The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Treas.
HJ
10
.A13P4
v.347
u.s.
Department of the Treasury
PRESS RELEASES
NEWS
1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220· (202) 622-2960
FOR IMMEDIATE RELEASE
May 10, 1995
Contact: Chris Peacock
(202) 622-2960
TREASURY DEVELOPS PLAN FOR A NEW COMMUNICATIONS SYSTEM
The Department has developed a strategic plan for a Treasury Communications System
(TCS) that will use telecommunications and information technology to reinvent its internal
and external business services.
Treasury bureau representatives helped create this plan by formulating 12 strategic
VISIons:
•
•
•
•
•
•
•
•
•
•
•
•
Electronic commerce services
Electronic messaging services
Internetworking services
Security services
Network management and control services
Intra/intergovernment financial network services
Multimedia/video conferencinglbroadcast services
Network-based computing services
Public access to government information and services
Intra/intergovernment enforcement network services
Wireless communications services
Telecommuting support services
These services will be supported by an infrastructure consisting of communications,
computing, management and facilities within a layered open services network approach.
TCS will succeed the Consolidated Data Network, the largest wide area network
supported by a civilian federal agency, and will empower users and facilitate the integration
of work processes so that business can be accomplished more effectively.
TCS networked information services will promote greater effectiveness across the
Treasury organization. As part of this initiative, the strategic plan recommends establishing
information servers such as universal electronic mailboxes, facsimile on-demand, public access
to government information and electronic commerce functions.
RR-287
(MORE)
TCS will ensure Treasury bureaus access to a cost-effective, technologically sound
foundation for delivering information services. The performance, reliability, and security
inherent in these information services will be available to all Treasury personnel and their
communities of interests. With assured secure desktop access to accurate data, Treasury
personnel will be able to respond to U.S. citizens and businesses in a more timely and wellinformed manner.
The National Performance Review (NPR) recommendations point to Treasury as a key
player within the federal government to implement, coordinate, and/or support federal
government policy for Electronic Commerce and "Electronic Government." The TCS will be
the telecommunications and information services utility that will enable Treasury to fulfill this
leadership role.
As the basis for the Treasury Information Infrastructure, TCS will affect the dynamics
among all government organizations from international to local and provide an important
portion of the National Information Infrastructure.
The TCS vision document is available electronically by dialing FedWorld at (703)
321-3339. Once connected, enter your name and password. At the main menu, type
"UFSTEL" and press enter to access the Treasury Electronic Library (TEL). Select and
download file name "TOOTCSV.DOC" according to menu instructions.
Internet users can reach the TEL via anonymous ftp or telnet to "fedworld.gov" under
parent directory pub/tel. On the World Wide Web, use the URL http:\\www.ustreas.gov.click
on Treasury Services and link to the TEL under Treasury Bulletin Board Systems. Questions
regarding electronically accessing the documents should be directed to the FedWorld help
desk at (703) 487-4608.
- 30 -
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
May 10, 1995
RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
Tenders for $12,503 million of 10-year notes, Series B-2005,
to be issued May 15, 1995 and to mature May 15, 2005
were accepted today (CUSIP: 912827T85).
The interest rate on the notes will be 6 1/2%. The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
6.576%
6.680%
6.608%
Price
99.449
98.702
99.219
$5,000,000 was accepted at lower yields.
Tenders at the high yield were allotted 92%.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$20,931,252
Accepted
$12,503,227
The $12,503 million of accepted tenders includes $368
million of noncompetitive tenders and $12,135 million of
competitive tenders from the public.
In addition, $200 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $2,000 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
The minimum par amount required for STRIPS is $400,000.
Larger amounts must be in multiples of that amount.
RR-288
The Unit.ed States Mint
-
".~
Mi:r1t ,- \;~) N
..
. . . . .;
"
-~~~~~~.-I---------
?).:_, "
From 'he Qfjicc' (~r PulJli(' Ai/Hil S
IMMEDIATE RELEASE
MAY 10, 1995
eV\TS
Wc~sllillgloll. D.C. 20220
FOR FURTHER INFORMA nON:
DONALD R. NICHOLS (202) 874-6450
MINT GOES NATIONAL Wlrn RETAIL PROGRAM FOR OLYMPIC COINS
- Reaches Agreements with Three Retailers, Sports Merchandiser,
Jewelry Finn, Consumer Products Brokers Washington, D.C. -- The U.S. Mint has expanded its retail sales initiative
coast-to-coast through new agreements with three retailers, a national jewelry company, a
sports marketer. and a four-firm consortium of consumer products brokers to sell 1995-96
Coins of the Atlanta Centennial Olympic Games.
The three new official retailers of the 1995-96 Olympic Coin Program are
Mercantile Department Stores, Kroger Grocery and the Navy & Marine Corps Exchange
System. They join Wal-11art, J.C. Penney and the Army-Air Force Exchange System,
which became official Olympic coin retailers in March.
Cincinnati-based Mercantile Stores will initiate Olympic coin sales in its
Southeast stores and potentially carry the coins in each of its five operating divisions.
Kroger's will feature the coins at 134 of its Atlanta area food-and-drug combination stores,
and the Navy & Marine Corps Exchange System will sell the coins in its December catalogue
and at 218 facilities at military installations worldwide.
The retailers will stock self-standing displays specially designed by the Mint's
Olympic marketing task force. Displays hold 216 "blister pacs" containing Olympic
basketball or baseball clad coins alongside an Olympic Games pin. The stores also will carry
gold and silver coins in "Olympic Games premium pacs," specially designed secure counter
displays. The added-value packages contain individual Olympic silver dollars with a
program that outlines events, dates, and stadium locations of Olympic venues,
Florida-based Ravel Jewelry Company, a national manufacturer and mass
marketer, will market gold and silver Olympic coins across the country to jewelry stores and
retail store jewelry departments for purchase by the public. Ravel's clients include Zale's,
Marshall's, Macy's, T.1. Max and numerous others.
- over RR-289
-2-
In addition, Trigon Sports, a Virginia supplier of premium incentives to sports
marketers nationwide, will purchase gold, silver and clad Olympic coins and sell them as
premium incentives to its clients, which include national governin& bodies that oversee
individual Olympic sports.
Hynes Sales Company will head the group of four consumer products brokers
selling Olympic coins nationwide to wholesale and retail firms such as drug stores, mail
order houses, mass merchandisers, specialty stores, housewares stores and department stores.
The consortium will mobilize a sales force of 1,000 professionals to market, merchandise
and distribute Olympic coins.
Hynes will sell throuih its network in 21 Northeast, Southeast and Southwest
states. Its partners in the marketing consortium--Pankow Associates, The Keystone
Organization and Morgan & Sampson Pacific--fill in the Mint's national atlas of Olympic
coin retail coverage. Pankow, in Skokie, IL, will sell to clients in 13 Midwestern states.
Keystone operates in New York State and the New York City metro area. California-based
Morgan & Sampson will sell Olympic coins to wholesale and retail clients in 13 Western
states, including Alaska and Hawaii.
"These agreements carry us several steps closer to the goal of putting Olympic
coins within reach of every household in the country," said Mint Director Philip N. Diehl.
"Americans who might never have considered buying Olympic coins now will see them in
grocery stores, convenience stores, drug stores, jewelry stores, department stores and other
places they visit every day."
He added, "These agreements and others under discussion are very promising
for Olympic coin sales. What's more, we're creating a lasting retail sales presence that
expands sales possibilities for other coin programs.
II
###
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
May 11, 1995
Contact: Scott Dykema
(202) 622-29ffi
u.S., TURKEY INITIAL INCOME TAX TREATY
The Treasury Department announced Thursday that delegations from the United States
and Turkey have reached agreement on a new income tax convention.
The text of the new convention was initialled on May 11 by Leslie B. Samuels,
Assistant Secretary of the Treasury for Tax Policy, and His Excellency, Ambassador Nuzhet
Kandemir. Once the treaty with Turkey is signed, Treasury will have concluded agreements
with all members of the Organization for Economic Cooperation and Development. The
treaty between the United States and Turkey represents a central component of their
economic relationship. It will facilitate cross-border flows of capital, technology, and
business activity.
The initialling confirmed the mutual commitment of Treasury and the Turkish
Ministry of Finance to move forward on signing and ratifying the new convention. A final
text of the treaty will be made public once it has been signed. Following signature, the
treaty will be transmitted to the U. S. Senate, which must give its approval before the treaty
can enter into force.
-30-
RR-290
For press releases, speeches, public schedules and official biographies, call our 24·hour fax line at (202) 622·2040
lC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 11, 1995
)~O~TACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 38-DAY BILLS
Tenders for $17,136 million of 38-day bills to be issued
May 15, 1995 and to mature June 22, 1995 were
accepted today (CUSIP: 912794S70).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.79%
5.81%
5.81%
Investment
Rate
5.92%
5.94%
5.94%
Price
99.389
99.387
99.387
Tenders at the high discount rate were allotted 98%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.80
RR-291
- 99.388
Received
$66,504,700
Accepted
$17,135,700
$66,503,000
1,700
$66,504,700
$17,134,000
1,700
o
o
o
o
$66,504,700
$17,135,700
$17,135~700
Department of the Treasury
Financial Crimes Enforcement Network
[pO[FU ~[Mnews.
2070 Chain Bridge Road, Suite 200, Vienna, VA 22182-2536
1500 Pennsylvania Avenue, NW, Suite 3210, Treasury Annex, Washington DC 20220
FOR IMMEDIATE RELEASE
May 10, 1995
Contact: Joyce McDonald
FinCEN
(703) 905-3770
TREASURY ISSUES REVISED CURRENCY TRANSACTION REPORT (CTR),
REDUCING REGULATORY BURDEN ON FINANCIAL INSTITUTIONS
The Treasury Department's Financial Crimes Enforcement Network (FinCEN).
issued today an ADVANCE COPY of the revised Currency Transaction Report (CTR)
Form 4789 and instructions. This CTR revision reduces the amount of information
required on the CTR by approximately 30 percent, and substantially furthers the goal of
reducing regulatory burdens on financial institutions.
"For the first time in the 25-year history of the Bank Secrecy Act's requirement
that CTRs be filed by financial institutions, the form has been revised to reduce the
amount of regulatory information required," said Stanley E. Morris. Director of FinCEN.
"This revision is mutually beneficial to law enforcement and the financial community
because it focuses on the quality of information rather than the quantity."
FinCEN establishes poliCies to prevent and detect money laundering and also
serves as the central source of financial intelligence in support of financial crimes
investigations. As part of its regulatory responsibilities, FinCEN administers the Bank
Secrecy Act, which requires that domestic financial institutions file a CTR on each
single or multiple "deposit, withdrawal, exchange of currency or other payment or
transfer, by, through, or to such financial institution which involves a transaction in
currency of more than $10,000." CTRs have a high degree of usefulness in criminal,
tax, and regulatory investigations and proceedings.
The revised CTR requires only basic information, such as who conducted the
transaction, on whose behalf it was conducted, the amount, a description of the
transaction, and where it occurred. The revised form also lists broad categories of
transactions which will make it easier to complete and analyze.
-moreRR-292
FinCEN revised the CTR in cooperation with the Bank Secrecy Act Advisory
Group, which is comprised of about 30 private (bank and non-bank) and government
representatives. The Treasury Department established this Group in March of 1994 as
a Uthink tank" to recommend ways for both private and public sectors to implement antimoney laundering efforts.
An ADVANCE COpy of the revised CTR will allow financial institutions to train
employees and make other necessary changes required in order to complete and file
the revised CTR, effective October 1, 1995. Filers must continue to use the current
CTR Form 4789 (Rev. July 1994) for reportable transactions that occur before October
1. 1995.
An ADVANCE COPY of the revised CTR Form 4789 (Rev. October 1995) may
be ordered from the Internal Revenue Service (IRS) Forms Distribution Centers by
calling 1-800-TAX-Form (1-800-829-3676).
FinCEN is drafting additional guidance on how to complete the revised CTR.
These guidelines will be distributed to financial institutions in the near future. To assist
in developing this guidance, questions concerning the revised CTR are encouraged.
Members of the financial community interested in asking questions should call the IRS
Detroit Computing Center, Compliance Review Group, at 313-226-4431 or FinCEN at
1-800-949-2732. You may also write to FinCEN, Office of Financial Institutions Policy,
ATTN: CTR, 2070 Chain Bridge Road, Suite 200, Vienna, VA 22182.
Specifications for magnetic filing of the revised CTR will be issued soon by the
IRS Detroit Computing Center. Any questions concerning magnetic filing should be
directed to the IRS Detroit Computing Center, ATTN: eTR Magnetic Media Coordinator,
P.O. Box 33604, Detroit, MI 48232-5604.
###
UBLIC DEBT NEWS
Department of the Treasury • Bureau ofthe Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 15, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,281 million of 13-week bills to be issued
May 18, 1995 and to mature August 17, 1995 were
accepted today (CUSIP: 912794U51).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.69%
5.71%
5.71%
Investment
Rate
5.87%
5.89%
5.89%
Price
98.562
98.557
98.557
$40,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 48%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$54,084,730
Accepted
$13,281,167
$48,987,743
1, 449 , 567
$50,437,310
$8,184,180
1, 449,567
$9,633,747
3,378,985
3,378,985
268,435
$54,084,730
268,435
$13,281,167
An additional $187,165 thousand of bills will be
issued to foreign official institutions for new cash.
5.60 --
RR-293
98.584
5.70
98.559
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 15, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,324 million of 26-week bills to be issued
May 18, 1995 and to mature November 16, 1995 were
accepted today (CUSIP: 912794T53).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.67%
5.69%
5.69%
Investment
Rate
5.93%
5.96%
5.96%
Price
97.134
97.123
97.123
Tenders at the high discount rate were allotted 39%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$44,226,370
AcceQted
$13,324,298
$37,571,417
1,304,288
$38,875,705
$6,669,345
1,304,288
$7,973,633
3,350,000
3,350,000
2,000,665
$44,226,370
2,000,665
$13,324,298
An additional $1,395,135 thousand of bills will be
issued to foreign official institutions for new cash.
5.68 - 97.128
RR-294
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~178~9~. . . . . . . . . . . . . . . . . . . .. .
........................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
TEXT AS PREPARED FOR DELIVERY
MAY 16, 1995
ORAL STATEMENT OF ROBERT E. RUBIN
CHAIRMAN OF THRIFT DEPOSITOR PROTECTION OVERSIGHT BOARD
TO THE GENERAL OVERSIGHT AND INVESTIGATIONS SUBCOMMITIEE
HOUSE COMMITIEE ON BANKING AND FINANCIAL SERVICES
Mr. Chairman, Mr. Mfume and members of the Committee. I am pleased to have
the opportunity to appear before you this afternoon as Chairman of the Thrift Depositor
Protection Oversight Board. I apologize that I can stay for only part of the hearing
today. As the Chairman knows, I have an unavoidable conflict and will have to leave.
Deputy Secretary Newman will be here throughout the hearing to answer questions.
I am joined by the other members of the Oversight Board: Alan Greenspan,
Chairman of the Federal Reserve Board; Ricki Helfer, Chairman of the Federal Deposit
Insurance Corporation (FDIC); Jonathan Fiechter, Acting Director of the Office of
Thrift Supervision (OTS); Robert Larson, Chairman of Taubman Realty Group; and
Jack Ryan, Acting Chief Executive Officer of the Resolution Trust Corporation. We also
are joined by Dietra Ford, Executive Director of the Oversight Board .. While I am
delivering the opening remarks for the entire Board, I plan to call on each of the Board
members to address topics in their area of expertise.
The President has recently nominated Herbert F. Collins, Chairman of the Board
of Boston Capital Partners, Inc., to serve as the other independent member of the
Oversight Board. We look forward to his rapid confirmation. He will be a great asset as
we oversee this final phase of the RTC's work.
This is my first appearance before Congress in this role, and it comes just over
seven months from the day the RTC will close its doors. The Oversight Board's
jurisdiction over the RTC is limited. It reviews overall strategies, policies and goals
established by the RTC for its activities. The Oversight Board is prohibited by statute
from involvement in case-specific matters involving individual institutions, specific asset
dispositions or generally the day-to-day operations of the RTC. Therefore Jack Ryan,
who is Acting CEO of the RTC as well as a member of the Oversight Board, will
address issues relating to the RTC's operations.
RR-295
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
This is a time of tremendous change for the RTC as the FDIC/RTC Transition
Task Force and its numerous subgroups have been meeting to plan the RTC's closing.
Two of RTC's six field offices will have closed by the end of next month. The overall
staff of the RTC has decreased from a peak of about 8600, to about 5400 on December
31, 1994, to approximately 5000 at the end of March 1995.
It is possible to close the RTC entirely in December 1995, a year earlier than
initially anticipated, because the job has been done rapidly and because the thrift
industry is sound and healthy. The thrift industry now has had four consecutive
profitable years.
I want to use this opportunity to emphasize the importance of resolving the
problems of the Savings Association Insurance Fund (SAlF). One of the lessons RTC
has taught us is that not providing sufficient funding in a timely manner can result in
very costly problems that will ultimately fall on the taxpayers.
This suggests we should move promptly to address the SAIF issues before a crisis
develops.
RTC FUNDING
Over a period of six years, $105 billion has been provided to the R TC to protect
deposits and pay for losses of failed thrifts. We expect the total actual loss funds used by
the RTC will be approximately $87 billion to $95 billion. In view of early estimates this
effort should be viewed as a success.
RTC PROGRESS
The RTC has accomplished a great deal since its creation almost six years ago. In
August 1989, the RTC immediately became responsible for 262 failed institutions with
$114 billion in assets. As of today, the RTC has closed or sold a total of 747 failed
institutions with more than $460 billion in assets. In the process, it has protected over 25
million deposit accounts, with average balances of $9,000. In doing this, the
government's guarantee of deposit insurance to millions of Americans was fulfilled.
At the same time, the largest asset liquidation project in our history was
undertaken. Using all the methods available including auctions, securitizations, small
investor offerings, Land Fund sales and others, most of the assets acquired from the
nation's failed thrift institutions have been sold. As of today, more than $440 billion in
assets have been sold or collected for approximately 88 percent of their book value.
This undertaking also has contributed to our national goals for affordable housing
by selling more than 102,000 units under the RTC Affordable Housing Disposition
Program.
3
In addition, under the RTC's minority and women owned businesses outreach
program, approximately 53,500, or 35 percent, of all 152,600 contracts awarded by the
RTC went to minority and women-owned firms through the end of March 1995. Under
the RTC Predominantly Minority Neighborhood Sales Program, 37 percent of available
branches were sold to minority acquirers, or 24 of the 65 marketed. Keeping thrift
branches open in minority communities provides access to capital to help them grow as
well as giving residents access to financial services.
Passage of the Completion Act in late 1993 was a major step forward since the
Oversight Board last appeared before this committee. When this Administration took
office the RTC had many perceived problems that made it difficult to obtain
Congressional approval of funding. Secretary Bentsen's nine management reforms -increased to 21 reforms in the Completion Act -- were designed to reduce the cost and
improve management of the RTC.
Today, I am pleased to report that all 21 management reforms contained in that
funding legislation have been implemented by the RTC. Some, like the appointment of
a Chief Financial Officer, have been completed. Others are ongoing. For instance, the
preparation of a Business Plan with regular updates is now part of the RTC's regular
procedures. And the Audit Committee, chaired by Oversight Board member Robert
Larson, has been established and continues to meet regularly.
The RTC's accomplishments in addressing this financial crisis, under very difficult
circumstances have been many. I believe that despite some inevitable mistakes, history
will look favorably on the success of this effort.
THE TASK REMAINING
With just over seven months before the RTC ceases all its operations, a large
amount of time and effort is, of course, being devoted to the smooth transfer of
remaining assets and responsibilities to the FDIC.
Closing down such a large and complex agency, and transferring its remaining
responsibilities efficiently to another agency, is a complicated and time-consuming
undertaking.
The structure for transition activities was provided by the RTC Completion Act.
The FDIC/RTC Transition Task Force, which consists of two RTC and two FDIC
representatives, has been meeting regularly. It provided a report to Congre~s at the end
of 1994 and will provide another report to Congress by July 1, 1995, as reqUIred by law.
4
Currently the RTC holds just over $20 billion of assets to be sold. When the
FDIC takes over the RTC's responsibilities at the end of 1995, it is estimated that $8
billion in assets will remain to be sold. A large portion of those assets will be properties
with serious environmental problems that make them difficult to sell. The balance of the
inventory will also be hard-to-sell assets that will take a good deal of FDIC time and
effort to liquidate.
Secretary Bentsen determined that June 30, 1995, would be the last date on which
the RTC will accept additional thrifts. Thereafter, failed thrifts will be accepted by the
FDIC for the SAIF.
On January 1, 1996, the FDIC will become responsible for administering all
activities for which the RTC had been responsible. This will include not only asset
disposition and resolution of any new thrifts acquired after July 1, 1995, but also the
myriad of operational matters such as contract administration, financial administration,
legal work and report submission.
As you know, all assets and liabilities that remain on the books of the RTC on its
sunset date will transfer to the FSLIC Resolution Fund (FRF), which is managed by the
FDIC. The FDIC then will become responsible for managing and disposing of those
remaining assets as expeditiously and cost-effectively as possible.
The RTC and the FDIC are conducting a detailed review of the RTC's financial
position to determine the appropriate level of contingency funding above reserves that
might be necessary to absorb losses from adverse changes in economic conditions,
current or potential litigation, and other factors beyond RTC's and FDIC's control.
In reviewing the determination of the RTC and FDIC regarding contingency
funding above reserves, the Oversight Board will be mindful of the need to use the least
amount of the taxpayers' money for the work remaining. It is also important to note that
the funds approved will not be drawn down if the money is not needed.
THE OVERSIGHT BOARD
The Oversight Board structure and function was designed to provide ongoing
policy oversight of the RTC. The sale of some $460 billion in assets by a new and
independent Federal agency was a matter of great concern to Congress. Meeting six
times a year, the Oversight Board members have continuing dialogue with top RTC
officials on their work, but do not become involved in case specific matters.
5
In 1994, the Oversight Board strengthened its review of the RTC's programs,
policies and management practices and will continue throughout 1995 to undertake these
reviews. The Board has continued to review the RTC's quarterly Financial Operating
Plan, its internal controls, organizational goals and satisfaction of these goals. The Audit
Committee reviews audit findings by the General Accounting Office (GAO), the RTC
Office of Contractor Oversight and Surveillance and the RTC Inspector General (IG).
The Committee meets with the auditors and the RTC to ensure that issues raised by
GAO and the IG are addressed satisfactorily. It also reviews financial operating reports
and internal controls and financial statements of the Corporation.
Finally, the Oversight Board staff has administered the Regional and National
Advisory Boards and the Affordable Housing Advisory Boards. These citizen advisory
bodies have provided public input into the RTC decision-making process. Among the
Advisory Boards' recommendations that had significant impact on RTC's policies are
those in support of the Small Investor Program, support for seller financing in asset
disposition, support for the use of securitization and auctions and support for greater
efforts to ensure minority acquisition of thrifts.
The Board's staff office will close during 1996, after completing certain statutory
reports and duties. The precise closing date for the staff office will be determined by the
Board later in the year after a complete review of post-RTC closing responsibilities. The
Board staff of approximately thirty people are Federal employees who do not have
return rights to FDIC and will seek new employment when the office closes.
Much has been learned from the RTC's experience. These lessons ought not be
lost. The Oversight Board staff is helping to ensure that they will not be. The RTC is
preparing a history of the RTC involvement in the thrift crisis. While contributing to
that effort, the staff also is working with the advisory boards to create a history of that
process and their participation. Together, these documents will provide a ready source
of information.
CONCLUSION
In conclusion, let me state that the RTC is on course toward closing and
transferring its remaining responsibilities to the FDIC. We expect that not all of the
funds appropriated will be spent by the RTC. As we close this chapter in the nation's
history, we do so with a legacy of strong and sound financial institutions across this
country.
Responses to the questions that FIRREA requires be addressed at these
appearances are contained in Attachment I.
The members of the Oversight Board and I would be pleased to respond to any
questions you may have.
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
....................................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 15,1995
Contact: Hamilton Dix
(202) 622-2960
U.S. TREASURER TO AWARD SAVINGS BOND POSTER CONTEST WINNERS
United States Treasurer Mary Ellen Withrow will award the fourth annual U.S.
Savings Bonds poster contest national winners at 2 p.m., Thursday, May 18, in the Cash
Room of the main Treasury Building, 1500 Pennsylvania Avenue.
And the winners are:
First place:
Ethan Custer, 10, fourth grader, East Grand Forks, Minnesota
Second place: Kevin Dufendach, 11, fifth grader, Ionia, Michigan
Third place:
Sara Beth Silling, 12, sixth grader, Troy Virginia
The Treasurer will be joined by Commissioner of the Bureau of the Public Debt
Richard L. Gregg, Savings Bonds Executive Director Dino DeConcini, Savings Bonds
National Volunteer Committee Chairman and former Chairman/C.E.O. of the NYNEX
Corporation William C. and Mrs. Joyce Ferguson.
Comedian Tony Randall, designer Alexander Julian, Mrs. Ferguson and Treasurer
Withrow served as judges. The contest, open to fourth through sixth graders, is held every
year by the Treasury Department to encourage students to learn the importance of saving.
The winning posters were chosen from 51 entries from the contest winners in each of the 50
states and the District of Columbia.
More than 25,000 elementary school students entered posters with the theme, "Invest
in Your Future Today - Buy U.S. Savings Bonds." The national winners receive a trip to
Washington, D.C. and $5000, $1000 and $500 Savings Bonds respectively. The prize for the
state winners is a $1000 Savings Bond.
Media without Treasury, White House, State, Defense or Congressional credentials
should contact the Office of Public Affairs at (202) 622-2960, with the following information:
name, date of birth and social security number by noon Thursday, May 18. This information
may be faxed to (202) 622-2960.
-30RR-296
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
ornCE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
ADV 10:15 A.M. EDT
Text as prepared for delivery
May 16, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
U.S.-MEXICO BINATIONAL COMMISSION
Thank you very much. Fourteen years ago our two countries created the
Binational Commission to serve as a forum for cooperation on important bilateral issues.
Since that time our nations' economic, political, and social ties have evolved in ways that
the Commission's founders could not have envisaged. The bonds between our two
countries have deepened to hold out great promise for our peoples.
Mexico over the past seven years has accomplished a great deal in the economic
arena. Reforms have opened and changed the Mexican economy, removed barriers to
investment and initiative, and created the foundations for prosperity. The adoption of
the NAFfA signalled our own and Canada's recognition that ever greater trade and
integration represent the surest path to better lives for all the hemisphere's citizens. By
last year Mexico had become the third largest United States export market, as commerce
and investment between our two countries flourished.
Economic integration has gone hand in hand with an expanding relationship on
other fronts. Cross-border narcotics trafficking represents a corrosive threat to our
societies. We are battling this lethal trade both through domestic efforts, such as
Operation Hard Line, as well as stepped up cooperation with Mexican law enforcement
agencies. Financial crimes which can support drug trafficking threaten our peoples and
the health of our financial systems. Here too, our work together is intensifying and
bearing fruit.
I would like to say a few words about both of these issues: our effort to help
Mexico stabilize its economy on the one hand, and our heightened campaign against
drug trafficking and financial crimes, on the other.
RR-297
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
Mexico's Financial Crisis
Mexico made unfortunate macroeconomic policy errors last year. These included
monetary and credit policies that were, in retrospect, unsustainable given the
government's exchange rate policies. In late December Mexico was forced first to widen
the peso's trading band, then allow the currency to float. The financial instability that
followed threatened to destroy all that Mexico's people had accomplished. We in the
United States also faced important dangers -- to American jobs that depend on Mexico's
economy, to our increasingly important trade with Mexico, and to the array of security
and immigration interests which stem from the 2,000 mile border that we share.
Recognizing the danger to both our nations' interests, President Clinton put
forward a $20 billion support package for Mexico. That package was matched by
Mexico's own courageous decision to undertake rigorous economic adjustments and
reforms. These are and will be difficult for some time, but they represent Mexico's
surest route back to health in the long term.
Progress to Date
It has been three months since Mexico began the job of stabilizing its economy,
with United States support. I don't think anyone of us imagined then how far Mexico
would be able to come, and the extent to which financial markets would stabilize in such
a short span of time. Mexico is on its way toward accomplishing the objectives on which
our support was based, and which are necessary for economic health to return.
Mexico has sharply reduced the outstanding stock of dollar-linked Mexican
government obligations, mostly tesobonos, by more than half, from nearly $30 billion
outstanding at the end of 1994 to about $12 billion. This is a major step towards
eliminating the liquidity pressures which have threatened Mexico since December. We
expect that following another heavy redemption period for tesobonos this summer, that
instrument will become extinct for all practical purposes.
Mexico's own adjustment program has had a number of essential components.
The first has been pursuit of a disciplined monetary policy, necessary to restore
confidence. Mexico has held monetary policy tight. Nominal money stock fell by 16
percent over this year through May 4, while real money stock declined by 34 percent
through April 27.
Second, Mexico has taken important steps to create fiscal and balance of trade
surpluses. In fact, Mexico now has a trade surplus, which doubled from $235 million in
February to $460 million in March. In early March Mexico enacted an array of budget
cutting and revenue raising measures to accomplish its fiscal goal.
3
Third, Mexico has moved quickly to enact further structural reforms necessary to
strengthen and liberalize the Mexican economy. The Mexican congress has passed
constitutional amendments to allow private and foreign investment in railroads and
satellite transmissions. The congress is also considering legislation to open and privatize
other key sectors, such as natural gas transmission, long-distance telecommunications and
petrochemicals. The PACTO, through which caps on wages were set nationally, has
been eliminated. This should make Mexican labor markets more flexible and efficient.
Fourth, to instill confidence among investors, Mexico has begun to publish the
central bank's balance sheet and an array of other important financial and economic
statistics on a regular and timely basis. This greater transparency means that official and
market analysts can now monitor the progress Mexico is making, removing uncertainty,
and encouraging private capital to return sooner, rather than later.
The economic foundation which Mexico has established over the past several
years should, over time, reassert itself. Mexico's exports grew 32 percent over the first
three months of the year, against as against only 0.1 percent for imports. We expect
Mexico's current account to move to balance, from a deficit of 8 percent of GDP last
year.
Success should not be judged from day to day market movements. Nonetheless, I
think it is notable that financial market confidence in Mexico' future has been returning.
In recent weeks the peso has appreciated to about 5.9, and volatility is much diminished.
The bolsa has increased by roughly 30 percent in peso terms since its trough on March
20, and by roughly 45 percent in dollar terms. Brady bonds have risen by about a third
since March 16, and by about 60 percent if the U.S. treasury bill component is stripped
out. Interest rates on Mexican treasury bills have fallen some 20 percent from a peak of
80 percent. Some Mexican government agencies and banks have even been able to issue
new securities abroad, another encouraging sign.
Challenges Ahead
Clearly, it is too early to declare victory. Mexico must continue to persevere with
the reform effort. Discipline is essential. Important challenges remain. Let me
highlight two.
The first is the continuing fragility of the Mexican banking sector. The stock of
non-performing loans is large and increasing. Important regulatory reforms are
underway. These must continue. Banking sector losses which could ultimately have a
fiscal impact must be addressed. Mexico must ensure that bank owners continue to have
capital at risk.
4
Mexico has adopted several programs to shore up bank balance sheets. So far,
banks' dollar liquidity problems have been satisfactorily addressed. The World Bank and
the Inter-American Development Bank are providing critical support, along with
technical assistance from the United States. Also, Mexico's authorities have committed
to intervening in banks should capital drop below a specific floor. We view these steps
as appropriate.
Mexico faces a second, broader challenge -- social acceptance of the sacrifices
which the country is now undergoing. Mexico's working and middle classes accepted
seven years of reforms on the understanding that they were laying a better future for
themselves and their children. Now, they have been asked to endure an additional
period of sacrifice before that promise can be fulfilled.
So far, Mexico's citizens have accepted the need for continued adjustment. The
dismantlement of the PACfO and the satisfactory record on wage settlements all suggest
that Mexico's people understand the wisdom of staying the course their government has
adopted. It is important for Mexico's government to do all that is possible, within the
confines of adjustment, to continue to invest in its peoples' education, health, and
economic future. That is the way to provide the greatest economic health over time, as
the return for the brave path Mexico's people have chosen.
Finally, in the economic arena, Mexico must continue the rigorous fiscal and
monetary policies it has adopted, so that it can rebuild international financial market
confidence.
Law Enforcement
I would like to turn to another area of challenge on which each of our
governments has been working separately and in cooperation: the need to combat crossborder drug trafficking and illicit financial activity. Money laundering and other
financial crimes can play just as destabilizing a role in the domestic economy as can poor
macroeconomic, trade, and structural policies. Drug trafficking and other crimes
supported by a financial black market corrode our societies from within. Measures to
fight the poisonous traffic across our borders, while closing off the financial avenues
these criminals manipulate, are therefore just as important as good monetary or fiscal
policy for the strength of our two nations' economies.
U.S. Attorney General Janet Reno will speak in some detail about law
enforcement efforts on our border. Let me say just a few words about the Treasury's
role in these important efforts.
Narcotics Trafficking
U.S. Customs, a bureau of the Treasury, is intensifying its efforts to halt crossborder narcotics trafficking. Seizures of cocaine and marijuana through the first quarter
of 1995 rose by over 17,000 and 15,920 pounds, respectively, over the first quarter of
1994.
Enhanced border efforts, as well as a stepped up attack on air smuggling, have
increased border violence at ports of entry sharply. "Port running," a new method in
which smugglers try to race high-speed vehicles across the border, has become epidemic.
To fight this new form of violence we initiated Operation Hard Line. Hard Line
has led to the strengthening of certain border ports of entry with new traffic barriers,
increased lighting, improved communications technology, and better training and
intelligence information for our officers. In areas where it has been implemented, Hard
Line is working -- sharply reducing incidents of "port running," and leading to the
dismantlement of a major "port running" operation in EI Paso. In fact, there are reports
that the street price for a kilo of cocaine in EI Paso rose from $8,000 to $12,000 soon
after Hard Line went into effect.
Because of the success of the current Hard Line program, and the likelihood that
drug traffickers will only intensify their efforts at all ports of entry along the Southwest
Border, we are seeking ways to expand the program even further. We know that you
share our belief that effective drug control policy for both governments requires our
collaboration and joint commitment. We look forward to continuing to work with Mexico
on this vital issue.
Financial Crimes
Drug trafficking is often facilitated by money laundering and other financial
crimes. Over the past year the Department of the Treasury, the Board of Governors of
the Federal Reserve System, and other U.S. agencies have moved across a range of
fronts to deal with many of the financial cracks which criminals have learned to exploit,
and which make it difficult for law enforcement officials to track illicit fund transfers.
One important step has been Treasury's and the Federal Reserve's recent
publication of rules standardizing and enhancing record-keeping for wire transfers.
These rules, which will come into effect on January 1, 1996, will ensure that information
identifying originators and beneficiaries of such transfers is recorded and ~ravels with
related payment orders. The information ~ll now be retrievable ~n~ aVaI.lable. to law
enforcement agencies, making it much easIer to trace suspected cnmmal fmancIaI
activity.
-5-
Treasury is working on and will soon publish proposed regulations to require
financial institutions to implement "Know Your Customer" policies and procedures.
Financial institutions will have clearer guidelines for identifying and reporting suspicious
transactions. Other proposed regulations will ensure that the identity of approximately
60,000 informal, non-bank financial institutions operating in the United States is known
to law enforcement agencies.
On all of these reforms the Treasury worked in close collaboration with the U.S.
private financial sector, through the Bank Secrecy Act Advisory Group. Convened over
the past year, the Advisory Group has assembled representatives from Treasury, the
bank regulators, banks, and nonbank financial institutions. It has provided valuable
insight into the operation of financial institutions, and the impact of new regulations on
them. In designing U.S. reforms we have laid a heavy stress on the need to minimize
burdens on our financial institutions, while maximizing our ability to detect criminals.
The Advisory Group has played an important role in that process.
The reforms now being implemented here and in Mexico, combined with the high
level of cooperation between our two countries, will greatly enhance our efforts to
protect the integrity of our financial systems and to interdict cross-border criminal
activity. I want to emphasize how integral Mexican-U.S. cooperation is to our war on
crime. All of our domestic reforms would do little to stop cross-border crime were our
two governments not so committed to fighting this battle together.
The foundations for cooperation are solid. Treasury's and Hacienda's Customs
Mutual Assistance Agreement enhances our joint efforts to combat narcotics trafficking
across our joint border. Other international instruments, including the Tax Information
Exchange Agreement and the Double Taxation Treaty, create a solid foundation for our
cooperation in tax related matters.
The Financial Information Exchange Agreement, signed last October by my
predecessor, Lloyd Bentsen, and by Pedro Aspe, the predecessor of Secretary Ortiz,
came into effect in February. It marks the latest step in a new era of U.S.-Mexican
cooperation that is already delivering results.
Working together in Operation Choza Rica, we produced 19 money laundering
cases and seized approximately $50 million. In another case, Treasury and Hacienda
assisted U.S. law enforcement in apprehending a "most wanted" suspect accused of
defrauding U.S. and Mexican citizens of $1.5 million.
-6-
These are small but significant steps toward our common goal. Important
challenges remain. We have seen an increase in the activity of international organized
crime, particularly in emerging democracies. We have seen that methods employed by
money launderers keep pace with and subvert our regulatory reforms, so that our task is
never done. What we can with confidence declare is our resolve individually and
jointly to confront these challenges and to continue our campaign to protect the integrity
of our financial systems and our economies.
-30-
-7-
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622·2960
Contact: Chris Peacock
(202) 622-2960
FOR IMMEDIATE RELEASE
May 15, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
BUREAU OF ALCOHOL, TOBACCO AND FIREARMS POLICE WEEK RECEPTION
WASHINGTON, D.C.
It's a privilege and a pleasure to be here. And it's nice to see familiar faces -- from
around the building and the Treasury Bureaus; friends of law enforcement from the Hill; and
members of our Treasury law enforcement community, and their families. It's great to have
you here tonight.
I am honored to welcome you to the Treasury Department as we celebrate National
Police Week. Earlier today I was at the Peace Officers' Memorial Day Service with the
President. It was a moving ceremony honoring the 155 men and women in the law
enforcement community who died in the line of duty.
I'm new to the law enforcement community. Most of you know that I spent the
largest portion of my professional career in investment banking in New York. I knew a lot
about the Treasury Department when I came here, both from that Wall Street experience and
from my time in the White House, but not about the law enforcement component. But, since
I've been here, I've learned a great deal about that law enforcement component, and its
enormous importance to the nation.
I know about the commitment, the dedication, the long hours and the courage.
Not long ago I had the opportunity to honor nine officers of the Secret Service's
Uniformed Division who saved twenty-one residents from a burning apartment building, here
in the District.
Most of us know what the Secret Service does: it protects the President, it deals with
counterfeiting, money laundering, and other similar and critical issues. But, you don't
ordinarily think about the Secret Service rescuing people trapped in a burning building.
However, that didn't matter to these officers. What mattered was public service and
protecting the community.
(more)
RR-298
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
I was down in Oklahoma City after the tragic bombing. I visited with the families of
those from our bureaus who were killed. There is nothing in my life that prepared me for
the senseless horror of such destruction, the loss of human life, and the tragedy.
But I also saw a remarkable coming together in Oklahoma City, a spirit of kindness
and giving. As the President said in his remarks on Friday at Babi Yar in Ukraine, where
the Nazis executed over 100,000 men, women and children in 1942, human nature is capable
of great horror, but also great goodness.
A final word with respect to Oklahoma City, and let me be very clear. This federal
government will never rest until the perpetrators of this horrible crime have been brought to
justice.
I want to say a word or two about the men and women of ATF who are sponsoring
tonight's event. I've learned a great deal about your organization since I began this job.
Every day ATF agents are on the frontlines. You know the risks, you know the dangers, but
you do it all the same -- day-in and day-out.
You are true professionals who uphold, enforce and respect the law. Your job is one
of the most difficult in America, and you approach it with great dedication.
In a moment I will tum the program over to John Magaw, the Director of the Bureau
of Alcohol, Tobacco and Firearms for the presentation of five awards. But before I do, I
want each of you here to know, both you in the ATF and all others in the law enforcement
community, that you have and richly deserve my full support, and the full support of this
administration, for your selfless dedication to protecting and serving others, and for the
absolutely critical role that you play in the life of our country.
And a word to the families, as well. We know that families of law enforcement
officers go through so much. You, the families, also deserve our respect and support. This
nation is deeply indebted to you for the love and support you give to the men and women of
law enforcement throughout the country.
There are those who are attempting to deflect attention from the tragedy in Oklahoma
City by criticizing federal law enforcement officers. As the President has said so forcefully,
that is outrageous, and must not be allowed to stand. Federal law enforcement officers, as
you know so well, have a difficult, sometimes dangerous, and vitally important job, and you
need and deserve the full support of everyone in our society.
Thank you.
-30-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~jJJ78~9~~. . . . . . . . . . . . . . . . . . . . . .II............
......................................
OFFICE OFPUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
May 16, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,200 million, to be issued May 25,
1995. This offering will result in a paydown for the Treasury of
about $125 million, as the maturing weekly bills are outstanding
in the amount of $27,336 million.
Federal Reserve Banks hold $6,641 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,515 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders.
Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-299
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED MAY 25, 1995
May 16, 1995
Offering Amount .
$13,600 million
$13,600 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 T2 0
May 22, 1995
May 25, 1995
August 24, 1995
August 25, 1994
$30,406 million
$10,000
$ 1,000
183-day bill
912794 V7 6
May 22, 1995
May 25, 1995
November 24, 1995
May 25, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Daylight Saving time
on auction .day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
MODERNIZING
THE FEDERAL HOME LOAN BANK SYSTEM
STATEMENT OF TIlE HONORABLE
RICHARD S. CARNELL
ASSISTANT SECRETARY OF TIlE TREASURY
BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS,
SECURITIES, AND GOVERNMENT SPONSORED ENrERPRISES
UNITED STATES HOUSE OF REPRESENTATIVES
MAY 17, 1995
Mr. Chainnan, Representative Kanjorski, Members of the Subcommittee.
appreciate this opportunity to present the Administration's proposal to restructure the
Federal Home Loan Bank System.
After 30 months of study. we have before us two bills to restructure and modernize
the System. Mr. Chairman. your bill. H.R. 1487, and ours have much in common. Their
similarities reflect the degree of consensus on the major issues that has developed since
Congress, in the Housing and Community Development Act of 1992, required five
comprehensive studies of the System.
I know you share our conclusion, and the conclusion of these five reports, that the
Federal Home Loan Bank System remains an important element of our housing finance
system. Indeed, both bills include a statement of purpose affirming the basic mission the
System has had since its creation in 1932.
Congress took several steps to update the System's membership rules and public
purpose in the Financial Institutions Reform. Recovery, and Enforcement Act of 1989
(FIRREA). However. these changes were incomplete. and they had the unintended
consequence of creating certain structural problems and perverse incentives that undercut
the System's public purpose and long-term viability. While the System remains safe and
sound today. its future is less than certain for the following reasons:
RR - )on
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
•
Membership rules differ based on a member's charter. Such differences treat
members unequally, and create perverse incentives to take risks.
•
The regulatory structure has built-in conflicts of interest. A fundamental conflict
exists between the Federal Housing Finance Board's roles as the System's manager
and re~ulator. The Board is, in effect, managing the very enterprises it is
responsible for regUlating.
•
The Banks must redeem a withdrawing member's capital stock at par so long as the
Bank's capital is not impaired. Ninety-eight percent of Bank capital consists of
stock, none of which would have sufficient pennanence to qualify as capital if the
Banks were FDIC-insured depository institutions. This lack of pennanence,
combined with a lack of regulatory capital requirements that take account of the
Banks' particular structure and risks, underscores the need to strengthen the
System's capital structure.
•
The Resolution Funding Corporation (REFCorp) allocation fonnula
disproportionately burdens certain Banks and creates a perverse incentive to not
make advances to savings associations. The disproportionate financial burden
weakens the System's financial integrity, and the penalty on making advances to
savings associations runs counter to the System's purpose.
The five System studies mandated by Congress, and Deputy Secretary Newman's testimony
last June before the Senate Banking Committee, document each of these weaknesses and the
need for comprehensively restructuring the System.
Today, we seek, through legislation, to' accomplish this restructuring and
modernizing of the System to help it meet America's housing needs into the next century.
3
In doing so, we rely on five simple principles to guide us. The results of our efforts must
be to:
•
keep the System safe, sound, and focused on its public purpose;
•
maintain the System s important role in supporting housing and community
I
development finance, particularly through portfolio lending;
•
make membership voluntary, with equal rights and responsibilities, for all members;
•
correct the System s potential instabilities; and
•
protect taxpayers from the costs of the System s REFCorp obligation and from any
I
I
risk from financial losses in the System.
Let me begin by briefly describing the Federal Home Loan Bank System as it exists
today, including its continuing role in contributing to the expenses arising from the 1980s
thrift debacle. I will then describe the Administration s view of the System s public
I
I
purpose, detail the System s key weaknesses -- in membership rules, regulatory structure,
I
capital requirements, and REFCorp allocation -- and outline our proposal for resolving each
of these weaknesses.
4
I. THE FEDERAL HOME LOAN BANK SYSTEM:
AN OVERVIEW
A.
TIlE SYSTEM IS A GoVERNMENT-SPONSORED ENTERPRISE
Since its inception in 1932, the Federal Home Loan Bank System has been an
important source of mortgage credit for home buyers. The System is a govemmentsponsored enterprise (GSE). That is, it has a federal charter that specifies its permissible
activities. The System consists of 12 regional Federal Home Loan Banks, each owned by
its members, who are also its customers. The Banks are each run by a board of directors.
Members select the majority of their directors; the Finance Board appoints the rest.
Federal Home Loan Banks jointly sell bonds in the securities market at rates only
slightly higher than those on Treasury securities. The System's debt securities (called
consolidated obligations), are the joint and several liability of all the Banks. Consolidated
obligations, like debt securities of other GSEs, trade at yields that reflect the market's
perception that Congress would enact legislation to prevent the System from defaulting on
its obligations, although the consolidated obligations expressly state that the obligations are
not guaranteed by the federal government. Interest earned on consolidated obligations is
exempt from state and local income taxes, and the Banks themselves pay no federal income
taxes.
The Banks lend most of the proceeds of the consolidated obligations, in the form of
"advances", to their thrift, commercial bank, credit union, and insurance company
members, who in tum can lend this money to home buyers. These borrowers must provide
high-quality collateral exceeding the amount borrowed. Collateral generally consists of
residential mortgage loans.
5
The housing finance market has changed dramatically since 1932. Two other
housing-related GSEs, the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac), as well as the Government
National Mortgage Corporation (Ginnie Mae) and various private firms, now provide
means for depository institutions to sell in the secondary market the mortgages they
originate. Commercial banks have also become a significant source of mortgage credit.
At the same time, the Federal Home I:-oan Bank System continues to operate largely
as initially structured, and remains oriented towards depository institutions that originate
and hold mortgages in their own portfolio. As of March 31, 1995, the System had about
$247 billion in assets, including $121 billion in advances outstanding and $122 billion in
investment securities (including about $37 billion in mortgage-backed securities). As of
March 31, 1995 the System also had $210 billion in consolidated obligations outstanding
and almost $14 billion in capital.
B.
FIRREA INTRODUCED SEVERAL MAJOR CHANGES IN THE SYSTEM
FIRREA introduced the first major structural changes in the System by opening
System membership to commercial banks and credit unions that had 10 percent of their
assets invested in residential mortgage loans. As of March 31, 1995, the System had added
3,285 commercial bank members and 95 credit union members, which together with the
2,040 thrift members and 22 insurance company members brings total membership to 5,442
institutions. Thus, commercial banks now constitute more than half of all System members.
FIRREA also created the Federal Housing Finance Board to oversee the System.
The Finance Board has 5 members: the Secretary of HUD and 4 directors appointed by the
President and confirmed by the Senate. All of the appointed directors serve full-time, and
the President designates one of them as chairman. FIRREA made the Board responsible for
6
overseeing the Banks' safety and soundness and compliance with their housing finance
mission. However, the Finance Board also has various statutory responsibilities for
managing the System, which I will describe later (see section IV).
FIRREA added two new public policy goals for the System. It required each
Federal Home Loan Bank to establish an Affordable Housing Program (AHP) in which the
Bank makes subsidized advances and grants for qualifying affordable housing ventures.
FIRREA also added the Community Investment Program (CIP), under which the Banks
make at-cost advances for qualifying mortgages and community development purposes.
At the time of FIRREA, System membership consisted almost entirely of savings
associations and savings banks -- that is, thrift institutions. Because of statutory
requirements to build retained earnings, the Banks had almost $3 billion in retained earnings
at the beginning of 1989. At the same time, chronic liquidity problems at many thrifts
generated record advances and profits for the Banks in the late 1980s. Since the System's
retained earnings and ongoing profits resulted from past and current lending to thrifts, and
because thrifts owned the Banks, Congress and the Reagan and Bush Administrations saw
the System's retained earnings as an appropriate source of funds to help offset some of the
taxpayers' costs in dealing with failing thrifts.
Therefore, FIRREA directed the System to contribute $2.5 billion of i~ retained
earnings to capitalize the Resolution Funding Corporation (REFCorp).i Congress
established REFCorp in FIRREA to issue bonds whose proceeds went to pay for thrift
losses. REFCorp used the $2.5 billion paid by the Banks to purchase zero-coupon bonds.
These bonds ensure ultimate repayment of principal to REFCorp bond holders. Together,
Earlier, in the Competitive Equality Banking Act of 1987, Congress directed the Banks
to use some of their retained earnings towards the efforts made in that bill to pay for thrift
losses.
I
7
the Banks and the taxpayers make semi-annual interest payments to REFCorp bond
holders? Each year, the Banks pay $300 million; taxpayers pay about $2.3 billion. Should
the Banks fail to make their payment, the taxpayers would absorb that cost as well. The
Banks' $300 million annual REFCorp obligation will continue for another 35 years.
The System's payments related to the thrift crisis did two things. First, the payments
to capitalize REFCorp consumed nearly all of the System's retained earnings, its only nonredeemable capital. Second, the annual $300 million obligation created a large, fIxed
annual payment for a System with a cyclical income stream. The statutory allocation
formula used to distribute this obligation among the Banks creates signifIcant diffIculties, as
I will describe later in my statement (see section VD.
Now I will tum to the Administration's view of the System.
II. DEFINING THE SYSTEM'S PURPOSE
Despite tremendous changes in housing fInance over the past 60 years, the basic
operation of the Federal Home Loan Bank System has remained remarkably unchanged.
The changes made in FIRREA were signifIcant in expanding System membership and the
System's public purpose. However, some of these changes are incomplete or have created
other problems that now need to be addressed. Before dealing with these problems, we
believe it is important to fIrst set forth a clear vision of the System's public purpose.
As the cornerstone of our efforts to comprehensively restructure and modernize the
System, we propose that Congress enact the following statutory statement of purpose:
2While FIRREA identifIes other sources of funds for these interest payments, as a
practical matter, nearly all of the interest payments have come from funds paid by the
Banks and the taxpayers.
8
The Federal Home Loan Bank System is a profit-making enterprise whose
purpose is to support residential mortgage lending (including mortgages on
housing for low- and moderate-income families), as well as community
development lending, throughout the Nation, safely and soundly, primarily
through a program of collateralized advances to System members. The
System facilitates such lending by increasing the liquidity and improving the
distribution of investment capital available through its member institutions.
This statement of purpose affirms the System's important role in making mortgage
credit available both for residential lending and community development lending. The
statement of purpose also recognizes the need for the System to be a profit-making
enterprise that operates safely and soundly. 3
Our proposed statement of purpose closely resembles the one proposed in H.R.
1487. Our proposal differs from H.R. 1487 primarily in that the purpose statement in H.R.
1487 provides that the System can facilitate lending through advances and other financial
services. We see no need to give the Banks an opening to offer "other financial services".
None of the recent studies of the System identified unmet financial service needs of System
members that the Banks are uniquely situated to provide. We therefore believe that the
System's current statutory purpose suffice.
In short, we begin from the same base with H.R. 1487: despite the need for
comprehensive restructuring and modernization, the System's core purpose should remain
unchanged.
3We propose no changes in collateral requirements and we would oppose any changes in
those requirements. The collateral requirements serve two critical purposes. First, they
minimize the credit risk to the Banks in making advances. Second, they preserve the link
between advances and mortgage lending that is central to the System's public purpose.
9
m.
EQUALIZING MEMBERSHIP RULES
System members currently have unequal rights and responsibilities. Some must join;
others join voluntarily. Some must meet the qualified thrift lender (QTL) test to receive
advances; others do not. Some have much higher stock purchase requirements than others.
These differences create competing interests among members and different tolerances for
risk-taking because members have such different exposure to potential future losses.
Equalizing the terms of membership would give all System members the same rights and
responsibilities, and would improve System stability.
A.
UNEQUAL MEMBERSIllP RULES CREATE INEQUITIES AND MAY RESULT IN
DIFFERING RISK MANAGEMENT INCENTIVES
Before 1989, nearly all Federal Home Loan Bank members were required to join the
System. In opening System membership to commercial banks and credit unions, Congress
made such institutions voluntary members of the System, meaning they were free to join
and free to leave the System. Last month, state-chartered savings associations became
voluntary members. Today, only federal savings associations must be members. Thus, of
the 5,442 System members (as of the end of March), only 1,182 are "mandatory" members.
The rest are voluntary: they can leave the System and redeem their capital stock by giving
six months' notice of their withdrawal. Of course, a federal savings association member
could obtain a different charter and, then apply to leave the System. 4
Having different rules for different members poses several problems. The rules
discriminate against mandatory members by keeping them in the System while permitting
4Such a maneuver takes time and involves transaction costs not incurred by voluntary
members that wish to leave the System. As a practical matter, then, all members are now
"voluntary" but not on the same terms.
10
voluntary members to leave freely. This puts mandatory members' capital stock investment
more at risk than voluntary members' investment. As a result, voluntary members have
weaker incentives than mandatory members to limit their Bank's risk-taking and keep it safe
and sound.
Access to advances also differs among members. First, stock purchase requirements
for members differ based on the mix of mortgage-related and non-mortgage related assets in
their portfolio. Second, a member's capacity to borrow against its Federal Home Loan
Bank stock investment (that is, the ability to leverage) declines as the share of mortgagerelated assets in its portfolio declines. Third, a savings association cannot obtain new
advances if it fails the QTL test.
Finally, the System's total advances to non-QTL members cannot exceed 30 percent
of the System's total advances. This limit, although not currently a binding constraint, will
eventually become binding as the number of non-QTL members continues to grow.
These differential membership rules no longer have any economic basis. As I have
just described, they provide different members with different risk exposures, and different
relative returns to System membership based on factors other than a member's usage of the
System.
B.
SYSTEM MEMBERSmP SHOULD CARRY THE SAME RIGHTS
AND RESPONSIBIUTIES FOR ALL MEMBERS
A distinctive characteristic of the System is its being a member-owned cooperative.
We believe that in this cooperative structure, it is important that all members have the same
rights and responsibilities. Otherwise, competing incentives within the System could erode
its underlying soundness and stability. Therefore, we propose to offer System membership
11
on the same tenns to all eligible members. All members will have equal access to
advances, and all Banks will share the System's REFCorp and Affordable Housing Program
obligations equitably.
Full voluntary membership has numerous advantages for current members, whether
mandatory or voluntary. Full voluntary membership will:
•
Strengthen Bank managers' incentives to operate their Banks efficiently and be
responsive to their members by allowing all members to vote with their feet by
voluntarily withdrawing from the System.
•
Give all members the same incentives to ensure their Bank is prudently managed by
equalizing members' relative risk exposure.
•
Strengthen commercial bank and credit union members' stake in the System by
equalizing their membership rights, improving their access to advances, and
equalizing the cost of advances to all members.
On these points, our bill and H.R. 1487 agree. Both bills also stipulate that, to
remain eligible for System membership, members must maintain 10 percent of its assets in
certain mortgages (although the .bills differ in the type of mortgages). Currently, insured
depository institutions must meet a 10 percent requirement only at the time they apply for
System membership. There is, however, one point on which the bills differ somewhat. To
maintain the nexus between advances and home mortgage lending, we believe that the
mortgages used to satisfy the ongoing 10 percent requirement should be whole residential
first-mortgages, not mortgage-backed securities or other partial interests in mortgage-related
assets as pennitted under H.R. 1487.
12
Our reasoning here is that the System exists primarily to provide liquidity to
members that make and hold residential mortgages. Portfolio lenders specialize in making
mortgage loans that may not meet secondary market underwriting requirements. Limiting
System membership to institutions that have at least 10 percent of their assets in whole first
residential mortgage loans serves to reinforce the Bank System s public purpose by
i
encouraging institutions ·to maintain more diversity and flexibility in their mortgage lending
than the more narrow secondary market standards permit. System membership gives such
institutions access to credit in order to fund and manage the risks associated with these
loans.
Additionally, System membership confers funding cost advantages. These
advantages do not exist to give members investing in mortgage-backed securities a funding
advantage in making those investments. Rather, their purpose is to facilitate credit flows
from the capital markets into new mortgage loans. Stated differently, members that use
advances to finance a portfolio of mortgage-backed securities are not themselves acting to
expand the availability of mortgage credit; lenders that make and hold mortgages financed
with advances ilil expand access to mortgage credit.
IV. ENSURING PRUDENf REGULATORY OVERSIGHT WHILE
ENCOURAGING SYSTEM SELF-MANAGEMENT
The Federal Housing Finance Board, as structured under FIRREA, has built-in
conflicts in its responsibilities. While charged with supervising the System to ensure its
safety and soundness, the Finance Board also has an array of responsibilities oriented
towards mana~in~ the System. Just as we support clarifying the System's purpose, we
support clarifying the Finance Board's role and structure. We also support letting the
Federal Home Loan Banks assume responsibility for managing themselves and the System,
consistent with the System's public purpose and safety and soundness.
13
A.
THE FINANCE BOARD'S RESPONSIBIUTIES SHOULD NOT INCLUDE
MANAGING TIlE SYSTEM
The Finance Board is responsible for ensuring the System's safety and soundness
and has many of the powers and responsibilities typical of a financial safety and soundness
regulator. The Finance Board also ensures that the Federal Home Loan Banks meet their
statutory requirements in carrying out their nonnal business operations and the Affordable
Housing and Community Investment Programs.
Currently, the Finance Board also has numerous statutorily mandated managerial
responsibilities for the System such as approving applications for advances, the Banks'
budgets, and their managers' salaries. It also supervises all elections to the Banks' boards
of directors and appoints the chair and vice-chair of each Bank. Finally, the Finance Board
itself issues all System debt (through the Office of Finance). While the Finance Board has
been taking some steps to move System management out to the Bank level, further
devolution requires legislation.
A 1991 General Accounting Office (GAO) report explained the inherent conflict in
these dual roles:
We are concerned that having broad management oversight powers may
undermine [the Finance Board's] regulatory independence. By involving
itself in the business operations of the FHLB System, and by making business
decisions on behalf of the system, [the Finance Board] is not arm's length
from the outcome of those decisions. In effect, it becomes an advocate for
the system. As a result, [the Finance Board] would not be an impartial judge
of outcomes arising from such decisions. A better way to provide centralized
14
accountability and control would be to establish a systemwide governance
mechanism within.the system overseen by an arm's-length regulator. s
Without such legislation, the Finance Board's dual roles as regulator and manager
. will continue to conflict. The System, like all government-sponsored enterprises, needs a
strong safety and soundness regulator, independent of the enterprises it regulates. It is
important that Congress correct the Finance Board's structural weaknesses before problems
anse.
The Finance Board's responsibility for ensuring the System's safety and soundness
grows more critical and complex as the System itself grows in size and complexity. At the
end of March, the System had $210 billion in consolidated debt obligations outstanding, an
all-time high. Beyond the immense size of these obligations lies another story. The
System's debt obligations have grown increasingly complicated as it has become more
involved in financial derivatives as an issuer and a user. Of the System's $148 billion in
bonds outstanding at the end of 1994, $31 billion, or 21 percent, consisted of structured
notes such as dual-indexed bonds, inverse floaters, and range bonds. Besides financing
traditional advances (whose repayment provisions are themselves growing in complexity),
these obligations fund complex investment portfolios, including $36 billion of mortgagebacked securities. At the end of 1994, the Banks had interest rate swaps outstanding with a
total notional value of $134 billion.
SU.S. General Accounting Office, Goyernment-Sponsored Enterprises: A Framework
for Limitin~ the Goyernment's Exposure to Risks, GAO/GGD-91-90, May 1991, pp. 3334.
15
B.
THE FINANCE BOARD'S SYSTEM MANAGEMENT RESPONSIBILmES SHOULD
DEVOLVE TO THE BANKS AND THE BOARD SHOULD BE RECONSTITlITED
We propose that the Finance Board's managerial responsibilities devolve to the
Banks. This will remove the inherent conflicts between the Finance Board's regulatory and
managerial responsibilities, while strengthening all members' stake in the System. As part
of this change, we propose authorizing the System, rather than the Finance Board, to issue
the System's debt securities.
At the same time, we believe that the Finance Board's structure and authority can
and should be strengthened so that it can more effectively carry out its core responsibilities.
To that end, we propose making two changes in the agency's board structure.
First, we believe that the Secretary of the Treasury (or his designee) should become
a member of the Board. The ever-increasing size and complexity of the System's
operations require the Treasury's financial expertise. Having the Secretaries of both
Treasury and HUD on the Board should help to ensure that the System remains safe, sound,
and true to its public purpose.
Second, in keeping with the Vice-President's efforts to reinvent government, we
believe that the System does not require a full-time board. While setting policy direction
will require a well-informed and strong board, the Finance Board's revised oversight
responsibilities will be less time-consuming than its current responsibilities. A full-time
Board with time on its hands will also tend to micromanage the System. Additionally,
having part-time members will increase the pool of qualified candidates. We therefore
believe that the Board should consist of a full-time appointed chair, the two Secretaries, and
two appointed part-time directors. This should lower the Board's operating expenses while
16
involving qualified citizens in overseeing what, in some sense, is a public/private venture.
The full-time chair will act as the Board's chief executive officer.
H.R. 1487 would provide for a Board of three full-time members, and would not
include either the Treasury or HUD Secretaries on the Board. Given the Federal Home
Loan Banks' limited charter and statutory public purpose, we believe that it is essential for
the HUD Secretary to retain his position and for the Treasury Secretary to be added.
Having both Secretaries on the Board accomplishes three crucial objectives.
First, the Federal Home Loan Bank System, although the third largest debt issuer in
the country (after the Treasury and the Federal National Mortgage Association), is neither
well-known nor well-understood. Yet the immense size, variety, and complexity of its debt
obligations and its importance in supporting housing finance make it a significant player in
our financial markets generally, and housing markets in particular. We believe that the
System's prominence in the market demands similar prominence in its government
oversight. Having the Treasury and HUD Secretaries on the Board lends that prominence.
Additionally, their presence strengthens the Finance Board's ability to give the government
an early warning of problems in housing finance.
Second, any regulator that oversees just one entity will find it increasingly difficult
to remain at arm's length from that entity over time. The 1993 GAO report on the System
strongly criticized the Finance Board's lack of independence from the System. The GAO
reported that the Finance Board had "become a direct advocate for the System" and was
"operating inappropriately as the System's advocate and manager."6 We recognize, as did
the GAO, that the Board's statutory responsibilities for managing certain aspects of the
6U.S. General Accounting Office, Federal Home Loan Bank System: Refonns Needed
to Promote Its Safety. Soundness. and Effectiveness, GAO/GGD-94-38, December 1993, p.
109.
17
System helped blur the distinction between regulating and managing the Banks and diminish
the Board's independence. To fully and effectively establish a strong, arm's-length
regulator and devolve management to the Banks, we believe that the presence of the
Treasury and HUD Secretaries is crucial.
Third, as a government-sponsored enterprise, the System has a public purpose: to
support housing finance safely and soundly. The presence of the Treasury and HUD
Secretaries will both reinforce and balance these public goals.
VI. STRENGTHENING TIlE CAPITAL STRUCTURE FOR A
VOLUNTARY, MEMBER-OWNED COOPERATIVE
The System's current capital structure lacks resiliency for two reasons. First, most
members can redeem their Federal Home Loan Bank stock without a meaningful check on
how such redemptions would affect their Bank's soundness. Second, the REFCorp
obligation is a fixed dollar expense and will remain so even if the System s capital and
I
earnings were to shrink. This lack of resiliency threatens the System because stock
redemptions could leave it without sufficient capital just when it needs capital the most.
Also, large-scale Bank losses could result in losses on members' Bank stock. Such losses,
in tum, would reduce the capital of the members, nearly all of which are insured depository
institutions.
The System's current capital structure also lacks prudent regulatory capital rules. In
particular, System capital rules lack two characteristics common to nearly all other
depository institutions and housing-related government-sponsored enterprises: risk-based
capital requirements and prompt corrective action rules.
18
A.
MEMBER STOCK PuRCHASE REQUIREMENTS AND BANK CAPITAL
REQUIREMENTSNEEDRE~UC~G
The Federal Home Loan Banks' current capital structure rests on statutory
requirements governing members' required purchase of stock in their Bank. This structure
bears no direct relation to the risks the Banks undertake. Instead, it bases a member's stock
purchase requirement on the member's total assets, mortgage-related assets, and outstanding
advances. Nearly all. of the System's $13.7 billion in capital (98 %) comes from stock
purchased by members; the remainder comes from retained earnings.
This structure does not provide a stable, pennanent capital base because voluntary
members seeking to leave the System can redeem their Federal Home Loan Bank stock at
par (assuming their Bank's capital is not impaired). Currently, the Finance Board can
prevent a Bank's capital from melting away during a crisis only by directing the Bank to
withhold a portion of the amount paid-in for stock by a withdrawing member -- and then
only if the Bank's capital is, or is likely to become, impaired. Moreover, the Finance
Board currently has no regulations or guidelines defining impainnent or establishing
procedures for reviewing capital impainnent when handling membership withdrawals.
Thus, Bank stock serves as a buffer for absorbing losses only to the extent that the Finance
Board issued orders requiring such withholding.
Withholding a portion of the amount paid-in for stock by a withdrawing member
would signal that the Finance Board has found or expects impainnent of that Bank's capital.
Such an action would affect all members of that Bank because their regulators and
accountants could require members to write down a portion of their Bank stock investment.
The Finance Board might therefore tend to allow full redemptions until presented with clear
evidence of impainnent.
19
To deal with our concerns regarding the permanence of Banks' capital, we did not
find it necessary to dramatically change the current capital structure. Instead, we believe it
is important to clarify the rules relating to capital stock redemptions. Establishing clear
stock redemption and retirement rules should advise members, Banks, and the Finance
Board of how stock redemption requests and Bank initiated stock retirements would be
handled. Such rules should improve the resiliency of members' redeemable stock without
requiring an overhaul of the System's capital structure.
B.
CAPITAL RESTRUCTURING REQUIRES CHANGES IN CAPITAL STANDARDS, STOCK
PuRCHASE REQUIREMENTS, AND STOCK REDEMPTION AND RETIREMENT RULES
We believe that the System's capital structure needs fundamental reform in three
areas: capital standards, stock purchase requirements, and stock redemption and retirement
rules.
1.
Capital Standards: Risk-Based Capital Requirements
and Prompt Corrective Action
The first crucial step in strengthening the System's capital structure is to base each
Bank's required capital level on the Bank's level of risk. Should a Bank fail to meet its
risk-based capital requirement, clear rules should require prompt action by the Bank and the
Finance Board to correct the problem. As REFCorp is an obligation of the System, and not
a direct obligation of the individual Banks, appropriate System-wide capital rules should
also apply. I will describe our proposed System capital rules later in my statement (see
section VI.B). At the same time, any risk-based capital requirement for the individual
Banks must reflect the Banks' responsibility to contribute to the System-wide obligation.
20
Following capital rules developed in recent years for banks, thrifts, and the other
housing-related government-sponsored enterprises, we propose that the Finance Board be
required to establish risk-based and leverage capital rules for the Banks. Specifically, the
risk-based requirement should have three components, with the overall capital requirement
consisting of the sum of the capital needed for each component:
•
First, a credit-risk component no less than the tier I risk-based capital required for
well-capitalized banks and thrifts. This component would cover both on- and offbalance sheet risk exposures.
•
Second, an interest rate risk component based on an interest rate risk stress test
developed by the Finance Board. Such a test should rigorously test a Bank's ability
to withstand large changes in interest rates, as well as severe rate volatility and
changes in the shape of the yield curve.
•
Third, additional capital sufficient for the Bank to generate the earnings needed to
meet its ongoing obligations, including its payments for REFCorp and the
Affordable Housing Program.
In addition to these risk-based requirements, the Finance Board should establish a
leverage capital requirement for the Banks of no less than 4 percent capital-to-assets. Thus,
a Bank's effective capital requirement would be the greater of the risk-based or leverage
capital requirements.
Because Federal Home Loan Bank stock is redeemable, Banks need some capital
that will always be available to cover losses and generate earnings. Before FIRREA, each
bank had a statutory requirement to retain 20 percent of its annual earnings in a
"permanent" reserve. These reserves were unrelated to the Banks' actual risks. Indeed, in
21
view of mandatory System membership for most thrifts, FHLBank-related sctfety and
soundness reasons did not require such reserves. As a result, given the System's intimate
connections to the thrift industry, Congress used these reserves to help pay for thrift losses.
The situation today is much different. With the fully voluntary membership and
risk-based capital rules proposed in our bill, it is both sound economics and sound public
policy to require each Bank to have some appropriate amount of retained earnings. While
we understand the concern of the Banks and their members that retained earnings might
again be used for purposes unrelated to the System, we believe that will not happen if the
retained earnings are integral to the Banks' satisfying their regulatory capital requirements. 7
7H. R. 1487 would give Bank members a property right in the retained earnings of their
Home Loan Bank. We understand System members' desire for such a provision. We,
however, have serious concerns that such an interest (which members have never had)
could impair the government's ability to supervise and regulate the System. For example:
•
Could this interest impede the Finance Board from taking appropriate action to
assure the System's safety and soundness, if such action would result in diluting a
member's interest in its Bank's retained earnings?
•
How would this interest affect the fundamental capital structure of the System.
Could members insist on redeeming stock at book value, rather than par value, in
order to realize their pro rata ·interest in their Bank's retained earnings? Similarly,
would a new member joining a Bank have to acquire stock at book value, rather than
par value, to avoid diluting existing members' interest in their Bank's retained
earnings?
•
Could a member's interest take priority over the Bank's REFCorp obligation, and
thereby increase the cost to the taxpayers (e.g., if the System were to liquidate,
could members insist on receiving all retained earnings and leaving no residual value
to help offset the System's remaining REFCorp obligation)?
•
Could this interest prevent a future Congress from modifying the System's charter,
operations, or capital rules?
22
Therefore, we propose that Congress direct the Finance Board to establish a retained
earnings ..requirement for the Banks. The Finance Board should base such a requirement on
an interest rate risk stress test (since interest rate risk is the most significant, measurable
financial risk undertaken by the Banks) or some other standard the Finance Board deems
appropriate to ensure the Banks' safety and soundness. The requirement could be built
directly into the risk-based capital requirement or could be a separate requirement. Since
the Banks' retained earnings are so small today -- only $250 million in a System with nearly
$250 billion in assets -- the Finance Board would need to phase in this requirement
gradually.
As we have learned through hard experience during the 1980s, having proper capital
rules alone does not ensure safety and soundness. Such rules require timely and meaningful
enforcement. Consistent with statutory prompt corrective action rules established for
banks, thrifts, and the Federal National Mortgage Association and Federal Home Loan
Mortgage Association, we believe that the capital rules we propose for the Banks should be
supported by similar prompt corrective action rules. Therefore, a critical element of our
capital proposal adapts to the Federal Home Loan Bank System the prompt corrective action
rules already applicable to insured depository institutions.
Wherever possible, we have followed the rules in section 38 of the Federal Deposit
Insurance Act. When necessary, we have adapted those rules to the specific nature of the
System. Of special note, prompt corrective action ties stock redemption rules to capital
requirements. Specifically, to redeem stock at par a Bank must be adequately capitalized,
net of all pending redemptions.
23
2.
Stock Purchase Requirements
Rules governing members' stock purchase requirements must be changed to conform
with the risk-based capital requirements and full voluntary membership. Just as a Bank's
members should have equal responsibility for the operation of their Bank, those members
should all have the same pro rata stock purchase requirement.
Under our proposal, a member's stock purchase requirement results from a two-step
process. First, the amount of total capital in a Federal Home Loan Bank would be
determined by the Bank itself, as long as it satisfies the regulatory capital requirements I
just described. Second, after a Bank decides on its desired capital level, it would then
determine how much capital stock its members must hold. To equitably distribute the
capital stock holdings across all members, the Bank should require all members to hold
capital stock equal to the same percentage of each member's total assets. Using total assets
as the basis upon which a member's stock purchase is calculated ensures that members of
like size will have the same relative stock purchase requirement in their Bank. For
example, if a Bank decides that it needs $10 in capital, and its members had combined
assets of $500, then each member would be required to purchase stock equal to 2 percent
(l0/500) of its assets. This would raise the desired $10 in Bank capital. In this way, each
member has the same pro rata investment in its Bank, giving it a pro rata share of the
returns and a pro rata share in the risks.
3.
Stock Redemption and Retirement Rules
Currently, a Federal Home Loan Bank may redeem a member's stock under three
general sets of circumstances: first, if the member withdraws from the System altogether;
second, if the member holds more shares than it is required to hold and chooses to redeem
the "excess" shares; and third, if the Bank, in managing its capital, reduces the total stock it
24
has outstanding. To add resiliency to Bank capital -- that is, to ensure that such capital
remains there when needed -- Congress should more clearly specify the rules governing
stock redemptions.
These rules need to achieve the appropriate balance between ensuring the resiliency
of Bank capital and preserving members' right to leave the System. We believe that this
balance is best accomplished by requiring that an appropriate time period elapse between a
member's stock redemption notification and the Bank's actual repayment on that stock. We
propose handling stock redemption requests under the following rules:
•
A member will normally receive payment for its stock in two equal installments, one
six months after submitting a redemption notice, the second six months after that.
•
If the Bank is experiencing large capital outflows, the redemption period will extend
to 3 payments over 18 months.
•
If the Bank is undercapitalized, the Finance Board will reduce (i.e., haircut) any
redemption by the member's pro rata share of the Bank's capital deficiency.
•
In all cases, the Finance Board will measure a Bank's capital net of all pending stock
redemptions and retirements.
•
As under current law, a member that withdraws from the System may not rejoin for
ten years.
•
A member that files a redemption notice and then cancels the notice would pay a fee.
The fee would discourage members from attempting to defeat the waiting period or
other safeguards on redemption by continually filing redemption notices -- notices
25
filed not because the member actually intends to make a partial redemption or leave
the System but because it wants to keep its options open.
C.
NEW CAPITAL RULES REQUIRE AN APPROPRIATE TRANSITION PERIOD
Moving the System from its current capital structure to the one I have outlined
would not happen overnight. We propose that the Finance Board have one year to develop
the new capital rules. The Banks will then have 30 days to establish their requirements. We
envision the Banks developing their own capital targets based on the new requirements.
Once a Bank sets its new target level of capital, members would have two years to comply
with such requirements.
As a safety and soundness check on this capital restructuring, our bill requires each
Bank to submit a capital plan to the Finance Board once it sets its capital targets. This
capital plan should describe the Bank's transition plans in implementing the new capital
rules and meeting the new capital requirements.
D.
COMPARISON TO H.R.
1487
Each of the three areas of our capital proposal is similar to H.R. 1487. Each bill
calls for time to elapse between a member's stock redemption request and the actual
redemption, as a means of ensuring that capital stock has some time resiliency. Each bill
calls for risk-based capital rules that take into account credit risk, interest rate risk, and all
other risks and obligations of the Banks, as well as a leverage requirement. And each bill
would permit the Banks to determine stock purchase requirements for their members as
long as the Banks satisfy all regulatory capital requirements.
26
We ·believe, however, that the greater specificity in certain elements of the Administration's
bill provides meaningfully greater assurance of System stability in the long-run.
Let me now briefly summarize the differences in the two bills.
•
Risk-Based Capital Rules: Our proposal specifies how the Finance Board is to
establish risk-based and leverage capital rules, and sets 4 percent of assets as the
floor for the leverage capital requirement. H.R. 1487 more generally directs the
Finance Board to establish capital requirements that consider interest rate risk, credit
risk, and all other risks and obligations incurred by the Banks. It sets the leverage
requirement at the greater of 2.5 percent of assets plus 0.45 percent of off-balance
sheet exposure, or 10 percent of risk-weighted assets. While the Finance Board
should have some flexibility to set, and adjust, capital requirements, we believe that
Congress needs to establish a finner minimum base by statute.
Our proposal also contains strong prompt corrective action provisions. As I have
already said, capital rules alone do not ensure safety and soundness. Regulators and
regulated entities need to have strengthened incentives to take timely, effective action
when an entity's financial condition weakens or becomes questionable.
•
Member Stock Purchase Requirements: Both proposals provide the Banks with
some flexibility in determining member stock purchase requirements, based on their
regulatory capital requirements. H.R. 1487 establishes minimum and maximum
percentages for member stock purchase requirements.
•
Stock Redemption Rules: Our proposal generally allows adequately capitalized
Banks to redeem their stock at par over a twelve month period. If the Bank is
27
undercapitalized, it could still redeem stock, after subtracting from par value the
member's pro rata share of the capital deficiency.
H.R. 1487 pennits members to withdraw from the System and redeem their stock at
par provided the member's Bank would be adequately capitalized after that and all
other pending redemptions. If the member's Bank would not be adequately
capitalized, redemption could be delayed for up to twelve months. If it would be
critically undercapitalized, redemption would be at
les~
than par until the Bank's
capital restoration plan is terminated.
We believe that our approach preserves the certainty of stock redemptions on a
known schedule while ensuring that such redemptions do not add to the capital
problems of an undercapitalized Bank. H.R. 1487 may delay a stock redemption if
the member's Bank is undercapitalized but eventually that redemption could take
place at par (less the nominal exit fee that H.R. 1487 would assess on all stock
redemptions) even though the Bank had a capital deficiency. We believe that
pennitting redemptions at par when a Bank is undercapitalized shifts the burden of
that capital deficiency from the member redeeming stock to the rest of the Bank's
members.
v.
ALLOCATING TIlE REFCORP OBLIGATION
No other issue in Federal Home Loan Bank modernization is more contentious than
dealing with the perverse incentives created by the current formula for allocating the
System's REFCorp obligation among the various Banks. While the different Banks have
taken their own positions on this issue, the taxpayers have a real stake in the issue too.
Since a failure by the System to meet the annual REFCorp obligation would directly
increase the cost to the taxpayers, the taxpayers have a clear interest in assuring the future
28
payment of the System's obligation. Our proposal seeks a balance between competing
interests but is grounded in the need to ensure the System's safety and soundness while
assuring, as much as possible, the System's continued payment on this obligation.
A.
ToE REFCORP ALLOCATION FORMULA CREATES PERVERSE INCENTIVES
Currently, each Bank pays up to 20 percent of its income to REFCorp. If this
amounts to less than $300 million, as it has each year since 1990, the shortfall is collected
from each Bank in proportion to its advances to members whose deposits are insured by the
Savings Association Insurance Fund (SAIF). Since some Banks have relatively more SAIFinsured members than other Banks, the allocation formula spreads the System's REFCorp
obligation in a manner unrelated to Banks' capital or earnings.
This allocation formula creates two significant problems. Specifically, the formula:
(1)
discourages Bank lending to SAIF-insured members (which was the original mission
of the System); and
(2)
poses a significant obstacle to System self-management.
These problems have been thoroughly documented in the recent reports on the System. For
example, the CBO report noted that the Banks have responded to the earnings pressure
created by the REFCorp obligation by building arbitrage portfolios of mortgage-backed
securities (MBS). As the Congressional Budget Office (CBO) noted, "these MBS
29
investments introduce some new management and operations risks into the system." CBO
went on to note that
The most perverse aspect of the $300 million REFCORP payment is
that the formula for allocating the payment among the [B]anks can discourage
the [Banks] from making advances to savings and loan associations (S&Ls) ..
. . Thus, if a [B]ank provides an advance to an S&L, the [B]ank has to pay a
larger share of the REFCORP payment. .No such penalty applies if the
[B]ank invests in a mortgage-backed security or provides an advance to a
member insured by the Bank Insurance Fund.
This situation undercuts the original purpose of the [Banks]. The
FHLB System was set up largely to provide liquidity to members and to
enable them to manage interest rate risk. It is not clear how incentives for the
[B]anks to invest in MBSs, rather than make advances to members, further
these goals. 8
Recently we have seen evidence that, because of this perverse incentive to avoid
making advances to SAIF-insured institutions, some Banks have been pricing advances or
using alternative methods of extending credit in order to reduce their liability under the
REFCorp shortfall allocation (i.e., the second round of the current formula). Such
strategies flow from the incentives built into the current formula.
The allocation formula is also a major impediment to System self-governance. The
1993 GAO report describes how:
8Congressional Budget Office, The Federal Home Loan Banks in the Housin~ Finance
System, July 1993, pp. xiii-xiv, and p. 29.
30
Both FHLBank officials and System members acknowledge that the
disproportionate REFCorp burden has made it difficult for them to reach
agreement on other issues of mutual concern. We believe that a lack of
comity across the FHLBanks and their shareholders impedes the cooperative
action and understanding needed in a System where debt obligations are a
jointly shared liability. This disproportionate burdening of individual
FHLBank districts could create internal frictions within the System and, in
our view, does not contribute to a stable situation over the long run.
Thus, we conclude that the shortfall allocation ensures that the
REFCorp obligation is paid, but in doing so, it may impede the System's
ability to support housing finance in a safe and sound manner. 9
The difficulties that the disproportionate REFCorp allocation formula create for
cooperation among the Banks raise serious public policy concerns in light of (I) the joint
and several liability of the Banks for the System's $210 billion in debt obligations, and (2)
the widespread agreement that the Banks should manage themselves, instead of being
managed by the Finance Board.
As Deputy Secretary Newman testified last June, we believe that the System would
be strengthened by restructuring the allocation of the REFCorp obligation. Revisi!1g the
allocation formula would not simply shift costs from one Bank to another. Rather, it should
provide benefits to all Banks, as well as to the taXpayers. First, a revised formula (that did
not allocate REFCorp costs based on advances to SAIF-insured members) would remove
the disincentive to make advances to SAIF members -- a disincentive that directly conflicts
9U.S. General Accounting Office, Federal Home Loan Bank System: Refonns Needed
to Promote Its Safety, Soundness, and Effectiyeness, GAO/GGD-94-38, December 1993,
p.44.
31
with the System's mission. Second, revising the formula would ease decisions on major
System issues. Reducing the inter-Bank bickering and posturing over this issue should
facilitate consensus building on important issues of System self-management.
Because the REFCorp obligation is a fixed annual dollar amount -- regardless of
System assets, capital, or earnings -- it creates incentives for added risk-taking by the
Banks, especially those disproportionately burdened by the obligation. To generate the
earnings needed to pay the REFCorp obligation, all of the Banks have significantly
increased their investments in mortgage-backed securities. The earnings pressures are
greatest on those Banks that pay a disproportionately large share of the System's obligation.
Additionally, while mortgage-backed security investments help the Banks to generate
earnings, they do not advance the System's public purpose because they do not increase the
overall credit available for housing.
B.
THE REFCORP OBUGATION .8HOUW BE SHARED EQUITABLY AMONG
ALL BANKS AND THEIR MEMBERS
In place of the existing REFCorp allocation formula, our proposal would distribute
the REFCorp obligation among the Banks based on their regulatory required capital. As
the risk-based capital rules we propose would apply uniformly across the Banks, this
approach would proportion each Bank's REFCorp payment to the size and risk of its
operations.
Our preferred REFCorp allocation formula is substantially the same as that in H.R.
1487. This proposed reallocation would accomplish three critical objectives:
•
eliminating the current penalty on making advances to SAIF-insured members by
dropping the shortfall allocation formula;
32
•
enhancing the Banks' ability to work cooperatively in dealing with the broad array of
new responsibilities being delegated to them; and
•
by relating a Bank's share of the obligation to its risk-taking, mitigating the incentive
to generate additional earnings for REFCorp payments by taking on increased risk.
While this is our preferred solution, we recognize that this issue remains contentious
within the System. In the spirit of encouraging System self-management, we support giving
the Banks an opportunity to identify a solution on which they can collectively agree within
60 days after enactment. The Banks would have 60 days after enactment to propose a
REFCorp allocation fonnula acceptable to (i) three-fourths of the Banks and (ii) Banks with
combined total assets at least equal to three-fourths of the System's total assets. The
Finance Board would have 45 days to approve the proposal adopted by the Banks if the
Board found that the proposal:
•
is reasonable and consistent with the objectives of assuring payment of the System's
REFCorp obligation;
•
is equitable to the Banks and members;
•
does not create incentives for the Banks to engage in conduct inconsistent with the
purpose of the System; and
•
is readily understood and predictable in itS effects.
If the Banks fail to propose an alternative within 60 days, or the Finance Board does not
approve the Banks' alternative, then our proposed allocation fonnula would become
effective.
33
C.
TIlE REFCORP OBUGATION MUST BE DEALT WITH ON
A SYSTEMWIDE LEVEL
In our view, fixing the problems in the REFCorp allocation fonnula would greatly
enhance the System's long-run viability and stability. However, it would not deal with the
risk to the taxpayers should the System, for whatever reason, become troubled in the future.
At the System level, the $300 million annual REFCorp obligation adds an additional
challenge to structuring System capital rules. Congress imposed this requirement on the
Banks collectively, not individually. Therefore, we believe that the System needs a Systemwide capital requirement separate and distinct from the Bank-level requirements.
A System-wide capital requirement would afford taxpayers some protection from the
risk of having to absorb the System's REFCorp obligation. While the chances of severe
System shrinkage appear remote today, we believe that comprehensive legislation to
restructure the System must deal with this possibility. Severe shrinkage could leave the
System unable to generate the earnings needed to pay the fixed dollar amount of the
REFCorp obligation. At some point, the System could shrink past some critical level at
which all remaining members could find it in their interest to leave the System in order to
avoid capital losses arising from the fixed REFCorp obligation.
This raises a legitimate question of taxpayer protection, since any failure by the
. System to meet its REFCorp obligation results in an immediate cost to taxpayers. Today,
this obligation amounts to roughly $3.9 billion in present value tenns. Therefore, we
believe it is prudent~ as a matter of taxpayer protection, to build in some early warning
signals that the System's capital level -- and hence its earnings potential -- has declined to
the point at which this risk may become a greater concern. We propose the following
System-wide capital requirements:
34
•
If System capital falls below $7 billion (currently, it is nearly $14 billion), the
System must submit a System-wide capital
re~toration
plan to the Finance Board.
This capital plan would describe how the Banks, individually and collectively, will
deal with the declining System-wide capital base. The plan would be required to
focus first on dealing with any undercapitalized Banks. Requiring such a plan would
center attention on the System's capital before significant problems take hold. The
plan would also focus attention and action on any individual Banks whose particular
difficulties give rise to the System-wide problem.
•
If System capital falls below $6 billion, no Banks could distribute retained earnings.
This restriction represents a modest first step toward conserving capital to prevent a
dissipation of retained earnings before, or in connection with, withdrawals from the
System.
•
If System capital falls below $5 billion, no Bank could pay dividends. At $5 billion,
the fixed REFCorp obligation will likely be considerably burdensome to all the
Banks. The objective at this point is to protect taxpayers from a System liquidation.
Conserving capital by prohibiting dividends assures taxpayers that there will be some
residual left in the System if taxpayers must absorb the System's REFCorp
obligation. Even in this situation, however, we propose that Banks could continue to
redeem capital stock under the rules I just described.
These System capital requirements provide taxpayer protection not found in H.R.
1487, but we believe they are both necessary and fair. They are necessary to protect
taxpayers in recognition of the benefits members have received from their participation in
this government-sponsored enterprise. They are fair in that they are quite modest relative
to the benefits received. I note again that the System capital requirements do
D.Q1
call for a
35
haircut of members' par value in their Bank stock because of System capital deficiencies,
nor do these rules prohibit members from leaving the System.
VU. CONCLUSION
Mr. Chairman, both you and the Administration have long prepared to bring these
comprehensive bills to the table. We differ on certain issues. But, more importantly, we
have a broad common base on which to resolve those differences.
We look forward to working with you, Representative Kanjorski, and all the
Members of this Subcommittee to enact a comprehensive System modernization bill that:
•
keeps the System safe, sound, and focused on its public purpose;
•
maintains the System's important role in supporting housing and community
development finance, particularly through portfolio lending;
•
makes membership voluntary, with equal rights and responsibilities, for all
members;
•
corrects the System's potential instabilities; and
•
protects taxpayers from the costs of the System's REFCorp obligation and from any
risk from financial losses in the System.
I would be pleased to answer any questions.
DEPARTMENT
OF
THE
TREASURY
~~178r9~. . . . . . . . . . . . . . . . . . . . . . . . . ..
............................
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE UPON DELIVERY
Text as prepared for delivery
May 18, 1995
RECORD TESTIMONY OF TREASURY SECRETARY ROBERT E. RUBIN
BEFORE THE SENATE APPROPRIATIONS SUBCOMMITTEE ON
TREASURY, POSTAL SERVICE AND GENERAL GOVERNMENT
Chairman Shelby, Senator Kerrey, members of the Subcommittee:
With me today are Ron Noble, Treasury's Under Secretary for Enforcement, and
George Munoz, our Assistant Secretary for Management and Chief Financial Officer. I
have a longer statement for the record, and at the close I'll be glad to take your
questions. Undersecretary Noble and Assistant Secretary Munoz have particular areas of
expertise I may call upon.
However, before I discuss the details of Treasury's budget, there is something I
want to say about the staff at Treasury. I spent 26 years in the private sector working
with highly talented and accomplished individuals. Treasury has always had a reputation
for excellence, and after four months as Secretary and seeing it first-hand, I know why.
I've found a department doing what government should be doing -- reinventing itself,
working effectively and efficiently, trying to satisfy its customers. During this period,
whether it's been Mexico, or the budget, or global trade, or the Oklahoma City tragedy,
throughout the department I've found dedicated professionals willing to work at all hours
to do the country's business, and I just wanted you to know at the outset of my remarks
how impressed I am with the commitment to public service at Treasury.
A month ago Treasury, like our sister agencies in government, suffered a tragic
loss. Eight Treasury employees -- six in the Secret Service and two from the Customs
Service -- were murdered in the Oklahoma City bombing. Beyond that, two children of
an IRS employee, and eight other members of what you might call the extended
Treasury family -- family members of our employees and former Treasury employees -were killed. One of the 11 Treasury or Treasury-related people who were injured is a
child in critical condition with brain damage. We shall not forget them, and our law
enforcement people won't rest until all of those responsible are brought to justice.
RR-301
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
As you are aware, we asked for a supplemental appropriation to cover the costs of
responding to this situation over both the short and long term. The conference
committee provided us with $43.7 million, with the bulk of the funding designated for the
Bureau of Alcohol, Tobacco and Firearms to deal with security upgrades and enhanced
counter-terrorism capabilities. The full budgetary implications of the Oklahoma City
bombing and the White House Security Review, as well as the implications of the
conference committee action for the 1996 appropriation request are now under
deliberation in the Administration. We are grateful for your support of our funding
request.
I appreciate the opportunity to testify on the Department's Fiscal 1996 request for
$11.3 billion in operating funds. In the current fiscal year Treasury appropriated
resources of $10.5 billion will, among other things, support the collection of $1.3 trillion
in revenues through the Internal Revenue Service, the Customs Service and the Bureau
of Alcohol, Tobacco and Firearms.
It is Treasury's responsibility to be deeply involved in developing the policies that
keep the economy healthy, create jobs and increase incomes, including the policies that
guide our international economic agenda, such as opening markets and supporting the
international financial institutions. We have extensive responsibilities in law
enforcement, and in areas as diverse as revenue collection, financial management and
regulation, and manufacturing our currency and coins. And we try to accomplish our
goals in the most efficient and effective manner possible.
To do that, we are reinventing the process of government and where sensible
downsizing, offering regulatory refor~s that make sense, and seeking the most effective
information processing possible throughout Treasury. I can tell you that already the
notion of reinvention has permeated the Treasury Department and it is now part of the
departmental culture. And the Department, with this budget, will have 4,000 fewer fulltime-equivalent positions than in January 1993. It would have been almost 11,000 lower,
but as you're aware we're strengthening the compliance program at IRS.
I'd like to summarize just briefly what has been accomplished in some fair
measure due to the administration in the past two years on the economic front, review
certain Treasury-specific accomplishments, then layout our priorities for the coming
year.
From the beginning of the administration the President has had a consistent,
broad-based economic strategy to promote and then protect our recovery, to position the
country for the long-term and to increase the incomes of working Americans.
The strategy consists of fiscal discipline, boosting both private and public
investment to increase long-run productivity, opening markets, reforming government and
regulation, and achieving health care and welfare reform.
3
We have had remarkable success in just two years. The deficit as a percentage of
GDP has come down from 4.9 percent in 1992 to a projected 2.7 percent this year. Our
aggressive deficit reduction program jump-started the economy. We now have a strong
investment-led recovery which is creating jobs -- well over 6 million at last count.
Unemployment has declined, and we have introduced other measures directed toward
long-term economic health. We opened markets with NAFfA and GAIT. But over the
long run, the success of our economy will depend on raising productivity growth. The
President's budget for the coming years is increasingly focused on productivity while still
maintaining a strong deficit reduction effort.
Now, I'd like to highlight some of the successes more specific to Treasury.
Law Enforcement
Treasury is our government's second-largest law enforcement agency and has
substantive responsibilities. Our law enforcement bureaus contribute to both revenue
and crime control. Last year the Customs Service brought in duties of $20 billion, and
the Bureau of Alcohol, Tobacco and Firearms collected excise taxes of $13 billion.
Those two bureaus, along with the Secret Service, made nearly 23,000 arrests related to
crimes of violence, drug trafficking and financial fraud. Internal Revenue Service agents
provided investigative support for the trail of criminal cases and money laundering
schemes. Other specific Treasury law enforcement responsibilities include:
•
•
•
•
•
•
•
protecting the President, the vice president, their families and visiting
heads of state;
credit card and financial institution fraud;
prevention and detection of money laundering;
encouraging compliance with and enforcing our trade laws;
stopping the importation of products of forced labor or copyright
violations;
enforcing economic sanctions; and
reducing firearms violence.
Last year's crime bill bans the manufacture, transfer, and possession of 19 specific
types of semiautomatic assault weapons as well as the transfer and possession of large
capacity ammunition clips. The ATF inventoried stocks at each of the 33 locations
where these weapons are made to establish a baseline. ATF has prepared regulations to
assure that the continued availability of these weapons to active duty police officers does
not become an illegal conduit for new weapons and ammunition clips. These and other
crime bill regulations were published last month in the Federal Register. Additionally,
the ATF is assisting the Customs Service in ensuring that the ban on the importation of
these weapons is not circumvented. Enforcement of this provision of the Crime Bill is a
very high priority for ATF.
4
Financial Management
The Department has made significant progress in improving financial
management. This year, under the Chief Financial Officers (CFO) Act, eleven audits
were conducted resulting in seven unqualified opinions, four more than we received last
year. Additionally, departmental oversight of financial systems has been removed from
OMB's High Risk list. However, work still needs to be done, and I am committed to
making Treasury a model of good financial management within government. We need
your support to ensure resources are there to fix the problems. Our current focus is on
developing a single, integrated financial management system within the Department.
We have recently created a Chief Financial Officers (CFO) Council within
Treasury, which is made up of all our bureau CFOs and is chaired by the Department's
CFO. The Council addresses training, systems, audit, and financial statement issues to
ensure coordination.
We have also made progress on implementing the Government Performance and
Results Act of 1993, which requires us to measure the achievements of our programs.
Treasury is a lead participant in the GPRA pilot program, with over 80 percent of our
FTEs and budget resources involved. We're using GPRA as a tool to manage more
effectively and responsibly.
We have included over 200 performance measures in our Fiscal Year 1996 budget
request. During the past year, our Treasury-wide budget, planning, and reinvention staffs
have worked closely with the bureaus to develop suitable measures of performance for
each appropriation. To assure the greatest value for each dollar and position provided
to the Treasr!ry Department, we look forward to working with you to further develop
these measures.
We have made substantial progress at Treasury over the past two years, and I
want to continue that momentum. Our FY 1996 operating budget has several other
major initiatives, and I'd like to spell out our top priorities for you.
Improved Customer Service and Reinventing Government
First, we plan to continue to meet the challenges of the National Performance
Review. As a department, we will downsize our personnel, budget, and procurement
operations, as well as reducing the number of supervisory and headquarters personnel.
We've already made major reductions in our workforce. We anticipate further cuts. A
total of $38.2 million and 854 FTEs will be saved in FY 1996 as a result of downsizing.
5
But we will not sacrifice customer service. We're continuously surveying our
customers to ensure service to them doesn't slip. The next time you travel overseas, look
for Customer Service standards the Customs Service has posted at our nation's ports-ofentry. They've also posted a telephone number to call to get your questions answered,
complaints addressed, and praises gladly heard. We are proud that all of our bureaus
have developed customer service standards for the customers they serve.
Our two largest bureaus, the Internal Revenue Service and the Customs Service,
have been commended by the Vice President for their efforts in re-engineering their
operations. Both have undergone major reviews to determine what their organizations
need to look like in the future and how to get there. Our other bureaus are engaged in
similar undertakings. The National Performance Review Phase II provides the incentive
for the other bureaus to quickly match what Customs and the IRS have done. We have
involved bureau leadership in developing and analyzing proposals to devolve, privatize,
franchise, terminate, or reinvent selected programs and activities.
Modernizing Computer Systems
Second, and very much tied to our ability to downsize, we plan to continue to
modernize our existing information systems to allow us to operate effectively in the
electronic environment of the next century.
Most importantly, we must continue to develop and fully implement Tax Systems
Modernization (TSM) in the Internal Revenue Service. TSM's success is absolutely
essential because taxpayer frustration with processes and services as outdated as ours
will, over time, erode the voluntary nature of our Nation's tax system. No private sector
firm would engage in the type of activities performed by the IRS without modem systems
capabilities, and TSM will provide these capabilities. It is a very good investment for the
American taxpayer.
Our combined challenge -- for Treasury, the IRS, and the Congress -- is to ensure
that TSM is successfully delivered in the most cost-effective manner possible. The IRS
has responded aggressively to the management issues raised by the General Accounting
Office and by the Subcommittee. For example, they have taken actions to strengthen
lines of authority and accountability for TSM management; they have established
priorities and timetables for project development; and they have improved their capacity
to quantify the costs and benefits of TSM in hard dollar terms.
And, we at Treasury have established an oversight group within specifically to
ensure departmental participation in and support for the long-range policy and
management decisions that affect IRS modernization.
6
The Modernization Management Partnership we have created is intended to make
certain that not only are the management concerns regarding TSM addressed, but also
that the core business processes of the IRS are realigned most efficiently to meet the
needs of the taxpayers in the next century. The Partnership will, for example, take part
in and approve the strategic decisions that affect policies for and the management of the
IRS Modernization. It will monitor the progress of IRS modernization toward specific
program milestones and critical decision points, taking corrective actions where
necessary. The Partnership also will oversee TSM program priorities, resource
allocation, staffing levels and implementation schedules. It will ensure that oversight
recommendations are responded to properly, see to it that the Modernization planning
process includes performance measures., and oversee the achievement of management
goals.
TSM remains Treasury's top information systems priority, and I look forward to
continuing to work with the Congress and others to closely monitor its progress and
ensure its success.
Other examples of systems modernization efforts in Treasury include:
•
The Customs Service's program to improve revenue collection and
merchandise processing through redesign of its Automated Commercial
System (ACS). The redesigned system allows us to target violations
without disrupting the flow of legitimate trade. When you're responsible
for processing as many as 20 million entries a year, targeting is a must.
•
The Departmental Offices' programs to increase capacity in the computer
data center to improve policy office productivity and to meet workload
demands. We will also install an emergency power source to provide
continuity of operations and replace obsolete office automation equipment
to allow shared access to data.
Tax Compliance Initiative
Third, we plan to continue our tax compliance initiative. Under last year's budget
resolution, for five years some $405 million a year in additional IRS compliance activity
spending was exempted from counting against the discretionary spending caps and
committee allocations because it produces a four-to-one revenue return. We now have
more than 4,000 additional compliance personnel on board, and will have the full 5,000
in place by the end of this fiscal year. I can tell you that through the first quarter of this
year we are on track to exceed our first-year goal for additional compliance and will
meet our goal of an additional $9.2 billion in collections over the five-year period. The
compliance program is clearly working.
7
As you know, the President's budget, by law, cannot show that spending outside
the caps. The House Budget Committee Budget Resolution retains the language agreed
to last yea keeping the compliance funding outside the caps. However, the Senate
Budget Committee's Budget Resolution does not include that language, and we urge the
full Senate and the Congress to adopt the House Budget Committee's position.
Crime Control
Fourth, we plan to use our legal authority aggressively under the 1994 crime bill
to reduce the crimes of violence, fraud and drug abuse. Through our $30 million
Violence Reduction Alliance, crime control resources will be used to provide grants to
state and localities and expand cooperative efforts to attack firearms crimes. Resources
will be used to facilitate tracing firearms, gathering and sharing law enforcement
intelligence, and targeting illegal firearms sales.
FY 1996 crime control resources will also be used to expand the Secret Service's
attack on overseas counterfeiting and to continue ATF's GREAT Program (Gang
Resistance Education and Training Program), which provides direct intervention with
school children to discourage participation in illegal gang activity. Crime control funding
will also be used to improve law enforcement training, intelligence, and communications
functions.
Financial Stewardship
Finally, Treasury will continue its efforts to improve cash management, debt
collection, and government-wide financial information systems. The Financial
Management Service will continue the expansion of electronic payment capabilities
through the Electronic Benefits Transfer (EBT) Program and the Electronic Data
Interchange (EDI) program. The EBT program streamlines the benefit and welfare
payment delivery system, while EDI supports computer-to-computer exchange of bureau
and financial information.
International Poli0' Development
The development of international economic policy is a critical element of the
Treasury Department's responsibilities. It is not before this committee, but I would like
to offer a few brief comments about this area.
8
National economies are more closely connected in the global economy than ever
before. To safeguard American jobs, exports and border and security concerns, we have
undertaken a cooperative effort with the international financial institutions to assist
Mexico. For the long term, we need to ensure that those international institutions are as
modern as the situations they confront, that they can playa more central role in
resolving cases like Mexico. The President and other heads of state will be discussing
that issue at the G-7 Halifax, Nova Scotia next month. A key to our ability to help
guide and strengthen these institutions is to ensure that the United States meets its
commitments to the institutions and makes progress in paying our arrearages. One of
my highest priorities is seeing that our request for the international institutions is fully
funded because American jobs, American exports and our nation's security are at stake.
Before closing, I would like to express my strong interest in achieving harmony
between the appropriations process and our reinvention actions. Reinvention requires
openness to new approaches for achieving programmatic goals, and so requires flexibility
in how resources are applied. Appropriation actions that assign ceilings and floors to .
specific personnel and spending categories will constrain our options for achieving the
most efficient and effective programmatic outcomes. We look forward to collaborating
with you throughout the appropriations process, so that we can arrive at funding and
personnel decisions that maximize the effectiveness of the department's operations.
Again, I appreciate this opportunity to come before you and share our successes and
our plans. I would be happy to address any questions you may have.
###
DEPARTMENT
OF
THE
NEWS
TREASUR.Y
•
TREASURY
t._
--~~--_ _ _ _ _ _~78~_ _ _ _ _ _ _ _ _ __ _
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
ADVANCE FOR 2 P.M. EDT
Text as prepared for delivery.
May 18, 1995
ORAL STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
BEFORE THE SENATE APPROPRIATIONS SUBCOMMITTEE ON
TREASURY, POSTAL SERVICE AND GENERAL GOVERNMENT
Chairman Shelby, Senator Kerrey, members of the subcommittee:
With me today are Ron Noble, Treasury's Under Secretary for Enforcement, and
George Munoz, our Assistant Secretary for Management and Chief Financial Officer. I
have a longer statement for the record, and at the close I'll be glad to take your
questions. Undersecretary Noble and Assistant Secretary Munoz have particular areas of
expertise I may call upon.
However, before I discuss the details of Treasury's budget, there is something I
want to say about the staff at Treasury. I spent 26 years in the private sector working
with highly talented and accomplished individuals. Treasury has always had a reputation
for excellence, and after four months as Secretary and seeing it first-hand, I know why.
I've found a department doing what government should be doing -- reinventing itself,
working effectively and efficiently, trying to satisfy its customers. During this period,
whether it's been Mexico, or the budget, or global trade, or the Oklahoma City tragedy,
throughout the department I've found dedicated professionals willing to work at all hours
to do the country's business, and I just wanted you to know at the outset of my remarks
how impressed I am with the commitment to public service at Treasury.
A month ago Treasury, like our sister departments in government, suffered a
tragic loss. Eight Treasury employees -- six in the Secret Service and two from the
Customs Service -- were murdered in the Oklahoma City bombing. Beyond that, two
children of an IRS employee, and eight other members of what you might call the
extended Treasury family -- family members of our employees and former Treasury
employees -- were killed. One of the 11 Treasury or Treasury-related people who were
injured is a child in critical condition with brain damage. We shall not forget them, and
our law enforcement people won't rest until all of those responsible are brought to
justice.
RR-302
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
As you are aware, we asked for a supplemental appropriation to cover the costs of
responding to this situation over both the short and long term. The conference
committee provided us with $43.7 million, with the bulk of the additional funding
designated for the Bureau of Alcohol, Tobacco and Firearms to upgrade security and
enhance our counter-terrorism capabilities. The full budgetary implications of the
Oklahoma City bOll!bing and the White House Security Review, as well as the
implications of the conference committee action for the 1996 appropriation request are
now under deliberation in the Administration. We are grateful for your support of our
funding request.
Mr. Chairman, I appreciate the opportunity to testify on the Department's Fiscal
1996 request for $11.3 billion in operating funds. In the current fiscal year Treasury's
resources of $10.5 billion will, among other things, be used to collect in excess of $1.3
trillion in revenues.
Before I talk about some of the specifics and discuss our priorities for the future,
I want to say that from the beginning, the President has had a consistent economic
strategy, for now and for the long term, and it is working. We have had remarkable
success in the economy in the past two years.
Treasury's job to help develop and implement policies to keep the economy
healthy, create American jobs and increase American incomes. We help open foreign
markets and guide the international financial institutions in ways that advance American
interests. We have extensive responsibilities to enforce the law, to collect revenue, to
manage the nation's finances and to mint our nation's coins and print the currency.
To accomplish all our goals in the most efficient and effective manner possible,
we are reinventing the process of government and where sensible downsizing, offering
regulatory reforms that make sense, and seeking the most effective information
processing possible throughout Treasury. After adding staff for the IRS compliance
initiative, in fiscal 1996 we're going to be nearly 4,000 FrE's smaller than in January
1993, and at an average cost of $40,000 per FrE that translates into a savings for the
taxpayers of almost $160 million a year. And I can tell you the spirit of reinvention is
part of the departmental culture now.
Having said that, I'd like to highlight some of the successes more specific to
programs within the Treasury Department.
Law Enforcement
Treasury is our government's second-largest law enforcement agency. Our
responsibilities range from protecting the president and fighting financial crimes and
smuggling to enforcing economic sanctions and reducing firearms violence.
3
Last year's crime bill bans the manufacture, transfer, and possession of 19 specific
semiautomatic assault weapons as well as the transfer and possession of large capacity
ammunition clips. Regulations ensuring that continued access to remaining inventories
of these weapons by active duty police officers does not become an illegal conduit for
new weapons and ammunition clips, as well as other regulations related to the crime bill,
were published last _month in the Federal Register. Enforcing the assault weapons ban is
a very high priority for ATF.
Today, though, I ask not only for material support, but your personal support for
law enforcement officers. They have been assailed and criticized in some quarters
recently -- unfairly, unwisely, and at times, outrageously. They protect us, and we must
stand with them.
One of our priorities this year is to use our legal authority aggressively under the
1994 crime bill to address the crimes of violence, fraud and drug abuse rampant in our
society. Through our $30 million Violence Reduction Alliance, we will provide grants to
states and localities and expand cooperative efforts between ATF and state and local
governments to attack firearms crimes. Fiscal 1996 crime control resources will also be
used to expand the Secret Service's attack on overseas counterfeiting and to continue
ATF's GREAT Program (Gang Resistance Education And Training Program), which
helps school children resist the lures of illegal gang activity.
Financial Management
We have made significant progress in improving financial management -increasing the number of unqualified audits under the Chief Financial Officers Act and
removing departmental oversight of financial systems from OMB's High Risk list.
However, more remains to be done. I am committed to making Treasury a model of
financial management and we will need your support to ensure resources are available.
Our current focus is on developing a single, integrated financial management system
within the Department.
We have also made progress on implementing the Government Performance and
Results Act of 1993, which requires us to measure the achievements of our programs.
Treasury is a lead participant in the GPRA pilot program. We have included over 200
performance measures in this budget request.
I want to build upon the success of the past two years. This budget has several
major initiatives in the areas I've mentioned, and beyond those areas I've already
discussed, I'd like to spell out our other top priorities for you.
4
Improved Customer Service and Reinventing Government
First, we plan to continue to meet the challenges of the National Performance
Review. As a department, we will downsize our personnel, budget, and procurement
operations and reduce the number of supervisory and headquarters personnel. A total
of $38.2 million and 854 FfEs will be saved in FY 1996 by downsizing. But we will not
sacrifice service. E~ery Treasury bureau has developed customer service standards for
the customers they serve.
The Vice President has commended our two largest bureaus, the IRS and the
Customs Service, for re-engineering their operations. Our other bureaus are engaged in
similar undertakings.
Modernizing Computer Systems
Second, and very much tied to our ability to downsize, we plan to continue to
modernize our existing information systems.
Most importantly, we must continue to develop and fully implement Tax Systems
Modernization (TSM) in the IRS. TSM's success is absolutely essential because taxpayer
frustration with processes and services as outdated as ours will, over time, erode the
voluntary nature of our tax system. No private sector firm would engage in the type of
activities performed by the IRS without modern systems capabilities, and TSM will
provide those capabilities. It is a very good investment for the American taxpayers.
Our combined challenge -- for Treasury, the IRS, and the Congress -- is to ensure
that TSM is delivered in the most cost-effective manner possible. The IRS has
responded aggressively to the management issues raised by the General Accounting
Office and by the Subcommittee, and we at Treasury have established an oversight group
within specifically to ensure departmental participation in and support for the long-range
policy and management decisions that affect IRS modernization.
The Modernization Management Partnership we have created is intended to make
certain that not only are the management concerns regarding TSM addressed, but also
that the core business processes of the IRS are realigned most efficiently to meet the
needs of the taxpayers in the next century. The Partnership will, for example, take part
in and approve the strategic decisions that affect policies for and the management of the
IRS Modernization. It will monitor the progress of IRS modernization toward specific
program milestones and critical decision points, taking corrective actions where
necessary. The Partnership also will oversee TSM program priorities, resource
allocation, staffing levels and implementation schedules. It will ensure that oversight
recommendations are responded to properly, see to it that the Modernization planning
process includes performance measures, and oversee the achievement of management
goals.
5
TSM remains Treasury's top information systems priority, and I look forward to
continuing to work with the Congress and others to closely monitor its progress and
ensure its success, but we need funding from Congress
Tax Compliance Initiative
-
Third, we plan to continue our tax compliance initiative. Under last year's budget
resolution, for five years some $405 million a year in additional IRS compliance activity
spending was exempted from counting against the discretionary spending caps and
committee allocations because it produces a four-to-one revenue return. We now have
more than 4,000 additional compliance personnel on board, and will have the full 5,000
in place by the end of this fiscal year. I can tell you that through the first quarter of this
year we are on track to exceed our first-year goal for additional compliance and will
meet our goal of an additional $9.2 billion in collections over the five-year period. The
compliance program is clearly working.
As you know, the President's budget, by law, cannot show that spending outside
the caps. The House Budget Committee Budget Resolution retains the language agreed
to last yea keeping the compliance funding outside the caps. However, the Senate
Budget Committee's Budget Resolution does not include that language, and we urge the
full Senate and the Congress to adopt the House Budget Committee's position.
Financial Stewardship
Finally, Treasury will continue its efforts to improve cash management, debt
collection, and government-wide financial information systems. The Financial
Management Service will continue the expansion of electronic payment capabilities
through the Electronic Benefits Transfer (EBT) Program and the Electronic Data
Interchange (EDI) program.
International Policy Development
The development of international economic policy is a critical element of the
Treasury Department's responsibilities. It is not before this committee, but I would like
to offer a few brief comments about this area. As recent months have shown, national
economies are far more closely connected in the global economy than ever before.
Treasury has programs under way in several areas to ensure our engagement with the
global economy, and is working to see that our international financial institutions are as
modem as the situations they confront. It will be a topic for President Clinton and the
heads of state at the G-7 summit in Halifax, Nova Scotia, next month.
6
In closing, I would like to express my strong interest in harmonizing the
appropriations process with our reinvention actions taken to date. Reinvention requires
openness to new approaches for achieving our goals, and it requires flexibility in how
resources are applied. Assigning ceilings and floors to specific personnel and spending
categories will constrain our options for increasing program efficiency and effectiveness.
We look forward to collaborating with you throughout the appropriations process, so that
we can arrive at fun-ding and personnel decisions that maximize the effectiveness of the
department's operations.
Again, I appreciate this opportunity to come before you and share our successes and
our plans. I would be happy to address any questions you may have.
###
I
DEPARTMENT
OF
TREASURY.
~
THE
TREASURY
NEWS
I
OFFICE OF PUBUC~AIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT
May 17, 1995
~:30
CONTACT:
P.M.
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $29,250 MILLION
The Treasury will auction $17,750 million of 2-year notes
and $11,500 million of 5-year notes to refund $16,300 million of
publicly-held securities maturing May 31, 1995, and to raise
about $12,950 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $1,227 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $1,905
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format.
All competitive and noncompetitive awards will be at the highest yield of accepted
competitive tenders.
For both auctions, competitive yields must be expressed with
three decimals, for example, 7.123 percent.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-303
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED MAY 31, 1995
May 17, 1995
Offering Amount .
Description of Offering:
Term and type of security
Series
CUSIP number
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield .
Interest payment dates
Minimum bid amount
Multiples .
Accrued interest
payable by investor
Premium or discount .
$17,750 million
$11,500 million
2-year notes
AE-1997
912827 T9 3
May 23, 1995
May 31, 1995
May 31, 1995
May 31, 1997
Determined based on the
highest accepted bid
Determined at auction
November 30 and May 31
$5,000
$1,000
5-year notes
L-2000
912827 U2' 6
May 24, 1995
May 31, 1995
May 31, 1995
May 31, 2000 .
Determined based on the
highest accepted bid
Determined at auction
November 30 and May 31
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The followinq rules __ applv to all securities mentioned above:
Submission of Bids:
Accepted in full up to $5,000,000 at the highest accepted yield
Noncompetitive bids
(1) Must be expressed as a yield with three decimals, e.g., 7.123%
Competitive bids
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award .
Receipt of Tenders:
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Noncompetitive tenders
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Competitive tenders
Full payment with tender or by charge to a funds account at a
Payment Terms .
Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY'~
~I
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
STRIKING A BEITER BALANCE
BETWEEN THE COSTS AND BENEFITS
OF REGULATION
Testimony of
The Honorable Richard S. CarneD
Assistant Secretary of the Treasury
On H.R. 1362
Before the Subcommittee on Financial Institutions
and Consumer Credit
Committee on BaDkin~ and Financial Services
United States House of Representatives
May 18, 1995
RR 304
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
SUMMARY
The Administration has a strong commitment to reducing the costs and
improving the quality of bank regulation. Over the past two years, we have taken
numerous steps to achieve that objective (see Appendix A). We can and we should
improve the regulatory environment for depository institutions. Accordingly, we
support, as drafted or with some modification, a large portion of H.R. 1362's
provisions.
We welcome the opportunity to participate in the Subcommittee's efforts to
identify and eliminate needless regulatory costs, consistent with our commitment to
promote efficiency and competition, keep federally insured depository institutions safe
and sound, and protect the interests of consumers.
Community Reinvestment Act
We have major concerns about provisions of the bill that would amend, or
otherwise impair the operation of, the Community Reinvestment Act (CRA). We
strongly oppose any weakening of the eRA, and urge the Subcommittee to keep the
CRA outside the scope of the bill.
Two years ago, responding to complaints about how the CRA has been
implemented over the years, the President called on the federal banking agencies to
rewrite their CRA rules to stress performance, not paperwork. Last month, after one
of the most comprehensive rulemaking proceedings in recent times, the agencies
promulgated final regulations, culminating a lengthy process in which they sought and
obtained the input of thousands of interested parties.
In the course of their rulemaking, the agencies considered and dealt effectively
with the problems of the old CRA system. There is thus no need for statutory
changes. The thoughtful, carefully balanced reforms adopted by the agencies fulfill
both the promise of the statute and the President's request. They provide real
incentives for depository institutions to serve all our communities, and a streamlined,
straightforward process for assessing their success.
The new rules deserve a chance to work, and we believe they should be
implemented as scheduled. To amend the CRA in any respect before the new rules'
effectiveness can be evaluated would be counterproductive, and the Administration
would firmly oppose it.
Banking laws have long required banks to obtain regulatory approval for such
transactions as establishing branches, acquiring new institutions, and merging
"
11
institutions. We believe the process for reviewing such transactions can and should be
streamlined. To preserve current opportunities for review of an institution's record of
serving its community, we would: retain existing requirements to publish notice of
the transactions in question; give interested persons at least 30 days to comment on an
institution's CRA record; and specify that, for purposes of the CRA, institutions must
follow these procedures for a full application if regulators receive a substantial CRA
protest. This approach would provide a streamlined notice process in the
overwhelming majority of cases, while maintaining the integrity of the CRA.
Fair Lending
The bill rightly seeks to encourage institutions to test themselves for
discrimination. We want institutions to be able to self-test and to then take corrective
action, and we support incentives toward those ends. We would be glad to work with
the Subcommittee on appropriate language to encourage self-testing without hindering
appropriate enforcement action.
Truth in Lending; RESPA
We support simplifying the Truth in Lending Act and the Real Estate
Settlement Procedures Act (RESPA).
The Truth in Lending Act should not permit borrowers to avoid responsibility
altogether because of truly technical violations by a lender, and we support
appfgpria&ely drafted provisions to prevent them from doing so.
We support efforts to improve disclosures (e.g., about adjustable-rate
mortgages and the transfer of loan servicing).
We oppose exempting second mortgages from the protections of RESPA.
Safety and Soundness Safeguards
We oppose permitting small banks and thrifts to go two years between
examinations. Interest rates and local economic conditions can change dramatically
during such a period, and capital can erode very rapidly. A two-year examination
cycle would undercut the system of "prompt corrective action" enacted in 1991, under
which FDIC-insured depository institutions face progressively more stringent
supervisory safeguards as their capital declines. This system depends on timely and
accurate measurement of capital, including the results of examinations.
...
ll1
We generally oppose permitting an institution's managers to serve on its audit
committee. Such a committee is typically the principal point of contact between an
institution's board of directors and the institution's own internal audit function.
Internal auditors - who are, of course, employees of the institution -- must be able to
communicate their concerns and findings to the board without control by, or fear of
reprisal from, the very management whose actions they may be reviewing.
Conclusion
We look forward to working with the Subcommittee to craft legislation that
eliminates regulatory burdens while maintaining important and necessary public
benefits.
TABLE OF CONTENTS
I.
THE NEED FOR A BALANCED APPROACH . . . . . . . . . . . . . . ..
2
ll.
H.R. 1362, THE FINANCIAL INSTITUTIONS REGULATORY
RELIEF ACT OF 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
3
m.
A.
COMMUNITY REINVESTMENT ACT ............................
1.
Amendments to CRA . . . . . . . . . . . . . . . . . . . . . . . . .
2.
Procedural Changes Affecting CRA .. . . . . . . . . . . . . . ..
3.
Small Business Lending Data . . . . . . . . . . . . . . . . . . . .
B.
FAIR
C.
TRUTH IN LENDING ACT; RESP A . . . . . . . . . . . . . . . . . . . . .. 9
1.
Coordinating RESP A and ~e Truth in Lending Act;
Responsibility for Administering RESP A . . . . . . . . . . . . . 9
2.
Specific Provisions . . . . . . . . . . . . . . . . . . . . . . . . .. II
D.
TRUTH IN SAVINGS ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13
E.
SAFETY AND SOUNDNESS SAFEGUARDS. . . . . . . . . . . . . . . . . . . . . ..
I.
Annual Examinations . . . . . . . . . . . . . . . . . . . . . . . .
2.
Independent Audit Committees . . . . . . . . . . . . . . . . . .
3.
Insider Lending . . . . . . . . . . . . . . . . . . . . . . . . . . ..
4.
Culpability Standards for Outside Directors. . . . . . . . . ..
5.
Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
F.
HOLDING COMPANY REGULATION
G.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
3
4
5
7
LENDING .......................................... 8
13
14
15
16
16
17
. . . . . . . . . . . . . . . . . . . . . 17
CONCLUSION....................................
18
20
APPENDIX A: TIlE ADl\1INISTRATION'S ACIllEVEMENTS IN REDUCING
THE COSTS AND IMPROVING THE QUALITY OF REGULATION
STRIKING A BETTER BALANCE
BETWEEN THE COSTS AND BENEFITS
OF REGULATION
Testimony of the Honorable Richard S. Carnell
Assistant Secretary of the Treasury
On H.R. 1362
Before the
Subcommittee on Financial Institutions and Consumer Credit
Committee on Banking and Financial Services
United States House of Representatives
May 18, 1995
Madam Chairwoman, Representative Vento, Members of the Subcommittee. I
am pleased to be here today to present the Administration's views on H.R. 1362, the
Financial Institutions Regulatory Relief Act of 1995.
I would like to commend you, Madam Chairwoman, for holding this hearing. I
would also like to commend Representative Bereuter and others who have kept
attention focused on improving the regulatory environment in which depository
institutions operate.
The Administration has a strong commitment to reducing the costs and
improving the quality of bank regulation. Over the past two years, we have taken .
numerous steps to achieve that objective (some of which I summarize in Appendix A).
We can and we should improve the regulatory environment for depository institutions.
Accordingly, we support, as drafted or with some modification, a large portion of
H.R. 1362's provisions.
2
I. TIlE NEED FOR A BALANCED APPROACH
Banking regulation serves many goals: maintaining a safe and sound financial
system; protecting consumers; and assuring that communities' needs are served.
Congress enacted the provisions of existing law we are considering today to further
such goals. Nevertheless, many see these laws today as presenting burdens which
warrant extensive amendment. We can ask ourselves, why? I submit, there are a
variety of answers.
First, in many cases the issues addressed by these laws have turned out, in the
implementation, to be far more complex than anyone imagined. This complexity is
generally reflected in the rules written by the agencies Congress has directed to carry
out its mandate.
Second, when violations of these laws carry significant penalties, the industry
itself has often sought considerable specificity and certainty about its obligations,
which makes the rules more detailed and difficult.
Third, market participants find ways to avoid restrictive statutes, prompting the
agencies to engage in repetitive loophole-plugging to shore up the statutes. This cycle
of avoidance and stringency makes regulation more burdensome, particularly for those
careful about complying with the law.
Thus, it is appropriate to review the regulatory framework and eliminate any
unwarranted burdens that have crept in, while also keeping in mind the original
objectives of promoting safety and soundness and protecting taxpayers and consumers.
We welcome the opportunity to participate in this review. Indeed, this Administration
3
has committed itself to removing unwarranted barriers to efficiency in both
government and the private sector (see Appendix A).
ll. H.R. 1362, THE FINANCIAL INSTITUTIONS
REGULATORY RELIEF ACT OF 1995
Against this background, let me tum to the specifics of H.R. 1362.
A.
COMMUNITY REINVESTMENT Acr
We have major concerns about provisions of H.R.1362 that would amend, or
otherwise impair the operation of, the Community Reinvestment Act (CRA). We
strongly oppose any weakening of the CRA, and urge the Subcommittee to keep the
CRA outside the scope of this bill.
~
CRA is important to the Administration's objective of encouraging
depository institutions to look in all communities for good business opportunities. As
the President declared on April 19, 1995, "the CRA can create miracles in small
towns and big cities from coast to coast -- miracles like mortgage or business loans for
people who never thought they could own a house or business, multifamily housing
loans, and commercial development loans in low- to moderate-income communities."
And these miracles come in the form of good business that had gone ignored before
CRA.
4
1.
Amendments to eRA
Two years ago, responding to complaints about how the
eRA
has been
implemented over the years, the President called on the federal banking agencies to
rewrite their
eRA rules to stress performance,
not paperwork. Last month, after one
of the most comprehensive joint rule-making proceedings the banking agencies have
ever conducted, the agencies promulgated final regulations, culminating a lengthy
process in which they sought and obtained the input of thousands of interested parties,
including banks, savings institutions, trade associations, customers, and community
groups. The agencies received over 6,700 comments in 1993, and over 7,200
comments in 1994.
In the course of their rulemaking, the agencies considered and dealt effectively
with the problems of the old
eRA process.
In other words, this extensive
reexamination has already addressed the very problems that also prompted current
legislative proposals to amend the
eRA.
There is thus no need for statutory changes.
The thoughtful, carefully balanced reforms adopted by the agencies fulfill both the
promise of the statute and the President's request. They provide real incentives for
depository institutions to serve all our communities, and a streamlined, straightforward
process for assessing their success.
The banking industry itself has responded favorably to the new rules. For
example, the American Bankers Association hailed the new rules as a It regulatory
rightsizing of eRA" that was "long overdue" -- one that It slows the spiral of
paperwork for paperwork's sake and restores some sanity to the process." The
Independent Bankers Association of America declared that the new rules "should
alleviate the paperwork nightmare of eRA for community banks and allow them to
5
concentrate on what they do best -- reinvest in their communities."
Such leading
financial institutions as Chemical Bank, Bank of America, NationsBank, First
National Bank of Chicago, American Savings Bank, and Home Savings of America,
joining a coalition of civic and community groups and mayors from around the
country, praised the new rules for striking "a balance between the banking industry's
desire for reduced regulatory burden and the need for all American communities to
have access to better information . . .. They represent a significant move in the right
direction . .. Now, we urge that they be given a chance to work. "
The right approach, after all of this thoughtful work by the regulatory agencies
and the public, is to implement the new rules on schedule. To revisit and amend the
CRA in any respect before the new rules' effectiveness can be evaluated would be
counterproductive, and the Administration would firmly oppose it.
2.
Procedural Changes Affecting CRA
Banking laws have long required banks to obtain regulatory approval for such
structural changes as the establishment of branches, the acquisition of new institutions,
or the merger of existing institutions. We believe the process for reviewing such
transactions should be streamlined. (Indeed, the OCC and OTS have already taken
steps, within the limits of their current statutory authority, to expedite and simplify
that process.)
Thus we support the objectives of section 202 (acquisitions of banks by bank
holding companies), section 203 (mergers of FDIC-insured depository institutions),
section 204 (Oakar transactions), and section 207 (branch applications) of H.R. 1362,
which would revise the procedures for reviewing such transactioQs. Under sections
6
202 and 207, well-capitalized, well-managed institutions with satisfactory CRA
records could generally give regulators notice before a transaction and then proceed
with the transaction unless regulators acted within a specified time to require an
application.
As currently drafted, however, these sections could insulate such transactions
from effective CRA review - review that current law specifically requires, and that
has played an important role in assuring the CRA's effectiveness. No longer would
persons concerned about an institution's record of meeting community needs receive
notice of, or have a meaningful opportunity to comment on, a proposed transaction.
These sections would thus, in effect, establish a safe harbor against CRA-based
challenges - in addition to the explicit safe harbor proposed in section 124. Just as
we strongly oppose section 124, we strongly oppose that result here.
Our opposition to CRA safe harbors accords with the principles of the bill. In
section 202, for example, institutions with satisfactory CAMEL ratings would not
automatically receive approval for their transactions. The Federal Reserve would
evaluate the transaction to confirm that other considerations do not warrant a more
complete review despite the bank's rating. This same logic underlies our position on
eRA review: a satisfactory CRA rating does not mean that an opportunity to consider
other information relevant to CRA performance is unnecessary.
To reconcile our CRA-related concerns with the shared objective of
streamlining the application process, we would preserve existing requirements to
publish notice of the transactions in question; give interested persons at least 30 days
to comment on an institution's CRA record; and specify that, for purposes of CRA,
institutions must follow the procedures for a full application if regulators receive a
7
substantial CRA protest. This approach would provide a streamlined notice process in
the overwhelming majority of cases, while preserving the integrity of CRA.
Section 202, which we have already discussed in the context of CRA, also
raises a question about the proper role of the Justice Department Antitrust Division in
considering the competitive effects of bank acquisitions. As drafted, section 202
would allow an expedited 15-day prior notice process if certain preconditions were
satisfied. Among these would be a requirement that the proposal comply with
guidelines adopted by the Federal Reserve, in consultation with the Department of
Justice, to widentify proposals that are not likely to have a significantly adverse effect
on competition in any relevant financial services market.
II
We support this approach, with a slight modification. The Department of
Justice has raised a procedural question about its ability to receive simultaneous notice
of a transaction. Giving the Department simultaneous notice of the transaction would
expedite the process if done in conjunction with an amendment to waive the typical
30-day post-approval waiting period contained in 12 U.S.C.1849(b), except for those
transactions where the Department has informed the Federal Reserve, within the 15day period contained in this section, that the effect of the transaction may be
substantially to lessen competition. This will enable transactions that do not raise
significant antitrust concerns to proceed expeditiously.
3.
Small Business Lending Data
We strongly oppose section 230, which would repeal the current requirement
that depository institutions report information on their lending to small businesses and
small farms. Such information is both useful and not otherwise available. For
8
example, the Justice Department's Antitrust Division uses this data in dozens of bank
merger cases each year in various local markets throughout the country. This data is
the only readily available source of information on banks' small business lending, and
is therefore of great importance in evaluating the anticompetitive effects of proposed
mergers. The Small Business Administration also uses the data to rank the small
business lending of all the nation's commercial banks and to provide information to
small business on bankers serving their needs.
B.
FAIR LENDING
I think everyone would agree that discriminating against loan applicants based
on such characteristics as race or sex is reprehensible. The Equal Credit Opportunity
Act and the Fair Housing Act prohibit such discrimination, and the Fair Credit
Reporting Act plays an important preventive role by allowing consumers to be
informed of the reasons for a creditor's adverse action and the information
underpinning that action. This Administration is firmly committed to eliminating such
discrimination. And when such discrimination relates to home mortgage credit we
believe it is particularly reprehensible, because it not only offends basic rights, but
contravenes as well our strong national policy of encouraging home ownership, which
this Committee has had a major role in formulating and advancing.
Section 145 rightly seeks to encourage institutions to test themselves for
discrimination. We want institutions to be able to self-test and then to take corrective
action. We support incentives toward those ends. Section 145 as drafted is overly
broad, however, and we, the Department of Justice, and HUD would be happy to
work with the Subcommittee on appropriate language that encourages self-testing
without hindering appropriate enforcement action.
9
We cannot support section 116' s proposed reduction in the number of
institutions reporting under the Home Mortgage Disclosure Act, given the role these
reports play in identifying discrimination. These reports can serve to alert an
institution of possible discriminatory practices in its own operations. They also assist
the regulators in determining compliance with
eRA and enforcing the fair lending
laws.
C.
TRUTH IN LENDING ACT; RESPA
1.
Coordinating RESPA and the Truth in Lending Act; Responsibility
for Administering RESPA
The Truth in Lending Act (TILA) establishes a methodology for calculating and
disclosing the true cost of credit. TILA disclosures must be delivered within three
days of a loan application, or sooner if the loan is closed first. The Real Estate
Settlement Procedures Act (RESPA) requires that lenders provide borrowers, within
three days of a loan application, with a good faith estimate of all settlement costs
associated with a closing on a purchase money mortgage loan. Typically, the TILA
disclosures are provided separately but concurrently with the good faith estimate and
other RESPA disclosures. Additional disclosures are also required under both statutes
at the time of closing.
TILA applies to most consumer credit transactions, including, for example,
credit cards, car loans, and home mortgages. RESPA applies only to single family
housing. Both statutes apply to lenders, but RESPA provisions also apply to real
estate agents and brokers; title agents and underwriters; credit reporting companies;
10
appraisers; attorneys; escrow or closing agents; and providers of mortgage, casualty,
and homeowners' insurance.
This brief recitation suggests the compliance difficulties lenders have faced in
dealing with these two laws. Action to harmonize the workings of the Truth in
Lending Act and RESPA is clearly appropriate. Eliminating duplicative and
needlessly burdensome disclosures and unworkable requirements in the home mortgage
lending process would reduce the cost of loan originations and relieve consumers from
information overload.
Indeed, we believe that simplifying, consolidating, and coordinating all the
disclosures required in the home purchase and finance process (including, for
example, environmental disclosures), and eliminating needless requirements, would
best serve the interests of consumers and the industry. We further believe that this
objective should be pursued through an interagency process, rather than by giving a
mandate to the Federal Reserve simply to make the disclosures uniform. The problem
that creates the overlap is primarily statutory, not regulatory, and does not lend itself
to solution by creating minor exemptions from one provision or another. We suggest
that the Federal Reserve, HUD, and Treasury be directed jointly to study the entire
process as it relates to home finance and to develop recommendations for changes in
all the relevant laws that would simplify and coordinate this process, to ensure that
consumers receive the information and protection they need and to avoid needless
burdens on lenders and other participants.
H.R. 1362 also provides for the transfer of all RESPA rulemaking
responsibilities to the Federal Reserve and the dispersion of enforcement among many
agencies. Recognizing that HUD is the only agency with comprehensive expertise on
11
the full scope of housing-related matters, we should leave rulemaking authority under
RESP A with HUD. In the meantime, we support the clarification that the financial
regulatory agencies have concurrent jurisdiction with HUn in enforcing RESPA.
2.
Specific Provisions
We agree on the value of simplifying TILA and RESPA. We support the
objective of the bill's amendments to those Acts, and believe we can support most of
them with modifications.
TILA should not permit borrowers to avoid responsibility for their obligations
altogether because of truly technical disclosure violations by the lender. Accordingly,
we support the objectives of sections 106, 107, 108, 109 and 111. We are concerned,
however, that some of the drafting of these sections is overly broad. We would be
glad to work with the Subcommittee to develop appropriate language.
We would support a modified version of section 103, under which the Federal
Reserve may, by regulation, exempt transactions from TILA if the Fed finds that
coverage by the Act does not benefit consumers by providing useful information or
protection. However, we believe that the requirement that such benefits be
"measurable" is overly restrictive, and should be deleted.
We support the efforts to improve disclosures. Section 104 would simplify
disclosure regarding the transfer of loan servicing, and section 105 would simplify
disclosure of how interest rates on an adjustable-rate mortgage may change. The
current regulatory requirement to provide a hypothetical example of how the annual
percentage rate and minimum payment would have changed during the past 15 years is
12
overly complex. But borrowers should be made clearly aware of how their monthly
payments can increase - for example, by basing disclosures on a worst-case scenario.
We oppose section 104' s elimination of the RESPA protection for second
mortgages, which Congress adopted in 1992 "because of the unfortunate potential for
fraud and abuse among the elderly and inner city homeowners. "
Section 112 would limit the actual damages" that could be recovered by a
II
borrower given inaccurate disclosures. The borrower would first have to demonstrate
"reliance" on the inaccurate disclosure that prevented the borrower "from accepting
better credit terms actually available" from another creditor, and damages would then
be limited to the difference between the amount actually paid and the amount that
would have been paid to another creditor from whom the credit was available. We
believe this is an excessively stringent standard, and that, as a practical matter, it
would be exceedingly difficult to satisfy. In our view it would more closely comport
with usual contract remedies if the b()rrower were able to recover the difference
between what was actually paid and terms more favorable than those paid, but less
favorable than those disclosed that were being offered by one or more comparable
lenders in the community at the time, without the need to prove either "reliance" on
the faulty disclosure or that credit was actually offered to the borrower by another
lender on more favorable terms than those actually paid.
We support section 113's objective of clarifying of assignees' TILA liability.
13
D.
TRum IN
SAVINGS ACT
Section 131 would largely repeal the Truth in Savings Act. Although we agree
that the Act warrants review, we do not support wholesale changes. We note that the
Act is still relatively new, and that the major costs of compliance, which related to
setting up the basic disclosure procedures, have, to a significant degree, already been
expended. We strongly support H.R. 1362's retention of the Act's protections against
inaccurate and misleading statements, and we would support including fraudulent
statements within the scope of these protections. We see value in promoting clear and
accurate disclosure of account terms, the annual percentage yield, and applicable fees
and penalties.
A better approach, however, may be to identify and improve the aspects of the
Truth in Savings Act that cause problems. For example, institutions without
automated systems to calculate interests rates do have difficulty complying with the
Act, and appropriate exemptions could address these concerns.
E.
SAFETY AND SoUNDNESS SAFEGUARDS
Several provisions of H.R. 1362 directly affect the supervisory process and
have significant implications for safety and soundness. With memories of massive
bank and thrift failures still fresh in the public's memory, and with public confidence
in bank supervision still being restored, we think it especially important to move with
great caution in this area.
Three topics give us serious concern: the frequency of examinations, the
independence of audit committees, and insider lending.
14
1.
Annual Examinations
Current law generally requires an annual examination of every bank with assets
of $250 million or more. Regulators can examine smaller banks on an IS-month
cycle, depending on the institution's size and examination rating. Section 226 would
expand these exceptions so that regulators could examine the overwhelming majority
of FDIC-insured institutions only every two years.
We believe that two years is too long a period to forego examination of even
small banks. In two years, the local economy or interest rates can change
dramatically, or management could be replaced. To extend the annual examination
exception to two years would work to contravene the objectives that Congress sought
to achieve through the FDIC Improvement Act of 1991 (FDICIA).
In FDICIA Congress adopted "prompt corrective action" -- a new approach to
supervision under which depository institutions face progressively more stringent
supervisory safeguards as their capital declines. Two aspects of this new system are
of critical importance: timely and accurate measurement of capital levels, and prompt
intervention as capital falls.
,
The experience of the past decade has taught us that capital can erode with
amazing speed when an institution comes under stress. Frequent bank examinations
are crucial to maintaining the integrity of prompt corrective action. Two years is
simply too long. in our view, for a bank of any size to go without examiner oversight,
and permitting a two-year cycle for small banks would simply increase the loss
exposure of the deposit insurance funds.
15
2.
Independent Audit Committees
The importance of an effective independent audit function in depository
institutions cannot, in our judgment, be overstated. It is an essential internal check and
balance. Weakening this important safeguard, in the name of reducing burdens,
would be misguided.
We are particularly concerned about a retreat from the current requirement that
audit committees consist entirely of outside directors. To permit management directors
to sit on the audit committee would, we believe, impair the committee's objectivity
and independence, and we believe there is substantial experience to bear this out.
This is particularly important because the audit committee is typically the
principal point of contact not only with the independent outside auditors, but between
an institution's board of directors and the institution's own internal audit function.
Internal auditors -- who are, of course, employees of the institution -- must be able to
communicate their concerns and findings to the board without control by, or fear of
reprisal from, the very management whose actions they may be reviewing. Allowing
management directors to sit on audit committees would compromise the effectiveness
of this process.
While we support giving regulators some limited discretionary flexibility to
grant hardship exemptions, under carefully defined circumstances, for only a limited
number of positions on the audit committee, we oppose any change in the basic
requirement.
16
We do support eliminating the requirement that an institution's independent
accountant attest to the institution's compliance with safety and soundness laws. As
implemented, the requirement is virtually meaningless -- focusing as it does on minute
compliance with only two sets of rules: insider lending restrictions and certain
dividend restrictions. We do not believe the requirement yields benefits that justify its
costs.
3.
Insider Lending
Ensuring not only a safe and sound banking system, but one that is perceived
by the public as fair, demands that loans to bank insiders face special scrutiny and that
insiders not receive preferential access to credit. Tracking loans to insiders helps
protect against abuses. Section 225 would amend several of the tracking rules.
While we support certain of these proposed changes, we would not eliminate
the requirement for reports of loans to officers by unaffiliated banks where the loans
exceed die. ammagt the officers could borrow at the employing banks. Nor would we
eliminate reports to the board of directors regarding correspondent bank loans to
executive officers and shareholders who control more than 10 percent of the bank's
voting securities. In each of these cases the potential for conflicts of interest is great,
and the required reports are an important safeguard.
4.
Culpability Standards for Outside Directors
Section 236 would exempt an outside director from the federal banking
agencies' enforcement authority -- unless the director acted knowingly or recklessly.
In so doing, the section could create perverse incentives for a director to avoid
17
learning about, or following up on, facts that could give rise to liability. We believe
the knowing-or-reckless standard proposed here is better suited to independent
contractors (e.g., outside lawyers, accountants, and appraisers) than to directors.
Accordingly, although we are concerned about disincentives to service as a director,
we must oppose this section.
s.
Brokered Deposits
Current law prohibits an undercapitalized institution from accepting brokered
deposits, and permits an institution that is adequately capitalized (but not wellcapitalized) to do so only with a waiver from the FDIC. Similar restrictions apply to
soliciting high-cost deposits directly (e.g., through a "money desk" offering a toll-free
telephone number). The FDIC has defined high-cost deposits as those with interest
rates more than 75 basis points above the prevailing rates. Section 237 would permit
an institution that is adequately capitalized (but not well capitalized) to solicit high-cost
deposits without an FDIC waiver. Brokered deposits and money desks are close
substitutes for each other, and hold similar potential for abuse. We believe that they
should be governed by similar rules, and that the record does not demonstrate the need
for the proposed change.
F.
HOLDING COMPANY REGULATION
As we have already noted, we support the proposal for streamlined procedures
for allowing bank holding companies to expand their nonbanking activities, as well as
for acquiring additional banks -- subject to our strong objection to any weakening of
CRA procedures.
18
A banking organization that owns both a bank and a savings association is both
a bank holding company and a savings and loan holding company, and as such is
regulated by both the Federal Reserve and the Office of Thrift Supervision. Section
205 would eliminate OTS regulation in such instances. We do not object to the
proposal, but we want to ensure that the OTS retains its authority to address holding
company matters unique to savings associations. We therefore believe the OTS and
the Federal Reserve should be directed to work out necessary procedures for
addressing these matters. For example, the Federal Reserve should be directed to
cooperate with the OTS on enforcement matters, the OTS should receive access to
inspection reports, and the OTS should have the authority to comment on applications
for the acquisition of a new thrift.
G.
MISCELLANEOUS
There are several provisions of H.R. 1362 that do not lend themselves to a
more general classification. I would like to touch upon several of these, while noting
that this is not an exhaustive list.
Current law requires all national and state member banks to obtain regulatory
approval to invest in bank premises in an amount exceeding the bank's capital stock.
We support giving well-capitalized banks with satisfactory CAMEL ratings additional
flexibility, by permitting their'investments in bank premises to go up to 150 percent of
the bank's capital stock without regulatory approval. We care concerned that section
209 goes to far - and needlessly opens the door to real estate speculation -- by
allowing unlimited investments without approval.
19
Section 221 would eliminate the per-branch capital rule for national and state
. member banks, which modern consolidated capital requirements render unnecessary.
We support this section.
We also support section 208's elimination of branch application requirements
for ATMs. ATMs differ qualitatively from brick-and-mortar branches; they are more
limited in the availability of services they offer and in the competitive impact they
may have upon other institutions in the market, and they do not involve a comparable
commitment of resources. The application process should reflect this.
We believe section 210 goes too far in proposing to eliminate the requirement
that institutions file a notice at least 30 days before hiring new directors or senior
executive officers for newly chartered institutions, undercapitalized institutions, or
institutions that have recently undergone a change in control. Eliminating this notice
requirement would also eliminate the background check requirement. While the
quality of management is very important in these critical situations, we recognize that
the regulators may know individuals being considered for management positions,
making lengthy background checks unnecessary. We therefore believe regulators
should continue to receive notice of changes in management, but with authority to
waive the requirements for a background check.
Section 239 would amend the Foreign Bank Supervision Enhancement Act of
1991, which required the Federal Reserve Board to establish and implement standards
for foreign bank entry into the U.S. and established the Federal Reserve as the
primary federal regulator for state-licensed offices of foreign banks covered by this
section. We support reducing delays in reviewing and acting on such foreign bank
applications. However, we do not think it would be prudent or justified to relax or
20
roll back the standards necessary to ensure that foreign banks are adequately
supervised and capitalized. The challenge is to find the right balance, and we have
some concerns about the approach this section takes. We would be happy to work
with the Subcommittee on alternative approaches.
We support section 240's elimination of the duplicative examination procedures
for foreign banks. We support the current moratorium on imposing examination fees
on offices of foreign banks, as enacted in the Interstate Banking and Branching Act of
1994, and therefore oppose section 240's override of the underlying fee provision.
Section 301 limits the liability under federal environmental laws of lenders,
others that hold a security interest in property, fiduciaries, and federal banking and
lending agencies. We support the intent of these provisions, particularly to the extent
they balance environmental and credit-availability objectives. We have concerns about
whether section 301 strikes an optimal balance, and we would be glad to work with
the Subcommittee to develop the appropriate language to address these concerns.
ill. CONCLUSION
We look forward to working with the Subcommittee and other Members of
Congress as this bill works its way through the legislative process. Working together,
we can eliminate regulatory burdens while maintaining important and necessary public
benefits.
I would be glad to respond to any questions the Subcommittee may have.
APPENDIX A:
THE ADMINISTRATION'S ACmEVEMENTS IN REDUCING
THE COSTS AND IMPROVING THE QUALITY OF REGULATION
The Administration has taken substantial steps to reduce regulatory costs and
improve the quality of regulation. These actions may be grouped under the following
headings: (1) the Credit Availability Program; (2) Bank Secrecy Act compliance; (3)
reviewing, rethinking, and revising banking regulations; (4) refocused supervision; and
(5) reduced administrative costs of supervision resulting from greater interagency
cooperation.
A.
CREDIT AVAILABILITY PROGRAM
In March 1993, soon after taking office, the President took steps to address the
need to create a better climate for bank lending. The Program addressed (1) real
estate lending and appraisals; (2) appeals of examination decisions and complaint
handling; and (3) examination processes and procedures.
The concern about appraisals was that in some cases costly formal appraisals
may render otherwise sound loans uneconomical. Three significant changes resulted.
First, the agencies increased from $100,000 to $250,000 the threshold level at or
below which certified or licensed appraisals would not be required for a real estaterelated transaction. They identified additional circumstances, particularly for small
business lending, in which appraisals are not required. Finally, they permitted
renewals and refinancings without an appraisal if there had been no deterioration in
market conditions.
The agencies also revamped their appeals processes to ensure bankers had a fair
and prompt review of examination disagreements. The OCC and OTS have each
created an Office of the Ombudsman, which manages the appeals process. The OCC
has also revamped its procedures for handling the nearly 15,000 general complaints it
receives annually. For example, it has established a toll-free number and improved its
complaint tracking system.
Third, the regulators have begun to coordinate many of their interactions with
the industry. For example, they have determined that examinations will be conducted
by the primary federal regulator. Moreover, the OCC and FDIC share examination
schedules to better coordinate the supervision of holding companies with both national
and state-chartered banks, and coordinate enforcement actions.
Appendix A -- 2
B.
STREAMLINING COMPLIANCE WITH THE BANK SECRECY Acr
A key to our "partnership program" for improving the BSA process is
Treasury's Bank Secrecy Advisory Group, composed of 30 representatives of financial
institutions and federal and state regulatory and enforcement officials. Working with
the Advisory Group, Treasury has eliminated the requirement that institutions record
and retain for five years special records of all cash purchases of travelers checks, bank
checks, and cashier's checks over $3,000 in cash. Proposed regulations that would
have required mandatory electronic filing of currency transaction reports, and would
have established a mandatory system to "aggregate" cash transactions, were
withdrawn.
Treasury also streamlined the currency transaction report (CTR), a form long
criticized as too cumbersome by bankers, by 30 percent. The new form should be
introduced in October. Treasury finalized long-pending rules relating to casinos and
to wire transfers in a way that responded to industry calls for burden reduction, and it
plans such further actions as reducing the number of CTRs filed by banks by at least
30 percent (which amounts to three million forms per year). According to the
American Bankers Association (ABA), the last reform could save banks more than $40
million. Overall, the ABA has applauded the Administration's reform efforts on the
BSA; "The banking industry is very pleased at the direction of the Treasury's Bank
Secrecy Act efforts. We appreciate the good faith efforts of this Administration to see
to it that banks report and retain only information that helps curtail money
laundering. "
C.
A-To-Z REVIEW OF REGULATIONS
The President has directed each agency to undertake a line-by-line review of
their regulations with the goal of eliminating redundant unnecessary requirements,
streamlining procedures, and rewriting the rules to be more easily understood.
The OCC has been conducting this type of review for nearly two years. To
date, all of their regulations have been reviewed, three major parts have become or
will soon become final, and 11 parts have been published for comment. The OTS is
doing a similar review.
There are concrete examples of the burden-reducing benefits resulting from this
intense review. The OCC and OTS reduced, by six times, the number of lending
limit calculations institutions must perform, requiring quarterly, rather than daily,
analyses. The OCC has also reduced some of its fees and its national bank assessment
Appendix A -- 3
rate, which covers the costs of examination and supervision. For example, the fee for
establishing a shared ATM will be reduced from $1,500 to zero, corporate application
fees have been reduced by 50 percent, and the national bank assessment rate has been
reduced by six percent. In addition, to these concrete examples, the OCC and the
OTS are putting their rules in clearer language, and making the rules more user
friendly, which should reduce the time and costs associated with interpreting and
complying with rules.
D.
REFOCUSED SUPERVISION
Our nation's thousands of depository institutions vary greatly in size,
complexity, and financial strength. Yet regulations often ignore these differences by
treating all institutions alike and relying on generally-applicable procedures. This
provides institutions with little regulatory incentive to reduce risk or increase their
capacity to manage risk. It also creates needless regulatory burden and costs when
rules are inappropriate, irrelevant, or even counterproductive as applied in certain
instances.
The OCC and OTS have been diligently working to make appropriate
differentiations in their regulations. For example, both bureaus have streamlined the
examinations process for smaller, well-capitalized, well-managed institutions.
Materials requested for noncomplex small national bank examinations have been
reduced by nearly 600 percent, from some 200 items (or more at the examiner's
discretion) to 35 standardized items. Moreover, the streamlined nature of such
examinations is evidenced from the OCC small bank examination handbook, which
has been reduced from 1,216 pages to just over 30 pages. In addition, small, wellcapitalized, well-managed savings associations need no longer automatically obtain a
costly annual independent audit.
The difficulty of supervising a diverse banking industry has also led regulators
to focus on eliminating and streamlining procedures. The Administration has worked
to refocus supervision on results instead, and to thereby provide institutions with the
incentive to perform well, rather than simply to avoid criticism or follow needless
procedures. In this vein, the OCC's new examination guidelines emphasize
operational results, such as default rates, rather than operational procedures, such as
loan underwriting. Moreover, all of the banking agencies worked on the recently
released final rules on the Community Reinvestment Act, which emphasizes results
over process.
Appendix A -- 4
E.
REDUCING ADMINISTRATIVE OVERHEAD
COSTS
The Administration's efforts to reduce the expense of regulation have focused
on both direct and indirect costs. By controlling a regulator's overhead costs, the cost
of regulation declines when those savings are passed through in the form of reduced
assessments: the OCC and OTS have done just that.
. One of the primary means of reducing overhead has been an increase in jointly
issued or coordinated regulations, such as the appraisal regulations and the real estate
lending guidelines.
Another way in which overhead costs are being reduced has been through
coordinated examinations. The banking agencies, the Securities and Exchange
Commission (SEC), and the National Association of Securities Dealers (NASD) have
agreed that the banking agencies and NASD will coordinate the examination of bank
brokerage units. The OCC and SEC plan joint examinations of bank and bank-advised
mutual funds. Finally, the regulators will use securities industry qualification tests for
bank-employed brokers. Not only has this coordination indirectly reduced the cost of
regulation, but it has also directly reduced the burden of multiple examinations.
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
17
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
May 19, 1995
TREASURY'S
CONTAcr:
Office of Financing
202/219-3350
52-WEEK BILL OFFERING
The Treasury will auction approximately $18,250 million of
52-week Treasury bills to be issued June 1, 1995. This offering
will provide about $1,325 million of new cash for the Treasury,
as the maturing 52-week bill is currently outstanding in the
amount of $16,913 million. In addition to the maturing 52-week
bills, there are $27,446 million of maturing 13-week and 26-week
bills.
Federal Reserve Banks hold $11,345 million of bills for
their own accounts in the three maturing issues. These' may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $5,016 million of the three
maturing issues as agents for foreign and international monetary
authorities. These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
ot maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $552 million of the maturing 52-week issue.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the s&le and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about the new security are given in the attached
offering highlights.
000
Attachment
RR-305
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFnXN'G OF 52-WEEX B:ILLS
TO BE :ISSUED JUNE 1. 1995
May 19, 1995
Offering Amount . . . . . .
$18,250 million
Description of Offerinql
and type ot security .
CUSIP number . . .
Auction date . . . . . . .
Issue date • . . . . . . .
Maturity date . . • • . . .
Original issue date . .
Maturing amount. . . . . .
Minimum bid amount
Multiples . . . . . . . . .
364-day bill
912794 Y9 9
May 25, 1995
June 1, 1995
May 30, 1996
June 1, 1995
$16,913 million
$10,000
$1,000
Term
Submission of Bide:
Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10'
(2) Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the net long poSition are
$2 billion or greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of
competitive tenders.
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
• •
.
Receipt of Tender,:
Noncompetitive tenders
Competitive tenders
Payment Terms . . .
•
35t
of public offering
35%
of public offering),
Prior to 12:00 noon Eastern Daylight
Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
~~J78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 19, 1995
Contact: Jon Murchinson
(202) 622-2960
RUBIN ANNOUNCES DOMESTIC FINANCE UNDER SECRETARY NOMINEE
Treasury Secretary Robert E. Rubin announced today, Friday, May 19, that President
Clinton has nominated John D. Hawke Jr. to be Treasury Under Secretary for Domestic
Finance.
Mr. Hawke has been serving as a senior advisor to Secretary Rubin since April 5.
Prior to that he was with the law firm of Arnold & Porter in Washington, D.C. as an
associate from 1962 to 1966 and as a partner from 1967 to 1975. Mr. Hawke was general
counsel to the Board of Governors of the Federal Reserve System from 1975 to 1978. In
1978, he rejoined Arnold & Porter as a partner and served as chairman of the firm from 1987
to 1995.
Mr. Hawke was counsel to the House of Representatives Select Subcommittee on
Education from 1961 to 1962. From 1960 to 1961 he was a law clerk to Judge E. Barrett
Prettyman on the United States Court of Appeals for the District of Columbia Circuit.
Mr. Hawke was an adjunct professor of law at the Georgetown University Law Center
for 17 years, where he taught federal regulation of banking. He has also taught courses on
bank acquisitions and financial regulation at the Boston University School of Law and the
Columbia University School of Law.
Mr. Hawke received a B.A. in English from Yale University in 1954 and an LL.B
from Columbia University School of Law in 1960. He was the Editor-in-Chief of the
Columbia Law Review from 1959 to 1960.
-30-
RR-306
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
~~/78~9~. . . . . . . . . . . . . . . . . . . .. .
......................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
International Ecowmc O1aUenges
Re~by
l.awrence H Surnrers
Imtitute of International Bankers
New YotkGty
May 17, 1995
Imroduction
1hank you very nruch. This evening I would like to discuss with you international
economic challenges. In that regard, I think we live in a somewhat paradoxical age.
Never before in human history have economic prospects been brighter for more
nations, and for more of humankind Whole new regions of the world are moving toward
industrialized status. Three billion people in Asia, Latin America, and parts of Africa have
mounted the rapid escalator toward prosperity. New technologies, new forms of commerce
and investment link our world more closely than ever before.
And yet, never before have we faced greater challenges. The speed with which
international capital markets proceed promises great benefits, but also potential problems with
which we nrust deal, as recent episodes of turbulence suggest. With the shrinking of the
financial world, nation states nrust reassess their own policies and international financial
institutions through which, together, we seek to address the economic issues of the day.
Tonight I would like to address what I think are three central issues faced by
policymakers and all participants in the global economy. The first is the need to lay the
global macroeconomic foundations necessary for growth and prosperity. The second involves
preserving financial stability in this new world of international capital. Third, we nrust
maintain the momentrnn for ever more open markets and greater world trade.
l\kmeconomc FOlmdatiom
I will begin with the macroeconomic foundations for growth, in the United States as
well as the G-7 as a whole.
RR-307
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Here, the outlook is very bright. With the exception of Japan, almost all of our
economies are witnessing a remarkable combination of low inflation, a strengthening
expansion, and an increase in job creation. Growth for the G-7 as a whole averaged 3
percent last year and should keep pace this year. Inflation held steady at 2 114 percent in
1994, and is expected not to rise extravagantly.
The United States remains the linchpin of this bright structure. Our COWltry is now
enjoying the first investment-led, low-inflation recovery in the United States since John F.
Kennedy waS President. We had a low-inflation expansion in the early 1980s. We witnessed
investment-led recoveries in the 1970s. We have not had that combination in decades.
Four years into our recovery, inflation remains contained at near 3 percent.
Investment in equipment, the tools that will keep capacity growing and inflation low, soared
to 10.59 percent over the first quarter, higher as a share of GDP than it has been in 60 years,
when records of this sort were first assembled Meanwhile, our economy has managed to
create 6.3 million jobs over the past two years.
The bright inflation outlook is important. It is important, because every business
expansion since World War II has met the same ultimate fate: reversal as interest rates have
had to rise to accomplish the goal of containing inflatioruny pressures.
This time inflation is contained, and investment is strong enough to expand capacity
more rapidly than in 60 years. That is why this recovery has a very good chance of
continuing long into the future.
Alot of that may be the result of natural developments in our economy. But I believe
that macroeconomic policies over the past two years have made an enOlTIlOUS contribution,
and can teach us nruch about the route to success.
First, this Administration strongly shares the Federal Reserves' objective of a sustained
recovery with low inflation The President has consistently recognized that the Federal
Reserve rrrnst act independently toward these crucial objectives.
Second, no Administration in recent memory has been more devoted to fiscal rigor.
The federal budget deficit has been sliced in half, as a percentage of GDP, over the past two
years, and it is now the lowest among the G-7 COWltries. Capital markets have responded to
that rigor with lower long-term interest rates, which are now nmning some 30 to 40 basis
points lower than when President Clinton entered office. These are exceptionally auspicious
interest rates, four years into a strong recovery. They reflect a vote of confidence in our
connnitment to continued fiscal rigor.
In short, we have begun the process of increasing our total volmne of savings, and
making available the capital for continued increases in investment. That is why inflation and
interest rates are so low, why investment remains strong, and why the outlook for continued
2
sustainable growth is good.
should be following.
This holds out important lessons for the policies other nations
Some point to the weakness and volatility of the dollar as a worrisome sign. Let me
just emphasize that, as Secretary Rubin has often stated, this administration is committed to a
stronger dollar. A strong ctnTency helps to contain inflationary pressure, promotes financial
stability by making US. assets more attractive, and raises the buying power of Americans.
There is absolutely no merit to the argmnent that the dollar should become a tool of trade
policy.
Ultimately, the value of the dollar depends on economic fimdamentals in the United
States. We are putting in place the right kind of fiscal and monetary policy. We must
continue to strengthen the macroeconomic fimdamentals of our economy, through continued
budget rigor, and monetary discipline. The Administration is committed to this path.
To be sure, challenges remain One is the low savings rate in the United States and in
other industrial nations. This has raised our ctnTent account deficit to levels which may be
unhelpful, over time. At least one can assert that the ctnTent account deficit of today is being
used to fimd investment, rather than consumption Some proposals now being considered in
Washington, such as possible IRAs to encourage savings, may be helpful steps in addressing
this issue.
Financial Market ScDlity
Let me ttnn to a second challenge that we face: the need to maintain the stability of
international financial markets.
Fonner Secretary Bentsen used to say that international financial markets were the
nervous system to the world's economic nruscle -- sending signals to that muscle, by
channelling capital and investments to their optimal uses.
If capital markets of 20 years ago were a two-lane road, today's are a super-highway.
Never have they been able to take developing countries to their destinations more surely or
more efficiently. Latin America will need some $20 billion in annual infrastructure
investments alone over the next few years simply to maintain its present economic level. In
Asia that figure may well be over $100 billion International capital markets are what have
made those investments conceivable.
But the new speed and liquidity of international finance comes at a price. Just as a
super-highway gets one to the destination faster, it can also increase the dangers from
precarious driving. Today's capital markets punish poor economic policies more quickly than
ever before. Turbulence and investor panic can spread Instability in one area can pose
important systemic risk, and can spread rapidly to other sectors of the globe.
3
The world received a vivid example of that danger in Mexico. Over the span of a few
hours, macroeconomic errors made by Mexico -- but which did not affect Mexico's
fimdamentally sOlmd economic fOlmdations -- brought Mexico to the brink of a liquidity
crisis. And as the tremors on other markets -- in Argentina, in Brazil, as far away as .
Thailand or South Africa revealed, Mexico's difficulties threatened the enonnous gains made
in other developing COtmtries.
That is what President Clinton grasped instantly, and that is what Congressional
leaders from both parties tmderstood, when they moved to support President Clinton's bold
decision to offer Mexico financial support. Mexico used that support to enact a rigorous
series of finther economic adjustments. While the end is not yet in sight, I think we are all
cautiously optimistic, given the progress Mexico has made over the past three months.
Mexico has sharply reduced the outstanding stock of dollar-linked Mexican
government obligations by more than half That is a major step towards eliminating the
liquidity dangers which have threatened Mexico since December.
Monetary policy is tight. New fiscal measures were annotmced in March, and
privatization and regulatory reform are proceeding. Success should not be judged from day
to day market movements. Nonetheless, I think it is encouraging that the peso has stabilized,
while the bolsa has increased sharply in dollar and peso terms over the past six weeks. Brady
bonds are way up, and some Mexican government agencies and banks have been able to issue
new securities abroad in recent weeks.
Perhaps more important in the global context, emerging markets are showing signs that
they have begtm to tmcouple from one another, as investors gain confidence in individual
governments' policies. Latin American stock markets are enjoying a solid recovery since their
March troughs, and are all above their 1993 averages. Argentinean, Brazilian, Venezuelan
and Ecuadoran Brady Bond yields -- when stripped of their U.S. Treasury Bill component -offer a good indicator of market confidence. And all of those bonds' yield spreads over U.S.
Treasury bills have fallen since highs in early ~ch
l£ssom from Mexico
What lessons should the world draw from Mexico's difficulties. I think there are
several.
The most foolish conclusion some have drawn is that governments are powerless in
the face of international markets. Nothing could be more finther from the truth Mexico
brought on its own difficulties by making key macroeconomic policy errors over the course of
last year. Never before have international capital markets been more swift to punish such
policies, even as they are quick to reward wise ones. In short, never in human history has
proper macroeconomic policy -- disciplined fiscal policy, rigorous monetary policy, st:ructtna1
policies that encourage investments and savings -- been so important.
4
Developing colIDtOes must learn from Mexico's example. ClllTent accolIDt deficits
must not be allowed to grow to lIDSustainable levels. Savings must rise, so that investment
can remain high even as ClllTent accolIDts deficits are contained. And transparency -- the
accurate and timely revelation of financial data to markets and international financial
institutions, is essential. That is the only way markets can perform the proper monitoring
fimction, so that policy discipline is maintained.
The Mexico experience has also pointed out important weaknesses in the international
financial architecture. Structures that were right for the world of 50 years ago may no longer
be adequate. International surveillance of economies by the IMF must be enhanced, to take
account of the more capital-accolIDt centered world in which we live. The international
corrnmmity must be better equipped to respond in a methodical manner to financial
emergencies, when they arise. The establishment of a work-out mechanism for sovereign
debt, similar to domestic corporate bankruptcy systems, may be appropriate.
Moral hazard is a problem. But I am not one of those who believes there should be
no fire department, because it encourages people to smoke in bed. We must not plan to fail.
But we cannot fail to plan.
ExpnIing GloW Trnde
Finally, let me tum to an issue which I think must be a third global priority -- open
markets, and the removal of trade barriers arolIDd the world
If one thinks of this period in hmnan histOlY, the most significant development will
not be the present business cycle, or even perhaps the end of the Cold War. It will be the
fact that this was the 20-year period of hmnan history in which more people than ever before
joined the global trading system.
It is estimated that by the year 2010 there will be 600 million people in India, China
and Indonesia with a standard of living that is equal to Spain's average. That is a tremendous
change, lIDdetway in today's world It is a change that reflects the successful export of one of
the things the United States has been trying to export for a generation -- a philosophy about
economic liberalization and open markets. It what has allowed Poland to grow near 4 percent
last year with projections for 6 percent this year. Or India to be enjoying 5.3 percent growth.
Developing COlIDtries have become our fastest growing markets, taking a full 400/0 of
our exports, while creating nearly 4 million United States jobs. There can be no more
important objective for United States international economic policy, or for global economic
good, than reinforcing and maintaining the momentwn of that trend
That is why the Clinton administration has made further opening of the global trading
5
system such a priority. I call our strategy export activism It is not the reactive protectionist
strategy of the past that seeks to erect walls, to benefit industries that are able to squawk
loudly. Nor is it the turn the other cheek, lai\'sez-jaire policy that some of my friends in the
economics profession would reconnnend
Instead, it is a strategy based on a simple premise: more trade leads to more
prosperity.
That has been the heart of the administration's trade policy. That was the philosophy
behind the Uruguay Round, which will provide the largest tax cut in the history of
hwnankind, some $750 billion for the entire planet. The new trade regime will bring down
barriers to manufactured goods by a full 113. For the first time, trade rules will extend the
discipline of international competition to areas where the United States has a huge advantage
-- intellectual property, agriculture, and services, which accounts for $180 billion in exports,
and 70 percents of U.S. jobs. Most important, the new structure will bring whole new
regions of the globe into the world trading system, setting an example of liberalism,
prosperity, and integration for vast new populations.
That was the philosophy behind the NAFTA As you know, there are some who
suggest the NAFfA somehow exacerbated Mexico's difficulties. I strongly disagree. NAFTA
locked in the market-opening reforms which Mexico has courageously pursued over the past
seven years. NAFfA enhanced investor confidence that Mexico would not retreat in the face
of adversity. Knowing that Mexico would experience its present difficulties would have made
the case for adopting the NAFTA stronger, rather than weaker.
We are confronting the many barriers to trade in Japan and in China We are going to
pursue free trade in this hemisphere, and began that task at the Sunnnit of the Americas. We
are moving toward free trade in Asia through APEC.
Fmancial Services
We did not reach final agreement during the Uruguay Round in several service sectors.
One of these was financial services. Many offers made during the round did not provide
acceptable market access and national treatment connnitments. We did not feel we could
connnit ourselves to granting essentially full market access and national treatment to firms
from countries that would not open their markets.
In the end, we reached an interim agreement. The United States and some others took
reservations and an exemption to the GATS most favored nation obligation However, we
agreed to suspend these reservations and exemptions for the first six months of the World
Trade Organization's existence, while we negotiated finther. The deadline is June 30. We
are asking other GATS members to connnit to granting our firms substantially full access to
their markets and national treatment in those markets within some defined time period. If we
reach that objective, we will give up our MFN exemption If others do not come forward, we
6
will keep our exemption lbat will allow us to take aCcOlmt of how our £inns are treated
when a foreign financial finn asks to establish or expand operations here.
The In:pn1ance of Fmancial Services
Why have we focussed on financial services? There are three reasons.
First, financial services are an area of major importance for the United States
economy. Our financial companies aCcOlmt for nearly 7 percent of GDP -- over $400 billion
in revenues each years. We simply cannot allow this key United States sector to be excluded
from progress elsewhere in the international trading system
Second, financial services are a sector in which the barriers which exclude our finns
are almost all within goverrnnents' reach. The issues all involve government regulation, and
the discriminatory effect they have in keeping American and other foreign finns out.
Third, financial services have a significance which goes far beyond their importance to
specific finns, or even to the United States alone. As I have said, well-fimctioning capital
markets are essential to the health of the global economy. Opermess to foreign finns with
high levels of expertise is one of the surest ways to help deepen a nation's capital markets, as
your presence in the United States so aptly demonstrates.
I believe that the bilateral agreement we reached earlier this year with Japan provides
tangible evidence that policymakers realize they nrust open up and deepen their financial
markets, if they are to remain on the path to economic growth. We agreed with Japan to take
on most-favored nation and national treatment obligations between our countries. In
exchange, the Japanese agreed to profOlmd market-opening measures, including lBlfestricted
access to the $200 billion public pension fimd market, substantial new opporttmities in private
pensions, liberalization of securities instnnnents, and a new domestic asset-backed securities
market.
Japan has pledged to extend the benefits we received in our agreement to others on an
MFN basis. It is important for Japan to implement that pledge and commit to doing so in the
GATS.
GATS
We, for our part, have turned our sights toward winning substantially full market
access and national treatment in other markets including rapidly emerging ones where our
financial companies cannot establish and compete effectively.
As shown by the bilateral agreement we negotiated with Japan, we are prepared to
7
provide national treatment and take on most favored nation obligations when we are assured
reasonable access. However, we will not allow those who are lll1willing to remove
unacceptable restrictions, even over time, to be free riders.
We are now in the final intensive phase of negotiations. We are making progress.
Some COlIDtries are coming forward with improved offers. But overall, we have not yet met
our objectives. This could be a missed opporttmity to bring financial services lll1der the
multilateral auspices of the wro. Let me note, however, that whatever the GATS outcome,
we will not close our markets to those whose home markets are open, or to finns which are
already established here.
All of you in this room have a stake in the outcome of the GATS negotiations. You
are the beneficiaries of the lll1I11atched market-openness that the United States has granted to
foreign financial institutions for decades. Your opporttmities in the United States are
expanding, and will continue to expand with interstate banking and branching reform, and the
potential for far-reaching Glass-Steagall refonn I am convinced that successful conclusion of
the GATS negotiations can only add momenttnn to important reform efforts here in the
United States, while assuring that foreign finns continue to be fully welcome on United States
soil.
I urge you all to conmnmicate that message to your parent banking institutions. Free
trade in financial services is not a zero-sum game. It is a classic example of how removal of
barriers benefits all national economies, and the international trading and financial system as a
whole.
Conclusion
Make no mistake. Our objective in financial services is an agreement that opens
markets on a non-discriminatory basis lIDder the World Trade Organization If countries are
not ready to do that at present, this in no way diminishes our connnitment to the World Trade
Organization, and the need for all nations to persist with the work of expanding global trade.
Put all of what I have discussed together. The United States and other nations are
committed to laying a solid macroeconomic fOlIDdation for growth. We stand ready to seize
the opporttmities offered by burgeoning global capital markets. We will persevere in our
effort to foster free trade and open markets. I am convinced that for all the challenges, the
international economic horizon has never been brighter. Thank you
8
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
Lessom from Mexico
Re~by
Lawrence H SunmelS
Under Secretuy of the T~my
CotmCil on Foreign Relatiom
New YorkGty
May 4, 1995
Intmduction
It has been said that Mexico was the first 21 st Century crisis. I think that is right. It
was economic, not political. It was global, not regional. It unfolded in a matter of hours,
not months or years. It was perpetuated by infonnation technology. And it has been resolved
by United States leadership.
The current situation in Mexico is certainly more encouraging than one would have
imagined would be the case three months ago. Mexico has very clearly embarked on the
right policy pat1:L Mexico this year will have a balanced budget, and indeed had one over the
first quarter. Mexico's money stock is today, in nominal terms, about 15 percent lower than
it was on January 1st.
Mexico transformed its economy over the past seven years -- liberalizing, privatizing,
and removing restrictions to investment and initiative. The new Mexican economy has shown
tremendous flexibility over the past three months of stress. Exports were up 32 percent over
the first quarter compared to the period a year ago, as against only 1I1Oth of a percent for
imports. Mexico has become a more mature economy in that it no longer relies on the
centralized PACTO arrangement to set wages. Now, decentralized wage bargaining is the
nonn Wage settlements have so far trailed inflation, as employees look for job security
rather than wage increases. The potential for a wage-price inflationary spiral therefore
appears nruch lower than was feared.
RR-308
1
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
It is. of course. too early to reach any conclusive judgment but it is certainly
encOlrraging that the peso has been tmder 6.00 to the dollar for several days now. The bolsa
has risen by about 50 percent in dollar terms over the past six weeks. And if one strips out
the portion collateralized by U.S. Treasury Bills, the value of Brady Bonds is up nearly 50
percent in the last 6 weeks.
If Mexico's experience teaches us anything, it is the wisdom of what a tennis coach I
had when I was a boy once told me. You're never as good as you think you are when you
think you're good. And you're never as bad as you think you are when you think you're bad.
111at was the right thing to keep in mind last summer. That was the right thing to keep in
mind early this year. And to be sure, it is the right thing to keep in mind now, even as we
take satisfaction from the markets' recent rally.
CllaIJenges Ahead
If one looks at the areas of principal concern going ahead the outlook in each has
improved markedly over the past six weeks. One central question is whether Mexico will
have the fimds to continue to meet short-term obligations. Of the $37.8 billion in support that
was to be provided by the U.S., about 40 percent, some $16 billion, has been provided
Mexico has managed to retain half of this support in its reserves. Yet more than half of
Mexico's tesobono and CD obligations have already been worked off. The stock of
outstanding tesobonos has fallen from more than $30 billion to nearly $12 billion since the
beginning of the year. And an increasing fraction of tesobonos -- 60 percent at the last
auction -- are now being redeemed for dollars.
A second concern many have had has been political and social -- whether stability
will hold Obviously, after a shock of this magnitude, doubts are likely to be with us for
some time to come. Nonetheless, I think that if I had suggested to you six or 12 months ago
that what has happened in Chiapas would happen, that the brother of a former president
would be implicated in a major political assassination, that the peso would fall to 6, and then
asked you to predict President Zedillo's popularity, you would have predicted a political
implosion in his support. That certainly has not taken place. Indeed, it is revealing that
May Day passed with very little comment, despite predictions of destabilizing protests.
A third challenge has been to ensure that the financial system withstands present
strains. There was and remains some conflict between pursuing the right monetary policy
for externally-directed financial stability, which requires maintaining higher interest rates, and
the right monetary policy for preserving internal financial stability, which suggests lower
interest rates. After some hesitation, the Mexicans have followed the correct approach,
recognizing that tight monetary policies represent the best way to restore confidence, and
therefore bring interest rates down over the medium to long term.
So far, Mexico's policies have worked to restore much needed confidence and
maintain the credibility of the financial system Some of the rrutior banks' first quarter
2
results, while a long way from conclusive, were better than analysts had expected. Interest
rates have started to come down. Benchmark cetes rates are down to about 60 percent, from
about 80 percent. Demand at recent auctions has been healthier than was the case at auctions
earlier in the year.
There is some quite limited evidence of fimds finding their way back into Mexican
financial institutions. Authorities have put plans in place to address the problems of the
banking system in ways other than the pure provision of liquidity. Again, it is too soon to
declare victory. Still, things are proceeding far more smoothly than we would have imagined
could be possible even a month ago.
In thinking about this crisis, it is important to remember another positive development
that has occWTed, and that was an important motivation for American policy regarding
Mexico's difficulties. We have begun to see a great deal of recovery in various emerging
markets. Moreover, possible disillusionment with market-based development strategies, which
was a threat in many developing countries, has been avoided.
In the wake of Mexico's initial crisis there were immediate consequences in many
emerging financial markets -- in Argentina, in Thailand, in South Africa, even in Russia
Today, because of Mexico's successful performance, and because of the passage of time,
emerging markets have begun to uncouple from Mexico and from one another. There is
much more of a sense that each country tells its own story. Analysts and investors have far
more ability to distinguish what is going on in individual markets. There is much less of a
sense of a generalized emerging market pattern than there was in January.
Ten Trudls from Mexico
Let me widen the picture a bit. I would like to discuss what might be called ten truths
that emerge from the Mexican experience -- truths lxlth for policymakers in emerging market
countries, and for the entire international financial connmmity. I was going to call these ten
lessons, but that suggests a kind of new knowledge that was not known before. Mlch of
what the Mexican crisis has done is reaffirm old truths that were known but which some had
forgotten.
First. SOlmd policies are absolutely essential. The most foolish thing that people say
about the international economy these days is that because capital moves so fast, somehow
government policies have little influence. The truth is that the difference between having the
right government policies and having the wrong government policies has never been greater.
Twenty-five years ago it was inconceivable for countries to grow at 7 or 8 or 9
percent a year, year after year. That has now become possible in an open economy that
attracts capital with the right government policies.
3
Similarly, in earlier times cOlmtries made the same mistakes that Mexico recently
made, pursuing lU1Sustainable exchange rate and monetary regimes. But rarely have they been
brought to grief as quickly. Never before has the market been more able to magnifY and
increase the effects of government policies, whether those policies are SOtmd, or whether
those policies are lU1SOlmd
Second Unsustainable policies carmot be sustained It is a cliche, and it is
tautological, but it is actually very important. Economic historians can debate whether, with
a different kind of tighter monetary policy implemented early enough in 1994, Mexico could
have sustained its exchange rate regime, could have sustained a 3.5 peg. What is clear is
that the combination of Mexican monetary policy and the exchange rate pursued was -- as a
number of observers in both the official and the private sector, though perhaps not a majority
of observers warned -- simply not sotmd These policies were certain to end sooner or later
in some kind of collision
This points up a broader issue. There is a natural human tendency, magnified by the
political process in every cotmtry, to regard good news as pennanent and bad news as
temporary. Policymakers, like many individuals, treat bad news as temporary. When capital
flows taper off they dip into savings and reserves, then sterilize their interventions so that
there is no contractionary effect on monetary policy. On the other hand, good news is often
treated as permanent. It prompts policymakers to move quickly to armotmce broad new
spending programs.
The reality of capital flow and other shocks is much closer to the opposite. Well
managed COtmtries recognize that. They treat capital outflows as a permanent adjustment, and
allow themselves to be pleasantly surprised when flows turn out to be something else.
Third Even given the increasing development of international capital markets,
domestic savings are essential.
Look at the difference between Latin America and Asia, and the fact that somehow
the discussion of average growth starts at 5 percent of GDP in Asia and it starts at 0 or 1
percent in much of Latin America I think there are two factors behind that difference. One
is that disciplined Asian governments make enormous investments in human capital. That is
important, but it is less directly relevant to our discussion here today. The one that is
relevant is the very high rates of domestic savings in Asia compared to the nruch lower rate
of domestic savings in Latin America
It is all very well to say that obviously, Mexico should not have been nmning a
current accotmt deficit that was 8 percent of GDP, and that this was a dangerous policy that
was going to lead to grief However, if Mexico had not been nmning a deficit at 8 percent
of GDP, and if Mexico had maintained the same low level of domestic savings, then Mexico
would not have had the fimds to invest in its future. In a way, Mexico would have been
neglecting to lay the fotmdation for very strong growth.
4
Similarly, if Mexico is now going to grow at a reasonable rate, without returning to an
unsustainable current accOlmt deficit, then Mexico will have to put in place longer term
measures that will increase the savings rate. These include getting the rate of inflation down,
~eformin? t?e pension system, and improving the returns to savers by reducing
mtermediatlOn costs through financial liberalization, and reductions in fiscal and quasi-fiscal
deficits. All of these steps contribute to increased savings rates.
Fourth. Beware of short-term capital flows. Nigel Lawson believed that current
accotmt deficits were not dangerous so long as they were not caused by government budget
deficits. Well, he was right in the sense that current accotmt deficits caused by budget
deficits are a serious problem However, that is not the only instance in which current
accotmt deficits are a serious problem
Current accotmt deficits are a serious problem when they are too large -- more than 5
percent of GDP -- whatever is causing them Current accotmt deficits are a serious problem
when they are fueling consumption rather than investment. And they are a serious problem
when fimds are being borrowed on increasingly tmattractive tenns for the debtor. Shorter
and shorter maturities and higher and higher interest rates, particularly when borrowings are
indexed to foreign currencies, suggest that capital flows are becoming problematic.
These criteria -- the size of the current accotmt deficit, whether or not it is going into
investment, and the tenns tmder which capital is being attracted -- give a much clearer idea
of when capital flows are healthy, and when capital flows are less healthy.
Fifth. Transparency is essential. This cannot be overemphasized. True, Mexico
published outstanding tesobono stocks every week, and not as many people noticed as should
have noticed. Moreover, published reports throughout 1994 gave a fairly accurate
assessment of the level of Mexico's reserves. However, that was much less true with respect
to the activities of Mexican development banks and much less true with respect to certain
monetary aggregates. It was difficult to ferret out this information even when it was
published.
Countries want access to the international capital market. The only way to do that is
by making financial information fully and readily available.
That is important, because it will generate a faster response from private analysts and
public institutions when trouble is on the horizon Such discipline will help to combat
policymakers' temptation to believe that they can somehow slip and slide their way through
problems by making use of clever reporting.
Sixth. The international financial community must become better at surveillance. The
IMF's surveillance efforts, and indeed, I think it is fair to say the analyses that go on in many
of the world's treasuries, were right for the current accotmt centered world of 20 years ago.
Alone, they are not appropriate for today's more capital account centered world. Rather,
5
~U1al\'ses today must focus far more attention on the composition of capital flows. including
wh~e capital- flows are going. whether they are fimding investment or consumption., and how
large fimding requirements have grown relative to other denominators. These are things that
are just not the chief subject of today's economics exercises. And yet they are essential
indicators.
The once a year cycle of sending tearns of analysts to interview national officials and
examine the books was probably appropriate to the rhythms of earlier eras. But it is not
longer sufficient today. A substantial change in surveillance practices toward a more
constant, more capital account centered process, is essential.
Seventh. The international community has got to be able to better respond to
emergencies. The Mexican emergency could have happened with considerable potential
worldwide consequences in a country that was not a neighbor of the United States. It could
have happened with a less courageous president leading the United States. It could have
happened at a moment when the I1v1F was less flexibly positioned to move than it was in
JanuaI)'. There clearly will be financial emergencies in the future, and there clearly needs to
be some kind of framework for responding rapidly to those emergencies.
There is, of course, an enormous moral hazard problem One does not want to fail to
plan. On the other hand, one does not want to plan to fail. That problem has to be taken
very seriously in the design of whatever mechanisms are put in place.
Nonetheless, I am not ready to believe that we should abolish fire departments, on the
grounds that they encourage people to smoke in bed. I think that there is a balance that has
to be struck.
Eighth. The international community must examine mechanisms for handling
workouts, when debt cannot be paid We have systems in place domestically to coordinate
workouts when failure occurs. We had a crude international system in place during the
1980's. It involved gathering bankers in rooms about this size. Government officials who
had certain suasion over them by way of regulatory authority could then encourage bank
creditors and debtors to work out a mutually beneficial solution
The world and the composition of international debt has changed since the 1980s. The
infonnal system will not work for groups of 37,000 holders of the Fidelity or some other
emerging market fimd The suasion is no longer there. The small size, and the ability to
identify creditors is no longer there. In a world in which much of global finance will be
securitized, we need to think about how we handle financial accidents. The mechanisms
presently in place do not appear to be sufficient.
Ninth. Long-term investment must be promoted. Latin America needs an estimated
$60 billion per year in infrastructure. Asia almost certainly requires well over $100 billion a
year. Public international financial institutions developing power plant by power plant can
6
only contribute a drop in the bucket of those needs.
International financial institutions like the World Bank and other multilateral
development banks must recognize that their role is to support, not supplant private sector
finance. They must enhance their use of guarantee programs that were intended to catalyze
longer-term investments. Such programs can help countries meet infrastructure needs if they
encourage long-term private capital to enter, on terms that are acceptable and ultimately
healthy for the developing countries involved.
Tenth There is still no substitute for American leadership. If anything, I think that
is more clear today than it was 5 years ago. It is more clear because of what our economy
has done versus what the Japanese and European economies have done over the last 5 years.
It is more clear because of the tendency of international problems to languish until the
United States is in a position to take action It is therefore absolutely essential that the
United States remain internationally engaged
There are people who interpret Mexico's difficulties as showing that NAFTA was a
mistake. The opposite is much more the case. The right case for NAFfA is that people
continue to live on our border in a society that was and is moving toward democratic
capitalism NAFTA has locked in that trend, and made it irreversible. NAFTA has
enhanced, not weakened confidence.
If we had known one year ago that the kind of fragility we have encountered was in
the offing, the case for locking in Mexico's progress through NAFTA would have been
stronger, and not weaker.
Conclusion
Every problem represents a learning experience. Mexico's difficulties today are
certainly a learning experience. The Mexican experience testifies to the need for
policymakers in other developing countries to move toward the right policies. I also believe
that it has provided important impetus to efforts underway to think about what sort of
international financial architecture is appropriate in a contemporary world which is very
different from the one for which that architecture was initially designed In that sense, it is
true that every problem represents an opportunity. Mexico's is no exception Thank you.
7
Department of the Treasury
Financial Crimes Enforcement Network
[MlITlJ
news.
2070 Chain Bridge Road, Suite 200, Vienna, VA 22182-2536
1500 Pennsylvania Avenue, NW, Suite 3210, Treasury Annex, Washington DC 20220
For Immediate Release
May 18, 1995
Contact: Joyce A. McDonald
(703) 905-3770
Registration of Money Transmitters
The Money Laundering Suppression Act of 1994 amended the Bank Secrecy Act (BSA)
to require the registration of money transmitting businesses with the Secretary of the Treasury.
The BSA is the core of Treasury's programs to combat financial crimes including money
laundering.
The necessary regulations concerning registration have not yet been proposed; the delay
reflects Treasury's desire to increase the time for consultation with representatives of affected
businesses about the most efficient and least burdensome way to implement the registration
requirement.
Therefore, the Treasury's Financial Crimes Enforcement Network (IFinCEN") which
administers the BSA, announced today, in FinCEN Notice 95-1, that no penalties will be
imposed on money transmitting businesses for failure to register before final regulations
become effective concerning the form and manner in which these businesses must register.
Money transmitters also include check cashers, issuers and redeemers of money orders, and
travelers checks.
The FinCEN Notice will be widely disseminated and is available electronically on the
BSA Bulletin Board, which may be accessed by modem, dialing (313) 961-4704.
###
RR-309
FINANCIAL CRIMES
ENFORCEMENT NETWORK
2070 Chain Bridge Road, Suite 200, Vienna, VA 22182, Telephone (703) 905-3520
FinCEN Notice
95-1
Deferral of Date for Registration of Money Transmitting Businesses
Title II of the Currency and Foreign Transactions Reporting Act of 1970 (the "Bank
Secrecy Act") as amended by the Money Laundering Suppression Act of 1994 (the "MLSA"),
requires any person who owns or controls a money transmitting business to register that business
with the Secretary of the Treasury. See 31 U.S.c. section 5330. A money transmitting business
for this purpose can include any business that provides "check cashing, currency exchange, or
money transmitting or remittance services, or issue or redeem money orders, travelers' checks, or
other similar instruments." 31 U.S.c. section 5330(d).
Registration is directed by the statute to commence no later than March 22, 1995, the
end of the 180 day period beginning on the date of enactment of the MLSA. A business
established after September 23, 1994, is to register within the 180 day period beginning on the
date the business is established.
The form and manner of the required registration must be prescribed by regulation. The
necessary regulations have not yet been proposed; the delay reflects the Treasury's efforts to
increase the time for consultation with representatives of affected businesses about the most
efficient and least burdensome way to implement the registration requirement.
The registration regulations, when issued and published in the Federal Register, will not
require initial registration of money transmitting businesses before the 90th day following the
effective date of the interim or final rule specifying the form and manner of registration. No
penalty or other compliance sanction will be imposed under the provisions of the Bank Secrecy
Act on account of the failure of any money transmitting business to register before the last date
for initial registration specified in such regulations.
###
Department of the Treasury
Financial Crimes Enforcement Network
[M]QlJ ~[Mnews.
2070 Chain Bridge Road, Suite 200, Vienna, VA 22182-2536
1500 Pennsylvania Avenue, NW, Suite 3210, Treasury Annex, Washington DC 20220
FOR IMMEDIATE RELEASE
May 18, 1995
Contact: Joyce McDonald
FinCEN
(703) 905-3770
FINCEN ANNOUNCES SETTLEMENT OF CIVIL PENALTY
CASES AGAINST SACRAMENTO FIRST NATIONAL BANK AND
METROPOLITAN BANK AND TRUST COMPANY
The Treasury's Financial Crimes Enforcement Network (FinCEN) announced tooay the
settlement of two civil penalty cases, both for failures to report certain cash transactions within
the time required by the Bank Secrecy Act (BSA).
Sacramento First National Bank, Sacramento, California, has paid a civil money penalty of
$20,()()() and Metropolitan Bank and Trust Company, Agana, Guam, has paid a $6,000 civil
money penalty.
"As our fIrst line of defense, it is essential that banks implement effective BSA compliance
programs," said Stanley E. Morris, Director of FinCEN, which is responsible for administering the
BSA. "Weaknesses in BSA compliance and failures to report currency transactions, whatever
their cause, potentially deprive Treasury of fInancial information which is a vital weapon in the
battle against money launderers, tax evaders and others who attempt to disguise their transactions
from the government."
Sacramento First National Bank failed to file Currency Transaction Reports (CfRs)
between 1987 and 1992 for reportable currency transactions of four customers who conducted
check cashing and money transfer services.
-more-
RR-310
FinCEN, in accepting the Sacramento First settlement offer, considered the voluntary
disclosure of the violations, as well as subsequent corrective actions by the Bank, and
improvements to its BSA compliance program. FinCEN also considered the change in
Sacramento First's management effected by its recent acquisition by the Business & Professional
Bank, Woodland, California.
As a condition of the settlement, Business & Professional Bank agreed to commission a
comprehensive outside BSA audit within three months, and to cooperate completely with a full
scope BSA examination by its federal regulator within six months, of the merger.
The Metropolitan Bank and Trust Company violations, which occurred between April
1986 and September 1987, each involved single currency transactions in excess of $10,000
conducted at the Bank's Guam Branch. The Internal Revenue Service identified the violations
during a BSA compliance examination.
FinCEN and Metropolitan Bank agreed upon the amount of the penalty in complete
settlement of the bank's civil liability under the BSA. In determining the amount of the penalty,
FinCEN considered the number and nature of the violations as well as the bank's full cooperation.
FinCEN has no evidence that Sacramento First National Bank or Metropolitan Bank and
Trust Company or any of the banks' officers, directors or employees engaged in criminal activity
in connection with the reporting violations.
The BSA requires banks and other financial institutions to keep records of transactions
and file currency transaction reports on currency transactions in excess of $10,000. The Act also
now permits Treasury to require institutions to implement anti-money laundering programs and
compliance procedures and report to the government potentially suspicious transactions. The
authority of the Secretary of the Treasury to administer the BSA is delegated to the Director of
FinCEN.
#####
Monthly Treasury Statement
of Receipts and Outlays
of the United States Government
For Fiscal Year 1995 T-hmugh April 30, 1995, and Other Periods
Highlight
This issue includes the presentation of the new Social Security Administration, formed as the result of
the Social Security Independence and Program Improvement Act of 1994.
The impact of large individual and corporation tax deposits sent budget receipts to a record high of
$165.4 billion this month.
RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH APRIL 1995
900
Contents
800
Summary, page 2
B
700
Receipts, page 6
I
L
L
I
600
500
o
N
S
Outlays, page 7
Means of financing, page 20
400
Receipts/outlays by month, page 26
300
Federal trust funds/securities, page 28
200
Receipts by source/outlays by
function, page 29
100
a
Explanatory notes, page 30
--I"+------L...-~_
-1 00 -l2=========::;Z:=====::::P~~=7
Compiled and Published by
Department of the Treasury
Financial Management Service
Introduction
of receipts are treated as deductions from gross receipts. revolVing and man~
ment fund receipts, reimbursements and refundS of monies preViously expende(j are
treated as deductions from gross outlays. and Interest on the pubhc debt (P\JbIrc
Issues) is recognized on the accrual baSIS Malor Information sources InclUde
accounting data reported by Federal entities, disburSing officers, and Federal
Reserve banks.
The ~f,)r:(.~i~ T'i'a'J't Statement of Receipts and Outlays of the United States
Gu>ernment l~tTSIIS prepared by the FinanCial Management Service. Department of
the Treasury and after approval by the Fiscal ASSistant Secretary of the Treasury. IS
normally released on Ihe 15th workday of the month following the reporting month
The publication IS based on data prOVided by Federal entities. disburSing officers.
and Federal Reserve banks
Triad of Publications
The MTS is part of a triad of Treasury finanCial reports. The Daily TreaSUf)
Statement IS published each working day of the Federal Government It provides
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS IS a repon 01
Government receipts and outlays, based on agency reporting The US Governmenl
Annual Report is the official publication of the detailed receipts and outlays of the
Government. It is published annually in accordance with legislative mandates given
to the Secretary of the Treasury.
Audience
The Mrs IS published to meet the needs of Those responSible for or Interested
In the cash poSition of the Treasury. Those who are responsible for or Interested in
the Government s budget results. and ,ndIViduals and bUSinesses whose operatIons
depend upon or are related to the Government's fInancial operations
Disclosure Statement
ThiS statement summarizes the finanCial activitIes of the Federal Government
and off-budget Federal entllies conducted In accordance With the Budget of the U.S.
Government. Ie. receipts and outlays of funds. the surplus or defiCit, and the means
of finanCIng the defiCit or dispOSing of the surplus Information IS presented on a
modified cash baSIS receipts are accounted for on the baSIS of collections; refunds
Data Sources and Information
The Explanatory Notes section of this publication provides Information concern.
ing the flow of data into the MTS and sources of information relevant to the MrS
Table 1. Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995,
by Month
[$ millions)
Period
Receipts
Outlays
Deficit/Surplus (-)
FY 1994
October
November
December
January
February
March
April
May
June
July
August
September
Year-to-Dale
78.662
83.102
125,403
122,961
73.186
93.107
141.321
83.541
138.119
84.822
97.333
135.895
124,085
121,483
133,108
107,713
114.752
125,422
123.867
115.597
123.269
118.020
121.617
131.785
45,422
38,381
7,705
-15,248
41,566
32.315
-17,454
32.057
-14.850
33.198
24.284
-4.110
'1.257,452
'1,460,719
'203.267
89.024
87.673
130.810
131,801
82.544
92.532
165.392
120.365
124.915
134.941
115.171
120.536
142,458
115.673
31.342
37.242
4,130
-16.629
37.992
49.927
-49,720
779.775
874,059
94.284
FY 1995
October
November
December
January
February
March
April
Year-Io-Dale
'The receipt. outlay and aeflClt figures differ from the FY 1995 Budget. released by the OffIce
of Management and Budget on February 6. 1995. by $98 million due mainly to reVISions In data
follOWing the release at the Final September Monthly Treasury Statement
2
Table 2.
Summary of Budget and Off-Budget Results and Financing of the U.S. Government, April 1995 and
Other Periods
[$ millions]
Current
Fiscal
Year to Date
This
Month
Classification
Total on-budget and off-budget results:
Total receipts
Budget
Estimates
Full Fiscal
Year'
Prior
Fiscal Year
to Date
(1994)
Budget
Estimates
Next Fiscal
Year (1996)'
165.392
779.775
1.346.414
717.742
1,415,456
126.170
39.222
574.908
204.867
995.158
351.256
524.760
192.982
1.045.095
370.361
115.673
874.059
1.538.920
850.430
1.612.128
90.628
25.045
709,495
164.564
1.246.936
291.984
691.942
158.488
1.307.105
305.023
+49.720
-94.284
-192.506
-132.688
-196.671
On-budget surplus (+) or deficit (-)
Off-budget surplus (+) or deficit (-)
+35.542
+14.178
-134.587
+40.303
-251.778
+59.272
-167.182
+34.494
-262.010
+65.338
Total on-budget and off -budget financing
-49.720
94.284
192.506
132.688
196.671
Means of financing:
Borrowing from the public .
...........
Reduction of operating cash. increase (-)
By other means .
-27.638
-19.973
-2.109
97.986
-2.127
-1.574
207.936
-4.058
-11.372
118.141
3.775
10.772
217.151
On-budget receipts .'
Off-budget receipts
. . . . . . . . . . . . ..
Total outlays .
On-budget outlays
Off-budget outlays
.............
Total surplus (+) or deficit (-)
...........
'These figures are based on the FY 1996 Budget. released by the Office of Management and
Budget on February 6. 1995
... No Transactions.
Note: Details may not add to totals due to rounding.
Figure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995
$ billions
1
Outlays
1
80
60
Receipts
40
20
o
-20-S~"
-40
Deficit(-)/Surplus
-60
-80~~-.--.-.--r-.-''-'-~-r~--r-~II-'~'-'-~
Oct.
Dec.
Feb.
Apr.
FY
95
FY
94
3
-20,480
Figure 2.
Monthly Receipts of the U.S. Government, by Source, Fiscal Years 1994 and 1995
$ billions
180~-----------------------------------------------'
ITotal Receipts]
160
20
Dec.
act.
Feb.
Apr.
Jun.
Aug.
Dec.
Feb.
Apr.
FY
FY
95
94
Figure 3.
Oct.
Monthly Outlays of the U.S. Government, by Function, Fiscal Years 1994 and 1995
$ billions
180~,---------------------------------------I
I
160-1
f
I
~IOUtiaYS
140....iI
Social Security & Medicare
Aug.
Oct.
FY
FY
94
95
4
Dec.
Feb.
Apr.
Table 3. Summary of Receipts and Outlays of the U.S. Government, April 1995 and Other Periods
[$ millions]
Classification
This Month
Current
Fiscal
Year to Date
Comparable
Prior Period
Budget
Estimates
Full Fiscal Year'
Budget Receipts
Individual income taxes
Corporation income taxes ..
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget)
Employment taxes and contributions (on-budget)
Unemployment insurance .......
. ......... .
Other retirement contributions
........................... .
Excise taxes ........
. .......................... .
Estate and gift taxes ......... .
Customs duties ................. .
Miscellaneous receipts ........ .
76,441
23,482
351.121
80,132
322,042
74,275
588,460
150,864
39.222
11.201
3,061
354
4,602
1,906
1,349
3,774
204,867
59,617
11.632
2.629
32,162
8,559
11,214
17,842
192.982
53,369
10,662
2.704
29.695
9,261
11,149
11.603
351,256
100.538
28,057
4.558
57.600
15,587
20,913
28.581
Total Receipts ................................................ .
165,392
779,775
717,742
1,346,414
(On-budget) ................................................. .
126,170
574,908
524,760
995,158
(Off-budget) ................................................ .
39,222
204,867
192,982
351,256
178
202
18
48
4.204
227
16.828
2,592
1,974
1,188
23,053
2,707
499
920
2,899
371
2,571
1,651
1.608
130
7,106
39,226
1,997
144,329
18.249
18.181
10.114
171,436
17,360
4,311
6,134
18.647
3.464
21.681
1.563
1,491
125
8,066
38,589
1,805
156,679
17.566
13.073
10,240
159,860
15,343
3,910
5,809
23,493
3.344
20,518
2,793
3.101
192
10,860
62.313
3.601
260.269
31,207
32,888
16,135
301,439
26.854
7.329
11.821
31.942
6.272
37.992
20,883
3.732
1.828
493
-767
1,028
3,548
53
28,080
182,868
12,324
20,691
3,569
-58
7,499
23,754
525
204,856
163.167
10.851
22.324
3.263
-499
7.789
22,261
345
198,653
333.704
18.112
38.231
6.274
1.131
14.241
40.308
703
363,419
Budget Outlays
Legislative Branch ............ .
The Judiciary .................. .
Executive Office of the President ....
Funds Appropriated to the President
Department of Agriculture ............ .
Department of Commerce ................... .
Department of Defense-Military ...................... .
Department of Defense-Civil ..... .
Department of Education ............... .
Department of Energy .......................................... .
Department of Health and Human Services
Department of Housing and Urban Development .............. .
Department of the Interior ..............
. ......... .
Department of Justice ....................
. ......... .
Department of Labor ............................... .
Department of State .......... ..
Department of Transportation
Department of the Treasury:
Interest on the PubliC Debt ........... .
Other ............................... .
Department of Veterans Affairs ............... .
Environmental Protection Agency ................ .
General Services Administration .............................. ..
National Aeronautics and Space Administration
Office of Personnel Management .. .
Small Business Administration
.......... .
Social Security Administration .......... .
Other independent agencies:
Resolution Trust Corporation ............. .
Other ..................................................... .
Undistributed offsetting receipts:
Interest ................................................ ..
Other ............................................... .
-436
468
-6,535
4,462
901
2.586
-6.753
15.399
-596
-3.121
-46.130
-19,391
-42,996
-19,689
-91.465
-41.392
Total outlays ................................................. ..
115,673
874,059
850,430
1,538,920
(On-budget) ................................................. .
90,628
709,495
691,942
1,246,936
(Off-budget) ................................................ .
25,045
164,564
158,488
291,984
Surplus (+) or deficit (-) .................................. ..
+49,720
-94,284
-132,688
-192,506
(On-budget) ................................................. .
+35,542
-134,587
-167,182
-251,778
(Off-budget) ................................................ .
+14,178
+40,303
+34,494
+59,272
'These figures are based on the FY 1996 Budget, released by the Office of Management and
Budget on February 6, 1995.
Note: Details may not add to totals due to rounding
5
Table 4.
Receipts of the U.S. Government, April 1995 and Other Periods
[$ millions)
This Month
Classification
Individual Income taxes:
Withheld
Presldentlal Electlon Campalgn Fund
Other
Gross
Receipts
1
Current Fiscal Year to Date
I (Deduct)
Refunds I Recei ts
p
Gross
Receipts
Refunds
(Deduct)
Prior Fiscal Year to olte
t .
Receipts
I
Refunds
(Deduct)
I
~
Receipts
275.248
41
100.084
296.124
40
109.667
'32.447
16
'64.937
Gross
Receipts
~
TolBl-lndivldual Income taxes ........................ .
97,400
20,959
76,441
405,831
54,711
351,121
375,373
53,331
322,042
Corporation income taxes ................................... .
25,779
2,297
23,482
92,726
12,595
80,132
82,964
8,689
74,275
'25,292
'7,977
25,292
7,977
149,097
10,920
(' ')
( )
( )
(' ')
149,097
10,920
1
163,681
10,672
-45
Social insurance taxes and contributions:
Employment taxes and contributions
Federal old·age and survivors Ins trust fund:
Federal Insurance Contributions Act taxes
Self-Employment ContribullOns Act taxes
DepoSits by States
Other
Total-FOASI trust fund
Federal disability Insurance trust fund
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from railroad retirement account
DepoSits by States
Other
Total-FDI trust fund
Federal hospital Insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment ContrlbullOns Act taxes
Receipts from Railroad Retirement Board
DepoSits by States
Total-FHI trust fund
Railroad retirement accounts
Rail Industry pension fund
Railroad Social Security eqUivalent benefit
Total-Employment taxes and contributions
..
..
160,019
'4,469
'1,485
4,469
1,485
42,310
2,538
42,310
2,538
17,535
1,139
.. )
(' ')
..)
(' ')
5,954
5,954
44,848
'7,690
'3,182
7,690
3,182
52,626
4,508
(
..
)
(
(
..
17,535
1,139
)
("I
44,848
18,674
18,674
52,626
4,508
47,418
3,561
47,418
3,561
.. )
("I
57,135
50,979
50,979
..)
(
(
10,872
57,135
178
152
177
152
1,362
1,130
10
1,353
1,130
1,332
1.083
25
1,307
1.083
50.424
50,423
264,494
10
264,484
246,376
25
246,351
2,144
914
4
8,897
2,776
16
57
8,897
2,719
16
8,303
2,386
58
3,061
11,689
57
11,632
10,721
348
7
2,576
2,576
7
54
54
2,647
57
2,647
57
354
354
2,629
2,629
2,704
2,704
3,088
27
Total-Excise taxes
..)
(
("'I
174,309
10,872
Total-Unemployment Insurance
Excise taxes:
Miscellaneous eXCise taxes'
Airport and airway trust fund
Highway trust fund
Black lung disability trust fund
.. )
160,019
(
163,681
10,672
-45
(
)
33,268
27
Total-Social insurance taxes and
contributions ... " ..... , ......... , ................. ..
(
33,268
2,144
940
4
Total-Other retirement contributions
..
..)
(
174,309
Unemployment Insurance
State taxes depoSited In Treasury
Federal Unemployment Tax Act taxes
Railroad unemployment taxes
Railroad debt repayment
Other retirement contributions:
Federal employees retirement - employee
contributions
ContrlbullOns for non-federal employees
1
348
18
14
58
8,303
2,327
18
14
10,662
53,866
28
53,839
278,812
67
278,745
259,801
83
259,718
1,953
430
2,216
-172
2,125
419
2,005
53
16,103
3,019
13,643
360
521
21
421
15,582
2,998
13,222
360
17,016
2,796
10,301
355
423
24
327
16,594
2,773
9,974
355
33,125
963
32,162
30,469
774
29,695
11
211
53
., .......... , ....................... .
4,652
50
4,602
EslBte and gift taxes ....................................... ..
1,938
32
1,906
8,787
229
8,559
9,481
220
9,281
Customs duties ..... _.. , ..................................... .
1,490
141
1,349
12,184
970
11,214
11,636
487
11,149
Miscellaneous Receipts:
DepoSits of earnings by Federal Reserve banks
All other
3,514
261
3,514
261
15,270
2,580
8
15,270
2,572
9,499
2,116
12
9,499
2,105
3,774
17,842
11,615
12
11,603
Total
Miscellaneous receipts ....................... .
3,775
17,850
8
Total
Receipts , ... , .. , ...... ,., .. " .... ,., .. , .. , .... ,.
188,899
23,507
165,392
849,316
69,541
779,775
781,338
63,596
717,742
Total
On-budget
149,677
23,507
126,170
644,449
69,541
574,908
588,356
63,596
524,760
Total
Off-budget
39,222
39,222
204,867
204,867
192,982
lin accordance >\-Itt'! tile prOVISions Of the SOCIal Secunty Act as amended
IndiVidual Income
Taxes \\lrHlheld
haye been decreased and Federal Insurance Contnbutlons Act Taxes'
corresponding I\- IncreasE'd by $1 051 million to correct estimates for the quarter ending March 31
1994 Indl\ldual Income Tax.es Other nave been Increased and Sel~ Employment Contnbutlons
A.ct Tal.€'s ,:orTespondlngly decreaSe-d by $1 184 million to correct eSl!mates tor calendar year
'Includes amounts for the Windfall profits tax pursuant to P L 96-223
No Transactions
(. 'J Less than $500,000
Note Details may not add to totals due to rounding
1992 and pnOf
6
192,982
Table 50
Outlays of the UoSo Government, April 1995 and Other Periods
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
I
Gross IAPPlicablel
Receipts
Out ays
Outlays
Gross IAPPlicablel 0 tl
Receipts
u ays
Outlays
Classification
Legislative Branch:
Senate
.........................................
House of Representatives . . . . . . . . . . . . . . . . . .
Joint items
.................
Congressional Budget Office
..............
Architect of the Capitol
Library of Congress
Government Printing Office:
Revolving fund (net) .............
General fund appropriations
General Accounting Office
............
United States Tax Court
..................
Other Legislative Branch agencies
.............
Proprietary receipts from the public . . . . . . . . . . .
Intrabudgetary transactions
...............
Total-Legislative Branch
................................
32
57
7
1
14
31
-11
10
32
4
3
-1
180
The Judiciary:
Supreme Court of the United States ....... ................
Courts of Appeals, District Courts, and other judicial
services
· . ...............
............
Other
· . . . . . . .. . . . . .
. .................
192
9
.....................................
202
Total-The Judiciary
Executive Office of the President:
Compensation of the President and the White House
Office
Office of Management and Budget ...............
Other
.................. ...............
Total-Executive Office of the President
..............
Funds Appropriated to the President:
International Security Assistance:
Foreign military loan program
.............. ...........
Foreign military financing program
............
Economic support fund
...........
Peacekeeping Operations
.................
Other ..
. .............
. ...............
Proprietary receipts from the public .....
(00)
(0 0)
2
2
rO)
(* *)
4
5
9
18
56
102
83
3
4
15
...........
247
International Developrnent Assistance:
Multilateral Assistance:
Contribution to the International Development
............... .............
Association
International organizations and programs
Other
............
...........
Total-International Security Assistance
Total-Multilateral Assistance
Agency for International Development:
Sustainable development assistance program
Assistance for eastern europe and the baltic States .'
Assistance for the new indenpendent States of the
former soviet union ................... .................
Development fund for Africa ....................
Operating expenses ....
. ............
Payment to the Foreign Service retirement and
disability fund · . . . . . . . . . . . . . . . .
.................
Other
Proprietary receipts from the public
Intra budgetary transactions
32
57
7
1
13
31
249
425
45
12
117
481
-11
10
32
4
3
-1
-1
15
57
234
19
19
178
1,667
2
15
192
9
1,529
67
202
1,611
4
5
9
18
246
441
45
13
118
342
15
57
234
19
19
-8
-8
40
54
252
20
18
1,651
1,581
15
15
15
3
1,527
67
3
1,608
1,412
65
1,492
1,411
65
1,491
22
33
76
22
33
76
24
34
67
24
34
67
130
130
125
125
482
3,185
2,194
35
30
5
8
-8
15
18
10
415
26
221
5,346
771
4,575
5,926
235
22
16
235
22
16
743
418
267
272
272
1,429
743
418
267
1,429
637
122
280
1,039
637
122
280
1,039
128
3
128
3
689
20
689
20
775
38
775
38
86
46
40
86
46
40
490
435
296
490
435
296
117
363
292
117
363
292
26
470
45
323
-470
44
260
45
349
1,889
456
1,433
24
118
50
105
2
-103
131
52
2
-81
118
48
628
3,337
3,120
563
2,557
-909
-22
-17
7,487
106
7,693
2,324
496
1,828
Overseas Private Investment Corporation
. . . . . . . . . . . . . . ...........
Peace Corps
Other
3
17
8
7
27
131
54
129
(" 0)
-4
17
8
Total-International Development Assistance
641
66
575
3,964
10
800
25
rO)
-16
800
99
7,487
(" +)
1,424
2
1,589
-909
1,541
7
115
r +)
-1,424
2
15
48
16,002
752
44
223
-419
282
-111
403
134
3,185
2,194
35
30
-403
5,174
37
419
59
-111
349
1,563
167
2,563
2,195
49
16
-415
341
Total-Funds Appropriated to the President ., ......•..
-7
356
36
-57
International Monetary Programs
Military Sales Programs:
Special defense acquisition fund
Foreign military sales trust fund
...........
Kuwait civil reconstruction trust fund
Proprietary receipts from the public ....
...............
Other
40
54
252
20
18
-1
-7
523
2,563
2,195
49
16
2
57
.......
5
245
430
45
13
114
342
41
102
83
3
4
-10
38
Total-Agency for International Development
1
11
248
424
45
12
112
481
(00)
7,381
8,896
(00)
(" 0)
-22
169
-64
7,693
7,304
-7,304
32
8,789
8,066
(00)
-7,381
15
32
7,106
16,854
(0 0)
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions)
Classification
Department of Agriculture:
Agricultural Research Service
Cooperative State Research EducatIOn and Extension
Service
Cooperative state research activities
ExtenSion Service
Other
Animal and Plant Health InspectIOn Service
Food Safety and InspectIOn Service
Agricultural Marketing Service
Farm Service Agency
Salaries and expenses
Conservation programs
Federal crop Insurance corporation fund
Commodity Credit CorporatIOn
Price support and related programs
National Wool Act Program
Agncultural credit Insurance fund
Other
Total-Farm Service Agency
Natural Resources Conservation Service:
Conservation operations
Watershed and flood prevention operations
Other
Rural Utilities Service:
Rural electnflcatlon and telephone fund
Rural development Insurance fund
Other
Rural hOUSing and Community Development Service:
Rural hOUSing Insurance fund
Other
Foreign Agncultural Service
Food and Consumer Service:
Food stamp program
State child nutrition programs
Women. Infants and children programs
Other
Total-Food and Consumer Service
Forest Service:
NatIOnal forest system
Forest and rangeland protection
Forest service permanent appropriations
Other
Total-Forest Service
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total-Department of Agriculture
Department
EconomiC
Bureau of
Promotion
This Month
Current Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross IAPPlicablel 0 tI
Outlays
Receipts
u ays
425
425
37
40
2
40
47
33
37
40
2
40
47
33
253
258
26
295
296
493
253
258
26
295
296
493
235
247
30
273
303
430
247
30
273
429
54
12
78
54
12
77
407
1.813
491
407
1.813
42
387
1.824
1.291
387
1.824
946
135
93
63
9
14,786
99
723
152
5,813
8.973
99
-260
152
14,163
193
1.120
154
4,398
1.262
9.765
193
-142
154
443
18,470
7.245
11,225
19.130
6.005
13,125
47
17
2
333
165
46
333
165
46
359
152
47
1,336
93
161
9
1,201
1,744
1,301
99
47
17
2
449
983
23S
303
345
359
152
47
46
123
28
128
18
11
-82
105
16
1,459
504
239
1.719
266
118
-260
238
120
1,652
541
243
2.239
348
309
-586
192
-67
185
99
15
197
-12
99
15
2.079
31
610
1,456
624
31
610
2,095
-24
736
1.915
181
-24
736
2.133
719
234
25
2,133
719
234
25
15.195
4.752
2.070
283
15,195
4,752
2.070
283
14.912
4,424
1,878
315
14.912
4.424
1.878
315
3.111
3.111
22.300
22,300
21,529
21,529
105
31
15
75
105
31
15
75
758
376
450
474
758
376
450
474
787
186
239
470
787
186
239
470
226
226
2.057
2.057
1.682
1,682
4
-48
299
314
21
973
294
-973
(0 0)
277
-593
(0 0)
4,204
50,646
11,420
39,226
50,400
11,810
38,589
21
-29
24
195
187
211
8
187
187
211
161
164
180
9
151
164
180
1.137
243
74
12
1.125
124
94
8
20
1.118
124
74
28
1,316
70
63
-70
3
48
5.910
1,706
22
593
(0 0)
(00)
2
169
22
16
18
1.125
243
57
Total-SCience and Technology
209
2
207
1,454
30
1,424
1.343
Other
Propnetary receipts from the publiC
Intrabudgetary transactIOns
Offsetling governmental receipts
15
15
-10
62
(00)
10
62
-73
63
(0 0)
(0 0)
1,997
1,911
73
(00)
.......................
-
432
169
22
18
Total-Department of Commerce
1I
Y1
432
22
-29
24
SCience and Technology
NatIOnal OceaniC and AtmospheriC Administration
NatIOnal Institute of Standards and TechnOlogy
Other
Ouu.
61
(00)
of Commerce:
Development AdministratIOn
the Census
of Industry and Commerce
Gross IAPPlicablel
Outlays
Receipts
1
61
6
.......................
Prior Fiscal Year to 0...
240
13
8
227
2,108
111
-
("'I
107
-
-
1,805
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross \APPlicable\ Outlays
Receipts
Outlays
Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays
Gross \APPlicable lOti
Outlays
Receipts
u ays
Classification
Department of Defense-Military:
Military personnel:
Department of the Army
Department of the Navy
Department of the Air Force
Total-Military personnel
Operation and maintenance:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
Total-Operation and maintenance.
Procurement:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
Total-Procurement
............
.. . . ........
.............
Research, development, test, and evaluation:
Department of the Army
Department of the Navy ............... ...............
Department of the Air Force ...
Defense agencies ...........
. .....................
Total-Research, development, test and evaluation
Military construction:
Department of the Army ..
Department of the Navy
Department of the Air Force
Defense agencies
Total-Military construction
.............
........... ,.
.................
Family housing:
Department of the Army ............
. . . . ... . . . . . .
Department of the Navy
Department of the Air Force ......... ..............
Defense agencies
Revolving and management funds:
Department of the Army
Department of the Navy ..
Department of the Air Force ...........
Defense agencies:
Defense business operations fund
Other.
Trust funds:
Department of the Army
............
Department of the Navy
Department of the Air Force
...........
Defense agencies ............. .............
Proprietary receipts from the public:
Department of the Army ............
Department of the Navy
Department of the Air Force
Defense agencies ...
Intrabudgetary transactions:
..............
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
Offsetting governmental receipts:
Department of the Army
Defense agencies
Total-Department of Defense-Military
.............
1,028
1,368
743
1,028
1,368
743
13,819
14,115
10,418
13,819
14,115
10,418
16.434
15,903
11,117
16.434
15,903
11,117
3,138
3,138
38,352
38,352
43,454
43.454
1,625
1,937
1,618
1,570
1,625
1,937
1,618
1,570
12,833
12,240
13,975
11,169
12,833
12,240
13,975
11,169
12,227
12,602
14,207
11.446
12,227
12,602
14,207
11.446
6,749
6,749
50,218
50,218
50.482
50.482
547
2,203
1,357
292
547
2,203
1,357
292
4,343
13.420
12,563
2,253
4,343
13.420
12,563
2,253
4,837
15,221
14,050
2,398
4,837
15,221
14,050
2,398
4,399
4,399
32,579
32,579
36,505
36,505
372
787
750
509
372
787
750
509
2,892
5,322
7,188
4.441
2,892
5,322
7,188
4.441
3,369
4,303
7,354
4,698
3,369
4,303
7,354
4,698
2.417
2.417
19,843
19,843
19,723
19,723
70
72
98
274
70
72
98
274
534
494
753
1,929
534
494
753
1,929
515
331
596
1,060
515
331
596
1,060
514
514
3,711
3,711
2,501
2,501
88
107
61
15
88
107
61
11
675
609
592
87
675
609
592
59
735
457
610
60
735
457
610
40
-7
-62
-29
122
-29
122
-30
222
-211
29
-1,513
-102
-1,513
-104
2,067
-225
4
-7
-62
-211
30
..
(
)
..)
..
..2
)
(* .)
44
143
(
(
2
..)
(
(
44
32
64
311
34
..
..
(
446
16,828
(
)
9
(
2
..)
..)
17
-32
-64
-311
-34
-5
25
-10
-20
-5
25
-10
-20
17,274
)
28
(
3
..
(
)
)
)
(' ')
1,417
144,329
3
..)
8
6
..
)
11
(' ')
142
109
85
351
181
152
522
116
-74
-109
-85
-351
-181
152
522
116
-74
..6
(
157,447
2,067
-228
(
19
6
142
-1
..1
(
-30
222
(
-194
-231
-737
-223
33
403
103
-96
33
403
103
-96
145,747
(
143
194
231
737
223
)
..
14
20
)
768
-6
.. )
(
156,679
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[S millions)
~
This Month
Classification
Gross I Applic.able
Outlays
Receipts
Department of Defense-Civil
Corps of Engineers
Construction. general
Operation and maintenance. general
Other
Proprietary receipts from the public
82
68
95
Total-Corps of Engineers
245
Military retirement
Payment to military retirement fund
Military retirement fund
Intrabudgetary transacllOns
EducallOn benefits
Other
Proprietary receipts from the public
I
Total-Department of Defense-Civil
...................
2,603
Prior Fiscal Year to Date
Gross IAPPlic.ablel Outla s
Outlays
Receipts
Y
Gross IAPPlicable!
Receipts
Outlays
Outlays
616
795
818
9
82
68
95
-9
9
235
2.228
2,338
2,338
13
6
Outlays
Current Fiscal Year to Date
11,470
16.001
-11,470
57
46
1
13
6
-1
10
2,592
18,332
(•• J
517
607
945
73
616
795
818
-73
73
2.155
2,068
2
7
11,470
16,001
-11,470
57
44
-7
11,908
15,435
-11,908
115
45
83
18,249
17,664
89
517
607
945
-8S
89
1,979
2
7
11,908
15.435
-11,908
115
43
-7
98
17,566
Department of Education:
Office of Elementary and Secondary Education'
EducallOn for the disadvantaged
Impact aid
School Improvement programs
Other
603
28
126
9
603
28
126
9
4,057
638
844
66
4,057
638
844
66
4.124
672
887
52
4,124
672
887
52
Total-Office of Elementary and Secondary
Education
766
766
5,605
5,605
5,735
5}35
Office of Bilingual Education and MinOrity Languages
AffairS
Office of Special Education and Rehabilitative Services:
Special education
RehabilitallOn services and disability research
Special Institutions for persons with disabilities
Office of Vocational and Adult Education
17
17
125
125
130
130
234
188
14
168
234
188
14
168
1,940
1,349
84
940
1,940
1,349
84
940
1,816
1,351
81
854
1,816
1,351
81
854
Office of Postsecondary Education:
College housing loans
Student financial assistance
Federal family education loans
Higher education
Howard UniverSity
Other
-10
480
-61
41
19
85
14
4.685
2,146
456
127
314
45
480
-61
41
19
85
-31
4,685
2,146
456
127
314
4,847
-2.651
421
119
32
10
555
7,742
45
7,697
2,770
239
250
49
239
250
-49
252
220
16
35
12
-16
26
1,974
18,274
93
18,181
13,209
890
890
6,972
6,972
6,950
71
244
13
37
62
14
71
244
13
37
62
14
851
1,906
62
254
368
124
851
1,906
62
254
368
124
759
1,768
237
233
317
175
(•• J
Total-Office of Postsecondary Education
Office of Educational Research and Improvement
Departmental management
Proprietary receipts from the public
Total-Department of Education
........................
Department of Energy:
Atomlc energy defense activities
Energy programs
General SCience and research activities
Energy supply, Rand D activities
Uranium supply and enrichment activities
Fossil energy research and development
Energy conservation
Strategic petroleum reserve
Clean coal technology
Nuclear waste disposal fund
Other
Total-Energy programs
Power Markettng Administration
Departmental administration
Propnetary receipts from the public
Intrabudgetary transacllOns
Offsetttng governmental receipts
Total-Department of Energy
............................
565
10
35
12
2,000
32
-30
4,847
-2,651
421
119
32
32
2,738
252
220
104
-104
136
13,073
6,950
75S
1.768
237
233
317
175
23
78
(•• J
23
78
194
565
194
564
152
513
152
512
542
(•• J
542
4,325
4.324
4,154
4,152
137
48
177
-40
48
-211
-41
1,043
282
1,029
251
9
-123
282
-1.059
-272
-9
2,234
10,114
12,159
211
-41
1,576
(•• J
(•• J
389
1,188
1,166
1,059
-272
12,348
995
871
-225
52
1,919
-
35
251
-871
-225
-52
~
-----10,240
~
-----10
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions)
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicable] Outlays
Outlays
Receipts
Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays
Gross IAPPlicable lOti
Outlays
Receipts
u ays
Classification
Department of Health and Human Services:
Public Health Service:
Food and Drug Administration
.............
Health Resources and Services Administration ..
Indian Health Services
...........
Centers for Disease Control and Prevention
National Institutes of Health .......................
Substance Abuse and Mental Health Services
Administration
...........
Agency for Health Care Policy and Research ............
Assistant secretary for health ..... ............
Total-Public Health Service
Health Care Financing Administration:
Grants to States for Medicaid ....
Payments to health care trust funds
. ...........
..............
Total-FHI trust fund ............
Federal supplementary medical insurance trust fund:
Benefit payments ............
Administrative expenses
Other
. ............
...........
Total-Health Care Financing Administration ...........
Administration for children and families:
Family support payments to States
................
Low income home energy assistance ....... .............
Refugee and entrant assistance .. ........................
Payments to States for the job opportunities and basic
skills training program ...
.......................
State legalization impact assistance grants
Payments to States for the child care and development
block grant ...............................................
........................
Social services block grant
Children and families services programs .............
Payments to States for foster care and adoption
..........................
assistance
Other .....
.................................
Total-Administration for children and families
.......
Administration on aging
.................... .............
Departmental management
.............
Proprietary receipts from the public ..............
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund .......
Federal supplementary medical insurance trust fund
Payments for tax and other credits:
Federal hospital insurance trust fund
Other.
............... . ...........
Total-Department of Health and Human Services
(")
87
240
132
165
849
484
1,472
1,259
1,037
5,949
110
3
58
1,393
70
314
1,646
11,979
7,239
5,439
7,239
5,439
8,530
150
440
1,305
995
858
5,899
482
1,472
1,259
1,037
5,949
442
1,305
995
858
5,899
1,393
70
314
1,342
54
195
11,976
11,090
51,084
27,792
51,084
27,792
47,101
24,442
47,101
24,442
8,530
150
63,088
763
63,088
763
57,704
736
57,704
736
8,680
8,680
63,851
63,851
58,440
58,440
4,383
143
4,383
143
35,189
977
35,189
977
32,564
978
32,564
978
4,527
4,527
36,167
36,167
33,542
33,542
-34
-34
-12
-12
-3
-3
25,851
25,851
178,882
178,882
163,522
163,522
1,459
89
'_7
1,459
89
-7
10,143
1,079
205
10,143
1,079
205
9,814
1,702
237
9,814
1,702
237
110
3
58
1,646
Federal hospital insurance trust fund:
Benefit payments ..................... ...................
Administrative expenses
Interest on normalized tax transfers
Total-FSMI trust fund ...
87
240
132
165
849
(")
3
3
2
1,342
54
195
2
11,087
(")
(
..72
)
563
144
563
144
474
600
474
600
83
243
395
83
243
395
535
1,660
2,950
535
1,660
2,950
465
1,612
2,545
465
1,612
2,545
301
3
301
3
1,861
12
1,861
12
1,802
1,802
(")
(")
2,639
2,639
19,153
19,153
19,251
19,251
74
-17
74
-17
-1,700
554
191
554
191
-11,529
488
105
488
105
-10,152
-3,760
-3,760
-24,392
-24,392
-23,288
-23,288
-1,679
-1,679
-3,400
-3,400
-1,154
-1,154
23,053
182,968
171,436
170,014
72
1,700
24,753
1,700
11
11,529
11,532
10,152
10,154
159,860
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
Classification
Department of Housing and Urban Development:
HOUSing programs
Public enterpnse funds
Credit accounts
Federal hOUSing adm,mstrat,on fund
HOUSing for the elderly or handicapped fund
Other
Rent supplement payments
Homeownershlp assistance
Rental hOUSing assistance
Rental hOUSing development grants
Low-rent public hOUSing
Public hOUSing grants
College hOUSing grants
Lower Income hOUSing assistance
Section 8 contract renewals
Other
Total-Housing programs
Public and Indian Housing programs:
Low-rent public hOUSing-Loans and other expenses
Payments for operation of low-income housing
prolects
Community Partnerships Against Crime
Other
Total-Public and Indian Housing programs
Government National Mortgage ASSOCiation:
Management and liquidating functions fund
Guarantees of mortgage-backed securities
Total-Government National Mortgage ASSOCiation
Community Planning and Development:
Community Development Grants
Home Investment partnerships program
Other
Total-Community Planmng and Development
Management and Administration
Other
Proprietary receipts from the public
Offsetting governmental receipts
Total-Department of Housing and Urban
Development
.............................................
Department of the Interior.
Land and minerals management:
Bureau of Land Management:
Management of lands and resources
Other
Minerals Management Service
Office of Surface Mining Reclamation and
Enforcement
Total-Land and minerals management
Water and sCience:
Bureau of Reclamation'
Construction program
OperatIOn and maintenance
Other
Central utah prolect
United States Geological Survey
Bureau of Mines
Total-Water and sCience
Fish and wildlife and parks
United States Fish and Wildlife Service
National Biological Survey
National Park Service
Total-FISh and Wildlife and parks
This Month
Current Fiscal Year to Date
Gross /APPlicable / Outlays
Outlays
Receipts
Gross /APPlicable) 0 tl
Outlays
Receipts
u ays
25
-140
266
47
28
9
56
21
-227
49
48
282
1
859
421
11
4
105
75
Prior Fiscal Year to 01"
Gross !APPIiC8b1e/
Outlays
Receipts
30
86
75
12
232
165
332
95
68
380
4,238
408
-82
300
259
87
217
47
28
9
56
3,793
543
332
95
68
380
(")
(' ')
48
282
1
859
421
11
461
2,086
10
5,790
2,890
97
461
2.086
10
5,790
2,890
97
4,156
708
259
33
61
380
5
431
1,876
10
6,104
1,994
35
3,561
378
(")
-
OutlaY'
r ')
33
61
380
5
431
1,876
10
6,104
1,994
35
1,912
-157
2,070
16,652
4,013
12,639
16,138
4.721
11,417
3
(")
3
257
197
60
292
194
97
219
14
4
1,544
92
12
1,544
92
12
1,436
91
1,708
1,819
194
1,625
219
14
4
1,436
91
240
(")
240
1,905
197
(")
(")
(")
21
49
-29
216
470
-254
632
1
934
-1
-302
21
49
-29
216
471
-254
632
935
-302
314
74
26
8
314
74
19
2,431
656
185
69
2,431
656
116
1,973
364
172
78
95
414
8
406
3,273
69
3,204
2.510
78
2,432
302
35
267
5
302
35
-267
-5
309
20
35
51
4
-35
5,023
17,360
21,429
51
4
2,642
-66
52
17
48
1,973
364
309
153
5
20
-153
-5
2,707
22,383
52
17
48
435
253
410
435
253
410
390
138
459
187
187
169
169
6,086
15,343
390
138
459
22
22
139
139
1,285
1,285
1,157
1,157
17
17
168
148
243
26
324
100
109
176
151
256
9
357
112
103
176
151
153
16
168
148
134
26
324
84
16
357
96
125
883
1,060
1
59
12
3
17
17
22
1
59
9
140
14
126
1,008
101
8
125
101
8
125
712
73
898
712
73
898
727
50
837
234
234
1,683
1,683
1,614
34
11
119
9
942
-
727
50
837
1,61 4
~
12
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross !APPlicablel 0 tl
Outlays
Receipts
u ays
Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays
Classification
Department of the Interior:-Continued
Bureau of Indian Affairs:
Operation of Indian programs ..
Indian tribal funds
Other ..... .
Total-Bureau of Indian Affairs
Territorial and international affairs
Departmental offices ...
. ........... .
Proprietary receipts from the public ..
Intrabudgetary transactions .. '
Offsetting governmental receipts ...... .
80
80
69
42
69
41
887
170
249
191
190
1,306
6
6
6
6
-151
-50
360
57
151
-50
Total-Department of the Interior
666
Department of Justice:
Legal activities ............. .
Federal Bureau of Investigation
Drug Enforcement Administration
Immigration and Naturalization Service
Federal Prison System ..... .
Office of Justice Programs
Other .................................... .
Intrabudgetary transactions
Offsetting governmental receipts ........ .
197
227
103
148
232
61
73
Total-Department of Justice ..........•................
Department of Labor:
Employment and Training Administration:
Training and employment services
................... .
Community Service Employment for Older Americans ."
Federal unemployment benefits and allowances ....... .
State unemployment insurance and employment service
operations ............................................... .
Payments to the unemployment trust fund ............. .
Advances to the unemployment trust fund and other
funds ..................................................... .
Unemployment trust fund:
Federal-State unemployment insurance:
State unemployment benefits ............. .
State administrative expenses ..................... .
Federal administrative expenses .................. .
Veterans employment and training ..
. .......... .
Repayment of advances from the general fund .... .
Railroad unemployment insurance ..................... .
Other .................................... .
Total-Unemployment trust fund ..
Other .......... .
Total-Employment and Training Administration
PenSion Benefit Guaranty Corporation ..... .
Employment Standards Administration:
Salaries and expenses ............... .
Special benefits ......... .
Black lung disability trust fund ...
Other .. ....... ...........
. ......... .
Occupational Safety and Health Administration ... .
Bureau of Labor Statistics ............... .
Other ........... .
Proprietary receipts from the public
Intrabudgetary transactions
Total-Department of Labor ............................ .
(' ')
166
499
5,536
197
227
103
148
221
61
73
1,495
1 ,214
561
973
1,603
351
504
-33
-6
-6
841
171
306
6
841
171
300
7
1.299
1,317
6
1.311
192
1 ,090
3
360
57
-1,090
-162
-3
1,225
4,311
5,220
74
1,449
1,272
467
835
1.384
478
297
-19
460
1 ,495
1 ,214
561
973
1.529
351
504
-33
-460
534
6,134
6,165
-162
(")
11
7
887
170
242
192
80
80
1,186
-1,186
-200
(")
(")
1,310
3.910
68
288
1.449
1,272
467
835
1.317
478
297
-19
-288
356
5,809
-200
102
-102
113
920
6,668
340
30
-27
340
30
-27
2,443
222
113
2,443
222
113
2,220
221
93
2,220
221
93
-31
-31
6
6
164
164
46
46
619
619
2,528
2,528
1,828
273
11
12
1,828
273
11
12
13,077
1,900
138
105
13,077
1,900
138
105
18,197
1,808
125
107
18,197
1,808
125
107
5
5
1
1
40
11
40
11
45
12
45
12
2,131
2,131
15,271
15,271
20,294
20,294
7
7
52
52
53
53
2,496
2,496
18,727
18.727
25,573
25,573
52
860
-168
773
20
192
49
10
24
30
29
20
192
49
10
24
30
29
141
-152
335
141
-152
335
136
-118
351
74
169
154
266
-2
-2
-912
2,899
19,680
1,033
70
19
80
80
173
165
263
173
165
263
5
-1
2,918
20
13
1,028
1,033
-5
986
136
-118
351
74
169
154
266
2
-912
-2,897
18,647
24,481
-213
-2
-2,897
988
23,493
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions)
-..
This Month
Classification
Current Fiscal Year to Date
Gross j Applicable j Outlays
Outlays
Receipts
Gross jAPPlicablej 0 tl
Outlays
Receipts
u ays
i
Prior Fiscal Year to Date
!
li
Gross jAPPlicablej
Outlays
Receipts
Outlays
~
Department 01 State:
Administration 01 Foreign Aflalfs
Diplomatic and consular programs
AcquISition and maintenance of bUildings abroad
Payment to Foreign Service retorement and disability
fund
Foreign Service retorement and disability fund
Other
146
44
146
44
906
309
906
309
1.052
324
1,052
324
37
24
37
24
129
263
291
129
263
291
125
233
148
125
233
148
Total-Administration of Foreign AffairS
251
251
1.897
1,897
1,882
1,882
International organizations and Conferences
Migration and refugee assistance
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
40
66
15
40
66
15
1.269
415
64
1,269
415
64
1.157
378
102
1.157
378
102
..
)
-182
-182
-176
-176
371
371
3,464
3,464
3,344
3,344
1,232
9
15
1,232
9
15
9.967
80
126
9.967
80
126
9,662
81
139
9,662
81
139
1.256
1,256
10.173
10.173
9.883
9,883
26
26
154
154
151
151
161
17
161
17
708
118
6
708
111
425
214
7
425
207
178
177
825
6
819
640
7
633
-184
153
329
-184
153
329
319
1.146
1.159
319
1.146
1.159
87
910
1.224
87
910
1.224
298
298
2.624
2.624
2.221
2.221
122
122
1.246
1.246
1.518
1,518
84
248
19
204
84
248
19
204
1.069
1.508
126
1.525
1.069
1.508
126
1.525
925
1,275
122
1.243
925
1.275
122
1,243
555
555
4,228
4.228
3.565
3.565
(")
-1
(00)
-1
(")
-1
Total-Federal AViation Administration
678
677
5,474
5.473
5.082
5,081
Coast Guard
Operating expenses
AcqUiSition, construction, and Improvements
Retired pay
Other
122
21
42
16
(
)
122
21
42
16
1,419
147
310
169
3
1,419
147
310
166
1,435
182
274
199
3
1.435
182
274
196
201
(
)
201
2.046
3
2.043
2.090
3
2,087
43
6
101
1
-59
5
411
211
(
243
3
3
265
230
(
229
206
-3
509
234
..
182
5
3
(")
10
40
-40
Total-Department 01 State ..............................
Department 01 Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways
Other
Other programs
Total-Federal Highway Administration
..
(
NatIonal HIghway Traffic Safety Admimstratlon
Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
Other
Total-Federal Railroad Administration
Federal Transit Administration:
Formula grants
Discretionary grants
Other
Total-Federal Transit Administration
Federal AViation Administration'
Operations
Airport and airway trust fund:
Grants-In-aid for airports
FacIlities and equipment
Research, engineering and development
Operations
Total-Airport and airway trust fund
Other
Total-Coast Guard
Maritime Administration
Other
Propnetary receipts from the publiC
Intrabudgetary transactIons
Offsetting governmental receipts
Total-Department 01 Transportation
(
...................
(
)
..
..
..
)
)
2.686
..)
(")
11
-11
116
2,571
14
..
(
)
21,918
38
-38
238
21,681
20,818
300
-3
10
-
-
20,518
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year 10 Dale
Gross !APPlicable! Outlays
Outlays Receipts
Gross (APPlicablel 0 II
Outlays Receipts
u ays
Prior Fiscal Year 10 Dale
i
Classification
Departmenl of the Treasury:
Departmental offices:
Exchange stabilization fund
Other
..........
"
.......... ,
Financial Management Service:
Salaries and expenses
....................
Payment to the Resolution Funding Corporation .........
Claims, judgements, and relief acts
....................
Net interest paid to loan guarantee financing accounts
Other
......................
Total-Financial Management Service ...........
Federal Financing Bank
....................
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses ..
....................
Internal revenue collections for Puerto Rico ......
United States Customs Service ........ .......... , ...
Bureau of Engraving and Printing
............ , .......
United States Mint
....................
Bureau of the Public Debt
...................
'
Internal Revenue Service:
Processing, assistance, and management ................
Tax law enforcement
............. - ....................
Information systems ................ , ............
Payment where earned income credit exceeds liability
for tax
............. ....................
Health insurance supplement to earned income credit ..
Refunding internal revenue collections, interest ..........
Other
Total-Internal Revenue Service
-438
28
2
26
587
39
-440
28
-1,700
126
26
587
39
12
Gross !APPlicable
Outlays
Receipts
0 II
u ays
-1,712
126
-563
68
152
1,751
428
766
60
140
1,751
242
2
82
140
1,751
242
2
82
7
-570
68
('")
('")
152
1,751
428
766
60
653
653
3,158
3,158
2,218
2,218
-110
-110
-102
-102
-103
-103
38
9
145
-26
-29
32
38
9
145
-26
-29
32
227
118
1,043
40
-91
177
227
118
1,043
40
-91
177
229
116
1,111
5
-35
168
229
116
1,111
5
-35
168
174
364
129
174
364
129
1,040
2,410
859
1,040
2,410
859
1,060
2,225
659
1,060
2,225
659
3,343
3,343
11,221
11,221
176
176
(" ")
(" ")
1,768
2
1,768
2
9,870
668
1,506
1
9,870
668
1,506
1
4,186
4,186
17,300
17,300
15,988
15,988
42
27
10
313
245
97
313
47
17
293
223
104
United States Secret Service ........... .....................
Comptroller of the Currency ........... ............
Office of Thrift Supervison .............. ....................
42
28
12
Interest on the public debt:
Public issues (accrual basis) ..............................
SpeCial issues (cash basis) ..
. .............
19,906
977
19,906
977
133,924
48,944
133,924
48,944
118,943
44,224
118,943
44,224
...........
20,883
20,883
182,868
182,868
163,167
163,167
Other
..................
..................
Proprietary receipts from the public ....................
Receipts from off -budget federal entities ..............
Intrabudgetary transactions ........................ , .........
Offset1ing governmental receipts ....... , ............. , ......
4
4
126
29
2,258
29
-2,258
34
-126
-900
-64
-5,529
579
-5,529
-579
-6,435
64
-56
24,615
198,319
3,127
195,192
176,589
Total-Interest on the public debt
Tolal-Departmenl of the Treasury .....................
1
2
-900
24,558
15
197
80
209
85
293
14
18
1,845
34
-1,845
425
-6,435
-425
2,571
174,018
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross JAPPlicablel Outla s
Outlays
Receipts
y
Prior Fiscal Year to
D." 1
I
Classification
i
Gross IAPPlicablel
Outlays
Receipts
OutleYI
i
~
Department of Veterans Affairs:
Veterans Health Administration
Medical care
Other
1,239
55
Veterans Benefits Administration.
Public enterprise funds
Guaranty and Indemnity fund
Loan guaranty revolving fund
Other
Compensation and pensions
Readlustment benefits
Post-Vietnam era veterans education account
Insurance funds
National service life
United States government life
Veterans special life
Other
48
38
4
200
59
14
93
86
2
116
1
12
(
..
3
1,239
33
9,121
401
152
21
10
93
86
2
565
318
108
8,946
750
39
116
1
9
..
)
728
10
86
16
491
11,566
63
80
380
654
(
)
584
Total-Veterans Benefits Administration
93
63
80
Construction
Departmental administration
Proprietary receipts from the public:
National service life
United States government life
Other
Intrabudgetary transactions
Total-Department of Veterans Affairs
22
Total-National Aeronautics and Space
Administration ......................... , ..................
Office of Personnel Management:
Government payment for annuitants. employees health
and life Insurance benef,ts
Payment to CIvil service retirement and disability fund
C,v,l service retirement and disability fund
Employees life Insurance fund
Employees and retired employees health benefits fund
Other
Intrabudgetary transactions
Civil service retirement and disability fund:
General fund contributions
Other
...............
10,884
380
654
13,478
393
578
(")
393
578
208
-208
..)
-415
-15
-27
2,022
193
1,416
20,691
24,492
..)
498
726
1,106
814
490
5
516
865
1,338
778
507
-180
-250
-5
185
3,569
3,384
-564
-43
111
-1
-292
29
204
1
-1
-58
-496
)
-15
1,828
22,107
66
149
170
101
37
-29
516
865
1,338
778
507
..)
(
(
180
524
31
471
92
104
11,298
738
56
934
415
..
412
280
152
14,413
-57
(
263
92
57
..
(
8.716
156
724
11
-11
-6
-160
-250
................
724
11
80
-6
..)
-1
...............
728
10
-6
16
160
29
National Aeronautics and Space Administration:
Human space flight
SCience. aeronautlcs and technology
MISSlon support
Research and development
Space flight. control and data communications
Construction of faClllt,es
Research and program management
Other
Total-Office of Personnel Management
r .)
883
372
256
11,298
738
56
(
66
149
170
101
37
General Services Administration:
Real property activities
Personal property activities
Other
Proprietary receipts from the public
Total-General Services Administration
682
280
78
42
8,946
750
39
(")
(
Total-Environmental Protection Agency
92
8,716
419
-22
22
Environmental Protection Agency:
Program and research operations
Abatement. control, and compliance
Water Infrastructure finanCing
Hazardous substance superiund
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
285
240
66
9,121
242
..)
(
.................
160
n
)
(",
869
-869
-27
2,168
22,324
5
498
726
1,106
814
487
-113
-250
-5
121
3,283
3
-564
-43
111
-3
3
-499
3
113
-250
493
3,755
-788
34
-13
-788
34
-13
-1
-292
29
204
-766
-767
-58
280
'-92
211
463
128
35
3
280
-92
211
463
128
35
3
1,345
861
1,099
2,705
1,199
192
91
9
1,345
861
1,099
2,705
1,199
192
91
9
3,801
2,814
235
930
9
3,801
2,814
235
930
9
1,028
1,028
7,499
7,499
7,789
7,789
334
334
2,320
2,320
2,254
2,254
3,274
-58
8
-6
22,220
938
8,996
29
22,220
-514
-282
29
20,924
795
8,777
96
-3
-19
-19
-20
3,274
132
1,258
-6
191
1,250
-3
4,989
1,441
16
3,548
34,483
1,452
9,277
10,729
23,754
32,827
1,386
9,180
20,924
-590
-403
96
-20
10,566
22,~1
----
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays
Gross IAPPlicablel Outla s
Outlays
Receipts
y
Classification
Small Business Administration:
Public enterprise funds:
Business loan fund ....
. ............................... .
Disaster loan fund
............................. .
Other ...................................................... .
Other ........................................................ .
Total-Small Business Administration
20
33
2
55
110
39
16
-19
17
..
(
)
55
206
324
13
343
57
53
886
1
(
..
)
-3
242
176
7
7
343
342
107
15
306
(" ")
306
525
771
426
345
209
143
9
181
(" .)
360
4
101
-69
Social Security Administration:
Payments to Social Security trust funds .................. .
Special benefits for disabled coal miners .................. .
Supplemental security income program .................... .
Office of the Inspector General ............................ .
1,581
59
141
1,581
59
141
3,840
424
13,148
3,840
424
13,148
4,138
457
15,911
4.138
457
15,911
Federal Old-age and survivors insurance trust fund (offbudget):
Benefit payments ......................................... .
Administrative expenses .................................. .
Payment to railroad retirement account ................. .
Other ...................................................... .
24,239
255
24,239
255
167,028
980
167,028
980
160,075
994
160,075
994
Total-FOASI trust fund ............................... .
24,495
24,495
168,008
168,008
161,069
161,069
3,370
89
3,370
89
23,020
645
23,020
645
20,988
567
20.988
567
3,460
3,460
23,665
23,665
21,554
21.554
Federal disability insurance trust fund (off-budget):
Benefit payments ......................................... .
Administrative expenses .................................. .
Payment to railroad retirement account ................. .
Other ...................................................... .
Total-FDI trust fund .................................. .
Proprietary receipts from the public:
On-budget ................................................. .
Off-budget ................................................ .
Intrabudgetary transactions:
On-budget ................................................. .
Off-budget2 .....................•......•........•..•..••••.•
Total-Social Security Administration
Other independent agencies:
Board for International Broadcasting ....................... .
Corporation for National and Community Service ......... .
Corporation for Public Broadcasting ....................... .
District of Columbia:
Federal payment .......................................... .
Other ...................................................... .
Equal Employment Opportunity CommiSSion ............... .
Export-Import Bank of the United States .................. .
Federal Communications Commission ...................... .
73
2
-1,581
-2
-1,581
-3,839
28,080
205,246
30
32
30
32
124
243
286
4
19
31
14
28,155
Federal Deposit Insurance Corporation:
Bank insurance fund ..................................... .
Savings association insurance fund ...................... .
FSLlC resolution fund .................................... .
Affordable housing and bank enterprise ................. .
136
2
19
Total-Federal Deposit Insurance Corporation
157
18
153
23
23
Federal Emergency Management Agency:
Public enterprise funds ................................... .
Disaster relief ............................................. .
Emergency management planning and assistance ...... .
Other ...................................................... .
Federal Trade Commission ................................. .
Interstate Commerce Commission .......................... .
Legal Services Corporation ................................. .
National Archives and Records Administration ............. .
National Credit Union Administration:
..................... .
Credit union share insurance fund
Central liquidity facility ..... . ............................. .
Other .................................................... .
-73
75
27
4
19
3
(* *)
14
441
17
-305
(* *)
714
5
143
883
92
384
6
-384
-3,839
-4,133
390
204,856
198,996
124
243
286
115
105
275
-6
335
8
-335
343
198,653
-8
-4,133
115
105
275
698
714
698
12
-7
3
12
-9
(* *)
142
300
62
139
642
(" ")
1,337
23
139
-694
62
7,598
531
2,255
-5,986
-518
-1,046
583
30
84
6,344
545
661
-4,844
-520
527
3
1,612
(* *)
1,500
26
1,188
3
492
-335
2,717
7,551
-4,834
2,834
10,384
-7,551
38
-20
153
197
212
45
2.167
139
162
3
23
34
78
1,445
155
176
48
23
261
130
257
2,167
139
162
10
275
1,445
155
182
48
-209
33
(" *)
(**)
10
3
34
-15
-14
23
23
11
(" *)
11
261
130
(* *)
27
-27
-13
5
(" *)
17
(* *)
-8
6
(* *)
196
5
3
(" 0)
-11
13
1,209
-1
-1
51
25
51
(00)
25
230
130
23
54
218
-195
54
(' ')
15
48
-32
230
130
Table 5.
Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions)
-------
ClassificallOn
Gross !APPliC8blej Outlays
Outlays
Receipts
Other Independent agencles:-Continued
Ndtl(HI(1 i Endowment for the Arts
Natlon,)1 Endowment for the Humanities
National Labor Relations Board
National SCience Foundation
Nuclear Regulatory CommisSion
Panama Canal CommiSSion
Postal Service
PubliC enterprise funds (Off·budget)
Payment to the Postal Service fund
Prior Fiscal Year to Dlte
Current Fiscal Year to Date
This Month
Gross
Outlays
jAPPlic.able
Receipts
I
I
Gross
Outlays
Outla s
y
APPlicable
Receipts
-
1
OUlIlYs
105
94
104
1,462
21
-35
101
90
104
1.382
314
301
-3.556
107
27.434
107
149
172
149
172
159
38
159
38
1.634
-640
640
42
16
4
1.645
-633
632
43
16
4
1.645
-633
632
43
16
1
1.634
-640
640
42
16
4
-63
-172
-172
-38
-38
..7)
53
53
56
56
409
..)
..)
409
..)
..)
2.860
2.788
2}88
(
(
..)
2.860
(
(
1
1
2
Total-Railroad Retirement Board
683
683
4.760
4.760
4.714
Resolution Trust Corporation
Securities and Exchange Commission
Smlthsoman Institution
Tennessee Valley Authority
United States Information Agency
Other
461
14
32
740
90
178
897
3,289
77
249
5,503
659
1,615
9,825
1,248
-6,535
77
249
922
659
367
9,405
27
212
5,725
643
1,399
8.503
111
-436
14
32
24
90
67
739
660
6,764
6,733
31
54,941
57,014
-2,074
60,106
56,619
3,487
105
94
104
1,462
311
323
-706
23
28.574
107
21
63
21
63
239
-92
92
6
239
-92
92
6
1
-63
3.644
23
Railroad Retrrement Board
Federal windfall subSidy
Feder al payments to the railroad ret,rement accounts
Rail Industry pension fund
Benefit payments
Advances from FOASDI fund
OASDI certrf,cat,ons
Administrative expenses
Interest on refunds of taxes
Other
Intrabudgetary transactions
Payments from other funds to the railroad
ret"ement trust funds
Other
Supplemental annUity penSion fund
Benefit payments
Interest on refund of taxes
Railroad SOCIal Security equivalent benefit account:
Benefit payments
Interest on refund of taxes
Other
Total-Other independent agencies
12
13
17
199
25
-4
12
13
17
199
46
47
....................
21
52
4.350
r .)
r .)
..7
(
Total-Emplover share employee retirement
32.130
285
330
29
-29
29,451
-2.017
107
(
)
716
..)
(
r .)
(
Undistributed offsetting receipts:
Other Interest
Employer share. employee ret"ement:
Legislative Branch
United States Tax Court
Tax court ludges survivors annuity fund
The JudiCiary
JudiCial survivors annUity fund
Department of Defense-Civil:
Mliltary ret"ement fund
Department of Health and Human Services:
Federal hospital Insurance trust fund:
Federal employer contributions
Postal Service employer contnbutlons
Payments for military service credits
Department 01 State
Foreign Service ret"ement and disability lund
Office 01 Personnel Management:
C,v,' service ret"ement and disability fund
SOCIal Secunty administration (olf-budget):
Feder al old-age and survivors Insurance trust fund:
Federal employer contributions
Payments for military service credits
Federal disability Insurance trust lund:
Federal employer contributions
Payments for military service credits
Independent agenCies
Court of veterans appeals ret"ement fund
289
358
101
90
104
1.382
4,580
..)
(
..
(
..)
(
(
..)
r .)
-1,027
-1,027
-152
-48
)
..)
5,023
n
n
(
901
27
212
702
643
(oo)
(
(
..)
(oo)
-7,135
-7,135
-7,473
-7.473
-152
-48
-1,061
-324
-1,061
-324
-1,058
-295
-1.058
-295
-9
-9
-64
-64
-64
-64
-781
-781
-5,623
-5.623
-5,769
-5.769
-456
-456
-2,960
17
-2,960
17
-3.128
-3.128
-81
-81
-529
-17
-529
-17
-337
-337
2,554
-2.554
-17,695
-17.695
-18.125
-18.125
18
.. )
4.714
-
Table 5. Outlays of the U.S. Government, April 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Receipts
Outlays
Gross !APPlicable!
I
Outlays
Receipts
Out ays
Gross !APPlicablel 0 tl
Outlays
Receipts
u ays
Classification
Undistributed offsetting receipts:-Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund ............. . .......... .
Department of Defense-Civil:
Corps of Engineers .................................... .
Military retirement fund ................................ .
Education benefits fund ................................ .
Soldiers' and airmen's home permanent fund ........ .
Other
Department of Health and Human Services:
Federal hospital insurance trust fund ................. .
Federal supplementary medical insurance trust fund ..
Department of Labor:
Unemployment trust fund .............................. .
Department of State:
Foreign Service retirement and disability fund ........ .
Department of Transportation:
Highway trust fund ..................................... .
Airport and airway trust fund ......................... ..
Oil spill liability trust fund .............................. .
Department of Veterans Affairs:
National service life insurance fund ................... .
United States government life Insurance Fund ....... .
Environmental Protection Agency ........................ .
National Aeronautics and Space Administration ......... .
Environmental Protection Agency ........................ .
Civil service retirement and disability fund ............ .
Social Security administration (off-budget):
Federal old-age and survivors insurance trust fund .. .
Federal disability insurance trust fund ................. .
Independent agencies:
Railroad Retirement Board ............................. .
Other .................................................... .
Other ...................................................... .
Total-Interest received by trust funds ............... .
-9
-9
-9
-9
....
..
)
)
)
-11
-5,782
-22
-5
-1
-11
-5,782
-22
-5
-1
-8
-5,257
-25
-6
-8
-5,257
-25
-6
-16
-13
-16
-13
-5,396
-967
-5,396
-967
-5,340
-1,071
-5,340
-1,071
-41
-41
-1,392
-1,392
-1,332
-1,332
(
(
..
)
-300
-300
-281
-281
-34
-13
-34
-13
(
)
(
)
-577
-401
-4
-577
-401
-4
-723
-424
-4
-723
-424
-4
(
(
(
)
)
)
(
(
(
)
)
)
-537
-4
-1
-1
-537
-4
-1
-1
-540
-5
-1
-1
-540
-5
-1
-1
-60
-60
-13,946
-13,946
-13,019
-13,019
-75
-9
-75
-9
-15,360
-860
-15,360
-860
-14,109
-404
-14,109
-404
-57
-3
-30
-57
-3
-30
-406
-12
-135
-406
-12
-135
-333
-8
-98
-333
-8
-98
-596
-596
-46,130
-46,130
-42,996
-42,996
-2
-241
-2
-241
....
(
(
(
(" ')
(
(
)
)
..
)
..
....-2
..
..
....-2
..
Rents and royalties on the outer continental shelf lands ..
Sale of major assets ....................................... .
Spectrum auction proceeds ................................. .
Total-Undistributed offsetting receipts
Total outlays ..
000000 . . 0
Total on-budget
Total off-budget
0
0
0
0
.... 0
0
0
0
0
0
0
0
0
.... 0
0
...... 0
0
00 . . . .
0
0
0
0
0
0
000 . .
0
0
0
0
0
0
0
0
..
0
0
0
0
.. 0
0000000000000000
0
..
0
0
.. 0
0
0
0
0
0
...... 0
0
0
0
0
0
0
0
0
.. 0
0
.. 0
0
0
0
0
0
0
..
0
....
0
...... 0
0
..
-43
43
1,086
-1,086
610
-610
610
-610
Total off-budget
000000000 . .
0
0
0
0
0
00000 . . . .
0
0
0
0
.... 0
0
0
0
0
.... 0
0
0
0
0
0
0
.... 0
...... 0
0
0
0
0
0
....
....
0
0
0
0
..
)
(
)
1,564
-1,564
-3,150
567
-3,718
-63,826
1,696
-65,521
-61,121
1,564
-62,685
130,896
15,223
115,673
992,833
118,774
874,059
967,652
117,222
850,430
101,500
10,872
90,628
796,133
86,638
709,495
779,706
87,764
691,942
29,396
4,351
25,045
196,700
32,136
164,564
187,947
29,458
Total surplus (+) or deficit .............................. ..
Total on-budget
..
(
0"
.... 0
-94,284
-132,688
+35,542
-134,587
-167,182
+14,178
+40,303
+34,494
MEMORANDUM
Receipts offset against outlays
[$ millions)
Current
Fiscal Year
to Date
Proprietary receipts ..................................................... .
Receipts from off-budget federal entities .............................. .
Intrabudgetary transactions ............................................. .
Governmental receipts .................................................. .
Total receipts offset against outlays ..................... .
Comparable Period
Prior Fiscal Year
28,972
27,472
114,314
2,005
145,291
111,434
~
140,012
... No Transactions.
'Prior period adjustment.
'Includes FICA and SECA tax credits, non-contributory military service credits, special benefits
for the aged. and credit for unnegotiated OASI benefit checks.
(0 OJ Less than $500.000
Note: Details may not add to totals due to rounding
19
158.488
+49,720
Table 6.
Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, April 1995 and Other
Periods
[$ millions]
Assets and Liabilities
Directly Related to
Budget Off-budget Activity
Net Transactions
(-) denotes net reduction of either
liability or asset accounts
Beginning of
Fiscal Year to Date
This Month
This Year
liability accounts:
Borrowing from the public
Public debt securities. ISSUed under general Financing authorities:
Obligations of the United States. ISSUed by:
United States Treasury
Federal Financing Bank
Total. public debt securities
Deduct
Federal securities held as investments of government accounts
(see Schedule D)
Less discount on federal securities held as investments of
government accounts
Net federal seCUrities held as investments of government
accounts
Total borrowing from the public
Accrued Interest payable to the public
Allocations of speCial drawing rights
Deposit funds
Miscellaneous liability accounts (includes checks Outstanding etc.)
Total liability accounts ....................................................
Asset accounts (deduct)
Cash and monetary assets:
U. S Treasury operating cash:'
Federal Reserve account
Tax and loan note accounts
Balance
4.849.116
15.000
4.837.327
15,000
-11.788
159.577
157.215
4.692.750
4.864.116
4.852.327
-8
-513
-56
2.248
10
-11,454
1.333
78.631
1.284
81.392
80.879
-11.283
157.274
168.678
4.615,453
4.784.010
4.772.727
I,m
20
-1.715
1.153
28.194
26.459
26.479
-11.263
155.559
169.832
4.643,647
4.810,469
4.799.206
16.562
58,132
39,630
1.213.104
1,254,674
1.271,236
187
558
-12,061
1,684
2,055
2,242
16,375
57,573
51,691
1,211.421
1.252.619
1.268,994
-27,638
97,986
118,141
3,432,226
3,557,850
3,530,212
10.786
61
-189
-2,813
11,706
518
-530
5,336
7,724
15
-517
9,126
43.287
7,189
7,316
4,938
44.207
7,646
6,974
13,087
54,994
7,707
6,786
10,274
-19,792
115,015
134,488
3,494,957
3,629,764
3,609,972
3.699
16.274
1.393
734
6.848
29.094
4.543
13.554
19.973
2,127
-9.324
5.549
-3,775
35.942
18.097
8.241
29.828
38,069
92
1,772
238
9,971
-8,018
11.651
-8,018
11,743
-8,018
92
1.772
238
1,953
3,633
3,725
332
678
5
2,803
1,233
-2
79
-223
-5
31,762
7,163
-25,923
-96
31,762
9,633
-25,368
-103
31,762
9,965
-24,690
-98
-222
-1.894
-57
-837
-2,509
-2,730
794
2,140
-206
12,069
13,415
14,209
Reserve position on the U.S. quota In the IMF:
US subscription to International Monetary Fund:
Direct quota payments
Maintenance of value adjustments
Letter of credit ISSUed to IMF
Dollar depoSits with the IMF
Receivable/Payable (-) for interim maintenance of value
adjustments
Balance
21,416
..
24,710
29,658
-76
71,379
59,855
85,661
-988
3.656
4.164
-2,097
2,334
2,032
-9,806
12,726
-1,386
-10,645
16,051
-1,189
-10,794
16,382
2,m
29,955
21,113
2,194
72,914
64,073
94,027
49,747
+93,902
+132,295
+3,422,043
+3,565,692
+3,515,945
27
382
394
355
382
-49,720
+94,284
+132,688
+3,566,047
+3,518,~
Loans to InternallOnai Monetary Fund
Other cash and monetary assets
4.947
8.242
3.668
Total cash and monetary assets
25,806
14,282
149
330
3.967
.....................................................
....................................
Net activity. guaranteed loan financing
Net actiVity, direct loan financing
Miscellaneous asset accounts
Transactions not applied to current year's surplus or deficit (see
Schedule a for Details)
. '.
.
..
Total bUdget. and off-budget lederal entities (Iinancing 01 deficit (+)
or diSpoSition 01 surplus (-I) ............................................
mona.
4.677.750
15.000
Balance
Total asset accounts
--I
Thl.
157.215
SpeCial draWing nghts:
Total holdings
SDR certificates issued to Federal Reserve banks
Excess 01 liabilities (+) or assets (-)
I This Month
159.577
Agency securities, Issued under special financing authorities (see
Schedule B for other Agency borrowing. see Schedule C)
Total federal secUrities
This Year
-11.788
Plus premium on publiC debt secUritieS
Less discount on publiC debt securities
Total publiC debt securities net of Premium and
discount
I Prior Year
"i
I
Account Balances
Current Fiscal Year
1Malor SOurces of Information used to determine Treasury's operating cash Income Include
Federal Reserve Banks the Treasury Regional Finance Centers. the Internal Revenue ServIce
Centers !I1e Bureau of the PUb/IC Debt and vanous electroniC systems DepoSits are reflected as
rE"('el'vecl and ."Ithdra .... als are reflected as processed
(' ')
+3,422,043
No Transactions
less than $500,000
Note: Details may not add to totals due to rounding
(0 0)
20
(
)
(")
Table 6, Schedule A-Analysis of Change in Excess of Liabilities of the U,S, Government, April 1995 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification
This Month
This Year
...
Excess of liabilities beginning of pereod:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in composition
of unified budget:
Revisions by federal agencies to the prior budget results ..... .
Excess of liabilities beginning of period (current basis)
Total-on-budget (Table 2)
Prior Year
3,422.146
3.218.965
-103
526
94.284
132.688
--------------------------------3.565.692
3.422.043
3.219.491
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal yr .......... .
Changes in composition of unified budget ........................... .
Total surplus (-) or deficit (Table 2) .................................. ..
3.565.692
I
-49.720
----------------------------49.720
94.284
132.688
====================
-35.542
134.587
167.182
Total-off-budget (Table 2)
Transactions not applied to current year's surplus or deficit:
Seigniorage ............................................................ .
Profit on sale of gold ................................................ ..
-14.178
-40.303
-34.494
-27
-382
-393
(")
(")
(")
---------------------------------27
-382
-394
========================
................................. ..
3,515,945
3,515,945
3,351,785
Total-transactions not applied to current year's Surplus or
deficit .............................................................. ..
Excess of liabilities close of period
Table 6, Schedule B-Securities Issued by Federal Agencies Under Special Financing Authorities, April 1995 and
Other Periods
[$ millions]
Net Transactions
(-) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Beginning of
Fiscal Year to Date
This Month
I Prior Year
This Year
This Year
I This Month
Close of
This month
..
authoretles:
Agency securities, issued under special financing
Obligations of the United States. issued by:
Export-Import Bank of the United States ............................... .
Federal Deposit Insurance Corporation:
FSUC resolution fund ................................................. .
Obligations guaranteed by the United States. issued by:
Department of Defense:
Family housing mortgages ............................................ .
Department of Housing and Urban Development:
Federal Housing Administration ....................................... .
Department of the Interior:
Bureau of Land Management ......................................... .
Department of Transportation:
Federal Transit Administration ........................................ ..
Coast Guard:
Family housing mortgages ................................. .
Obligations not guaranteed by the United States. issued by:
Legislative Branch:
Architect of the Capitol .............................................. ..
Independent agencies:
Farm Credit System Financial Assistance Corporation ............... .
National Archives and Records Administration ....................... .
Tennessee Valley Authority ........................................... .
Total, agency securities ......................................... ..
(")
(")
(")
-145
189
158
158
(")
6
6
6
-90
112
65
70
13
13
13
(")
(")
(")
9
192
200
201
13
-2
-1.649
1.926
1.261
298
26.121
1.261
296
24.459
1.261
296
24.472
20
-1,715
1,153
28,194
26,459
26,479
-32
5
-42
-547
9
'" No Transactions.
(' ') Less than $500.000.
Note: Details may not add to totals due to rounding.
21
Table 6.
Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
April 1995 and Other Periods
[$ millions]
~--
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
Beginning of
This Month
I Prior Year
This Year
Borrowing from the Treasury:
Funds Appropriated to the President:
International Security Assistance
Foreign military loan program
Agency for InternatIOnal Development:
InternatIOnal Debt ReductIOn
HouSing and other credit guaranty programs
Prlva1e sector revolVing fund
Overseas Private Investment Corporation
Department of Agriculture:
Farm Service Agency:
. . . . . . . . . .. .
Federal crop Insurance corporation fund
Commodity Credit Corporation
Agricultural credit Insurance fund
Natural Resources Conservation Service
Rural Utilities Service:
Rural electrificatIOn and telephone revolving fund
Rural Telephone Bank
Rural development insurance fund
Rural communication development fund
Rural hOUSing and Community Development Service:
Rural hOUSing Insurance fund
...........
Self-help housing land development fund
Rural BUSiness and Cooperative Development Service:
Rural development loan fund
Rural economiC development loan fund
Foreign Agricultural Service
Department of Education:
Federal direct student loan program
..............
Federal family education loan program
College housing and academic facilities fund
...........
College hOUSing loans
Department of Energy:
Isotope production and distribution fund
Bonneville power administration fund
Department of HOUSing and Urban Development:
HOUSing programs:
Federal HOUSing Administration
HOUSing for the ederly and handicapped
Public and Indian hOUSing:
Low-rent public housing
Department of the Intenor:
Bureau of Reclamation Loans
Bureau of Mines. Helium Fund
Bureau of Indian AffairS:
RevolVing funds for loans
Department of Justice:
Federal prison Industries. incorporated
Department of Transportation:
Federal Highway AdministratIOn:
High Priority quarters loan fund
Federal Railroad Administration:
Railroad rehabilitatIOn and improvement
finanCing funds
Amtrak COrridor Improvement loans
Other
Federal AViation Administration:
Aircraft purchase loan guarantee program
Mlnonty bUSiness resource center fund
Department of the Treasury
Federal FinanCing Bank revolVing fund
Department of Veterans AffairS:
Guaranty and Indemnity fund
Loan guaranty revolVing fund
Direct loan revolVing fund
Native american veteran hOUSing fund
Vocational rehabilitation revolVing fund
This Year
405
413
750
750
22
8
315
125
1
16
315
125
1
38
315
125
1
38
668
-7.529
-1.748
-113
-9.839
-1.285
16.909
4.028
4
8.712
2.280
4
9.380
2.280
2
723
85
715
237
-157
561
8.193
586
2.091
25
8.914
671
2.806
25
8.916
671
2.806
25
1.192
1
2.134
1
4.497
(0 oJ
5.689
1
5.689
1
40
8
97
29
10
385
21
19
583
61
27
680
61
27
680
rOJ
433
1.605
162
411
5.302
1.605
181
411
5.302
1.605
181
411
-14
-5
158
14
2.617
2.612
2.612
-21
-770
-475
783
8.484
762
7.714
762
7,714
-135
25
135
6
11
252
11
252
11
252
9
26
34
34
20
20
20
40
21
1
2
(0 oJ
1
3
("")
..
(0 oJ
r 0)
1"1
13
27
27
337
4.868
18
8
-20
14
21
r oJ
r oJ
r oJ
r oJ
14
-2.892
I
3
( )
-13.983
-10.943
94.357
83.266
80.374
586
903
612
1.158
181
1.107
1
1
2
767
2.011
1
13
2
767
2.011
(0 oJ
12
rOJ
22
I This Month
Close of
This I!IOn1II
(0 oJ
7
13
Table 6,
Sch.edule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
April 1995 and Other Periods-Continued
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
Beginning of
This Month
This Year
Borrowing from the Treasury:-Contlnued
Environmental Protection Agency:
Abatement. control. and compliance loan program
Small Business Administration:
Business loan and revolving fund ........... .
Disaster loan fund
Independent agencies:
Export·lmport Bank of the United States
Federal Emergency Management Agency:
National insurance development fund
Disaster assistance loan fund ........... .
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund
Railroad Retirement Board:
Rail industry pension fund
............ .
Social Security equivalent benefit account
Smithsonian Institution:
John F. Kennedy Center parking facilities
Tennessee Valley Authority
Total agency borrowing from the Treasury
financed through public debt securities issued
Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military financing program ..................................... .
Department of Agriculture:
Farm Service Agency:
Agriculture credit insurance fund .................................... .
Rural Utilities Service:
Rural electrification and telephone revolving fund ................... .
Rural development insurance fund ................................... .
Rural housing and Community Development Service:
Rural housing insurance fund ........................................ .
Department of Defense:
Department of the Navy
........... .
Defense agencies
Department of Education:
Federal family education loan program
Department of Health and Human Services:
Medical facilities guarantee and loan fund
Department of Housing and Urban Development:
Low rent housing loans and other expenses
Community Development Grants ....................................... .
Department of Interior:
Territorial and international affairs
Department of Transportation:
Federal Railroad Administration
Federal Transit Administration ........... .
Department of the Treasury:
Financial Management Service
General Services Administration:
Federal buildings fund
Small Business Administration:
Business loan fund
Independent agencies:
Export-Import Bank of the United States
...................... .
Pennsylvania Avenue Development Corporation ....................... .
Postal Service ...............
. ................ .
Resolution Trust Corporation
......................... .
Tennessee Valley Authority
. . . . . ... . . . . . ............ .
Total borrowing from the Federal Financing Bank .............. ..
11
266
I Prior Year
This Year
I This Month
Close of
This month
10
26
37
37
114
2.350
293
6.996
293
6.996
293
6.996
30
811
2.632
2.662
2.662
169
100
25
3
84
3
253
3
253
9
85
85
85
1.762
2.128
2.781
2.128
4.299
2.128
4.565
20
150
20
150
20
150
1.784
-1,976
-12,560
-11,872
163,642
153,059
151,082
-6
-156
-146
3.785
3.635
3.629
-990
-1.600
-515
6.063
5,453
4,463
7
-17
-294
21.916
3.675
21.892
3.675
21.898
3.675
-760
-265
24.391
23.631
23.631
-47
-49
1.624
-145
1.624
-192
1.624
-192
-4.790
-5
-23
-5
63
46
40
-58
-14
-54
-16
1.747
110
1.689
96
1.689
96
-1
-1
22
21
21
-3
-665
-1
488
15
665
11
11
-30
9
111
212
1.780
1.882
1.891
-18
-81
-52
581
519
500
-777
68
-1.100
-8.661
-200
-948
58
-4.285
-250
3.926
250
8.973
26.519
3.400
3.150
308
7.873
19.756
3.200
3.150
317
7.873
17.858
3.200
-13,984
-10,943
109,360
98,268
95,375
10
-1.898
-2,893
... No Transactions.
(' ') Less than $500.000
Note: Details may not add to totals due to rounding
Note: This table Includes lending by the Federal Financing Bank accomplished by the purchase
of agency finanCial assets. by the acquisition of agency debt securities. and by direct loans on
behalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
securities and in turn may loan these funds to agencies in lieu of agencies borrowing directly
through Treasury or Issuing their own securities.
23
Table 6.
Schedule D-Investments of Federal Government Accounts in Federal Securities, April 1995 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
I
This Year
Federal funds:
01 Agriculture
Department 01 Commerce
Department 01 Defense~Mllltary
Delense cooperation account
Depar1ment 01 Energy
Department 01 Housing and Urban Development:
HouSing programs
Federal houSing administration fund
Government National Mortgage Association:
Management and liqUidating functions fund:
Public debt seCUrities
Agency securities
Guarantees of mortgage-backed SeCUrities:
Public debt seCUrities
Agency securities
Other
Department of the Interior
Department of Labor
Department of Transportation
Department of the Treasury
Department of Veterans AffairS
Canteen service revolVing fund
Veterans reopened Insurance fund
Servicemen s group life Insurance fund
Independent agencies
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Savings association Insurance fund .
FSLlC resolution fund
Federal Emergency Management Agency:
National flood Insurance fund
National Credit Union Administration
Postal Service
Tennessee Valley Authority
Other
Other
Total Federal funds
13
1
16
-4
419
-4
279
5
4.527
(")
t
98
4,848
4,946
641
70
-413
5,742
5,171
5,812
-9
-4
16
16
16
3,963
1
181
3,259
5,550
1,011
4,864
3,998
1
184
3,303
5,499
1,022
3,066
(")
1
17
2
44
-51
11
-1,799
-9
581
169
48
-4,387
-6
440
-11,853
56
-27
3,713
1
193
2,722
5,330
974
7,452
-8
6
-1
-38
-1
-109
37
524
41
43
531
4
43
523
4
67
89
383
57
79
147
305
15
10
4,903
524
-563
6,072
519
1,510
13,972
2,493
1,649
18,570
3,002
1,077
18,875
3,017
1,086
6
-78
-120
215
2,437
-2,701
204
296
-71
227
2,077
1,276
86
102
200
3,052
1,271
3,954
1,017
2,626
81
3,244
3,010
1,253
1,214
3,000
81
3,267
3,708
1,253
1,221
2,922
21
2,429
832
-4
61,564
17
63,972
17
63,993
17
21
2,429
828
61,581
63,990
64,010
8
5
(' .)
(")
(")
4
5
27
12
5
32
12
5
31
35
285
290
(")
............
. .. .. . .. . ...
...........
23
698
.............................................
Trust funds:
Legislative Branch
L:brary of Congress
United States Tax Court
Other
The Judiciary
Judicial retirement funds
Department of Agriculture
Department 01 Commerce
Department of Defense~M"'tary·
Voluntary separation Incentive fund
Other
Department of Delense~Crvll
Military retICement fund
Other
This Month
2
3
1
...................
Total public debt SeCUrities
Total agency seCUrities
Close 01
This ITIOn1II
1
4
(" ')
De~artf1lf'flt
I
This Year
Prior Year
i
l
Beginning of
Fiscal Year to Date
This Month
I
(")
...................
(")
5
-3
33
(")
16
23
190
245
273
281
289
278
289
(")
(")
(
)
(")
r'I
10
-66
10
-65
-24
6
763
157
763
157
-1,214
-16
9,070
36
9,280
105,367
1,307
115,651
1,359
.....................
24
(")
..
m
91
114,437
1.343
Table 6, Schedule D-Investments of Federal Government Accounts in Federal Securities, April 1995 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
Fiscal Year to Date
This Month
This Year
Beginning of
1
This Year
Prior Year
I
Close of
This month
This Month
Trust Funds-Continued
Department of Health and Human Services:
Federal hospital insurance trust fund .................................. .
Federal supplementary medical insurance trust fund .................. .
Other .................................................................... .
Department of the Interior ................................................ .
Department of Justice ................................................... .
Department of Labor:
unemployment trust fund ............................................... .
Other .................................................................... .
Department of State:
Foreign Service retirement and disability fund ......................... .
Other .................................................................... .
Department of Transportation:
Highway trust fund ..................................................... .
Airport and airway trust fund .......................................... .
Other .................................................................... .
Department of the Treasury .............................................. .
Department of Veterans Affairs:
General post fund, national homes .................................... .
National service life insurance .......................................... .
United States govemment life Insurance Fund ........................ .
Veterans special life insurance fund ................................... .
Environmental Protection Agency ......................................... .
National Aeronautics and Space Administration ......................... .
Office of Personnel Management:
Civil service retirement and disability fund ............................ .
Employees life insurance fund ......................................... .
Employees and retired employees health benefits fund ............... .
Social Security Administration:
Federal old-age and survivors insurance trust fund ................... .
Federal disability insurance trust fund ................................. .
Independent agencies:
Harry S. Truman memorial scholarship trust fund .................... .
Japan-United States Friendship Commission .......................... .
Railroad Retirement Board ............................................. .
Other .................................................................... .
4,015
1,061
10
86
9
5,050
-614
97
110
56
1,099
274
96
17
67
128,716
21,489
836
234
129,750
19,814
923
258
47
133,765
20,875
933
344
56
413
-9
-1,686
-2
-5,487
-7
39,788
59
37,689
67
38,102
57
-65
-6
300
-15
243
12
7,179
50
7,544
40
7,479
35
571
-251
55
-26
1,920
-1,002
199
-45
-1,290
-506
-116
1
17,694
12,206
1,683
247
19,043
11,455
1,827
228
19,614
11,205
1,881
202
-1
-20
-6
7
695
(oo)
-86
-1
-9
171
25
-6
11
434
(oo)
(oo)
38
11,852
115
1,509
6,250
16
37
11,919
111
1,525
6,774
16
37
11,832
110
1,516
6,945
16
-2,013
-82
6
-28
374
304
581
596
474
338,889
14,929
7,573
340,874
15,385
7,871
338,861
15,303
7,878
10,914
2,837
16,843
23,357
34,563
-1,750
413,425
6,100
419,354
26,620
430,268
29,457
(oo)
(oo)
1
1
(oo)
(oo)
232
-1
571
126
-112
99
53
17
12,203
226
54
17
12,542
354
54
17
12,774
353
Total public debt securities .......................................... .
16,541
55,702
38,801
1,151,523
1,190,685
1,207,226
Total trust funds , ................. ", .................. , ........ .
16,541
55,702
38,801
1,151,523
1,190,685
1,207,226
.3rand total ................................................................. .
16,562
58,132
39,630
1,213,104
1,254,674
1,271,236
... No Transactions
(' ') Less than $500.000.
Note: Investments are in public debt securities unless otherwise noted.
Note: Details may not add to totals due to rounding.
25
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995
[$ millions)
---
-
--~-
Oct.
ClassIficatIon
Nov.
Dec.
Jan.
March
Feb.
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Com.
parable
Period
Prior
F.Y.
-
Receipts:
43.659
3055
37.414
1,497
53.736
31.915
79.162
3.258
33.863
2,060
26.846
14,863
76.441
23,482
351,121
80,132
322,042
74,275
31.263
1.073
351
4,272
1.202
1.848
2,300
33.786
3.249
352
5,518
1,220
1,827
2,811
35.708
230
420
4.587
1.092
1.747
1.375
38.990
1,069
383
4.555
1,005
1,539
1,839
35,667
2,630
357
3,485
916
1,435
2,131
38,646
320
413
5,143
1,218
1,470
3,612
50,423
3,061
354
4,602
1,906
1,349
3,774
264,484
11,632
2,629
32,162
8,559
11,214
17,842
246,351
10,662
2,704
29,695
9,261
11,149
11,603
. . . . . ... . . .
89,024
87,673 130,810 131,801
82,544
92,532 165,392
779,775
......
(On-budget)
........................
65,384
62,083 103,860 101,036
54,405
61,970 126,170
574,908
.. ....
(Off-budget)
........................
30,562
39,222
204,867
Individual Income taxes
Corporation Income taxes
SOCIal Insurance taxes and
contributions
Employment taxes and
contributions
Unemployment Insurance
Other retirement contribullOns
ExCise taxes
Estate and 91ft taxes
Customs dulles
Miscellaneous receipts
Total-Receipts this year
23,639
25,590
30,765
28,139
1(1/,lI-H.t'it'l!l/\ [lrJ(lr \<,ur
'8.M:
83.10: 1:5.403 1:;:.'101
73.186
93. 107 141.3:;1
717.74.'
()n 11I1d~t'll
55.858
58.0'1.1
4',IVI
64.011
104.306
524.760
37.015
192,98.'
,(>!I/l/ldo,:d l
Outlays
Legislative Branch
The JudICiary
Executive Off,ce of the President
Funds Appropriated to the President
International Security ASSistance
InternatIonal Development
ASSIstance
Other
Department of Agriculture'
CommodIty Credit Corporation and
Foreign Agricultural ServIce
Other
Department of Commerce
Department of Defense:
Military
MIlitary personnel
OperalIOn and maIntenance
Procurement
ResearCh. development, test. and
evalualIOn
Military construcliOn
FamIly hOUSing
RevolVing and management
funds
Olher
Tolal MIlitary
C,v,l
Departmenl of EducalIOn
Departmenl of Energy
Department of Health and Human
Services
Public Health Service
Heallh Care FinanCing AdmlnlstralIOn'
Grants to States for Medicaid
Federal hospital Ins trust fund
Federal supp med Ins trust
fund
Olher
AdmlnlstrallOn for children and
families
Other
Department of HOUSing and Urban
Development
Department of Ihe Interior
Department of Justice
Department of Labor
Unemployment trusl fund
Other
Department of State
Department of Transpcrtatlon
Hlgh ... a~ trust fund
26,950
'1'1.
'm
94.3'10
"""
::.IW4
_'4.40-
.'.I.OW
:8.5'1
:;5.995
:;1\.49 7
354
184
18
217
169
17
333
303
26
222
214
21
183
188
15
166
348
16
178
202
18
1,651
1,608
130
1,563
1,491
125
3,255
310
271
203
101
213
221
4,575
5,174
726
-381
367
452
443
18
471
94
427
133
327
-372
575
-749
3,337
-805
2,557
335
1.760
5,839
305
2,983
3,850
300
1,869
3.637
304
1,115
4,191
308
745
3,521
262
966
4,547
291
244
3,960
227
9,681
29,545
1,997
10,693
27,896
1,8{)5
3,713
6.118
4.254
5,701
7,837
4,754
8,203
7,312
4.727
3,280
6,720
4,984
5,914
7,566
4,715
8,404
7,915
4,744
3,138
6,749
4,399
38,352
50,218
32,579
43,454
50,482
36,505
2,501
425
247
2,896
537
242
3,211
436
305
2.752
575
277
2,675
505
275
3,389
719
324
2,417
514
267
19,843
3,711
1,936
19,723
2,501
1,842
147
275
-311
-222
942
42
-757
-284
-1,373
21
78
-212
-251
-405
-1,524
-785
2,032
139
17.680
21,435
25,178
17,548
20,298
25,361
16,828
144,329
156,679
2,638
1.949
1,683
2,656
2,322
1,330
2,553
3.888
1,743
2.592
2,764
1,328
2,542
2,593
1,255
2,674
2,691
1,588
2,592
1,974
1,188
18,249
18,181
10,114
17,566
1.603
1,588
1.761
1.824
1,829
1,726
1,646
11,976
11,087
6.622
7.834
7.545
8.942
7,321
9,757
7,215
8,630
6,694
8,838
8.448
11,171
7,239
8,680
51,084
63,851
47,101
56,440
4.799
3055
5.290
3092
5.837
3.015
5.014
4,950
4,712
3,796
5,987
4,467
4,527
5,405
36,167
27,780
33,542
24,438
2.728
-4.508
2.519
-4.490
2.812
-4.473
3.151
-6.540
2.524
-5,462
2,781
-6,021
2,639
-7,083
19,153
-38,576
-34.001
2.903
883
908
2,426
582
818
2.394
557
749
2.009
567
1094
2.227
553
730
2,694
671
915
2.707
499
920
17,360
4,311
6,134
15,343
3,91C
5.800
1.650
702
488
1.854
-170
841
2001
469
664
2.543
653
201
2.330
621
488
2.762
331
411
2,131
768
371
15,271
3,375
3,464
20294
17941
1.762
1416
1.182
1.348
1.304
1.241
10,047
97(;
26
13,073
10,240
19.251
3.2OC
3.34-1
Table 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995-Continued
[$ millions)
Classification
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Comparable
Period
Prior
F.Y.
Fiscal
Year
To
Date
Outlays-Continued
Other.
Department of the Treasury:
Interest on the public debt
Other.
Department of Veterans Affairs:
Compensation and pensions
National service life
United States government life
Other.
Environmental Protection Agency
General Services Administration
National Aeronautics and Space
Administration
Office of Personnel Management
Small Business Administration
Social Security Administration:
Federal old-age and survivors ins.
trust fund (off-budget)
Federal disability ins. trust fund (off.......
budget) .
Other .......
Independent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund ....
. .....
Savings association insurance
fund
FSLlC resolution fund
Affordable housing and bank
enterprise .
Postal Service:
Public enterprise funds (offbudget)
............
Payment to the Postal Service
fund
Resolution Trust Corporation
Tennessee Valley Authority ......
Other independent agencies
Undistributed offsetting receipts:
Employer share, employee
retirement
Interest received by trust funds
Rents and royalties on outer
continental shelf lands
Other.
....
1,650
1,737
1,640
1,906
1,466
1,904
1,330
11,633
10,775
19,732
34
24,912
-308
57,320
1,336
20,069
145
19,259
3,010
20,693
4,375
20,883
3,732
182,868
12,324
163,167
10,851
105
64
1
1,528
438
-651
1,457
70
1
1,784
474
639
2,824
83
2
1,344
538
462
81
71
1
1,827
520
-717
1,492
79
1
1,429
429
431
2,894
106
2
1,614
678
544
93
94
1
1,640
493
-767
8,946
569
10
11,166
3,569
-58
11,298
516
11
10,499
3,263
-499
845
3,410
65
1,143
3,118
145
1,203
3,460
64
926
3,324
58
1,072
3,337
64
1,284
3,556
77
1,028
3,548
53
7,499
23,754
525
7,789
22,261
345
23,413
23,368
23,810
24,392
24,220
24,310
24,495
168,008
161,069
3,289
287
3,244
2,157
3,348
4,079
3,417
78
3,415
2,201
3,492
4,255
3,460
126
23,665
13,183
21,554
16,029
-127
-208
-496
-1,193
-1,977
-536
-305
-4,844
-5,986
-2
-87
-13
430
(")
33
-91
-149
-361
331
-37
-16
-15
-14
-520
527
-518
-1,046
1
1
1
(")
3
-1
101
-396
-494
-1,268
-706
-3,556
-2,017
-2,001
119
1,710
23
-1,078
142
1,260
-699
92
1,572
-348
42
1,452
23
-436
24
1,461
107
-6,535
922
11,822
107
901
702
11,345
-2,416 -2,564
-5,727 -38,216
-2,557
-95
-2,491
-634
-2,671
-251
-2,554
-596
-17,695
-46,130
-18,125
-42,996
-106
-353
-197
-158
43
-610
-1,086
-610
-1,564
120,365 124,915 134,941 115,171 120,536 142,458 115,673
874,059
(")
-467
-326
61
-471
265
2,720
-1,502
239
1,647
-2,442
-611
......
-154
-160
(")
(")
n
(")
Totals this year:
Total outlays
.........................
-4,130 +16,629 -37,992 -49,927 +49,720
-94,284
-29,922 -37,381 -19,783 +11,147 -39,653 -54,537 +35,542
-134,587
+138 +15,653
+5,483
+1,661
+4,610 +14,178
+40,303
......
......
......
......
......
......
40,528 -13,316
13,337
38,972
13,645 -27,638
97,986
118,141
........................
95,307
99,464 123,643
89,889
94,058 116,507
90,628
709,495
(Off-budget) ........................
25,059
25,452
11,297
25,282
26,478
25,045
164,564
(On-budget)
(On-budget)
.....
........................
(Off-budget)
........................
-1,420
....
32,457
Total-surplus (+) or deficit (-)
Total borrowing from the public
Total·outlays prior year
-31,342 -37,242
124.085 121.483 133.108 1077/3 114.75:: /l5.4::2 1:'3.867
(On·budget)
100,56:'
(Olf-bud!<et)
:'3.523
Total-surplus (+) or deficit (-)
prIOr year
(On-blld!<et)
(Olf-blld!<ct)
25,951
96.719 1:'1,415
83.5:'1
88.1i35
:'4.764
::4.19:'
:'5,91 7
-45,4:!:! -38.381
691,942
:'3.:'47
158,488
-7.705 +15.248 -41.566 -32.315 + I 7.454
-/32,688
11.683
:'5.164
-44.704 -38,0]4 -]1. 7/7 +10.869 -41.644 -35.648
-719
850,430
IOU.259 100.6:'0
- 357 +14.012
+4,379
+77
... No transactions.
(" ') Less than $500,000.
Note: Details may not add to totals due to rounding.
27
+3.686
-167,182
+3.333 +13.768
+34,494
Table 8. Trust Fund Impact on Budget Results and Investment Holdings as of April 30, 1995
[$ millions]
Fiscal Year to Date
This Month
Classification
Securities held as InveSbnenta
Current Fiscal Year
Beginning of
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
Trust receipts. outlays. and investments
held:
Airport
Black lung disability
Federal disability Insurance
Federal employees life and health
Federal employees retirement
Federal hospital Insurance
Federal old-age and survivors Insurance
Federal supplementary medical insurance
Highways
MIlitary advances
Railroad retirement
MIlitary retirement
Unemployment
Veterans life Insurance
All other trust
22,786
67,883
181,914
36,297
13,800
7,381
3,061
24,387
13,930
702
3,492
4,228
335
23,665
-796
22,491
63.851
168.008
36,167
12,215
7,487
4,611
16,001
15.271
733
2,594
-829
27
22,841
796
295
4,032
13,906
130
1,585
-106
-1,551
8,386
-1,342
-30
898
16,905
425,901
108,822
376,862
108,822
49,039
42,980
16,905
317,079
268,040
49,039
108,158
28
15,943
28
32,815
482,632
214
625,955
214
-143,323
108,730
75,915
32,815
482,418
625,741
-143.323
3,222
3,222
19,722
19,722
165,392
115,613
179,175
814,059
1,204
12,847
35,299
5,389
2,040
1,424
448
1,268
3,102
24
508
555
49
3,460
-51
3,312
8,680
24,495
4,527
1,742
800
662
2,338
2,131
127
436
-124
5
2,668
51
-2,107
4,167
10,804
863
298
624
-214
-1,070
971
-103
72
Total trust fund receipts and outlays
and investments held from Table 60
Less: Interfund transactions
70,167
10,282
53,262
10,282
T rust fund receipts and outlays on the basis
of Tables 4 & 5
59,885
Total Federal fund receipts and outlays
, ...........
Less: Interfund transactions
Federal fund receipts and outlays on the
baSIS of Table 4 & 5
..........................................
Less: offsetting proprietary receipts
Net budget receipts & outlays
...............
432
54
6,128
49,720
3,399
362
46,506
I
This Month
28
1
12,206
11,455
11,205
6,100
22,503
346,317
128.716
413,425
21,489
17,694
26,620
23,256
348,704
129,750
419,354
19,814
19,043
29,457
23,181
346,623
133.765
12.203
105,367
39,788
13,477
12,240
12,542
115,651
37,689
13.554
13.253
12,m
114,437
38,102
13,458
13,468
1,151,523
1,190,685
1,207,221
-94,284
Note: Details may not add to totals due to rounding.
No transactIons
Note Interfund recetpts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contributions, and interest and profits on investments in Federal
secun\les They have no net effect on overall budget receipts and outlays since the receipts side of
such transactions IS offset against bugdet outlays. In this table, Interfund receipts are shown as an
adlustment to amve at total receipts and ou~ays of trust funds respectively
Close of
This MontI!
430,268
20,875
19,614
Table 9. Summary of Receipts by Source, and Outlays by Function of the U.S. Government, April 1995
and Other Periods
[$ millions]
Classification
This Month
Fiscal Year
To Date
Comparable Period
Prior Fiscal Year
Individual income taxes ........................................... .
Corporation income taxes ........................................ ..
Social insurance taxes and contributions:
Employment taxes and contributions ........................... .
Unemployment insurance ....................................... .
Other retirement contributions .................. .. ............ ..
Excise taxes ...
.. ............................. ..
Estate and gift taxes ............................................ ..
Customs .......................................................... .
Miscellaneous .......... . ......................................... .
76,441
23,482
351.121
80.132
322.042
74.275
50,423
3.061
354
4.602
1.906
1.349
3.774
264,484
11.632
2.629
32.162
8.559
11.214
17.842
246.351
10.662
2.704
29.695
9.261
11.149
11.603
Total ........................................................ .
165,392
779,775
717,742
National defense .................................................. ..
Intemational affairs ................................................ .
General science. space. and technology ......................... .
Energy ............................................................. .
Natural resources and environment ............................... .
Agriculture ......................................................... .
Commerce and housing credit .................................... .
Transportation ..................................................... .
Community and Regional Development ........................... .
Education. training. employment and social services ............ .
Health ..........................
.. ....................... ..
Medicare ........................................................... .
Income security............
. ................................... ..
Social Security ................
. .............................. .
Veterans benefits and services ................................... .
Administration of justice .......................................... ..
General govemment .............................................. ..
Interest ............................................................. .
Undistributed offsetting receipts .................................. .
17.753
95
1.298
196
1.587
623
-1.092
2.560
896
3.647
9.281
11.510
18.963
27.953
1.850
1.359
299
20.017
-3.121
151.831
10,475
9.812
2.772
13.968
10.902
-12.876
21.567
5.963
30.566
65.666
88.515
131.336
191.668
20.803
9.308
7.704
133,469
-19.391
164.227
11.545
9.929
2.770
13.001
12.772
-7.552
20.251
5.321
24.730
61.288
81.867
134.052
182.621
22,495
8.864
5.755
116.184
-19.689
Total ........................................................ .
115,673
874,059
850,430
RECEIPTS
NET OUTLAYS
Note: Details may not add to totals due to rounding.
29
Explanatory Notes
the employee and credits for whatever purpose the money was Withheld
Outlays are stated net of offsetting collections (including receipts 01
revolVing and management funds) and of refunds. Interest on the publIC
debt (public Issues) IS recognized on the accrual basis. Federal Credit
programs sublect to the Federal Credit Reform Act of 1990 use the cash
baSIS of accounting and are divided into two components. The POrtion ot
the credit activities that Involve a cost to the Government (malnl)
subsidies) IS Included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts
Outlays of off-budget Federal entities are excluded by law from budget
totals. However, they are shown separately and combined with the on.
budget outlays to display total Federal outlays.
1. Flow of Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) IS assembled from data In the
central accounting system The malor sources of data Include monthly
accounting reports by Federal entities and disbursing officers. and daily
reports from the Federal Reserve banks These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities. and their related effect on the assets and
liabilities of the US Government Information IS presented In the MTS on
a modified cash baSIS
2. Notes on Receipts
Receipts included In the report are classified Into the following malor
categories (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the publiC that
result from the exercise of the Government's sovereign or governmental
powers. excluding receipts offset against outlays. These collections. also
called governmental receipts. consist mainly of tax receipts (Including
SOCial insurance taxes). receipts from court fines. certain licenses. and
depoSits of earnings by the Federal Reserve System. Refunds of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (I.e .. amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in two instances: (1) when authOrized by law.
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolVing funds
(public enterprise, intragovernmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used Without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovernmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Govemment accounts. The transactions may be Intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment IS made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories
(1) interfund transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account In the other fund
group; (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group: and (3) trust Intrafund
transactions, where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by function, by subfunction, or by agency. There are four types of
receipts, however, that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (Including payments
by off-budget Federal entities) as employers Into employees retirement
funds. (2) interest received by trust funds, (3) rents and royalties on the
Outer Continental Shelf lands, and (4) other Interest (I.e .. Interest collected
on Outer Continental Shelf money in depOSit funds when such money IS
transferred into the budget).
4. Processing
The data on payments and collections are reported by account sym~
Into the central accounting system. In turn, the data are extracted Irom
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing oHicers
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.
5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary of Terms Used in the Federal Budget Process, January
1993 (Available from the U.S. General Accounting Office, P.O. Box 6015.
Gaithersburg, Md. 20877). This glossary provides a basic reference
document of standardized definitions of terms used by the Federal
Government in the budgetmaking process.
• Daily Treasury Statement (Available from GPO, Washington, 0 C
20402. on a subscription basis only). The Daily Treasury Statement IS
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• Monthly Statement of the Public Debt of the United States
(Available from GPO, Washington, D.C. 20402 on a subscription baSIS
only). ThiS publication provides detailed information concerning the public
debt.
• Treasury Bulletin (Available from GPO, WaShington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables
and charts on Treasury Issues, Federal financial operations, international
statistics. and special reports.
• Budget of the United States Government, Fiscal Year 19_
(Available from GPO, Washington, D.C. 20402). This publication IS a
single volume which provides budget information and contains:
-Appendix. The Budget of the United States Government, FY 19_
-The United States Budget in Brief, FY 19 _
-SpeCial Analyses
-Historical Tables
-Management of the United States Government
-Major Policy Initiatives
3. Notes on Outlays
Outlays are generally accounted for on the baSIS of checks Issued.
electroniC funds transferred. or cash payments made. Certain outlays do
not require Issuance of cash or checks. An example IS charges made
against appropriations for that part of employees salaries Withheld for
taxes or savings bond allotments - these are counted as payments to
• United States Government Annual Report and Appendix (AVailable
from FinanCial Management Service, U.S. Department of the Treasury
Washington, D.C. 20227) This annual report represents budgetar!
results at the summary level. The appendix presents the individual rece<~'
and appropriation accounts at the detail level.
30
Scheduled Release
The release date for the May 1995 Statement
will be 2:00 pm EST June 21, 1995.
For sale by the Superintendent of Documents. U.S. Government Printing
Office. Washington. D.C. 20402 (202) 512·1800. The subscription price is
$35.00 per year (domestic). $43.75 per year (foreign).
No single copies are sold.
The Monthly Treasury Statement is now available on the Department of Commerce's Economic Bulletin Board.
For information call (202)482-1986.
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
FOR IMMEDIATE RELEASE
May 19. 1995
ADDITIONAL SUPPORT RELEASED TO MEXICO
Treasury Secretary Robert Rubin said the United States will provide $2 billion to
Mexico in the form of medium-term swaps through the Exchange Stabilization Fund today.
With this disbursement, outstanding U.S. support for Mexico under the February 21
framework agreements will total $10 billion.
"Mexico has improved significantly over the past three months," Secretary Rubin said.
"They have more than halved their short term dollar-linked debt. which contributed to the
initial problem, and they have implemented tough economic policies. While it is still too
soon to declare victory, we are optimistic that with our support and continued perseverance
by Mexico's people, full market confidence and economic health should return."
President Clinton authorized the use of the Exchange Stabilization Fund in order to
protect American jobs, exports, security and borders threatened by Mexico's financial crisis.
The decision to disburse the present $2 billion was made based on Mexico's continued
compliance with the terms of the framework agreements and the success Mexico has achieved
in enacting reforms necessary to bolster its economy.
o
Mexico has reduced its short-term dollar linked obligations (tesobonos) from $30
billion to near $12 billion over the past 10 weeks.
o
Monetary policies have remained tight, while Mexico has enacted significant new
budget-cutting and revenue-raising measures.
o
Regulatory reform and steps to facilitate privatization of key sectors. including
petrochemicals, power generation. communications and transport. are proceeding.
o
Mexico has improved transparency which facilitates the monitoring of Mexico's
progress by Treasury and private sector analysts.
This week, the President provided the appropriate congressional committees with the
certification required by the Mexican Debt Disclosure Act of 1995.
RR-311
-30-
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
................................
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 19, 1995
CONTACT: Scott Dykema
(202) 622-2960
MEDIA ADVISORY
Copies of a study analyzing the relationship between U.S. research and
development expenses and foreign income are now available from the Treasury
Department
Based on the economic analysis, the Internal Revenue Service has proposed
regulations that would modify current rules for allocating research and experimentation
expenditures to foreign source income.
Copies of the study, The Relationship Between U.S. Research and Development
and Foreign Income, and IRS regulations may be obtained by calling the Treasury Public
Affairs Office at (202) 622-2960 or by faxing a request to (202) 622-1999.
-30-
RR-312
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The Relationship Between
U.S. Research and Development
and Foreign IncolDe
Department of the Treasury
May 1995
THE RELATIONSHIP BETWEEN U.S. RESEARCH AND DEVEWPMENT
AND FOREIGN INCOME
Introduction and Summary
In Revenue Procedure 92-56, the Treasury Department announced that it was undertaking
a review of section 1.861-8(e)(3) (hereafter referred to as the 1977 regulations) to determine
whether it results in "a proper apportionment or allocation" of deductions for U.S. research and
development expenditures to foreign income. The review was undertaken in response to the
statement by a number of taxpayers that the 1977 regulations do not accurately reflect the
"factual relationship between the deduction for research and development (R&D) expenditures
and items of gross income." Taxpayers were invited to provide any information that may be
relevant for purposes of this review.
This report constitutes one component of Treasury's review of the 1977 regulations. It
summar:i2eS'two different methodologies developed by Treasury to analyze the effect of domestic
R&D on income earned by multinational corporations. These methodologies use data from tax
return files and from aggregate data on foreign income published by the U.S. Commerce
Department. The report also reviews evidence provided by outside investigators on this same
issue. All of this evidence is used to evaluate the reasonableness of the 1977 regulations.
The report concludes that the available evidence makes it difficult to reject the 1977
regulations as an accurate reflection of the factual relationship between domestic R&D and
foreign income. However, while the 1977 regulations may be correct on average, the report
finds a wide range of uncertainty as to the exact parameters of this factual relationship.
Therefore, the 1977 regulations may be unfair to a significant number of taxpayers whose
domestic R&D has little application abroad. The report reiterates the burden that would be
imposed on taxpayers and the Internal Revenue Service to rely purely on facts and circumstances
on a case by case basis and concludes that reducing the allocation of domestic R&D to foreign
income by about 25 percent compared to the 1977 regulations can be expected to increase the
fairness of the regulations and still remain within the range of allocations that cannot be rejected
in view of the uncertainty of the evidence.
The reason for reviewing the'evidence on the relationship between U.S. R&D and foreign
income is to find an appropriate allocation of R&D deductions between foreign and domestic
income. The requirement to make an allocation arises out of the necessity for calculating net
foreign income for the purposes of the foreign tax credit limitation. If a taxpayer is in an excess
foreign tax credit position, increased allocations to foreign income, by reducing foreign-source
income, will reduce allowable credits and increase net U.S. income tax liabilities. An accurate
measurement of net foreign-source income is required because otherwise the U. S. tax on foreign
and domestic income may not be appropriate. For example, if net foreign-source income is
overstated, U.S. taxpayers can claim tax credits in excess of the amount of U.S. tax applicable
to foreign income. These credits in effect reduce the U.S. tax on domestic income.
-2-
Any allocations of R&D expenses could be based solely on each taxpayer's facts and
circumstances. But it would be very difficult for the IRS to make a factual determination of how
much any single company's R&D contributes to its foreign income. Relying purely on facts and
circumstances procedures would impose a great burden on both taxpayers and the IRS. It is,
therefore, helpful to develop general rules which are consistent with aggregate statistical
evidence on the effects of R&D on foreign income while still giving taxpayers with special
circumstances the opportunity to present additional evidence in support of different allocations.
Back&round
Before reviewing the factual relationship between U. S. R&D and foreign income, it is
helpful to review how implementing the 1977 regulations would affect total R&D allocations to
foreign income. For purposes of comparison, the temporary allocation rules in the Omnibus
Budget Reconciliation Act of 1993 (OBRA 1993) are also reviewed. l
The 1977 regulations state that a taxpayer's deductions for R&D under section 174 "shall
ordinarily be considered deductions which are definitely related to all income reasonably
connected with the relevant broad product category (or categories) of the taxpayer and,
therefore, allocable to all items of gross income as a class (including income from sales,
royalties, and dividends) related to such product category (or categories)." The taxpayer's R&D
is, therefore, first divided among the relevant 2 digit SIC categories specified in the regulation.
Of the R&D in the product category, the 1977 regulations first apportion 30 percent
exclusively to domestic income. The regulations divide the remainder between domestic and
foreign income in proportion to domestic and foreign sales. The taxpayer may also, however,
use the optional gross income method which allocates R&D expenses in proportion to the
taxpayer's foreign and domestic gross income, without the benefit of any exclusive
apportionment. The amount allocated to foreign income under the gross income method cannot
be less than 50 percent of the amount allocated to foreign income in the sales-based allocation.
A U.S. taxpayer's foreign gross income typically consists mainly of royalties and
dividends paid from the net income of Controlled Foreign Corporations (CFCs). Domestic gross
income, in contrast, is largely sales revenue less direct cost of goods sold and is, therefore,
before the overhead deductions such as rents, interest expense and most of depreciation. 2
Foreign gross income, therefore, is more closely analogous to domestic net income than to
IThe OBRA 1993 one-year extension, which is described in detail below, is included here
as the latest example of a series of statutory alterations to the 1977 regulations.
2Cost of goods sold are the costs that have to be included for inventory purposes.
-3domestic gross income. As a result, the ratio of foreign gross income to worldwide gross
income is generally much smaller than the ratio of foreign sales to worldwide sales. U.S.
companies can frequently reduce the allocation of R&D costs to foreign-source income by using
the gross income method instead of the sales method. (If the allocation to foreign income under
the gross income method is ~ than 50 percent of the allocation under the sales method, the
allocation to foreign-source income is simply set at 50 percent of the allocation under the sales
method.)
Consider, for example, a U.S. company with an equal amount of foreign and domestic
sales. Under the sales method, it allocates 30 percent of its R&D costs exclusively to domestic
income and then divides the remaining 70 percent in half, resulting in a 35 percent allocation
to foreign income. Assuming that it can use the gross income method to reduce its allocation
to foreign income to 50 percent of the sales-based allocation, it will allocate 17.5 percent of its
R&D to its foreign income, and 82.5 percent to its domestic income. The almost five-fold
disparity, ~ven though foreign and domestic sales are equal, was intended to reflect the greater
value of R&D in the place of performance, the lag in the transfer of technology abroad and the
possibility that it will be useful overseas to a more limited group of products within the product
category compared to its application in the United States.
Under the 1977 regulations, the taxpayer can present particular facts and circumstances
to achieve an allocation to foreign income ~hat is even lower than in the above example. For
example, research and development, "undertaken solely to meet legal requirements imposed by
a political entity with respect to improvement or marketing of specific production processes, and
results cannot reasonably be expected to generate amounts of gross income outside a single
geographical source" can be allocated exclusively to the jurisdiction imposing the requirements.
Testing mandated by the Food and Drug Administration is given as one example of expenses that
can be allocated purely to domestic income.
The 1977 regulations also state that the taxpayer may establish that a higher exclusive
apportionment percentage is warranted "because the research and development is reasonably
expected to have very limited or long delayed application outside the geographical source where
it was performed." Examples 9-13 in Section 1.861-8(g) explain how the taxpayer can justify
a higher allocation to domestic income. For example, the taxpayer can use foreign and domestic
sales at the seven digit SIC level to demonstrate a narrower range of application abroad.
Under the temporary OBRA 1993 rules, 50 percent of domestic R&D is allocated
exclusively to domestic income, with the remainder allocated according to either relative gross
income or sales. In this case, the gross income allocation receives the benefit of the SO percent
exclusive apportionment. The gross income allocation to foreign income cannot be lower than
30 percent of the sales allocation compared to 50 percent under the 1977 regulation. The
exclusive apportionment rate and the gross income limitation allow a much greater allocation of
R&D costs to domestic income than the 1977 regulation.
-4The company in the hypothetical example noted above, with equal foreign and domestic
sales, would be able to allocate 7.5 percent of U.S. R&D to foreign income and 92.5 percent
to domestic, a twelve-fold disparity, assuming it can take full advantage of the gross income
option. The company would first allocate 50 percent of R&D exclusively to domestic income.
Of the remaining 50 percent, it would allocate half to foreign sales, reducing the foreign share
to 25 percent, and then using the gross income method, could reduce the foreign share to 30
percent of that or 7.5 percent. 3
Treasury Analysis
Two different methodologies, each using a two step approach, are employed to test
whether, in the aggregate, the 1977 regulations provide an appropriate allocation of R&D
deductions to foreign source income. In each case, the first step is to calculate the pool of
foreign income that can be attributed to domestic R&D. This step requires an assessment of the
various types of foreign income that could reflect the contribution of domestic R&D. The
second step~takes this estimate of the foreign income from intangibles and applies two alternative
approaches to estimate the appropriate amount of R&D to designate as a deduction from foreign
source income. The first approach estimates the domestic income attributable to domestic R&D
and then uses this estimate to calculate the share of the total return to R&D that is attributable
to foreign intangible income. The second approach estimates how much of a typical company's
current deduction for R&D, in an ongoing_ R&D program, can be attributed to the observed
current flow of foreign intangible income and then assumes that the remaining R&D produces
domestic source income. As discussed below, there are pros and cons to each of these
approaches. In each case, the difficulty of making precise judgments about some of the
parameters used leads to the estimation of a range of allocations.
Evidence from Royalties and CFC Income
The essential first step in Treasury's analysis is the determination of the pool of foreign
income that can be attributed to domestic R&D. One directly observable component of the
contribution of U.S. R&D to foreign income is the amount of royalties and license fees received
by U.S.-based multinational corporations (MNCs) from abroad. These are payments received
for the rights to use intangibles developed by the parent MNC. Royalties have risen rapidly in
recent years. Commerce Department data report that in 1990 U.S. companies received $17.1
billion in royalties and license fees from abroad. 4 Furthermore, more than 80 percent of the
royalties are identified in the Commerce data as payments for "industrial processes," which
3By a similar calculation, the "64 percent solution," which applied in some years before
1993, resulted in an allocation of U.S. R&D to domestic income 17 times the allocation to
foreign income when domestic and foreign sales are equal. (.36*.5*.3 =.054 of domestic R&D
is allocated to foreign and the remaining .946 to domestic.)
4TIlis is consistent with tax data from Forms 1120 and 1118. Nineteen ninety is chosen as
the base year because it is the most recent year for which we have data on R&D allocations
reported on the Form 1118.
-5presumably correspond to the royalties resulting from U.S. research and development.
Accordingly, in 1990 there appear to have been about $14.5 billion in royalty payments for the
use of intangibles generated from domestic R&D.
However, royalties may not fully reflect the contribution of U.S. R&D to foreign income.
A recent paper has estimated the effect of domestic R&D on royalties and the net profits earned
by controlled foreign corporations (CFC's). The study used Treasury's 1990 data files for Form
1120, the basic corporate return, Form 1118, on which a foreign tax credit is calculated, and
Form 5471, which provides information on a CFC's assets, earnings and transactions with
related parties. s Based on a sample of more than 2,000 of the largest CFC's, the paper
estimated the effect of the R&D intensity of U.S. corporations on i) net earnings and profits
(E&P) and ii) royalty payment of CFC's. The parent's R&D intensity was measured by the
ratio of its qualified research for purposes of the research credit, which must be performed in
the United States, to the parent's domestic sales. Royalties paid (to U.S. affiliates) and E&P
were divi~e.d by the CFC's assets to put CFC's of different sizes on a comparable basis. 6
The study estimates separate, parallel equations. The first equation relates the CFC's
E&P/asset ratio to the parent's R&D and advertising intensity. The second equation relates the
CFC's royalties/asset ratio to the same explanatory variables. The statistical analysis reveals that
greater R&D intensity of the parent leads both to significantly higher royalties paid and to
significantly higher net E&P of the CFC. Specifically, the R&D coefficient in the E&P equation
was at least as large as the R&D coefficient in the royalties equation. Tax variables such as
dividend and royalty withholding rates were added as other explanatory variables in some
variants of the two basic equations, but, while frequently statistically significant in themselves
in explaining royalties and E&P, they did not change the basic estimated effect of parent R&D
on either the CFC's royalty payments or its E&P.
The study also examined whether the increased foreign E&P that was attributed to the
parent's R&D was really the result of the affiliate's own R&D (as might be the case if R&D
intensive parents also have R&D intensive affiliates). R&D performed by CFCs is not reported
on the Form 5471, so this hypothesis cannot be tested directly. Aggregate data indicate that
foreign R&D accounts for only about 10 percent of worldwide U.S.-based MNC R&D.
Furthermore, attributing the higher income to foreign R&D is not consistent with the amount
of royalties that the more profitable CFCs receive, which should be an indication of their own
SSee "Divided Royalties and Other Payments: Taxes and the Various Components ofIncome
Earned Abroad," October 1994 draft, by Harry Grubert. A shorter version, "Royalties,
Dividends and R&D" was published in the Proceedings of the Annual Conference of the
National Tax Association 1994.
~e
results are not sensitive to the choice of the scaling factors for parents and CFC's.
Assets are used for CFC's, in part, because they are better reported on the Forms 5471 than
sales. It also seems natural to express E&P in relation to assets because it is closer to a rate of
return measure.
-6-
R&D contribution. When royalties received by the CFC is added as a variable in the E&P
equation, the estimated effect of domestic R&D is not changed.
About $12.3 billion of the $14.5 billion in industrial royalties received by U.S.-based
MNC's is from affiliates. The statistical estimates just described suggest that total related party
manufacturing intangible income was $24.6 billion in 1990 when the additional amount of E&P
affiliates earn because of their parents' R&D is considered. The addition of the $2.2 billion in
royalties received from unrelated parties results in an estimate of a $26.8 billion total foreign
return to U.S. R&D in 1990.7
Estimating the Domestic Return to U.S. R&D
Having estimated the amount of foreign income that reflects the contribution of domestic
R&D, the next step is to use this estimate to determine what portion of the domestic R&D
should ~ ge~.ignated as a deduction from foreign source income. As explained above, two
methodologies were employed to make this determination. The first approach taken was to put
the foreign income attributable to domestic R&D in perspective by estimating the amount of
domestic income attributable to domestic R&D. This exercise is a bit different than the one that
was just described to evaluate foreign income because there are no comparable domestic royalty
data. Almost all companies undertake the U.S. exploitation of their new technology themselves,
rather than licensing the technology to domestic third parties. Computing the return-to-R&D
component of domestic corporate income is subject to substantial error, so a range of estimates
is obtained from an analysis of the rate of return on assets (before deducting R&D) in hightechnology and low-technology industries. The 1989 Commerce Department Benchmark Survey
of Direct Investment was used because it is a convenient source for the domestic income of U. S.
multinational corporations. A domestic operating rate of return on total assets was first
computed for each major industry. Domestic operating income was constructed by adding
income taxes, interest paid and R&D expenditures to net income. Equity in the income of
7In addition, CFC payments for their parents' exports of components may also embody a
substantial part of the foreign return to U.S. R&D. Under the U.S. source rules, 50 percent of
export sales income can be classified as foreign source. A CFC may compensate its parent for
valuable intangibles through higher prices paid for components. The $26.8 billion estimate of
foreign income attributable to domestic R&D that is used in the calculation below may thus be
too low because it includes only royalties and the additional E&P attributable to R&D the CFC
earns. It does not include foreign source sales income earnings by the parent that may be
attributable to R&D. -(See "A Response to International Royalty Flows" by Robert N. Mattson,
presented at the National Tax Association Annual Meeting, November 13, 1994.) But the
intangible content of sales source income is very difficult to evaluate. Therefore, in the interest
of making a conservative estimate of the contribution of domestic R&D to foreign income, no
adjustment is made fOf this factof.
-7-
affiliates and industrial royalties from abroad were subtracted. Investment in affiliates was
deducted from total assets for the purpose of computing the domestic operating rate of return. 8
The analysis of the domestic return to R&D was based principally on manufacturing,
which accounted for 86.3 percent of the R&D expenditures of U.S. multinational corporations.
However, an imputation also was necessary for nonmanufacturing industries, principally
integrated petroleum (not included in manufacturing in the Commerce data) and communications
companies, which accounted for the remainder. This imputation scaled up each of the estimates
for manufacturing in order to account for the share of total R&D accounted for by
non manufacturing industries.
The lower bound for the range of domestic returns to R&D for manufacturing was
computed by imputing to R&D all of the returns in manufacturing in excess of the rate of return
in the least R&D intensive industry. An upper bound was computed because of the possibility
that even ~ow ~hnology industries obtain some return to R&D. The upper bound was estimated
by attributing fully half of the total domestic operating income (as defined above) in
manufacturing to R&D. When these estimates are adjusted for non manufacturing R&D and
projected from 1989 to 1990, the resulting range of domestic returns to R&D is between $78
billion and $117 billion. 9
The $26.8 billion estimated foreign return to U.S. R&D when combined with domestic
returns of between $78 billion and $117 billion implies that between 18.6 percent and 25.6
percent of the total return to U.S. R&D is derived abroad. The 1990 level of domestic R&D
performed for U.S. multinational corporations amounted to $63.5 billion. This would further
imply that if the allocation were based on the foreign share of the total return to R&D, between
$11.8 and $16.3 billion of U.S. R&D should have been allocated to foreign source income (i.e.,
63.5 times .186 and .256 respectively).
8Interest receipts from foreign affiliates are very small in manufacturing. Loans to affiliates
(as well as other loans) are included in total assets. The estimated domestic rates of return are,
therefore, not affected by the treatment of interest from affiliates.
90ther researchers have estimated the rate of return to U.S. R&D. See for example, the
1980 paper by Zvi Griliches, "Return to Research and Development Expenditures in the Private
Sector," in New Developments in Productivity Measurement, l.W. Kendrick and B. Vaccara
(eds.), NBER, Studies in Income and Wealth Vol. 44. But these estimates are not directly
applicable to the exercise in this study for two reasons. First, some of this return to R&D
reflects foreign earnings because the estimates are based on the parent company's worldwide
consolidated financial reports. Furthermore, using these estimates to compute the domestic
component of R&D income in 1990 requires precise information on the time path of the return,
which must be matched up with earlier levels of R&D spending. These issues of return and
timing are part of the motivation for the second methodology described below.
-8-
In 1990, when the "64 percent solution" was in effect, total R&D allocations to foreign
income amounted to $4.4 billion. Based on 1990 data, the temporary OBRA 1993 rule is
projected to result in an allocation of $6.1 billion of R&D to foreign sources. In contrast the
estimated allocation under the 1977 regulations is about $12.0 billion, which is near the bottom
of the $11.8 to $16.3 billion range of allocations indicated by this methodology. IO
An Alternative Methodology
The second method that was employed for interpreting the estimated total foreign R&D
return data (royalties plus the excess CFC return attributable to domestic R&D) avoids the
necessity for calculating the domestic return to R&D. It attempts to answer the following
question: If a given current level of gross returns to R&D is observed (the total foreign return
in this case), what level of current R&D would be implied by this income? The return this year
would result from many past vintages of R&D spending. In a company with an ongoing R&D
effort an9 §tagle rates of return and lags in implementation over time, the gross return to R&D
in any year can be expected to have a stable relationship to the current level of R&D if R&D
spending grows at a steady rate. The income will be expected to exceed the level of R&D
expenditures in the long-run, because there has to be a return on the initial investment in
addition to the recovery (amortization) of the principal.
Determining the long run relationship between current R&D expenditures and the current
observed return to (presumably past) R&D has one conceptual advantage over the estimates
described earlier which were based on the ratio of current foreign return to R&D to the domestic
return. There may be a longer lag in the application of R&D to foreign income than to domestic
income. Simply looking at current domestic and foreign returns may not fully reflect the
importance of the lag.
The exact ratio of income to R&D depends on the required rate of return, the time lag
between the performance of the R&D and its yielding income, the period that the R&D continues
to be productive (i.e., the time pattern of the income flow), and the rate of growth of R&D.
For any given required rate of return, introduction lag and the time the R&D remains
productive, the required gross return (when the technology is productive) per dollar of initial
R&D can be computed. (The present value of the gross returns must equal the initial R&D
expense.) After the initial start-up lag, and as R&D continues to grow, the gross return to R&D
will grow as new technologies come on stream and old ones become obsolete. At anyone time
in this pattern of steady growth, the aggregate return will result from a combination R&D
spending in different prior years. The steady state ratio of gross returns to R&D will be stable
and can be computed from the total returns and R&D in any year. (If a zero rate of growth of
IOSecause the gross income option under the 1977 regulations is different from the 64
percent solution (and the current formula), projecting from the 1990 allocations to the 1977
regulations required assumptions about the relationship between the gross income ratio and the
sales income ratio.
-9-
R&D is assumed, the current year's R&D associated with the income flow in the steady state
is the same as the R&D that would be deducted under an amortization rule in which the R&D
deduction is proportional to the current year's gross return from the innovation.) A range in the
ratio of R&D to income is estimated using a range of assumed rates of return and time lags
between when R&D occurs and when it produces income.
The advantage of this methodology is that making an estimate of appropriate allocations
of R&D to foreign income does not require an estimate of the domestic return to R&D. It asks
what amount of current R&D is implied by a given flow of returns. Of course, any giyen level
of R&D will support and be financed by both foreign and domestic operations. But we compute
what level of ongoing R&D could be supported purely from observed foreign income. A similar
calculation for domestic return (with possibly different lags and useful life) would then account
for the entire deduction for current R&D.
II
II
1l1~alternative assumptions regarding the time lags, rates of return, and the period of
usefulness of a technology, generate a range of long run ratios of domestic R&D to foreign
income of from .3 to.5. This implies that in 1990, between $8.0 billion and $13.4 billion of
R&D expenses were properly attributable to the foreign intangible income of $26.8 billion. As
noted above, under the 1977 regulations, an estimated $12.0 billion of R&D would have been
allocated foreign-source income in 1990, an amount within but at the high end, of the range
implied by this approach .
Baily and Lawrence Study
In March 1992, Martin N. Baily of the University of Maryland and Robert Z. Lawrence
of Harvard completed a study entitled" Appropriate Allocation Rules for the 861-8 Regulation,
on behalf of the Council on Research and Technology. As in the second approach used in this
report, Baily and Lawrence looked at a company with an ongoing R&D effort. The company
has both current foreign and domestic sales, but the expected foreign sales make a relatively
small contribution to the present value of the return from the R&D because of the delay in its
application abroad. In other words, the current observed foreign sales represent R&D developed
much earlier on average than the R&D applied in the United States. Baily and Lawrence used
data in an earlier paper by Mansfield and Romeo on the lags in transferring technology abroad
to estimate the relative contribution of U.S. R&D to domestic and foreign income per dollar of
sales. 11 They compute the exclusive apportionment percentage in a sales allocation that would
be consistent with the lower present value of R&D abroad due to its delayed transfer. They
conclude that a 64 percent exclusive apportionment percentage would be correct if the required
return is 22.4 percent, "a figure not at all out of line with the required rate of return to the
highly risky business of R&D."
II
llEdwin Mansfield and Anthony Romeo, "Technology Transfer to Overseas Subsidiaries by
U.S.-Based Firms," Quarterly Journal of Economics, December 1980. Mansfield and Romeo
studied transfers between 1960 and 1978.
-10Relying on the Mansfield and Romeo data, the Baily-Lawrence study assumes that there
is a six year lag between the time a technology is introduced in the United States and its
introduction abroad. As noted above, the six year lag assumption is based on transfers studied
by Mansfield and Romeo between 1960 and 1978. Because of the growing integration of the
world economy, the average time lag between research and its implementation abroad may have
decreased for U.S. multinational corporations. A shorter lag would imply a smaller exclusive
apportionment percentage in the Baily-Lawrence calculations.
The Baily and Lawrence conclusion assumes that after the 64 percent exclusive
apportionment to domestic income, the allocation of the remaining R&D is based only on sales.
However, as explained above, under the gross income option, the taxpayer can reduce the salesbased allocation by a full 50 percent. Given the gross income option, the 1977 regulations are
equivalent to a 65 percent exclusive apportionment in a pure sales allocation (hence the 17.5
percent foreign source allocation when foreign and domestic sales are equal, as in the
hypotheticaJ e?Cample above). In other words, for companies that can fully use the optional gross
income method, the 1977 regulations are as generous as the "appropriate" exclusive allocation
rules suggested by Professors Baily and Lawrence. The data on allocations in 1990, when the
64 percent exclusive apportionment rate and the 30 percent gross income limitation were in
effect, indicate that the gross income option was a substantial benefit to taxpayers. While
companies were not all able to use the option to reduce their allocation to foreign income by a
full 70 percent, compared to the sales allocation, they appear on average to have achieved about
a 40 percent reduction. When the observed benefits of the gross income option are applied to
the Baily and Lawrence calculation, the resulting allocation to foreign income is about 25 percent
less than the allocation to foreign income under the 1977 regulations, a result similar to the
proposal in this report.
Because it incorporates time lags in the application of R&D and the required return on
investment, the alternative methodology used in this sudy is in many ways similar to the BailyLawrence methodology. Rather than assuming a given delay in transfer abroad compared to
application at home, as in the Baily-Lawrence study, it simulates the implications of a range of
lags between the performance of the R&D and its introduction abroad. If average returns are
high and the delay in application abroad is long, then the flow of intangible income is high
relative to the level of current R&D. For equal current flows of domestic and foreign returns,
the longer lag would result in less current R&D being imputed to the foreign income.
Nevertheless, each dollar of R&D imputed to foreign and domestic income would have returns
with equal present value.
Conclusion
Table 1 summarizes the estimates that have been discussed in this paper. The top part
of the table gives the total allocations to foreign income under various alternative allocation
schemes. The 1990 tax files are the source for the $4.4 billion under the "64 percent solution"
-11-
because that 'was the provision in effect in 1990. The estimates for the other provisions are
based on projections from this 1990 evidence. 12
The available evidence makes it difficult to reject the 1977 regulations as an accurate
reflection of the factual relationship between domestic R&D and foreign income. Allocations
to foreign income under the 1977 regulations fall within the range produced by each of the two
alternative methodologies. Nevertheless, the range of uncertainty is large. Specifically, the
combination of the two methodologies suggest a range of $8.0 billion to $16.3 billion. The
lower part of this range of potentially correct allocations is substantially below the $12.0 in total
allocations that would be made under the 1977 regulations. In addition, while the 1977
regulations may be correct on average, they may be unfair to a significant number of taxpayers
whose domestic R&D has little application abroad. Reducing allocations to foreign income by
about 25 percent compared to the 1977 regulations, which is equivalent to relying on the lower
part of the range of estimated allocations, would reduce the potential that the regulations are
unfair to ,msmy taxpayers while being within the range of allocations that cannot be rejected in
view of the uncertainty of the evidence.
A 25 percent reduction in allocations compared to the 1977 regulations, and the 1977
regulations version of the gross income option (with a permanent election), would imply an
exclusive apportionment percentage of about 50 percent. 13 This corresponds to the $9.0 billion
in allocations reported in the table for the proposed 1995 regulations.
l~en
viewing these estimates it is important to keep in mind that they are estimates of the
aggregate amount of U.S. R&D that would be allocated to foreign income under each of the
different provisions. The allocations have no bearing on the amount of R&D the taxpayer is
allowed to deduct. The effect on tax liabilities of these allocations on each U.S.-based MNC
depends on the foreign tax credit position of the company. If the taxpayer is in an excess
foreign tax credit position, increased allocations to foreign income, by reducing foreign-source
income, will reduce allowable credits and increase net U.S. income tax liabilities. However,
even after the allocation of some U.S. R&D to foreign income, some companies will still have
enough net foreigh source income that there will be no reduction in their allowable credits and
thus no change in their net U.S. income'tax liabilities.
13If all taxpayers could fully exploit the gross income option by reducing their sales-based
allocation by 50 percent (or always use sales), the 50 percent exclusive apportionment percentage
would reduce allocations by 217 or 29 percent. However, the average reduction is less because
some taxpayers are constrained by their gross income ratio. For example, taxpayers whose ratio
of foreign gross to worldwide gross income ratio is 40 percent of their sales ratio would get no
benefit from the increase in the exclusive apportionment rate. Under the 1977 regulations, they
cannot reduce the 70 percent allocated on the basis of sales by a full half because their gross
keeps the allocation at 40 percent of a pure (no exclusive apportionment) sales allocation. They
cannot go all the way to 35 percent because their gross income ration keep them at 40 percent.
Under a 50 percent exclusive apportionment, they can do no better. They cannot go all the way
to 25 percent because they are still kept at 40 percent, yet it doesn't pay them to switch to the
sales method because that would only get them to 50 percent.
-12TABLE 1
Total R&D Allocations to Foreign Income.
under Alternative Schemes
(in $ billions at 1990 levels)
Provision
Estimates of R&D Allocation
OBRA 1993
6.1
64 percent solution with OBRA gross income option
4.4
1977 regulations
Proposed 1995 regulations
12.0
9.0
Implications of Analyses Based on Inferred Benefits
E&P and Royalty-based estimates of factual relationships:
(a) ratio of foreign to domestic return on R&D
11.8 to 16.3
(b) hypothetical relationship between R&D and
returns to R&D
8.0 to 13.4
PROPOSAL TO AMEND R&E ALLOCATION RULES
Washington- The Treasury released a study today analyzing
the relationship between U.S. research and experimentation (R&E)
and foreign income.
Simultaneously with the release of this
study, the Internal Revenue Service has issued proposed
regulations that would modify the current regulations governing
the allocation of R&E expenditures (Treas. Reg. §1.861-8(e) (3))
based on Treasury's economic analysis.
The 1977 regulations have been subject to ten temporary
moratoi~a
since their adoption.
The last such moratorium,
adopted by the Omnibus Revenue Reconciliation Act of 1993,
generally expired on December 31, 1994.
The new regulations are
proposed to be effective, at taxpayers' election, as of January
1, 1995.
The Treasury study released today summarizes two different
methodologies developed by Treasury to evaluate the factual
relationship between U.S.-based R&E and income from foreign
sources.
The study concludes that although the overall
allocation produced by the 1977 regulations is in the middle of
the range of acceptable allocations, these regulations may be
unfair to a significant number of taxpayers whose domestic R&E
has little application abroad.
Therefore, the study proposes
that the allocation of domestic R&E to foreign source income be
reduced by about 25 percent as compared to the 1977 regulations.
Three major amendments to the 1977 regulations are being
proposed today to effect this reduced overall allocation of R&E
(more)
2
expenses to foreign source income.
(1) The exclusive
apportionment to U.S. source income will be increased from the
current 30 percent to 50 percent.
(2) Taxpayers will be allowed
to allocate R&E expenses based on three-digit SIC code
classifications, instead of the two-digit classifications
required by the current regulations.
(3) The use of the gross
income method of allocation will be made subject to a binding
election.
These amendments are proposed to be effective sixty
days after a notice of final rulemaking is published in the
Federal Register.
However, taxpayers may elect to utilize the
new regulations beginning in the first year following the
expiration of section 864(f) as amended by OBRA '93.
For
calendar year taxpayers, this will be the 1995 calendar year.
DATE: May 19, 1995
INTL-0023-95
(Notice of proposed rulemaking and notice of
public hearing)
was forwarded to the Office of the Federal Register on
May 18, 1995.
The filing time was 9:25 a.m. on May 19, 1995.
The publication date is set for May 24, 1995.
FROM:
CC:CORP:T:R
[4830-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part·r
[INTL-0023-95]
RIN
1545-AT49
Allocation
and
Expenditures
AGENCY:
Apportionment
of
Research
and
Experi,mental
Internal Revenue Service (IRS), Treasury.
Notice
ACTION:
of
proposed, rulemaking
and
notice
of
public
hearing.
SUMMARY:
This document provides guidance concerning the allocation
and apportionment of research and experimental expenditures for
purposes of determining taxable income from sources wi thin and
without the United states.
This document affects taxpayers that
have income from United States and foreign sources and that have
made'expenditures
for
research
and
experimentation
that
the
taxpayer deducts under section 174 of the Internal Revenue Code of
1986.
This document also provides notice of a public hearing on
these proposed regulations.
DATES:
written comments must be received by August 22,
Outlines of topics to be discussed at the public
1995.
hearing scheduled for
Septe~ber
8, 1995, at 10 a.m. must be
received by August 18, 1995.
ADDRESSES:
Send
sub~issions
to:
CC:DOM:CORP:T:R (INTL-0023-95),
room 5228, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
In the alternative, submissions
may be hand delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:T:R (INTL-0023-95), Courier's Desk, Internal Revenue
~ervice,
1111 Constitution Avenue, NW, Washington, DC 20224.
public hearing wi)l
~e
The
held in the Auditorium, Internal Revenue
Building, 1111 Constitution Avenue NW, Washington, DC.
FOR FURTHER
IHFORKz~TI ON
CO!JTACT:
.Concerning the regul ati ons,
Carl Cooper at (202) 622-3840; concerning submissions, Michael
Slaughter,
(202) 622 -8 543 (not toll-free nUr.1bers).
SUPPLEHENTARY INFORl-1ATION:
Paper~ork
Reduction Act
This notice of proposed
rule~aking
does not contain
collections of inforr.1ation and, therefore, it has not been
subrnitted to the Office of Management and Budget for review under
the
Paper~ork
Reduction Act (44
U.S.C~
3504(h».
Background and Explanation of Provisions
Section 1.861-8(e) (3) of the Income Tax Regulations provides
rules regarding the allocation and apportionment of research and
experimental expenditures for purposes of determining taxable
inco~e
from sources within and without the United States.
This notice of proposed rulernaking proposes three changes to
the existing regulations at §1. 861-8 (e) (3).
- 2 -
First, allocation of research and experimental expenditures
to three digit SIC code product categories of gross income
be permitted.
~ould
Existing regulations require'taxpayers to allocate
research and experimental expenditures to two digit SIC code
propuct categories.
Use of three digit SIC code ,product
categories would enable taxpayers to allocate research and
experimental expenditures to narrower classes of gross income
than the classes of gross income permitted by the existing
regulations.
Second, the percentage of research and experimental
expenditures that may be exclusively apportioned to United States
source incone under the sales method of apportionnent under
§1.861-8(e) (3) (ii) would be increased from 30 percent to 50
percent.
Thus,
~here
an apportionment based upon geographic
sources of income of a deduction for research and experimental
~xpenses
is necessary and the sales method of apportionment is
elected, an amount equal to 50 percent of the deduction for
research and experimental expenditures shall be apportioned
exclusively to the
stat~tory
or residual grouping of gross
income, as the case may be, arising from the geographic source
where the research and experimental activities which account for
more than 50 percent of the amount of the deduction were
performed.
Third, use of the optional gross income methods of
apportionment would constitute a binding election to use such
-
3 -
methods in subsequent years.
~ithout
The election would not be revocable
the prior consent of the Conmissioner.
These changes would apply to taxable years beginning after
December 31, 1995.
However, the taxpayer
~ould
have the option
to apply the new rules, in their entirety, to taxable years
beginning after December 31, 1994.
Examples (3) through
these changes.
~
of §1.861-8(g) are conformed to
Examples (9) through ll&l and Example (23) are
removed and reserved
The three changes are proposed in part on the basis of an
econonic study performed by the Treasury Department pursuant to
Rev. Froc. 92-56, 1992-2 C.B. 409, which is being simultaneously
published by Treasury.
The Treasury study evaluates the factual
relationships between taxpayer performed research and
experimental expenses and incone from foreign sources.
revie~ed
The study
evidence of foreign returns from research and
experimental expenditures in the form of both royalties and the
retained
earni~gs
and profits of controlled foreign corporations.
Estl~ates of foreign returns attributable to research and
experimental expenditures were translated into appropriate
allocations and ppportionments using two alternative
methodologies.
One methodology was based on estimated comparable
domestic returns for research and experimental expenditures.
The
other methodology simulated the relationship expected between the
current returns from research and experimental expenditures and
the level of current research and experimental expenditures for
-
4 -
taxpayers with ongoing research programs.
The methodologies
generated a range of allocations and apportionments to foreign
income that were not inconsistent with the available evidence.
The allocations and
apportion~ents
to foreign income
~hich
would
result from adoption of these proposed regulations are within
that range and are about 25 percent lower than the allocations
and apportionments to foreign income which result under the
current regulations.
In
addition,.~~
proposed regulations provide explicit rules
for allocating and apportioning research and experimental
expenses incurred by a partnership and for computing a partner's
sales for purposes of apportioning research and experimental
expenses under the sales method.
Special Analyses
It has been
deter~ined
that this notice of proposed
rule~aking
is not a significant regulatory action as defined in
EO 12866.
Therefore, a regulatory assessment is not required.
It also has been determined that· section 553(b) of the
Ad~inistrative
Procedure Act (5 U.S.C. chapter 5) and the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and therefore, a Regulatory Flexibility
Analysis is not required.
Pursuant to section 7805(f) of the
Internal Revenue Code, this notice.of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
-
5 -
Comments and Public Hearing
Before
these
proposed
regulations
are
adopted
as
final
regulations, consideration will be given to any written comments
(a signed original and eight (8) copies) that are submitted timely
to the IRS.
All comments will be available for public inspection
and copying.
A public hearing has been scheduled for September 8, 1995, at
10
a.m.
in
Constitution
. restrictions,
the
Auditorium,
Avenue
NW,
Internal
Washington,
Revenue
DC.
Building,
Because
of
1111
access
visitors will not be admitted beyond the building
lobby more than 15 minutes before the hearing starts.
The rules of 26 CFR 60l.60l{a) (3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by August 22, 1995, and submit an outline
of the topics to be discussed and the time to be devoted to each
topic (signed original and eight (8) copies) by August 18, 1995.
A period of 10 minutes will be alloited to each person for
making comments.
An agenda
showing the scheduling of the speakers will
be
prepared after the deadline for .receiving outlines has passed.
Copies
of
the agenda will
be available free
hearing.
- 6 -
of charge at the
Drafting Information
The principal author of these regulations is Carl Cooper,
Office of the Associate Chief Counsel (International).
However,
other personnel from IRS and Treasury participated in their
development.
List of Subjec::ts in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as
follows:
PART 1--INCOME TAXES
Paragraph 1.
The authority citation continues to read as
follows:
Authority:
Par. 2.
26 U.S.C. 7S05
* * *
Section 1.S61-S is amended by:
1.
Revising paragraph (e) (3).
2.
Revising paragraph (g), Examples (3)
3.
Removing and reserving paragraph (g), Examples (9)
through~.
lldl.
through i1Ql"and
The revisions read as follows:
§1.S61-S
Computation of taxable income from sources within the
United States and from other sources and activities.
*
*
(e)
*
*
*
*
*
*
(3) Research and experimental expenditures--(i)
Allocation--(A) In general.
The methods of allocation and
- 7 -
·
apportionment of research and experimental expenditures set forth
in this paragraph (e) (3) recognize that research and
experimentation is an inherently speculative activity, that
findings may contribute unexpected benefits, and that the gross
income derived from successful research and experimentation must
bear the cost of unsuccessful research and experimentation.
Expenditures for research and experimentation which a taxpayer
deducts under section 174
ordinar~ly
shall be considered
deductions v:hich are definitely related to all income reasonably
connected with the relevant broad product category (or
categories) of the taxpayer and therefore allocable to all items
of gross income as a class (including income from sales,
royalties, and dividends) related to such product category (or
categories).
For purposes of this allocation, the product
category (or categories) which a taxpayer may be considered to
have shall be deternined in accordance with the provisions of
paragraph
(B)
(~)
(3) (i) (B) of this section.
Deter~ination
of product categories.
Ordinarily, a
taxpa~er's research and experimental expenditures may be divided
between the relevant product categories;
\\here research and
experimentation is conducted with respect to more than one
product category, the taxpayer may aggregate the categorie's for
purposes of allocation and apportionment; however, the taxpayer
may not subdivide the categories.
Where research and
experimentation is not clearly identified with any product
category (or categories), it will be considered conducted with
- 8 -
respect to all the taxpayer's product categories.
A taxpayer
shall determine the relevant product categories by reference to
the three digit classification of the Standard Industrial
Classification Manual (SIC code).
A copy may be purchased from
the Superintendent of Documents, United States Government
Printing Office, Washington, DC
20402.
The individual products
included within each category are enumerated in Executive Office
of the President, Office of Management and Budget, Standard
Industrial Classification Manual, 1987 (or later editicn, as
o
available).
Once a taxpayer selects a product category for the.
first taxable year for
~hich
this paragraph (e) (3) is effective
with respect to the taxpayer, it must continue to use that
product category in following years, unless the taxpayer
establishes to the satisfaction of the Commissioner that,· due to
changes in the relevant facts, a change in the product category
is appropriate.
For this purpose, a change in the taxpayer's
selection of a product category shall include a change from a
three digit SIC code category to a two digit SIC code
change from a two digit SIC code category to
~
c~tegory,
a
three digit SIC
code category, or any other aggregation, disaggregation or change
of a previously selected SIC code category.
code category
"\~holesale
The two digit SIC
trade" is not applicable with respect to
sales by the taxpayer of goods and services from any other of the
taxpayer's product categories and is not applicable with respect
to a domestic international sales corporation (DISC) or foreign
sales corporation (FSC) for which the taxpayer is a related
-
9 -
supplier of goods and services from any of the taxpayer's product
categories.
The two digit SIC code category "Retail trade" is
not applicable with respect to sales by the taxpayer of goods and
services from any other of the taxpayer's product categories,
except Wholesale trade, and is not applicable with respect to a
DISC or FSC for which the taxpayer is a related supplier of goods
and services from any other of the taxpayer's product categories,
except Wholesale trade.
(C)
Affiliated Group.
(e) (3) (i) (C)
(~)
(1)
Except as provided in paragraph
of this section, the allocation and apportionment
required by this paragraph (e) (3) shall be determined as if all
members of the affiliated group (as defined in §1.861-14T(d»
were a single corporation.
(~)
See §1.861-14T.
For purposes of the allocation and apportionment
required by this paragraph (e) (3), sales and gross income from
products produced in whole or in part in a possession by an
electing corporation (within the meaning of section
936(h) (5) (E»,
not be'
ta~en
(e) (3) (i) (C)
~nd div~dends
from an electing corporation, shall
into account, except that this paragraph
(~)
shall not apply to sales of (and gross income and
dividends attributable to sales of) products with respect to
which an election under section 936(h) (5) (F) is not in effect.
(d)
The research and experimental expenditures taken into
account for purposes of this paragraph (e) (3) shall be reduced by
the amount of such expenditures included in computing the costsharing amount (determined under section 936(h) (5) (C) (i) (I».
- 10 -
(D) Exception.
Where research and experimentation is
undertaken solely to meet legal requirements imposed by a
political entity with respect to improvement or marketing of
specific products or processes, and the results cannot reasonably
be expected to generate
a~ounts
of gross income (beyond de
minimis amounts) outside a single geogr.aphic source, the
deduction for such research and experimentation shall be
considered definitely related and therefore allocable only to the
grouping (or
gro~~i~gs)
of gross income within that geographic
~.
source as a class (and apportioned, if necessary, between such
groupings as set forth in paragraph (e) (3) (ii) (B) and (iii) of
this section).
.
For example,
~here
a taxpayer performs tests on a
product in response to a requirement imposed by the
Drug
Ad~inistration,
u.s.
Food and
and the test results cannot reasonably be
expected to generate amounts of gross income (beyond de minimis
a~ounts)
outside the United States, the costs of testing shall be
allocated solely to gross income from sources within the United
.States.
(ii) Apportionment of research and experirnentation--sales
method--(A) Exclusive apportionment.
Where an apportionment
based upon geographic sources of income of a deduction for
research and experimentation is necessary (after applying ~he
exception in paragraph (e) (3) (i) (D) of this section), an amount
equal to fifty percent (50%) of such deduction for research and
experimentation shall be apportioned exclusively to the statutory
grouping of gross income or the residual grouping of gross
-
11 -
income, as the case may be, arising from the geographic source
where the research and experimental activities which account for
more than fifty percent (50%) of the amount of such deduction
were performed.
If the fifty percent test of the preceding
sentence is not met, then no part of the deduction shall be
apportioned under this ~aragraph(e) (3) (ii) (A).
This exclusive
apportionment reflects the view that research and experimentation
is often most valuable in the country where it is performed, for
two reasons.
Fir~~;_research
and experinentation often benefits
a broad product category, consisting of many individual products,
all of
~hich
may be sold in the nearest market but only some of
which may be sold in foreign markets.
Second, research and
experimentation often is utilized in the nearest market before it
is used in other markets, and in such cases, has a lower value
per unit of sales when used in foreign markets.
The
t~xpayer
may
establish to the satisfaction of the Cornnissioner that, in its
case, one or both of the conditions mentioned in the preceding
sentences
~arratit
a significantly greater percent than 50 percent
(50%) because the reseaich and experimentation is reasonably
expected to have very limited or long delayed application outside·
the geographic source where it was performed.
For purposes of
establishing that only some products within the product category
(or categories) are sold in foreign markets, the taxpayer shall
compare the commercial production of individual products in
domestic and foreign markets made by itself, by uncontrolled
parties (as defined under paragraph (e) (3) (ii) (C) of this
- 12 -
section) of products involving intangible property
~hich
was
licensed or sold by the taxpayer, and by those controlled
corporations (as defined under paragraph (e) (3) (ii) (D) of this
section) which can reasonably be expected to benefit directly or
indirectly from any of the taxpayer's research expense connected
with the product category (or categories).
The individual
products compared for this purpose shall be limited, for
nonrnanufactured categories, solely to those enumerated in
'.
Executive Office of.the President, Office of Management and
.
Budget Standard Industrial Classification Manual, 1987 (or later
edition, as available), and, for manufactured categories, solely
to those enumerated at a 7-digit level in the U.S. Bureau of the
Census, Census of Manufacturers: 1992, Numerical List of
Manufactured Products, 1993,
(or later edition, as available).
Copies of both of these documents may be purchased from the
~uperintendent
of Documents, United States Government Printing
Office, \\ashington, DC
20402.
For purposes of establishing the
delayed application of research findings abroad, the taxpayer
shall
co~pare
the commercial introduction of its own particular
products and processes (not limited by those listed in the
Standard Industrial Classification Manual or the Numerical List
of Manufactured Products) in the United States and foreign
markets, made by itself, by uncontrolled parties (as defined
under paragraph (e) (3) (ii) (C) of this section) of products
involving intangible property which was licensed or sold by the
taxpayer, and by those controlled corporations (as defined under
- 13 -
paragraph (e) (3) (ii) (D) of this section) which can reasonably be
expected to benefit, directly or indirectly, from the taxpayer's
research expense.
For purposes of evaluating the delay in the
application of research findings in foreign markets, the taxpayer
shall use a safe haven discount rate of 10 percent per year of
delay unless he is able to establish to the satisfaction of the
Commissioner, by reference to the cost of money and the number of
years during which economic benefit can be directly attributable
to the results of the taxpayer's research, that another discount
.' -.
~~
rate is more appropriate.
(B) Renaining apoortionment.
The amount equal to the
reffiaining portion of such deduction for research and
experimentation, not apportioned under paragraph (e) (3) (ii) (A) of
this section, shall be apportioned between the statutory grouping
(or among the statutory groupings) within the class of gross
inco~e
and the residual grouping within such class in the same
proportions that the arnount of sales from the product category
(or categories) which
resu~ted
in such gross income within the
statutory grouping (or statutory grouping$) and in the residual
grouping bear, respectively, to the total amount of sales from
the product category (or categories).
For purposes of this
paragraph (e) (3), amounts received from the lease of equipment
during a taxable year shall be regarded as sales receipts for
such taxable year.
Amounts apportioned under this paragraph
(e) (3) may exceed the amount of gross income related to the
product category within the statutory grouping.
- 14 -
In such case,
the excess shall be applied against other gross income within the
statutory grouping.
See paragraph (d) (1) of this section for
instances where the apportionment leads to an excess of
deductions over gross income within the statutory grouping.
(C) Sales of uncontrolled parties.
For purposes of the
apportionment under paragraph-(e) (3) (ii) (B) of this section, the
sales from the product category (or categories) by each party
uncontrolled by the taxpayer, of particular products involving
intangible property which was licensed or sold by the'taxpayer to
such uncontrolled party shall be taken fully into account both
for determining the taxpayer!s apportionment and for determining
the apportionment of any other
me~ber
of a controlled group of
corporations to which the taxpayer belongs if the uncontrolled
party can reasonably be expected to benefit directly or
indirectly (through any
me~ber
of the controlled group of
corporations to which the taxpayer belongs) from the research
expense connected with the product category (or categories) of
such other menber,
In the case of licensed products, if the
anount of sales of such products is unknown (for example, where
the licensed product is a conponent of a large machine), a
reasonable estimate should be made.
In the case of sales of
intangible property, and in cases where a reasonable estimate of
sales of licensed products cannot be made, the sales taken into
account shall be an amount which is ten times the amount received
or accrued for the intangible during the taxpayer's taxable year.
For purposes of this paragraph (e) (3) (ii) (C), the term
- 15 -
uncontrolled party means a party
~hich
is not a person with a
relationship to the taxpayer (specified in section 267(b», or is
not a member of a controlled group of corporations to which the
taxpayer belongs (within the meaning of section 993(a) (3) or
section 927(d) (4».
An uncontrolled party can reasonably be
expected to benefit from the
~esea~ch
expense of a member of a
controlled group of corporations to which the taxpayer belongs if
such member can reasonably be expected to license, sell, or
transfer intangible
,
~roperty
to that uncontrolled party or
.~
transfer secret processes to that uncontrolled party, directly or
indirectly through a menber of the controlled group of
corporations to
~hich
the taxpayer belongs.
(D) Sales of controlled parties.
apportion~ent
For purposes of the
under paragraph (e) (3) (ii) (B) of this section, the
sales from the product category (or categories) of the taxpayer
shall be ta}:en fully into account and the sales from the product
category (or categories) of a corporation controlled by the
taxpayer shall .be taken into account to the extent provided in
thii ~aragr~ph (e) (3) (ii) (D) .for determining the taxpayer's
apportionment, if such corporation can reasonably be expected to
benefit directly .or indirectly (through
anothe~
member of the
controlled group of corporations to which the taxpayer belongs)
from the taxpayer's research expense connected with the product
category
(~r
categories).
However, sales from the product
category (or categories) between or among such controlled
corporations or the taxpayer shall not be taken into account more
- 16 -
th~n
once; in such a situation, the amount sold by the selling
corporation to the buying corporation shall be subtracted from
the sales of the buying corporation.
For purposes of this
paragraph (e) (3) (ii) (D), the term a corporation controlled by the
taxpayer means any corporation other than an uncontrolled party·
as defined in paragraph
(~)
(3) (ii) (C) 6f this section.
A
corporation controlled by the taxpayer can reasonably be expected
to benefit from the taxpayer's research expense if the taxpayer
can be expected
t~~~icense,
sell, or transfer intangible property
to that corporation or transfer secret processes to that
corporation, either directly or indirectly through a menber of
the controlled group of corporations to which the taxpayer
belongs.
Past experience with research and experimentation shall
be considered in determining reasonable expectations.
However,
if the corporation controlled by the taxpayer has entered into a
bona fide cost-sharing arrangenent, in accordance with the
provisions of §1.4B2-7, with the taxpayer for the purpose of
'developing intangible property, ·then that corporation shall not
reasonably··be expected to benefit from the taxpayer's share of
the research expense.
The sales from the product category (or
categories) of a corporation controlled by the taxpayer taken
into account shall be equal to the amount of sales that bear the
same proportion to total sales of ·the controlled corporation as
the taxpayer's direct or indirect ownership, as defined in
section 1563, of the total combined voting power of all classes
of stock entitled to vote of such corporation bears to the total
- 17 -
outstanding
co~bined
voting power of all such classes of stock of
such corporation.
(iii) Apportionment of research and experimentation--gross
income methods.
In lieu of apportioning the deduction
fo~
research and experimental expense under paragraph (e) (3) (ii) of
this section, a taxpayer may make a binding election pursuant to
paragraph (e) (3) (iii) (C) of this section to apportion such
deduction, as prescribed in paragraph (e) (3) (iii) (A) or (B) of
this section, between the statutory grouping (or among the
,.',.
*M
.. -
statutory groupings) of gross income and the residual grouping of
gross income.
These optional methods must be applied.to the
taxpayer's entire deduction for research and experimental expense
remaining after applying the exception
i~
paragraph (e) (3) (i) (D)
of this section, and nay not be applied on a product category
basis.
Thus, after the allocation of the taxpayer's entire
deduction for research and experinental expense under paragraph
(e) (3) (i) of this section (by attribution to SIC code
categories), the taxpayer must then apportion as necessary the
entire deduction as allocated by separate amounts to various
product categories, using only the sales method under paragraph
(e) (3) (ii) of this section or only the optional gross income
methods under this paragraph (e) (3) (iii).
The taxpayer may not
use the sales method for a portion of the deduction and optional
gross income methods for the remainder of the deduction
separately allocated.
- 18 -
(A) Option one.
The taxpayer may apportion its research and
experimental expenditures ratably on the basis of gross income
between the statutory grouping (or among the statutory groupings)
of gross income and the residual grouping of gross income in the
same proportions that the amount of gross income in the statutory
grouping (or groupings) and the amount of gross income in the
residual grouping bear,
respe~tively,
to the total amount of
gross income, if both of the following two conditions are met.
(1) The amount_of research and experimental expense ratably
.;
.... . -
apportioned to the statutory grouping (or groupings in the
aggregate)
is not less than fifty percent (50%) of the amount
which would have been so apportioned if the taxpayer had used the
method described in paragraph (e) (3) (ii) of this section; and
(1) The amount of research and experimental expense ratably
apportioned to the residual grouping is not less than fifty
percent (50%) of the
a~ount
~hich
~ould
have been so apportioned
if the taxpayer had used the method described in paragraph
(e) (3.) (ii)
of this section.
(B) Option two.
If, when the amount of research and
experimental expense is apportioned ratably on the basis of gross
income, either of the conditions described in paragraph
(e) (3) (iii) (A) (1) or (1) of this section is not met, the taxpayer
may either-(1)
Where the condition of paragraph (e) (3) (i i i) (A) (1) of
this section is not met, apportion fifty percent (50%) of the
amount of research and experimental expense which would have been
- 19 -
apportioned to the statutory grouping (or groupings in the
aggregate) under paragraph (e) (3) (ii) of this section to such
statutory grouping (or to such statutory groupings in the
aggregate and then among such groupings on the basis of gross
income within each grouping), and apportion the balance of the
amount of
res~arch
and experimental expenses to the residual
grouping; or
(£) Where the condition of paragraph (e) (3) (iii) (A) (£) of
this section is not met, apportion fifty percent (50%) of the
'amount of research and experimental expense which would have be~n
apportioned to the residual grouping under paragraph (e) (3) (ii)
of this section to such residual grouping, and apportion the
balance of the amount of research and experimental expenses to
the statutory grouping (or to the statutory groupings in the
aggr~gate
and then among such groupings ratably on the basis of
gross income within each grouping).
(e)
Binding election to use optional gross income methods.
A taxpayer may use either the sales method under paragraph
(e) (3) (ii) of this section or the
optiona~
gross income methods
under this paragraph (e) (3) (iii) for its return filed for its
first taxable year to which this paragraph (e) (3) applies.
The
taxpayer's use of the optional gross income methods for its
return filed for its first taxable year to which this paragraph
(e) (3) applies or for any subsequent taxable year shall
constitute a binding election to use the optional gross income
methods for all taxable years thereafter.
-
20 -
The taxpayer's
election to use the optional gross income methods may not be
revoked without the prior consent of the Cornnissioner.
(iv)
Special rules for partnerships.
For purposes of
applying this paragraph (e) (3), if research and experimental
exp~nditures
are· incurred by a partnership in which the taxpayer
is a partner, the taxpayer's research and experimental
expenditures shall include the taxpayer's distributive share of
the partnership's research and experimental expenditures.
In
applying the exception for expenditures undertaken to'meet legal
requirenents under paragraph {e} (3) (i) (D) of this section and the
exclusive apportionNent for the sales method under paragraph
(e) (3) (ii) (A) of this section, a partner's distributive share of
research and experimental expenditures incurred by a partnership
shall be treated as incurred by the partner for the same purpose
and in the sane location as incurred by the partnership.
In
"applying the reNaining apportionNent for the sales rnethod under
paragraph (e) (3) (ii) (B) of this section, a taxpayer's sales from
a· product category shall include the taxpayer's share of any
sales frornthe product category of any partnership in which the
taxpayer is a partner.
For purposes of the preceding sentence, a
taxpayer's share of sales shall be proportionate to the
taxpayer's distributive share of the partnership's gross income
in the product category, but the sales of the partnership taken
into account by the taxpayer shall in no event be less than ten
times the amount received or accrued for any intangible from the
partnership during the taxpayer's taxable year.
- 21 -
(v)
ExaMoles.
ExaMples (3) through
~
of paragraph (g) of
this section illustrate the allocation and apportionMent of
research and experimental deductions.
(vi)
Effective date.
This paragraph (e) (3) applies to
taxable years beginning after Decer.ber 31, 1995.
However, the
taxpayer may at its option, apply this paragraph (e) (3) in its
entirety to taxable years beginning after December 31, 1994.
• • • • •
(g) * * *
*
*
*
*
*
Exa~ple 3--Research and Experirnentation--(i} Facts.
X, a
dOMestic corporation, is a ~anufacturer and distributor of sMall
gasoline engines for lawn mowers.
Gasoline engines are a product
within the category, Engines and Turbines (SIC Industry Group
351).
Y, a wholly owned foreign'subsidiary of X, also
Manufactures and sells these engines abroad. During 1996, X
incurred expenditures of $60,000 on research and experimentation,
which it deducts as a current expense, to invent and patent a new
and iMproved gasoline engine. All of the research and
experiMentation ~as performed in the United States.
In 1996, the
do~estic sales by X of the new engine total $500,000 and foreign
sales by Y total $300,000.
X provides technology for the
manufacture of engines to Y via a license that requires the
payment of an arm's length royalty.
In 1996, XiS income is
$150,000, of which $140,000 is from domestic sales and $10,000 is
royal~ies from Y.
.
(ii) Allocation.
The research and ~xperimental expenditures
were incurred in connection with small gasoline engines and they
are definitely related to the items of gross income to which the
research gives rise, namely gross income from the sale of small
gasoline engines in.the United States and royalties receiv~d from
subsidiary Y, a foreign manufacturer of gasoline engines.
Accordingly, the expenses are allocable to this class of gross
income.
(iii) Apportionment.
(A)
For purposes of applying the
foreign tax credit lirnitation, the statutory grouping is general
limitation gross income from sources without the United States
and the residual grouping is general limitation gross income from
sources within the United States. Since the related class of
-
22 -
gross income derived from the use of engine technology consists
of both gross income from sources without the United states
(royalties from Y) and gross income from sources within the
United States (gross income from engine sales), XiS deduction of
$60,000 for its research and experimental expenditure must be
apportioned between the statutory and residual grouping before
the foreign tax credit limitation may be determined.
Because
more than 50 percent of XiS research and experimental activity
was performed in the United States, 50 percent of that deduction
can be apportioned exclusively to the residual grouping of gross.
income, gross income from sources within the United States. The
remaining 50 percent of the deduction can then be apportioned
between the residual and statutory groupings on the basis of
sales by X and Y. Alternatively, XiS deduction for research and
experimentation can be apportioned under the optional gross
income method. The apportionment for 1996 is as follows:
(1)
Tentative Apportionment on the Basis of Sales.
(1)
Research and experimental expense to be apportioned
between residual and statutory groupings of gross income:$60,000
(ii)
Less: Exclusive apportionment of research and
experimental expense to the residual grouping of gross income
($60,000 x 50 percent):
$30,000
(iii)
Research and experimental expense to be apportioned
between residual and .statutory groupings of gross income on the
basis of sales:
$30,000
(iv)
Apportionment of research and experimental expense to
the residual grouping of gross income ($30,000 x
$500,000/($500,000 + $300,000»:
$18,750·
(y)
Apportionment of research and experimental expense to
the statutory grouping of gross income ($30,000 x
$300,000/($500,000 + $300,000»:
$11,250
(vi)
T·otal apportioned deduction for research and
experimentation:
$60,000
Amount apportioned to the residual grouping ($30,000
(vii)
$48,750
+ $18,750):
(viii)
(~)
Amount apportioned to the statutory grouping:
$11,250
Tentative Apportionment on the Basis of Gross Income.
- 23 -
(i) Research and experimental expense apportioned to
sources within the United States (residual grouping) ($60,000 x
$140,000/($140,000 + $10,000)):
$56,000
(ii) Research and experimental expense apportioned to
sources within country Y (statutory grouping) ($60,000 x
$10,000/($140,000 + $10,000)):
$4',000
(iii)
(iv)
Amount apportioned to the residual grouping:
$56,000
Amount apportioned to the statutory grouping:
$4,000
(B)
The total research and experimental expense apportioned
to the statutory grouping ($4,000) under the gross income method
is approximately 36 percent of the amount apportioned to the
statutory grouping under the sales method. Thus, X may use
option two of the gross income method (paragraph (e) (3) (iii) (B)
of this section) ~~d-apportion to the statutory grouping fifty
percent (50%} of the $11,250 apportioned to that grouping under
the sales method. Thus, X apportions $5,625 of research and
experimental expense to the statutory grouping.
XiS use of the
optional gross income method ~ill constitute a binding election
to use the optional gross income method for all taxable years
thereafter.
Example 4--Research and Experimentation--(i) Facts. Assume
the same facts as in E~a~Dle 3 except that X also spends $30,000
i~ 1996 for research on steam turbines, all of which is performed
in the United States, and X has steam turbine sales in the United
States of $400,000.
XiS foreign subsidiary Y neither
manufactures nor sells steam turbines. The steam turbine
research is in addition to the $60,000 in research ~hich X does
on gasoline engines for la~nmowers.
X thus has a deduction of
$90,000 for its research activity.
XiS gross income is $200,000,
of ~hich $140,000 is ~rom sales of gasoline engines, $50,000 is
from sales of stearn turbines! and $10,000 is roya~ties from Y.
(ii) Allocation.
XiS research expenses generate income from
sales of small gasoline engines and stearn turbines.
Both of
these products are in the same three digit SIC code category,
Engines and Turbines (SIC Industry Group 351). Therefore, the
deduction is definitely related to this product category and
allocable to all items of income attributable to it. These items
of XiS income are gross income from the sale of small gasoline
engines and steam turbines in the United States and royalties
from foreign subsidiary Y, a foreign manufacturer and seller of
small gasoline engines.
(iii) Apportionment. (A)
For purposes of applying the
foreign tax credit limitation, the statutory grouping is general
limitation gross income from sources outside the United States
- 24 -
and the residual grouping is general limitation gross income from
sources within the United states. XIS deduction of $90,000 must
be apportioned between the statutory and residual groupings.
Because more than 50 percent af XIS research and experimental
activity was performed in the United states, 50 percent of that
deduction can be apportioned exclusively to the residual
grouping, general limitation gross income from sources within the
united states. The remaining 50 percent of the deduction can
then be apportioned between the residual and statutory groupings
on the basis of total sales by X and Y. Alternatively, XIS
deduction for-research and experimentation can be apportioned
under the optional gross income methods. The apportiQnment for
1996 is as follows:
(~)
Tentative Apportionment on the Basis of Sales.
(1) Research and experimental expense to be apportioned
between residual and statutory groupings of gross income:
$90,000
(ii)
Less: Exclusive apportionment of the research and
experimental expense to the residual grouping of gross income
($90,000 x 50 percent):
$45,000
(iv)
Research and experimental expense to be apportioned
between the residual and statutory groupings of gross income on
the basis of sales:
$45,000
(iv) Apportionment of research and experimental expense to
the residual grouping of gross income ($45,000 x
($500,000 +
400,000)/($500,000 + $400,000 + $300,000»:
$33,750
(y) Apportionment of research and experimental expense to
the statutory grouping of gross income ($45,000 x
$300,000/($500,000 + $400,000 + $300,000»:
$11,250
(vi)
Total apportioned deduction for research and
experimentation:
$90,000
Amount apportioned to the residual grouping ($45,000
(vii)
$78,750
+ $33,750):
(viii)
(~)
Amount apportioned to the statutory grouping:,
$11,250
Tentative Apportionment on the Basis of Gross Income.
(1) Research and experimental expense apportioned to
sources within the united states (residual grouping) ($90,000 x
$190,000/($140,000 + $50,000 + 10,000»:
$85,500
- 25 -
(ii) Research and experimental expense apportioned to
sources ~ithin country Y (statutory grouping) ($90,000, x
$10,000/($140,000 + $50,000 + $10,000»:
$4,500
(iii)
(iv)
Amount apportioned to the residual grouping: $85,500
Amount apportioned to the statutory grouping:
$4,500
(B)
The total research and experimental expense apportioned
to the statutory grouping ($4,500) under the gross income method
is 40 percent of the amount apportioned to the statutory grouping
under the sales method.
Thus, X, may use option two of the gross
income method (paragraph (e) (3) (iii) (B) of this section) and
apportion to the statutory grouping fifty percent (50%) of the
$11,250 apportioned to that grouping under the sales method.
Thus, X apportions $5,625 of research and experimental expense to
the statutory grouping.
XiS use of the optional gross income
method will cons~itute a binding election to use the optional
gross income method for all taxable years thereafter.
Exar'.p Ie 5-Research and Exper ir.;entation-- (i) Facts.
Assume
the same facts as in Exa~ple 1 except that in 1997 X continues
its sales of the new engines, with sales of $600,000 in the
United States and $~OO,OOO by subsidiary Y.
X also acquires a 60
percent o~nership interest in foreign corporation Z and a 100
percent ownership interest in foreign corporation C.
X transfers
its engine technology to Z for a royalty equal to 5 percent of
sales, and X enters into an arm's length cost-sharing arrangement
with C to share the funding of all of XiS research activity.
In
1997, 'corporation Z has sales in country Z equal to $1,000,000.
X incurs expense of $80,000 on research and experimentation in
1997, and in addition, X performs $15,000 of research on gasoline
engines which was funded by the cost-sharing arrangement ~ith C.
All of Z's sales are from the product category, Engines and
Turbines (SIC Industry Group 351).
X performs all of its
research in the United. States and $20,000 of its expenditure of
$80,000 is made solely to meet .pollution standards mandated by
law.
X establishes, ·to the satisfaction 01 the Commissioner,
that the expenditure in response to pollution standards is not
expected to generate gross income (beyond de minimis amounts)
outside the United States.
(ii) Allocation. The $20,000 of research expense which X
incurred in connection with pollution standards is definitely
related and thus allocable to the residual grouping, general
limitation gross income from sources within the United States.
The remaining $60,000 in research and experimental expenditure
incurred by X is definitely related to all gasoline engines and
is therefore allocable to the class of gross income to which the
engines give rise, gross income from sales in the United States,
royalties from country Y, and royalties from country Z.
No part
- 26 -
of the $60,000 research expense is allocable to dividends from
country C, because corporation C has already paid, through its
cost-sharing arrangement, for research activity performed by X
which may benefit C.
(iii) Apportionment.
For purposes of applying the foreign
tax credit limitation, the statutory grouping is general
.
limitation gross income from sources without the united States,
and t~e residual grouping is general limitation gross income from
sources within the United states. XiS deductio~ of $60,000 for
its research and experimental expenditure must be apportioned
between these groupings. Because more than 50 percent of the
research and experimentation was performed in the United States,
50 percent of the $60,000 deduction can be apportioned
exclusively to the residual grouping. The remaining 50 percent
of the deduction can then be apportioned between the residual and
the statutory grouping on the basis of sales by X, Y, and Z. (If
X utilized the optional gross income methods in 1996, then its
use of such methods constituted a binding election to use the
optional gross income methods for all taxable years thereafter.
The optional gross income methods are not illustrated in this
Example 5 (see instead Examples 3 and ~».
Since X has only a 60
percent ownership interest in corporation Z, only 60 percent of
Z's sales (60% of $1,000,000, or $600,000) are included for.
purposes of apportionment. The allocation and apportionment for
1997 is as follows:
(A)
XiS
total research expense:
$80,000
(B)
Less: Legally mandated research directly allocated to
the residual grouping of gross income:
$20,000
(C)
Tentative apportionment on the basis of sales.
(1)'
Research and ,experimental expense to be apportioned
between residual and statutory groupings of gross income.
$60,000
(£) Less: Exclusive apportionment of research and
experimental expense to the residual grouping of gross income
($60,000 x 50 percent):
$30,000
(1) Research and experimental expense to be apportioned
between the residual and the statutory grouping on the basis of
sales:
$30,000
(~)
Apportionment of research and experimental expense to
general limitation gross income from sources within the united
states (residual grouping)
($30,000 x $600,000 / ($600,000 +
$400,000 + $600,000»:
$11,250
- 27 -
(2) Apportionment of research and experimental expense to
general limitation gross income from countries Y and Z (statutory
grouping) ($30,000 x $400,000 + $600,000/($600,000 + $400,000
+$600,000»:
$18,750 .
(£)
Total apportioned deduction for research and
experimentation ($30,000 + $30,000):
(1)
$11,250):
60,000
Amount apportioned to the residual grouping ($30,000 +
$41,256
(!) Amount apportioned to the statutory grouping of sources
within countries Y and Z:
$18,750
Example 6--Research and Experimentation--(i) Facts. X, a
domestic corporation, manufacturers and sells forklift trucks and
other types of materials handling equipment in the United States.
The manufacture anq-sale of forklift trucks and other materials
handling equipment belongs to the product category, Construction,
Mining, and Materials Handling Machinery and Equipment (SIC
Industry Group 353). X also sells its forklift trucks to a
wholesaling subsidiary located in foreign country Y (but title
passes in the United States), and X manufactures forklift trucks
in foreign country Z. The wholesaling of forklift trucks to
country Y also belongs to XIS product cat~gory Transportation
equipment and, therefore, ~ay not belong to the product category,
Wholesale trade (SIC Major Group 50 and 51).
In 1997, X sold
$7,000,000 of forklift trucks to purchasers in the United States,
$3,000,000 of forklift trucks to the wholesaling subsidiary in Y,
and transferred forklift truck co~ponents with an FOB export
value of 52,000,000 to its branch in Z. The branch's sales of
finished forklift· trucks were $5,000,000.
In response to legally
mandated e~ission control require~ents, XIS United States
research department has been engaged in a research project to
improve the performance and quality of engine exhaust systems
used on its products in the United States.
It incurs expenses of
$100;000 for this purpose in 1997.
In the past, X has
customarily ·adapted the produet improvements developed originally
for the domestic market to its forklift trucks manufactured
abroad.
During the taxable year 1997, development of an improved
engine exhaust system is co~pleted and X begins installing the
new system during"the latter part of the taxabl~ year in products
manufactured and sold in the United States. X continues to
manufacture and sell forklift trucks in foreign countries without
the improved engine exhaust systems.
(ii) Allocation.
deduction for its research expense is
definitely related to the income to which it gives rise, namely
income from the manufacture and sale of forklift trucks within
the United States and in country Z. Although the research is
undertaken in response to a legal mandate, it can reasonably be
XIS
- 28 -
expected to generate gross income from the manufacture and sale
of trucks by the branch in Z. Therefore, the deduction is not
allocable solely to income from XIS domestic sales of forklift
trucks.
It is allocable to income from such sales and income
from the sales of XIS branch in Z.
(iii) Apportionment. For the method of apportionment on the
basis of either sales or gross income, see example 3. However,
in determining the amount of research apportioned to income .from
foreign and domestic sources, the net sales of the branch in Z '
are $3,000,000 ($5,000,000 less $2,000,.000) and the sales within
the United States are $12,000,000 ($7,000,000 plus $3,000,000
plus $2,000,000).
Example 7--Research and Experirnentation--(i) Facts.
X, a
domestic corporation, is a drug company which manufactures a wide
variety of pharmaceutical products for sale in the United ·States.
Pharmaceutical pr"GQuets belong to the product category, Drugs
(SIC Industry Group 283).
X exports its pharmaceutical products
through a foreign sales corporation (FSC).
XIS wholly owned
foreign subsidiary Y also man~factures pharmaceutical products.
In 1997, X has domestic sales of $10,000,000, the FSC has sales
of $3,000,000, and Y has sales of $5,000,000.
In that same year,
1997, X incurs expense 6f $200,000 on research to test a product
in response to requirements imposed by the United States Food and
Drug Administration (FDA).
X is able to show that, even though
country Y imposes certain testing requirements on pharmaceutical
products, the research performed in the United States is not
accepted by country Y for purposes of its own licensing
requirements, and the research has minimal use abroad.· X is
further able to show that its FSC sells goods to countries which
do not accept or do not require research performed in the United'
States for purposes of their own licensing standards.
(ii) Allocation. Since Xls,research expense of $200,000 is
undertaken to meet the requirements of the United States Food and
Drug Administration, and since it is reasonable to expect that
the expenditure will not generate gross income (beyond de minimis
amounts) outside the United States, the deduction is definitely
related and thus allocable to the residual grouping.
(iii) Apportionment.
No apportionment is necessary since
the entire expense is allocated to the residual grouping, general
limitation gross income from sales within the United States.
Example 8--Research and Experimentation--(i) Facts.
X, a
domestic corporation, is engaged in continuous research and
experimentation to improve the quality of the products that it
manufactures and sells, which are floodlights, flashlights, fuse
boxes, and solderless connectors.
X incurs and deducts $100,'000
of expenditure for research and experimentation in 1997 which was
- 29 -
perfor~ed
exclusively in the United States. As a result of this
research activity, X acquires patents which it uses in its own
manufacturing activity. X licenses its floodlight patent to Y and
Z, uncontrolled foreign corporations, for use in their own
territories, countries Y and Z, respectively.
Corporation Y pays
X an armis length royalty of $3,000 plus $0.20 for each
floodlight sold. Sales of floodlights by Y for the taxable year
are $135,000 (at $4.50 per unit) or 30,000 units, and the royalty
is $9,000 ($3,000 + $0.20 x 30,000). Y has' sales of other
products of $500,000.
Z pays X an armis length royalty of $3,000
plus $0.30 for each unit sold.
Z manufactures 30,000 floodlights.
in the taxable year, and the royalty is $12,000 ($3,000+$0.30 x
30,000). The dollar value of ZIS floodlight sales is not known
and cannot be reasonably estimated because, in this case, the
floodlights are not sold separately by Z but are instead used as
a component in ZIS manufacture of lighting equipment for
theaters.
~he sales of all ZIS products, including the lighting
equipment for theRters, are $1,000,000. Y and Z each sell the
floodlights exclus!vely within their respec·tive countries. XiS
sales of floodlights for the taxable year are $500,000 and its
sales of its other products, flashlights, fuse boxes, and
solderless connectors, are $~OO,OOO.
X has gross income of
$500,000, consisting of gross income from domestic sources of'
$479,000, and royalty income of $9,000 and $12,000 from foreign
corporations Y and Z respectively.
(ii) Allocation. XiS research and experimental expenses are
definitely related to all of the products that it produces, which
are floodlights, flashlights, fuse boxes, and solderless
connectors. All of these products are in the same three digit
SIC Code category, Electric Lighting and Wiring Equipment (SIC
Industry Group 364). Thus, XiS research and experimental
expenses are allocable to all items of income attributable to
this product category, domestic sales income and royalty income
from the foreign countries in which corporations Y and Z operate.
(iii) Apportionment. (A)
The statutory grouping of gross
income is general limitation' income from sources without the
United States. The residual grouping is general limitation gross
income from sources within the United States. XiS deduction of·
$100,000 for its research expenditures must be apportioned
between the groupings.
For apportionment on the basis of sales
in accordance with paragraph (e) (3) (ii) of this section, X is
entitled to an exclusive apportionment of 50 percent of its
research and experimental expense to the residual grouping,
general limitation gross income from sources within the United
States, since more than 50 percent of the resea~ch activity was
performed in the United States. The remaining 50 percent of the
deduction can then be apportioned between the residual and
statutory groupings on the basis of sales. Since Y and Z are
unrelated licensees of X, only their sales of the licensed
- 30 -
product., floodlights, are included for purposes of apportionment.
Floodlight sales of Z are unknown, but are estimated at ten times
royalties from Z, or $120,000. All of XiS sales from the entire
product category are included for purposes of apportionment on
the basis of sales. Alternatively, X may apportion its deduction
on the basis of gross income, in accordance with paragraph
(e) (3) (iii) of this section. The apportionment is as follows:
(~)
Tentative Apportionment on the basis of sales.
(i)
Research and experimental expense to be apportioned
between statutory and residual groupings of gross income:
$100,000
(ii)
Less:. Exclusive apportionment of research and
experimental expense to the residual groupings of gross income
($100,000 x 50 percent):
$50,000
(iii)
Research and experimental expense.to be apportioned
between the statutory and residual groupings of gross income on
the basis of sales:
$50,000
(iv) Apportionment of research and experimental expense to
the residual groupings of gross income ($50,000 x
$900,000/($900,000 + $135,000 + $120,000»:
$38,961
(y) Apportionment of research and experimental expense to
the statutory grouping, royalty income from countries Y and Z
($50,000 x $135,000 + $120,000/($900,000 + $135,000 +
$120,000»:
$11,039
(vi)
Total apportioned deduction for research and
experimentation:
$100,000
(Yii)
Amount apportioned to the residual grouping ($50,000
+ $38,961)i
$88,961
(viii) Apportioned to the statutory grouping of sources
within countries Y and Z:
$11,039
(£)
Tentative apportionment on gross income basis.
(1) Apportionment of research and experimental expense to
the residual grouping of gross income ($100,000 x
$479,000/$500,000):
$95,800
(ii)
Apportionment of research and experimental expense to
the statutory grouping of gross income ($100,000 x $9,000 +
$12,000/$500,000):
$4,200
(iii)
Amount apportioned to the residual grouping: $95,800
- 31 -
(lY) Amount apportioned to the statutory grouping of
general limitation income from sources without the United
States:
$4,200
(B)
Since XiS apportionment on the basis of gross income to
the statutory grouping, $4,200, is less than 50 percent of its
apportionment on the basis of sales to the statutory grouping,
$11,039 it may use Option two of paragraph (e) (3) (iii) (B) of this
section and apportion $5,520 (50 percent of $11,039) to the
statutory gro~ping.
- 32 -
Examoles (9) through (16)--[Reserved)
Examole (23)-- [Reserved]
'* '* ." '* '*
/711O.,v.X'~ J)}~7..,u... ~~
I
Commissioner of Internal Revenue
l-1 a r'"gar e t
Nil n erR i c h a r d son
£~{)~v,---
DALE D. G)ODE
CERi Ir~EC' CO?y
PROPOSAL TO AMEND R&E ALLOCATION RULES
Washington -
The Treasury released a study today analyzing
the relationship between U.S. research and experimentation (R&E)
and foreign income.
Simultaneously with the release of this
study, the Internal Revenue Service has issued proposed
regulations that would modify the current regulations governing
the allocation of R&E expenditures (Treas. Reg. §1.861-8(e) (3))
based on Treasury's economic analysis.
The 1977 regulations have been subject to ten temporary
moratoria since their adoption.
The last such moratorium,
adopted by the Omnibus Revenue Reconciliation Act of 1993,
generally expired on December 31, 1994.
The new regulations are
proposed to be effective, at taxpayers' election, as of January
1, 1995.
The Treasury study released today summarizes two different
methodologies developed by Treasury to evaluate the factual
relationship between U.S.-based R&E and income from foreign
sources.
The study concludes that although the overall
allocation produced by the 1977 regulations is in the middle of
the range of acceptable allocations, these regulations may be
unfair to a significant number of taxpayers whose domestic R&E
has little application abroad.
Therefore, the study proposes
that the allocation of domestic R&E to foreign source income be
reduced by about 25 percent as compared to the 1977 regulations.
Three major amendments to the 1977 regulations are being
proposed today to effect this reduced overall allocation of R&E
(more)
2
expenses to foreign source income.
apportionment to
u.s.
(1) The exclusive
source income will be increased from the
current 30 percent to 50 percent.
(2) Taxpayers will be allowed
to allocate R&E expenses based on three-digit SIC code
classifications, instead of the two-digit classifications
required by the current regulations.
(3) The use of the gross
income method of allocation will be made subject to a binding
election.
These amendments are proposed to be effective sixty
days after a notice of final rulemaking is published in the
Federal Register.
However, taxpayers may elect to utilize the
new regulations beginning in the first year following the
expiration of section 864(f) as amended by OBRA '93.
For
calendar year taxpayers, this will be the 1995 calendar year.
-30-
DEPARTMENT
OF
TREASURY(,
THE
TREASURY
NEWS
~/7~. . . . . . . . . . . .- -
. .- - - -_ _. ._ _ _ _
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 23,1995
STATEMENT OF TREASURY DEPUTY SECRETARY FRANK NEWMAN
ON PROMOTING ECONOMIC GROWTH, EMPLOYMENT, AND SOCIAL
PROGRESS
OECD MINISTERIAL MEETING
PARIS
Chairman Solbes. Secretary·General Paye, fellow delegates: It is a pleasure to be joining
Secretary Bro'WIl and Secretary Reich at the OBeD ministerial meeting at this time. Despite
concerns about recent fmanciaI market developments, the global economy looks reasonably
strong, offering the real prospect of continued broad-based improvement in living standards.
Solid and more balanced growth in the OECD· this year is generating important
employment gains. but is not threatening the best inflation performance many countries have seen
in 30 years. Better performance in the industrial countries has been mutually reinforcing with
improved growth prospects in the developing world and the transition economies.
In the United States, growth is now slowing to a more moderate pace. The recent fall in
long-tenn interest rates is evidence that inflation expectations remain muted_ A great deal has
been written of the difficulty of achieving a "soft landing", but all the signs point in that
direction.
Our fiscal position is the strongest it has been in a decade. Because of the major
reductions in the budget deficit that were accomplished in the past two years, our government
sector budget deficit, in relation to GDP, is now the lowest among 0·7 countries.
We are committed to continued reduction of our budget deficits, and it is clear that many
members of Congress share that commitment. Negotiations over the next few months will be
difficult. But we are convinced that - at the end •• we will achieve the goal set forth by the
President -- keeping the budget deficit as a share of the economy on a firmly declining path over
the balance of the decade. while maintaining growth in GOP and productivity.
RR·313
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040 .
The increased integration of capital markets and technological advances create new
opportunities and the promise of more rapid growth of investment and economic activity. At the
same time, there is no denying that in today's highly integrated markets, financial disturbances
can be rapidly transmitted across markets.
In this regard, developments in exchange markets have been a matter of concern. and warn
against slipping into complacency. Last month, the G· 7 agreed th~t recent movements have gone
beyond the levels justified by underlying economic conditions in the major countries, and agreed
that orderly reversal of those movements is desirable.
As we have stated on many occasions, the Administration believes that a stronger dollar
is in America's national interest. To this end, the United States is fully committed to the sound
monetary and fiscal policies necessary to achieve sustained growth with low inflation.
The global financial marketplace is growing rapidly. with ever more complex instruments
that pose new challenges to our ability to ensure that the markets remain robust in the face of
potential shocks. Supervisors and regulators need to strengthen their cooperative efforts to ensure
that financial authorities' oversight capabilities keep pace with the rapid expansion in these
markets.
I also want to emphasize this Administration's strong commitment to financial
modernization. Last year we secured enactment of interstate banking legislation. This year the
focus is on further mode~ization of our financial system by removing barriers among banking,
securities and insurance activities. These regulatory reforms are designed to allow our financial
system to realize its full potential to innovate and be still more competitive in providing financial
services at home and abroad.
Lastly, a better functioning global economic system also requires liberalization and
protection of international investment. We should seek a world-class Multilateral Agreement on
Investment (MAl) that includes: non· discriminatory national treatment; freedom offunds transfer;
international law standards; and binding dispute settlement. And we believe the OECD should
playa lead role in ensuring a sound Agreement is achieved.
Secretary Brown, Secretary Reich and 1 appreciate the opportunity to discuss these issues
with you and look forward to a thoughtful exchange of ideas during our meetings.
·30-
DEPARTMENT
OF
THE
TREASURY
~'§rj:
_____________\i~~/
~
TREASURY
NEW S
~/78~9"""""""_
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 11 A.M.
May 20, 1995
RUBIN ANNOUNCES WHITE HOUSE SECURITY REVIEW COMPLETION
Treasury Secretary Robert Rubin on Saturday announced completion of the White
House Security Review.
The public recommendations of the review, which began eight months ago, include:
*
Conversion into a pedestrian mall of Pennsylvania Avenue between Madison
Place and 17th Street, State Place and the segment of South Executive Avenue
that connects with State Place.
*
Convening representatives of the Treasury Department and Transportation
Department, including the Federal Aviation Administration, to discuss changes
in the air traffic rules to enhance White House security without unduly
hindering air traffic in the Washington D. C. area.
*
Having the three government agencies -- U.S. Secret Service, U.S. Park
Police and Metropolitan Police Department -- who share jurisdiction for safety
at the White House grounds enter into a Memorandum of Understanding that
would better coordinate their protective efforts and resources.
*
Creation of a forensic task force, including federal and local law enforcement
agencies and fire, rescue and ordnance squads to enhance coordination in
responding to crises at the White House, collecting evidence and coordinating
access to the White House grounds.
*
Ensuring a prompt response to incidents by upgrading communications among
law enforcement agencies and the various White House security posts, with a
comprehensive plan for placing operational command and control in the Secret
Service.
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
*
Coordinating the Secret Service's implementation of the recommendations and
other security measures through Treasury's Office of the Under Secretary
(Enforcement) .
The investigation was set in motion at the direction of then-Secretary Lloyd Bentsen
on September 12, 1994, following the crash of a light plane on the grounds of the White
House. Upon taking office in January 1995, Secretary Rubin fully supported that directive.
Treasury Under Secretary for Enforcement Ronald K. Noble was Chairman.
The review examined:
*
Facts surrounding the September 12, 1994 plane crash on the South Lawn and
the October 29, 1994 shooting by Francisco Martin Duran at the White House
complex.
*
Potential dangers posed to the White House complex and protectees by air or
ground assaults.
*
Adequacy of the procedures and policies used by the Secret Service to address
these dangers.
*
Effectiveness of established mechanisms for communicating to the Secret
Service vital intelligence information concerning possible air and ground
assaults received by relevant federal, state and local authorities.
*
Feasibility of techniques and measures, including state of the art technologies,
to enhance the capability of the Secret Service to safeguard the White House
complex and protectees from air and ground assaults.
*
The need to keep the White House open and accessible to the American public
without jeopardizing valid security concerns.
The investigation interviewed more than 250 individuals, reviewed more than 1,000
documents, consulted technical and public access experts and consulted with experts from
eight countries, including nations that have faced continuous terrorist threats. It met with
representatives of the Washington Metropolitan Area Transit Authority, D. C. Department of
Public Works, National Capital Planning Commission, Presidential Park Commission, U.S.
Chamber of Commerce and the Association of D. C. Civic Associations. It, produced a
classified report of more than 500 pages, with an appendix of more than 260 pages.
(more)
-3To make sure the investigation was comprehensive and objective, the review included
an advisory committee of individuals known for their professional achievement and integrity.
The members are Robert Carswell, former Deputy Secretary of the Treasury and member of
an internal Treasury review of the Secret Service's protective operations after the Kennedy
assassination; William T. Coleman, Jr., former Secretary of Transportation and counsel to
the Warren Commission; Charles W. Duncan, Jr., former Energy Secretary and Deputy
Secretary of Defense; David C. Jones, former Chairman of the Joint Chiefs of Staff; Judith
Rodin, President of the University of Pennsylvania; and William H. Webster, former federal
circuit court judge, Director of the Federal Bureau of Investigation and Director of the
Central Intelligence Agency.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
1REASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
ADV 11 A.M. EST
Text as prepared for delivery
May 20, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
WHITE HOUSE SECURITY REVIEW
Under my authorities as Secretary of the Treasury, I have directed the Secret
Service to take additional steps to protect the President, the institution of the presidency
and the White House complex. As of this morning, unauthorized motor vehicle traffic
may not travel on Pennsylvania Avenue in front of the White House, or use two short
streets on the southwest corner of the complex, and the Pennsylvania Avenue area will
become a pedestrian mall, open to the public. This action was taken reluctantly because
the White House Security Review was unable to identify any alternative that would
ensure the protection of the President and others in the White House complex from
explosives carried by vehicles in the immediate area of the complex. I will go into
greater detail in a moment, but there are a few points I want to make first.
I was kept abreast of the White House Security Review as it progressed and
received a detailed briefing on April 3rd. I went into that briefing skeptical about the
need to make the changes that are now under way. After hearing from experts on the
technical aspects these matters, I left convinced that it was imperative that we improve
the security afforded the President and the White House. About two weeks after the
briefing on White House security, the Oklahoma City bombing occurred. That terrible
tragedy and the means used to create the enormous devastation, only served to reinforce
and confirm the absolute necessity of these actions to protect the President, those who
will succeed him, and the White House.
To put events into perspective, if you'll recall my predecessor, Se~retary Bentsen,
set this security review in motion Sept. 12 following the crash of a light plane on the
grounds of the White House. The October 29th shooting incident on the sidewalk
outside the building involving a man with a semi-automatic rifle was included in the
review. Since then there have been several other minor incidents around the complex,
and the report was given greater scope.
RR-315
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
The White House was built in another era, when security concerns were not as
great.
We are an open society, a nation of freedoms found in very few parts of the
world, and access to the White House symbolizes all of that. But the Oklahoma City
bombing and the World Trade Center tragedy remind us that we must live with the
reality that the threat of terrorism has grown and is very real. Our own Capitol Building
was damaged by a bomb 12 years ago.
We have chosen an approach that fully preserves the opportunity for Americans
to visit the White House, fully preserves access on foot, and still permits drive-by viewing
of the front of the White House, but from further away, on the other side of Lafayette
Square, while at the same time meeting the security needs of the President, the
presidency, the White House and the 5,000 visitors each day who come to see the White
House.
I and the team of experts presented the report of the White House Security
Review to the President and informed him of the steps being taken. Last night he
provided his final concurrence. He was satisfied the actions in no way interfered with
the ability of visitors to tour the White House -- the Peoples' House as it's sometimes
called. He was also satisfied that we preserved the access by foot and drive-by viewing
that I have already discussed.
The White House Security Review is classified. It contains 11 major
recommendations on improving security for the White House complex and related issues.
We are making public six of those recommendations, and I will discuss them in detail in
a moment. We are also making available materials from the report, edited and
abbreviated to avoid compromising classified information.
The documents we are making public include an edited recommendations section
and charts, a letter from the Advisory Committee established to oversee the review
unanimously endorsing the report and its 11 major recommendations, a letter from the
Treasury's independent Inspector General, a section on the exhaustive methodology used
to conduct the review, a section on the facts of the two incidents that brought about the
security review, and materials on the evolution of presidential security.
3
This process began eight months ago. The reviewers were directed to look at the
facts of the September plane crash and October shooting incident. They were also
directed to examine the dangers posed to the complex and those entitled to Secret
Service protection, by air or ground assault; the adequacy of the procedures and policies
currently used by the Secret Service to address those dangers; the effectiveness of
communicating threat information; the feasibility of techniques and measures, including
state-of-the-art measures, to enhance the capacity of the Secret Service to safeguard the
complex and protectees from assaults; and, very importantly, the need to keep the White
House open and accessible to the public without jeopardizing valid security concerns.
The White House Security Review was conducted in a three-tiered process. First,
there was a thorough investigation of the relevant events that led to the review,
conducted by the Secret Service under Director Eljay Bowron. Second, Treasury created
a review team and put in charge first, David Douglass, a former Justice Department
attorney who came from the private sector, and later, Elisabeth Bresee, a former
Assistant U.S. Attorney in Washington. The review team worked with the Secret Service
to review those findings and in drafting in the review's report.
Finally, there is the White House Security Advisory Committee I mentioned,
composed of six very distinguished Americans with backgrounds that directly relate to
the work being done in this review. They are Robert Carswell, a former Deputy
Secretary of the Treasury; William Coleman, a former Transportation Secretary; Charles
Duncan, a former Secretary of Energy and Deputy Secretary of Defense; former Joint
Chiefs of Staff Chairman retired Air Force Gen. David Jones; Dr. Judith Rodin, a
psychologist and president of the University of Pennsylvania; and former CIA and FBI
Director William Webster. These six individuals have performed an enormously
valuable service, and I want to thank them personally for their contribution.
The advisory committee was chaired by Treasury Undersecretary for Enforcement
Ron Noble, and Ron has done an exemplary job on a very difficult and demanding issue.
I want to thank Rori and his staff, Director Bowron and the Secret Service, David
Douglass, Ms. Bresee and the review team, their consultants and the members of the
Advisory Committee, for the professionalism and excellence with which this review was
conducted.
It has been an exhaustive and thorough review of every aspect of security issues at
the complex. To evaluate its findings, we need to ask: was it comprehensive and
objective, and, second, were the recommendations proportional to the risk? My answer
to both is, yes. But I also wanted a second opinion on the thoroughness of the work.
The six outside experts we asked to oversee this review unanimously reached the same
conclusion, as did the independent Treasury Inspector General who reviewed the study.
4
To give you some example of the lengths to which the reviewers and advisors
went, the review team consulted with experts from no fewer than eight countries,
including nations which regularly have faced continuous and much more serious terrorist
threats. The review team interviewed three former presidents, and overall interviewed
or received briefings from over 250 individuals from at least 10 government agencies. In
addition, the reviewers met with groups and experts concerned with public access, traffic
and transportation, urban design, and reviewed a good deal of correspondence from
interested individuals.
As a result of the White House Security Review, the following actions, among
others, are being taken or recommendations made:
First, we have recommended that the Departments of Treasury and
Transportation consider changes in the civil air traffic rules to enhance the security of
the White House complex without hindering air traffic in the Washington area.
Two, the review recommends that the law enforcement agencies that share
jurisdiction over the area enter into a memorandum of understanding about coordinating
their work. It recommends an annual review of how incidents were handled, and that
the lead investigating agency be determined by the violation involved, not the physical
location of the suspect.
Three, the review recommends the dedication of forensic experts from the various
federal and local agencies to respond to White House emergencies, with the forensics
group being responsible for collecting evidence, preserving the crime scene and
coordinating access to the White House grounds at those times.
Fourth, the review recommends upgraded communications among law
enforcement agencies and the various White House security posts, as well as a protocol
that establishes that immediate operational command and control will be assumed by the
Secret Service.
Fifth, the Treasury Department, through the Under Secretary for Enforcement,
will ensure that the Secret Service implements the recommendations and will aid in
removing obstacles to the rapid implementation of security measures. In addition, the
Treasury and Defense Departments will ensure that sensitive security-related projects
have oversight at a high level.
5
And sixth, traffic was rerouted this morning around the White House complex,
and Pennsylvania Avenue in front of the White House will be converted to a pedestrian
mall. In addition to permanently closing off Pennsylvania Avenue from Madison Place
to 17th Street, the order I signed last night prohibits unauthorized vehicular traffic on
State Place and that part of South Executive Avenue which connects into State place.
In addition, the Metropolitan Police Department and Secret Service have at least
temporarily restricted Madison Place and the adjoining portion of Pennsylvania Avenue
to 15th street to buses traveling south and east.
To ease commuter concerns, we expect that a portion of eastbound E Street west
of the White House Complex will become a two-way street for those who travel to the
Roosevelt Bridge, the Whitehurst Freeway or Rock Creek Park.
I want to say a few words in closing.
We have in one unique and readily accessible complex a national museum, a
home for the President and the president's family, the offices of the President, the Vice
President, their staffs, Cabinet officers and other senior government officials. Visitors
can park a block away, obtain a ticket, and tour the building and grounds, something
virtually unheard of anywhere else in the world.
The White House belongs to the American people. It has been, still is, and under
this program will remain one of the most accessible homes and offices of a national
leader in the world.
To the citizens of the Washington metropolitan area who will be incop,venienced
by the need to adjust to new traffic patterns, we share your concerns. We have spoken
to Mayor Barry, Delegate Eleanor Holmes Norton, Chairman David Clarke and
Congressman Tom Davis to assure them that we will begin working immediately with
local authorities to address long-term solutions to all of the transportation issues which
today's action creates.
To sum up, these steps continue to provide Americans full pedestrian and touring
access to the White House, and drive-by viewing at a greater distance and, at the same
time, provide an imperative addition to the security of the White House complex, the
president and the institution of the presidency.
-30-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~178~9. . . . . . . . . . . . . ._
. . . . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 11 A.M.
MAY 20, 1995
STATEMENT OF RONALD K. NOBLE
UNDER SECRETARY OF THE TREASURY (ENFORCEMENT)
White House Security Review Press Conference
Thank you Secretary Rubin. The White House Security Review has completed the
most comprehensive analysis of White House security ever conducted: we interviewed over
250 individuals; analyzed over 1,000 documents; and consulted over 20 experts. We also
benefitted greatly from the wisdom and dedication of our Advisors, who volunteered their
efforts and experience to assist the Review. I would like to acknowledge their contribution
and thank them for their guiding hands. Thank you Secretary Coleman, General Jones, and
Judge Webster. I would also like to thank the outstanding staff of the White House Security
Review Team. It has been a pleasure working with you, and you have done a wonderful
job. And finally, I would like to thank Secretary Rubin. He and his predecessor, Secretary
Bentsen, made available the resources necessary to conduct a full and impartial review,
including the talents of the Department's Inspector General and her staff and the General
Counsel's office. I also greatly appreciate Secretary Rubin's careful consideration of, and
support for, the recommendations the Review has made.
One of the things the Review did was to consult representatives of the executive
protective agencies of Great Britain, France, Italy, Japan, Germany, Israel, the Republic of
Korea, and the Vatican. Foremost, what we learned in our comparative assessment is that
the White House is the most publicly accessible executive residence in the world. I assure
you it will remain so. I also want to add that the foreign protective agencies told us that they
model their security operations after those of the Secret Service, whom they consider the best
in the business. Today I add my praise for the fine work of the Secret Service, and I would
like to take this opportunity especially to thank the men and women of the Uniformed
Division, whose job it is to safeguard the White House Complex.
Let me turn now to the Corder and Duran incidents and summarize the Review's
RR-316
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
basic findings. As you know, much of the Review's work relates to broader issues regarding
the protection of the President and the White House and I cannot discuss it publicly. What I
can do, and what I am about to do for the first time, is to share with you details of these two
incidents. This is a small sample of the voluminous information the Review unearthed.
Corder Incident
Let's start first with the Corder incident. On Sunday, September 11, 1994, after
spending an evening consuming alcohol and smoking crack cocaine, Frank Eugene Corder
stole a single-engine Cessna 150L airplane at AIdino Airport in Churchville, Maryland.
Corder was not a licensed pilot but had taken several lessons in that same Cessna.
Corder flew south around Baltimore and into the Washington area in the early hours
of September 12th. At 1:44 am, the National Airport tower received radar transmissions
showing Corder six and a half miles north of the White House, flying at an altitude of 2,700
feet. The airplane descended approximately 1,000 feet over the next three minutes. Corder
then turned south and entered the prohibited airspace surrounding the White House,
designated as P-56. The plane flew towards the Mall descending rapidly, and then dove
directly at the White House at a steep angle of descent. It crashed on the South Lawn at
approximately 1:49 am. The airplane skidded across the ground, struck a magnolia tree, and
carne to rest against the southwest corner of the ground floor of the White House. There
was minimal damage to the mansion. The First Family was staying in Blair House at the
time of the crash, and was never at risk.
Corder died from multiple, massive blunt-force injuries. Based on the physical
evidence, the National Transportation Safety Board concluded that the crash was intentional.
For example, the airplane's velocity on impact clearly exceeded a safe landing speed; the
airplane's wing flaps were up; and its throttle position was full forward. These are not
characteristics of an aircraft that is trying to land safely.
The District of Columbia Medical Examiner ruled Corder's death a suicide, and the
Review did not find evidence inconsistent with this conclusion. Corder suffered from an
array of financial, marital, legal, and substance abuse problems. It appears that Corder was
attempting to fulfill an ambition he had expressed to friends to kill himself in a "big way" by
flying into the White House or the dome of the Capitol Building. These remarks were never
reported to authorities. Prior to this incident, Corder was not on record with the Secret
Service as a potential threat to the President or any other protectee.
Within minutes of the crash, Secret Service personnel were dispatched to the scene; a
perimeter was established; and the Explosive Ordnance Disposal team and the Secret Service
Technical Security Division were called to look for any threatening devices. The Secret
Service contacted the control tower at National Airport and was soon apprised of the
(MORE)
3
aircraft's owner. Within one hour of the crash, seven federal and D.C. agencies were on the
south grounds of the White House.
The Review determined that individuals and agencies that responded to the crash
interacted efficiently and cooperatively. Although the Review made a number of
recommendations to improve security in the future, it was by and large impressed that the
Secret Service's response was prompt, organized, and efficient.
The Review's primary concern arising from the Corder incident has to do, not with
the response post-crash, but with an earlier phase of the plan for protecting the White House
from air attack. Specifically, the system for alerting the Secret Service of the approach of
suspicious aircraft did not function properly in the early morning hours of September 12th.
As a result, the Secret Service was unaware of Corder's flight until he was quite near the
White House.
The problem was not technical. Radars tracked the plane continuously from a point
well before it entered the airspace over Washington, D.C. The Secret Service, at the time,
was relying on FAA radar operators for early warning of approaching aircraft, an
arrangement that dated back to 1974. In the intervening years, however, a misunderstanding
developed between the two agencies as to the precise nature of the support the FAA was
furnishing the Secret Service. As one graphic example of the breakdown in communication,
the telephone line linking FAA radar operators to the responsible Secret Service officers was
broken at the time of Corder's flight.
Today, I can assure you the telephone lines have been fixed and the
misunderstandings corrected. Moreover, as a result of the Review, other measures have
been taken that should substantially enhance the security of the White House from air attack.
Duran Incident
The second incident under review occurred on October 29, 1994, when Francisco
Martin Duran pulled an SKS semiautomatic rifle from under his trenchcoat. Standing on
Pennsylvania Avenue, Duran fired multiple rounds at the White House through the fence,
pulled the weapon back and ran down the sidewalk towards 15th Street, continuing to fire
through the fence as he ran. When Duran paused to reload his rifle, Harry Michael
Rakosky, a tourist, tackled him. Two other citizens ran over and assisted in subduing
Duran, and Secret Service Uniformed Division officers arrived to arrest him moments later.
Most of this incident was captured on videotape by a passer-by.
What the videotape may not have revealed is that several Secret Service officers were
prepared to shoot Duran, just before Mr. Rakosky tackled him. As soon as Duran began
firing, a Secret Service Emergency Response Team officer ran across the North Lawn of the
(MORE)
4
White House toward Duran, using only trees as cover. As the videotape shows, the officer
was running toward Duran as Duran fired shots in the officer's direction. When Duran
stopped to reload his rifle, the officer neared the fence and pointed his weapon at Duran.
But seeing Rakosky about to tackle Duran, the officer withheld fire and jumped over the
fence to apprehend Duran. The officer heard one of the citizens say, "Thanks for not
shooting me." Duran then responded "I wish you had shot me." A magazine with thirty
rounds of live ammunition was found in Duran's coat pocket.
Another Secret Service officer patrolling the north grounds at the time of the shooting
also drew his weapon and ran towards the fence. Before he was able to fire, however,
Duran was tackled. This second officer then vaulted over the fence to assist in arresting
Duran. These two officers, and a number of their Secret Service colleagues, reacted
immediately and with unstinting heroism.
At the time of the shooting, the President was in a room in the opposite side of the
Residence. Secret Service agents within the White House responded immediately to him,
when shots were fired. The President was never in any danger.
Approximately 30 minutes after Duran's arrest, the Secret Service located his pickup
truck based on a note found on his person. Officers recovered a shotgun, several boxes of
ammunition, nerve gas antidote, and several handwritten notes, including one that said "kill
the Prez."
Investigators determined that Duran was in the D.C. metropolitan area for
approximately two weeks prior to the shooting. Before leaving his home in Colorado, Duran
told several people that he intended to kill the President, but these individuals did not notify
any law enforcement agency. I'd like to emphasize here that individuals can playa critical
role in assisting the Secret Service by reporting statements or actions they witness that
suggest a threat to the President or to the White House. Duran was not on record with the
Secret Service's Intelligence Division, and no evidence was found that Duran approached the
President prior to the day of the shooting. There is also no evidence that Duran had coconspirators.
Duran was convicted in U.S. District Court of attempted assassination and nine other
federal charges on April 5, 1995. His sentencing is scheduled for June 29, 1995.
Although the Review concluded that the Secret Service by and large responded well to
the shooting, it made a number of recommendations with respect to the training, staffing, and
equipping of Secret Service agents and officers at the White House. You may, for example,
have noticed an increased Secret Service Uniformed Division presence on the sidewalk of
Pennsylvania Avenue. Before the Duran shooting incident, the Secret Service largely left
patrolling of this area to the Department of the Interior's Park Police. The Park Police, the
(MORE)
5
Secret Service, and the Metropolitan Police Department share jurisdiction in the public areas
immediately north of the White House, and, as Secretary Rubin noted, the Review's
recommendations include measures to enhance communication and coordination among these
three organizations.
Pennsylvania A venue Pedestrian Mall
At least one columnist has observed that converting Pennsylvania Avenue to a
pedestrian mall will not prevent the Durans of the world from shooting at the White House in
the future. But the Review not only examined the Corder and Duran incidents, it also
tackled other kinds of potential air or ground attacks. After all, the general who plans only
to refight the last war does not lead a successful army. The Review considered intelligence
on a range of threats to the White House, and it was this portion of our work that gave rise
to some of our more far-reaching recommendations.
Specifically, it is in this context that the Review recommended converting the segment
of Pennsylvania Avenue that runs from Madison Place to 17th Street into a pedestrian mall.
The main security concern that prompted this recommendation is that posed by explosiveladen vehicles. But I would like to emphasize that the Review reached its recommendation
before the tragedy in Oklahoma City dramatized these risks.
The Review was not only concerned with protecting the presidency. It was also
concerned with protecting the public's access to the White House, and the ability of visitors
to view it up close. For that reason, we consulted an array of architects, historians, and
urban planners, who uniformly endorsed the idea of converting this stretch of Pennsylvania
Avenue into a pedestrian mall. They told us that it would increase public enjoyment of this
national landmark by creating a friendlier environment in which to view the White House. I
certainly think it looks friendlier without those chains that have been linking the bollards in
front of the White House until this morning. Traffic experts, too, assured us that with
proper implementation the neighboring streets could accommodate the diverted traffic.
The White House is, without question, a house like no other. For almost 200 years it
has symbolized the American presidency, and our nation's system of elected government.
The White House belongs to the American people, and it is a national treasure.
Perhaps the most "American" aspect of the White House is its accessibility, as
evidenced by the hundreds of thousands of visitors -- from school groups, to Girl Scout
troops, to families visiting from far away -- who walk through each year. Since President
Jefferson's day, the White House has been an emphatically public residence -- the "People's
House," which we may either enter or look upon without obstruction. In contrast, the great
palaces of Europe were set within high walls and fences designed with protection in mind.
The White House grounds were laid out at a time when security was not a great concern in
(MORE)
6
the United States. The openness of the White House to visitors is therefore distinctive.
Where else in the world can a citizen secure a ticket to enter and tour the actual residence of
the head of state and government?
The new pedestrian mall will foster that distinctively American accessibility to those
in high office. Yesterday, when vehicles traveled up and down Pennsylvania Avenue, some
tourists could be seen sprinting across the six lane avenue, darting between cars, to get to the
White House sidewalk. In fact, over the past year and a half, at least 27 people were injured
by vehicles traveling along this block of Pennsylvania Avenue. With today's change,
Lafayette Park and the White House sidewalk are linked, and pedestrians can walk around
freely.
At the same time, the pedestrian mall will reduce significantly the security risk that an
explosive-laden vehicle will bring tragedy to the White House, its residents, employees,
neighbors, and visitors. I am convinced, and our distinguished Advisory Committee is
unanimously convinced, that this historic change to Pennsylvania Avenue and the other
recommendations contained in our classified report will ensure that the White House
continues to have an appropriate level of protection as we enter the 21 st Century.
Now it is my pleasure to introduce the Director of the Secret Service, Eljay Bowron.
Thank you.
-30-
DEPARTMENT OF THE TREASURY
UNITED STATES SECRET SERVICE
WASHINGTON, D.C. 20223
DIRECTOR
STATEMENT OF DIRECTOR ELJAY B. BOWRON
UNITED STATES SECRET SERVICE
MAY 20, 1995
The White House Security Review has conducted an exhaustive study
of our White House security programs with the full cooperation of
the men and women of the Secret Service.
The review has
addressed each security issue from the perspective of assisting
the Secret Service in our efforts to continually enhance the
performance of our protective mission.
It is important to state
that the Secret Service constantly reviews all of its security
practices, and no one is more interested than we are in efforts
to provide the safest environment for the First Family and the
others for whom we provide protection.
The areas examined during
the review included the most sensitive and critical aspects of
our protective mission, which made full public participation
inadvisable.
We will continue to pursue these objectives and
make necessary enhancements based on the review's recommendations
and our own security assessments.
As I have said in many of the
briefings I have given on this matter,
I was convinced that
Pennsylvania Avenue was going to be converted in my lifetime.
It
was only a matter of whether it would be before or after an
explosion.
We appreciate the efforts of Secretary Bentsen, who
initiated this review, and the leadership of Secretary Rubin who
supports law enforcement and brought this review to fruition.
###
BackgrollndJ"(Info'tmation
qp.stbe~ 38
WHITE,HoUSE
SECURITY
REVIEW
~ !:~~~:j~ ~~U~~ ~~:c~if*=~;i~~;t?~~-j~;~~ _~ -"iZ-~
.,~-~~f':~~ ~
.- . :~~j~' .:JV~.~
May 1995
Background Information
on the
WHITEHOUSE
SECURITY REVIEW
May 1995
ERRATA
Please note a typographical error on page 1, line 1 and on page 30, line 5. The correct
name for the plane cited is Cessna 150L.
DEPARTMENT OF THE
TREASURY
Robert E. Rubin
Secretary of the Treasury
WmTE HOUSE SECURITY REVIEW
Ronald K. Noble
Under Secretary ofthe Treasury {Enforcement}
ADVISORY COMMITTEE
The Honorable Robert Carswell
The Honorable William T. Coleman, Jr.
The Honorable Charles W. Duncan, Jr.
General David C. Jones, USAF (Ret.)
Dr. Judith Rodin
The Honorable William H. Webster
REVIEW TEAM
David L. Douglass
Executive Director
R. Keith Walton
Deputy Director
Barbara Mack Harding
Deputy Director
Elisabeth A. Bresee
Director
Lewis A. Grossman
Assistant Director
James E. Johnson
Assistant Director
Neil V. McKittrick
Assistant Director
Alison M. Tucher
Assistant Director
Erik H. Werth
Special Assistant
Lorraine Rooks Cary
Writer-Editor
Ina W.E. Boston
Intelligence Specialist
Gail V. Harris-Berry
Office Manager
Adrian Olson
Management Information
Specialist
ShanaDixon
Management Program
Technician
Loretta P. Veres
Assistant Office Manager
Robert M. McNamara, Jr.
Counsel to the Review
Note on the Background Information Provided
The following background information provides a brief description of
the underlying facts of the September 12, 1994 plane crash and the October 29,
1994 shooting incident. In addition, it describes the methodology employed
by the White House Security Review to investigate these and other incidents
and to examine the security of the White House Complex from air and ground
incursions. Letters from the Advisory Committee and the Office of the
Inspector General attesting to the thoroughness and impartiality of the Review
immediately follow this Note. Major recommendations from the Classified
Report are included where it was possible to do so without compromising the
security of the President and the White House Complex. Lastly, a history of
the evolution of Presidential security is included to give perspective to the
incidents and issues investigated by the Review.
The background information contained herein was extracted from the
Classified Report of the White House Security Review. The Classified Report
is classified in its entirety at the Top Secret level. It contains the complete and
detailed analysis of the findings and recommendations of the Review. The
Classified Report is over 500 pages long, with an Appendix of over 260 pages
containing reports from the consultants and experts, as well as other
documents. The Classified Report includes a detailed discussion, analysis and
critique of the Secret Service's response to each of the incidents reviewed; a
broad and detailed discussion of air security and ground security at the White
House; and a discussion and analysis of the Secret Service's Intelligence
Operation. In addition, at the conclusion of each chapter of the Classified
Report, the Review made numerous specific recommendations pertaining to
the Corder incident, the Duran incident, air security, ground security, and
intelligence.
The extreme sensitivity of some of the material contained in the
Classified Report necessitates a strict limit on the number of copies. Only two
copies of the Classified Report exist. Finally, some information that the
Review gathered was deemed so sensitive that it is not contained in the
Classified Report and will be reported to the Secretary, the President, and the
Congress in oral briefings only.
In addition to these precautions taken regarding the information
included in the Classified Report, steps have also been taken to ensure the
continued security of the Classified Report and the information contained in
it, after the completion of the Review. The Department of the Treasury and
the Congressional Oversight Committees have agreed that the Report will be
reviewed only in the Specially Compartmented Intelligence Facility (SCIF) of
the United States Congress. The Department of the Treasury and Congress
have taken these steps to ensure the continued security of the sensitive
information learned during the Review.
May 10, 1995
The Honorable Robert E. Rubin
Secretary of the Treasury
1500 Pennsylvania Avenue
Washington, D.C. 20220
Dear Mr. Secretary:
The Advisory Committee to the White House Security Review, having
completed its assignment, submits the following assessment of that
investigation.
On October 30, 1994, Secretary of the Treasury Lloyd Bentsen
invited the undersigned to serve as members of an Advisory
Committee to the White House Security Review (the "Review"). The
Review had been initiated to investigate certain recent securityrelated incidents at the White House Complex (the "Incidents").
The Advisory Committee, chaired by Under Secretary of the Treasury
(Enforcement) Ronald K. Noble, then was established to monitor and
lend experience, judgment and critical insight to the Review's
efforts.
As provided in the Review's Mission Charter, we were directed to
meet as often as necessary to conclude that any erroneous
procedures were discussed and changes proposed, and that the
Review's findings and recommendations were supported by the facts
presented. The Advisory Committee, in a sense, would conduct its
evaluation on behalf of the group most interested in balancing the
security and accessibility of the White House Complex - - the
American people.
In addition to this great responsibility, we
recognized the added significance of evaluating the operations of
the United States Secret Service, which is regarded as the world's
authori ty on Head of State protection.
We therefore accepted
Secretary Bentsen's invitation and viewed his commission as an
unequivocal mandate to ensure that the Review would be conducted in
a principled, exhaustive and unbiased manner.
Our conclusions regarding the thoroughness and impartiality of
Review are based on (i) the briefings provided during Advisory
Committee meetings, (ii) the questions raised during discussions
between the Advisory Committee and Under Secretary Noble's staff,
(iii) the Review's investigative plan, which we reviewed, approved
and monitored the implementation of, and (iv) the Review's
Classified Report.
Advisory Committee Letter
May 10, 1995
Page 2
Under Secretary Noble convened Advisory Committee meetings during
the course of the Review that consisted of briefings on various
related issues.
We had the benefit of on-site briefings at the
White House Complex and the Air Traffic Control Tower at Washington
National Airport to acquaint us with the operational aspects of
those environments.
Also, Under Secretary Noble conducted
additional individual briefings to keep us informed of recent
developments and to obtain advice on particular matters relating to
the Review.
We are satisfied that the Review has been conducted in a thorough
and unbiased fashion.
Furthermore, we find no fault in
the
contents of the Review's Classified Report. We believe that the
principles and concerns we have articulated throughout the Review
have been addressed in full measure and are reflected in the
Classified Report. Accordingly, the Advisory Committee concurs in
the Review's recommendations.
We are certain that the immediate
implementation of the Review's recommendations will enhance even
more the security of the President and the First Family within the
White House Complex.
We respectfully commend this assessment of the White House Security
Review to your favorable consideration.
Hon. Robert Carswell
Dr.11 Judith Rodin
j
I
Hon. William T. Colema
Judge William H. Webster
I
Jr.
DEPARTMENT OF THE TREASURY
WASHINGTON, DC
20220
May 1, 1995
OFFICE OF
SPECTOR GENERAL
MEMORANDUM FOR SECRETARY RUBIN
-U~ ~
FROM:
Valerie Lau
Inspector General
SUBJECT:
Department of Treasury's White House Security
Review
Introduction
On September 12, 1994, the Department announced a two-phased
inquiry into the aircraft crash that day at the White House. The
Secretary asked Mr. Ronald K. Noble, Under Secretary for
Enforcement, and Mr. Eljay Bowron, Director of the united States
Secret Service (Secret Service), to conduct a mUlti-agency law
enforcement investigation of the aircraft crash and to lead a
thorough review of the procedures used to protect the President
and First Family in such incidents. As part of this review, the
Department was to examine and evaluate:
•
The facts of the September 12, 1994 aircraft crash on
the White House's South Lawn;
•
The dangers posed to the White House complex and the
protectees therein, by air and ground assaults;
•
The adequacy of Secret Service's current procedures and
policies for addressing these dangers;
•
The effectiveness of established mechanisms for
communicating to Secret Service vital intelligence
information concerning possible air and ground assaults
received by all relevant federal, state and local
authorities concerning these risks;
•
The feasibility of state-of-the-art technologies to
enhance Secret Service's capability to safeguard the
White House complex and protectees therein from air and
ground assaults; and,
•
The need to keep the White House as open and accessible
to the public as possible consistent with valid
security needs.
The Department further announced the Secretary's selection of an
independent advisory committee to monitor and provide guidance to
the review team and to ensure a comprehensive and impartial
review.
The advisory committee members were selected because of
their national prominence, integrity and law enforcement or other
relevant expertise. The advisory committee was responsible for
reviewing the review team's findings and providing an independent
assessment of the information contained in the final report.
Role of the Office of Inspector General
The Under Secretary for Enforcement requested the Office of
Inspector General (OIG) to monitor the review and its findings
and report to the Secretary on the thoroughness and objectivity
of the review's final report. Also, the OIG was to comment on
whether relevant information obtained during the investigation
was properly consolidated and included in the final report.
The OIG's oversight role expanded to include subsequent events
added to the scope of the review. For example, the OIG monitored
the review team's examination of the October 29, 1994 shooting
which occurred at the White House.
OIG Opinion
In our opinion, the Department's review was both objective and
comprehensive. The review team vigorously and thoroughly
examined all significant information surrounding the September
12, 1994 aircraft crash, the October 29, 1994 shooting incident,
and other pertinent aspects of White House security.
In
addition, the review team's report addresses all the issues that
either were included in the team's investigative plan or
otherwise came to the review team's attention. To the best of
our knowledge, the review team's findings are consistent with the
facts developed and accurately reflect the circumstances
surrounding the aircraft crash and the shooting.
Scope and Methodology
We arrived at our conclusions by determining whether the review
team
•
identified all appropriate issues for investigation and
appropriately considered each issue in the team's
planning process;
•
reviewed pertinent documentation and information
obtained by other law enforcement organizations
involved in the incidents;
2
•
identified and interviewed all appropriate individuals
that could provide insight on the issues being
examined;
•
properly followed and satisfactorily resolved all
appropriate leads from interviews with Secret Service
agents and management personnel and other relevant
persons;
•
consulted external experts to obtain an independent
assessment of the Secret Service's planning, training,
and execution of its mission as it relates to the White
House;
•
properly considered input and advice provided by the
advisory committee; and,
•
reflected in the resultant report the body of
information examined, and arrived at well-founded
conclusions.
From the project's outset, we provided our views and comments on
an ongoing basis to the project leadership as we thought would be
appropriate.
The team satisfactorily addressed our issues and
associated questions during the review.
Our opinion is based on our review of
•
all reports which Secret Service and its external
consultants provided to the review team;
•
memoranda of interview from selected interviews with
Secret Service, Federal Aviation Administration,
Central Intelligence Agency, Federal Bureau of
Investigation, National Park Service and other
personnel either knowledgeable or associated with
aspects of White House security;
•
other pertinent documentation related to Secret
Service's investigation of the September 12, 1994
aircraft crash, the October 29, 1994 shooting incident
at the White House, and subsequent events.
We participated in selected interviews where we observed the
review team's work, and we accompanied the team on walkthroughs
of the White House and the FAA's flight control tower at National
Airport.
We also attended numerous team status meetings in which
project leaders discussed the team's efforts and the follow-up
necessary to satisfactorily pursue and resolve issues.
3
We attended advisory committee briefings to observe the quality
of the information provided for the advisory committee's use in
assessing Treasury's White House security review.
We believe
that the information provided was accurate, based on information
obtained at that time by team investigators, and was relevant to
the main issues under examination. Additionally, we attended
selected briefings with experts employed to assist in evaluating
Secret Service's tactical operations and training. The experts'
recommendations have adequately been considered and the results
of their reports have been incorporated in the final report.
Conclusion
In our opinion, the review team's report provides an accurate
account of the events examined. Furthermore, we believe that any
conclusions made by the review team have a basis in fact and are
consistent with the nature of the findings developed.
During the course of our oversight role, the project leaders
cooperated fully and provided us unrestricted access to the
information and documentation compiled by the review team during
its investigation. We would like to compliment the team for a
job well done.
4
BACKGROUND INFORMATION
ON THE
WHITE HOUSE SECURITY REVIEW
T ABLE OF CONTENTS
SECTION ONE: METHODOLOGY AND PROCESS OF THE REVIEW
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1
INTRODUCTION ....................................... 1
THE STRUCTURE OF THE REVIEW ....................... 6
METHODOLOGY ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18
THE STRUCTURE OF THE REP OR T ..................... 24
LIMITATIONS ......................................... 27
SECTION TWO: SUMMARY STATEMENT OF FACTS ............ 30
THE SEPTEMBER 12, 1994 PLANE CRASH ................. 30
THE OCTOBER 29, 1994 SHOOTING ..................... 34
SECTION THREE: RECOMMENDATIONS (UNCLASSIFIED) ...... 41
POTENTIAL CHANGES TO CML AIR TRAFFIC RULES. . .. 42
LAW ENFORCEMENT JURISDICTION ................... 42
CREATION OF A FORENSIC TASK FORCE FOR THE WHITE
HOUSE COMPLEX ............................... 43
COMMAND AND CONTROL DURING MAJOR INCIDENTS
AT THE WHITE HOUSE. . . . . . . . . . . . . . . . . . . . . . . . . .. 44
ONGOlNG COORDINATION WITH THE DEPARTMENT
OF THE TREASURY .............................. 44
REROUTING VEHICULAR TRAFFIC AROUND THE WHITE
HOUSE COMPLEX AND CONVERTING
PENNSYLVANIA AVENUE TO A PEDESTRIAN MALL
................................................ 45
NOTE CONCERNING THE RECOMMENDATION TO
CONVERT PENNSYLVANIA AVENUE TO A
PEDESTRIAN MALL .............................. 48
SECTION FOUR: THE EVOLUTION OF PRESIDENTIAL SECURITY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
CREATION OF THE WHITE HOUSE COMPLEX ...........
THE TRADITION OF PUBLIC ACCESS TO THE EXECUTIVE
MANSION .......................................
THE EVOLUTION OF SECURITY FEATURES AT THE
WHITE HOUSE COMPLEX ........................
51
51
55
59
PROTECTION OF THE WHITE HOUSE COMPLEX AND
THE PRESIDENT IN THE NINETEENTH CENTURY . 62
THE EVOLUTION OF THE PERSONAL PROTECTIVE
FUNCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 70
PROTECTION OF THE WHITE HOUSE COMPLEX
IN THE TWENTIETH CENTURY ................... 84
HISTORY OF GROUND AND AIR ASSAULTS ON THE
WHITE HOUSE COMPLEX ........................ 92
BIBLIOGRAPHIC NOTE ............................... 101
Background Information on the White House Security Review
SECTION ONE: METHODOLOGY AND
PROCESS OF THE REVIEW
INTRODUCTION
On September 12, 1994, at 1:49 a.m., a Cessna P1S0 airplane crashed
onto the South Lawn of the White House, killing the pilot, Frank Eugene
Corder, but injuring no one else. The plane came to a halt against the south
wall of the Executive Mansion, causing minimal damage. President Clinton
and his family were not in residence at the time; hence, they were never in any
danger.
This incursion into the White House Complex commanded the
immediate attention of then-Secretary of the Treasury Lloyd Bentsen, who
directed Under Secretary of the Treasury for Enforcement Ronald K. Noble
and United States Secret Service Director Eljay B. Bowron to conduct a
"thorough and comprehensive" investigation into the circumstances leading to
the plane crash, the response of the United States Secret Service (Secret
Service), and the adequacy of the procedures used to protect the President and
First Family within the White House Complex. 1 In response to the Secretary's
lFor purposes of the White House Security Review, the "White House
(continued...)
Background Information on the White House Security Review
1
Background Information on the White House Security Review
directive, Under Secretary Noble formed the White House Security Review
(the Review). This directive to conduct an exhaustive inquiry has been
adopted fully by the present Secretary of the Treasury, Robert E. Rubin.
Shortly after the Review was established, a second disturbing incident
occurred. On a mild, October afternoon, a lone individual, Francisco Martin
Duran, positioned himself in front of the White House grounds and fired
twenty-nine rounds from a semiautomatic assault rifle into the North Facade
of the White House, endangering the lives of Secret Service Uniformed
Division officers, White House visitors, and members of the press.
Immediately, three nearby citizens subdued Duran, and Secret Service
Uniformed Division officers took him into custody. Despite the presence of
tourists, White House staff, Secret Service personnel, and others in the line of
fire and on the sidewalk near Duran, no one was injured. President Clinton
was in a room facing the south side of the Executive Mansion at the time of the
incident and was never in any danger. The barrage of bullets struck the North
Facade of the White House eleven times, including one bullet that penetrated a
window in the Press Briefing Room in the West Wing.
(... continued)
Complex" includes the Executive Residence, the West Wing, the East Wing,
and the Old Executive Office Building.
Background Information on the White House Security Review
2
Background Information on the White House Security Review
In light of these two incidents, then-Secretary Bentsen directed the
Review to examine the following:
i)
The facts surrounding the September 12, 1994 plane crash on the
South Lawn and the October 29,1994 shooting by Francisco
Martin Duran at the White House Complex;
ii)
The dangers posed to the White House Complex and protectees
therein, by air or ground assaults;
iii)
The adequacy of the procedures and policies currently used by
the Secret Service to address these dangers;
iv)
The effectiveness of established mechanisms for communicating
to the Secret Service vital intelligence information concerning
possible air and ground assaults received by all relevant federal,
state and local authorities (e.g., the Central Intelligence Agency
(CIA), the Federal Bureau of Investigation (FBI), and state and
local police);
v)
The feasibility of techniques and measures, including state-ofthe-art technologies, to enhance the capability of the Secret
Service to safeguard the White House Complex and protectees
therein from air and ground assaults; and,
vi)
The need to keep the White House open and accessible to the
American public without jeopardizing valid security concerns.
In late December 1994, four additional incidents were reported by the
media as possible security breaches at the White House. The most significant
of these incidents occurred the morning of December 17, 1994, when four
shots were fired from a 9mm handgun at the Executive Residence from an
unknown point south of the Ellipse. Two shots landed short of the Executive
Background Information on the White House Security Review
3
Background Information on the White House Security Review
Residence, one landed on the State Floor balcony, and the fourth penetrated a
window in the State Floor Dining Room. The other three incidents were
examined because they occurred during the pendency of the Review and were
reported by the media as raising further questions about White House security.
These incidents did not, however, pose any serious threat to the security of the
President. In fact, they are representative of events commonly faced by the
Secret Service and the United States Park Police (Park Police).
The first of these incidents occurred on December 21, 1994, when Secret
Service Uniformed Division officers opened the Southwest Gate to the White
House Complex to permit an authorized vehicle to enter. When the gate was
opened, an individual ran through it and started up West Executive Avenue.
The individual was apprehended immediately by Uniformed Division officers.
This individual had been identified previously by the Secret Service for his
peculiar and extreme interest in the White House.
The second of these incidents occurred early in the morning of
December 23, 1994, when a Secret Service Uniformed Division officer
patrolling the South Executive Avenue sidewalk just south of the White House
Complex grounds noticed a suspicious-looking individual. A Park Police
Background Information on the White House Security Review
4
Background Information on the White House Security Review
officer, who was alerted by the Secret Service, conducted a protective search of
the individual and recovered a 9mm handgun.
The third incident also occurred on December 23, 1994, when a man
parked his car on E Street between the South Lawn of the White House
grounds and the Ellipse and exited the vehicle, leaving the motor running.
The man then sprinted across the Ellipse toward the Washington Monument.
Both Uniformed Division and Park Police officers approached him and said
that he could not leave his car parked in that location. The man told the
officers that the car contained a bomb. The Uniformed Division officers
immediately called for an Explosive Ordnance Disposal (EOD) technician to
examine the vehicle. A search of the vehicle revealed that it did not in fact
contain any explosive devices.
One final incident occurred during the Review that received national
news coverage because it was a fatal shooting that occurred in front of the
White House. On December 20, 1994, an individual wielding a knife
threatened a Park Police officer on the north side of Pennsylvania Avenue
across from the White House. The individual, Marcelino Corniel, then ran
across the street to the sidewalk directly in front of the White House. Park
Police and Secret Service Uniformed Division officers surrounded the
Background Information on the White House Security Review
5
Background Information on the White House Security Review
individual and demanded that he drop his knife. Subsequently, he was fatally
shot by a Park Police officer. This incident did not concern the security of the
White House Complex, but concerned primarily the conduct of an officer
outside the jurisdiction of the Department of the Treasury. This incident is
currently the subject of a homicide investigation (as is any fatal shooting by a
law enforcement officer in the District of Columbia), and was not incorporated
into the Review. The incident demonstrated, however, the possible problems
inherent in having multiple law enforcement agencies share jurisdiction over
the streets and parks contiguous to the White House.
THE STRUCTURE OF THE REVIEW
The events that led to the formation of the Review generated intense
public interest in the personal security of the President and First Family, and
in the physical security of the White House Complex. As President Clinton
recognized in his weekly Saturday radio address following the Corder incident,
the Executive Residence is regarded by the public as the "People's House."
Nevertheless, it is vitally important to preserve the confidentiality of the
protective methodology employed by the Secret Service. To respond to the
public demand for a thorough accounting, while also satisfying the Review's
obligation to safeguard national security information, the Secretary of the
Background Information on the White House Security Review
6
Background Information on the White House Security Review
Treasury reached beyond the Department of the Treasury for assistance in
conducting this inquiry. Six individuals universally esteemed for their
professional achievement and integrity were invited to serve on an Advisory
Committee to the Review. The Committee's role, as defined in the Mission
Charter, was to "assure that the Review [was] comprehensive and objective,
that its findings [were] supported by the facts, and its recommendations [were]
sound."
The following individuals volunteered countless hours of their time,
shared their insights, and contributed their expertise to ensure that the Review
was conducted in a rigorous, thorough, and impartial manner:
ROBERT CARSWELL. Secretary Carswell served as Deputy
Secretary of the Treasury from 1977 to 1981. Prior to that he served as
an officer in the Office of Naval Intelligence (1952 - 1955) and as Special
Assistant to the Secretary of the Treasury (1962 - 1965). In 1980, he
served as the United States negotiator of the financial provisions
contained in the United States - Iran hostage accord. In 1964, Mr.
Carswell worked on an internal review of the Secret Service s
I
presidential protective operations in the wake of the Kennedy
Background Information on the White House Security Review
7
Background Information on the White House Security Review
assassination. He is currently a senior partner at the law firm of
Shearman & Sterling.
WILLIAM T. COLEMAN, JR. Secretary Coleman served as Secretary
of the Department of Transportation from 1975 to 1977. Secretary
Coleman was a principal author of the NAACP Legal Defense Fund's
Supreme Court brief in Brown v. Board a/Education. He has compiled a
distinguished record of public service, having served as senior
consultant and counsel to the President's Commission on the
Assassination of President Kennedy; Co-Chairman of the Secretary of
State's Advisory Committee on South Africa; Consultant to the United
States Arms Control and Disarmament Agency; Member of the
National Commission on Productivity and Member of the President's
Committee on Government Employment Policy. He is a senior
partner at the law firm of O'Melveny & Myers.
CHARLES W. DUNCAN, JR. Secretary Duncan served as Deputy
Secretary of Defense under President Carter and, in 1979, he became the
second Secretary of the Department of Energy. Secretary Duncan also
has enjoyed a distinguished career in the private sector. He held various
management positions at Duncan Foods in Houston, Texas, and later
Background Information on the White House Security Review
8
Background Infonnation on the White House Security Review
served as chairman of Coca-Cola Europe. In 1971, he became president
of the Coca-Cola Corporation, a position he held until 1974.
DAVID C. JONES. General Jones served as Chairman of the Joint
Chiefs of Staff from 1978 to 1982. Previously, he served four years as
Chief of Staff of the United States Air Force. During the Korean War,
General Jones was assigned to a bombardment squadr~n and
accumulated more than 300 flying hours on missions over North Korea.
In 1969, he served in Vietnam as Deputy Commander for Operations
and as Vice-Commander of the Seventh Air Force. He also served as
the Commander-in-Chief of the United States Air Forces in Europe
and, concurrently, as Commander of the Fourth Allied Tactical Air
Force. In that position, he played a principal role in establishing the
integrated air headquarters in the North Atlantic Treaty Organization
(NATO) Central Region, Allied Air Forces, Central Europe.
JUDITH RODIN.
Dr. Rodin is President of the University of
Pennsylvania. Until her appointment to that position, she held the
Philip R. Allen Professorship of Psychology at Yale University. She
joined the faculty at Yale in 1972, and later served as Provost and Dean
of the Graduate School of Arts and Sciences. She has published 203
Background Infonnation on the "White House Security Review
9
Background Information on the White House Security Review
articles in academic journals and has authored and co-authored ten
books. Dr. Rodin also serves as a member of President Clinton's
Committee of Advisors on Science and Technology.
WILLIAM H. WEBSTER. Judge Webster was appointed to the
United States District Court for the Eastern District of Missouri in
1970 and elevated to the United States Court of Appeals for the Eighth
Circuit in 1973. He was appointed Director of the FBI in 1978, and
held that position until 1987, at which time he was appointed Director
of the CIA, a position he held until 1991. Judge Webster also served as
Special Advisor to the Los Angeles Police Commission, which was
formed following the civil unrest relating to the Rodney King incident.
He is currently a senior partner at the law firm of Milbank, Tweed,
Hadley & McCloy.
The Advisors met five times as a group to discuss the work and findings
of the Review.2 Advisors also met individually with Under Secretary Noble
and members of the Review to review documents, examine facilities, receive
2The Advisory Committee was specially exempted by Congress from the
provisions of the Federal Advisory Committee Act. Treasury, Postal Service
and General Government Appropriations Act of 1995, Pub. L. No. 103-329,
§ 540.
Background Information on the White House Security Review
10
Background Information on the White House Security Review
individual briefings and analyze data. Upon completion of the investigation,
the Advisors discussed the Classified Report, the final recommendations of the
Review, and the Classified Report's Executive Summary.
The Review was divided into two parts. The Under Secretary formed a
Review Team for Main Treasury, and the Director of the Secret Service formed
an investigative team within the Secret Service. The Main Treasury Review
was conducted by attorneys, most of whom were from outside the Department
of the Treasury. The Executive Director for the Review was David L.
Douglass, a former federal prosecutor, who is presently an attorney at the law
firm of Wiley, Rein & Fielding. R. Keith Walton, Senior Advisor to the
Under Secretary of the Treasury (Enforcement), and Barbara Mack Harding, an
attorney at Kirkland & Ellis and a former federal prosecutor, served as Deputy
Directors. Elisabeth A. Bresee, a former Assistant United States Attorney for
the District of Columbia, served as the Director. Four individuals served as
Assistant Directors: Lewis A. Grossman, an attorney at Covington & Burling;
James E. Johnson, Deputy Chief of the Criminal Division for the United
States Attorney for the Southern District of New York; Neil McKittrick, an
attorney at Hill & Barlow; and Alison Tucher, who had just completed a
clerkship with Justice Souter of the Supreme Court of the United States.
Background Information on the White House Security Review
11
Background Information on the White House Security Review
Furthermore, the Review could not have been completed without
substantial assistance from the following members of the team: Ina W.E.
Boston, Intelligence Specialist; Lorraine Rooks Cary, Writer-Editor; Shana
Dixon, Management Program Technician; Gail V. Harris-Berry, Office
Manager; Adrian Olson, Management Information Specialist; Loretta P. Veres,
Assistant Office Manager; and Erik H. Werth, Special Assistant.
In addition, the Treasury Inspector General, Valerie Lau, attended
Advisory
Commi~ee
meetings and monitored the work of the Review to
ensure that the Secretary's directive was implemented properly. Inspectors
from her office met regularly with members of the Review, attended briefings,
reviewed documents gathered during the course of the Review, and reviewed
the Classified Report throughout the drafting process. A copy of the Inspector
General's letter to the Secretary of the Treasury reporting the findings and
evaluation of her office precedes this summary. Edward S. Knight, General
Counsel of the Department of the Treasury, provided advice and assistance to
the Review and the Advisory Committee. Robert M. McNamara, Jr., Assistant
General Counsel of the Treasury (Enforcement), served as Counsel to the
Review.
Background Information on the White House Security Review
12
Background Information on the White House Security Review
The Review retained consultants to evaluate various technical aspects of
its analysis. These consultants provided oral briefings to the Review and
submitted written reports, which are included in the Appendix to the
Classified Report. The Review's consultants include:
MERRILL A. MCPEAK. General McPeak recently retired as Chief of
Staff of the United States Air Force, a position he had held since 1990.
As Chief, he served as the senior uniformed Air Force officer
responsible for a combined active duty, Guard, Reserve, and civilian
force of over 850,000 people serving at approximately 1,300 locations in
the United States and overseas. As a member of the Joint Chiefs of
Staff, he functioned as a military advisor to the Secretary of Defense,
the National Security Counsel, and the President. General McPeak
provided expert advice to the Review concerning command and control
issues and technical options. General McP eak also acted as the Review's
liaison to the Department of Defense working groups formed to assist
the Review.
EUGENE F. GRENEKER. Currently Mr. Greneker is the Physical
Security Technical Area Manager of the Sensors and Electromagnetic
Applications Laboratory at the Georgia Institute of Technology. Mr.
Background Information on the White House Security Review
13
Background Information on the White House Security Review
Greneker has served as the Project Director of eleven major projects
conducted through the Georgia Tech Research Institute, each
incorporating radar as the focal point. These radar-related
investigations have been conducted for the United States Army, the
United States Air Force, Sandia National Laboratories, the United
States Customs Service, the National Highway Safety Administration,
the United States Coast Guard, the United States Department of
Agriculture, the Georgia Department of Transportation, and the State
of Georgia Governor's Office. Mr. Greneker provided advice on radarrelated issues.
ROBERT P. BRLETICH. Lieutenant Colonel Brletich is the Chief,
Physical Security Branch, Office of the Deputy Chief of Staff for
Operations and Plans for the United States Army. He has twenty-three
years of extensive experience in physical security, law enforcement,
administration, and policy formulation. Lieutenant Colonel Brletich
provided advice on matters relating to physical security at the White
House Complex.
Background Information on the White House Security Review
14
Background Information on the White House Security Review
To manage the Secret Service's internal investigation, Director Bowron
assigned nine seasoned Secret Service Inspectors, 3under the direction of
Assistant Director of the United States Secret Service Office of Inspection
James G. Huse, Jr., a twenty-four year veteran of the Secret Service, who also
served in two combat tours in Vietnam as an Army officer, to conduct the
initial investigation. These Inspectors drew upon their familiarity with Secret
Service policies, practices, and history to gather relevant facts and to
memorialize the Service's oral history with regard to its air defense and ground
defense practices. They also acted as the Secret Service's liaison to the Review
Team.
The Secret Service also retained seven outside consultants to assist in
evaluating the Service's responses to the underlying incidents, and to study
options for improving the security of the White House. The Secret Service's
consultants also provided oral briefings to the Review and submitted written
reports, which are included in the Appendix of the Classified Report. The
Secret Service's consultants include:
3In total, twenty-seven Secret Service personnel were assigned to the
investigative team, including the Inspectors.
Background Information on the White House Security Review
15
Background Information on the White House Security Review
MARTIN ANNIS. Dr. Annis is President of AnnisTech, a research
and development company specializing in the development of
inspection systems to deter terrorists and narcotics smugglers. Dr.
Annis has performed research in the use of x-radiation from nuclear
weapons to intercept Soviet Intercontinental Ballistic Missiles (ICBM),
and is recognized worldwide for his expertise in x-ray technology. Dr.
Annis is also a private pilot who is familiar with air traffic problems in
the Washington, D.C. area.
PETER T. BERRY. Major General Berry is the Commander, United
States Army Criminal Investigative Command, Falls Church, Virginia.
Major General Berry has commanded numerous Army criminal
investigations detachments in Europe, Korea, and the United States. He
also serves as a member of the Executive Committee of the
International Association of Chiefs of Police.
WILLIAM C. BOYKIN. Colonel Boykin is a former Commanding
Officer for the United States Army, Delta Force. He is an expert on
counterterrorism and special operations.
Background Information on the White House Security Review
16
Background Information on the White House Security Review
JOE E. DOLLAR. Dr. Dollar is the Chief Scientist of the National Air
Intelligence Center, Wright Patterson Air Force Base, Ohio. Dr. Dollar
has developed telemetry ground stations for use by NASA, and has
coordinated technical intelligence for the U cited States Army Missile
Command Intelligence Directorate. He has served on numerous threat
advisory groups, and has published several studies related to missile and
air defense systems.
W. DOUGLAS GOW. Former Associate Deputy Director of the FBI,
Mr. Gow is a nationally recognized expert on terrorism and intelligence
affairs. Currently Mr. Gow is a consultant to the CIA on
counterintelligence policy.
DAN SWARTWOOD. As Senior Program. Manager, Mantech
Strategic Associates, Ltd., Mr. Swartwood manages contracts involving
compliance with international treaty requirements for both government
and commercial clients. He is an authority on Operations Security
(OPSEC), and the safeguarding of proprietary information.
CENTRAL INTELLIGENCE AGENCY CONSULTANT. Former
Special Assistant to the Director of the CIA for Central Intelligence for
Background Information on the White House Security Review
17
Background Information on the White House Security Review
Counterterrorism from 1988 to 1992. This consultant is currently a
senior CIA official who reviews operational security issues and is an
expert in field operations.
METHODOLOGY
The Investigation
Because the Review constituted the most complete inquiry ever
conducted into the protective methodology of the Secret Service by nonTreasury personnel, the documents reflecting this information were uniformly
handled according to security protocols established by the Secret Service. In
addition, background checks were conducted on all non-Secret Service Review
personnel. All participants, including Advisory Committee members, Review
members, officials from other federal agencies and congressional staff members,
signed non-disclosure agreements before they were given access to any
information. The non-disclosure agreements did not, however, prevent any
Review member from sharing relevant information with appropriate
Congressional Oversight Committees.
Background Information on the White House Security Review
18
Background Information on the White House Security Review
During the Secret Service's internal review, former Secret Service
personnel were interviewed on a variety of topics. At the direction of the
Under Secretary, the Secret Service reserved interviews of non-Secret Service
witnesses for the Main Treasury Review, to reduce any appearance of
partiality. 4 The Secret Service located and collected documents relevant to the
Review from the files and archives of the Secret Service. At the conclusion of
its internal investigation, the Secret Service presented a report of its findings,
conclusions, and recommendations to the Review for further analysis.
The documents and interview reports compiled by the Secret Service
served as the starting point for the Review's evaluation. After evaluating the
Secret Service report, the Review interviewed Secret Service personnel,
obtained additional documents, and interviewed individuals from other
agencies. When the Review required a definitive statement of official Secret
Service policy, it submitted written questions to the Secret Service.
The Review also consulted extensively with numerous other
governmental agencies. At the request of the Review, the Department of
4In the aftermath of the September 12 crash, and before the Review began,
Secret Service and FBI agents interviewed the air traffic controllers on duty the
night of the plane crash. These individuals were interviewed again by the
Review in the course of its investigation.
Background Information on the White House Security Review
19
Background Information on the White House Security Review
Defense convened working groups of technical experts in air and ground
intrusion detection and response to evaluate the surveillance systems presently
deployed at the White House Complex. The Review also consulted the
Department of Transportation and the Federal Aviation Administration
(F AA) on air traffic control and radar detection issues. The Review consulted
the CIA and the FBI concerning terrorist activity and how those agencies share
intelligence information with the Secret Service. The Department of the
Treasury's Bureau of Alcohol, Tobacco and Firearms (ATF) provided detailed
analyses to the Review on the availability and effectiveness of various types of
weapons and explosives, as well as information regarding the weapons seized
pursuant to the October 29, 1994 shooting. The State Department provided
information concerning its protection of United States embassies overseas.
The Review consulted the United States Capitol Police regarding the challenges
they face, and the policies and methods they use to meet those challenges to
provide security at the Capitol building. The Park Police provided
information regarding specific incidents and their role in patrolling areas
contiguous to the White House Complex.
In addition, the Review examined Secret Service facilities and systems,
examined the scenes of the underlying incidents, and observed air traffic
control tower operations at Washington National Airport. Members of the
Background Information on the White House Security Review
20
Background Information on the White House Security Review
Review and its consultants observed tests and demonstrations of systems
proposed or being evaluated for use by the Secret Service.
The Review consulted official representatives of the protective security
agencies for the heads of state of Great Britain, France, Italy, Japan, Germany,
Israel, and Korea, as well as the security agency for the Vatican City. These
consultations provided an opportunity to discuss and compare the challenges
and constraints faced by the Secret Service s foreign counterparts as they
1
endeavor to achieve an appropriate level of security in their respective societies.
The Review learned that, without exception, there is significantly greater
public access to the White House than to the residences of the chief executives
abroad. For instance, the White House is the only executive residence where
public tours are permitted while the Chief Executive is in residence. s
Moreover, the foreign protective agency representatives uniformly praised the
Secret Service as being one of the most elite protective agencies in the world.
In fact, several of the foreign protective agencies interviewed stated that they
model their protective operations after those of the Secret Service.
SBuckingham Palace is the only other executive residence where public tours
are permitted, and then only when the Queen is not in residence.
Background Information on the White House Security Review
21
Background Information on the White House Security Review
The Review also interviewed former Presidents Ford, Carter, and Bush
to obtain their perspectives as long-time protectees of the Secret Service. 6
These interviews illuminated the unique relationship between the Secret
Service and Presidents and former Presidents. The Review also sought the
former Presidents' views as residents of the Executive Residence concerning the
appropriate balance between security and public access to the White House
Complex. The Presidential interviews highlighted, among other issues, the
many special choices and compromises that must be made to balance the Secret
Service's protective responsibilities against a President's desire to remain
accessible to the public.
All totaled, the Review interviewed and received briefings from over
250 individuals from various agencies and organizations including, but not
limited to, the Secret Service, the FBI, the CIA, the FAA, A TF, the
Metropolitan Police Department (MPD), the Park Police, the Capitol Police,
the Department of State, and the Department of Defense. In addition, the
Review examined over 1,000 documents from the agencies listed above.
6In light of recent public announcements regarding the health of former
President Reagan, the Review did not request to interview him.
Background Information on the White House Security Review
22
Background Information on the White House Security Review
The Review also met with representatives from groups concerned with
public access, including Congresswoman Eleanor Holmes Norton; Fred
Thomas, Chief of the MPD; members of the Bloomingdale Civic Association;
Laurence Reuter, General Manager of the Washington Metropolitan Area
Transit Authority; Dr. Daniel Boorstin, former Librarian of Congress; Dr.
William Seale, the former White House Historian; George White, the
Architect of the Capitol; Harvey Gantt, Chairman and Reginald Griffith,
Executive Director of the National Capital Planning Commission; engineering
representatives of Washington Metropolitan Area Transit Authority and the
District of Columbia Public Works Department; and members of the
Executive Committee for the Comprehensive Design Plan for the White
House. Furthermore, the Review examined over 200 letters from private
citizens concerned with security and public access to the White House.
In addition, the Review consulted with noted architects and urban
planners regarding a pedestrian mall concept and public accessibility to the
White House. These architects and urban planners included Harold Adams;
Max Bond; Mark Bunnell; Maxine Griffith; Nicholas Quennell; William H.
Whyte; and John Warnecke, designer of the Lafayette Square project for
former First Lady Jacqueline Kennedy Onassis and early proponent and
designer of a pedestrian mall in front of the White House. Furthermore, the
Background Information on the White House Security Review
23
Background Information on the White House Security Review
Review met with noted transportation planner and traffic engineer, Georges
Jacquemart.
THE STRUCTURE OF THE REPORT
The Review studied information that varied in sensitivity, including
publicly available information, law enforcement sensitive but unclassified
information, and classified information. The classified information covers the
spectrum from confidential through Top Secret, and in very limited instances,
codeword-classified information.
The Classified Report
The Classified Report is classified in its entirety at the Top Secret level.
It contains the complete and detailed analysis of the findings and
recommendations of the Review. The Classified Report itself is over 500 pages
long. The Appendix to the Report, which includes the reports of all of the
consultants and experts, as well as other documents, is over 260 pages. The
Classified Report includes a detailed discussion, analysis, and critique of the
Secret Service's response to each of the incidents reviewed; a broad and detailed
discussion of air security and ground security at the White House; and a
discussion and analysis of the Secret Service's Intelligence Operation. In
Background Information on the White House Security Review
24
Background Information on the White House Security Review
addition, at the conclusion of each chapter of the Classified Report, the Review
made numerous specific recommendations pertaining to the Corder incident,
the Duran incident, air security, ground security, and intelligence.
Furthermore, the Review made eleven major recommendations at the
conclusion of the Classified Report. The majority of the Review's
recommendations are not being disclosed to the public for security reasons.
The extreme sensitivity of some of the material contained in the
Classified Report necessitates a strict limit on the number of copies in
existence. Only two copies of the Classified Report exist. Finally, some
information that the Review gathered was deemed so sensitive that it is not
contained in the Classified Report and will be reported to the Secretary, the
President, and the Congress in oral briefings only.
In addition to these precautions taken regarding the information
included in the Classified Report, steps have also been taken to ensure the
continued security of the Classified Report and the information contained
therein, after the completion of the Review. The Department of the Treasury
and the Congressional Oversight Committees have agreed that the Report will
be reviewed only in the Specially Compartmented Intelligence Facility (SClF)
of the United States Congress. The Department of the Treasury and Congress
Background Information on the White House Security Review
25
Background Information on the White House Security Review
have taken these steps to ensure the continued security of the sensitive
information learned during the Review.
The Review acknowledges that it cannot publicly answer many of the
questions raised by the September 12, 1994 plane crash, the October 29, 1994
shooting incident, and security at the White House Complex. The interests of
national security, the security of the President and the First Family, future
Presidents, and the White House Complex demand that this information be
strictly safeguarded. While the Review cannot reveal publicly the details of
many of its findings, the Department of the Treasury has made every effort to
assure the thoroughness and objectivity of the Review. The guidance of the
Advisory Committee and the oversight provided by the Inspector General's
Office ensure the Review's impartiality. In addition, the Review retained
outside experts and consultants for their expertise in technology and
operational protocol, as well as for their objectivity. Lastly, the Review has
consulted and briefed the appropriate Congressional Oversight Committees
throughout this investigation.
Background Information on the White House Security Review
26
Background Information on the White House Security Review
LIMITATIONS
There were several significant limitations to this Review. First, the
Review was concerned almost exclusively with the performance of the Secret
Service rather than the performance of non-Treasury agencies. Although the
responses and official policies of other agencies are noted where relevant, the
Review generally did not evaluate the adequacy of those responses and policies.
The Review was formed by the Secretary of the Department of the Treasury to
examine the Secret Service, one of Treasury's bureaus. There was nothing to
be gained by pointing fingers at others when the Secret Service bears the
ultimate responsibility for protecting the President.
Second, some of the incidents covered by the Review were the subject
of criminal investigations. Accordingly, the Review was conducted so as not
to interfere with either the investigations and pending prosecutions or the
rights of the accused. Thus, no interviews concerning the October 29 shooting
incident were conducted without prior notification of the United States
Attorney for the District of Columbia, and interviews were limited to Secret
Service and other law enforcement personnel. Similarly, the Review relied on
existing statements of Secret Service personnel in its limited review of the
Background Information on the White House Security Review
27
Background Information on the White House Security Review
shooting of Marcelino Corniel -- the knife-wielding person who was shot in
front of the White House on December 20, 1994.
Third, the Review focused on the practices, policies, and procedures of
the Secret Service as an institution. The performance of individuals was not
the focus of this effort. When a question of integrity arose, it was referred to
the Secret Service Office of Inspection and to the United States Attorney's
Office for the District of Columbia.
Fourth, as set out in its Mission Charter, the Review focused on the
protective mission of the Secret Service at the White House Complex and did
not address Secret Service protective activities at other locations. In addition,
the Review did not investigate certain aspects of White House security. The
specific aspects not examined by the Review are set forth in detail in the
Classified Report.
Finally, the Review was never envisioned as an open-ended study of
White House security. It was established to provide a limited assessment of
specific incidents and the level of protection presently afforded at the White
House. Although events occurring subsequent to the formation of the Review
expanded its scope and duration, it nonetheless remained a finite project.
Background Information on the White House Security Review
28
Background Information on the White House Security Review
Interim measures were adopted where necessary; permanent solutions were
implemented where possible. Where solutions could not be identified or
immediately implemented, the Review established a process to address and
resolve the outstanding issues. Nonetheless, because the Under Secretary for
Enforcement has direct line authority over the Director of the Secret Service,
the Under Secretary can ensure that the lessons of this Review become
integrated into the practices and procedures of the Secret Service.
Background Information on the White House Security Review
29
Background Information on the White House Security Review
SECTION TWO: SUMMARY
STATEMENT OF FACTS
THE SEPTEMBER 12,1994 PLANE CRASH
On Sunday, September 11, 1994, after spending an evening with his
brother consuming alcohol and smoking crack cocaine, Frank Eugene Corder
asked his brother to drop him off in the vicinity of Aldino Airport in
Churchville, Maryland. Corder walked to the airport and found the keys to a
Cessna P 150 airplane that had been returned to the airport earlier that day after
having been rented by another individual. Although Corder was not a licensed
pilot, he had taken several lessons in the aircraft and had flown it several times
during the summer of 1993.
According to the airplane's hobbsmeter, which records the engine's
total running time, Corder started the plane's engine at 11:55 p.m. FAA radar
at the Baltimore/Washington International Airport first detected the airplane
in the vicinity of York, Pennsylvania, at 1:06 a.m. Precisely what transpired in
the interim is unknown.
Background Information on the White House Security Review
30
Background Information on the White House Security Review
Corder's flight path from York can be discerned from FAA radar
records. He flew south for a short distance and then west. 7 At 1:44 a.m., the
National Airport tower began receiving transmissions that showed that Corder
was approximately 6.5 miles north of the White House, flying at an altitude of
2700 feet. The aircraft descended approximately 1000 feet over the next three
minutes. At 1:47 a.m., the airplane turned directly south. It passed over
Washington Circle and entered the prohibited airspace that surrounds the
White House at approximately 1:48 a.m. The protected airspace, designated as
P-S6, is a no-fly zone that generally encompasses the White House and the Mall
from the Lincoln Memorial to the Capitol. The plane flew toward the Mall
descending rapidly.
Corder then passed over the Ellipse and dove directly toward the White
House at a steep angle of descent. His plane crashed onto the White House
lawn just south of the Executive Mansion at approximately 1:49 a.m. The
aircraft skidded across the ground, struck a magnolia tree just west of the South
Portico steps, and hit the southwest corner of the first floor of the Mansion.
The President and·First Family were not in the Mansion at the time of the
7The exact flight path of Corder, while known and verified, is not being
detailed for security reasons.
Background Information on the White House Security Review
31
Background Information on the White House Security Review
crash. They were residing at Blair House while the White House was
undergoing renovations. There was minimal damage to the Mansion.
Corder died from multiple, massive blunt-force injuries. Based on the
physical evidence, the National Transportation Safety Board (NTSB)
concluded that the crash was intentional rather than a failed attempt at a
controlled landing. The airplane'S velocity on impact clearly exceeded a safe
landing speed. Moreover, the airplane's wing flaps were up and its throttle
position was "full forward," neither of which is characteristic of an aircraft in a
landing posture. At the time of the crash, Corder was thirty-eight years old.
He abused alcohol and cocaine, and faced a wide array of financial, marital, and
legal problems. Both cocaine and alcohol were found in Corder's blood after
the crash. The D.C. Medical Examiner ruled Corder's death a suicide. The
Review did not discover information inconsistent with this conclusion.
Although Corder had previously expressed dissatisfaction with the
policies of the Clinton administration and expressed antipathy to President
Clinton, there is no evidence that the purpose of the flight was to harm the
President, or any other Secret Service protectee. Prior to this incident, Corder
had not come to the attention of the Secret Service as a potential threat to its
protectees. It appears that by crashing onto the White House lawn, Corder
Background Information on the White House Security Review
32
Background Information on the White House Security Review
was attempting to fulfill an ambition he had expressed to friends to kill himself
"in a big way" by flying an airplane into the White House, or into the dome of
the Capitol.
Within minutes of the crash, additional Secret Service personnel were
dispatched to the scene, a perimeter was established, the Technical Security
Division (TSD) and the military's Explosive Ordnance Disposal (EOD) team
were called to investigate for explosives, and the Presidential Protective
Division (PPD) was notified. In addition, the D.C. Fire Department and
paramedics were summoned, and the control tower at National Airport was
contacted regarding the crash. Corder's name was also found and reported for
.
..
mvestIgatlOn.
Within one hour of the crash, individuals representing seven agencies
were at the site. In addition to Secret Service and EOD personnel, the FBI, the
MPD, A TF, and the NTSB responded to the scene.
Individuals. responding to the scene reported that the various agencies
interacted efficiently and cooperatively. The work of rendering the scene safe,
ensuring that the airplane did not contain explosives, securing the evidence,
and initiating the criminal investigation proceeded in an organized fashion.
Background Information on the White House Security Review
33
Background Information on the 'White House Security Review
THE OCTOBER 29, 1994 SHOOTING
On Saturday October 29,1994, at approximately 2:55 p.m., Francisco
Martin Duran stood on the south sidewalk of Pennsylvania Avenue in front of
the White House. Suddenly, he pulled a Chinese-made SKS semiautomatic rifle
from underneath the tan trench coat he was wearing, pointed the barrel of the
rifle through the bars of the White House fence, and fired multiple rounds
toward the White House. He then pulled the weapon back from the fence and
ran down the sidewalk from west to east, toward 15th Street, continuing to fire
through the fence as he ran. When Duran paused to empty his magazine and
reload, Harry Michael Rakosky, a tourist, tackled him. Two other citizens,
Kenneth Alan Davis and Robert Edward Haines, ran over and assisted
Rakosky in subduing Duran until Secret Service Uniformed Division officers
arrived seconds later. Much of this incident - most notably the heroic actions
of the citizens - was videotaped by Jerome Kenneth Agan, a tourist who was
filming the White House when Duran began shooting. The videot;ape depicts
Duran from the point he ran down Pennsylvania Avenue firing his weapon, to
when he was taken into Secret Service custody.
Uniformed Division officers on the north grounds of the White House
responded to the shots instantaneously. Several officers had drawn their
Background Information on the White House Security Review
34
Background Information on the White House Security Review
weapons and sighted on Duran, but held their fire when he was tackled by Mr.
Rakosky. Although the quick-thinking heroism of the citizens understandably
eclipsed the actions of the Secret Service, the officers on duty nonetheless
responded courageously and effectively under fire.
Specifically, an Emergency Response T earn (ERT) officer was patrolling
the north grounds when Duran opened fire. Using only the trees as cover, that
officer ran across the north lawn of the White House toward Duran, drawing
his weapon as he ran. The videotape of the incident shows the officer running
toward Duran as Duran is shooting in the officer's direction. When the
gunfire stopped, the officer saw Duran reach toward his left coat pocket. As
the officer neared the fence, he pointed his weapon at Duran. Before he could
shoot, he saw a citizen lunge toward Duran. The officer held his fire, holstered
his weapon, and climbed over the fence. He and a sergeant, who ran down
Pennsylvania Avenue from the Northwest Gate, were the first two officers to
reach Duran. The officer held Duran to the ground while ordering the citizens
to move away from the area. He heard one of the citizens say, "Thanks for not
shooting me." Duran then responded, "I wish you had shot me." The officer
recovered a magazine from Duran's coat pocket loaded with thirty rounds of
live ammunition.
Background Information on the White House Security Review
35
Background Information on the White House Security Review
A second ER T officer also was patrolling the north grounds, east of the
North Portico, when he heard gun shots and saw a crowd of people running.
He drew his weapon and ran toward the fence. Before the officer was able to
fire, Duran was tackled. The officer then climbed over the fence and assisted
the first officer.
When the shooting began, an ERT sergeant who was designated as the
ERT team leader, ran east across the North Lawn behind the first officer, also
using the trees for cover. After the citizens tackled Duran, the sergeant ran out
the Northeast Gate and down the sidewalk to assist in placing Duran under
arrest. The ER T sergeant then notified the PPD Command Center that the
subject had been apprehended.
At the time of the shooting, President Clinton was watching television
in a room on the south side of the Residence. PPD agents responded
immediately to the President upon shots being fired. The President was the
only protectee in the White House at that time, and was in no danger from this
incident.
Duran was placed under arrest and transported to a Secret Service
holding area at the Northwest Gate. Upon searching him, the Secret Service
Background Information on the White House Security Review
36
Background Information on the White House Security Review
recovered a one-page, handwritten note identifying himself and his wife and
directing the Secret Service to his vehicle, stating that it was parked near the
White House. A lookout was broadcast, and approximately thirty minutes
after his arrest, Duran's pick-up truck, bearing Colorado tag 23822JX, was
located by a Uniformed Division K-9 officer. The truck was checked for
explosives and eventually searched. Officers recovered a Mossberg 410 gauge
shotgun, many boxes of ammunition, several gun-related items, and nerve gas
antidote. The truck also contained several documents, including an atlas
bearing a series of handwritten notes, one of which said "Kill the Pres!"
Duran fired at least twenty-nine shots at the White House. 8
Miraculously, although there were many people on the north grounds at the
time, no one was injured in the attack. Eleven of the rounds struck the White
House facade. One bullet penetrated a window in the Press Briefing Room in
the West Wing.
8Twenty-nine rounds were ultimately recovered. However, the magazine
Duran used holds a total of thirty rounds, and it was empty when recovered.
Background Information on the White House Security Review
37
Background Information on the White House Security Review
Overall, the Secret Service responded efficiently and effectively to the
shooting. ERT officers responded to the shooter, courageously moving toward
Duran with only trees for cover. As the first shots were fired, PPD agents
immediately responded to the President who was not in danger from the
gunfire. ERT officers apprehended Duran within seconds of the last shot being
fired, and Uniformed Division officers quickly determined that there were no
injuries and secured the crime scene.
Duran was arrested and ultimately convicted on a ten-count,
superseding indictment charging him with Attempted Murder of the President
of the United States,9 four counts of Forcible Assault on an Officer of the
United States, Possession of a Firearm by a Convicted Felon, Injury and
Depredation Against Property of the United States (namely the White House),
Carrying and Use of a Firearm During a Crime of Violence, and Interstate
Transportation of a Firearm. Duran asserted an insanity defense at trial.
Duran's trial began on March 16, 1995, before United States District Court
9Duran's conviction on the attempted assassination charge was based, in
part, on evidence regarding an individual, Dennis Basso, who resembles
President Clinton, and who was walking across the north grounds with a tour
group. Immediately before Duran started shooting, witnesses pointed out Basso
and declared that he was the President. The bullets fired hit near the area where
Basso was standing.
Background Information on the White House Security Review
38
Background Information on the White House Security Review
Judge Charles R. Richey and on April 4, 1995, he was found guilty on all
counts. Duran is scheduled to be sentenced on June 29, 1995.10
Prior to this incident, Duran was not on record with the Secret
Service's Intelligence Division. On October 1, 1994, Duran's wife, Ingrid
Duran, filed a missing person report with the El Paso County Sheriff's Office,
in Colorado, stating that he had been missing since September 30, 1994. On
October 17, she contacted the FBI in Colorado Springs. Ingrid Duran
informed the FBI that Duran had been missing for two weeks. She also
reported that Duran had called her on October 15, 1994, stating that he was
preparing to do something drastic. During that conversation, Duran stated
that he would be killed in the "assault" that he was planning. He refused to tell
her where he was headed, although she believed that he was in Texas or
elsewhere in the central time zone of the United States. The FBI agent's report
of that interview contains no reference to any Secret Service protectee or
politics in any way. Thus, there is no basis to conclude that the Secret Service
should have been notified prior to the shooting that Duran posed a threat to
the President.
laThe Review did not incorporate testimony presented at Duran's trial in its
Classified Report.
Background Information on the White House Security Review
39
Background Information on the White House Security Review
At the time of the shooting, Duran was twenty-six years old and last
resided in Widefield, Colorado. He has a prior criminal record and received a
Dishonorable Discharge from the United States Army in 1993. Before leaving
Colorado, Duran told several people that he intended to kill President Clinton,
although he did not provide a time frame. None of these individuals informed
any local or federal law enforcement agency, including the Secret Service, of
Duran's statements.
Investigators determined that Duran was in the D.C. Metropolitan area
for twelve days before October 29. No evidence has been discovered that
suggests that Duran was near the President, or that he attempted to get near the
President, prior to the October 29 shooting incident. There is also no evidence
that Duran had co-conspirators.
Background Information on the White House Security Review
40
Background Information on the White House Security Review
SECTION THREE:
RECOMMENDATIONS (UNCLASSIFIED)
The United States Secret Service is recognized as, and is, the most
effective protective security organization in the world. Many of its protective
methodologies are viewed as innovative, and through its extreme
professionalism, the Secret Service has established the standard against which
all other protective security organizations measure themselves. In light of the
findings made during this investigation, however, the Review, in consultation
with the Advisory Committee, has identified certain areas where the Secret
Service should implement changes in its operations to further enhance the
security of the President, the First Family, and the White House Complex.
In its Classified Report, the Review made eleven major
recommendations. Six of these are set forth below. ll The remaining five
recommendations pertain to issues such as improving the monitoring of the
restricted air space around the White House Complex, increasing training
opportunities for Secret Service personnel, and installing security
enhancements to the White House Complex. These recommendations are not
included here for security reasons. In addition, the Review made numerous
llA number of these have been edited for security reasons.
Background Information on the White House Security Review
41
Background Information on the White House Security Review
specific recommendations pertaining to the Corder incident, the Duran
incident, air and ground security issues at the White House Complex, and the
Secret Service's Intelligence Operation at the conclusion of each chapter in the
Classified Report. These specific recommendations are also omitted. The
following six major recommendations have been deemed appropriate for
disclosure to the public.
POTENTIAL CHANGES TO CIVIL AIR TRAFFIC
RULES
The Review recommends that representatives from the Department of
the Treasury (including the Secret Service) and the Department of
Transportation (including the FAA) convene to consider a variety of changes
to the civil air traffic rules that would enhance the security of the White House
Complex without unduly hindering air traffic in the Washington, D.C. area.
LAW ENFORCEMENT JURISDICTION
Three unrelated law enforcement agencies share jurisdiction over the
perimeter immediately adjacent to the White House Complex: the Secret
Service, the United States Park Police and the MPD of the District of
Columbia. These agencies should enter into a Memorandum of Understanding
Background Information on the White House Security Review
42
Background Information on the White House Security Review
(MOD) concerning the coordination of their respective resources to ensure
adequate security around the White House Complex, supplemented by annual
review by all three entities regarding the efficacy and handling of incidents and
procedures. The Review recommends that the MOD provide for the
designation of a lead agency dependent on the violation, not the physical
location of the suspect.
CREATION OF A FORENSIC TASK FORCE FOR
THE WI-llTE HOUSE COMPLEX
During crises at the White House Complex, the Secret Service, other
federal and local law enforcement agencies, and fire, rescue and ordnance
squads are among the many components that respond either pursuant to
statute or by agreement. A dedicated forensic group composed of personnel
from the various federal and local components that participate during
emergencies at the White House Complex should be established. This forensic
group would be responsible for collecting evidence, preserving the incident
scene, and for coordinating access to the White House grounds at those times.
Background Information on the White House Security Review
43
Background Information on the White House Security Review
COMMAND AND CONTROL DURING MAJOR
INCIDENTS AT THE WHITE HOUSE
Major incidents at the White House command the attention and
interest of multiple law enforcement organizations, the media, and spectators.
Essential prompt response would be improved by (i) upgraded communications
among the law enforcement agencies and the various White House security
posts and (ii) a comprehensive protocol which establishes that immediate
operational command and control must be assumed by the Secret Service.
ONGOING COORDINATION WITH THE
DEPARTMENT OF THE TREASURY
The Department of the Treasury, through the Office of the Under
Secretary (Enforcement), will ensure the Secret Service's implementation of the
Recommendations. The Department of the Treasury will assist the Secret
Service in removing obstacles to the speedy implementation of security
measures. Finally, the Department of the Treasury and the Department of the
Defense will ensure that ongoing, sensitive security-related projects have
structured, policy-level oversight.
Background Information on the White House Security Review
44
Background Information on the White House Security Review
REROUTING VEffiCULAR TRAFFIC AROUND THE
WHITE HOUSE COMPLEX AND CONVERTING
PENNSYLVANIA AVENUE
TO A PEDESTRIAN MALL
Any plan to reroute traffic from the segment of Pennsylvania Avenue
in front of the White House essentially affects local vehicular travel and
commuter interests. After careful consideration of the information that has
been provided, the Review is not able to identify any alternative to prohibiting
vehicular traffic on Pennsylvania Avenue that would ensure the protection of
the President and others in the White House Complex from explosive devices
carried by vehicles near the perimeter. For the same reasons, the Review
recommends prohibiting vehicular traffic on both State Place and the segment
of South Executive Avenue that connects into State Place. The Review would
prefer to recommend limiting traffic traveling on the segment of Pennsylvania
Avenue in front of the White House to small and medium size passenger
vehicles. However, because the Review has been informed that it is impossible
to implement a traffic system that would exclude only trucks, buses, and large
vehicles, the Review must recommend excluding all vehicular traffic from the
area between Madison Place and 17th Street and converting this segment to a
pedestrian mall. There is significant evidence that this plan should significantly
Background Information on the White House Security Review
45
Background Information on the White House Security Review
enhance the accessibility of the White House to visitors, but the Review
recognizes that this step requires consultation among all interested parties.
(See diagram of proposed pedestrian access areas on the following page.)
Background Information on the White House Security Review
46
Background Information on the White House Security Review
PROPOSED PEDESTRIAN ACCESS AREAS
L-----'~LJ\\\ ~IU
H STREET
I
~
H STREET
~
NEW EOB
r--
r
BLAIR
HOUSE
c:
I---
In
[
SE
o
·coran
Iliery
E STREET
.....
'":T
:T
....en
VI
~
:D
m
m
....
:D
ELLIPSE
Background Information on the White House Security Review
m
m
~
47
Background Infonnation on the White House Security Review
NOTE CONCERNING THE RECOMMENDATION
TO CONVERT PENNSYLVANIA AVENUE TO A
PEDESTRIAN MALL
The White House Security Review recommends prohibiting vehicular
traffic from travelling along the segment of Pennsylvania Avenue that runs
from Madison Place to 17th Street. The Review proposes to convert that area
to a pedestrian mall or park. Based on consultations with experts on security,
public access, and the history of the White House, it is the opinion of the
Review that this proposal will provide the general public with maximum
pedestrian access to our nation's most important historic structure while
averting a verified security concern.
The White House is, without question, a house unlike any other. For
almost two hundred years it has symbolized the ultimate prize in this
country's system of elected government, the American presidency. The
structure evokes the combination of prestige and constitutional authority that
we vest in its principal occupant to influence domestic affairs and global
politics. Whoever ,resides in the White House, by definition, assumes primacy
among world leaders.
Background Infonnation on the White House Security Review
48
Background Information on the White House Security Review
At the same time, the White House is a symbol of our very nation and
the American people. First among federal buildings, it is a national treasure
that reflects our unique heritage. Perhaps the most "American" aspect of the
White House is its accessibility, as evidenced by the millions of Americans and
foreign visitors who visit there each year. Since President Jefferson's day, the
White House has been an emphatically public residence - the "House of the
People," which they may either enter or look upon without obstruction. In
contrast, the great palaces of Europe were set within planned parks, high walls
and fences designed with protection in mind. But the White House grounds
were developed at a time when security was not a great concern in the United
States. The openness of the White House to pedestrian visitors is therefore
distinctive. Where else in the world can a citizen secure a ticket to enter and
tour the actual residence of the head of state and government?
The Review's proposal to prohibit vehicular traffic from travelling
along the segment of Pennsylvania Avenue that runs between Madison Place
and 17th Street will significantly enhance the public's access to their White
House. This concept will ensure that pedestrians may enter and enjoy the
White House and its grounds, and feel that distinctively American closeness to
those in high office. At the same time, the proposal will reduce significantly
Background Information on the White House Security Review
49
Background Information on the White House Security Review
the security risk posed to the White House, its residents, employees, and
visitors by vehicles carrying explosives.
F or similar reasons, the Review also proposes to prohibit vehicles from
travelling on either State Place or the segment of South Executive Avenue that
runs into State Place.
The following experts consulted by the Review supported the
conversion of Pennsylvania Avenue to a pedestrian mall:
•
Dr. Daniel Boorstin, former Librarian of Congress
•
Dr. William Seale, former White House Historian
•
George White, the Architect of the Capitol
•
Harold Adams, Max Bond, Mark Bunnell, Maxine Griffith, Nicholas
Quennell, and William H. Whyte, noted architects and urban planners
•
John Warnecke, designer of the Lafayette Square project for former
First Lady Jacqueline Kennedy Onassis and early proponent and
designer of a pedestrian mall in front of the White House
•
Georges J acquemart, noted transportation planner and traffic engineer
Background Information on the White House Security Review
50
Background Information on the White House Security Review
SECTION FOUR: THE EVOLUTION OF
PRESIDENTIAL SECURITY
CREATrON OF THE WHITE HOUSE COMPLEX
The "White House Complex" is composed of four principal structures:
the Executive Mansion, where the First Family resides; the Old Executive
Office Building, the location of the executive offices of the President and the
Vice-President; the West Wing, the location of the official office of the
President; and the East Wing, the official reception entrance to the State
Rooms of the Executive Mansion.
When George Washington was elected the first President of the United
States in 1789, there was neither a permanent capital city nor a permanent
official residence for the Chief Executive. The seat of government first rested
in Philadelphia and later, New York City. Congress then enacted the
Residence Act of 1790, granting President Washington the authority to locate
the permanent "federal capital" wherever he pleased. President Washington
delegated to Secretary of State Thomas Jefferson the responsibility for carrying
out the project. Both men were Virginians who had long favored establishing
the nation's capital in the South. They set their sights on a 10-square-mile
Background Information on the White House Security Review
51
Background Information on the White House Security Review
district overlooking the Potomac River for the federal enclave. The central
feature of the federal city would be the executive residence of the president.
When the cornerstone of the Executive Mansion was laid in 1792, it was
done against the backdrop of extensive political wrangling. Although
Washington and Jefferson shared a view of where the capital should be located,
they had very different opinions of central executive authority and the
appropriate character of the nascent Presidency. The plan for the District of
Columbia originally proposed by Pierre L'Enfant, and approved in principle
by President Washington, called for a "Presidential palace" five times the size
of the structure we now know as the White House. L 'Enfant's plan, suitable
for "ages to come," embodied the Federalist Party's exalted, monarchial notion
of the Presidency. Federalist Party leaders argued that Americans wanted their
President to establish a high tone, essentially as an elected king set apart from
the people. Washington himself thought that, as President, it was his
responsibility "to conform to the public desire and expectation with respect to
the style proper for the Chief Magistrate to live in." (Seale, Vol. I, p. 5). This
logic required that the Chief Magistrate live in a palace.
The Republican opposition, led by Jefferson, despised the royalist
pretense that they believed L'Enfant's proposed "Presidential palace"
Background Information on the White House Security Review
52
Background Information on the White House Security Review
embodied. Reacting to what they perceived to be the potential for abusive
executive authority, the Republicans systematically discredited L'Enfant's plan
as one of grandeur unbefitting a democracy. Jefferson even argued, albeit
unsuccessfully, that the "President's house," as it was increasingly called,
should be constructed of brick rather than stone. He urged that the new
capital should evoke simplicity rather than the aristocratic airs commonplace
in the kingdoms of Europe.
To resolve the impasse, Jefferson proposed to President Washington
that the executive residence be built according to the best plan submitted in a
national competition. Washington agreed, and eventually settled on a design
created by the architect James Hoban. The structure referred to here as the
Executive Mansion or the "White House," was completed in eight years. In
1800, John Adams became the first President to occupy it.
A second structure, formerly known as the State, War & Navy
Building, was added to the White House Complex in 1873-74. The State, War
& Navy Department occupied the office space concurrently until it moved to
its present locations immediately following World War II. Since that time, the
State, War & Navy Building, now known as the Old Executive Office
Background Information on the White House Security Review
53
Background Information on the "White House Security Review
Building, has contained the Executive Office of the President, the Executive
Office of the Vice-President, and the White House Office.
The construction of the West and East Wings were not nearly so
marked by controversy as the building of the Executive Mansion itself. Until
the West Wing was constructed in 1902, the president and his aides historically
shared offices in designated areas of the Executive Mansion. As the authority
and prestige of the Presidency grew, so did the space occupied by the Executive
Office of the President, which encroached upon the First Family's living
quarters. In 1901, Theodore Roosevelt became President upon the
assassination of William McKinley, and the largest First Family ever moved
into the Executive Mansion with him. Immediately dissatisfied with the
cramped living quarters, President Roosevelt determined that the Executive
Mansion required drastic remodeling. Renovations ensued, and the West
Wing, then known as the "Temporary Executive Office," was constructed to
house the Executive Office of the President. As the name suggests, the
architects never intended the structure to become permanent. Moreover, it was
intended originally to accommodate only the President's personal staff. It was
not until 1909 that the President's official workplace was moved to the West
Wing.
Background Information on the "White House Security Review
54
Background Information on the White House Security Review
The East Wing is the most recently built administrative structure
within the White House Complex. The building was constructed as part of the
World War II mobilization effort. President Franklin Roosevelt believed that
his staff would increase dramatically because of the administrative demands of
the war. To meet the need for additional office space, he considered erecting
several temporary buildings on the south grounds. Upon further reflection,
Roosevelt opted instead to construct a permanent structure similar to the West
Wing, but on the east side of the Executive Residence. The East Wing was
occupied in 1942, although construction was not fully completed until 1945.
During W orld War II, Roosevelt directed military operations from the East
Wing and provided permanent office space there to the recently enlarged White
House Police. Later, a reception area was added to the East Wing. Today, the
East Wing serves as the reception entrance for tours and social events at the
Executive Mansion.
THE TRADITION OF PUBLIC ACCESS TO THE
EXECUTIVE MANSION
To some degree, the Executive Mansion has always been both the
residence and office of the President and a national treasure - the "People's
House." Even before President John Adams, its first resident, was able to
occupy the unfinished Mansion, the public wandered in and out with
Background Information on the White House Security Review
55
Background Information on the White House Security Review
impunity; eventually, the marshal of Washington ordered it closed to all who
did not possess written passes. Since that time, presidents have grappled with
the question of the extent to which the public should be given access to the
Executive Mansion. A rough pattern developed, beginning in the first quarter
of the nineteenth century, of gradually increasing restrictions on public access
to the White House Complex, due largely to concerns for the personal security
of the President and his family.
Just as the Jeffersonian Republicans considered L'Enfant's notion of a
"Presidential palace" anti-democratic, so too did they reject any effort to deny
public access to the Executive Mansion. Indeed, it was President Jefferson
himself who began the liberal practice of throwing open the doors of the
Mansion each day so that visitors might freely browse the State Rooms. The
early rule was simply that the Mansion was closed to the public only during
early morning hours and when the President was either asleep or out of town.
President] efferson even went so far as to display in the State Rooms plants,
animals, and other specimens obtained by Lewis and Clark during their
expedition through the Louisiana Purchase territory. Jefferson's intent was
clear: he opened the Executive Mansion to callers in order to lessen the
grandeur of the vaunted Federalist "palace." Commenting on the practice, the
novelist James Fenimore Cooper wrote that:
Background Information on the White House Security Review
56
Background Information on the White House Security Review
I have known a cartman to leave his horse in the street and go to a
reception room to shake hands with the President. He offended the
good taste of all present, because it was not thought decent that a
laborer should come in dirty dress on such an occasion; but while he
made a trifling mistake in this particular he proved how well he
understood the difference between government and society. He knew
that a levee was a sort of homage paid to political equality in the person
of the first magistrate, but he would not have presumed to enter the
house of the same person as a private individual without being invited.
(Seale, Vol. I, p. 159).
Through the first quarter of the twentieth century, Jefferson s
I
successors and their wives continued to greet visitors briefly in the East Room
each day at lunchtime. The outpouring of enthusiastic, popular sentiment at
the inaugurations of Andrew Jackson in 1828 and William Henry Harrison in
1840 remains noteworthy both for the raucous behavior of the many visitors
to the District of Columbia for those events and for the unfettered White
House access that was granted to those crowds. While the original political
motivation for the practice has perhaps dissipated, the State Rooms of the
Executive Mansion have remained open to public view since Jefferson s time,
I
except during the Spanish American War and the two World Wars. Presently,
more than 1.5 million visitors tour the Mansion each year.
Throughout most of the history of the White House, the public was
given even freer access to the grounds than to the Mansion itself. By most
accounts, the grounds were originally as open as a public market. In the early
Background Information on the "White House Security Review
57
Background Information on the White House Security Review
years of the nineteenth century, the White House grounds were considered a
prime attraction for sightseers. Until the construction of the Washington
Monument and the mound on which it rests, there was a fairly unobstructed
view of the Potomac River from the ridge where the Executive Mansion sat.
Many sought the enjoyment of this vantage point and the beauty of the
Executive Mansion's renowned landscaping. Access to the grounds was
regulated only by a succession of walls and fences that had been constructed
through the years, beginning in Jefferson's time. These structures forced
visitors to use the adjacent public thoroughfares when walking the entire
length of the grounds. Eventually, guards were retained ~ater replaced by the
Uniformed Division of the Secret Service and its forerunners) to regulate the
flow of visitors to the grounds. As William Seale has written, in the
Antebellum era:
[t]he iron gates to the White House grounds opened at eight in the
morning and closed at sundown. Almost anyone was likely to wander
[the well-manicured gardens], along the paths. Naturally eager to see
the President and his household, visitors stared up at the second-floor
windows, and sometimes they ventured where they should not.
Without the garden on the east, secluded in its trees, the President
would have had no private access to the out-of-doors. A sentry box ...
stood at the gate separating the garden from the rest of the south
grounds. The public was prohibited from entering there, [and] the
household went to and from the garden unseen. (Seale, Vol. I, pp. 324325).
It was not until W orld War II that free public access to the White
House grounds during daylight hours was finally ended. The war brought
Background Information on the White House Security Review
58
Background Information on the White House Security Review
changes so dramatic that security measures would never again be as relaxed.
Since that time, visitors have been required to report to gates around the
perimeter of the White House Complex instead of simply being allowed to
walk to the front door of the Executive Mansion. Only those with official
appointments have been permitted inside, and only after careful scrutiny. As a
Presidential insider of the World War II era wistfully remarked concerning the
new arrangements, "No more Congressional constituents, no more
government clerks hurrying through the grounds ... no more Sunday tourists
feeding the squirrels, taking snapshots and hanging around the portico hoping
someone interesting would come out." (Goodwin, p. 298).
Notwithstanding the trend toward restricting public access to the
grounds, the Executive Mansion is among the world's only chief executive
residences to operate as an open museum. At the same time that it serves as the
home and office of the President, its State Rooms are opened each day to
visitors from throughout the country and the world.
THE EVOLUTION OF SECURITY FEATURES AT
THE WIDTE HOUSE COMPLEX
Those responsible for providing security at the Executive Mansion have
always had to strike a balance between functional needs and the preservation of
Background Information on the White House Security Review
59
Background Information on the White House Security Review
the White House's image as an enduring symbol of democracy. Most
Presidents have embraced President Jefferson's first principle that the
Executive Mansion should be open and easily accessible. Such an atmosphere is
difficult to achieve with guards and locked gates. Nevertheless, President
Jefferson himself ordered the construction of a high stone wall to replace the
temporary rail fence around the perimeter of the White House grounds. At
least some of this wall was erected, including a section on the north border of
the grounds that completely blocked the view of the Mansion from the city
commons, known as Lafayette Park. President Monroe, who wanted
Americans to look freely upon the "President's house," replaced the stone wall
with a curving iron fence. Monroe's democratic impulses did not, however,
prevent him from installing gates equipped with heavy locks. Eventually, the
8-foot-high section of stone wall that stood along the south border of the
grounds was also replaced with an iron fence, and fences were constructed on
the east and west sides as well.
Along with a number of guardhouses, the iron fence surrounding the
grounds remained the White House's only visible structural concession to
security needs for most of its history. Nevertheless, more recent Presidents
have also been forced to address the often competing concerns of architectural
integrity, public access, and physical security. In the days immediately
Background Information on the White House Security Review
60
Background Information on the White House Security Review
following the attack on Pearl Harbor, for example, the Secret Service presented
President Roosevelt with a lengthy set of recommendations to enhance security
at the White House Complex. The Secret Service proposed covering the
skylights with sand and tin, camouflaging the structure, painting the colonnade
windows black, and setting up machine-gun emplacements on the roof. The
President rejected most of the suggestions "with not a little annoyance" but
agreed to a number of less obtrusive ones. 12 (Goodwin, p. 299).
A visitor to the White House Complex today cannot help but notice
several visible measures that have been installed since W orid War II to enhance
the physical security of the White House. For example, following the terrorist
assault on the Marine barracks and the American Embassy in Beruit, Lebanon,
reinforced bollards were installed at the Complex's perimeter. In addition,
perimeter fencing and gates were reinforced. Other guardhouses have been
erected at various points on the grounds, and both East and West Executive
Avenues have been closed to vehicular and, at times, pedestrian traffic. Secret
11In light of President Roosevelt's position, then-Secret Service Chief Frank
J. Wilson arranged for a regular Army unit to install and operate anti-aircraft
guns on top of the Main Treasury Building" so as to be in a position to
intercept enemy airplanes attempting to bomb or strafe the White House."
(Wilson, p. 145). These troops, who had been detailed from Fort Myers, also
were responsible for establishing a security perimeter in the area immediately
outside the White House fence.
Background Information on the White House Security Review
61
Background Information on the White House Security Review
Service Uniformed Division officers are near at hand, as are Park Police officers
and other security personnel. As has always been the case, these precautions
have been taken to ensure that the President enjoys the highest level of security
that is consistent with democratic principles.
PROTECTION OF THE WHITE HOUSE COMPLEX
AND THE PRESIDENT IN THE NINETEENTH
CENTURY
Just as a "Presidential palace" with restricted public access was
considered anti-democratic, at one time the idea of stationing guards in and
around the White House Complex was considered wholly inappropriate to the
nation's character. During the nineteenth century, only wartime Presidents
would dare risk doing so, and then only if the District of Columbia itself were
threatened. A children's primer that was popular during the Civil War
illustrated the then-widely accepted distinction between the security that is
provided for a monarch and the security given to a President:
How are emperors and kings protected?
By great troops of guards; so that it is difficult to approach them.
How is the president guarded?
He needs no guards at all; he may be visited by any persons like a
private citizen. (Mitchell, p. 14).
Background Information on the White House Security Review
62
Background Information on the White House Security Review
For a century after President John Adams first moved into the
Executive Mansion, the protection of the mansion and its residents remained a
relatively minor concern, except during wartime. Various combinations of
policemen, guards, and soldiers furnished security for the President's home.
There was no sign, however, of the extensive and organized security
arrangements that would develop in the twentieth century.
Perhaps the earliest indication of concern for the security of the
Executive Mansion was contained in Thomas Jefferson's plans for the grounds.
These plans, drawn in 1803 or 1804, included a series of gate lodges for guards.
It is unclear whether they actually were built.
The circumstances of the War of 1812 forced President James Madison
to mobilize the first serious effort to protect the Executive Mansion. On
hearing that 4,000 British regulars were marching toward Washington,
President Madison stationed troops on the White House grounds. A company
of 100 volunteers camped on the North Lawn of the Mansion and positioned a
cannon at the North Gate. These volunteer soldiers retreated before the
British entered Washington, however. The British thus faced no resistance as
they set fire to the Executive Mansion and reduced it to a smoldering shell.
Background Information on the White House Security Review
63
Background Information on the White House Security Review
Although James Monroe did not confront invading armies during his
Presidency, he was apparently concerned about assassins and other
troublemakers, for he employed guards at the Executive Mansion. These
guards were civilians in civilian dress, recruited for Monroe by the marshal of
the District of Columbia. During special days when the public was invited to
the White House, the number of guards increased. In addition, a doorkeeper
was always on duty in the entrance hall. The doorkeeper kept firearms close at
hand in a room off the hall. He had the authority to admit or refuse nearly
anyone who appeared.
Although the doorkeeper was a permanent fixture, the guards were not.
Monroe's successor, John Quincy Adams, did not hire guards, and Andrew
Jackson did not favor the practice, either. Nevertheless, after a man named
Richard Lawrence tried to shoot Jackson at the Capitol in 1835 (the attempt
failed because both of Lawrence's pistols misfired), a wooden "watch box" for a
sentry was built on the south grounds, at the gate to the President's garden.
During Martin Van Buren's administration, the federal government paid the
salaries of both a day guard, who often occupied the watch box, and a night
watchman. When he hosted public receptions at the Executive Mansion, Van
Buren stationed policemen at all the gates to keep out visitors from the lower
classes.
Background Information on the White House Security Review
64
Background Information on the White House Security Review
During John Tyler's politically tumultuous Presidency, an enraged mob
burned Tyler in effigy outside the White House gates, and an intoxicated
painter threw rocks at him while he walked on the south grounds. Tyler,
concerned for his safety, acted to establish a permanent company of guards for
the Executive Mansion. In 1842, he presented Congress with a bill establishing
a "police force for the protection of public and private property in the city of
Washington." Senator John Crittenden of Kentucky objected to the fact that
the bill gave the President the power to appoint these police. According to the
record of the Senate debates:
... it seemed to [Crittenden] that, by subjecting this matter to the
control of the President of the United States, it might be
metamorphosed into a political guard for the Executive ....
[Crittenden] thought that it would not be entirely safe to organize such
a corps. It was a little sort of standing guard, which might eventually
become a formidable army. The seeds sown by this bill would soon
germinate, and their full development might overshadow the liberties of
the people. (Congressional Globe, 27th Cong., 2d sess., 854 (1842)).
To address these concerns, the Senate amended Tyler's security bill to
vest the appointment power in the Mayor of Washington instead of the
President. The amended bill passed, and Tyler signed it into law. The act
created a new entity called the" auxiliary guard." It consisted of a captain and
fifteen other men. Its official function was "the protection of public and
private property against incendiaries, and ... the enforcement of the police
regulations of the city of Washington. " The auxiliary guard was made subject
Background Information on the White House Security Review
65
Background Information on the White House Security Review
to rules and regulations prescribed by a board consisting of the Mayor of
Washington, D.C., the Corporation Counsel of Washington, D.C., and the
United States Attorney for the District of Columbia, "with the approbation of
the President of the United States." (5 Stat. 511 (August 23, 1842)).
F our men from this newly created force - the captain and three guards
- were assigned to the Executive Mansion. In The President's House, William
Seale describes their role at the Mansion.
From the start the "Doormen," as they were called to avoid the
militaristic tone of "guard" or "sentry" or "patrol" became integral to
the functioning of the President's House, taking on extra duties that
helped make the mansion run more smoothly. They carried
confidential messages and met official and household guests at the stage
line or train; they received all callers in the entrance hall and often
announced them to the President or his wife. With the responsibilities - which were varied and not really spelled out - went certain privileges
of investigation and arrest not shared by other law enforcement officers.
At the receptions they and temporary deputies mingled with the
crowds, never hesitating to remove a man or woman who seemed
suspicious. Their toughness and apparent aggressiveness often sparked
complaint, but never reprimand. (Seale, Vol. I, p. 24).
Franklin Pierce, the President from 1853 to 1857, raised security to a
new level when he became the first chief executive to retain a full-time
bodyguard. Whereas the doormen remained on the White House grounds, the
bodyguard (also a federal employee) accompanied Pierce wherever he went.
Each time the President left the Executive Mansion, the bodyguard was by his
Background Information on the White House Security Review
66
Background Information on the "White House Security Review
side. When the President was in the Mansion, the bodyguard remained within
calling distance. Pierce thus introduced the two-level security arrangement that
characterizes Presidential protection today. An outer perimeter of police-type
guards secured the Executive Mansion itself, while an inner perimeter - the
bodyguard - protected the person of the President.
By 1860, the bitter atmosphere arising from the discord between the
northern and southern states had greatly increased the danger of political
violence. As soon as Abraham Lincoln was chosen to be the Republican
candidate for President that year, he began to receive numerous death threats.
During the campaign, he was constantly surrounded by a phalanx of
bodyguards. In at least one instance, one of these bodyguards was Alan
Pinkerton, the founder of the celebrated detective agency.
Lincoln S security detail grew after he assumed the Presidency. He
I
chafed under this protection and worried that it made him appear unmanly,
but he ultimately conceded its necessity. Numerous Metropolitan Police were
detailed to the Executive Mansion to serve as guards. Because Lincoln did not
want the Executive Mansion to take on the characteristics of an armed camp,
the guards inside the Mansion (the doormen) dressed in civilian clothes and
Background Information on the "White House Security Review
67
Background Information on the White House Security Review
concealed their firearms. Uniformed, armed sentries were posted at the gates to
the grounds and at the doors to the Executive Mansion itself.
During the Civil War, the military helped protect the Mansion. When
the conflict started, soldiers actually camped inside the Executive Mansion
until Washington was adequately fortified. Even after the city was deemed
secure, military units were often assigned to serve as guards there.
Troops also frequently accompanied Lincoln during his travels. Indeed,
throughout the Civil War, no member of Lincoln's family left the White
House grounds unescorted. Thus, they were the first White House occupants
to receive extensive personal protection. During the Civil War, an armed,
plainclothes member of the Metropolitan Police regularly accompanied Mrs.
Lincoln on her outings. Moreover, the White House doormen never lost sight
of the Lincolns' son Tad, who was considered a target for kidnappers. By
1864, four Metropolitan policemen were assigned to serve as President
Lincoln's personal bodyguards. One of these men, responsible for protecting
Lincoln at Ford Theater on the evening of Apri114, 1865, was having a drink
at a nearby saloon when John Wilkes Booth fatally wounded the President
with a shot to the head.
Background Information on the White House Security Review
68
Background Information on the White House Security Review
Despite the Lincoln assassination, Presidential security was diminished
in the years after the war. The four-man detail drawn from the Metropolitan
Police was reduced to three men and restricted to providing protection at the
Executive Mansion. These guards, still referred to as doormen, received no
special training. Unlike Lincoln, the post-war Presidents were often left
entirely unprotected outside the Mansion. In 1881, Charles Guiteau exploited
this vulnerability by fatally shooting James Garfield as he walked, unguarded,
through the Baltimore and Potomac Railway Station in Washington.
Even the second assassination of a President within sixteen years did
not lead to an immediate escalation in security. When Garfield's successors
stepped outside the gates of the then-lightly guarded Executive Mansion, they
usually had no protection at all. Occasionally, private detectives were retained
to serve as Presidential bodyguards, but Congress enacted legislation that made
such appropriations illegal. (27 Stat. 591 (1893)).
By the mid-1890s, the rising number of threats directed at President
Grover Cleveland finally prompted a significant strengthening of Presidential
security. Cleveland's wife persuaded him to increase the number of policemen
serving at the Mansion from three (the size of the detail since the end of the
Civil War) to twenty-seven. Although they were organized in 1865, it was not
Background Information on the White House Security Review
69
Background Information on the "White House Security Review
unti11894 that a small number of Secret Service agents (then known as
"operatives") were assigned to the White House, forming an "inner perimeter"
of bodyguards to supplement the enhanced" outer perimeter" of protection
provided by the police. With the addition of the Secret Service, White House
security assumed the shape that it has maintained to the present day.
THE EVOLUTION OF THE PERSONAL
PROTECTNE FUNCTION
For the first forty years of its existence, the principal responsibility of
the United States Secret Service (Secret Service) was to combat counterfeiting.
It was organized in 1865 as an investigative bureau of the Department of the
Treasury after Treasury officials determined that fully one-third of paper
money in circulation was counterfeit. The Secret Service proved to be quite
effective in its anti-counterfeiting mission. Due to the success of its
investigations, the percentage of counterfeit currency diminished significantly.
By 1867, counterfeiting was largely brought under control.
Because of the Secret Service's proven proficiency, and the fact that it
was the only general, law-enforcement agency in the federal government, its
duties were broadened substantially. In 1867, it began conducting
investigations into other violations of federa11aw, including Ku Klux Klan
Background Information on the "White House Security Review
70
Background Information on the "White House Security Review
activities, smuggling, mail robberies, land frauds, bank frauds, and illegal
distilling. Through the end of the nineteenth century, Congress periodically
expanded and narrowed the Secret Service's sphere of responsibility. It never,
however, authorized the Secret Service to provide protective services to the
President.
Consequently, when the Secret Service detailed operatives to the White
House for the first time in the spring of 1894, it was exceeding its mandate. Its
assumption of protective functions grew directly out of its authorized
activities, however. A band of Colorado gamblers that the Secret Service had
been investigating made threats against President Cleveland. In order to
protect the President, the Secret Service transferred the two men who had been
conducting the Colorado phase of the investigation to the White House. It
instructed them to "watch for suspicious persons who might be Western
gamblers, Anarchists, or cranks." (Kaiser," Origins of Secret Service
Protection," p. 103).
The Secret Service's protective activities continued in the summer of
1894, when Mrs. Cleveland, after learning of an apparent plot to kidnap the
Cleveland children from the family's summer home in Buzzard's Bay,
Massachusetts, persuaded the Secret Service to detail three operatives there. At
Background Information on the "White House Security Review
71
Background Information on the White House Security Review
first, President Cleveland, who did not arrive in Massachusetts until later in the
season, was unaware of this arrangement. He apparently approved of it when
he learned of it, however, for the detail guarded the family again the next
summer. The Cleveland Administration concealed this unauthorized use of
the Secret Service for presidential protection.
During the first administration of President William McKinley (18971901), the Secret Service's protective activities became more regular and more
public. In early 1898, Secret Service Chief William Hazen was demoted, largely
because of charges that he misused the Secret Service's appropriation by
authorizing the protective detail for the Cleveland family. Later that year,
however, the start of the Spanish-American War led to the first legal use of the
Secret Service for Presidential protection. A detail of four agents, operating
under a special emergency war fund, was assigned to the Executive Mansion to
guard McKinley around the clock. They were stationed on the first and second
floors of the Mansion and on the White House grounds.13
13During the Spanish-American War, the Secret Service also served as the
primary intelligence agency for the War Department. It gathered intelligence
and conducted counterespionage activities both domestically and abroad.
Background Information on the White House Security Review
72
Background Information on the White House Security Review
After the war, Secret Service operatives continued to serve at the White
House at least part of the time. In addition, operatives regularly accompanied
McKinley during his travels. With the expiration of the emergency war fund,
these activities once again exceeded the Secret Service's statutory authority.
However, Secret Service Chief John Wilkie felt obligated to provide the
protection anyway. President McKinley received a large number of threats,
which seemed particularly credible in light of a series of political assassinations
that took place in Europe during this period.
In 1901, President McKinley was shot and fatally wounded by anarchist
Leon Czolgosz while standing in a receiving line at the Pan American
Exposition in Buffalo, New York. Three Secret Service operatives were
guarding him at the time, along with eighteen exposition policemen, eleven
members of the Coast Guard, and four Buffalo city detectives. One of the
Secret Service operatives was out of position when Czolgosz approached
President McKinley, because the president of the exposition had requested the
spot directly next to McKinley, where the operative normally stood.
In response to the McKinley assassination, Presidential protection
intensified. Theodore Roosevelt, McKinley's successor, was more heavily
guarded than any previous peacetime President. The Secret Service assumed
Background Information on the White House Security Review
73
Background Information on the White House Security Review
full-time responsibility for Roosevelt's safety. There were always at least two
operatives in street clothes stationed at the White House, and Mrs. Edith
Carow Roosevelt, the President's spouse, often requested additional protection
without the President's knowledge. Operatives accompanied President
Roosevelt whenever he traveled. The Secret Service also increased its efforts to
gather intelligence regarding potential threats.
Although these activities were generally acknowledged and accepted,
they continued to exceed the Secret Service's statutory mandate. After the
McKinley assassination, Congress considered and rejected numerous bills
concerning the protection of the President. One source of disagreement in
Congress was whether the primary responsibility for Presidential security
should fall to the Secret Service or to the military.
In 1902, the Senate approved a bill that, in addition to making
assassination and attempted assassination capital crimes, directed the Secretary
of War "to select and detail from the Regular Army a sufficient number of
officers and men to guard and protect the person of the President of the United
States without any unnecessary display." (35 Congo Rec. 2275 (1902)). The bill
also directed the Secretary of War "to make special rules and regulations as to
Background Information on the White House Security Review
74
Background Information on the White House Security Review
dress, arms, and equipment ... of said guard." In other words, the bill
authorized the creation of a plainclothes, secret service within the army.
Many senators opposed making Presidential security a military
function. They argued that encircling the President with troops would
undermine the spirit of democracy. One senator stated:
I would object on general principles that it is antagonistic to our
traditions, to our habits of thought, and to our customs that the
President should surround himself with a body of janizaries or a sort of
Praetorian guard, and never go anywhere unless he is accompanied by
men in uniform and men with sabers as is done by the monarchs of the
continent of Europe .... " (Cong. Rec., 1st sess., 1902,35, pt. 3: 3049
(Remarks by Sen. Mallory)).
Senators who supported the military option countered that soldiers would
make effective guards, unlike the Secret Service operatives who had failed to
protect McKinley in Buffalo.
When the House Committee on the Judiciary amended the bill, it
struck the section making the army responsible for Presidential protection.
The Committee warned that under the Senate's version of the bill:
the Secretary of War may detail every man and officer in the Regular
Army, under the pretense of protecting the President, dress them to suit
his fancy, and send them abroad among the people to act under secret
orders. When such laws begin to operate in this Republic the liberties
of the people will take wings and flyaway. (House Committee on the
Judiciary, Protection of the President and the Suppression of Crime
Against Goyernment, 57th Cong., 1st sess., H. Rep. 1422, 13 (1902)).
Background Information on the White House Security Review
75
Background Information on the White House Security Review
The Committee further stated that the President should instead be protected
by a "secret-service force ... act[ing] under orders from the Secretary of the
Treasury." The Senate and House could not resolve their differences over this
issue, however, and the conference version of the bill thus did not even address
which entity should protect the President. Ultimately, this bill died, along
with seventeen other Presidential protection measures introduced after the
McKinley assassination. Finally, in 1906, Congress quietly included language
in the Sundry Civil Expenses Act authorizing the Secretary of the Treasury to
use funds for "the protection of the person of the President of the United
States." 14
Law thus caught up to reality, as the Secret Service finally received
express funding to perform the Presidential security function it had in fact
assumed twelve years earlier. The Secret Service has continued to protect the
"person of the President" ever since.
In the period immediately following its official designation as the
agency responsible for protecting the President, the Secret Service usually
14~ 43 Stat. 708. Although today the military provides extensive logistical
support to the Secret Service, the military role was begun to ensure the
continuity of the Presidency. The Secret Service never relinquishes its role of
protectmg Its protectees.
Background Information on the White House Security Review
76
Background Information on the White House Security Review
assigned two agents to serve as Presidential bodyguards. When the President
took extended vacations, the detail increased'to eight to allow around-the-clock
protection.
Although the Secret Service has never in recent history identified
precisely the number of personnel or the amount of resources committed to its
protective mission, both figures have clearly increased dramatically over the
course of the century. One reason for these increases is that a large number of
people have been added to the list of Secret Service protectees. The following
chart indicates these additions. The current list of Secret Service protectees is
enumerated in 18 U.S.C. 3056.
(See Chart 1 on the following page.)
Background Information on the White House Security Review
77
Background Infonnation on the White House Security Review
CHARTl.
EVOLUTION OF SECRET SERVICE PERSONAL PROTECTIVE FUNCTION
Protectees
Year Officially Authorized
Comments
President-elect
1913
Actually began 1908 for President-elect Taft.
President's immediate family
1917
Actually began for President Cleveland's family
1894. Full-time protection for President Taft's
children (1909-1913)
Vice-President (at his request)
1951
Vice-President (not requiring his request)
1962
Vice-President-Elect
1962
Former President (at his request for a
reasonable period after leaving office estimated 6 months)
1962
Officer next in line to succeed the
President if no Vice-President
1962
Widow and minor children of former
President for 2 years after President leaves
office or dies in office
1963
Former President and wife during his
lifetime
1965
Widow and minor children of former
President for 4 years after he leaves office
or dies in office
1965
Major Presidential and Vice-Presidential
candidates
1968
Widow of former President until death or
remarriage. Minor children of former
President until 16 years old
1968
Visiting heads of foreign states or
governmentS. At President's direction,
other distinguished foreign visitors to the
United States and official representative of
the United States performing special
missions abroad
1971
Immediate family of Vice-President
1974
Spouses of Major Presidential and VicePresidential candidates
1976
Spouses of visiting heads of foreign states
or foreign governmentS
1986
Response to assassination of President Kennedy
Response to assassination of Robert Kennedy
During World War n, protection provided for
foreign dignitaries including Norwegian Crown
Princess Martha, British Prime Minister
Winston Churchill, Madame Chiang Kai-shek
of China, and Queen Wilhemina of the
Netherlands
Mandated by a National Security Directive
Background Infonnation on the White House Security Review
78
Background Information on the White House Security Review
Another reason why the Secret Service has elevated the amount of
resources and personnel dedicated to its personal protective mission is the fact
that its protectees have been subjected to life-threatening assaults with
mcreasmg frequency. Since the Secret Service was officially authorized to
provide protective services in 1906, only one person has been killed under its
watch - President John F. Kennedy, who was fatally wounded by Lee Harvey
Oswald while riding in a motorcade through Dallas, Texas, on November 22,
1963.
Since the inception of the Secret Service, however, there also have been
six other potentially deadly assaults on Secret Service protectees.
The first occurred on February 15, 1933, in Miami, Florida. Giuseppe
Zangara fired five shots at President-elect Frankljn D. Roosevelt, who was
making an impromptu speech while sitting in an open car that had stopped
momentarily. Although none of the shots hit President Roosevelt, Zangara
mortally wounded Anton Cermak, the Mayor of Chicago, and hit four other
people, including a Secret Service agent.
The second, and only assault that involved an organized conspiracy,
took place on November 1,1950, when two Puerto Rican nationalists, Oscar
Background Information on the White House Security Review
79
Background Information on the White House Security Review
Collazo and Griselio T orresola attempted to assassinate President Truman by
shooting their way into Blair House, his temporary residence across
Pennsylvania Avenue from the White House. is The assault was timed to
coincide with a rebellion against American authority in Puerto Rico.
Collazo and T orresola approached Blair House from opposite directions
and started firing on the Secret Service agents and White House Police officers
guarding the building. In the course of the shootout, T orresola and White
House Officer Leslie Coffelt were killed. Collazo and two other White House
policemen were wounded. Neither assailant reached the entrance to the
building. If one of them had, he would have faced an agent waiting in the
front hall with a Thompson submachine gun.
On May 15, 1972, Arthur Bremer shot Presidential candidate George
Wallace at an open-air rally at a shopping center in Laurel, Maryland. Wallace,
the Governor of Alabama, stepped out from behind a bullet-proof podium to
shake hands with members of the crowd. As he approached Bremer, the
would-be assassin fired a barrage of bullets at Wallace. Wallace was hit
1STruman and his family temporarily resided at Blair House because the
White House was being renovated.
Background Information on the White House Security Review
80
Background Information on the White House Security Review
repeatedly. Three other people were also struck, including a Secret Service
agent. Wallace was paralyzed as a result of the attack.
On September 5, 1975, Lynette "Squeaky" Fromme, a follower of
Charles Manson, attempted to shoot President Gerald Ford as he walked across
the grounds of the California Capitol in Sacramento. As Ford passed a group
of spectators, Fromme pointed a pistol at him. A Secret Service agent grabbed
the weapon and pushed Fromme's arm down. As he wrestled her to the
ground, she repeatedly exclaimed, "it did not go off!" It was later determined
that there were no bullets in the firing chamber, although there were four in
the gun's magazine.
Just seventeen days after the Fromme incident, Sara Jane Moore fired a
bullet at President Ford in San Francisco. As President Ford exited a
downtown hotel, Moore, standing in a crowd of onlookers across the street,
pointed her pistol at him. Just before she fired, a civilian grabbed at the gun
and deflected the shot. The bullet missed Ford but slightly injured a
bystander. Moore·was a known radical and a former FBI informant.
The most recent incident occurred on March 30, 1981, when John
Hinckley fired six shots at President Ronald Reagan outside the Washington
Background Information on the White House Security Review
81
Background Information on the White House Security Review
Hilton Hotel in Washington, D.C. Hinckley was standing in a group of
spectators several yards from the President. When Hinckley began shooting,
Secret Service Secret Agent Tim McCarthy was shot as he shielded President
Reagan with his body. Service Agent Jerry Parr pushed Reagan into a
limousine, but not before the President was shot beneath his left arm by a
bullet that ricocheted off the car. Other bullets struck Presidential Press
Secretary James Brady; Agent Tim McCarthy; and Sergeant Thomas
Delahanty, a Washington Metropolitan Police officer. President Reagan was
seriously wounded, but recovered completely.
The Secret Service has often modified its protective methods and
strategies in response to attacks on its protectees. For example, after the Blair
House incident, the Secret Service began to keep the location of President
Truman's morning walks secret, and to prohibit public access to the sidewalk
outside Blair House when the President was there. In reaction to Fromme's
attempt on President Ford, the Secret Service started to keep Ford at a more
secure distance from anonymous crowds, a strategy that may have saved his life
seventeen days later when Moore shot at him.
The Kennedy assassination triggered the most extensive changes during
this century in the Secret Service's approach to Presidential protection. To
Background Information on the White House Security Review
82
Background Information on the White House Security Review
investigate the assassination, President Johnson established a commission
known as the Warren Commission because it was chaired by Earl Warren,
Chief Justice of the United States Supreme Court. In its 1964 report, the
Warren Commission made numerous recommendations regarding Presidential
security. Over the next decade, the Secret Service implemented these
recommendations, which fell into three broad areas: (1) an increase in the
number of Special Agents assigned to protect the President, and improved
training for such agents; (2) an expansion of protective intelligence activities
and of cooperation with other law enforcement agencies; and (3) the
acquisition of sophisticated data processing, communications, and technical
security equipment. The Secret Service created a number of new divisions,
including the Intelligence Division, the Technical Security Division and the
Liaison Division, to implement these changes.
In the modern Secret Service, the division directly responsible for the
personal security of the President and the First Family is the Presidential
Protective Division (PPD). This division continually maintains a close
perimeter of agents around its protectees. It also conducts advance security
surveys for Presidential trips and major events. Since 1992, PPD has included a
special unit known as the Counter Assault T earn (CAT). CAT was created in
the late 1970s within select field offices to neutralize an attack on a protectee as
Background Information on the White House Security Review
83
Background Information on the White House Security Review
quickly as possible. Until it was incorporated into PPD, CAT was part of the
Special Services Division.
PROTECTION OF THE WHITE HOUSE COMPLEX
IN THE TWENTIETH CENTURY
As noted above, in the 1890s, the Secret Service began to protect the
person of the President; assuming official responsibility for this task in 1906.
Since that time, plainclothes Secret Service operatives or agents have served as
Presidential bodyguards. They have formed an inner perimeter of security that
has continuously surrounded the President both inside and outside the White
House Complex.
For almost a quarter of a century after the Secret Service formally
assumed its personal protective function, however, the Service played an
extremely limited role in providing the outer perimeter of protection around
the White House Complex and in safeguarding the buildings and grounds
themselves. A body of policemen detailed from the Metropolitan Police
Department performed these duties. Until World War I, the size of this force
remained at twenty-seven men, the number established by President Grover
Cleveland during his second term.
Background Information on the White House Security Review
84
Background Information on the White House Security Review
In 1917, the year that the United States entered World War I, the
number of Metropolitan Police officers assigned to guard the White House
increased to thirty-four. The detail was expanded to fifty-four during the war
in response to the dangers generated by the conflict. Additional guard stations
were established both inside the White House Complex and on the grounds.
The military helped to secure the White House during World War I, as
it had during every previous American conflict other than the SpanishAmerican War. Armed soldiers in uniform stood at the gates of the White
House Complex and patrolled the grounds.
After the armistice ending World War I, the Metropolitan Police detail
once again assumed sole responsibility for buildings and grounds security. The
size of the force remained at fifty-four, despite the return of peacetime
conditions. As had always been the case, the police who guarded the White
House were under the supervision of the Superintendent of the MPD. (62
Congo Rec., 12131). The President had no direct authority over his own
protectors. President Warren Harding decided to change this arrangement
when he learned that the MPD refused to assign its most qualified personnel to
the White House detail.
Background Information on the White House Security Review
85
Background Information on the White House Security Review
In 1922, at Harding's urging, Congress passed legislation that
established a separate organization of thirty-three men called the White House
Police Force. The statute created the force IIfor the protection of the Executive
Mansion and grounds." The members of the force would have privileges,
powers, and duties "similar to those of the members of the Metropolitan Police
of the District of Columbia, and such additional privileges, powers, and duties
as the President may prescribe." {public Law No. 300-67th Congress (5-3659)
(1922)).
The statute provided that White House policemen would be selected
under the direction of the President from members of the Metropolitan Police
and the United States Park Police. 16 The statute placed the new force "under
the sole control of the President and under the direct supervision of such
officer as he may designate." President Harding selected Lieutenant Colonel
Clarence O. Sherrill to supervise the White House Police. Sherrill served as
the President's Chief Military Aide and Director of Public Buildings and
Grounds.
any of the Metropolitan Police officers who had previously been
detailed to the White House were transferred to the new organization and thus
continued in their old roles.
16M
Background Information on the White House Security Review
86
Background Information on the White House Security Review
The White House Police Force was entirely independent of the Secret
Service, and there was relatively little coordination between the two
organizations. In 1930, the vulnerabilities inherent in this arrangement were
exposed. That summer, a well-dressed man walked confidently through the
front door of the White House, but without either an appointment or an
invitation. The police officers guarding the entrance allowed him to pass,
assuming that he was a Secret Service agent. The intruder managed to enter the
dining room and interrupt President Herbert Hoover's dinner before an agent
stopped him. The man turned out to be a curious sightseer.
To improve coordination among the security forces and prevent the
recurrence of such a breach, President Hoover acted immediately to place the
White House Police under the control and supervision of the Chief of the
Secret Service. On July 1, 1930, Congress passed legislation to this effect. For
the first time, the Secret Service was now responsible for every aspect of White
House security.
The statute merging the White House Police into the Secret Service also
increased the size of the police force to forty-eight. This expansion was
necessary in light of the escalating number of threats against the President
triggered by the Great Depression. Congress further expanded the force to
Background Information on the White House Security Review
87
Background Information on the White House Security Review
sixty men in 1935, in response to a tripling of executive office space in the West
Wing.
The start of W odd War II led to significant changes in White House
security arrangements. In 1940, before the United States became a combattant,
the unsettled conditions around the globe induced Congress to expand the
White House Police Force to 80 men. In 1942, after the United States entered
the war, Congress authorized funds to increase the size of the White House
detail to 140, but on a temporary basis. Because many Metropolitan Police and
Park Police were being conscripted into the armed forces, Congress also
eliminated the requirement that all White House policemen be drawn from
these two entities.
With the advent of war, the military once again assumed a major role in
protecting the White House Complex. Sentry boxes were constructed at
regular intervals both inside and outside the fence and were staffed by a special
detachment of Military Police. Furthermore, sentries armed with machine
guns maintained a permanent presence on the roof of the Executive Mansion.
Only when it became clear that the Allies would prevail did President
Roosevelt order that the military guards be assigned elsewhere.
Background Information on the White House Security Review
88
Background Information on the White House Security Review
In 1947, as returning servicemen swelled the ranks of the Metropolitan
Police and the Park Police, Congress restored the requirement that White
House Policemen be recruited from these two entities. The temporary
wartime enlargement of the White House Police Force ended, as Congress
ceased appropriating funds for additional officers. Simultaneously, however,
Congress increased the numerical limit on the permanent force from 80
members to 110. 17
In 1950, Congress increased the limit on the strength of the force to 133
officers, in order to accommodate a switch to a shorter work week. In 1952, in
the wake of the attempt on President Harry Truman's life at Blair House,
Congress expanded the maximum size of the force again, to 170 officers.
In 1962, Congress rewrote the organic statute of the White House
Police Force. The new law, codified at 76 Stat. 95, reposed in the White House
Police the duty of protecting not only the Executive Mansion, but also "any
building in which White House offices are located." As a result of this
provision, the force assumed responsibility for protecting the entire Executive
VIn the post-War period, Congress has not always appropriated sufficient
funds to support the full authorized number of police. Consequently, the
actual working strength of the force has often been smaller than its authorized
strength.
Background Information on the White House Security Review
89
Background Information on the White House Security Review
Office Building (now known as the Old Executive Office Building).18 In light
of this expanded responsibility, as well as a general increase in activity at the
White House, the 1962 statute raised the limit on the size of the force to 250
officers. The 1962 appropriation supported 213 personnel. By 1967, Congress
was funding the force at full strength.
In 1970, Congress once again amended the organic statute of the White
House Police Force, and changed the detail's name to the Executive Protective
Service (EPS), to reflect the force's expanding responsibilities. In light of a
spate of assaults against foreign missions in the Washington area, Congress gave
EPS the duty of protecting these missions. The statute dramatically enlarged
the force, from 250 to 850 officers, to provide EPS with sufficient personnel to
fulfill this new foreign missions function, as well as to handle the continuing
increase in the number of tourists and visitors at the White House Complex.
Finally, the new statute terminated the requirement that EPS officers be
recruited from the Metropolitan Police and the Park Police.
18Since 1959, the language in the annual Congressional appropriations acts
had authorized the White House Police to provide security in the Executive
Office Building, but only in those portions of the building used by the White
House. General Services Adminjstration guards secured the remainder of the
building. The 1962 statute gave the White House Police responsibility for the
entire building for purposes of efficient management.
Background Information on the White House Security Review
90
Background Information on the White House Security Review
EPS's responsibilities increased once again in 1974, when Congress
assigned it the responsibility of protecting the Vice President's residence. The
following year, Congress gave EPS the further responsibility of guarding
foreign diplomatic missions in American cities other than Washington, D.C.,
under certain circumstances. In passing this latter statute, Congress recognized
that EPS would be unable to fulfill its expanded duties unless the force was
further enlarged. It thus raised the numerical limit on the strength of the EPS
to 1200 members. It has remained at this level to the present day.
In 1977, the EPS acquired its current name, the Secret Service
Uniformed Division. The Uniformed Division was divided into three
branches: the White House Branch, the Foreign Missions Branch, and the
Administrative Program Support Branch. In 1986, the Department of the
Treasury Police Force was merged into the Uniformed Division. The
Uniformed Division White House Branch thus assumed the responsibility for
protecting the Department of the Treasury, as well.
In the 1980s, the Secret Service created a specialized unit within the
Uniformed Division called the Emergency Response Team (ER T) to provide
an immediate response to emergencies at the White House Complex and at
foreign missions. ERT was formally established in 1985 as a specific response
Background Information on the White House Security Review
91
Background Information on the White House Security Review
entity. Prior to 1985, a controlled response consisted of Uniformed Division
officers in a response mode during their down time between assignments. ER T
further evolved into a more defined unit in 1992 with a two-week formalized
training program.
HISTORY OF GROUND AND AIR ASSAULTS ON
THE WHITE HOUSE COMPLEX
With its combination of physical barriers, an outer perimeter of
uniformed police, and an inner perimeter of bodyguards, the White House
Complex has always been a relatively safe location for the President.
Although, as discussed above, Presidents have been exposed to deadly or lifethreatening assaults with frightening regularity, not one of these assaults has
occurred within the White House Complex. Indeed, each assassination or
potentially deadly assassination attempt has occurred when the Presidential
protectee was away from the White House, in the proximity of a crowd.
Nonetheless, the incidents addressed by this Review are not the first
intrusions or violent incidents that have occurred on the White House
grounds. In fact, throughout its history, the White House Complex has been
subjected to increasingly frequent and occasionally successful attempts to
penetrate its borders by ground and by air.
Background Information on the White House Security Review
92
Background Information on the White House Security Review
Ground Incursions and Attempted Ground Incursions
Gate Crashers
Marshall Fields (December 1974). On Christmas Day in 1974, Marshall
Fields, a man who claimed he was the Messiah, crashed his Chevrolet Impala
through the Northwest Gate of the White House Complex and drove up to
the North Portico. Fields had flares strapped to his body, and he announced
to Secret Service personnel that the flares were explosives that he was prepared
to detonate. After about four hours of negotiation, Fields surrendered.
In response to the Marshall Fields incident, and an incident the previous
year in which another driver had crashed through a gate onto the White House
grounds, the nineteenth-century, wrought-iron gates were replaced with
reinforced gates in 1976.
On December 1,1976, Steven B. Williams became the first would-be
intruder to test the new, strengthened gates. He rammed the Northwest Gate
with his pickup truck at approximately 25 miles per hour. The gate did not
buckle and the front of Williams' truck was flattened. Since then, a number of
other individuals have tried but failed to crash through gates onto the White
House grounds. On at least one occasion, a driver attempted to enter the
Background Information on the White House Security Review
93
Background Information on the White House Security Review
Complex through a gate opened for another vehicle, but he too was
unsuccessful.
Few, if any, drivers have ever attempted to crash through the White
House fence, as opposed to a gate. Such an intrusion became impossible in
1983, when concrete Jersey barriers were installed around the perimeter of the
White House Complex in response to the threat posed by the Bernit bombing.
In 1990-92, the Jersey barriers were replaced by the present bollards.
Fence Jumpers
In recent history, it has been a common occurrence for intruders to
scale the fence around the White House complex and enter the grounds. Most
of these "fence jumpers" have been pranksters, peaceful protestors, and
harmless, mentally ill individuals.
Chester Plummer (July 1976). Chester Plummer was a local taxi driver
with a criminal history who had never come to the attention of the Secret
Service as a potential threat to the President. On July 27, 1976, he scaled the
White House fence carrying a 3-foot length of metal pipe. As he advanced
toward the White House, he was confronted by an EPS officer. The officer
drew his revolver and repeatedly ordered Plummer to halt, but Plummer raised
Background Information on the White House Security Review
94
Background Information on the White House Security Review
the pipe in a threatening manner and continued to advance. The officer shot
Plummer in the chest. Plummer died of his wounds shortly afterward.
Anthony Henry (October 1978). Anthony Henry wished to persuade
President Carter that it was blasphemous to place the words "In God We
Trust" on U.s. currency. Wearing a white karate suit and carrying a Bible, he
climbed over the White House fence onto the north grounds. When he was
confronted by Secret Service agents and Uniformed Division officers
approximately 15 yards inside the fence line, he pulled a knife from inside the
Bible and slashed one officer's face and another's arm. Uniformed Division
officers surrounded Henry, prodded him with long batons, and poked the
knife out of his hand. They then forced him to the ground and arrested him.
Other Fence Jumpers. As the chart below indicates, a large number of
individuals have entered the White House grounds by scaling the fence in
recent years. It is important to note that fence jumpers rarely make it far once
they are on the White House grounds, although there have been some notable
exceptions. In December 1975, Gerald Gainous roamed the grounds for an
hour and a half and approached President Ford's daughter while she unloaded
camera equipment from her car. In 1991, Gustav Leijohhufved, a Swedish
citizen, was not apprehended until he reached a guard post outside the West
Background Information on the White House Security Review
95
Background Information on the White House Security Review
Wing. Neither of these men were armed, however. The only armed fence
jumpers have been Plummer and Henry, although an intruder threatened a
Uniformed Division officer with a water pistol in 1977.
CHART 2
Recent Fence Jumpers at the White House Complex
'~as
Ym
Number of Iumpers
1989
3
1990
2
1991
7
1992
4
1993
3
1994'~
4
of 11194
Other Trespassers
Other intruders have gained access to the White House Complex
illegally either by entering with legitimate passholders or running through a
gate opened for a vehicle. The following chart indicates the number of people
arrested after gaining access to the grounds of the White House Complex or
attempting to do so by one of these methods.
Background Information on the White House Security Review
96
Background Information on the White House Security Review
CHART 3
Recent Trespassers to the White House Complex
fur
Ran ThrQu~h Open Gate
Entered With Passholders
1989
o
o
1990
1
1
1991
o
1992
o
1993
1
o
o
o
1994
o
3
On January 20, 1985, the day that President Ronald Reagan was sworn
in for his second term, an intruder named Robert Latta entered the White
House with the Marine Band and wandered around the Executive Mansion for
15 minutes before he was discovered and apprehended.
External Threats
John Tyler Administration (1841-1845). Perhaps the only instance in
which an assailant standing outside the White House fence almost succeeded in
harming a President who was inside the White House Complex occurred in the
early 1840s, when an intoxicated painter threw stones at President John Tyler
as he strolled on the South Grounds. Another dangerous episode transpired in
1841, after Tyler vetoed the bill establishing the Second Bank of the United
States. An inflamed and intoxicated Whig mob, enraged by Tyler's action,
marched to the White House. Standing outside the locked gates, they threw
Background Information on the White House Security Review
97
Background Information on the White House Security Review
stones, fired guns, and burned the President in effigy. This was the most
violent demonstration ever to occur at the White House Complex.
The Bonus Army (June 1930). In 1930, in the midst of the Great
Depression, 20,000 veterans descended on Washington, demanding that
Congress release their service bonuses early. The Secret Service was concerned
that this "Bonus Army" would resort to violence and detailed large numbers of
extra personnel to guard the White House. Although the veterans focused
most of their attention on the Capitol, on the night of June 20, a large group
gathered near the White House. As this crowd watched, police attempted to
arrest two demonstrators who were marching along the north fence on
Pennsylvania Avenue. The demonstrators resisted, and the angry throng
surged toward the officers. Ultimately, however, the riot feared by the Secret
Service did not occur.
David Mahonski (April 1984}. Since 1950, at least four people considered
to be serious threats to the President have been apprehended in the vicinity of
the White House carrying a weapon. One of these arrests involved a violent
confrontation. In 1984, David Mahonski, who had made threats against
President Reagan, was under surveillance by both the FBI and the Secret
Service. On March 3 of that year, Uniformed Division officers noticed him
Background Information on the White House Security Review
98
Background Information on the White House Security Review
standing outside the fence bordering the south grounds of the White House.
As they approached him, he pulled a sawed-off shotgun from under his coat.
One of the officers immediately shot Mahonski in the arm with a revolver.
The officers then arrested him.
Air Incursions and Attempted Air Incursions
Robert K. Preston (February 1974). On February 17, 1974, Robert
Preston, a private in the Army, stole an Army helicopter from Fort Meade,
Maryland, and flew it to the White House Complex. He passed over the
Executive Mansion and then returned to the south grounds, where he hovered
for about 6 minutes and touched down briefly approximately 150 feet from the
West Wing. Members of the EPS did not know who was piloting the aircraft
and were not aware that it had been stolen from Fort Meade. They made no
attempt to shoot down the helicopter.
Preston left the area of the White House and flew the helicopter back
toward Fort Meade. He was chased by two Maryland State Police helicopters,
one of which he forced down through his erratic maneuvers. Preston then
returned to the White House Complex. As he lowered himself to about 30 feet
above the south grounds, EPS officers barraged the helicopter with shotgun
Background Information on the White House Security Review
99
Background Information on the White House Security Review
and sub machine gunfire. Preston immediately set the riddled aircraft down.
He was injured slightly.
Samuel Byck (February 1974). Samuel Byck, a failed businessman with a
history of mental illness, was investigated by the Secret Service in 1972 on the
basis of reports that he had threatened President Nixon. In 1974, he hatched a
plan called "Operation Pandora's Box" to hijack a commercial airliner and
crash it into the Executive Mansion. On February 22, less than a week after
the Preston incident, Byck went to Baltimore/Washington International
Airport carrying a pistol and a gasoline bomb. He forced his way onto a Delta
flight destined for Atlanta by shooting a guard at the security checkpoint. He
entered the cockpit and ordered the crew to take off. After the crew informed
him that they could not depart without removing the wheel blocks, Byck shot
the pilot twice and the co-pilot three times (the co-pilot died). Police outside
the airplane shot into the cockpit and hit Byck twice. Byck fell to the floor,
put the revolver to his head, and killed himself.
Background Information on the White House Security Review
100
Background Information on the White House Security Review
BIBLIOGRAPHIC NOTE
In addition to the Congressional records, newspaper articles, and
statistics and records provided by the Secret Service, a number of books and
scholarly articles were useful in preparing this information. Of special note is
The President's House (White House Historical Association, Washington,
D.C., 1986), William Seale's remarkable and comprehensive study of life at the
White House. This book was the chief source of information regarding
security arrangements in the nineteenth century prior to the Secret Service's
assumption of the protective function. It was helpful in describing subsequent
decades as well. In addition, The President's House astutely discusses the
historical tension between security and democratic openness at the White
House.
The Report of the u.S. President's Commission on the Assassination of
President John F. Kennedy (U.S. Government Printing Office, Washington,
D.C., 1964), commonly referred to as the Warren Commission Report,
contains an excellent historical section regarding presidential security and
attacks on chief ex~cutives through 1963, the year of the Kennedy
assassination.
Background Information on the White House Security Review
101
Background Information on the White House Security Review
Frederick Kaiser provided useful information in two articles which
appeared in separate issues of Presidential Studies Quarterly. In "Origins of
Secret Service Protection of the President: Personal, Interagency, and
Institutional Conflict," (Winter 1988), Kaiser offers a detailed analysis of the
Secret Service's presidential protective activities from their origin in the 1890s
through the early twentieth century. His "Presidential Assassinations and
Assaults: Characteristics and Impact on Protective Measures," (Fall 1981), ably
describes the threats historically faced by our presidents and the Secret
Service's efforts to respond to them.
The Secret Service itself prepared two short histories of its law
enforcement role, each of which includes a helpful description of the agency's
presidential protective function: "Moments in History, 1865-1990" (U.S.
Government Printing Office, Washington, D.C.) and "Excerpts from the
History of the United States Secret Service 1865-1975" (U.S. Government
Printing Office, Washington, D.C.).
Although memoirs by former Secret Service directors and special agents
contain only limited specific information concerning the Secret Service's
operations, they nonetheless provide vivid portrayals of the challenges faced by
those entrusted with the protection of the president. The Review consulted the
Background Information on the White House Security Review
102
Background Information on the White House Security Review
following memoirs: Protecting the President: The Inside Story of a Secret
Service Agent, by Dennis V.N. McCarthy and Philip W. Smith (William
Morrow and Company, Inc., New York, 1985); Starling of the White House
by Col. Edmund W. Starling as told to Thomas Sugrue, (Simon and Schuster,
New York, 1946); Special Agent: A Quarter Century with the Treasury
Department and the Secret Service by Frank]. Wilson and Beth Day. (Holt,
Rinehart, and Winston, New York, 1965); and 20 Years in the Secret Service:
My Life with Fiye Presidents by Rufus Youngblood (Simon and Schuster, New
York, 1973).
Other books that were helpful include: The United States Secret Service
by Walter Bowen and Harry Edward Neal (Chilton Company, Philadelphia,
1960); The Secret Service Story by Michael Dorman (Delacorte Press, New
York, 1967); No Ordinary Time by Doris Kearns Goodwin (Simon &
Schuster, New York, 1994); The Politics of Protection: The United States
Secret Service in the Terrorist Age by Philip Melanson (praeger Publishers,
New York, 1984); The Story of the Secret Service by Harry Edward Neal
(Grossett & Dunlap, New York, 1971); and A System of Modern Geography
by S. Augustus Mitchell (E.H. Butler & Co., Philadelphia, 1864).
Background Information on the White House Security Review
103
DEPARTlVlENT
OF
THE
TREASURY
NEW
S
.............
'IREASURY t"~l)
......................................gr~~~l78~~~.~./
OFFICE OF PUBUC AFFAlRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON. D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 11 A.M.
May 20, 1995
RUBIN ANNOUNCES WHITE HOUSE SECURITY REVIEW COMPLETION
Treasury Secretary Robert Rubin on Saturday announced completion of the White
House Security Review.
The public recommendations of the review, which began eight months ago, include:
*
Conversion into a pedestrian mall of Pennsylvania Avenue between Madison
Place and 17th Street, State Place and the segment of South Executive Avenue
that connects with State Place.
*
Convening representatives of the Treasury Department and Transportation
Department, including the Federal Aviation Administration, to discuss changes
in the air trafflc rules to enhance White House security without unduly
hindering air traffic in the Washington D.C. area.
*
Having the three government agencies -- U.S. Secret Service, U.S. Park
Police and Metropolitan Police Department -- who share jurisdiction for safety
at the White House grounds enter into a Memorandum of Understanding that
would better coordinate their protective efforts and resources.
*
Creation of a forensic task force, including federal and local law enforcement
agencies and flre, rescue and ordnance squads to enhance coordination in
responding to crises at the White House, collecting evidence and coordinating
access to the White House grounds.
*
Ensuring a prompt response to incidents by upgrading communications among
law enforcement agencies and the various White House security posts, with a
comprehensive plan for placing operational command and control in the Secret
Service.
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
-"')-
*
Coordinating the Secret Service's implementation of the recommendations and
other security measures through Treasury' s Office of the Under Secretary
(Enforcement) .
The investigation was set in motion at the direction of then-Secretary Lloyd Bentsen
on September 12. 1994. following the crash of a light plane on the grounds of the White
House. Upon taking office in January 1995. Secretary Ruhin fully supported that directive.
Treasury Under Secretary for Enforcement Ronald K. Nohle \\'3S Chairman.
The review examined:
*
Facts surrounding the September 12. 1994 plane crash ()11 the South Lawn and
the October 29, 1994 shooting by Francisco Martin Duran at the White House
complex.
*
Potential dangers posed to the White House complex and protectees by air or
ground assaults.
*
Adequacy of the procedures and policies used by the Secret Service to address
these dangers.
*
Effectiveness of established mechanisms for communicating to the Secret
Service vital intelligence information concerning possihle air and ground
assaults received by relevant federal. state and local authorities.
*
Feasibility of techniques and measures, including state of the art technologies,
to enhance the capability of the Secret Service to safeguard the White House
complex and protectees from air and ground assaults.
*
The need to keep the White House open and accessible to the American public
without jeopardizing valid security concerns.
The investigation interviewed more than 250 individuals, reviewed more than 1,000
documents. consulted technical and public access experts and consulted with experts from
eight countries, including nations that have faced continuous terrorist threats. It met with
representatives of the Washington Metropolitan Area Transit Authority, D.C. Department of
Public Works, National Capital Planning Commission, Presidential Park Commission, U. S.
Chamber of Commerce and the Association of D.C. Civic Associations. It'produced a
classified report of more than 500 pages, with an appendix of more than 260 pages.
(more)
-3To make sure the investigation was comprehensive and objective. the review included
an advisory committee of individuals known for their professional achievement and integrity.
The members are Robert Carswell, former Deputy Secretary of the Treasury and member of
an internal Treasury review of the Secret Service's protective operations after the Kennedy
assassination; William T. Coleman, Jr., former Secretary of Transportation and counsel to
the Warren Commission: Charles W. Duncan. Jr.. former Energy Secrerary and Deputy
Secretary of Defense: David C. Jones. former Chairman of the Joint Chiefs of Staff; Judith
Rodin, President of the University of Pennsylvania; and William H. Wehster. former federal
circuit court judge, Director of the Federal Bureau of Investigation and Director of the
Central Intelligence Agency.
-30-
DEPARTlVIENT
OF
THE
·
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220. (202) 622-2960
Anv II A.M. EST
Text as prepared for delivery
May 20, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
WHITE HOUSE SECURITY REVIEW
Under my authorities as Secretary of the Treasury, I have directed the Secret
Service to take additional steps to protect the President, the institution of the presidency
and the White House complex. As of this morning, unauthorized motor vehicle traffic
may not travel on Pennsylvania Avenue in front of the White House, or use two short
streets on the southwest corner of the complex, and the Pennsylvania Avenue area will
become a pedestrian mall, open to the public. This action was taken reluctantly because
the White House Security Review was unable to identify any alternative that would
ensure the protection of the President and others in the White House complex from
explosives carried by vehicles in the immediate area of the complex. I will go into
greater detail in a moment, but there are a few points I want to make first.
I was kept abreast of the White House Security Review as it progressed and
received a detailed briefing on April 3rd. I went into that briefing skeptical about the
need to make the changes that are now under way. After hearing from experts on the
technical aspects these matters, I left convinced that it was imperative that we improve
the security afforded the President and the White House. About two weeks after the
briefing on White House security, the Oklahoma City bombing occurred. That terrible
tragedy and the means used to create the enormous devastation, only served to reinforce
and confirm the absolute necessity of these actions to protect the President, those who
will succeed him, and the White House.
To put events into perspective, if you'll recall my predecessor, Secretary Bentsen,
set this security review in motion Sept. 12 following the crash of a light plane on the
grounds of the White House. The October 29th shooting incident on the sidewalk
outside the building involving a man with a semi-automatic rifle was included in the
review. Since then there have been several other minor incidents around the complex,
and the report was given greater scope.
RR-315
(MORE)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
The White House was built in another era, when security concerns were not as
great.
We are an open society, a nation of freedoms found in very few parts of the
world, and access to the White House symbolizes all of that. But the Oklahoma City
bombing and the World Trade Center tragedy remind us that we must live with the
reality that the threat of terrorism has grown and is very real. Our own Capitol Building
was damaged by a bomb 12 years ago.
We have chosen an approach that fully preserves the opportunity for Americans
to visit the White House, fully preserves access on foot, and still permits drive-by viewing
of the front of the White House, but from further away, on the other side of Lafayette
Square, while at the same time meeting the security needs of the President, the
presidency, the White House and the 5,000 visitors each day who come to see the White
House.
I and the team of experts presented the report of the White House Security
Review to the President and informed him of the steps being taken. Last night he
provided his final concurrence. He was satisfied the actions in no way interfered with
the ability of visitors to tour the White House -- the Peoples' House as it's sometimes
called. He was also satisfied that we preserved the access by foot and drive-by viewing
that I have already discussed.
The White House Security Review is classified. It contains 11 major
recommendations on improving security for the White House complex and related issues.
We are making public six of those recommendations, and I will discuss them in detail in
a moment. We are also making available materials from the report, edited and
abbreviated to avoid compromising classified information.
The documents we are making public include an edited recommendations section
and charts, a letter from the Advisory Committee established to oversee the review
unanimously endorsing the report and its 11 major recommendations, a letter from the
Treasury's independent Inspector General, a section on the exhaustive methodology used
to conduct the review, a section on the facts of the two incidents that brought about the
security review, and materials on the evolution of presidential security.
3
This process began eight months ago. The reviewers were directed to look at the
facts of the September plane crash and October shooting incident. They were also
directed to examine the dangers posed to the complex and those entitled to Secret
Service protection, by air or ground assault; the adequacy of the procedures and policies
currently used by the Secret Service to address those dangers; the effectiveness of
communicating threat information; the feasibility of techniques and measures, including
state-of-the-art measures, to enhance the capacity of the Secret Service to safeguard the
complex and protectees from assaults; and, very importantly, the need to keep the White
House open and accessible to the public without jeopardizing valid security concerns.
The White House Security Review was conducted in a three-tiered process. First,
there was a thorough investigation of the relevant events that led to the review,
conducted by the Secret Service under Director Eljay Bowron. Second, Treasury created
a review team and put in charge first, David Douglass, a former Justice Department
attorney who came from the private sector, and later, Elisabeth Bresee, a former
Assistant u.s. Attorney in Washington. The review team worked with the Secret Service
to review those findings and in drafting in the review's report.
Finally, there is the White House Security Advisory Committee I mentioned,
composed of six very distinguished Americans with backgrounLs that directly relate to
the work being done in this review. They are Robert Carswell, a former Deputy
Secretary of the Treasury; William Coleman, a former Transportation Secretary; Charles
Duncan, a former Secretary of Energy and Deputy Secretary of Defense; former Joint
Chiefs of Staff Chairman retired Air Force Gen. David Jones; Dr. Judith Rodin, a
psychologist and president of the University of Pennsylvania; and former CIA and FBI
Director William Webster. These six individuals have performed an enormously
valuable service, and I want to thank them personally for their contribution.
The advisory committee was chaired by Treasury Undersecretary for Enforcement
Ron Noble, and Ron has done an exemplary job on a very difficult and demanding issue.
I want to thank Ron and his staff, Director Bowron and the Secret Service, David
Douglass, Ms. Bresee and the review team, their consultants' and the members of the
Advisory Committee, for the professionalism and excellence with which this review was
conducted.
It has been an exhaustive and thorough review of every aspect of security issues at
the complex. To evaluate its findings, we need to ask: was it comprehensive and
objective, and, second, were the recommendations proportional to the risk? My answer
to both is, yes. But I also wanted a second opinion on the thoroughness of the work.
The six outside experts we asked to oversee this review unanimously reached the same
conclusion, as did the independent Treasury Inspector General who reviewed the study.
4
To give you some example of the lengths to which the reviewers and advisors
went, the review team consulted with experts from no fewer than eight countries,
including nations which regularly have faced continuous and much more serious terrorist
threats. The review team interviewed three former presidents, and overall interviewed
or received briefings from over 250 individuals from at least 10 government agencies. In
addition, the reviewers met with groups and experts concerned with public access, traffic
and transportation, urban design, and reviewed a good deal of correspondence from
interested individuals.
As a result of the White House Security Review, the following actions, among
others, are being taken or recommendations made:
First, we have recommended that the Departments of Treasury and
Transportation consider changes in the civil air traffic rules to enhance the security of
the White House complex without hindering air traffic in the Washington area.
Two, the review recommends that the law enforcement agencies that share
jurisdiction over the area enter into a memorandum of understanding ahout coordinating
their work. It recommends an annual review of how incidents were handled, and that
the lead investigating agency be determined by the violation involved, not the physical
location of the suspect.
Three, the review recommends the dedication of forensic experts from the various
federal and local agencies to respond to White House emergencies, with the forensics
group being responsible for collecting evidence, preserving the crime scene and
coordinating access to the White House grounds at those times.
Fourth, the review recommends upgraded communications among law
enforcement agencies and the various White House security posts, as well as a protocol
that establishes that immediate operational command and control will be assumed by the
Secret Service.
Fifth, the Treasury Department, through the Under Secretary for Enforcement,
will ensure that the Secret Service implements the recommendations and will aid in
removing obstacles to the rapid implementation of security measures. In addition, the
Treasury and Defense Departments will ensure that sensitive security-related projects
have oversight at a high level.
5
And sixth, traffic was rerouted this morning around the White House complex,
and Pennsylvania Avenue in front of the White House will be converted to a pedestrian
mall. In addition to permanently closing off Pennsylvania Avenue from Madison Place
to 17th Street, the order I signed last night prohibits unauthorized vehicular traffic on
State Place and that part of South Executive Avenue which connects into State place.
In addition, the Metropolitan Police Department and Secret Service have at least
temporarily restricted Madison Place and the adjoining portion of Pennsylvania Avenue
to 15th street to buses traveling south and east.
To ease commuter concerns, we expect that a portion of easthound E Street west
of the White House Complex will become a two-way street for those who travel to the
Roosevelt Bridge, the Whitehurst Freeway or Rock Creek Park.
I want to say a few words in closing.
We have in one unique and readily accessible complex a national museum, a
home for the President and the president's family, the offices of the President, the Vice
President, their staffs, Cabinet officers and other senior government officials. Visitors
can park a block away, obtain a ticket, and tour the building and grounds, something
virtually unheard of anywhere else in the world.
The White House belongs to the American people. It has heen, still is, and under
this program will remain one of the most accessible homes and offices of a national
leader in the world.
To the citizens of the Washington metropolitan area who will be inco~venienced
by the need to adjust to new traffic patterns, we share your concerns. We have spoken
to Mayor Barry, Delegate Eleanor Holmes Norton, Chairman David Clarke and
Congressman Tom Davis to assure them that we will begin working immediately with
local authorities to address long-term solutions to all of the transportation issues which
today's action creates.
To sum up, these steps continue to provide Americans full pedestrian and touring
access to the White House, and drive-by viewing at a greater distance and, at the same
time, provide an imperative addition to the security of the White House complex, the
president and the institution of the presidency.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
~/78~9. . . . . . . . . . . . . ._
. . . . . . . . . . . . . .
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 11 A.M.
MAY 20, 1995
STATEMENT OF RONALD K. NOBLE
UNDER SECRETARY OF THE TREASURY (ENFORCEMENT)
White House Security Review Press Conference
Thank you Secretary Rubin. The White House Security Review has completed the
most comprehensive analysis of White House security ever conducted: we interviewed over
250 individuals; analyzed over 1,000 documents; and consulted over 20 experts. We also
benefitted greatly from the wisdom and dedication of our Advisors, who volunteered their
efforts and experience to assist the Review. I would like to acknowledge their contribution
and thank them for their guiding hands. Thank you Secretary Coleman, General Jones, and
Judge Webster. I would also like to thank the outstanding staff of the White House Security
Review Team. It has been a pleasure working with you, and you have done a wonderful
job. And finally, I would like to thank Secretary Rubin. He and his predecessor, Secretary
Bentsen, made available the resources necessary to conduct a full and impartial review,
including the talents of the Department's Inspector General and her staff and the General
Counsel's office. I also greatly appreciate Secretary Rubin's careful consideration of, and
support for, the recommendations the Review has made.
One of the things the Review did was to consult representatives of the executive
protective agencies of Great Britain, France, Italy, Japan, Germany, Israel, the Republic of
Korea, and the Vatican. Foremost, what we learned in our comparative assessment is that
the White House is the most publicly accessible executive residence in the world. I assure
you it will remain so. I also want to add that the foreign protective agencies told us that they
model their security operations after those of the Secret Service, whom they consider the best
in the business. Today I add my praise for the fine work of the Secret Service, and I would
like to take this opportunity especially to thank the men and women of the Uniformed
Division, whose job it is to safeguard the White House Complex.
Let me turn now to the Corder and Duran incidents and summarize the Review's
RR-316
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
basic findings. As you know, much of the Review's work relates to broader issues regarding
the protection of the President and the White House and I cannot discuss it publicly. What I
can do, and what I am about to do for the first time, is to share with you details of these two
incidents. This is a small sample of the voluminous information the Review unearthed.
Corder Incident
Let's start first with the Corder incident. On Sunday, September 11, 1994, after
spending an evening consuming alcohol and smoking crack cocaine, Frank Eugene Corder
stole a single-engine Cessna 150L airplane at Aldino Airport in Churchville, Maryland.
Corder was not a licensed pilot but had taken several lessons in that same Cessna.
Corder flew south around Baltimore and into the Washington area in the early hours
of September 12th. At 1:44 am, the National Airport tower received radar transmissions
showing Corder six and a half miles north of the White House, flying at an altitude of 2,700
feet. The airplane descended approximately 1,000 feet over the next three minutes. Corder
then turned south and entered the prohibited airspace surrounding the White House,
designated as P-56. The plane flew towards the Mall descending rapidly, and then dove
directly at the White House at a steep angle of descent. It crashed on the South Lawn at
approximately 1:49 am. The airplane skidded across the ground, struck a magnolia tree, and
came to rest against the southwest corner of the ground floor of the White House. There
was minimal damage to the mansion. The First Family was staying in Blair House at the
time of the crash, and was never at risk.
Corder died from multiple, massive blunt-force injuries. Based on the physical
evidence, the National Transportation Safety Board concluded that the crash was intentional.
For example, the airplane's velocity on impact clearly exceeded a safe landing speed; the
airplane's wing flaps were up; and its throttle position was full forward. These are not
characteristics of an aircraft that is trying to land safely.
The District of Columbia Medical Examiner ruled Corder's death a suicide, and the
Review did not find evidence inconsistent with this conclusion. Corder suffered from an
array of financial, marital, legal, and substance abuse problems. It appears that Corder was
attempting to fulfill an ambition he had expressed to friends to kill himself in a "big way" by
flying into the White House or the dome of the Capitol Building. These remarks were never
reported to authorities. Prior to this incident, Corder was not on record with the Secret
Service as a potential threat to the President or any other protectee.
Within minutes of the crash, Secret Service personnel were dispatched to the scene; a
perimeter was established; and the Explosive Ordnance Disposal team and the Secret Service
Technical Security Division were called to look for any threatening devices. The Secret
Service contacted the control tower at National Airport and was soon apprised of the
(MORE)
3
aircraft's owner. Within one hour of the crash, seven federal and D.C. agencies were on the
south grounds of the White House.
The Review determined that individuals and agencies that responded to the crash
interacted efficiently and cooperatively. Although the Review made a number of
recommendations to improve security in the future, it was by and large impressed that the
Secret Service's response was prompt, organized, and efficient.
The Review's primary concern arising from the Corder incident has to do, not with
the response post-crash, but with an earlier phase of the plan for protecting the White House
from air attack. Specifically, the system for alerting the Secret Service of the approach of
suspicious aircraft did not function properly in the early morning hours of September 12th.
As a result, the Secret Service was unaware of Corder's flight until he was quite near the
White House.
The problem was not technical. Radars tracked the plane continuously from a point
well before it entered the airspace over Washington, D.C. The Secret Service, at the time,
was relying on FAA radar operators for early warning of approaching aircraft, an
arrangement that dated back to 1974. In the intervening years, however, a misunderstanding
developed between the two agencies as to the precise nature of the support the FAA was
furnishing the Secret Service. As one graphic example of the breakdown in communication,
the telephone line linking FAA radar operators to the responsible Secret Service officers was
broken at the time of Corder's flight.
Today, I can assure you the telephone lines have been fixed and the
misunderstandings corrected. Moreover, as a result of the Review, other measures have
been taken that should substantially enhance the security of the White House from air attack.
Duran Incident
The second incident under review occurred on October 29, 1994, when Francisco
Martin Duran pulled an SKS semiautomatic rifle from under his trenchcoat. Standing on
Pennsylvania Avenue, Duran fired multiple rounds at the White House through the fence,
pulled the weapon back and ran down the sidewalk towards 15th Street, continuing to fire
through the fence as he ran. When Duran paused to reload his rifle, Harry Michael
Rakosky, a tourist, tackled him. Two other citizens ran over and assisted in subduing
Duran, and Secret Service Uniformed Division officers arrived to arrest him moments later.
Most of this incident was captured on videotape by a passer-by.
What the videotape may not have revealed is that several Secret Service officers were
prepared to shoot Duran, just before Mr. Rakosky tackled him. As soon as Duran began
firing, a Secret Service Emergency Response Team officer ran across the North Lawn of the
(MORE)
4
White House toward Duran, using only trees as cover. As the videotape shows, the officer
was running toward Duran as Duran fired shots in the officer's direction. When Duran
stopped to reload his rifle, the officer neared the fence and pointed his weapon at Duran.
But seeing Rakosky about to tackle Duran, the officer withheld fire and jumped over the
fence to apprehend Duran. The officer heard one of the citizens say, "Thanks for not
shooting me." Duran then responded "I wish you had shot me." A magazine with thirty
rounds of live ammunition was found in Duran's coat pocket.
Another Secret Service officer patrolling the north grounds at the time of the shooting
also drew his weapon and ran towards the fence. Before he was able to fire, however,
Duran was tackled. This second officer then vaulted over the fence to assist in arresting
Duran. These two officers, and a number of their Secret Service colleagues, reacted
immediately and with unstinting heroism.
At the time of the shooting, the President was in a room in the opposite side of the
Residence. Secret Service agents within the White House responded immediately to him,
when shots were fired. The President was never in any danger.
Approximately 30 minutes after Duran's arrest, the Secret Service located his pickup
truck based on a note found on his person. Officers recovered a shotgun, several boxes of
ammunition, nerve gas antidote, and several handwritten notes, including one that said "kill
the Prez."
Investigators determined that Duran was in the D.C. metropolitan area for
approximately two weeks prior to the shooting. Before leaving his home in Colorado, Duran
told several people that he intended to kill the President, but these individuals did not notify
any law enforcement agency. I'd like to emphasize here that individuals can playa critical
role in assisting the Secret Service by reporting statements or actions they witness that
suggest a threat to the President or to the White House. Duran was not on record with the
Secret Service's Intelligence Division, and no evidence was found that Duran approached the
President prior to the day of the shooting. There is also no evidence that Duran had coconspirators.
Duran was convicted in U. S. District Court of attempted assassination and nine other
federal charges on April 5, 1995. His sentencing is scheduled for June 29, 1995.
Although the Review concluded that the Secret Service by and large responded well to
the shooting, it made a number of recommendations with respect to the training, staffing, and
equipping of Secret Service agents and officers at the White House. You may, for example,
have noticed an increased Secret Service Uniformed Division presence on the sidewalk of
Pennsylvania Avenue. Before the Duran shooting incident, the Secret Service largely left
patrolling of this area to the Department of the Interior's Park Police. The Park Police, the
(MORE)
5
Secret Service, and the Metropolitan Police Department share jurisdiction in the public areas
immediately north of the White House, and, as Secretary Rubin noted, the Review's
recommendations include measures to enhance communication and coordination among these
three organizations.
Pennsylvania Avenue Pedestrian Mall
At least one columnist has observed that converting Pennsylvania Avenue to a
pedestrian mall will not prevent the Durans of the world from shooting at the White House in
the future. But the Review not only examined the Corder and Duran incidents, it also
tackled other kinds of potential air or ground attacks. After all, the general who plans only
to refight the last war does not lead a successful army. The Review considered intelligence
on a range of threats to the White House, and it was this portion of our work that gave rise
to some of our more far-reaching recommendations.
Specifically, it is in this context that the Review recommended converting the segment
of Pennsylvania Avenue that runs from Madison Place to 17th Street into a pedestrian mall.
The main security concern that prompted this recommendation is that posed by explosiveladen vehicles. But I would like to emphasize that the Review reached its recommendation
before the tragedy in Oklahoma City dramatized these risks.
The Review was not only concerned with protecting the presidency. It was also
concerned with protecting the public's access to the White House, and the ability of visitors
to view it up close. For that reason, we consulted an array of architects, historians, and
urban planners, who uniformly endorsed the idea of converting this stretch of Pennsylvania
Avenue into a pedestrian mall. They told us that it would increase public enjoyment of this
national landmark by creating a friendlier environment in which to view the White House. I
certainly think it looks friendlier without those chains that have been linking the bollards in
front of the White House until this morning. Traffic experts, too, assured us that with
proper implementation the neighboring streets could accommodate the diverted traffic.
The White House is, without question, a house like no other. For almost 200 years it
has symbolized the American presidency, and our nation's system of elected government.
The White House belongs to the American people, and it is a national treasure.
Perhaps the most" American" aspect of the White House is its accessibility, as
evidenced by the hundreds of thousands of visitors -- from school groups, to Girl Scout
troops, to families visiting from far away -- who walk through each year. Since President
Jefferson's day, the White House has been an emphatically public residence ~- the "People's
House," which we may either enter or look upon without~ obstruction. In contrast, the great
palaces of Europe were set within high walls and fences designed with protection in mind.
The White House grounds were laid out at a time when security was not a great concern in
(MORE)
6
the United States. The openness of the White House to visitors is therefore distinctive.
Where else in the world can a citizen secure a ticket to enter and tour the actual residence of
the head of state and government?
The new pedestrian mall will foster that distinctively American accessibility to those
in high office. Yesterday, when vehicles traveled up and down Pennsylvania Avenue, some
tourists could be seen sprinting across the six lane avenue, darting between cars, to get to the
White House sidewalk. In fact, over the past year and a half, at least 27 people were injured
by vehicles traveling along this block of Pennsylvania Avenue. With today's change,
Lafayette Park and the White House sidewalk are linked, and pedestrians can walk around
freely.
At the same time, the pedestrian mall will reduce significantly the security risk that an
explosive-laden vehicle will bring tragedy to the White House, its residents, employees,
neighbors, and visitors. I am convinced, and our distinguished Advisory Committee is
unanimously convinced, that this historic change to Pennsylvania Avenue and the other
recommendations contained in our classified report will ensure that the White House
continues to have an appropriate level of protection as we enter the 21 st Century.
Now it is my pleasure to introduce the Director of the Secret Service, Eljay Bowron.
Thank you.
-30-
DEPARTMENT OF THE TREASURY
UNITED STATES SECRET SERVICE
WASHINGTON, D.C. 20223
DIRECTOR
STATEMENT OF DIRECTOR ELJAY B. BOWRON
UNITED STATES SECRET SERVICE
MAY 20,
1995
The White House Security Review has conducted an exhaustive study
of our White House security programs with the full cooperation of
the men and women of the Secret Service.
The review has
addressed each security issue from the perspective of assisting
the Secret Service in our efforts to continually enhance the
performance of our protective mission.
It is important to state
that the Secret Service constantly reviews all of its security
practices, and no one is more interested than we are in efforts
to provide the safest environment for the First Family and the
others for whom we provide protection.
The areas examined during
the review included the most sensitive and critical aspects of
our protective mlSSlon, which made full public participation
inadvisable.
We will continue to pursue these objectives and
make necessary enhancements based on the review's recommendations
and our own security assessments.
As I have said in many of the
briefings I have given on this matter, I was convinced that
Pennsylvania Avenue was going to be converted in my lifetime.
It
was only a matter of whether it would be before or after an
explosion.
We appreciate the efforts of Secretary Bentsen, who
initiated this review, and the leadership of Secretary Rubin who
supports law enforcement and brought this review to fruition.
###
WHITE HOUSE SECURITY REVIEW
FACTS ABOUT THE SECURITY REVIEW
* 10
* 11
*
*
TECHNICAL EXPERTS CONSULTED
PUBLIC ACCf;SS EXPERTS CONSULTED
OVER
1 ,000
OVER
250
DOCUMENTS REVIEWED
INDIVIDUALS INTERVIEWED
* 8 NATION INTERNATIONAL COMPARATIVE
STUDY CONDUCTED
*
*
CLASSIFIED REPORT IS OVER
750
PAGES
KEY MEMBERS OF CONGRESS BRIEFED
White House Security Review
Organizational Chart
Secretary of the Treasury
Office of
Inspector General ~ - - - - - - - - (Oversight)
Under Secretary
for Enforcement
~ -
-
WHITE HOUSE
SECURITY REVIEW TEAM
US Secret Service
Investigative
Teams
External
Consultants
ADVISORY
COMMITTEE
WHITE HOUSE SECURITY REVIEW
ADVISORY COMMITTEE MEMBERS
THE HONORABLE ROBERT CARSWELL
FORMER DEPUTY SECRETARY OF THE TREASURY
THE HONORABLE WILLIAM T. COLEMAN, JR.
FORMER SECRETARY OF TRANSPORTATION
THE HONORABLE CHARLES W. DUNCAN, JR.
FORMER SECRETARY OF ENERGY AND DEPUTY
SECRETARY OF DEFENSE
GENERAL DAVID C. JONES, USAF (RET.)
FORMER CHAIRMAN OF THE JOINT CHIEFS OF STAFF
DR. JUDITH RODIN
PRESIDENT OF THE UNIVERSITY OF PENNSYLVANIA
THE HONORABLE WILLIAM H. WEBSTER
FORMER DIRECTOR OF THE FBI AND CIA
UNDER SECRETARY RONALD
Chairman
K.
NOBLE
WHITE HOUSE SECURITY REVIEW
PUBLIC ACCESS CONSULTANTS
WILLIAM SEALE
Former White House Historian
DANIEL BOORSTIN
Former Librarian of Congress
JOHN CARL WARNECKE
Architect
MAXINE GRIFFITH
Urban Planner
WILLIAM HOLLINGSWORTH WHYTE
Urban Planner
MAX BOND
Architect
HAROLD ADAMS
Architect
GEORGE WHITE
Architect of the United States Capitol
GEORGES JAcauEMART
Transportation Planner
VINCENT SCULLY
Architectural Historian
NICHOLAS QUENNELL
Landscape Arohitcct
WHITE HOUSE SECURITY REVIEW
PUBLIC INTEREST REPRESENTATIVES
Met with Representatives of:
* (METRO)
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY
*
*
D.C. DEPARTMENT OF PUBLIC WORKS
NATIONAL CAPITAL PLANNING COMMISSION
* PRESIDENTIAL PARK COMMISSION
* U.S. CHAMBER OF COMMERCE
*
ASSOCIATION OF D.C. C,VIC ASSOCIATIONS
\,-~
,\ .
\
,
,
....
~.'
,/
/
co
i:
()
c:
.r:.
o
-,
.
tJ)
a...
:i:
c:
"C
cQ):
CO
"C
tJ)
Q)
a...
a.."-
....o
Q)
"C
CO
"-
CD
Q.
"a..
tn
CO
oQ.
o
a...
M
a..
CD
0)
T'""
....
"-
tn
..
o
c:
',. o
I,r
\
/'
."
"C
. \.
.- ~
Q)
.::
o
"C
~
/
I
/
(~
(--.. ' "
I
~'"r~ -':'_:~
-......>,.~,
:- ./ '''!':
~.
, .,
I
,I ' \ . , '
','
,J
,r
\.
r -,,"-'
\
I
,
,
~"\.
v
\
''\.
C'a
C'a
N
0::
c::
G)
tn
0i:
C'a
G)
"0
Q.
tn
G)
"0
o
C.
o
"Q.
C)
o
c::
G)
0i:
G)
c::
"0
a:
PEDESTRIAN ACCESS AREAS
-
-
G.
-
c:
f-
r
[
[
r--
I
NE
C It
:;
~
m
m
~
SE
o
·coran
IIlery
E STREET
-
....
CII
:;
:T
!!l
:D
VI
-t
:D
m
m
-t
ELLIPSE
m
m
-t
DEPARTMENT OF PUBLIC WORKS
@
I r... A "...
;::; ,
-=
<::
Vl
......
[/;
..J'"
..;
[/;
[/;
[/;
.J:
. J : .
•
L:J [ ~ [L -II
III
V'
~
-
d
,.if::::::'
- . I ' - ., . . . . ; . . . . ;
-=
I s'_' __" - :::1 I_..?> _
--
':/;
.
':/;
.J:'
...
II ; ; . . . . . . . J :
v:.
.
I ..!J [ c:
::!
ISI::J
~j~ Qt_;;~.J·~\..JJ:·/(..~-{~·J~~n [
UU::-~
V:I . Ef?,
I
I
III
I
n _ ',.
ILICIQ~ l:~
~W~!_Ji.
.
L"
"
,~
"~ I
E~r;:Jl'mx;1
~c:r:l
JCJ~I[ " ESt:-~' ~~/ol
r
.
I'
<J
I
C/'.
.J:
~ll
'~
I
lc=--
\
~ L_
c:=:;>
EMERGENCY NO PARKING
....
I
I
I
r
r~1
ILl
\
K
!
I'O~~
1'0,
Const. Ave.
Temp. DETOUR Signs with Arrows.@
Crosstown Guide Signs.
••••••••••
CROSSTOWN
TRAFFIC
(-- )
Streets Closed to Thrll Trame. XXXXXXXXXXX
r
I
1'~-'
I r
Proposed ONE·WAY Sts.
!6
23.0011 (AIlD
1~,~ ~'D /
Existing ONE·WAY Sts.
e~x=6"'-11
',
@I
(ADn :: VEHICLES PER DAY
(;
TRAFFIC MANAGEMENT PLAN
PENNSYLVANIA AVENUE
THE PLAN IS TO MAKE I STREET ONE-WAY WESTBOUND BETWEEN NEW YORK
AVENUE AND PENNSYLVANIA AVENUE, AND H STREET ONE-WAY EASTBOUND
BETWEEN PENNSYLVANIA AVENUE AND NEW YORK AVENUE:
Install "Emergency No Parking Anytime" signs on the critical arterials in the areas of congestion from
time and date of closure until necessary traflic control devices arc implemented.
1.
EMERGENCY SI(,NS:
15th Street, N.W. - E Street to K Street - Both Sides.
17th Street, N.W. - Constitution Ave. to K Street - Both Sides.
H Street, N.W. - 14th Street to 18th Street - Both Sides.
I Street, N.W. - 14th Street to 18th Street - Both Sides.
2.
Install temporary detour signs. These signs will he replaced with new guide signs after the full Traffic
Management Plan is implemented.
3.
Install traffic signal hardware on I Street at the necessary intersections to effect the one-way westbound
operation of I Street. The day of the operation change: Barricades with "Do Not Enter" signs will be
placed in the intersections to help prevent motorists from proceeding east on I Street. Traffic signals
will become operational to face westbound traffic, one-way signs changed and installed, and necessary
pavement markings installed.
4.
Install any necessary traffic signal hardware on H Street. Since H Street is two-way presently the task
is not as difficult as I Street. The Day of the operational change, H Street one-way eastbound, the tasks
are the same.
Preparations have started on the traffic signal timing plans and hardware installations,
pavement marking and signing plans.
It will take approximately 10 hours to implement the one-way operations on each street after
the traffic signal hardware is installed and deemed operational.
We are discussing the traffic pattern change for 15th Street, N.W. between New York Avenue
and K Street. We helieve the street should be made one-way northbound.
LEGAL ISSUES FACT SHEET
•
18 U.S.C. 3056 provides the Secretary of the Treasury the authority to direct the
Secret Service to do what is necessary and appropriate to protect the President, the
First Family and other protectees.
•
The Secretary has the authority to close streets to vehicular traffic in order to ensure
the safety of the President pursuant to his broad authority under Section 3056.
•
Whether closing the streets is necessary and appropriate to protect the President is a
factual matter for the Secretary to determine.
•
The White House Security Review "is not able to identify any alternative to
prohibiting vehicular traffic on Pennsylvania Avenue that would ensure the protection
of the President and others in the White House Complex from explosive devices
carried by vehicles near the perimeter. ..
•
This conclusion and the supporting evidence is sufficient factual justification for the
exercise of the Secretary's authority to prohibit vehicular traffic on the following
streets: Pennsylvania Avenue between Madison Place and 17th Street; State Place;
and the segment of South Executive Avenue that connects into State Place.
•
The Supreme Court has stated that "[t]he Nation undoubtedly has a valid, even
overwhelming interest in protecting the safety of its Chief Executive...... Watts v.
United States, 394 U.S. 705, 707 (April 22, 1969).
•
The D.C. Circuit Court of Appeals has stated that "[a]t stake is not merely the safety
of one man, but also the ability of the executive branch to function in an orderly
fashion and the capacity of the United States to respond to threats and crises affecting
the entire free world." White House Vii:il for the ERA Committee v Clark, 746
F.2d 1518, 1528 (D.C. Cir. 1983).
I
May 10, 1995
The Honorable Robert E. Rubin
Secretary of the Treasury
1500 Pennsylvania Avenue
Washington, D.C. 20220
Dear Mr. Secretary:
The Advisory Committee to the White House Security Review, having
completed its assignment, submits the following assessment of that
investigation.
On October 30, 1994, Secretary of the Treasury Lloyd Bentsen
invited the undersigned to serve as members of an Advisory
Committee to the White House Security Review (the "Review"). The
Review had been initiated to investigate certain recent securityrelated incidents at the White House Complex (the "Incidents").
The Advisory Committee, chaired by Under Secretary of the Treasury
(Enforcement) Ronald K. Noble, then was established to monitor and
lend experience, judgment and critical insight to the Review's
efforts.
As provided in the Review's Mission Charter, we were directed to
meet as often as necessary to conclude that any erroneous
procedures were discussed and changes proposed, and that the
Review's findings and recommendations were supported by the facts
presented.
The Advisory Committee, in a sense, would conduct its
evaluation o~ behalf of the group most interested in balancing the
securi ty and accessibility of the White House Complex
the
American people.
In addition to this great responsibility, we
recognized the added significance of evaluating the operations of
the united Scates Secret Service, which is regarded as the world's
authori ty on Head of State protection.
We therefore accepted
Secretary Bentsen's invitation and viewed his commission as an
unequivocal mandate to ensure that the Review would be conducted in
a principled, exhaustive and unbiased manner.
Our conclusions regarding the thoroughness and impartiality of
Review are based on (i) the briefings provided during Advisory
Commi t tee meetings, (ii) the questions raised during discussions
between the Advisory Commiccee and unde~ Secretary Noble's staff,
(iii) the Review's investigative plan, which we reviewed, approved
and monito~~d the implementation of,
and
(iv)
the Review's
::assified ReDort.
Advisory Committee Letter
May 10, 1995
Page 2
Under Secretary Noble convened Advisory Committee meetings during
the course of the Review that consisted of briefings on various
related issues.
We had the benefit of on-site briefings at the
White House Complex and the Air Traffic Control Tower at Washington
National Airport to acquaint us with the operational aspects of
those environments.
Also, Under Secretary Noble conducted
additional individual briefings to keep us informed of recent
developments and to obtain advice on particular matters relating to
the Review.
We are satisfied that the Review has been conducted in a thorough
and unbiased fashion.
Furthermore, we find no fault in
the
contents of the Review's Classified Report. We believe that the
principles and concerns we have articulated throughout the Review
have been addressed in full measure and are reflected in the
Classified Report. Accordingly, the Advisory Committee concurs in
the Review's recommendations.
We are certain that the immediate
implementation of the Review's recommendations will enhance even
more the security of the President and the First Family within the
White House Complex.
We respectfully commend this assessment of the White House Security
Review to your favorable consideration.
,./"~ ,~,/)
/
./. / / :
vV[ I 2---
J/
/
L-~~-~,
Hon. Robert Carswell
'
/
Hon. Hilliam T. ColemaK',I Jr.
Gen. David C. Jon
Dr. ' , Judi th Rodin
I
j
Judge
w~~lia~
USAF (RET.)
H. Webster
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
May 22, 1995
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
April 1995.
As indicated in this table, U.S. reserve assets amounted to $88,756 million at the end
of April 1995, up from $86,761 million in March 1995.
End
of
Month
Total
Reserve
Assets
Gold
Stock 1/
Special
Drawing
Rights 2/1/
Foreign
Currencies
~/
Reserve
Position in
IMF2/
1995
March
86,761
11,053
11,651
50,639
13,418
April
88,756
11,055
11,743
51,752
14,206
1/
Valued at $42.2222 per fine troy ounce.
1/
Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
J./
Includes allocations of SDRs by the IMF plus transactions in SDRs.
~/
Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.
RR-318
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
May 22,1995
REMARKS TO MASSACHUSETIS ECONOMIC SUMMIT
Alicia H. Munnell
Assistant Secretary for Economic Policy
Department of the Treasury
Thank you very much. I am delighted to be here today. Although born in New
York, I think of myself as a Bostonian and a New Englander. Like many other
inhabitants of this city, I came here for college, got married and never went back.
The year I arrived at Wellesley College was 1960. That November, John Kennedy
was elected President. He campaigned on the theme of "getting America moving again."
That theme was largely, although not entirely, a matter of boosting economic growth.
Kennedy believed--quite correctly for the 1960s--that "a rising [economic] tide would lift
all boats."
Getting the economy moving was also the challenge that President Clinton faced
when he took office in 1993. But today the challenge is much greater. In 1993, we faced
not only an economy struggling to regain vigor, but also one that had suffered from slow
economic growth for nearly a generation.
Slow economic growth would be troublesome enough, but the distribution of that
growth has been very unequal. In the '50s, '60s, and most of the '70s, every segment of
our economy--from the poor to the rich--saw their incomes roughly double. But the
trend in the last 15 years has been very different.
In the past 15 years, the bottom 60 percent of families have seen their real
incomes actually fall, not rise. The only families seeing their incomes rise are the upper
40 percent of Americans.
(More)
RR- 319
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
This shift has many sources, but one is most striking--new technologies have
reshaped the economic landscape. We have moved away from a goods-producing
~onomy: in 1960 nearly 40 percent of the non-agricultural work force was employed in
making goods, today that figure has dropped to about 20 percent. The numbers for
Massachusetts mirror those for the nation.
As a result of new technologies, education has become the fundamental fault-line
running through the work force. Demand for high-skilled workers is soaring, while
demand for less-skilled is shrinking. Fifteen years ago, a male college graduate earned "
39 percent more than a man with a high school degree. By 1993, that gap had increased
to 80 percent.
While explainable, the pattern should be of concern. It strains our social fabric.
Moreover, if a significant portion of families are not benefitting from economic growth,
they will oppose the forward-looking economic policies--such as expanding trade--that are
critical to our future. Therefore, it is in all our self interest to promote upward mobility
for all segments of our society.
Thus, when assessing the status of the economy--both for the nation as a whole
and for Massachusetts--it is important to look not only at our recovery from the 1990-91
recession, but" also at the steps taken toward promoting long-run economic growth and
toward "ensuring that all Americans share in that growth.
The Short-run View
Let's look first at the short-run situation and our progress to date. It is useful to
remember back to how the economy looked when the Clinton Administration took over.
The economy was technically in recovery, but the recovery was modest and had produced
almost no jobs.
The big problem was the federal budget deficit. The deficit was not only large
but also increasing even as the economy was recovering. An increasing structural deficit
created a sense of instability and of potential financial crisis. Prudent people were
relatively unwilling to hire and invest in that type of environment.
The Administrations's first move was to bring the deficit under control. Working
with the Congress, we passed $500 billion of deficit reduction. With good economics,
that package has cut $600 billion. Although I was skeptical initially, I really do believe
that passage of the economic plan did lower interest rates. But even more important
than lower interest rates, the economic plan created a stable environment, hospitable to
investment and employment growth.
It is interesting to compare the economic steps needed to get the economy moving
in the early 1990s with those required in the early 1960s. The 1960s slowdown required
-3-
were a classic Keynesian solution; President Kennedy recommended a tax cut in order to
increase the federal deficit and stimulate demand.
By the early 1990s, out-of-control deficits had created an unstable economic
environment. The only way to get the economy moving was to restore stability, and the
only way to restore stability was to bring the budget deficit under control.
The results of re-establishing fiscal discipline have been impressive. The nation
has enjoyed nearly two and a half years of an investment-led recovery. GOP grew by 3
percent in 1993 and by more than 4 percent in 1994. Business investment in equipment
increased 21 percent in 1993 and almost 16 percent in 1994. As a percent of GOP,
investment in equipment is at an all-time high.
Most important, the economy has created more than 6.3 million jobs since
January 1993; a decisive end to the jobless recovery. The unemployment rate has fallen
from 7.1 percent to 5.8 percent.
All this growth has occurred with low inflation. The CPI, PPI, GOP deflators all
ran below 3 percent last year.
The last recession was particularly hard for Massachusetts. I was here; I
remember. The rate of job loss in this state and in New England generally was much
greater than that for the nation as a whole. Although the state and the region have
participated in the recovery, they have regained less than half of the jobs lost during the
1989-1992 period.
.
Looking forward over the next .year, the national economy appears to have made
the necessary downshift toward cruising speed. That is, economic growth has fallen in
line with the rate possible for an economy operating at full capacity. A soft landing for
the national economy should allow Massachusetts to continue to gain back jobs, albeit at
a somewhat slower pace.
The Long-run View
Getting the economy moving and creating jobs is a good achievement, but it is not
enough. Even with the strong economic growth, real wages have not responded. Thus,
the bigger challenge is to ensure rising wages, So that all segments of society can enjoy
rising standards of living over the long run. This requires raising productivity growth.
Productivity growth is not an academic abstraction. If productivity growth rises at
2.5 percent per year as it did up to 1970, people can expect their real wages and their
living standards to double once every 28 years, or roughly once a generation. In contrast,
productivity growth of 1 percent means that children can expect living standards only 30
percent higher than their parents.
-4-
In the long run, the only sustainable way for incomes to increase is for the
amount produced per hour to increase. The only ways to increase output per hour are
to invest and to encourage technological change.
This has been the centerpiece of President Clinton's economic agenda. From the
beginning, we have recognized that investment in physical capital is not enough.
Investment in human capital is crucial. It is crucial not only to increase total output, but
also to make sure that everyone can participate in the new high tech economy.
That's why the President has focused so intently on education and job training
during the last two years. We have already achieved increases in head start, direct
student lending to widen access to college, and new incentives for schools to raise their
standards. The School-to-Work Opportunities Act, which was signed into law a little less
than a year ago, is already helping states and localities throughout the U.S. to carve
pathways from the classroom to the working world.
These steps should help ensure that we have the skilled work force that we need
for the future.
In the meantime, two additional provisions should provide some iriunediate help.
The first is streamlining federal job training programs around one-stop career centers
and introducing grants for community colleges or universities to gain skills in high-growth
industries. A family tax deduction for the costs of education and training, up to $10,000
per year, should also help those who need mid-career retraining.
,
At the same time, we have also taken steps to ensure that those who work full .
time at the low end of the pay scale earn enough to keep their families out of poverty.
The earned income tax credit provides over $20 billion in wage subsidies to 15 million
working families and 5 million childless workers.
Much of our concern in the current budget debates is focused on these
educational initiatives. We have been dedicated since day one to moving the federal
budget toward balance. The reason is that it will increase national saving and
investment and lead to greater output in the future.
H the government is borrowing less of our nation's saving, more is available for
the private sector to invest in factories and equipment and other things that raise
productivity and raise wages in the future. This also means that fewer federal resources
go into debt service. That is why we have focused on bringing the deficit down.
But deficit reduction is a means to an end. It defeats its own purpose if it is
accomplished by cutting public investments in education and skills and technology, and
thereby reduces the nation's long-term economic prospects. That is why it is so
important to protect these programs as we move toward balance in the federal budget.
-5-
These issues of education and training have always been ones of great importance
for Massachusetts. This state has been in the vanguard of moving away from a goodsproducing to a service- producing economy. It has been a very long time since
Massachusetts could rely on assembly line jobs that provide lifetime employment with
rising wages and benefits to people straight out of high school.
Knowledged-based economic activities have always been and continue to be
central to Massachusetts. A skilled work force has always been one of this state's
greatest assets. But the skills for the future will be harder to acquire than the skills of
the past. More and more people are going to have to know how to identify and solve
problems, manipulate and analyze symbols, and create and manage information. Our
challenge is to make sure that as many Americans as possible have these skills.
The imperative of investing in education and skills is not new. I started with John
Kennedy, so let me end with a quote from him on this subject.
"Modernization and productivity depend upon more than investment in physical
resources .... Equally essential is investment in human resources ... So there is a
direct connection between increased emphasis on education in this country and
also upon increased productivity and technological change."
The need to invest in skills is more brutally obvious today than it was in the early
1960s. We must follow through on it.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
~8~9~. . . . . . . . . . . . . ..
....
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
May 22, 1995
PREPARED STATEMENT OF R. RICHARD NEWCOMB
DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON THE WESTERN HEMISPHERE AND
PEACE CORPS AFFAIRS COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
RR-320
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
u.s. ECONOl\fiC SANCTIONS ON CUBA
Prepared statement of
R. Richard Newcomb
Director, Office of Foreign Assets Control
united states Department of the Treasury
before the
Subcommittee on the Western Hemisphere and Peace Corps Affairs
Committee on Foreign Relations
united states senate
Washington, D.C.
May 22, 1995
Introduction
Mister Chairman, distinguished members of the Subcommittee,
Good Afternoon. The-Treasury Department's Office of Foreign
Assets Control is the office responsible for the enforcement of
the economic embargoes and sanctions programs currently in place
with respect to various target countries, including Cuba. In my
remarks this afternoon, I will be discussing the recent changes
to our sanctions program against Cuba, particularly the new
initiatives with respect to dollar remittances, travel, and gift
parcels which were implemented at the direction of the President
in August 1994.
I.
FAC Generally
In performing its mission, FAC relies principally on the
President's broad powers under the Trading with the Enemy Act
(tlTWEAtI) and the International Emergency Economic Powers Act
(tlIEEPAII) to prohibit or regulate commercial or financial
transactions involving specific foreign countries. The
implementation of' economic embargoes and sanctions by the
President is an imp~rtant element of u.s. foreign policy.
FAC has enforcement, regulatory and operational
responsibilities. These include rulemaking, licensing, criminal
enforcement, civil penalties, compliance, the blocking of foreign
assets in the united States, and the authority to require
recordkeeping and reporting •.
2
In implementing and enforcing economic sanctions and embargo
programs, FAC maintains a close working relationship with
numerous other federal departments and agencies to ensure that
the FAC mandate is properly implemented and effectively enforced.
Among these agencies are the state Department (for foreign policy
guidance in promulgating regulations and on sensitive cases), the
Commerce Department (on issues regarding exports), the National
Security Council staff (on significant policy questions and
regulatory changes), the customs Service (for assistance in the
many enforcement matters involving exports, i~ports,
transportation, and travel), and the bank regulatory agencies (to
assure bank compliance with financial restrictions).
II.
The Provisions of the CUban Democracy Act
The CUban embargo, as it existed before the Cuban Democracy
Act ("CDA"), enacted in October 1992, prohibited all commercial,
financial, and trade transactions by all persons subject to u.s.
jurisdiction, which includes u.s. citizens and permanent
residents, wherever they are located, all people and
organizations physically located in the U.S., and all branches
and subsidiaries of u.s. organizations throughout the world.
The Cuban Assets Control Regulations (lithe Regulations"),
which were promulgated to interpret and implement the Cuban
sanctions program, contained certain limited licenses or
exemptions for specified types of transactions in the following
areas: limited family remittances, certain-travel transactions,
trade in informational materials, and trade by u.s. foreign
subsidiaries. It is within this context that the CDA was
enacted.
The CDA made significant changes to the Regulations with
respect to the export to Cuba of food and medicine and medical
supplies, with respect to telecommunications, and with respect to
trade with Cuba by offshore subsidiaries of u.s. companies.
since the passage of the CDA, the U.S. Government has licensed
over $65 millipn worth of humanitarian donations to Cuban nongovernmental organizations from a wide variety of religious,
social, and professional groups and individuals. We stand ready
to work with all organizations interested in providing
humanitarian assistance to the Cuban people in their time of
need.
As you are aware, informational materials, including school
texts, Bibles, books, records, tapes, etc., are not subject to
the prohibitions contained in the Regulations, and therefore
require no authorization to export. Furthermore, the CDA at
S1705 (b) deregulates the exportation of donated food to Cuban
individuals and non-governmental organizations. For this reason,
qualifying donations of food may be exported without applying for
3
a license.
a.
Medicines and Medical supplies
Section 1705 (d) (2) of the COA concerns exports of medicine
and medical equipment and provides that specific licenses must be
issued by the u.S. Government for such exports. Authorization
for exportation requires that certain conditions be satisfied.
section 1705 (c) of the COA provides that such exports shall not
be restricted except to the extent that:
o
the intended export is restricted by §5 (m) of the
Export Administration Act of 1979 or 5203 (b) (2) of
IEEPAi
o
there is a reasonable likelihood that the intended
export will be used for torture or human rights abuses;
o
there is a reasonable likelihood that the intended
export could be re-exported; and
o
there is a reasonable likelihood that the intended
export will be used in the production of any'
biotechnological product.
In addition to avoiding the four restrictions listed above,
commercial shipments of medicine and medical supplies to Cuba, as
well as donations to individuals and non-governmental entities,
must also satisfy requirements for u.S. Government verification
that the exported goods will only be used for the purpose for
which they were exported and that they will be used for the
benefit of the Cuban people.
In the spirit of the COA provisions for support of the Cuban
people, we have adopted a policy of licensing transactions
incident to travel by persons requesting to accompany and deliver
licensed donated goods to the intended recipients. We have
issued licenses to over 150 persons travelling to Cuba for this
purpose.
~.
TelecommunicatioDs
area of great interest has been telecommunications
between the u.S. and CUba. Prior to the enactment of the COA,
telecommunications service, including phone service, telexes, and
telegraph service, was authorized on a highly regulated and
restricted basis by licenses issued by FAC. These licenses
insured that the vast majority of payments owed to Cuba would be
placed in blocked accounts in the united States. Service and
transfers of new telecommunications technology have also been
limited consistent with the purposes of the embargo.
An
4
The CDA prov1s10n dealing with telecommunications directs
the Government to address telecommunications issues outside the
prior system of laws and regulations that make up the Cuban
embargo. The CDA permits telecommunications services between
CUba and the united states, notwithstanding other restrictions on
transactions with Cuba.
The CDA specifically provides that payments to CUba will be
made pursuant to a license. Payments may be licensed for full or
partial current settlement with Cuba. Under section 1710 of the
CDA, the Secretary of the Treasury must ensure that activities to
support the CUban people, newly permitted under the CDA, are
carried out only for the purposes set forth in the Act, and not
for the purpose of the accumulation by the Cuban Government of
excessive amounts of u.s. currency or the accumulation of
excessive profits by any person or entity.
As a first step in implementing the CDA telecommunications
policy, we issued licenses to telecommunications companies
authorizing transactions incident to their travel to'Cuba for the
purpose of negotiating an agreement to provide telecommunications
services between the united states and Cuba. Six of these
companies negotiated service agreements that were approved by the
Federal Communications Commission, in consultation with the state
Department, which had provided policy guidance for the scope of
the new services to be allowed, including technical requirements.
Treasury issued licenses in November 1994 authorizing the
execution of the agreements and the transactions necessary to
effect the payment of current settlement. A level of
telecommunications now exists between the u.s. and Cuba that
permits telephone calls with good voice quality, as well as other
services, such as telefacsimile, that require the use of modern
facilities.
c.
Offshore SUbsi4iary Tra4e
section 1706(a) of the CDA effectively discontinued the preCDA policy of licensing offshore transactions with Cuba by
foreign subsidiaries of u.s. firms. The CDA provided that the
new prohibition was not to affect contracts entered into before
the date of enactment of the CDA. Most such situations were
brought to our attention within weeks of the enactment of the
CDA, and licenses to allow the completion of pre-CDA contracts
were issued, where appropriate.
Prior to the CDA, the level of licensed trade by the
offshore subsidiaries of U.S'. firms had risen to a high of $718
million in 1991. Except for transactions occurring under the few
pre-CDA contracts which continued to be in effect, the level of
such trade in 1994 had fallen to zero.
5
III.
The I.nitiative. of Auqu.t 1994
In August 1994, the President called for the imposition of
additional economic sanctions against the Castro regime. These
new measures were designed to reduce the flow of u.s. dollars to
the Cuban government by sharply reducing permitted remittances to
Cuba, limiting the content of gift parcels sent to family members
in Cuba, and prohibiting travel-related transactions related to
family visits except under circumstances of extreme hardship.
Persons seeking to travel to Cuba for purposes of conducting
professional research may now do so only pursuant to specific
licenses issued by FAC.
a.
Remittance.
The amended regulations now prohibit family remittances to
CUba except for a one-time payment of $1,000 to enable a close
relative to emigrate from Cuba; other remittances to address
emergencies or situations of demonstrated extreme need may be
specifically licensed on a case-by-case basis. Remittances to
permit travel to the united states by CUban family members for
visits are now prohibited except upon a demonstration of extreme
humanitarian need. This change, and prohibiting u.s. family
members from using the licensed Miami-Havana charter flights to
visit relatives in Cuba, have been the most controversial of the
new prohibitions.
B.
Air Charter Travel
Licensed Miami-Havana charter carriers are now permitted to
carry only specifically-licensed travellers, except for visaed
immigrants, journalists, and government travellers on official
business, who continue to be generally licensed. Specific
licenses may now be issued for (1) certain family visits in
extreme emergencies, (2) travel for clearly-defined educational
or religious activities, (3) travel by professional researchers,
(4) travel for activities of recognized human rights
organizations investigating human rights violations, and (5)
travel in connection with telecommunications activities or trade
in informational materials.
The sharp reduction in the number of licensed travellers for
the direct U.S.-to-Cuba flights has led to a reduction in their
frequency. However, prohibiting travel to Cuba on these flights
by unlicensed u.s. family members has likely resulted in many
such persons unlawfully attempting to travel to Cuba via third
countries, such as Mexico. We are developing enforcement
strategies to address this mode of circumvention.
6
The specific licensing of family visits has vastly increased
FAC's workload. As a result, processing times are much longer
than we would like. This has led to a difficult situation and we
understand the pain and frustration of Cuban-Americans who wish
to visit a sick or dying relative on an urgent basis. Since
August 18, 1994, FAC has processed more than 3,600 requests for
family visits, reallocating additional licensing personnel to the
CUban program to assure minimum processing times.
c.
Gift Parcels
Pursuant to the current Regulations, family gift parcels are
now limited to food, medicine, medical and hospital supplies,
clothing, and certain humanitarian items having a total value of
not more than $200 per month, from one donor to one donee. The
additional controls now placed on the content of such parcels is
intended to align such shipments with the humanitarian intent of
the exemption by eliminating non-humanitarian, commercial
articles intended for introduction into the Cuban economy through
resale.
IV.
Enforcement of sanctions
The Office of Foreign Assets Control remains committed to
the full and effective enforcement of the CUban sanctions. From
the time of the President's August 1994 initiative through midMay 1995, OFAC maintained a continuing presence in Miami to
provide enforcement assistance to the customs Service in the
processing of outbound flights to Cuba. OFAC has now established
a permanent office in Miami to provide an enhanced level of
assistance to the law enforcement community in assuring that the
prohibitions of the Cuban embargo are observed.
We recently met with the u.S. Attorney in Miami and will
continue to provide his office with all possible assistance in
the vigorous prosecution of embargo violators. In June, we will
be meeting with the full law enforcement community in Miami to
discuss strategies for addressing travel to Cuba through third
countries and to explore ways in which our common embargo
enforcement goals can be best achieved.
V.
The Belms/Burton Bill
There are aspects of the bill that the Administration
generally can support. As Under Secretary Tarnoff has stated,
these include making the embargo more effective, accelerating
planning for assistance to CUba under a transitional or
democratic government, and protecting American property interests
in CUba.
However, it is the Administration's view that, as currently
7
drafted, many of the provisions of the bill could hamper the
united states' ability to promote a transition to democracy in
Cuba. A number of the bill's provisions could also jeopardize
broader national interests. The Administration is confident that
the Administration and the Congress will be able to address these
difficulties and be in a position to further our common goal of
promoting real democratic change in Cuba.
Whatever Treasury's enforcement responsibilities under the
final bill, we have every confidence in our ability to enforce
the provisions delegated to us.
I appreciate your invitation to appear here today and would
be pleased to attempt to answer any questions you might have.
UBLIC DEBT NEWS
Department ofrhc Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 22, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,648 million of 13-week bills to be issued
May 25, 1995 and to mature August 24, 1995 were
accepted today (CUSIP: 912794T20).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.70%
5.73%
5.72%
Investment
Rate
5.88%
5.91%
5.90%
Price
98.559
98.552
98.554
Tenders at the high discount rate were allotted 24%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$50,466,129
Accepted
$13,647,536
$45,182,507
1,489,846
$46,672,353
$8,363,914
1,489,846
$9,853,760
3,321,064
3,321,064
472,712
$50,466,129
472,712
$13,647,536
An additional $309,488 thousand of bills will be
issued to foreign official institutions for new cash.
5.71 -- 98.557
RR-321
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
May 22, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,667 million of 26-week bills to be issued
May 25, 1995 and to mature November 24, 1995 were
accepted today (CUSIP: 912794V76).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.70%
5.72%
5.72%
Investment
Rate
5.97%
5.99%
5.99%
Price
97.103
97.092
97.092
Tenders at the high discount rate were allotted 59%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$49,397,650
Accegted
$13,667,043
$42,829,619
1,326,053
$44,155,672
$7,099,012
1,326,053
$8,425,065
3,320,000
3,320,000
1,921,978
$49,397,650
1,921,978
$13,667,043
An additional $1,258,222 thousand of bills will be
issued to foreign official institutions for new cash.
5.71
RR-322
97.097
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
May 23, 1995
-
TESTIMONY OF GEORGE MUNOZ
ASSISTANT SECRETARY FOR MANAGEMENT
& CHIEF FINANCIAL OFFICER
DEP ARTMENT OF THE TREASURY
BEFORE THE
HOUSE COMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION AND TECHNOLOGY
RR-323
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040.
TESTIMONY OF GEORGE
MUNoz
ASSISTANT SECRETARY FOR MANAGEMENT
& CHIEF FINANCIAL OFFICER
DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE COl\1MIITEE ON GOVERNrvIENT REFORM AND OVERSIGHT
SUBCOMMIITEE ON GOVERNrvIENT MANAGEMENT,
INFORMATION AND TECHNOLOGY
MAY 23,1995
Mr. Chairman and Members of the Subcommittee:
-I am George Munoz, Assistant Secretary for Management and Chief Financial
Officer for the Department of the Treasury. I thank you for the opportunity to
appear before you again. I have been asked to testify before you today as a
representative of the Administration, who has broad experience in management
-reform. I will draw from several perspectives: as a former customer of the
Department of Education when I served as President of the Chicago Board of
Education during the mid-1980's; as a representative from_a peer cabinet agency,
the Department of the Treasury; and as Executive Vice Chair of the Governmentwide Chief Financial Officers Council, which focuses on fmancial and management
improvement throughout government.
As I testified earlier to this committee, I am both an attorney and a certified public
accountant. I have extensive management experience in both the public and
private sector, including profit and loss responsibility in business. As Treasury's
CFO and as Vice Chair of the CFO Council, I have worked on management
improvement efforts throughout the government financial management community.
I am also familiar with many of the improvement efforts underway at Education.
1
Education and Link to Economic Growth
No one disputes the great importance of education to each of us as individuals, to
our communities, to our nation. Education is the key to our economic growth -if you cut education, you cut the incomes of all people. There is nothing more
important to raising incomes and raising standards of living than education.
The President has repeatedly emphasized that "education is the fault line of
economic opportunity in this country.
II
The Department of Education
Phase II of the National Performance Review asked all agencies to look at their
fundamental mission -- asking, in fact, if an agency should be in existence at all.,
We all were tasked to define and justify our core mission, based on what our
customers, the citizens of the United States, think and want. Let me address this
issue up front --the Federal Government SHOULD have a Department of
Education.
The: American people, our customers, are clearly pr<r-education,and pro-'
Department of Education. Last January, a Wall Street J oumal and NBC poll
specifically asked the question whether there should be cutbacks in the Department
of Education. Over 80 percent of the people said no; 70 percent said that the
Department itself was very necessary in the role it played.
I couldn't-agree more. The Department's role today is exactly as it should be -- it.
provides focus, direction and support to states, local communities, and institutions
to improve education nationwide.
What is the role of the Federal Government in education and why are national
goals and measures so important? It must be noted that states do not have a legal
or constitutional obligation to educate;, they must only provide the opportunity for
education ... The states do not guarantee educational outcomes. The Federal
Government, through the Department of Education, assists in encouraging states
and communities in setting challenging standards, in helping students meet high
educational goals and in measuring the performance of our educational system
using objective standards.
2
The Department of Education -- our smallest cabinet-level agency with about 5,000
FfEs -- is a model agency under NPR principles in that it is "steering more and
rowing less." It too is cutting bureaucracy ... reducing regulations ... and devolving
many of its activities to states, localities and schools. But after all the cutting is
done and all the efficiencies are in place, we still need the Department of
Education to provide principles, financial assistance, and assessment. It plays a
fundamental leadership role that is critical to our nation.
Let me give you an example from my own experience at the Chicago Board of
Education. I was having great difficulty in getting people to focus on the fact that
we had a serious drop-out problem in the city and around the country. Different
school systems were using different scoring systems for calculating the drop-out
rate and all of them were understating the problem. The published drop-out rates
were 10-12 %, but the actual number of students dropping out was in the
neighborhood of 50% in the large urban schools. The Department of Education
assisted in getting true and full disclosure on the extent of the drop-out problem,
by publishing the comprehensive "Nation At Risk" study. The study had a
tremendous impact in helping Chicago and other urban school systems address
problems with educational performance and drop-outs.
The Goals 2000: Education America Act was passed by Congress in 1994 with:
strong bipartisan support and the backing of almost every major national parental,
educational, and business organization as well as the nation's governors and
legislators. Today ~ Goals 2000 is supporting state and local efforts in Chicago and
across the nation to set challenging" academic standards. "
Having no doubts as to the need for a Department of Education, I would
to address management improvement efforts in the Department.
no~
like
Management and the Department of Education
My observations of the Department of Education are it is making progress in
several management and fmancial reform areas, many of which are key to NPR
initiatives and to overall performance improvement. This is largely due to the
leadership, follow-through and "hands-on" management style of Secretary Riley.
He is focused on results and has created an environment where good ideas are
rapidly translated into successes. Let me briefly highlight some of these gains:
3
Strategic Planning
As you know, strategic planning is a key to effective management in any
organization. The Department of Education recently completed its first-ever
strategic plan. This strategic plan identifies four key priorities for carrying out
the Department's mission of ensuring equal access to education and promoting
educational excellence nationwide.
The frrst three priorities focus on helping states, local con:ununities and agencies:
•
•
•
to develop higher academic standards;
to provide school-to-work opportunities; and
to access post-secondary education and life-long learning.
The fourth priority, that of transforming the Department into a performance-driven
organization, is required to accomplish the other three.
In each of the priority areas, the plan sets ambitious performance targets for
improving how the Department serves its customers and the results it expects .
.And its use of performance indicators puts Education ahead of many other agencies
in implementing the Government Performance and Results Act (GPRA).
Over the past two years, the Department's strategic plan has driven budget
priorities, resource and personnel allocations, and strategies for carrying out
reform. That's sound business practice.
Financial Management
On the CFO Council, I have the opportunity, on an ongoing basis, to work closely
with the Department of Education's Chief Financial Officer and Deputy Chief
Financial Officer. Both individuals -- Don Wurtz and Mitchell Laine -- are
eminently qualified for their respective positions. They bring to the CFO Council
an enthusiastic support for the overall improvement of financial management
throughout the Federal Government.
As you know, Mr. Wurtz came from the General Accounting Office (GAO) and
joined the Department of Education on the heels of a critical 1993 GAO report
regarding management problems at Education. In fact, he participated in the GAO
review. As a result, he knows where the problems are and has the background to
address them forceful I y. And he's doing just that.
4
Further, through discussions with Mr. Wurtz and Mr. Laine, I have come to
understand that the emphasis placed on implementing the CFO Act has helped the
Department of Education make meaningful and substantive management
improvements. Specifically, Education has been able:
•
to receive, for the first time in the Department's history, a clean audit
opinion from an outside auditor, with no reported material weaknesses
on a major fmancial program -- the Direct Student Loan Program;
•
to muster the resources necessary to conduct a comprehensive general
ledger account reconciliation that has significantly improved the
accuracy and usefulness of the Department's accounting records;
•
to initiate improvements in the fmancial functions of cash
management, accounts receivable management, prompt payment, and
collections on delinquent and defaulted loans and accounts;
•
to establish an innovative Financial Management Quality Team tasked
with steering fmancial management policy to better serve the needs of
program managers;
•
to initiate a redesign of its Core Financial System to implement a
modern, integrated financial management system; and,
•
to attract technical Iy qualified fmancial professionals -- people like
Don Wurtz -- from both the private sector and other federal agencies
to fill critical vacancies and experience gaps.
Customer Service -- New Flexibility:
Increasing responSiveness to customers needs is a vital NPR principle and
Education is making progress on a number of fronts in adding local discretion and
flexibility to its programs. Education is building on new legislation to strengthen
partnerships with states, districts, schools and families, to be more flexible, and to
help energize reform. The Department has several efforts underway to encourage
state and local innovation and greater involvement of parents and communities in
learning. The goal of these initiatives is to provide a balance between the Federal
Government and communities, schools, and states to improve education for all
Americans.
5
The Department also has implemented an agency-wide approach to improve
communications with customers. It has organized focus groups with teachers,
parents, students and program administrators to solicit feedback on programs and
information useful in preparing policy.
A "1-800-USA-LEARN" telephone number connects customers to a "one-stop"
center for information about Departmental programs and student aid. The
Department's On-line Library offers information on education legislation, research,
statistics, and promising programs to more than 17,000 people every week.
Regulatory Reform:
The far-reaching changes that Education is making demonstrates that the
Department is serious about regulatory reform. It's strategic plan is a specific call
for action that integrates NPR principles into everyday life at Education.
For example:
•
Under its new "Principles for Regulating", Education regulates only
when it's essential to meet program goals.· -Then it's as flexible and
non-burdensome as possible.
•
Education has identified more than 100 unnecessary burdensome
procedures and action"is in progress to change or eliminate most of
_these procedures.
Areas for Future Consideration
As I have indicated in my testimony, the Department of Education is making
progress in several important areas in management reform. I would encourage the
Department to continue focusing efforts on the following areas:
Continued Efforts Towards an Integrated Financial Management System
The Department is in the process of .developing a central automated processing
system (EDCAPS). This ·single integrated system will provide system support to
the Department's core business processes and will replace costly, outdated systems
6
which have long outlived their useful life cycle and are quite expensive to
maintain. The new integrated system will substantially reduce system maintenance
costs, automate many manual steps by providing work flow processing, provide
enhanced reporting capabilities, and improve program delivery.
Continued Use of State-of-the-Art Information Technology
Any effort toward management reform must include technological enhancements.
One such system that is already being used at Education is AskERIC:
AskERIC is an online national education information network that provides free
information on education and schooling to more than 25,000 people each month
through Internet and commercial online services. It includes a question/answering
service and a "virtual library", which is an extensive electronic collection of
resources and full-text documents for users. AskERIC breaks down many of the
communication barriers between the Federal Government, universities, and public
schools.
I encourage Education to continue to pursue and implement initiatives like this -- to
take advantage of new technologies -- to empower public administrators, teachers,
and parents to be proactive towards educational matters iri America's local
communities.
And finally, I encourage Education to continue its outstanding efforts in
implementing the CFO Act and GPRA principles.
Thank you. I would be happy to answer any questions you may have.
7
UBLIC DEBT NEWS
Departmem of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 23, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,755 million of 2-year notes, Series AE-1997,
to be issued May 31, 1995 and to mature May 31, 1997
were accepted today (CUSIP: 912827T93).
The interest rate on the notes will be 6 1/8%. All
competitive tenders at yields lower than 6.170% were accepted in
full.
Tenders at 6.170% were allotted 50%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.170%, with an equivalent price of 99.917. The median yield
was 6.150%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.120%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$47,471,719
Accepted
$17,754,539
The $17,755 million of accepted tenders includes $867
million of noncompetitive tenders and $16,888 million of
competitive tenders from the public.
In addition, $518 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $600 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-324
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 2:30 P.M.
May 23, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,400 million, to be issued June 1,
1995. This offering will provide about $950 million of new cash
for the Treasury, as the maturing 13-week and 26-week bills are
outstanding in the amount of $27,446 million. In addition to the
maturing 13-week and 26-week bills, there are $16,913 million of
maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $11,345 million of bills for
their own accounts in the three maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $4,351 million of the three
maturing issues as agents for foreign and international monetary
authorities. These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $3,799 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal Reserve
Banks and Branches and at the Bureau of the Public Debt,
Washington, D. C. This offering of Treasury securities is
governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
0-325
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 1, 1995
May 23, 1995
Offering Amount . . . . .
Description of Offering:
Term and type of security .
CUSIP number . . . . . . .
Auction date
Issue date
Maturity date . . . . .
Original issue date . .
Currently outstanding
Minimum bid amount
Mul tiples . . . . .'.
$14,200 million
$14,200 million
91-day bill
912794 U6 9
May 30, 1995
June 1, 1995
August 31, 1995
March 2, 1995
$13,523 million
$10,000
$ 1,000
182-day bill
912794 V8 4
May 30, 1995
June 1, 1995
November 30, 1995
June 1, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Accepted in full up to $1,000,000 at the average
Noncompetitive bids .
discount rate of.accepted competitive bids
(1) Must be expressed as a discount rate with
Competitive bids
two decimals, e.g., 7.10%.
(2) .Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Daylight Saving time
on auction day'
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
NEWS
TREASURY
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
May 24, 1995
STATEMENT BY TREASURY UNDERSECRETARY RONALD K. NOBLE
Treasury Secretary Robert E. Rubin has authorized me to make
the following statement. Tuesday night Uniformed Division
Officers of the Secret Service Emergency Response Team
apprehended an intruder on the White House grounds.
preliminary information is as follows: At approximately
10:45 p.m., Tuesday May 23, 1995, a person identified as Leland
William Modjeski, age 37, of Falls Church, Va., scaled the fence
on the South East side of the White House Complex.
As he scaled
the fence, he set off several alarms and headed toward the back
of the White House. He was confronted by Scott Giambattista, a
Uniformed Division officer of the Secret Service's Emergency
Response Team. When Modjeski failed to obey the officer's
command, he was physically restrained by Officer Giambattista.
While Giambattista was struggling with Modjeski, a second officer
noti-ced that Modj eski was carrying a hand.gun. Upon seeing the
handgun the second officer yelled, "Weapon," fired and hit
Modjeski. The bullet that struck Modjeski in the arm, exited and
also hit Giambattista in the arm.
Both men were taken to George Washington University
Hospital. Officer Giambattista and the suspect are listed in
stable condition. The wounds are not life threatening'. '
At the time of the intrusion, the President and Chief of
Staff Leon Panetta were in a meeting in the White House.
The
Secret Service immediately notified the President and the Chief
of Staff of the incident. The President and first family were
never in any danger.
-30-
RR-326
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 25, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $18,258 million of 52-week bills to be issued
June 1, 1995 and to mature May 30, 1996 were
accepted today (CUSIP: 912794Y99).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.51%
5.56%
5.54%
Investment
Rate
5.85%
5.90%
5.88%
Price
94.429
94.378
94.398
Tenders at the high discount rate were allotted 12%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$42,541,905
Accepted
$18,258,495
$36,510,345
1.029,860
$37,540,205
$12,226,935
1.029,860
$13,256,795
4,450,000
4,450,000
551. 700
$42,541,905
551,700
$18,258,495
An additional $288,300 thousand of bills will be
issued to foreign official institutions for new cash.
5.52 - 94.419
RR-327
5.53 - 94.409
5.55 - 94.388
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 24, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,502 million of 5-year notes, Series L-2000,
to be issued May 31, 1995 and to mature May 31, 2000
were accepted today (CUSIP: 912827U26).
The interest rate on the notes will be 6 1/4%. All
competitive tenders at yields lower than 6.250% were accepted in
full.
Tenders at 6.250% were allotted 94%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.250%, with an equivalent price of 100.000. The median yield
was 6.210%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.180%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$29,132,473
Accepted
$11,502,128
The $11,502 million of accepted tenders includes $330
million of noncompetitive tenders and $11,172 million of
competitive tenders from the public.
In addition, $600 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $627 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-328
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
............................~2/78rq~............................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
May 25, 1995
CONTACT:
Office of Financing
2.02/219 -3 350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $17,000
million of 13-day Treasury cash management bills to be
issued June 2, 1995.
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be accepted for bills to be maintained on
the book-entry records of the Department of the Treasury
(TREASURY DIRECT).
Tenders will not be received at the
Bureau of the Public Debt, Washington, D.C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000
Attachment
RR-329
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 13-DAY CASH MANAGEMENT BILL
May 25, 1995
Offering Amount .
. .
. .
$17,000 million
Description of Offering:
13-day Cash Management Bill
Term and type of security
· 912794 S6 2
CUSIP number
May 31, 1995
Auction date
June 2, 1995
Issue date
June 15, 1995
Maturity date
December 15, 1994
Original issue date
· $26,823 million
Currently outstanding
$10,000
Minimum bid amount
$1,000
Multiples . . . . . .
$10,000
Minimum to hold amount
$1,000
Multiples to hold
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
.
· 35% of public offering
.
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Daylight
Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Competitive tenders
Payment Terms . .
. .
.
. . Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY ~i;}~~7
.~.......~:. ~~
TREASURY
NEW S
~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
.................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
May 24,1995
TESTIMONY OF W. SCOTT GOULD
DEPUTY ASSISTANT SECRETARY
(DEPARTMENTAL FINANCE AND MANAGEMENT)
DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE COMMITTEE ON GOVERNMENT REFORM & OVERSIGHT
SUBCOMMITTEE ON CML SERVICE
RR-330
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TESTIMONY OF W. SCOTT GOULD
DEPUTY ASSISTANT SECRETARY
(DEPARTMENTAL FINANCE AND MANAGEMENT)
DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE COMl\flTTEE ON GOVERNMENT REFORM: & OVERSIGHT
SUBCOMMITTEE ON CIVIL SERVICE
MAY 24,1995
Mr. Chairman and Members of the Subcommittee:
I am Scott Gould, Deputy Assistant Secretary for Departmental Finance and
Management for the Department of the Treasury. At Treasury, I am
responsible for: budget formulation, procurement, change management
(including National Performance Review initiatives, customer service,
streamlining, and regulatory reform issues) and personnel policy.
I appreciate
the opportunity to appear before you to talk about Treasury's implementation of
the Ramspeck Act.
I would like to address the following issues today:
o The Ramspeck Act -- strengths and weaknesses
o Treasury's overall approach to the use of this special authority
o Treasury's system for managing the hiring process under the Act
1
And, of course, to answer any questions you may have.
The Ramspeck Act
As you know, the Ramspeck Act was enacted in 1940 to provide an opportunity
for displaced Congressional employees to be appointed to competitive service
positions.
Allowing displaced Congressional employees to be considered for positions in
the career service makes sense. The major benefit of Ramspeck is that it has
made it easier for displaced Congressional employees who have valuable
government experience to enter the Executive branch. These employees bring
with them programmatic expertise developed over years of dealing with
legislative, budget, and policy
issues~
as well as knowledge of the legislative
process.
Ramspeck's major drawback is that it may bypass the competitive process and
could be subject to abuse.
2
Treasury's Overall Approach to the Use of this Special Authority
Treasury's guiding principle when it comes to hiring for career positions is that
they be filled on the basis of merit, based on consideration of the broadest
possible range of candidates.
We want the best people for the job ... doing the
job at Treasury.
Managing the Hiring Process Under the Ramspeck Act
The Office of Personnel Management does not routinely monitor Ramspeck
appointments, but investigates when abuses are alleged. I understand that a
current GAO review of over 100 recent appointments has not revealed any
violations of law. And, as far back as our records show, there have not been
any violations within Treasury, and we have taken positive action to ensure that
there will be no violations in the future.
We have formal guidelines in place regarding appointments of displaced
Congressional employees. To get the largest pool of applicants, and thus
increase the likelihood of qualified candidates for job vacancies, we advise our
managers to announce all jobs through vacancy announcements or other forms
of advertisement under which competitive applicants, Ramspeck-eligible, and
other noncompetitive applicants are considered.
3
Our Ramspeck hiring guidance of November 1994 establishes a temporary
review process to ensure we live up to our principle and that we are able to
answer any questions concerning our hiring decisions. Before a displaced
Congressional employee is hired, a review panel examines documentation
associated with the appointment to ensure compliance with hiring requirements
for Ramspeck eligibles.
This documentation includes the following:
o the application package of the individual seeking appointment
o application packages of other highly ranked individuals considered for
the appointment
o documentation of recruitment efforts to fill the position
o a copy of the vacancy announcement for the job
o benchmark rating criteria for use in candidate selection
o a copy of the position description
o certification that the position to be filled was neither scheduled for
abolishment under the Federal Workforce Restructuring Act of 1994
nor created for the purpose of hiring the selectee
4
The November 1994 policy establishing the review panel and process will
remain in effect until August 1, 1995, at which time we will decide whether to
continue these additional requirements.
Treasury complies with myriad personnel laws, rules, and regulations.
Particular attention has been paid to complying with the criteria set forth in the
Ramspeck Act.
The process that I have just described resulted in the following hiring
decisions.
Between November 1, 1994, and April 30, 1995, a total of 20
displaced Congressional employees were hired by Treasury. Of the 20, 14
were hired using the Ramspeck authority. Of these, 8 positions (57 %)
involved general management responsibilities. As a point of reference, there
are 160,000 FfEs at Treasury.
Summary
In summary, we chose to use our existing hiring system with an extra layer of
review and reporting to ensure that the Department benefitted from the
availability of former Congressional employees with relevant government,
budgetary and programmatic experience, and that we abided by the principles of
5
the merit system. The existing Ramspeck authority serves as one of many tools
Treasury uses to bring highly qualified candidates onboard. It has proven to be
a valuable tool. Without this authority, we might loose the opportunity to
immediately hire displaced Congressional employees possessing the required
skills for existing vacancies.
Thank you. I would be happy to answer any questions you may have.
6
DEPARTMENT
OF
THE
TREASURY (.~····~.~l
J 'Ifl ~
le
•
TREASURY
NEW S
_~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 24, 1995
Contact: Rebecca Lowenthal
(202) 622-2960
RUBIN ANNOUNCES LEGISLATIVE AFFAIRS ASSISTANT SECRETARY NOMINEE
Treasury Secretary Robert E. Rubin announced Wednesday that President Clinton has
nominated Linda L. Robertson to be Treasury Assistant Secretary for Legislative Affairs.
Ms. Robertson has been serving as Deputy Assistant Secretary for Legislative Affairs
(Tax and Budget) since January 1993. She has been responsible for the Department's
legislative activities relating to tax and budget issues and serves as liaison to the Office of
Management and Budget and congressional budget and tax-writing committees. Prior to
joining Treasury, she was a partner with the law firm of Powell, Goldstein, Frazer and
Murphy in Washington, D.C., where she specialized in energy, policy and tax legislation.
From 1976 through 1987, she was Staff Counsel then Tax Counsel to Representative James
Jones, handling all tax legislation before the Committee on Ways and Means. Ms. Robertson
is a member of the American Bar Association (Taxation Section).
She received a B.S. with honors from the University of Southern Illinois in 1976, a
J.D. from the University of Tulsa in 1979, and Master of Laws in Taxation from the
University of Georgetown Law Center in 1986. She was admitted to the Oklahoma Bar in
1980 and the D.C. Bar in 1987.
-30-
RR-331
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
LlBRt~P,( HOOH 531'(J
JUM
FOR IMMEDIATE RELEASE
May 30,1995
n4 \ 0
5ccJJ 0 0CONTACT:
Office of Financing
202-219-3350
TREASuR¥pJSO~~~l~~S~;Y13-WEEK
RESULTS OF
BILLS
Tenders for $14,251 million of 13-week bills to be issued
June 1, 1995 and to mature August 31, 1995 were
accepted today (CUSIP: 912794U69).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.62%
5.65%
5.64%
Investment
Rate
5.80%
5.83%
5.82%
Price
98.579
98.572
98.574
Tenders at the high discount rate were allotted 34%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$46,398,632
Acce:gted
$14,250,702
$41,107,477
1,345,324
$42,452,801
$8,959,547
1,345,324
$10,304,871
3,445,180
3,445,180
500,651
$46,398,632
500,651
$14,250,702
An additional $73,649 thousand of bills will be
issued to foreign official institutions for new cash.
·5.63 - 98.577
RR-332
UBLIG\BHllEB~
j
NEWS
Department of the Treasury • Bureau of the P~~ic\~bt • Washington. DC 20239
.\U\\
S~S GU
'~S~~~TACT:
FOR IMMEDIATE RELEASE
May 30, 1995
D'i:P1.
f1HE1RE
0
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,372 million of 26-week bills to be issued
June 1, 1995 and to mature November 30, 1995 were
accepted today (CUSIP: 912794V84).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.58%
5.61%
5.61%
Investment
Rate
5.84%
5.87%
5.87%
Price
97.179
97.164
97.164
Tenders at the high discount rate were allotted 30%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$51,050,103
Accepted
$14,371,624
$43,191,139
1, 173,415
$44,364,554
$6,512,660
1, 173,415
$7,686,075
3,450,000
3,450,000
3,235,549
$51,050,103
3,235,549
$14,371,624
An additional $475,351 thousand of bills will be
issued to foreign official institutions for new cash.
5.59 -- 97.174
RR-333
5.60 -- 97.169
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
~8~9. . . . . . . . . . . . . . . ..
................
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 2:30 P.M.
May 30, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,400 million, to be issued June 8,
1995. This offering will provide about $1,175 million of new
cash for the Treasury, as the maturing bills are outstanding in
the amount of $27,219 million.
Federal Reserve Banks hold $6,737 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,629 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-334
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 8, 1995
May 30, 1995
Offering Amount .
.
.
.
.
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples . . . . . .
$14,200 million
$14,200 million
91-day bill
912794 U7 7
June 5, 1995
June 8, 1995
September 7, 1995
March 9, 1995
$'13,140 million
$10,000
$ 1,000
182-day bill
912794 V9 2
June 5, 1995
June 8, 1995
December 7, 1995
June 8, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
~3)
Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
.
.
.
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
35% of public offering
.
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
EWS
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.• 20220. (202) 622-2960
:t
FOR IMMEDIATE RELEASE
May 31, 1995
STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
"We acted in the exchange markets this morning consistent with the exchange rate
objectives expressed in the April 25 G-7 Communique.
"We are prepared to continue to cooperate in exchange markets as appropriate."
-30-
RR-335
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TREAS
omCE OF PUBUC AFFAIRS. 1500
FOR IMMEDIATE RELEASE
May 31, 1995
NEWS
ANIAAVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
TREASURY SENDS MEXICO REPORT TO CONGRESS
The Treasury Department reported to Congress today that Mexico is making important
progress toward strengthening its economy and continues to perform satisfactorily with U.S.
support.
"Considerable progress has been made in the Mexican economy," Secretary Rubin
said. "Broad-based reforms have been undertaken to get the economy back on course,
including strict control over money and credit, reduced government spending and significant
reduction in short-term, dollar-indexed debt. "
"However, the process of stabilization will take time and the control of inflation and
of potential problems in the banking sector is particularly important," Secretary Rubin said.
Treasury reaffirmed that an additional $10 billion would be available if necessary in
stages after July 1 based on Mexico's continuing to fulfill its commitments under the
February 21 agreements.
President Clinton, with the support of the bipartisan Congressional leadership,
authorized the use of the Exchange Stabilization Fund (ESF) in order to protect American
jobs, exports, security and borders threatened by Mexico's financial crisis.
This is the first monthly report to Congress regarding the U.S. Government's financial
assistance program as required by Section 404 of the Mexican Debt Disclosure Act of 1995.
It provides an account of the current condition of the Mexican economy, all outstanding
disbursements of U.S. funds to Mexico, financial transactions involving funds from the ESF
and from the Federal Reserve System, the status of the oil facility and compensation for
credit risk to the U.S. Government. Treasury will also provide semi-annual reports to
Congress beginning June 30.
The reports will be submitted to the House Committees on International Relations and
Banking and Financial Services; the Senate Committees on Foreign Relations and Banking,
Housing and Urban Affairs; and the Committees on Appropriations of both the House and the
Senate.
-30RR-336
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TREASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA A~~1,J,r ~rr'f.::~·J\iXsHINGTON, D.C. • 20220 • (202) 622·2960
r,' _, \ (,;
I)
I~_
I
••
-
.
FOR IMMEDIATE RELEASE
May 31, 1995
MEDIA ADVISORY
Treasury Secretary Robert E. Rubin will visit three neighborhoods in the South
Bronx, N.Y. this Friday, June 2, 1995. All locations are in the Bronx unless otherwise
noted. This schedule is for planning purposes only and is not for publication. Times are
tentative and subject to change.
8 a.m.
Press bus departs Local Initiatives Support Corporation (LISC),
733 Third Avenue, Manhattan.
8:30 a.m.
Cameras should be in place at the MBD Family Practice Clinic, 1690
Bryant Avenue (between 173rd and 174th Streets).
9:25 a.m.
Depart for walking tour of Bryant Street neighborhood.
9:50 a.m.
Walking tour of Charlotte Gardens, Charlotte Street at Boston Road.
10: 15 a.m.
Walking tour of Longwood Avenue business district, Longwood
A venue at Fox Street.
10:45 a. m.
Roundtable discussion with local political leaders and business owners,
866 Beck Street (at the corner of Beck and Intervall Streets).
All of the tour stops are open to the press. Media wishing to ride the press bus
should contact Jon Murchinson or Mike Patterson at the phone numbers below by 3 p.m. on
Thursday, June 1.
Contacts:
Jon Murchinson, Treasury, (202) 622-2014
Mike Patterson, LISC, (212) 455-9849
-30-
RR-337
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
UBLIC
Department of the Treasury •
DEB~
Bureau
o~iH},
~K
FOR IMMEDIATE RELEASE
May 3 1 , 1 9 9 5
NEWS
u he Debt • Washington, DC 20239
5~) \\ UQ4 L3
CONTACT: Office of Financing
2 0 2 - 2 19 - 3 3 5 0
- THE iREJ,SU;<'\'
RESULTS OF TREASURYI~(~~~~ION OF 13-DAY BILLS
Tenders for $17,126 million of 13-day bills to be issued
June 2, 1995 and to mature June 15/ 1995 were
accepted today (CeSIP: 912794S62).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.83%
5.86%
5.85%
Investment
Rate
5.95%
5.98%
5.95%
Price
99.789
99.788
99.789
Tenders at the high discount rate were allotted 45%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.84--99.789
RR-338
Received
$57,101,000
Accepted
$17,126,000
$57,100,000
1,000
$57/101,000
$17/125,000
1,000
$17,126,000
o
o
o
o
$57,101,000
$17,126,000
)epartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
JUM
FOR IMMEDIATE RELEASE
May 31, 1995
535 0 0 0 4 2 {)
Contact: Peter Hollenbach
DEPT. OF THE TREASU~02) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODING IN ILLINOIS
The Bureau of Public Debt took action to assist victims of the flooding that struck Illinois
by expediting the replacement or payment of United States Savings Bonds for owners in the
affected areas. The emergency procedures are effective immediately for paying agents and
owners in those areas of Illinois hit by floods. These procedures are effective immediately
and will remain in effect through July 31, 1995.
Public Debt's action waives the normal six-month minimum holding period for Series EE
savings bonds presented to authorized paying agents for redemption by residents of the
affected area. Most financial institutions serve as paying agents for savings bonds.
The counties of Illinois included in the initial declaration are Madison and St. Clair. Should
additional jurisdictions be declared disaster areas the emergency procedures for savings
bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond
owners should complete form PD-I048, available at most financial institutions or the
Federal Reserve Bank. Bond owners should include as much information as possible about
the lost bonds on the form. This information should include how the bonds were inscribed,
social security number, approximate dates of issue, bond denominations and serial numbers
if available. The completed form must be certified by a notary public or an officer of a
financial institution. Completed forms should be forvvarded to Public Debt's Savings Bonds
Operations Office located at 200 Third St., Parkersburg, West Virginia 26106-1328. Bond
owners should write the word "Floods" on the front of their envelopes to help expedite the
processing of claims.
000
PA-184
(RR-339)
0
<0
m
0
N
(\J
(\J
(\J
S
31, 1995
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of April 1995.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $95.4 billion on April 30, 1995,
posting a decrease of $2,892.5 million from the level on
March 31, 1995. This net change was the result of a decrease in
holdings of agency debt of $1,898.2 million, in holdings of
agency assets of $995.4 million, and an increase in holdings of
agency-guaranteed loans of $1.1 million.
FFB made 16
disbursements during the month of April, and executed one
repricing of an REA-guaranteed loan.
FFB also received 92
prepayments in April.
Attached to this release are tables presenting FFB April
loan activity and FFB holdings as of April 30, 1995.
RR-340
<0
c\J
0
(\J
(j)
(j)
~
a..
Lf)
'7
N
N
<0
N
0
N
ill
LL
LL
Paqe 2 of
FEDERAL FINANCING BANK
APRIL 1995 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 26 /Advance #1
4/3
$19,756,138,435.39
7/3/95
6.013% S/A
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Oakland Office Buildinq
Foley Services Contract
HCFA Headquarters
Foley Square Courthouse
HCFA Services
Memphis IRS Service Cent.
Atlanta CDC Office Bldq.
Chamblee Office Building
Miami Law Enforcement
4/4
4/12
4/12
4/18
4/20
4/20
4/26
4/28
4/28
$468,825.04
$182,724.61
$721.65
$1,917,588.00
$83,184.00
$3,807,493.89
$2,844,825.66
$661.50
$661.50
9/5/23
12/11/95
6/30/95
12/11/95
6/30/95
1/2/96
9/1/95
4/1/97
1/3/22
7.515%
6.287%
5.963%
6.191%
5.921%
6.203%
6.047%
6.673%
7.434%
4/18
$9,910,038.83
11/2/26
7.507% S/A
4/4
4/6
4/17
4/20
4/26
4/28
$1,144,000.00
$130,000.00
$2,193,000.00
$2,835,000.00
$217,000.00
$1,421,954.92
1/2/96
12/31/12
12/31/19
12/31/14
1/3/28
1/3/17
6.406%
7.241%
7.350%
7.287%
7.370%
7.311%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
GSA/PADC
ICTC Building
RURAL UTILITIES SERVICE
Farmers Telephone #399
Lewis River Tele. #378
South Texas Electric #322
Central Iowa Power #385
Amelia Telephone #394
@M & A Electric #111
S/A is a semi-annual rate:
@ interest rate buydown
Qtr. is a Quarterly rate.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust Corporation
Tennessee Valley Authority
U.S. Postal Service
sub-total*
April 30, 1995
$
0,0
3,149.8
17,858.0
3,200.0
7,873.1
32,080.9
March 31, 1995
$
0.0
3,149.8
19,756.1
3,200.0
7,873.1
33,979.1
Net Change
4/1/95-4/30/95
$
0.0
0.0
-1,898.2
0.0
0.0
-1,898.2
FY '95 Net Change
10/1/94-4/30/95
$
-664.7
-776.6
-8,661.2
-200.0
-1, 100.0
-11,402.4
Agency Assets:
FmHA-ACIF
FmHA-ROIF
FmHA-RHIF
OHHS-Health Maintenance Org.
OHHS-Medical Facilities
Rural utilities Service-CBO
Small Business Administration
sub-total*
4,463.0·
3,675.0
23,631.0
10.5
28.5
4,598.9
0.7
36,407.7
5,453.0
3,675.0
23,631.0
10.5
33.8
4,598.9
0.8
37,403.1
-990.0
0.0
0.0
0.0
-5.3
0.0
-0.1
-995.4
-1,600.0
0.0
-760.0
-14.8
-7.2
0.0
-0.3
-2,382.4
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DHUD-Community neve Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities service
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
sub-total*
3,629.1
95.9
1,688.5
2,208.5
21.2
1,432.1
17,299.2
19.1
480.4
11.4
26,885.4
3,635.4
95.9
1,688.5
2,189.3
21.2
1,432.1
17,292.7
21.6
496.2
11. 4
26,884.3
-6,3
0.0
0.0
19.2
0.0
0.0
6.5
-2.5
-15.8
0.0
1.1
-156.3
-14.0
-58.0
179.0
-0.7
-47.4
-17.4
-37.6
-42.6
-3.2
-198.4
grand-total*
*figures may not total due to rounding
"+does not include capitalized interest
=========
=========
$ 95,374.0
$ 98,266.4
========
=========
$-2,892.5
$-13,983.2
MouimvlReport
0 (LJ·
'"",bytyte
Secretary of the Treasury
JJ
U
r-
Pursuant to the
Mexican Debt Disclosure Act of 1995
May 31,1995
Table of Contents
Page
1.
Overview
II.
Current Condition of the Mexican Economy
-
III.
Reserve Position of the Bank of Mexico
5
IV.
Disbursements/Outstanding Guarantees and Swaps
and Compensation to the US Treasury
6
V.
Mexico's Financial Transactions
8
VI.
Status of the Oil Facility
8
'1
Appendix
Tab A: Key Trends in Mexico's Economy
a.
b.
c.
d.
e.
Mexico's Trade Balance
Consumer Prices and Retail Sales
Unemployment and Industrial Production
Economic Output (GDP)
Mexico's Real Monetary Base and International Reserves
Tab B: Key Trends in Financial Markets
a.
b.
c.
d.
e.
Peso-Dollar Spot Exchange Rate
Mexico's Stock Market: Peso and Dollar Indices
Rates for Benchmark Cetes
Mexican Par Brady Bonds, Stripped Yields and Spreads
Outstanding Tesobono Balance and Weekly Amortizations
I.
Overview
On January 31, 1995, after consulting with both congressional leadership and the Federal
Reserve Board, President Clinton announced that the United States would provide an
emergency support package to Mexico through the Exchange Stabilization Fund (ESF).
This decision was made to prevent the liquidity crisis facing Mexico from escalating into a
prolonged and severe economic downturn, which would put at risk important U. S. interests -some 700,000 export-related jobs and a secure U.S.-Mexico border -- and jeopardize the
position of other emerging markets.
At the President's instructions, the Secretary of the Treasury entered into four agreements with
Mexican authorities on February 21, 1995 ("the Agreements"), \vhich provide for up to $20
billion conditioned on strict economic, financial, and reporting requirements. To date, the
U.S. has disbursed $11 billion to Mexico, with a total of $10 billion outstanding under shortterm and medium-term swap agreements.
Mexico is currently meeting its commitments under the Agreements. Mexico has undertaken
broad-based reforms to set its economy back on course, including strict control over money
and credit, reduced government spending, and reduction in its short-terlll, dollar-indexed debt.
The economy's external position has improved substantially, due to strong export performance
and restrained imports. Moreover, prospects for further privatization and private investment
in Mexico's infrastructure have improved, as the Government of Mexico has advanced the
necessary regulatory and legislative reforms. Although it is still too early to make definitive
judgements, recent indicators suggest that financial markets are beginning to respond with
more confidence in Mexico's economic outlook.
While these positive developments confirm that progress has been made, the corner has yet to
be turned in some important respects. For example, the condition of Mexico's banking sector,
weak going into the crisis, continues to deteriorate, as exhibited by the increasing proportion
of overdue loans in the banking system. Moreover, unemployment continues to rise, while
high inflation is eroding real incomes. Thus, significant challenges remain. We continue to
work closely with the Mexican authorities to monitor Mexico's performance and compliance
with U.S.-Mexico Framework Agreements.
U.S. and IMF financial support has allowed Mexico to cut drastically its short-term,
dollar-indexed tesobonos to $11.5 billion, down from $29.2 billion at the beginning of this
year. As a consequence, the risk of a sovereign default, with its devastating impact on the
Mexican economy, seems to have abated in the eyes of financial market participants.
Mexico's obi igations under the four agreements are backed by the full faIth and credit of the
Mexican Government, and the interest rates on swaps are sufficient to cover the risks that the
United States is likely to bear. In the unlikely event that Mexico fails to meet its obligations,
the U.S. Government has the right to set off Mexico's obligations against the proceeds from its
crude oiL petrochemical and refined product exports, which tlow through a special account at
the Federal Reserve Bank of New York. The oil proceeds mechanism has been functioning
II.
Current Condition of the Mexican Economy
Monetary and Fiscal Policy
The success of the Government of Mexico's economic adjustment program relies on its
adherence to disciplined monetary and fiscal policies. The Bank of Mexico is holding to its
commitment to maintain tight monetary policy. with the monetary base decreasing
substantially by several measures.
•
Between December 31. 1994 and May 9. 1995. the nom mal monetary base
dropped 16 percent, declining by nearly 32 percent 10 real terms through
April 28.
•
Some of this decline is seasonal but, comparing the year-over-year change to
eliminate these effects, restraint on money growth is stIll evident.
•
The nominaL monetary base ll1creased 13 percent between April 1994 and April
1995, a 17 percent real decline: this contrasts with a nommal increase of 21
percent between December 1993 and December 1994. a 13 percent real
Increase.
The Government of Mexico has adopted a number of measures to tighten fiscal policy.
Budgetary results for the first quarter exceeded the government's targets and reflect an
improvement in the fiscal position despite the weakening economy and a higher interest
burden on the public sector debt.
•
The primary balance (which excludes interest payments) carried a surplus of
NP25.8 billion compared to NPl1.4 billion in the same period a year ago.
Despite substantially higher interest payments, the overall economic balance
was also in surplus by NP9.0 billion, compared to NP4.3 billion in the same
period last year.
•
The government increased the VAT from 10 percent to 15 percent on April 1.
boosted gasoline and diesel fuel prices 35 percent, and raIsed electricity rates
20 percent after March 9, 1995.
•
In the first quarter. non-interest expenditures dropped 12.3 percent in real
terms, while revenues increased 2.7 percent in real terms.
Economic Adjustment
Mexico faces a difficult year of adjustment, but the economy is already exhibiting signs that
the program is working. The economy's external position has improved substantially, due to
strong export performance and restrained imports.
2
•
Mexico ran a trade surplus of S165 million in the first quarter of 1995,
compared to a deficit of $4.3 billion during the same period a year ago. The
$460 million trade surplus in March was Mexico's second consecutive monthly
surplus.
•
As a consequence of this year;s sharp policy adjustments, Mexico's imports
have declined. The rate of decline has tapered recently, however, with a
year-over-year decline of 2 percent in March compared to 7 percent in
February and increases of 12.2 percent in January and 18 percent in December.
•
At the same time, Mexico's exports are growing strongly. mcreasing 32 percent
in March from a year earlier, compared to year-O\'er-year Increases of 29
percent in February, 39.3 percent in January, and 13 percent in December.
Mexico's strong export performance allowed for first quarter declines In GOP and industrial
production that were lower than expected.
•
Real GDP fell 0.6 percent in the first quarter of 199:5 compared to the same
period a year ago. Woile this represents a sharp declme from a growth rate of
3.5 percent in 1994, this decline was more modest than officially projected,
reflecting buoyant export performance partially offsetting weaker domestic
demand.
•
StilL GOP is expected to decline further this year, before economic growth
resumes.
•
Also due to this strong export growth, the decline in industrial production has
been modest with a 1.1 % decline in February from a year earlier compared to
year-over-year increases of 3.8% in January and 0.1 % in December.
The adjustment has triggered a decline in domestic demand and weakened labor markets.
•
Retail sales dropped 20 percent on a year-over-year basis in March
and 23 percent in February, following a decline of or.ly 3 percent
in January.
•
The official unemployment rate, which covers only urban workers in the formal
sector, rose to 5.7 percent in March compared to 3.2 percent at the end of
1994.
•
Real wages in the manufacturing sector. among the strongest in the economy,
declined in February by 0.2 percent from a year ago after increases near 5.5
percent in both January and December over a year earlier.
3
Inflation, which is expected to decline in coming months, has risen in the first four months of
this year, as the lagged effect of the peso's devaluation, the increase in public sector prices,
and the value added tax (VAT) take hold.
•
The 8-percent increase in conSlUller prices in April was largely fueled by the
50-percent increase in the VAT on April 1; it was the largest monthly increase
of the year.
•
However. most analysts expect inflation to drop sharply III the next several
months as the effects of the peso depreciatlOn and the \. A. T increase work
through the economy and market demand for goods. seryices and labor remains
weak.
During late April, Mexico took several steps to meet its commitment
reforms.
to
accelerate structural
•
The Government of Mexico (GOM) submitted, and the Senate passed, a bill to
open long- distance telecommunications services to pm·3te and foreign firms.
To maximize competition and to improve Mexico's telecommunications
infrastructure, the GOM decided not to charge private firms a fee to enter the
market.
•
The GOM also submitted a bilL which the Chamber of Deputies passed, to
amend Its Constitution to allow private companies to budd and operate natural
gas pipelines and distribution networks. This will help facilitate the
privatization of electricity and petrochemical plants, whlch use natural gas.
•
In addition, the Mexican Congress passed constitutional changes allowing
private and foreign investment in railroads and satellite transmissions.
Financial Market Trends
Although it is still too early to make definitive judgements, recent indicators suggest that
financial markets are responding with more confidence in the adjustment program and in
Mexico's economic outlook.
•
F or example, the peso has stabilized, trading near NP6.0 per U.s. dollar in
recent weeks, following a steady appreciation from its low of NP7.55 per u.s.
dollar in March.
•
As of May 22, Mexico's stock market was up 44.45 percent in peso terms, and
45 percent in dollar terms, since its low on February 27, 1995.
4
•
Mexico's benchmark 28-day Treasury bill (cete) rate dipped from 82.65 percent
at the end of March to 76.50 percent in the last weekly auction in April. It fell
further to 48 percent at the end of May.
•
Reduced fear of default on sovereign debt has been an important factor in this
turnaround, as indicated by the decline in interest rates on dollar-linked
tesobonos, which have dipped to about 13-14 percent from highs above 30
percent.
•
In addition, as of May 22, the market price of Brady bonds. \',:ith the C.S.
backing stripped out, has risen by roughly 62.48 percent since mid-March.
Banking Sector
The condition of Mexico's banking sector remains weak. As one mdlcatlOn, the percentage of
overdue loans throughout the system increased from 7.4 percent in December. 1994, to 13.5
percent as of March 31. 1995.
The Mexican government has undertaken a number of initiatives
sector. induding:
to
support the banking
•
Creating a program that allows banks to restructure appro:'(lmately 25 percent
of loans outstanding in the banking system through milatlOn-indexed
instruments (UOIs), a measure that will ease liquidity pressures on banks'
credit-worthy customers.
•
Establishing the Temporary Capitalization Program (PROCAPTE), which
enables banks to meet regulatory capital requirements through the issuance of
convertible debentures to the deposit protection fund (fOBAPROA); and
•
Working to secure World Bank and Inter-American Development Bank loans
totalling $2.25 billion to help finance the restructuring of troubled banks and to
strengthen bank supervision.
This month, however. banks have reduced their reliance on dollar liqUIdity loans from
FOBAPROA and have reduced their outstanding balances by 30 percent since the first week
of April.
III.
Reserve Position of the Bank of Mexico
As of May 12, 1995, Mexico's international reserves totalled $8.3 billion, as defined in the
Law of the Bank of Mexico. Reserves have risen $2.2 billion since the end of 1994.
5
IV.
Disbursements and Outstanding Swaps and Guarantees
and Compensation to the U.S. Treasury
As of May 23, 1995, $11 billion in US. funds have been disbursed to Mexico under the
support program, of which a total of $10 billion remains outstanding under swaps. To date.
the United States has not extended any guarantees to Mexico under this program.
Under the swap agreements, Mexico purchases dollars and credits a corresponding amount of
pesos to the C.S. account at the Bank of Mexico. On the maturity date, Mexico repurchases
the pesos and pays back the dollars. Both the short-term and medIUm-term swap facilities
require Mexico to maintain the dollar value of peso credits to the Umted States, adjusting the
amount of pesos on a quarterly basis, in accordance with changes m the dollar-peso exchange
rate.
As provlded for in the agreements, the Government of Mexico must pay the Treasury interest
on the swap balances outstanding. The interest charges applied to short term swaps are
designed to cover the cost of funds to the Treasury. and thus are set at the inception of each
transaction at the current Treasury Bill rate.
The interest charges applied to the medium-term swaps are designed to cover the cost of
funds to the Treasury plus a premium for the credit risk associated \\'ah the extension of such
funds, as assessed at the time of each disbursement. Paragraph 6( d) of the Medium-Term
Exchange Stabilization Agreement provides that interest rates on swaps with Mexico are
"intended to be at least sufficient to cover the current U.S. Government credit risk cost for
Mexico." For each disbursement, the premium is the greater of 1) a rate determined by the
U.S. Government's inter-agency country risk assessment system (lCRA.S) as adequate
compensation for sovereign risk of countries such as Mexico, or 2) a rate based on the
amount of U.S. funds outstanding to Mexico from short-term swaps. medium-term swaps, and
loan guarantees at the time of disbursement.
Mexico has not missed an interest or repayment date under either the short-term or mediumterm swaps. The schedule of swaps outstanding under both ESF and Federal Reserve swap
lines is as follows:
As of May 23, 1995, 59.5 billion has been disbursed through the ESF, of which $9 billion
remains outstanding.
Short-term swaps:
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps
through the ESF. Mexico repaid these drawings on
March 14,1995.
•
On February 2, 1995, the C.S. disbursed $1 billion under
a short-term s\\'ap through the ESF; Mexico renewed this
6
swap for an additional 90-day period on May 3, 1995.
The current interest rate is 5.75%
Medium-term swaps:
•
Mexico drew $3 billion under a medium-term swap on
March 14,1995, $1 billion of which was used to pay
back an existing short-term swap. The current interest
rate is 8.1 %. Repayment to be made in seven
installments as follows: six equal installments of $375
million each, payable on June 30, 1998 and each
successive calendar quarter date to and including
September 30, 1999; and one installment of $750
million, payable on December 31, 1999.
•
On April 19, 1995, Mexico made a second $3 billion
drawing through a medlum-tenn swap. The current
interest rate is 10.34%. Repayment to be made in twelve
installments as follows: eleven equal installments of $245
million each, payable on June 30, 1997 and each
successive calendar quarter date to and including
December 31, 1999; and one Installment of $305 million,
payable on March 31, 2000.
•
Most recently, Mexico drew S2 billion under a mediumterm swap on May 19, 1995. The current interest rate is
10.34%. Repayment to be made in twelve installments as
follows: eleven equal installments of $170 million each,
payable on June 30, 1997 and each successive calendar
quarter date to and including December 31, 1999; and
one installment of S130 million, payable on March 31,
2000.
Federal Reserve
Disbursements to Mexico through the Federal Reserve System total S1.5 billion as of
May 23, 1995, with $1 billion outstanding. All Federal Reserve disbursements are in the
form of short-term swaps.
Short-term swaps:
•
On January 11 and January 13, 1995, Mexico made two
short-term swap drawings of $250 million each through
the Federal Reserve. Mexico repaid these drawings on
March 14, 1995.
7
A short-term swap of $1 billion was extended on
February 2. 1995; Mexico renewed the swap for an
additional 90-day period on May 3, 1995.
v.
Mexico's Financial Transactions
With U.S. and IMF financial support, Mexico has dramatically reduced the amount of
outstanding tesobonos, or short-term. dollar-linked government debt. since the onset of its
liquidity crisis in December. Since the beginning of the year. the amount of tesobonos
outstanding in public hands has declined from S29.2 billion to S 11.5 billIOn at the end of
May, 1995.
Effective upon the signing of the agreements on February 21, 1995. pnor to each
disbursement, Mexico must provide Treasury with information on the Intended use of U.S.
funds, and Treasury must verify that such uses are consistent with :"1exico's Financial Plan.
To date, Mexico has requested and Treasury has authorized the use of funds to redeem
tesobonos and other short-term debt. As of May 23, 1995, Mexico has used $6.3 billion in
U.S. funds to redeem tesobonos and S3.7 billion to accumulate reserYes for future
redemptions of tesobonos and other short-term obligations.
VI.
Status of the Oil Facility
Payments to the Federal Reserve Bank of ;-..Jew York
Since taking effect on March 8, the payment mechanism, established under the Oil Proceeds
Facility Agreement has been functioning smoothly. As of May 15.1995, over $1.5 billion
has flowed through Mexico's special funds account at the Federal Reserve Bank of New York.
Approximately $25-30 million flows through the account each day. To date, there have been
no set offs against the proceeds from Mexico's crude oil, petrochemIcaL and refined product
exports.
8
Appendix
Tab A: Key Trends in Mexico's Economy
Strong Export Growth,
While Imports Fall Back ...
Exports and Imports
Change from a year earlier
Percent
50%
Imports Exports
......, ,
...
40%
30%
20%
'0"
.... -
. . . -. -•
10%
0%
-10%
1/94
3/94
5/94
7/94
9/94
11/94
1195
3/95
... Bringing Mexico's Balance
of Trade into Surplus
Trade Balance
US$ Millions
1,000 , - - - - - - - - - - - - - - - - - - - - - - - - - - - ,
500
o
(500)
(1,000)
(1,500)
(2,000) L--1/~94---3/~94-~-5/-94-~-7/~94-~-9/~94---11~/9-4--1/-95-~-3/--'---95--'
Consumer Prices Rising ...
Consumer Price Index
Change from a year earlier
Percent
35% , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ,
30%
VAT increased April 1
25%
~
20%
15%
--
10%
5%
L -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
1/94
3/94
7194
5/94
9/94
11194
~
__
~
3/95
195
... Volume of Retail Sales Falling
Retail Sales
Change in volume from a year earlier
Percent
20%
r------------------------------------------------------------.
10%
0%
-10%
-20%
-30% L-_ _ _ _ _ _ _---'-_ _ _ _ _ _ _ _ _ _ _---'---_ _ _ _ _ _ _ _ _ _ _ _ _ _ _-----'--_ _ _--'-------l
1194
3/94
5/94
7194
9/94
11194
1/95
3/95
Unemployment Rises
as Production Slows
Official Unemployment Rate
Year-aver-year change
Percent
7 ,-------------------------------------------------------,
6
5
4
3
2
1
o
Jan 94 Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Industrial Production
Year-over-year change
Percent
12 ,------------------------------------------------------,
10
8
6
4
2
o
(2)
(4)
L -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Jan 94 Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
~
____
Dec Jan 95 Feb
~
GOP Falls After Strong Growth in 1994
Percent
6% --------------------------------------------------~
I'
•
% Change from a year earlier
50/0
40/0
30/0
20/0
10/0
0%
-10/0
-2%
I
9301
9302
9303
9304
9401
9402
9403
9404
9501
Mexico's Real Monetary
Base is Shrinking ...
Percent Change in Real Money
-
~%~----------------------------------~
Change from a )€3r earlier Change from a rronth earlier
20%
10%
0%
-20% L - -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
01/94
02194
03/94
04194
05/94
00/94
07!CJ4
IlEl/CJ4
CJ9f94
10/94
11194
'i,,1)1!95
----'--~
02195
_ _____.J
03/95
04/95
While Reserves are
Well Above January Lows
I
••
US$ Billions
35
.-----------~--------------------------,
I•
lnternaDorai Reser ves
I
30
25
20
15
10
5
o
Jan 94
Feb 94
Mar 94
~r 94
Mly 94
Jm 94
Jul94
Aug 94
Sep 94
Oct 94
r,o,94
Dec 94
Jan 95
Feb 95
Mar 95
~r 95
Tab B: Kev Trends in Financial IVlarkets
~.
Peso-Dollar Exchange Rate
Trading Since December 1, 1994
NPJUS$
Trading from March 1, 1995 through May 22, 1995
NP/US$
8
.---------------------------------------------------------------------~_.
~ Mexico Releases
7.5
Economic Plan
Medium-Term
Disbursement
-
VAT increase
7
"""4t-------
Medium-Term
Disbursement
6.5
_
Medium-Term
Disbursement
6
5.5
3/1
3/6
3/9
3/14 3/17 3/23 3/28 3/31
4/5
4/10 4/13 4/18 4/21 4/26
5/1
5/4
5/9
5/12 5/17 5/22
Mexican Stock Market:
Peso and Dollar Indices
1212194 = 100
120
~I--
Peso Index Dollar Index
.......
100
80
••
••
••
••
•••
••
·
"
•
I "
•
60
•
•
•
I
I
.
I
,
,
•" I " tIP-
.• . .,
._"
'.,
'~,#
•
...... ,
.'..... ,... ,.. '..
,
,
"
,.
40
,•
'.
•
I
,.
-.
....
,
I
_..
~"
,
fOIo..
1-.- ,
,
....
,
-" , ... -
' ... , . . . . . . . . . . .
.
,.
'.
,
' .. , , .. ,.'
"I
20 12/5
12/19
112
1/16
1/30
2/13
2/27
3/13
3/28
4/11
4/25
5/9
5/23
Overnight Treasury Bill (Cetes) and
Bank Paper Rates
Interest Rate
r
100% l - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -____
90%
,....
.. ....
.., . '
.. .' ..' ....
, ,
~
. ,....
I
80%
,
'
,
•
,
".
, ••••' "
..
'. ,
70%
....... , ,
.. . ,
,
60%
50%
Cetes
Bank
...... .,.
40%
~I----------~----~~--------------------------------------------~
3/10/95
3/22
3/31
4/11
4/20
5/1
5/10
5/19
c:::
co
o
.><
Q)
~
C/)
Q)
..Q
()
....
ro
Q)
.2
~
0..
t-
<C/I>
LQI>
<L/I>
LL/p
S/I>
0['/['
I>c/['
<L/['
['L/['
</['
L/['
L/C
9c/ L
OC/L
9L/L
OL/L
P/L
S6'/
6'QCL
['QCL
CL
6'L/
['L/
CL
<0/2L
~
o~--~----------------------~
1>6'/L
::>
~ 55 :3 ~ ~ ~ /CL
c.
I
I
(
\
I
I
•
I
\
#
,,•
, ,•
J
I
\
I
••
•
•
•
..•
•
,",
••
•"
,••
I
•
••
•
••,
••
"
..
,",
"•
••
"•,
,
. ,... ..
,••
-..
,#'.
,
J
,
•
"•,
,
.•.....-.
",,
•
•
"
•"
""
",
~
<tl
Ql
1:)
,
a.,
a.,
;::
en ,
(j)
•, ,
:'
...
,
"I
\
,
,
oL/j
Outstanding Tesobono Balance
and Weekly Amortizations
US$ Billions
US$ Millions
30 ...-,--
1,500
Weekly Amortizations Outstanding Balance
US$ Millions
US$ Billions
-, 1,400
-
25
-~
1,300
1,200
1,100
20
1,000
900
-, 800
15
700
-, 600
10
500
400
-~
5 .-
300
200
-, 100
o
1/5/95
1/19
2/2
2/16
3/2
3/19
3/30
4/13
4/27
0
5/11
5/25
@FedFRASER