanted to determine what their needs were. Within four months SHAC had its 3,000 people. Commissioned to ascertain eating habits and health status of these people, SHAC found startling conditions. Many people, particu- larly the elderly, lived on as little as $188 a month and no SSI or food stamps. They did not know they were eligible, however staff from the co-ops ware able "~11 out the necessary forms for the seniors. SHAC has a program for providing food to elderly shut-ins. A cadre of volunteers and college students participating in work-study programs visit these elderly and see to their food needs. Still, it is a never endingstruggle. PAGENO="0432" 424 The winter of 1979 prerent:ed incredible delivery problems as well. One woman had not eaten for a week until SHAC volunteers were able to get through the snow.clogged streern. She cried with relief when SHAC arrived. By next year SHAC hopes to get a4 wheel drive truck to remedy the delivery problem. SHAC has been trying to negotiate with the city to get an approved apartment in every housing project to use as an office and store for weekly buying club pruchases. This will enable people in the public housing to :;afely buy food within their neighborhoods. The Use of CETA Funds The CETA funding hits made it possible for SEAC to hire personnel and without it the organisatfon would not be able to continue to reach out and serve additional people. CETA, cannot offer the kind of salaries that are competitive with the private business sector, therefore SHAC fails to attract professional trained people. This is a disadvantage to the organization and to the people it surves. SHAC now faces the challenge of developing an administrative capacity coensurate with its ~o~~ing consitments and complex division of labor. Fixed income persons are given on-the-job training or work experience. In some cases, working at Self Help is their first employment. This opportu- nity gives many a spark of motivation and hope reguarding their future. Self Help feels that this is one of the ways in which people can help themselves and keep the welfare rolls down. Food prices are appallingly high and are getting higher at the wholesale level. Many small family farmers are being compelled to fold up while people ~n the city are hungry and irtalnourished. In a time of serious unemployment with critical hunger and housing problems, Chicago has millions of people who lack the necessities of life, and PAGENO="0433" 425 who suffer the pangs of poverty, ignorance and disease. As a non-profit corporation, SHAC works with low-income neighborhood groups and senior citizens to establish and operate food buying co-ops. Through food co-ops people are made aware of their need to work together for better housing and better nutrition. The effect and impact will not be felt without the help of organizations and government. Our efforts thqs far have been a matter of sheer determination to survive. In conclusion, I would like to add that there is no magic mystery in the solutions to the problems in our neighborhoods. The program here at SHAC can be duplicated in any city. It takes collective efforts, funding and a strong coimzitment to reach the people and to assist them wherever possible. 52_21L~ 0 - 79 - 28 PAGENO="0434" 426 Mr. ROSENTHAL. I think you wanted to bring up Dolores Johnson and Paul Horvatz to tell more about how your organization func- tions- Ms. SHAVERS. Yes. Mr. ROSENTHAL [continuing]. So why don't we do that right now. Ms. SHAVERS. Yes; Dolores Johnson, she has prepared a text. She is going to present that, and then Mr. Horvatz will talk later. OK, thanks again. Mr. ROSENTHAL. Why don't you stay right there with her. Ms. Johnson and Mr. Horvatz, slide up so you can all sit together. We want you to sit up there, too, Mr. Horvatz. STATEMENT OF DOLORES JOHNSON OF SELF HELP ACTION OF CHICAGO; ACCOMPANIED BY PAUL HORVATZ Ms. JOHNSON. Good morning. The unprecedented rise in the cost of food and services over the past few years has seriously affected the ability of persons on limited income to continually struggle for survival. Self Help organization is a nonprofit organization providing co- operative programs of food distribution and nutrition of education to residents of low-income inner-city neighborhoods. SHAC represents an alternative to a growing, inflationary, mo- nopolistic food distribution system that currently imposes disadvan- tages on low-income consumers as well as small farmers. Our program has organized over 300 food co-ops. The aim is to orga- nize these centers and to train them to operate independently of Self Help. Some efforts have been successful, others have not. Presently, we operate 40 centers in the Chicago area with the regis- tration of 8,000 inner-city residents. We have a number of farm groups that sell directly to these groups with an estimated savings to the members of approximately 40 to 60 percent on their food bill. Each center has a minimum of 50 people in their co-op. There must be a president, secretary, treasurer, and two order takers. One member of the officer's group is a member of the advisory board. Members of the officer's group attend training sessions as well as weekly meetings of leaders from the centers. The cost of individual membership is $5 per family and $2.50 per senior citizen or welfare family. This membership is good for 1 year. Each center must raise money for basic materials and equipment- scales, adding machines, tapes, bags, and also plan activities for its members. Each newly organized center receives 8 hours of training which in- cludes learning structure and function of food-buying clubs; selecting and weighing produce; accounting and management of food buying; community organization identification, and approaches to community leadership. SHAC's 40 centers pre-order food. The order taker arranges to take food orders from club members, then the food is ordered and the order taker sees to it that the food gets distributed promptly. .SHAC works with approximately 18 farm groups and establishes cooperatives. Each group consists of 3 to 10 farmers with acreage ~varying from 2 to 15. Whenever possible, food is bought from these PAGENO="0435" 427 farmers. Most of the groups are located in Illinois, Michigan, and Wisconsin. Buying from these small family farmers provides them with an expanded market and increased income. Recognizing the fact that inner-city grocery stores usually sell poor quality food at exorbitant prices, SHAC's system on buying directly from farmers, meat processors, and other markets, wholesale for the buying club, bypasses that exploitation. Many benefit farmers struggling to make ends meet, gain higher prices for their produce, and the club members get fresh quality pro- duce at reasonable prices. The center estimates it saves 30 to 40 percent on every food dollar in the winter and from 50 to 60 percent in the summer. In January, SHAC was selling lettuce for 60 cents while it was selling for 79 cents in the stores. Eggs were selling for $1.08 in the stores and 79 cents per dozen at SHAC. During the winter months, SHAC buys produce from South Water Market and also from one of the large chain stores. Meats are pur- chased from a local processor. SHAC sells a total of 109 products which includes fresh fruits and vegetables, meat, poultry, grains, and eggs. The center estimates that it saves each family an estimate of 40 percent of their food bill. Presently, there is no need to do outreach in one sense, because SHAC now has more people wanting to become part of its organiza- tion than it can handle. Moreover, last year, SHAC received a $15 per person grant from the mayor's office to recruit elderly people and to do a 6-month survey on their eating habits. The city wanted to determine what their needs were. Within 4 months, SHAC had its 3,000 people. Commissioned to ascertain eating habits and health status of these people, SHAC found startling con- ditions. Many people, particularly the elderly, lived on as little as $188 a month and no supplemental income or food stamps. Many did not know that they were eligible. However, the staff from SHAC was able to fill out the necessary forms. SHAC has a program for providing food to elderly shut-ins. A group of volunteers and college students participating in a work-study program visit these people and see that their food needs are met. Still the struggle never ends. The winter of 1979 presented incredible delivery problems. One woman had not eaten for a week until SHAC volunteers were able to get through the snow-clogged streets. She cried with relief as SHAC arrived. By next year. SHAC hopes to purchase a four-wheel drive truck to remedy the delivery problems. The CETA funding has made it possible for SHAC to hire per- sonnel, and without it, the organization would not be able to continue to reach out and serve additional people. CETA cannot offer the kind of sa]aries that are competitive with the private business seetor. there- fore~ SHAG fails to attract professionally trained people. This is a disadvantage to the organization and to the people it serves. SHAG now faces the challenge of developing an administrative capacity. Fixed-income persons are given on-the-job training or work experience. PAGENO="0436" 428 In some cases, working at Self Help is their first employment. This opportunity gives many a spark of motivation and hope regarding their future. Self Help feels that this is one of the ways in which people can help themselves and also keep the welfare rolls down. Food prices are appallingly high and are getting higher at the wholesale level. Many small family farmers are being compelled to fold up, where many in the cities are forced to go hungry and malnourished. In a time of serious unemployment with critical hunger and housing problems, Chicago has 1 million people who lack the necessities of life and suffer the pangs of hunger, ignorance, and disease. As a nonprofit corporation, SHAC works with low-income neighbor- hood groups and senior citizens to establish and operate food buying co~ops. Through food co-ops, people are made aware of their need to work together for better housing and better nutrition and better govern- ment. The effeèt and impact will not be felt without the help of orga- niz~tions and government. Our efforts thus far have been a matter of sheer determination to survive. In conclusion, I would like, to add that there is no magic mystery in the solutions to the problems in our cities. The program here at SHAC can be duplicated in any city. It takes collective efforts, fund- ing, and a strong commitment to reach the people and to assist them wherever possible. Thank you. Mr. ROSENTHAL. Mr. Horvatz, do you want to say something? Mr. HORVATZ. Yes. Honorable Representatives, ladies and gentle- men, my name is Paul Horvatz, founder, organizer, and national presi- dent of Self Help Action Center food program. Many years ago I was watching T.V. and I saw how the American family farmers were burning crops. killing cows, pouring out milk. The next day I took my car and visited these farmers asking them, "Why you do that?" "What else can we do? Our production cost is higher than income from selling. We have to demonstrate one or the other way our des- perate situation to find some solution." But I say, "What you are doing, you are wrong, is destroying yourself." "What else can we do?" "Sell your product to the people with limited income who cannot buy because prices are too high." "How can we do that?" And they called together more and more and more farmers. When they were ready and decided to cooperate, I met in Chicago with about 76 community centers, asking them~ "Do you have a problem ?" "Yes, we have a food problem. We are hungry and we cannot buy enough food for us to eat. How can we answer this question?" "Buy direct from the farmers." Theii I asked them, "Can we organize in Chicago," family farmers, "good exhibition that people can see with their own eyes what exactly we are doing." PAGENO="0437" 429 Mr. ROSENTHAL. Is this how you are getting along by buying col- lectively and distributing collectively? Mr. HORVATZ. Right. Mr. ROSENTHAL. How are things going? Mr. HORVATZ. And after people learn that quality is higher than at the stores, and priced so much lower, they start showing interest. But then they say "No more food exhibition at your community, you have to organize yourself into community buying club." Mr. ROSENTHAL. Mr. Horvatz, let me ask you because we have a record that we are trying to make and accommodate an awful lot of people: How are things going lately in the last 3 months, the last 6 months? Mr. HORVATZ. It is going better and better, but many times I learn a club was formed with 700 members or more and then went down. Why? Lack of leadership. Then we turn to Chicago City Loop College to train the leadership, but still better, but not the best because the demand was so heavy that we have to have more staff to send them out to help people organize themselves. Mr. ROSENTHAL. More and more people want to participate in your program? Mr. HORVATZ. Right, demand is very heavy. Mr. ROSENTHAL. Why is that? Mr. HORVATZ. Because people on public payroll and welfare, they cannot buy enough food for themselves, and senior citizens and many others. Mr. ROSENTHAL. Why is that? Mr. HORVATZ. Because of inflation. Mr. ROSENTHAL. Well, that is what we are trying to find out. Go ahead. Mr. HORvATZ. In the other hand, according to agriculture statistics, we have in the last 10 years, lost over 12 million family farmers; they couldn't stay anymore with the farms, left the farms, looked in the city asking for jobs and welfare, whatever they have to take. Through our program they can return back to the farm, work, stay in the farming business, and they work. Mr. CONYERS. I have only one question. I love this program and I would like to see it started in Detroit. Mr. HORVATZ. Very happy to do that. Mr. CONYERS. Are you suggesting that if all of us start buying food from the co-ops and we have a hundred million people buying food from the co-ops, is that the answer to inflation in the food prices? Mr. HORvATz. Right. Mr. CONYERS. Right? Mr. HORVATz. Here we are helping- Mr. CONYERS. I am not trying to minimize the program, but we have to look at some of the big problems here. Mr. HoRvATz. Here we are helping three groups: Family farmers to stay in business, and people to have enough income to buy food with their checks, and the taxpayers. Mr. ROSENTHAL. OK, thank you all very much. This is very, very useful and very, very important testimony, and I want to tell you on behalf of the subcommittee, and I'm sure Mr. PAGENO="0438" 430 Murphy too, you are to be congratulated for the leadership role you have been shown in trying to help our citizens. Mr. HORVATZ. Thank you. Mr. ROSENTHAL. Thank you very, very much. Our next witnesses are Alfred Lewis, and I think it is Lela Drain. Mr. Lewis, Ms. Drain, come up, please. We are very delighted to have both of you to be with us. STATEMENT OF LELA DRAIN, RESIDENT OF CHICAGO Ms. DRAIN. Good morning everybody. I just want to say that I got burned out on the 23rd day of December early in the morning, and everything I had got burned up and messed up, and so I had a hard time all the winter. I didn't have no place to live until a friend of mine asked me over to stay with her. And then I got me a place by my friend working here, got me a place, spoke for me a place in the senior citizen home at 51st and Cottage Grove. Now, I pay $176 a month, and I am a diabetic, I have to go to the doctor, and I don't go to the doctor as often as I am supposed to go be- cause I don't have the money. Mr. CONYERS. How much does it cost when you go to the doctor? Ms. DRAIN. The fee is $16. Mr. CONYERS. Does medicare or medicaid cover any of that? Ms. DRAIN. No. Mr. CONYERS. Why not? Ms. DRAIN. I don't know why. I get medicare, but that is all. I have to be in the hospital to get someone to get them to pay my bill. As I go every other week-well, I have to pay that out of my pocket. Mr. ROSENThAL. How are you getting along otherwise? Ms. DRAIN. Well, otherwise I am not doing so hot because my in- come is only around about a little over $400 a month. Mr. ROSENTHAL. How do you get by? Ms. DRAIN. You have to get by some kind of way, just go on and get by, that is all. Mr. CONYERS. How do you handle the food, what are your bills? Ms. DRAIN. How do I handle the food situation? Well, I buy most of my food from here. I do because I just have myself to feed and I can always make out with things. Mr. ROSENTHAL. Mr. Lewis. STATEMENT BY ALFRED LEWIS, MEMBER, ADVISORY COMMITTEE BOARD OF SELF HELP Mr. LEWIS. My name is Alfred Lewis, and I happen to be part of the advisory committee board here at Self Help. I was asked to testify-I didn't come down here to testify, but I have been around Chicago an awful long time, and I have seen many changes and things of this sort, and I guess you would have to write a book about as to all the problems. But what I would like to do, I would like to stress the point of try- ing to get Mrs. Dorothy Shavers, who is the president of this organi- PAGENO="0439" 431 zation, to get her more support to do the things that are necessary to be done in this area, such as helping people help themselves. Now, our problem, as you know, is not just one thing, )ust food; gasoline prices have soared here just recently, and I can't myself, see any big reason for this other than just more or less keep the people confused. I was listening to the radio the other day about out in California; I have a daughter out in California, and she said gas is about $1, $1.09; they got a line, you know, blocks and blocks. It doesn't make sense. And then here, right here on the south side, a guy was selling gaso- me for 131/2 cents a gallon. I mean, to me, it is a confusing situation. Mr. ROSENTHAL. 131/2 cents a gallon? Mr. LEWIS. Well, let's forget the `/2 and say 13. Mr. CONYERS. Well, that was only for 1 minute. Mr. ROSENTHAL. That was, when he was out of gas he was selling it for 13; when he had gas, it was 99 cents a gallon. [Laughter.] Mr. LEwIS. Well, I'm glad you brought that up. You see, I feel that someone is playing games with food. I am a professional musician so I see-I was born practically in the region called the "Dirty 30's," a poor neighborhood, really. But I have worked all the big houses, and I see more food wasted every night, and it hurts. You see what I'm saying? They have the food, but it is not getting to the right places, to the needy people. Dorothy Shavers and Mr. Horvatz, they have a beautiful program, and all I'm saying is, I think they should get more civic and govern- ment support in order to bring this food to people that actually need it. I am not saying bring it to the rich, or anything like that; they don't need it. But get it to the places where it is most needed. Mr. CONYERS. If you had to go before the Congress and advise us how to change the laws, change the system, what would you tell us? I mean, you have seen afl this stuff for 40 years, now is your chance because, in effect, we are taking this all back to our colleagues. Mr. LEWIS. Well, I don't know; that is a good question. Mr. CONY-EnS. Well, that is what we are here for. Mr. Lnwis. Yes. Mr. CONYEES. I mean, there are two things that Mr. Rosenthal and Mr. Murphy and I want to know: One, how bad is it, and, two, what should we do about it? That is the whole thing. Mr. Lnwis. OK; I will tell you what I think we should do about it. Now, I think that if you believe, and I am saying all of you gentle- men up there, if you actually believe that this lady is conducting a service that is most needed, I think you should support it~ and I think that you should encourage these sort of organizations all over other cities and let it grow; you know what I mean. We have many things here to keep us from growing. I mean, hey, this comes naturally. We have only been in this building just a little while. We have been broken into, how many times, three, four times. There is always something to stop us. And what we are saying is, try to help us, give us Government sup- port. Do you see what I mean? PAGENO="0440" 432 Mr. CONYERS. Have you applied anywhere? When is the last time you talked with my three friends here: Cardiss Collins, Morgan Murphy, and Ben Stewart? Mr. LEWIS. Well, I am pretty sure those gentlemen, they have other things to do, too, you know what I mean. Our cries are every day. Mr. CONYERS. Wait a minute. If you think I and Rosenthal came out here to hear you say they have other things to do, and you are telling us what to do, you have to see them, they are the ones that represent you specifically. You can't come here and tell me we ought to get more help out, but you don't check with them because they are busy. Ms. SHAVERS. I think I have submitted a proposal to Benny Stewart. Mr. ROSENTHAL. Give me a copy, too. Mr. CONYERS. Send Cardiss one; she is only chairwoman of the Con- gressional Black Caucus. Ms. SHAVERS. I sure will. Mr. LEwIs. This is very good. I think while we have everybody in the House under the same roof, maybe we ought to submit our proposal now for our needs. Mr. CONTERS. So give us some advice. Mr. LEWIS. Well, we want help and you are the only people that can help us. So we are just crying for help; that's all. Mr. MURPHY. Dorothy mentioned you need a pickup truck, No. 1. Mr. LEWIS. Well, we can use several trucks. Already we have out- grown this building, and we have been here for 4 months, and already out grown it. Mr. CONYERS. We have to talk beyond this organization. Now, we have praised you and we have told you how great you were, but this hearing is on inflation. That affects everybody in the United States of America. Chicago isn't the only place getting hit by inflation. So what we need are some solutions that you can also apply in New York and in Detroit, if you don't mind. Mr. LEWIS. OK, sir, I will say this very briefly.. What Dorothy Shavers is doing, I do believe is a very beautiful thing; I think it will help everybody that needs help. Do you agree with me? OK. Now, all I ask is those who can help-I am talking about the Government, the city government, too-all we want, we need money, yes, we need trucks and that, but we need, more than that, we need money, we need room for expansion, we need to put this program in all of the States. If you help us do that, I think we would appreciate it, and I think the people. the recipients. I think, would appreciate it. Mr. ROSENTHAL. Thank you very, very much. We appreciate your testimony. It will be useful. Our next witness is Mary Mays. Miss Mays, is she here, Dorothy? Ms. SHAVERS. Not yet. Mr. ROSENTHAL. The next witness will be two Government witnesses that are on our list, Mr. William Rice and Mr. Lindell Williams. Mr. Rice is the Regional Commissioner of the Bureau of Labor Statistics. Mr. Williams is from the Central Enforcement District, PAGENO="0441" 433 Department of Energy. and he will tell us what the price situation is around here, and why. Who is Mr. Rice? Mr. RICE. I am Mr. Rice. Mr. ROSENTHAL. Where is Mr. Williams? Is he here? Come on up. We were in Dallas on last Thursday, and regular gasoline in Dallas was 71.5. Are you aware of those things? Mr. WILLIAMS. Gasoline was 71.5? Mr. ROSENTHAL. Yes. Mr. WILLIAMS. No, I wasn't aware of that figure. Mr. ROSENTHAL. How much is it around here in Chicago? Mr. WILLIAMS. It ranges from about 80 cents to close to a dollar. Mr. ROSENTHAL. Please proceed, Mr. Rice. STATEMENT OP WILLIAM E. RICE, REGIONAL COMMISSIONER, BUREAU OP LABOR STATISTICS, REGION V, DEPARTMENT OP LABOR Mr. RICE. Thank you. Chairman Rosenthal and members of the com- mittee, I would like to sort of highlight some of the things I'm sure that you have heard in Detroit, and some of the other cities from the Bureau of Labor Statistics. As you mentioned, I am commissioner over six States. I'm sorry I didn't have an opportunity to talk with you in Detroit. But essentially what I present here in the papers that I passed out is the same information I believe you received in Detroit, comparing the city of Detroit with the Nation as a whole, as well as Chicago today with the Nation as a whole. Living costs in Chicago are slightly higher than the urban United States at two budget levels, and slightly lower at the higher budget levels. You are familiar with those standard budgets that we published that give a comparative cost for 39 cities across the country. The relative importance of two or three major categories, food, beverages, and housing is greater in Chicago than nationally. Since 1967 the long-term rate of inflation has been lower in Chicago than in the Nation, largely because the cost of housing has increased less. But recently, since January 1978, the rate in Chicago has increased to the extent that has brought it closer to the national level. Mr. ROSENTHAL. What is the rate of inflation in Chicago for Janu- ary, February, and March of this year? Mr. RICE. For the 3 months? Well, you would annualize 3 months, which I don't like to do, you are talking about- Mr. ROSENTHAL. Annualize it, yes. Mr. RICE. You are talking .about approximately 12, 13 percent. Mr. ROSENTHAL. Yes, 12 or 13 percent, is that the highest it has ever been in Chicago? Mr. RICE. Since 1974. Mr. ROSENTHAL. Do you have any statistics for April yet? Mr. RICE. No; the information for April will be released around the 25th of this month. We hopefully publish a date prior to release so there will be no doubt in anyone's mind in terms of whether or not we are holding information, releasing it or the reasons. PAGENO="0442" 434 Mr. ROSENTHAL. Are you doing that? Mr. RICE. Yes; we are, as close as we can. We might miss 1 day. Mr. ROSENTHAL. Tell us how you gather your information, how accurate it is, how dependable it is? Mr. RICE. We basically have a probability sample across the Nation. I must admit that the sample is not designed for city/sub-city area information, which I happen to think would be a very good thing. Forgetting about cross benefits, regardless, I think that is why you are holding the hearings here. We can't distinguish between suburbia and the city of Chicago, and obviously the testimony as indicated, it seems the prices in Chicago seem to be higher. We have no evidence that that is the fact, but it `seems to me a bit of research should be done in that area. Hopefully you will be able to make the recommendations to the Bureau, since we simply carry out the edicts of Congress. Mr. ROSENTHAL. Well we drove out from~the airport this morning and gasoline prices in this immediate area were 10 cents a gallon higher than closer to the airport. In other words, South Side prices seem to be higher than out that way. Mr. RICE. Well, I might say-what I am really saying is that we have trends to average the whole area for six counties. Mr. ROSENTHAL. The information you are giving us is for 6~counties, nothing for Chicago itself? Mr. RICE. That is right. Mr; ROSENTHAL. So we have no~' way of knowing whether certain segments of the society. are paying higher prices than the others? Mr. RICE. That is true. Mr. Co~m~Rs. Well, `do we need to pass a law to correct that or couldn't we just call up the Director of the Bureau of Statistics and say, "Look, let's `:call the regional people, your regional man in V says we ought to break it out and so do we. Mr. RICE. Well, itis a bit more difficult in methodology than simply breaking it out. You are talking about- Mr. CONYERS. Well, change the methodology and everything that goes with it. What I am suggesting is, do you know offhand how you get this corrected? Mr. RICE. We know how to do it, it is just a matter of how much money would have to be spent. You are talking about 4 or 5 times the cost of the current CPI, so you are really asking for sub-area estimates. On the other hand, how far do you really want to go? This is sort of looking at it like you do unemployment. Teenage unemployment is 40 percent-seems to me it is 40 to 50 percent, depends. on the area, 50 percent for black teenagers in the city of Chicago. Mr. CONYERS. Fifty percent- Mr. RICE. Yes; we do have that information. Mr. CONTY-ERS. That is reported. The real unemployment rate could be higher, isn't that true? Mr~ RICE. Well, that is because of the whole concept of the dis- couraged worker and what have you. It could be higher. PAGENO="0443" 435 Mr. MURPHY. Could I interrupt at this point. One of the reasons is the minimum wage law, is it not; a lot of these younsters could be hired on a part-time basis but because the pro- spective employer is faced with a minimum wage requirement and it is strictly enforced in this area, he tends to go without a young teen- age worker? Mr. RICE. Well, there are many studies around, but the evidence is not conclusive. I~ was done by the Bureau about 6 years ago and there is some relationship, but to what extent, we don't know. The placement of jobs and the minimum wage, I'm not sure there is-I am almost sure there isn't any real studies done to justify your summation. Mr. MuRPInr. A good friend of mine went to automation and laid off 25 youngsters because he couldn't afford the wages that the De- partment of Labor wanted him to pay. Mr. RICE. I think we need some research to really find out what im- pact minimum wage might have to unemployment. There is no information in this country that I know of. Mr. CONYERS. Well, the people that are switching to improved technology don't care what the minimum wage is, they are going to switch if it were a buck an hour because the machines can outproduce human beings. We have only been with that problem since the beginning of civili- zation. But let's get back to the point by the chairman of this subcommittee. Wouldn't it be worthwhile us knowing the Chicago and the Detroit figures without blending them all in with the suburbs which have essentially different figures and which always underreports the nature of the problems that we are trying to understand so that we can pass adequate laws? Mr. RICE. Well, it doesn't totally obscure; the fact is the sampling is pretty much proportionate to the population both inside and outside. I think you are asking me something quite different. Mr. ROSENTHAL. It doesn't give an accurate picture, though. When a food chain moves out of the central city and goes to the suburbs, they don't blend those profits in. Mr. CONYERS. And when the gas pumps are 10 cents less in the suburbs than they are here, how are we going to figure it out? Mr. RICE. Well, I am not saying I disagree with you, it seems to me it is a matter of resources and the Congress deciding- Mr. ROSENTHAL. Forget the resources. From a professional point of view it could be done in smaller units? Mr. RICE. Certainly, it would certainly show differentials between prices between the city and the suburb. At this point you cannot tell. Mr. CONYERS. Has somebody told you that we don't have the re- sources for that? Mr. RICE. I know the statistician sample, you would have the stand- ard error until it would be almost useless even at the national level. The city level now annualized, you are talking about plus or minus 10 percent. So that would be lost in the standard of the estimate itself. So the sample has to be substantial to have any kind of reliable estimate. PAGENO="0444" 436 As a professional, that is what I am saying. Mr. CONYERS. Yes, well, but you are also saying you don't know if we have the money. Mr. RICE. I am sure we don't have the money, the Bureau doesn't have the money. Mr. CONYERS. Well, the Bureau gets the money from us. Mr. RICE. We are waiting for your recommendations, Congressman. Mr. CONYERS. Yes, but if we don't get the encouragement from you to do this. you are the expert. We have got the money. Now, if you want to dance we will give you the money, if you don't want to do it- Mr. RICE. I am- Mr. CONYERS. Hold it, just a moment, sir, don't come here telling us that you don't have the money, we can go back and vote the money but we have got to know the nature of the problem. I mean, I can't get up and say "Double the Bureau of Labor Sta- tistics' money," and they say, "What's the problem ?" And I say, "I don't know; Rice said to double it and doesn't bother to tell us." We need to know what the big cities are hit with by inflation because it is critical to everything we do. We pass a law, if we are passing it on the suburbs, suburban prices, suburban unemployment, suburban gas, we get a seriously distorted figure. And then the people when we pass the CETA bill, they say you don't need it, there is enough kids working and they don't need any more job training programs, or we don't need to ration gas because gas is pretty cheap. We get a very seriously distorted picture, so I think what you are saying is very important to the subcommittee and members of the Congress and I think you are on the right track. so amplify. Mr. RICE. Well, I don't know just where I go from here other than saying that I think the Bureau at this point after the CETA legisla- tion is really comn-iitted to local data needs. I think historically the Bureau has been primarily serving national purposes, The Joint Economic Committee, the Council of Economic Advisors, we have taken departure in the past historically of dealing with input into broad national economic policy. I guess what we are really saying is that the Bureau would like to get into finding local data needs for implementation of programs within Areas that we have here today. Mr. CONYERS. Well, what about the unemployment statistics? Mr. RIcE. It is very analogous~ to what we are talking about for prices ~s well. Mr. CONYERS. Tell us how they are computed? Mr. RIcE. You have two systems, a national system based on house- hold surveys. There are 55,000 households visited each month which provides an estimate for the national unemployment, including char- acteristics by race, by sex, and what have you. Mr. CONYERS. On what basis? Mr. RTCE. From a household sampling of 55,000. Mr. CoN~ens. Yes, but on what basis are the 55,000 households drawn? PAGENO="0445" 437 Mr. RICE. They are drawn to produce a plus or minus 1 percent national error. Mr. CONYERS. But I mean, how do you decide which 55,000 houses to go to, Mr. Director? Do you just walk out here. and hit the first 55,000? - Mr. RICE. No, this is all random, selected on a probability sample. Mr. CONYERS. Well, that is what I am trying to get to. Mr. RICE. I thought I mentioned that; I am sorry, sir. Mr CONYERS. Describe it. Even if I knew it, everybody here doesn't know it. Mr. RICE. The national sample is a probability sample of 55,000 random households. Mr. CONYERS. All right. Now, how do you randomly decide to hit 55,000 houses? Mr. RICE. Well, first we start with the- Mr. CONYERS. I was talking to the chairman, not to you. I was talk- ing to the chairman. Mr. RICE. Yes, sir. Well, I think it is very detailed. If you want me to go into it as well as I understand it- Mr. CONYERS. Yes, I want you to go into it. How do you pick 55,000 houses out of 10 million houses around here? That is what I want to know. We need to know it. A VOICE. How come you don't pick my house. Mr. CONYERS. That is your job. Mr. RICE. Yes; I know it is. Mr. CONYERS. Come on, Rice, quit playing around, this is serious stuff. Mr. RICE. Well, I hope I am not playing. I am trying to decide- it gets to be kind of complicated. It is actually selected by the Census Bureau for us using street direc- tories and the number of structures. And from that point, whatever the ratio for that particular block, based on population, determines the number of quotations you have to have. Then that is where we really start. Mr. CONYERS. Well, that isn't so hard. In other words, you look up in the phone book and the cross index, and you pick 55,000 houses. Mr. RICE. Not from the telephone book. Mr. CONYERS. From what? Mr. RICE. Usually from MacDonalds Directory of- Mr. CONYERS. The cross index. Mr. RICE. Right. Mr. CONYERS. What is so tough about that? Mr. RICE. I don't think it is impossible; I am just stating- Mr. CONTERS. Impossible, it is simple. Mr. RICE [continuing]. I think it should be done. What you are talking about, I think you are talking about one-half million observations each month rather than 50,000. I think that is what you are talking about. Mr. ROSENTHAL. He is talking about, is the accounting system fair to all segments of our society? Mr. RICE. No; it is not. PAGENO="0446" 438 Mr. ROSENTHAL. It is not. He is assuming you are an expert and he would like you to tell us in what way it is not and how it can be improved and what we can do about it. Mr. RICE. I think there are alternate methods. I don't think you should use the current population survey for the type of information we are trying to get to for local areas. I think there is a wealth of information available at the State level and certainly through the unemployment insurance claims as a base, looking at some of the characteristics of those people that tend to file unemployment insurance claims at the employment services as a basis. Mr. ROSENTHAL. You are going too fast even for this lady who has had a lot of experience. Has Conyers got you nervous? Mr. RICE. No; every time the lights go on I get nervous. It is sort of a normal kind of reaction. I just hope I can answer your question, that is all. Mr. ROSENTHAL. You go by the census figures, the census under- counts a lot of people. Mr. CONYERS. Blacks, minorities, Mexicans, that is pretty well known, isn't it? Mr. MURPHY. The University of Chicago in the last census thought that there was an undecount of either 300,000 or 400,000 minorities in the city of Chicago. Now, all our Federal programs depend on a reliable count of the population, particularly minorities. If we don't get a good count, then the people are getting cheated. Mr. ROSENTHAL. They are using those figures both in terms of price statistics, unemployment statistics, housing statistics- Mr. MURPHY. Everything. Probably the most important thing com- ing up in 1980 will be the census. Mr. CONYERS. A real head count. Mr. MURPHY. Real head count. Mr. ROSENTHAL. It will affect the number of Congressmen, too.~ Mr. MURPHY. We will get to everything. Mr. ROSENTHAL. Hopefully, we will get to everybody. Mr. RICE. The number of persons that have been not counted so far are actually, I think, 18 percent from the 1970 census, about 18 percent undercount from the 1970 census. Mr. ROSENTHAL. Well, I think we are going to have to come back and find out how you do it better. Most of us are not statisticians, we don't understand these things. We are hoping in Congress that people like you can tell us what is wrong and how it is corrected, and maybe we can help try and appro- priate the money that is necessary. Mr. CONYRES. You know, Commissioner Rice, for the last 10 years the Bureau of Labor Statistics has continued to obscure their method of counting the unemployed deliberately at the Washington level- no reflection on you. I mean they come in, they say, "We are going to have a larger plan, it will be more growth, less refined, and we keep getting a less accu- rate picture of a problem we have got to know more and more about." Mr. RICE. Well, I don't think it is intentional, I think it is in terms of the Bureau's as it seems its objectives, and this is a long time ago. PAGENO="0447" 439 It goes back to the Gordon report and how you define unemployment, and we are trying to measure whether it is right or wrong. Mr. CONYERS. If you can convince me that this isn't deliberate, I will be the most changed, reformed Member of Congress in the whole body. I mean, if you can suggest to me that during the Nixon administra- tion, during the Johnson administration, during the Ford administra- tion that they have not deliberately continued to obfuscate the manner in which they collect t.hese vital statistics, if you can say that was not deliberate and prove it to me, I will come back to the Self-Help Action of Chicago and confess error, apologize publicly, and never talk like this again to a bureaucrat. Mr. RICE. Congressman, are you talking about the actual collection of information, or are you talking about the interpretation and pres- entation of it? Mr. CONYERS. I am talking ab2ut the methodology, and that is where it is all locked up, and how to do it. And when you are going to a cross index across a metropolitan area checking out ~ number of thousands of households and not checking what it is like on the south side of Chicago for unemployment, you never can get the right figure because we know that the black unem- ployment rate, everybody knows it, is twice as large as the general rate. You can either consent or disagree to that statement, everybody else knows it. Mr. RICE. I know it is true, I agree with you. I'm not disagreeing at all. Mr. C0NTER5. OK; I want it on the record. [Mr. Rice's prepared statement follows:] PAGENO="0448" 440 TESTIMONY TO COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS HOUSE OF REPRESENTATIVES WILLIAM E. RICE REGIONAL COMMISSIONER BUREAU OF LABOR STATISTICS, REGION V. Chicago, Illinois May 11, 1979 PAGENO="0449" 441 Chairman Rosenthal and members of the subcommittee, I will try in the short time allotted to review the cost of living situation in the Chicago-Northwestern Indiana area by presenting data from some of the Bureau's measures of prices and family expenditure. Some of the material will be a repeat of what Mr. Fischer presented to the comittee in Detroit on Monday, but I am repeating it for the benefit of those who were not in Detroit. Let us first examine the BLS family budget series which is an estimate of living costs in selected areas. These living costs are based on hypothetical budgets for a family of 4 persons at each of three levels of living and the cost of goods and services specified for each budget. As you can see in table 1, living costs in the Chicago area at the lower and intermediate budget levels are very slightly higher than the urban U. S. average but lower at the higher budget level. Compared with 39 metropolitan areas, costs in Chicago at the lower and intermediate levels remain close to the average but at the higher budget the difference widens. Now, I will turn to the Consumer Price Index, which is the most widely used measure of the rate of inflation. Specifically, the Consumer Price Index (or CPI) is a measure of the average change in prices of a fixed ,market basket of gçods and services. In January 1978, the Bureau began publishing CPI's for two population groups: (1) a new CPI for All Urban Consumers which covers about 80 percent of the urban non-institutional population and (2) a revised CPI for Urban Wage Earners and Clerical Workers which covers about half of the pop' red by the All Urban CPI. This morning I will be referring to 11 Urban CPI for comparison of price changes in Chicago wi: as a whole. 52-21'-~ 0 - 79 - 29 PAGENO="0450" 442 An important aspect of the CPI is the weight assigned to various items. The relative importance or weight of items in the CPI is based on a 1972-73 Consumer Expenditure Survey that determined what people buy. The relative importance for the 1972-73 survey period has been up- dated by subsequent price changes. Table 2 shows the relative importance or weight of the seven major categories that make up the CPI. In Chicago, and in the U. S. city average, housing has a weight of about two fifths of the index; food and beverages, and transportation each account for about one fifth and the remaining four categories account for the remaining one fifth. Two of the three major categories, food and transportation, have greater weight than nationally, in the Chicago area. The relative importance of categories for a given area can significantly affect the movement of the index in that area. As an illustration, let us assume a set of conditions which admittedly are not likely to occur. If the cost of transportation, and food and beverages rose at the same rate in all areas while the cost of all other categories remained unchanged the All I1~ems CPI for Chicago would rise more than the U. S. average. Under the same conditions for housing the increase would be less for Chicago. Over the period from 1967 to January 1978, the rate of inflation in Chicago was lower than the average for the U. 5., 82.5 percent compared with 87.2 percent. (Table 4). This can be attributed to a substantially lower increase in the cost of housing in Chicago since the rate of increase in Chicago for the two other major categories food and beverages, and transportation and three of the four less important categories were higher than the U. S. rate. PAGENO="0451" 443 Changes in the Chicago area and the U. S. CPI's from January 1978 to March 1979 have brought the long run inflation rate in Chicago close to the U. S. rate. This again is the result of housing which has gone from a lower than national rate to a higher one, as shown in chart 1. The increase in food and beverages, and transportation costs during this period dropped below the U. S. rate but this was not enough to offset the substantial rise in housing costs. Finally, Chicago is a relatively higher wage area compared with the average for 262 metropolitan areas in the U. S. This can be seen in table 6 which shows Chicago higher than the average for four broad occupational groups but not as much higher as the committee saw for Detroit.. As shown in chart 2, earnings in Chicago have risen since 1970. Gross weekly earnings of manufacturing workers have increased about 80 percent during that period. But real spendable earnings or gross earnings adjusted for federal and state income taxes, social security deductions, and the decrease in purchasing power due to the rise in prices as measured by the CPI,* have increased only 9 percent. To put it another way, in 1970 the average workers real spendable earnings were almost three quarters of his gross earnings; in 1978 they had dropped to about two fifths, as the loss of purchasing power consumed two fifths and taxes one fifth of gross earnings. To summarize what I have presented, living costs in the Chicago area as indicated in the BLS family budgets are slightly higher than the U. S. urban average for two of the budget levels and slightly lower for the higher budget level; the long run rate of inflation, PAGENO="0452" 444 as measured by the CPI, is below the national rate but not as much below as in January 1978; and the increase in real spendable earnings has not kept pace with the increase in gross earnings. Now, if you have any questions, I will be glad to try to answer them. PAGENO="0453" Table 1. Indexes Of Comparative Costs Based On Three Budget Levels - Autumn 1978 Lower Intermediate Higher Budget Budget Budget Urban U. S. 100 100 100 ($11,546) ($18,622) ($27,420) Metropolitan Areas 101 102 103 Chicago (SCSA) 102 101 99 C;i Table 2. Relative Importance, Consumer Price Index, All Urban Consumers - December 1977 All Food & Apparel & Medical Other Goods Items Beverages Housing Upkeep Transportation care Entertainment & Services U. S. 100 18.8 43.9 5.8 18.0 5.0 4.1 4.4 Chicago (SCSA) 100 19.8 41.3 5.9 19.4 4.8 4.2 4.7 4 PAGENO="0454" Table 3. Percent Change, Consumer Price Index, All Urban Consumers, December to December Year Ending December U.S. Chicago (~CSA) 1967 3.0 3.1 1968 4.7 4.5 1969 6.1 6.0 1970 5.5 5.6 1971 3.4 2.6 1972 3.4 3.1 1973 8.8 8.5 1974 12.2 12.0 1975 7.0 5.3 1976 4.8 4.8 1977 6.8 6.4 1978 9.0 10.3 PAGENO="0455" Table 4. Percent Change Consumer Price Index, All Urban Consumers - 1967 to January 1978 All Food & Apparel & Medical Other Goods Items Beverages Housing Upkeep Transportation care Entertainment & Services U. S. 87.2 94.6 93.8 55.7 79.0 111.2 71.9 78.5 Chicago (SCSA) 82.5 97.6 79.1 40.6 82.7 115.9 73.8 81.9 Table 5. Percent Change Consumer Price Index, All Urban Consumers - 1967 to March 1979 All Food & Apparel & Medical Other Goods Items Beverages Housing~ Upkeep Transportation care Entertainment & Services U. S. 109.1 124.4 117.6 64.3 98.1 133.9 84.8 92.8 Chicago (SCSA) 106.6 126.6 109.1 49.2 100.4 134.2 90.4 94.2 PAGENO="0456" 448 D fl ow 00 > ww -~ ~" 4-, ~ I a) 0 ~ N. - a) U S-i w aD E N- ~ 0>, (_) S- c~ w (_) in 4-' ~) (-`U, wo 0L) C 5- 4-' ~ 5- I I I £ S I I IC, PAGENO="0457" Table 6. Chicago Metropolitan Area Pay Level Relative To Average For 262 Areas In The U. S., 1977 Office Computer Skilled Unskilled Clerical Related Maintenance Plant U. S. 100 100 100 100 Chicago (SCSA) 105 102 107 119 PAGENO="0458" Real Spendable Earnings in 1967 Dollars (For A Worker With 3 Dependents) 44 ~ ~ ~ 269 Taxes Loss in Purchasing Power (Federal, State (Due to Price Increases Since 1967) And Social Security) o-~ * u~ Chart 2. Real Manufacturing Spendable Payrolls, Earnings Of Production Workers On Chicago Metropolitan Area, 1970-78 $23 [~$i8~ $149 Gross Weekly Earnings 23 ~2~j~Il58 26 30 ~~~~jl86 33 ~ 34 ~ 40 ~ 242 . . . 1970 $108 1971 112 1972 120 1973 118 1974 114 1975 116 1976 122 1977 1978 124 41 118 PAGENO="0459" -fl~ ~ CD -n U mOO 0. CD ~ 0 AD ~fl C( ~ (11 -q -~ CD ~O )~ CD fl CD ) CC) CD -1 0 0 C* 1 DC CD CD CD 0 0. -~.flCDO0 -1)> -~,,~; ~ th~ * ~L'~ L7&~ ,a~t J~ea~L ~( j~//a~k. 72~~ O~ ~ ~ ~L a~ c~ ~ ~f/ ~ Y~'Za4~ 2/~2~ 4 ~ je~a~ ~ /~11 ~/:f~4~~' ~ / ~Z~-& ~ /~ ~J J~co ~ PAGENO="0491" 483 ~L- `~i~7o o ~ /~1~ ~ ~ ;;~~ t~ 4~e~ 2~1 ~ ~&1~ pa~ar~(n~ ~i ~ ~ ___ /~1~ ~ PAGENO="0492" 484 ~ `a ~ _______ aIA4~. W~'L L~ ~ h~ee~i ~4 ~O __ ~ ~ ~ ~ ~ 2~ ~ I ~ ~J~&~d1 ~/ !`~e~ __ `7&af 4 ~- 1~fr~ ~ 4k ,~ _~ ~ff~t~:~f ~ Cf `4~ Ok-) PAGENO="0493" 485 ~ 17~ /~ ~ ~ I ~ -~ a~ d~, LLh4~ ~ ~ /~&i~41 a~ /~ar ~a~t /~4~ Aid~ ~ /Yt&-t- ~ ~ ~ ~ ___ L,tOOt ~ ___ Ct 30. ~ ~ CL~tQ~ Pn~1~& o~' c&a~L ~afia~/ J.Q_. ~ 1U4 ~y,LG~ ~ PAGENO="0494" 486 Mr. ROSENTHAL. Miss Ferguson, did you want to say something? Ms. FERGUSON. Yes, I want to say something. Mr. ROSENTHAL. Go ahead, please. STATEMENT OF MELVA FERGUSON, WELFARE MOTHER Ms. FERGUSON. My name is Melva Ferguson, and I would like to say I am an experienced welfare mother. I have three kids. I haven't received a check yet since I have been working this job. I have been working this job 3 weeks. They told me I would get paid my fourth week after this job. Now, before I depend on my job to pay me I have to wait for them to send me my check from welfare. I am sitting up there now, I have to pay $200 for rent; I have the phone bill, gas, light, I have to buy my children food. If it wasn't for food given to the kids at school in the morning, my kids wouldn't be eating. Now, who is going to help me? Let me ask you this: When was the last time you all had to want to eat something? How are you all going to sit up here and tell the poor man how to act when they are the ones doing it. Now, I want to know that. Where is all this money coming from that you all supposed to do to help us better ourselves? I consider myself trying to do better for me, trying to show my kids to hold up their heads when there is a downfa~Il coming on them. But who is helping me? Who is going to do for me? I got togo out there and I got to go through changes, I am a woman. Most women get out there, they have to use their bodies to give them $2 to feed their kids. I am not going to do it. But my kids have got to eat. I have never been outside of Chicago; I wouldn't know what the out- skirts of Chicago look like for nothing, I never could afford it. And then you talk about the people in the projects. What are you all going to do for the people in the projects. You all have these con- demned buildings sitting around here in Chicago and everybody wants to spend the money on the Dan Ryan Expressway, give the CTA more money. Where are you going to get the money from? What is going to hap- pen? Everybody is talking about what they want to happen, but who is going to do something about it? You know, I was always raised to show action instead of more talk; this is the way I was raised, show me what you want to do. I can't talk about it no more. I mean everyone that I heard has had a label for their name. I am just a plain simple old housewife, nothing to say and nothing to do but try to do what I can. I feel the only way you all are going to solve these problems is stop talking about them and go down into the areas instead of sitting here and having people tell you what they are. See the areas for yourselves. Mr. CONYERS. Give me the mike when you are finished. Mr. ROSENTHAL. Thank you very much for your testimony, madam, it is all good. Let's give her a round of applause for sharing this. [Applause.] PAGENO="0495" 487 Mr. :CONYERS. Now, the purpose for these hearings, first of all, we are not to come out here and talk the problem to death or pretend that we are going to solve it.~this afternoon here, out on Ashland Avenue. Thepurpose of these hearings as conceived by the chairman of this committee was to make the problems of the people of this Nation real to the 534 other Congressmen in the Senate and the House of Repre- sentatives. Now, that may seem like an elementary situation and I want to explain that just a little further. First of all, there are a number ~of people in Congress and in the Federal Government and in the administration and in the agencies and, yes, in the White House. if you want to, who do not understand what is actually ~going on. And in this record that we have been com- piling in eight cities, nobody will be able to say they don't know; that excuse will be removed thanks to the Subcommittee on Commerce and Consumers that is out here today. These hearings will be printed, delivered to every Congressman, every Senator, every bureaucrat, so they will read everything that has gone on here today and in seven other cities. No. 2, we are now getting the gage of what the problems are that need to be adth~essed and some very good ideas about how to go about addressing them. All of the wisdom does not reside in Washington, ladies and gentle- men, and we are not too proud to admit that here. There are people in Chicago and Detroit who don't hold any office or title who have got as much sense about what ought to be done, sometimes more thanthe people that have the jobs that are trying to do them. [Applause.] So what we are doing, whenwe started off we said we want ±o find out what the problem is andwhat ought to be done about it, two things. And all that is going on .here, so I think that these hearings here are very, very important because we are going to go back-there are a lot of Members of Congress, in the Chicago area, they are going to read these very carefully and take notes. There are going.to be a lot in New York, when we go into Congress- man Rosenthal's city next week, who are going to read it. We have already been to Detroit, California, Texas, and what we have got to do, it seems to me, is understand that this is a national problem. Everywhere we go it is always local, but it always boils down to the same subject, "We can't take it in an economy where even if you got a job you are not~making it." And heaven help you if you are unemployed or living on public assistance. And that has got to be made clear, because there are people, unfor- tunately, who still believethatif you are on public assistance you are living the life of Riley. They actually will tell people that; they will make big speeches in Congress-I will send you the record, it is loaded with people who talk like that. And what we are trying to do is draw up a different picture of reality in the United States so that those of us who want to do the right thing will do it. And that is why we i~re very indebted to yOu for being here and working with us on this problem today. ~Mr. ROSENTHAL. Thank you both very, very much; that was very, very useful. PAGENO="0496" 488 We are going to take a 15-minute lunch break and we will reconvene in exactly 15 minutes. [Whereupon, at 12:05 p.m., the subcommittee was recessed for lunch, to reconvene at 12:20 p.m., the same day.] AFTERNOON SESSION Mr. ROSENTHAL. Our next witness is Mr. Jay Hodin. Mr. Hodin, go right ahead. STATEMENT OP lAY HODIN, EXECUTIVE DIRECTOR, SOCIETY FOR THE PROTECTION OP THE UNBORN THROUGH NUTRITION Mr. HODIN. Thank you, Mr. Chairman. I am Jay Hodin, the execu- tive director of the Society for the Protection of the Unborn Through Nutrition. As food prices continue to escalate, those with fixed or limited in- comes are the most adversely affected. Without proper food and nu- trition, life expectancy is seldom reached, and, more important, the quality of life severely impaired by acute and chronic diseases and a compromised mental and motor function. Therefore, today I will discuss one of the most devastating conse- quencesof inflation, that of impeding human development. Our failure to provide all Americans sufficient food and nutrition not only deprives millions of their right to life and health, produc- tivity, and well-being, but is economically catastrophic and contributes further to inflationary trends. Health care costs, now exceeding $160 billion annually in the United States, continue to increase at a more rapid rate than the gross na- tional product. By the middle of the next decade, if current trends continue, over 15 percent of the gross national product could be ac- counted for by health care costs. If accelerated expenditures for medical care succeeded in reducing the incidence of disease and improving the quality of life, they would be cost effective. However, since the medical ancillary professions, hospitals and the drug industry, primarily serve to treat symptoms of disease rather than to prevent its occurrence, increased health care costs have in gen- eral not resulted in improvementsin health. The role of nutrition in preventing heart disease, cancer, diabetes, mental illness, birth defects and other diseases of civilization that sig- nificantly contribute to inflation, while recognized by the now defunct Senate Select Committee on Nutrition and Human Needs, private practitioners and various organizations, has been largely ignored by those institutions that profit from disease and disability. Nowhere is our neglect and myopic perspective more pernicious than in the area of prenatal care. Our failure to recognize the role of mal- nutrition in human reproductive casualty and to prevent inadequate nutrition among pregnant women, whether due to poverty, ignorance or iatrogenesis, has led to a vast amount of perinatal complications, including metabolic toxemia of late pregnancy; abruption of the pla- centa; maternal, fetal or neonatal death; and moderate or crippling diseases and disorders, such as mental retardation, cerebral palsy, epilepsy, hyperactivity, learning disabilities, autism, and others. PAGENO="0497" 480 Our failure to prevent these tragic conditions, which are primarily caused by maternal malnutrition, as has been somewhat documented in other advanced nations, and interestingly, by veterinarians, contri- butes significantly to rising health care costs and those for rehabili- tative programs for those tragically afflicted with the aforementioned largely preventable disorders. Mr. ROSENTHAL. Mr. Hodin, I think, with your agreement, we are going to put your statement in the record. It is not necessary to read the whole thing. What we are interested in knowing is, is the problem getting worse? Is it getting better? Is it more acute? What is happening now? That is what we want to know about. Mr. H0DIN. The problem, first of all, is not recognized. We spend several billion dollars more annually on health care in the United States without significant improvements in health. This is especially apparent in the area of prenatal care when nutri- tion and proper food plays a much greater role than in the entire life cycle. And our neglect to provide proper nutrition for pregnant women, whether it be due to poverty or ignorance or other factors, contributes greatly to the inflationary cycle by causing all types of reproductive casualties whether in the forms of mental retardation or many other types of defects, that we now fund on a very large scale. We think nothing of spending hundreds of millions or billions of dollars in treating children born with these disorders but neglect the fact that these children have a right to be born healthy and probably would have been if we had spent more attention to the diets of their mothers. Mr. ROSENTHAL. This subcommittee has no jurisdiction in that area. Mr. H0DIN. We have a speaker following myself who will speak on hospital- Mr. ROSENTHAL. I understand the point that you make, it is sort of preventive medicine. If we took e~re of the r~renata1 child, we would spend a lot less money later on with the disabled. Mr. }-TODnc. Exactly, exactly. Mr. ROSENTHAL. This subcommittee has no jurisdiction over that particular area. Mr. HODIN. But simply by providing the nutritional needs of preg- nant women, increasing allowances for them, many departments of public aid, such as our own, do not provide for additional aid until the child is already born. This means of a savings of a few dollars initially is translated into millions of dollars later. Mr. ROSENTHAL. What you are saying is penny wise and pound foolish. Mr. HODIN. Yes. Mr. ROSENTHAL. All right, thank you. [Mr. Hodin's prepared statement follows:] 52-21Lc 0 - 79 - 32 PAGENO="0498" 49O Society for the Protection of the Unborn through Nutrition 17 N. Wabash, Suite 603 / Chicago, III. 60602 / (312) 332-2334 CONGRESS' FEDERAL ANTI-iNFLATION FiGHT AND INTACT ON CONSUMERS; TESTIMONY Self Hele Action of Chicago 59I~0 S. Ashland, Chicago, IL 60636 May 11, 1979 As food prices continue to escalate, those with fixed or limited incomes are ti~e most adversely affected. Without proper food and nutrition, life expectancy is seldom reached and, more important, the quality of life severely impaired by acute and chronic diseases and compromised mental and motor function. Inflation's.role in impeding human development is discussed herein. Our failure to provide all Americans sufficient food arid nutrition not only deprives millions their right to health, productivity, and well-being, but is economically catastrophic and contributes further to inflation. Heolth care costs, now exceeding $160 billion annually in the U.S., continue to `in- crease at a more rapid rate than the GNP. By the middle of the next decade, if current trends continue, over 15% of the GNF could be accounted for by "health care" costs. If accelerated expenditures for medical care succeeded in re- ducing the incidence of disease and improving the quality of life, they would be cost-effective. However, since the medical and ancillary professions, hospitals, and the drug industry primarily serve to treat symptoms of disease rather than rrevent its occurrence, increased health care costs have, in general,not resulted in improvements in health. The role of nutrition in preventing heart disease, cancer, diabete~, mental illness, birth defects, and other diseases of civilization that significantly contribute to inflation, while recognized by the now-defunct Senate Select Committee on Nutrition and Human Needs, private practitioners, and various organizations, has been largely ignored by those institutions that profit from disease and disability. BOARD OF DIRECTORS Tom Br.wer. M.D.. Pr~siüsst/ Robmo S. M,,d,boho. M.D.. Vic, PruiI,,fl'/PhilipE. Robi,sm,~TrMsur'r/ DorothyShavers. Secretaryf Jay Hodm ASSOCIATE MEMBERS Don Bartt,tts.MS.Ed. 10. Vera B,ck,tt/Oa~Sforza Br,wer.M.A./Rob,eto Caldsyro.RarciM.D.ILucI Ci,, M.D/MT. Dikkers Ph.D.. O.Sc./H. Lee FI.shood. P1,0. Carlton Fredeeuck~ Ph.D./JayandMartr, Hathastey(Dirsctors.AAHCC)/Oaniel Hubbard~D.V.M., Dr. P.R/Yates bh~Ia. M.D. FACOO IStephenE. La,rR,r,M.D.. Lic.Ac. TomMorjB.M~/BenL Pham.e~k.I D./LieusPauReg/DooiheR.Sbankko.M.D:/Dr. OadteeStstecrt(Directors. NAPSAC) /~am1ipte~MD./PbyIhsS.WitIims. RN. PAGENO="0499" 491 Nowhere is our neglect and myopic perspective more pernicious than in the area of prenatal care. Our failure to recognize the role of malnutrition in human reproductive casualty and to prevent inadequate nutrition among pregnant women, whether due to poverty, ignorance, or iatrogenesis, has led to a vast amount of perinatal complications, including metabolic toxemia of late pregnancy;. abruption of the placenta; maternnl, fetal, or neonatal death; and moderate or crip~ 11mg diseases and disorders, such as aental retardation, cerebral palsy, epilepsy, hyperactivity, learning disabilities, autism, and others. Our failure to prevent these tragic conditions, which are primarily caused by maternal malnutrition, as has been done somewhat successfully in other advanced nations and, interestingly, by veterinarians (who cannot afford. to neglect t,o practice preventive aedicine) contributes significantly to rising health care costs and those for rehabilitative programs for those tragically afflicted with the aforementioned lhrgely preventable disorders. As suggested by Ronald Conley in The Economics of Mental Retardation (Johns Ho~kins Un~v. Press, 1973), today's eccoomic cost of every case of severe mental retardation exceeds $1 million. While such impairaent affects those of all socioeconomic classes, low- income individuals, those most likely to be malnourished, are most afflicted. Generally inadequate prenatal nutrition is the predominant reason that 8O~ of all cs.ses of mental retardation occur among the economically deprived. Accepting a Supreme Court decision.that the legislative definition of a dependent child does not include a fetus, the Illinois Dept. of Public Aid does not provide additional benefits to AFDC recipients or prospective recipients until the child is born. The relativel~: small amount of money that is saved by depriving those most likely to be under- nourished with the additional calories and nutrients they need to satisfy the profound nutritional stress of pregnancy eventually will cost public and private sectors several, if not hundreds, tines more in medical and PAGENO="0500" 492 educational and social rehabilitative costs, not to mention the lessened productivity of the victims of our neglect. Recognizing that childbirth abnormalities and permanent neurological disabilities are primarily caused by malnutrition during pregnancy, Agnes Higgins, a home economist, established a prevention program in a blighted district of Pontreal for the sole purpose of "breaking the poverty cycle." Ps. Higgins, whose pioneering work is discussed in the attachment, demonstrated that poverty was as much a result of malnu- trition as a cause of it. Her success in enabling the offspring of the impoverished to overcome their depressive environment by ensuring them their right to possess superior mental faculties should be corn- municated to health care professionals, sociologists, criminolgists, politicians, and others who generally scrutinize all the major factors of poverty except its predominant root cause: prenatal malnutrition. Unfortunately, many mistakenly believe that the Federal Women, Infants, and Children (PlC) program is a panacea for eradicating mal- ~.nutrition during the most critical phases.of- brain developrient. However, unlike Ps. Higgins' program,~has no established standards to protect pregnant women and their unborn from the ravages.of inadequate nutrition. Conseauently, nany ~IC recipients are not provided the necessary nu- tritional guidance to complement the supplementary foods they receive and are frequently subjected to iatrogenic malnutrition, as the program makes no provision for mandating physician compliance. Many PlC .recipients, therefore, are placed on low-salt, low-calorie diets or weight control regimens and/or are given diuretics or other drugs, all of which jeopardize their health and that of their babies. Calling attention to our disdain for. preventive medicine and our sanctioning expenditures for preventable disorders, the publisher PAGENO="0501" 493 of the most widely read medical publication (Isedical Tribune), Arthur Sackler, M.D., noted: `We are prepared, and we are a rich enough country, to afford $500,000,000 to $2 billion to prolong life for a few years in those with irreversibly damaged hearts and kidneys. Why, then, the incredible neglect annually of. many thcusands of ~regnant women whose malnutrition causes irreversible fetal brain darage and physical anom- alies in children who will for a lifetiae be a burden to themselves, to their families, and to society? These are preventable conditions due to ignorance and/or lack of the most simple nutritional essentials. We seem fascinated by our mechanical facilitios and technologies. It would seem that if a brain transglant were possible, our social and psychim orientation is such that we would be irepared to support a Pedicare charge of $20,000 to $25,000 per "transistorized brain" transplant. Why then do we foil to make availabla a few hundred dollars per pregnancy to assure normal neurologic and general physical development in the unborn?... (It) makes good medics.l sense- indeed, common sense- and good economics to invest ~xi preventive medicine for the ~rcgnant woman and unborn child- a venture which economically is self-liooidating and less costly than attearts to correct, as we do now, greventable damaae and its heavy economic liability." As inflation continues to overburden those who can least afford the higher food coats, it becomes more and acre essential to institute Dr. Smokier's recommendation to provide for the nutritional needs of the pregnant woman and her unborn baby. Unfortunately, technologic obstetrical care has supclanted preventive measures and has added an additional fac- tor to inflation. For example, The hational Center for health Services Research, Dept. of 1-15W, has determined that fetal rccnitoring, a procedure that has not contributed to maternal or neonatal health, generates $400 PAGENO="0502" 494 million in unnecessary rnodical costs. Thus, a preventive approach to health care, especially with resaect to ensuring proper neurological development in future generatins, coupled with increased efforts to lessen the impact of inflation of food prices on the most susceptible populations, is hereby advocated as the most effective means of preventing one of the r~ore devastat~i~g consequences ci irflaticn. Respectively submitted, Jay Hodin, Executive Director PAGENO="0503" (D~ I-j. OCD CD D~ Di CD I-,. Di o i-~. rt~ `0 t ~ I P p !IUII ~11Ir ~ .~ ~ p * g ;-i~ ~ i w -U' p) C) CD C') C) :T CD PAGENO="0504" BIRTH WEIGHTRECORD OF ONE MOTHER BEFORE AND DURING NUTRITIONAL SUPPLEMENTATION PROGRAM This figure indicates the birth-weight record of the llchildren of a 29-year-old mother. Although all of the children were born in the same hospital, the mother participated in the Montreal Diet Dis- pensary's prenatal nutrition program only during her last three pregnancies. The birth weight of the smallest of the woman's last. three children was 1 pound 1 ounce more than that of the largest of her first eight children. Besides demonstrating the profound relationship between nutrition and birth weight, this case illustrates the effectiveness of maternal nutri- tion in preventing newborn neurological damage. A physical and mental assessment at the Montreal Children's Hospital determined that all of the first seven surviving children were neurologically handicapped. In contrast, the three who were well nourished in utero are normal. To date, more than $300,000 has been spent in rehabilitative services Nattitiata for the neuxologically impaired children. . .sub- ptogtam b~tths stantially more than the Diet Dispensary's cost of $125 to provide for normal development. ~Agnes Higgins, founder and Executive Director of the Montreal Diet Dispensary (2182 Lincoln Avenue, Montreal, P. Q. H3H 1 J3), has demonstrated that proper prenatal nutrition can break the intergenerational poverty cycle. . While most public health authorities recognize that poverty causes malnutrition, few comprehend the signifi- cance of the work of those pioneers who, like Ms. Higgins, have shown that malnutri- tion can cause poverty. Even though 72% of the Diet Dispensary's participants had incomes below the Canadian poverty level and 61% of them completed less than six years of formal education, their perinatal death rate was 48% less than Canada's. By assessing nutritional requirements on an individual basis based upon previous nutritional ,status, weight, stress, and other factors, the Diet Dispensary's pro- gram demonstrated that expectant mothers generally require a more substantial diet than the Recommended Daily Allowances indicate. Although the program provided nutri- tion education and, in two-thirds of the cases, nutritional supplementation for an average of less than half of the prenatal period, it significantly lowered perinatal death (p<.OOl) and the incidence of low birth weight (children weighing under 5 1/2 pounds at birth). The incidence of underweight births among Diet Dispensary par- ticipants was substó.ntia],ly lower than that of other public patients who received care at thesame hospital (p<.005). The low birth weight rate of expectant mothers under age 18, who are reputed to be "high risk," was only 3.3%, which is much less than one-third of the U.S. rate. Even adjusted for other variables, birth weight was highly associated with the length of time women participated in the nutrition program. The average birth weight of children born to those who received nutrition education and (inmost cases) food supplementation was 7 pounds 7 1/4 ounces--more than 3 1/2 ounces greater than that of women who received private obstetrical care at the same hospital. Children born to those mothers who exceeded. their protein requirement (as determined by the MDD) by core than 15% weighed an average of 7 pounds 10 ounces at birth. The program's effectiveness was also reflected in the significantly higher birth weights among MDD births than those of siblings, whether older or younger. For more information on the protective effects of prenatal nutrition, contact the Society for the Protection of the Unborn through Nutrition, 17 N. Wabash - Suite 603, Chicago, Illinois 60602; phone (312) 332-2334. 496 3,000 2,500 2,000 1,500 Before participating ~Chilcl died at the age alone month PAGENO="0505" 497 Mr. ROSENTHAL. Thank you. Mr. Ivancevich. STATEMENT OP ROBERT E. IVANCEVICH, EXECUTIVE DIRECTOR, ILLINOIS STATE COST CONTAINMENT COMMITTEE Mr. IvANcEvIcH. I am the executive director of the Illinois State Cost Containment Committee, also known as the Illinois Voluntary Effort To Contain Health Care Costs. I am here to give my views on the failure of the Federal Government in their efforts to control infla- tion. At the same time, I think it is encouraging that there is a successful voluntary program operating in the economy now, and it is controlling one sector of the economy and the inflation in that economy. The Illinois Voluntary Effort To Contain Health Care Costs has re- duced the rate of inflation in hospital expenses in this State from 14.7 percent in 1977 to 8.4 percent in 1978. I'm sorry for Mr. Murphy; in his congressional district that rate was reduced from 13 percent to 9.8 percent; and in Mrs. Collins' district, whom I know is a member of the committee, the rate was reduced from 11 percent to 7.3 percent in that same period. The Voluntary Effort in Illinois is part of a national program that is sponsored by the American Hospital Association, the American Medical Association. and the Federation of American Hospitals. There is a national steering committee comprised of doctors, hospitals, hos- pital trustees, consumers, labor representatives, and people from the business community. At the Illinois level, our State Cost Containment Committee repre- sents the unprecedented cooperation of physicians, hospitals, and hos- pital trustees representing the committees served. Over 90 percent of the governing boards of the hospitals in Illinois have passed resolutions directing the thief executive officers of those hospitals to use all reasonable means to keep operating expenditures and capital budgets on the lowest level on a continuing basis consistent with sound medical practice. We feel that the Federal Government's attempts to date to control inflation in the general economy has been a dismal failure. Since the announcement of the Government's program, inflation in most sectors of the economy has skyrocketed to double-digit proportions and has been sustained there. We also feel that part of the problem is that the Government is inept in controlling inflation and also is exercising a schizophrenic economic policy. For example, while they preach the gospel of voluntary restraint and control. there has been introduced the Hospital Cost Containment Act of 1979, which amounts to a wage/price/revenue control over hosnitals. This proposal would result in nothing more than an irrational. ridiculously complex, impossible to administer, and unnecessary regu- latorv control measure. It should be axiomatic that to control the economic activity of one industry, hospitals in this case, you cannot do it without controlling the other sectors of the economy that provide goods and services to that industry. PAGENO="0506" 498 Our Voluntary Effort was indeed created in response to a challenge by Congressman Rostenkowski to control inflation in our industry. And we have done just that. As I said, by reducing the rate of increase in hospital expenses in Illinois, over $200 million in hospital costs that otherwise would have been spent with a status quo rate of increase have been saved. These savings resulted from a number of innovative programs in- cluding grOup purchasing, which in Illinois saved $25 million in 1978, shared services, management engineering, increased productivity, and alternative service modes. `One program, for example, at Rockford Memorial Hospital, en- courages outpatient surgery as an alternative to inpatient surgery, saved in excess of $1.3 million over the past 4 years alone. Mr. ROSENTHAL. What took your industry so long in coming to grips with this situation? Mr. IVANCEVICH. I am not sure that the w'ay we report the apparent inflation in the hospital industry is `well enough understood `by the con- sumer or by all Members of Congress. The period that is traditionally measured by Secretary Califano and used by the President, is a period following the release of the economic stabilization program on hospitals. This period is artificially inflated in that the ESP program was kept `~:~by Government on hospitals 18 months longer than it was on other sectors of the economy. Hospitals, which are just as subject to infla- tionary pressures of goods and services, energy, supplies, and so on, took the period of time following that release of the ESP program to catch up. The rate increaseis reducing now, and I remind you that the con- gressional budget hasincreased440 percent in the last 10 years, HEW's budget has increased 350 `percent, and by law the' deduction from my paycheck for FICAhas increased 330 percent, but a hospital room has increased slightly over 200 percent in the last 10 years, if you take the 10-year period. I think it is important to put this in the proper perspective. Mr.1ROSENTHAL. 200 percent~ithas doubled or what? Mr. IvANCEvICH. It has tripled. Mr. ROSENTHAL. In how long a period of time? Mr. IVANCEVICH. In a 10-year period, a hospital room. Now, on the other hand, when you talk about the hospital product, you are talking about something that is dynamic and that is continu- ally `being changed. For example, if I were to buy a domestic subcompact car in 1978 for $4,OOO~ and in 1979 buy a foreign sedan for $16.000, it would be map- propriate for me to'assume' that the cost increase in a car is raised 500 percent in 1 year. In the same vein, the hospital product is ~hanged over time. Ten years ago the average length of stay- Mr. ROSENTHAL. ~Is it your testimony that hospital costs have not risen disproportionately in relation to other costs; is that your testimony? Mr. IvANCEvICH. The point of my testimony is that it is time the Fed- eral Government turns its attention to the real problem, energy, hous- ing costs, and food cost, and I thin'k that while the Consumer Price PAGENO="0507" 499 Index is not exactly the best measure of the medical component of the economy, the recent trends in the Consumer Price Index would indi- cate that the problem is nowhere near as great with medicalcare costs as itis with housing, food, and energy Mr. ROSENTHAL. Thank you. I want to thank both of you very much. [Mr Ivancevich's prepared statement follows] PAGENO="0508" 500 r57 Illinois Hospital Association (312) 325-9040 Illinois State Medical Society (312) 782-1654 - Federation of American Hospitals *The Illinois Voluntary Effort STATEMENT OF THE ILLINOIS STATE COST CONTAINMENT COMMITTEE: THE ILLINOIS VOLUNTARY EFFORT TO CONTAIN HEALTH CARE COSTS BEFORE THE SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS OF THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS ON THE ISSUE OF THE FAILURE OF THE GOVERNMENT TO CONTROL INFLATION Mr. Chairman, I am Robert E. Ivancevich, Executive Director of the Illinois State Cost Containment Committee, aka the Illinois Voluntary Ef- fort to Contain Health Care Costs (VE). Thank you for providing us the opportunity to present our views on the failure of government to stem in- flation. At the same time, however, we wish to share the success of a voluntary program, initiated by the private sector, that is stemming in- flation in one sector of our economy. That program, the Illinois Volun- tary Effort to Reduce Health Care Costs reduced the rate of inflation in hospital expenses over 6 percentage points in one year, from a rate of 14.7% in 1977 to a rate of 8.4% in 1978. The Illinois VE was created in late 1977 as an affiliate of a national program created by a National Steering Committee including not only physi- cians and hospitals but also members of the business community, and labor and consumer representatives. The program is sponsored by the American Hos- pital Association, the American Medical~ Association and the Federation of Illinois State Cost Containment Comminee 1200 Jorie Boulevard, Oak Brook. Illinois 60521 * (312) 325-9040 PAGENO="0509" 501 American Hospitals. The Illinois Voluntary Effort represents the unprecedented cooperation smong physicians, hospitals and hospital trustees representing the communities served by those institutions. In Illinois, over 90% of the hospi- tals! governing boards have passed resolutions directing the chief executive officers to use "all reasonable means to keep operating expenditures and cap- ital budgets at the lowest level on a continuing basis consistent with sound medical practice" and in "the continued spirit of voluntarism and self-deter- mination". Government, federal, state or local is not a participant in the VE. Federal Efforts TO VOluntarily Control Inflation The federal government's attempts to date to control inflation in the general economy have been a dismal failure. As a matter of fact, since the announcement of the program, the inflation rate has soared to double-digit proportions and has sustained that level. We believe that the failure by government to control inflation is symptomatic of the absence of federal expertise and the presence a schizophrenic economic policy. For example, while on one hand the administration is preaching a gospel of federally-en- couraged voluntarism, it has singled out the health care community and has introduced legislation, the Hospital Cost Containment Act of 1979, which amounts to a wage/price/revenue control over the hospital industry. This proposal is nothing more than an irrational, ridiculously complex, impoásible to adatinister, and unnecessary additional regulatory control measure. Fur- thermore, it should be axiomatic that it is impossible to control the economic activity of one industry (hospitals in this case) without similarly controlling the sectors of the economy that supply that industry with goods and services. PAGENO="0510" 502 We believe that the real potential for tempering inflation while pro- viding for continued economic growth resides in the private aector with labor, enterprise and consumers. Government "inflation fighters" have tried their hands and failed. The Voluntary Effort: A Non-GOvetnmental `Program That Works The VE was created in response to a challenge by Congressman Dan Rostenkowski to the hospital community to voluntarily control costs in lieu of enactment of mandatory controls. The program is unique in that it is the only industry in the economy united, with a specific program to control ~li~ flation. It is doing just that. At the national level, the rate of infla- tion in hospitalexpenses between 1977 and 1978 was reduced from 15.6% to 12.9%. In Illinois the reduction in one year was more than six percentage points, from 14.7% in 1977 to 8.4% in 1978, considerably better than the national rate. This amounts to a savings of over $200,006 in hospital costs in Illinois. These savings resulted from numerous innovative programs including group purchasing (which alone in 1978 saved an estimated $25 million in Illinois), shared services (laundry, computer systems, laboratory), management engineer- ing, increased productivity, and alternative service modes. For example, at Rockford Memorial Hospital a voluntary program of outpatient surgery has saved consumers over $1.3 million over the past four years. One example is adult hernia surgery. Where medically indicated, performance of this proce- dure on an outpatient basis has saved over $250 per procedure. The percentage of total hernia operations performed on an outpatient basis at Rockford Memorial has increased from 25% in 1974 to 52% in 1979. In addition, most PAGENO="0511" 503 hospitals have created cost containment committees consisting of administra- tors, physicians, trustees and department managers. Attached as an addendum are synopses of a few efforts taken by Illinois hospitals to contain coats. Besides involvement in hospital cost containment committees, physicians have also initiated programs to contain costs. A series of workshops spon- sored by the Illinois State Medical Society entitled "How the Medical Staff can Respond to Cost Containment Efforts" focuses on providing doctors sug- gestions as to means by which they can become more cost-effective. Also, a "Physician's Cost Containment Checklist" that reminds doctors of the many ways they can contribute to efforts to contain health care costs has been distributed to members of the Illinois State Medical Society. Another ef- fect of the Voluntary Effort is a commitment on the part of physicians to limit the rate of increase in their fees. While this data is more difficult to gather, preliminary indications are that fees increased at similarly lower rates in 1978. In order to better understand this success and the effect of the Voluntary Effort on health care costs, one must also understand the unique nature of health care economics. Hospital Expenditure Increases Hospital expenditure increases are complex. Often viewed as solely in- flationary, they result from three factors: increases in goods and services purchased by hospitals, increases resulting from a large and older popula- tion and increases resulting from a continuous improvement and enhancement of the `hospital product". These factors make it misleading to absolutely compare changes in hospital expenditures to the rate of inflation in the PAGENO="0512" 504 general economy. The failure of the government's economy - wide anti-inflation program will impact the inflation in the hospital `market basket". Unfortunately, a large part of that basket is weighted by items that have been experiencing high in- flation rates and which the government has been especially inept in controll- ing. These include energy, food, interest rates and labor costs. In addition, the population is both growing and getting older. This results in higher utilization of the health delivery system, and therefore in higher expenses. Finally, the health care product is continually improving and being en- hanced. Advancements in technology and service improvements are the products of a continuing national commitment an investment in biomedical science. Twenty years ago the average stay in a hospital for a mother at child- birth was 10 days. Today the stay is only 3 days. Just as it would be un- realistic to assume that the cost of an auto rose 400% in one year if a domestic subcompact were purchased in 1978 at $4,000 and a foreign sedan was bought in 1979 at $16,000, it is inappropriate to measure inflation in the "hospital product" by tradition standards such as the CPI, since the intensity and nature of the product is continually being improved. Regulation The health care industry is second to none in the volume and level of regulation already imposed upon it. One recent study in New York indicated that more than 150 federal, state and local agencies regulate hospitals. With ~ew exceptions, these have no effect on the level of health care services provided, but the cost o~ complying with these regulations is estimated to be 10% to 20% of all hospital costs. If the Carter Administration has its PAGENO="0513" 505 way with respect to inflation fighting" in health care, an additional tier of regulation will be steeped upon hospitals, again at the expense of patient care. Bases Of Payment For Hospital Services Another aspect of hospital economics and of understanding the effect of the VE on health care costs is the basis upon which hospitals are paid for services. Consumers are generally unaware that with few exceptions the hospital charges they see on their bill at discharge are not what the hospital is paid. Hospitals establish their charges based upon their fi- nancial requirements tomeet direct and indirect expenses, retire debt, fund for replacement of plant and equipment, provide charity care, and prepare for unforeseen contingencies. Major payors, including Blue Cross, Medicare and Medicaid negotiate the method by which they will pay for services rendered to their beneficiaries. In Illinois, 80% of all payment to hospitals is based upon negotiated rates related to the cost of providing services and not to the full financial requirements of the hospital. With respect to the federal programs, Medicare and Medicaid, hospitals incur a significant shortfall be- tween what is paid and what are the financial requirements of providing the services. This shortfall is met by the self-payor, Blue Cross and commercial insurance companies. With respect to the effect of the Voluntary Effort on the cost to the consumer, since most hospital payment is somehow related to hospital expenses, a reduction in the rate of increase in the expense level of hospitals will have a concommitant reduction in what the payors are paying the hospital in behalf of the consumer. Further, since patient care expenses are related 52-2l~ 0 - 79 - 33 PAGENO="0514" 506 to charges, a reduction in the rate of increase in expenses results in a re- duction in the rate of increase in charges also. Inflation Up to this point, only data gathered by the VE has been considered. While we stated earlier that the CPI is not the best measure of what is happening with health cost inflation, it nevertheless represents trends in the economy and can (identify) problem areas that need to be addressed by public policy. It should be noted that the reduction in the rate of hospital expense increases over the last 16 months in the nation and Illinois as demonstrated by VE data is reflected in the CPI which shows a coincidental reduction in the rate of the medical and hospital care component of the Consumer Price Index. As a matter of fact, the March consumer price index reflected national increases in food and housing costs at rates of 12.8% and 10.6% annually, while the medical care component is increasing at a rate of only 9.5%. In Chicago, where the effect of the Illinois Voluntary Effort can be readily observed, the annualized rate of increase for housing and food was 12.8% and 12.4% respectively. However, the inflation rate in medical care services continued the trend of being significantly lower than food and housing; actually declining to an annual level of 8.2%, comparable to the 8.4% rate of increase for hospital expenses as measured by the yE. Conclusion We believe that this Voluntary Effort which includes nothing more than the initiative of the private sector, represents the basic spirit of self- PAGENO="0515" 507. determination that is so important to our American tradition. We believe that the rest of the economy has a significant lesson to learn from our ex- perience, both in terms of the service that can be provided to the common man through voluntary initiatives and the success we can enjoy when we rely upon our own strengths rather than for government to interpose itself into our every-day lives anymore than it already has. The failure of government's approach to inflation control is that the government is inept at pursuing pro- grams that are voluntary and self-determining. It's time we stopped viewing hospital bills as the villain fueling the fires of an inflationarey economy when the evidence is indicating that we are the victims of inflation--not the causes of it. We need to endorse and sup- port the sincere and positive efforts being made to reduce costs while main- taining quality patient care, and other industries should follow the lead of our health care people. The Carter Administration's motive in seeking enactment of the Hospital Cost Containment Act of 1979 cannot be considered an effort to stem inflation but rather an effort to recover from last year's embarrassing setback when Congress rejected the 1977 Carter hospital cap outright. We submit that Congress must turn its attention to the real problem areas, including energy, housing costs and food costs and stop spending time on an industry that has proven it can control itself without jeopardizing the quality health care demanded by our communities. Thank you. PAGENO="0516" 508 ADDENDUM TO TESTIMONY OF MAY 11, 1979 PRESENTED BY THE ILLINOIS VOLUNTARY EFFORT TO CONTAIN HEALTHCARE COSTS BEFORE THE CONSUMER SUBCOMMITTEE FTHE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS CHICAGO, ILLINOIS Illinois The cost containment committee at Blessing Hospital, Quincy, emphasizes employee awareness and practice of cost containment. Employee publications stress safety, proper use of equipment, and time usage. In January 1976, all Blessing Hospital employees were urged to attend a film on energy conservation. (Sue Elmore, administrative assistant) As part of its cost containment public information program, Illinois Masonic Medical Center, Chicago, has issued a Report to Community Groups and mdi viduals Interested in the Cost of Hospital Care. The seven-page document discusses cost savings in four general areas-management, outside services, equipment, and purchasing-and explains each project and the dollar amount saved. Activities include a shared data processing service at a $200,000 annual savings, installation of a Public Aid Master File inquiry terminal and printer at an estimated savings of $70,000 to $100,000, and installation of an industrial washer and dryer for mops at a savings of $I~O,000, Total savings from the cost containment activities for the current year is approximately $1 million. (James R. DeNoyer, director, Public Relations) Swedish Covenant Hospital, Chicago, created a formal cost containment coimnittee in February 1977 to coor- dinate hospital activities. The committee, which includes medical staff representation, is active in long-range planning, scheduling of patients and patient services, utilization of existing facilities to react to short-term trends, manpower planning, and expenditures for goods and outside services. (Carl F. Bostrom, chairman, Cost Containment Committee) lliinois Taking advantage of the Unemployment Compensation Administration Program of the Chicago Hospital Council saved Memorial Hospital of Du Page Cp~p~y, Elmhurst, $5,000 in the first 10 months during 1976-77. (Robert Magnuson, executive director) PAGENO="0517" 509 Illiii is The director of plant operations at B1essipg~p~tai, Quincy, selecsed a team of persons who surveyed the entire hospital to determine where energy was being wasted. Following are some of the energy and cost- saving activities implemented at the hospital as a result of the survey: All employees were instructed to turn off lights in rocans that would be unoccupied for 20 minutes or longer and to turn off heating and cooling equipment manually wherever possible (estimated yearly savings: $3,700). Maintenance personnel removed one-half of the tubing in fluorescent lights wherever possible (annual savings: $1~8,i8o). * A power demand load controller was installed at a cost of $1~,300 to gradually reduce the beat and air systems when they begin reaching maximum con- sumption (estimated annual savings: $7,790). - To increase the efficiency of each continuously run motor of five horsepower or acre, a capacitor has been installed on each at a cost of $7,075. Motors that formerly operated at only 65 to 70 percent efficiency now operate at 90 to 50 percent efficiency (annual savings: $6,367) (Sue Elmore, administrative assistant) Illinois (cont.) National recognition has been give±i to Lutheran General and Deaconess Hospitals, Park Ridge, for its energy conservation program. A reduction in the use of gas and electricity saved the hospital $61,000 in 1976. The hospital anticipates saving $L~,OOO a year through another conservation measure-the bulk purchase of gasoline for hosrital vehicles. (T. L. Jacobsen, executive vice-president) Both heat and light energy conservation measures have been stressed at Swedish Covenant Hcap~al, Chicago, during the past year. Foot~andle reductions of up to 50 percent have been realized in nonpatient areas of the hospital. (Carl F. Bostrom, chairman, Cost Containment Ccnmnittee) PAGENO="0518" 510 Illinois Through its home care program, Lutheran General and Deaconess Hos~~~s, Park Ridge, can discharge patients who no longer require the hospitals acute services but remain in need of care. The hospital estimates that its home care staff will make 2,808 visits during the fiscal year 1977-78. This will reduce patient days by more than 700 days at an estimated savings on $lL~5 per day. Using these figures, the availability of the home care program will save the hospitals patiects in excess of $100,000 this year. (T. L. Jacobsen, executive vice-president) Illinois Memorial Hospital of Du Pa~e County, Elmhurst, found two ways to cut insurance costs by more than $300,000 in 1976-77. Malpractice insurance coverage was reduced from $19 million to $10 million for a savings of $285,000 in premiums. A change in the Illinois worimans c~persation law allowed the hospital to save $21~,OOO by self-insuring for worloman's compen- sation. (Robert~ Magriuson, executive director) Illinois Since August 1975, ~~n~~soit3!, Quincy, has been compiling a chart of savings achieved and avoidable costs incurred by department. The chart has been displayed in the employee cafeteria. (Sue Elmore, administrative assistant) ~L~~t9l and Ma~!cal Center, Chicago, has realized significant savings from three separate programs. The institution has reduced its annual photocopy expense by $70,000 by eliminating t15 percent of its machines and using more cost-effective equipmert. By subcontracting its dietary and housekeeping opera- tions, the hospital anticipates annual savings of $1~oo,ooo and $700,000, respectively. (Arthur A. Kay II, assistant to the vice-president for Finance) PAGENO="0519" 511 Illinois (cant.) Swedish Covenant Hosnital, Chicago, participates in the AHA's HAS progrmn to compare relative costs of opera- tions with the costs in similar hospitals. By moni- toring and reviewing the HAS reports, the hospital discovered it had a comparatively high cost fcr dietary services and began an independent study to determine how to reduce those costs. (Carl F. Bostrom, chairman, Cost Containment Cosmittee) Illinois Through its materials management program, Lutheran General and Deaconess Hogpitals, Park Ridge, has realized a total savings of e than $300,000 for fiscal year l976-T7. This consisted of $250,000 saved by requirLng competitive bidding for all major purchases and projects; $25,000 saved through prime vendor agreement and group contract purchasing arrangements; and $30,000 saved through the hospital's efforts in evaluation and standardization. In addition, the hospital takes advantage of the Chicago Hospital Council' group purchasing program. (T. L. Jacobsen, executive vice-president) Iflinois As of June 1977, Michael Reese Hospital and Medical Center, Chicago, has saved the equivalent of more Ei~i~~1~ million by not filling vacant staff positions andhas placed qualifications on the future filling of these positions. Over the next four quarters, approval to fill the positions will be granted only if the operating departmento stay within their budgets and if themedical center's overall financial situation continues to imnrove. (Arthur A. Kay II, assistant to the vice-president for Finance) Illinois Lutheran General and Deaconess Hos~ita1s, Park Ridge, established a Utilization Review Cosmittee in May 1972. The activities of that committee reduced average length of stay in the hospital by three- tenths of a day during fiscal year 1976-77 for an estimated savings of more than $1 million. (T. L. Jacobsen, executive vice-~resident) PAGENO="0520" 512 Illinois Blessing gp~ta1, Quincy, relaized savings of ~i~36L~ in fiscal year 1975-76 and $150,000 in fiscal year 1976-77 from a number of plant operations cost containm~nt measures. Following is a partial list of those measures (with estimated savings over two years): Use of in-house construction crew rather than out- side contractor (labor savings: $200,080). Purchase of construction materials directly rather than through a contractor (material savings: $12,100). Installation of a computerized memory bank (cost: $12,300) progran~ed to automatically shut off all ventilating equipment for six minutes per hour during the day and for longer periods at night (savings: $25,1~0o). (Sue Elmore, administrative assistant) Savings of $50,000 per year are expected by Lutheran General and Deaconess Hoseitals, Park Ridge, as the result of hiring a locksmith and electrician rather than purchasing these services from local craftsmen. (T. L. Jacobsen, executive vice-president) Illinois Lutheran General and Deaconess Hos~ita1s, Park Ridge, has a preadnission testing prugram that provides routine pre-operative testing uf patients prior tc admission to the hospital for surgery. The hospital estirates that 0.2 patient days of service per patient are saved each tire the program is used. Based on the expected use of this alternative approach to delivery by 2,700 patients this year and on the per dien inpatient rate of $122, the hospital estimates that over $500,000 will be saved this year. (T. L. Jacobsen, executive vice-president) Annual expansion of the Family Health Clinic for out- patient services has reduced total costs to the people served by edish Covenant_Hosaital, Chicago. Out- patient visits to the Family Health Clinic have more than doubled in five I'ears. Baergency room, laboratory, radiology, rezpiratory therapy, and cardiac rehabilitation outpatient services have increased at a substantially higher rate than inpatient services. Since 1972, inpatient visits to Swe shCovena8 osital, Chicago, have increased by 10.9 percent while outpatient visits have increased by 66.8 percent. (Carl F. Bostrom, chaii~an, Cost Containment C~ittee) PAGENO="0521" 513 Illinois (cont.) Memorial Hospital of Du Page County, Elishurst, haz made materials msu;agement an important part of its cost containment ;rograzn. 5y participating in the Chicago Hospital Council's group purchasing prugrtm, Memorial Hospital saved $113,000 in l97~-77. An additional $23,500 was saved by the elimination of the "rounder,' an automated device used to measure the tatients' tenperature, pulse, and respiratior.. (Robert Magnuson, executive director) Cost containment initiatives used by Swedish Covenant Hosal, Chicago, include the receipt oF discounts on equipment, supplies, and food. These discounts are made possible through the purchasing power of the Chicago Hospital Council and the restaurant food buyers group. (Carl F. Bostrom, chaimaan, Cost Containment Coimsittee) St. Francis Hospital, Evanston, IL, has a cost containment committee that meets monthly to review hospital operating reports; discuss new ideas; and solicit new ideas from hospital employees, medical staff, hospital staff, and other interested individuals. Current projects include a standardized departmental cost-report- inC and productivity-reporting system. Price sheets are on every medical chart so that physi- cians can see the cost to the patient of various tests and therapies. In 1976 and in 1977, the hospital's annual operating budget increased only 7 percent, with no cutbacks in service. Blessing Ho~pita1, Quincy, IL, has saved $88,215 since 1972 through an energy conservation pro- gram based on efficient use of air-conditioning units. In addition, the hospital has estab- lished a five-step energy management program that will affect the entire hospital's energy use. (Lawrence L. Swearingen, administrator) PAGENO="0522" 514 Community liemorial Hospital, Nonmouth, IL, has instituted the following activities to reduce energy consumption and costs. Recucing the firing rate or boilers from 52,500 cubic feet per hour to 10,500 cubic feet per hour of natural gas. Installir.g .1 heat exchanger in the boiler automatic blow-down waste-water line to preheat feed water before it enters the de- aerator. Lowering the temperature to 60° in unoc- cupied rooms and storage areas in the winter. These measures have resulted in a documented 32.5 percent reduction in natural gas conswsp- Lion. The hospital is also converting its out- s~de and security lights from incandescent to low-pressure to reduce outside lighting by so percent. (Roger E. Gurhclt, adminiotrator) PAGENO="0523" 515 Mr. ROSENTHAL. Our next witness is Nezzie Willis. Ms. Willis. STATEMENT OF NEZZIE WILLIS, WELFARE RIGHTS ADVOCATE Ms. WmLIs. Good afternoon. I will speak very briefly because I am a welfare recipient, and I don't have all those fancy numbers or anything, but I would like to say speaking as a welfare recipient as myself, that since the food prices and the housing comes out as thick as my check, that we are really in a pinch now. If we pay our whole rent, we do not have enough money to help out; with the free food stamps what we are given, it is not enough for us to feed our children for a whole month. That makes us not be a~ble to pay the light bill or the gas bill. And in essence, if we pay Peter, we rob Paul; we pay Paul, we rob Peter. If we have children going to school, we cannot afford to send them to school many times because of clothing, and they would need heavy clothing, we have to spend that money for food or we have to spend that money for rent. Because there is no such thing as a ceiling on the rent, and we get a fixed income. Not only the welfare people, but any person that get a fixed income, they are really in a pinch now because we cannot say how much a person can charge us for rent. We have to live where we can. I would like to say to you I hope that you all will consider trying to find some ways and to, I don't know, control the inflation or something, because we are really suffering. I think in your letter you mentioned something that you would like us to say as some kind of a way out. I have four things that might be considered, and I know that you are goine~ to frown. but I still am e~oing to say it. For a family of four, 1 would like to see that you consider like $75 a week for food. I don't care whether it is food stamps or what, but $75 a week. As for the third, I would like to say as far as if you don't consider the $75 a week that you would consider giving a family of four $125 pe.r month per person that would help them with inflation, with rent and other kinds of things. Th2re is another kind of thing that you could also consider which is trying to help provide jobs, because every ADC person or every person *that is on a fixed income is not lazy. Many of these people would like to work but there is no job, there is no money to go out and look for a job even if there is a job that you could get. You don't have the money to go out and look for it. So what I am saying is that if we can get enough money that we could have to feed our children and ourselves, to pay our rent so we wouldn't have to live in all of these dilapidated buildings that causes your health costs to go up and all that kind of stuff, I think we would be better off. I thank you, and I gave 10 copies of my statement. Mr. ROSENTHAL. Thank you very much. [Ms. Willis' prepared statement follows:] PAGENO="0524" 516 TESTIMONY: South Austin Community Organization PRESENTATOR: Mrs. Nezzie Willis, 5414 West Madison Street Welfare Rights Chicago, Illinois Advocate (312) 379-8232 INFLATION, BUDGET, AND WHAT'S HAPPENING TO PEOPLE The increased pressure of inflationary cost, cutbacks in funding of social programs and other factors which cause `the shoe to pinch" has given rise to the question, "What's happening to people?" In order to speak to this question, I must state at the outset that my concern is with the 2Lp.~~whos lives are most affected by the circumstances and conditions of these ongoing and often abrupt changes. As a poor person, a long time poor peoples and welfare rights advocate, I have both experienced and remained in constant touch with the con- ditions under which we have been forced to survive. It is no deep dark secret that we are in the midst of an inflationary crisis period, therefore, I shall focus my comments solely on the effect as it relates to us, the ~ Within the past year the inflationary increases in the basic necessities like food, clothing, utilities, and shelter cost have reached an all time high and continues to climb. Where does this leave us, the ~~pp]~? Poor pp~ such as welfare recipients and senior citizens who are forced to live on fixed incomes must "rob from Peter to pay Paul" as the saying goes, and still be left with an unbalanced budget. For example, a family of four living on $333.00 check per month from welfare, must provide for all of the family's needs. The actual rent for a habitable dwelling is approximately $225.00 and over per month. The family must live somewhere, they certainly cann't dictate the land- lord's price. Therefore, this family's cash budget for the month has been re- duced from $333.00 to $108.00 with only the rent paid. (Is is any small wonder that we are constantly on the move or being thrown out?) If the rent is paid, the family is left to attempt to survive on this small amount of money. There PAGENO="0525" 517 is still the matter of the other essential expenses such as utilities, clothing and food that must be provided for the family. With the energy crisis being what it is, the utilities bills usually exceed the balance of the cash budget. Almost always in any given month a family with growing children must expend some money for shoes and other wearing apparel. By the way, certain other incidental cost are incurred by the family, for instance, in order to cash the welfare check the family usually pays a currency exchange fee that averages at least $1.00 per $100.00; if there are high school age children in the family, they incur transportation cost to and from schoOl as well as other school fees. Next let us focus, on the food for the family. As of January 1, 1979 due to changes in the regulations this family no longer had to purchase food stamps out of their welfare grant; they supposely receive free food stamps. Under the old system this family of four receiving $333.00 would have been able to purchase $182.00 in food stamps for $45.00 cash giving) them a bonus amount of food purchasing power of $137.00. C I need not indicate that this was not enough at that time for a family this size) With the new system, this same family of four receives $137.00 free food stamps but in order to have the same food purchasing power as before the present system went into effect, they must expend $45.00 from their cash grant to make up the $182.00. The loophole is that before the family had $182.00 purchasing power tax free whereas now assuming that they have the $45.00 to spend for food they must also pay tax on the $45.00 (at 5% this means $2.25). (No wonder there are an awful lot ol~ hungry children in this land of plenty.) I strongly urge the government to consider: 1) Raising the food stamp allotment to a level that would permit a family of four to have purchasing power of at least $75.00 per week for food pro rated at 4 1/3% for a months allowance; PAGENO="0526" 518 2) Increase the cash grant to $125.00 month per person; 3) Provide training and create enough jobs so that all able-bodies persons especially heads of household can become gainfully employed in a position where the salaries would remain competitive with the continued inflationary increases; and/or 4) Force a ceiling on all commodities and services that are essential for basic human needs and survival. PAGENO="0527" 519 Mr. ROSENTHAL. Is Mr. Paul Turley here? Mr. Ttrnrs~. Yes. Mr. ROSENTHAL. Go ahead, Mr. Turley, we are pleased you could be with us. STATEMENT OF PAUL W. TURLEY, REGIONAL DIRECTOR, CHICAGO REGIONAL OFFICE, FEDERAL TRADE COMMISSION Mr. TuRn~Y. I am regional director for the Federal Trade Commis- sion here in Chicago. Do you have a copy of my written statement and I won't attempt to read from it verbatim. I would like to summarize three particular areas where I feel we have been effective in aiding the people in our seven-State region and maximizing the income that they have at their disposal. Mr. ROSENTHAL. Without objection, the entire statement will be put in the record. What are the seven States in your region? Mr. TURLEY. Kentucky, Indiana, Illinois, Missouri, Wisconsin, Min- nesota, and Iowa. The three areas that I would like to~ discuss briefly are, first of all, the area of mergei~ activity. Our office has been engaged in several merger investigations and was successful in obtaining an injunction in October against the Rhinechern Corp., and have also had several other merger activities that resulted in the issuance of complaint, all of which have been in the products market known as organic pigments. Organic pigments are a product that is used in consumer products as diverse as automobile paint and shower curtains. Everything that has color in it has some pigments in it. And we think that this merger activity that we have been involved in has induced and injected a level ofcompetition iuto a product market where if there are price increases they most assuredly will be paid by consumers. Another area that we have been active in is in vocational schools. We have litigated a case against Bell and Howell and at. the present time we have a case in litigation at this moment in our ~offices against MacMillan Publishing and its subsidiary LaSalle. In the Bell c~ Howell case, we were successful in obtaining $1.2 million in cash which is in an escrow account here in Chicago at the present time, and will be returned to deserving consumers as soon as those people are identified. We expect to obtain a similar type of relief from LaSalle if we are successful in our litigation. A third area that I would like to mention briefly is that we have been very active in enforcing the Magnuson-Moss Warranty Act. We have a litigation against Montgomery Ward's where we have alleged that they failed to provide adequate warranty information prior to purchase to consumers. We believe that the effort there is going to he. successful, and we also believe that the result of that will be to inject a competition on the basis of warranty terms in order to provide consumers with prod- ucts of higher ciuality, fewer repair bills, and hopefully products that will even last longer. One other area that I would mention briefly is we have also expended a considerable amount of effort in the home insulation area. The Com- PAGENO="0528" 520 mission has had a nationwide effort. In our seven-State region we con- tacted and formally notified over 200 manufacturers and sellers of home insulation of their responsibility to make accurate and truthful recommendations with respect to their product. I think as a result of this we obtained widespread voluntary changes; we negotiated at length with some people, and we believe as a result consumers are able to purchase home insulation with an ac- curate and clear piece of information in front of them and that their savings are multiplied because they buy the product that they need and they also are successful in minimizing their utility costs as a result of installing accurate and adequate installation. I would be happy to try to respond to questions if you have some. Mr. ROSENTHAL. How large a staff do you have? Mr. TURLEY. In our office, our attorney's staff is 26, we have 6 investigators and support staff. Mr. ROSENTHAL. Are you doing anything in the energy field at all? Mr. TURLEY. Yes, sir; the home insulation area is part of our energy program in the Commission. That has been the major thrust of our energy efforts. Mr. ROSENTHAL. You are not doing anything in terms of petroleum or fuel oil, gasoline prices, gasoline overcharges, gasoline gouging? Mr. TURu~Y. No, we are not. Mr. ROSENTHAL. Why not? Mr. TURLEY. There is a division of effort and a division of responsi- bility within the Commission, and in the broad establishment of pri- oritie~s, our office has not participated in that effort. Mr. ROSENTHAL. You didn't answer my question. Why not? Mr. TURLEY. Why not? Because in the division, establishment of responsibilities and priorities, our office has not been requested to work in that area. Mr. ROSENTHAL. Tell me in simple language, did somebody tell you not to do it? Mr. TURLEY. Well, we, as I believe that you are aware, we have a budget and we have a responsibility in our budget. Mr. ROSENTHAL. Are you a lawyer? Mr. TURLEY. Yes, sir. Mr. ROSENTHAL. Can you answer the question yes or no? Mr. TURLEY. Yes, sir. Mr. ROSENTHAL. Did somebody tell you not to go into the petroleum- fuel oil situation? Mr. TURLEY. No. Mr. ROSENTHAL. And you made the decision yourself not to do it? Mr. TURLEY. Yes. Mr. ROSENTHAL. Now, in terms of fighting inflation, tell me what you have done in the four areas that occupy 80 percent of the average citizen's budget: that is housing, food, health care, and energy. Mr. TURLEY. There is one, as you will see in reading through the prepared statement, there is one corporation in the entire Nation that is required to provide a written warranty, and that corporation is Kauf- man and Broad. They make new homes and one of the major manufac- turers of housing in this country, and as a result of a case brought by this office and pursued by this office, they are required to provide a written warranty on their new homes. PAGENO="0529" 521 Mr. ROSENTHAL. Do they sell any homes in Chicago? Mr. TURLEY. Yes, sir, they do. Mr. ROSENTHAL. How many in the last year? Mr. TURLEY. I am not a~are what the figures are at this moment. They have major developments in the Buffalo Grove area which is a northwestern suburb of Chicago. Mr. ROSENTHAL. Let me restate the question: That is one thing you have done in housing? Mr. Ttmn~r. That is one thing we have done, yes. Mr. ROSENTHAL Eighty percent of the budget of the average citizen spent in those four areas, housing, health care, food and energy, I would like you just to restate in simple terms what you have done in those four areas. Mr. Ttna~r. Housing, I just mentioned. Mr. ROSENTHAL. That is one item. Mr. TURLEY. Energy- Mr. ROSENTHAL. In housing you got this one company to enforce their warranties. Mr. TURLEY. No, sir, we got this company to provide a warranty. Mr. ROSENTHAL. To provide a warranty? Mr. TtTRI,EY. Yes, sir. Mr. ROSENTHAL. What else? Mr. TURLEY. In the health care area we have had several investiga- tions. At the present time we have an investigation underway that is close to being consummated. It alleges monopolization in insulin. I think it is a very important case because people who are diabetics have to have insulin or else they die. And if there is a monopoly in that product market- Mr. ROSENTHAL. Has anybody in the Chicago area heard of your office before today? Mr. TURLEY. I certainly hope so. Mr. ROSENTHAL. Are you doing anything in a gut area that people feel? Mr. TURLEY. I think if you are a diabetic that you consider insulin to be a gut area. Mr. ROSENTHAL. That, I would say so. Mr. TURLEY. I think it if you are in the market for a home that you would consider a written warranty to be a gut area. I think there are many people in the city of Chicago who viewed the investigation that we had of the taxicab problem here as being a criti- cal issue. Mr. ROSENTHAL. What did you do in the taxicab problem? Mr. ThRLEY. There was an allegation that was made that through a particular structure in the taxicab industry that there was anticom- petitive- Mr. ROSENTHAL. Well, Mrs. Byrne did that before she ran for mayor, right? Mr. TURLEY. Mrs. Byrne talked a lot about it and she certainly was responsible in many ways for the initiating of a thorough investigation in part of our office and in part by the antitrust section of the Justice Department. I think that in terms of energy that there certainly are many people who view home insulation as a critical product in energy. 52-21i4 0 - 79 - 3~ PAGENO="0530" 522 Mr. ROSENTHAL. No, most people don't view home insulation as a critical product, it is an important adjunct of maintaining a home, it is not a critical product. Fuel oil is a critical product. You haven't done anything in fuel oil? Mr. Ttm~u~y. No. Mr. ROSENTHAL. You haven't done anything in gasoline? Mr. TURLEY. No. Mr. ROSENTHAL. You haven't done anything in hospital bills? Mr. TURLEY. I don't think that is absolutely correct. Mr. ROSENTHAL. I will reframe the question. Have you done any- thing in the hospital costs? Mr. TtHtURY. We do not have tangible results that we can point to in the hospital area. There are investigations that we have conducted that we think do have some effect, but I would not imply that we have done anything major in that area. Mr. ROSENTHAL. Do you feel that you are having any impact at all on the daily lives of the Chicago area citizens? Mr. Tmu~iy. Yes, sir; I do. Mr. ROSENTHAL. In what way? Mr. TURLEY. Well, you may feel that it is unimportant to a pur- chaser of a vocational school when they are represented by purchasing this course and taking this course of study that they can improve their job earnings and job opportunities. I think that those people in the Bell d~ Howell case are going to receive a sizable refund. We expect to pursue the same remedy in the LaSaile case. Mr. ROSENTHAL. You have the $1.2 million in escrow? Mr. TTJRLEY. Yes. Mr. RoSENTH~AL.*~How many people are involved in that? Mr. T~RLEY.~~.The people that are eligible are yet to be determined. Mr. ROSENTHAL. How many do you think? Mr. TURLEY. How ~many people will receive, in fact, the money? Mr. ROSENTHAL. Possibly, yes. Take the biggest figure you have got. Mr. TURLEY. That is extremely difficult. They have Bell & Howell school courses all over the country for several years. Mr. ROSENTHAL. How many in the Chicago area? Mr. TURLEY. I don't know. Mr. ROSENTHAL. 500? Mr. Tin~rr~y. More than that. Mr. ROSENTHAL. A thousand? Mr. TURLEY. More than that. Mr. ROSENTHAL. 5,000? Mr. TTTRLEY. Approximately. Mr. ROSENTHAL. How many people are there in the Chicago metro- politan area? Mr. TURLEY; Approximately 8 million. Mr. ROSENTHAL. What are you doing for the: other 7 ~milhon plus, whatever the number is? Mr. Tu1u~EY. I think that: in the written statement and ~the things that I have said that we have done things: that have an impact on those people. There are 1.6 million diabetics in this country. I think that that is a sizable number of people. PAGENO="0531" 523 Mr. RoSENTHAL. Please don't push me, I think you are absolutely right, yes, it is, you are doing great work on that, fine. You are dealing with law school issues. What are you doing for the daily lives of the 8 million people around here? Mr. Tuiui~~. I think a substantial number of people, for example in Kaufman and Broad. They built 20,000 homes during the time period that is covered by their requirement under the order to repair defects. Now, not all of those 20,000 homes are defective, I'm not implying that. But for those 20,000 people, that is pretty important. Mr. ROSENTHAL. And they are all over the country? Mr. Ttriu~y. Yes, sir. Mr. ROSENTHAL. How many in Chicago? Mr. TtTRLEY. I don't know the exact number. There are major sub- division developments in Chicago. Mr. ROSENTHAL. 300 houses? Mr. TURLEY. I think that would be a low estimate. Mr. ROSENTHAL. So you are helping 5,000 people on a Bell & Howell course and 500 people on the houses, that is 5,500 people. Mr. TURLEY. I don't think that that is accurate at all. As I indicated in my statement and also in the written statement, that we have expendea a considerable amount of the attorney work years that we have in our office in injecting competition and maintain- ing competition in organic pigments. And every consumer that buys consumer products buys things which include pigments. And if the price of pigments go up, the price of those products goes up, and every single person bears the cost because the big multinational corporations who are attempting to increase levels of concentration in that area are not going to assume those costs. Mr. ROSENTHAL. What multinational organizations have you brought action against? Mr. TURLEY. We have brought an action against Bayer A.G., which is a German corporation. Mr. ROSENTHAL. They make aspirin? Mr. TURrET. No, sir. Mr. ROSENTHAL. What is Bayer? Mr. TtrRr.EY. Bayer is a corporation that is spelled the same as Bayer, B-a-y-e-r. It is a giant chemical conglomerate that is head- quartered in Germany. Mr. ROSENTHAL. Did you bring any action against any American companies? Mr. TURLEY. Allegheny Ludlum and it's a subsidiary of Chemetror. Mr. ROSENTHAL. You brought that in this district? Mr. TURLEY. Yes, sir. Mr. ROSENTHAL. Do you have adequate autonomy from Washington? Mr. TURLEY. Yes, sir. Mr. ROSENTHAL. Would you like more autonomy? Mr. TURLEY. I don't believe that is necessary. I believe that we can function effectively, and I believe it is important in the agency to maintain a- Mr. ROSENTHAL. Do you do anything in the food area? Mr. TURrET. We have not done anything significant in the food area. PAGENO="0532" 524 Mr. ROSENTHAL. Isn't `v~ertical concentration a real problem in the distribution of food? Mr. TtTRLEY. I believe that the same types of horizontal and vertical concentrations in the food industry are important. There is a food merger that was announced in St. Paul, Minn., and the Commission has challenged that acquisition and has filed a complaint against it. That is not being handled `by this office. Mr. ROSENTHAL. So your office-how tong have you been the re- gional director? Mr. TURLEY. Since October 1977. Mr. ROSENTHAL. So you did something on housing to get the guaran- tee issue; you did something on insulin- Mr. TtrRu~. Yes, sir. Mr. ROSENTHAL. And you are hopefully going to get some money back from some vocational school people who went to Bell & Howell. Mr. TURIJEY. We have the money in the bank. Mr. ROSENTHAL. I still don't have the feeling that you are impact- ing on the lives of the 8 million citizens. Mr. TURLEY. I think that it is- Mr. ROSENTHAL. Unless you don't think that is your role; that may be. Mr. TURLEY. I don't think that that is true at all, and I think that there is a tremendous impact that is accomplished through the merger area~ And I believe that it is significant, that it has a direct impact on that particular- Mr. ROSENTHAL. What, the chemical merger? Mr. Trrnu~y. Yes, sir. Mr. ROSENTHAL. What products are involved there? Mr. TURLEY. Organic pigments. Mr. ROSENTHAL. What are organic pigments? Mr. TURLEY. Organic pigments are colorings, sir, that are used in virtually every consumer product that people purchase. They are used to make your shirt blue. Mr. ROSENTHAL. My shirt blue? Mr. TTTRLEY. Yes, sir. Mr. ROSENTHAL. And your claim to fame when you leave this office was the organic pigment case? Mr. Trn~LEY. I wouldn't feel it was necessary to ap~logize for that, if that was the only thing that I had done. it is a major effort and there is a level of anticompetitive concentration that has been avoided. The Court saw fit to issue an injunction against these corporations. They are major multinational corporations which already have a sub- stantial market share, and I believethat our efforts there maintains a level of competition, and it also serves as, I think, a very significant deterrent to other corporations who are designed or who have designs on increasing concentration, and there~by improving their opportunity to affect price. One other merger that I haven't mentioned, (but it is included in the written statement, is a merger between the Crane Corp., which is an American corporation, and Medusa Cement, where we ordered divestiture of a cement plant in Dixon, fll. And we think that-those two firms were No. 6 and No. 7 in the cement industry in Chicago. Combined, they would have become No. 1. PAGENO="0533" 525 We think that that effort maintains a level of competition that all of us have to pay for in the `building industry in the Chicago market. Mr. ROSENTHAL. Would you say that your office has had an impact on the lives of thecitizens of this community? Mr. TtTRLEY. Yes, sir. Mr. ROSENTHAL. Significant, modest, how would you rate it? Mr. TURLEY. I think that given the fact that we have a relatively modest 26 people, that we have had a significant impact. Mr. ROSENTHAL. Thank you very much. Mr. Tuiu~iy. Thank you. [Mr. Turley's prepared statement follows:] PAGENO="0534" 526 TESTIMONY OF PAUL W. TURLEY REGIONAL DIRECTOR CHICAGO REGIONAL OFFICE - FEDERAL TRADE COMMISSION BEFORE THE COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS ON THE IMPACT OF INFLATION AND THE EFFECTIVENESS OF GOVERNMENT EFFORTS TO COMBAT IT MAY 11, 1979 PAGENO="0535" 527 Mr. Chairman and committee members, I appreciate the opportunity to discuss with you the activities of the Chicago Regional Office of the Federal Trade Commission. I note that the opinions I express are my own and do not necessarily reflect the opinions of the Commission or any individual Commissioner. The FTC regional offices participate in the two agency missions: Consumer Protection and Maintaining Competition. The Chicago Office divides its resources by expending approximately 60% on the Consumer Protection Mission and 40% on the Competition Mission. The Chicago Office is working hard in a number of areas to attack business activity that lessens competition, induces uninformed consumer purchases or induces purchases made in reliance on false or deceptive claims. Many of our present activities are in non-public investigations but I would like to review some of our more significant public efforts. First we have acted promptly to block potentially anticompetive mergers in the organic pigments industry. Organic pigments are used to impart color in a wide variety of products including such diverse items as automobile paint and plastic shower curtains. Every consumer purchases a multitude of products that contain organic pigments and therefore the price of pigments affects the price of many consumer goods. On October 19, 1978, a federal district court granted our request for an injunction, blocking a merger between the pigments division of Chemetron Corporation, a subsidiary of Allegheny PAGENO="0536" 528 Ludlum, Inc. and the Rhinechem Corporation, a subsidiary of Bayer A.G., a multinational corporation headquartered in Germany. Both firms had a substantial share of the organic pigments market. Following the Rhinechem injunction, Allegheny Ludlum sold the Chemetron pigments division to BASF Wayandotte Corp., the U.S. subsidiary of another multinational German corporation, BASF A.G. BASF Wayandotte Corp. has a smaller domestic market share in organic pigments than did Rhinechem but BASF is a worldwide giant in chemicals in general and pigments in particular. Following this office's recommendation, the Commission has issued a complaint challenging BASF's acquisition and giving notice that divestiture may be sought if a violation is found. The intended anti-inflationary effect of these actions is to maintain active price competition in a product market where price increases are ultimately and most assuredly borne by consumers. In addition to the direct effects these actions will have within the organic pigments market, challenge of these acquisition signals to all industries that characterization of an acquisition as horizontal, vertical, or conglomerate is not controlling. The Commission will focus on the acquisition's capacity to adversely affect competition. In the early fall of 1978 the Crane Corporation announced its intention to acquire Medusa Cement. In the Chicago market these two firms ranked sixth and seventh in the cement industry. By combining they would have become number one. In December 1978 we obtained a consent order requiring divestiture of a cement plant PAGENO="0537" 529 owned by Medusa and located in Dixon, Illinois. This action eliminated the geographic overlap and maintained the present level of competition in the Chicago market. The passage of the Hart-Scott-Rodino Act, which became effective in September 1978 is a statutory expression of Congressional concern with concentration obtained through mergers. I believe our actions in the merger area implement that concern by not only encouraging price competition but also by serving notice on all parties in our seven state region that any merger activity will be scrutinized for anti-competitive effects. Turning to the Consumer Protection Mission I believe the following recent Chicago Regional Office activities offer consumers real and significant benefits. On September 15, 1978, Bell & Howell, Inc. deposited $1.2 million in an escrow account here in Chicago. This money will be dispersed, at the direction of the Commission, to former Bell & Howell Schools correspondence course students. The Commission, at trial, introduced evidence that the students were deceived by Bell & Howell into believing that the courses offered would enhance their job opportunities and provide the chance to earn higher salaries. In addition to shattered dreams, many consumers had shattered pocketbooks. The $1.2 million, which is expected to grow through interest to $1.4 million, will be used to reimburse deserving consumers who were victims of what we believe were deceptions. PAGENO="0538" 530 When inflation stretches the dollar to the breaking point, consumers can ill afford bargains that fail to meet their promise. In this instance consumers will have a second chance to invest wisely in education or some other product. On May 1, 1979, the Commission commenced its trial with Macmillan Publishing Company and its subsidiary LaSalle Extension University, the largest correspondence school in the nation. The complaint alleges that Macmillan and LaSalle have deceived consumers by misrepresenting job opportunities' and higher salaries that are obtained as a result of LaSalle training. The remedy being sought is, again, consumer redress. The redress, if we are successful, will be substantial and, once again, consumers will have their rightful dollars returned. The anti-inflationary effect of the Macmillan case and the Bell & Howell case, in addition to the redress, is that all correspondence schools and any other corporation inclined to induce a wasteful expendi- ture through fraud or deception will be deterred. More generally the Commission has promulgated the Trade Regulation Rule on Vocational Schools. The Rule, which will become effective January 1, 1980, is intended to eliminate the deception in the first instance by providing students with a refund of tuition charges that is a straight pro rata share of the classes not attended. By removing the school's economic incpntive to exaggerate jobs and earnings claims, we believe we've found a prevention that is a lot easier to deal with than an after- the-fact cure. PAGENO="0539" 531 The consumer's ideal--highquality and good service at the lowest possible price--can only be realized when material information such as warranty terms are available prior to purchase. This was expressly recognized by Congresswhen it passed the Magnuson-Moss Act. That legislation requires sellers to provide consumers with clear, meaningful warranties. The Act also requires that written copies of warranties be made available to consumers prior to purchase. This results in warranties then becoming an element in the consumer's purchasing decision. Moreover, manufacturers and retailers will have a strong incentive to compete on the basis of warranty coverage. Recent expansion of automobile warranty coverage is an example of the benefits of warranty competition. Montgomery Ward is the respondent in an administrative trial that began in Chicago on April 16, 1979. The Commission alleged that Wards had violated rules promulgated under the Magnuson-Moss Warranty Act. If we are successful, Wards will be required to substantially increase its effort to provide warranty terms in a manner which is practical and at a time which is meaningful. We believe that other retailers will take their cue from the Wards case and voluntarily adhere to the same standard rather than risking a Commission lawsuit. The anti-inflationary effects of this case are that consumers will be increasingly aware of and able to compare warranty tarras. We expect that consumers will spend less for repairs and products may even last longer. PAGENO="0540" 532 The Chicago Office has also actively participated in the Commission's national effort to secure accurate, substantiated representations regarding energy savings which result from home insulation. Approximately 200 manufacturers and sellers of home insulation in our region were formally notified of their duty to make accurate R value representations and to obtain substantiation for all representations. Widespread misrepresentations and ignorance, even on the part of manufacturers and sellers, existed prior to notification. The notification resulted in a large number of voluntary changes. As a result, consumers can now purchase home insulation with increased expectation that the representations regarding the insulating characteristics of the product are accurate and have been scientifically substantiated. This action resulted in anti-inflationary effects that have a built-in multiplier. First, the consumer is provided with accurate, material information which enables the purchase of the product most likely to meet his needs. Second, an informed choice of insulation maximizes dollar savings on individual utility bills as well as conserving energy. On February 23, 1979, the Commission order against Kaufman and Broad, one of the nation's largest homebuilders, became final. Kaufman and Broad was ordered to: a) repair certain defects in any of the appropriate 20,000 homes they have built since~January 1, 1972, and; b) provide a written warranty to all future purchasers of their new homes. If the competitive process works, this action will strongly encourage even more homebuilders to voluntarily offer written warranties. PAGENO="0541" 533 We believe the anti-inflationary effects of this action to be twofold: first, past purchasers will not be required to incur the expense of repairing defects for which they are not responsible and second, future purchasers are assured, by virtue of the warranty, of adequate and prompt repairs without incurring additional expense. The Commission, in the course of the last two or three years, has actively investigated allegations that the price of some professional services are artificially inflated as a result of either state statutes or professional codes. Lawyers, dentists, medical doctors, veterinarians and real estate brokers are among the most prominent professions that are undergoing investigation. In March 1977 the Chicago Office began an investigation of public and private prohibitions in the accounting profession regarding advertising, solicitation, encroachment, competitive bidding and incompatible occupations. The common thread that runs through all of these prohibitions is their ability to hinder free and fair competition. When the accounting investigation was proposed, all 50 states imposed restrictions on advertising, solicitation and encroachment. 47 states prohibited incompatible "feeder' occupations and 19 prohibited competitive bidding. After two years of investigation by this office and the Commission as a whole, 43 states have eliminated their advertising restriction and six others are in the process of doing so. Similarly, only nine states continue the incompatible occupation `feeder" restriction, and only six still prohibit competitive bidding. More PAGENO="0542" 534 recently, significant changes have also started to occur in the solicitation/encroachment area, where 26 states have eliminated or significantly liberalized their rules. I do not mean to imply that the Commission investigation is solely responsible for these voluntary changes but the policeman's hand on the shoulder often does serve as an impetus to alter conduct. As a result of voluntary change, accountants are now free, if they choose, to aggressively compete with one another by engaging in activities long common to other industries such as price advertising, competition bidding and solicitation of customers. While most accounting services are performed for businesses rather than individual consumers, the anti-inflationary effect of free and open competition in the accounting industry should mean lower costs to the users of such services, and, in turn, lower prices on other goods and services to consumers. .*. * * * The actions discussed above may be the most dramatic but they are by no means exhaustive of the recent accomplishments and anti-inflationary impact of the Chicago Regional Office. The measUrement of prospective effects is a risky business. cannot be certain that all of the benefits listed above will be realized. I can be certain that we will continue to hold paramount in our deliberations the needs of consumers. Thank you very much for extending this opportunity to share my views on the activities of our office. I am ready to respond to your questions. PAGENO="0543" 535 Mr. ROSENTHAL. Our next witness is John Noel, assistant attorney general. Mr. Noel, thank you for being here. STATEMENT OP JOHN NOEL, ASSISTANT ATTORNEY GENERAL, STATE OP ILLINOIS Mr. NOEL. Thank you for giving me an opportunity to be here, Mr. Chairman. Mr. Chairman, members of the subcommittee, we appreciate the opportunity to present the views of the attorney general of the State of Illinois to this subcommittee. Basically the Illinois attorney general believes very strongly that effective and efficient enforcement of the antitrust laws has a positive impact on retarding and preventing inflation. Too often people commonly think or identify the word "antitrust" with expensive lawsuits involving lengthy, massive litigations which result in large attorney's fees and significant settlements. I think such concepts are hardly anti-inflationary in sound. A more pristine view of the antitrust laws, however- Mr. ROSENTHAL. Pristine, that means original, right? Mr. NOEL. That's right. Mr. ROSENTHAL. So why don't you say that? Mr. NOEL. OK. A more pure or original view of the antitrust laws, however, should conjure up concepts of protecting free and open com- petition, and generally lower prices that are the result of such competition. HistOrically, modern antitrust laws closely follow the purposes of laws aimed at price fixing and monopolistic practices dating as far back as the fifth century. In 1549, for instance, an English statute made it illegal for butchers, bakers, halterers, cooks, and food sales- men to agree on prices. Interestingly, the same statute also prohibited agreements between workers to limit the hours and times of labor. With this country facing what many call a taxpayer's revolution, it is noteworthy that our last great revolution was in a sense a response to runaway taxes and prices. The Boston Tea Party, for example, al- though it was a protest against taxes, was held at the expense of the East India Trading Co., one of history's greatest monopolists. Mr. ROSENTHAL. Don't tell us about the Boston Tea Party, tell us about what you are doing. Mr. NOEL. All right, Mr. Rosenthal. The one thing that I was trying to do in these remarks was to give you a background to show you that; the antitrust laws have historically been aimed at those concepts which we should think of in the same breath and the same thought as infla- tion; anti-inflation type of concepts. Specifically, in Illinois, what the Illinois attorney general has done is tried to focus on price fixing schemes primarily. Unlike the Federal Trade Commission, which has a major emphasis on structural kinds of cases, the Illinois attorney general's office has focused on common garden variety type of anticompetitive activity. Probably 95 percent of all the cases we bring are price fixing. Mr. ROSENTHAL. Tell us about some of them. PAGENO="0544" 536 Mr. NOEL. OK. Now, in terms of the area of price fixing, in the last 10 years we have prosecuted actions which have netted consumers and businesses in the State of Illinois roughly $15 million. The injunctive provisions~ of the suits that we have filed and the rollback of rates have probably saved the consumers an additional $10 or $15 million. Mr. ROSENTHAL. In what industries or what commercial areas? Mr. NOEL. We have prosecuted probably 40 or more cases, and it would be very hard to give you each and every case, but let me give you a sample. One case which I think impacted on most consumers here in Chicago was a case that was prosecuted by our office and disposed of a couple years ago involving coal dealers, coal merchants. In that case the State of Illinois recovered approximately $1.5 mil- lion which, in fact, was returned to people that owned buildings. We processed 2 million claims of people that owned buildings. And this included just normal homeowners that burned coal. Mr. ROSENTHAL. What other areas? Mr. NOEL. We have been involved in, of course, many of your major nationwide litigations. The potash litigation which dealt with ferti- lizer; the ampicillin case involving drugs. Harper & Roe was a children's book case, fixing prices of library books. We just sent out checks last week on a master key system price fix. Mr. ROSENTHAL. Have you done anything in the food area? Mr. NOEL. Yes; we have. We are involved in the sugar litigation which is such a large litigation that it is divided basically into two cases, the eastern and the west. Mr. ROSENTHAL. Has the State of Illinois thought anything about enacting a condominium law of some kind to slow down this condominium- Mr. NOEL. As a matter of fact there are two bills right now that I am aware of that are pending before the Illinois Legislature dealing with slowing down condominium conversions. If I might talk about health care. Health care was an industry that you raised a minute ago. Last year we found kind of a typical situation for a local price fix, wherein two of the-actually the only two ambulance companies that service a downstate county took out an ad in the newspaper saying that they were. going to raise the prices $10. Well, $10 was about a 20-percent increase over their prior rates. Of course, we went down there and managed to get them to roll back their rates and entered into a consent decree. Mr. ROSENTHAL. Do you have a consumer division in the attorney g~neral's office? Mr. NOEL. We also have a consumer protection division which proc- esses literally thousands and thousands of complaints each year. The antitrust division is a very modest division. We are now at the zenith, the height of our size; we have nine attorneys. Traditionally we have only worked with about four or five attorneys, and in the 10 years when we basically recovered almost $30 million, the total cost to the taxpayer has been about a million dollars. So we have recovered about 30 times what it has cost the taxpayer in keeping our division going. PAGENO="0545" 537 Another area of health care that we are looking at is pharmacists. We have found that some pharmacists in a very large city in Illinois have basically fixed the rates which they are reimbursed under com- pany plans for prescription drugs. Mr. ROSENTHAL. Do you have a generic labeling law here in Illinois? Mr. NOEL. Yes; we do. There are a couple other areas that we have been involved with that I think have a very significant impact on the consumer here in Illi- nois. That would be milk, beef- Mr. ROSENTHAL. What are you doing to milk and beef? Mr. NOEL. Well, we have cases, a.gain nationwide cases, that are filed attacking both of the pricing structures in those industries, which we feel unnecessarily inflates the cost that the consumer pays for those products. Mr. ROSENTHAL. Are you saying you have cases that you are partici- pating in with other attorney's general? Mr. NOEL. That is correct. Now, one thing that I might point out to you, Mr. Rosenthal, which seemed to be of some interest to Mr. McSpadden, was that we, quite frankly, have come to the realization that perhaps these nationwide cases that do get all the ink about the big attorney fees and the big set- tlements, perhaps for a State agency those are not the best cases to get into. They are probably cases that would be brought anyhow even if we weren't in those cases. And consequently we have made kind of a policy decision to look first to local kinds of questions. So things that may not impact nationwble may impact on one city or one county, and we are constantly amazed that even with all the publicity that the antitrust prosecutions, nationwide antitrust prose- cutions have gotten, you still have a tremendous number of these local price-fixing agreements that crop up all the time. And some of them are extremely blatant like the ambulance com- pany. We have had situations with garbage haulers where they have fixed prices and set the rates for hauling garbage. Of course, we have been involved in a couple of real estate cases where real estate brokers have fixed the rate at which homes will be sold, homes will be listed. I mentioned the Chicago coal merchants. We even had a case against the barbers for fixing the price of haircuts a number of years ago. We have had cases against several mobile home parks and we have one case that we are about to terminate which involved the purchase of tax delinquent real estate. Tax delinquent properties, of course, are sold for a penalty rate of 12 percent in this State. Allegations came to our attention that the people that purchase those properties had in fact allocated all the properties so that they could purchase them at the maximum penalty rate, 12 percent every 6 months. We are in the process of finalizing a recovery which would make eomplete restitution to every person whose property was sold under that alleged allocation scheme. And the moneys going back to the people in .Cook County will add up to something like a half a million dollars for 8,600 claims. Mr. ROSENTHAL. Sounds like you are doing pretty good work. 52-214 0 - 79 - 35 PAGENO="0546" 538 Mr. NOEL. We like to think that. Sometimes you feel that you need more help. And I think the bottom line of what we would suggest to this committee is that in view of the kinds of work that Illinois does and other States do, we really feel strongly that increased antitrust enforcement and stronger antitrust laws are a key consideration in coming up with a total program to fight inflation. Mr. ROSENTHAL. Do you know what the State of Illinois is doing, the extent of their cooperation with the interdepartmental partner- ship with the Federal Government on the wage and price guidelines? Mr. NOEL. No, I am not really familiar with that. Mr. ROSENTHAL. Thank you very much. You look to me like you are doing a pretty good job. Mr. NOEL. Thank you, Mr. Rosenthal. Mr. ROSENTHAL. Unless you are pumping up the realities. Mr. NOEL. I would never do that. Mr. ROSENTHAL. Our next witness is Philip McCusker. You are Mr. McCusker? Mr. MCCUSKER. I am. Mr. ROSENTHAL. We are delighted to have you here, Mr. McCusker. After Mr. McCusker we will take anybody else who wants to testify provided they will limit themselves to 5 minutes. STATEMENT OP PHILIP McCUSKER, ILLINOIS JOB SERVICE Mr. MOCUSKER. My name is Philip McCusker, M-c-C-u-s-k-e-r. I am with the Illinois Job Service and we, at the location I am at 1312 East 79th Street, try to get jobs for people that are on public aid. I might mention that what I have seen personally is every time a bill comes in, it is higher. And now as far as jobs, there seems to be more pressure from the applicants for higher salaries and employers for lower salaries. It is hard to bring the two together. One thing good that has come out of this, I think, is the tax credit program. It is being more accepted. In it, an employer gets 50 percent tax credit for hiring a public aid recipient the first year and 25 percent on the first $6,000 the second year. Fellow workers seem to have a mixed feeling on what is happening. You can see a lot of vacant buildings. We feel that this is part of the in- flation. Perhaps you have some questions? Mr. ROSENTHAL. No. Mr. MCCUSKER. OK, I would like to thank you. Mr. ROSENTHAL. Thank you very much. Who else would like to have a chance to get their name-the gentle- man over there with the dashiki. STATEMENT OP RABBI RUBEN Mr. RUBEN. My name is Rabbi Ruben, and I am from the south side of Chicago here. I have been here for 11 years. I came from New York. And in working with programs here, I started out with a food pro- gram. And the sponsors, they look for people who are in the ghetto area who have a good reputation. they back them up, give you a tax number, and after you go through with your job and give people jobs PAGENO="0547" 539 and feeding them, they came up and took all the money out of our ;tccounl from the State back to New York. That set us back a little, but here is what I am saying: I had 50,000 free lunches. We fed them. But what had happened was in comes a company out of New York called the Gordesky Brothers, who handled all the food, fired me from off the directorship of this committee I was on, put their director on and took all the money for the people who I had fed on this food program, 50,000 free lunches a day. That is a lot of money. In turn I found other jobs for all the Robert Taylor homes, the Cabrini homes, the Ickes homes-they are closing up all the first floors in all the project houses. Renault Robinson, he is in charge of the Police Protective Agency- my idea was to give jobs to those children, people in the project houses, the 16 floors. If they are going to close up all the first floors, I was stating that they could put a food co-op on the first floor there and have the food coming in the same way as Ms. Shavers has on her pro- gram. That, in turn, would give people jobs. Other areas would see this idea; if it could be run in one they could do it in the other. McDonald's did it in their food chain. So my idea was giving jobs to each one of those buildings. You could even set up stores like hardware stores that people need access to dif- ferent materials and things in their buildings. Ideas on how to go in there and fix those apartments up and make it look lovable and liveable for the people who are on welfare. We are in a great crisis, this is a grave condition. I speak in Wash- ington Park and Lincoln Park. Speakers come from California, Texas, all over, meet there from New York, otherwise; we travel all around seeing what is the crying stalk of the American people here in the ghetto. It is not a ghetto here. A ghetto came from the word ghetto in Europe, they owned their property. In America here they don't even own anything. Black people don't even own a toothpick, because a toothpick is the cheapest thing you can get from wood. But what I am saying is this: If we can get them to face realities; the black man is in trouble. He has no rule over his woman or his home or his children. He is a lost cause. Carter jumped from civil rights to human rights, and man is not a human being because if he was, he would not believe the condition that is going on and see it stagnating. The only thing people are looking for down here is a handout or looking for what they can get out of it. There is no one volunteering their services to help black people to come up out of the bottom. I am looking at the neighborhood as a kibbutzim, just like they do in Israel. Each neighborhood is a kibbutzim. You set it up so that each-you have a baby sitting outlet in that neighborhood where mothers can go to work and she can leave her children there. You can have half-way houses in each neighborhood. You can have schools set up, nursery schools, when they come home from the public schools they can come and get schooling on what value is, valuing themselves and property. Black people hate grass and glass. If you don't believe me, go to any inner city area in the ghetto and you will see a lot of broken win- dows, glass, and the grass deteriorating. PAGENO="0548" 540 You have got to put value there, instill it inside of them. The preach- ers are not doing it, the schools can't do it, the parents don't have the time. They are worrying about how to make ends meet. I am looking for each neighborhood to have a nutrition department there in the neighborhood because they don't know how to budget and eat. The garbage proves it for ithelf. Each neighborhood has so many people; they are drinkmg a lot of wine now. So what have you got to do? You have got to get it so the people can clean up those blocks. The guys hangmg on the corners could be paid so much money to keep the block clean. This is what is happening, it is a downgradmg plot because nobody is coming up with ideas. - If you come up with an idea you can't get it across because you will be blocked out. All my programs, they are all written up. I have people who have done those jobs. But what has happened? I can't get it up to reach the top because I will be blocked out and they steal your pro- grams so fast because no one thinks up any ideas. So if you come up with anything they will take it, put their name on the organization or you will find it in the newspaper or you hear it on television, and you have got it already there. So there is no protec- tion for the little man because there is so much pressure on the top. It is like the football game, the man with the ball is on the bottom of the pile. You got to wait for the referee to come and pull everybody up off of him so he can get up and throw the ball or place it. So what we are trying to do is to place. Now, we have shown and what we want to do is see the action com- ing out the bottom line and how to get out of this inflation, because it is going up and down, up and down. That is the shadow that jars things. You~ either are going to take it all the way up or bring the depression all the way down, level off like it did back there in the thirties. You can't keep it going up and down; you can't give people false hopes. This is what it is all about. And speaking in those parks there last summer, the black man now has stood his ground, he is saying that he is choosing sides now. So that means that they are coming back out in the streets like they did in the sixties. They are choosing sides, not on a gang level, on the street level. It is a different undertow there, and you have got black leaders standing out looking to see which way the tide is going and which side of the fence they are going to jump on. They are going to be double dealing. They are double dealing why? Because they will talk to you on one side and when they come into the black ghetto, in the area, they talk on another side. Just like when you go to a foreign country you might talk one way over there and when you come over here. you talk another way over here. So it is a two-sided game that is being pulled. And who is at the. bottom of this? It is the children. The woman is next because she is being subsidized. In other words, to get food to feed those children the man has got to leave that house. Once he leaves the house the home is broken up, you see what I mean? And, therefore, when the home is broken up the children is running astray and they are not being educated. The way PAGENO="0549" 541 they are being educated is a farce because they are being trained to be white boys and white girls in those schools and when they come out of that school to go get a job they find themselves in the same bracket that their poor parent is in. So what is happening here? Education is learning about yourself, how to survive. The word salvation means save yourself. The word understanding; wisdom, knowledge and understanding means save yourself. You are ready to save yourself when you know how to communicate and move. And this is what is happening. We have got to have someone to protect us down here so we can get our programs out. I have a program how to feed each neighborhood and how to get those people up and get them jobs and make things work; just like the Jewish people did when they went to Israel. We have the same crisis here. And my concluding remarks are, I put it in a parable for all those people in the neighborhoods: You have the chickens, the sparrows, the eagles, and the stars. The chickens are the lower, deprived people that haven't been to school, haven't graduated from grammar school. The sparrows, they can fly a little higher than the chickens but they cannot go up as high as the eagles, the college grads. And the stars are the experts. And until t.he experts know what the chickens are talking about and the chickens know what they are talking about there is nothing going to get together. You see what I mean? So until the churches and the preachers stop sending those mothers to ADC-once a girl gets pregnant or a man needs a job, where does he send them? To ADC. He is not going in the treasury in the church the.re and get him no money or no job or no home. What I am speaking, there needs to be some sort of emergency hous- ing or building. They are tearing them down anyway, they are burn- ing them out. These are demolition experts that are burning these buildings out on the South Side. The roof burns out first so when it rains it ~s going to mess up the whole interior, you see what I mean. But the gut of the house is good. What we can do is fix that building up, have it for emergency pur- poses. People get out for child abuse; women get kicked out of the house for fighting, they can go stay at a place until the agencies come and help them out. They don't have to be going downtown to the hotel, spending all that money. Or peopl.e who have accidents or who, because of the acts of God are burned out of their homes, they can stay right there in the neighborhoods and be taken care of; the children can be taken care of in the neighborhoods. They do it in all the other neighborhoods so people can get out and work and do something. My main thing is I have a program that will giye them stability and some jobs right in that area, and it will bring businessmen back into Chicago if the businessmen know that they can put a little factory up somewhere around each area in each inner city, let the people in the neighborhood work for the company that is maybe out in the suburbs. It will save gas, time, and it will save a lot of energy and frustration PAGENO="0550" 542 riding on those trains. They should bring jobs back into the neighborhood. They do it in other countries. So what I am saying is in attempting to alleviate all the problems and learn what it is about, we are being snuffed out because a poor man can't say anything, because by the time you get your ideas up, somebody is grabbing it from the top and squooshing you out and telling you to take a low profile. Now I have been told to take a low profile for 11 years; I haven't made a dime off of all the programs that have been done. And they grossed over $2 million off that food program. And they said why should I feed poor black people kosher food. It was the first kosher food lunch program in the State of Illinois and I was squooshed out of it because they say, "Why you going to give those people in the ghettos all that high-priced food?" Why? Because they have hypertension. Black people have high blood pressure. It comes from that bad meat. And the kids won't even eat the meat that the Government is allocating down here from their Agriculture Department. They call them "old chokers," they give them old peanut butter sandwiches, they give them old bologna sandwiches. They throw the meat and the bread all over the street and it is a crime, it is a curse before God the way they throw away all that food when they could get that food out there, done right, prepared right, nutrition right, and you will see some uplifting in the neighborhood. But when you are treating people like they are treated down here, they don't even have a fighting chance. We have the answers here. Black mothers, daughters, all these sons out here in the street have the answers. They could give it to you and you could funnel it back and see that it will work. I have had those programs to work; they have worked, but when I get them started here come the big heads in taking the programs away, putting it in someone else's hands and they dilute it and it is done away with. I am saying if I can have somebody to listen and can see it, sit down and talk with these people you will see that people can help themselves. Because I am working block by block. I have block parties on each street during the summer. And, therefore, I get the people out there and teach them what to do; value themselves first and then they will value the property. If you don't have any value in yourself you are not going to value any one else's property. You are going to be in a city that has no windows because they are going to be all broken out, they have the grass all walked over and trampled over. They are not putting anything in front of their homes to make it look beautiful or better. They won't even take people to straighten their minds up. So what are they doing? They are all stress, stresses taking over. You have despondency; despondent mothers at 20-some years old? Women have no future? Old people sitting pining away. I have programs for senior citizens where they should go out and dance and dig, too. They are not through with life. I would like to say, thank you very much. I see better things in the future but the way they are going now-I went to the park last Sun- day, it was a hot day, and they are talking about choosing sides, want PAGENO="0551" 543 to go to the streets again, want to start to burn down because they don't see anything coming. But I am saying there is hope and ideas here if we could just get someone to help us get them across without exploding. Thank you. Mr. ROSENTHAL. Thank you very, very much. Madam, would you like to come up. Tell us your name, please. STATEMENT OF LEE ~FACKSON Ms. JACKSON. Good afternoon, Mr. Rosenthal and other gentlemen. Yes; I am going to tell you my name and I would like very much to give you my address. My name is Lee Jackson, and I live at 9209 South Prairie, Chicago, Ill. The reason for that is because not being prepared to speak, having just 5 minutes, if you want other data I can give it to you later on. I have been working with different economic levels of people since the fifties, and after working with people whom I have found could afford certain type training, I began to concentrate my efforts on the high rise area children. So I am addressing myself to the youth, our future citizens, our generations of tomorrow. Now, I have worked locally, statewide and I have begun to work nationwide with youths, because I found that the problem existing is not one that is exclusively in one area, juvenile prevention. And I consider myself one of the fortunate people because I have used education as a tool, and I have used my compassion for people as an instrument to engender within the youths tha~t I have come across with and program to encourage them, to motivate them to do more with their lives right where they are. The reason I use the term "right where they are," is because in a radius of five blocks each youth's needs are different. Now, I have answered what I do-I have not answered what I do. I work with creative programs, alternative learning, a motivation factor. Our program acts as a catalyst to encourage youths to strive far higher horizons. I have been instrumental in submitting a proposal to Washington, and Washington told me-I have done a lot of leg- work and I did some headwork also, I found out where the money is here in Chicago. I talked with some of the people, then upon pre- senting programs, showing what I had to offer, said I should have a program which should be funded. I do have one which should be funded. W'ashington sent a letter back, and as a result they asked me to become involved in the National Center of Community Crime for Juvenile Delinquency. Now, I have found out that there are funds for youths who have committed misdemeanors but they have no funds for prevention pro- grams such as the. one that I have created. And it has come about due to the fact that I have worked with youths in different areas, espe- cially the highrise areas. PAGENO="0552" 544 And these young people, the parents, the one-parent homes, the people that the gentleman before me just mentioned, they are just crying for the right things to do. They just eat up any type of good program that is presented to them. And our program has been one which, as I have said, is a creative program. And we work with where they are. And whey I say where they are, I am speaking mentally, not where they live, creating pro- grams for the needs which they have immediately. I used to be a director for Campfire Girls and also organized Girl Scouts in the area in which I live. Then a social change began; I could no longer sell either of the programs because I did not believe in them. Good youth programs, yes. But basically they weren't giving the youth some of the values that the other gentleman mentioned. And as I said, I am into youth situations. I am wondering why Washington does not have funds for creative programs such as the ones which we have. They say it is a good program, but we received no funds. Plus, I heard this through the grapevine, that there was about $2 million that has been sat upon and not presented to any organization that had submitted proposals for funding, and I am wondering why this is. So that is all I have to say at this moment. Mr. ROSENTHAL. Thank you very, very much. Who else? We have about 5 more minutes exactly. Ms. LANGFORD. I will take 2. Mr. ROSENTHAL. Take 2, come up. Why don't you come up, too; you can take 3. STATEMENT OF ANNA LANGFORD, ATTORNEY, FORMER ALDER- WOMAN OF THE 16TH WARD, CITY OF CHICAGO Ms. LANGFORD. Mr. Rosenthal and gentlemen, I came in late so I don't know who the rest of you are, but I am a personal friend of John Conyers, and have been since back in the sixties when we were fighting in other battlefields. My name is Anna Langford, I am a practicing attorney. I live just across the street about three blocks over in Englewood. I have lived here for 26 years because I wanted to stay here, not because I had to. I was the Alderwoman of the 16t11 ward from 1971 to 1975. I had occasion to go to China 2 years ago with a group of lawyers and judges as guests of the Peoples Republic of China. I came back here feeling that this country had better make friends with China because the way we are going we are going to self-de- struct and part of that self-destruction is going to come from the lack of sensitivity for little people. In China every piece of land available-in front of doorsteps they are growing food. The food is not the kind of food that we can enjoy in our restaurants or so forth, but nobody is denied food in China. And this is the real answer to the greatness of that country. And they could just overpdwer us within another 25 years or so if we don't wake up and realize that the little people of this country are not going to sit by and see a few have so much money that they PAGENO="0553" 545 don't even know what to do with it, when little people can't even go into the grocery store and complete a list that they take in after they have worked it out down to the last penny, because since they were there the last time something has gone up and they have to wipe. something off, down to the point where they can't afford toilet paper, toothpaste, and the real necessities of life. I would hope-I have attended White House conferences, I have attended conferences on top of conferences and hearings on top of hearings-I hope that you will not go back to Washington and for- get what happened here today or what you have heard since you have been on this junket. Because I love this country, but I refuse to say, "This country right or wrong." I say, "This country right or wrong, and it better be right or we are going to be wiped off the face of this globe." Thank you. STATEMENT OP DELORES PARKER, CETA EMPLOYEE Ms. PARKER. Good afternoon. My name is Delores Parker. I am a CETA employee and a mother of eight. I would like to place a question to ask what we can do to get our paychecks on time so I can maintain those eight kids that I have. That is all. Mr. ROSENTHAL. I am afraid I don't know the answer. Who do you work for? Ms. PARKER. Here, SHAG. Mr. ROSENTHAL. This office? Ms. PARKER. Right. Mr. ROSENTHAL. CETA money? Ms. PARKER. Right. Mr. ROSENTHAL. I don't know; that is something we are going to look into as soon as we get back Monday morning and see if we can't do something about that. Ms. PARKER. Thank you. Mr. ROSENTHAL. I just got back from China 2 weeks ago, and I tend to agree with you Ms. Langford. I mean, they have made re- markable progress with a very difficult assignment. John is coming back at 2 o'clock, I think, but I am leaving at 2 o'clock, so maybe our paths will cross. 1~\Te agree with you, we haven't been traveling all over the country to forget about this. We are bringing this back so we can emphasize to our colleagues and decisionmakers in Washington the real serious plight that exists for society in this country. The fact is Congress has a moat around itself. We never get wet, we don't really know what is going on in society. One of the reasons we are doing this with some modest degree of discomfort, is so that we can tell our colleagues exactly what people whom we have seen their faces have. told us. The situation here is no different than we have heard in every other city, from older people, black and white. all types of people, about the total inability to survive in this very difficult society. The situation seems to be getting worse ri~ther than getting better. The spread between the top and bottom is getting worse and is getting even more hard core, and I hope we can do something about it. PAGENO="0554" 546 Who else would like, a chance to have their name on a very ~ printed record? At any rate, I think, I don't know if we can head John off,.j went downtown to make a speech and is coming back, or he h something to do. We are going to try to make an early plane to get back to Washington. But I want to thank all of you, and particularly those people who have been our hosts here for being extraordinarily hospitable and amiable. This is the first hearing of this sort that has been held in a local community. My subcommittee did this when-I don't know, you probably remember Congressman Dawson. He was the chairman of my committee and we held some hearings in local communities such as this in New York and St. Louis and in Washington. We issued a report why the poor pay more in food and gas and everything. And we have been trying very hard to rectify that, which seems to be also one of the many allegedly unsolvable problems. You wanted to say something? A VOICE. I just wanted to tell you from what you were saying, don't you feel, though, it is more of a benefit to you to go to the communities and find out what the problem is other than going across town to ask someone over here what is going on over there? Mr. ROSENTHAL. Absolutely, that is why we are here. Another problem; we held some hearings, for example, and it was a good hearing, in Conyers' district in Detroit in the Federal court- house, and I was surprised that so many people showed up because of the tendency by the average citizen to be fearful of the courthouse. It is a cold, foreboding atmosphere, particularly in a Federal court- house. I was surprised so many people showed up. We are here because we think it is a useful thing to do. Ms. LANGFORD. I don't know if you know it or not, but this is one of the most depressed areas of the city and the most neglected. I have been working with gang kids for years in the area, and we have the highest rate of dropouts probably. and t.he highest rate of unemployment. When you get that combination together you get kids on the street doing nothing. We had a youngster who burned a kid, took a little 6-year-old boy up an alley and set him on fire, just about four blocks away in this area. I could write a book on what happens. If we didn't have the idle time that the kids have over here-when I was an alderwoman I bought a building up here on 63d Street and turned it into a community center. We had nothing in that community whatsoever, for the entire community area. I took my salary for 4 years and put it into that community center. When I got defeated I stopped doing it. Nobody put one penny into that bui1din~. The way it was when I gave it to them, that is the way it was until the roof fell in during the winter. Now they have nothing. There is no money for it, nothing. We have no recreation facilities. Nobody cares about Englewood. It is the most neglected area in the city. I am ~}ad you caine over here. because this is where it is at;. Mr. ROSENTHAL. Well, we are glad we came here, too. [Additional material submitted for the record follows:] PAGENO="0555" 547 STATE OF ILLINOIS EXECUTIVE OFFICE OF THE GOVERNOR BUREAU OF THE BI~1~1~ `~`~ SPRINGFIELD 627O~ STAFF ____ DOS # ----~~ RIG ~ The Honorable Benjamin S. Rosenthal 13, 1979 Chairman Commerce Consumer and Monetary Affairs Subcommittee of the Committee on Government Operations Representative Rosenthal, I apologize for not being able to attend your subcommittee hearing in Chicago on May 11, 1979. The following comprises my written testimony regarding actions taken by the State of Illinois to combat inflation. As your letter suggested, I have grouped actions taken by the State of Illinois according to the five major areas described in the White House booklet, "An Intergovernmental Partnership". I have also included testimony on Bureau of the Budget contacts with the ~Cq~ncil on Wage and Price Stability and the White House. I. Action Taken by the State of Illinois A. Stat~ Local Spending and Tax Policies As is the case in many states, the State of Illinois fiscal year 1980 budget recognizes strong and competing pressures: the pressures to increase funding for individual state programs while at the same time pressure to limit total government spending. Noninflationary fiscal policy in the State of Illinois is highlighted by the following: a balanced bpdget for the third consecutive year; a tenth consecutive year with no general tax increase; general funds spending which has remained virtually constant as a percentage of Illinois personal income over the last ten years. In addition, a legislative package has been proposed by the Governor to limit state spending plans to no more than 98% of the estimated total resources. B. Voluntary Compliance with Wage/Price Standards The State of Illinois has complied with the voluntary wage standard. The examples are: * Roll-back of proposed salary increases for elected officials, legislators, and agency directors to an average increase of about 8.0% in the first year, and a four-year average increase of less than 6.5%. PAGENO="0556" 548 * Negotiation of a two-year contract with AFSCME providing employees in the bargaining unit approximately 7.4% increases in the first year and 6.6% increases in the second year of the contract. C. Adoption of Anti-Inflation Procurement Policies The State Purchasing Agent was asked to review the guidelines suggested for an anti-inflation procurement policy. Basically, he feels the state's emphasis on the competitive bid process is consistent with the President's overall anti-inflation program. Historically, the state's purchasing experience tends to support this contention. The state typically pays 75% or less of list prices. In related areas, the Governor encourages maximum utilization of existing inventories throughout the budgetary process. Agencies are directed to utilize surplus property whenever it is available. Additionally, the fiscal year 1980 budget includes increased funding for the repair and maintenance of buildings and equipment. For example, the Department of Corrections appropriations for repair and maintenance increased by 43% from $914.8 thousand in fiscal year 1979 to $1,307.1 thousand in fiscal year 1980. All of these actions help to reduce the probability of inflationary procurement. D. Regulatory Reform Major advances have been made, particularly in the Health Care field. In fiscal year 1979, the Illinois Health Finance Authority was created to develop a prospective rate system for hospitals in Illinois. The State of Illinois also is encouraging the development of Health Maintenance Organizations. Through the Medicaid program, the state provides payment incentives to institutions developing lIMO programs. Also, the state group insurance program offers an HMO enrollment option to state employees. Currently, over 5,000 state employees and their dependents are enrolled in lIMO's. Enrollment is expected to double during fiscal year 1980. Since 1977, state law has allowed pharmacists to substitute generic prescription drugs for more expensive brand name drugs. Under the Medicaid program, the number of generic substitutes allowed has increased each year. Other regulatory reforms implemented are: review of professional licensing requirements to eliminate licensing where it is not practical; PAGENO="0557" 549 streamlining the permitting process for the construction of new facilities required to meet environmental, health, and safety regulations; reviewing regulations to encourage competition among financial institutions and insurance companies. E. Productivity Improvement Major productivity-related improvements in the State of Illinois are associated with implementing recommendations made by the Governor's Cost Control Task Force. In July 1977, the Governor appointed a task force of 70 management specialists to identify opportunities for savings and increased income and make recommendations regarding management practices in state government. The funding and expertise for the task force study was provided by 170 Illinois businesses. As a result of implementing recommendations made by the Governor's Cost Control Task Force, the state has or will generate $281 million in increased resources or cost reductions. Major initiatives include: $104 million savings from stricter review of unemployment insurance benefit payments, this is a savings to Illinois employers who make payments to support unemployment compensation, $17.4 million savings from stricter review of medical bills and practices under the Medicaid program, shared equally by the state and federal government, $16.5 million savings in energy costs over a 10 year period as a result of $2.7 million in energy conservation capital projects, $12.8 million savings from changes in the state employee group insurance plan, accompanied by savings of $1.6 million in federal funds. Two other programs within the State of Illinois will contribute to the goal of productivity improvement. They are: continued refinement of activity measures to be used in making budgetary decisions, administration of a merit compensation system which ties pay to performance for some 8,500 supervisory and management employees. PAGENO="0558" 550 II. Relations with the Council on Wage and Price Stability and the White House Office of the Advisor to the President on Inflation Working relations with the Council on Wage and Price Stability have been generally good. Bill Brennan, the liaison for units of state and local government, has been particularly helpful in providing us with information and advice. The council did get off to a slow start when it vacillated on the application of the pay standard to pensions, health insurance, and step increases. However, since interpretation of the standards has been settled, technical advice from the pay standard division has been consistent and useful. When the intergovernmental anti-inflation program was first proposed, it was not clear who was in charge of the program, and where we could go for more information; that problem has been resolved with time. Working relations are now satisfactory. I hope this testimony is helpful to you. Sincerely, Tom Hutchison Division Chief Illinois Bureau of the Budget TH/bw cc: Steve NcSpadden Marvin Madison PAGENO="0559" 551 Mr. ROSENTHAL. The subcommittee stands adjourned. [Whereupon, at 1:55 p.m., the subcommittee adjourned, to re- convene- subject to the call of the Chair.] PAGENO="0560" PAGENO="0561" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) FRIDAY, MAY 18, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAiRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, New York, N.Y. The subcommittee met, pursuant to notice, at 10:18 a.m.. in Aupel- late Courtroom, U.S. Customs Court, 1 Federal Plaza, New York, N.Y.; Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding. Present: Representatives Benjamin S. Rosenthal, Elliott H. Levitas, John Conyers, Jr., and Lyle Williams. Also present: Representative Ted Weiss. Staff present: Peter S. Barash, staff director; and Jack Shaw, mi- nority professional staff, Committee on Government Operations. Mr. ROSENTHAL. The Commerce, Consumer, and Monetary Affairs Subcommittee is holding hearings in eight cities this month to learn about the impact of inflation on the day-to-day lives of Americans and the performance of regional Federal agencies and State and local of- ficials in the fight against inflation. Hearings have already been held in Dallas. San Francisco. Sacra- mento, Detroit, and Chicago. Under the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of Federal anti-inflation programs including those administered by the President's Council on Wage and Price Stability and the Council of Economic Advisers. Earlier this year, the subcommittee held several days of hearings in Washington into the adequacy of the Federal effort. Those hearings raised serious questions as to the ability of the Coun- cil on Wage and Price Stability to monitor excessive price and profit margin increases in the economy. They also revealed that the current wage/price guidelines effectively exclude the most inflationary sectors of the economy-energy, food, housing, and health care costs. The subcommittee's concern over the effectiveness of the present anti-inflation program has been heightened by the testimony we have already heard in other cities. (553) 52-21~4 0 - 70 - 36 PAGENO="0562" 554 Regional officials of the Bureau of Labor Statistics have told us there is no statistical evidence whatsoever that the wage/price guide- lines are working to moderate inflation. Representatives of the elderly, the poor, the handicapped, and middle-income consumers have testified that they have run out of ways to cope with the skyrocketing .cost of living. Evidence has been presented to us that the wage/price guidelines are holding down wages but not excessive prices and profits. We have learned that the State governments have failed to imple- ment many of the most important recommendations of the Council on Wage and Price Stability on ways for Stat~s to fight inflation. The subcommittee's concern also relates to the fact that consumer prices rose at an annual rate of 13 percent during the first quarter of 1979 and that most Americans, according to a. recent public opinion poii, view the wage/price guidelines as a failure. These regional hearings are being held because the U.S. Congress and other decisionmakers in Washington must have a firsthand record of the effects of inflation on the lives of our citizens. As soon as our hearings are concluded, the. hearing record and a subcommittee report will be. made available to the. Congress and to the President. The subcommittee is honored this morning to be joined by members of our subcommittee, Congressman Elliott Levitas of Georgia, Con- gressman Lyle Williams of Ohio, and a neighbor of ours, Congress- man Ted Weiss from Manhattan. Our first witness this morning is a distinguished visitor from Bos- ton, Mass., professor and former Ambassador, John Kenneth Galbraith. We welcome you to New York City, professor, and are honored to have you. STATEMENT OF JOHN KENNETH GALBRAITH, PROFESSOR, HARVARD UNIVERSITY Mr. GALBRAITH. Thank you very much, Mr. Chairman. It is not precisely a novelty to be in New York City, but it is always ple.asant and I am very happy, very honored to have this brief oppor- tunity this morning to comment on what is certainly the most impor- I~ant domestic problem facing the United States, inflation. What I would like to do, before I begin addressing myself to your questions, is to take a minute or two to review what perhaps could be regarded as a general view of the causes of inflation and the problems in contending with it, and say a word or two on the effects of the pres- ent efforts. As inflation is an extremely important problemS so it is a complex problem. And we must, I think, always ~voidthe people who come up with one cause arid one cure. There is, as one cause, the growing power in industrial economy, and this~ is not: peculiar to the United States, of the great corporations, 1,000 or so who now. produce about half of everything that we use and consume. and the companion increase in the power of trade unions and the fact that farmers no longer leave their prices to the market. PAGENO="0563" 555 I don't think there is any industrial country where farmers are not subject to greater or less measure of support, something they say I have always favored. And there is the minimum wage, the poor man's union, a substan- tial sector of this modern economy which is in the area of public action, government, and with OPEC we have the Third World entering this game, a growing capacity of organizing groups to enhance their prices and income by direct action. This is combined with another development in the modern economy that is not quite so visible, but equally important, and that is the re- lease of people from the older standards that once confined blue collar workers and the blue collar standard of living, and the white collar workers and the white collar standard of living, where it was taken for granted that, if you were a member of a minority group, you were very poor, and as a result a claim was made by the people for better diets, better housing, a larger range of privately consumed goods, and in the field of education, in health care, and many other things. A stronger claim on public services, combined, of course, with the continuing high level of expenditures, among other things, for weap- onry for defense. All of which creates a persistent and continuing pressure on markets. So, one has a combination in the modern economy of a cost push driving up prices, and the demand pull growing out of both public services and private demands that are pulling up prices. A result of that private demand is that people now have a relatively lower rate of savings. If one combines or compares current expenditure with current in- come, one has a relatively low rate of net savings in the United States. These are the two factors which are presently-the two great forces which are presently operative that are driving up prices at a very high rate. As to the remedy, again, there is no single remedy. A combination of remedies must be used which, on the one hand, restrain the direct thrusts to the direct capacity to increase prices, and which also in an equitable fashion restrain the capacity to the spend- ing which pulls up prices. I have long felt, and it is just one of the, I suppose, most badly kept secrets of my economic agitation, that in a modern society there is no alternative to firm, forthright, mandatory controls on those in- struments of direct power, the large corporations, and the companion capacity of the trade unions that are dealing with them, wage and price controls. One should never be under the impression that this is interfering with free market. One is interfering with prices that are already fixed by corporate power or are in the process of trade union bargaining, and once that has been agreed upon, then one must have a companion policy with reference to food prices so that they are not shoved up. Farmers, once their costs are reasonably tied down, can accept more nearly stable prices on what they sell. The controls that I have `mentioned would, of course, apply to the large marketers, the margins, and we then have policy which is- publicly determine wages and prices, including the minimum wage. PAGENO="0564" 556 I must say that I deplore the tendency of some of my economic colleagues who single out the minimum wage for particular attention largely for the reason, I am forced to say, because the people who re- ceive it are not in a position-as unions to the corporations-to strike back. And, on the other side, one needs, and we need particularly at the present time, to continue the orthodox measures of restraint on the de- mand pull inflation. I would continue and maybe perhaps at the moment, given the pressure of the inflation, tighten up on monetary policy, on spending from bank lending, which is a vast source of inflation. One does not want to rely excessively on that instrument because it adds a particularly adverse effect on those business firms, in which housing is the leading example, to depend on borrowed money, and it has a relatively small effect on the large corporate structure of the economy. One of the reasons why corporations are generally in favor of mone- tary policy is because they can take themselves out from under by the investment of their own earnings, and do. I would also urge that one keep a very relatively tight hold on the public budget. I think, while there is no form of current nonsense so great as that which puts the whole problem of inflation on the Federal budget, the Federal budget is not exceptionally out of balance, and if one takes, as one must, the combined public budgets, because the Federal Govern- ment now spends about $80 billion to support the local and State budgets, and if one takes the aggregate of public budgets, there is no appreciable deficit at all, a couple of billion in a current fiscal year. But, nonetheless, it may well be a time when we should have a budget surplus. The only thing I must say that I am led to warn there about is, assuming that that budget surplus can be created exclusively by the manipulation of public expenditures, if one is going to tighten up on the budget and one excludes defensive expenditures, it is certainly questionable, but one knows the problem there, if one excludes con- tractual expenditures, then what is left, in general, with many excep- tions, are some of the sancrosanct, the expenditures of the affluent. Nobody is going to be around urging the expenditures of expenses on air safety, or the expenditures on behalf of the poor, the lower income group. This means if that one talks exclusively about cutting back on public expenditures, one is talking about a fiscal policy which seeks to control the economy by the manipulation of the things that we do, welfare .expenditures, aid to dependent mothers, aid to dependent children, health care, support of lower and middle income housing, that are in behalf of the least privilege people in the community. I am trying to say that, for this attack on inflation, I would very much like to see us reverse the tax cut of earlier this year. The expenditures that we should seek to cut are the expenditures of and by the upper income groups in the community. This is a step which one recommends with no great hopes that it is going to be enacted, but there is absolutely no reason, I must say, for assuming, as we did 2 years ago, that we should reduce expenditures PAGENO="0565" 557 in order to-reduce taxes in order to expand the economy, and now say that we cannot raise taxes and upper income expenditure in order to lessen the pressure on the economy. That should work both ways. I do not think that the administration and the President's economic advisers have come to grips with this problem. We wouldn't be having a 13-percent inflation rate in the CPI if they had. There has unquestionably been a feeling in Washington that econo- mists are meant to have a rather pleasant and happy time, that they are not exposed to difficult and controversial decisions, and in conse- quence we have had a very soft policy on prices and on wages. I agree with the chairman that it has been better on wages than on prices, because it has been the tendency of the past experience, and on tightening the budget most of the past talk has been with reference to expenditures on behalf of the lower income groups, and there has been some tightening of the-tightening up on spending for borrowed money, but, as I said earlier, I would go further with that. Mr. ROSENTHAL. To summarize your remarks- Mr. GALBRAITH. If I might just say one further word. Mr. ROSENTHAL. Yes. Mr. GALBRAITH. So, the policy has been declared, in principle, it has been far toO soft, the consequence being, among other things, the con- tinuing and severe suffering on the part of those who must survive at these prices on fixed income, and, my last word, if I may, a heavy allocation of income from the poorer among our people to the more affluent, and it bears back on what I said about taxes. We have seen in the first quarter of this year very large increases across the board in corporate earnings, on the order of 25 percent, 35 percent. There is nothing wicked, per se, I suppose, about that, until we con- sider where they are coming from. These earnings did not come out of the blue sky. They are earnings that are allocated to the corporations or reallo- cated to the corporations from the people who are suffering. These are earnings reallocated to corporate profits from the real income of the old, the weak, and the poor, those who are living on savings and those who are living on fixed income. This is a procedure or development which one sees, I must say, with discomfort. Thank you very much, sir. Mr. ROSENTHAL. Thank you. The sum and substance of what you say, I gather, the wage/price guidelines are not working. Mr. GALBRAITH. That's right. They are much too soft. To some extent, they have been a license for further increases. The aluminum company, for example, which had very large earn- in°s last year, was able, under the guidelines, to put into effect very substantial, further increases to enhance profits which were already at near record levels. I picked that out as one example in the paper this week. PAGENO="0566" 558 Mr. ROSENTHAL. And specifically, you would recommend what for the Government to do, and in what order? Mr. GALBRAITH. I would do it all at the same time. I would ask for legislation for mandatory price and wage controls, taking as a base some past experience so that there is no anticipatory increase, and put that firmly before the Congress, noting that this has always been or always had the support of a very large proportion of the American people. The American people are well ahead of Mr. Carter's economists in their good sense on this problem. I would have a further tightening of bank reserves and spending from bank loans, singling out, if at all possible, some restriction on consumer borrowing, which is at unduly high levels, and I would reverse the last tax cut and increase taxes on incomes of $40,000, or $50,000 and above. Ease the pressure on markets by cutting back on lesser expenditures. Nothing promotes tranquillity quite as much as a few screams of anguish from the rich. Mr. ROSENTHAL. If we don't do these things, what is your prognosis? Mr. GALERAITH. That the inflation will continue. Mr. ROSENTHAL. And what will happen? Mr. GALBRAITH. We will have further suffering by the people who are trying to eke out their savings the rest of their lifetime, and their pensions do not increase, and that is true of a very large number of people. Index pensions are very few, and the very large number of public servants, public employees whose pay does not keep pace, and we will continue the tax revolt, so-called, because that is in substantial measure the result of people seeing taxes going up. If taxes are stable, they are much less painful than if they are being forced to go up to keep pace with inflation. And we will have a continued decline in the dollar abroad and a continued loss of our prestige for that reason. Mr. ROSENTHAL. Mr. Levitas? Mr. LEVITAS. Welcome back to this committee, Professor. It is enlightening to hear your testimony. I assume by your use of the word "inflation" in this discussion, you are talking about the increase in prices and not some economic theory of expansion- Mr. GALBRAITH. We shouldn't complicate these matters. Inflation and price increases are the same. There are people who take some mythical flight into the question of money supply, people who are in touch with some form of mysticism~ which nobody should every try to follow. Mr. LEVITAS. I agree with you, and I am always questioned by people when I am in my district who try to equate inflation with printing too much money, and such as that, and to me inflation is what is happening in the supermarket and at the gas pump, and not some economic theory. But von have long mandated price controls, but only for major fac- tors in the economy. It would only be on large corporations and large labor unions, and not the mom and pop stores. PAGENO="0567" 559 Mr. GALBRAITH. There are two things that should be said here, Congressman. First, that-one only follows this policy, puts these into effect, where the power exists to raise prices, and the mom and pop stoies that you described, the small enterprise, the corner delicatessen, is still a moderately competitive enterprise. It is still policed by its neighbors. Second, on all of these matters, one makes a compromise between what is administratively feasible and what is perfect. To control the prices of half the economy, 1,000 or 2,000 large cor- porations, the 200 or 300 major trade union contracts, is not adminis- tratively a difficult task. It would not take a big organization. If one started out to control every price and every wage, of course, one would find himself with a very, very large organization, and this is something which I would not urge. Mr. LEvITAS. Just two more points, Professor, and I will yield back. It seems to me that the history that we have had, the recent history of mandatory wage and price controls as a method to hold down in- flation, has been notably unsuccessful. I haven't seen the Government successfully operate many things, and certainly its most recent experience during the Nixon years in price controls and wage controls proved to be a disaster, it seems to me. And your testimony, I thought, was notably lacking in its emphasis or lack of emphasis on what should be done about Federal fiscal and monetary policies, having a long-range impact. Mr. GALBRAITH. Let me say a word about the first point you made which, if I may say so, you correctly identified, a gap in my testimony. We have all been subject to some extraordinary brainwashing on this past history, and the American people will remember the history much more accurately than a University of Chicago professor. to whom we have been subject on this particular issue. It's nonsense. In the past, it has worked. In World War II, prices were held through that enormous conflict when we diverted nearly half of our gross national product to war. There was a lower overall increase than we will have last year and this year, for the whole 6 years. From the time the controls were fully effective in 1943 until they were taken off in 1946, the Consumer Price Index was stable. There were some things that were not available, but in the aggre- gate we did not suffer a diminution in the supply of civilian goods in World War II. There was a shift in the make-up, but no reduction of the total amount. The control with President Truman, at the behest of the Congress. put on for the Korean War, broke that inflationary spiral. Mr. Nixon's controls, while they were put on by people who did not believe in them, one does not associate John B. Connally as a lead figure in the control, the management of the American ~conomy, or something we may want to remind him of as the election develops: Or George Schultz, who was Under Secretary of the Treasury. These controls were administered by people who detested it. PAGENO="0568" 560 But, by the time they were put on in the middle of 1971~ and by the time of lection they had brought inflation down to less than 5 percent, they had brought unemployment down to less than 5 percent of the labor force, and neither inflation nor unemployment was a factor in that campaign. Mr. Nixon was elected by the votes of every State of the union ex- cept the enlightened Commonwealth of Massachusetts, the District of Columbia. How in hell can people say that was a failure? Now, George Schultz took them off because he said they were work- ing well and would not be needed. He later said, in talking to Mr. Nixon's memoirs, that they are not programs, the last word in inaccuracy, that he very much regretted that decision. I do believe too much demand, too much pressure to build up be- hind them, that they did not sufficiently address themselves to the sec- ond part of your question, which was the need for the longer-run fiscal and monetary restraints, to which I agree, and to which I averted in my testimony. But to say that they were failures is hideous nonsense. Mr. LEVITAS. Thank you. I appreciate your comments, Professor. Mr. GALBRAITH. I am sorry to be so vehement on that point. Mr. LEVITAS. I just recall what the inflation was immediately after the controls went off in 1974, and- Mr. GALBRAITH. If we have strong unions, Congressman, and strong corporations, then we have to continue and keep the restraints. Mr. LEVrrAS. Indefinitely? Mr. GALBRAITH. Absolutely. Mr. LEVITAS. In closing, let me say this: I am somewhat in disagree- ment with both your observation and that of my distinguished and beloved chairman, that the controls that worked better on wages and prices-if you look at the recent Teamster settlement, which I think is the blueprint for the future, I think it is hard to say that they success- fully held down that type of wage demand. Mr. GALBRAITH. I must concede that if this is pattern setting, there could be a change, although there is also a considerable possibility that if we do not have a firmer policy, that the price increases will out- run even that Teamster settlement. Mr. LEVITAS. Thank you. Mr. ROSENTHAL. I think during the course of the testimony today, you will find that most people are untouched by that kind of Teamster settlement. Congressman Weiss? Mr. WEISS. Mr. Chairman, thank you very much. As you know, I do not have the privilege of serving on your sub- committee under your excellent leadership, but I do want to take this occasion to first express my appreciation to Professor Galbraith, who is a leader in the area of trying to deal realistically with the economy and its problems, and then primarily to express my appreciation to you, Mr. Chairman, for conducting ~hese hearings ~cross the country and letting the sentiment of the American people really be finally heard. PAGENO="0569" 561 Thank you very much. I am going to take my leave now because I have other commitments. Mr. ROSENTHAL. Thank you, Congressman Weiss. Congressman Williams? Mr. WILLIAMS. Thank you, Mr. Chairman. Professor, about 10 days ago, you wrote a short letter to the New York Times, somewhat critical of, I believe, in your terms, the "Bank- ruptcy of Ideas" among members of your profession in and around Washington. I would like for you to expand upon your thoughts and the reasons for your expression of disappointment. Mr. GALBRAITH. Well, I have some sympathy for my colleagues in Washington. In the years, Congressman Williams, there were 20 odd years there when the economy tended to run at less than full capacity. No need to be pressed very hard on anybody from Youngstown- but the policy in those years, the economic policy, was not one to con- tend with inflation, but was one to contend with idle capacity, unemployment. A policy which in turn was acquired, on the-lower interest rates, greater public expenditure, lower taxes, those are the means by which you expand the economy, and in consequence the economic policy was always, in those years, pleasant. All of those things are just lovely to do. No one should doubt that my generation shows the right time to be economists. We had perfectly delightful policies to recommend in those years. I think it is fair to say the President and Congress have had a very difficult time making the transition over to a policy which re- quired economists to be, on the whole, very disagreeable people. You have to be very disagreeable with particular groups in order to extend the benefits to the public at large. None of the things that I have urged this morning are very pleasant to do. It is not pleasant to have to deal with corporations. It is not pleasant to have to tangle with the AFL-CIO, and no- body gets any great marks from the President if he has to demand higher interest rates or higher taxes, and I think that it is fair criti- cism to the President and Congress that they have been looking for easy ways out, they have been trying to simulate taking action, and taking action. I don't want to be partisan in any sense, but there have been, in some rn~asure, in the tradition of Mr. Ford's WIN bii~to~'. tFe Coun- cil on Wage and Price Stability is a toothless organization without power. There was, for a long while, talk of monitoring prices, and that the monitoring has a nasty overtone of wiretapping and, therefore, it was intended to give the American people a notion that something unpleasant was being done. In fact, I think it is fair to say that they have been looking for easy v ~ out of the prohl~m `~lwre r~rn'~ evi~tc~ Mr. WILLIAMS. I am sure you were glad to hear the suggestion last week that the administration should set individual price rise targets for each major industry. How do you feel about that approach? PAGENO="0570" 562 Mr. GALBRAITH. Mr. Congressman, I have normal optimism about even the ability of my fellow economists to learn, and I am sure that that process-that very difficult process of education by experience- is underway. I know, myself, how difficult it is to change one's mind. I am reminded of one of the notable comments of Churchill. Have you ever heard it? "I have often had to eat my own words and I found them a most unwholesome diet." Mr. WILLIAMS. To what extent is this particular inflation, a demand- induced inflation? Mr. GALBRAITH. I think we must regard economic life as being in a constant process of change, and economic policy as being in a constant and somewhat delayed process of accommodation. The change with which we are dealing here is the steadily increasing power of organized groups. I can't think that there is any doubt about that. So that we have a constant intrusion into the inflationary problem of what has come to be called cost-push inflation, inflation induced by powerful groups. I would agree with V~Talter Heller that in these last months, as the inflation that is brought about by the pressure of demand, has also been a growing factor, and that is the reason why I find myself adding em- phasis, fiscal and monetary policy, and urging that there be no one solution at the present time. We must think of all of the available steps. Mr. WILLIAMS. We are talking, obviously, about the demand for energy and food resources ~ Mr. GALBRAITH. Yes. I must add that I am very much impressed with that one step in this process, one longer run step, which the legislation, Congressman Conyers has introduced, to bring some greater bargaining strength to the buying side of the oil problem. lit is legislation which is a very logical answer to OPEC. I don't think one can complain about the oil-producing countries getting together and fixing their prices. This is something that we have been doing for years with regard to the prices of the things that we sell them. But we can ask that there be bargaining power on the other side, and the notion of a purchasing corporation which would bring effective bargaining power, the manner of the trade union dealing with a cor- poration, is a logical answer there which I find very appealing. Mr. WILLIAMS. Thank you, Mr. Chairman. Thank you, Professor. Mr. ROSENTHAL. Congressman Conyers? Mr. CONYERS. Thank you very much. I would like to identify m~Self in what may be harmful to you, Dr. Galbraith, as your cliief Supporter and student in the Congress. Having said that, I want the record to show I also invite you to the Congress annually to open the connections and the discussions between politicians and economists on the very important business of govern- ing, and I am very grateful that you have always responded. PAGENO="0571" 563 Now, having said that and having agreed with everything that you have said, and realizing that the chairman's questions were probably going into the heart of the matter of this hearing, I would like to take this time on just three points that are, to me, very important and very related. I would just like to test your reaction to this first observation: That today the labels of capitalism an4d socialism, Democrat and Re- publican means almost nothing or very little. The real difference is be- tween those who are content with the distribution of wealth today and those who seek after a large-scale redistribution. As I go on in my work, I think increasingly of redistribution, that what we are all struggling about is, how we are going to redistribute the resources of this country, and I begin to look upon myself as redistributionist. Am I taking leave of my senses, or can you give me some assurances this morning? Mr. GALBRAITH. I must say, Congressman, that your reference to our agreement being damaging to me, there are forms of guilt by associa- tion that one can survive, and I am even welcome-indeed, I greatly welcome-that all societies must seek to greater economic equality, and one should never think of this as a radical measure. The capitalism, the free enterprise system could not have survived this long had it not been part of the effort now for 50 years to spread the benefits of it in a great variety of ways. If it had shown the tendency that it was de- veloping at the end of the last century to concentrate the great wealth in a few hands, not in the least in this country, we wouldn't have tole- rated it. So, if I were departing from you at all, it would only suggest that one should not think he is gaining a reputation as a radical in this regard. In urging and arguing for a better ?distribution of income, one is insuring the strength of the system. Mr. CONYERS. What in your mind is the relationship between jobs, equality, and peace? Mr. GALBRAITH. Well, maybe we better have another hearing. Mr. CONYERS. Well, I told you I thought all the immediate ques- tions had been asked, and I am now taking an opportunity to connect these up, if there is a relationship in your mind. Mr. GALBRAITH. Let me say that there certainly is. One of the reasons that the Japanese and the Germans have had much more manageable economies since World War II is that their investments, partly as a result of our restrictions, in arms has been very much lower than ours. The consequence is that in both of those economies a very much larger portion of their public and private expenditures goes into high job cre- ation activities rather than into low job creation activities. We should never forget that one of the great problems of a very large arms expenditure is that it goes to very high occupations and em- ploys very few people. And the fact that the Germans and Japanese have had very low arms expenditures since World War TI-well, it meant two things. Much more capital for the investment in their civilian industry, with great productivity consequence, and they have had a much easier prob- lem of job creation because they haven't been syphoning off a large amount of capital into the kind of expenditure which goes for very low employment return. PAGENO="0572" 564 Mr. CONYERS. Why in our public and personal discussions do you blame the President's economists and not the President? Mr. GALBRAITH. Well, I think I could revise that and say that the President, giving him whatever sympathy one has, does have to take responsibility for his economists, and that we should ask the President to see that his economists have been-well, if I may address myself di- rectly to my friend, Mr. Blumenthal, he came before the Congress one day last week and said that things would get worse, the profits were not too high, and I was shocked at the impression that he had, that this was not his responsibility. I suppose that is the reason that I singled him out for mention, but I confess that the President does have the right to hire and fire his Cab- inet and his economic advisers. Mr. CONYERS. Finally, Dr. Galbraith, is there some area between you and myself and Dr. Leon Keyserling in which there exists an hon- est and amicable difference of view on the importance of a full em- ployment economy and the implementation of H.R. 50, which is now the law of the land and is being ignored from beginning to end? Mr. GALBRAITH. I supported Humphrey-Hawkins against-I testi- fied on the same day that Charlie Schultz did, who opposed it. I did believe at that time that Humphrey-Hawkins needed stronger, specific reference to the problem of inflation, and I would have very much liked to have seen that legislation included for authority for control. I think it is fair to say that I emphasized this-rather, more strongly than Leon Keyserling did, although Leon and I do not disagree on that. I would like to say in my own defense that we both belonged to an era in Washington where it was felt that economists were .meant to be unpopular. Mr. CONYERS. I want to thank you for your responses, sir. Mr. ROSENTHAL. Thank you very, very much, and again my personal thanks to you in coming down to New York City from Boston for this very important meeting. Mr. GALBRAITH. Thank you, Mr. Chairman. Mr. ROSENTHAL. We intend to move both carefully and expeditiously. We will call people up in groups and everybody here and everyone who shows up today will have an opportunity to testify, and we will all try and make sure that objective is accomplished. Our next group of witnesses. Ms. Carol Feinman of the Community Services Society of New York, and Cora Greenberg of the United Neighborhood Houses, and both of you should bring up with you any of your associates or colleagues who accompanied you here this morning. Everybody ought to identify themselves for the record. STATEMENT OP CORA GREENBERG, UNITED NEIGHBORHOOD HOUSES Ms. GREENBERG. I am here representing the United Neighborhood Houses arid 3'T settlement houses of New York City. PAGENO="0573" 565 I want to thank you very much for inviting us to speak and for hold- ing these hearings around the country to get your firsthand impression from the consumers and consumer advocates. The United Neighborhood Houses is a federation of settlement houses around New York. They are all independent multiservice community-based agencies. They offer a range of services to community residents, from little children in day care to senior citizens in nutrition programs, youth, young adults and everybody in between. My particular role at United Neighborhood Houses is that of the field coordinator of our home management program, which has a com- ponent of consumer education and family life management instruc- tion. You mentioned in your prolog the four necessities of health, energy, food, and shelter, and that these really take up the huge proportion of most peoples' budgets, and that they are going up in price a lot faster than the so-called luxuries. When you are on a fixed income or you have a limited income, you reach a point where you can no longer just eliminate the luxuries. Yo~ start making choices between the necessities, and that is a very desperate situation. Mr. ROSENTHAL. Where do your groups come from? Ms. GREENBERG. They are all over New York City. They are multiservice community-based agencies, serving low in- come and middle income communities around New York. Mr. ROSENTHAL. All right, go ahead. Ms. GREENBERG. Our assembly houses are located in four boroughs, mostly in low and middle income neighborhoods. Mr. ROSENTHAL. Tell us what is happening to the people as a result of inflation. That is what we are here for. Ms. GREENBERG. I think one of the things that is happening is- Mr. ROSENTHAL. We want to know what is happening to the people, not institutions. MS. GREENBERG. I am not talking about institutions. People on low- and middle-incomes are reaching the point where they have to make choices between necessities for their families. It is not a question of cutting out the long trip to grandma's house in the gas-guzzling car, or cutting out a fancy dress for a party. It is a question of choosing between food on the one hand and per- haps health care on the other hand. That is a very desperate situation for people to be in, and that is the situation that many of our constituents and participants in our pro- gram find themselves. They also find themselves feeling very frustrated and resigned to inflation. They go into the supermarket expecting every week that the prices will be higher, and they are higher. I think what is happening is that it is difficult for them to tell when the prices really are due to inflation and when they are due to gouging. We certainly know that businesses are interested in making profits and maximizing the profits, and some of the price increases that are PAGENO="0574" 566 reported to us by our participants don't seem to have anything to do with inflation. We were interested to hear about the policy of the Star Markets in Boston, who started to question their suppliers on the basis for price rises, but consumers do not have the wherewithal to do that. They are not going to write to all of the different food companies and say, "Tell us why your prices are going up." More and more the pressures are on the consumer to deal with the inflationary prices with no recourse. They don't have the wherewithal. They are expected to read the labels and they are expected to shop wisely, and they just don't have the resources individually to do this. We are finding that the demand for our services, which are basically aimed at low-income adults, are being sought more and more by middle-income adults. This is budget counseling, classes on home sewing, classes on con- sumer education. are not allowed to serve people above a certain income level, and yet we are being besieged by these people who are now getting squeezed into this process to get these services-inflation. I believe someone mentioned that the pressures are on consumers to buy things now rather than to save for them because they know they will be more expensive, and this is leading a lot of people into trouble with consumer debt. We find that a lot of people that are coming to our centers are in trouble because they owe too much money, and there is no way for them to pay. There are some services available to refer them to, but it seems to be a growing problem for people at all income levels. They are just borrowing more and more. They find themselves in a deep hole after a very short time. Another thing that is happening is that Government programs are not being expanded. Our program, the home management program, or other programs that are aimed at helping people learn to manage their money better or to be better consumers, are not expanding. Some of them are being cut back at a time when more and more peo- ple need these services, rather than fewer and fewer people. This seems to be very short-sighted and unfair. Again, the burden of the whole control situation is falling on those people that can least afford to have these cutbacks. An example of this would be the food stamp program. We are finding that, although the new regulations allow some senior citizens, for example, who would not have been able to participate be- fore, to get the advantage of food stamps, a lot of families who are de- pendent upon them have been cut back or cut off the program at a time when they need them more than ever. Mr. CONYERS. Is there anything valid about the statements that there are old people in this city that are eating dog food and `cat food? Ms. GREENBERG. Oh, yes. That has been going on for quite a while. I think people are becoming almost specialized as to which ones they like and which ones are the better brands to buy. PAGENO="0575" 567 I find committees of various Government groups, or whatever, are always surprised to hear this. We reported that certain supermarkets or certain merchants regu- larly raise their food prices on check days, only to go back down again a few days later when most people have spent their money. This is very shocking to those people who may not be familiar with it, but it is a day-to-day practice in many of our neighborhoods in New York City. Mr. WILLIAMS. Is there a group that monitors or checks these pricing indexes? Ms. GREENBERG. We have reported this to the Department of Con- sumer Affairs in New York City, and they are helping us investigate it. Our program is also trying to have citizen monitors go out and keep an eye on it, but it is such a difficult thing to check every supermarket in New York, and it is beyond the capacity, I think, of any agency that is presently being operated. Mr. WILLIAMS. Thank you. Ms. GREENBERG. That is basically all of my points, Mr. Chairman. I have with me today Miss Lenora Hernandez, a participant in our home management program. She would like to make a statement. STATEMENT OP LENORA HERNANDEZ, HOME MANAGEMENT PROGRAM, UNITED NEIGHBORHOOD HOUSES Ms. HERNANDEZ. I feel that inflation, the cost of food, is incredible. I have a child and we know how important good nutrition is to chil- dren, but how can you give good nutrition to your children if you can- not afford it? It is like if your child needs a pair of shoes and you have to buy din- ner, so you buy dinner, but there goes the shoes. The kid goes aroimd without shoes. I went to a meeting on May 16, and I asked them there what their views were on inflation. They all complained about the cost of food. To me, really, the cost of food and the way the cost of living is, it is really hard. Mr. ROSENTHAL. I-las the situation gotten worse in the last year, the last 3 months, or the last 6 months? Ms. HERNANDEZ. Yes; it is really worse. Like I could cro to buy a steak at the supermarket this week and I can't afford it. I have to buy the chicken. Mr. ROSENThAL. How about chicken prices? Ms. HERNANDEZ. Well, you have to substitute it with either that or ground beef. It's that way. I am serious. Mr. ROSENTHAL. I know you are serious. How about ground beef? How is that? Ms. HERNANDEZ. If you can't afford that, you substitute with some- thing else. Mr. CONYE.RS. What ought we to be doing? The two things this subcommittee needs to know ere the painful effects of a wage/price inflation spiral that is not working-that is, a PAGENO="0576" 568 program that is not working-but we also need to be told what ought to be done because all of the wisdom does not reside in the Capitol. Do you have any ideas about where we ought to go? Ms. GREENBERG. I wish I were an economist because I would like to be able to give you specific programs. I think the two things to bear in mind are, first of all, that I do agree that the burden for all the controls, or the burden of inflation is fallmg way too-the burden of controlling inflation is falling way too heavily on consumers and wage earners, that there doesn't really seem to be any noticeable effect on prices. I don't know exactly what is being done, but we don't see it at the supermarket level. The other thing I believe, that programs should not be cut at a time when people need their help more than ever. I think that is a foolish way to try and control Government spend- ing, and I am privileged to agree with Professor Galbraith in that way. I don't think that that is effective, because you are just leaving those same vulnerable people high and dry all over again. They are not the ones that are causing the inflation, but they are the ones who have to bear with it. Mr. ROSENTHAL. Thank you both very, very much. Our next witness is from the Community Services Society of New York. Do you want to identify yourself and your associates? STATEMENT OP CAROL PEINMAN, DIRECTOR, DEPARTMENT OP PUBLIC INTEREST, COMMUNITY SERVICES SOCIETY OP NEW YORK Ms. FEINMAN. Yes. Mr. ROSENTHAL. What is your name, please? Ms. FEINMAN. My name is Carol Feinman. I am the director of the Department of Public Interest at the Com- munity Services Society of New York. The Community Services Society is one that- A VOICE. A little louder, please. Mr. CONYERS. That microphone is not working. Mr. Chairman. Mr. ROSENThAL. I don't think any of these microphones are doing too well, frankly. Ms. FEINMAN. The Community Services Society is one of the oldest and largest nonprofit civic agencies in the country. For over 130 years it has been serving the disadvantaged New Yorkers. When we found that the subcommittee was having a hearing on the impact of inflation, we asked our program directors, and we have 11 district programs throughout the city of New York, the elderly, the handicapped, the poor, the delinquent kinds, you name it, every variety of social disfunction, and the program directors asked some of the people in the programs whether they would like to come and testify on the impact of inflation for your committee. So, four of the people in the programs volunteered to come and talk about their own experiences. PAGENO="0577" 569 The three young women who will testify, who will talk about their own perceptions of the impact of inflation on their own lives, and the gentleman here has a particular role in CSS, he's a volunteer chair- man of something called the Senior Action Line, where elderly people in trouble call up with whatever problems they may have. So, he can speak from that vantage point, and the other three people will be speaking from their own vantage point. Mr. ROSENTHAL. We are very grateful for you people to volunteer to do this. People don't always like to come into courthouses and appear before congressional committees, and we are very grateful to you. Mr. CONYERS. A lot of `Congressmen don't know what you are going through, and that is why these hearings are given, so that they can learn what it is like. Mr. ROSENTHAL. Go ahead. STATEMENT OP ROSA FRAZIER, CHAIRMAN, SINGLE PARENTS FAMILY PROTECT, COMMUNITY SERVICES SOCIETY OP NEW YORK Ms. FRAZIER. My name is Rosa Frazier. I am the chairman of the single parents family project at CSS. As a single parent, I find myself-and I should say I am in the middle-income earning bracket-I find myself with a constant struggle with food costs, which puts me on edge. Each time I enter a supermarket, it makes me very upset. From week to week, from day to day, you find items that are con- stantly up 5 cents, up 10 cents. You no longer buy the things that you like. You buy the things that you absolutely need-food. I mean, meat is becoming a luxury. You can no longer go out and buy a roast because it's $10, and what are you getting? It's about two-bits long [witness indicating]. It's ridiculous. You are constantly trying to find substitutions that still has the same nutritional value, which is a constant struggle. One doesn't know where to turn. Then there's the cost of housing. A middle income person is strapped against the wall. Mr. ROSENTHAL. In terms of numbers, what is a middle income person? Ms. FRAZIER. Well, for example, I make about $20,000 a year. OK? I cannot get up tomorrow and say, well, I want to move, say~ for example, to New Rochelle, for the simple reason-I may want to, that's fine, and I may choose a certain neighborhood, but the cost of rent is so enormous, and I have someone else that I am supporting, and I am by myself. It's very difficult. There is no means, there is no way for single parents like myself, no place to turn. Sure, I may move into that neighborhood, but, therefore, I must give up something that I want to enjoy, that I may want to enjoy. 52_21L1 0 - 79 - 37 PAGENO="0578" 570 I mean, I can't take a trip. Going to the movies or going to dinner is just out these days. You don't have the money for it. There's no way. After you bought food, paid your rent a1id paid the utility costs, there is very little left, if anything at all. Your child needs clothing, but a pair of shoes for my son is $20. His shoes are higher than mine. It's really ridiculous. I find it's a constant struggle, and there is no way for you to turn. Mr. ROSENTHAL. Have you felt that prices have been held down the last 6 months or a year? Ms. FRAZIER. I just don't agree with that. I would go into a store-I am constantly working on a budget. I even need charts, "Does this item reduce this week?" It did not. You find yourself going from one supermarket to another, com- parison shopping. For a poor person that cannot get from one area to another, how do they survive? They are stuck in an area where they must pay the enormous prices, and the poor neighborhoods are the neighborhoods where the prices are skyrocketing, they are higher than ever. There's no way for the people to turn. Mr. C0NYERS. I know what you mean. I paid $1.29 for a small package of toothpaste last night in New York City. I could hardly keep a straight face when I paid it. I should have subpenaed him. [Laughter.] What can you do here, Mr. Rosenthal? Mr. ROSENTHAL. Go back to Detroit. Mr. CONYERS. Earlier than I am already leaving? Brush your teeth with soda. [Laughter.] STATEMENT OP CARMINE ORTIZ, WELFARE RECIPIENT Ms. ORTIZ. My name is Carmine OrtiZ. I am a welfare recipient. I have four children. I have one child who is very ill. She is an asthmatic, she is in the hospital, and I do not get any income for my daughter. She is in the hospital. What I get for the other kids I share with the one in the hospital. Two weeks ago, she was aoing to be suspended from school because she did not have a pair of sneakers. I had to borrow money so that my daughter could have the sneakers and she would not be suspended. Last week my daughter made her first communion, and I did not have a white dress for her. If I can go out and get a job, I would, hut I have four kids. It's not easy. With the prices, the clothing, and I have to do laundry, there's a lot of things I have to do, activities for the kids, you know, you want to keep your kids growing up the right way. PAGENO="0579" 571 I cannot have them in the street, so I try to send them to the community centers, the Boy Scouts, and I cannot afford that, but I try my best. STATEMENT OF LAURA VIZET, CITIZEN Ms. VIzET. My name is Laura Vizet. The largest impact of inflation is the complete inability to save or to keep a cushion. I have a 9-year-old son. The clothes last year when I replaced- Mr. ROSENTHAL. Just a moment, please. There is something wrong with the microphone. This is working good because we i~ent two people up here yesterd ay to make sure everything was shipshape. [Laughter.] Ms. VIzET. I have a 10-year-old son. In order to replace the clothes that he has grown out of and has ripped, which is almost every day, it would cost approximately $150 for about four pairs of jeans at $15 apiece, a pair of sneakers, shirts which I cannot get for less than $8. The first thing-I work on, say, about $175 a week net. I always assume I am going to be able to put away $10. No way. My rent has gone up. Somebody comes up to my son for like a trip to the Bronx Zoo, you know, for the school. He needs $7. There it goes. A medical bill; I had to go around and borrow money from the people in the building. If~ for some reason or other, the first thing to go is for medical care, you know. I cannot get dental care for 3 years. I finally got dental care, I got a loan for it because the pain was beginning to interfere with my life on all levels. The first luxury to go is medical care. If I had a medical emergency now and coutdn't work, I wouM go just straight on welfare. Every time that there is a little bit more money, and you assume that you can save, it gets eaten up at the supermarket; with the rent increases; it gets eaten up by something like having to go to an emergency room. Therefore, when I am trying to provide a future for my son, the only thing I can look at is what I bring home in an individual pay- check, what is in my pocketbook. We can't afford anything outside of what is already budgeted. There is no way-the people say, "Are you going to send him to college?" I don't even know if I am going to send him to high school. The other problem is the* fact that I would like to give him certain very small things, like a pair of roller skates. I would get him them, but they would cost $20, and I will not go to lunch that week. It's that simple. There is something basically humiliating about having to wait for your paycheck to buy a pair of stockings, and it's not mismanagement. PAGENO="0580" 572 It's the fact that there is no way for accounting for the next thing that is going to jump. Mr. CO~YERS. Is your condition worsening? Ms. VIZET. Yes, I think partly because-for my son to take out a friend for a piece of pizza, it costs $2. 1 have a $5-a-week allowance for him, which sounds very large, and it's not-I don't want him to grow up always figuring to ask me for anything that is going to cause a total disruption in our~ hfe. For him to get roller skates means that I don't pay the rent, you know. I didn't pay the rent when he had to go to the emergency room. I would like to send him to a camp, and the camp runs about $350. I don't qualify for the Fresh Air Fund, but that's about $350. At what point do I save that? I save it and then something happens and it's gone. In terms of being worse, yes, I went through a rent increase, and I hadn't planned on that one. I would like to paint and I can't afford the paint. If I want to do something as simple as painting two rooms, I have to think about it for 2 or 3 months in advance. The subject never gets out of your mind, never gets off your mind. You can never say: "Let's go out." You don't. Mr. CONYERS. Are there other people like this in New York? Can you give the subcommittee an impression of how many people are in your position? Ms. VIzET. Anyone who is making-let me pick a number-with one wage earner who is making $15,000 a year or less, and has at least two people to support, is in that position. My friends who are married who are both working and have, say, three kids, and they are strapped. I think very few people are not in that position. I think if some people have enough of a position to absorb it, $5 a week extra, it is not crippling for them, but I am not in that position. Mr. ROSENTHAL. Thank you very much. Ms. FEINMAN. We could have brought many, many more people who are in that position, and the reason they didn't come was not because they are not in this position, but because it was too hard for them to come or they were afraid to come. It is not easy to come down and testify before a committee. Mr. ROSENTHAL. All right, thank you. Sir ~ STATEMENT OF HARVEY CONHEIM, VOLUNTEER WITH SENIOR ACTION LINE, COMMUNITY SERVICES SOCIETY OF NEW YORK Mr. CoNm~IM. I'm Harvey Conheim. I am a volunteer with the Community Services Society, the Senior Action Line. It is a hotline that operates 2 hours a day, 5 days a week. It is accessible to senior citizens who are looking for assistance. We have an average of about 300 calls a month. I would safely say, more or less, that they all relate to some finan- cial problems, that is the basis of practically all their problems. But, for direct assistance, I would say about 30 percent request some additional assistance over and above their entitlement. PAGENO="0581" 573 Those who are on SSI are more fortunate than those who make $50 to $100 a month above that, they have to depend strictly on medicare for their medical services. They, with the additional medical costs and food, which everybody has spoken about, has almost become a luxury. They are also struggling with their rents. It's unbelievable. They may be getting an income of about $400 a month, and spend- ing almost more than 50 percent of it on rents, and they just can't make it, and there's not much we can do when the~~ reach that limit except stall them or turn them over to the Community Service, the regular Community Service, to go over their entitlement to see if there is anything additional that they can drag out here and there. I think that more or less sums up everything that I have to say. Mr. ROSENTHAL. Thank you all very much. It was a very informative discussion. Mr. CONYERS. You are all very articulate, and we are very pleased that you have come before the committee. You have really expressed yourselves excellently. Mr. ROSENTHAL. Our next witness is Reverend Mann from the Helping Hand Community Center. Go ahead, Mr. Mann. We are delighted~ you could be with us. STATEMENT. OP REVEREND MANN, HELPING RAN]) COMMUNITY CENTER Reverend MANN. Thank you. Mr. Chairman and the members of the subcommittee, I thank you for inviting me and I am happy to be able to testify. And I am saddened because there is a need for inquiry into this type of situation, but on behalf of the constituency which I serve~ which is the Harlem community, the black people, and also that our constituency also comes from some of the other inner city areas, Bedford-Stuyvesant, South Bronx, Brownsville, and I would say that we are at a time when we have nothing. Sixty percent of the income which black people make is spent on rent and the other 40 percent on food. There is nothing else. There are no frills. Shelter, food, health care and clothing is causing great suffering in our community, and as the young woman said before, usually you find that we start to discard a lot of things, for example, health care, clothing, rent-the prices of rents are escalating at an astronomical rate and it is sad because there are so many stories I can tell, and I hope that this hearing will bring an ease. One of the things I guess that the subcommittee and others would i'sk is: "What are you proposing that we do so that we can take it back to the Members of the Congress?" One thing that I find is very, very sad. especially with my con- stituency, is that there is no one to hear, there is no ore to thke the problems to for the inner city sufferer, black people, which means that people have problems, and I will give you an example of a few~ and what do they do? PAGENO="0582" 574 They go to the department of social service which is overworked, bureaucratic, and seemingly cannot adjudicate or help them in their problems. Our center is called the Helping Hand Community Center. Actually, it should be called multihands, we shoul~l be the Octopus Community Center, because that is what we would need in order to help the people. We have in my constituency many single parent households where there is not-and I always hear the news reporter, the newscasters talk about "The family of four"-in the inner city they are much more. There is the family of 10 and the family of 12, and that is the normal family. The family of 4, they talk about the cost of living going up so high for them. That's one thing, but we have many children, black youngsters, living in homes where there is a single parent household, with 5, 6, 8, 9 and 10 children, and she cannot send Johnny and Jane to school adequately dressed. And then the corollary seems to be, "Why do Johnny and Jane get into crime episodes?" They go to school hungry and they come back home hungry and they go to school improperly clothed, and that is normal for the inner cities of New York City. It is sad that black people in New York City are going to bed hungry. America, once a great Nation, needing to place food in the mouths of others, now has forgotten that they should be placing food in the mouths of their own. This is very important because it is not just an idle statement to say that people are going to bed hungry-they are. We have weekly meetings at the center, trying to air the problems, and we hear that people do not have enough to eat. I would have brought more people to the hearing, but they didn't have the 50 cents to pay for the subway ride here. Trying to find the low cost of food; basically, they are wearing out their shoe leather trying to find out where they can find the best buy. Our problems, unemployment, lack of quality education, housing, and vital services, uneconomic growth, urban blight arid discrimina- tion, are also the Nation's problems. We feel that these are heavily concentrated among the Nation's 30 million black people, certainly here in New York, among the black people suffering here. We think there needs to be a focus on the inner city minority com- munity, and there should be a remedying thought. One of the things, I think, is a special task force that is needed in minority areas where people are suffering, so many programs are funded, and, I don't know, I sometimes wonder why they are funded because their outreach program is that they don't get down to the poor people who need them, the poor people who do not have enough to eat, the poor people who do not have clothing. I think that all of these economic ills is going to cause us to fall as a nation from the lofty place of adjudicating situations in other countries. PAGENO="0583" 575 If we want to take a closer look at our poor people, that there are people who have problems with paying their rent and are being evicted, and to find any decent housing in New York City a person has to pay at least, minimum, $250 a month. The other thing is that you have another choice, it's either that or you have the choice of living with rats and roaches, and the other things you deal with there, and even exterminators from the city de- partment don't come out, the health department has failed. Deaths are occurring astronomically with babies, because they are finding out that a lot of mothers that are young-the children are actually hungry, and even if they are young mothers, they have not been schooled in nutritional and proper health care, so it is also caus- ing the deaths of a lot of people. Now, I think that it would appear to the Helping Hand Community Center and the constituency which it serves that one realistic approach, rather than to chop up big business with incentives to manufacture jobs, these same incentives could be provided to local businesses within black communities. This type of program would foster employment and economic stability. In addition, a program modeled along these lineswould save billions of tax dollars as the vast numbers of persons receiving welfare sub- sidiesand unemployment benefits would be substautially lowered. There is a great need for us to mediate with landlords. Over the past month, many people have received eviction notices simply because they could not pay their rent, not that they used it for any frivolity, but. because they were trying to keep up with the sky- rocketing costs of food. Mr. CONYERS. Reverend Mann, you have enumerated a number of items that indicate a failure of Government at the local level and at the r ational level. Reverend MANN. Yes. Mr. CONYERS. Has not the church failed in some ways, as well? Reverend MANN. Yes, I agree with you, and I am here to testify to that, too. The church has failed, yes. I think that many ministers--the Helping Hand Community Center, by the way, is not funded, and it is a program that was started from the church because we saw the great need to help. I think that many ministers who keep their churches closed all week long and open them on Sunday to pass the plate should be-should go along with proper guilt, and I think that they also have failed. One of the things I am asking the chairman and the subcommittee is that, if they could set up a task force, we cannot hear all of the problems of the people, poor people from Bedford-Stuyvesant, the South Bronx, Harlem, and all over, and the churches, as I say, won't do it, because they figure to bicker with ideologies, bicker about ideol- ogies, and so forth, but I think that there is such a great need, that there is so much philandering and debating in the wings with church, State, corporate, and the ~poor people are left in the wings suffering. You have to rise early in the morning, as I do, to mediate with a landlord so that a poor person will be able to stay. PAGENO="0584" 576 You have to rise early in the morning to go to court to try to inter- vene and to speak with the various judges, asking them "Let us take Johnny or Janie into our program. Don't put them in jail." And we find out, trying to get to the crux of the problem, we find that Johnny and Jane are in that court because they stole-it used to be that you would see it in the movies of the old East Side, but you would see it now as a reality that children are snatching, again, apples, oranges, bread, and cookies, and they are being picked up. They are going into department stores and picking up things not just for the sheer fact of committing a crime, but because of need. Mr. CONYERS. Have you found that senior citizens are doing the same thing? Reverend MANN. Yes. I find that the older cases, a lot of those who have been brought down before the courts, too, because they can wear coats and carry more baggage, and seemingly they also, when they have gone into a depart- ment store, or any store, because of the rising and ranking need of hunger, and, if anything, I can tell the subcommittee here today that hunger is running rampant in this land, and especially here in New York City. I ask the subcommittee, please come, take a walk with me through Harlem and other inner city areas, and see the blight and see the hunger, see the inadequate living conditions where people do not have lights because they cannot afford the escalating electric rate, the gas rate, they are now living with candles, and that is not just one isolated case. There are many black families who cannot pay utility bills. Heating is out of consideration. They are lighting their homes with candles and kerosene lamps, and we know they will be burned eventually. Mr. LEVITAS. To take up a point that Congressman Conyers made, Reverend Mann, the Congress each year, the Federal Government each year appropriates literally billions and billions of dollars, $80 billion to the State and local governments, nutritional programs, food stamp programs, social services, health programs, billions of dollars, and the picture that `you described today very poignantly and vividly is that most of this apparently is not getting to where it is supposed to be, that some place between the billions of dollars being taxed on the American people and those who need it, something isn't happen- ing, and yet what concerns me is that every solution that I am hear- ing being suggested calls for the same bureaucrats to be administering a new program. Now, why would we think that they are any better capable of ad- ministering some new program than they are of administering the billions and billions of dollars that is not getting to where it ought to be today? Reverend MANN. That is a very good and sound statement, Con- gressman Levitas. What I want to say is that I agree with you. First of all, billions of dollars are being allocated to various pro- grams, and I feel saddened because when I think of our own program not being funded, and I figure that through the many poor ways that we try to fund money, raise money, and I think, first of all, programs PAGENO="0585" 577 should go through what we are going through, that they have to prove themselves with a track record of helping the people, the con- stituency that it serves first, before they can ever be funded. The other thing is that I think for so long we have had poverty, and they have never been investigating these people or taken away from that particular thing, and all of the money seems to be going to the administrative- Mr. CONYERS. That attaches to the political system. I mean, those people are being permitted to function as a result of a governmental, political, local bureaucracy that tolerates them. I think that that goes back to the gentleman from Georgia's point, that somehow our Government is going to have to clean out its own system. There is going to have to be a rigid oversight. We find out in the CETA program that they have a $1.8 billion shortfall, and that money is not spent, while millions and millions of youngsters need training desperately. We can't even hook up the solution with the problem because of poor administration. Reverend MANN. I think that's good, and I think one of the things is that it seems that everything is focused on giving black people training. I think there needs to be a great focus on giving black people jobs. What good is having the training, after you have been trained for a year or two, and you cannot get a job? First of all, realistically, one loses the training. Secondly, if you can't get a job, it moves on-if you do not have food, if you have no place to stay, and it seems that you join the statistics of escalating the crime. One of the things that we hope that we can see here, as I said, is a task force for monitoring Federal, State, and city agencies. There is a need for a task force which brings people from-one of the saddest things in the inner city community is that you have people representing people who are not really there that knows the suffering of the poor. I am with the poor every day. I know what the problems are. An example: Just recently, which has been such a shock-I am so glad that I received the correspondence from Congressman Rosenthal to come here-a 78-year-old woman living in a house with an income of $58 a month. She was told, after continuously going to various city agencies, sh~ was told that: "You cannot get any more," living in a house, literally drinking and living on bread and water, and sometimes not even having the bread. I wanted to find out, is this just one isolated case, or is there another? I went on to find that this seems to be the run of the mill for our elderly, our senior citizens. It seems to be that their whole income, because they don't know where to go, they can't go, they are afraid to walk out of their houses, so they get a little check for $58 or $78 a month, and they are told that: "That is all. Your husband died and this is yours combined with his." PAGENO="0586" 578 People who don't want to go through the paperwork and all kinds of other things. If we had one task force with a guideline that they must monitor, and I mean that they have to come back and show their constituency that they have gotten to the people, I think that is a great thing. Mr. CONYERS. You are very articulate. We are glad that you are here before us today. Reverend MANN. Well, I thank you for inviting me, and I would just like to say that the poor people certainly would like to see-and more than that-certainly need a change. I thank you for inviting me. Mr. ROSENTHAL. Thank you very, very much. We are very grateful to you. We have a number of people that we think we can put on together in a panel. Can you wait a few minutes, please? A VOICE. Yes. Mr. ROSENTHAL. Is Miss Preston of the Harlem Self-Help still there? If not, we will take Mr. Frank of the Food and Hunger Hotline. Is he still there? The Henry Street Settlement people, are they still here? A VoIcE. Yce. Mr. ROSENTHAL. Why don't you all come up together. Are the home management program folks here? Will you come up, please, and any of your associates. We will hear everybody together. We will connect the other table up. And Shirley Kronberg of the AFL-CIO, who drove all the way down from Peekskill. Are you people doing the monitoring that we hear about? A VOICE. That's my whole speech. Mr. ROSENTHAL. I am just curious. A VoICE. I have some material to show you. Mr. ROSENTHAL. We wanted to have you before Mr. Bienstock. A VoICE. OK. Mr. ROSENTHAL. And then the next witness will be Bruce Ratner, New York City Commissioner of Consumer Affairs,~ who is in the back of the room, a very decent person and doing a wonderful job with limited resources. Let's take a few minutes recess. [Recess taken.] Mr. ROSENTHAL. Go ahead. Why don't you tell us your name and who you are, so forth. STATEMENT OP MAURICE PRANK, FOOD AND HUNGER HOTLINE, NEW YORK CITY Mr. FRANK. My nam'e is Maurice Frank. I work with the Food and Hunger Hothine in New York City. We are a citywide information service in food programs that serves the ioor and lower income people. We hear every day from people suffering the impact. of the new food stamp program, its cutbacks, and the cutbacks in other programs. particularly the senior citizens. PAGENO="0587" 579 We hear from people who at one time had been getting enough assistance from Government programs to deal with the day-to-day rises in food prices, but what we are hearing lately is that people are becoming more and more frustrated and there is more and more feeling of devastation, and that is what is happening and is becoming too much for people to handle. The impact of rising food prices these days is simply that people are eating less. A few years ago, people were able to shift from higher priced foods to lower priced necessities. These days people are being forced to choose between necessities. Two weeks ago I heard from a woman who said that she was buying fewer medicines and she was seeing the doctor less because she felt that she. could do without that, but she could not do without food. Another woman that I heard from who had medicare said that she had been to her doctor more frequently because she wasn't able to eat wel.l enough to stay healthy. Rents in New York City are skyrocketing, utilities are going up, and programs to help people are not meeting the rises in prices. Mr. CONYERS. Doesn't all of this speak to the failure of the political system, frankly ~ I mean, you know that we could listen to complaints until we have got 10 million complaints on the record, and then somebody is going to say, "Hey, this isn't working. The bureaucrats aren't delivering." Not just New York. We have been in six cities. Mr. FRANK. The defense budget was increased $10 billion dollars for the coming fiscal year, and that I think is part of what you are talking about. It seems that this Government is lessening its commitments to help people, and increasing its commitments to help corporations and other parts of our society that have power. Poor people at this point don't have power, and it seems that they are the first people to be picked on when belts have to be tightened. Well, their belts don't have any more notches to be pushed back. Mr. ROSENTHAL. Thank you. May we take the next witness ~ Identify yourself, please. STATEMENT OF 30AN OHLSON, SOCIAL WORKER, HENRY STREET SETTLEMENT, LOWER EAST SIDE OF MANHATTAN Ms. OHLSON. My name is Joan Ohlson. I am a social worker and I am speaking for the Henry Street Settle- ment, located on the Lower East Side of Manhattan. The agency provides a wide range of service, including social serv- ices, health, education, art classes, and cultural programs. Every day the impact of inflation on this community, whose income is insufficient to live at a decent and healthy level in the first place, we see the desperation and anger. We have no real answers. When the welfare mother asks how is she supposed to live on a pub- hc assistance grant which is based on 1972 cost of living figures, and we know that we have trouble making ends meet ourselve~s on our own salary, and the nonrental income of a four-person public assistance PAGENO="0588" 580 family has lost 16 percent in purchasing power since mid-1974, and the staff knows that it is not a matter of poor management skills when a family runs out of food and money before the next welfare check. Every month we refer families to soup kitchens or help them find free food to serve to their families at home. Many of the mothers have become accustomed to going without meals themselves so that the children can have milk and two meals a day. They go hungry and too often the children are hungry, as well. The mother knows and you know that the cost of items in the basic, standard diet rose by 8 percent from 1977 to 1978, and these are items that she cannot do without. Clearly, the message is that our society accepts her hunger and deg- radation, and pay rent above the maximum rental allowance. This means that the difference comes out of the already inadequate amount to provide basic necessities. It also means that the family cannot move when their current apart- ment is in bad condition because another apartment would undoubt- edly cost more. I work in a program that provides temporary housing for home- less-temporary housing for the homeless welfare family. A major proportion of the families remain in residences for a long time because they cannot locate a decent. apartment at the. rental ap- proved by welfare. The battered women in our program also choose to return to the batterer rather than to move into shim housing. The utility costs are much, much more than the amount allocated. There is $15.48 included in a check for a family of four, but the ac- tual cost is $43 a month. When the family is unable to pay the bill because they had to spend the money on food, rent, other necessities, such as carfare and clothes, the electricity is turned off, and the family then can go to the welfare center and have it put back on, but the amount of the payment is re- duced from their already inadequate welfare check. So, the family who cannot pay the bill is now expected to live ou even less money and still keep up the current bill. Mr. CONYERS. A person thus could end up with a negative allow- ance if their bill was high enough? Ms. Om~soN. Our feeling is that they start out with a negative al- lowance and it ends up being more minus because of the things that happen. Our clients look to us for assistance and answers, and on these essential areas we are unable to help them. I hope that the subcommittee will pay attention to the serious- ness of the situation and develop legislation which will help relieve the emotional, physical, and financial burdens of inflation on the welfare family. The Government must face up. All of us experience the impact of inflation, but poor people suffer the most. If there is any doubt in anyone's mind about the impossi- bility of living within a public assistance grant, I encourage you to try it for one week. You are also invited to spend a few days living at the Urban Family Center, Henry Street, the program in which I work, where you can experience firsthand what I have tried to convey to you. PAGENO="0589" 581 I assure you that your perspective on poverty and poor people will never be the same, and 1 expect that you will emerge as the leader in the effort to provide more money for poor people. Even if you cannot take advantage of this opportunity, the Henry Street Settlement staff and the clients look to you for leadership in the struggle against inflation. We are pleased that you are having these hearings and we look forward to the results. Mr. ROSENTHAL. Thank you very much. We are very grateful for those kind words. STATEMENT OF JACQUELINE FRANCIS, HOME MANAGEMENT PRO- GRAM, WILLOUGHBY HOUSE SETTLEMENT, BROOKLYN; ACCOM- PANIED BY DOROTHY JAMES Ms. Fn~NcIs. My name is Jacqueline Francis, and I am from the Home Management Program, Willoughby House Settlement, in Brooklyn. I am a working mother of four children. As part of my job, I teach consumer education, health, and nutri- tion to women caught up in the lower socioeconomic strata. I am about to start teaching a course on survival because I am find- ing that my participants are really becoming depressed, anxious, and they just can't cope with the rise in prices and deal with it. We are thoroughly disgusted and downright furious as to what the President's guidelines are not doing. We feel they have not accomplished any- thing; it is only on paper. Each week at the supermarket we are faced with higher food prices. Commissioner ~Ratner has suggested that we have beefless Wednes- days. Many of us can afford beef only 1 day a week, and by "beef" 1 mean like chuck. We don't have roasts or steaks any more. Ham- burgers and frankfurters used to be an affordable item to all, but now most of us treat those items as monthly treats. Those who are on fixed income and low wages feel the impact of inflation the most, as usual. We are striving just to stay alive on the barest of meals. The impact of all this is devastating. It is becoming increasingly evident in all facets of our lives, through our wages, rents, utiTities, and other needs. At the present time, there are many programs available that feed the elderly and children breakfe st and lunch, but this does not make much difference because mealtimes exist 7 days a week, not 5 days a week. We want more action from the President and from the Congress. We want more than just talk. We need help because we feel we are going under. We see inflation as our No. 1 enemy. We ~re concerned about crime, we are concerned about housing, and things like that, but we can't live if wm don't eat. Thank you. Mr~ ROSENTHAL. Thank you very~ very much. Did someone else want to talk? STATEMENT OFGLADYSDAVIS, FORT GREENE AREA Ms. DAVIS. Yes. Mr. ROSENTHAL. Please do. Go ahead. PAGENO="0590" 582 Ms. DAVIS. My name is Mrs. Gladys Davis, and I am from the Fort Greene area. I have this lady that is helping me, struggling with us, and I have six sons and they all eat like horses, not children. So, she is always trying to show me how to fix enough food and how to stretch the food so the children get enough to eat, because they are teenagers and they eat three or four times a day. I was having so much finance problems about how to shop, and I can never get a new dress or a skirt. So, in home management they teach us how to sew so that I have been able to get a few dresses by making them myself. And they teach us how to bake food there, how to make food there, nutritional, without meat, because there are so many things that I learned how to fix, and we are not eating what we want but we are not starving. So, I still would like for the Government to look into the situation in the poor areas because we just can't hardly manage at all. We get enough of what we have, but not what we want. Mr. WILLIAMS. That is a very good statement. May I ask a question of all of you? At the end of the month, when the checks run out, are there ever any days when you just do not eat, that your family does not eat? Ms. OHLSON. Yes. Mr. WILLIAMS. These home management programs perhaps serve a superpurpose in providing you the ability and the knowledge to bal- ance out planning with your meals. But are there those who possibly do have a couple of days a month where they just don't eat? Mr. FRANK. I would like to bring to your attention something that is well known in New York City; it is called "the end of the month syndrome," and it means just that. People for the last few days, some- times the last full week of the month, just go without food. With the new food stamp program that has cut benefits, that "end of the month syndrome" we see at the hotline is starting around now. Mr. WILLIAMS. You have proof of that through your hotline operation? Mr. FRANK. Well, we get an increasing number of emergency food requests in the last 2 weeks of the month. There is very little to say to people when they have no food and we have done everything we can to try and find food for them. WTe are beginning to try to organize more emergency food services, but we do know that that is a band aid on top of an open gash, and it may help some people but not a lot. We also see that the spending in the food stamp program that was initiated because of a Budget Office estimate, because of food price inflation that is half of the actual price, is going to cut benefits again. Mr. WILLIAMS. You have seen a marked increase in the number of calls where people do not have food the last few days of the month, the "end of the month syndrome"? Mr. FRANK. Yes, we see that increase, and we see it coming from different kinds of people, people who were managing, people who have enough social security that was getting by, that was getting them by until the end of the month. PAGENO="0591" 5~3 It is not just the bottom of the ladder that is in that situation any more. It is people who you just don't think would have to come to that situation. Mr. WILLIAMS. Thank you. Mr. ROSENTHAL. Did you want to say something ~ Ms. JAMES. Yes; I am Dorothy James. I am with Mrs. Francis. I will try to go and compare the newspapers on Sunday to see if there is a sale. I go to Key Food and Key Food don't have it. T micht go down to another store and they don't have it. I go to the A. & P. and they will come in on Tuesday or Wednesday, and it seems like the prices go up and up, and I also work with a lady who is blind and she pays like $225 a month rent, and she don't have money at the end of the month because the food stamps are cut short. The projects are already going up, even with people on welfare, the rents are going up, and I have been there since 1950. Mr. ROSENTHAL. Thank you. STATEMENT OF SHIRLEY KRONBERG, EXECUTIVE DIRECTOR, NEIGHBORHOOD SERVICE CENTERS, COUNCIL OF THE NEW YORK HOTEL AND MOTEL TRADE COUNCIL, AFL-CIO Ms. KRONEERG. I am Shirley Kronberg. I am the executive director of the Neighborhood Service Centers, Council of the New York Hotel and Motel Trade Council, AFL-CIO. Our department of the union deals with all problems that are not related to the job. So that any person with a consumer problem, a legal problem, a per- sonal problem of any kind, hospital bill, whatever, comes to me. I am the chairman of the Consumer Subcommittee of the Com- munity Services of the New York Central Labor Council, and Jerry Waters asked me to represent the New York Central Labor Council here today. I want to say at the outset that we were always proud that the mil- lion union workers in New York City made a decent living. I am not going to tell you that our members are eating dog food. We want for our members and our members have always wanted for themselves the exact same things that you gentlemen want for you and your families. We want to be able to buy a home. We want to be able to send our children for ballet lessons and music lessons. We want to be able to take a vacation and take a trip, and we want to be ableto send the children to college. We want to do all the things which is the great American dream, the American standard of living. We find, in spite of the fact that half of our members have their wives working, that these wives are not working in order to be liberated. PAGENO="0592" 584 These wives are working in order to maintain the standard of living that used to be maintained with one income. This is what we are incensed about. We are here today not only because the inflation and the food costs particularly have made it impossible for us to maintain what we main- tained 2, 3, 4, 5 years ago-not only for that reason-but because with the increase in prices we are not able to see any hope, and with the Government not doing anything about it, no hope whatsoever that it is going to end at some point. You know, we have an intelligence. We read the newspapers, we know what the profits of the corpora- tions are. We know what the guidelines for wage increases are. They are 7 percent. We don't see any guidelines for the holding down of profit, for the control of prices. We just see them flying away. We go into the store every single week, the cost is up. Every single week. In the period-there is only one that stands out in my mind. I shop every week, once a week. I come into the store, and there isn't one week that everything hasn't gone up a penny, two cents. Not one week. Anybody who shops will tell you that. Now, I buy boxed prunes, a 2-pound box. It used to be-well, I can remember when it was 99 cents about 2 years ago, but last year it was a $1.09, and I paid a $1.99 last Saturday. That is not an 11 percent increase. I don't know what Mr. Bienstock is going to say that the statistics are about the rise in prices. But that is a 100 percent increase, and that is the story with all kinds of prices, anything you go to shop for, that is the kind of increase. From $1.09 to $1.99. It may be 1 percent a week, 1 percent a month, but who is it that is putting all this together and saying that it takes twice as much to live on today as it took a year ago? That is what we want somebody to look into, somebody to do some- thing about. Mr. ROSENTHAL. Is the AFL-CIO doing price monitoring- Ms. KRONBERG. I am just waiting for Mr. Conyers so that I can continue. Mr. CONYERS. I was observing to my colleague from Georgia that Ralph Nader had to give up raisins for the same complaints that you are making about prunes. They went up too high. Ms. KRONBERG. Yes; it's not only raisins. In order to feed yourself today, in order to feed a family-my chil- dren are grown and married, my husband and I work; I am not haying that we are hungry. We are angry. We are angry because we see the money that we were putting away for savings, for retirement-we are not able to do that. PAGENO="0593" 585 We are afraid to retire. Working people today are afraid to retire because the little bit that you put away, you figure, well, this is going to give me $3,000 a year in addition to the social security or in addition to the pension, and not give up my home and not to have to do this and that, and not have to come to the point of eating dog food. We are afraid to retire, and millions of people in this country today, I would wager to say, are afraid to retire because they know with the increase in prices that they are not able to make it. Mr. LEVITAS. I think the testimony has been very helpful about the impact of inflation, and it is the major domestic problem today. What I find disturbing, though, and I agree with you completely about the profits that have been announced, and given the situation, it seems to me to be outrageous and unjustified, but, by the same token, I see the rubber workers in their present negotiations with the rubber companies saying: "We don't want to be bound by any guidelines." Mr. Doug Frazier of the PAW says: "We don't want any restraints put on our bargaining as far as our wage demands are concerned," and obviously higher wages get folded into higher prices, and there is this chicken and egg syndrome. Where do we begin? Ms. KRONBERG. George Meany dealt with this. What we are trying to do is catch up to where we were several years ago. Now, assume you are a union officer and you are dealing with a shop or with an industry and the workers tell you: You know, the first thing you have to do is catch me up to where I was. Never mind going ahead. If the cost of living has gone up by 20, 30, 40 percent, I need that in order to maintain those commitments I have already made to my family. I have a home, I have a mortgage, I bought a washing machine, et cetera. My kids are in college. I have got to be able to maintain that in the same way I undertook to do it 2 or 3 years ago when my wages were so much less. So, the first thing you have to do is meet that differential, and then they would like to have a little bit more because that's the great Ameri- can way. This is what we are all for, isn't it? That we advance, that we go forward. My mother used to scrub clothes in the bathroom on a-what was it? A VOICE. A washboard. Ms. KRONBERG. A washboard. Right? Today we put the clothes into the washing machine. We make progress. We go ahead. We don't want to go back to living the way the generation before us did, and we want for our children even more. Right? That is why me and the unions don't want to be bound by guidelines, particularly since you have done nothing to bind profit. You have done nothing to bind prices. If you would say to the labor movement: "We will roll back the prices to where they were 3 years ago," and if you enforce it. all right, we mb~ht he willing to go with a guideline, but you would have to mandate that. You would have to make that stick. 52-21~ 0 - 79 - 38 PAGENO="0594" 586 Now, the last time around, when you and I, Congressman Rosen- thal, were standing on 86th Street in front of the A. & P., in the last great price match, if you remember- Mr. ROSENTHAL. That wasn't me. That was Bess Myerson. Ms. KRONBERG. No, that was you. [Laughter.] The IRS was placed in charge; in charge of price watch. Do you remember that, gentlemen? The Internal Revenue Service was in charge of the price watch. Right? \Vell, it had a very interesting effect. People were afraid to complain because if you sent in your name you were afraid that they were going to pull your record and make sure you paid your taxes. But my suggestion would be for the IRS tomorrow, you know, that they be put in charge and they send every supermarket a list and say: "We want to know what your prices were 1 year ago, 9 months ago, 6 months ago, 3 months ago, and today." You know, all this business about price watch, somebody in my office kidded me, I said that I was going to a price watch meeting, and they said: "What do they do, watch the prices go up?" I mean, what price watch? We are all watching the prices. Who is doing something about the prices? Now, Meany, I think, in an effort showing that, you know, we know what's going on, made a big speech in which he said the labor move- ment was going to watch all this, and so on. When I told my secretary that I was coming here today and tell you about what we are going to do, she asked me: Are we going to put all this in a capsule and send it up to space, because maybe they will meet a space person who doesn't know what's happening on earth and show him those figures? Because whom are we going to show them to here? Doesn't the Congress know? Doesn't the President know? Doesn't every agency of Government know that the prices have gone up? Don't the stores know? Who shops for them? Where are they living? Everybody knows that prices have gone up. Well, Meany said we were going toprove it, and so they urged every State and city body of the labor movement to do~something about get- ting up corps of volunteers. I have here, and I am going to leave it with you, a letter sent by Ray Corbett, the president of the New York State Federation of Labor- Mr. ROSENTHAL. Anyhow, what did you do? Ms. KRONBERG. Do you see this [indicating]? Mr. ROSENTHAL. Ye.s. Ms. KRONBERG. These are the monitoring sheets [indicating]. This just arrived, May 1. are in the process of putting together volunteers. Mr. ROSENTHAL. Youhaven't started this yet? Ms. KRONBERG. No. In some cities, it has. New York hasn't done it yet.. PAGENO="0595" 587 Let me tell you, frankly, the reason for the nonactivity along these lines is the skepticism. People just don't believe it should be necessary to prove to anybody, you know, that the prices have gone up. And what are we going to do with it when we have got it? We are going to make a big petition and send it to you? 1~fr. CONYERS. Maybe it could document the need for control on prices. Ms. KRONBERG. Is there anybody that doubts that prices need to be controlled? Mr. CONYERS. Yes. Ms. KRONBERG. The poor are being pauperized. Mr. CONYERS. I remember when the President of the AFL-CIO was against wage and price controls. Ms. KRONBERG. I remember that, too, but in these circumstances, with the Government not doing anything, at least the last time they went through some kind of-even if it was just the IRS, there was some kind of mandate. There is nothing now. I mean, it's totally and completely voluntary, and food is eliminated. Mr. CONYERS. You have the neighborhood body as well as the politi- cal body, and I don't know how you are going to react to the question, but, after all, we think that this committee is doing important work in documenting beyond any reasonable doubt to the most skeptical per- son, the most skeptical Federal legislator, that the suffering, that the problems of living are now becoming so aggravated and that the plans that are currently operative are so unsuccessful, that we are going to have to go to another step. Don't you think, first of all, that that is a justifiable and worthwhile undertaking? Ms. KRONBERG. I believe, along with you, along with Mr. Galbraith, George Meany, and every other reasonable person, that we need to mandate price control. I tell you, frankly, that I don't believe that it still has to be documented. Mr. CONYERS. Well, there is somebody in the Government apparent- ly that doesn't agree with you and me and Professor Galbraith. Ms. KR0NBEimG. I don't believe their disagreement is based on their lack of knowledge or lack of documentation. You know, I am a believer in the theory of the conspiracy of history. I believe they don't believe it because they are on the payroll of a profitmaking corporation, and they operate on their behalf and they don't want to control prices because they don't care. I think it is lack of motive, not lack of knowledge. Mr. CONYERS. That is a very good statement for this record because, if that is the case, then what do you propose, based upon your own beliefs? Ms. KRONBERG. First of all, I would like to say that I think-you know, the American people have a history of moving for what they want, and I think that they will move and I think that will do things. I am concerned that I think they are going to do the wrong things. I think they are reouesting to move in the direction. for example, in ~ew York State. of this constitutional convention to limit taxes, and PAGENO="0596" 588 I think that that is a death knell for anybody below $20,000 a year in tins country, because it's going to cut out all of the programs on which a large section of the population is subsisting. I think that that is the direction the protest is taking, a~d I think it is very unfortunate, and I strongly urge that you people come up with a better way of spending this kind of-or at least containing and moving this in the direction of something worth while. Mr. CONYERS. Well, you know, you have raised perhaps the most im- portant political consideration that I have heard in the course of these hearings. There is something, however, still not resolved, because if your view that this is or there is a lack of political ideology and not a matter of economic understanding, and then you tell me that you are afraid that the people of this State are moving in a precisely contrary direction to your perception, then we have a very serious political problem as well as a very serious economic problem. Ms. KRONBERG. Yes; I believe that. I believe we have a very serious political problem as well as an economic problem, and I think that one flows from the other. I think it is our failure to deal adequately with the inflationary spiraling and rising costs of living, and that is motivating people who are ordinarily well meaning and wholesome in every way, to not care about what happens to the elderly or to the poor or anybody else, so long as they can maintain their home; they are now fighting for their home. You know, I am not only talking about people in the city or in the inner city, I am talking about people that live where I live, in Peeks- kill, who are fighting an ever-losing battle against the rise in prices. Mr. WILLIAMS. I would like to just ask one question. There are so-called experts who are saying pretty much what you are saying, but the result of that could be recession, which could mean unemployment. Ms. KRONBERG. I don't believe that it will mean unemployment. I think what we have found-I am 63 years old, and from my ob- servations in this country~ the times that we have had, that we have been able to make a living, there have always been times of expand- ing industrialization. The times, you know, when people have had jobs is when things went welL and I think that the Congress really has to find the answers to expanding industrialization. I just want to say one word in relation to energy on this. You know, we workers in this country were able to send our chil- dren off to college and they all got educated and they found out all about the environment, and they are going to kill us with the shut- ting down of this and the shutting down of that, and- Mr. ROSENTHAL. Bruce, you are not going to leave, are you? Mr. RATNER. I have to go to another hearing. Can I come back in about 45 minutes? Mr. ROSENTHAL. It'sup to you. Off the record. fDiscussion off the record.] Mr. WILLIAMS. Ma'am, just let me expand on what I said. I represent a district that just lost 5,000 jobs. PAGENO="0597" 589 Inflation is important to those individuals, but inflation, if they are not working, has no affect at all- Ms. KRONBERG. It's worse. Mr. WILLIAMS [continuing]. On them. Ms. KRONBERG. It's worse. Mr. WILLIAMS. Really, it has hardly any affect, because they do not have a job or a dollar to buy whatever little a dollar would buy, and I have tremendous concern, if there is an overreaction to inflation, about recession, and I really would like to know if that is what you are saying. I support mandatory price controls. I think they have been demonstrated to work. I think, as Professor Galbraith stated, the failure of that program was when it was abruptly ended. But I do have concern about an over- reaction to inflation, which could result directly in a recession. Ms. KRONBERG. I don't see any relationship. Mr. WILLIAMS. The so-called experts say this, in fact, will happen. Ms. KRONBERG. You know, those experts have batted 1,000 wrong so far. I mean, they haven't been right about anything. Why should we believe them about this? Mr. WILLIAMS. In essence, maybe they have been right about reces- sion, unfortunately. Ms. KRONBERG. They forecast them after they are here. You know, it may even be their policies of bringing them about. I think everybody knows, you know, that expansion means jobs. expansion means lower prices. Obviously, our intent has to be to expand industrially. You cannot, on the one hand, have all the wonderful children shut- ting down nuclear plants and everything else, and going back to grow- ing our own food and whatever else we can think of, you know, and narrowing our outlook, and at the same time having an expanded economy. At some point., it seems to me. the Congress is going to have to be very assertive and say. "Yes; we want clean energy and safe nuclear power." or whatever power, and go ahead and do it, and not leave it to the will of the oil companies and hope that if we give them more money that they will produce more. Mr. CONYERS. Is that the President's job or is that the Congress' job? Ms. KRONBERG. It seems t.o me that the Congress can enact laws with- out the President. He cannot do it without you. Mr. CONYERS. Have you ever tried to get 354 of your colleagues to agree on anything? Ms. KRONBERG. It's hard if Meany doesn't want it.. But if he does- Mr. CONYERS. That's the point. Mr. LEVITAS. Of course, your presentation is very eloquent. I disagree with most of your conclusions, but leaving aside the spe- cial needs of the elderly and of the poor and of the handicapped, which T think most people recognize, I don't think we need hearings to find that prices are going up and we have inflation, that is pretty obvious. PAGENO="0598" 590 Everybody knows that, who can read the newspaper, watch televi- sion, or go into the supermarket. I find a great deal of difficulty in dealing with-I hear everybody saying that we have to sacrifice, we have to do something about the problem, and what I am also hearing is that that means, that the other person ought to sacrifice, not me. It is a problem that has to be dealt with, and sacrifice if the other person is doing the sacrificing. As far as mandatory wage and price controls, that type of quick fix, I think, is no solution. Everybody that has come before us today has condemned the ability to function properly, whether it is the Congress or the-well, it's not working. The solutions that we come up with is to have the Government do it again, and I don't understand that type of logic. I don't think the Government is capable of setting prices or wages in every segment and every aspect of this economy. It can't even manage what it's supposed to be doing today. I think what you are going to end up with is a bigger, bloated democracy. We had controls on oil and gasoline. Did that keep the prices down? They kept on going up. I don't think the solution is, as Professor Galbraith says, subject to a quick fix. I think many people are coming up with easy answers which takes care of our situation, what's good for me, and forget about the na- tional interest of this country. Ms. KRONBERG. You started out by speaking about everybody wants someone else to sacrifice. I don't think it would be so terrible if Exxon would sacrifice a little bit of their profits. Mr. LEVITAS. I agree with you. Ms. KRONBERG. I don't want the elderly or the poor people to sacri- fice, and the working people, barely making it to work every morning, and people who want to retire and can't; I don't want them to sacrifice. That's what brought us to where we are today. It is this effort on the part of the American labor movement which has given us the highest standard of living in the world, but we are going to lose it to the inflation. Mr. ROSENTHAL. Thank you all very, very much. [The letter referred to by Ms. Kronberg follows:] PAGENO="0599" 591 V C -~ EM? O'.D 0. CORBEIT A E HOWARD MOUSANI 45? pAR: ~: SOUTH G 1 99 WASHTEATON AVENUE 6 `lb 9NY 2210 LAW Sc Co ~ 246 (SB) 436-WE L S ~ ~ -~ -~- May 1, 1979 TO: Central Body Presidents FROM: Raymond H. Corbett, President H. Howard Nolisani, Secretary-Treasurer RE:. Operation Price Watch The AFL-CIO's OperatiomPrice Watch has been in effect for nearly three weeks. By now, most of you have already received the necessary information and materials from the Department of Community Services to initiate a program in your area. The involvement of the central labor councils is vitally important to insure the success of this operation. The most recent news on inflation from the Deoartment of Labor is Indeed discouraging. The cost of living is rising at an annual ra~te of more than 13 percent and even President Carter's chIef inflation fighters refuse to predict an early end to this price spiral. AFL-CIO President Meany has pledged an all-out battle against inflation by urging volunteers to check prices of the basic necessities on a regular basis and provide the admInis- tration and media with the facts. The labor movement is the largest organized group of consumers in the state. Our efforts in nonitoring prices will increase the effectiveness of the AFL-CIO's erogram and point out the weaknesses of President Carter's Wage-Price Guidelines. It appears that if consumers do not take action to curb price Increases, no one else will. If you have not already done so, we recommend that you organize a Price Watch program. At the same tine, the State AFL-CIO stands ready to cooperate fully in your efforts and provide any assistance you may need in executing a successful operation. PAGENO="0600" ~onto~'s Name ~ Home of StAre: City: lAddress of Store: State: (Please report same items, same brands, same size or weight and same stores) ITEM BRAND NAME BREAD, white, 20 oz. ______________________ HAMBURGER, regular, 1 lb. ________________ FISHSTICKS, frozen, 1 lb. _______________ CHICKEN, fryer parts, 1 lb. MILK, 1 gal. COFFEE, instant, 6 oz. HGGS, grade A, lge., 1 doz. BACON, 1 lb. TUNA, white, 6½ oz. can PORK & BEANS, 16 oz~ can `KETCHUP, 20 oz. bottle PEANUT BUTTER, creamy, 18 oz. HARGARINE, sticks, 1 lb. ?OTATOES, Idaho, 1 lb. APPLES, 1 lb. SOUP, chicken noodle, 10 oz. can COLA, six 12 oz. cans ___________________ PUDDING, vanilla mix, 3 oz. _____________ CEREAL, raisin bran, 20 oz. _____________ SUGAR, white, 5 lbs. ______________________ ICE CREAM, ½ gal. TOILET TISSUE, 4 rolls ___________________ NAPKINS, 260 _____________________________ ~OAP, 5 oz. ___________________________ DETERGENT, 49 oz. ________________________ LIGHT BULBS, 100 w., soft white, pkg. of 4 TRASH BAGS, vinyl, 7 gal., pkg. of 20 - jar 592 DATE STORE MONITORED - 1979 PRICE COMMENTS PRICE MONITOR P1 ease Sjq~: PAGENO="0601" 593 DATE STORE MONITORED 1979 AFL-CIO PRICE MONITORING REPORT: MEDICINES AND MEDICAL CARE (PRINT) nitor's Name: Name of Store: Address of Store: State: (Please report same items, same brands, same size or weight and same stores) Drug Store Items Brand Name Price Vitamin C - 100 tablets .epirin - 100 tablets Rubbing Alcohol - one pint . Ruby Oil, 10 oz. Rand Aids - pkg. of 100 - 100 tablets paste - 9 oz. Prescription Items Penicillin -(400,000 units) tablets ?henobarbital (15 mg) tablets Antihypertensives (10 mg) tablets Arupicillin (100 cc) liquid . Professional Services 1978 1979 Physician's fee - office visit Dentist's fee - X ray and cleaning Podiatrist's fee - basic maintenance Hospital Service Charges Emergency Room, basic charge per visit Hospital Room, base rate per day (semi private) P~uca Monitor, Please Sign: Address: Phone: PAGENO="0602" 594 DATE ~TOR~ ~4ONZTORED 197S AFL-CIO PRICE MONITORING REPORT: CLOTHING (PRINT) Monitors Name: Name of Store: Address of Store: State: (Please report same items,~same brands, same size and same stores) ITEM BRAND NAME PRICE COMMENTS SNOES, Men's SNEAKERS, Children 5 3LUEJEANS SLACKS, Leisure ENIRTS, Sport ATS, Dress hALF SLIP SUIT, Three piece . : RAINCOATS, Women's SOCKS, Children's DRYCLEANING (Identify item from above) Price Monitor., Please Sign: * Address: Phone: PAGENO="0603" 595 DATE STORE ..MONITORL 197S AFL-CIO PRICE MONITORING REPORT: TRANSPORTATION ?RINT) /onitor's Name: Name of gas station: Address of gas station: State: (Please re port same items, same brands, same gas station) - ITEM BRAND NAME PRICE COMMENTS Gasoline - Leaded Regular, 1 Leaded Premium, 1 Unleaded Regular, Unleaded Premium, Gallon Gallon 1 Gallon 1 Gallon - Motor Oil - lOW-30 Detergent, 1 Quart Tune-up - 4 cylinder 6 cylinder 8 cylinder Price Monitor, Please Sign: Address: Phone: 52-214 1240 PAGENO="0604" SPOR~~N~flED ,l 979 AFL-CIO PRICE MONITORING REPORT: SHELTER AND UTILITIES B. Utilities (When comparing, use bills from sane month) Electricity, cost per kilowatt/hour (Divide total bill amount by total kilnwatt/hours used) Price Monitor, Please Sign Address 596 (PRINT) Monitors Name: Name of Uti~~': Address of Utility: City: State: A. Shelter Rent One bedroom apartment Two bedroom apartment Three bedroom apartment Present Rent Per Month Previous Rent Per Month Date of Increase 1978 1979 Heating oil, cost per gallon Heating/cooking gas, cost per therm or cubic (Divide total bill by number of therms or cubic feet shown) foot. Water, cost per 1,000 gallons (If sewage charge is in water bill, take it out before dividing) Telephone, base rate per month (Subtract any long distance calls or installation costs) Phone PAGENO="0605" 597 Mr. ROSENTHAL. Our next witnesses are Herbert Bienstock and Robert Low. Mr. Bienstock? STATEMENT OP HERBERT BIENSTOCK, REGIONAL COMMISSIONER, BUREAU OP LABOR STATISTICS, U.S. DEPARTMENT OP LABOR Mr. BIENST00Ic. I appreciate being called on now. I have got 12 pages here, and I usually take 1 minute per page. I will try to improve my productivity and do it in 10 minutes, if I can. Mr. ROSENTHAL. Yours is very important testimony. Mr. BIENSTOOK. I will be happy to be here as long as you would like me to be here. Page 1 there is simply a presentation of the recent trends in that Market Basket in New York City that we priced, or more correctly, New York-northeastern New Jersey area. I would call your attention there to one simple fact that I want to deal with in a little more detail later on, and that is you look at the right-hand column, the top line, the overall Market Basket has gone up 7.4 percent. We call it a Consumer Price Index. Of course, I am sure you all know we put them together for some- thing like 23 cities or so, and also that national index. That 7~4 percent overall doesn't reflect the wide array of variation within the individual categories. Look down at the 20-percent figures, meats, poultry, and fish, and with a number like that I don't think, frankly, that you need a lot of encouragement on beefless Wednesdays. I doubt that there are very many poor people in the city of New York who were eating beef on any one of those days, let alone Wednesday. And, of course, further on you hit another 20.4 percent figure, around mid-page, and that is the fuel oil, coal, and bottled gas. We have been caught in that double whiplash. It is food and fuel, and I might add, however, that it is perhaps worth taking a look at the left-hand column on that first page, which is the longer scene. That is an index level with a 1967 equals 100. You know, if you look at that left-hand column, the big one is the fruits and vegetables, up there at 241.2 percent of what the average prices of fruits and vegetables were in this area in 1967, but that fuel oil, coal, and bottled gas, there it is, 367.7 percent of what the prices were back there. That's been our big one. Now, look here in New York on page 2- Mr. LEV1TAS. First of all, with respect to the fuel, the Federal Gov- ernment does not control OPEC, so we can't exercise a great deal of control over that. But what about the fruits and vegetables item? How much of that is attributable to the weather or other factors? Like the raisins we were talking about; the raisin crop in California was decimated this year, and the lettuce crop, we have the same type of information. PAGENO="0606" 598 Mr. BIENSTOCK. I think that's a good question. When you ask me that question, I wish this were January 18 and not May 18, because after 35 years of looking at these numbers and 8 years in my present job, by next January 10 I expect to leave it, and I tell you truthfully, my testimony, I think, would be a little more useful on January 18. I must tell you I am getting very, very tired of hearing for 35 years, why, you know, there was bad weather down here and there was a storm down there, and it destroyed this crop here and the orange crop froze last winter. Of course, those things do happen, but the fact of the matter is, if you look at the left-hand column, you are looking at 1967 to 1979, you are looking at a 12-year period, and there must have been a little good weather in that period, too. The fact of the matter is that fruit and vegetable prices are up 241 percent. Mr. LEVITAS. Do we know why these fruits and vegetables should be so out of line? Mr. BIEN5T0CK. Let me be a little more serious than just the casual comment of a moment ago. There may be another element involved here, an element that is represented in the fuel oil prices, as well. You know, fuel oil prices for a long time were really under-priced relative to other prices. And then we look at a rate of change for a recent period of time, and you see an enormous shootup, and at least some part of it, you know, I am not naive, but I say some part of it is a catchup on other prices. Mr. CONYERS. But the huge profit-taking by the oil companies when the prices were much lower, they were doing quite well then, so I don't think there is a relativity about- Mr. BIENSTOCK. They want to do as well and a little better. I suspect that that is- Mr. CONYERS. The third and fourth quarter reports were 80-percent increases. Mr. BIEN5T0CK. I was simply trying to say that I wasn't naive, and let you reach those conclusions yourselves. My point about the fruit and vegetables, however, .is that, you know, we must remember that there , too, some of this is catchup. There were an awful lot of people helping to produce those out there in the fields of California with a rate of pay that was not ac- ceptable, you know, and there is, too, some of that catchup of this kind. I think fruit and vegetable prices are n perfect example. They are still a very low paid area, and this does reflect some of that catchup. On page 2, I was going to turn to comparison between the New York and the U.S. areas. There are some really interesting things that have been developing in the last year or two. . If you look at page 2, New York and United States, the top line, they look about in line. PAGENO="0607" 599 They are about in line, but it represents a kind of a pattern, a trend of recent years, that saw some very significant change in the relation- ship between trends of living costs here and for the country as a wh&e. But, on the right-hand side, you will see that evidence right now. Look, the New York Index as of March, the last figures available, the April figures will be out for the country as a whole on May 25, and right now the March figures are last, and look at the one on top. New York, 7.4 percent over the year. The U.S. figures run 10.2 percent over the year. The fact of the matter is that over the past, oh, since around 1974 or so, living costs here have been rising at a less rapid pace than for the country a.s a whole, but, before you all pack up and move, let me explain that a man does not live by percentage changes alone, and it is increasing at a less rapid pace, but you will see in a later chart that living costs are at a substantially higher level than in other parts of the country. Right now, the rate of increase is less here tha.n it is elsewhere. In the interest of time, I will skip page 3, which is a comparison of the Northeast and the like. One or twO of the other charts, and I bring you to page 6. I will try to get this down. Page 6, I think that top chart there has a great deal of relevance to a lot of what I heard talked about this morning, especially one of the last spenkers. If I may just draw your attention to chart number 6, you will notice that we look at annual average percent changes in consumer prices over a long period of time. `Well, look at that period of 1960 to 1965, rates have changed under 2 percent. You know, it is a little hard to remember when the cost of living was going up less than 2 percent a year. Do you know why? Because our productivity was at a heck of a lot better clip. Do you remember that annual rate of 3.2 percent that prevailed in the post-war period? That 3.2 percent figure always played an important role in Ameri- can history. I remember some of the oldtimers, in the post-World War II years, and right now we are running under the 1 percent, but at that time prices were going up under 2 percent but wages were going up a little faster, and getting what you had plus a little more was exactly what was happening, and living standards were improving. Look what happened as those rates were increasing, up during the 1960's. The mid-1960's, 1967, 1968, 1969, those increases are clearly asso- ciated with Vietnam. In my mind, the efforts to fight the war, guns were bought, the root of our present inflation. 1970, 7.4 percent. Some of these construction settlements are up, in the 1920's, and pull them back and it shows a decline, by 1972 you see we are back to 4.4, because on August 15, 1971, you had the wage/price freeze, if you remember, phase one, at least for 90 days. PAGENO="0608" 600 But we soon moved out of that, and by 1974, there we were up at that 10.8-percent level again. But then the good old Phillips Curve served us, unemployment for inflation, the recession of 1974, 1975. You see declining rates of increase in consumer prices right through 1977, but there it is turning up again, and when you reach the end of the month there on chart No. 6, we are now running at that 7.4 percent. Mr. CONYERS. Do you subscribe to the Phillips Curve? Mr. BIENSTOOK. I canceled my subscription sometime ago, and I will have an explanation right now. Of course, the relationship played a role. If I may defer from answering the question for like about 3 minutes, I think my answer to that question comes up a little later on down the road. Here on the bottom of page 6, I want to frankly reinforce some of the things that others have said. It's kind of fashionable; no statistics are perfect, there should never be a substitute for judgment, and it's fashionable to say that. They are probably about as good as can be produced. Why do people feel, including my wife, you know, I come home, I have announced a Consumer Price Index, and she says, "Where do you get those numbers? Do you know what happened to me at Wald- baum's today ?" You get that all the time. Look at the bottom of the page. The bottom of the page suggests that a price index is an average number, it includes everything- Mr. ROSENTHAL. If you are at the bottom end of the economic ladder, where you have to pay an unusually high portion of your in- come for food and rent and- Mr. BIENSTOOK. That's where you are on chart 7. Mr. ROSENTHAL. You have skewed out people, to the people at the other end it doesn't make any difference. Mr. BIENSTOOK. Take a look at chart 7. You will see, at the lower level of income, the amount you spend for food is like double the relative importance that you spend at the upper, and how much can you eat? Look at chart 8 on the right-hand side. That average increase-you know the old one about "average," you can drown in a lake with an average depth of 6 inches, but you can find a 12 foot hole there, and the 12 foot hole here has been food. The average increase in-food up, 10.6 percent. This is what poor people spend a hell of a part of their budget for, and you know the mortgage interest rates that are in here, that are rising, too. ~We don't make a mortgage commitment every month. We are trying to get an overall policy index, but you have to look at the detail. So, I simply call that to your attention. Food prices are rising at a 33-percent faster rate over the past year1 and that- PAGENO="0609" 601 Mr. ROSENTHAL. Have the wage/price guidelines had any impact on the things that you have been telling us about'? Mr. BIENSTOOK. Not that I have observed, no. Not that I have observed. You know, the figures are there. No, there has not been a slowdown in prices. Page 7, chart 9; you ask about wage/price guidelines. Wages have `been chasing prices in the New York area, unlike the national scene, ever since 1972. You see that block- Mr. CONYERS. We were told in Washington that this is true nationally. I have had that comment. I asked the precise question. Mr. BIENSTOOK. But not to the same extent. For example, you see in 1970, we were looking a moment ago at 1972, when you saw prices slow down nationally, and you didn't get that same kind of a relationship here. A number of the years where you saw the black bar here, which is prices, seeing the wage figure, the earnings figure by far in the num- ber of those years, that of the United States, the one right below it, that relationship would have been turned around. Look, 1974, what we have, that slowdown nationally on prices, and we didn't get it here. In every one of those years since 1972, the price bar is exceeding the earnings bar, and that is, what I meant by wages chasing prices. You take a look at gross weekly earnings from 1972, a factory worker here, $154,and you're up to $229. People have a feeling that they are making it. Your gross paycheck goes up. But what happens when you knock off that little slanted bar? Loss of purchasing power. The middle one, the take-home, Federal and Social Security taxes- * Mr. ROSENTHAL. Do you think you are leaving out of your index something that should be in it, or putting in things with a high rela- tive weight that are unreal to the average citizen? I have the feeling that your wife has, that your index means nothing. Mr. BIENSTOCK. I sit down and explain it to her. `That was a facetious answer, sir, and I apologize for it. Any index- Mr. ROSENTHAL. I `mean, this lady testified about paying 99~ or a $1.99 for prunes, and I was just- Mr. BIENSTOCK. Of course. Right there in the figures we are pub- lishing, you will find what? You will find that milk prices went up at four times the rate that whiskey prices did last year. Mr. ROSENTHAL. The lady with the five kids is having a devastating time. Mr. BIENSTOCK. You see, that is buried there in the details. Remember, the problem in America or anyplace else, and thank God we have newspapers that publish it, `but there is just so much 52-21'~ 0 - 79 - 39 PAGENO="0610" 602' room in a headline, and between the headline and the footnote, I don't think that-incidentally, don't misunderstand, I think the index can be improved in many ways, but there is a limit as to how much money we want to spend for statistics. Mr. ROSENTHAL. Maybe we should cut the stuff out altogether. The people already seem to know it. Mr. BIENSTOOK. I suppose if we cut the odometer and the mileage meter out of our car, we also wouldn't know how high a speed we are going. I think it is a useful index for what it measures. Mr. CONYERS. I do, too. You track unemployment rates; is that right? Mr. BIENSTOCK. Yes. Mr. CONYERS. Couldn't we, in some standard, concede that there has been some obfuscation of tracking unemployment over at least three administrations that I can remember, in which `we continually merge the inner city unemployment with the metropolitan area, the random sampling, the whole methodogy has become more gross, has become more crude from a scientific point of view, from a professional point of view of your activity, and it has become a cruder instrument? Mr. BIENSTOCK. Not really, but here's the point: Fifteen years ago, you folks were not legislating a whole array of legislation that said the unemployment rate in such and such a place triggered or triggers the distribution of the $17 billion of funds. The date that that was then being published, primarily at the na- tional level, sufficed, and they are just as good as they were and they are just as poor as they were, and they are unreliable figures. I say this even though inside the establishment I have been a fre- quent critic of some of the things that we have done. Now, another element is coming into play more and more, and it's got to be the actions on the local front and our local unemployment data are very, very, very poor. Of course they are, and that needs substantial improvement. Down there in the lower left, take a look at the chart that shows the' real earnings were $86 in 1972, and the real earnings in 1978 are exactly that same amount. On the bottom of page 8, just take a look at New York on energy. Table 14, number 2 fuel oil, you have got an array of cities, and there we are right on top. Average prices of electricity, table 15, our bill, an average 500 kilo- watt hours of electrical energy here, we pay $36.92 on the average, and in Seattle you pay $8.89. We know the i~eason. We bury our cables underground and we burn a much better grade of oil or coal, or whatever it is we burn, but the. fact is still a fact. Now, what does this all add up to? On pages 10 and 11, I call your attention to them.' You may be overlooking on the cost of living that, frankly, I think comes right into the Federal scope, and look at chart 21 and the enor- mous difference is in living costs. . This is for a four-person family, middle level of living. PAGENO="0611" 603 It is the middle level of living, and the fact of the matter is that in Austin, Tex., equals 100, that equals 100, and it costs like 35 percent more to live in New York and closer to 38 percent to live in Boston. Climate does play an important role, but one other thing, take a look at page 11, the upper left there, item 23, Federal income taxes. Now, look on the right there, State and local income taxes, and we would assume there are some differences for a variety of reasons, but here's a budget, at the same level of living, the kinds of goods and serv- ices you need in one place and in another to maintain the same level of living. You do need to `burn more fuel oil to stay alive in the urban north. You do need warm winter clothes, and you do need to build your houses differently. The fact of the matter is that it takes like $31,000 to buy that same level of living that you can buy for $21,000 in Austin, Tex. The middle problem, the Federal income tax. With the bracketing, ~I don't have to describe it, but the fact of the matter is that same level of living you are going to get away with about $3,000 in Austin, Tex., but around $6,000 in the New York- Northeastern New Jersey area. Mr. CONYERS. Why am I so shocked that Los Angeles comes out so low? I thought we all spent an arm and a leg when we were going through LosAngeles, when we do go through Los Angeles. Mr. BIENSTOOK. You are going through as a visitor, of course. But you don't have to heat your home in Los' Angeles as you do in Detroit or in New York City. Finally, the last page. You asked about the Phillips curve, and I took the lead to get to this very last page, because some interesting things are happening. The Northeast has been a disaster. One of the reasons we have `been an economic disaster, we had a high noncompetitive cost of living. What has begun to develop is a kind of a turn around. If you look at chart 26, for the period 1967 to 1974, living costs were rising most rapidly in New York-northeastern New Jersey and in the entire Northeast more than in any other sector of the country. By 1974 to 1977, notice the rate of change of turnaround. New York-northeastern New Jersey is at the bottom, and that is continuing rb~ht through the year-to-year comparison, through February of 1979. Look at that table 27, which I think has very sub- stantial implications for a national policy. Take a look at chart 27. Look at where the Phillips curve has gone. The Phillips curve has gone out to live around the countryside. Look at the kind of relationship that has developed between the inflation rate and the unemployment rate. See what is happening? Where Houston has an unemployment rate of 3.5 percent, Dallas 3.1, and the like, but down in New York City, what economy are we cooling off at an 8.2-percent unemployment rate? I suspect it might be as high in that eastern part, that Buffalo, Philadelphia, northeastern New Jersey, New York, where the irnem- ployment rates are high, the inflation rates are now low. PAGENO="0612" 604 Mr. CONYERS. LaCashman and Keiseling argued, now persuasively to me, that anybody to still be employing the Phillips curve, they ought to be sent back into economics 101 for a makeup course, be- cause under the present inflation, there is no way it can apply. It is another classic law that has application only in the economic textbooks. In real life, there is nO longer any relationship. Mr. BIENsT00K. LaCashman is a very close personal friend, and they are-you know, essentially, in terms of the position I think they would take, I would tend to agree with them. What I am suggesting is this, that the Phillips curve is* not an immutable and that we need to buy, but I think we need to under- stand that even though the relationships at the national level have shown the stag-inflation syndrome, since the 1969 period we also dis- covered-and that was a recession that was encouraged by monetary and fiscal policy, high interest rates, slowed the ecOnomy down, and so forth, but it did not slow down the inflation. That seems to have held up until recent times, but take a look at what happened in recent times-in the post-World War-national unemployment-well, the-rose to 9.1 percent, it has now been hovering in the past year between 5.7 and 6.3 percent, and the market has been down by about 50 percent, and during that period inflation did not begin to steam up-those relationships are all not buried. I would not buy the notion myself, personally, that this is the way we are to deal with inflation. I think you ought to go to the root of it, which is productivity; because our unit labor costs are rising, because we now have substan- tially, especially in this part of the country, the Northeastern United States, a very obsolete industrial- Mr. ROSENTHAL. We are going to have to rush toward a conclusion because there is a witness from the Governor's office who has to be here by 1:50, and we need to hear from our representative from the Depart- ment of Energy. I conclude on this question: Does your last example give any evi- dence of a validity to the theory of the Phillips curve? Mr. BIENSTOCK. That is a very difficult question to answer. Mr. ROSENTHAL. I am going to send a copy of this testimony to both Mr. LaCashman and Mr. Keiseling for closer scrutiny. Mr. BIENSTOCK. Let me answer that by saying-to this extent, observationally-it is very clear that in those parts of the country where the unemployment rate is low, the inflation rate is high. The Phillips curve notion that, you know, you must buy a reduced inflation rate, buy a higher unemployment rate., is certainly, in my view, not a socially acceptable notion, and, if time permitted I think there are a whole array of methods of dealing with impact of that relationship. Mr. LEVITAS. Those are the policies that Congress and the President have to deal with; but clearly your chart 2'T is an illustration of the Phillips curve, and you don't even need to make that statement. It reads that way, and the fact of the matter is, as you also said, the Phillips curve is not an immutable law of nature. It is a conclusion drawn from certain phenomena, and obviously during 1974, in that eraq it did not apply. It just wasn't applicable. PAGENO="0613" 605 We have had high unemployment and high inflation at the same time. But for every Leon Keiseling, whom I respect as an economist, you will find another economist who will take the opposite position. That is one of the games that we play in the Congress. Mr. BIENSTOCK. As a good bureaucrat like myself ought not to take positions, so let me say this in a sort of informal way. Look, the reason I responded to Ben Rosenthal's comments about the contra-cyclical legislation, you see, when it is so different in dif- ferent parts of the country, when we have got at the same time an 8.2-percent unemployment rate here and a 3.5-percent rate in Houston, how can you have national monetary and fiscal policies that address themselves the same way. Mr. CONYERS. We are very grateful for your testimony and your extra comments. [Mr. Bienstock's prepared statement follows:] PAGENO="0614" 606 - some facts relating to INFLAT!ON in the New York area U.S. DEPARTMENT OF LABOR BUREAU OF LABOR STATISTICS 1515 BROADWAY NEW YORK, NEW YORK 10036 For presentation by: Herbert Bienstock Regional ConmissiOfler of Labor~ Statistics. At the: Hearings of the U.S. House of Representatives Commerce, Consumer, and Monetary Affairs Subcommittee of the * Committee on Government * Operations May 18, 1979 * PAGENO="0615" 607 Expenditure classes Food. and beverages Food Food at home Cereals and bakery products... Meats, poultry, fish and eggs. Meats, poultry and fish Dairy products Fruits and vegetables Other foods at home Food away from home Alcoholic beverages Housing Shelter Residential rents Other rental costs Homeownersh ip Fuel and other utilities Fuels... Fuel oil;coal and bottled gas Gas (piped) and electricity.. Household furnishings and operation Apparel and upkeep Apparel commodities Men's and boys' apparel Women's and girls' apparel Footwear Transportation Pri vate.. Puhli.c Medical care Entertainment Other goods and services Personal care Commodity and service groups Commodities Nondurables . Nondurables less food and* beverages Durables Services Services less rent 220.9 0.7 10.5 228.4 0.7 10.6 233.2 0.7 11.9 215.5 0.6 8.4 230.6 1.5 19.7 233.2 1.7 20.1 200.7 0.4 10.1 241.2 -0.5 8.6 276.5 0.5 5.1 216.7 0.5 7.2 161.0 0.5 8.2 208.1 0.3 6.8 208.1 0 6.0 185.4 -0.1 3.8 250.2 0 17.5 221.4 0.1 6.2 244.8 1.5 7.4 301.5 1.9 10.0 367.7 5.4 20.4 270.9 0.2 5.5 190.2 0.4 8.9 159.1 2.0 3.6 151.2 2.4 1.4 140.7 0.7 -1.3 145.0 3.7 2.0 166.4 3.2 0.9 212.9 0.9 8.2 204.9 1.1 9.7 239.4 0.3 1.8 243.6 0.2 7.0 190.4 0.9 4.6 4.8 2.8 Consumer Price Index for All Urban Consumers, New York-Northeastern New Jersey (1967=100) * Percent change to * Group Index Mar. 1979 Mar. 1979 from: Feb. 1979 Mar. 1978 . All items 206.4 0.6 7.4 197.4 191 .6 196.8 204.9 185.8 169.1 224.0 235.1 0.4 1.1 8.6 9.1 7.3 7.3 6.0 6.5 0.9 1.3 2.3 -0.1 .0.2 0.3 All items index, 1957-59 base, is 245.7. The seasonally adjusted all items index change between February and March was O.7percent. PAGENO="0616" 608 Consumer Price Index for All Urban Consumers, United States and New York-Northeastern New Jersey lq67=l00~ Group , Index Mar. 1979 Percent change to Mar. 1979 from: Feb. 1979 Mar. 19)8 1 New York United States New 1 United York States New United States All items 20~.4 209.1 0.6 1.0 7.4 10.2 Expenditure classes Food andb~verages 220.9 224.4 0.7 0.9 10.5 12.5 Food 228.4 230.4 0.7 1.0 10.6 12.8 Food at home 233.2 229.9 0.7 0.8 11.9 13.5 Cereals and bakery products... 215.5 213.5 0.6 0.6 8.4 9.8 Meats, poultry, fish and eggs. 230.6 237.0 1.5 2.0 19.7 22.7 Dairy products 200.7 201.5 0.4 0.4 10.1 12.4 Fruits and vegetables 241.2 225.9 -0.5 -0.3 8.6 10.8 Other foods at home 276.5 262.4 0.5 0.2 5.1 5.8 Food away from home 216.7 236.0 0.5 1.1 7.2 11.2 Alcoholic beverages 161.0 169.2 0.5 0.9 8.2 8.1 Housing 208.1 217.6 0.3 0.9 6.8 10.6 Shelter 208.1 228.0 0 0.9 6.0 12.4 Residential rents 185.4 171.3 -0.1 0.2 3.8 6.7 Other rental costs 250.2 226.3 0 0.7 17.5 12.0 Homeownership 221.4 248.2 0.1 1.1 6.2 13.7 Fuel and other utilities 244.8 225.9 1.5 1.2 7.4 6.3 Fuels 301.5 264.0 1.9 1.8 10.0 9.0 Fuel oil,coal and bottled gas 367.7 339.5 5.4 4.1 20.4 14.2 Gas (piped) and electricity.. 270.9 244.0 0.2 1.2 5.5 7.7 Household furnishings and operation 190.2 187.4 0.4 0.8 8.9 7.9 Apparel and upkeep 159.1 164.3 2.0 1.8 3.6 5.0 Apparel commodities 151.2 159.2 2.4 1.9 1.4 4.2 Men's and boys' apparel 140.7 158.7 0.7 1.3 -1.3 1.9 Women's and girls' apparel 145.0 151.8 3.7 2.8 2.0 4.4 Footwear 166.4 171.6 3.2 1.6 0.9 6.8 Transportation 212.9 198.1 0.9 1.3 8.2 10.1 Private 204.9 198.1 1.1 1.3 9.7 10.6 Public 239.4 191.5 0.3 0.4 1.8 2.3 Medical care 243.6 233.9 0.2 0.6 7.0 9.0 Entertainment 190.4 184.8 0.9 0.9 4.6 6.1 Other goods and services 197.4 192.8 0.4 0.5 4.8 7.5 Personal care 191.6 192.1 1.1 0.9 2.8 7.8 All items index on the 1957-59 base is 245.7 for New York and 243.2 for Uniteo States. PAGENO="0617" 609 Consumer Price Index for All Urban Consumers, United States and the Northeast, February 1979 . Group ~ Index February 1979 Northeast (Dec. 1977= 100) Percent change to Feb. 19 79 from: December 1978 February 1978 North- east United States North- east United States All items 110.0 1.9 2.1 8.9 9.9 Expenditure classes Food and heveraqes 114.5 3.6 3.9 11.5. 12.7 Food 114.9 3.8 4.0 11.8 13.0 Food at home 116.8 4.6 4.6 12.9 13.9 Cereals and bakery products... 111.4 1.9 2.1 9.2 9.9 Meats, poultry; fish and eqos. 128.6 7.7 7.3 21.6 22.9 Dairy oroducts 111.3 1.7 2.1 10.0 12.2 Fruits and veaetahles 116.9 6.9 8.0 10.7 12.7 Other foods at home 107.0 1.3 1.7 5.5 6.5 Food away from home 110.3 1.8 2.6 9.1 10.9 Alcoholic beveraqes 108.3 1.8 1.8 7.7 7.9 Housing 110.3 1.7 1.9 9.2 10.7 Shelter 111.5 1.8 2.2 10.3 12.2 Residential rents 106.8 1.2 0.9 4.9 7.1 Other rental costs 119.3 4.3 3.8 14.1 12.3 Homeownership 112.8 1.9 2.5 12.0 13.5 Fuel and other utilities 108.4 1.5 1.5 6.8 6.0 Fuels 1/ 106.7 2.2 2.6 8.9 8.7 Fuel ~il,coal and bottled gas 1/ 113.4 5.2 4.6 13.3 9.8 Gas (pTped) and elec- tricityl/ 103.2 0.6 2.1 6.5 8.0 Household furnishings and operation 108.4 1.2 1.1 8.3 8.1 Apparel and upkeep 102.2 -1.3 -1.1 5.7 4.5 Anoarel commodities 100.5 -1.8 -1.6 4.7 3.7 Men's and boys' apparel 99.5 -2.6 -2.2 1.6 1.8 Women's and qirls' apparel 97.4 -2.0 -2.6 6.2 3.5 Footwear 105.2 -1.3 -0.4 4.2 6.0. Transoortation 108.1 1.4 1.6 7.7 9.0 Private 108.7 1.5 1.6 8.4 9.5 Public 102.5 0.9 0.8 2.0 2.1 Medical care 110.3 2.6 2.1 8.2 9.0 Entertainment 106.8 2.0 1.3 5.1 6.0 Other goods and services 106.6 1.2 1.5 6.1 7.2 Personal care 106.1 -1.4 1.7 5.7. 7.1 June iv/ti=iuu. PAGENO="0618" 610 OVER-THE4$~NTH PERCENT CHANGES IN CPI; U.S. NEW YORK. UNADJUSTED AND SEASONALLY ADJUSTED. JANUARY 1972 TO DATE ~A1E ADJUSTED CP1 CHANGES CPI CHANGES U.S. WYNENJ - U.S. NYNENJ CPI JUS~.. CHANGES ~t~UI~LLI DATE ADJUSTED CPI CHANGES U.S. NYNENJ U.S. NYNENJ 0.1 o.5 0.2 0.5 0.8 0.4 0.2 0.8 0.5 0.4 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.4 0.2 0.3 0.2 0.2 0.4 0.2 0.4 0.3 0.2 0.9 0.3 0.3 0.2 0.3 0.4 0.7 0.3 0.2 0.3 0.2 0.1 0.3 0.2 0.4 0.3 0.2 0.3 0.2 0.3 0.7 0.9 0 0.9 1.2 0.5 0.4 1.1 0.4 0.4 1.1 0.7 0.6 0.7 0.7 0.4 0.7 0.8 0.9 0.7 0.5 0.5 0.7 0.2 1.8 0.3 0.1 1.9 0.4 0.1 0.1 1.8 1.8 0.4 0.1 0.8 0.7 0.7 0.6 0.9 1.0 0.7 0.7 0.8 1.0 0.7 1.0 1972: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1973: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1974: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1975: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1976: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1977: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1978: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 1979: Jan. Feb. Mar. 0.2 0.2 0.3 0.2 0.2 0.5 0.2 0.2 0.2 0.2 0.2 0.3 0.4 0.2 0.4 0.3 0.6~ 0.3 0.5 0.5 0.5 0.6 0.4 0.5 0.6 0.4 0.4 0.3 0.5 0.5 0.5 0.5 0.4 0.6 0.5 0.4 0.4 0.2 0.4 0.2 0.3 0 0.3 0.2 0.3 0.4 0.5 0.6 0.6 0.4 0.7 0.6 1.0 0.9 1.0 0.7 0.6 0.4 0.6 0.5 0.8 0.4 0.7 0.5 0.6 0.5 0.4 0.5 0.7 0.9 0.6 0.6 0.4 0.1 0.3 0.1 0.4 0.4 0.4 0.4 0.4 0.1 0.4 -0.1 0.3 0.2 0.4 0.2 0.5 0.5 0.5 0.6 0.4 0.2 0.5 0.4 0.6 0.5 0.7 0.6 0.6 0.5 0.6 0.3 0.7 0.7 0.8 0.8 0.9 0.7 0.8 0.7 0.9 0.6 0.8 0.6 1.0 1.0 0.9 0.8 0.7 0.2 0.6 0.1 0.6 0.4 0.6 0.4 0.8 0.7 0.9 0.6 0.8 0.7 0.8 0.7 0.5 0.3 0.6 0.6 0.4 0.3 0.6 0.5 0.9 0.7 0.9 0.6 1.2 1.1 1.2 0.9 1.0 0.6 1.0 0.7 0.9 0.7 1.3 1.6 1.1 1.2 0.6 -.1 1.1 1.1 1.0 0.8 0.7 0.5 1.3 1.6 1.2 1.1 0.9 0.9 0.8 0.5 0.7 0.5 0.5 0.1 0.7 0.8 0.4 0.1 0.5 0.2 0.4 0.4 0.8 0.5 1.1 0.8 0.3 0.5 0.5 1.1 0.6 0.4 0.6 0.8 0.4 0.6 1.0 1.0 1.3 1.2 1.0 1.2 0.6 0.1 1.1 1.3 0.9 0.7 0.6 / 0.4 1.3 1.7 1.2 0.8 0.9 1.0 0.9 0.6 0.8 0.6 0.5 0.3 0.6 0.4 0.3 0.2 0.5 0.3 0.5 0.5 0.7 0.4 0.9 0.8 0.4 0.5 0.6 0.8 0.6 0.5 0.7 0.9 0.5 0.7 PAGENO="0619" 611 Over-the-year percent change in All Items ConsuMer Price Index for the United States and New York-Northeastern New Jersey Month New York- United Northeastern States New Jersey New York- United Northeastern States New Jersey ] New United Northeastern States New Jersey Year 1974 1975 1976 January February March April May June July August September October November December 9.4 9.8 10.0 10.5 10.2 10.6 10.1 9.7 10.6 10.5 11.0 10.6 11.5 11.0 11.0 10.8 12.0 11.6 12.0 11.9 12.1 11.5 12.2 l0~9 11.7 10.2 11.1 9.4 10.3 8.2 10.2 8.5 9.5 7.7 9.3 7.4 9.7 7.8 8.6 6.7 7.8 6.6 7.6 6.1 7.3 6.5 7.0 6.6 6.8 6.7 6.3 6.3 6.1 6.4 6.1 6.5 6.2 6.5 5.9 6.5 5.4 6.1 5.6 6.0 5.5 5.3 5.3 5.0 4.4 4.8 4.2 Year 1977 1978 1979 January February March April May June July August September October November December 5.2 4.4 6.0 5.0 6.4 5.2 6.8 5.4 6.7 5.5 6.9 5.8 6.7 5.5 6.6 5.4 6.6 4.9 6.5 4.8 6.7 5.3 6.8 5.1 6.8 5.2 6.4 4.8 6.5 5.] 6.6 5.3 7.0 5.4 7.4 5.5 7.7 5.6 7.9 5.6 8.3 6.2 8.9 6.7 9.0 6.6 9.0 6.7 9.3 6.9 9.9 7.5 10.2 7.4 . PAGENO="0620" 612 NEW YORK-NORTHEASTERN NEW JERSEY CONSUMER PRICE INDEX Over-the-year percent change Annual average percent change b1' nonth, March 1978-March 1979 1960-1978 ~ nnnilIl'I1 L~1"15""'"1""1'"'"~"""" aaa:a E~-_~ OVER-THE-YEAR PERCENT CHANCE IN THE CONSUMER PRICE INDEX. SELECTED COMPONENTE, NEW YORR-NORTHEASTERN NEW JERSEY. MARCH 1978-MARCH 1979 18.6 Feud 8.2 TranspcrtatiOn 7.4 ALL ITEMS 7.0 Medinal care 6.8NeuaiEg 4.6 EcteutainceEt. 3.6 AppARel & upkeep 2.8 Pereunal care 1978 1979 PAGENO="0621" 613 ~ \ ~ lodso of gogeeeekly esroiog $01.02 h-f~~~" . _______________________ NYkOtheeste~O Iod$O. `967-100 203.6 $82.5: ..+±4~ - $8O. 32 $83. 140 - $85.40 U6.45 - ~"° .. ,.`-,.. .` 102.9 $83.11 ___________________________________________ $0 ii II It $81.03 970 1973 1976 1978 ~ ~ 23 Note: Opoodsble' esrni$9g9 or sfter t~o pay represeots awerege weekly P~Y after dedoctioo of social secority acd iccose tseee for a worker .esroicg th~ awerago for oil prodoctioc sod related. workers is casofactoriog isdostries sod *taoed et ratee epplicable toecarriedwork- er with three depeodeets. Resl epeodable eeroiogs ore further adjusted for price ohooges - besed on :the CPI for urban wage earners and clerical corkers. PAGENO="0622" 614 n. I A~~itSOO M1t~d St~t~ s~d ~ ~1$1~s. ~~%`7 1979 ll~ ~ PAGENO="0623" -A v r ~ PAGENO="0624" 616 INDEX OF INTERCITY DIFFERENCES IN LIVING COSTS FOR A FOUR-PERSON FAMILY, INTERMEDIATE BUDGET, AUTUMN, 1978 Boston NEW YORE-NORTHEASTERN NEW JERSEY Austin, Texas =100 * 110 120 130 140 Washington, D.C. Milwaukee Buffalo San Francisco Philadelphia Hartford Minneapolis-St. Paul Portland, Maine Detroit Champaign-Urbana, Ill. Cleveland - Chicago Baltimore Seattle-Everett UNITED STATES AVERAGE Denver Green Bay Cincinnati Kansas City Cedar Rapids Indianapolis Durham Pittsburgh Lancaster St. Louis Wichita Los Angeles San Diego Dayton Bakersfield Houston Atlanta Baton Rouge Dallas Nashville Orlando PAGENO="0625" 2 ~ - g - ~--. ~- ~ I 111111111 II~ -. ;..;~: ~: - ~2- ~2 ~ - - - ~ - -- PAGENO="0626" Annual rate of inflation for selected areas, Consumer Price lndexfor All Urban Consuners, March 1Q79 Annual inflation Area rate Mar. 5578- Mar. 1979 San Sieqo 15.7 Denier -Aoulder. 14.3 St. Louis. 13.3 Portland, Oregon. 12.4 Detroit 12.3 Ci ncnnnati 12.2 Malaaukee. 11.4 Washanoton D.C 11.3 Anchoraue. 11.2 Chncaqo 10.9 Seattle.Euerett 10.6 UNITED STATES 10.2 Boston. 9.0 Miami 8.5 Los Anqeles-long Beach 8.8 Philadelohia 8.0 nc.u YORK.ilOPTHEASTERN NEW JERSEY.. 7.4 Baltinore. 6.8 Consumer Price Indea, United States and selected areas for All Urban Consuners, All Itens I d Latest ea onth Area 1/ 505 priced in 1979 Houston. 224.2 February Denser .Boulder. 223.0 March San Diego 221.4 March Cincinnati 215.7 March Portland, Oregon 215.4 March Aeshinoton, D.C 212.6 March Minneacolis-St. Paul 211.8 February Detroit 211.6 March Cleueland 210.1 February Pittsberoh 209.2 February Baltimore. 209.1 March U.S. CITY AVERAGE 209.1 March St. Louis 208.4 March aslooukee 207.6 March Seattle-Euerett 207.0 March Chicano 208.6 March NEW YIRc.NORTHF.ASTERN NEW JERSEn 206.4 March Dallas-Fort Worth 205.8 February Boston. 205.1 March Philadelphia 204.8 March Kansas City 204.6 February San Francisco.Dakland 203.9 February Los Anodes-Long Beach 203.8 March Buffalo 233.0 Felruary Atlanta 201.8 February Anchorage' 201.0 March Honolulu 196.2 February 1/ Area includes the urban portion of the corresponding Standard °etrooolitan Statistical Urea (SMSA) eacept for Los Oninles-Long Peacp.Unahelm chich is anaoore - aation of too SNISAs, and for Sea York and Chicaao, ahich are th e nore em tensuoe Standard Consolidated Areas. Urea definitions are those established for the 1970 census and do not include reoisi ama made since 1970. 618 ANNUAL PERCENT INCREASES IN CONSUMER PRICES BY REGION, 1967-1979 _____ I ~-1i.' ~1 5.5 ~,meeuin _______ 6.6 _____I" ______ UNEMPLOYMENT RATES AND OVER-THE-YEAR PERCENT INCREASES IN CONSUMER PRICES, SELECTED AREAS a.n~ *~....* ____________ala., ___ ___ `October 1967105. PAGENO="0627" 619 FOR RELEASE: Friday, May 18, 1979 SUMMARY OF REMARKS BY Herbert Bienstock Regional Commissioner of Labor Statistics before The United States House of Representatives Commerce, Consumer and Monetary Affairs Subcommittee of the Committee on Government Operations at the Customs Court House 1 Federal Plaza New York, N.Y. May 18, 1979 The inflation rate for the New York-Northeastern New Jersey area has accelerated dramatically in the last year. At 7.4 percent, the over the year increase in the Consumer Price Index for March 1979, the latest date for which data are available, was close to one and a half times the 5.1 percent increase for the preceding year. Leading the increases over the last year were particularly sharp hikes in the food and energy sectors. The price index of foods purchased for home consumption was up 11.9 percent over the year. Among the various food PAGENO="0628" 620 sectors covered by the Consumer Price Index, the sharpest increase was in the meats, poultry and fish component, up 20.1 percent over the year. For the composite of the energy items covered by the Consumer Price Index (primarily fuel oil, gas and electricity and gasoline) the increase was 12.1 percent compared to a 7.0 percent rise for all items less energy. On a positive note for the area, there has been a dramatic shift in the geography of inflation. At 10.2 percent, the March 1979 over the year increase in the national CPI was nearly two fifths above the New York-North- eastern New Jersey areas increase of 7.4 percent. This represents a drama- tic turnaround in the relationship at the latter par.t of theJ96O's and early 1970's. Between 1969 and 1972, the Consumer Price Index in the New York- Northeastern New Jersey area rose at an average annual rate of 5.9 percent, nearly one third faster than the 4.5 percent national average for this period. Among the 17 individual areas across the country for which consumer ~price data are available for March, the 7.4 percent rise for New York-North- eastern New Jersey was lower than each of the others with the sole exception of Baltimore, where the increase was 6.8 percent. Increasesamong the remain- ing 15 areas ranged from a low of 8.0 percent in the nearby Philadelphia area to a high of 15.7 percent in San Diego. Reviewed on a regional basis, the shifting pattern is similar. Between 1967 and 1974, increases in the rate of the consumer price change in the Northeast outpaced each of the other three major regions in the country. In the year ending in February1979, the latest date for which data are available on a regional basis, the increase for the Northeast was the lowest. PAGENO="0629" 621 Annual rate of inflation for selected areas, Consumer Price Index for All Urban Consumers, March 1979 Annual inflation Area rate Mar. 1978- Mar. 1979 San Dieqo Denver-Boulder St. Louis Portland, Oreqon Detroit Cincinnati Milwaukee Washinqton, D.C Anchorage Chicago Seattle-Everett UNITED STATES Boston Miami Los Angeles-Long Beach Philadelphia NEW YORK-NORTHEASTERN NEW JERSEY.. Baltimore 15.7 14.3 13.3 12.4 12.3 12.2 11.4 11;3 11.2 10.9 10.6 10.2 9.0 8.8 8.8 8.0 7.4 6.8 ANNUAL PERCENT INCREASES IN CONSUMER PRICES BY REGION, 1967-1979 4447-147, 1~7l.F,b~.47y ~47~ ~/ $~th.s.t.~ l~4TT~M? P~~th ~ ~.t 6.4 ~3t L ~,, ~ S*~tk ~ ,.~ ~J4.3 ~ ~ J7.1 6.3 I~#TWt~5? `~ Js.a t3~34~7 R33~!W6.2 6~~th W..t ~WTRE*ST ~ I I"' J~.7 ~IN888R~ `.` ~ ~ 1/ 411 l,b.* ~ P4143 I#d*. PAGENO="0630" 622 Mr. CONYERS. We would now like to welcome the regional repre- sentative from the Department of Energy, Mr. Robert Low. We have his statement, which will be incorporated into the record in full, and that will allow you to make your presentation of the high- lights of your statement. Welcome, Mr. Low. STATEMENT OF ROBERT A. LOW, REGIONAL REPRESENTATIVE, U.S. DEPARTMENT OF ENERGY; ACCOMPANIED BY HERB MALIK, OFFICE OF ENFORCEMENT Mr. Low. Thank you, Mr. Congressman. I have to tell you that following Mr. Bienstock is not easy because I am not an economist. Basically, you are dealing with economic problems, and when you talk about the Phillips Curve, I am more likely to think about a brand of gasoline than I am to think about an economic parameter. I have presented a statement, and I notice in a quick overview of our figures that they are relatively close to those presented at page 8 and elsewhere in the document of Mr. Bienstock. As you know, we control gasoline and propane. The other products are decontrolled. The fact is that the prices of petroleum and energy are increasing at a more rapid rate than the Consumer Price Index as a whole, as demonstrated in graph 12 on page 8 of Mr. Bienstock's document. Now, the Department of Energy has been energetic in trying to monitor prices and we have tried to commit our resources in the areas of the greatest possible return, arid it is for that reason that the De- partment has not been able to focus attention, for example, at pump prices, and we have encouraged the States to accept the delegation of authority from the Federal Department of Energy to monitor prices at the pump. Mr. CONYERS. But nobody is enforcing them at any level. People put whatever figure they want on a gas pump, and you either pay it or you leave, and we had a survey report that they are not being enforced anywhere in the country. Ten or twelve gas station owners were hauled up, but we know it is a widespread practice, literally, for them to charge whatever they want. Mr Low As you know, the Department ha~ undertaken some spot checks and sweeps of gasoline stations, and in this area we found about 30 percent of the stations that were checked showed some violation or another. However, we checked one area in upstate New York of some 20-odd station owners, and we found none. Before I came here this morning, I testified before a State Assembly Committee. They had made some sweeps in the Albany area that suggested again that there were significant number of violations. The point I am trying to make, Mr. Congressman, and this is some- thing that you and your colleagues perhaps will want to consider, is this, that we don't have an army of Federal marshals to go out and patrol and monitor gasoline stations. PAGENO="0631" 623 We have, therefore, urged the States to accept the responsibility to monitor prices at the pump. Mr. CONYERS. But they say the same thing. Mr. Low. The State of New Jersey has undertaken this. I cannot speak for your State, sir, but the State of New Jersey has undertaken this, and through a consumer agency, a weights and meas- ures agency which has other responsibilities dealing with prices at the pump. They have been able to do a pretty good job. We only have about 400 people throughout the United States en- gaged in this type of enforcement activity. Mr. C0NYER5. If you are going to give it to the States, can you give us a report of which States are doing a good job and which ones are not? I mean, can we study that because maybe we have to do something more than just delegate the authority and hope that they will pick up the ball, if they happen to feel like it. Mr. Low. I can only talk about this region of the country and indi- cate the States that I am aware of which have picked up this offer of delegation. Massachusetts, Connecticut. Rhode Island is entertaining the pro- posal, as is New York. New Jersey has picked it up, and also the State of Texas. There may be others, but those are the ones I am aware of. I believe your question is right to the point. We are notable to fund these efforts by the States. The only assistance that the Federal Government has been able to extend to the States is to provide training for the inspectors or the auditors. So that one of the considerations that I understand New York State is examining is the question of costs, and you know that with our limited enforcement effort, we have been concentrating on the major refineries; that is, the major oil companies. In connection with that, I believe we have outstanding today some $3.6 billion in alleged violations, and that includes all the major oil companies in the United States. We are placing our emphasis in that area, where the return would amount to something if we can prove the alleged violations. You know that the whole questions of police power is one that is normally exercised by the States. We simply don't have the manpower to enforce prices at the pump. Mr. CONYERS. Do you have a criminal division or an enforcement division inside your agency? Mr. Low. Well, we have two setups. One is an Enforcement Division, and within the Enforcement T)i- vision we have an auditing group and a special investigations group. The special investigations group deals with criminal matters. Aside from that, we have another group known as the special coun- sel, and they are devoting their attention solely to the 34 major oil companies. Mr. Herb Malik, who is with me today, is the person in charge of the area office of enforcement, and he has under him audit and special investigations. But. in this region, I believe he had something like 15 people. PAGENO="0632" 624 So, that includes the whole of the Northeast- Mr. CONYERS. Are those lawyers or law enforcement people, or what are they? Mr. Low. Attorneys, accountants, special investigators, and normal investigators. Mr~ CONYERS. How many lawyers do you have? Six? Mr. Low. Region 2 is responsible for New York and New Jersey, and we have five attorneys. Mr. CONYERS. Is that just investigations of the potential criminal conduct and allegations of misconduct-- Mr. Low. Those 34 oil companies, those are the majors, and those efforts are being undertaken apart from Mr. Malik's effort. In region 2, the only major under investigation, which is under the special counsel, not his responsibility, is Hess out in New Jersey, and there is over $55 million in alleged violations outstanding for that one company. The other majors are domicile, by and large, in Texas or elsewhere, not in this area, and that is apart from his responsibilities. Mr. CONYERS. But what about a label switch that might take place in the New England area? Mr. Low. A what? Mr. C0NYERS. A switching of labels, old oil to new oil. Mr. MALIK. In Texas, again, the Office of Special Counsel in Hous- ton, I believe, is conducting extensive alleged criminal actions that have taken place in that area. In the New York area, which I have responsibility for, there are no such producers involved with the old oil and the new oil. Most of it is in Texas. Mr. Low. We have a document with a schedule as of May 1, which shows the status of all those actions involving the major oil companies. The total is $3.6 billion. That is total. Mr. CONYERS. Can you describe, sir, the nature of your ~ctivities. the scope of your activities, how you go about investigating allegations and building a case, your relationship with the Department of Justice, and so forth? Mr. MALIK. In the New York-New Jersey area, we are responsible for all audits of all petroleum entities domiciled in those two States. We have targeted firms based on complaints. We have targeted firms based on-well, in prior investigations. We have targeted firms based on going to the utility and determin- ing which supplier supplied the utilities at allegedly high prices. Mr. CONYERS. What about consumer complaints? Mr. MALIK. Definitely. During the so-cail~d Arabic embargo of 1973-74. we were receiving hundreds of complaints every day. Most of our audits conducted at that time were as a result of the consumer complaints. Once we target a firm, we will conduct an intensive audit of the firm, look at their costs, look at their sales, inventory records~ and determine if they are or are not in compliance with the DOE regulations. PAGENO="0633" 625 If we determine that they have violated our regulations, we will attempt to secure a consent order with the firm whereby they would refund the alleged overcharges, plus interest, plus penalties. If the firm agrees with our findings, they will sign this document. If they disagree with our findings, we would issue various legal documents. The first thing that we would issue is a Notice of a Probable Viola- tion, which the firm may or may not appeal. After that, we would issue a stronger document called a Remedial Order, ordering the firm to make the necessary refunds, which they can appeal. If by this time the firm still disagrees with our findings and refuses to make the necessary refunds, the case would be referred to the Depart- ment of Justice. Now, these are still civil matters. If we determine that there are criminal matters, such as five firms conspiring to raise the price through artificial manners, that would be referred to a special unit called the Office of Special Investigations, Which would work directly with the U.S. attorney, the Department of Justice, et cetera. Mr. CONYERS. What number of cases and in which categories are presently being handled by your division? Mr. Low. I think if you look at the statement, Mr. Congressman, you will see on- Mr. MALIK. On page 2, at the bottom, as of May 14, 1979, my office had 41 cases pending. These are firms located in New York and New Jersey. We have potential violations in excess of $53 million. Those involved include 1 crude producer. 2 propane resellers, 34 oil resellers, and4 heating oil retailers. These cases are in various stages as per the chart. On some we have drafted legal documents. Seventeen Notices of Probable Violation have been drafted with a potential violation of $42 million. Fifteen of these Notices of Probable Violation have been issued with total potential violations of $9 million. We have drafted four Consent Orders with a potential payment of $490,000. And we have proposed two Remedial Orders, which is the step after the Notice of Probable Violation step, with a potential violation of $469,000. And we have issued three Remedial Orders for a total of $862,000. Mr. CONYERS. Is this good, bad, low or high? Mr. MALIK. I would say this is very high. Mr. CoNY~s. It sounds low to me. Mr. MALIK. This does not include any major refinery. My office has no responsibility for any major refinery. Mr. CONYERS. The Seven Sisters are not encountered here? Mr. MALIK. The what? Mr. CONYERS. Have you ever heard of the Seven Sisters? Mr. MALIK. No, I haven't. PAGENO="0634" 626 Mr. CONYERS. This is absolutely incredible. Mr. Low. The Seven Sisters would be included in the 34 major oil companies that are-they are the responsibility of the Special Counsel. The only one of the 34 that is within the region, but not his re- sponsibility, is Hess. The others are out of Houston. Mr. CONYERS. Are you an attorney? Mr. MALIK. No, I am an accountant. Mr. CoNri~Rs. The Seven Sisters are the seven largest transnational corporations, five of which are the-five of which are United States- based, which constitute the giants in the oil industry. You have never heard that phrase before? Mr. MALIK. I have heard it, yes, and I knew it involved the major refineries. Mr. CONYERS. Let me ask you, is there any gasoline shortage in the New York-New Jersey area? Mr. Low. Yes. We are under severe stress right now and we have had spot shortages. We are in a very tenuous situation now, going into the Memorial Day weekend. The weekend, of course, is at the end of the allocation month. We have special situations in areas that depend for~their economy ~upon the summer tourist trade. That includes the so-called South Fork of Long Island, which ex- tends basically from Riverhead to Montauk. It includes ~also other. areas;in the two States, in particuiar the South Jersey area. And we are, in those ~cases, having to encourage local people to apply to the Office of Hearings and Appeals in Washington for ex- ceptions to the:regulations. We cannot deal with those~ local situations adequately through the allocation process. Mr. CONTERS. What kind of exceptions are the kinds that are normally filed? Mr. Low. The difficulty, for example, in the Long Island area, is that four Shell stations have gone out of-business -within the last 18 months. Through the usual allocation process, the gallonage that was pro- vided to those four stations cannot now -be provided to other stations in thesame region. The only way they ~can achieve equity or the only course for them -tofollow is totake an exceptionfrom the regulations. This is aprocedurethat is an established one. However, it requires making the application to Washington. So we, in our regional office, are assisting the people in that par- ticular area, guiding them in how this step should be taken. Mr. CONIERS~ What caused them to go out of business? Mr~ Low. In this ease, these were independent dealers, and they did most of their business in the summer months between, let's say, June 1 and October 1, but with heavy emphasis in July and August. This is a very heavy recreational area with a relatively limited all- year population. PAGENO="0635" 627 The stations apparently were uneconomical. No other independent dealer would want to pick up the dealership, and I understand that, in some cases, the sites have been sold for other purposes. Mr. CONYERS. What about the theory that the. biggies merely forced the independents out of business? Mr. Low. We have had a number of hearings on this out on the Island. The Shell people did not attend the hearings, and- Mr. CONYERS. Maybe they declined to show up because they weren't subpenaed. Mr. Low. Well, it was not our hearing. I am not certain of the ground rules. Mr. CONTERS. I mean, if it is a very unfriendly hearing and some- body may raise this kind of a claim, maybe the safest thing is just not to show up. Mr. Low. Yes. I cannot account for the oil companies that were not here to defend the oil companies. I was trying to explain that situation there. It is not quite the same as the situation it appears to be when an oil company proposes to withdraw from the service territory. I believe in your State, Texaco has proposed to withdraw, that is, the same proposal to withdraw affects 41 counties in New York State~ and under those circumstances Texaco will be held to find a substitute supplier or a dealer, and we, as the Department, intend to hold Tex- aco to the regulation. In this case, we had a different situation. It was not the supplier withdrawing. It was, in effect, the independent dealer saying "Hey, I cannot make it on 2 months to 4 months of gasoline sales," and nobody else wants to pick up the business. Mr. CONYERS. But that is the history of the oil competition in America. It has been marked by these absolutely fierce struggles between the large, entrenched organizations versus the latecoming, smaller independent in these terrific price wars, ending up-if we studied the history of this particular part of our economy, they have been con- stantly in this battle. Now, in a way, one might propose that the Department of Energy is facilitating this because not only do the independents-I mean, cur- iously, only the independent felt it, nobody else was hard hit by these policies, and then we lose this amount of allocation, and unless we go through a completely complicated procedure, the whole area is now short this much gasoline, compounding the problem enorm- ously, in my view. Mr. Low. Yes; that is a correct analysis. You have the figures. Nationwide, the number of gasoline stations are sharply down. In this particular case, it seemed to be particularly inequitable be- cause they will have the-the reason is based on summer tourism, and they want to get the gallonage. PAGENO="0636" 628 If you looked at a map of Long Island, you would, in effect, see that the stations had withdrawn from the eastern fork of the Island, and that as you get back toward the center of the Island there are plenty of stations, and those would be year-round stations. Mr. CONYERS. Your testimony is very excellent. To what extent, then, can I believe the claims of some of the larger transnationals in oil who claim that their average dealer, even in the crunch, is making $100,000 a year ~ Mr. Low. I haven't any data on that subject. Mr. CONYERS. There has been a public notice in the papers, the newspapers. In Washington, they were claiming that the dealers are doing OK. Mr. Low. Let me say this, sir: Just as an example, and you perhaps know this, but it is hard for me to believe that that would be the general case. The permissible margin is set at so many pennies. If they sold gasoline, let us say, at 40 cents, and they were per- mitted a margin of 10 cents, they would sell it at 50 cents. If gasoline is at 90 cents, they are still permitted to sell it at $1. The 10 cents margin continues to exist, with some adjustments. So that, unless the station is ignoring the controls and the price regulations, I would doubt that he has been able to increase his profits in that manner. As a matter of fact, the Department is concerned that the local re- tailer be permitted to have the inflationary impact taken into account in the~ establishment of his permissible retail price, and I think the illus- tration that I have givenindicates that inflation has not been taken into account when those regulations were examined. Mr. CONYERS. This is all very helpful and we are grateful to both of you for joining the subcommittee at this time. We will probably be in contact with you for any further details that we might need to fill out the record. [Mr. Low's prepared statement follows:] PAGENO="0637" 629 STATEMENT OF ROBERT A. LOW REGIONAL REPRESENTATIVE OF THE SECRETARY OF ENERGY BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES THE SUBCOMMITTEE ON COMMERCE, CONSUMER, AND MONETAJ~Y AFFAIRS OF THE COMMITTEE ON GOVERNMENT OPERATIONS MA'~ 18, 1979 PAGENO="0638" 630 Mr. Chairman, I appreciate the opportunity to appear before you today to discuss oil and gasoline prices in this region and the Department of Energy's activities in enforcement of energy pricing regulations. In the past three years, retail prices for #2 homé heating oil in the New York area have risen by about 50%, from an average of 40 cents a gallon in January, 1976, to 61.8 cents a gallon in April, 1979. As. the graph in Exhibit 1 indicates, the sharpest increase occurred be- tween October, 1978 and last month, when the average home heating oil price rose from 51 cents a gallon to 61.8 cents. State and local sales taxes must be added to these prices. Gasoline prices have increased substantially in this area. As Exhibit 2 indicates, the average motorist was paying 62.3 cents a gallon for major-brand regular gasoline ln New York City in January, 1976. Today, the average retail price including all sales and excise taxes, for major-brand regular gasoline in New York City is 80.1 cents a gallon, an increase since January, 1976, of about 28%. Enforcement Activities From January 1, 1977, to May 14, 1979, the Economic Regulatory Adminlstratio&s Office of Enforcement has worked on 148 audits and investigations of oil industry PAGENO="0639" 631 firms in New York and New Jersey. Fifty-three of these cases have been closed with a determination of no violation. Fourteen cases were closed in various stages of audit under the Department's Accelerated Closure Policy, which provides for termination of cases in which the Department deter- mines that no criminal violation exists, and the potential civil violation is not of sufficient size to merit further expenditure.of audit time. Closed Cases--Violations Found The Northeast District has found violations and closed 34 cases involving crude oil producers, propane retailers, resellers (also known as oil distributors), and oil retailers domiciled in New York and New Jersey. More than $2.1 million in refunds, rollbacks, and penalties have been levied against these firms. Exhibit 3 is a printout listing these 34 cases by name and showing the amount of refunds, rollbacks, and penalties. Open Cases--Potential Violations As of May 14, 1979, the Northeast District has pending 41 cases In New York and New Jersey with total potential violations of more than $53 million. This I PAGENO="0640" 632 group includes one crude oil producer, two propane resellers, thirty-four oil resellers and four heating oil retailers. The status of these cases is as follows: 17 Notices of Probable Violation have been drafted, with total potential violations amounting to more than $42 million; * 15 Notices of Probable Violation have been issued, with total potential violations amounting to more than $9 million; * 4 Consent Orders have been drafted, with potential payments of $490,000; * 2 Proposed Remedial Orders have been issued calling for payments totaling $469,000; and * 3 Remedial Orders have 1?een issued calling for payments totaling $862,000. Retail Gasol i ne - Sweeps The Department of Energy's basic strategy has always been to concentrate its auditing resources in areas where the potential exists for maximum return for time invested. This has, for the most part, meant that our auditors were investigating producers, resellers, and, in a few cases, large-volume retailers. Recently, however, audit teams have been directed by the ERA headquarters in Washington to conduct audit PAGENO="0641" 633 "sweeps'1 of gasoline retail outlets. During the week from April 16th to April 20th, the audit team checked 103 gasoline stations in New York City and Long Island. Sixty-six stations were found to have no violation of the price regu- lations. Notices of.Probable Violation were issued to 16 stations, and at 21 stations where violations were found, the proprietors si gned consent orders, lowered their prices on the spot, and paid penalties ranging from $25 to $500. The overcharges ran as high as six cents a gallon; overall, they averaged about two cents. Two other service stations in Manhattan were audited in recentmonths because their posted prices were noticeably out of line with prices prevailing inthe market. One, a Mabil station on First Avenue at 62nd Street, was issued a Notice of Probable Violation alleging overcharges of more than $75,000 dating back to 1g73. The other, a Texaco station at First Avenue and .37th Street, has posted a price of 99.9 cents a gallon for premium gasoline. Our investigators issued the operator a subpoena and will review the firm's records to determine whether the prices were properly computed. 52-214 0 - 79 - 41 PAGENO="0642" 634 Criminal Investigations In addition to the civil investigations we have described, the New York unit of the Office of Special Investigations has 6 potential criminal cases under Investigation in New York and New Jersey. Some `of these cases involve alleged "daisy chain" operations, in which product prices are increased artificially by transferring ownership of the product from one firm to another without physically moving the product. Major Oil Companies The foregoing information applies to investigations of firms domiciled within New York and New Jersey. For audits and investigations of the 34 largest oil companies in the country, whose corporate headquarters are located in various parts of the United States, the Department of Energy has assigned responsibility to an Office of Special Counsel in DOE headquarters. As of May 1, 1979, this office reported civil suits filed and documents issued to major refiners calling for an aggregate amount of $3,6 billion in penalties, refunds, and other adjust- ments. ` PAGENO="0643" 635 One of these fjrms, Hess, is domiciled in this Region. DOE's Office of Special Counsel lists three actions pending against this firm. These actions are as follows: * a Proposed Remedial Order amounting to $678,000 involving fee-free imports; a Notice of Probable Violation amounting to $3 million involving an overcharge by a foreign affiliate forimported crude oil; and * another Notice of Probable Violation of more than $55 million involving incorrect classification of customers. These three actions were filed in August and October, 1978. PAGENO="0644" #2 lEAPING OIL HICES (RESIDENTIAL) REGION II ~/Ga1lon Sources Monthly Ener~ Review January February March April May June July Auguet September October November December (1) 140.0 140.3 39.8 L~O.0 39.7 141.1 39.8 140.3 140.8 141.14 142.14 143.6 144.9 15.8 1~6.3 146.5 146.14 146.14 146.14 146.14 146.7 147.3 148.1- 148.6 149.2 149.3 149.3 149.2 149.1 149.1 149.0 149.0 149.7 51.0 52.3 53.14 514.6(p) 58.1(p) 60.0(p) 61.8(p) NA P~Pre1iminaxy NOTES: 1. January 76 - October 77 data are for Mid-Atlantic Ceneue Region: New York, New Jersey and Penneylvania; other data for New York and New Jereey 0g3 2. February - April 79 data are estimates based on states' heating oil price surveys. PAGENO="0645" 637 #2 h.C.19 ~ - i~ii; ~ 4~-J. /111 ~~h,b,-t 2 . : ±1 LIILII 57 ~ ~ H~ .--. -- .~ . . - -flt" - *~*** -.---. .-~-..----~.--.. ---~--.--- --.~.. .e? ~ . - - It_____ .. :r~df{flTr - 4t~ - - - - - t_~. `~`~ 1911. PAGENO="0646" MOGAS PRICES MAJOR BRAN]) REGULAR NEW YORE CITY Source: Oil anti Gas Journal !=/Gallon, Includ.th8 Tax January February March April May June July August September October November December 62.3 61.3 61.0., 60.9 62.0 63.9 61.1 65.1 614.9 614.5 614.3 614.0 614.0 614.14 65.14 66.14 66.14 66.14 66.14 65.8 65.14 65.14 65.14 614.7 63.7 63.7 614.0 65.0 66.14 68.1 69.0 69.5 71.7 71.7 72.8 73.9 .121k 739 7146 7614 786 8o1~ (i) May 1 price PAGENO="0647" 639 c;2s - pp ii' rn-n PAGENO="0648" EXHIBIT 3 -- Closed Cases FF011 liT . ECONOMIC REGULATORY ADMINISTRATION ._. ......_. ~FRt1)(~ 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE TIlT:: NORTHEAST DISTRICT rETAIL OF CLOSED VIOLATION CASES ~iI~' 011 ICE 21...-- - ---*-.-.---------------- -___________ FOILLER (OTHER) UNII:OL - ... _... . ._ DATE AUDIT DATE DAYS TO AUDIT~ .SP INV..RESOL - HURlER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 210H00018 AUSTIN R. NEWCOMBE 11/26/74 11/18/77 03/23/78 1213 517 0 20 1 REFUND $45,261 -_ . .. - ... __.._..5~.ftE.NALTY_ TOTAL . $45,761 DISTRICT NORTHEAST EIISTRICT AREA 21 RESELLER (OTHER) . . TOTAL AUDIT HOURS (10 HOURS) 517* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* ......TITAL.RESOLUTION_HOURS.(20 HOURS) ..~ .... 20* TOTAL HOURS 537* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $45,261 -- ~.....TOTAL~.PENALT1ES .._. . - $500 TOTAL SETTLEMENT/PENALTIES $45,761 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0649" - 210K00009 RING SERVItE,INC~THE 09/29/74 11/09/76 07/25/77 1030 210K00011 CHAPMAN'S MOBIL SERV 03/03/75 12/29/75 04/11/77 770 210K00014 DOMINO PETROLEUM COR 07/22/74 03/06/78 03/26/79 1708 210K000.15._ NORAN!.S_EUEL~OLL- CON. 02118174-. .01116/75.. - 2L0K00020- AHOS...POST.,-.INC+__. --~ 01/06/75-01/29/75 ..~09/16/77. 21oNoOo2a_BRowNsON-ENTERP4~zsEs-oJ122/75 - 12/03/75 .04/27/77 fL~UiA~ ~O15 ---- -- . ECONOMIC REGULATORY ADMINISTRATION------ - FLI- A: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION AN,:r:I(::: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES ~/UL~-J} F-LCC~ 21 -._.--.---- .. .-.-- ---- ...- -_ RE.TI!I..LF< (OTHER) .CUNTROL ________.........._..___.DATE AUDIT DATE DAYS TO AUDIT ~..SP INV_RESOL._ NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* 210K00008 CARPENTER SMITH,IN 12/19/74 12/10/75 02/04/77 778 0 0 37 PAGE: 2 TYPE OF SETTLEMENT 1 REFUND $29,167 5.E.ENALTY $2.LOQO TOTAL . $31,667 104 -~---..- ---. .0 8 1 REFUND $289,631 5 PENALTY ~___$.5LQQO TOTAL $294,631 . ~ 47 . . -. . . 0 103 3 ROLLBACK $18,097 .~..________________ ~ TOTAL $19,097 . * 200 0 234 - 1 REFUND $3,537 TOTAL $3,537 A 2~ 1 REFUND $6,451 5 PENALTY - . $500 TOTAL . $6,951 - .... ~ A 19_..... 1 REFUND $59,644 5 PENALTY ~ $1,000 - . ~ TOTAL $60,644 A ~ ,: 3 ROLLBACK . - $46,981 - 5 PENALTY - TOTAL PAGENO="0650" KEPONT LOiS . ECONOMIC REGULATORY ADMINISTRATION . . -. O5/t4t79_..._ PERIUI. 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE 3 IIsrEICr: NORTHEAST DISTRICT . DETAIL OF CLOSED VIOLATION CASES AREA OFEICLI 21 _.. .._ ... . - RETAILER (OTHER) .uNTR(JL -. ..-... ....- . ..-..... . -. *. DATE AUDIT DATE DAYS TO AUDIT . . SP INV..- RESOL . - N(I,IIiER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT DISTRICT NORTHEAST DISTRICT AREA 21 .__._.RROGRAM. RETAILER (OTHER) TOTAL AUDIT HOURS (10 HOURS) 466* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* ...~.____TOTAL._RESOLUTION HOURS (20.HOURS) 432* .. TOTAL HOURS 898* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $453,508 . __...TOTAL_PENALTIES.- . . $11,500 TOTAL SETTLEMENT/PENALTIES $465,008 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED DISTRICT NORTHEAST DISTRICT AREA 21 PROGRAM * TOTAL * TOTAL.AUDIT..HOURS (10 HOURS). . 983* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 452* ..TOTAL..HOURS.- _._ .. . ... .1.435* . ~.~__.___ TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $498,769 TOTAL PENALTIES $12,000 .. ....TQT.AL..SET.TLEMENTIPENALTIES.-- . $510,769 ._....*....INCLUDES-HOURS CHARGED BY MONTH ONLY ~- CURRENT. MONTH NOt-INCLUDED.-.-.. - PAGENO="0651" .....kLfoKr E015..--.-...-- ...-. ... ECONOMIC REGULATORY ADMINISTRATION---- PIr~t.'L: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION ribiRIci: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES ~-AkEA-U1E-3.CC4---23 -**-- ---------- ---- _. _. - __________ RCSELLER (OTHER) CONTROL____________ ._ .._.- - DATE - AUDIT . DATE DAYS_TO NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE 232H00137 SEARS PETROLEUM IRAN 02/06/76 12/23/77 05/01/78 815 232H00206 BUSLER AND HUDDLESTO 09/10/76 12/09/76 07/15/77 308 DISTRICT-NORTHEAST DISTRICT.---.. - . AREA- -----23 _______________ PROGRAM RESELLER (OTHER) TOTAL AUDIT HOURS (10 HOURS) 1,891* TO.TAL_.SPECIAL-.INVESTIGATION.HOURS (12.)~_.._-... -. 0*.. TOTAL RESOLUTION HOURS (20 HOURS) 29* TOTAL HOURS 1,924* TÜT.AL.SET.TLEMENTS_(EXCLUDING PENALTIES)-. - $67,014 TOTAL PENALTIES $1,000 TOTAL SETTLEMENT/PENALTIES $68,014 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED 131 0 22 _.05L1.412.9__ PAGE: 4 AUDIT _SP.-INU_RESOL_ HOURS* HOURS* HOURS* 1673 0 0 TYPE OF SETTLEMENT ~._.__ . 1 REFUND 1 REEUND________________ 5 PENALTY WRIGHT-WAY OIL CO 05/18/76 06/11/76 01/18/77 245 - - --*--- ---.--. *--- TOTAl 232H00181 91 0 . 7 ~ .ROLLBACK___--~______ 1 REFUND . ... - . ... - ..~ TOTAL $6,380 $1,000 $61 ~22R_ ________$2,.55L $935 ~-( ~(1a9 _$1.,.183.~ 82.064 3 ROLLBACK TOTAL PAGENO="0652" k~PORT 015 . ECONOMIC REGULATORY ADMINISTRATION . . - .. . 05~'14/79_--. FEDIOE: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE:' 5 [(STRICI~ NORTHEAST DISTRICT : DETAIL OF CLOSED VIOLATION CASES ADEA OFf ICE 23 . -- - - . - -- - RI~TAILER (OTHER) ~uMTROL. _.. - --. _-. DATE AUDIT DATE DAYS TO AUDIT SF' INV .RESOL NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 2321(00162 DUNBAR OIL CO~ 03/22/76 07/16/76 03/29/77 372 89 0 18 3 ROLLBACK $3,249 - ,. ... .3 ROLLBACK . .. - .5819._ TOTAL $4,068 DISTRICT NORTHEAST DISTRICT AREA 23 .___~_._F'ROGRAM..-AETAILER (OTHER) - TOTAL AUDIT HOURS (lOHOURS) 89* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* ______~_-.TOTALRESOLUTIONHOURS(20 HOURS) _ .. 1(3* TOTAL HOURS 107* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $4,068 ..__.-4OTAL-.PENALTIES-- .. . . $0 TOTAL SETTLEMENT/PENALTIES $4,068 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED DISTRICT NORTHEAST DISTRICT AREA 23 PROGRAM * TOTAL * .~...____.TOTAL_AUDIT HOURS (10 HOURS) . . . 1,904* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 47* .____-TOTAL-.HOURS.- . - . 2,031* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $71,082 TOTAL PENALTIES $1,000 ._TOXAL.SET-T.LEFIENT/PENALTIES $72,082. ....________~*~-.INCLUDES HOURS CHARGED BY MONTH .ONLY -- CURRENT. MONTH...NOTINCLUDELL__-------------- PAGENO="0653" - ~ P015 .- - ... -... .- ECONOMIC REGULATORY ADMINISTRATION PERJ:': 01/01/77. - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION 1ISTR1CT: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES --AR) A -CIFFICE4--24------- .... ..~ . CktJtP OIL PRODUCER DATE. . AUDIT . DATE . DAYS TO-. NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE 240C00002 BELCO PETROLEUM CORP 01/08/75 11/20/78 01/02/79 1455 DISTRICT NORTHEAST DISTRICT AREA 24 PROGRAM CRUDE OIL PRODUCER ._.__..TOTAL-AUDIT HOURS (10 HOURS) ._-.. .3,869* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 303* TOTAL_HOURS-.. _ --.-_ .__ ..-...___.._ .4,252*-.--.. TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $230,893 TOTAL PENALTIES $0 -_________ ._TOXAL_.SE.IILE11ENT/FENALT.IES.__..~....--....... $230~893. * INCLUDES-HOURS CHARGED..BY. MONTH ONLY .-~. CURRENT. MONIH.NOX. _~O5/14I29_ PAGE: 6 HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 3869 ~ 0 383 1 REFUND - $230,893 TOTAL $230,893 PAGENO="0654" RrFO~1 £015 ECONOMIC REGULATORY ADMINISTRATION . 05/14/7L.. F~ER1ul: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE: 7 r)IT~1c.T; NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES - ARIA OFFICEI 24 -.--.--." -.. PROI-RNE RETAILER CONTROL - DATE AUDIT DATE DAYS TO AUDIT. . SP INV ...RESOL ,....... . ... _________ NURSER FIRM NAME ASSIGNED COMPLETE. CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 240E00307 N.J.PROPANE CORP 10/22/74 03/26/75 02/01/77 833 . 137 0 42 1 REFUND $10,891 TOTAL $10,891 DISTRICT NORTHEAST DISTRICT AREA 24 PROGRAM PROPANE RETAILER - . ...._.TOTAL AUDIT HOURS (10 HOURS) . .. . 137* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 42* .......____-_T-O.T.AL. HOURS-. ._ . . . ... 179* . . - _.. ~. .__---. TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $10,891 TOTAL PENALTIES $0 ._.~__---TQTAL SETTLEMENT/PENALTIES . $10,891 - ~ -- - ____________._-* ~INCLUDES HOURS CHARGED BY MONTH ONLY..-- CURRENT MONTH. NOT_1NCLUDEIL._._~___...-_.__-~__------.- PAGENO="0655" * ------- .- ...-.-.___.-._ O5/14179._-_-__ PAGEI 8 - I(E(UI(T EO1I . .- ECONOMIC REGULA1OFIY ADMINISTRATION - ~cRIor: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION DISFRICE~ NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES ARUA.OFFICEI 24---------- ------- - *..__ Rc~rL,ER (OTHER) .CONIROL__.-_ ~ *- DATE AUDIT DATE . DAYS TO -AUDIT . SF. INV-RESOL.----...---. NUME'ER FIRM NAME ASSIGNEE' COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 240H00095 HOWARD OIL COMPANY 03/10/75 07/03/75 03/30/79 1481 134 0 02/04/77-462. - -..~___.--.. ----sui~oii~ 04/18/78-.. 645._ .. 641 1 REFUND - $0 TOTAL ~ 0 7Q ---- 1 REFUND 5 PENALTY $0 ---*--_______ $24,030 $750 . .240HOO426__SLJJE~-RtDGE_EUEL~~O1L._O7/12/76 09/23/76. 1129.... (1 TOTAL ~1t__...._ $24,780 ~. 5 PENALTY 1 REFUND $10,000 $144,488 . TOTAL $154,488 24OHOO448__MAGULL1AN-~HEAT I..OIL 12/02/76 . 12/27/76 04/15/77.. . 134 - - . ... 310 0 1 REFUND -____________________________________ $19,679 - .. . - ~ ~.TOTAL._.._._ ..._$19r.679______ 24OH00460 FRED M SCHILDWACTER 11/03/77 03/28/78 -- -- -- - -- 08/31/78 301 524 . 0 2 - TOTAL $40,000 240H00461 MAUE OIL CO 11/09/77 04/13/78 05/01/78 173 240 0 0 1 REFUND $65,327 - ________________~CENALLV _~5OO TOTAL $65,827 2401(00465 SCARAN OIL SERVICE 11/14/77 01/10/78 06/20/78 218 132 0 11 1 REFUND $2,715 TOTAL . $2,755 2401100474- BLUE-.RIDGE.FUELOIL 07/12/76 01/10/78 07/10/78 . .728 0...._.Q___~15 -- .._.______.. 1 REFUND $458,658 PAGENO="0656" REruRT COil . ECONOMIC REGULATORY ADMINISTRATION . . 05/14/79__ )(f.RiL 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION . PAGE: 9 r1rRIcJ: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES AILA OFFICE:. 24 . . . . - .. ________ HESELLER (OTHER) ..~CONTRC)L.~...-. .-_ ..- DATE AUDIT DATE DAYS TO AUDIT SP INV RESOL - ... ________ NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT .... . .. . ~. TOTAL -- $483,658 DISTRICT NORTHEAST DISTRICT AREA 24 --PROGRAM RESELLER (OTHER) . . .. ____________________ TOTAL AUDIT HOURS (10 HOURS) 3,105* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* ....TOTAL. RESOLUTION HOURS (20 HOURS) 1,050* . ...... _. TOTAL HOURS 4,155* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $754~P37 .-_--.---------TOTAL..FENALTIES . .. . - $36,250 _______________ TOTAL SETTLEMENT/PENALTIES $791,187 . * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0657" 0 suioir COlE . -. ECONOMIC REGULATORY ADMINISTRATION .. .~-.. --- Nhlut': 01/.01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE: . b)TRIcT: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES --- . RI TAILI:R (OTHER) - CONTROL .. -- .__. - DATE AUDIT . DATE DAYS TO. AUDIT -- SP .INV . RESOL NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* - HOURS* TYPE OF SETTLEMENT 2401<00396 PLYMOUTH ROCK FUEL 03/16/76 04/23/76 11/07/78 966 224 0 62 1 REFUND $847 TOTAL $847 .240K.00458__.Ofl_ CITY RE..IROLEUM .._02116/77 .... 01/04/78 .01/09/78 . L15 ..._.-._ 166.._ 1) () - 1 REFUND $411 -. . -- .. . - .. - ". . ....... ~.________________ .............D.ISTRICT_NORTHEAST.DISTRICT.. AREA 24. .. - - PROGRAM RETAILER (OTHER) TOTAL AUDIT HOURS (10 HoURS) 390* INVESTIGATION HOURS (12) 0* . TOTAL RESOLUTION HOURS (20 HOURS) 62* TOTAL HOURS 452* SETTLEMENTS.-(EXCLUDING PENALTIES) ..-.. $1,258..-.._ - ._...~_. TOTAL PENALTIES $0 . TOTAL SETTLEMENT/PENALTIES $1,218 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED DISTRICT NORTHEAST DISTRICT AREA 24 -...* TOTAL * ._ .. TOTAL AUDIT HOURS (10 HOURS) 7,501* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL..REIOLUTION HOURS.L20 HOURS) 1,537* .~. ~ TOTAL HOURS 9,038* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $997,979 ..___._..TGTAL.PENALTIES -..- .. $36~250 TOTAL SETTLEMENT/PENALTIES $1,034~229 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0658" RI) 0(1 1015 - IllIto-: 01/01/77 - 05/14/79 rIi31I1t1: NORTHEAST DISTRICT ECONOMIC REGULATORY ADMINISTRATION ....--.. -- OFFICE OF ENFORCEMENT INFORMATION PAGEI 11 DETAIL OF CLOSED VIOLATION CASES . AREA OFFICE: 25 -- - - - RETAILER (OTHER) - CONTROL ... .~ DATE AUDIT DATE DAYS TO AUDIT SF INV RESOL - - .- NUMBER FIRM NAME ASSIGNED 250K00086 SUBURBAN AVIATION SE 01/12/76 - - - -- COMPLETE 07/26/76 CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 09/08/77 605 164 0 164 3 ROLLBACK $10,505 - - 5 PENALTY - -. .. - ._ ~750_ TOTAL $11~255 681 452 0 23 3 ROLLBACK $4,169 - - 3. ROLLBACK -- 1 REFUND $10,014 1 REFUND $14,669 ~ TOTAL $30,608 738 525 0 269 3 ROLLBACK $54,583 - - . ._ ROLLBACK 5 PENALTY $750 - - TOTAL_.. .. -.. -_~.. $62,.430__ 622 272 0 198 .....___._5..PENALTX__~.._____________....$5O0.- TOTAL $500 90 123 0 30 3 ROLLBACK $6,913 ._.___t500 TOTAL ~ $7,413 - 250K00088 WALL HERALD CORP 01/28/76 10/06/77 12/09/77 - 250K00089 - AERO SERVICES - 02/06/76 10/06/77 02/13/78 250K00091 EDGEW000 TERRACE MOB 02/25/76 10/06/77 11/08/77 2~0K00116 WESTFIELD TEXACO 04/14/77 06/09/77 07/13/77 DISTRICT NORTHEAST DISTRICT AREA 25 _PROGRAM ~RETAILER (OTHER) . . TOTAL AUDIT HOURS (10 HOURS) 1,536* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* - -.---.--TOTAL-RESOLUTION--HOURS (20 HOURS) - --. - - 684* TOTAL HOURS 2,220* DOTAL SETTLEMENTS (EXCLUDING PENALTIES) $109,036 -. -TOTAL--PENALTIES --. - - - - $3, 210 TOTAL SETTLEMENT/PENALTIES $112~286 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0659" TYPE OF SETTLEMENT -`F~(RI E015 . - . -. -- . ECONOMIC REGULATORY ADMINISTRATION -. --- -. ---.------.---- i-i~roi: 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE: 12 ti~r~rcr: NORTHEAST DISTRICT DETAIL OF CLOSED VIOLATION CASES All A OF.~~E4- 25 *~---- - - - HI1AILER (OTHER) CONTROL--- .-- - ---~.---.- DATE ..--... AUDIT DATE . - DAYS TO AUDIT--.- NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* DISTRICT NORTHEAST DISTRICT AREA 25 ._..__--P-ROORAM. -- * TOTAL * -- - ..- - - . - TOTAL AUDIT HOURS (10 HOURS) 1,536* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* ..______.TOTAL~RESOLUT.ION~HOURS-(2O HOURS) ----- 684* - TOTAL HOURS 2,220* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $109,036 *.~..TOTAL.PENALI1ES----- .. - .... $3,250 TOtAL SETTLEMENT/PENALTIES $112,286 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0660" ECONOMIC REOULATORY ADMINISTRATION OFFICE OF ENFORCEMENT INFC)RMATION DETAIL OF CLOSED VIOLATION CASES REf'O~T COLU 05/14/79__... FERmI: 01/01/77 - 05/14/79 PAOE 13 DISIF~ICT NORTHEAST DISTRICT AREA OEFICEI 26 .....- . . . . . . . - - - .-.. ________ RETAILER (OTHER) CONTROL - ... - -. ... - _. . DATE AUDIT DATE DAYS TO AUDIT SP INV RESOL NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 260K00002 ABCO FUEL SERVICE IN 12/20/74 12/23/74 05/03/77 865 0 0 8 1 REFUND ` $3,109 TOTAL $3,109 ....260N000048108...UT.ILITIES -.42/11/74 .12/30/74 05/03/77 .. 874 ...0__3_._......_.._____._...... 1 REFUND $3,671 _._._._.._.___....TOTAL................~ 260K00031 UNIVERSAL UTILITIES 12/05/74 09/13/76 01/31/78 1153 581 0, 10$ _.__.~. -- . . . . - . 5 PENALTY $500 - . .. . . ..__..__~ .....TOTAL ...... - ... -- D~STRICT..NORTHEAST..-DISTRICT ..... .... AREA 26 .._______ PROGRAM RETAILER (OTHER) TOTAL AUDIT HOURS (10 HOURS) 581* ~__.TOTAL..SPECIAL INVESTIGATION HOURS (12) . 0* - TOTAL RESOLUTION HOURS (20 HOURS) 119* TOTAL HOURS . 700* .__._._._TOTAL-.SET.TLEMENTS (EXCLUDING PENALTIES) . $101,945 ...-.. `TOTAL PENALTIES $500 TOTAL SETTLEMENT/PENALTIES $102,445 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED DISTRICT NORTHEAST DISTRICT - AREA 26 TOTAL AUDIT HOURS (10 HOURS) 581* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* - .._________IIITAL_RESOLUTION.HOURS (20 HOURS) 119* .-. _________________________________________________ TOTAL HOURS 700* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $101,945 -TOTAL-PENALTIES .. $500- ____________________________ TOTAL SETTLEMENT/PENALTIES $102,445 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PAGENO="0661" DISTRICT NORTHEAST DISTRICT AREA 27 PROGRAM RESELLER (OTHER) _.TDTAL.AUOI.I~J-1OURS._(..L0HGURS).. TOTAL SPECIAL INVESTIGATION HOURS (12) TOTAL RESOLUTION HOURS (20 HOURS) ...TOTAL..HOURS.____ -_ TOTAL SETTLEMENTS (EXCLUDING PENALTIES) TOTAL PENALTIES __________ 0*._._ --.. .-.-.._--.-...--...-.... --. .-_-.. .----. ..- - 0* 42* ________ _____ $214,900 $0 ~ .$214,.900 . -. . .~ - - _______ *_I.NcLUDEsHaURa_CHARGE&aY_MoNTh.ONLr~-_ CURRENT.. MONTH. NOT.. .INCLUDED .. ... ____________________ --REPORT-E01.5- - ----------- ECONOMIC REGULATORY ADMINISTRATION PERIOD: 01/01/77 - 05/14/79 OFFICE OP ENFORCEMENT INFORMATION FAGE 14 DISTRICT: NORTHEAST DISTRICT DETAIL OP CLOSED VIOLATION CASES -AREA OPP.ICE.I-2.7- . -. -- ..-. . --.--..--.-.---~ _____________ RESELLER (OTHER) . .__CONTROL_______ __~DATE-___AUDIT DATE .. DAYS TO AUDIT SF INV RESOL NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 2701100007 W R MARRANS SONS INC 09/08/74 10/18/74 04/25/77 960 0 0 42 1 REFUND $214~9O0 TOTAL $214,900 C.~i PAGENO="0662" ~15 ECONOMIC REGULATORY ADMINISTRATION . 05/.14/79~.._ 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION -- PAGE: 15 FRILl: NORTHEAST DISFRICT DETAIL OF CLOSED VIOLATION CASES ;~F~A OFFICE:. 27-- - - REFAILEFF (OTHER) . ._. . . DATE AUDIT DATE DAYS TO AUDIT SF INV...RESOL... NUMI'ER FIRM NAME ASSIGNEE' COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT 270R00050 PAGE MOTORS INCORPOR 09/08/75 10/18/74 06/06/77 637 580 0 153 3 ROLLBACK $85,424 -- ... .. . .. ~.. - . . . - . 5 PENALTY.... - - . - $,350.~ TOTAL ..- ... $85,774 DISTRICT NORTHEAST DISTRICT AREA 27 ._-_..._~ROGRAM - RETAILER (OTHER) . ~ ._._ .. .._.....~. -_______ TOTAL AUDIT HOURS (10 HOURS) 580* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* -----TOTAL RESOLUTION-HOURS .120 HOURS) 153* -. -. ~-.-.-.. -- TOTAL HOURS 733* TOTAL SETTLEMENTS EXCLUDING PENALTIES) $85,424 ......TOTAL.PENALTIES- - . $350 . . .. . - . . - TOTAL SETTLEMENT/PENALTIES $85,774 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED DISTRICT NORTHEAST DISTRICT AREA 27 PROGRAM * TOTAL * .._._TOTAL AUDIT HOURS. (10 HOURS) ... 580* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 195* ._......TOTAL.HOURS.. . ~.. . . .. 775* .. .~. .. TOIAL SETTLEMENTS CEICLUDING PENALTIES) $300,324 TOTAL PENALTIES $350 ~ SETTLEMENT-/PENALTIES. $300,674 -. . .__................*_LNCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH..NOT. INCLUDED__-_..._ PAGENO="0663" Ok) £015..---- - ~iui: 01/01/77 - 05/14/79 Ft ~i (CT: k~AA 0FF4CE-I----------------~-------- PROGRAM PROPANE RETAILER TOTAL AUDIT HOURS (10 HOURS) 137* .TOTItL SPECIAL-INVESTIGATION HOURS (12) . ... .. - . 0* TOTAL RESOLUTION HOURS (20 HOURS) 42* TOTAL HOURS 179* .__..__.._..~TOTAL SETTLEMENTS. (EXCLUDING.PENALTIES) - .. $10,091 - TOTAL PENALTIES `$0 TOTAL SETTLEMENT/PENALTIES - $10,891 .-.-*.. INCLUDES .HOURS.CHARGED BY MONTH ONLY --CURRENT - ._.....__.FROGRAH. RESELLER.(OTHER) . - TOTAL AUDIT HOURS (10 HOURS) 5,517* TOTAL SPECIAL INVESTIGATION HOURS (12) - 0* _TOTAL RESOLUTION-HOURS. (20 HOURS) 1,141* -. TOTAL HOURS 6,658* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $1,082,112 _TOTAL PENALTIES . $37,750 TOTAL SETTLEMENT/PENALTIES $1,119 P862 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED ECONOMIC REGULATORY ADMINISTRATION - OFFICE OF ENFORCEMENT INFORMATION DETAIL OF CLOSED VIOLATION CASES PAGE: 16 CONTROL . ...._.. ._. .DATE . AUDIT -. DATE .. DAYS TO .AUDIT..._.SP..INV-RESOL-- NUMBER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TOTAL SUMMARY FROGRAM CRUDE OIL PRODUCER TOTAL-AUDIT HOURS..(1O HOURS) ... . 3,861 TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS 120 HOURS) 383* ..___IGTAL.HOURS .~ . .. 4,2S2* TOTAL SETTLEMENTS (EXCLUDING PENALTIES) $230,893 TOTAL PENALTIES - $0 _______ .TjI.T.AL_SE.TILEMENT/FENALTIES - - -- -- ..... .$130,893 * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED TYPE OF SETTLEMENT C;' ~~rH.NOT--INCLUDED ---- --_____________ PAGENO="0664" iii toil ECONOMIC REGULATORY ADMINISTRATION .. -.05/1.4/79---- Hid)': 01/01/77 - 05/14/79 OFFICE OF ENFORCEMENT INFORMATION PAGE: 17 I' H~ikIC~: DETAIL OF CLOSED VIOLATION CASES ARLA.OIFICE..-.. .~ . . .. .. ..- LUNTROL.-. .._..... ..... ... DATE AUDIT . DATE DAYS TO. AUDIT SF INV RESOL . .. NURSER FIRM NAME ASSIGNED COMPLETE CLOSED CLOSE HOURS* HOURS* HOURS* TYPE OF SETTLEMENT -TOTAL SUMMARY PROGRAM RETAILER (OTHER) ....._._...._..TOTAL AUDIT HOURS (10 HOURS) . 3,642* TOTAL SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 1,468* ...______TOTALHO)JRS . . 5,110* .--.---- -.._.-..--.-...-.... - TOTAL SETTLEMENTS (EXCLUI:'ING PENALTIES) $755,239 TOTAL PENALTIES $15,600 TOTAL SETTLEMENT/PENALTIES $770,839 . ..... * INCLUDES HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED PROGRAM * TOTAL * TOTAL AUDIT HOURS (10 HOURS) 13,165* .___......_.TOTAL.SPECIAL INVESTIGATION HOURS (12) 0* TOTAL RESOLUTION HOURS (20 HOURS) 3,034* TOTAL HOURS 16,199* ._._.._........TOTAL.SETTLEMENTS.(EICLUDING PENALTIES) $2~079~135 _- . ... . TOTAL PENALTIES $53,350 TOTAL SETTLEMENT/PENALTIES $2,132,485 -. ....._~ _.._................._-*-INCLUE&ES- HOURS CHARGED BY MONTH ONLY -- CURRENT MONTH NOT INCLUDED-~-.---------------------------- PAGENO="0665" 657 Mr. CONYERS. Right now, we must move to the representative from the Governor's office, Deputy Secretary Walter T. Kicinski, whom we welcome, and apologize for any inconvenience that may. have been caused him. Would you identify the gentlemen that are with you, please. We have your statements and they will be incorporated into the record, and you may proceed. STATEMENT OF WALTER T. KICINSKI, DEPUTY SECRETARY TO GOVERNOR HUGH L. CAREY OF NEW YORK STATE, A.ND STAFF DIRECTOR OF GOVERNOR CAREY'S AFFAIRS CABINET; ACCOM- PANIED BY ROBERT SCHWEIKERT AND JIM BRUMFIELD Mr. KICINsKI. Yes, sir. My name is Walter T. Kiciriski. I am deputy secretary to Governor Hugh L. Carey of New York State and also staff director of Governor Carey's Affairs Cabinet. I am also the Governor's liaison for the President's inflation pro- gram, and I believe it is in this role that I have been invited to appear before you. The two gentlemen supporting me are Robert Schweikert and his assistant, Jim Brumfield. Before going on, I would like to, on behalf of the Governor, welcome the Honorable Congressman from Michigan to New York. I think, in view of the time and the fact that we have heard a lot of testimony already. I will try to reduce my remarks considerably from the ones that were submitted to you formally. Mr. CONYERS. Just taking off from our last witness, is this State sending out its own personnel to enforce the gasoline prices, as we have heard, as has been indicated? Mr. KI0IN5KI. My understanding is that our State Energy Office, in fact, has a function in that regard; yes. Mr. CONYERS. Could you submit to the chairman of the committee an updated report, which we may or may not include in the record, on this point? Mr. KICINsKI. Certainly. We will be happy to submit such report, I am sure. Mr. CoN~Rs. Thank you. Mr. KICIN5KI. Getting back to my remarks, after the very real things that you have heard here, I think that some of the comments I might. make might seem like a rather different dose of- Mr. CONYERS. Pardon me. Was your office sympathetic and aware of the nature of the testimony we have had here, which I appreciate you are here covering, but, as one witness said, what are we doing here, taking hearings on the obvious? To what extent is the Governor's office sufficiently apprised of the nature of the testimony? Mr. KICIN5KI. I would say very sufficiently. The Governor himself and the staff hear the same comments regularly. I would say that this morning, the comments we heard this morning, effectively reinforce that which we have heard many times before. PAGENO="0666" 658 Lthink my role here would be perhaps to give a little bit of perspec- tive, in~ the sense that I am representing the State government, and to try to give this subcommittee some perspective on what we think and what we are trying to do. Mr. ROSENTHAL. Rave you seen this document put out by the White House, "the Federal, State, and local anti-inflation program, an inter- governmental partnership?" Mr. KICIN5KI. Yes; I have [indicating]. Mr. ROSENTHAL. In terms of anti-inflation consumer policies, are your people acting consistent with those recommendations? Mr~ KICINSKI. Yes. I can cite some of the different things, if you like. Mr. ROSENTHAL. Goods and services above whatever the threshold dollar amount is, are they purchased only from companies in compli- ance with the wage/price standards? Mr. KTOINSKI. Well, we are- Mr. ROSENTHAL. My question is, are goods and services above the threshold dollar amount purchased only from companies in compli- ance with the wage/price standards? Mr. KICIN5KI. I think that is true. Mr. ROSENTHAL. Give me some examples of how you execute that policy. Mr.~ KIcINsKI. Well, Mr. Chairman-- Mr. ROSENTHAL. When a State agency purchases some goods, do they ask the supplier if he is in compliance with the wage/price standards? Mr. KTcINSKI. We ~basica1ly,in~our purchase of goods and services, have made major improvements in anything that has been done before, and most State. governments, and certainly this State government, *we~~ are purchasing goods and services substantially below your guidelines. Mr. ROSENTHAL. There is no such thing. Mr. KICINSKI. I am talking about the price~that you purchase goods at. Mr. ROSENTHAL. No. In other words, the~ Council of Wage and Price Stability has asked the major corporations around the country to certify that they are in compliance and that the prices- Mr. KICINSKT. Yes; and we are doing that in our purchasing. Mr. ROSENTHAL. Are you getting any evidence from people who so- Jicit you to buy from~them that they are in compliance? Major national corporation or not, do you have a list of companies that are in compliance and a list ~f those companies that are not in compliance? Mr. KTCTNSKI. We basically insist on them being in compliance in the termsof prices that weitre purchasing products at. What you are saying,~to sorne~extent, I think, is that we should sub- stitute in a role that the Government plays, that the Federal Govern- ment plays. We~are certainly makingsure:that we do not buy products that are raised beyond the compliance level, and we take that~throu~h our pur- chasin~i. through the bulk purchasing procedures that we use. Mr. ROSENTHAL. 1 would like to see some example of the correspond- (flee that you haveor other memorandums that you have indicating- Mr. KTCTNSKT. We can provide that. PAGENO="0667" 659 Mr. RosEi~mAI4 [continuing]. Indicating that you are out of com- pliance or that you are not out of compliance. Mr. KICIN5KI. We can provide that correspondence to you. Mr. ROSENTHAL. Have you created anti-inflation councils as sug- gested in the- Mr. KIcINSKI. Excuse me. This is more detailed information. In November 1978, the Public Service Commission, which is our major purchasing agent for New York State, adopted- Mr. ROSENTHAL. Public Service Commission? Mr. KICIN5KI. The Public Service Commission. Mr. ROSENTHAL. Go slow. Mr. KICINSKI. I'm sorry. The Public Service Commission adopted a major policy requiring all such applicants to certify and verify that- Mr. ROSENTHAL. The Public Service Commission is not a- Mr. KICIN8KI. I'm sorry. You're right. This is for the purposes of utility purchases. Mr. ROSENTHAL. I am talking about where the State purchases, where you buy tires, automobiles, pencils, typewriters. How much does the State purchase in the open market each year? Mr. KIcINSKI. Here's another comment. Contract and bid proposals are also being more closely scrutinized to encourage compliance with anti-inflation guidelines. The Office of General Services states: "When submitting prices herein, bidders are requested to comply with the voluntary price guide- lines issued by Presidential Executive Order." There is a series of other agencies doing similar things, including the Department of Transportation. The one that I began to cite before, which is the Public Service Com- mission, has also adopted a policy in certifying and verifying compli- ance of any requested rate increase. For example, with the Council on Wage and Price Stability, and to demonstrate why such request should not comply. I guess what I am saying is that, with the whole series of these things that are going on, I think that they represent the fact that the State of New York is doing more than its share to try to attempt to fight inflation, both in our own State and in the national economy. I think it is significant. Mr. Chairman. that New York State, as was recently indicated in testimony by Mr. Bienstock, has, in fact, had a lower rate of inflation in its economy than has been described in the national economy. I think that is partly the result of the kinds of things we have done and the stens we have taken as a government to insure, in any area where we do have control, that we were attempting to keep things within the guidelines and attempting to hold down the cost of government. In my formal remarks. I have indicated that the average increase in the budgets of New York State have been kept substantially below the national inflation rate, and I think that is a major contribution and re- flects. I believe, not only our commitment in keeping down the cost of government for a lot of reasons, but clearly also contributes to what you are suggesting we should be contributing to. PAGENO="0668" 660 That we are having a relatively- Mr. ROSENTHAL. Do you have any evidence that you have rejected bids from companies because they were not in compliance with the President's guidelines? Mr. KICINSKI. Not with me, sir, but it is possible that it is available. Yes; I understand that it is available. Mr. ROSENTHAL. We would like to see copies of that. The establishment of Anti-Inflation Councils; have you done any- thing like that? Mr. KIOINSKI. No, we haven't. New York State, starting really with the beginning of the Carey administration, have consistently been using a whole series of private sector, management, labor, representatives from the general public sectors to advise the Governor on economic policy, including infla- tionary policy. Mr. ROSENTHAL. I appreciate your testimony. They have two things here, Outreach and Technical Assistance pro- grams, that they talk about here [indicating]. Mr. KICIN5KI. Task force is one and the conference is the other? Mr. ROSENTHAL. No. Can you look at this so that I don't have to read it [indicating]? Mr. KICINSKI. Yes. Mr. ROSENTHAL. It is on page 19. Mr. KICIN5KI. All right. Mr. ROSENTHAL. Those two items on page 19, Anti-Inflation Coun- cils and State and Local Conferences. Have you done either of those? Mr. KICINSKI. We have both of those under consideration. We have not done either of them yet. We do have similar groups that deal with inflation as one of the issues that they deal with. Mr. ROSENTHAL. I have asked you whether either of those- Mr. KIcINslu. No, we have not. Mr. ROSENTHAL. You have not? Mr. KICIN5KI.. No, we have not. We are considering both of them. We have not done either at this point. Mr. ROSENTHAL. Most States have already done~either one or both of these. Not very effectively, though. Is there anything else *youwant to tell us? The statementsThat you gave us, which are really quite.~ elaborate, are useful, and we can and shall include them in totality into the record. Is ~there anything else you want to add or bring to our nttention? Mr. KICINSKI. Only to briefly say, again, what I was going to say before: I think that the point was already made and I think it is safe to say that New York State's economy has not been fueling the Nation's inflation. We have been on the other side with the percentage of increase that we have had. *The State of New York has already done substantial things to cut its budget. PAGENO="0669" 661 I think it has been traditional that the States and other localities have not been at the front of fights against national inflation. This is a new role. I think, that the States are being asked to perform. I think it turns out that we have made a lot of effort in that area, but I think it is new for the States to be asked to be the front runners in this kind of effort. We are very willing to play our role in that effort. I think we have already. been doing it, and we are willing to do it better with the strong partnership of the Federal Government. Rather than go through all of the individual details that are present in the testimony, which I have provided formally to you, which in- cludes things we are doing, I would like to state at least one point which was raised by various testimony, that health care costs are very serious, are a very serious part of the impact of inflation, when you are talking about fixed income people and poor people. New York State is very proud of the fact that we have been able to contain health care costs in the State to an unusual degree. We have been able to achieve an average increase in this State of 5.4 percent, and we have recently, beginning in 1978, had the new hospital charge control bill signed into law and we have saved nearly $75 million in these costs in 1978 alone. We have done the same with the medicare program, that very vital area which is a major factor for the people that you have heard from this morning, and that is one that we are doing a great deal of work on. We have created a State office of business permits, which we think is a brandnew office, and it is begin- ning to review all the regulations that we are involved in so that we can begin to cut out regulations that really don't help people. I would say, for example, in the case of energy policy, that we are emphasizing energy efficient purchasing. We have already realized a $450,000 savings in fuel costs alone by simply replacing large cars with small cars. Other energy-conservation efforts have resulted in a 50-per- cent reduction in consumed energy at State office buildings. I think the picture that we are presenting is basically one of a State government which, as I say, does not have institutional mechanisms to fight inflation as such. But where we have been doing this, we have been doing it, frankly, for reasons of cost containment, which we are very acutely aware of. As a result of that, I think we have made our contribution directly to hold down the Government expenditures, and we have been en-~ couraging ?ur local governments to do the same thing, looking at the efficiency side of government so that we are not simply trying to take it out of the hides of the people that need the services. We are trying to cut down the cost of providing the services. With all of these steps that we have been taking, I think we have come even more deeply to realize in the last month or two just how important the Federal Government's role is; and we have in the testimony also mentioned the things that we think the Federal Gov- ernment still can do to help us, because many of the things that the State government and the local governments in New York State are confronted with really do result in the things the Federal Government is asking us to do, and we do have several reports that I think we - submitted for the record which your staff can review, and I think it is safe to say that New York State is willing to do more than its share. PAGENO="0670" 662 We will do more than our share to try to help in this national inflation fight, and we will conduct that fight with the help of the Federal Government. Mr. ROSENTHAL. Thank you very much. [Mr. Kicinski's and Governor Carey's prepared statements follow:] PAGENO="0671" 663 TESTIMONY OF WALTER T. KICINSKI, DEPUTY SECRETARY TO GOVERNOR HUGH L. CAREY HEARINGS ON INFLATION U.S. HOUSE SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS NEW YORK CITY FRIDAY, MAY 18, 1979 11:30 A.M. My name is Walter T. Kicinski. I am Deputy Secretary to Governor Hugh L. Carey of New York State, and staff director of Governor Careyts Economic Affairs Cabinet. I am most honored to have the opportunity to present testimony on New York StateTs efforts to fight inflation, and on our recommendations for additional federal governnent steps to further assist State and local governments to combat this problem. As we are all keenly aware, inflation impacts significantly on every sector of the economy, and on every level of government. Governments across the country are hard-pressed to provide ade- quate, not to mention expanding, levels of services. As a result, it has become essentialfor government to become conc~rned with controlling costs and increasing productivity. New York State began to feel these pressures several years ago, and has underway serious efforts to control government spending. These efforts to date have achieved a remarkable degree of success. The State initiated these efforts with the hope of making the State and its local governments more efficient and responsive, and yet allowing flexibility in operating programs. PAGENO="0672" 664 In the recent past, New York State `has not been a major contributor to nationwide inflationary trends. For `example, over the past 12 months the U.S. Consumer Price Index has risen by 10.3 percent, while' the New York City area index rose by `7.5 percent, and that of the Buffalo area by 8.3 percent. While this fact is partly the result of State government fiscal re'straint -- the growth of spending over the' past four years has been significantly less than inflation `-- it is also the result of the fact that growth of the State's economy continues to lag behind that of the nation. Furthermore, New Yorkers `have not enjoyed the benefits of a seemingly lower rate of in- flation because the rate of NewYork's increase in average earnings has a1s~ been below the national average. In my testimony I will address those points raised by Chairman Rosenthal in a letter to me, dated May 9, 1979. I will include New York State's anti-inflationary initiatives which have addressed the following areas of concern: the budget; taxes and wages;. regulatory practices; the environment; health care; wel- fare;. and, programs dealing with purchasing and State contracts. Since initating its ambitious cost-cutting efforts, New York State has been able to contain the average State budget growth to 4.8~ annually,. compared to an average annual U.S. inflation rate `of 7.3% during the~ same period. Major revisions in the State tax system have also proven to" be' effective. A multi-year plan to `reduce taxes by $2 billion by 1982 was'initiated, as were' programs PAGENO="0673" 665 to reduce the personal income tax's maximum rate to 10%, a one- third reduction. Thecapital gains tax.was revised, reducing the taxable income level to 50%, while the corporate net income tax rate was reduced to below 9%. The State of New Ydrk has an enviable record in controlling its wage and personal service costs. State employees went without a pay raise for three years. Even so, the State was, recently able to negotiate a new three-year contract for its employee workforce, which provides a 7% increase this year, and increases of from 3.5% to 7% in the next two years. This contract is well within the prescribed guidelines established by the President's Council on Wage and Price Stability. - Ef forts to contain health care costs have been successful in New York State. Health care costs nationwide have increased substantially above the rate of inflation in recent years, yet New York State has achieved an average increase of only 5.4% annually. To assure future control over any unforeseen rate hikes, the Hospital Charge Control Bill was signed into law in 1978. This action is in keeping with similar federal efforts to contain health care costs nationwide. Also, nearly $75 million was saved in 1978 alone; through cost-conscious operation and appropriate utilization of health care facilities. An additional $29 million was saved by detecting fraud and' abuse in the Medi- caid program. Government regulations tend to increase the cost of govern- ment operation and the cost of doing business with government. 52-21k 0 - 79 - 143 PAGENO="0674" 666 To resolve this problem, the State Office of Business Pernits was established to review and revise the regulatory and pernit process in the State and to make it work more efficiently and effectively. Also, major revisions have been made in regulation of the environment, transportation and public utilities to make the process more responsive to the needs of client groups, while continuing to protect the legitinate concerns of the regulating agencies. The Department of Environmental Conservation is reviewing its regulatory system and attempting to modify, simplify and eliminate duplication and delay in its processes, under the Uniform Procedure Act of 1977. The Department of Transportation and the Public Service Commission are also involved in revisions aimed at being more cost--conscious and responsive. Revisions have also been initiated in the health care field to allow the dispensing of generic drugs in an effort to reduce costs. Purchasing and contracting practices impact substantially on the cost of government. Major efforts are underway in the State to reduce costs by utilizing bulk purchasing and term- contracting not only for State purposes, but also for local government entities, including: counties, towns, villages, school districts, higher educational institutions, ambulance services and fire districts. Services included under this ef fort are: telecommunications, data ~rocessing, insurance procurement, mail and messenger service, automotive fleet, and the distribution of surplus property and government donated foods. PAGENO="0675" 667 Energy efficient purchasing is also being emphasized. The State has realized a $450,000 savings in fuel costs alone by replacing State sedans with nore conpact automobiles. Over $1 million has been saved to date through a conbustion control, instrumentation calibration repair and rehabilitation program at the State~s eighty-five central heating plants. Other energy conservation efforts have resulted in a fifty percent reduction in consumed energy at State office buildings. The Departments of Agriculture and ~arkets, Transportation, Health, and Social Services have also initiated ambitious efforts to improve the States procurement policies. These include energy conservation on farms and hospitals, and standardized bidding and contract procedures. The results have been encouraging, and con- tinued success is assured. Improving government productivity can have a major impact on the cost of government and on the effects of inflation. New York State has taken numerous cost-containing steps relating to the enviromme~it, transportation, health and social services. These positive steps have gone a long way toward reducing the cost of New York State government... The State has moved to: provide more efficient planning and management; more optimally utilize public resources; coordinate federal planning and program grants with those at the State and local level; reduce duplicative paperwork; and, review and audit present projects. In the health care field alone over $35 million was saved in Medicaid funds by auditing health care fac~Llities and utilizing on-site hospital reviews, to provide more cost-effective and responsive methods. PAGENO="0676" 668 But, government will not be successful in meeting the challenge of turning back inflation unless it works with the private sector. Over the last several years, New York State has sought the cooperation and advice of the private sector to find solutions to economic problems, including inflation. New York State's Economic Development Board, Joint Labor Man- agement Committee, Panel on the Future of Government, Economic Affairs Cabinet, and the new Economic Development Advisory Council, chaired by Felix Rohatyn, are all designed to work toward this goal. Through such entities, *the State government's leaders are alFeady receiving valuable feedback from the experts on inflation and on other matters relating to the economy, with- in the existing government structure. New York State is also working with member states of the Coalition of Northeastern Governors to attack inflation regionally. The State is currently in the process of deciding the value and appropriateness of creating a new Anti-Inflation Task Force, and of holding a statewide anti-inflation conference, as suggested by the President's Advisor on Inflation, Alfred E. Kahn. The State stands ready to cooperate fully with this federally initiated effort, but must avoid the creation of unnecessary and duplicative new efforts in the process. But, even as New York State has taken steps to reduce costs at the State level, we have come to a deeper realization of the impact of federal regulations on state and local government. PAGENO="0677" 669 Federal regulatory activities, especially in the areas of the environment, transportation, health, education and grants-in-aid, can have a serious impact on state and local spending. Excessive and inflexible regulations impose a tremendous fiscal burden on the states. New York State recommends specific federal actions to provide flexibility in compliance and inplenentation, and to help reduce the burdens on state and local governnent. Included are: Environment - Provide greater local flexibility by federal authorization to achieve clean air standards under the "Bubble Concept. States now have the authority to administer clean air standards, hut do not have the authority to permit local entities.~and businesses to achieve these standards in the most cost-effective manner; - Broadening Section 5 of the Presidents Executive Order 12044 to require the development of Uniform Procedures for key federal regulatory analyses; - Revise federal EnvirOnmental Impact Statements to stress. price and cost, as well as other economic impact consider- ations; - Increase state flexibility in administering federal grant-in-aid programs; - Provide an expanded state role in working with local governments on air, water and solid waste planning; - Extend to 1987 the deadline for compliance with primary ambient air quality standards; PAGENO="0678" 670 - Provide tax incentives and federal loans for purchase and installation of pollution abatement equipment; and, - Exercise greater flexibility in mandating cooling towers, and find alternative uses for discharged heated water. Transportation - Review and revise I.C.C. regulations for railroads and trucking; and, - Review and revise costly and excessive C.A.B. regulations. Health - Revise the pay all' reimbursement system in the Medicare program, which increases health care costs; and, - The federal governnent should include Medicare in New York State's health care containment efforts. Education - Eliminate *the additional administrative and operational costs that result from uncoordinated fe~eral, state and local compensatory education efforts; - With increased flexibility, allow that Title I funds could serve Title I schools, while State compensatory education fundscould be reserved for other schools; - Revise federal statutes that discourage school districts from reducing local tax levies for fear of losing federal aid; and, - Permit federal Title VII and Emergency School Assistance Act aid to be awarded by State education agencies, rather than by federal education program officials, since the State is much more aware of particular needs. PAGENO="0679" 671 Federal Grants-In-Aid Federal grants-in-aid are extremely helpful to State and local governments, hut added flexibility at the State and local level would provide added efficiency and effectiveness. The State of New York strongly supports the following federal steps: - Permit in-kind natching funds by local government entities rather than requiring direct financial appropriations; and, - Allow State appropriated dollars going to a similar local program to be considered as matching funds for Federal programs. In summary, New York State is in the thick of the nationwide fight against excessive inflation. Actions taken by the State in the last several years and planned for the near future underscore this commitment. The Hearings of this House Subcommittee demon- :*~stretethe extent of national concern over inflation, and highlight the need for close cooperation among all levels of government, segments of business and the general population to combat inflation. New York State will more than do its share to break the back of runaway inflation, and will work with all concerned parties to secure a stable and balanced base for future economic growth. PAGENO="0680" 672 AF.ITI-IrIF~TION INITIATIVES STATE OF NEW YORK HONORABLE HUGH L CAREYJ GOVERNOR Prepared By: Office of Business Permits * State of New York May, 1979 INTRODUCTION AND BACKGROUND In recent years, New York State has initiated a series of innovative and responsive approaches to combat problems of inflation. New York State's efforts might serve as models for other States, as efforts continue to combat the national economic malaise of excessive inflation. This outline of State initiatives will encompass five major components: I. Budget and Tax Standards II. Voluntary Wage and Price Measures III. Regulatory Practices IV. Procurement Policies V. Improved Productivity Each component will provide an analysis of individual New York State Agency activities. PAGENO="0681" 673 I. Budget and Tax Standards New York State has an enviable record in providing essential and socially desirable services and programs, while maintaining the State'soperating budget well within the recently enacted anti-inflation guidelines established by the federal government. In fact, in each of the past four years, Fiscal Year 1976-1977 through Fiscal Year 1979-1980, the State's budget remained well within the established guidelines, and the average increase amounted to only 4.8 percent annually over that period. In constant or "real" dollar terms, the State's budgetary outlays have actually declined. While successfully accomplishing this ambitious effort, the State has also been able to provide a multi-year program of tax reductions, which could amount to almost $2 billion by 1982. The State's personal income tax will be reduced to a maximum rate of 10 percent by 1981, a 33 percent reduction over the previous maximum, corporate net income tax credits have also been ambi- tiously revised, reducing the effective tax rate to below nine percent. The capital gains tax has also been revised, reducing the percent of taxable income to 50 percent, reflecting similar recent actions at the federal level. While making these substantial and successful moves to reduce taxes, New York State has also been able to increase aid to local governments by improving services and reducing taxes. These examples are proof of the ambitious steps New York State is taking to combat inflation in the areas of government spending and fiscal relief to localities, individuals and busi- nesses. For many years, New York's image suffered in relation to these issues. With the State's renewed commitment to fiscal responsibility, and in recognition of its ambitious and effective efforts, New York will regain its leadership among States. II. Volunteer Wage and Price Measures New York State has been able to meet the established federal wage and price guidelines, long before they went into effect, by decisive actions to contain health care costs and to control the size of the State's workforce. As a nationwide trend, health care costs have escalated at a rate above that of inflation. In contrast, New York State has in recent years limited the average .growth rate in the area of health care costs to 5.4 percent, considerably below the rate of inflation. To further control any unforeseen rate hikes, the Hospital Charge Control Bill was enacted into law in 1978, impos- ing a freeze on hospital charges and limiting future increases. This action has been in keeping with federal efforts to contain health care costs nationwide. PAGENO="0682" 674 Major efforts have been initiated in New York State to combat the inflationary impact on the Medicaid program and to maintain a realistic level of payment. The State has had considerable success in containing Medicaid expenditures, and in uncovering abuses and misuses which cost the State millions of dollars annually. Over the past four years, the State has managed to keep the average Medicaid expenditure increase to a mere 3.5 percent annually. This figure is dramatically below the average rate of inflation, within a program which is notorious for severe cost escalations. Other efforts to reduce expenditures have produced a savings of nearly $74 million in 1978 alone by initiating fiscal incentives for the appropriate utilization and cost-conscious operation of health care related facilities. In its first year of operaticn, 1977, the Department of Social Services' Bureau of Medicaid Fraud and Abuse recovered over $29 million, saving the federal government over $13 million and both State and local governments in New York over $16 million. Major efforts, such as these, considerably reduce exces- sive governmental expenditures and provide a sound footing to fight inflation. New York State has been fortunate to have a conscientious work- force which cooperated with the State's anti-inflation efforts. State employees w2nt without a pay increase for three years, although inflation considerably eroded the purchasing power of their waggs. Nevertheless, during the most recent contract negotiations, the State has insisted on remaining well within the established anti-inflation guidelines, and to this end a new and responsible contract was nego- tiated early in 1979. Under the provisions of the new contract, reviewed and authorized by the Council on Wage and Price Stability, New York State employees will receive a 7 percent pay increase the first year of the contract, and between 3.5 percent and 7 percent the following two years, computed on a formula seven-ninths the rate of inflation each of the final two years. In addition to the wage contract and efforts to contain increases within the established guidelines, the State has also controlled the overall size of the employee workforce, and major efforts have been successful in keeping the average annual payroll growth to 3.8 per- cent over the past four years. Both actions are examples of New York State's efforts to take the initiative at the State level to combat inflation. III. Regulatory Practices Ambitious efforts have been initiated in recent years to ease the regulatory burden on both public and private sectors in the State, and to make it easier for each affected individual or group to work with the various State agencies. Major new programs in such areas as business and economic development, the environment, public util- ities, health care and others have contributed significantly to improving the climate for doing business in and with New York State. PAGENO="0683" 675 The new State Office of Business Permits is an integral compo- nent in the State's efforts to combat inflation. The Office was created to help improve the overall business climate in the State, * and to address both economic development and anti-inflation issues. in a progressive and constructive manner, by reducing bureaucratic "red tape" and encourage businesses to develop in the State. - The Office will review and evaluate the myriad of regulations and permits now required, and move toward "One-Stop" service to businesses to assure expeditious review and disposition of their permit applications. The Office will offer services to effect these goals, including: comprehensive information on all required State permits; technical and problem solving assistance; permit hearing consolidation; conceptual review at early project stages; facili- tation of federal and local government participation in projects; and, recommendations for consolidating, simplifying, expediting, and impro~ring the permit process. The Office of Business Permits, working in unison with other State agencies in performing its charge, can have a significant impact by creating a favorable environment for private sector growth, and can be a full partner in combating inflation at the local, State and federal levels. A major reorganization is underway within the Department of Environmental Conservation which will establish a new central office division and regional field units charged with consolidating the Department's regulatory activities. The major goals of this consol- idation are: to improve the permi~ issuance process; to completely meet the intent of the Uniform Procedures Act of 1977; to identify regulatory simplification, modification and elimination; and to develop new cost effective regulatory requirements that give consid- eration to social and economic impacts. The Department is also placing added emphasis on the premise that environmental quality goals and economic needs are compatible, and that a balanced State strategy will be environmentally sound and economically advantageous. Linked to the question of the environment and its impact on the economy and inflation, are the Department of Transportation's efforts to revise truck lengths and weights to permit more fuel- and dollar- efficient movement of freight across the State. Another effort involves the Department's review of requests by regulated carriers for rate and fare hikes, with the idea that freight movement dereg- ulation would result in lower shipping and consumer costs. Actions by the State's Departments of Health and Social Services have a substantial impact on the State's economy, and on inflation. Major efforts are underway to reduce health care costs, and those efforts have been successful. Legislation was passed in 1978 enact- ing a new generic drug law which has become a model for other states. A list of less expensive therapeutically equivalent drugs approved by the federal government, is now available from pharmacists who receive prior approval to dispense those drugs from the patient's physician. PAGENO="0684" 676 Regulation of public utilities by the State's Public Service Commission is an area of increasing concern. Any public utility seeking a rate hike must substantiate that request at public hear- ings before the Public Service Commission, which considers the information presented, including economic impact analysis, economic condition of the utility itself, and other related documents and evidence. The Commission then passes judgment on the request. In November, 1978 the PSC adopted a major policy requiring all such applicants to certify and verify compliance of a requested rate increase with the Council on Wage and Price Stability's anti-inflation standards, or to demonstrate why the request should not compl~'. The utility is required to show the relationship between the proposed increase and the established guidelines. If the proposed increase does not satisfy federal standards, the utility must provide an anal- ysis of the differences between the present cost and projected cost increases for service, including construction activities, requests for increases in rate of return resulting in an improved financial condition, provisions for sale revenue short falls, and changes resulting from mandates or previously negotiated contracts. PSC is making every effort to keep any rate increase well within the anti- inflation guidelines. New York State is makigg a significant effort tq address the regulatory process in a positive and productive manner, involving all levels of government. The State will continue its efforts to control inflation by adjustments to the regulatory process. IV. Procurement Policies Government's purchasing and contracting practices can have a substantial impact on the cost of government, or on the cost of doing business with government. One particular program which has far-reaching implications is the New York State Office of General Services' recently expanded Standards and Purchase Program. The newly expanded program now reaches out to local government entities including counties, towns, villages, school districts, higher educational institutions, ambulance services and fire dis- tricts. The concept behind the program is to provide less expensive products and materials through centralized bulk purchasing and "term-contracting" for those items. The various local entities are encouraged to participate in this program to realize sizeable sav- ings. OGS also provides additional cost-saving, centralized and interagency services, such as telecommunications, data processing, insurance procurement, mail and messenger service, automotive fleet, and distribution of surplus personal property and government donated foods. PAGENO="0685" 677 Another area offering the potential for considerable cost savings is energy conservation. Purchasing specifications were recently revised by OGS's TàskForce on Energy Conservation to include energy efficient criteria for equipment and larger pieces of machinery. Other related efforts include: training programs emphasizing energy efficient purchasing; compact car replacements for the automotive fleet (over. $450,000 a year savings in fuel consumption alone); implementation of a combustion control and instrumentation calibration repair and rehabilitation program at the eighty-five State owned central heating plants, resulting in more than $1 million in savings so far; and, a delamping program in all State Office Buildings, resulting in a fifteen percent savings in energy consumed. The Department of Agriculture and Markets, in unison with the State Extension Service and State Energy Office, is implement- ing an agricultural conservation program intended to promote and encourage reduced fuel consumption, heat waste recovery, and re- duced: fuel loss through proper storage techniques. Since New York State is one of the leading agricultural states in the nation, promoting agricultural energy conservation can impact greatly on national energy conservation and anti-inflation efforts. Contract and bid proposals are also being more closely scru- tinized to encourage compliance with anti-inflation guidelines. The Office of General Services states: ~"Whensgbrnitting prices. herein, bidders are `requested to comply with the voluntary' price guimelines issued by Presidential executive order Along similar lines, the Department of Transporation has issued a more stringent directive, reading: "Bidders are hereby notified that all bids are likely to be rejected if the lowest responsive bid'received exceeds the Engineer's Estimate by more than seven percent. In the event all bids are rejected for this reason, this project may be deferred for readvertising for bids until a more competitive situation exists. The Department has also `initiated additional policy revisions in `providing reduced energy charges for non-safety related highway lighting, and `standardizing traffic signal equipment, ultimately leading to lower costs. Hospitals are also being encouraged by both the Departments of Social Services and Health to engage in group purchasing and sharing of services withincommunities as ways to reducecosts and increase efficiency and effectiveness. Procurement policies play a significant role in the day-to-day operation and cost of government. New York State is committed to fostering an awareness on the part of all its governmental entities of the various measures available to cope with the problem of infla- tion, and to be more responsive and effective to demands for services. PAGENO="0686" 678 V. Imroved Productivity The State has undertaken ambitious and imaginative efforts to improve productivity in State government. It is anticipated the ultimate results of such efforts will produce more efficient and effective government at all levels, and make government that much easier to deal with. An additional end-result would be increased productivity and cost savings at all levels. The Department of Environmental Conservation is moving swiftly ahead with major efforts in the area of productivity improvement. A basic premise is that more efficient planning, management and construction ultimately minimize public costs. The Department received authorization from the Federal Environ- mental Protection Agency to be the determinant in utilizing federal, State an~ local grants and funds for various related projects. The Department is in a position, therefore, to stress the optimal utilization of public resources. As a result of this authorization, the Department will create a new Division of Construction Management to: expedite the design and con- struction of various projects receiving federal and State grants; coordinate federal planning and program grants impact- ing on environmental objectives; identify the most appropriate environmental program implementation unit; and, provide assist- ance to achieve anvironmental objectives through strengthened Department regipnal offices. The Department is also concerned with strengthening its overall planning, program and project development to provide short- end long-term environmentally safe, less costly and ef- ficient systems. It is expected that such endeavors will go a long way toward controlling inflation and improving productivity. In a similar vein, the Department of Transportation has introduced Value Engineering into its project designs with the intent of reducing or maintaining existing cost levels. Value engineering provides greater flexibility in construction and design specifications to encourage the contractor to uti- lize more cost-effective methods. The saving realized is then shared between the Department and contractor. Such efforts are being encouraged by the Federal Highway Administration as ways to combat inflation and improve project efficiency. The Department is also proposing incentive payments to contractors. to encourage reduced project costs. Further cost reductions are being realized through a `Certification Acceptance" pro- gram for local projects, streamlining the .execution of local capital construction projects, and reducing duplicative paper- work required for projects receiving federal aid. All of these measures are intended to result in responsive and cost effective project operations. PAGENO="0687" 679 In the health care field, the State's Department of Health saved over $35 million in Medicaid funds by auditing health care facilities and utilizing on-site hospital reviews. New this year are Professional Standards Review Organizations, responsible for reviewing hospital use of I~1edicaid expenditures. In addition, Periodic Medical Review/Independent Profession Review efforts were initiated to review the appropriateness and quality of services provided the nearly 96,000 long-term care facility residents in New York State. Through additional in-depth review of the health care system, more than 9,000 unnecessary hospital beds were eliminated. The Departments of Health and Social Services have been deeply involved in the development of Health Maintenance Organ- izations (HMO's). Membership has grown tremendously in the past couple of years, with at least 10 facilities now active in the State, having a total membership approaching 250,000 as of the beginning of 1979. In relation to health care facilities, the Department of Social Services has undertaken an ambitious effort to improve health planning, to limit duplicative hospital facil- ities, and to ensure the availability of less expensive health care facilities for those not requiring the degree of care pro- vided by hospitals. These are all aggressive efforts to reduce the overall cost of health care in New York State. SUMMARY New York State has initiated an impressive array of imag- inative and ambitious programs to combat inflation. But the State cannot win the battle alone. The ultimate solutions to many of the problems of inflation lie beyond the grasp of State and local governments alone. Greater flexibility for states and localities in meeting costly federal regulations and requirements could further contribute to the success of the State's anti-inflation actions. The officials and citizens of New York State can be proud of the successes already achieved. But, we must further realize this is only a beginning, albeit an aggressive and determined beginning. But much remains to be done to control the continuing threat of inflation and to prevent its disastrous impact on all sectors of our population. PAGENO="0688" 680 Mr. ROSENTHAL. We are going to try to finish. Why don't you all sit down and identify yourselves and we can go right ahead. Why don't you begin? STATEMENT OF SISTER DIANE KANE, WASHINGTON HEIGHTS INWOOD INTERAGENCY COUNCIL ON THE AGED Sister DIANE KANE. My name is Sister Diane Kane. I represent the Washington Heights Inwood Interagency Council on the Aged. We are the second highest concentration of the aged in the five boroughs. What I am going to say refers mainly to food prices because I feel that other things have been mentioned before, and for the sake of brevity I will mention just about the price of food. The rapid rise in the cost of food has hit those on fixed incomes the hardest. The cost of fresh produce is so prohibitive that those on a low sugar diet must buy canned produce instead, and their health deteriorates accordingly. The cost of meat is out of reach for all but the affluent elderly. Shoplifting of food by elderly persons has directly increased since the price rise of the past year. .Some of the elderly are not buying medicines in order to save money for food. They are also cutting back on visits to the doctor. Much-needed surgery, such as cataract removal, has to be postponed indefinitely because many elderly ~ersons cannot afford the medicare deductible for the hospital or the surgeon's fee. After paying rent and utilities, there is very little left for food. When the unexpected comes along, the food budget is out. There is no other choice. Most elderly persons have more health-related expenses than any other age group. The high cost of food compounds these health problems and the human misery associated to conquer sickness and death. Thank you. Mr. ROSENTHAL. Thank you very much, Sister Kane. STATEMENT OF FANNIE HALPERN, CONGRESS OF SENIOR CITI- ZENS, NATIONAL COUNCIL OF SENIOR CITIZENS AND RETIRED TEACHERS CHAPTER OF THE UNITED FEDERATION OF TEACHERS Ms. HALPERN. My name is Fannie Halpern. I represent the Con- gress of Senior Citizens, which is an arm of the National Council of Senior Citizens, and also the Retired Teachers Chapter of the United Federation of Teachers. So, I represent the retirees who are living on fixed incomes. I have some letters here which I think will pinpoint the problems of those people who are living on fixed pensions. DEAn Sm: I have been living at the above address since August 24, 1940. My rent then was $60 a month and 2 weeks' concession each year. Now my rent is $141, and it will be increased 744 percent January 1, 1~0. In the 1940's and 1950's the gas and electric bills averaged around six and a half dollars a month. PAGENO="0689" 681 At present, it is $24 every two months. When I retired in September of 1968, the first check I received was $417.12. The last check I received, on May 1, 1979, amounted to $417.33. Since my husband's death in 1973, I now receive an annuity in the amount of $12.35 a month. There are no children. That is one letter. Here we have another: I retired September 1st, 1968. I was 70 years of age and retirement was mandatory. My pension allowance is $5,200.73. My monthly check is $407.37. I had 41 and a half years of service as a school secretary. I had Federal tax withheld and health insurance. My pension check pays my rent, gas, electricity, telephone bills, and with a little less than $100 a month left over. My Social Security pays for my food and other necessities of life. I have to go to the doctor once a month because I have hypertension. His fee is $15. Medicare allows $10, and I get back $8. So far this year, I have had to have my eyeglasses changed and visit my dentist once. Medicare allows nothing for these expenses. I also had to go to an ear specialist twice and paid him $70 above what medicare allows. There are other incidental expenses from time to time, and I have no other income. Here's another letter: At the present time, my retirement pension is $344.15 monthly. Annually that amounts to $4,129.80. I do not have a husband to help me. Due to the inflation, it is very difficult to live on this pension. Isn't it time something is done to help people like me? And this is the last one I am going to read: I retired in 1966, I faithfully served my 35 years of teaching. Toilay's inflation makes it quite impossible to live on my 1965 pension, At retirement, my pension was $5,280. In 1969, I received a $58 cost of living increase, which had never been increased to meet myclaily living expenses, and so on. In every single case you find that these people who are living on fixed incomes are very hard hit by inflation. Now, mention was made before of a new program which is being con- ducted by the National Council of Senior Citizens and AFL-CIO, and Retired Teachers' Chapters, the United Federation of Teachers, as well as the Congress of Senior Citizens, to monitor prices. At the present time, we have just reached the stage where we have all of the necessary paper material, and now we are in the process of getting volunteers who will handle this program. It will be a very intensive program and will indicate week-by-week fluctuation in prices in the food markets and any place else where our members will be covering that program. This should present a great deal of material that you will find valuable, I am sure, in your program. Mr. ROSENTHAL. Thank you very, very much. Ms. HALPERN. Thank you. STATEMENT OF ABRAHAM MINSK, FIRST VICE PRESIDENT, POMMERACK SENIOR CITIZENS CENTER Mr. MIN5K. Congressman Rosenthal, my name is Abraham Minsk. I am the first vice president of the Pommerack Senior Citizens Center, and I am in charge of social action.. I received a letter from your office yesterday concerning this hearing. I read this letter to the members of our group and they were anxious that I voice their needs, such as holding the prices down on rent, food, electric power. and gasoline. 52_2lLt 0 - 79 - liLt PAGENO="0690" 682 I am sure this could be accomplished if our President and Congress would make an effort to hold prices down and balance the Federal budget. This would result in an increase in the value of the dollar, of our dollar, rather than devaluation. Thank you. Mr. ROSENTHAL. Thank you very, very much. STATEMENT OF SOL SEVERIN, MEMBER, POMMERACK SENIOR CITIZEN CENTER Mr. SEVERIN. My name is Sol Severin from the Pommerack Senior Citizen Center. I would like to suggest a couple of things, if I may. First, we senior citizens pay a higher rate of increase for electric. Is it possible to see that the Con Ed Co. charge us the same price for electricity as they charge for the bigger users? That would be, naturally, a help to us. I would also like to take up the problem from medicare and the doctors. Doctors don't want to accept the medicare. They want to be paid and their price is much higher than we get in return. I know doctors, and many of them or most of them make a good income from our senior citizens. Wouldn't it be possible to see that those doctors who accept medi- care, they should prescribe that they would adhere to the price set by Government? Of course, the inflation is one of the major problems. I think it would be advisable, in my opinion, if we should have price control. Then the second thing would be compensation for national health insurance, the Kennedy bill. Not much was said today about it. The bill isn't here any more and our President don't seem to adhere much to it. We do expect a new bill from Senator Kennedy and, what's going to be, of course, we don't know, and it would be important to see that a health care should in some form be enacted to help onthe hospital bills. Also, the President said that he was going to help to cut down on the price for the hospitalization. So far, not much has occurred since then. I would like to ask, if it is possible, bank rates today charge the customers anywhere between 12 and 15 percent. We, the smaller depositors, whatever we deposit, we only receive 5 percent from a commercial bank and 51/4 percent from the other bank. I don't think there's-that's supposed to be a law, that the bank can- not raise, and I don't feel that is justified becausewe are smaller deposi- tors that we should Teach the bankers and get our return for our deposits as well as what the bigger depositors get~ Thank you. Mr.ROSENTHAL. Thank you very much. PAGENO="0691" 683 STATEMENT OP SISTER ELEANOR McGARRY, DIRECTOR, SENIOR CENTER AT ST. GREGORY'S PARISH, MANHATTAN Sister ELEANOR MOGARRY. My name is Sister Eleanor McGarry. I am director of the Senior Center at St. Gregory's Parish on West 90th Street in Manhattan. Every day in my work I hear stories and see evidence of poverty to which the senior citizens of New York are reduced to. Many of them are really heartbreak cases. Most of them are people who have worked their whole lives, have paid into pension plans and social security, and are now living on a fixed income and they come in and tell you stories of not having enough to eat, of not being able to afford medical care. One woman just recently coming in and saying that she needed special shoes because of an arthritic condition in her feet, and does not have the money because of increases in rent and food prices in the supermarket to afford these shoes because it's not covered by the medi- cal plan which she is in. Many of these people are just barely existing, and I think every- body in this room will agree that there is a difference between exist- ence and living, and it's very hard to believe that these people are senior citizens of a country as affluent as the United States, and I would just like to appeal to you people, representing and working in and for our Government, that something has to be done about control- ling prices and listening to the plight of the poor and senior citizens all over the country, but I guess I am a little prejudiced to the seniors here in New York because that's where I work. Mr. ROSENTHAL. Thank you very much, Sister Eleanor. STATEMENT OP DOROTHY ALLEN, MEMBER, SENIOR CITIZENS GROUP, ST. GREGORY'S PARISH, MANHATTAN Ms. ALLEN. My name is Dorothy Allen. I am a member of the senior citizens' group that Sister Eleanor just mentioned, and I am living on a very small income, and that is $214 a month. My rent has to be paid out of that. Of course, I must say that my utilities are included in the rent, but after that I have very little left. I am also an outpatient, I am diabetic. My food expenses are exceedingly high because I have to eat special food. My sugar level is very high and I have to be very careful with my diet. At the same time, I am a handicapped person as well as an aged person, and it is impossible for me to go around, get around. I have to get someone to go with me because of the fact I am afraid of the subways and all of the crime in the city, and walking on a cane, I am subject to anything that may happen, but at the same time living is very hard. PAGENO="0692" 684 Extra things, I can't think about that. Even at the clinic, when I go to the pharmacy, some of the prescrip- tions I cannot get, they don't have it, and they will say, "Come back." Well, I will try to get it at the drugstore because it's needed very much and that is a very expensive thing. I have very little left. I get food stamps. I was getting $19, and now I got a letter just yes- terday and they cut it down to $12, because they say they had rebudg- eted me, and I was thinking I was going to get more but it seems like every time I hear from them I am getting less. That is what I have to say for myself. Mr. ROSENTHAL. Thank you very, very much. Yes, sir? ~STATEMENT OF GEORGE YEAGER, COUNCIL OF CIVIL SERVICE WORKERS, DELEGATE FOR CONGRESS OP SENIOR CITIZENS, MEMBER OF~DELEGATION OF QUEENS CONGRESS OF SENIOR CITI- ZENS, CIVIL SERVICE Mr. YEAGER. Myname is George Yeager. Thank you very much forbeing able to come down here, and I think it is an~extrerne1y~good projectthat you are going through and finding theroots of the people and getting their opinions. I happened to be forced mto city retirement. I am a former civil service worker. I am in the Council of Civil Service Workers I am also a delegate for the Congress of Senior Citizens; I am also a member of the Delega- tion of Queen s~Congress of Senior Citizens. Civil Service, and I bought a home with the intention of having security in my old age. Being forced to retire, I-my mortgage, which 1 have to make a pay- iiientof $175a month, and I also have taxes-taxes have also increased from $400 to close to $1,000. My electricity is increased from $22 a month, which I pay on a monthly basis, to $84 a month. And then at the end of the year I have to pay about $200 to $300 of heat and electricity and gas. So, with all the small amount of income that I have, and on top of all that, I have to be operated on for my heart condition, and they had to put in a pulse increaser to my heart because of my low pulse rate, and that cost a lot of money, and not only that, but my prescriptions cost me quite a bit of money, too. I have a little savings which almost every month I have to go to my bank and get some money so I can survive. I also- Mr. ROSENTHAL. Has the situation gotten worse in the last 6 months or a year? Mr. YEAGER. It's starting to get worse because my expenses are in- creasing because of the taxes, and the rent-well, not the rent, but my heating expenses are much greater and, therefore, it's really rough. Not only that, but, you see, belonging to these various organizations, they often speak to me about the frustration and the anger, and the PAGENO="0693" 685 entire temper of the people is such that you really are very much con- cerned how things are with these people because if anything more gets worse I am really worried about the reaction that these people will take. Therefore, I am really concerned about it. Mr. ROSENThAL. Thank you all very much. It is very important testimony. Who else is waiting to testify who we have not reached yet? Come forward, please. STATEMENT OP JUSTINE GABLE, CONSUMER REPORTER, MORRISTOWN DAILY RECORD, NEW JERSEY Ms. GABLE. My name is Justine Gable. I am a consumer reporter for the Morristown Daily Record, which is a newspaper covering all of northwest New Jersey. I guess .1 am about the only representative from New Jersey that is here, but in conjunction with this hearing I ran what is called a consumer call-in at any paper on the past two nights. We asked our readers to call in and voice their complaints about what their inflation is doing to them. As a result, I got about 100 people to call in and answer my questions. Most of it is just a repetition, naturally, about what was said here, and I don't want to get into it except the fact that I noticed, and the last man backed me up on it, that there is a state of panic. When you listen to people talk, there is an edginess, a state of panic, in what they are saying. I fear for what is going to happen to some of these older people in their anxiety. It is very concerning to hear their voices and the tone in which they express their anxiety. Mr. ROSENTHAL. Of the 100 people that called, what was the con- clusion? Ms. GABLE. I didn't ask for a conclusion. I was~ not there to give advice. Mr. ROSENTHAL. What was the information that you gathered? Ms. GABLE. Mainly one thing. I live in a suburb-gas. There's very little mass transit in New Jersey. People don't know how they are going to get to where they get sim- ply because there is no way of getting there. This is not a problem that is brought up here, of course, to any ex- tent. They all want to know, what is the Government going to do about mass transit? We have seen no improvement since the last energy crunch. But then the other problems were-and, as I say, I don't want to take up any more time-it was mainly the elderly, the handicapped and those on fixed incomes that were in the greatest distress. Panic, I would call it. Mr. ROSENTHAL. Thank you very much. PAGENO="0694" 686 STATEMENT OP PAT WIDDIHAM, GENERAL CONSUMER HOME MAN- AGERS' EDUCATION PROGRAM, NIW YORK CITY BOARD OP EDUCATION - Ms. WIDDIHAM. My name is Pat Widdiham. I am with the New York City Board of Education, the General Con- sumer Home Managers' Education program. I was asked to come here to represent the agency, and we service all young and old, but I am in the South Bronx, and young girls, mar- ried women, are undergoing sterilization so that they cannot have any more children. They are not using any forms of birth control because of the high cost of living. These are young women with two children, and I say this is a dras- tic step to take. You are still a young woman, 21, 22 years old, and as soon as they have their baby, the doctor cuts their tubes and they cannot have any more children. The streets are filthy. In the Sout.h Bronx-well, I was over in Harlem, the streets are filthy, the people are saying "There's young people out here needing jobs. Why are our streets so filthy? Why are the parks so torn down that you cannot even use them with all of the people around who need jobs?" As for myself, I am a person that went to school, as an older person, and I took out a loan and I cannot keep up with it, thanks to the Con- gress and the national teachers, the loans that you allowed us, you know, but it's just ridiculous. I get increases~ but they are all eaten up. I am like the little hamster in the little wheel. I am just going around and around and I am back where I started from constantly. I am a professional with a master's degree and yet I was concerned about coming here because of carfare and lunch. I cannot afford to eat out. That's all I have to say. Mr. ROSENThAL. Thank you. Yes, sir? STATEMENT OP AL SMOKE, REPRESENTING LABOR MOVEMENT, COOPERATIVE, FRATERNAL ORGANIZATIONS, HEALTH CARE ORGANIZATIONS OP NEW YORK IN THE CONSUMER FIELD Mr. SMOKE. My name is Al Smoke. We represent basically, in the consumer field, the labor movement of New York, cooperative, fraternal organizations, health care orga- nizations, and we try to do a number of things in the inflation field, trying to help bring it down, with minimal success. To give you an illustration, we were interveners in the recent Con Ed rate increase case and we stressed the economic impact with whatever statistics we had available in terms of elderly people, low income families. PAGENO="0695" 687 Yet the Public Service Commission saw fit to give a sizable increase, despite the fact that Con Ed had huge profits and was paying huge dividends. They simply wouldn't recognize the economic impact. We are doing the same thing now in the New York telephone in- crease rate. For example, we were involved in getting the generic drugs substi- tution in New York case. For years we fought for it, but it's not working. Only about 28 percent of the prescriptions where generic drugs are used are being utilized, and here's a possibility for an anti-inflationary device. The conclusion we come to is rather pessimistic. We feel the grassroots movement as such, the consumer movement as such, has not made sufficient impact in terms of the inflationary situation. What, in my opinion, is the answer? It's an answer that's been given much better by others than myself, particularly this morning by John Galbraith, the professor. I have come to the conclusion that if we are going to get anywhere in this inflationary situation, we must mandate wage and price controls. A good chunk of the labor movement has come around to that con- clusion already. Not only wage and price controls, but controls on interest, on divi- dends, on profits, on rent. Now, it is not a panacea and it is not a cure, and it results in setting up a huge administrative agency with all kinds of headaches that a bureaucracy has, and yet, frankly, at this point I see no other way out. I like the idea of an anti-inflation council, and a number of the labor unions, particularly the large ones like the clothing workers, but really let's be honest with ourselves, how much is this going to help? It will give us some information. I shop in a cooperative supermarket, of which I am a member, and a month ago I bought a container of Carnation powdered milk, 10 quarts for $2.39. This is a co-op market, nonprofit. A month later I came back and that same package was $2.99; a 25- percent increase. Let's say that we monitored this, and I give this information to whoever is monitoring. A 25-percent increase. What are we going to accomplish? Can we really effectively stop this kind of increase unless we man- date some kind of controls? This is basically the message that I want to bring, that I think it is essential. I have been talking to more and more people, and p~radually the thought is coming around that the Government must do this. I venture to say, and, you know, just to say ii-. off the top of my head. that if a poll were taken now among 100.000 people. properly explained what wage and price control imply, that a good majority would favor it at this time. PAGENO="0696" 688 There is a lack of credibility in Government, both on the local, on the State and on the national level, and we have got to do something more than just what we have been talking about. Mr. ROSENTHAL. Thank you very much, Mr. Smoke. Yes, sir? STATEMENT OP MURRAY HAMMERMAN, NORTH ATLANTIC MILK PROCESSORS' ASSOCIATION Mr. HAMMERMAN. The story I have to tell should be of interest to consumers. My name is Murray Hammerman. I represent the North Atlantic Milk Processors' Association. I happened to be in the room when Mr. Bienstock pointed out that the price of dairy products went up considerably, considerably more than other prices in the food index. I would like to tell you why. The price that the dealers and manufacturers of dairy products in this area have to pay for the milk is predicated by Government man- date, by the Secretary of Agriculture, and by the Food and Agricul- ture Act of 1977. It is based on the price paid to farmers in Minnesota and Wisconsin. Most of or practically all of the milk supply in those areas is con- trolled by cooperative associations who buy the milk from their mem- bers and manufacture them into dairy products like cheese, butter, and the Carnation milk that the last gentleman spoke about. The price that those plants, which are cooperatively owned for the most part, paid to the farmers each month is the price that the manu- facturers and the distributors of fluid milk products, manufacturers of dairy products of this area have to pay for their milk, and it should be obvious to anybody that, since these plants are owned by coopera- tives, the prices they set are self-serving. That they can very well pay prices which would force the users of milk in other parts of the country to pay considerably more for their milk, and in turn consumers would have to pay higher prices for their products. I will give you an illustration. The raw cost of milk has increased far in excess of the Consumer Price Index for this area. The Consumer Price Index-- Mr. ROSENTHAL. Could we put your statement in the record so that everybody will have a chance to read it? We would be very grateful for that. Mr. HAMMERMAN. I have included that and I will read all the figures. Mr. ROSENTHAL. I was just going to suggest that you don't have to read it if we put it in the record. Mr. HAMMERMAN. Well, it's brief. It doesn't go beyond more than a page and a quarter. It wouldn't take more than 2 or 3 minutes. They show that the Consumer Price Index for this area was 182.9 in March of 1977 and 206.4 in March of 1979. This is an increase of 23.5 points or 12.8 percent. As contrasted to the 12.8-percent rise in the overall Consumer Price Index for the area, the price for a hundredweight of milk was raised to PAGENO="0697" 68) the manufacturers of dairy products in this area by 27.6 percent for the same period. And that is more than twice what the entire Consumer Price In- dex was raised. Our members were not happy with the setup of pricing. We don't believe they are real prices. We have gone to court. We went to the U.S. District Court, to the Court of Appeals, right across the street, and we lost that case. It appears that the courts feel that it is an administrative problem, and that the Secretary of Agriculture should know more than the courts what the price of milk should be. We are not blind to the fact that there are tremendous pressures brought upon Congress in passing these prices, parity prices. They set parity to dairy products anywhere between 80 percent and 90 percent. There is a move now in Congress to raise that as high as 100 percent. It is for gentlemen like you, on a congressional committee, that are interested in consumer prices, it is necessary for you. to offset in Con- gress the work done by the Congressman from the farm States to keep raising these prices ad infinitum, and to try to keep the prices in line, at least in line with the general price level, which is high enough, rather than more than 200 percent above that price level. Mr. R05ENTIJAL. Thank you very much. [Mr. Hammerman's prepared statement follows:] PAGENO="0698" 690 NORTEATLANTIC MILK PROCESSORS' ASSOCIATION 280 PARK AVENUE NEW YORK~ N.Y. 10017 MURRAY HAMMERMAN TELEPHONE *~RRUN~ (212) 687-8908 DIGEST OF STATEMENT TO THE HOUSE INTERSTATE COMMERCE COMMITTEE `S CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE AT PUBLIC HEARING IN NEW YORK CITY ON MAY 18, 1979 AT FEDERAL COURTHOUSE GIVEN BY MURRAY HAMMERMAN, EXECUTIVE DIRECTOR ~OF IPHE NORTH ATLANTIC MILK PROCESSORS' ASSOCIATION. 1. Our association consists of the major manufacturers of dairy products in New York State. Several-of our members also process and dThtribute fluid milk and other fluid dairy products. 2. We would like to see a change in the method of pricing the raw milk used by us. Presently we pay farmers through the operationof.. the Federal Milk Orders apriceaupposediy:.also~ paid-to farme;rs~for~bbeir milk delivered to dairy plants iw--the Midwest. The basis for our raw milk cost is the Minnesota-Wisconsin Price Series. 3. We have gone to court challenging the use of this method because we felt that the Department of Agriculture had not shown at a public . hearing or otherwise the fundamental data used in computing the price series mentioned. We objectedto the fact that we were not given a breakdown as to which plants were used for the price deter- mination either by name, size or type of dairy product made. Our petition to the Secretary of Agriculture was turned down and the Secretary's actionwas upheld by the courts, who apparently feel that since this a technical and complicated matter the Administrative branch knows best. We feel that the~Department is oriented to the economic welfare of -farmers and not-to -either- consumers or dairy plant operators. We-appéalto this-subcommittee to change this ~ The raw cost of milk has increasedfarim- excess of theConsumer Price Index for this-area. I am submitting statistics, which I will not read in detail. They show, for-example, that the Consumer Price Index for this area was 182.9 in March 1977 and 206.1;. in March 1979. This is an increase of 23.S points or. 12.8 %. ~. As contrasted to the 12.8% raise in the ~Consumer Price Indexfor the area, the price for a cwt. of milk was raised to us by 27.6 % f or the same period. Our manufacturing milk price went from. $8.26 * in March 1977 to $ lO.S1;. in March 1979. For- Class I milk or that used-for fluid purposes our base price was$2.2S per cwt. or about five cents a-quart above the price mentioned for manufactured prod- ucts. PAGENO="0699" 691 6. The Secretary of Agriculture fixes the support price for milk just before October 1st of each year based on a percentage of "parity" He adSusta it again a half year later to reflect current parity. The support price is that at which the government will buy man- ufactured dairy products - butter, powder and cheddar cheese. 7. On October 1, 1978, the parity index was 757 as of April 1, 1979 it was 825, 9.0 percent higher. The Secretary of Agriculture is required by the Food and Agricultura Act of 1977 to support these prices at a level between 80 percent and 90 percent of parity. 8. Legislat~ors: from dairy farm areas have introduced bills in Congress to raise supports to 90 and even 100 % of parity. They have been pressured by farm groups, particularly the large dairy cooperatives to keep raising the price of milk twice each year. 9. Our members know that every price rise we have to pass along to consumers means we sell less of our~ product. The government . statistics will bear this out. Less than half the milk produced in the New York - New Jersey milkshed winds up in a fluid milk product. Much of the remainder goes to the government under the support program and winds up all over the world in various programs. 10. We strongly suggest that this committee present and fight for a better way of determining the basic cost to consumers for such important family dietary requirement as milk, cheese and other dairy products. 11. As pointed out at the outset, the milk price would be much lower if the cost to the milk dealer were based on the Consumer Price Index rather than the price paid to farmers in the Midwest. We would be pleased to work with the committee on a better formula for consumers and the industry alike. PAGENO="0700" 692 - BASIC DATA FOR IMFORMATIOL PRESENTED `TO:THE HOUSE INTERSTATE COMMERCE COMMITTEE' S CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE ON MAY 18th, 1979 IN NEW YORK CITY. COMPARISON BETWEEN INCREASED COST OF MILK FOR MANUFACTURING DAIRY PRODUCTS AND RISE IN THE "CONSUMER PRICE INDEX--ALL URBAN CONSUMERS- NEW YORK - NORTH EASTERN NEW JERSEY"DURING THE PERIODS SHOWN BELOW. Consumer Price Index March 1977 182.9 March 1978 192.2 (1) Sept. 1978 (1) 198.9 (U. S. Dep't of Ag. changed marketing year March 1979 2O6.L~ (and support price changes from March to Oct.) Index Increase between March `77 and March 1979 23.S Percent " " " a 5 " 12,8 % PRICES PAID FOR MANUFACTURING MILK BY DAIRY PRODUCTS MANUFACTURERS IN THE N. Y. -N. 3. MILK MARKETING AREA AS REGULATED BY FEDERAL ORDER NO. 2. Class 11 Price - Per Cwt. (Base price for milk F. 0. B. Farms for manufacturing milk) March 1977 $ 8.26 March 1978 9.O1. September 1978 9.96 March 1979 lO.SI~ Increase in raw milk cost to manufacturer from March `77 to March `79 was $ 2.28 per. cwt. This was a rise of 27~j~. Conclusion If the manufacturing milk prices rose only to the extent of the Consumer Price Index for this area rather than by the use of the Minnesota - Wisconsin Pricing Formula under the market orders~ for milk, the March 1979 Class 11 (mf'g milk) price would have been only $ 9.32 instead of $ lO.~ and consumers would have benefitted materially by the lower price on all dairy products. PAGENO="0701" 693 STATEMENT OF BRUCE RATNER, COMMISSIONER OF CONSUMER AFFAIRS, NEW YORK CITY Mr. RATNER. First, I want to tell you how much I appreciate com- ing here and how much I thank you for all you have done in the past- Mr. R0sENTnAL. Tell us who you are first, please. Mr. RATNER. I am Bruce Ratner, commissioner of consumer affairs in New York City. I was saying that, knowing Congressman Rosenthal since I started in the consumer movement, and he was there before I was, and prob- ably before anybody else was, and I think people should know that if they don't already. The stories of the individual's fight against inflation have faded from the headlines lately to be replaced by figures. A March Consumer Price Index of 209.1, a 6.23-percent rise in the price of live cattle during April, a 24-percent inflation in gasoline prices since 1 year ago, and so on. However startling these figures might be, the human problems, the pressures consumers are living' under to stretch their dollars, are even more overpowering. There are welfare mothers who are struggling to raise children on protein frOm spaghetti, rice, and beans. There are elderly people who save a slice of bread or a container of milk from their senior citizens center lunch program to serve as a meager dinner. You have heard more of that today and I am familiar with it. No doubt many families experienced higher rates of illness last winter because they kept their apartments and houses colder to control utility bills~ With electricity and heating oil prices skyrocketing, I am sure that will be the case again this year. If I may return to just one figure, a recent survey of 1,254, families nationwide from a cross section of socioeconomic groups and geo- graphic areas showed that 6 in 10 families find that the high cost of food is a major cause of stress for them. Inflation isn't just hitting us in our pocket books; it's attacking our general sense of well-being and faith in the future. We did our own little survey to follow up. We asked consumers who lived in community development areas what they thought, their perception of their economic situation of the coming years, what they thought that would be. Only 2 percent thought that their personal economic situation would improve in the next few years. In addition, half the families interviewed in this survey said they were cutting purchases of health-related items to buy food. As a consumer agency, everything we do is part of an overall effort to see that New Yorkers get the most for their shrinking dollar. There are four things that our agency feels can be done by a local agency, `and what we have tried to do, and first is a local agency should do price monitoring. Second, it should do consumer education. Third, lobbying, and, fourth, local regulation. PAGENO="0702" 694 And, enforcing all these four things can contribute to helping the inflation situation. Price moniforine': It is not a new concept with our department. Since May of 1973, we have been conducting a market basket sur- vey of 41 items in approximately 150 stores. This market basket tells us a lot of things. On a weekly basis, it tells us what has gone up and what has gone down. It allows us to help consumers in making purchasing decisions dur- ing the week. In fact, most of the media in the city pick up what we say. For example, we were able to monitor the fact that meat prices were going up at an incredible rate, and we were able to see that pork and chicken prices were going down in the last month before the CPI identified those problems. Those are some of the things you can do. They can constantly bring to the public's attention what is happen- ing, and they can help affect purchasing decisions and they are very important decisions in saving money. I should indicate, since our enormous attention to beef prices, start- ing in the beginning of April, just cutting back on beef generally, ac- cording to wholesalers and retailers in the city, beef consumption is down 20 percent in the city. That 20 percent may have some effect on national beef prices, but it does one clear thing. Instead of buying $2 worth of hamburger meat, somebody is now buying chicken at 71 cents a pound. We estimate that it probably saved millions in terms of what people have substituted for the high cost of beef. That was basically done by our monitoring of food prices, and par- ticularly beef prices. Another very important thing is the encouragement of good shop- ping habits that really do help consumers to buy better. That can be done in a lot of ways. We have applied for and received a Federal grant to go from neighborhood to neighborhood, community to community, in order to talk about ways in which food prices can be brought down by good shopping habits. You know what. they are, you know what the type of shopping habits are, but you would be surprised at how maily consumers are not aware of the many methods available, and I think HEW should get a good consumer education program going in this regard. Well, one thing is to buy in larger quantities. Buying in larger quantities is something that. we all seem to know about, and yet people tend to buy smaller quantities, for example, small juice cans, people tend to buy small cans of soda, and so on. Yesterday, as a matter of fact, I was in a pharmacy and the phar- macist took me aside and showed me different sizes of Head and Shoulders shampoo, one of 4 ounces, $1.29. He then showed me one of 12 ounces, which was $2.10. It was 1~ss than double the price, and yet it was three times the quantity. He said to me "I don't understand how people can buy the smaller size. Something like shampoo doesn't go bad." PAGENO="0703" 695 So, I think that that is something that should not be ignored. It has got to be done in a dramatic way. We feel that the Federal grant that we have gotten by going into the communities and holding workshops is a very effective way. That is one; shopping in larger quantities. A second one is not buying nationally branded items. As we have said time and again, you can save 15, 20, 25 percent on a given item by not buying a nationally branded item. Take Perdue chicken. It is about 15 percent higher than a locally produced chicken. That is heavily advertised and it is wrapped and so on, and that is an indication where advertisement has created a demand for an item where there is no real reason for it. It's the same chicken, it's got the same flesh. It is very important for consumers to undo some of the enormous pressure of advertising. Generics is the same kind of thing. There are advertised specials. Chicken this week, in the city of New York, 49 cents a pound, and you can get it at some places. The average price in the city was 71 cents a pound. Telling consumers that that makes a difference, and you should advertise specials in the staples, and milk is another commodity; that makes up about 81/2 percent of the average person's budget. When we talk about trying to comparison shopping and buying in larger quantities, that is a lot of money. I think at-I think it has not been dramatized enough. We have striven to really try and make known and try and bring to the attention of the Government officials that there are a lot of these and other things which the average consumer is not aware of. For example, sugar legislation, which I know the Members of the Congress are very aware of, but not the consumers, and milk support legislation. We have written to Members of the Congress on those kinds of issues. We have a beef import situation coming up, I understand, and we ought to have higher beef import, at least for the future. It is very important for a local agency to try and influence Federal legislation that way. Last week we met with National Association of Consumer Affairs administrators from all over the country. When we heard about what they were doing, it was rather disappointing. You have local consumer offices very, very involved in local fraud matters, and not at all aware of major inflation fights. They are not aware of the fact that they can have an effect, I think, on Federal legislation, lobbying, and they are not aware of ways in which they can make food prices more competitive. I think a very important thing that should be done by the Federal Government, particularly the Council on Wage and Price Stability, to get local consumer agencies much more involved in the fight against inflation and stop worrying about some of the local advertising things which don't have a substantial impact on food inflation. PAGENO="0704" ~96 Just to give an example. Locally, when the milk strike came about, there was a 3-cent increase in milk costs; a 3-cent increase that amounted to half a million dollars a week extra in consumer costs, and that is a small amount. By our publicizing that and working with the Attorney General here, we are able to eliminate this kind of public gouging. The other area that I think local agencies could be more involved with is monitoring some of the Council of Wage and Price Stability guidelines. We tried it with the parking lot industry. Parking lots have had substantial increases in Manhattan. We said, before they ever filed for an increase, that they would have to say whether or not they were complying with the Federal Wage and Price guidelines, and that has made a substantial differ- ence. Out of 17 different places that applied, 13 have complied with the guidelines. I don't think the problem is compliance with the guidelines. I think the problem is the actual guidelines themselves. I think the guidelines are not very good, and I brought a cThart with me to illustrate one of the major problems with the guidelines. One of the major things the guidelines allows, they allow a per- centage markup-again, a percentage markup by the wholesaler and retailer,~ They allow them to continue the same percentage markup. If I am a retail food store and I always take a 20 percent retail markup on beef, under the Wage and Price guidelines I can continue to take a 20-percent markup on the price of beef. That is fine if the price of beef to me is about the same and con- tinues to be about the same with a slight increase. But if beef doubles in price, that allows me to take my 20 percent of the doubled price, and that has had a snowballing effect, and a ma- jor reason why they have not worked. It is the fact that they have a major flaw in them. My chart illus- trates that, really. Assuming that there is an increase of 80 cents to 96 cents in farm prices on a given commodity, a 16-percent increase. Now, the question is, to what extent can that 16-cent increase be passed on? I think the question is, should you be able to take an additional por- tion of this, even if the costs don't justify it? The guidelines allow it. The guidelines allow the wholesaler to use a markup basis for price figuring, they can take 20 percent of this 16-percent increase in ad- ditional markup. If they had no additional labor costs, if they had no additional trucking costs, they can still take 20 percent of this cost. The same thing for the retailer. He can take a 20-percent markup, or whatever it happens to be, on the basis of this increase. This shows 16 cents on a farm level, and it pops un to a 25-cent re- tail increase; a 9-cent increase from wholesaler to retailer, even though it may not have been a cost that is justified. S PAGENO="0705" 697 That is oniy based on a 20-percent margin and only 16 cents here [indicating]. If we go to something like beef, where the price is double or has gone up 50 percent, rather, in the lastyear, and you are allowing the retailer to continue to mark up 20 percent, it is no wonder that you have had the retailers with record profits. I call it the snowba.lling effect. The other day I had the opportunity to ask Mr. Posseck [phonetic spelling] about that. He spoke in front of our Association of Consumer Affairs administrators. I asked him about this snowballing effect. He said it was a problem and they were against, that when the guide- lines went into effect, but that is how a lot of retailers operated, and they had to meet the percentage markup-don't worry about it because when farm prices go down they will have to still stick with their markup. They are not going down. With gasoline, we have noted that the margins that the retailers take on gasoline have increased in the month of March, for example, as com- pared to a year earlier. Again, the retailer markup has increased. One gasoline station increased 100 percent. On the average of about 8 cents increase- Mr. ROSENTHAL. I think there is a difference in gasoline regulations. It is a penny-to-penny passthrough- Mr. RATNER. Right. But it's very interesting because they are within the ceilings, but you know what? I don't think they are within the price and wage guidelines. The Department of Energy sent all the auditors around to check the `ceilings, but not to check whether or not the gasoline stations are complying with the wage and price guidelines, and I suspect that t.hey are not. For example, a gas station as we saw had an increase of 4 cents a gallon, and the markup was about 6 cents a gallon before March of 1978-before March of 1979. In March of 1979, it took an extra 4 cents markup. That complied with the ceiling, but that didn't probably comply with the wage and price guidelines. You have the Department of Energy monitoring everybody around the country, and they shouid be checking for wage and price guidelines. They are taking extra margins, and the Wall Street Journal on Wednesday indicated that they were doing very well. The percentage of mark-up was increasing. To me, it is an amazing thing. The Federal Government has people in the field and I guess they are not monitoring for wage and price guidelines. BaSically, those are the major points that I wanted to make. I should point out that I have written probably two or three letters that I never have gotten a response to, and- Mr. ROSENTHAL. When did you write them? Send us copies. Mr. RATNER. All right. 52-214 0 - 79 - 45 PAGENO="0706" 698 Mr. ROSENTHAL. Send us copies and indicate when you wrote them and that you have not gotten a response. Mr. CONYERS. Your testimony is excellent, but I think your function goes much further than you have described it here today. Mr. RATNER. Tell me. Mr. CONYERS. I am not sure if I can, but this is really a nonsolution. What you have produced is, you have demonstrated your concern, you have demonstrated your support for the committee and our work, your appreciation, and, many of the problems, but it leaves the con- sumer in precisely the same~ position of which we all so accurately complain. It doesn't take anybody that is getting ripped off to listen to you, listen to me, listen to the emotion, listen to the detail, and, if so, what? I mean, you go back to working hard, we go back to Washington, and the situation is the same. I don't mean to say that you were to have come here and resdlved the problem of inflation in this city or this Nation, but somewhere along the line all of us have to begin to recognize that this is an eco- nomic problem with a political consequence that has to be addressed by the mayor of this city, by the Governor of this State, by the Presi- dent of the United States. I mean, it is my suggestion to you, as I commend you for your excellent testimony, to tell you that the political system in this coun- try is failing its people in an awesome way, and that our responsibili- ties are more than what all of us are doing, and I am sorry that I cannot answer my own question to you any better than that, but I hope that you will consider it with us. Mr. RATNER. I do, and I think it is a very frustrating thing. I try to nibble around the edges as best I can and come up with ideas that I think will try to help some of the problems. The beefless Wednesday was a very serious proposal, and I got no support from the Federal Government. In fact, the Federal Government was afraid to say: "Don't eat beef." In other words, the testimony today about the fact that people have already cut back, and it was a irery important-well, it hap- pens that I think I was very right. You have to cut back on the demand on beef. You look at beef and you find out that from January 1 to now, it is responsible, by the CPI's own estimate, that 40 percent of food inflation was caused by beef. I am very frustrated because I think there are some approaches that can be very helpful. I think this is something [indicating]. I think the standards ought to be tightened up. I think the- Mr. CONYERS. But the mayor and the Governor did not support you, and neither did the President of the United States. We could sit around here and draw these points, but that is the political part of this that seems to be coming back to me, that some- where along the line we are going to all have to speak up, and that PAGENO="0707" 699 it is not as much as when I began, Mr. Chairman, considering that there was a failure of understanding of some economic principles, everybody understands the economic principles. We have an amazingly little difference of opinion over what the economics are of the situation. So that it seems really sad to begin to draw the conclusions in my city and in your city that we don't have people at any level of govern- ment that are willing to say we are going to have to change the system in terms of the powerful economic interests that dictate the practices that are so detrimental. [Mr. Ratner's prepared statement follows:] PAGENO="0708" 700 DEPARTMENT OF CONSUMER AFFAIRS Ci,4r _{b ~ 80 LAFAYETTE STREET. NEW YORK. NEW YORK ~O0l3 0 Telephone: 566-5457 , Bruce C. Ratner Commissioner Testimony of Bruce C. Ratner Commissioner addressed to the Commerce, Consumer, and Monetary Affairs Subcommittee of the Committee on Government Operations United States House of Representatives regarding Inflation and the Council on Wage and Price Stability May 18, 1979 Thank you, Congressman Rosenthal, for inviting me here today to discuss the impact of inflation on New Yorkers and what the Department of Consumer Affairs is doing to combat inflation. Stories of the individual's fight against inflation have faded from the headlines lately to be replaced by figures: a March Consumer Price Index of 209.1, a 6.23% rise in the price of live cattle during April, 24% inflation in gasoline prices since one year ago, and so on. However startling these figures might be, the human problems, the pressures consumers are living under to stretch their dollars, are even more overpowering. There are welfare mothers who are struggling to raise children on protein from spaghetti, rice and beans. There are elderly people who save a slice of bread or container of milk from their Senior Citizens Center lunch program to serve as a meager dinner. - No doubt many families experienced higher rates of illness last winter because they kept their apartments and houses colder to control utility bills. With electricity and heating oil prices skyrocketing, I am sure that will be PAGENO="0709" 701 the case again this year. If I may return to just one figure -- a recent survey of 1,254 families nationwide from a cross-section of socio-economic groups and geographic areas showed that 6 in 10 families find that the high cost of food is a major cause of stress for them. Inflation isn't just hitting us in our pocketbooks, it's attacking our genera]. sense of well-being and faith in the future. In addition, half the families interviewed in this survey said they were cutting purchases of health-related items to buy food. I'm sure that the consumers attending this hearing today will tell you more about these problems. As a consumer agency, everything we do is part of an overall effort to see that New Yorkers get the most for their shrinking dollar. Today, however, I'd like to discuss a few of the things we're doing to meet the specific problem of generally increasing prices. Our anti-inflation efforts have focused in four main areas: 1) price monitoring, 2) consumer education, 3) lobbying and 4) local regulation. Price monitoring is not a new concept to theDepartment of Consumer Affairs. Since May of 1973 we have been conducting a weekly Market Basket survey of 41 items in approximately 150 stores. These~figures are compiled so that, beyond price changes in individual items, we know how much the price of a balanced diet for a family of four is increasing. Between December of 1977 and December of 1978 for example, our Basket total increased over 13%. This represents a year over year dollar increase of over $415 for a family of four. The summer season has moderated recent increases but our Basket is still up 4.4% so far this year, or nearly 12% on an annualized basis. The beef component of our shopping list alone has increased over 36% since last May. Chuck steak, what had been an economy cut used for pot roasts, cost 57.4% more last week than it did during the equivalent week in 1978. We use this Basket as a basis for informing consumers about coats and about PAGENO="0710" 702 changes they can make in their shopping habits to reduce the ravages of inflation on their family food budgets. Recently, we've been encouraging consumers to make use of less expensive store label goods as well as to take part in our Beefless Wednesdays program to reduce their beef consumption by one additional meal each week. We have suggested that consumers reduce their beef consumption not only to help reduce their own bills, but to help put a lid on rising prices by consciously changing their patterns of demand. We are now in the process of developing an Energy Basket to advise both conspmers and policy makers about what is happening to energy costs. Our Outreach Division is constantly working to inform the public about how to meet rising inflation through wise shopping habits. We have constantly striven to make the consumer's voice heard when government officials and legislators are making decisions that will affect prices. The range of our efforts has been broad, from providing consumer infornzition to the Tropical Products Division of the State Department for their negotiations with the International Coffee Organization to pressing the Public Service Commission to directly address the impact of their decisions on consumers. We investigated compliance with New York State's money-saving generic drug law and have worked to perfect new legislation in that area. The Department of Consumer Affairs focuses on the inflation issue in designing our regulations in two ways. First, we examine each of our own proposed regulations to be sure that the cost of compliance does not outweigh consumer benefits, keeping in mind that an era of shrinking government should not be an era of increasing hazards for consumers in the marketplace. Second, we have attempted to work with the Wage and Price Council to achieve compliance with voluntary limits on price increases. For example, we are presently requiring garages and parking lots to show whether they comply with the Standards when applying for rate increases in excess of New York's 1978 inflation rate of 7.7%. PAGENO="0711" 703 The New York City Department of Consumer Affairs would like to strengthen its interface with the Wage and Price Council to help beat inflation, and we would like to encourage other state and local agencies to join in the fight against inflation by taking the appropriate steps suggested in the "Intergovernmental Partnership" booklet published by the White House. We strongly urge the Council to take even more direct action to obtain the help of state and local agencies in fighting inflation. In addition to being sent a copy of "An Intergovernmental Partnership" with its offer of technical assistance, state and local governments could be contacted by COWPS, pressed to take action and asked to report on the steps they have taken to combat the wage/price spiral. We also feel very strongly that there are some major problems in the methods the Wage and Price Council is using to combat inflation. Even if most businesses comply with the guidelines, the nature of the guidelines themselves is such that they cannot halt inflation. Emphasizing the need for tightening up the Council's methods is the fact that inflation in the cost of food is up 6.3% nationally just since the guidelines were announced in October. Beef prices have led the way, up 19.3%. Energy costs are up 6.5% since October. There are several major loopholes in the guidelines that have helped contribute to the continuation of serious inflation. First, price increases are considered on the basis of overall corporate profits or margins. Thus Norton-Simon, the conglomerate that owns Hunt-Wesson and Max Factor can compensate for its losses on heavily-advertised and promoted cosmetics by raising prices on canned tomatoes. With such surprising unions as Norton-Simon owning Max Factor and Hunts, or Proctor and Gamble owning Duz detergent, Pringles fabricated potato chips and Jif peanut butter, there is a great opportunity for inflation in the essentials being used to compensate for losses incurred through marketing experiments. PAGENO="0712" 704 A second major loophole is the fact that raw goods, such as farm products and oil, are not included in the guidelines. The Index of Farm prices shows an increase of 12.4% since the guidelines were announced in October. Live cattle alone are up 34%. Prices received by farmers-went up 17.3% between March of 1978 and March of 1979, while prices paid went up only 13.4%. Not only are these increases substantial, but because wholesale and retail prices can be calculated on a percentage basis, price increases at the farm level cause a snowballing effect throughout the food marketing system, resulting in even more inflation. For example, if the cost of a raw commodity increases 20%, a wholesaler or retailer can not only pass through this increase but they can take a percentage markup on that increase. This happens even if their costs don't justify the increase. As this chart demonstrates, while the cost of the farm product for our sample item goes up l6Q, the cost to the consumer goes up 25~; the additional 9~ going directly into wholesaler and retailer margins, even though it may not cost them 9~ more: 1. Wholesaler to Retailer Annual Gross Selling Percentage Cost* Price - Gross Margin base year 8O~ 20G $1.00 20% Program year 96~ 24c $1.20 20% * Price of farm product. 2. Retailer to Consumer Annual Gross Selling Percentage Cost* Margin Price Gross Margin base year $1.00 25~ $1.25 20% program year $1.20 30Q $1.50 20% *Price of wholesale product. - PAGENO="0713" 705 In November of last year, in questions and answers on the guidelines COWPS said that raw material supplies would be monitored by the Council and that where price increases are not justified, government actionswould be considered. On March 7, Alfred Kahn said he hoped to announce some action to help control rising raw food prices within two weeks. When will these "government actions" be taken? At the same time COWL'S is avoiding the issue of limiting increases in the price of raw goods, Congress is involved in raising the cost of many of these goods. The Council should approach Nembers of Congress who put the interests of their particular constituencies above the national welfare in a period of devastating inflation, to show them the effects of their short-sightedness. The Council should speak out much more strongly in favor of lower prices: against increasing milk price supports, against increasing sugar price supports, and in favor of maximizing beef imports during periods of short supply. Consumers will be justifiably shocked if their government decontrols gas prices and fails to institute an effective windfall profits tax. By devising guidelines which are extremely complex, the Council effectively prevents state and local agencies from working for compliance with the standards through tie-ins with their usual regulatory business. For example, to encourage pricing compliance by New York City garages, we attempted to devise a questionnaire on rate increases that would show whether proposed increases were in line with the standards. All garages filing prospective rate increases with the Department of Consumer Affairs were to be required to complete the form to show compliance. The Department discovered that the most simple form possible would have to include 17 complex questions and calculations. As a result, we were forced to design a much simpler form that tests only whether rate increases are in line with a more general standard, New York's annual rate of inflation. If garage rate increases exceed New York-Northeastern New Jersey's 1978 rate of inflation, 7.7%, then we will PAGENO="0714" 706 require an affidavit showing whether or not the garage is complying with the standard Finally, another critical problem with the Wage and Price Standards is that they allow businesses to pass the buck when it comes to meeting the inflation problem. Last month I spoke with several representatives of the food wholesaling and retailing industry as part of another Congressional hearing. Both of these groups pointed to high raw material, energy, labor and petrochemical packaging costa as the cause of their higher prices. A labor spokesman pointed the finger at oligopolies in food manufacturing, inefficiencies in food distribution, and excess packaging as major causes of food inflation. If business will not accept the responsibility for taking action against inflation, then the Council on Wage and Price Stability must take initiative and battle for compliance. The 1971 wage and price freeze was instituted in response to an annual inflation rate of 5½ to 6 percent. Between March of 1978 and March of 1979, the Consumer Price Index has increased 10.2 percent. This is in part because everyone is not complying with the guidelines, but more importantly, the guidelines are too loose, contain loopholes and don't cover raw commodities. The guidelines should be changed now. Finally, the Council has a responsibility to speak out boldly against legislative or regulatory policies that contribute to accelerating inflation, as well as to be courageous in issuing consumer advisories on using selective buying to vote against inflation. The Council must face up to the problem of rising raw material prices and the snowballing effect, as well as reconsider their policy of examining price increases by corporation rather than by product. We also urge the Council to take a more assertive stance in requiring that state and local agencies help in the fight against inflation. Along with revision of the guidelines, they should be simplified so that state and local agencies can contribute to compliance efforts. PAGENO="0715" 707 ~ Cityof NewYork ~ Department of ConsumerAffairs ~ eoLaiayette Street NewYork, NY 10013 News Release forlnformetion: 5665046 IMMEDIATE RELEASE FRIDAY, MAY 18, 1979 RATHER TELLS CONGRESS: . LOCAL AGENCIES CAN HELP FIGHT INFLATION Commissioner Bruce Ratner today told Congressional representatives that local consumer agencies can make a real contribution in the fight against infla- tion. In testimony presented before a hearing conducted by the Commerce, Consumer and Monetary Affairs Subcommittee of the Committee on Government Operations (Friday, Nay 18, 1 Federal Plaza, New York, New York) to examine the impact of inflation on consumers and the effectiveness of Federal programs to combat in- flation, Commissioner Ratner emphasized that programs to hold down soaring prices are at the very core of local consumer protection work. Speaking at the hearing Commissioner Ratner stressed that . . ."As a consumer agency, everything we do is part of an overall effort to see that New Yorkers get the most-for their shrinking dollar." To illustrate the Department's specific programs, Commissioner Ratner spelled out the workings of the Department's work in: Price Monitoring in the form of the New York City weekly Market Basket survey Consumer information about wise shopping habits through the education outreach programs Active involvement in Government decisions that will affect prices such as urging the Public Service Commissioner to consider consumer impact when deciding utility rate cases Analysis of Department regulations to make sure that the cost of compliance does not -outweigh the consumer benefits. Commissioner Ratner further described a unique first step in the Depart- ment's efforts to work with the Wage end Price Council. Gar~gea and. parking lots are asked to show whether they comply with the voluntary standards when they apply to the Department for rate increases in excess of New York's 1978 inflation rate of 7.7%. Responding to the issue of the effectiveness of Federal programs to combat inflation, Commissioner Ratner stated . . ."Even if compliance with the guidelines is good, the nature-of the guidelines themselves is such that they cannot halt inflation." PAGENO="0716" 708 He pointed to major loopholes in the guidelines that have helped to con- tribute to the continuation of serious inflation: * Price increases are measured on the basis of overall corporate profits or margins, making it possible for a corporate con- glomerate such as Horton Simon to compensate for losses on heavily advertised and promoted cosmetics by raising prices on food products such as canned tomatoes. * Raw goods, such as farm products and oil are exempt from the Guidelines, creating a snowballing effect as the increases are passed through the chain from the producer to the con- sumer (The snowballing effect can be fliustrated with a 16~ rise in the cost of a fa~rn product tnrning with a 25c increase at the cOnsumer level.) Commissiotier Ratner reminded the Congressional representatives that . . ."On l4arch 7, Alfred Kahn said he hoped to announce some action to help control rising raw food prices within two weeks. When will these `government actions' be taken?" ..~"The Council hns a responsibility to speak out boldly against legislative or regulatory policies that contribute to accelerating inflation, as well as to be courageous in issuing consumer advisories on using selective buying to vote against inflation," Commissioner Ratner concluded. The subcommittee on Commerce, Consumer, and ?fonetary Affairs is chaired by Congressman Benjamin Rosenthal (Democrat, Queens). 80/79 FOR INFORMATION: Karen Borack, Director of Consumer Information 566-5046 (office) PAGENO="0717" 709 Mr. ROSENTHAL. Mr. Richie? STATEMENT OF LEROY C. RICHIE, REGIONAL DIRECTOR, FEDERAL TRADE COMMISSION, NEW YORK OFFICE Mr. RIomE. Good afternoon. My name is Leroy C. Richie, and I am the Regional Director of the Federal Trade Commission's New York Office. I am pleased to be here to describe Federal Trade Commission's and the New York regional office's activity which we think contributes to the Government fight against inflation. Before I begin, I would like to make this disclaimer and say that my remarks represent my own ideas and not necessarily reflect the official views of the Commission or of any Commissioner. I have submitted a written statement and I want- Mr. ROSENTHAL. Without objection, it will be included in the record. Mr. lRIcmE. I'm sorry? Mr. ROSENTHAL. That's a congressional term for saying OK. Mr. RIcrnE. All right. If I may just for a moment, I would like to explain some of our activities in this area which we do which we think help in the fight against inflation. One thing that we have noticed on a regular basis is that vertical price ~fixingby major selling of consumer products, and I am thinking in this case of clothing, has really contributed to keeping prices high, and a large part of our efforts in the New York regional office have been designed to prohibit vertical price fixing, or, as it is otherwise known, resale price maintenance. Only last week the Commission accepted a consent order against Jonathan Logan, one of the largest manufacturers and distributors of women's clothes in this area, which precludes them from vertical price fixing or discussing retail prices for a certain period of time. Earlier this year, we had also obtained similar consent agreements against three other companies, Huck-A-Poo Sportswear, Motherhood Maternity and Interco, Inc. As we did in connection with the Cleveland office, as I am sure you heard about when you were in Chicago, the effect of these orders is to permit `companies that want to discount significant items, to go ahead and do so. We±ihink thatithis effort~has helped. We have also been interested in horizonal price fixing agreements, and this past year we have obtained two consent orders against an association of New York and New Jersey retailers of consumer appli- ances, and~ a pest control association, both of which orders prevent the companies from fixing prices or precluding their members from estab- lishing individual prices. I think the major point here is that competition affects the price of goods. and to the extent that Federal Trade Commission activities do successfully infuse competition into the system, and we think that that benefits the consumers. On the other side of the street, if you will, on the other side of my job, is consumer protection directly, and we think that helps fight PAGENO="0718" 710 inflation because it insures in a number of ways that the consumers get the benefit of their bargain. In my testimony, I describe our advertising substantiation program. At the present time, New York is responsible for about 35 percent to 50 percent of the Commission's advertising monitoring substanta- tion activities. In fact, we have a joint program with- Mr. ROSENTHAL. Are you doing anything on the energy price situa- tion around here? Mr. RIomE. Not immediately, because I have not yet worked out my deal with Al Dougherty. The Commission, as you know, is very interested in that, and Al will be in my shop Monday afternoon and that will be one of the sub- jects of conversation. It does take a coordinated effort, and the Bureau of Competition does have a number of people committed to energy, as you know, on a full-time basis, to the extent that the New York metropolitan area is involved, and certainly we would be willing to help, but I will take direction from Al. Mr. ROSENTHAL. What other areas do you think you have had an impact in since you have been Director in the fight against inflation? Mr. RIoHn~. One area is advertising, and I was getting ready to describe that. Advertising is important because it is the principal means by which sellers communicate with buyers in the marketplace. If people don't have up-to-date, correct material information about the products that they buy, they cannot make meaningful decisions about what they want. Our advertising substantiation program is designed to insure that they get the benefit of their bargain, and that the information avail- able to them is correct and relevant to the product that they want to buy. We have right now under investigation about 13 companies, I think, four major consumer products, and the advertising of those consumer products which is suspect of puffing or just flat fraud, and incorrect, and we are investigating them. I think that is having an affect. Mr. ROSENTHAL. It has no impact if you just investigate. Mr. Ricim~. Let me continue. Mr. ROSENTHAL. Do the companies know that you are investigating them? Mr. Ricmi~. Yes; they know we are investigating. Mike Pertschuk suggested yesterday that you might ask that ques- tion and- Mr. ROSENTHAL. You mean, he told you what questions I would ask? Mr. RTOHTE. No. He said the question had been asked of him and he thought it was a good question and demanded an answer. We went through the papers this morning to see what kind of ad- vertisin~ w~ s in the paper and where we can anticipate or expect that the Federal Trade Commission had been helpful. In the Daily News this morning, for example, Les.ri jeans were being advertised at 20 percent off. PAGENO="0719" 711 That is a direct affect or result of the order which we had ob- tained. There were other advertisements. There was an optical advertisement in the paper and that is an effect of Federal Trade Commission regulations of advertising efforts. Mr. ROSENTHAL. How many people do you have, how many lawyers do you have? Mr. RIoHrs. I have 35 lawyers at the present time. Mr. ROSENTHAL. Do you feel you are having an impact on the lives of the citizens of our community? Mr. RIOmE. Yes; I do. .1 presume, when you ask that question, you are talking about the impact upon inflation? Mr. ROSENTHAL. Yes. Mr. RIdHm. `I think we have had other affects, but as far as infla- tion is concerned, we are a law enforcement agency and I think by Mike's direction, we are gearing our activities so that, in enforcing the law, we. also have an effect on inflation, and I think it would have an effect. I think that the Federal Trade Commission, the laws that we en- force, are designed to do two things: One, infuse competition ~into industry in this country so that that competition generates low price levels. Mr. ROSENTHAL., Yes ; .I'understand that. What industries? Mr. RIGHrs. The ~tpparel industry and health care, for example. We;are.investigating a company now because we are very interested in health maintenance `organizations. I am not suggesting that I .support them over fee-for--service medi- cine, but we have noticed, especially in New Jersey, that some of them are having~ problems, and the price of health care offered by health maintenance organizations is sometimes much lower than fee-for- `service doctors, but we try to encourage that competition. `Mr. ROSENTHAL. How? Mr. `RIOHIE. By investigating the competitive problems that they are having. The hospitals tell doctors that : "If ~you join this. organization, you are not going to be permitted to use the. services of this hospital." Mr. ROSENTHAL. Have you brought any cases? Mr. RIcHrs. We are in the process of investigating one right now. Mr. ROSENTHAL. Have you successfully concluded any cases of any kind in the last 18 months? Mr.~RIOHTE. Yes. I just described it for you. Against. Jonathan Logan," Huck-A-Poo, Motherhood Maternity, Interco, ADC, ~nd a New Jersey pest'control company. We have~ consent agreements which prohibits price flxins~r against U.S. Pioneer"TElectronics, TEAC Corporation of America, Sherwood Electronic Laboratories, and we have agreements which prevent resale price maintenance. We are in the process of investigating two companies which are generating proflts'onthe level `in one case~ of,25 percent, and on another level of 60 percent in another case, .to understand just why .there is an absence of competition in these industries. Yes; we have obtained consent agreements. PAGENO="0720" 712 I think I can tell you, without mentioning their names, that we have seven additional consent agreements that we are preparing to send to the Commission before the end of June. Mr. ROSENTHAL. Have you ever met with Mr. Low, the Regional Administrator of the Department of Energy, before today? Mr~ RIGHIE. No. Mr. ROSENTHAL. It seems to me that that should be somebody that you should be talking to so that you could get steaming in the energy field. Obviously, the public is deeply concerned by skyrocketing prices and lack of supply and the whole business. Mr. RICHIE. The relationship between Mr. Low and myself can bene- fit the public in the sense that he has the information from which I can determine whether one of the Federal laws has been violated, and, if so, then we will be prepared to act. Mr. ROSENTHAL. Are you going to be with Mr. Dougherty on Monday? Mr. RICHLE. Yes. Mr. ROSENTHAL. I want you to know that this committee is deeply concerned that you move with a degree of urgency in these matters. Mr. RICmE. I assure you this, we know that, and we are equally concerned about the problem and we are deeply committed to doing whatever we can. Mr. ROSENTHAL. How come you never met Mr. Low before and said to him: "What's going on here?" Mr. RIcHri~. Well, there are reasons for that in the administration of the office. Mr. ROSENTHAL. OK. [Mr. Richie's prepared statement follows:] PAGENO="0721" 713 SThTEMENT OF LEROY C. RICHIE REGIONM~ DIRECTOR FOR NEW `.ORK REGIONAL OFFICE FEDERL TRADE COMMISSION BEFORE THE COMMERCE, CONSUMER & MONETRRY RFFIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPER~TIOHS MY 18, 1979 Mr. Chairman and members of the subcommittee, I am Leroy C. Richie, Regional Director of the Federal Trade Commission's New York Office. Thank you for this opPortunity to discuss the participation of the FTC and the New York Regional Office in the government's fight against inflation. First, I must make the usual disclaimer: My discussion will not necessarily reflect the official views of.the Commission or of any Commissioner. The activities of the New York Regional Office which benefit consumers in the fight against inflation fall into two broad categories. First, enforcement of the antitrust laws with a view toward maintaining effective competition in the marketplace and, second, enforcement of the laws against unfair and deceptive acts or practices to insure that the customer receives what he or shehas paid for. ~lthough the public generally understands and supports our efforts to combat false and misleading advertising or deceptive practices 52-21'4 0 - 79 - #6 PAGENO="0722" 714 generally, the role of competition in ensuring fair pricing to the consumer is probably far less well, understood or aopreciated. Therefore, `as an introduction to my discussion of the cases which this office has recently completed, I would like to mention' one particular industry practice which serves as an exc~ilmnt example of the"reason we'believe' that strong anti- trust enforcement benefits the oublic. For decades it had been the practice in the apparel industry for many manufac- turers to suggest resale prices to their retailers. In time,. the practices of these variou.s manufacturers became uniform, so that if you went into any retail store in an area you would likely find that they carried. the same items at identical prices and that they began end-of-season sales on the same day. Discounting was rare and bargains were almost impossible to find. This was so because many manufacturers terminated retailers who did not adhere to suggested. retail ~prices. The price suggested. was, almost always, the .so-called "keystone".~ri'ce or a lOO%..sarkupover the wholesale cost to the retailer. This practice. flourished under the protective umbrella of the fair-trade laws until these were repealed in 1975. Some companies, however, adhered to these polici'es~in states where fair-trading was never authorized and continued the practice even after fair-tr:ade's repeal. If you ever wondered PAGENO="0723" 715 how discount houses could make a Drof it and still, undersell many of the major retail outlets, you only have to remember that a 100% markup over wholesale cost leaves olenty of room for the discounter to make a fair profit and still give the public a bargain. The efforts of the Commission to prevent manufacturers from establishing and enforcing price floors, often involving as much as the 100% markup which I mentioned, are intended to restore price competition in the retail marketplace. Even though. prices may be high as a result of inflation, we hope to avert unlawful tampering with the mechanisms of the market which can result in price gouging and monopoly profits. Th~ New York Regional Office has continued to give high priority to resale price maintenance investigations, parti;ularly where the goods involved are necessities or represent significant consumer exoenditures~ Just last week the Commission announced acceptance of a consent agreement and order from Jonathan Logan, Inc., a matter which was investigated by the New York Office as a part of an ongoing industrywide investigation of manufapturers and retail- ers of women's and children's apparel. Logan, one of the nation's largest'suopliers of women's apparel, agreed to a broad order which, if finally accepted by' the Com'~üssion, will prohibit the firm from fixing the' resale prices of its apparel products. `We believe that this will leave retailers free to make independent pricing decisions, resulting PAGENO="0724" 716 in lower prices to the consumer in many instances. The consent order would prohibit Logan and its divisions from suggesting or recommending resale prices to customers for three years, ..preticketing its products, communicating with customers concerning any deviation from suggested resale prices and would require the reinstatement of customers who were terminated because of discounting. Similar orders were obtained against Huk-~-Poo Sportswear, Inc., Motherhood Maternity, Inc., and Interco, Inc. The settlement with Interco, which distributes, among other products, London Fog rainwear and Florsheim Shoes, represents a joint effort by the New York and Cleveland Regional Offices of the. Commission. Together, these four orders affect more than a billion dollars in annual wholesale distribution of wearing apparel items, shoes and accessories. The New York Regional Office has also conducted an inves- tigation into resale price maintenance in the audio industry. This effort resulted in consent orders against six major manu- facturers of high fidelity audio components, including: U.S. Pioneer Electronics Corp., TE~C Corporation of Roerica, Sherwood Electronic Laboratories, Inc., and Sansui Electronics. Corp. The orders prohibit these manufacturers from fixing and maintaining the prices at which such equipment is sold to the public. PAGENO="0725" 717 ~lso, within the past year the New York Office has obtained consent orders from a group. of New York and New Jersey retailers of consumer appliances and products and a New Jersey. trade association representing approximately 20 firms engaged in the past control business. These orders prohibit the parties from tampering with or fixing prices or interfering with the efforts of their members to independently establish the prices of their goods and services. By removing these barriers to competition, we believe that both orders will have a significant impact on the prices of. the products and services involved. I would also like to mention two other non-public initiatives wehave presently under consideration in the competition area. We are currently investigating two firms which have very substantial market shares in highly concentrated industries. We have evidence that these firms are earning profit levels in excess of 25% in one case and perhaps on the order of 50% to 60% in the other. These monopoly profits fuel inflation and result in higher prices to the ultimate consumer. Our objective, should we find evidence that federal law has been violated, is to restore effective - levels of competition in these markets. -Wehp~e that our efforts will have the effect of reducing prices while, at the same time, insuring adequate service to the public. PAGENO="0726" 718 The comoletad cases which I have mentioned, and the non-public investigations which I have just discussed, reflect our efforts to insure, through vigorous enforcement of the antitrust laws, that the consumer obtains the benefit of prices which reflect the fair workings of competitive markets. The second major area in which wa are.active -- combating unfair and deceptive acts and practices -- benefits the consumer in two ways. First, by improving the quality of tha product information the consumer. receives, we help him or her make the best of todays hard-earned dollar in individual purchasing decisions. Second, t~ the extent that we succeed in ridding the marketplace of unfair and deceptive advertising and sales practices, we reduce artificial stimulation of demand, waste and inefficiency which tend to add to inflationary pressures. Often, when consumers are misled or deceived, they make purchases that they would otherwise not have made if they had known the truth, or they may be forced to buy reolacements for items which they discover, too late, do not meet their needs. False and deceptive sales practices injure individual consumers, ethical comoetitors, and the economy in general, by artificially stimulating demand. ~san example of our efforts in this area, I might again point to the apparel industry because, as we are all aware, the price of clothing, particularlythat made of natural PAGENO="0727" 719 fibers has increased dramatically. The New York Regional Office, in recognition of New York's preeminent status in the garment manufacturing and importing industries, is. the only regional office of the Commission with amajor staff commitment to enforce the Fur, Textile and Wool Rcts. There is nothing, I am afraid, that we can do about the high price of wool. However, what we are continuing to do is to insure that before a customer pays more for a garment labeled 100% wool that it is, in fact, all wool and not 50% or even less. With the increase in natural fiber prices -- and hence a greater opportunity for the unscrupulous to profit from mislabeling -- there is a greater need for enforcement of the laws prohibiting it. ~lthough apparel labeling is an easy example, the principle is relevant to virtually all consumer products and a continuing effort is made to monitor performance, quality, economy and safety claims made or advertised in respect of all products. Truthful advertising is fundamental to the continued proper functioning of the marketplace. It is the principal means by which sellers communicate product-related information to consumers, plays a malor role in stimulating robust competition, and acts as an incentive to development-and improvement of product quality; all of which we believe PAGENO="0728" 720 reduces prices to consumers and thereby reduces inflationary pressures. Our inflation-fighting commitment is reflected in our efforts to insure the accuracy an'i adequacy of advertised oroduct claims. Currently, the New York Regional Office is responsible for 35% - 50% of the Commission's national advertising monitoring activities and has instituted an advertising substantiation program to detect instances.of false, mis- leafing and deceptive representations of product claims. Our efforts thus far have resulted in investigations of numerous firms to ascertain the adequacy of the substantiation for their advertising. We require these firms to submit all data in substantiation for their product claims for our review and analysis. Our case selection criteria in the advertising area reflect our concern that the consumer amend his or her money in response to aôcurate and complete information and our desire to focus our enforcement effort to get the maximum benefit. We look hardest at those advertisements: 1. Where the consumer's choice is critical, such as basic necessities or durable goods. 2. Where the claim involves a factor likely to be critical in the ~onsumer.' a purchasing decision. 3. Where the claim pertains to health or safety. 4. Where the claim cannot be verified by the consumer. PAGENO="0729" 721 Finally, pursuant to the Magnuso.n-Moss Warranty FTC Improvement ct, the New York Office is.:.also. conducting a trade regulation rule proceeding involving the health spa industry. The rule was proposed by the staff based upon its information that health spa operators had engaged in a variety of false, misleading and high-pressure sales tactics to induce consumers to sign long-term membership contracts. Once again, this is an example of an area where we believe thatunfair and.deceptive tactics may have re- sulted in individual injury to consumers and a gross overstimulation of demand, represented by large numbers oflong-term contracts for services either never desired or never used. Our efforts in this area are designed to insure that consumers are neither deceived into purchasing services they do not desire nor cheated out of the benefits promised by spa operators. In its present form, the proposed rule provides a three-day cancellation period in which consumers can cancel membership. contracts and obtair~ a complete refund of any payments they have made toward the membership price. In addition, the rule would permit a member to cancel his membership at any time and be obligated only to pay for that portion of the membership contract representing those services which he has received. The spa would be ~erm*itted to. retain, in addition to a pro rata portion of the membership price a 5% cancellation fee. This cancellation method, if adopted by the Commission, will, I believe, result in significant savings to consumers by permitting them to withdraw from contracts where the services are not as represented but where they are still obligated to pay the full membership * price. . This concludes my prepared remarks. I would be happy to respond to any questions you may have. PAGENO="0730" 722 Mr. BOSENTHAL. Without objection, the statement of Barbara Kent will be included in the record at this point. [Ms. Kent's prepared statement follows:] PAGENO="0731" -[~8Ofl-- I AM BARBARA KENT, EXECUTIVE DIRECTOR OF THE QUEENSBORO COUNCIL FOR SOCIAL WELFARE A 56 YEAR OLD VOLUNTARY COOR- DINATING AND PLANNING COUNCIL FOR THE BOROUGH OF QUEENS. OUR MEMBERS CONSIST OF SOCIAL AGENCIES AND HUMAN SERVICE ORGANIZATIONS, CIVIC AND COMMUNITY GROUPS AND INDIVIDUALS CONCERNED WITH THE HEALTH AND GENERAL WELFARE OF THE PEOPLE IN OUR COMMUNITY. WE HAVE BEEN RUNNING AN INFORMATION AND REFERRAL SERVICE WHICH PROVIDES ASSISTANCE TO PERSONS IN OUR COMMUNITY SINCE THE 1940's, AND IT IS THROUGH THIS SERVICE THAT WE ARE ABLE TO PINPOINT AND DOCUMENT THE PROBLEMS AND NEEDS OF OUR COMMUNITY. IN THE LAST YEAR AND A HALF WE HAVE SEEN A SHARP INCREASE IN CALLS FROM PEOPLE NEEDING FOOD OLDER PEOPLE WHO HAVE USED UP THEIR STAMPS, AND FIND THEY HAVE NOTHING IN THE HOUSE BUT SOME BREAD, AND POWDERED MILK. . . MOTHERS WHO DO NOT HAVE MONEY TO BUY FOOD UNTIL THEIR NEXT CHECK, AND TELL US THEIR CHILDREN HAVE HAD SPAGHETTI, OR RICE ALL WEEK.. . . MANY CALLERS ARE NOT ON PUBLIC ASSISTANCE, AS THEY ARE WORKING. . .LOW PAID WORKERS... 723 QUEENSBORO COUNCIL FOR SOCIAL WELFARE, Inc. MAILING: ~66.O7 Hillside Ave., * Jamaica, N.Y. fl432 OFFICE: 87.50 167th Street * Jamaica, N.Y. 11432 PAGENO="0732" 724 BUT AFTER THE RENT AND UTILITY COSTS ARE PAID, AND YOU ALL KNOW HOW HIGH RENTS AND UTILITY COSTS ABE, AND IF THERE IS A HEALTH EMERGENCY THERE ISN'T ENOUGH MONEY LEFT TO BUY FOOD. . . AND THIS BECOMES MORE ACUTE AS THE COST OF FOOD RISES NOW ABOUT THE COST OF FOOD. . .FRESH FRUITS, AND VEGETABLES RISE IN PRICE ALMOST DAILY, PRICES ON CANNED GOODS AND PACKAGED FOOD ARE ALSO CONTINUALLY BEING CHANGED AND THIS CAN BE OBSERVED IN MARKETS THROUGHOUT THE AREA. COMPARISON SHOPPING IS ESSENTIAL- ALSO USE OF NUTRITIONAL SUBSTITUTES FOR MANY ITEMS. IN THE POORER NEIGHBORHOODS, FOOD PRODUCTS OF INFERIOR QUALITY AND OF QUESTIONABLE NUTRITIONAL VALUE ARE FOUND IN ABUNDANCE-THE SMALL AMOUNT OF OF FRESH FRUITS AND VEGETABLES WHICH MAY BE FOUND IS PRICED HIGHER THAN IN OTHER NEIGHBORHOODS. THE NUMBER OF PEOPLE WITHOUT EUNDS FOR~FOOD IN OUR COMMUNITY IS NOT GOING UNNOTICED. THE QUEENS FEDERATION OF CHURCHES HAS A HUNGER FOOD SERVICE YROM WHICH AGENCIES CAN~OBTAIN A FOOD BASKET FOR A NEEDY FAMILY. HOWEVER A FAMILY~ MAY ONLY RECEIVE ONE BASKET, AS THERE JUST AREN'T ENOUGH TO GO AROUND. . SEVEML OTHER AGENCIES, AND THE LOCAL CHURCHES ARE COLLECTING AND GIVING OUT FOOD, AND WHILE THESE COMMUNITY ACTIONS ARE COMMENDABLE AND DO HELP THEY ARE TRULY INSUFFICIENT TO DEAL WITH A PROBLEM OF THIS MAGNITUDE. -FOOD STAMPS- -ARE FOR A FIXED AMOUNT AND AS -FOODPEICES KEEP RISING THEY PURCHASE LESS FOOD. . .ALSO NOT EVERYONE IS ELIGIBLE.. .MANY PEOPLE ARE POOR BUT WORKING~AND INELIGIBLE~FOOD STAMPS SHOULD ~KEEP UP WITH INFLATION AND-THE AMOUNT ADJUSTED PERIODICALLY. THE PURCHASE OF FOOD IS AVERY SERIOUS ISSUE IN OUR CITY, HOWEVER WE IN N.Y. HAVE BEEN KNOWN TO JOKE ABOUT MANY OF OUR PROBLEMS. POT HOLES PAGENO="0733" 725 WERE THE TOPIC EARLY IN THE WINTER. . .BUT THEY ARE NOW BEING FILLED. NOW IT'S THE COST OF FOOD. THE STORY GOES SOMETHING LIKE THIS. - BILL MEETS HIS FRIEND JOHN WHOM HE HASN'T SEEN SINCE HIGH SCHOOL AND BEGINS TO QUESTION HIM AND ASK HOW HE IS DOING. . . JOHN TELLS HIM HE IS EMPLOYED, HAS A SMALL MODEST HOME, AND SIX CHILDREN. HOW, SAYS BILL, HOW DO YOU MANAGE.. .WELL, NOT TOO WELL, SAYS JOHN, I CAN BARELY BUY FOOD. BUT YOU HEARD ABOUT PANTRY PRIDE THE BIG FOOD CHAIN, WELL THEY PURCHASED FOOD WHOLESALE AND WENT BANKRUPT. WHAT CAN I EXPECT. . . THE HUMOUR OF THIS DOES NOT DIMINISH THE SERIOUSNESS OF THE PROBLEM. POORLY NOURISHED CHILDREN CAN'T LEARN, AND GROW UP IN POOR HEALTH AND EVENTUALLY NEED MORE MEDICAL CARE AND SOCIAL SERVICES. THE COST TO SOCIETY OF A POORLY NOURISHED COMMUNITY IS ULTIMATELY GREATER THAN THE COST OF FOOD FOR AN ADEQUATELY NOURISHED ONE. CONGRESSMAN ROSENTHAL-- I WOULD LIKE TO URGE YOU TO LOOK INTO THE FOLLOWING: 1-DEVELOPMENT OF SOME TYPE OF UNDERSTANDABLE AND ENFORCEABLE CONTROLS ON FOOD PRICES. 2-SOME LIMIT OR CONTROLS ON THE AMOUNT TEE INDUSTRY SPENDS FOR PACKAGING AND PROMOTING FOOD1 AND FOOD PRODUC1~S, THIS COST IS EVENTUALLY PASSED ON TO THE CONSUMER. 3-SETTING UP FOOD DISTRIBUTION CENTERS WHERE PEOPLE WHO ARE HUNGRY OR NEED FOOD CAN RECEIVE SURPLUS COMMODITIES. 4-EDUCATION PROGRAMS ABOUT PROPER NUTRITION, BEGINNING IN THE EARLY GRADES IN SCHOOLS AND AT THE LOCAL HEALTH CENTERS AND AT THE DEPARTMENT OF SOCIAL SERVICES. IF THE COST OF FOOD IS ALLOWED TO CONTINUE TO RISE WE WILL BE PRODUCING A NATION OF POORLY NOURISHED, DEPENDENT PEOPLE WHO WILL BE A BURDEN TO FUTURE GENERATIONS AND COST THE SOCIETY MORE THAN THE ASSISTANCE THEY NEED NOW, OR THE COST OF FOOD. RESPECTFULLY SUBMITTED, BARBARA KENT MAY 18, 1979 - PAGENO="0734" 726 Mr. ROSENTHAL. We have covered everybody who wants to speak, I presume. You folks are just coasting over there? [No response.] Mr. ROSENTHAL. The subcommittee stands adjourned. [Whereupon, at 3:10 p.m., the subcommittee adjourned, to recon- vene subject to the call of the Chair.] PAGENO="0735" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) MONDAY, JUNE 18, 1979 HousE or REPRESENTATIVES, COMMERCE, CONSuMER, AND MONETARY AFFAIRS SUBCOMMITrEE OF THE COMMITrEE ON GOVERNMENT OPERATIONS, Yoiungstow~n, Ohio The committee met, pursuant to notice, at 10 :03 a.m. in the U.S. Courthouse, Youngstown, Ohio, Hon. Benjamin S. Rosenthal (chair- man of the subcommittee), presiding. Present: Representatives Benjamin S. Rosenthal and Lyle `Williams. Also present: Jack 0. Shaw, minority professional staff, Committee on Government Operations. Mr. ROSENTHAL. The subcommittee will be in order. The Commerce, Consumer, and Monetary Affairs Subcommittee has been holding regional hearings in these past 2 months to learn about the impact of inflation on the day-to-day lives of Americans and the performance of regional Federal agencies and State and local officials in the fight against inflation. Hearings have already been held in Dallas, San Francisco, Sacra- mento, Detroit, Chicago, and New York. Under the Rules of the House of Representatives, this subcommittee is assigned oversight responsibility for determining the effectiveness of Federal anti-inflation programs, including those administered by the President's Council on Wage and Price Stability and the Council of Economic Advisers. Earlier this year the subcommittee held several days of hearings in Washington into the adequacy of the Federal effort. Those hearings raised serious questions as to the ability of the Council on Wage and Price Stability to monitor excessive price and profit margin increases in the economy. They also revealed that the current wage-price guide- lines effectively exclude the most inflationary sectors of the economy: Energy, food, housing, and health care costs. The subcommittee's concern over the effectiveness of the present anti- inflation program has been heightened in many ways by the testimony we have already heard in many other cities: Regional officials of t.he Bureau of Labor Statistics have told us there is no statistical evidence whatsoever that the wage-price guidelines are working to moderate inflation. (727) PAGENO="0736" 728 Representatives of the elderly, the poor, the handicapped, and mid- dle-income consumers have testified that they have run out of ways to cope with the skyrocketing cost of living. Evidence has been presented to us that the wage-price guidelines are holding down wages, but not necessarily excessive prices and profits. We have learned that the State governments have failed to imple- ment many of the most important recommendations of the Council on Wage and Price Stability on ways for the States to fight inflation. The subcommittee's concern also relates to the fact that consumer prices rose at an annual rate of 13 percent during the first quarter of 1979. These regional hearings are being held because the Congress and other decisionmakers in Washington must have a firsthand record of the effects of inflation on the lives of our citizens. As soon as our hear- ings are concluded, the hearing record and the subcommittee report will be made available to the Congress and to the President. Congressman Williams? Mr. WILLIAMS. Mr. Chairman, I want to take this opportunity to tell you that I'm delighted you have included Youngstown among the cities we have visited in our efforts to document the impact of inflation on our citizens' lives. I am pleased that Mahoning Valley in eastern Ohio is included, and I commend you, first of all for initiating these hearings and trying to document the information we need in our effort to deal with the problem of inflation. Second, I want to thank you again for visiting the Mahoning Valley. There's been a great deal of news about this valley, national news about our economic distress. I appreciate the opportunity we have this morning to include Youngstown and the Mahoning Valley in this very important inquiry into how we can better serve the citizens. I very much regret to tell you that one important witness, Mr. William D. Keip, director of the Ohio State Office of Budget and Man- agement, will be unable to be here today. The State legislature is in the midst of its budget debate and Mr. Keip is unable to get away from Columbus. But we have a fine turnout of citizens here this morning, and I know they appreciate your interest and effort in bringing the subcommittee to Youngstown. Mr. ROSENTHAL. Our first witness will be Martha Murphy, director, Area Agency on Aging, Youngstown; and Ms. Roberta Graham, di- rector, SCOPE, Inc., in Warren. Ms. Murphy, do you want to go first? STATEMENT OP MARTHA MURPHY, DIRECTOR, AREA AGENCY ON AGING, YOUNGSTOWN, OHIO Ms. Mrnwirr. My name is Martha Murphy. I am a resident of the city of Youngstown and an employee of the District XI Area Agency on Aging. It is in this capacity that I participate in this public hear- ing today. On Wednesday and Thursday of this week, several thou- sands of elderly Ohioans will attend the Governor's conference in Columbus, in preparation for one of the workshops, a preliminary random survey was conducted by the Ohio Commission on Agjng. From 1,000 questionnaires sent out, 609 were returned. Some notable statistics: 212 of those replying have incomes of less than $5,000 a PAGENO="0737" 729 year; 75 have incomes less than $2,500, annually; 133 received between $5,000 and $7,500; and 64 have over $10,000. In answer to the question regarding assets available in case of emergency, 377 replied yes; 209 replied no, and 23 did not respond. To the question: "How much do you spend weekly on groceries?": 47 spent less than $10 weekly, a figure almost unbelievable in this land; 215 spent from $11 to $20 a week; 175, from $11 to $20; 94, from $31 to $40; and 40 spent from $41 to $50. Noting those shockingly low amounts, the real need for continuation of food stamps is evident. One hundred and thirty-eight older people say their needs are not well met; 319 consider themselves living with no "extras." Four hun- dred and thirty-one own their own cars. With an average income of less than $5,000 annually, it is incon- ceivable that the independent living we strive to achieve in retirement years is realistic. With gasoline, oil, and maintenance charges increas- ing, persons on fixed and limited incomes can hardly not question if deregulation is the right answer. The soaring rates of utilities cost is another factor which prevents older citizens from saving for a rainy day. Of the older Ohioans reporting in the survey, 447 own their own homes, a considerable majority, and are thereby subject to exorbitant and ever-spiraling bills, simply to stay warm, to cook their food, to use their electrical appliances for performing the same task, which we consider routine. And what about those that fall within the very low income bracket, those eligible for public housing? The 25 percent rule within the au- thority that within each increase in a tenant's income, whether it is SSI-social security- or other, rents are raised to meet that 25 per- cent of income. The increase, then, in social security, is surely not all take-home pay. The Ohio utilities discount program for 65-plus is a step in the right direction, but the base rate is still a cause for concern. And about taxes: Well, in the area of providing social services to help meet the needs of the 65-plus population, those of us in the field find the Older Americans Act to be a very beneficial piece of legisla- tion. Through appropriations by the Congress. areas of needs, such as transportation, home health, legal services, minor home repairs. day care, and recreation are being met, but to an inadequate degree. More emphasis can and will be accomplished through the network on coordination. In the field of employment, we tend to think of the problems of young people in growing families, but for as long as we are alive, cold is still being cold; hungry is still being hungry, and suffering is still pain; age does not lessen the degree. Without the opportunity to supplement a fixed incomeS retirement can be a demeaning time in our lives; during the 1973-75 recession, Department of Labor statistics showed that discharged workers rose by 200 percent among women-men and women 55 to 64 years of age, while the increase among others was 73 percent. As the number of persons who live longer increases in our society, it would seem our economy should `benefit by keeping in the work force those that can and want to be gainfully employed. 52-21L~ 0 - 79 - L~7 PAGENO="0738" 730 In Ohio 167 of the 609 persons surveyed have some type of emp1oy~ ment. The majority of 431 report "no employment." Adequate health care, including hospital cost containment, is of prime importance to older persons. Everyone in this room today has, I am sure, considered on numerous occasions the way we will live out our final years. It is a subject so complex that numerous portions of the proposed health care program in Chicago held hearings of their own. If medicare covers only 33 percent of health care costs, what is the answer for those that cannot afford the additional insurance premium for the out of pocket expenses; even routine prescriptiot drugs are a major item of the older person's budget. Advocates have established a price watch. In present wage-price policy, employers may enforce wage-price guidelines, but there is no bureacracy to enforce price guidelines. The seniors themselves are their own true advocates. In Ohio the question is asked: "Do you advocate wage/price con- trols?" Three hundred and forty-three say such controls would be very useful. One hundred and thirteen say "useful." Sixty-five say "of little value," and 85 have no response. In answer to a multiple choice question on how to fight inflation, the number one response was~ "Share kindness; it costs no more." What does that say about the attitude toward a Government de- signed to serve all? Mr. ROSENTHAL. It's a useful and thoughtful statement. Do you have the analysis of the survey? Ms. MURPHY. Yes, I do. I don't have it with me, but I have it in my office. Mr. ROSENTHAL. Could you somehow give it to Mr. Williams' office? I'd like the matter included in the record, if it's possible. Ms. MURPHY. We would like to do that, and we particularly, Con- gressman, we'd like-I think it would be interesting to note the corre- lation after Wednesday's workshop, because it will be inclusive of more than those that were in the survey. We'd be very happy to do that. [The information follows:] PAGENO="0739" 731 Dist:rict II Area Agency On Ag~ng,* Inc. 112 Wesf Commerce Sfreef * Suife 303 * Youngufown, Ohio 44503 * (216) 746-2938 August 3, 1979 The Honorable Lyle Williams 1004 Longworth Building Washington, D. C. 20515 Dear Congressman Williams, Enclosed is a completed questionnaire which reflects the results of a statewide survey conducted by the Ohio Commission on Aging on "How to Fight Inflation". It is the statistical source of information incorporated into my testimony before the Commerce, Consumer and Monetary Affairs Sub-Committee on June 18, 1979, in Youngstown. As requested by Congressman Rosenthal, a copy has also been forwarded to his office. Thank you for your kind cooperation. Sincerely, (Mrs.) Martha W. Murphy Area Director MW}1/rh cc: Congressman B. S. Rosenthal PAGENO="0740" 732 QUESTIONNAIRE !IQ»=L IQ~ EIQIIL INFLAT ION COUNTY_____________ LOCATION CODE_______ (FOR OFFICE USE (iN PART I, BASIC INFORMATION 1. DO YOU LIVE IN YOUR OWN HOME OR DO YOU RENT? 9~t~LPWN t5~RENT iO N/P.. 2. WHO LIVES IN THIS HOUSEHOLD WITH YOU? 32~JIVE ALONE Z/ITH SPOUSE tL.WITH CHILDREN JI.PTHER (SPECIFY) ii - 3. ARE YOU WORKING AT A JOB WITH PAY? ~6'l YES L1~LNO 4. (IF YES) IS IT A FILL-TIME OR PART-TIME JOB? FULL-TIME l3~PART-TIME `-131-Mi 5. (IF NO) WOULD YOU LIKE TO BE WORKING? 5LYES (UNQUALIFIED) 2!LNO Z&_YES (BUT DEPENDS ON JOB OR OTHER CIRCUMSTANCES) LflDON `T KNOW £1 Lj -p.J/R. 6. WHAT IS YOUR AGE BRACKET? l(Q(~Q6O-65 66-70 i±!Oyi-is 12.IOVER 75 7. WHAT IS YOUR ANNUAL INCOME BRACKET? 7i5_UNDER $2,500 212. $2,501-$5,000 1a1s5.oo1-27,sOo Z5~$7,5Oi-$iO,OOD &~LOVER $10,000 L~/'J t..J/P.. 8. DO YOU HAVE FINANCIAL ASSETS YOU COULD DRAW ON IN AN EMERGENCY? FOR~XAMPLEs REAL ESTATE, STOCKS, BONDS, INSURANCE POLICIES, SAVINGS ACCOUNTS? j77YES 2~1NO 23-N/ft 9. DOES ANYONE ELSE PAY PART OR ALL OF YOUR HOUSING EXPENSES? ~j.YES ~ 36-pJ/ 10. DO YOU OWN AND DRIVE AN AUTOMOBILE? `~LYES I.2O.NO ~ - t'J /1?.,, 11. HOW MUCH DO YOU SPEND EACH WEEK AT THE GROCERY STORE? ~17JESS THAN $10 2J~s1I-s2O a~$21-S30 ~{$31-S4O `1~$41-S5o 2LOVER $50 1~,- PJ/R 12. DOES ANYONE ELSE REGULARLY BUY FOOD FOR YOUR MEALS? 5N0 ASSI STANCE ~j~YES, PART OF THE COST ~yES, ALL OF THE COST `22- M(R_ 13. HOE WELL DOES THE AMOUNT OF MONEY YOU HAVE TAKE CARE (IF YOUR NEEDS? I~(OYERY WELL .33O FAIRLY WELL 13~oT WELL AT ALL 22N0T AT ALL 13- 14. DO YOU HAVE EIIOUOM TO BUY THE LITTLE EXTRAS, THAT IS, THOSE SMALL LUXURIES? 27~YES 3I1N0 ~ - IS - HOW MANY MEALS DO YOU EAT AT HOME EACH DAY? ~~BME ~_h1q~~~ 3~~THNEE o - ~I /k PAGENO="0741" ~r ~ METHO~~IQ.FIG~1T INFLATTONI 733 VERY USEFUL OF LITTI USEFUL VAt. 1. UTILIZE THE GOLDEN BUCKEYE DISCOUNT CARD? 2. ALTER, CLEAN AND REPAIR CLOTHING? 4~I~ 3. REDUCE UTILITY USEAGE? ~ E';;:~ 4. ADVOCATE OR PARTICIPATE IN PART-TIME EMPLOYMENT? ~ -. ~-j1l 5. ADVOCATE DR PARTICIPATE IN FULL-TIME EMPLOYMENT? (i.~I~) (`;~) 6. USE GENERIC DRUGS? EI~~ 7. PRICE SHOP MORE THAN ONE DRUG STORE FOR DRUGS? 8. KEEP A LITTLE MONEY AHEAD TO TAKE ADVANTAGE OF 2 BARGAINS? 95 .. * 21O q~-t4 9. KEEP UP ON HOME MAINTENANCE AND REPAIRS? (~~) (j~j) (~~) ~ik~ 10. IMPROVE HOME INSULATION? (~) (j;j;;) 11. PERFORM PREVENTATIVE MAINTENANCE ON AUTOS AND 251 HOME EQUIPMENT? 0 12. HOME GARDENING? - ~~;) ~~Ii) 13. PLAN RECREATIONAL ACTIVITIES ON AN OLD-FASHIONED BASIS: VISITING FRIENDS, WALKING, MUSIC? Z (, g3.~ 14. SHARE KINDNESS. COURTESY AND LOVE? THESE COST ~ ND MORE THAN BEFORE INFLATION. -~ 15. UTILIZE SENIOR CENTERS, THE Y.M.C.A. AND CHURCH PROGRAMS AND ACTIVITIES? 2I~ -es-, 16.AGVOCATE A DALANCED BUDGET AT ALL GOVERNMENTAL -~ PAGENO="0742" 734 17. ADVOCATE CONTROLS ON THE WAGE PRICE SPIRAL? 18. ADVOCATE OR PARTICiPATE IN SHARED HOUSING? 19. DRIVE AT 55 MPH ON THE HIGHWAY? 20. ASK YOUR DOCTOR OUESTIDNS? SEEK A SECOND OPINION WHEN NON-EMERGENCY SURGERY IS RECOt~MENDED. 21. EXPERIMENT WITH HOUSE BRANDS OF FOODS OR ``NO FRILLS'' GENERIC FOODS? 22. OTHER WAYS YOU HAVE UTILIZED TO FIGHT INFLATION. (PLEASE SPECIFY) VERY USEFIL OF Lint USEFL~~Lt1t -~--~---~ ~ ~ ~E~E;~ 000 0 0 0 0 00 0 00 0,00 0_00 009 F. 0.___________________________________________ PAGENO="0743" 735 Mr. WILLL&Ms. Do you believe that the President's voluntary pro- gram is effective or not effective in terms of the people you represent? Ms. MURPHY. I think it should be more effective. It should become more effective. The spiraling costs that we just indicated, the 13-per- cent riee in the cost of living as compared to a 9.9-percent social secu- rity increase during July, it certainly is not solving our problems. Mr. ROSENTHAL. Interesting. You said on this survey 343 people thought that wage and price controls would be very useful. One hundred and thirteen said they would be useful; that's a very sig- nificant number. Ms. Graham? STATEMENT OP ROBERTA GRAHAM, DIRECTOR, SCOPE, INC., WARREN, OHIO; ACCOMPANIED BY ~1ULIA KOCH, MEMBER, SCOPE Ms. GRAHAM. Y~s; well, we didn't, Mr. Chairman and Congress- man Williams, we didn't collaborate on this, so I'm sure it will be somewhat of a repeat, butit's very short. I'm Roberta Graham, executive director of SCOPE. I am here this morning to speak again for the elderly that suffer the most during this period of high inflation and expensive energy. In preparing this statement, I began to realize that all of us in this room, ~hourbyhour, are aging~ and will eventually join the ranks of the retired or older adult, and we will then come to grips with the very problems I shall describe. Recently inflation affects every aspect of our lives; for the elderly lifestyle, as well as eligibility for human services, is centered around income. The importance of rising'costs is evident in information and referral data gathered by the Area Agency on Aging within the last 3 months, revealing the most frequently expressed needs of financial assistance, discount programs, and emergency assistance. The Ohio Commission on Aging Survey on Status and Needs, filled out by 83,000 persons over 65 years of age in Ohio, revealed that 49.5 percent have jncome under $312; the 9.9 percent ~social security raise in July will increase this income to the grand total of $345 a month. This will no doubt make them ineligible for food stamps and many other services based on income eligibility. World War I and II veterans benefits have been constantly reduced by these small social security raises. Also, many widows of veterans no longer receive pensions because of these rates. Public housing rental increases will occur again next year to comnly with the 25 percent of total income rule. Private rental costs have in- creased, in this area `at least once a year. High income maintenance costs force the elderly to settle for inferior work and poor materials. which is self-defeating. High utility costs create some of our saddest and frightening cases, particularly in the winter. Poor housing wastes so much energy that heating bills are often astronomical. Purchases of food and medicine are rising at the rate of 10 percent in the last year, even on generic items. Individual con- PAGENO="0744" 736 tributions to medicare have increased doctors' fees, of which medicare will pay 80 percent of reasonable charges. Apparently, in this area the fees must be very unreasonable because it is rarely over 50 percent to 60 percent allowable. Transportation for the elderly: Our agency uses volunteers for es- cort services to doctors, food shopping, treatment centers, and other essential areas. We fear that very, very soon our volunteers will have to resign. They tell us that their gasoline costs have increased in 3 months from 76.2 cents a gallon to 92.2 cents a gallon. Since many of these volunteers are elderly, serving the elderly, fixed budgets will not be able to absorb these extra costs if gasoline continues to rise. One outreach worker in our agency, whose casework load has in- creased and thus added many extra miles to her travel, at 15 cents a mile, it's subsidizing her job. Our travel allowance has not been increased in 5 years, and the funding source denied our request again this year, As part of our pro- gram, we have offered trips at cost by charter buses to the program participants. Last September a 41-passenger bus to Cleveland, 55 miles from Warren, Ohio, was $142. This month, June 1979, the same bus to the same destination now costs $205, an increase of 44 percent. In fact we tried to shop for a better price, but the bus companies told us they had held a meeting and had all agreed to charge the same price. We can't win- Mr. ROSENTHAL. I hope they didn't tell you that; that's a violation of the antitrust laws. Ms. GRAHAM. I know they did. In closing, the only place I can find the 7-percent voluntary rate in price taking place was in Scope, Inc., staff raises, which have never exceeded 5.5 percent. It's a great way to lose employees, I can assure you. Thank you for the opportunity to appear before you and to inform von of the conditions where the buck finally stops in the service delivery sytem. And I have brought an older person, if you'd like to question her. Mr. ROSENTHAL. I was just going to ask you if either of you brought any of your associates. Ms. GRAHAM. Ms. Julia Koch is here. She doesn't have a written statement, but she'd like to talk. Mr. ROSENTHAL. We don't need any written statement. Ms. Murphy, did any of your associates come with you? Ms. MURPHY. No. Mr. ROSENTHAL. Feel free to tell us anything you'd like to. Ms. KOCH. My name is Julia Koch, and I've been a member of SCOPE since 1966. And my income is $209.40 a month, and out of that'-I have to pay my rent-I have some of my bills here-my rent, electric, church, paper-and I was paying $30 for food stamps, which I don't pay that much now; I get $38 worth of food stamps free. And have water, garbage, phone, and gas. And then I have medi- cine, and I cannot-I used to get this from the Ohio Department of Public `Welfare, medical assistance; don't get that now because I'm getting too much money. I'm getting $171.10 and I'm only allowed PAGENO="0745" 737 $166.10, so this way I cannot get my medicard unless I go to the doctor or go and buy medicine that is a prescription. And I have to spend $5.10 for the medicine, if I want to get my card. Mr. ROSENTHAL. To use up the distance between $166.10 and $171? Ms. KOCH. Yes, sir. Mr. ROSENTHAL. Outside of all this, how are you doing? Ms. KOCH. How am I doing? Well, I try to do the best I can. I can't buy myself any clothes. Ms. Graham and other people have given me clothing. This outfit that I have on me now was given to me through a lady-I took care of her husband when he had cancer, and she wasn't able to pay me very much. And I buy food, but I don't buy everything that I really need. Like, instead of buying orange juice, I have to take water pills-instead of buying orange juice, I buy Tang. I buy four bananas, and I have to pay 70 cents for four bananas. Now, that's a crime. Mr. ROSENTHAL. How has this situation changed, or has it changed in the last year or the last 6 months? Ms. KOCH. How has it changed? It's gotten worse because my bills are higher. Everything is higher for me. Mr. ROSENTEIAL. So, how are you dealing with that? Ms. KOCH. I try to do the best I can. Mr. WILLTAMS. Do you ever run into a period of time at t.he end of the month when. you're waiting for the next check to come? Do you ever have a period of time each month when you don't have enough to eat? Ms. KOCH. No; I try to eat something because I buy things that are on sale and with coupons. If I wouldn't do that, I don't think I'd be able to make it, and I can't go out and buy a beef roast because it's too expensive. I buy the cheapest hamburg that I can, and then I have from maybe a pound and a half of hamburg that I buy, I make it in different meals; then have quite a bit of the fat and I have to skim al.l that off and throw it out. So, that's wasting. Mr. ROSENTHAL. In the past 6 months, it's become more acutely severe for you or more difficult? Ms. KOCH. It's been worse, yes, because even with my-if I was sick I could go to the doctor, and with my medicard, right now I can't. And I have to pay-I went to the doctor in January and he sent me to the hospital to get X-rays. I have to pay for the X-ray because my card was no good. They wouldn't pay for that. Mr. WILLIAMS. Are there a lot of people that you know- Ms. KOCH. There's a lot of people like this. I ride the senior citi- zens' bus which used to be-well, so I know a lot of people, and we're all in the same boat. Mr. WILLIAMS. They're all having a tough time. Ms. KOCH. We're all having a tough time, yes, because we don't get enough money, and a lot of people say, "Well, how can you do this? How can you do that?" I don't go on any of the trips because I can't afford it. I don't watch TV. I try to have my electric bill low. I listen to my radio, but as far as watching TV, I don't do it. Ms. GRAHAM. You don't have a TV, do you? PAGENO="0746" 738 Ms. KOCH. Yes; I have one, but I don't play it. Otherwise, my bills would get too high. And I have no oven. My stove broke, and I can't afford to buy another one. My refrigerator went bad, so I go and buy milk, and I sometimes don't even buy a half gallon because it would spoil for me. Meat, I can't buy too much. I just buy enough, what I can use. That's all. Ms. GRAHAM. Because your refrigerator- Ms. KOCH. My refrigerator was 25 years old. Mr. ROSENTHAL. Thank you very, very much, all of you. I very much would like to see the results of that survey as soon as you can get it to Mr. Williams' office. Our next witnesses are a panel: Mr. Frank Leseganich, director, Dis- trict 26, United Steel Workers of America; Marlin P. Ford, presi- dent, United Auto Workers Local 1112; Dan Brott, the secretary- treasurer, Teamsters Local 377; and Mr. William Lyden, president, Building Trades Council in Youngstown. I think we're short one chair, so why doesn't someone move a chair up ~ STATEMENT OP PRANK LESEGANICE, DIRECTOR, DISTRICT 26, UNITED STEEL WORKERS OP AMERICA; ACCOMPANIED BY ROBERT GUTHRIE, RECORDING SECRETARY, UNITED AUTO WORKERS LOCAL 1112, WARREN, OHIO; AND WILLIAM LYDEN, PRESIDENT, BUILDING TRADES COUNCIL, YOUNGSTOWN, OHIO Mr. LESEGANICH. Mr. Chairman and- A VOICE. We can't hear. I took 3 hours off my job to come down to hear- Mr. LESEGANICH. My name is Frank Leseganich. I'm the director of District 26, United Steel Workers of America, Youngstown. Mr. Chairman, my statement is brief, and I think to the point. I'm sure that I express not only the feelings of the Steel Workers, which I'm privileged to represent, but all of the American citizens in this country. And again, in capsule form, the wage and price controls I'm quite familiar with. I've been confronted with them, the 7 percent guidelines; the industry does not have to adhere to those guidelines. What happens at the commercial end with regard to the average worker is really detrimental to the future of this country and detri- mental to the future of the citizens of this country. Thank you. [Mr~ Leseganich's prepared statement follows:] PAGENO="0747" 739 JUNE 13, 1979 STEELWORKERS OPPOSE PRESIDENT CARTER'S WAGE GUIDELINES THE UNITED STEELWORKERS OF AMERICA ALONG WITH THE AFL-CIO OPPOSE THE ADMINISTRATION'S WAGE GUIDELINES. FIRST, BECAUSE THE PROGRAM WON'T AND HASN'T WORKED TO RESTRAIN INFLATIONARY PRESSURES AND SECOND, BECAUSE THE PROGRAM IS GROSSLY UNFAIR TO AMERICAN WORKERS, ORGANIZED LABOR SAID AT THE BEGINNING OF THE ADMINISTRATION'S ENUNCIATION OF THE GUIDELINES THAT ALTHOUGH THE ADMINISTRATION COULD EXPECT THE ZESTFUL COOPERATION OF EMPLOYERS IN THE IMPOSITION OF 7% WAGE INCREASE MAXIMUMS, WITHOUT A SIMILAR LIMIT TO ALL OTHER KINDS OF INCOME AND PARTICULARLY A VIGOROUS CONTROL OF PRICES, THE PROGRAM WOULD NOT WORK. IT HASN'T WORKED, THE RATE OF INFLATION NOW STANDS AT 13.3% PROJECTED ON AN ANNUAL BASIS. THE RATE OF INFLATION IS WORSE THAN BEFORE THE GUIDELINE RULES WERE PROCLAMATED, THE GUIDELINES, HOWEVER, HAVE WORKED GREAT HARDSHIP ON A LARGE SEGMENT OF OUR WORKING POPULATION, ESPECIALLY THE UNORGANIZED WORKERS WHO HAVE HAD. NO MEANS TO CHALLENGE THEIR EMPLOYERS, PAGENO="0748" 740 ~PRESIDENT CARTER'S ANTI-INFLATION PROGRAM ENLISTS EMPLOYERS TO ENFORCE WAGE CONTROLS BUT SIMPLY DOES NOT ADDRESS THE REAL SOURCES OF INFLATION. LET ME NAME THEM FOR THE RECORD: 1. ENERGY. THERE IS NO WAY THE IMPOSITION OF WAGE CONTROLS ON WORKING PEOPLE WILL PERSUADE THE OPEC CARTEL TO REDUCE THE PRICE OF OIL OR EVEN TO MODERATE PRICE INCREASES. THERE IS NO WAY PRICE GUIDELINES if AMERICA WILL STOP THE OPEC CARTEL FROM USING ITS PRICING POWERS POLITICALLY. THE COST OF OIL AND ITS DERIVATIVES IS REFLECTED IMMEDIATELY IN OTHER INFLATIONARY FACTORS ALL ACROSS THE BOARD. THE HUGE COST OF PETROLEUM, FOR EXAMPLE, AGGRAVATES OUR TRADE DEFICITS, WEAKENS THE DOLLAR AND DRIVES UP THE COST OF CRITICAL IMPORTS, 2. E~O11L ONLY THE DEAD OR THE DERANGED CAN HAVE MISSED FEELING THE TREMENDOUS IMPACT OF SOARING FOOD PRICES. PART OF THE INCREASING COST OF FOOD CAN BE ATTRIBUTED TO THE COST OF FUEL OF COURSE1 THE FUEL NEEDED TO PROPEL FARM AND TRANSPORT EQUIPMENT AND TO MANUFACTURE PAGENO="0749" 741 PETROLEUM-BASED FERTILIZERS. BUT THERE IS MORE TO THE INCREASING, ESCALATING COST OF FOOD THAN PETROLEUM PRICES, THE MULTIPLYING COST FACTORS OF SEVERAL LEVELS OF FOOD PROCESSING ENTERS INTO THE PICTURE ALONG WITH THE MOMENTUM OF INFLATION, PROCESSORS MARK UP PRICES BECAUSE THEY CAN MARK UP PRICES, 3. HOUSING. BUILDING MATERIALS HAVE BEEN ESCALATING IN PRICE AT RATES St~BSTANTIALLY HIGHER THAN THE AVERAGE RATE OF INFLATION, LABOR COSTS, IN FACT, HAVE BEEN REMARKABLY RESTRAINED WHEN COMPARED TO THE OTHER COSTS ATTENDING THE RESIDENTIAL HOME BUILDING INDUSTRY. ANDNOBODY NEED TO BE TOLD WHAT HAS BEEN HAPPENING TO MORTGAGE INTER~EST RATES, THE COST OF MONEY COUPLED WITH THE COST OF MATERIALS IS DENYING COUNTLESS THOUSANDS OF YOUNG AMERICANS THE SECURITY OF THEIR OWN HOME. IT IS IRONIC TO ME THAT SO MANY OF OUR PROMINENT ECONOMIS AGREE THAT ONE OF THE REMEDIES FOR INFLATION IS TO RUN UP THE PRICE OF MONEY. THE HIGHER THE RATE OF INFLATION PAGENO="0750" 742 THE MORE INTEREST THE BANKS WANT FOR A MORTGAGE. BANKING SEEMS TO BE THE ONLY INDUSTRY WE HAVE THAT IS ENCOURAGED TO RAISE PRICES TO HELP THE ECONOMY. THE PRICE OF LABOR IN INDUSTRY HAS NOTHING TO DO WITH INTEREST RATES. AND THE PRICE OF LABOR IN BANKING CERTAINLY CANNOT CONTRIBUTE TO ESCALATING PRICES. BANK EMPLOYEES ARE THE LOWEST PAID OF AWY OF THE MAJOR COMMERCIAL ENTERPRISES IN THIS COUNTRY. LI. MEDICAL CARE, I AM NOT ACQUAINTED WIT}{ ANY NEIGHBOR.. FRIEND OR MEMBER OF MY UNION WHO CANNOT TELL ME A HORROR STORY ABOUT A HOSPITAL BILL. MANY OF OUR MEMBERS WOULD LONG AGO HAVE BECOME BANKRUPT AND HOMELESS HAD WE NOT NEGOTIATED COMPREHENSIVE HEALTH CARE IN OUR CONTRACTS. IT TAKES NO IMAGINATION TO CONSIDER THE PLIGHT OF THE MILLIONS OF AMERICAN WORKERS WHO DO NOT HAVE HOSPITALIZATION INSURANCE. MANY ARE SO INDEBTED THEY WILL DIE WITHOUT EVER PAYING THEIR BILLS. OTHERS PREFER DEATH TO BANKRUPTCY. PAGENO="0751" 743 THE PRICE OF LABOR IN OUR NATIONAL HEALTH INSTITUTIONS IS A DISGRACE. MANY FULL-TIME HOSPITAL EMPLOYEES QUALIFY FOR FOOD STAMPS AND OTHER FORMS OF WELFARE IF THEY HAVE THREE OR FOUR DEFENDANTS, PART OF THE EVER ESCALATING COST OF SURGERY AND DIAGNOSTIC SERVICES STEMS FROM DESIRE OF EVERY HOSPITAL TO HAVE ON HAND THE MOST SOPHISTICATED AND EXPENSIVE EQUIPMENT -- EVEN THOUGH THE EQUIPMENT REMAINS IDLE FOR LONG PERIODS OF TIME. AND EVEN THOUGH A NEARBY HOSPITAL HAS DUPLICATES OF EQUIPMENT. FINALLY, WITH RESPECT TO HEALTH CARE, I WANT TO POINT OUT THAT THE ADMINISTRATION IS MUCH MORE WILLING TO CALL FOR CONFORMITY OF THE WAGE GUIDELINES WHEN SPEAKING TO LABOR UNIONS THAN WHEN SPEAKING TO THE AMERICAN MEDICAL ASSOCIATION. IN FACT, TO STATE IT BRIEFLY, THE PRESIDENT'S GUIDELINES HAVE EFFECTIVELY REDUCED THE STANDARD OF LIVING FOR THE AVERAGE WORKING MAN AND WOMAN IN THIS COUNTRY WHILE PAGENO="0752" 744 PERMITTING THE PROFESSIONALS AND OTHERS OF THE UPPER ECHELON OF OUR ECONOMY TO INFLATE THEIR INCOME AS A MEANS OF COMBATING INFLATION. To SUM UP, THE STEELWORKERS, LIKE ANY OTHER INTERESTED OBSERVER) CAN SEE THAT THE ANTI-INFLATION PROGRAM IS AN ABSOLUTE FLOP. THE ONLY WAY TO STEM INFLATION IS TO ADOPT A PROGRAM THAT DISCIPLINES ALL SEGMENTS OF OUR NATIONAL ECONOMY. WE HAVE TO TALK ABOUT ALL INCOMES, AND ALL PRICES. To THOSE WHO OBJECT TO THE KIND OF COMPREHENSIVE CONTROLS I ENVISION, LET ME SUGGEST THAT IF YOU OBJECT TO A "MANAGED ECONOMY" I WOULD SUGGEST TO YOU THAT WE HAVE A MANAGED ECONOMY NOW -- ONE MANAGED BY THE HUGEJ PRICE-FIXING CONGLOMERATES AND THE MULTINATIONALS. I SIMPLY WOULD PREFER REGULATIONS THAT BENEFIT US ALL RATHER THAN THE PRESENT SYSTEM OF ADMINISTERED PRICES WHICH IN RECENT YEARS HAVE GOUGED US ALL. PAGENO="0753" 745 Mr. ROSENTHAL. It is a very useful statement.. I think Mr. Meany announced, together with some members of the administration, Mr. Kahn and Ms. Peterson, that labor people around the country were going to monitor prices and forward them to the administration. Are your folks doing anything like, that at all? Mr. LESEGANICH. This is happening in Warren, Ohio; we have a group going out from store to store checking the prices, checking whether they're staying at a certain level. Mr. ROSENTHAL. Do you have any preliminary information? Mr. LESEGANICH. I have no input with regard to the effects at the present time. Mr. ROSENTHAL. Mr. Ford is not here, I'm told. Mr. GUTHRIE I'm. Mr. Guthrie, recording secretary of local 1112. Mr. ROSENTHAL. Why don't you move that microphone over and tell us what you want. Mr. GUTHRIE. Robert Guthrie, recording secretary of 1112 stand- ing in for President Ford. And I have to go along with Frank Leseganich in the parts of the President's wage-price guidelines. We have a contract coming up here. We will be starting in July; It's going to be a battle and a hassle for us with his guidelines because I don't think that we are going to sell our people on what President Carter wants us to do. With the spiraling cost of gasoline, automobiles, anything you want to mention; like Frank had mentioned on your mortgages, your loans, interest rates, there's just no way you can live with these guidelines. Therefore, we conceive that the President is trying to put handcuffs on the labor people and letting the management get away with what- ever they want. I mean, there's nothing being said about where t:hey're stopping their prices. They raise them from one day to the next. You can walk into a gas station today and 1 day later, it's 4 cents a gallon, gasoline up within 1 day. But we can't do that. Once we go on a contract, we have to go on a 3-year basis, and we're going on a percentage raise, and our percentage raise, what we've had in the last contract, is essentially all eaten up. Mr. ROSENTHAL. How are you people coping with this situation? Mr. G1JTHRIE. Well, we're not spending; we're not taking vacations. They're not moving higher than they used to. They are starting to- their money is starting to-they budget themselves. They used to go out and maybe spend a few dollars to go out to eat or something in the evening. Now they just can't do it. They're going to have to eat at home. They're not as bad off as the. one lady here that spoke, and I'm sure you feel sorry for that lady, for anyone who has to get through like that. They're one of the people that helped make this country, and then they're discarded out to the side. Nobody seems to want to care about them, especially the Congress or the President. And the same way with the veterans: I'm a veteran from the VFW. I'm a VFW member. Our veterans that are retired and on pensions are being cut. They're never being raised. Everything else goes up but they take money away from them. That's all I have to say at the pres- ent time. Thank you. Mr. ROSENTHAL. Thank you very much. 52-21~'4 0 - 79 - 48 PAGENO="0754" 746 Sir? Mr. LYDEN. Mr. Chairman, Congressman Williams, I'm Bill Lyden. I'm president of the Western Reserve Building Trades Council in these three counties. I would like to point out that in my view, the President's 7 percent guidelines are a joke. They're not being complied with and can't be. Prices are rising at 13 percent; I think everyone in this room recog- nizes that inflation destroys pension plans; it destroys the social se- curity system; prevents retirements; raises taxes. And by the year 2000 at the present rate of inflation, the economic system in this country as we know it will be completely destroyed, and our way of life as we know it will be gone. And I think one of my problems is I've been around too long. This is the second one of these hearings I've sat through. The first was in 1968 when Lyndon Johnson proposed we should follow a wage guideline of 3.3 percent; in the event inflation should ever reach a 6 percent level, it would destroy this country as we know it. * And here we are 10 years later saying 7 percent is what we've got to comply with and 13 percent is going to destroy this country as we know it. And when we start talking about inflation, in my view, everyone that sat in this room and testified has testified about the effects and not the cause. And I think we have to recognize, sir, that since 1968 the prime cause of inflation in this country has been the Federal Government, and continues to be the Federal Government. [Applause.] And I think we ought to recognize that in 1968 Lyndon Johnson decided that he would launch a major war against poverty and at the same time a major land war in Asia, and he attempted to hide the Vietnam War in the budget. And we've been paying for it ever since. Richard Nixon pointed out, after Lyndon Johnson had left, the effects of inflationand what it was doing to this country. Gerald Ford came out with his WIN button. But the fact is that the Congress of the United States has been running deficits of $50, $60, $70 billion a year. But the Congress reaches some point in their appropriations where outgo exceeds income, so they turn around, speed up the process, dump tons and tons of paper into the economy of the United States, and everybody tries to offset the effects of that dumping of money, paper that means nothing, into the economy by protecting themselves. Businesses raise prices. Interest rates go up because the bankers know the inflation rate is 12 to 13 percent. So, by God, they're going to try to protect themselves. Labor unions build cost of living escalators into contracts to protect themselves. And, sir, as long as you're going to pursue a policy where you're going to dump paper into the economy of the United States and then turn to business and labor and say: "You should do something," then we're going to have the situation as we know it-it's going to continue. It's ~going to continue until such time as the economic system in this coun- try is destroyed. And it's as simple as that. And I'm sure in 1987 I'll be sitting in some kind of a hearing where somebody is saying that we should hold the inflation rate down t~ 1~ or 18 or 20 percent. And I thoroughly expect to see labor people in this PAGENO="0755" 747 country earning $80,000 a year. I expect to see that tax rate at 60 or 70 percent. We're very, very effectively raising taxes to inflation. And the Con- gressman who wants to balance the budget is taking the high road today. He doesn't have to do a thing. Federal income is going up at the expense of the worker. Mr. ROSENTHAL. I want to go back to one thing you said: Inflation is preventing retirement. Can you elaborate on that? Mr. LYDEN. Nobody can afford to retire today when we're cutting their pension at 10 percent per year. And inflation is effectively doing that. We tell a man he retires at $800 a month. In 5 years it has the buying power of $400. He's in poverty. That's been one of the effects. It doesn't do a thing for the problem. Mr. WILLIAMS. Are you an advocate of mandatory price controls? Mr. LYDEN. No; I'm an an advocate of more responsible government than we've had in the past, and until such time as the Federal Gov- ernment gets their house in order, both financially and otherwise, there is going to be no change in the problems as we view them today. - Mr. WILLIAMS. You say, then, the Federal Government is causing the whole thing? Mr. LYDEN. I can't say the whole thing, but the Federal Govern- ment certainly is the prime mover, absolutely. Mr. Chairman, that's all I have to say. Mr. ROSENTHAL. No; that's good. Anybody else want to say anything? [No response.] Mr. ROSENTHAL. OK, well, I thank all of you very, very much. It's very useful and very helpful, certainly. Our next witness is Mr. John Parlermo and Margaret Dennison. There's one other announcement that we wanted to make: we're going to stay in session, I think, until about 1 o'clock and when we finish with the people who are scheduled to testify, we'd be happy to hear from anybody who is present and wants to testify. Are you deciding who's going to go first? Mr. PALERMO. No; I yield to Ms. Dennison. STATEMENT OP MARGARET DENNISON, MEMBER, TRUMBULL COUNTY BOARD OP COMMISSIONERS, WARREN, OHIO; ACCOM- PANIED BY JOHN PALERMO, CHAIRMAN, MAHONING COUNTY BOARD OP COMMISSIONERS, YOUNGSTOWN, OHIO Ms. DENNISON. Mr. Chairman and members of the committee, I am Margaret Dennison, member, Trumbull County Commissioners, ap- pointed to the unexpired term of Lyle Williams, who is of course a member of your committee. Knowing Lyle, my most serious challenge is trying to fill the void he left behind in local government. But there are a few other challenges. Commissioners have a mandate under the constitution of the State of Ohio to provide for the health, safety and welfare services to the citizens. The actual cost of these services in Trumbull County for 1979, as calculated in January, is $16 million. Revenues set aside from the general fund for 1979 are $10 million. PAGENO="0756" 748 Mr. WILLIAMS. Margaret, excuse me, can you put that mike a little closer? Ms. DENNISON. I'm sorry. So we are doing precisely 62.5 percent of the job that we are charged with doing. Quality and excellence live in our aspirations, but our daily work is patching and piecing. We eke out; we stave off. We make do. Let me give you just a couple of examples. The Trumbull County sheriff has a staff of 93 people; some 20 of them are CETA employees who have long since had the requisite extensive training. They are now experienced and efficient enforcers of the law. The CETA funds will run out in September. No way can we find the $400,000 it will take to keep these people on. No way either can we control the crime rate if we lose a fourth of our line duty lawmen. Another instance: we've had discontent festering in our Welfare De- partment, and a couple of weeks ago it erupted into a strike. One of the most acute grievances is the failure to fill vacancies. We're staffing the department as fast as we can, and you understand that we have to pay only about 10 percent of the costs against the State match. But we just can't catch up in the course of the year. There are con- tingencies: in a letter from the juvenile court, it requests an added ap- propriation of $21,000. Item: $4,000 because our postage and supply use has increased with our involvement in the welfare4-D program. Item: $3,000 because of increased costs of supplies purchased. Item: $6,500 because last year our average daily population was about 6 juveniles in detention, and this year our average daily popula- tion is 12 juveniles. We must pay that. A further letter from the juvenile court says that the outside walls of the boys and girls buildings are in poor condition due to dampness of walls. These walls have been patched several times in the past and the materials do not seem to hold. You should know that this juvenile detention facility is an ancient cellar in the downtown city. There are no exercise facilities indoors or out. and not much else except cells, and apparently not enough of those. We have no prospects of achieving Federal standards for correctional facilities in either our jail or our juvenile detention center. Obviously, we should be planning for capital improvements; ob- viously, we can't. That is the frustration of local government. The saddest hour of my tenure came the morning when contracts were rescinded for a develop- inent known as the Four Township Water System. It would have brought water to n section of the country where all projections show the greatest growth will occur. Industry crowds ~in the area now from three sides: freeways, air- ports, everything. The investment should be made for the future prosperity of the people in the county. It is not being made because ~nfiation has driven the construction costs above the yield or promised rates to users, user charges. Chargers will pay the bill eventually, but the county will have to wait for reimbursement, and it was decided that we could not afford even that pittance of expense. So because we have no pennies, we're going to be losing dollars. We cannot buy the goose that lays the golden eggs for the price of a super- market chicken, PAGENO="0757" 749 It should be acknowledged here that you have sent us revenue shar- ing funds from Washington so we can afford just this kind of opportunity. We thank you. We want you to know that our condition would be desperate without revenue sharing, but because of inflation we must devote every cent to operations. We do not therefore ask for more money. We ask you to stop the wage-price spiral. When you return to Washington to make your report to the Presi- dent, please advise him to take the stern measures necessary to slow the inflation. I believe the American people, persons individually, privately are much more frightened than we publicly admit. We don't tell the pollsters, but you can tell the President; please tell him and tell your colleagues in Congress that we ask your courage and your leadership; even at our level of government we are concerned because the people don't trust the politicians. Out here we think the national government does not trust us; level with us, give us the straight facts, and we'll unite with you to stop inflation. Gentlemen, we thank you so very much for coming. This is most unusual. You are making not only- Mr. ROSENTHAL. What measures would you recommend l Ms. DENNISON. Stop spending. Be tougher with us. Be tougher with everyone. I realize that when the cycle stops, there will be a very painful interval which will be short when prices are ahead of us all. Prices should at that point begin to come down and we will at that point be in charge of something that we can handle. [Ms. Dennison submitted the following letter:] PAGENO="0758" 750 TRUMBULL COUNTY 160 HIGH WARREN, 4~O 444 E~f RÔ1 / ~ W~ ~MAB.QARETPAAL NTE,Oerk PARM The Honorable Benjamin S. Rosenthal Chairman of Commerce Consumer and Monetary Subcommittee United States House of Representatives Washington, D.C. 20515 Dear Congressman Rosenthal: We in the Mahoning Valley were honored and flattered by the unusual courtesy of a visit from your Subcommittee, and I would like to repeat now the thanks I expressed to you then. You asked me on that occasion what measures I thought you should take, and I was so startled that I did not answer properly. It seems to me that an attempt to slow and cool our economy is a complex undertaking that would require a whole battery of experts in various, fields. I think you have those resources available and we have not. Therefore, I would not presume to offer suggestions. The points that I tried to make are first, that local government is caught between rising costs and lagging re- venues, and secondly, as a matter of personal opinion, that we are ready to endure some pains and some sacrifices in the interest of slowing inflation. I believe the American people are still strong, still spunky, and still capable of unity. The challenge to our leadership is to inform us and inspire us. Very truly yours, `JoA4Br~~C ~bt'I'~ Margaret ennison .eOMM~9SIONERS' OFFICE ADMINISTRATION BUILDING WALTER PESTRAK, Chairmen TED M. VANNELLI, Vice Chairman MARGARET DENNISON, Member PAGENO="0759" 751 Mr. ROSENTHAL. Mr. Palermo. Mr. PALERMO. Mr. Chairman, Congressman Williams, I'm John Palermo, Mahoning County Commissioner. President Carter's anti-inflation program's success depends in larger part upon the cooperation of all levels of government, the Fed- eral, State, and local, coupled with conscious effort on the part of all American citizens to curb inflation. An integral part of this policy concerns local units of government and more specifically has three central components: first, the voluntary participation in the presidential anti-inflation program; second, re- form of the Federal grant-in-aid system; and third, outreach and technical assistance programs at the local level. The Board of Mahoning County Commissioners, acting as a con- cerned and responsible public body, has already initiated several pro- grams, several actions to combat inflation. Some of these are within the sphere of the President's program. With reference to the first component, voluntary participation in the anti-inflation, the board has taken significant steps; budgetary allocations to various departments and salary increases did not exceed 7 percent. Given the country financial structure, this is the severest action available. Nevertheless, we are confident that the several elected officials will comply with the 7-percent standard. With regard to the employees under the board itself, all employees were granted increases in packages that. remain within the President's 7-percent guidelines, including the wage package recently agreed to concerning a bargaining union. Thus, the board has tried to remain within the President's suggested wage standard. Second, the board has attempted to curb inflation with respect to the county budget, specifically, the general fund over which it exer- cises more immediate control. This general fund budget is only 5.69 percent higher in 1979 than in 1978. Given the fact this includes a 7-percent pay increase for employees, this budget is a lean one, with some departments receiving as much as 20-percent cutbacks over last year. In short, the board has tried to trim the fat from the budget while maintaining a decent living wage for its employees. Third, with the cooperation of most county elected officials and the department heads, the board has initiated various studies and an intergovernmental personnel office has been approved and a contract has been issued to a consulting firm. The significance of these actions with respect to the President's anti-inflation program is twofold: first, those studies are designed to assist department heads in increasing employees' productivity and therefore assuring the county and the. public that it serves gets the most for its wage dollar. Second, it is designed to assign several classifications of employees with salary ranges, thereby reducing or eliminating the chance of arbitrary and inflation salary increase. This program is both equitable and cost efficient in terms of fighting inflation. With reference to the second nhase of the President's program, the grant-in-aid system, much of the burden lies with the Federal Gov- PAGENO="0760" *~752 ernment. The commissioners, for their part, however, will do their utmost to assure that Federal moneys are utilized with full regard to establishing regulations and inflationary concerns. I believe-off my written remarks here-that this is an important part, where we are dealing with the Federal bureaucracy at all levels, and until something is done to thereby put more responsibility or more-give local communities more ways to work out their own prob- lems rather than having to run to the Federal bureaucracy at every turn of the road, and being addicted to Federal funds, so to speak, with the grant-in-aid programs, that until something is done in this area, we're going to be confronted with that problem. Mr. ROSENTHAL. You didn't mention the contracting end of the President's program. They also recommended that~State and local government comply with the guideline requiring suppliers to certify that the supplier is in compliance. Mr. PALERMO. Right. But we are governed by State law and we have bidding procedures set out for us. We can't violate the constitution of the State of Ohio, the statutes of the State of Ohio by waiving any bid regulations. So, if in fact, the contractors are not complying, we have no way of knowing this, but we do operate under the bidding law of the State of Ohio. Mr. ROSENTHAL. But you let your own contracts; you don't ask the State to purchase for you, like gasoline, or tires, or trucks, or anything ~Eike that. What is your budget for purchasing each year? Mr. PALERMO. I don't have that exact figure, sir. Mr. ROSENTHAL. Do you have any idea what it is? Mr. PALERMO. Just off the top, approximately 20 percent of our budget would be-and that would be-that's just a guess. I couldn't give you an exact figure on that. Mr. ROSENTHAL. But at any rate, you don't ask your suppliers to certify that they're in compliance? Mr. PALERMO. No, sir. No, sir. Mr. ROSENTHAL. And you don't do that because that might be in violation of State law? Mr. PALERMO. Right, sir. We follow the bidding procedures laid out by the State of Ohio. Mr. ROSENTHAL. You simply advertise it and everyone has the opportunity. Mr. PALERMO. Lowest and best bid. Mr. ROSENTHAL. Regardless of whether the suppliers are in corn- Pliance with the guidelines? Mr. PALERMO. I don't think there's been any real check in that area. Mr. ROSENTHAL. Would you say the same thing for your county ~ Ms. DENNISON. The same thing exactly; it might be a good idea to try it, but we do take the lowest and best bid which narrows things down to the least costly. Mr. PALERMO. Concerning the third phase of Carter policy, tech- nical assistance at the local level, the Board of Commissioners has responded in several ways. First, conference held by the Federal Gov- ernment for the National Association of Counties have been well attended. PAGENO="0761" 753 In the course of these conferences, much valuable information has been learned and then brought back and then applied. Second, the commissioners in 1978 established a committee on in- tergovernmental finance. This group is composed of business leaders, former Government officia]s, »=tnd the like, with all the expertise in the field of local government on finance. The committee studies the problems of finance and makes recom- mendations to the commissioners. Thus, the Board of Mahoning County Commissioners has complied with the President's anti-inflation program and intends to continue to do so. However, there are some very real problems: for instance, the Presi- dent's program notes that sales and property taxes are inflationary. Nevertheless, these two taxes are the only ones permitted by State statute to aid counties. The commissioners, therefore, cannot with good conscience seek to reduce property tax levels if services are to be maintained or improved. The commissioners must seek new sources of revenues. Second, the increasing cost of Federal and State mandates upon th county is staggering, especially since property taxes are not adjusted for inflation. One alternative is to seek Federa' funding iii the form of revenue sharing grants and so forth. Yet, this at best is risky, since the county never knows when the rug will be pulled from under their feet, so to speak. Antirecession aid is a good example of this. Another burden is the country's welfare mandate, which increases 20 percent each year. This has been clearly inflationary to the county's budgetary policies. Probably every county commissioner in Ohio rec- ognizes the immediate need for a just welfare reform. The welfare mandate in Mahoning County is fully 20 percent of the general fund. The effects of these uncertainties with regard to budgeting a program planning is serious. Thus, though the board of commissioners is generally supportive of the President's program, it has serious defects as it applies to Mahoning County. Thank you, sir. Mr. ROSENTHAL. You said-just in a general sense, you said you want to get the Federal Government cut of your operation. How would you recommend that be done? Mr. PALERMO. I think the Federal Government has the mechanism for collecting revenues; local counties, subdivisions rely on property tax or sales tax, a direct tax upon our people. We do not have the ability to collect an income tax. Mr. ROSENTHAL. Do you have a State tax in Ohio? Mr. PALERMO. Yes, we do, State income tax; part of that is passed back to the local communities. But I think that since the Federal Gov- ernment has the mechanism-in my opinion, revenue sharing has been very effective, and I think it's been well used by the local communities. And I feel that if revenue sharing we.re increased, rather than grant- in-a.id programs, where counties have to apply through a lot of bureau- cratic procedures and applications and forms and telephone conversations and trips back and forth to Washington and Chicago and Columbus and everywhere else, that much of the time and money is spent by prolonging the program. PAGENO="0762" 754 If the moneys were dealt back to the local communities that are responsible for providing the police, the fire, the water, the sewer- Mr. ROSENThAL. No strings attached. Mr. PALERMO. I'd like to say that. sir. And put the responsibility on the local officials because they are responsible to the voters. Let them stand the heat for whatever programs they want to put into effect. Mr. ROSENTHAL. But there's political heat on collecting taxes. Mr. PALERMO. Congressmen get a very fine salary for doing that. Mr. ROSENTHAL. Everyone says they want a balanced budget; one of the ways we can balance the budget is by reducing revenue sharing. Mr. PALERMO. We can do the same thing at the county level by cutting back services. Mr. ROSENTHAL. The man who waii~ted to balance the budget, did he leave? Let me ask you a question: What areas of the Federal budget would you cut back in? Mr. LYDEN. I'll tell you one that could be cut effectively: In 1978 the Department of Housing, Health, Education, and Welfare had slipped through their fingers $4 billion that they could not even account for. It just drifted away through the system. Now, when the system can allow one department to drift away with $4 billion, sir, there is where I would like to see $4 billion saved. Mr. ROSENTHAL. Stay here a moment. Sit here. Secretary Califano acknowledged that there was $4 to $6 billion in fraud that went through the Department simply because they weren't doing a good enough job of oversight, and it was legislation that came out of our committee that resulted in an Inspector General being in- stalled to be a watchdog at HEW. Now, my judgment is that there is waste slipping through some Federal programs and it shouldn't happen. But assuming that is not the case, what areas of the budget would you cut? Mr. LYDEN. Sir, I don't think we can make the. assumption that that isn't the case because that really is the case, and when we look there's many- Mr. ROSENTHAL. No, no. We should eliminate fraud and waste. Mr. LYDEN. Right. Mr. ROSENTHAL. Right. After we do that, what should we cut? Mr. LYDEN. The Federal Government today is growing so large and unwieldy that there's not a man alive that can control it.. It's a Gov- ernment that feeds on itself. There's middle level bureaucrats making decisions in this country that are in effect controlling this country, and I would cut some of the services that I wanted, needed, or solicited, such as some of the ridiculous positions that the EPA, for example, takes. We've got. clean air in this valley today. This~has been in my lifetime. It costs 8,000 jobs, but we've got clean air. We've seen EPA people come in here and propose that we go fishing in the Mahoninq River, and if we keep up the way we're going, we're going to be able to fish there. ~La.ughter.] Mr. ROSENTHAL. It's important for me to know this. EPA is one area you would cut back on. What other areas? PAGENO="0763" 755 Mr. LYDEN. Well, I would cut back-off the top of my head-it isn't fair for me to sit and make that kind of judgment. If you would like a comprehensive view of whmtt I think, I'd be glad to mail it to you. Mr. ROSENTHAL. One of the problems we always have is that every- body wants a cut, but in the other person's budget-the medical re- search people don't want to cut the medical budget. The welfare people don't want to cut the welfare budget. Nobody wants to cut the FAA budget because of the DC-lO's. So these are the problems we have. We'll come to everybody at the end. Thank you both very much. Mr. WILLIAMS. Jack Hunter, Wes Johnstone, and Jack Burtch. Mr. ROSENTHAL. Mr. Hunter, I guess it says you are first. STATEMENT OP JACK C. HTTNTER, VICE PRESIDENT, MAHONING NATIONAL BANK, YOUNGSTOWN, OHIO Mr. HTJNTER. Yes, Mr. Congressman. I'm Jack Hunter, vice presi- dent, Mahoning National Bank. I have two brief prepared remarks, one from the president of our bank, Mr. Young, and one by myself. On behalf of Mr. Young and myself, I would like to express our appreciation to Congressman Rosenthal and Congressman Williams for bringing their subcommittee meeting into the Mahoning Valley. Mr. Chairman and members of the subcommittee, the opportunity to present m.y views on aspects of the impact of inflation on the bank- ing industry in general and the Mahoning National Bank of Youngs- town, Ohio, in particular, is appreciated. Of greatest and long-reaching significance is the effect of inflation on the savings volume of financial institutions. The rising price levels have discouraged savings which are now at a historic low and do not portend formation of a sufficient reservoir of funds which could be employed in renewing the country's productive facilities, enabling more efficient production at lower costs. A rise in productivity prom- ises to increase the competitiveness of our industry in worldwide markets, leading to strengthening of the American dollar and reduc- tion of rising prices with a salutary effect on the employment levels and cost of living. As a banker, we think this area deserves highest priority for Government attention and action. The recent regulatory changes in authorized rates of interest for small consumer savings are helpful, but of limited value in the present inflationary environment. Focusing on the banking industry and its contributions to volun- tary price and wage controL `the alternative guidelines issued by the Council of Wage and Price Stability results in an unfair and unequal burden placed upon some banks who find themselves under dividend restraint. It is most important that all banks he given equal access to canital markets to promote fiscal soundness of the institutions, and provide the wherewithal for continued growth in loans and financial services. Our bank, and many similarly situated banks, has been ex- periencing a growth in return on equity and in return on assets in the past 5 years, and therefore is not in a position to limit its return to that of past years. It then comes under the alternative restraint on PAGENO="0764" 756 dividends~imposed by the Council's guidelines. This restraint is not fair or equitable as it does impair the market value of the bank's stock and therefore its options in determining ways to increase its capital through the public markets. Dividends, in and of themselves, are not generally held to be a contributor to. inflation, so the relevance of this type of curb is indeed questionable. In conclusion, Mr. Ohairman and membersof the committee, I wish to state that we are endeavoring to comply with the spirit and the letter of voluntary wage and price controls and to do what we can to assist in a sound growth of the economy in the Mahoning Valley. The aforesaid observations were made in the spirit of pointing direc- tions which may make it possible to develop a sound and competitive banking industry which can contribute much to the strength of our economy. Now, Mr. Congressman, my own remarks: Having presented Presi- dent Young's remarks in which I concur, I would give you my own. In the decade since the end of World `War II, especially the fifties, sixties, and seventies, we have read, heard, a.nd seen the so-called German and Japanese economic miracles from the ashes of defeat and unconditional surrender; the strongest, healthiest economies in the free world. While the reasons are many, ~complex,~ and interrelated, suffice it to say that the underlying~factor has been thatboth nations switched from the Keynesian approach to economics, with its emphasis on con- sumption, and adopted a more classical approach emphasizing supply and investment. Heavy emphasis was placed on price stability, which served to foster savings, thus providing the fuel for the so-called economic miracles of Germany and Japan. This has resulted in increases in productivity and real per capita income that puts the record of the United States to shame. Today our national savings, trade, gross fixed capital, inflation comes to about 17 percent of our gross national product, less than that of any other major industrial nation; not much more than one-half the Japanese rate today. Congressman Rosenthal, Congressman Williams, it is within your power, the power of the U.S. Congress, to foster a U.S. economic miracle in the 1980's. If we don't as a nation foster such a miracle, we will find the U.S. standard of living falling behind that of Ger- many and Japan. We must stimulate our savings. To do that, we must foster price stability. If we succeed, we will have an investment, and "investment" is a 10-letter word for jobs. And we will have increased supplies, which will help to stabilize prices. At that time and only then will the American dream become a reality for our people, as it is and has been for the citizens,,in Germany and Japan. We must break the cycle of inflation before it destroys our middle class, as it did in nation after nation in the 1930's. We are in an inflationary psychology in this Nation today; as we expect prices to get worse, we as a people rush out and buy before the next price increase. And sure enough, prices again-the fact is that expectation is in this context the father of reality. PAGENO="0765" 757 Gentlemen, I would thank you for the opportunity to share with you today the concerns of the president of the Mahoning National Bank, Mr. Arthur G. Young, and my own concerns. The task we all face is difficult and complex, but if we do it right, we could be on the threshold of an economic miracle that would continue out into the early decades of the 21st century. Thank you, gentlemen. Mr. ROSENTHAL. Thank you very, very much. Mr. Johnstone? STATEMENT OP WESTON JOHNSTONE, EXECUTIVE DIRECTOR, YOUNGSTOWN AREA CEAMBER OP COMMERCE Mr. J0HNST0NE. Yes, sir. My name is Weston 0. Johnstone, president of the Youngstown Area Chamber of Commerce. We commend the Commerce, Consumer~ and Monetary Affairs Subcommittee of the House Government Opera- tions Committee for scheduling these hearings out in the "real world," gathering input from some average citizens. We sincerely appreciate this opportunity to express our views. We understand the purpose of these hearings is to collect ideas on how to improve the Nation's economy and prevent a serious reces- sion. For the Federal Government to be seeking the answer to our country'~s problems reminds us of the expression, "We Have Met the Enemy and They Is US." Inflation is generally considered the Nation's No. 1 problem. When a group of nearly 1,000 business leaders from all parts of the country were recently asked what they thought was the primary cause of inflation, 83 percent responded "Government spending." Ninety-five percent supported a balanced Federal budget, with 78 percent saying it should be accomplished "~ * * by reducing Federal programs and regulations." Our forefathers fought and died to make this country free. The free enterprise system is what made this country great-the greatest coun- try in the entire world. Capitalism provided the incentives for our workers to become the most productive anywhere, the envy of all other nations. Unfortu- nately, that is no longer true. From first place in productivity we have plummeted to seventh or eighth place, barely ahead of England. Instead of learning a lesson by seeing what happened to once-Great Britain when it permitted the Socialists to take it over-we have tried to emulate it, all too successfully. We'd like to quote what England's Labor Prime Minister Callaghan said not too long ago: What is the cause of high unemployment? Quite simply and unequivocally it is caused by paying ourselves more than the value of what we produce. This * * * is an absolute fact of life, which no government, be it left or right, can alter. We used to think we could increase employment by cutting taxes and increasing Government spending. I tell you in all candor, that option no longer exists. And insofar as it ever did exist, it worked by injecting inflation into the economy. And each time that happened, the average level of unemployment has risen. Higher inflation followed by higher unemployment. That is the history of the last 20 years. PAGENO="0766" 758 We couldn't agree with Mr. Callaghan more. So why haven't we learned from England's sad experience? Who is to blame? With all due respect, Congress. Undoubtedly well intentioned, it passed laws establishing various Government agencies but left the language therein far too broad in scope. As a consequence, today we are being ruled by bureaucratic fiat. Many of the policy decisions of these Fed- eral agencies are being made by young, inexperienced individuals unfamiliar with the real world. Two of those we refer to are EPA and OSHA. We are encouraged by the legislation Congressman Williams introduced recently which will, if passed, place some restrictions on EPA.. All is not lost, however, if Congress will "bite the bullet" and have the intestinal fortitude to be statesmen instead of politicians. First and foremost, balance the Federal budget. It can be done. It must be done. Second, pass "sunset" legislation with real teeth in it and then see that it works. And third, although it's so important it could be first, start to believe in the free enterprise system. Let's get rid of the "over- regulators" in Washington, or at least regulate them. According to a 4-year study made by Prof. Murray Weidenbaum, a former Govern- ment official, in just one year-1978-the 80,000 bureaucrats employed by Some 55 Federal agencies, filled 15,452 pages of the Federal Register with new regulations. Last year's regulatory price tag was a staggering $96 billion, nearly four times our annual trade deficit. Over a fourth of this total-$25 billion-was, spent on paperwork alone. Thus, Federal regulations have a tremendous adverse impact on inflation, because all such costs experienced by manufacturers are figured into their cost of doing business and passed along to the consumers. But, while someone like General Motors can afford, according to Professor Weidenbaum, to detail 22,300 employees to handle Federal paperwork and add the costs onto the price of their cars, most of America's 13 million smaller enterprises, the backbone of America's economic system, have neither the staff nor the expertise to cope with the blizzard of Government paperwork and regulations. Congress could help tremendously if it would pass a law requiring an economic impact statement for each new regulation, and make the law retroactive for about 5 years. Every regulation should show the cost/benefit ratio. The Professor c.ited one example-the pulp and paper industry spent $3 billion between 1970 and 1978 complying with EPA clean-water st.andards, and achieved a 95 percent reduction in pollution. But EPA has arbitrarily established a reduction goal of 98 percent by 1984, which will cost the industry an additional $4.8 bil- lion. That's a 160 percent increase in costs to achieve a 3-percent im- provement in water quality. Ridiculous? We agree. And similar reg- ulations are affecting many industries, particularly steel. Last year anti-pollution requirements alone pushed steel prices up by at least $8.00 a ton-not very helpful in trying to be competitive in world markets. But what happens when the industry finds it necessary to raise prices? Approximately the same thing in every Congress and every administration at least as far back as 1960. It is appalling to us to see supposedly educated men~ elected leaders of our Nation, bad- mouthing a particular industry for trying to make a decent profit1 They should applaud, not criticize. Much of the blame, however, must PAGENO="0767" 759 be shared by the media and by business itself, for not properly inter- preting a firm's quarterly financial statements. One quick example: Lone Star Industries, a fairly large building material firm, showed a 587% increase in profits in the 1st quarter of 1979 over the same period in 1978. "Obscene?" Well, the actual profit margin was only .8%, but because last year the margin was less than .2%, the percent- age increase seem astronomical if you don't know the whole story. Profit provides the capital for business to expand in order to provide more jobs. Capital is not idle cash. It is money that has been turned into tools that enable people to make more products at lower cost. Which brings us back to productivity mentioned earlier. According to published figures, it takes an average of $40,000 in capital to pro- vide each American working in manufacturing with a job. When we tinker with the natural flow of the economy, when we throw up road- blocks like excessive taxation that discourages capital investment, or require available capital to be used for pollution control equipment to remove that last vestige of air or water contaminant, then people must work with obsolete tools. Productivity goes down. With less produced, prices go up. Congress should do everything possible to let the American system work the way it should. Naturally. We again thank the subcommittee for the opportunity to offer these comments. Mr. ROSENTHAL. Thank you. Mr. Burtch? STATEMENT OP ~rACK BURTOK, WARREN AREA CHAMBER OP COMMERCE Mr. BTJRTCH. Thank you, Congressman. I was pleased to have the opportunity to come here this morning, and I'm here this morning- my name is Jack Burtch, and I'm a representative of the Warren Area Chamber of Commerce. I wouldn't be doing a good job on the chamber of commerce--I don't know if you know where Warren is. It's in this Mahoning Valley. It's about 10 miles north of here. We have a city of 70,000 people; it's an industrialized city, and we share many of the, same problems and grief and joy that the Youngstown area does. When I was asked if I would come here this morning and testify, I understood that the question on the floor was whether or not Presi- dent Carter's guidelines were working. I understand now that part of the second part of that is: What is inflation and how is inflation affect- ing our different areas? I'd like to address myself to both of those areas. It's my understand- ing that President Carter's anti-inflation program has to do basically with wage and price guidelines, the U.S. decontrol of oil prices, and more strict monetary and fiscal responsibility. And to get answers to those in the time that was allotted, I made a few phone calls to different representatives of our Chamber of Com- merce: Retailers, lawyers, whoever it might be. And addressing the problem of are the wage and price guidelines working, the survey started to say that everyone hoped they would; didn't think that they were because of the rate that prices were increasing and because they PAGENO="0768" 760 thought that many prices were increasing because of the fear of manda- tory controls coming on. And while most of the people thought it was a good tool, they didn't think it was going to work. With regard to my question to the U.S. decontrol of oil prices, again, most of the answers were: They thought this was a good idea because it would no doubt increase production and have a tendency to dis- courage waste. The reaction to that question brought about quite a bit of comment. It brought out that they were against any excess profits tax. Mr. ROSENTHAL. Did the lawyers say that too? Mr. BURTCH. I did not contact a lawyer. Mr. ROSENTHAL. You said you contacted your members, including lawyers. Mr. BtTRTCH. I'm sorry if I said lawyers; I didn't really mean to say lawyers. I talked to retail people, steel people, one of the utility people, people of this-I did not talk to any of the individual lawyers. But in a nutshell, we figured that any excess profits tax should not go to the Government but should go to that industry for research and development. Mr. ROSENTHAL. Are the people you spoke to-are any of them under the threat of an excess profits tax? Mr. BTIRTCH. The only one that's under the threat of that is the oil industry. Mr. ROSENTHAL. But they have-they felt that-- Mr. BURTOn. They felt basically that. it should go into research and development in the oil and energy area and not to go back into the Government to be dealt out. However, it should have a specific purpose. Mr. ROSENTHAL. We should take the money from the oil companies and give it back to them. Mr. BURTCH. Not take it from them. Mr. ROSENTHAL. Don't even pass the tax. Mr. BURTOn. I didn't say not to pass the tax, but that should-in- stead of going to the Government., go to the industry itself for re- search and development to be put back into the energy area. Mr. ROSENTHAL. To be put back into the energy area. Mr. BURTOn. That's right. For the problem we're in, the energy problem now, with regard to-sorry, you were about to ask me something. Mr. ROSENTHAL. No, no. The Ways and Means Committee is re- porting out a bill. I'm not familiar with its details, but it's the 70- percent excess profits tax. Some of the money would be ~roin~ into research and development. Some people would benefit-low-income people who can't. pay these prices for gasoline to go to work. How does that strike you? . Mr. BURTOn. It strikes me all right. I don't know how it strikes those that-I'm giving you a summary of the aiiswers I got from the people I surveyed to bring you the feelings of how this was affecting them. . With regard to the tighter monetary and fiscal policies, why that was opening up a whole- PAGENO="0769" 761 Mr. WILLIAMS. Jack, do you believe that t.hose people you talked with would oppose that type of distribution of money, some to re- search and development, some to those. people who are- Mr. BURTCI-I. I don't think-I don't know what the sum is, but I would just hate to see it go into a.n unrelated area. Mr. WILLIAMS. You don't want the Government to have it or they don't want. the Government to have it. Mr. BURTCH. Not for any other reason than for developing energy resources. Now, if it's necessary to help older people or aging people that have been unduly affected, I would have no personal-as far as I'm concerned- Mr. WILLIAMS. Could it be because of the confusion surrounding the Department of Energy and how they're dealing wit.h the energy crisis? Mr. BURTCH. I'm sure that that-- Mr. ROSENTHAL. You don't have any gaslines here, people waiting in line to get into a gasoline station. Mr. BURTCH. I don't know as we have them yet. Mr. ROSENTHAL. In Ne.w York people are literally killing each other. Mr. BTJRTCH. I know. I was in California a week or 2 ago, and it was killing them. Mr. ROSENTHAL. In New York a number of people have been injured in gaslines. Mr. B1JRTCH. Let me, if I can leave that part of the question to go around the to the other half; how the inflation was affecting the people in our area. And I think I was going to mention here health organizations. I believe that inflation is devastating to whoever-and others here on the panel this morning have addressed it better than I can with regard to the cities and the county commissioners and the people. And of course inflation has a very devastating effect on business and we're very fortunate in the Warren area, in my opinion, to have a very healthy industrial climate. We have very large business, and fortunately both the large busi- nesses-they're ste,el and automotive-are both growing and they're prospering. But I think it has been publicized that one of our large companies- Mr. ROSENTHAL. Excuse me just one second. [Pause.] I'm sorry. Mr. BURTCH. I mentioned that we have some very large industries in our area, and they appear to be growing and prospering. However, one of them--and I think it's been pubTici7ed-wifl snend $80 million in the next 3 years merely to comply with EPA regulatory complaints. I'm not saying that's wrong. The part that's wrong about that is the millions that will be wasted because of a double standard, as I under- stand it, between State EPA regulations and Federal EPA regula- tions. And these cause delays as far as gett.ing permits and that type of thing. And it's just a crime to have that waste when that amount of money could go to aid jobs in our area, increase productivity, which in my 52-21k 0 - 79 - PAGENO="0770" 762 opinion, is the answer to inflation, just more goods being produced and more investment. Now, we have another very interesting situation in our area. In the last 3 years we've had three of our major industries lose control to foreign interests. Now, all three of those-one is French; one is Ger- man; and the other is English. But all three of those are prospering because these foreign countries were able to inject great amounts of capital into these iudustries, and capital in industry today is almost impossible to create at a rate where- by you can reinvest in equipment. The-30 percent of available capital is used for regulatory com- pliance, and when you have to compete with the Government- Mr. ROSENTHAL. 30 percent of capital is used for regulatory- Mr. B1JRTCH. Many industries use that just for regulatory compli- ance. It's very difficult to create capital with-competing with a gov- ernment for money, not knowing what the rules of the game are going to be 3 years down the road; plus the fact that in this country-I think the United States of America has the lowest capital cost per capita- Mr. ROSENTHAL. Our jurisdiction is somewhat limited to the Council on Wage and Price Stability and the President's Council of Economic Advisers, so we are really focusing on the advocacy of the wage-price guidelines. Are they working? Are they not working? Mr. BURTCH. They're not working from the survey. Mr. ROSENTHAL. And what would you recommend? What improve- ments would you make in the situation if you had the decisionmaking power: one, two, three? Mr. BURTCH. I don't think you can separate the wage-price guide- lines from the big problem of inflation. Mr. ROSENTHAL. Right, they were installed in an effort to deal with inflation. What would you do in the war against inflation? Mr. BURTCH. In the war against inflation-not just the price guide- lines-in the first place, I would see that the EPA- Mr. ROSENTHAL. That's one thing. Mr. BURTCH. All right. I would think that we are paying for a lot more oversight in Congress than we're getting as far as regulatory- because we have regulations that are just stifling the little business. Mr. ROSENTHAL. What's a little business? Mr. BIJRTCH. Anywhere from 5 to 50 employees. Mr. ROSENTHAL. Do you have a lot of those? Mr. BURTCH. We certainly do. Mr. ROSENTHAL. Are they the ones that principally complain about the EPA guidelines? Mr. BURTCH. I've had a foundryman tell me that if he had to comply with the National Institute of Occupational Safety right to the letter, it would close his foundry down. Mr. WILLIAMS. Are you encouraging mandatory controls? Mr. BURTCH. No way, no way. Mr. WILLIAMS. How about a combination? Mr. BURTCH. I don't see any need for it. Mr. ROSENTHAL. You know, going back to the EPA guidelines, you know, I suspect there's something significant in what you say there. There are parts of the country that don't `agree with that. PAGENO="0771" 763 In the northwest part of the country, they're very, very environmen- tally oriented, and the people in New Hampshire, demonstrating, you know, against that atomic energy plant, all motivated, largely by the environment. Large sections of the country feel differently about whether we have overregulation. I hate to be coming back to New York, but somehow I do-a fireman died in a fire in Macy's because the fire sprinkler didn't work. Now, somebody didn't do a good job in inspecting those things, and yet every businessman I've talked to said we have too much inspection. We had a case where there's too little inspection, so one of the things we try to do-and obviously not as well as we'd like to-is to balance out all these interests in society and-well, at any rate, thank you all very,very much. Was there something else you wanted to say? Mr. BURTCI-I. No, I think I would just say that the consensus of the opinion that I talked to would be that there is a big job to be done, and I think they would appreciate a little more help from the Government rather than hindrance. And they could-could rebuild the world and the country again as they've done before. Mr. ROSENTHAL. You do agree with the need for an increase in the interest paid to savers, the regulation Q changes; did you agree with that. Mr. HUNTER. Yes, because right now commercial banks are allowed to pay 5-percent interest; savings and loans are able to pay 5.25, and you're selling your Government paper from anywhere from 6 percent on savings bonds going to 6.5 up to just short of 10 percent on your Treasury notes. So, you know, you're skimming off the top of, you know, the possible savings, although you are getting the bigger- Mr. ROSENTHAL. You don't have a problem with paying a little more for small savers? Mr. HUNTER. No. In fact, we would like to, quite honestly, be on a par with the savings and loan institutions, but, you know, hopefully, that will- Mr. ROSENTHAL. They're the ones that. are complaining most about inflation. Mr. HUNTER. Right now we're offering our investors a negative rate of interest, taking into account inflation and 5 percent on savings. Using the example of Treasury or series E savings bonds: invest in series E savings bonds for patriotism and lose 7 percent purchasing power per year. When I was here in Youngstown the last time, they asked me to participate in a drive for selling series E bonds. I had to respectfully deffiure, and that's because I think the interest-the cost of living was going up about 6.5 percent per year. Now it's double that.. Mr. ROSENTHAL. Thank you very, very much. Our next witnesses are Dr. Anthony Stocks and Robert Christian. Have you caught your breath? Dr. STocics. I just pot. out of class, so I'm a little bit- Mr. ROSENTHAL. We're delighted to have you. Dr. STocKs. I walked because I wanted to save energy. [Laughter.] PAGENO="0772" 764 Mr. ROSENTHAL. Are you ready? Otherwise, Mr. Christian- Dr. STOCKS. If he wants to go ahead, that's OK with me. And I can make my comments when I've recovered here. STATEMENT OP ROBERT CKRISTIAN, DIRECTOR, YOUNGSTOWN AREA COMMUNITY ACTION COUNCIL Mr. CHRISTIAN. The Youngstown Area Community Action Council is a Federal, State and local funded program created to provide serv- ices, as well as serve as an advocate to the low-income residents of Mahoning County. We. currently operate 15 program components rang- ing from our preschool program-Head Start-to services for senior citizens. As an agency with a Federal mandate to serve as an advocate for the poor, it is necessary that we bring to your attention, and in most cases, reemphasize the issues which are daily concern to the poor of our com- munity, specifically, and the Nation, in general. A major concern to all of us and to the low income, specifically, is the status of the economy and the seemingly uncontrollable inflation. It has been stated consistently that during this period of rapid inflation, the poor are the "hardest hit". It can also be stated that in the process of developing programs and proposals designed to deal with the prob- lem, the poor consistently get "short changed". Please note that for the point of discussion, the words "poor" or "low income" are used to de- fine these individuals who fail within the income guidelines as pub- lished by C.S.A. Currently, a family of four, earning before taxes, $6,700 is considered to be low income. Therefore, countrary to popular. belief, this category includes a large percentage of working individuals and not just those families who are on Federal and State subsidies. The argument to support the charge that the poor, on the programs designed to meet the needs of the poor, have been "short changed," can readily be seen in the President's proposed budget. For fiscal year 1980, the current service requirements equals $536.1 billion-$125.5 billion for defense; $410.6 billion for all other programs. The Office of Management and Budget (0MB) notes that $8 billion more should be added to the $536.1 billion to account for other fartors: increases in the number of participants, resulting from normal growth; mandated changes in eligibility requirements; cost of living adjustments; and, other price increases. (Source: Budget, U.S. Government, fiscal year 180, pp. 14 and 46.) The administration proposed $125.8 billion for defense and $405.8 billion for a total of $531.6. This reflects a proposed budget which is $12.5 billion smaller than the current service level adiusted for inflation-$544.1 billion minus $531.6. Since the requested defense outlays cover all legislated changes, plus a 3 percent expansion above that, it is clear that virtually all the shortage ~f $12.5 billion must be borne by the nondefense programs. On a percentage basis, the new budget represents a 7.4 percent in- crease for nondefense items, and a 10.6 percent boost for defense. (Source: Monitor Federal Programs-Center for Community Change.) Since a number of small new programs are proposed, and several others are expanded, the money to finance these changes must come PAGENO="0773" 765 from other current social programs-the age-old adage of "robbing Peter to pay Paul." Programs in the areas of Social Security-elimina- tion of benefits for parents with children of a certain age; and, reduc- tion of disability payments-employment programs; school lunch; subsidized housing start; community based oriented programs, will be particularly affected. The dominant feature of the administration's budget presentation is its focus on the inflation issue. However, the alarming fact is that the Carter administration appears to be accepting the policy of slow growth with its inevitably higher employment as an effective tool to curb inflation. To add to the existing critical problem of unemployment will have a devastating impact on m~tropolitan areas like Youngstown, Ohio. In addition, it will create the need for more services, and as out- lined earlier in this discussion, will not be forthcoming. Existing pro- grams must be expanded, where needed, to meet the ever increasing needs for jobs and services. A careful effort is needed to focus on the underlying causes of inflation-the rapid rising prices of energy, health, and food. The realization of the inequities for the poor in the administration proposed budget, and in the current policies, is vividly brought to the forefront as the Youngstown Area Community Action Council tries to meet the needs of its existing and potential clientele. For example, the caseload for our agency has increased by approximately 8,000 clients, in the past 3 years. Conversely, we have had to reduce services and cut back in personnel as a result of a very small or no increase in our funding level. We are directly affected by the increased cost in gasoline. We will expend approximately $9,000 in this fiscal year-end- ing November 30, 1979-and project. that providing the same level of services in this component will increase our cost by. approximately $10,000. Due to the increase cost of health care and an increase in FICA and~ Federal withholding tax, it is estimated that we will need an ad- ditional $20~000 in our fringe benefit package. Added t~ this problem is trying to provide the staff with a cost of living increase. As a service provider that provided counseling and referral services to more than 5,000 persons, provided 36,000 t.rips for 7,300 clients, pro- vided educational, . health and nutrition benefits to 350 low income children, and health and nutrition benefits for 3~500 mothers and in- fants, we feel that Government, through either the administration or the Congress, has not adequately met the needs of the majority of its citizens As an advocate for the poor we believe that the President's policy asking for cut backs in social programs, inducing a slow down in the economy with severe unemployment as a result, and sky high interest rates which negatively affect the nurclm sing power of the low-incomeS must be carefully reviewed and analyzed. The total population in Mahoning County, Ohio, is approximately 303.424. Of this amount, 27.791 persons have incomes below Federal poverty levels which represents 9.2 percent of the entire population. Last year the Youngstown Area Community Action Council served more than 7.000 families which represents approximately 25 percent of the families in Mahoning County that meet Federal low-income guidelines. PAGENO="0774" 766 With additional resources our agency will be able to increase the ainountof people served which will definitely he increasing due to the economic situation in the Mahoning Valley. This of course, will com- pound our problem with the present funding level that we receive. We will need an increased amount of funding in order to maintain our present caseload not to mention the anticipated increase in the need for our services by additional families. Thank you. Mr. ROSENTHAL. Thank you very much. Dr. Stocks? STATEMENT OP DR. ANTHONY STOCKS, DEPARTMENT OF ECONOMICS, YOUNGSTOWN STATE UNIVERSITY Dr. STOCKS. Thank you very much. I have a very short statement to make, which deals with the impact of anti-inflationary monetary, and fiscal policies as they impact upon the Youngstown-Warren econ- omy. And I think it fits in very well with the previous statement that has been made. And I'll just read this and if there's any questions, we can dis- cuss them as we wish. Historically, the Youngstown-Warren metropolitan area has re- lied heavily on the basic steel industry as a source of manufacturing employment with steel fabrication also a significant employer in the valley. In 1960 basic steel accounted for 48 percent of total manufacturing employment, and fabrication, 9 percent of manufacturing employment in the local economy. In short, steel provided nearly 60 percent of the manufacturing jobs in 1960. In 1978 basic steel contributed 27 percent of the local manufacturing jobs and fabrication 12 percent. for a total of 39 percent of the em- ployment and manufacturing. Thus, the reliance on steel has declined substantially in the last 18 years. It still provides nearly 4 out of every 10 manufacturing jobs in the Youngstown-Warren metropolitan area. Unfortunately, the U.S. basic steel industry has not grown very rapidly; in fact, it has been in a state of stagnation over the last 20 years. The Youngstown district share of domestic steel production has been declining steadily; between 1960 and 1978 the local economy lost 16,000 basic steel jobs, while fabrication grew by only 2,000 jobs for a net loss of approximately 14,000. Moreover, steel has been a cyclically sensitive industry and particularly the local segment of that industry. While the national economy grows vigorously, the Youngstown- Warren mills have managed to operate profitably, at least most of them. But when the national economy weakens, the local mills are among the first to show production and employment cutbacks, and they are the last to experience recovery when the national economy again expa13ds. Iii large part this stagnation and cyclical pattern that we observe can be attributable to the obsolescence of much of the steelmakrng and fahr~atinp~ facilities in the Mahoning Valley. Many of these factories date back to the late 1890's and early 1900's, and many operate with equipment that is far from the latest state of the art-and that's putting it mildly. PAGENO="0775" 767 To put it directly, the local economy has too many marginal mills. Massive infusion of new investments seem necessary in order to render our facilities more competitive with the rest of the world and other facilities of the United States. in light of the above remarks, the implications for the Youngstown- Warren metropolitan area of a vigorous anti-inflation, monetary, and fiscal policy program at the national level of government are apparent. Should a lean Federal budget and high interest rates cause a reces- sion-which many economists think we have now entered-our local economy would suffer from lost output and jobs to a greater extent than the other areas of the country with modern facilities and plants~ and more diverse applied economies. Indeed, a substantial decline at the national level could cause clos- ing of local facilities permanently, with the 1oss of an additional 4,700 sLeel jobs; I think that's a conservative estimate. Such a recession also would inhibit current efforts to obt.ain new industry for the valley; to encourage expansion of existing industry and to upgrade the capital stock of existing firms located in the Youngstown-Warren metropolitan area. Ladies and gentlemen, my thesis is clear, and I believe accurate: The older industrial cities, like we find in Youngstown and Warren, will ex- perience a disproportionate burden in any downturn occasioned by inflationary monetary and fiscal policies. It seems to me that we all do not bite the bullet-to use the custom- ary expression-to the same degree. And it's likely that the older centers, like in the previousrecession we had, are going to be the major recipients of contraction and not the faster growing, more diversified systems. Mr. ROSENTHAL. Ithink that's absolutely correct. What would you do to deal with this inflation situation? Dr. STOCKS. There is no simple answer. I suspect you've heard that many, many times over. Mr. Kahn, our inflation fighter in Washing- ton, I'm sure has mentioned that. It appears that the rate of inflation may be beginning to slow down. We're beginning to see signs in the economy of restraint of consumer expenditures. If the bond market shows what we think it's showing, it looks like there's an anticipation,. a topping out of long-term interest rates, per- haps. But this is not going to come overnight. It's going to be a rather difficult process. Mr. ROSENTHAL. You haven't answered the question. Dr. STOCKS. I understand. I believe, though, that consumers will have a major impact upon what happens to the inflation rate over the next few months, and I think if we all were to constrain ourselves somewhat to-you know, buy the cheaper cuts of meat and to- Mr. ROSENTHAL. You~ have no recommendations to the Federal Government. Dr. STOCKS. Well, J think in terms of our current policies, they are beginning to take hold, and I suspect it's going to require some patience on the part of individuals. I think in the longer term we can move toward greater price stability by working toward greater competition in the domestic economy. Mr. ROSENTHAL. You mean antitrust action? PAGENO="0776" 768 Dr. STOCKS. I think that's true; I think particularly in the area of energy we can work toward eliminating horizontal integration in the marketplace. Mr. ROSENTHAL. What do you mean by "horizontal integration?" Dr~ STOCKS. Well, here I mean where a company controls four or five different areas of the energy market; you know, we find- Mr. ROSENTHAL. You mean like coal, uranium- Dr. STOCKS. Coal, uranium- Mr. ROSENTHAL. Should we end horizontal integration? Dr. STOCKS. I'm more sympathetic toward that view. I think if we could constrain horizontal integration, we could get a little more com- petitive behavior, and that might solve some of our problems. Mr. ROSENTHAL. Should we set up a national corporation to do all the buying of imported oil for this country? Dr. STOCKS. That, I think, has some merit; it would perhaps give us some leverage in the world market. It would perhaps enable us to work with other countries more effectively in constraining the price levels. Mr. WILLIAMS. You just struck a beautiful tone with the chairman; he has a bill to do just that. Dr. STOCKS. I think that has merit. Mr. ROSENTHAL. We're one of the few countries in the world that doesn't have such a national purchasing entity; we are at the mercy of our multinationals. I don't know how much mercy there is. But thank you both very, very much. Your presentations, I think, were very thoughtful and very useful. Thank you both very, very much. Dr. STOCKS. Thank you very much. Mr. ROSENTHAL. We've had three people who indicate they wanted to testify, and anybody else; we're going to quit, I think, in about 25 minutes or so. Mr. Guerriero. Mr. Rich Guerriero, is he here? Mr. Joel Teague. Mr. Teague? He's here somewhere. Mr. Teague, would you sit over here. Mr. Tacklit? Mr. WILLIAMS. I just want to comment: The chairman has to be back in Washington. That's why we're going to end this at 12:30. So we don't want to shorten anybody's remarks. Come on up here. Bring your chair. Please try to keep it as brief as you can. Mr. ROSENTHAL. You're first. Ladies first. STATEMENT OP GENEVIEVE NOVICKY, CLERK-TREASURER, BOARDMAN TOWNSHIP, OHIO Ms. NOVICKY. I'm Genevieve Novicky, and as clerk-treasurer, I'm responsible for the moneys; I watch the budget, and let me tell you, Boardman Township is a suburb of Youngstown, and it began as a little farm community with seven people, and the taxes, when they were first collected in 1803, were $17.43. Now we've grown to a community of approximately 46,500 people. We have a shopping mall, Southern Park Mall. We have many busi- nesses and small industries. There are 32 churches and 11 schools, and they represent the finest in the Nation; even our band has been all over the country to perform, down in Washington at the parade. PAGENO="0777" 769 Our evaluation in Boardman is estimated at $250 million and our property taxes bring in about 2 million, with other sources such as motor vehicle funds, licenses, gas taxes, and the local government pro- vides the other $1 million. So our total budget for 1979 is $3.277.000. Now, we get that from taxes, and the taxes are $47.90 per $1,000 of evaluation for each property owner. Out of that, the Boardman Town- ship share is $7.20. Now, from that money, we presently provide 35 policemen, 35 fire- men, with three separate fire department buildings. On the road are 21 workers, zoning and the administrative services. There are 130 workers in all; 20 of those are on Manpower or pub- lic service employment; 10 Manpower and 10 public service. We pick up a part of their wa.~es if it goes over $10,000 by law. Mr. ROSENTHAL. What is the point you're trying to tell us? Ms. NovIcKY. I'm trying to tell you that inflation is hitting us also. Mr. ROSENTHAL. Right. Ms. NOvICKY. That our electric rates just went up 33 percent in some districts. Our salt and slag costs are increasing; the gasoline to run those vehicles and the cruisers has gone up. Workers' comp has gone up from $29,000 to $51,000. We instituted safety programs to try to cut that down. Hospitali- zation went from $7,000 a month to $14,500. OK, so here's what I want to get across to you both: as costs have increased and taxes have gone up an evaluation of 6 million per year, we have had to cut the pie into more pieces. We have then found that we do not have the moneys for equipment that we used to have so we have to make do or-well, we got a truck for the fire department; we had to use 2 years budgets to pay for that. We do depend on revenue sharing. We find that we need that for our resurfacing. We have to fix the potholes. We have to keep the streets in condition. So approximately $100,000 will go for resurfacing and $50,000 to fix the drainage problems, and the rest for parking and purchasing equipment. So I'm trying to impress both of you with thern need for revenue sharing to maintain the level of service that we have maintained in Boardman. Mr. ROSENTHAL. You don't want to do anything about increasing the property tax? Ms. NOVIOKY. We have always had these levies on, and we will be asking for renewal. I don't think people are too receptive right now to increasrng-~--- Mr. ROSENTHAL. Just for the sake of discussion-I don't necessarily believe this-but we could reduce the Federal budget significantly and reduce Federal taxes if we eliminated revenue sharing. We're taking all the heat for revenue sharing. Ms. N0vICKY. Are people going to respond to putting another levy on again, a new one? Eventually that is what would have to be done. Mr. ROSENTHAL. They would respond to you but not to us. Ms. NOVICKY. But this is what we're finding, that on the level of government we have, to keep the level of services, we are needing that for these extra provisions. Mr. ROSENTHAL. OK, thank you very much. PAGENO="0778" 770 STATEMENT OP WARNER TACKLIT, HIGHLAND, OHIO Mr. TACKLIT. Warner Tacklit from Highland, Ohio. One item that you've been asking various people is what would you have us do to help to fight inflation. I would address myself to that rather than the 7-percent guidelines. One thing Dr. Stocks brought up, and Mr. Burtch, and also the president of the Building Trades Council that was here was in terms of our industries. We have many of our industries in our area, being pre-World War I, whereas European and many of the other countries of the world are post-World War II industries. At the end of World War I we helped Germany and at the end of World War II the Marshall Plan in Europe, and one thing that we have now that's been some help is our most-favored-nation clause for trade whereby we grant credits and give loans and various things to countries to buy back materials. Yet our industries over here in the United States have to get the loans and things from the Government at the interest rate that prevails at the time, whereby we give loans and credits and various things to the other countries. So what we could do in one area in saving in our budget and the in- flation is to cut much of our foreign aid, especially to our Communist friends. If we continually offer a perpetual subsidy to some of the Com- munist countries as well as many of the other countries of the world, we're going to keep having our industries hurt because they are coming out with new industries; they are coming out with the best of facilities and services, whereby our industries over here in the United States have to continually go with the interest rates and things that they can get. Mr. ROSENTHAL. Just for the sake of discussion, the only point I wanted to make is there are 14 sides to every story. The folks in Iowa and Kansas, Nebraska, and southern Illinois that sell feed grain over there, they take an entirely different point of view. They would say that. we're getting the major advantage on the balance of trade from our exporting of agricultural products and we're able to do that by making these loans to these countries. Mr. TACKLIT. We can look in terms of agricultural, which we talk in terms of feeding people; we could also talk in terms of industrial loans, and developments, and things. We could split the two and this would help out here in the Mahoning Valley, especially because when we go into some of our facilities and have them pre-World War I, and somebody said-I think it was even-Mr. Burtch said back in the 1890's here in the United States. And then we see the bond of our country with Germany and Japan and things that we've subsidized and helped. I think we could in terms of foreign aid cut back on it and reinvest that money into our industries and things here in the United States. Another item here- Mr. ROSENTHAL. Ninety percent of this is spent here in the United States. Mr. TAOKLIT. But the loans that we give out at a lower rate- Mr. ROSENTHAL. But the point I was trying to make is that the peo- ple that sell wheat and corn, they want us to do that. PAGENO="0779" 771 Mr. TACKLIT. Well, we can look in terms of the area, geographically, that would be helped as far as populationwise that would be helped. Mr. ROSENTHAL. And one of the biggest advantages that we get from the balance of trade is in the sale of agicultural products. I might be inclined to agree with you, but I'm just telling you that these are the aguments we hear in Washington. Mr. TACKLIT. The other item that I'd like to mention is that you have an advantage in New York and also in the New England area, that these areas are allowed to have an interest paid on checking accounts, whereby we here in the rest of the IJrnted States do not have the opportunity to gain the interest on checking accounts. Also, we have many banks and institutions that have a mmimum rate on savings accounts to collect interest, and I think this should go back to the Banking and Commerce Subcommittee or committees to lift that. I know the Congress is presently talking about this, and I think ~t should be expanded so that we can get interest on our checking ac- counts and also have a lifting of the limitations on our savings accounts to gain interest. This would put more money in circulation, I think, and then we would have the interest to spend here and help the economy. Now, that might increase inflation, but it would also give the person more money, if we're working on a 13-percent inflation, and only, you know, getting a credit back on savings bonds and things at a lower rate. Mr. ROSENTHAL. Thank you very much; very thoughtful suggestions. Yes, sir ~ STATEMENT OP RICH GUERRIERO, YOUNGSTOWN, OHIO Mr. GUERRIERO. I am Rich Guerriero. I'm a Youngstown resident; I'm a teacher in the Brookfleld School District, about 20 miles north- east, junior high teacher of math. I'm here primarily to make a short statement on behalf of Ohio teachers. I'm from the Ohio Federation of Teachers, which represents a good portion of the teachers of Ohio. For instance, they represent Cleveland, Cincinnati, and Toledo, which is probably 12,000 teachers alone. Basically, we'd like to give our point of view toward the guidelines, and so I have a short prepared statement. Within the last year, salary settlements for public school teachers in Ohio averaged about 7 percent. The agreements hovered around that figure primarily because of two factors: (1) The desires and needs of the respective school district, as interpreted by management, and (2) the cooperative attitude and approach of the teachers and their rep- resentatives in regard to complying with President Carter's volunteer wage and price program, which was to be geared at easing and contain- ing inflation. The teachers of Ohio, along with other segments of society, do not believe that the President's program or approach is effective or work- ing. Also, it is unfair because it has kept wages and salaries down while prices have run rampant. Such an unfair approach affects the con- sumer economically and emotionally. Our approach for any future collective bargaining, unless there is a significant and positive change, will be to catch up with or supersede PAGENO="0780" 772 the current and projected rate of inflation. Double digit price increases and inflation rate can only cause double digit bargaining for salaries and benefits. If such an approach means a significant increase in labor unrest in the. public sector, we will consider it a byproduct of ineffectual and unfair government policies and practices as applied toward infla- tion containment and curtailment. That basically is the feeling of teachers I represent. I'm the president of a local; it's about 100 people, and about a third of them are from Pennsylvania, a third from other Ohio counties. So we do have a pretty good close approach as to how they feel about that particular item. I might just want to quickly make a comment relative to inflation. I think inflation has such a scope that I can't really address that except one segment. I also feel that it's a worldwide problem rather than just a national problem, and we're obviously affected by what the Federal Reserve Board does on interest rates, which our policies are based on, and so forth, and how those things are jockeyed around, as well as segments outside the country. But one thing I think is very important, and I just would like to emphasize, is that credibility of Government-I know that's a difficult thing; Government itself is a complex situation. However, to really be effective with inflation within the United States, it is certainly going to take the cooperation of the American people, and I think the American people are having a problem with credibility of Government. You look at the gas situation; that's going on right down the line, and very frankly, if the elected officials, Pres- ident Carter, ought to get ahold of the problem rather than let the problem get ahold o1~ them. I think they're going to have to be very honest and credible with the American people to solicit their cooperation. Mr. ROSENTHAL. Thank you very, very much. Yes, sir? STATEMENT OP JOE LOUIS TEAGUE, YOUNGSTOWN, OHIO Mr. TEAG1JE. Thank you very much. I would like to thank Con- gressman Williams and you,. Mr. Chairman, for giving me this op- portunity to appear here this morning. I think it's very nice to see so many people. People to me seem to have lost faith in our Government, and that is one of the things that's happened, and I can't explain it. There are severat things I'd like to discuss this morning. The Government has many acres of land in this country that is not being used. I would like very much, Congressman Williams, if it's possible, if you can draw up legislation to say if the Government owned this land it could let the people own this land or lease this land for a low rate in order to create more jobs in this country. Our biggest prdblem, not only in the vat ley, but in the country is we don't have the jobs we need. I feel by doing this it would not only change the inflation situation we're in, but it would probably change some of the various conditions we're living in. We talk about foreign aid; I think if we go and check the foreign aid spending we have in this country maybe we could change some of PAGENO="0781" 773 this. We are giving money to other countries, but yet we are seeing where senior citizens, people in the minorities, people are hardly living on a day~lby~day basis. You are the Congressman for this area. I'd appreciate it very much if you would take this thing under con- sideration when you go back to Washington. And find out another thing for me: Do we really have a gas shortage in this country? If we do not have a gas shortage in this country, who is controlling it? Who is stopping-I've seen gas stations that had closed signs up for half an hour and the next time you see it, they've got it open. There should be some kind of deal where if they've got gas in the ground, if they go where the price goes where they can make this extra cent-it woul~I be best if they could charge us $1.25 a gallon- $1.50 a gallon and get it over with because every time you go by a gas station, you're sure the gas price is going up day by day. If they're going to continue to increase it, let it go on and charge what. they're intent on charging us from the beginning. Excuse my expression. If the Arabs got the gas over there or the oil over there orwherever we're getting it from, if we sell them, we charge them the same identical price they are charging us; we're only human beings. We're only here for a short period of time. Nobody knows how long you're going to be here. We must start taking care of us first. Now, the United States has become a dumping ground for every other country. I don't say whether or not we should stop immigrants from coming into this country, but it's a shame to see where you have people that have worked all their lives in order to help this country to be what it is, and when they get disaibled or they're not able to pay their high gas and `utility bills that come before them, they've got to sit and suffer. This ~country wasn't based on this kind of thing. So, I ask you, ~and `I thank you. again, sir, for coming here. And I think it's very `good. Maybe before-this is the first time, I think, this has ever hap- penedinthis area. And I think it's time for the people to start getting a little more involvedin where your tax dollar is going. Thank you very much. Mr. ROSENTHAL. Thank you very much for your very useful statement. Yes, sir? STATEMENT OP HERBERT OSGOOD Mr. Oscoon. Herbert Osgood. I'm an advertising consultant and a layman and an amateur economist. I think the discussion has been largely attacking symptoms rather than the case, and there isn't any cause. The basic problem is inflation, and I would like to submit a few specifics for your consideration. Basically, you can't spend more than you take in without getting into trouble. This has been exactly our problem. There was a time when Franklin Roosevelt took over in 1933 when the country was absolutely desperate. It was necessary at that time to overspend in order to pull the country out of a catastrophic depression. Today that isn't true; we're spending more only because we've got in the habit of spending more. `Congress is very-Congress is just as PAGENO="0782" 774 guilty as any segment of the population. There are 500 Members in th~ Congress. The cost of Government is over $1 billion, which is almost $2 million for each Member of Congress, including your staffs and all the rest of them. I don't know what the comparable figure was a generation ago or 10 years ago or 5 years ago. It certainly is far more now than it was then, much more than the increase in the rate of inflation. And this just has been too great an escalation of costs. You asked for specifics: Congress has failed to pass any legislation for energy. Congress has failed to do anything about sunset laws. There are commissions and committees of one kind of another that were established by Congress a generation ago that are still being paid fantastic sums, and they never meet or they may meet once a year. We can't afford that kind of thing anymore. There was a time maybe we could, but certainly not today. Why- I don't know what the privileges of Congressmen are. I know that the Senators have far too many privileges and haircuts much cheaper than you can afford to sell it in your barbershop in Warren. Mr. ROSENTHAL. Mr. Osgood, I appreciate your saying this. Some- one has got to speak up for the poor defenseless Congress. You know, most of these things are absolute myths. There was a report in the paper, and it was on national television, that there's a pump in the Senate, where all the Congressmen are getting their gas. Well, it's just not true; that pump is used for Government-owned cars and none of us have Government-owned cars. We have increased our staffs; that's absolutely true. When I first came in 17 years ago, there were two people working in the office and now there are 12. They all work very, very hard. I think they're entitled to more money. We need more typewriters; we need more equipment. I don't know what we could do differently. We are spending in fact $1 billion a year to run the Congress. I don't know where you would cut down. We really don't have any of these Mr. OsGooD. What percentage of your staffs get free parking com- parison with the percentage of employees in United States Steel, for example? Mr. ROSENTHAL. Everybody gets free parking. Mr. OsGooD. Everybody gets free parking. Well, that's a cost of Gov- ernment that the American public is paying. Mr. WILLIAMS. Can I say something, Mr. Osgood, and you may not agree with this, but we've been told by economists throughout this country that if we. balance. the Federal budget tomorrow, it would reduce our inflation rate by less than 1 percent-in the face of a 13- percent inflation rate. Mr. ROSENTHAL. That's what we had from a distinguished economist. Mr. WILLIAMS. These are economists telling us that the Federal Government is at fault; that in part is true, but to the tune of only 1 percent of the 13. Mr. OSGOOD. Well, so that still represents 8 percent of the Mr. ROSENTHAL. That doesn't mean we shouldn't make an effort. We're not saying that. Mr. WILLIAMS. I'm not defending that. Mr. OSGOOD. What about-elections are too costly. How much does it cost to get elected to Congress? PAGENO="0783" 775 Mr. WILLIAMS. Too much. Mr. ROSENTHAL. A lot of money. Mr. OsGooD. It's absolutely insane. Mr. ROSENTHAL. You're right. Mr. OsGooD. Another specific that I would like to recommend is to reduce the benefits that the oil companies enjoy in their income taxes. The average oil company is not paying income taxes because they're paying what they call a royalty tax. Mr. ROSENTHAL. You're absolutely right. This committee held hear- ings on that. In the last 5 years they've taken $17 billion in tax credits that are in fact royalties. Mr. WILLIAMS. Mr. Osgood, I've promised to get the chairman out of here by 12:30. We want to save time for someone- Mr. OSGOOD. Thank you very much. Mr. ROSENTHAL. I don't know if we can do any more. Mr. TEAGIJE. I don't know about the 6.7 percent-the 67 cents a gallon that the Congressman just- Mr. ROSENTHAL. They don't-they don't- Mr. TEAGnE. See, we must rely upon the news media to tell us the truth. Mr. ROSENTHAL. They don't tell you the truth. They're as bad as the Congressman. [Laughter.] I know that somebody talked to me on Sunday. I don't even know if today is Monday. Somebody accosted me, a friend of mine and abso- lutely swore up and down that what we were getting was at. 67 cents. That's for Government-owned cars. I think we ought to knock that pump out of there. That's for all the Postal trucks, all the Capitol Police, all the rubbish trucks. Mr. WILLIAMS. It's not Members of- Mr. OSGOOD. Let me make one more suggestion that I overlooked. Mr. ROSENTHAL. What we need is an advertising agency in Congress. Mr. OsGooD. I- Mr. ROSENTHAL. We've got to quit in about 1 minute. Two people. You don't want me to miss that airplane, do you? Thank you very much. Make sure you give your name. STATEMENT OP RUSSELL BANNER Mr. BANNER. Mr. Chairman and Mr. Williams, I'm Russell Banner. I am the treasurer of the local school district, and I'm also the clerk of Liberty Township. I'm not representing either one of those coming down here. I was a little misled. I though this might-I thought this was other than the monetary things, the wage-price guidelines of the Government that the President has, the permission ones. I don't think permissive guidelines will ever work and neither do I think that man- datory ones will ever work. I've lived long enough to have lived through several of them and in every case they have not worked very effectively. I am most con- cerned about some of the inflation and I have a short statement that I'll make here. It wasn't made for this particular reason, but it fits the kind of thing you'd like to say. Mr. WILLIAMS. Why don't yousubmit t.hat for the record. Mr. BANNER. I'd submit. it as it. is, but I can't leave this guy's name on it. PAGENO="0784" 776 No. 2, I do not believe that there is an energy shortage; the shortage is in Washington, and there is an excess of regulations at all levels of Government. The EPA regulations are destroying the economy in the United States. They are responsible for 70 percent of the inflation through regulatory controls, many of which are unnecessary and are extreme to the point where no benefits are obtained. The powerplants in the United States should be fueled by coal, water, or nuclear power. We should be constructing breeder reactors, which should be placed in large cities; and heat which is now wasted by cool- ing towers should be used to heat our cities. The oil should be used only for peakload and not to reheat fuel gases hot enough to go out and stay-each unit in the Ohio Edison plant on the Ohio River requires 10 million gallons of oil per year just to reheat the gases to get them to go out of the stack after they run through all the regulatory requirements of the EPA. Federal judges' authority should be limited to constitutional author- ity to render a judicial decision and not usurp administrative preroga- tives that-such as ordering school boards to spend millions of scarce tax dollars and millions of gallons of fuel to bus students across town for racial balance. They're stupid controls and regulations that have taken 23,000 oil wells out of production. In California alone, the EPA regulations re- quire 5 percent more crude oil to produce unleaded gasoline and as destroyed or prohibited the construction of new refineries for the past 10 years and pipelines to lessen the cost of transportation to get crude oil to where it can be processed more economically. The cost of Sohio's efforts to build a terminal in Long Beach at a cost of $58 million for 166 permits and a proposed $78 million for a tradeoff on pollution controls, on an oil-fired powerplant-if all oil were given at the current price, production would increase so that the OPEC countries would soon bring the price down to the correct price range so that-so as to increase the number of barrels sold to provide the total number of dollars they have been accustomed to use. I think that's one of the worst things that we ever did in this coun- try is to put that kind of controls on. The controls can be used in other areas in other ways, but to put that kind of price on-recently around Trumbull County we have some oil and gas wells being drilled. Cur- rently, there's two online, but they're all not in production yet. And as far as I'm concerned, I don't care if they use any oil or gas, as long as those controls aren't on there; those controls should be lifted prior to that time. I think the way we get away with that-later on I'll point that out. I'm opposed to laws enacted by Congress that give regulatory agen- cies the authority to make rules and regulations by publishing them in the Federal Register and provides for full, effective law without con- gressional hearings. This is unconstitutional, in my opinion. Only Congress should make laws so that they would be held respon- sible at the ballot box. I cannot believe we are still giving away $7 billion in foreign aid each year to countries that hate our guts. I'm opposed to paying to give the Panama Canal away and buying a peace treaty between Egypt and Israel, PAGENO="0785" 777 I'm opposed to special legislation that makes it possible for people to live at a standard that would take away all incentive to be produc- tive members of society. The SALT Treaty is a continuation of a procedure that was started by FDR at Yalta, and it is intended to destroy the American way of life and pay for the privilege of doing so. If the rest of the work force of the United States was as productive as the 6-percent of the population who are farmers, we could increase our standard of living by 300 percent. The urban sprawl and the loss of many acres of valuable farmland is the direct responsibility of politicians who have permitted the decay of inner cities by fiscal mis- management. I want to say one other thing, though, about the powerplant to be constructed out at the Four Corners, out at Utah, Colorado, and so forth. For 15 years those people tried to build a powerplant and they've finally given up. And one of the reasons they gave it up was they couldn't even build a powerline because there was this small prairie dog family in that area, and they said that if they put that powerline in, that would elimi- nate that endangered species. But out on our property we have a 345-kilowatt or-345,000-volt powerline and the hawks roost on it, so that powerline can't hurt those animals. They're a lot closer to it than the prairie dogs will be clear down under the ground. I think these are the kind of things we have that should be changed. And I know you people have a heck of a job because you've got a lot of people like the Naders who are coming down there and, you know, they're the ones who generate all the news media pictures showing what they're doing. They're the people who are trying to destroy our country because they want to stop all kinds of improvement. i\'Ir. ROSENTHAL. I don't think they're the only people. In upstate New York they tried to put through a high voltage electric line, and the farmers were violent about it. Mr. BANNER. I understand that. Mr. ROSENTHAL. They were absolutely violently against it; they didn't want it there. They thought it was unsafe. So I really don't know. Mr. BANNER. I think the problem is- Mr. ROSENTHAL. One of the problems we have is balancing out every- one's interests. Mr. BANNER. Well, if you don't know-the refineries built-and par- ticularly north of New York City all the way to Maine. Mr. ROSENTHAL. Yes, sir. STATEMENT OP ALDEN CUMMINS, EXECUTIVE DIRECTOR, HEALTH SYSTEMS AGENCY OP EASTERN OHIO Mr. CtmIMIN5. Alden Cummins, executive director, Health Systems Agency of Eastern Ohio, created under Public Law 93-69, which is expiring this year. The health systems agency concept is to allow the whole community to, among other things, fight inflation and costs and become competitive in the framework of fringe benefit packages. 52_21L~ 0 - 79 - 50 PAGENO="0786" 778 By having the community, the local community devise a plan by which it has its excess health care facilities reduced, it has become dif- ficult because of the lack of exemption from' antitrust and antimonop- olistic behavior toward such agreements. I submit that in the local HSA area we have on the average 240 empty beds every day. The Health Systems Agency of Eastern Ohio can work with the community and the hospitals to reduce this inflation producing unused capacity, maintained but unused capacity, so long as, one, the law for health planning is renewed, and two, it is clear that they may do so through the Health Systems Agency without becoming vulnerable to anticompetitive behavior charges. Mr. ROSENTHAL. Thank you very much. [A document submitted by Mr. Cummins entitled "HSA of EO, Statistical Supplement 1, February 1979" may be found in subcom- mittee files.] STATEMENT OP WILLIAM GEORGE Mr. GEORGE. Sir, my name is William George and I am a local busi- nessman. I have a bakery. I'm very much enthused at seeing Mr. Rosen- thal and Mr. Williams have a meeting like this. I have two points to make: Or~e of them happened to me this morn- ing. On the way down to the hearing-I believe the two things that are needed, as was pointed out by all the peoplehere today-everybody has their way of saying something. Ms. Fon~la has something to say. Mr. Nader has something to say. I think that the Federal Government, if they would educate the people to their way of thinking-you know, Mr. IVilliams knows that the electric line going through the farmland isn't going to hurt anybody. Ms. Fonda went out there and said: "This is going to hurt them. This is going to hurt them." But the Government is not going to say a word. The reason why half the people in Virginia said they didn't want the refinery is not because the Government ~iidn't say it wasn't going to be good for them. The Government didn't put uptheir point of view; the Government didn't send down a' man, anybody, to say, "Look, this is what it's going to do foryou. This is what you're going to benefit from it; this is what you're going to have." All they had was "anti" people walking around with signs and placards saying "We don't need this thing." The public listened to them. The Government isn't taking the time. Public relations men, we have millions and millions of people in poli- tics and iniflions and millions of people in advertising like the man here, the pub]ic relations man, that could go out and explain the Gov- ernment's side of the situation. The other point I have to make: All you have to do with all the things that are going on here is enforce the laws that are now in exist- ence. You have antitrust laws that were thought up by geniuses, sup- posedly, that took many, many years and many, many hours of thought. All they have to be is enacted. You have a man' that has' something going on with his gas well and right away he ups the price of his gas, `and you don't do anything about it. Enforce the laws that we have. The Government of the United States w~s founded on all kinds of laws, probably the finest in the world. All we have to do is enact them. PAGENO="0787" 779 Mr. ROSENTHAL. OK. Mr. GEORGE. The one point happened today. You see it? You see it? You see it right here. $2.29. Now, I would like to raise my doughnuts the way this company and the way the oil companies raise their gas. Mr. ROSENTHAL. Why don't you do that? Mr. GEORGE. You know what you'd be paying for a dozen doughnuts? I'll take you down there right now. You'd be paying $7.30 if I used the same percentage rate that the oil companies used. You know wherE I would be? I would be out of selling doughnuts. I would be up at the unemployment office looking for a job, sir. Enact the laws that we have and use them, enforce them. Mr. ROSENTHAL. Thank you. Congressman Williams- Mr. GEORGE. Did you want this? Mr. ROSENTHAL. No, it's too expensive. Mr. GEORGE. $2.29 for one pound. Mr. WILLIAMS. I just want to conclude this hearing by once again thanking the chairman for taking time out of his busy schedule to include Youngstown in these hearings. As I told him-what I told him would happen did happen; we had excellent testimony from indi- viduals who are touched by inflation. I must tell you-and I think the chairman would agree-the testi- mony is very similar to other areas of the country that we've already visited, and I assure you under the chairman's direction, the message in the documentation of the testimony that we've obtained on these hearings will be presented to Mr. Kahn very shortly. Hopefully we're going to be able to make some corrections-we're going to begin to make some recommendations that you directly were involved in. I want to thank you all for coming. I'm sorry the time was limited, but I think we've heard from everyone that wanted to talk. Thank you very much. Mr. ROSENTHAL. The subcommittee stands adjourned. [Statement of Anthony C. Juliari submitted for the record follows :1 OFFICE OF CONSUMER AFFAIRS, * Youngstown, Ohio, June 18, 1979. PUBLIC TESTIMONY-INFLATION Without going into economic rhetoric, let me state the American households of all backgrounds, will react to the continued threat of inflation, energy, and business profit increases.. With inflation running over 13 percent, fuel costs increasing, coupled with the threat of shortages, the consumer and his representatives will demand develop- ment of policies to lower price inflation. The largest single factor causing the escalation of inflation is the continuing rise in the cost of gasoline. The rise in cost of transportation forces the price increase of most human necessities. A vast majority of Americans are advocating consumer education as a solu- tion. Consumer education is the instrument which arms the individual with the knowledge and self-confidence needed to choose to spend or to conserve avail- able resources. Essentially a preventive, tool, consumer education can make the difference between ignorance and effective use of resources. It encourages re- sponsible consumer behavior, stimulates scrutiny, industry decisions, and public policy. Consumers are no longer content with the role of voting for public offi- cials. Citizens now initiate petitions for reforms and contribute information to public officials. Consumer education has been rescued from the image of smart shopping in the market place and is now a central ingredient for living in Ameri- can society. PAGENO="0788" 780 Regulation on the one hand and education on the other are both called for. An abusive situation in the market place may require regulation because the problem will not correct itself. However, a regulation cannot rest on a shelf and still be helpful. Each consumer can be an enforcement advocate of laws or regu- lations for a more cost-effective approach. If consumers are to succeed they must claim much more of the power of decision-making processes which now reside with industry. Consumer dispair has given way to involvement. We are in the midst of a humanistic revolution. Public influence to change in a positive direction will succeed in achieving a higher standard of living and human existence. Canadians who buy new cars are now given three-year or 74,000-mile war- ranties and one-year or 24,000-mile warranties against surface corrosion. The American public challenges the automobile companies to give American car owners the same warranty protection against rust and corrosion that is given to Canadian car owners. Pride and workmanship made America a great nation. It will be necessary to restore the pride in individual effort, which is really the priceless ingredient in our effort to stem the tide of inflation. We commonly associate workmanship with labor or with tools and machines, but-the principles can be applied by the exec- utive at the desk, the cashier in the store, the attendant at the filling station- or by those who perform services. "More and better" is the public cry. We can proceed by the following action for starters: Establish a federal consumer education policy which directs federal agencies to institute and update consumer education programs, including compensation for consumer participation and which charges the federal agency for consumer pro- tection; to assume responsibility for coordinating federal and local consumer education activities; and to provide opportunities and results to the public. ANTHONY C. JULIAN, Director. [Whereupon, at 12:38 p.m., the subcommittee adjourned, to recon- vene subject to the call of the Chair.] PAGENO="0789" ADEQUACY OF THE ADMINISTRATION'S ANTI- INFLATION PROGRAM (Part 2-Dallas, San Francisco, Sacramento, Detroit, Chi- cago, New York, Youngstown, and Washington, D.C.) THURSDAY, JUNE 28, 1979 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2247, Rayburn House Office Building, Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding. Present: Representative Benjamin S. Rosenthal, Robert T. Matsu1, and Lyle Williams. Also present: Representative Jack Brooks, chairman, Committee on Government Operations. Staff present: Peter S. Barash, staff director; Herschel F. Clesner, chief counsel; Donald P. Tucker, chief economist; Eleanor M. Vanyo, secretary; and Jack 0. Shaw, minority professional staff, Committee on Government Operations. Mr. ROSENTHAL. The subcommittee will come to order. In early February of this year the Commerce, Consumer, and Mon- etary Affairs Subcommittee held 3 days of hearings in Washington into the effectiveness of the anti-inflation program and the adequacy of the staff resources available to the Council on Wage and Price Sta- bility-COWPS-to monitor and enforce compliance with the wage and price guidelines. During May and June, the subcommittee held regional hearings in seven cities to examine the impact of inflation on the day-to-day lives of our citizens and to determine whether regional Federal officials and State and local officials are active in the fight against inflation. The February hearings raised serious questions as to the ability of the small COWPS staff to monitor and take action against excessive price increases by our Nation's 1,400 largest corporations. The hearing also called into question the usefulness of the guidelines themselves because they exclude from their operations the most inflationary sec- tors of our economy-raw energy and food prices, housing and inter- est rate, and health care costs. The regional hearings just concluded by the subcommittee raised further doubts about the adequacy of the present anti-inflation effort. (781) PAGENO="0790" 782 First, officials of five separate Bureau of Labor Statistics regional offices testified that. there is no statistical evidence whatsoever t.hat the guidelines are working to moderate inflation. Second, State. governments seem to be ignoring advice from Wash- ington on how to assist in the fight against inflation. State. officials told the subcommittee that they have failed to implement many of COWPS' most important recommendations on ways for States to corn- bat inflation, such as requiring State contractors to certify they are in compliance with the wage/price guidelines, and by establishing State anti~ii~flation councils. Third, representatives of the elderly, the poor, and middle income families told the subcommittee that they have run out of ways to cope with inflation. A 62-year-old ironworker in Detroit testified that his decision to postpone retirement for several years, because of inflation, would keep thousands of young people wait1ng for jobs like his, unem- ployed and, perhaps, on welfare. Middle income couples testified that they had applied for food stamps in order to feed their families. A mother in New York had to keep her daughter home from the school prom because she couldn't afford to buy her an appropriate dress. It is clear from our regional hearings that the American people are desperate for solutions to the inflation problem. They are looking for leadership from Washington. This hearing is `being held to assess the successes and failures of the anti-inflation program. At the conclusion of our February hearing, Mr. Bosworth agreed that we would be able to tell "more about how the monitoring has gone after [the] first 6 months interval." "In May," he said, "we would have a much better feel for what our diffic&ties have `been and whether or not we have been successfully able to account for t'he price increases." We hope that Mr. Kahn and Mr. Bosworth will be able to speak candidly about their "difficulties" and tell us whether they intend to stick with the present program or undertake new initiatives and direc- tions for the purpose of improving the anti-inflation effort. We are pleased that both of you could `be with us. Mr. Kahn. I assume von should go first as chairman of the Council on Wage and Price Stability. STATEMENT OF ALFRED E. KAHN, CHAIRMAN, COUNCIL O~ WAGE AND PRICE STABILITY Mr. KAHN. Thank you, Mr. Chairman. It has been 4 months since I last appeared before you to discuss the status and prospects of the administration's anti-inflation program. Those months have not been easy. But for one powerful adverse factor-oil-there is reason to believe they would have proved to be the 4 most difficult months we will face in this entire effort. At first, we found ourselves suffering the inflationary consequences of an economy far more overheated than anyone `had predicted even a half-year ago. The resulting excess demand placed strains on the vol- untary wage and price standards far more severe than t.hey were in- tended to `bear. PAGENO="0791" 783 Signposts of this overheating were monthly price increases of 4 to 10 percent, and sometimes even more, in the prices of such raw mate- rials as steel scrap, copper, lead, and cement, which are sure signs of excess demand. Next, in the last months of last year and the first months of this one, we suffered an enormous and painful increase in food prices. These were paced by beef, which for most of the time accounted for at least 50 percent of the total-a consequence, primarily, of sharply increas- ing demand running up against a fixed supply. Our cattle herds have declined from 132 million to 111 million over the last several years, and only now is it proving profitable to begin to build up the herds. Not even the weather was cooperative. Too much rain here, too much cold there, left us with temporary shortages of fruits and vegetables; and contributed further to the upsurge in meat. Finally, of course, there was-and, unhappily, continues to be- OPEC. The 14l/2-percent price increase over the course of 1979 that they announced at the end of December, with an initial installment of one-quarter of that amount, now, of course, looks like nirvana com- pared with the increases that they have actually announced. The interruption of Iran's supplies, their only partial return to normal, and the failure of Saudi Arabia to step into the breach, made matters first bad, then much, much worse. This has been by far the greatest single contributor to inflation. Indeed, this is the most trou- blesome part and the most powerful contributor to both inflation and now the fear of stagnation, by virtue of the tens of billions of dollars that it is withdrawing from our own spending stream. I can think of only two bright aspects of this picture so far. The first was the extraordinary success of the drastic measures that were announced on November 1 to protect the foreign exchange value of the dollar. Since the depreciation of the. dollar in terms of foreign currencies was itself making a powerful contribution to inflation, its recovery and stabilization clearly worked in the opposite, favorable direction. The second was the high rate of compliance with the President's wage and price standards during those first 4 and 5 months of the program. Clearly, one could have hoped t undertake a major anti-inflation program under more congenial circumstances. How do things look today? In some ways much better. Food price increases have abated noticeably, and it appears they will continue to lag behind the CPI for the rest of this year. Overall demand pressures have begun to ease as monetary and fiscal restraint have begun to take effect. We sa~- the first inkling of this in the May Producer Price Index, which showed the rate of inflation in finished goods slowing for the first time this year, in spite of the enormous increases in energy prices. Prices of scrap steel, natural rubber, and copper have actually declined. I think it is possible to say that~ the President's policy of restraint was beginning to pay off, and may still be. But. there are three major clouds on the horizon now. PAGENO="0792" 784 Th~ first is OPEC. It is clear that the worst is yet to come. The oniy silver lining is that the latest extortions may have the good effect of bringing us closer to the resolution we need to put our energy affairs in order here at home. Meanwhile, however, the effect has been to give us a terribly pow- erful jolt. The order of magnitude of increase in the price of oil, as I understand it, is now over 50 percent since last December. The sta- tistics themselves demonstrate that in the May CPI, which rose at an annual rate of over 13 percent-13.4 or something like that-en- ergy alone put us over~ the double-digit level. If you took energy out, you would already be below the double-digit level. There is, therefore, this very powerful push we are getting from energy prices; and, of course, they are also increasing the danger of a recession. That is the first major cloud. The second major cloud is this. We are now confronting the con- sequences of the double-digit increases in the price indexes that we experienced in the months just past in two ways. Sharp increases in raw material prices during the months behind us and in petroleum prices in the months both behind and ahead now work their way through the system in the form of higher costs. They may be expected to generate. continued pressures from the cost side for increased prices, even as demand abates. We also continue to experience strong pressures on the wage front to compensate for those several months of double-digit inflation in the CPI. The challenge before us now is to keep the recent price surge from being built into the basic wage and cost structure. If that happened, it would hold our underlying rate of cost inflation in the months and even years ahead dangerously close to double-digit levels-a danger accentuated by our poor performance on the productivity front; something like a zero percentage increase in productivity, currently. The final cloud, of course, is the danger of recession. It has always been clear that monetary and fiscal restraint would contribute to a slowing in the rate of growth of GNP. It is not my job in the admin- istration to assess those prospects. Other members of the administra- tion will be presenting their latest projections next month. All I can say with authority is that, first, they have continued to believe that we could exercise this restraint without getting into a recession. Second, the latest sharp increases in OPEC prices have, by withdrawing tens of billions of dollars of purchasing power from our economy, increased the hazards. The inflationary tendencies are so deeply ingrained in our society, however, that we must persevere. The core of our policy is and will remain monetary and fiscal restraint. On the latter front, the `Congress has thus far given us gratifying support. The wage and price standards will play an increasingly important role, however, first, in trying to keep recent price increases in food, energy, and basic raw materials out of the underlying cost/price structure. Then, as total demand continues to abate they will try to maximize the benefit in the form of reduced prices rather than re- duced production. This part of the program constitutes an enormous challenge. When I testified before you last February, our enforcement of the price PAGENO="0793" 785 standards was just getting off the ground. We had just finished issuing revised standards and were only then receiving base period price in- formation from about 750 companies. We have now completed that process. We have eight additional sets of specific standards for such individual industries as insurance, bank- ing, and electric utilities. We have received and processed base period filing from more than 800 companies. With the extension of monitoring to smaller companies, we are currently processing reports on price actions from about 1,500 companies. Using these data and information from a wide variety of other sources, we have, over the course of the last few months, completed over 700 investigations of troublesome price increases. These investigations have led us to a second tightening of the price standard since we last talked to you. We can talk about that when we talk about the proft margin standard. In addition, a number of companies, including Giant Foods, Scott Paper and another paper company, Sears Roebuck, Alcoa, Anaconda Corp., I~eanza Corp., and Flintkote Co. have rolled back or deferred price increases in order to assure compliance. We have made progress in our campaign to expand the anti-inflation program to encompass the activities of State and local governments. When I testified before you in February, that program was in the final stages of preparation. Today, all States but one have pledged compliance with the wage- price standards, as have 70 of the 75 local governments we are monitoring. The States have been taking the. initiative on other anti-inflation fronts as well. Some States are specifically using procurement now as a condition of obtaining State contracts. Most of them, we understand, are await- ing the resolution of these court suits which are before us right now. The Supreme Court sat yesterday to decide whether to grant certiorari in an appeal from the circuit court of appeal's decision upholding the use of procurement, and they have called for briefs by Saturday on the ~question of whether there should be an expedited hearing. Continuing with the initiative of States on other anti-inflation fronts, Florida and Michigan have explicitly made compliance with the standards a condition of obtaining State contracts; Illinois has set up a Health Finance Authority to develop a hospital rate system; and, New York has established an Office of Building Permits to stream- line licensing. On the regulatory plank in the. President's program, the Regula- tory Council has issued its calendar of major rulemaking proceedings coming up this year; and the Regulatory Analysis Review Group is in the process of selecting the most important ones for special scrutiny. The Council on Wage and Price Stability has continued its interven- tions in regulatory proceedings where, it appears that costs may not have bee.n taken sufficiently into account. I do want to emphasize again that on the regulatory front we have been continuously functioning. Since I last testified before you. there have been 14 new filings by the Council on Wage and Price Stability, PAGENO="0794" 786 all of them looking at ways to keep inflation in check and attacking it. I have given you a list which I think you will find interesting. Mr. ROSENTHAL. Yes, thank you, Mr. Kahn. It will be inserted in the record with your entire statement. Mr. KAHN. Issues like these are not usually dramatic. To take one example, Trailways has petitioned to the ICC for a total opening of access into the bus business this summer. We have reason to believe that if the ICC gave it to them we would get reduced bus rates, and it might help us on our energy problem and help the people who are worried about the adequacy of gasoline. That is not going to show up dramatically in the Consumer Price Index anymore. than our testi- mony on behalf of the trucking deregulation; but we think that for the long haul we have to push in the direction of eliminating these Government restrictions on competition in order to increase both effi- ciency in the industry and productivity which is, after all, one of our basic problems. Our interventions do not pay off, therefore, in immediate visible ch~nges in the CPI. They are, however, of the utmost importance in our long-term effort to combat inflation. We are dealing with a deep- seated and pervasive disease, and a central part of our attack on it must be a sustained attack on all upward pressures on costs. Most prominent among our goals must be structural reform of our markets, in order to build into them reliable, continuing pressures to improve efficiency and reduce prices. I know of no more powerful force of this kind than competition. For this reason, I do place. great emphasis on the administration's trucking deregulation bill announced last week as well as our bill, already; introduced, to deregulate the railroads; and we hope to participate in~ the months ahead in similar efforts for buses and in the field of communications. A final, major activity in which my office has been heavily engaged is our continuing campaign against inflationary programs and policies throughout the Government. Much of what we have been doing here arises out of our working groups in the fields of food, housing, and medical care. Progress here, I confess, comes very slowly. In the area of food, we worked with the Department of Defense, Agriculture, and the VA to make their food purchasing policies more sensitive to changes in prices; this resulted in a 25-percent reduction in their beef purchases this year and next. We have alerted Congress and the Treasury Department to the in- flationary consequences of applying the antidumping laws to imports of fresh winter vegetables from Mexico. I think the Council on Wage and Price Stability has written-I have forgotten if it was I or Mr. Schultz-to the Treasury Department on this subject; and it may be a subject for congressional action because it raises the question of whether the antidumping laws were intended to apply to fresh fruits and vegetables. We are talking about a big item in the consumer budget during the winter. Therefore, I commend it to the subcommittee's attention. We also played a role-a small one-in the decision by the Com- modity Credit Corporation to reduce the price at which it resells dairy products from its stockpiles from 110 ~to 105 percent of parity; and, in another decision by the Secretary of Agriculture a couple of PAGENO="0795" 787 months ago, to reduce the dairy support price from 80 to 78 percent of parity. In the area of housing, we played a role in the recent decision of the President directing the Secretaries of Interior and Agriculture to explore the possibilities of increasing timber harvests on Federal lands in order to help ease the upward pressure on lumber prices. Lumber makes up one-seventh of the cost of a new house. We are still working on our broader housing program. I will be meeting with Secretary Harris on this subject within the next 2 weeks. In the area of health, three anti-inflation initiatives were included in the President's national health insurance package as a direct result of our efforts. One was a proposed limit on hospital capital expendi- tures which is a major source of the inflation of hospital cost. Another was to require competitive bidding for medicare administration. A third would permit reimbursement of medicare recipients for care provided by HMO's. Mr. Chairman, no one is going to claim that our anti-inflation pro- gram so far has been a resounding success. The 13.9-percent annual rate of inflation we have experienced in the last 4 months from January through May has been a deep disappointment; worse, it has been ter- ribly painful for the American people. It is very important, however, to observe how heavily this dismal record has been concentrated in three areas: Food, energy, and home ownership. When one excludes these, the increase in the Consumer Price Index in this period drops from 13.9 to 7.3 percent. This fact does not make the inflation we have suffered less painful. It does shed a very powerful light on the question of the proper remedy. The sharp inflation in food during the first part of the year occurred, preponderantly, at the farni level in the prices received by farmers. These went up at a 50-percent annual rate in the first 3 months. Prices at the farm are essentially competitively determined; they have gone up, primarily because growing demand has outstripped supply. In saying this I do not mean to underestimate the importance of Government acreage limitations and price supports, but I think that what I have said is basically correct. These prices-at the farm-are not covered by the President's pricing standards for good reason. We are still paying the price today for the last time we imposed controls on the price of beef. The attempt to limit inflation in competitive markets by imposing price controls can only he self-defeating.; it will create shortages and make them worse in the long run by interfering with the expansion of supply. You will find motorists lining up at beef counters with their motors idling for an hour in order to get beef just as they are now doing for gasoline, and in the long run it will interfere with- Mr. ROSENTHAL. I am sorry to interrupt you but I do not understand what you said about farm prices. High farm prices have been the cause of retail food increases? Mr. KATTN. The principal `cause of the increases in the retail food prices has been high farm prices. Mr. ROSENTHAL. That is not what Mr. Bosworth says in his state- ment on page 2. He says, "The moderation in farm pricing- Mr. KAHN. I say that on page 13, and I am now on page 12. I am coming to that right now and I will answer your question by saying, PAGENO="0796" 788 "Here it is." I said that in the 3 most serious months, farm prices-at the farm-went up at a 50-percent rate. In the last 2 months it has shifted. In both the April and May CPI, the farm value of food actually declined as did beef and veal prices at the wholesale level for the month of May. The 3.0-percent increase in beef and veal prices in the May CPI has, therefore, raised very serious questions in our mind about the level of retail margins on beef particularly and of process- ing and distribution margins generally. The Council has launched an intensive investigation of this sector to determine why the decreases we are seeing at the farm the last 2 months are not being reflected on the supermarket shelves. The pressures of demand on supply are, I submit, the principal cause of inflation in the cost of energy, too. I am not in a position to answer the questions that have been raised in recent weeks about whether the American oil companies have con- tributed in any way to the shortages we are now experiencing. I be- lieve, however, our fundamental problem is that our increasing de- mand, particularly for oil and petroleum products, has outstripped our own domestic supply capacities and exposed us to exploitation by an international cartel. * While I confess that I tried to exert my influence to delay the de- control of domestic oil prices because of the critical inflationary juncture in which we found .ourselves at the time, I also confess that I believe price controls are not the proper solution to the problem any more than in the case of food. Every gallon of oil and gasoline that we consume has to be replaced, and the replacement cost to the American economy is the price that the international cartel is charging us. To the extent that product prices have increased even more than the price of crude oil, the fundamental reason, I am persuaded, is that the cartel is keeping a tight limit on total supply. Holding our domestic prices down will only ensure shortages, waiting lines, and an increased dependence on the international cartel and exposure to its exactions. The ultimate solution to our energy problem is not price control but finding ways to limit our consumption and making a resolute at- tack on developing alternative sources of supply-something that we have shamefully delayed during the lastS years. To alleviate the hardship of increasing real energy costs on poor people and to help us finance this necessary exploration of alternative energy sources, we must have a windfall profits tax. If we are not satisfied in these circumstances with letting price ration limited sup- plies, then we must develop some equitable plan for direct control of consumption but not by imposing price controls. I believe, similarly, there is no point in trying to impose price controls on the sale of existing houses. The soaring costs of medical care, from which we have also been suffering disproportionately in recent years, calls for a different kind of special remedy. It calls for Congress enacting a hospital cost con- tainment bill in the short run, and for a concerted attack, at both the Federal and State levels, on our inefficient mechanisms of planning for the installation of costly new medical facilities and on our irrational systems of delivering and paying for medical care; and we are attack- ing those. PAGENO="0797" 789 The significance of the 7.3-percent increase in the rest of the Con- sumer Price Index is that where the wage and price standards can intelligently be applied they have been reasonably effective. It is a small consolation, but it is a reason for hope of eventual success. The path we are travelling, I believe, is the correct one. But for OPEC, as I have observed, we would already be seeing the results in a damping of the inflation rate. The OPEC problem is one that we must confront directly. For the rest, the watchword must be not panic, but patience, not indulgence, but restraint. I know of no easier solutions; but, as always, I am anxious to hear your suggestions and happy to try to answer your questions. Mr. ROSENTHAL. Thank you, Mr. Kahn. [Mr. Kahn's prepared statement with attachments follows:] PAGENO="0798" 790 TESTIMONY OF ALFRED E. KAHN CHAIRMAN COUNCIL ON WAGE AND PRICE STABILITY BEFORE THE SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS OF THE * COMMITTEE ON GOVERNMENT OPERATIONS JUNE 28, 1979 PAGENO="0799" 791 Mr. Chairman and Members of the Subcommittee, it has been four months since I last appeared before you to discuss the status and prospects of the Administration's anti-inflation program. Those months have not been easy. But for one powerful adverse factor -- oil -- there is reason to believe they would have proved to be the four most difficult months we will face in this entire effort. At first, we found ourselves suffering the inflationary consequences of an economy far more active than anyone had predicted even a half-year ago. The resulting excess demand placed strains on the voluntary wage and price standards far more severe than they were intended to bear. Signposts of this overheating were month~ price increases of 4 to 10 percent, and sometimes even more, in the prices of such raw materials as steel scrap, copper, lead, and cement -- sure signs of excess demand. PAGENO="0800" 792 Next, in the last months of last year and the first months of this one, we suffered an enormous and painful increase in food prices. These were paced by beef, which for most of the time accounted for at least 50 percent of the total -- a consequence, primarily, of sharply increasing demand running up against a fixed supply. Our cattle herds have declined from 132 million to 111 million over the last several years, and only now is the decline arresting as cattle raising has become once again profitable. Not even the weather was cooperative. Too much rain here, too much cold weather there, left us with temporary shortages of fruits and vegetables, and contributed further to the upsurge in meat. Finally, there was -- and, unhappily, continues to be -- OPEC. The 14 1/2 percent price increase over the course of 1979, announced last December, with an initial installment of one quarter of that amount was the first blow; the interruption of Iran's supplies, their only partial return to normal, and the failure of Saudi Arabia to step into the breach made matters first bad, then much, much worse. This has been by far the greatest PAGENO="0801" 793 single contributor to inflation -- indeed, to both parts of the unhappy combination of inflation on the * one hand and stagnation on the other -- during the last - few months, and the end is far from in sight. I can think of only two bright aspects of this picture. The first was the extraordinary success of the drastic measures announced on November 1 to protect the foreign exchange value of the dollar. Since the depreciation of the dollar in terms of foreign currencies * was itself making a powerful contribution to inflation, its recovery and stabilization clearly worked in the opposite, favorable direction. The second was the high rate of. compliance with the-President's wage and price standards. Clearly, one could have hoped to undertake a major anti-inflation program under more congenial circumstances. How. do things look today? In some ways much better. * Food price increases have abated noticeably, and it appears they will continue to lag behind the CPI for the rest of this year. * Overall demand pressures have begun to ease, as monetary and fiscal restraint have begun 52_21L~ 0 - 79 - 51 PAGENO="0802" 794. to take effect. We saw the first inkling of this in the May PPI, which showed the rate of inflation in finished goods slowed for the first tine this year, in spite of truly enormous energy price increases. Prices of scrap steel, natural rubber, and copper have actually declined. Indeed, I think it was possible to say that the President's policy of restraint was beginning to pay off, and may still be. But there are three major clouds on the horizon. The first is OPEC. In all probability, we have not seen the end of oil and petroleum product price increases this year -- indeed, the worst may be yet to come. The only silver lining is that the latest extortions may have the good effect of bringing us closer to the resolution we need to put our energy affairs in order here at home. Meanwhile, however,, the effect has been to give us a sharp jolt on the price front, and perhaps even to postpone the prospect of our getting inflation down from double-digit rates in the months immediately ahead, while also, perversely, increasing the danger of recession. PAGENO="0803" 795 Second, we are now confronting the consequences of the double-digit increases in the price indexes that we experienced in the months just past. As these sharp increases in raw material prices during the months behind us, and in petroleum prices in the months both behind and ahead now work their way through the system in the form of higher costs, they may be expected to generate continued pressures from the cost side for increased prices, even as demand abates. And we continue to experience strong pre.ssures on the wage front to compensate for those several months of double-digit inflation in the CPI. The challenge before us now is to keep the recent price surge from being~ built into the basic wage and cost structure. If that happened,. it would hold our underlying rate of cost inflation in the months and even years ahead dangerously close to double-digit levels -- a danger accentuated by our poor performance on the productivity front. The final cloud is, of course, the danger of recession. It has always `been clear that monetary and~ fiscal restraint would contribute to a slowing in the rate of growth of GNP. Assessing these prospects is the PAGENO="0804" 796 responsibility of other members of the Administration than I; and they will in fact be presenting their new latest estimates next month. All I can say with authority is that, first, they have continued to believe that we could exercise this restraint without getting us into a recession; but that the latest sharp increases in OPEC prices have, by withdrawing tens of billions of dollars of purchasing power from our economy, imcreased the hazards. The inflationary tendencies are so deeply ingrained in our society, however, that we must persevere. The core of our policy is and will remain monetary and fiscal restraint: on the latter front, the Congress has thus far given us gratifying support. The wage and price standards will play an increasingly important role, *however -- first, in trying to keep recent price increases in food, energy and basic raw materials out of the underlying cost/price structure; and then, as total demand continues to abate, in trying to maximize the benefit that brings in the form of price deceleration, and minimize its harmful consequences in reducing output. PAGENO="0805" 797 This part of the program constitutes an enormous challenge. When I testified before you last February, our enforcement of the price standards was just getting off the. ground. We had just finished issuing standards and were only then receiving base period price information from about 750 companies. We have since developed eight additional sets of specific standards, for such individual industries as insurance, banking and electric utilities~ We have received and processed base period filings from more than ~8OO companies, and with the extension of monitoring to smallercompanies, are-currently processing reports on price actions from about 1500. Using these data and information from~a wide variety of other sources, we have, over the. course of the last few months, completed over 700 investigations of troublesome price increases. These investigations have led us to a second tightening of the price atandard. In addition, a number * `of `companies, including Giant Foods, Scott Paper and another paper company, Sears Roebuck, Alcoa, Anaconda Corporation, Deanza Corporation, and Flintkote Company have rolled back or deferred price increases in order to assure compliance. PAGENO="0806" 798 We have made progress in our campaign to expand the anti-inflation program to encompass the activities of State and local governments. When I testified before you in February, that program was in the final stages of preparation. Today, all States but one have pledged compliance with the wage-price standards, as have 70 of the 75 local governments we are monitoring. The States have been taking the initiative on other anti-inflation fronts as well: Florida and Michigan have explicitly made compliance with the standards a condition of obtaining State contracts; Illinois has set up a Health Finance Authority to develop a hospital rate system; and, New York has established an Office of Building Permits to streamline licensing. On the regulatory plank in the President's program, the Regulatory Council has issued its calendar of major rulemaking proceedings coming up this year, and the Regulatory Analysis Review Group is in the process of selecting the most important ones for special scrutiny. The Council PAGENO="0807" 799 on Wage and Price Stability has continued its interventions in regulatory proceedings where it appears that costs may not have been taken sufficiently into account. Since I last testified before you, there have been 14 new filings. I attach a list for your information. Issues like, these are not usually dramatic; our interventions do not pay off in immediate, visible changes in the~ CPI. They are, however, of the utmost importance in'our long-term effort to combat inflation. We are dealing with a deep-seated and pervasive disease; and a central part of our attack on it must be a sustained attack on all upward pressures on costs. Most prominent among our goals must be structural reform of our markets, in order to build in to them reliable, continuing pressures to improve efficiency and reduce `prices. I. know `of no more powerful `force of `this kind, than competition. For this reason, I place great emphasis on the Administration's trucking deregulation * `bill announced just last week, as well as our bill, already * introduced, `to deregulate railroads; and I hope to participate in similar efforts for busses and in the field of communications. PAGENO="0808" 800 A final, major activity, in which my office has been heavily engaged is our continuing campaign against inflationary programs and policies throughout the govern-' ment. Much of what we've been doing here arises àut' of our working groups on the necessities that I mentioned in my testimony last time. Progress here, I confess, comes very slowly. In the area of food, we worked with the Departments of Defense, Agriculture and the VA to make their food purchasing policies more sensitive to changes in prices; this resulted in a 25 percent reduction in their beef purchases this year and next. We have alerted Congress and the Treasury Department to the inflationary consequences of applying the anti-dumping laws to imports of fresh winter vegetables from Mexico. This is a major issue of consumer interest, where I believe the Congress may ultimately have to act to clarify our trade policies as they apply to perishables. I commend it to the Committee's attention. We also played a role -- a small one -- in the decision by the Commodity Credit Corporation to reduce the price at which it resells dairy products from its stockpiles from 110 percent to 105 percent of parity, and by the Secretary of Agriculture a couple of months ago to reduce the dairy sup- port price from 80 to 78 percent of parity. PAGENO="0809" 801. In the area of housing, the President has recently directed the Secretaries of Interior and Agriculture to explore the possibilities of increasing timber harvests on Federal lands, in order to help ease the upward pressure on lumber prices: lumber makes up one-seventh of the cost of new houses. We are.still working on our broader..housing program. I will be meeting with Secretary Harris on this subject within the. next two weeks. In the area of health, three anti-inflation initiatives were included in the Presidents National Health Insurance package as .a direct result of our efforts: a proposed limit on hospital capital expenditures; a proposal to require competitive bidding for Medicare administration; and a bill to permit reimbursement of Medicare recipients for care provided by liMO's. Mr. Chairman, no one is going to claim that our anti-inflation programso far has been..a resounding success. The 13.9 percent annual rate of inflation we have experienced in the last~four months from January through May has.be~n a deep disappointment; worse, it has been terribly painful for the American people. PAGENO="0810" 802 But it is very important to observe how heavily this dismal record has been concentrated in three areas: food, energy and home ownership. When one excludes these, the increase in the Consumer Price Index in this period drops from 13.9 to 7.3 percent. This fact does not make the inflation we have suffered less painful. But it sheds a very powerful light on the question of the proper remedy. The sharp inflation in food during the first part of the year occurred, preponderantly, at the farm level -- in the prices received by farmers. These went up at a 50 percent annual rate-in the first three months. Prices at the farm are essentially competitively determined; they. have gone up, primarily, because growing demand has outstripped supply. In saying this, I do not mean to underestimate the importance of-government acreage limitations and price supports; but I think that what I have said is basically correct. These prices -- at the farm -- are not covered by the-President's pricing standards, and for good reason: we are still paying the price today for the last time we imposed controls on the price of beef. The attempt to limit inflation in competitive markets by imposing price controls can only be self-defeating: it will create shortages, and make them worse in the long run, by interfering with the expansion of supply. PAGENO="0811" 803 In the most recent two months, the food price picture has begun to shift somewhat. In both the April and May CPI, the farm value Of food fell sharply as-did beef and veal prices at the wholesale level for the month of May. The 3.0 percent increase in beef and veal prices in the May CPI has, therefore, raised serious questions in our mind about the level of retail margins on beef, particularly, and processing and distribution margins generally. The Council has launched an intensive investigation of this sector to determine why the - decreases we're seeing at the farm are not being reflected on the supermarket shelves. The pressures of demand on supply are, I submit, the principal cause of. inflation in the cost of energy, too. I am not in a position to answer the questions that have been raised in recent weeks about whether the Arrterican oil companies have contributed in any way to the shortages we are- now experiencing. But I believe our fundamental problem, once again, is that our increasing demand, particularly for oil and petroleum products, has outstripped our own domestic supply capacities and exposed us to exploitation by an international cartel. And while I PAGENO="0812" 804 confess I've tried to exert my influence to delay the decontrol of domestic oil prices, because of the critical inflationary juncture in which we found oursieves at the time, I confess also that I believe price controls are not the proper solution to this problem any more than in the case of food. Every gallon of oil and gasoline that we consume has to be replaced; and the replacement cost to the Am~rican economy is the price that the international cartel is charging us. To the extent that product prices have increased even more than the price of crude oil, the fundamental reason, I am persuaded, is that the cartel is keeping a tight limit on total supply; holding our domestic prices down will only ensure shortages, waiting lines, and an increased dependence on the international cartel and exposure to its exactions. The ultimate solution to our energy problem is not price control, but finding ways to limit our. consumption, on the one hand, and in making a resolute attack on developing alternative sources of supply -- something that we have shamefully delayed during the last five years. Meanwhile, to alleviate the hardship of increasing real energy costs on poor people, and to help us finance this necessary exploration of alternative energy sources, we PAGENO="0813" 805 must have a windfall profits tax; and if we are not satisfied in these circumstances with letting price ration limited supplies, then we must develop some equitable plan for direct control of consumption. I believe, similarly, there is no point in trying to impose price controls on the sale of existing houses. The soaring costs of medical care, from which we have also been suffering di-sproportionately in recent years, calls for a different kind of special remedy. It calls for Congress enacting a hospital cost containment bill, in the short run; an.d fOr a concerted attack, at both the Federal and State levels, onour inefficient mechanisms of planning for the installation of costly new medical facilities, and on our irrational systems of delivering and paying for medical care. The significanàe of the 7.3 percent increase in the rest of the Consumer Price Index is that where the wage and price standards can intelligently be applied, they have been reasonably effective. It is small consolation; but it is. a reason for hope of eventual success. The path we are travelling, I believe, is the correct one. But for OPEC, as I have observed, we would already be seeing the results in a damping of the inflation rate. The OPEC problem is one that we must confront directly. For the rest, the watchword must be not panic, but patience, not indulgence, but restraint. I know of no easier solutions; but, as always, I am anxious to hear your suggestions and happy to try to answer your questions. PAGENO="0814" 806 Regulatory Filings by the Council on Wage and Price Stability 2/16/79 - 6/14/79 AGENCY TOPIC DATE EPA Water Quality Criteria June 14., 1979 The Council submitted comments to EPA on proposed water quality criteria for 27 pollutants. Although not enforceable water quality standards, some portions of this process would limit EPA's flexibility at later stages in the process of de- veloping water quality standards. The Council endorsed EPA's use of risk estimation (with some suggestions), but suggested that more benefits could be gained at lower costs by regulat- ing water bodies by local use rather than setting broad na- tional standards. ICC General Temporary Authority . . June 13, 1979 The Council supported a petition by Trailways, Inc., for the ICC to grant general temporary operating authority to all £ it bus carriers to provide service during the summer. The. Council supported the Trailways proposal as a means of reduc- ing fuel consumption by automobiles and as a controlled ex- periment in entry deregulation. ITC Carbon Steel Plate from Poland June 4, 1979 The Council submitted a staff report to the International Trade Commission on the investigation of carbon steel plate from Poland. The Council concluded that the evidence in this case is not persuasive that injury to domestic producers is occurring due to imports from Poland at less than fair value. DOl Coal Management Program May 18, 1979 The Council submitted to the Department of Interior a staff report outlining problems with the proposed coal man- agement program. Specifically,. the Council report found that Interior's "preferred program"may result in imsuff i- ciemt coal production by the late 1980s and the marginal benefits of the "preferred program' may be quite small, or even negative. PAGENO="0815" 807 AGENCY TOPIC DATE ICC Expedited Fuel Cost Recovery Procedures May 17, 1979 The Council urged the ICC to eliminate the expedited fuel cost procedures. The Council's comments emphasized that fuel constitutes such a small Oomponent of carrier costs and there- fore do not justify expedited rate proceedings. In addition, the Council opposed ratemaking proceedings based on individual inputs. Such proceedings are not able to properly. evaluate carrier need for additional revenue. FRB; FDIC; FHLBB Small Savings Accounts May 4, 1979 The Council supported a proposal by the banking regula- tory agencies to create new categories of savings accounts that would enable small savers to earn higher interest rates than are now available to them. The Council further encouraged the agencies to remove the current restrictions on interest pay- ments. Such restrictions hinder efficiency and create inequi- ties in the financial sector. FRB; FHLBB; FDIC New Categories of Time Deposits May 4, 1979 `The Council submitted comments to the Federal Reserve Board, Federal Home Loan Bank Board, and Federal Deposit In- surance Corporation on proposals to create new categories of time deposits to benefit small savers. While supporting the proposals as a step in the right direction, the Council urged the banking regulators to remove restrictions on time deposits and allow the market to determine interest rates and savings classes. EPA Diesel Particulate Standards April 19, 1979 The Council submitted comments to EPA on proposed par- ticulate standards for dieseL automobiles and light-duty trucks. The reporb:suggested that EPA move with care:in this area be- cause of the ~substantial costs in meeting the 1983 standard and the possible discouraging ef±ect~on diesel technology, which offers.very favorable fuel economy and low emissions of hydro- carbons and carbon monoxide. PAGENO="0816" 808 - AGENCY TOPIC DATE EPA Premanufacture Notification For March 26, 1979 Chemicals The Council submitted. to EPA a staff report outlining ~a list of concerns with the proposed premanufacture notification requirements for. chemical manufacturers. EPA "Bubble Condept" March 23, 1979 The Council partially supported the EPA's proposed "Bubble Concept" for controlling air pollution. The Council suggested additional ways in which air and water pollution can be reduced at lower costs. (CWPS-315) ICC Motor Carrier Rates March 20, 1979 The Council asked the ICC to suspend rate increases by six of the nation's motor rate bureaus and asked the Commis- sion to seek additional information from a seventh bureau be- fore granting the rate request. FHLBB Branch Savings And Loan Offices March 16, 1979 The Council supported a FHLBB proposal to allow statewide branching of Savings and Loan Associations only if branching. through bank mergers is discouraged in favor of de novo branching. EPA Coal Regions February 26, 1979 The Council opposed action by EPA to declare Ohio a local coal region under Section 125 of the Clean Air Act and require Ohio utilities to purchase high sulfur Ohio coal and install costly scrubbers to meet air quality standards. ICC Intercity Bus Fares February 16 1979 The Council supported a petition by Trailways Inc to allow for limited upward rate flexibility for intercity buses, but only if accompanied by freedom of entry and elimination of antitrust immunity for rate bureaus. PAGENO="0817" 809 Executive Office of the President JI~TI ~ Counc(:abali FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION Wednesday,. June 13, 1979 (202) 456-6757 The Council on Wage and Price Stability today released a report dealing with inflation developments during the fir~t part of this year. A copy of the report is attached. The Council periodically reports the results of its monitoring of inflation developments and trends. INFLATION UPDATE COUNCIL ON WAGE AND PRICE STABILITY JUNE 13 1979 52.~21Lt 0 - 79 - 52 PAGENO="0818" 810 I. INTRODUCTION The inflation situation has continued to worsen in the first part of 1979. Much of the sharp rise in consumer prices, averaging more than 10 percent annually, can be traced to special problems in the critical areas of food, energy, and housing. But, in addition, the unanticipated strength of aggregate demand in late 1978 created upward pressures on basic industrial prices and wages. These large price increases have intensified pressures for larger nominal wage increases, as workers attempt tomaintain or increase their real wages. This upward pressure on wage rates, in an economy with little or no growth in productivity, will place extreme pressure on the pay and price standards in future months. If the public is to con- tinue to cooperate, it is crucial that the required restraint be ~~.applied in an even-handed fashion. For the economy as a whole, this can be achieved by assuring that there are' no major shifts in the distribution of national income. Within the private. nonf arm sector,-this has largely been' the case during the first six months of the anti-inflation program. The share of national income accounted for by profits rose in late 1978, but fell back below its prior level in the first quarter of 1979. Today, -payments to labor represent a slightly larger share of national income than when the program began. Nonetheless, real wages have fallen. The first reason for the decline has been the fall in output per worker (pro- * ductivity). .Productivity growth in the :private: nonfarm sector averaged only one percent annually in the' last two years, and actually fell at a one-percent rate-during the last two `quarters. ~Second, an. increasirrg'.proportion of total labor compensation * has .been mllocated to:i.employment taxes andprivate health and `pension-:plans reducing take-home pay. Third, the above- average price~1-hcreases `for food and energy have transferred - income from workers and energy users to farmers and owners of energy resources. --The~causesTof declining real wages obviously would not be eliminated by `larger r.oninal wage increases. Larger money-wage `gains .wouid not increase productivity growth or expand the -` supply-Of food', -housing, or energy. At the same time, higher industrial wages would-be-passed through into industrial prices,' worsening the overall inflation. PAGENO="0819" 811 Future increases in real incomes will be determined by the extent of our success in d~aling with the basic problems of slow productivity growth and the energy shortage. The future course of inflation will also depe-~d critically upon the extent of progress in these areas. But _t will depend, in addition, upon our success in preventing an acceleration of industrial pay and price increases that could result from efforts to catch up with past price increases in the problem sectors. For this reason, the nation is presently at a critical crossroads in its effort to reduce inflation without incurring the costs of recession and rising unemployment that have followed past episodes of acceler~ting inflation. In a period similar to the present, 1973-74, efforts to keep pace with food and fuel price increases led to an explosion of industrial wages and prices, and culminated in the recession of 1974-75. Then, as now, the industrial sector was faced with a decline in real incomes; but the conflict over who was to bear the burden of that decline led ultimately to worsening inflation and to far larger income losses as a result of reduced produc~ tion and rising unemployment. Fortunatel~', at the present time there has not been a major acceleration of the basic inflation rate within the industrial sector, where the majority of pay and price increases continue to be consistent with the pay/price standards. In addition, we can anticipate a major moderation of food-price increases and a slower expansion of aggregate demand that should reverse some of the prior run-up in raw-material prices. But there are no grounds for optimism with respect to productivity growth or energy prices for the near future. And the current large increases in home-purchase costs are also likely to continOê. Each of these factors is discussed in more detail in the sec- tions that follow. PAGENO="0820" 1. Consumer Prices 812 II. RECENT INFLATION TRENDS The rate of inflation of consumer prices has moved up to double-digit rates, increasing by more than 10 percent over the past year, at an annual rate of more than 11 percent over the past six months, and at a rate of almost 14 percent over the last3 months (sea Table 1). The acceleratjonhas been led by surging food and housing prices over the last year and by an explosion of energy prices in 1979. TABLE 1: 000J31'MER PRICE 001X (Annuai ?e.rcent.aue Changes l"~ Chances to lersl 1977 12 6 3 `tinths Pbeths t~hs 1976 1977 1978 ;..Lr. ~O7S 100.0) 4.3 6.3 9.0 10.4 11.4 13.9 * (1.3.2) 0.6 3.0 11.3 12.0 14.0 15.4 at the-n 12.6) -0.9 8.0 12.5 12.2 15.2 19.5 ~riostucai1'~ Froa.,1C.1) -3.2 5.1 14.2 1.1.1 17.6 2/ 10.2 2/ Value (4.1) -11.9 6.3 219 17.0 26.0 / 18.9 2/ Fa~'JPetau2 Eprea4(5.3) 2.6 4.4 9.6 12.2 11.6 - 17.9 - L'~crted 2.2) Fo~( .A~', Five- ((crre (0.5) 16.5 6.1 25.5 3.0 5.1 10.3 3.9 11.4 7.2 2.' 12.4 - 6.6 2/ 13.7 - * (01.6) 6.2 6.3 8.5 10.1 li.0 13.6 7E~'purchase (10.2) 4.3 8.4 11.2 12.4 12.0 14.8 Fin., Ins., I Tuxes (9.7) 1.6 11.2 14.7 17.9 17.2 29.9 Chersy (5.5) (`ceerdotues 5.1, `-`e-,',oos (3.4) . 5.3 3.5 12.1 7.2 6.2 8.7 8.0 0.1 7.9 16.0 22.2 7.0 22.0 2,' 34.8 0/ 3.1 36.4 2.' e-.4 0, 10.1 - * Other 3/ (10.2) 5.4 5.9 6.5 7.1 7.3 5.3 CcerrceI:t~es V (22.5) 4.5 4.7 5.3 6.5 8.0 0.0 S'u~'uces - (27.7) 8.3 7.1 7.7 7.6 7.1 6.5 SCL'FiCE5: U.S. O~partoscot of lator, ORIrcau of laBor Statustocs, and Ecruenuo Pcsearrh Se.r;nce, 2epar=~Ont oR ((griculture. 1. Annual values for 1976 1977 aol 1970 are Cecerber-to-Ceceirter perce.nitaee cnanges. 2. tot seasonally ad2uated. 3. Chclixles used curs. Pelatu.'e lear-lance (5) 4. Corresponds rEugull to ccr.sce~r Onunshed -cods, eacept fool aol energy. an the Prolucer (`rrcc PAGENO="0821" 813 Food Prices. Food-price increases appear to be following a seasonal pattern similar to 1978 -- large increases in the winter and spring, with more moderate increases expected in the summer and fall. The 14-percent annual rite of change in retail prices fr the October-to-April period due primarily to a surge of price increases at the farm level (a 27-percent annual rate). But there have also been large increases in food processing, wholsaling and retailing margins. During the last half year, the farm/retail spread increased at an 11.6-percent annual rate. Much of the rapid rise in food prices is attributable to tight beef supplies. From October to April, retail prices rose at a 54-percent annual r~.te. Increased supplies of substitutes have been forthcoming, but only at higher prices~ pork and poultry prices have increased at 18-percent and 15-percent annual rates, respectively. The beef shortage has also had an impact on dairy prices because rising beef prices have induced dairy producers to cull their herds at an increased rate. This, combined with increased demand for dairy products as consumers substitute dairy products for beef, has led to a 13-percent annual rate of increase of dairy prices during the last six months. In the last several months the rate of increase of farm prices has slowed substantially. However, as a result of dramatic increases in the farm/retail spread -- at an 18-percent annual rate during the last 3 months -- retail price increases have not moderated, and, in fact, have accelerated slightly. This widening of the farm/retail margins is partly due to the fact that retail price changes traditionally lag behInd changes in prices at the farm level. In addition, marketing costs have been rising rapidly. From October to April, the cost of food marketing rose at an 11.3-percent annual rate -- virtually the same rate as the farm/retail spread. On the other hand, over the past year, the farm/retail spread increased by 12.2 percent, as compared with a 9.8-percent increase in food-marketing costs. PAGENO="0822" 814 In future months, the moderation in farm prices shculd become more evident at the retail level. The food CPI increased by 1.0 percent in April, the smallest increase this year, as a result of a 0.5-percent decline in farm-level prices and a 1.6-percent increase in margins. The recent increases in the aggregate farm/retail spread are not consistent with widespread compliance with the gross-margin standard of the anti-inflation program. (Companies in these sectors might, however, be complying with the profit-margin limitation). As a result, the food processing, wholesaling, and retailing sectors have been areas of intensified Council investigations. The problems seem to be most severe in the area of meat products. Housing. In recent years, a nationwide boom in housing demand, attributable in large part to demographic factors, has resulted in rapidly rising home-purchase prices. In addition, the surge in home prices has been intensified as consumers have increasingly invested in housing as a hedge against continuing overall inflation. Home-purchase costs have also been inflated significantly, particularly during recent months, by rising mortgage interest rates, the result of restrictive monetary policy. Some moderation in home-purchase prices can be expected in future months as a result of reduced mortgage availability. Mutth savings banks and savings and loan associations lost $2 billion in deposits inApril -- the largest one-month outflow yet recorded. This is partially the result of new regulations that lower the allowable interest yield on Money Market Certificates and eliminate the differential between the interest rates paid on these certificates by commercial banks and savings and loans associations. At least in part as a result of these developments, new housing construction will be below last years level. This has already eased pressures on building-material prices. Energy. Three years of relatively stable energy prices have been disrupted by the Iranian political crisis and a new world-wide petroleum shortage. During the last three months, energy commodities with a relative-importance weight of only 5.1 percent, have accounted for 20 percent (alrtiost three full percentage points) of the 13.9- percent overall inflation rate. The retail price of the principal energy commodity, gasoline, has increased at a 58-percent annual rate during the last three months. In A~~1 alone, gasoline prices increased by 6 percent. In addition, electricity-price increases have accelerated steadily, reaching a 9.4-percent annual rate during the January-to- April period. (A more detailed analysis of recent energy PAGENO="0823" 815 developments, using data developed by the Department of Energy and the Council, is contained in Section III.) The Underlying Rate of Inflation. Excluding food, home-purchase and financing, and energy costs (and the volatile used-car price index) yields a measure of price increases that is more indicative of underlying trends in the industrial sector. This measure also corresponds roughly to the sector of the economy covered by the price standard (agricultural products, petroleum, and interest rates are excluded from the program, and food processing, petroleum refining, and retailing are covered by gross-margin standards.) The underlying~ rate was fairly steady at 6 to 6-1/2 percent throughout 1976, 1977, and part of 1978, but it has crept up to about 7 percent more recently due to excess-demand pressures. These presures are reflected in increases in the index for commodities (other than food, energy, houses, and used cars), which have accelerated from a 4-1/2 percent rate in 1976-77 to 5-1/2 percent in 1978 and 8 percent more recently, whereas increases in the prices of services (other than energy, finance, insurance, and taxes) have decelerated from 7-percent to 8-percent rates during 1976-78 to a 6.5-percent rate more recently. The disparsity between the recent behavior of commodity and service prices reflects the greater sensitivity of commodity prices to excess-demand pressures and the associated raw-material price increases. PAGENO="0824" 816 2. Producer Price Index Data on wholesale prices of finished goods, which are more current (including May 1979) than the CPI data, provide evidence of some moderation in the inflation rate, attributable to the long-anticipated slowdown of food-price inflation (see Table 2). After accelerating steadily through the 1976-78 period, reaching double-digit rates over the last year, finished- goods price increases slowed to a 9.4-percent rate during the last three months, despite the sharply accelerating price increases for energy commodities. TABLE 2: PSICOCER PRICE OSEX (Annual Percentage Pates of Change 1/) Changes to May 1979 Dec. last Fran Last 1978 Pelative 12 Got. 3 1976 1977 1978 hanths 9878 uau-~ 1/ Annual values are Decerber-to-cecenter percentage changes. 2/ Constructed fran published percentage changes using 1978 re1ative-ia~rtance factors as .eughts, except for 1976, 1977, aM 1978 annual changes which use 1977 relative irrpertance factors. Finished Cccx8s ~ (100.0) (70.6) 3.3 2.1 6.6 6.4 9.2 9.6 10.0 10.4 11.3 11.8 9.4 Foods (25.4) -2.5 6.6 fl.9 9.6 8.9 Energy 2/ Other 27 (6.4( (38.8( 5.1 4.5 8.4 5.9 9.8 7.9 29.2 7.8 38.6 3/ 9.41/ -1.2 67.0 3/ PrcducerGc,x1s (29.4) 6.4 7.2 3.0 9.0 10.1 - 7.31/ 9.9 Intersediate Goods (100.0) 6.2 5.9 8.6 11.1 Foods and Feeds 3/ (5.4) 3.6 -2.4 3.8 9.2 12.9 9.9 14.7 Energy 2/ Other 27 (10.3) (84.3) 6.8 6.3 10.8 5.8 3.2 9.6 14.2 10.8 24.5 3/ 11.6 1/ 45.2 3/ 12.3 1/ Crtsie Materials (100.0) 3.3 3.7 17.2 17.0 16.3 5.7 Fcr.els and Feeds (58.5) -3.9 1.4 18.3 15.0 13.3 Energy 2/ other 27 (24.8) (16.7) * 18.2 6.2 : 15.7 -5.7 12.3 20.5 18.2 22.2 23.13/ 17.1 1/ 27.2 3/-~ -2.9 1/ SOtJPCE: 0.5. Departhent of Labor, Bureau of Labor Statistics, and Council are) 3/ Scesa itcsss inst seasonally adjusted. PAGENO="0825" 817 Prices of consumer goods other than food and energy -- a measure of the underlying rate of inflation that, however, excludes services -- also show signs of moderation, increasing at a 7.3-percent rate during the last three months, compared to a 9.4-percent rate during the last half year and a 7.8-percent rate over the last year. Price increases for intermediate goods continued to accelerate during the last 3 months, rising at an annual rate of about 15 percent -- again, primarily because of soaring energy prices. Crude-material price increases were moderate during the last quarter due primarily to the decline in farm prices, and despite the large increases in petroleum prices. 3. Labor Costs Various measures of labor costs indicate that wage rates have accelerated slightly, in step with the acceleration of the underlying rate of inflation, but that the large increases in energy and food prices have not yet been built into the wage/price structure (see Table 3). ~BLE 3: S5ZC1~ HF.PSUPES CF O~W'a7~FF CO1PrOSATCN (P9117MB 28177MPH SECIUR) (Annual Percentage Rates of Caange 1/) 1978111- 1976 1977 1978 19791 Hourly Corsensatton 2/ 3.5 7.6 9.3 9.7 Land: Profuctivity 2.6 1.3 0.7 -1.2 Unit Land: Costs 5.7 6.3 9.0 11.0 Lrglucit Prace Deflator 5.2 5.9 7.9 7.4 Average Hourly Eara2rags 7.6 7.7 8.9 9.3 Average Hourly Eazaurgs Index 3/ 7.4 7.5 8.2 8.5 ~1ooent Cost Lines 7.2 7.0 7.7 7.8 4/ Union 8.1 7.6 8.0 8.2 1/ Honunion 6.8 6.6 7.6 7.5 1/ 502MB: U.S. Desarorent of Iandr, Bureau of land: statistics. 1/ Annual changes are aeasuref Loon fourth quarter to fourth quarter with the excerticn of ocolo rent cost indices, athich are rreasurof frcan Decether to Decueruer. 1978111-19791 changes represent changes in quarterly 2/ Hourly corpensataon includes erglcyeerrt traces and cerplcver ccntributacns to prtvate Henefata plans. 3/ This index a4~usts average -curly earru.ngs to elatenate the effect of cnanges an canufacturang cvertarre pay and cr.terandustry cecglo nt shafts. 4/ starch 1978 to 1erch 1979 cercentsge cranges. Since this index 15 rot seasonally ad3uscaf, changes o'er a part of a year ray not be uainacarave PAGENO="0826" 818 Increases in average hourly earnings have acceleraed from an annual rate of about 7-1/2 percent in 1976-77 to about 9 percent in 1978, and perhaps a little higher in 1979. However, the Average Hourly Earnings Index, which adjusts average hourly earnings to eliminate the effects of changes in manufacturing overtime and interindustry employment shifts, suggests a more modest acceleration, from 7-1/2 percent in 1976-77 to 8-1/2 percent recently. The Employment Cost Index, which corrects for changes in the occupational mix, also suggests a one-percentage point acceleration -- from 7 percent in 1976-77 to almost 8 percent in the last year.. This index also indicates that union wage increases have continued to outpace nonunion wage increases. Hourly compensation, a more comprehensive measure of labor costs, has increased more rapidly than the hourly earnings measures because of the relatively large increases in employment taxes and private fringe-benefit payments. Increases in unit labor costs have accelerated markedly because of the productivity collapse; during the last half year, unit labor costs increased at an 11-percent rate -- the result of a 9.7-percent rate of increase in hourlycompensation and a 1.2-percent rate of decline in productivity. Despite the rapid increase in unit labor costs during the last half year, the nonf arm price deflator thus far has shown no sign of acceleration. In fact, the 7.4 percent rate of increase in the nonfarm deflator -- a measure of inflation that excludes farm prices and imported crude-oil prices -- is consistent with the 7.3-percent rate of increase in the (comparable) underlyinç rate of consumer price inflation (see page 6 above). The outlook for labor-cost inflation depends critically on the extent to which the surge in food and fuel prices gets built into the industrial wage/price structure. Indeed, the principal challenge to the pay and price standards is to prevent this phenomenon from occuring. PAGENO="0827" 819 III. PETROLEUM PRICES Gasoline and other petroleum-product prices have been rising at a very rapid pace since last October. Gasoline prices increased at an annual rate of 40 percent during the six-month period ending in April and hone-heating costs in- creased at a 32-percent rate. In recent months, energy has replaced food as the major source of inflation pressures. In the month of April alone, gasoline prices rose 4.7 cents/gallon, and equivalent increases are anticipated for May and June. These price increases are far larger than can be explained by increases in the crude-petroleum costs of refiners. That is, there has been a widening of margins at various stages of pro- duction and distribution. Trends in the component elements of retail gasoline prices are shown in Table 4. The average reported price was 78 cents/ gallon in April, 8.5 cents above the January level. And these increases understate the actual price increases that consumers have had to pay because many dealers have closed their self- service pumps (self-service prices are typically 3 to 4 cents TABLE 4 COMPONENTS OF GASOLINE PRICES Average Price (cents per gallon) Retail Prices Average Retail Prices 1/ Tax Wholesale/Retail Margin Dealer Tank Wagon 1/ Ref med Products All Refined Products Refiner Margin Crude and Refined Product Costs 2/ Crude Acquisition Costs 3/ Domestic Import Imported Refined Products 17 Average of premium, leaded regular, and unleaded regular gasoline prices. 2/ Does not include purcnases of refined product from domestic refiners. 3/ May not include all transportation costs. Estimated. Quarterly Average Monthly (1979) 2±i !±~ 2±~± i2~! ~ ~ ~si.. ~ s/ 63.8 66.2 67.7 71.2 12.6 12.6 12.6 12.6 6.6 6.9 7.2 7.7 44.5 46.7 47.9 50.9 69.5 73.3 78.0 82.2 12.6 12.6 12.5.- 12.6 7.5 8.0 10.0 10.8 49.4 52.7 55.4 58.8 39.4 40.4 9.6 10.1 29.8 30.3 29.8 30.1 26.0 26.1 34.5 34.5 30.2 31.8 41.9 10.8 31.1 30.8 26.9 35.1 33.8 45.0 11.7 33.3 32.4 27.7 37.9 40.0 43.3 11.1 32.2 31.7 27.2 36.8 36.4 47.0 49.5 52.2 12.7 14.5 15.3 34.3 35.0 36.9 33.1 33.65/ 35.1 28.2 28.60' 28.9 39.0 41.00/ 43.1 43.6 47.4 52.0 PAGENO="0828" 820 a gallon below full-service prices) . On the basis of available data, it appears that about 6 cents/gallon of the total 8.5-cent rise between January and April can be attributed to increased refiner charges. The remaining 2.5 cents represents a rise in dealer margins, which have jumped from 7.5 cents/gallon in January to 10.0 cents in April. The rise in wholesale gasoline prices has paralleled generally the rise in prices of all refined products. Refined- product prices can be compared in turn to acquisition costs to derive a rough measure of-changes in average refiner margins. Refined-product prices rose 6.2 cents/gallon (14.3 percent) between January and April. On the cost side, crude-oil acquisi- tion costs rose 1.9 cents/gallon (6 percent), with imported and domestic crude up 4.2 cents and 1.4-cents, respectively. But, in addition, refiner áosts were increased by substantial price increases for imported refined products (11 cents/gallon), which accounted for about 12 percent of domestic consumption. These crude-oil and imported refined-product cost increases *have resulted in an increase in refiner costs of about 2.8 cents/ gallon. Thus, there is an implied- increase of 3.4 cents/gallon in average refiner-margins. The rise in refiner margins is roughly consistent with the prior estimates of the " change in the Department of Energy regulations, which allowed refiners to -charge a larger propor- tion of their costs to gasoline prices. However, the rise in gasoline prices was not offset-by-reductions in other refined- -product prices (which are not controlled) --because of the general shortage of refined products. The sources of the January-to-April changes in petroleum and petroleum-product prices are summarized in Table 5. TABLE 5 - souRcEs OF CHANGE IN PETROLEUM PRICES ~anuarv-to-A~rtl-Change Cents Percent Average Retail Gasoline Prices 8.5 12.2 Tax 0.0 0.0 Wholesale/Retail Margin 2.5 33.3 Dealer Tank Wagon Price 6.0 12.1 All Refined Products 6.2 14.3 Refiner Margin - 3.4 30.6 C:ude and Refined Product Costs 2.8 - 8.7 Crude Acquisition Costs 1.9 6.0 Domestic 1.4 5.1 Imported 4.2 11.4 Immorted Ref toed Products 11.0 30.2 PAGENO="0829" 821 IV. PRODUCTIVITY AND REAL WAGES The worsening inflation rate has been accompanied by a deter- ioration in the growth of real wages, which has actually -been slightly negative in recent years (see Table 6). The concurrence of these two events superficially suggests that the inflation is the source of the marked slowdown in real-wage improvements. Howeve the fundamental cause of the collapse in the rate of growth of real wages is not the inflation but, rather, the concurrent collapse in the growth of productivity (output per manhour) and the rapidly increasing social security taxes (which reflect the transfer of income from the working population to the retired population). This relationship is illustrated by Table 6. TABLE 6 : PRODUCTVITY AND PEAL SOURLY COMPENSATION GROWTH Annual Rates of Growth 1948-65 1965-73 1973-78 Hourly Comoer'.sation 4.6 6.6 9.0 Productivity 2.6 2.0 0.8 Unit Labor Costs 1.9 4.6 8.1 Consurter Price Index 1.6 4.4 8.0 Productivity 2.6 2.0 0.8- Real Hourly Compensation 2.9 2.1 0.9 Real Hourly Earninrts Index 2.5 1.6 -0.2 SOURCES: U.S. Depa:trtent of Labor, Bureau of Labor Statosttcs. Hourly compensation and productivity series are for all persons in the nor.farm bustness sector. The Real Hourly Compensation and the Heal Hourly Earttngs Index are obtained cy deflattng their nominal counterparts by the CPI. The annual rate of productivity growth declined from 2.6 percent over the 1948-63 period to 2.0 percent over the 1965-73 period, and more recently, over the 1973-78 period, productivity growth slowed to a 0.8-percent rate. Over this same period, the growth of hourly compensation in current dollars accelerated substantially, from a 4.6-percent rate in the 1948-65 period to a 9.0-percent rate over the last five years. PAGENO="0830" 822 In spite of the rapid growth in nominal compensation, the growth rate of real hourly compensation has declined in step with the falloff in productivity growth. This tight relationship merely reflects the fact that, with constant income shares, growth in real hourly compensation is dictated by productivity growth. As a corollary ,increases in nominal compensation costs -- whetner due to wage, fringe-benefit, or employment-tax increases -- will not result in increases in real hourly compensation in the absence of productivity growth. Instead, such increases will be dissipated in increased unit labor costs and increased price inflation. As the growth rate of unit labor costs (the difference between the growth rates of nominal hourly compensation and productivity) accelerated from 1.9 percent to 4.6 percent to 8.1 percent, the inflation rate (as measured by the CPI) accelerated from 1.6 percent to 4.4 percent to 8.0 percent. *The historical relationship between. productivity levels and real hourly compensation levels and the lack of an historical relationship between nominal hourly compensation and real hourly compensation is also depicted in Figure 1 for the 1960-78 period. !7~URE ~ PRODUCTS VITY/INO HOURLY CCMPENSATIOR 150 1:10 SOURCE: U.S. Oepartoient of Labor, Bureau of Labor Statistics. Hourly ccncensation and productivity series are for the nonfarne business sector. Real hourly corstensation and real average hourly earnings are obtained by deflating their ncciool countervarts by the CPI. The figure also depicts the corresponding growth in hourly earnings (exclusive of employer social insurance taxes and fringe-benefit costs). While tr?nds in real hourly compensation levels closely match productivity gains, the real average hourly earnings index falls substantially behind over this period. This shortfall reflects the substitution of private fringe benefits for wage-rate gains and the rapid increases in employment taxes over this period. These nonwage increases have driven a wedge between real hourly compensation levels -- `dominated by productivity growth -- and, real hourly earnings levels. 300 200 65 70 Real hourly -- - Conpensution Average Hourly Earnings Index 1~ 75 PAGENO="0831" 823 V. INCOME SHARES The anti-inflation program was designed to ensure that the burden of decelerating wage and price increases falls evenly on different economic groups. At the aggregate level, this implies constant functional incone shares (essentially, constant labor and nonlabor shares). It is possible to nonitor the movenent of these shares on a very broad basis using the National Income Accounts, which distinguish labor income (compensation of employees), corporate profits, proprietors' income, rental income, and net interest. The traditional analysis of income shares emphasizes labor compensation and corporate profits. Measuring Profits In the National Income Accounts, the book profits of corpora- tions -- profits on which corporations pay taxes -- are referred to as "before-tax profits." In the accounts, two adjustments are made: the capital consumption adjustment (CCA) and the inventory valuation adjustment (IVA). The resulting value, profits with CCA and IVA, is the appropriate profit definition for discussing income shares, and it is this concept that is primarily used below. The CCA alters profits by adjusting tax-return based depreciati costs (the capital consumption allowance) in two ways. *First, it eliminates the influence of changes in depreciation accounting practices. Second, the CCA adjusts book depreciation to a replacement-cost basis. On their books, firms depreciate capital items on the basis of original purchase price rather than on the basis of the current market cost of replacing the capital used up in the production process. During periods of inflation, this accounting practice understates the relacement costs of-depre- ciated capital, and therefore shifts the income of capital from depreciation to taxable profits. The inventory valuation adjustment to before-tax profits is intended to revalue the recorded acquisition cost of goods taken out of inventory on a replacement-cost basis. On their books, firms may value the cost of goods at original acquisition cost or on some basis other than at current market prices -- the replacement cost of goods taken out of inventories. In periods of inflation, these accounting practices understate the replacement cost. of items taken out of inventory, and therefore overstate profits from current production. PAGENO="0832" 824 In essence, without the IVA, profits would include capital gains or losses on inventories. But capital-gains income is not relevant in the discussion of shares of GNP -- goods and services currently produced. This treatment of profits is consistent with the treatment of labor compensation, since gains from asset holdings or sales (such as housing) are not included in labor income. Historical Perspective Historically, income shares have fluctuated widely over the business cycle, with labor's share increasing during business slowdowns and the share of corporate profits rising during recoveries. Because of this fluctuation, cyclical movements must be factored out~ in~ order. to understand the underlying trends of the different shares. Figure 2 shows the actual income shares of the different components since 1960. This figure graphically FIGURE 2 SHARES OF HAT109AL INCOME1 Quarterly, 1960-1979:1 (percent) - 100 Corporate Profits Interest and Rent .~01t0r5mnc0m~#,.~E:E~eE Total Labor Wages, S lanes, Compensation and Fringe Benefits other than Social 40 Insurance Taxes - 40 20 - 20 I I 1 I I 68 62 64 66 68 70 72 74 76 78 1See footnotes at the botton of Table 7. Source: Department of Coninerce, Bureau of Econonnt Analysis. PAGENO="0833" 825 indicates the two prevalent trends -- corporate profits as a share of. national income (net of cyclical fluctuations) have declined slightly and the share accounted for by labor compensation has risen. However, most of the increase in the labor-compensation share is attributable to large increases in social insurance taxes. If social insurance taxes are not counted as compensation to workers, labor's share has been virtually constant over the past 20 years. Income Shares During the Program Year Table.7 presents selecteddata corresponding to those depicted in Figure 2. These data indicate that, if social insurance taxes are not included as labor compensation, labor's share has been virtually constant during the program year (the third quarter of 1978 to the first quarter of 1979) as well as in the long run. To the extent that social insurance taxes provide employee benefits that are similar to private benefits plans (and should therefore be considered as part of income to labor, labor' share declined in 1978:IV but more than recovered in 1979:1. From 1959 to 1978:111, corporate profits as a share of national income declined from 12.1 percent to 9.6 percent. During the program year, the profit share increased slightly, then declined substantially. Because this share is volatile and sensitive to TABLE 7 NATI~65L ThcctIE SHARES (SO1OrTED PERICOS) (percent) Corporate Profits 1/ Net Interest and Rental Inccms 2/ Proprietors Inos~e 1/ Labor C~ersation `total Labor ~ Social Insurance Taxes . -. Wages, Salaries ansi fringe benefits 3/ 1959 12.1 5.5 11.9 70.4 4.5 65.9 1969 10.6 6.4 8.6 74.4 7.1 67.3 1978:111 1978 IV 1979:1 It With inventory valuation ndjusonent ansi capital consuoption ndjustment. ~/ With capital ~ssmption adjustomnt. l~ Fringe benefits inclale ergloyer payments for private pensicn, health ansi welfare fuzxls, ccnçensati:r for injuries, director's fes. ansi pay of the military reserves. 5C(JFES: Departnmnt of Caxe.rce, Bureau of Ecorcnic Analysis. 9.6 7.6 6.6 76.2 9.6 66.6 9.8 7.6 6.9 75.7 9.5 66.2 9.0 7.6 6.7 76.7 10.1 66.6 PAGENO="0834" 826 cyclical conditions, it is difficult to ascertain whether this pattern is consistent with the long-terra trend. However, a statistical analysis that corrects for cyclical movements indicates no unusual developments during the program year. (The actual profit share was insignificantly above the predicted share in 1978:IV and insignificantly below the predicted share in 1979:1.) The share of corporate profits without the inventory valuation and capital consumption adjustments declined from 13.0 percent in 1959 to 11.9 percent in 1978:111. During the program year, it rose to 12.5 percent and 12.4 percent in l978:IV and 1979:1 respectively. This type of build-up in before-tax profits (without CCA and IVA) is not unusual in a period of rapid raw- material inflation (as experienced in these two quarters), because the replacement cost of inventories accelerates markedly. The Percentage Contribution to Deflator Increase Inflation represents an increase in nominal incomes for a fixed amount of physical output. The contribution of each income component of gross national product to the total increase in the GNP deflator is shown in Table 8. It should be emphasized that TABlE 8 CONTRIBUTION OF INCOME COMPONENTS TO INFLATION Percentage Shares of GNP Annual Rate contributions to (percent) of change Deflator Increase 1/ 78:111 79:1 69:111 78:111 69:111 78:111 - to to to to 78:111 79:1 78:111 79:1 GNP Deflator --- --- 6.5 8.5 100.0 lO0.0 Labor 61.7 62.1 6.6 10.0 62.5 72.0 Wages and Salaries 48.8 48.9 5.7 8.4 44.3 48.5 Social Insurance Taxes 7.8 8.1 9.9 19.3 10.3 17.2 Other Fringe Benefits 5.1 5.1 13.0 10.5 7.9 6.3 Capital 29.5 29.2 6.4 5.4 29.5 18.8 Capital Consumption Allowances 10.3 10.2 8.4 6.4 12.4 7.8 Corporate Profits 2/ 7.7 7.3 5.3 -3.3 6.7 -3.1 Proprietors' Incom~ ~ 5.4 5.5 3.3 12.6 3.2 7.8 Rental Income 3/ 1.1 1.1 0.0 0.0 0.0 0.0 Net Increase 5.0 5.1 11.5 10.7 7.3 6.3 Other Government Taxes 4/ 8.7 8.7 5.9 9.2 8.2 9.4 17domputed as the weighted change in the ratio of each income component to constant - dollar GNP. The result is divided by the change in the overall GNP deflator. 2/ With capital consumption adjustments and inventory valuation adjustments. 3/ With capital consumption adjustments. 4/ Includes indirect business tax and nontax liability, business transfers and - statistical discrepancies. SOURCE: Department of Ccm,nerce, Bureau of Economic Analysis, and Council on Wage and Price Stability. PAGENO="0835" 827 the size of a component's contribution alone reveals lit~.le; for example, it is only natural that labor has the largest contribution given that it accounts for the largest share of GNP. However, the comparison of these contributions across tine can be revealing. Inparticular,if the contribution of a component in the recent 1978:111-1979:1 period exceeds its contribution over the longer-ter l969:III-l978~III period, then that component has contributed to the recent acceleration of the inflation rate. The table indicates that o the corporate-profits contribution has not increased during the program year (prices in the corporate sector have not risen fast enough to cover the current cost of production);. o the contribution of labor compensation to the inflation rate has increased, primarily because of especially large increases in social security taxes but also because of declines in productivity; and o the contribution of proprietors' income to the inflation rate has been relatively large in the last half year, primarily because of the rise in farm income. PAGENO="0836" 828 Mr. ROSENTHAL. Mr. Bosworth? STATEMENT OP BARRY P. BOSWORTH, DIRECTOR, COUNCIL ON WAGE AND PRICE STABILITY Mr. BOSWORTH. In the interest of saving time, Mr. Chairman, I would like to suggest that my written statement be inserted in the record and stop at t.ha.t point.. Many of the things I had to say were the same things that were emphasized by the Chairman. I am, therefore, ready for questions. Mr. ROSENTHAL. Without objection, the entire statement. with at- tachments will be placed in the record. [Mr. Bosworth's prepared statement follows:] PAGENO="0837" 829 TESTIMONY OF BARRY BOSWORTH BEFORE THE HOUSE SUBCOMMITTEE ON COMMERCE, CONSUMER, AND MONETARY AFFAIRS JUNE 28, 1979 Mr. Chairman andmembers of the Subcommittee, I have been asked to appear today to discuss the Administration's anti-inflation program and the role of the Council on Wage and Price Stability. I have attached to my testimony a copy of the Council's report on inflationary developments during the first six months of this year. The release this week of the Consumer Price Index for May, which reported an increase of 1.1 percent, provided even further evidence of the seriousness of the current inflation problem.. I believe I could most usefully serve the committee by outlining some of the major problem areas and challenges that we have faced and will continue to face in future months. 1 would also~like~toaddress some of the specific questions that the Chairman raised in his letter to the Council. In the last six months consumer price increases have been rising at an annual rate in excess of .12 percent. This worsening of inflation has been concentrated in the areas of food, energy, and housing. -Immediately following the introduction of the anti- inflation program; last .f all, retail food .prices exploded to double-digit inflation rates. In the~early months of the program the.foodprice rise reflected increases at the farm level -- particularly for meats and vegetables. Most of these increases could be traced to supply problems that created temporary shortages. In recent months, supplies PAGENO="0838" 830 have increased and prices have temporarily stabilized at the farm level. However, the moderation of farm price increases has not been reflected at the retail level because of major increases in middleman margins. The farm-retail price spread has increased at an anhual rate of 14 percent in the last six months and 24 percent in the last three months. In part, this increase in the margin can be explained by sharp cost increases -- particularly transportation --and a normal lag between farm and retail price changes. However, the magnitude of the disparity seems to exceed the impact of these factors. Because of this disparity the Council has asked for and will be receiving reports from individual processors and retailers in August about the behavior of margins in the April-June quarter. At present, the magnitude of the margin increase does not appear to be consistent with the voluntary gross margin standards. Energy has now replaced food as the most serious source of inflation pressures. While we had expected a major moderation of food price inflation and consequently of the overall inflation during the summer months, soaring costs of energy now require a major reevaluation of virtually all inflation forecasts. PAGENO="0839" 831 Major shortages of crude and refined petroleum products on world markets has led to a sharp surge of price increases. The problem is exacerbated at the retail level by sharp increases in dealer and refiner margins. Retail energy prices rose-at an annual rate of 35 percent in the last six months and a shockino 54 percent in the last three months. These increases are occurring even in the face of mandatory controls on gasoline prices. It appears that many are violating the controls. Others are utilizing `banked costs' from earlier periods when their prices were below the mandatory ceiling levels. The attached Council report indicates that about one half of the retail price increases to date can be attributed to higher crude oil prices and the costs of imported refined ~prpducts. The gasoline price situation is an excellent - example of the tremendous difficulties of operating price controls in the face of severe shortages. The Council has not attempted to monitor compliance with the standards at the gasoline station level because of~the mandatory controls administered by the Dapartment of Energy. At the refinery, level our preliminary results indicate that many large refineriea have:limited their price increases to.a paasthrough cf~costs. and that the Tmost severe violation problems are concentrated among the smaller, less visible refiners. PAGENO="0840" 832 Housing continues to be another major inflation problem that defies short-run solution. Home purchase prices are rising by more than 12 percent annually and finance charges ~~r~ing at aj rcent annual rate_ Th~.s situation reflects continued strong demand resulting from a surge of population growth in the age-brackets where home ownership is most prevalent and from a general view that home purchase is a good hedge against expected future inflation. While there has been a deterioration of the overall inflation situation, strong support for the pay/price standards in those sectors where they have been applied has prevented the situation from deteriorating even further. The average rate of inflation has been approximately 12 percent annually in the first seven months of the program. Yet, price increases in the sectors other than food, housing, and energy have been averaging only 7 percent. In addition, average economy-wide wage increases have not accelerated significantly despite the surge of price increases and pay increases are only exceeding the original targets by less than one percent annually. But, the pay/price standards have become a defensive policy of preventing a further worsening of inflation rather than a positive means, as was originally intended, of reducing inflation. PAGENO="0841" 833 Extremely large price increases in the areas of food; energy, and housing are placing enormous strains on the voluntary program. In recent months, some major labor negotiations have resulted in pay rate increases in excess of the standard., The imeoj.liti of workers without ., - cost-of-living adjustments being held to 7 percent, while a few others get substantially more, is eroding public support. At the same time increasing costs for energy and other materials are forcing a' large number of firms to switch to a limitation on profit margins and a consequent passthroughôf cost increases. These problems are compounded by the sharp deterioration in productivity growth. Overall gains in real incomes for all Americans can only come through improvement in pro- ductivity. :;Sadly, t~'.is nation's productivity record in recent years has been dismal. Productivity growth in the private nonfarm sector averaged less than two percent annually over the last decade and less than one percent in the last two years. Recently it has. bèén negative. At the' same time,an increasing proportion of total labor compensation has been allocated to employment taxes and private health and pension plans, thus further reducing take-home pay. If we are going to solve our problem of declining real income in the face of inflationary pressures over PAGENO="0842" 834 which wehave no control, -we~must concentrate more of our resources, energy and.talent toward solving the productivity dilema. We are in a situation today very similar to what we experienced in 1973-74 when efforts~ to keep pace with rapidly rising food and fuel prices led to higher wages that ul- timately resulted in an explosion of industrial prices. The end. result was the most serious recession since the Great Depression. At the present time, unfortunately, there has not been a major wage explosion in the industrial sector and indus- trial prices have behaved quite well. But in the coming months it will bevery hard to keep pressures in check as some prices, especially energy, continue to rise rapidly. In the last~four months, energy prices, with a relative- importance weight of only 5.1 percent, have accoumted for nearly 20 percentof theoverall inflation rate. In the last three months the retail price of :gasoline has increased 49 percent.. InNay alone it went:up 5percent. Just this week we saw. yet another staggering increase in. oil prices leveled against us by the OPEC cartel. It is notdifficult to see .whatthis is.going to mean. Americans will~ be forced to allocate more and more of their personal incomes to heating. and air conditioning their homes and driving their automobile. As a result, with no offset from.prOductiVity'gains, real incomes will decline. PAGENO="0843" 835 As I noted earlier, this will increase pressures for wage increases. Workers will demand that their employers grant them large wage increases so they can continue to buy the same amount. of gasoline. The only trouble is that higher wages won't create any more crude oil and will only guarantee higher industrial prices. And even if they get big wage increases, workers will still experience a decline in real incomes until we can find a way to increase productivity. I know that this is not a very sanguine picture. But it would be dangerously misleading to you and to the public to pretend that the inflation problem will go away quickly. There just are no quick cures. We are going to have to keep working to try to prevent rising inflation in s~ctors we cannot control from getting built into the industrial rate of inflation. I think the best hope is a continuation of the voluntary wage and price standards. We are working now on refining. those standards and procedures for the..second year of the program. We are exploring a lot of possibilities and looking at a lot of recommendations. We are seeking ways to improve them and make them more equitable. Chairman Rosenthal in a letter to Mr. Kahn and myself requested answers to a. number of questions. I have tried to answer them in my testimony. I would like also to address several other areas of general interest. PAGENO="0844" 836 1. Mandatory Wage and Price Controls The position of the administration is well known. But, I would like to point out that controls are not an effective solution to our shortage problems in the areas of food, housing and energy. And contrQls would not make a positive contribution to the effort to improve productivity growth. The magnitude of staff needs would depend heavily on the exact form of any specific controls program. But they would not be less than the 4,000 employed during the Nixon contols program. 2. Areas of major inflation pressures Outside of food, housing., and energy, most of the current inflation pressures are concentrated in markets where energy cost pressures are forcing firms to a cost- - passthrough exception to the standard -- such as chemicals and plastics,~and markets for raw materials where demand pressures are strong or supplies are reduced. These latter reductions include leather, scrap steel, and nonferrous metals. . 3. Role of Increased ~avirigs An increase in savings would contribute to reducing inflation, but, only if it is matched by an increase in investment. Without such an increase in investment, increased savings implies reduced demand and higher Un- employment,, or it necessitates offsetting deficit spending PAGENO="0845" 837 by government. At present, I believe that investment incentives are inadequate to fully utilize available savings. 4. The Role of the Profit Margin Exception during a Period of Cyclical Downtown Prof it margins normally stirink during recession periods, and, thus, compliance with a profit-margin standard would be more attractive during such periods. However, the program does not allow firms to use the profit- margin limitation unless they can demonstrate that costs (excluding volume effects) are rising more rapidly that their price increase limitation The profit-margin exception is an equitable standard if it ensures that the distribution of incomes between profits and wages does not change. - 5. Role of Government Actions in Inflation Government regulatory and other actions frequently have an inflationary cost that must be balanced against their benefits. Many actions on trade restrictions and agricultural price supports, however, are difficult to evaluate precisely with respect to theui~ inflationary impact. One general study in this area, by Robert Crandall, has been published by the Brookirigs Institution. We estimated that government tax charges and regulatory actions were adding about 1-1.5 percentage points to the annual inflation rate. PAGENO="0846" 838 6. Submission of Data The Council on Wage and Price Stability has no mandatory requirements for the submission of data. However, the Council has received overwhelming support from America's companies. Well over 95% of those f.rom whom information has been, requested have complied with the request. The vast majority Of those that have not complied are small companies that believe they aren't covered by the Council's data re- q~iests. Follow-up phone calls generally have elicited the necessary information from these companies. The Council has yet to use its subpoena power, although the General Counsel's office is currently investigating the possibility of sub- poenas for four relatively small companies. ~. Noncompliance & Probable Noncompliance - The Council has found the following companies and unions to be out of compliance with the pay or price standards: - Amerada Hess Corporation, Refining and Marketing Division; and Ideal Basic Industries, Cement Division; pay - Columbia Chapter of National Electrica']. Contractors Association and' International Brotherhood of Electrical Workers, Local 48. The Council has also publicl~r-announced that a number of com- panies and unions have received Notices- of Probable Noncom- pliance with thepay orprice standards. They are: - ~American Hoechst `Corporation; Crown Zellerb~ch Corporation (resolved); Champlin Petroleum Company's Corpus Christi, Texas Refinery; The Charter Company; Hammermill Paper Company (resolved) Getty Oil Con~any; Laclede Steel Company; Murpby Oil Company PAGENO="0847" 839 (resolved); National Cooperative Refinery Association; Time Oil Company; Warner-Larnbert Company; and The Williamp Company.; pay - United Airlines and International Association of Machinists and Aerospace Workers. *1 **/ (8) Pay Exception Requests:- -. Alliance Manufacturing Co.; AT&T; Ashland Oil; American National Insurance; Atlanta Gas & Light; Argo Systems; Armco. (Burns & McDonnell); Allied Chemical;. City of Ada; Arvin Industries; American Standard; Guy F. Alkinson; Bank of America; Blue Cross of Wisconsin; Bangor Hydro Electric Co.; Blue Cross/Blue Shield-N.Y.; Blue Cross/Blue Shield-S.C.; Budd Co.; Becton-Dickinson & Co.; Bendix Corp.; Boise Cascade; Brown-Jordan & American Lantern; Battelle Memorial Institute; Consal Rail Corp.; Consal Foods Corp.; Combustion Engineering; Connunity Publications; Cessna Aircraft; Cargill; Deere & Company; Electroseace Systems, Inc.: Fruehauf Corn.: g.M. Flickihger, Co.1 Inc;Jacquaita Industries: Fenix & Scissior: Fairchild Industries; Furr's, Inc.; Fluor Corp.; Gas Service Co. (The); Gulf States United Telephone Co. ;GTE; Gulton Industries, Inc.; Guam Oil & Ref ining,Co.; Gulf States Utilities Co.; Great Lakes Carbon; Gilbralter Savings & Loan; High Voltage Engineering Corp.; Hercules, Inc.; Kraft Co.; Lear Siegler; Mobil Corp;Container~corp.; McGraw diii, Inc.; Mathenatica Policy Research; Motorola; Merck & Co.; *1 Some companies have submitted multiple requests for pay exceptions covering separate employee units or price exceptions covering separate compliance units. **/ ~Ti~ie list of pay and price exception requests provided here may not be complete due to administrative delays in logging recent requests sometimes caused by a company's failure to request an exception explicitly. Excluded from the lists are exceptibri requests withdrawn by com- panies, returned to them due to ineligibility for a format. exception, administratively closed by the Council, or re- ~o1ved by clarification of the guidelines. PAGENO="0848" 840 ~ çp ;Maqm~Cooper Co. :_New England Power Co.; New England Electric System; Newmont Mining; Nelco Chemical; NW Bancorporation (NW Conputer Service); Northrup (Defense Systems); State of Oklahoma; Owens-Corning Fiberglas; Oster; Oregon District Founday ~ Power.. &~qh~;_~____- * Public Se±vice Electric & Gas; Pottatch Corp.; Procter & Gamble; Pan ~xn; Pacific international Express; RCA Communications. Raytheon Co. ; Research Triangle Inst.; Radian Corp.; Scott Paper; South Eastern Community College; Scientific Radio; St. Frances Hospital; Signal Cos. (Mack Trucks); Sieinoms- Allis, Inc.; Southern Grauvre Service; ~anta~Clara Co., Association o *Hospitals;.~..OSTflth Southwest Forest.. industries; St. Josephs Hospital; Sunbeam Corporation; Trans international Airlines; Todd Shipyards; Tandy Corp.; 20th Century Fox Film; Transamexica Delaval; Union Camp Corp.; * Univar (VWR Scientific); United Telecom, Inc.; Utah, State of; United States Filter Corp; Union Pacific Railroad; United States Steel Corp; Union Pacific Railroad (Trust Express); United Jersey Banks; United Telecom; Union Oil Company; U.S. Filter Corp.; Union Carbide; Vulcan Materials; Victorien, inc.; Valley Presbyterian Hospital; Warner Communications White Consolidated industries; Westrnoreland Coal Co.; Western Council of'Engineers Western Airlines; Western Air Lines, inc.; Worcester, Ms., Cityof; Willamette industries, inc.; Wichita, Kansas, City of; Weyerhauser (Tampa El); PAGENO="0849" 841 (b) Approved Pay Exception Requests: Allis-Chalmers; Amana Refrigeration Inc.; AT&T; Ashland Oil; Appalachian Power Co.; AT&T (Resubmission); Anacanda Co.; Arvis Industries; ARKLA Industries; Akzana, Inc.; AAI Corp.; Alyeska Pipelines; Aerojet General; Bendix Corp.; Blue Cross! Blue Shield-Arkansas; Braniff International; Bendix Corp.; Baylor College of Medicine; Boise Cascade Corporation; Blue Cross Blue Shield-Minn.; Blue Cross/Blue Shield-New Jersey; Bowen-McLaughlin-New York Co.; Cities Service Co. (North Bank, PA); Cities Service Co. (Hancock, Kansas); Cities Service Co. (Miami, Arizona); Cities Service Co. (Lake.Charles,LA); Champion International corp.; Clark Oil & Refining Co.; Cargill, Inc.; Columbia Gas System Service Corp.; Chicago Bridge & Iron Co.; Cargill, Inc.; Chicago & Northwestern Transportation Co.; Cutler-Hammer Inc.; Cummins Engine Co., Inc.; Cities Service Co/Supervisors(B Agreements); Cooper Autotive Inc.; Capitol Sec. Service, Inc.; Celanese Corp.;. Cutler Hammer, Inc.; Cargill; Detroit Edison; Dynamics Corp. of America (Fermont Div); Eastern Gas & Fuel Associates-Boston Gas Company; Electronic Data Systems; Ex-Cell corporation; Exxon Company, U.S.A; Evans Sutherland Computer Corp.; Evening Star Newspaper Co.; Electrospace Systems Inc.; Emerson Electric; Ethyl Corp; First National Bancorp, Inc.; Federal- Mogul Corp.; Fenix & Scissan; STE Service Corporation; Group Health Association; Great Lakes Carbon Corp.; Great Western Bank; Goodyear Tire & Rubber; General Dynamics Electronics -Division; G&S Systems Inc.; Goodyear Aerospace (Engineers); 52-21'~ 0 - 79 - 54 PAGENO="0850" 842 Goodyear Aerospace (Non-engineers); Hollywood, Florida, City of; Hooker Chemical Corp.; Health Research Inc.; Hercules, Inc., (Hercofina); ITEK; Island Holidays, Inc.; lIT Research Institute; ITT Blackburn Co.; ITT Telecommunication Sec.; Kingsport Power Company; Kentucky Power Co.; Lear Siegler Inc.; Littlefuse, Inc.; Head Corp.; Mobil Oil Corp., (Container Corporation of America); National Airlines, Inc.; Northrup Worlwide Aircraft Services Inc.; Norris Industries, Inc.; NL Industries, Inc.; North American Phillip Corporation; Pan American World Airways; PPG Industries, Inc.; Planning Research Corp.; Potlatch Corp.; Pioneer Aluminum, Inc.; Panhandle Eastern Pipe Line Company; Phillips Petroleum Co; Public Service Electric & Gas Co.; Photo-Sonics, Inc.; Reliance Electric; Rockwell International; Rahm & Haas Co.; Southern Pacific Transportation Co.; SRI International; Seaboard World Airlines; Shell Oil Company; Singer Co,; Standard Oil of California; Superior Oil Company; Signal Companies (Mack Trucks); Sheller-Globe Corp. (Special Products Division); Seaboard World Airlines; System Engineering Laboratory; St. Joseph Hospital & Medical Center; Scott Paper; Spencer Gifts, Inc.; Singer - (Kearfatt); Singer - (Librascope); Singer - (Link); Tracor, Inc.; Texas Gas Transmission; Tracor; Todd Shipyards (Brooklyn); Tenneco Inc.; Texas Eastern Transmisssion Co.; Union Carbide Corporation; United Telecom; United States Filter Corp.; United States Lines, Inc.; United Jersey Banks; Union Trust ~ompany; Warner Communications; Wickes Corporation (Data Processing Personnel). PAGENO="0851" 843 (a) Price Exception Reguestâ: Agway, Inc.; Airco, Inc.; Alco Standard; Allegheny Ludlum Industries; Allied Chemical Corp.; American Brands, Inc.; American Broadcasting Companies, Inc.; American Can Co.; American Cyanamid Co.; American Hoechst Corp; American International Group; Anheuser-Busch, Inc.; Arco Chemical Co.; Armco, Inc.; Armstrong Cork Co.; Asarco, Inc.; Associated Dry Goods Corp.; Association of American Railroads; Atlantic-Richfield Co.; Avco Corp.; Avnet, Inc.; Bangor Punta Corp.; BASF Wyandotte Corp.; Beatrice Foods Co.; Bormans, Inc.; Burlington Northern, Inc.; CBS, Inc.; Carter Hawley Hale Stores; Chesebrough Pond's, Inc.; Chessie System Inc.; Chicago & Northwestern Transportation Co.; Chicago Rock Island; Chromallory American Corp.; Cluett, Peabody & Co., Inc.; Coastal States Gas Products Co; Consolidated Foods Corp; Continental Group, Inc.; CPC International, Inc.; Crowley Maritime Corp.; Del Monte Corp.; Denny's Inc.; Dubuque Packing Co.; E.I. DuPont de Nemours & Co.; DuraFlame Inc.; Ethyl Corp.; Esmark, Inc.; Federal Cartridge Corp.; First Notional Supermarkets; Flintkote Co.; Gatx Corp.; General Cable Corp.; General Mills; Gillette Co.; W.R. Grace & Co.; Grand Union Co.; Great Northern Nekoosa Corp.; Greyhound Crop.; Grumman Corp.; General Atomic Co.; Harsco Corp.; H.J. Heinz Co.; Hercules, Inc.; Heublien, Inc.; Hilton Hotels Corp.; Hoffman-La Roche, * Inc.; Howard Johnson Co.; Hughes Aircraft Co.; I.C. Industries, Inc.; Inco United States, Inc.; International Minerals & Chemical; I.U. International Corp.; Kellogg Co.; Walter Kidde Co, Inc.; S.S. Kresge Co.; Lear Siegler, Inc.; Lever BrotherS Co.; Lisa Enterprises; PAGENO="0852" 844 Lubrizol Corp.; MacMillan Bloedel, Ltd.; Marathon Oil Co.; Matsushita Electric Corporation of America: MBPLX Corp.; McGraw-Edison Co.; Mead Corp., Miles Laboratories; Missouri Pacific Corp.; Monfort of Colorado; Nabisco, Inc.; National Can Corp.; National Distillers & Chemical Corp.; Nestle Co.; Nissan Motor Corp. of U.S.A.; Northrop Corp.; Norton Simon, Inc.; NVF Co.; Owens-Illinois, Inc.; Pabst Brewing Co.; Penn Central Co.; Phelps-Dodge Corp.; Port Authority of N.Y. -N.J.; Philip Morris, Inc.; Pittston Co.; Publix Super Markets, Inc.; Purex Corp.; Quaker Oats Co.; RCA Corp.; R.J. Reynolds Industries, Inc.; Rohr Industries, mc.; Ryder Systems, Inc.; Saga Corporation; Sante Fe Industries, Inc.; Jos. Schlitz Brewing Co.; Scott Paper Co.; Seaboard Coastline Industries; Sherwin-Williams Corp.; Southern Pacific Co.; Southern Railway Co.; Southern Union Co.; Sou~hland Corp.; St. Joe Minerals Corp.; Standard Oil Co. of CA; Co.; Studebaker-Worthington, Inc.; Stroh Brewing Co.; Sun Company, Inc.; Sunbeam Corp; Super Valu Stores, Inc.; Texaco, Inc.; Tine Inc.; Trans World Corp.; Tenneco, Inc.; Union Carbide Corp.; Upjohn Co.; United Air Li~es, Inc.; United Telecommunications, Inc.; Univar Corp.; U.S. Shoe Corp.; Varian Associates, Inc.; Volkswagen of America; Hiram Walker & Sons, Inc.; Jim Walter Corp.; J. Weingarten, Inc.; Williams Companies; Zenith Radio Corp. PAGENO="0853" 845 (b) Approved Price ExceptiO~~~uests Cornell University; Battelle Memorial Institue; Western Union Co.; Western Electric Co. (Cable & Wire Products); Xerox Corporation; Automation Industries (Government); M.M. Sundt Construction; Hammermill Paper; Union Camp; Lone Star; ReichhOld Chemical; Teleprompter Manhattan Cable T.V.; ARA Services, tnc.-; Celanese corp.; Monsanto Co.; Revere Cooper & Brass, Inc.; International Paper Co.; U.S. Steel Corp. (Steel Manufacturing) Consolidated Rail Corp.; The Standard Oil Company (Ohio); Mobil Corp.; Ashland Oil, Inc.; Shell Oil Co.; Olin Corp.; K-Mart; Kerr- McGee Corp., Phillips Petroleum Co.; WestvacO Corp.; Akzona, Inc.; Chevron U.S.A. Inc.; The Gulf Companies (Gulf Oil Chemical Co.); Dow Chemical USA; Pfizer, Inc. (Chemical Div); United Technologies Corp., (Essex Group, Inc.); The Firestone Tire & Rubber Co.; Crown Zellerbach Co.; Amsted Industries (Griffin Wheel Co. and Griffin Pipe Co.); American Greetings Corp.; Witco Chemical Corp.; Cities Service Co.; Pacific Resins & Chemicals; Newmont Mining Corp.; American petrofina, Inc.; The General Tire & Rubber Co.; Continental Oil Co.; Brown Group, mc.; Texas Eastern Transmission Corp.; Standard Oil Company (Indiana); Exxon Corp.; Textron. PAGENO="0854" 846 Mr. ROSENTHAL. Are there any variances between what you have to say and what Mr. Kahn said? Are there any things that. you dis- agree with in his statement? Mr. BoswoRTH. I do not disagree with Mr. Kahn's statement at all. Mr. ROSENTHAL. I do want to say for the record that we are very pleased with the work you have done, and we are very grateful for the public service that you rendered and we wish you well in what- ever your future plans are. Mr. KAHN. May I second that please? Mr. ROSENTHAL. What specific effect, Dr. Kahn, will the OPEC price increase have on the cost of living in the United States? Mr. KAHN. I cannot give you the number on my own a.uthority. To- day the Council of Economic Advisers will be issuing its estimates. All I can say very generally is that it could have as much as a couple of points effect on the CPI, both in this year and in 1980. The more definitive estimates will be issued today by the Council. They were just react.ing to the increases that we heard about this morning. Mr. ROSENTHAL. During the course of your testimony, you asserted three or four times that if we took energy, food, and housing out of the cost of living the CPI would drop to 7.3 percent. How does the average citizen do that.? Mr. KAHN. The average citizen can cushion himself or herself only partially from that, of course. But I would question how many of the average citizens are actually buying houses these days. The interesting thing to observe is that the cost of new housing or the purchase of housing or of financing of the purchase of housing has gone up much more than t.he cPI. The. cost of renting dwelling space has gone up much ]ess than the OPT. The reasons the price of new homes has gone up so much more than the CPI are several. One is that our ta.x laws encourage the purchase of expensive houses and t.he OPT does not take that into account. Nor does it take into account that the cost of buying houses after tax has gone up considerably less than the cost of buying houses before tax. The value of that tax privilege has gone up over time. A second reason is that people are buying houses at these increasing prices because they are making an investment, in an asset that they expect to appreciate. Mr. ROSENTHAL. You said that rental housing is less, but there is a story in the New York Times today that says that the rent of 300,000 people in New York is going up 20 percent. Mr. KAHN. All I can tell you is what is in the CPI. The cost of rent in the OPT has gone up something like two-thirds the rate of the CPT itself. It has been the purchase of housing that has gone up. Mr. ROSENTHAL. The point is that the average citizen cannot elimi- nate those necessities-energy, housing, and the purchase of food, from their lives. Mr. KAHN. Again, two things. One, the average citizen can to some extent conserve, certainly in the case of food which has been so heavily concentrated in beef. He can shift to poultry and eggs which are less costly. Second, I am not suggesting that the average American can escape these costs. On the contrary, what I am saying is that for the average American these are respects in which we as a country are poorer than we were before. PAGENO="0855" 847 We have less oil and that is much more costly to us. There is no escape from that. Mr. ROSENTHAL. Is there any segment of society that inflation falls heaviest upon? Mr. KAHN. There have been many attempts to demonstrate that. The one I guess I would have to pick out as being the hardest his is the savers, particularly the people who have saved over the course of their entire lives planning for retirement. Unless their savings have been invested in housing the value of their savings has gone down sharply. I think that they are the hardest hit. Perhaps next are the people who are unemployed who have not had the benefits of cost of living adjustments of any kind. Mr. ROSENTHAL. How do you feel the people in the lower income ele- ments of the society are dealing with inflation? Mr. KAHN. I am not sure that I can answer that adequately, Mr. Chairman. Welfare payments have, I believe, been increased to com- pensate for the increase in the cost of living. Social Security retire- ment pay has also been indexed to take into account the cost of infla- tion, and I must confess that I am strongly in favor of that. I think those people who are living on that amount simply cannot conserve any more than they have. I would suggest, however, that the remain- ing 80 or 85 percent of the people in society have no escape. There is no way we ~an escape because as a country we are poorer than we were before. Mr. ROSENTHAL. As you know, the subcommittee visited seven cities around the country and heard considerable testimony at length from many citizens. The stories were very sad and the plight of the average citizen can only be described as pitiful. During the February hearing responding to a question on the cost of the real wage insurance program, you said on page 305 that, "The program is additionally self-limiting because it is very hard to conceive of the Consumer Price Index going un above 8 nercent." Would you want to comment on that projection? Mr. KAHN. Yes; that would come under the heading of the clouded crystal ball. I am not alone in that error. When this program was first formulated, it seemed a perfectly reasonable estimate that we could have the cost of living increasing by early 1979, at the 6-percent rate so that the 7-percent valuation of wage increases would be a realistic one. The things that happened were that the strength of the economy was far greater than any one predicted as was the resulting increase in demand which pressed on beef supplies-no one I know predicted that beef prices would be increasing in some cases at the farm at a 70- and 75-percent annual rate. Third, I do not know any one who would have predicted that OPEC prices would ~o up over 50 percent: or that we would have the Iran revolution causing the decline of world oil supplies while demand was rising and that these shortages would ~show up first in gasoline prices, and now, by the producing countries stepping in and trying to grab that scarcity value by increasing the crude oil price. That is the best I can do. I can tell you what happened and why I thought it was reasonable at the time. PAGENO="0856" 848 Mr. ROSENTHAL. Do you think the public and the Congress should be aggrieved at your inability, you economists generically, to make projec- tions so that Congress can enact programs consistent with what ac- curate projections are Mr. KAHN. I have consistently, I believe, said at all times that I do not believe in these estimates and I do not make these estimates. Mr. ROSENTHAL. I am sure you said that. Mr. KAHN. Covered myself, yes. Mr. ROSENTHAL. Let me take it a step further. When you testified in February, you submitted a table entitled, "Inflation Objectives of the Price-I)ecelei'ation Standard by Broad Commodity Groups." I am going to read your target goals and actual price behavior. Industrial commodities overall were predicted at a 6.1-percent tar- get but were in fact 14.9 percent. Textile products and apparels were targeted at 3.5 with an actual change of 4.3. Hides, skins, and related products were targeted at 7.9 with the actual change of 59.4. Fuels and related products and power were predicted at 9.5 and the actual change was 33.7. Chemicals and allied products were predicted at 2.4 with an actual change of 16.4. Mr. KAHN. Was that chemicals ~ Mr. ROSENTHAL. Do we have a copy of this for Mr. Kahn? Can someone take this to him so he can follow it as I read? [The table referred to follows:] INFLATION OBJECTIVES OF THE PRICE-DECELERATION STANDARD BY BROAD COMMODITY GROUPS I LProducer pri ce indexi Commodity groups Percentage change 19782 Target per- centage change Annual rate of change based on December 1978- May 1979 statistics lndust:ial commodities 8.5 6.1 14.9 lextila products and apparel Hides, skins, and related products Fuels and related products and power Chemicals and allied products Rubber and plastic products Lumber and wood products Pulp, paper, and allied products Metal and metal praducts Ma~hinery and equipment Furniture and household durables 4.9 19.3 7. 1 4.2 5.6 15.9 9.2 10. 9 8.6 6. 2 3.5 7.9 9. 5 2.4 5.3 9. 5 3.6 6. 3 5.8 3. 7 4.3 59.4 33.7 16.4 15.5 3. 0 12. 8 17. 3 8.4 6. 4 11.5 Nonmetallic mineral pcoducts Transportation equipment Miocellaneous products 11.8 7. 1 14.2 7.2 6. 3 5.5 12. 4 8.9 I Part of prepared statemrnt of Barry Bosworth before the subcommittee on Feb. 7, 1979. 2 Percentage change from December 1977 to December 1978. 3 Average annUal change rom December 1975 to December 1977 less 0.5 or 9.5, whichever is less. Mr. KAHN. Thank you. Mr. ROSENTHAL. If I make a mistake, you bring it to my attention. Rubber and plastic products were predicted at 5.3 and the actual change was 15.5. Lumber and wood products were targeted at 9.5 and there the actual change was only 3.0, so there we had a winner. Pulp, paper, and allied products were projected at 3.6 with the actual change being 12.8. Remember, you made these projections in February, only several months ago. PAGENO="0857" 849 Metal and metal products was projected at 6.3 and the actual change was 17.3. Machinery and equipment was projected at 5.8 and the actual change was 8.4. Furniture and household durables was projected at 3.7 and the actual change was 6.4. Nonmetallic mineral products was projected at 7.2 and the actual change was 11.5. Transportation equip- ment was targeted at 6.3 and the actual change was 12.4. And finally miscellaneous products were budgeted at 5.5 and the actual change was 8.9. Would you want to comment on that, Mr. Kahn? Mr. KAHN. I certainly would. First of all, those were not predictions or projections. The table says target percentage change and the footnote explains that that is the average annual change from December 1975 to December 1977, less 0.5 percent or 9.5, whichever is less. In short, that was the statistical measure of what happened in the base period and what would happen if all companies adhered to the price-deceleration standard. It was not a prediction- Mr. ROSENTHAL. It is a projection. Will you give me an accurate word to describe it because I do not want to be wrong. Mr. KAHN. It was the price deceleration standard. Mr. ROSENTHAL. You anticipated what would take place if the pro- gram was successful. Mr. KAHN. Yes, if the program was successful. Mr. ROSENTHAL. If the program was working, this is what you antici- pated would happen. Mr. KAHN. That is exactly right. Mr. ROSENTHAL. That is a projection. Mr. KAHN. That is a very important "if." There is no point in quar- reling. This was the target if the program had worked. Mr. ROSENTHAL. Right. Mr. KAHN. I certainly agree without any hesitation that the program has not worked well. It is disappointing. All right. Second, that is why I think we should look at the Con- sumer Price Index and not pick out individual items. For example, the worst one on your list was hides, skins, and related products; and they have gone up because hides `are the wrapping of beef-the casing in which beef appears-and I told you what happened to beef. The second worst was fuels and related products and power, and I told you exactly why those behaved badly. Mr. ROSENTHAL. Have you any kind of controls on fuels or energy? Are there any price standards governing oil sold from .the ship to the refiner, to the distributor, to the dealer, or to anybody? Mr. BoSwomrii. Those are mandatory controls. Mr. KAHN. Those are mandatory controls of the Department of Energy. Mr. ROSENTHAL. Is any one paying any attention to them anywhere.? Mr. KAHN. May I finish one part of my answer and then we can talk about fuels. That is why I gave you the figures for the whole Consumer Price Index. It seems to me that the way to tell if it is working is to look at the whole thing, and the whole thing is that 7.3 percent figure. Mr. ROSENTHAL. What time did you tell me you had to leave? PAGENO="0858" 850 Mr. KAHN. 11:15. Mr. ROSENTHAL. Yes. That is why we have to keep the answers short, all right.? [Laughter.] Mr. KAHN. But it is important to look at the whole thing-not pieces. Mr. ROSENTHAL. Are people violating the controls on petroleum? Mr. KAHN. We work with the standards at the refinery level, and Mr. Bosworth can summarize the ones that we have identified as prob- able noncompliers. Mr. ROSENTHAL. I am curious to know what you think. Are the standards being violated? Mr. KAHN. I suspect as a citizen that there is widespread violation at the retail level. Mr. ROSENTHAL. As a citizen, but you are not appearing here today as a citizen. Mr. KAHN. I am appearing in my official capacity where I have specific functions- Mr. ROSENTHAL. As a citizen every one knows that.' Mr. KAHN. Of course. Mr. ROSENTHAL. You have a higher responsibility. In your highest responsibility, are there violations? Mr. KAHN. My high responsibility extends to the areas the President has conferred on me. They do not go to retail petroleum. Mr. ROSENTHAL. Mr. Bosworth, you said in your statement that it appears that many are violating the controls. Is that `correct? Mr. BOSWORTH. I would say the answer to that is "yes." The reason for that is, on the basis of national data available from the Consumer Price Index and the Producers Price Index, retail gasoline prices are going up far more rapidly than could ever be justified by the prices the refiners say they are charging. That leads me to conclude, that, although many of the 200,000 gaso- line station dealers in this country are adhering to the voluntary pro- gram, otheT people are not. There must be violations between the level of the refiner and the retailer. Several of the checks the Department of Energy has made, for ex- ample, although it has had trouble checking everybody, showed viola- tions. So I say there are violations. Second, at the refinery level the increase in the average price of refinery products including gasoline, home heating oil and others, is going up far more rapidly than can possibly be justified by the in- creases in crude oil cost that are going to the refiners. There are several points to make with respect to that. First, in addi- tion to the crude oil the refiners are buying, they are also purchasing at the request of the U.S. Government a lot of refined petroleum prod- ucts on world markets in trying to make up the shortfall, because they do not have enough crude to produce all the refined products we need. Those. prices in international markets are uncontrolled, and they have been soaring. There are individual transactions that we know of to buy gasoline at the wholesale level that imply that, if it were sold at the retail level, the price being charged would have to be $1.75 a gallon to recover the cost of the purchases. Therefore, one reason that their prices have gone up more rapidly than crude oil is the reflection of the. higher cost which they are al- lowed to pass through on the refined petroleum products that they purchased. PAGENO="0859" 851 The second reason is that, under the DOE regulations, companies, who perhaps did not have their prices up to the absolute maximum level last year or the year before, can bank those shortfalls and put them in the marketplace later on. They seem to have made an awful lot of. adjustment for banked cost increases. Third, from the data we have received the degree of compliance with DOE's mandatory controls on gasoline and more generally the Council's voluntary standards show that this compliance has been much higher among the large, highly visible refiners that can be suc- cessfully monitored by the. Council than the smaller refiners. We are finding that a large number of smaller refiners-at least on the basis of preliminary data-seem to be charging prices that are consistent neither with the mandatory program nor with the voluntary program. Mr. ROSENTHAL. My question is how can you be excused from the incredibly high increase in energy costs-considering all of this knowl- edge you have in your possession-unless you went to the President and told him that DOE was not enforcing the regulations. My question is, did you do that? Mr. BOSWORTH. I think more relevantly the question is whether or not DOE can enforce the regulations. It has been proven historically both in this period and in 1973, when we had mandatory controls on the whole economy, the basic problem is that it is almost impossible to run any system of mandatory controls in the. face of shortages. If you do not have shortages, the market pressures do not provide strong incentives to avoid controls, but any time that we have tried to run mandatory controls-whether it was on beef back in 1973 which did not work then or on gasoline now-people have simply avoided them. How can the Federal Government check 200,000 gasoline station dealers and all the complexities of the refinery process? When there is insufficient supply relative to demand and people are standing in gas- lines and are enraged over the hours they have to spend there I do not think that you can expect mandatory controls to work, regardless of how many people the Government puts in the field. The incentives to get around them are just too strong, and people are ingenious about finding a way to do it. Mr. ROSENTHAL. The DOE regulations are, therefore, worthless so long as there are shortages or perceived shortages. Mr. BOSWCRTH. No. I would not go that far. Note the differences currently between the rate o.f the price increase that we have had in gasoline which is subject to DOE regulations and the rate of increase that we have had for diesel fuel. Both have gone up dramatically. but diesel fuel, which is currently unregulated, has gone up far more than gasoline prices. Mr. ROSENTHAL. Is it riot a fact that the average motorist uses reg- iilar frasoline as compared to diesel? Mr. BOSWORTH. No. The decree of shortage for diesel and the degree of shortage for gasoline are about the same. A lot of gasoline station dealers do try to cooperate. Not every gasoline station owner is trying to cheat people. Many of them coop- erate, but some do not. PAGENO="0860" 852 Mr. ROSENTHAL. Do you have projection as to the percentage of gasoline station retailers that are cooperating? Mr. BOSWORTH. No. I could not answer that question. All I can say, based on the aggregate data, is that it does not appear to me that on the average in the country it is possible that people are complying with the standards with respect to gasoline. What you have, that I can account for, is a l5-c~ent increase in the price of gasoline. About half of it looks like it is due to an increase in the crude oil prices. The rest looks like an increase in margins. However, you can then check some individual gasoline station deal- ers who have been into the Council and they are complying with the program. They are charging no more than the maximum allowable price. Mr. ROSENTHAL. Let me ask Mr. Kahn a question. During your February testimony, you discussed final wage/price guidelines as they apply to petroleum refining. Have standards been issued for this area? Mr. KAHN. Yes. Mr. ROSENTHAL. With what result? Mr. KAm~T. The results are as Dr. Bosworth has described. Inci- dentally we. have presented essentially the same factual analysis he gave you, to the President. We think that at a time when there is such public confusion on what is really going on it is probably not helpful for several people to be talking simultaneously about what ought to be done. Mr. ROSENTHAL. What causes the public confusion? It is not the fault of the public, is it? Mr. KAHN. Of course not. I just do not want to contribute to it by testifying about either what could be done in areas under some one else's jurisdiction or, indeed, what is actually happening. This factual analysis the President has, however, shows that in the case of petroleum refining the major refiners, so far as we have been able to see-and Dr. Bosworth has had long discussions with them and their figures have been analyzed-are complying with the standards. It appears that many small refiners are not. Mr. ROSENTHAL. How about wholesale jobbers, are they complying? Mr. BoswoRTII. We are not certain because One of the things that is missing from the Government data is the difference between the price the jobber is charged versus what he charges the gas station. We have it at the refinery and the retail level. Somebody in there is raising his margin. It is a combination of the retail distributor and the jobber. The individual stories we get from the industry suggest that a sub- stantial amount of margin widening has occurred in the case of these small, independent jobbers. Mr. ROSENTHAL. What about the situation that we heard about re- cently where some persons centered in some parts of the country are gathering t.ogether what is called "old oil" and selling it as "new oil." Have you monitored any of that at all? Mr. KAHN. Again I am sorry to have to say that is the responsibility of the Department of Energy, not us. They have mandatory controls on the production end of the business. We concentrate on the refining end. PAGENO="0861" 853 Mr. ROSENTHAL. Mr. Brooks? Mr. BROOKS. Mr. Chairman, I want to first say that I congratulate you on having these hearings on inflation. You have had seven hear- ings around the country. That may not impress the witnesses because they are sitting here comfortably. However, when you have seven hearings aroundthe country, you have to travel and plan and they are not easy to do. I, for one, certainly appreciate the effort you have made in focusing on this problem. I have two quick questions. First, Mr. Kahn, do you feel that in view of the apparent shortage of supply and strong demand for gasoline that rationing would be a form of control that would help to allocate that available supply with a minimum distortion of the public's time and way of life? Mr. KAHN. I am examining the question of my responsibility again. I feel that, when the American people get mad enough about having to wait in line-and I believe waiting in line is probably the inevitable consequence of holding the prices down or, with some effect, trying to while not limit.ing demand-they will be prepared to go to some sys- tem that dire.ctly limits consumption. The problem is one of finding a system that will strike enough people as equitable and whose administrative costs will not be so stupendous that it will outweigh the benefit. I have no objection in principle to saying-in a situation like this, subject to this kind of exploitation from abroad, with shortages, and the worry of prices increasing sharply-that one legitimate solution is to say we have a kind of national emergency and rationing should be considered. I would be very upset if some one were to say that the Presidenfs adviser is now advising him to go to rationing, but I think it is some- thing that is not to be rejected. Mr. BROOKS. You are pretty cautious, aren't you? Mr. KAHN. Well, the problem, sir, is that in the energy field there are so many people talking simultaneously. Mr. BROOKS. I Just want your view on it. Mr. KAHN. My view is that rationing should be considered. Mr. BROOKS. All right. My next question is: Have you ever considered the possibility-from the standpoint of an economist-of the Government buying all the crude oil that is imported into this country and reselling it just as a passthrough operation to whomever the ultimate purchasers were- oil companies, snake oil salesmen, or whomever? Mr. KAHN. I certainly have considered it. The reason I am troubled by a situation- Mr. BROOKS. The reason I ask this,isbecause we seem tohave serious difficulty in the Department of Energy-and I am sure even for you economists-in determining, what our supplies actually, honest to God, no fooling, are. Nobody knows. Mr. KAHN. I understand. Mr. BROOKS. And the people that know will not tell us because. they are making money on it in the spot market out of Rotterdam. That is why I am~ asking if you have considered the possibility of the Federal Government buying it all and passing it. through them so we know how much oil we have. PAGENO="0862" 854 Mr. KAHN. Yes I have, for that reason. I have also considered it for another reason. I just cannot be comfortable in a situation in which the people who are responsible for buying the oil are also themselves producers, with the result that their interests are divided. Mr. BROOKS. It makes you nervous? Mr. KAHN. Yes, it makes me nervous. Mr. BROOKS. What do you think about the feasibility of doing it that way? Mr. KAHN. I think there is a third element that would be important to make it feasible if we are to present a common front in negotiating for oil abroad. We have to be in a position to control how much we take. We have to be in a position to say, "All right, we will bargain with you; but if we do not like your price we will take less." That is why it ties in with your first question very logically. Unless we are prepared to institute some limitations on how much we will take, and therefore how much we consume, we are going to be weak. I see these as being the two pieces of the puzzle that we really ought to seriously consider. Mr. BROOKS. Thank you very much. Mr. ROSENTHAL. Just one more question. Dr. Bosworth: Could you tell us briefly the number of staff positions you have and how many have been filled, and what their areas of responsibility are? Mr. BOSWORTH. I can tell you roughly. Before the Congress right now there are two bills authorizing employment levels for the Council and they differ. One of them would allow a ceiling maximum of 233 and the other would allow 200. We are presently at about 217 waiting for action on whether we get the higher number or the lower number. We will have to cut back a bit if we get the 200 level. About 90 of those people are in Price Monitoring. About 35 are in Pay Monitoring. There are about 25 people assigned t.o Government Regulations. The General Counsel's staff has about 17 or 18. Mr. ROSENTHAL. How many corporation filings do the 90 people in Price Monitoring review? Mr. BOSWORTH. It is difficult to count if companies are complying with us. A company may disaggregate into several units. There are about 1,800 of those units. Mr. ROSENTHAL. In the Federal Government you have the principal responsibility for monitoring the wage/price guidelines established by the United States of America, do you not? Mr. BOSWORTH. Yes. Mr. ROSENTHAL. And yet 90 people out of 250 million in this country are doing that? Mr. BOSWORTH. We discussed this the last time I was here. Mr. ROSENTHAL. Yes, but things have gone from bad to worse since that discussion. Mr. BOSWORTH. No, quite the contrary. One of the questions you asked me earlier was whether or not the American public could dif- ferentiate between food and energy prices going up rapidly and others. The point we want to make is the real reason you distinguish this is that we have a very rapidly worsening inflation problem. PAGENO="0863" 855 If we ~are going to address the problem of inflation, it is crucially important `to know the reasons for it. Inflation in this country has accelerated enormously because of food, energy, and housing and this dismal productivity performance. However, in the sector of the econ- omy where we were asking American firms and American workers to comply with wage and price restraints, we have had almost no ac- celeration in the rate of wage increases in this country despite double- digit inflation for over 6 months. That is a phenomenal record of people's willingness to cooperate with the program. In the industrial area, the rate of inflation has been 7 percent. In terms of the original objectives of this program and what that whole huge sector of the industrial sector of the economy outside of food, energy, and housing was supposed to achieve, prices today are running at a rate approximately 1/2 to 3/4 percent above the Government's original objective. Pay increases are running about 1/2 to 1 percent a month. Both of them, in other words, about the same amount. I do not think that the performance of those sectors of the economy has been bad at all, giiren the tremendous pressures that have been put on them because of exploding energy and food prices. In fact, we said we could monitor compliance in that sector of the economy for which standards can be made to apply. You are dealing with firms with a lot of discretion over prices. Mr. ROSENTHAL. They send in their reports as' `to what their prices are, and your 90 people review the reports of how many corporations? Mr. BoswoR'ni. 1,800. Mr. ROSENTHAL. Ninety `people review these. How big are these filings? Mr. BOSWORTH. It gets re'duced down to about a single page of paper. Mr. ROSENTHAL. Do you verify the accuracy of the filings at all? Mr. BOSwORTH. Yes, in two ways. First of all the companies report to' us their price~ increas~s, basically by industry. We compare that with the Government statistics to see whether or not- Mr. ROSENTHAL. Thatis industry-wide information? Mr. BOSWORTH. Yes. Mr. ROSENTHAL. I mean company A and- Mr. BOSWORTH. It is very hard for them to lie about price increases. It is pretty well known. Mr. ROSENTHAL. Have you verified any price increases at all? Mr. BOSWORPH. `Certainly, every time we get into an investigation of a company's actual price increases. Then we have' to go through the process of verifying the fact that the prices that they- Mr. ROSENTHAL. `Do you have `field investigators that do that? `Mr. BOSwORTH. No, that is not necessary. All you have to do is call up the suppliers or you ask the company for its posted list of prices. Most companies, when they sell a product, post a listed price. If they do not, we go to suppliers and ask them what~ they are charging. Mr. ROSENTHAL. As I recall you, Mr. Kahn, and Mrs. Peterson'held a press conference with the AFL-CIO in `which they were going to. be the investigative monitors throughout the country. How is that project going ~ PAGENO="0864" 856 Mr. KAHN. They are not the investigative monitors. They v~lun- teered to be one source of reports. Mr. ROSENTHAL. How many people did they say they would put in the field? Mr. KAHN. I think they talked about hundreds, if not thousands. What I get regularly is a long letter from Mr. Perles, who is Mr. Meany's representative, listing items that have been reported to him. Mr. ROSENTHAL. How is that project going? Mr. KAHN. I would have to ask Mr. Bosworth what happens to it when it gets over to him. Mr. ROSENTHAL. Mr. Bosworth, how is it going? Mr. BOSWORTH. Not very well. Mr. ROSENTHAL. I did not think so. Mr. Williams? Mr. WILLIAMS. Mr. Kahn, you have constantly resisted the idea of initiating mandatory price controls, and you are sticking with that position today. Is that accurate? Mr. KAHN. Yes. Mr. WILLIAMS. If we do not go the mandatory controls route, the alternative may be a recession, as I think you commented earlier. How close are we to a recession? Mr. KAHN. I cannot answer that question. As I said in my testimony, there are other people who make these projections. I do not. All I can say is that the danger is clearly greater than it was, especially be- cause of these OPEC price increases. Mr. WILLIAMS. What dialog do* you have with the Department of Energy? Do you have dialog with them? Mr. KAHN. Yes, we do on specific issues where we have overlapping jurisdiction. We have had several meetings with them, for example, on problems that arise in the relationship between their refinery controls on gasoline and our voluntary program as it applies to total refinery margins. I think those have been the main ones. Mr. WILLIAMS. I think it is very accurate. Some have argued that our crude oil supplies have increased in this country as well as through- out the world. Mr. KAHN. Did you say it has increased? Mr. WILLIAMS. Yes. Do you agree with that? Mr. KAHN. The information that I have from the Department of Energy, which is the only source of information I have, is that there is a shortfall of world production on the order of 11/2 to 2 million barrels a day as a result of Iran going down from roughly 51/2 million barrels to roughly 31/2 million. When Iran went down to zero, Saudi Arabia filled the gap. Now, however, Saudi Arabia has backed down to roughly 81/2 million barrels a day. That is the information I have. Mr. WILLIAMS. The point I am trying to get to is that if crude oil supply has increased while the price has increased 4 cents a gallon, and gasoline has increased 12 cents, wouldn't the Department of Energy, through your guidance, be able to do something about this? Mr. KAHN. I do not see how my guidance- Mr. WILLIAMS. The guidance with the guidelines you have estab- lished for everybody else. PAGENO="0865" 857 Mr. KAHN. But our guidelines apply not to the crude oil level, but to the refinery level. Mr. WILLIAMS. That is what I am talking about. The gallon of gaso- line has tripled in price compared to tue gallon of crude oiL Mr. KAHN. That is why we have engaged in this very tight moni- toring at the refining end of the business, and that is why Mr. Bos- worth has been able to summarize for you what we have found so far. Mr. WILLIAMS. All right, why don't you comment, Mr. Bosworth. Is what I am saying accurate? It is about three times the increase per gallon of gasoline. Mr. BOSWORTH. I think we would say less than that now. It is now about two times. We got reports from 80 refiners. `With the largest refiners, for ex- ample companies like Gulf Oil Co., we have gone through their prices for about the rate of increase of the overall market. How was theirs explained? They had to buy enormous quantities of refined petroleum products on the world spot market because their crude sup- plies are way down. Their refineries utilization was still quite low. They appeared to be in compliance with the program. We said one fairly large company, Hess, was not in compliance with the program; the company has not challenged that. The rest of the problems seem to be with these small refiners. `We are arguing with them over attempts to get more data to verify exactly what they have done. The real problem we have had, however, is we have found some companies in compliance and some out of compliance; but what do you do with the ones that are out of compliance? You are in a situa- tion of trying to run a control program when there are enormous shortages. How do you control prices when demand exceeds supply? What do you do if you hold down the price? You get a gasline. People do not like gaslines either. Mr. WILLIAMS. I think that is what we are asking you. What are you recommending? Mr. BOSWORTH. The basic problem the country has, whether or not crude oil supplies go up, is that we cannot afford to continue to im- port petroleum in the magnitude that we have been because it is going to bankrupt us. We cannot earn the foreign exchange to pay for it, no matter what the price is. We have to find a way to reduce demand in this country and increase domestic production. In the short run the oniy option is to reduce domestic demand. With the problem we face, I know of two ways to do it. One is to use direct price increases to induce people not to buy. as much. The trouble is the magnitude of those price increases would have a tre- mendous impact on inflation. It would be very costly to some people who cannot change their consumption patterns in the short run to take account of the higher prices. That leads you into various types of proposals to ration. Standing in gaslines is one form. of rationing. It is inequitable, howeve~r, be- cause some people can afford to stand in a gasline and some cannot. On the other hand, any other proposal that has been put before 52_21L~ 0 - 79 - 55 PAGENO="0866" 858 this Congress on how we might ration-the President sent one up last month-has also been found inequitable by Congress. The difficulty we have is we say we have to cut down demand, or we have to raise prices, or that is not fair, or that is too inflationary, therefore, we will do it by rationing. However, none of us can agree on what an equitable rationing plan ought to be for the country. Nor can we agree on how to administer it without getting into enormous complexities. Here we sit as a country still arguing over the proposals. Mr. WILLIAMS. What a terrible time for you to leave. Mr. BOSWORTH. That depends on how you look ~t it. [Laughter.] Mr. WILLIAMS. I have just one more question. Given the grave testimony about the inability to control food, en- ergy, and housing costs, what is the future of your anti-inflation pro- gram? We are into it now 8 months, and I know by 1980 something is going to happen. What do you see for the future? Mr. KAHN. Food is working. Food prices have already begun to slow, and are increasing less than the CPI generally. They are below double-digit rates already. We-in at least the Department of Agri- culture and the Council of Economic Advisers-have every belief that for the rest of this year that will continue to go down. You know, it is interesting about food. Food prices over the last 10 years have not led inflation. We are back to the long run there, but that may be more detail than you want to talk about. Mr. WILLIAMS. No. That is in:teresting, but I am concerned now with the trucking industry, and letting food sit there and rot because of the energy costs. This certainly cannot help the situalion. I do not want to take everybody's time, but just tell m~ briefly how you view the future of the anti-inflation program that we have been hearing about and dealing with. Mr. KAHN. I think the first important step of the anti-inflation program- Mr. WILLIAMS. I am not sure that is a good term. Mr. KAHN. Well, it is not a pro-inflation program. It is having some effect. But, I think, by far, the first important step is to confront this arithmetic of the oil problem. Mr. Bosworth has given you, as far as I know, all the logical possibilities. We are in a box; if we do not want those price increases and if we recognize that we have to cut down on our purchases from abroad, then we have to solve that dilemma. We either have to let the price go up or we have to have some system-it will never be perfect-of con- trolling demand. That is the first and most important thing. The effect of that, to the extent that you restrain demand, is that you do not get an increase in prices. It does not show up in the CPI. What happens is that our impoverishment in this respect-which is inevitable-shows up not in rising prices, but in the inconveniences of rationing. Second, we have got to continue monetary and fiscal restraint. We have to keep tryingto walk this line because it is producing results. We are getting declines in the double-digit prices-I mentioned steel scrap, wood pulp, and others in my testimony. Copper actually went down. But it is kind of a long-haul business. PAGENO="0867" 859 I know this is not going to be satisfying to you, but it is the only truth I know. The problem of inflation arises because we have not as a country learned how we can share the burden of this inescapable restraint. What is happening is that everyone is trying to protect himself or herself by getting the increase in income so that he or she is compensated. That defies the basic arithmetic, however. Nobody I know is in favor of ending inflation with a real recession. You could solve the problem if you wanted to by stamping on the brakes, throwing people out, of work, and creating enough hardships. But that is unthinkable. What this program says is that we `have to work that middle range, keeping the brakes on and aiming at the productivity element which is very important. If you get zero productivity you are doomed to this bad arithmetic. If you get your productivity increases back to 2 and 3 percent, this arithmetic changes. All we can think of is in terms of a persistent application of these brakes. We take encouragement from the fact that the basic rate still seems to be, in the CPT, at the 7.5-percent level or slightly less. I do not have any other solutions for you, Mr. Chairman. The wage/ price controls that people think of next, I sincerely believe, are counter- productive. They look like a nice solution, but they are a mess. I have been in the situation where I was trying to administer price controls for one single industry, and it was a mess. Things are much `better by virtue of my having let go. I am just not interested in being in a &tuation in which I have to do that for 5 million commodities in this country. Mr. WILLIAMS. In essense then what you are saying is give the pro- gram a little more time, and hopefully stay on the course. Mr. KAHN. We are in the process of talking about things that we can do in the longer run to improve productivity. So it is not as though we are stagnant. Inasmuch as it is a political problem of getting con- sensus `and agreement and willingness to show restraint, we are en- gaged in negotiations with labor and with business. We really have to aim at some sort of social contract by which people are willing to live. Mr. WILLIAMS. I think Mr. Bosworth said in his statement that the wage guidelines have stayed within one-half percent of your projected targets, so they appear to be holding the line. I am still fearful, as I think everyone in the country is fearful, that the pricing is what has gotten us all in trouble and we have to do something about it. I hope that these heairings have served a purpose in letting you know what we are hearing, and I know Mr. Meany has let you know what he thinks. Now we will go from there. Thank you very `much. Mr. ROSENTHAL. Mr. Kahn, do you have 5 more minutes? We have not heard from Mr. Matsui yet. Mr. KAHN. Could we make it 3, because I have to get to the other side of town. Mr. MATSUI. My questions are really for Mr. Bosworth. Mr. ROSENTHAL. All right. Let me use up your 3 minutes. Mr. Kahn. Talking about wage/price controls, in industries in which there is concentrated market power, such as automobiles, aluminum, pharma- ceuticals, chemicals, and food processing with virtually no competi- PAGENO="0868" 860 tion, wouldn't some kind of controls be useful if you used them selectively? Mr. KAHN. I would not say that there is virtually no competition in those industries. By answering your question I do not want to be asso- ciated with the question. Apart from it, however, that was sort of the basic idea of the standards originally, Mr. Chairman. That is to say, that we would not be in an overheated economy and markets would not be so tight. Therefore, it would suffice for us to concentrate our attention on the larger companies-in general the ones with the market power. In point of fact those companies are quite generally complying with the standards. It is, therefore, kind of paradoxical. You do not need mandatory controls in dealing with these sectors of the economy because they are, being very exposed, essentially complying with the standards. The threat of publicity- Mr. ROSENTHAL. What does essentially mean? Mr. KAHN. Well, we have not-Barry, can you tell me how many of the top 500 companies we have identified as violators? Mr. BoswoRTH. Two. Mr. ROSENTHAL. In the whole country you `have only identified two violators? Mr. KAHN. In the top 500. Mr. ROSENTHAL. You have approved many exceptions though. Why don't we let you go and let Dr. Bosworth deal with the rest. Mr. KAHN. Thank you, Mr. Chairman. Mr. ROSENTHAL. Just one last question, Mr. Kahn. I hate to ask you this because in February we asked you for a projection which turned out to `be about 6 percentage points wrong, but what is your projection for the rate of inflation for the second half of 1979? Mr. KAHN. I will begin `by saying exactly the same thing I said then: I do not make these projections. OPEC's increase yesterday, as I said in my statement, creates a real specter that we will be bumping into the double-digit level for the rest of this year. Mr. ROSENTHAL. At the bottom or top of the level? Mr. KAHN. Well, I would say at the bottom. But again by answering your question, it must not be interpreted to mean that I agree with the way your statement `was stated. I will bet I was not off by 6 percentage points in what I said last winter. Mr. ROSENTHAL. I think you were. You said it would be 8 and it will be 13 or 14. Mr. KAHN. That is your statement not mine, Mr. Chairman. Mr. ROSENTHAL. I am willing to put some money on it. Mr. KAHN. I will make you a side `bet, but off the record. Mr. ROSENTHAL. Thank you very much. We are very grateful to you, Mr. Kahn. Dr. Bosworth, can you tell us something about the exceptions that were granted both for pay and price areas? Mr. BOSWORTH. Yes. It is difficult to characterize all of the exceptions on the pay side because there have been a greater variety of reasons. The most common reason for an exception on the pay side has been a tandem relationship where there was, for example, a union contract signed prior to the beginning of the program. The workers had a cost- of-living escalator clause and had gotten very large wage increases. PAGENO="0869" 861 Then the employer says he has another nonunion unit right next to them that he has traditionally always paid the same rate. Mr. ROSENTHAL. How many exception requests were there and how many approved were there? Mr. BoswoRTH. I do not have the numbers before me, but as I re- member I think we have had almost 350 pay exception requests. We have been approving about 80 percent. of the requests. Mr. ROSENTH4L. How many price exception requests were there? Mr. BOSWORTH. That has been almost exactly the same number- about 350. Mr. ROSENTHAL. Were these from major producers? Mr. BO5w0RTH. These would be from companies with sales in excess of $250 million. Mr. ROSENTHAL. What was the thrust of the basis of those approvals? Mr. Boswowrii. In almost every case exactly the same issue. A chemical company has experienced a 90-percent increase in the price of petrochemicals that it has to buy. If you tried to hold it to the price standards, the company would go out of business. We go to a profit margin standard and say they cannot increase their profits and there- fore they can pass through the cost increases and maintain profits as a share of constant income. I . would say that is 80 percent of all the requests. Mr. ROSENTHAL. Did you project the total cost of the passthrough or the increase that would reach the American consumer? Mr. BOSWORTH. We do not know how high petrochemicals prices might go by the end of the year. Up to now we have tried to estimate what those would do. We are basically faced with a very high degree of compliance. Most of these companies will not make a move on prices inconsistent with the standards without getting the Council's approval. What is now happening is that first, petroleum prices exploded and all the petroleum industry had to go over to a cost passthrough. When they pass their cost passthrough there go the chemical companies. Then the chemical companies go over to passthrough which in turn passes on to plastics who go over to passthrough. Then it begins to come through to the economy. Mr. ROSENTHAL.. One of the price exceptions that you had a request for was American Broadcasting Co. What was the basis of their request? Mr. BOSWORTH. I do not know. There is a public file that has Amer- ican Broadcasting, but I would assume it would be an issue over how they were organized. Mr. ROSENTHAL. How they were what? Mr. BOSWORTH. How they were organized. Mr. ROSENTHAL. What was the basis of Anheuser-Busch's request? Mr. BoSWORTH. That is an unprocessed one at the present time, but that it is in the beer industry I would assume that it is a cost pass- through request. Mr. ROSENTHAL. Do we get much beer from Iran? Mr. BOSWORTH. No. What you have there are exploding corn prices. In the last 6 months they have gone up enormously. The Chairman. mentioned earlier to you that we. look for moderation of food prices. PAGENO="0870" 862 but I want to bring one other issue up because I think the Congress should be very aware of it. Where food prices will moderate, perhaps for the remainder of tins year, the outlook for the longer term is again getting very serious because of the bad Russian grain harvest, the bad European gram harvest, and the rapid rise in grain prices as a result. The Unitel States is again faced with the problem of demand exceeding supph \7~,Te have a substantial- Mr. ROSENTHAL. Do you mean demand including exports? Mr. Boswou~ii. Yes, including exports. We have substant.ial reserves of wheat, but our feed grain is moderate-close to the border line. ~ will face a decision later this year as to how much land to put into production and whether we should have acreage set-aside restrictions or not. Mr. ROSENTHAL. Should we have restrictions on exports of agri - cultural products? Mr. BOSWORTH. I do not think that would be a good idea. Mr. ROSENTHAL. I was just asking. I do not know. Mr. BOSWORTH. I am opposed to it. I think the American agricultural industry is best served by trying to promote the maximum level of production rather than trying to peg prices at artificially high prices. Mr. ROSENTHAL. When I read your list of companies that have re- quests in, it goes the whole gamut of American society-Agway, Airco, Alco Standard, Allegheny Ludlum, Allied Chemical, American Brands, American Broadcasting, American Can, American Cyanamid, American Hoechst, American International, Anheuser-Buseh, Arco, Armco, Armstrong Cork, Asarco, Associated Dry Goods. There is a whole telephone book. What was the basis of R. J. Reynolds Industries' request? Mr. ~BOSWORTH. I do not know. R. J. Reynolds is a conglomerate and you would have to look at the specific request. Mr. Chairman, what is very clearly happening so far is that you can say either the exceptions are bad or the fact that they are requesting them is good. It does indicate a very strong desire by these companies to go along. I think the anti-inflation program in this country is going to face the crucial question in the next couple of months. Costs are exploding. From the worker's point of view his food prices are going up, his energy prices are going up, and his housing costs are going up. He says, "How can I adhere to these standards any longer?" Companies are saying, "Our raw material prices are acceler- ating. How can we adhere to these standards any )onger?" Attempts to try to get a wage increase or to try to kee.p up with these cost increases are going to solve nothing, because you cannot get more beef cows by getting a wage increase. If everybody tries to main- tain their income to buy beef and purchase the same way they did before, then beef prices will just rise again and the industrial prices will worsen. This attempt to catch up with what we cannot catch up to is like this country was in 1~74, when we went into the worst recession. We are right on the verge of making the same mistake again. No one can ever exaggerate the magnitude of the declines the Amen- can public has suffered in real income. They are facts of life that are going to occur whether we ask for a 7-percent wage increase, or 14, PAGENO="0871" 863 or 21. This country is going through an extremely difficult economic period. We are generating as a country not productivity growth, but pro- ductivity declines. In the face of that there is no room for real income increases, but everybody wants one because he is use to it. With no productivity growth, we have no opportunity to offset the increases in food prices, or energy prices, or housing prices. That means that the standard of living in this country is going down, and that is an extremely serious situation. We can take the attitude as individuals and repeat what happened in 1974 and say, "That may be true but I am going to get mine." If we try to do that, wage rate increases will accelerate arid industrial price increases will accelerate and the inflation will worsen dramati- cally. Then this country will have no choice but a severe recession. I know it is a painful period, but what is happening to us cannot be solved by people trying to get a wage increase. It can be solved by trying to do something about the basic problems in agriculture, and by this Congress and administration coming to an agreement on an energy policy for this country and beginning to address these issues. They are not addressed by saying some companies are not going to be allowed to pass these price increases along in chemicals. You do not solve the inflation problem by messing up the chemical industry in the face of huge increases in petrochemicals. What we have tried to do with the standards, and I think where they have been successful, is asking everyone to share the burden equally. That means that there should not be any redistribution of income or rise in the corporate share of income. Mr. ROSENTHAL. Do you think the burden has been shared equally? Mr. BOSWORTH. In terms of the broad aggregates of labor income versus profits, there has been no change in the distribution of income. Has the burden been shared equally among individuals? No. A lot of workers-the highest paid workers in this country-have gotten wage increases in excess of 7 percent. The lowest wage people have fre- quently gotten wage increases of less than 7 percent. Inflation always hits hardest at. low income people because they do not have the room within their budgets to absorb the inflation. Inflation is hitting low-income people in this country far harder than it is hitting the wealthy. We talk too much, it seems to me, about proportions. Everybody paid the same proportionate increase in their gasoline prices. But proportionate increases are a lot easier for a per- son in a hi.gh income bracket than for someone in a lower income bracket. The solution to these problems, however, is not to hold down prices in some critical industry where we will need supplies in the future. It will not help to reduce profit margins, curtail investment, and give rise to the capacity shortages that have been plaguing this country ever since we had controls in 1972 and 1973. Another very disturbing fact of life to me is that we sit here today with 6 million people in this country unemployed. We cannot put them to work because we dO not have the industrial plant capacity to employ them. We are out of capacity in steel, we are out of capacity in alumi- num, we are out of capacity in copper, and company after company is operating at full capacity today on the basis of materials. PAGENO="0872" 84 That is a shameful situation in many respects, that you cannot employ people because a country as wealthy as ours does not have enough existing capacity. The solution to that is not to go and foul up the system even more by trying to say, "Well we can hold down on this price even though there have been cost increases." We will nc~ in the long run answer our questions by distorting the price system and the incentive to try and expand capacity. Mr. ROSENTHAL. Your view is that the underlying corrective mecha- nism necessary is to increase supply and increase production? Mr. BOSWORTH. I think the focus of our efforts today should fall very heavily on the side of expanding supplies. Our problem is one of limited supply. On the other hand, I would make one exception- for energy-where I do not think it is practical to expand supply. For the short run I think we have to reduce the demand for energy. Mr. ROSENTHAL. Outside of energy, how do you increase supply? Mr. BOSWORTH. In the case of agriculture, the Government uses re- strictions on production as a way to hold up prices to artifically high levels. I think we have been plagued with that in the past. We must try to hold a larger grain reserve than we have been hold- ing in the past so that when we have bad weather we have some excess supply to absorb those fiucttEations. In the industrial are'a, the fundamental problem this country faces is productivity growth. I cannot tell you all the reasons the produc- tivity growth has slowed down. I do not think any economist can, but we know some of the factors and some of the things the Government can do. I think most important in that area is to expand the incentives for capital formation and try to get the level of investment up in this country. Congress was given a proposal like this last year when the admin- istration. proposed some tax incentives to expand investment demand. Unfortunately, most of those proposals were voted down and we went instead for a capital gains tax that rewards people who want to specu- late in real estate. I do not think that that was a wise move. Mr. ROSENTHAL. We are going to pass the windfall profits tax today. How do you feel about that? Mr. BoswoRTH. I think the windfall profits tax is a good compromise tO get the price of domestically produced oil up. We `should allow the prices to rise because people were just turning old oil into new oil. We could not tell the `difference because once they were in the barrel they looked the same. The excess profits tax is a good way to invest the equity issue, so I favor that as a compromise. Mr. ROSENTHAL. Mr. Matsui. Mr. MATSUI. Thank you, Mr. Chairman. Mr. Bosworth,' you indic'ated some months ago that wage and price control was perhaps one alternative. Could you tell me exactly what you said and what your position is at this particular time? Mr. Boswomrii. It seems to me that wage and price controls can do some things but not other things. At the present time I would argue that given the existing economic situation we have, wage and price controls are not a solution. Our PAGENO="0873" 865 fundamental problem is not that the American public has been unwill- ing to go along with voluntary wage or price restraints. Our problem has been a shortage of fuel. I do not see how price controls solve that problem. OPEC will tell us to go to hell even if we put price controls on them, and I do not see the current shortages and gas lines solved by putting on price controls. We have them on gasoline now and they are not working. The third problem we have is housing. I do not know of a way to put price controls on the individual homeowner and tell him he can- not sell his house at the maximum price he can get. I do not think the American public would stand for it. The fourth overwhelming problem we have is this disastrous per- formance with respect to productivity growth in this country. The one thing we have learned is that price controls are not exactly the strongest. incentive to try and improve productivity performance. They usually leave companies trying to find ways to jack up cost increases as a justification for price increases-just exactly the op- posite of what we want them to do today. We want them to cut their cost and improve their efficiency, and it is difficult to run a price, controls program that does not interfere with those incentives. Mr. MATSrn. Therefore, you believe price controls will not work. Mr. BOSWORTH. I will give you the one positive area that price con- trols can work. When you have a situation like the current one with all these areas that controls will not solve, you must tell people they cannot catch up and they cannot solve the problem of food and energy shortages by a wage increase. People will say they are willing to exercise restraint in their wage increases but they do not believe others will. They will ask what assurances we can give them that others will do the same. Wage and price controls have historically been used in that funda- mental way t.o get the individual to go along with restraint because it promises him that others will be similarly restrained. You have to try and prevent this catchup that could lead to an. ex- plosion of inflation. The problem we face is that the moment we put on wage and price controls, the American public makes Government responsible for every price in the entire economy-gasoline, food, and everything else. Government, however, cannot solve all these problems, and controls just collapse after a period of time. Mr. MAT5rn. You are saying then that wage and price controls at this particular time is not the solution. You indicated recently in an article in the American Banker-a June 4 article-that a recession really is not an answer either. I think Mr. Kahn mentioned that also when questioned by the chairman. Mr. Williams indicated a number of things that I would like to reiterate. First of all, you have no control over the health situation at this time. Mr. BOSWORTH. We. have been trying to get some. Mr. MATSUT. I understand that, but even if you do and then imple- ment a program it will probably be at least a couple of years before anyj~esults occur. Therefore, you are talking about 24 months away. PAGENO="0874" 866 Housing as you and Mr. Kahn indicated cannot be controlled. In fact, I think the CPI is deceptive there because it only includes FHA homes and other homes are probably increasing- Mr. BOSWORTH. No. That has been modified now. Mr. MAT5UT. All right, but those two areas are not being monitored and there is very little we can do about it. You are probably also aware of the Department of Energy's in- eptitude and inability to do anything intelligent. Therefore, you have health, housing, and energy which are ob- viously some of the major areas that the American public consumes. Excluding those things, everything else produces a 7-percent infla- tion rate. Are you, therefore, saying the program is working? What would you suggest we do to change it? What is going to happen in the future? Mr. BoswoRTl. This program had many facets to it besides volun- tary wage and price standards. Mr. MATSUT. You put the program in the past tense. Are you say- ing that- Mr. BOSWORTH. No, I mean the original design. The point I am trying to make, however, is that the program has worked well and the people have cooperated very well-more than we ever thought they would with the voluntary wage and price standards. The problems lie in areas that are not solved either by attacking the voluntary standards or by moving to mandatory controls. In energy, for example, we were talking earlier about this increase in margins which is about 50 percent of the entire increase we have had. There is one thing true about gas stations. They are competitive. If there were no gas lines, you can bet your life that those margins would come right back down again. The way to do that is to reduce demand and get it down to the point where there are no world spot market prices running at $40 a barrel. I think the cost is too high to do it with prices. I think that we have to begin to enact-not just in gasoline but other areas as well-some of these mandatory conservation programs. You say fine. The President tells Government. agencies to keep the temperature at 80 degrees. It is not 80 degrees in here. They tried it down in Louisiana where a bunch of judges said, "Nothing doing," and they told their people to turn the thermostats down. It is very hard to get people to accept the fact that this country is going to have to make some fundamental changes in the way it looks at energy. Mr. MATSUI. Once again you are going back to the three areas that. you have very little control over. Mr. BOSWORTH. That is where the problems are. Mr. MATSUT. I understand that. We are talking about conservation, however, and you and I both know the public does not even believe that there is an energy shortage. That being the case, how can we convince them to conserve if it is all voluntary. ~You say put the thermostat up to 80 degrees. You say you cannot monitor 200,000 gas stations. You cannot monitor 200 million people. So what are you going t.o do? I know you are not going to be here, but what is the Government going to do and what is the administration going to do? PAGENO="0875" 867 Mr. BOSWORTH. I do not have the answers to that because- Mr. MATSUT. You see the problem is I listen to both you and Mr. Kahn who say it is not working well but you are somewhat optimistic, at least that is what I glean. Then I read in the newspaper that infla- tion has gone to 13 percent over the last 6 months. Mr. BOSWORTH. I would not say that I was optimistic. I would say that this country faces- Mr. MATSTTI. Is the administration doing anything right now to alter the plan? Mr. BOSWORTH. Yes it is. Mr. MATSUI. What is it doing? Mr. BOSWORTH. I think the administration is thinking about several changes. One-and the reason the President is in Tokyo today-is the con- viction on the part of the administration that the solution to this energy problem, which is the most dominant inflationary factor- energy prices are up at a 50-percent annual rate in the last 3 month&- cannot be met alone. We have to try to get other countries to cooperate with us. One of our problems has been, however, that every time the President makes a commitment he cannot deliver on it; because when he gets back neither the Congress nor the American public agrees that that is the thing to do. We are so fractured as a country. The answer to that is not to turn away from the energy problem. We have to face it. Mr. MATSUI. Even if each individual nation comes up with their respective goals or guidelines, you are still looking at 24 months or at least a year away. You cannot do it right away. Mr. Boswoirrn. If the excess demand for gasoline and petroleum products in this country were eliminated tomorrow, the day after to- morrow those prices would go down and they would go down fairly dramatically. Mr. MATSUI. Why would they? Mr. BoswoRTnT. Do you think that just because people might be re- quested to do a reasonable amount of driving and cut back on their consumption and what they thought was an equitable- Mr. MATsuI. One of the problems is that many people will not be able to afford it and will not be able to get to work. Not everybody goes to the beach. Mr. BOSWORTH. California is a good example. They had gas lines. They do not have them now, and they are finding that their gasoline consumption is running about 6 percent below last year's levels. That suggests that the American consumer will, once the panic is over, respond to the situation and drive less. If you talk to people from Cali- fornia they are driving much less than before. We have had significant conservation. Mr. MATSUI. I do not know where you are getting your figures, but I do not share them. Our consumption is lower only because of the fact that it is required to be because- Mr. Boswonrii. But you do not have gas lines, right? Mr. MATSrTI. We do not have gas lines- Mr. BOSWORTH. Well then that means that the- PAGENO="0876" 868 Mr. MATSUI. No; that may be a totally different reason. We have odd/even, we have a situation where stations are required to open longer hours- Mr. BOSWORTH. This is a rationing system to try to cut back de- mand by means other than price control. Mr. MATS1JI. Let me ask you one more question and then I will terminate. In this article I have here you asked if the United States could live with a 91/2 or 10 percent inflation rate for the next 2 years. You said you did not think so. What did you mean by that? What would hap- pen if we did have 10 percent a year for the next 24 months? Mr. BOSWORTH. I just cannot foresee the Federal Reserve continuing to finance an economic expansion in the face of 10 percent inflation. I think they will refuse to and restraints will go higher and the economy will go into a recession. That is something I do not think we should be prepared to live with. I do not like the term recession, because, recession or not, that is not the crucial question. The magnitude is how severe the decline in aggregate demand is. All the lessons of the past have shown that, if we commit ourselves to the policy because people say what we are doing now will not work, the cost will be frightening. In 1975, 9 million people in this country were unemployed, and it did not make a dent in the inflation rate. I see no reason why it will in the future. You can attack what is being done now and admit that the prob- lems are extremely difficult, but I see that we have no choice but to continue the type of voluntary restraint program that we have right now and try to get a higher degree of urgency to address these prob- lems of food, energy, and housing. However, we keep postponing acting on these things. Something could be done in hospital cost containment, fairly rapidly if the Con- gress would act. The bill has been up here for 3 years. The issue has been around a long time. Why can't we act on some of these things? I do not think we have that much time- Mr. ROSENTHAL. Why do you think we cannot act on these things? Mr. BoSwoRTJI. We can't act on these because we disagree over what the solution to them ought to be. As a country, we cannot seem to come to a resolution or agreement on some path to follow. The moment one man stands up, whether he is the President or not, and says, "This is what we ought to do," 15 minutes later someone else will say it is not. That is what happens. The President proposes an anti-inflation pro- gram and that evening-before he is eveii off the air you have commen- tators and Congressmen saying it' will not work. They want to do something different. How many years have we argued over a standby rationing program? Everybody has his own idea of what he thinks the rationing program ought to be; namely, give him the gasoline he wants and take it away from the other guy. Why is the gasoline situation so severe now when the country has not had that great a magnitude in the cuthack of supply? It is because we have so many priority users. Everyone says, "I have to come first." PAGENO="0877" 869 Mr. ROSENTHAL. The Department of Energy made those priority users by virtue of the regulations. Mr. BOSWORTH. That is the type of threat you face if you do not. You do have to make sure that the crops get planted this spring. That did look important- Mr. ROSENTHAL. You know those regulations have been abused from A to Z. Mr. BOSWORTH. As I stated earlier, it is very hard to run any kind of a controls program in the face of these kinds of shortages. The people have an enormous incentive to cheat. How do you stop that? Do you want Government to become a traffic cop for every-- Mr. ROSENTHAL. How do you stop them. Do you want to set a stand- ard of morality that the country is not going to accept? You have to have the rule of law in this country, and you have to enforce the law. If everybody knows it is going to be enforced equitably, the situation can be corrected. You want to withdraw from society and say let's have a new code. Mr. BOSWORTH. No. I think the point is really fairly simple, Mr. Chairman. I do not think you can run these price systems and partial allocation systems in the face of excess demand. I think you have to adopt a comprehensive, mandatory restriction- Mr. ROSENTHAL. Let me tell you something. If we had had a tough enforcement program in energy, we would have kept the price of gaso- line down, with or without the alleged crude oil shortage. We did not have it. DOE has no inspectors of any consequence around the country. In every city we went to we met with the DOE auditors. They are totally inadequate to the task in terms of the num- bers of people. Mr. BOSWORTH. It is true the DOE staff was inadequate because when the budget was made up it was not visualized that Iran's Government was going to fall and we would have this crisis. Mr. ROSENTHAL. Stop blaming- Mr. BOSWORTH. I think that you are wrong- Mr. ROSENTHAL. Let me tell you something. Stop blaming iton Iran. A year ago, before we ever heard of Iran, the oil companies, because we had a soft market, started drawing down reserves; and that is what started this decline. Iran just happened along. Mr. BOSWORTH. No. They have a high level of reserves and for var- ious reasons that I am not familiar with it appears that they did reduce those stocks. That is not the fundamental reason, however. Worldwide, and this is not unique to the United States, gasoline prices are going up very rapidly. Europe does not have controls so they do not have lines, but they are paying even more enormous, rapidly increasing prices in energy than we are. Therefore, I guess I disagree with you. Back in 1973 we had a very elaborate IRS system out there- Mr. ROSENTHAL. 5,000 people. Mr. BOSWORTH. And do you remember going into the store and buy- ing meat, which was supposedly being regulated, and being told they were out of the standard brands but they had a new thing called a "watermelon roast"? They just invented new types of beef. They cut the animals up in different ways to make a new product that was not covered by the controls. PAGENO="0878" 870 People will find a way around controls. Even in world War II we had black markets when enormous staffs tried to run controls. You cannot effectively, other than in a national emergency when the public will back it 100 percent, run price controls in the face of shortages. Mr. ROSENTHAL. Why don't we eliminate tax laws and let everybody send in what they want to send in? Mr. BoswoRTH. People believe that the tax system is basically fair and equitable- Mr. ROSENTHAL. They do not think anything else is fair. Mr. BOSWORTH. That is right. Mr. ROSENTHAL. That is because we have not been able to design something that is either fair in and of itself or even perceived as fair, including the wage/price guidelines, the DOE allocations, the DOE enforcement policies- Mr. BOSWORTH. Although it has been a very difficult period for the average American, I do not find that the wage/price standards are inequitable. They treat everybody the same. There has not been a ma- jor shift in the distribution of income toward profit or toward wages. Everybody has kept his share of the pie about the same in the broad aggregates. There have been exceptions, of course, some labor groups have gotten more. Some business groups have gotten more. However, in many cases, when we were able to identify those cases, we were able to get them to adjust themselves back into compliance. In only a couple of cases they refused. I do not think, however, that the basic problem is within that pro- gram. It has been inequitable in how it has }~en treated with one worker compared to another worker or one company compared to an- other company, but the problem is that American society as a whole- all of us-are going through a very difficult period, even though it is hitting all of us somewhat proportionately. You do not remove that problem by trying to pretend a regulation or a standard will change the facts of life. This country has a big problem. * Mr. WILLIAMS. What has happened, though, is that everything has been blamed on energy. Now, even those of you who are running the anti-inflation program have joined the Nation in blaming everything on energy. It is difficult for us to approach it. We have heard your testimony along with Professor Kahn's this morning. I do not understand-you can say Congress should have passed the rationing proposal. and perhaps that is one way to escape it. How- ever, I do not think that is escaping the problem. It is confusing to me that we are encouraging the oil companies of this country to buy refined foreign products at an extreme cost, when crude oil has only increased 3 cents a gallon worldwide. Why do we not encourage them to buy it itt even $20 a barrel and refine it. Mr. BoswoRrrir. We are. Originally, in an attempt to try to reduce the incentives for the OPEC countries to increase their prices, the United States asked the oil companies not to buy crude oil in the spot market and thus put pressure on them. PAGENO="0879" 871 Mr. WILLIAMS. Why? Mr. BOSWORTH. Because the moment the spot inarket goes up to a very high level, do you think any country is going to sit there and sell its oil for something less? No. They are going to withdraw it- Mr. WILLIAMS. We are not controlling that anyway, everybody has admitted that. Mr. BoswoR~m. What? Mr. WILLTAMS. We cannot control that anyway. Mr. BOSWORTH. We can control their incentives. As long as the oil consuming countries continue to consume the way they have in the past it creates a shortage, and those oil producing countries raise their * prices. If we keen on consuming and creating shortages and spot market prices rise, why shouldn't they raise their prices? Mr. WILLIAMS. They are going to anyway. I think it is inevitable. Mr. BoswoRi'ii. No. Not if we cut back our demands so that in the face- Mr. WILLIAMS. Are you saying that cutting our demands will make OPEC ouit raising their prices? Mr. Boswomrrr. Yes. I think we had price stability from 1974 to 1976 mainly because the response to the prior increases was a reduction in demand. There was weakness in world markets. Spot market prices were traditionally below their pegged prices, and a lot of those coun- tries were cheating. They were selling oil for less than what their posted price was because they wanted to sell more. If you could get that downward pressure on the market so that every time they tried to raise the price you cut. demand, they would be unable to sell as much and their revenues would go down. How do you get any businessman not to raise his price? If he raises it too high, you just do not buy his product. His demand then goes down and his revenue goes down and he makes less profit. Profit is an interaction between the price you charge and the amount you sell. The two things are equally important. You can raise your prices, but if you do not sell anything you make no money. Mr. WILLIAMS. If we stopped the increase in demand today, you would say that OPEC would hold the line. Mr. BoswöRTTI. It would depend on what other oil consuming na- tions did. Mr. WILLIAMS. I say "we" meaning the world. I do not think- Mr. Boswonrrr. I think it is very hard with the oil producing coun- tries who have a lot of pressures on them as well to increase their reve- nues to cut back production. If we had a situation where demand was somewhat less than supply and prices on the spot market were a little weak, I do not think it would be easy for them to agree to cut back. What they will do is go to a meeting and tell the other one to cut back. That is when a car- tel falls apart, when no one can agree on who does the cutting back. Mr. WILLIAMS. I for one want to thank you for appearing, and I appreciate your testimony. I think you have been very candid today. I happen to think that OPEC is going to do what they want forever because they are not stupid and they know the energy problem is not one that is going to go away, regardless of what we develop. They will PAGENO="0880" 872 do what they can for as long as they can and worry about what hap- pens after that. However, I appreciate as the chairman indicated the service you have given to the administration and this country. Mr. ROSENTHAL. Dr~ Bosworth, how do you see the inflation rate the second half of this year? Mr. BoswoRTH. I do not know. It is hard to balance out all of it. I have tried to stay away from forecasting because I am not very good at it. I see no reason, however, to expect that there will be any major improvements. I think food prices will look better for a while, but this very wor- risome world demand/supply situation will face us later this year or next year. I cannot profess any optimism about energy prices. It seems to me that that is going to remain a serious problem. I think housing will continue at about the 12 percent annual rate of inflation we have been having. The big question is in the industrial sector. If the standards break down and everybody goes out looking for his, the rate of inflation in this country will explode. If that happens there are no options left. We will be headed for a recession. So far the American public and American workers and companies have been willing to go along. There is an enormous spread between those companies whose prices have gone up 7 percent when the total has gone up 13. That is an amaz- ing degree of competition. What really worries me, and I do not know how to judge these things, is how long can you expect people to hold out. How long will it be before it is everybody for himself, as we have seen in the case of the truckers going out against the farmers- Mr. ROSENTHAL. You sound as if you are describing the economy as a jungle. Mr. BOSWORTH. We try to prevent it. We try to act in ways to develop national consensus. Mr. ROSENTHAL. If you had to pick a number, what would you say the rate of inflation would be for the next 6 months? Mr. BOSWORTJI. I would say it would be about the same as the last 6 months or somewhat less. Mr. ROSENTHAL. Thank you again very much and I do want to restate our deep sense of gratitude for the public service you have rendered. The subcommittee is adjourned. [Whereupon, at 11:50 a.m., the subcommittee adjourned, to recon- vene subject to the call of the Chair.] 0