tv U.S. House of Representatives CSPAN June 10, 2011 10:00am-1:00pm EDT
other people from other countries, not just mexico -- i have heard stories about people from the middle east coming through mexico across our borders with the goal of harming us. thank you. guest: it is the federal government program whereby the feds train local and stage law- enforcement people to help the feds enforce immigration laws. and the local jurisdiction that wants to help the fed's can apply for this. there is a huge backlog of cities and states that want to participate. congress for years has scarred this program for money. there was an amendment to increase by about 20% of the
funding for that training. that amendment passed the house. there was an attempt by a congressman from colorado to kill the program altogether. the immigration of lobbies hate this program. they have been pushing president obama to get rid of its. he has refused to stop the program. that amendment to try to kill the program was defeated by -- i think there were 304 votes against it. a 43% of the democrats and voted to save the program, 81 of the democrats. i think there is a feeling in congress to not step back from its enforcement. very quickly on the green card, we are giving out 1 million -- more than 1 million per minute of green cards every year.
that is the most generous in the country. i do not think we should do it. i would like to see it brought back down to 400,000. i would like to see it down eventually to a quarter of a million. i know of nobody who wants to take that right to marry or adopt overseas. we could probably get it down to about 400,000 right now. a host: thank you for being with us. that is all for "washington journal" this morning. we will be back tomorrow morning at 7:00 eastern time. until then, have a good day. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] ♪ ♪
>> on this friday, here is a look at what we have coming up for you live today on the c-span network. at noon, the national press club. austan goolsbee be joined by a other economists, a live discussion beginning at noon eastern here on c-span. on c-span3, a look at social security. last month, the trust fund trustees released their annual report on the solvency of both federal programs. today, two of the trustees will discuss the program's current fiscal state and future outlook. that will be at noon eastern on c-span3.
today, the american arab anti- discrimination committee is holding its national convention in washington. c-span2 will have coverage of the panel of that meeting. that will be alive, starting at 1:00 p.m. eastern on c-span2. this weekend on the "american history tv," more than 20 years after the end of the cold war, a new york historical society panel reflects on president reagan and gorbachev. on "american artifacts, " restoring civil war photographs from south carolina. get the complete schedule and c- span.org/history. >> this weekend on "book tv, fannie mae and
freddie mac in the 2008 financial collapse. henry kissinger on whether it is possible to form a true economic partnership with china. also, microsoft co-founder paul allen talks about his memoir. look for the complete schedule at booktv.org. sign up for book tv alerts. >> fema administrator craig fugate said recent disasters have prompted the government to examine its disaster relief fund. he said the fund should have enough money to last through the year. he testified -- mississippi senator roger wicker also testified, the author of legislation to reform the flood insurance program.
>> i would like to call this meeting to order. my constituents are dealing with some of the worst of flooding that the state has ever seen. back in south dakota last week, i spent some time talking to homeowners and business owners in that the communities that are anticipating some of the worst damage. while they are working hard to minimize harm to people and property, they are understandably concerned about short-term displacement and long-term recovery. i will do my best to see that they, along with their neighbors
and fellow americans, who have had their lives turned upside down from devastating storms, are provided with disaster relief that they need. i would also like to applaud administrator fugate on how they responded to the flooding in my state so far. i hope that the quick response that we saw during the recent sudden storms continues when addressing the ongoing flooding in south dakota and around the country. however, [unintelligible] -- including an $18 billion debt to the u.s. treasury. over the past year, we have
faced several losses in the nfip. losses have detrimental effects on both insurance and housing markets. this program which provides over $1.20 trillion in coverage -- it is my hope to provide this with a long-term extension. as the people of south dakota and others have seen firsthand what is responsible for more damage and economic loss then and the other type of natural disaster, affecting people across the nation of both parties which is why i believe that in the 2008, -- people come together across the aisle and pass a reauthorization bill in
an overwhelming vote. in 2008, which were not able to come to an agreement in the house. the recent flooding has made it clear that congress reauthorized the [unintelligible] -- which is set to expire this year. moving forward, we hope we can pass a bipartisan bill that will build a sustainable future for the program and american citizens. i will now turn to member shelby and we will open it up to all members to give an opening statement. >> the national flood insurance program was established in 1968 and was designed to reduce the burden on taxpayers.
by provide in flood insurance for properties in high-risk areas, there was hope that insurance premiums could be used to cover the cost of flood damage. since hurricane katrina, however, the program has struggled to remain financially viable. since early 2006, the gao has targeted the program as a "high risk because of its mounting debt and the structural flaws." today, the program is nearly $18 billion in debt and has problems even servicing that debt. unfortunately, the program's debt is only one of many difficulties facing the flood insurance program as it is constituted today. every aspect of the program, i believe, must undergo
sufficient revision to survive on a sustainable path. during the 109th congress, this committee approved unanimously and the senate passed legislation that, while not perfect, addressed many of the deficiencies of the program. that legislation would be a good starting point for this committee as we move forward toward reauthorize in the national flood insurance program. as we begin this process, i believe several issues deserve a close examination by this committee. first, we should examine the relationship between the program and your own insurance company. according to gao, write your own companies may be receiving excessively high reimbursements and bonuses from the program. the gao recommended that these programs have more transparency
and accountability. this is something that we should pursue. the committee should examine the types of properties that the program is covering to ensure that its resources are spent affectively. for example, the congressional budget office has determined that 12% of homes covered are worth more than $1 million. i believe we must insure that the program requires wealthy participants to pay the full cost of their insurance. the committee should also examine the program's modernization efforts that we have been working on. this process has been ongoing for several years and is crucial for the long term success of this program. updating maps are important for two reasons. first, they warn developers and homeowners about the risk of developing or living in a
flood plain. today in sure participants are paying fair prices for flood coverage. some communities have called into question the validity of the maps, and others have argued they have been excluded from the process. community participation i believe is a crucial, but this process needs to take this rapidly to ensure that the risk is accurately reflected. many of the existing maps are several decades old and do not accurately reflect the cost and risk of living within a flood plain. i think we should also seek -- i would like to see a simple definition of the phrase of " actuarial sound." this will estate our intent to make this program's success sustaining. i believe this committee should consider ways to privatize
portions of this program. we should transfer risk from the program to the private sector to the maximum extent possible. if we are able to accomplish these objectives, we may finally achieve the original purpose of the program -- to reduce the escalating cost of flooding to taxpayers. thank you, mr. chairman. >> thank you for holding this hearing on the reauthorization of the national flood insurance program. it is a very important program that we need to get a long-term solution for. this is very, very important. i say that because the state of montana is not exactly a flood state, but it is under water right now. it is good to have you here, senator, and i appreciate your work on this issue. we have seen record participation. we have record snowfall still up
in the mountains. i talked to craig fugate yesterday at a hearing, and we will follow up on that conversation. we have many, many challenges across this country when it comes to disaster, and water is one of them apparently this year. with that, i want to thank you for having this hearing, and i look forward to the opportunity for questions and in interchange between myself and mr. fugate. >> i would now like to welcome senator roger wicker from mississippi to the committee. senator whicker has switched seats temporarily to testify before the committee. senator, welcome. >> thank you very much, mr. chairman, ranking member. i have a written statement which i will not read in its entirety
and ask that it be included in the record at this point. i would also noticed that the states of montana and south dakota have seen a great deal of water down our way this year which we are experiencing right now. it only in forces the fact that we are all in this together and we do need a multi-year reauthorization, so i am here today to agree with members of the committee in that respect and to speak for a few moments about my proposal, which i am calling the coastal act. you were kind enough to allow me to testify last year before i became a member of this committee. i talked about the unique perspective we have and the people in the state of alabama, the gulf coast.and
at that time, i spoke about three reforms that i advocated. number 1, improving enforcement. i do not think we do a good job there. number two, charging rates that are actuarially sound. umber three, updating fema's flood insurance maps so those areas are aware of the risk. mr. chairman, it has been six years since hurricane katrina devastated the gulf coast. while we have made significant progress, the recovery is still not complete. one of the biggest impediments to our efforts is a lack of affordable property insurance. the availability and affordability of wind insurance
is crucial in any state where there is a coastal exposure. a private insurance coverage for wind damage has not been available in the gulf coast since the aftermath of the 2005 hurricane season. hurricanes present a unique problem for coastal property owners because the damages can be caused by multiple perils, including high winds and devastating storm surges. homeowners can purchase a single policy that covers all hurricane-related damages. wind losses are damaged by private insurers. as a testified before many property owners who suffered severe property damage from hurricane katrina, they were forced first to go to court to determine which insurer was responsible for damage, an in wd vs. water disputes.
i want to quote from the government accountability office which issued a report in two dozen 7 which called for greater oversight of wind anf lood damage determinations. gao found and that claims collected by nfip did not allow fema to effectively oversee damage evaluations after hurricane events. these are the words not of senator roger wicker, but of the government accountability office. "for a given property, the ability to assess the accuracy of payments for damage caused only by flooding is limited because the nfip does not know what portion of the total damages was caused by wind and what portion was caused by flooding. the report goes on to say
because both homeowners and nfip policies can be serviced with a single wite your own private insurer, a conflict of interest exists during the adjustment process. the words, mr. chairman, of gao. to help resolve these issues, i have recently introduced the consumer option for an alternative system to allocate losses at the coastal act. this legislation which i invite each of you to co-sponsor addresses several problems that arose in the aftermath of hurricane katrina, including, number one, disputes and costly litigation between consumers and insurers over the wind versus water claims. inherent conflicts of interest. number three, the lack of oversight with respect to the adjustment process and claims
paid by nfip. i believe the coastal act is a common-sense approach to addressing these problems. at the legislation which used data currently collected by noa and other participating entities to allocate images following significant storms. under this act, a formula would be established that utilizes a storm information provided by noa and its partners for structural information for each property to allocate losses caused by high winds and storm surges from hurricanes. this alternative loss allocations system would be based on the timing, location, and magnitude of a wind speeds in the storm surge before, during, and after a major storm impacts the coastline of the united states. only properties completely destroyed by a hurricane would
qualify under this allocation system. there is little to no evidence left behind. the coastal act is by no means a silver bullet where all the problems associated with flood insurance and nfip, but is a fair way to provide more certainty to the claims process which is very costly. the advantage of my proposal is that it is based on activities that noa already carries out. extensive storm data related to wind and storm surges are currently collected through out each named storms that threatens the coastline for the purpose of doing a better job of informing emergency managers. i would emphasize that this act does not create a new program.
rather, it uses information that we currently have for the purpose of better allocating the responsibility for wind versus water. i believe this proposal will provide more structure in the marketplace which should increase the availability of insurance and competition, thus driving down premiums over time. i also believe this system will help us hold insurance companies accountable for covered losses, rather than forcing taxpayers to pufoot more of the bill. in conclusion, mr. chairman, i would say that congress has an opportunity to make wind and water coverage available and affordable while putting the national flood insurance program on a sustainable path. i will continue working with each of you on the committee to pass in multi-year
reauthorization bill that can be signed into law, and i urge all of my colleagues to join me in this effort. thank you. >> thank you, senator, for your testimony. now, i would like to invite craig fugate, administrator of the federal emergency management agency to the table for his testimony. prior to his 2009 confirmation, careergate has d a long in the emergency management at the state and local level, including several years as a volunteer fireman. welcome, administrator fugate. proceed with your testimony. >> thank you, chairman johnson, and members of the committee.
i have submitted written testimony for the record. i will proceed with a brief statement. i think senator shelby summed up the structural issues we are faced with this flood insurance program. i think one of the things i like to emphasize here is as the program exists now it is unlikely we can retire the $18 billion debt. i see that increasing with a large scale hurricane or tsunami event. i think we do a much better job with river flooding in determining how to manage that risk. in these larger scale events, there are structural issues within the program that produced high vulnerabilities that are not addressed in the current system. so how do we address that risk? i think one of the issues that we see and we agree with -- this
risk should be better shared with the private sector versus strictly looking at a taxpayer- run system. i believe there are policies that could be moved to the private sector. there are incentives. i think there are going to be those policies that such high risk that the private sector will never be able to manage that risk, and that will continue to be something that we will have to look at as the federal share of subsidizing their risk. i also believe that the efforts to go forward in the reauthorization needs to take a longer view of reauthorization for a greater time than shorter- term reauthorizations. in our listening sessions, they have informed us of this very detrimental short-term reauthorization, particularly in the real estate market that is
trying to right itself when we have lapses or uncertainty. it makes it difficult for realtors and others to do closings as well as for companies to be able to manage their portfolios and continue to offer services. again, i believe we need to look at reauthorization -- how do we incentivize the program to encourage the private sector to participate, but also recognize there are going to be this high risk policies that we will still need to look at? we need to look at a longer reauthorization to provide stability as we go forward with these improvements even if we do not have all the answers today. stability is that what we needed to address. the last piece of this that i think we need to look at is how do we deal with making this insurance more actuarially based, based upon the risk, which encourages the private
sector to come into this market. why would we let the industry cherry pick the best policies and then we keep the most toxic policies? the answer is the best market out there for getting this out of federal is allow them to take those policies that they can manage the risk now. every time there is a declared disaster or flooding, we end up having to provide assistance. i am not opposed for the private sector to write the least riskiest policies. every time we do updates and we change the risk, when people find that their risk is increased and now they are required to admit it or leave purchase insurance, the price of that often times becomes a detriment to people in a brand new cost that they have not anticipated in their mortgage or their budgets. i think we also need to look at
as we change these designations how we do a graduated increase in its policies but also recognize for low income areas and there may be a need to provide additional assistance or give more time before we get to a full adjusted rate more closely reflecting actuarial. these are some of the areas -- i agree with this concept that we have got to get the private sector more engaged in providing coverage in flood insurance policy, and that can be either through direct provision or other models. i also believe we have a significant number of policyholders that it will require some federal support to make it affordable and continue to provide that protection from these risks. again, i think you, mr. chairman, for the opportunity to testify, and then look forward to questions. >> mr. fugate, [unintelligible]
--have been told to evacuate for two months. can you tell me what actions you are taking to insist to communities and residence in a disaster? can you tell me what resources are available while they are displaced and during the recovery phase? >> we are working with the governor and the team and there as we are getting more and more flooding, looking at the assistance. there are two pieces that can be provided. obviously, those people who have insurance would have that, but we also provide through other programs including individual assistance. we do provide housing assistance and those types of support to survivors in the event of a flood. we continue to work with south
dakota as we go through the requests from the governor. assistance is being provided for housing and other assistance based upon impact to their homes. >> in your testimony, you outlined several ip groups policy alternatives that you're working group has been discussing. when do you plan to publish some of these alternatives? >> we looked at some very broad areas in doing this. we found there was no consensus, a single idea, but when we look at both constituents, and industry, we found there were four areas of interest. as we have done that and look at tech, we think some of those may not be the best way to go. i think we are probably now looking at focusing on the
system that utilizes the federal programs but with a greater participation of the private- sector and how we do that. we are looking at later on coming up with a more consolidated recommendation and coming forth with the consensus report. >> as you know, we are facing a september 30 deadline for reauthorization. in the past, any in the senate have been reluctant to extend the program without reform. one of the nfip policy alternative options you mentioned is [unintelligible] in this area, what are some of the most important reforms congress can make in the near term? >> i think one of the limiting factors in being actuarially sound is we are currently held to a 12% rate increase per year in moving people that can afford
the insurance. again, this comes back to the as senator shall be pointed out those who can afford the higher premiums we need to be able to move them to those but we have to understand in low income or people that have limited means, that creates a double impact in that we may actually be forcing them to make our decisions about how they are going to pay for flood insurance. i think the ability to move toward where people can afford the insurance to pay the rate without any reductions or phase- in the time frames would be the first that and looking at how we take communities because of the economic structures we face but more gradually but as it is now we are still having to move slowly through this even for those people who cannot afford a higher premium. >> in your testimony, you mentioned the current in or out nature of the flood areas.
do you have recommendations for how rates can be set? what resources would you need to achieve this? >> right now, we deal with everything outside of a 1% flood zone as a preferred rate. if you are in the 1% -- another challenge is how you explain the risk for those who require insurance. you can have these back to back. i think the question is where we see an increased risk that is below 1% or that higher level, do we still do preferred risk? preferred risk, in some cases, is probably below what the market would insure at.
i think we have created a structural imbalance where we are charging a preferred rate because the risk is much lower. we created this incentive to get the private sector to look at that, in effect, in large-scale events like hurricanes or tsunamis, we are subsidizing a greater risk, that when you look at river floods or other things, that suggests that the risk is not as great. >> senator shelby. >> thank you, mr. chairman. fiscal solvency is defined as at the charging premiums that would generate enough revenue to cover historical average loss years. how does the program's policy compared to that of the private- sector insurers? would it meet the definition of being actuarially sound?
>> i think we do a much better job on the rivering flooding. i do not think it is actuarially sound when you look at the impacts of hurricanes and tsunami is. >> but if we do not first define what actuarially sound means, it seems to me every time there is a catastrophic event and you are hit with everything, that it's leading the fund toward bankruptcy. is that fair? >> that is fair, but it asks another question. it would be difficult to do that at the current rate that would be actuarially sound unless we had another way of distributing that risk. it is hard to distribute -- >> how do we distribute can we do that by snapping and by
identifying and broadening the amount of money coming in cluster mark how do we do then? >> one part would be to better reflect those areas and the risk and then have greater participation in the flood insurance program. i think the other challenge would be is this is one risk. you are not able to balance that against other risks or markets, and that is where the private sector would give us more flexibility to share this risk against other risks so it is more distributed. year to year, we would probably do pretty good until we get a big hurricane or tsunami. >> where are we in our mapping program, roughly, as to where we were, say four or five years ago? >> senator shelby, i would like to give you that in writing. we have made significant improvements. however, we have learned some
valuable lessons, one of which is to provide unbiased science and technology -- >> what is the impediment there where the challenge? >> because of the funds that are available to do this and as we hire the contractors to do the upgrades and updates, we find ourselves dealing with technical issues and dispute resolutions of using data we have versus the local data or state data. previously, we have never had an impartial way to do the resolution, so we set up a model to use a scientific advisory panel to review our data and the local or state data to give us a better resolution that helps move that along. >> it is my understanding that fema has created a new category of what you call grandfather
properties for homes that have been found in riskier areas. they enjoy subsidize tax payer insurance programs. discuss how this new category works. do these grandfather properties undermine your efforts to place at the flood program on a more actuarially sound basis? >> i want to respond in writing to give you more details. this refers to as we know we are having designation changes, prior to the outdated maps, people did not either have a mandatory purchase requirement or had preferred to risk. as you go into the higher risk, the amount that they would be required to pay has produced economic hardships. but what we do is work with the local communities where people will purchase insurance before going into that, maintaining a
preferred status. again, it is an economic hardship -- these are not, in many cases, -- oftentimes, we find these are working communities and it is a sudden and dramatic increase in their insurance premiums for flood insurance. >> write your own program -- the gao has uncovered several problems with participants of write-your-own programs. do you agree with this finding? if not, where do you differ? >> we continue to look at that but it is a question of incentivizing the private sector to write those policies. these are rates that we negotiate. we continue to look at the cost
effectiveness of that, but it comes back to if the industry is now willing to do that at a rate that we can pay them, then we end up doing it ourselves. >> could you comment briefly on the risk that exists for communities that are located behind levees, flood walls, and dams, and where there should be a mandatory purchase requirement for people living in these residual risk areas? are they risk areas or residual? >> they are not required to purchase insurance because the protection of those structures reduce their risk below 1%. if there is a failure, it is oftentimes catastrophic, and many of those homeowners do not have insurance. >> what happens -- there was a levee recently breached.
what happens there? >> that is a design the system. residents in that floodway were notified, and they are required to purchase flood insurance. >> thank you. >> i appreciate mr. fugate's recommendations on the flood insurance program, and i particularly appreciate the short-term versus long-term argument. this is critically important. i want to talk a little bit about a couple of other issues. on june 1, our governor asked the president to declare a disaster for the state of montana. can you give me any insight how close we are getting to this declaration from your level? >> we got the information, and
is moving in the system. it is our level to be worked on. >> so, you know i am going to ask a follow-up. can you give me an idea of when we could expect this declaration? >> we want to have the best possible data to make a recommendation to the president, and then we will await his decision. >> can you give me an idea of when that date might be? >> it is moving through now, sir. i would say weeks, not months. we want to make sure we have all the information to make a recommendation. >> good enough. the disaster relief fund, very quickly. it is a follow up that we talked about yesterday. are you confident that the disaster relief fund will not be depleted in this fiscal year? >> based upon what we have right
now, i think we will make it to the end of the fiscal year, but we have some costs that have come in on the most recent flooding and the recent tornadoes that we are having to evaluate, and we hope to have some answers on that. particularly in mississippi, we are adding those in and taking a look at those costs. >> we will need to stay in touch on that. levee certification, it is a difficult problem. it is across the country, almost every river drainage. the army corps periodically inspect levees constructed, but the standards for the certification are incompatible with fema. it is a fact. has there been any discussion with the army corps to develop a
common set of standards that would allow the data collected by the army corps would satisfy your certification requirements in fema? >> we are working with the army corps. the answer to that is in the short term, yes, but i think there is another piece of this. when we do our maps, we only looked at previously credited levees. it did not reflect any prediction. we are currently working on and are submitting for review an ability to actually met the existing structure as is so that where we have structures that may not be accredited but are there, we will no longer take the position that we are going to zero them out and map the structures. the process will be going out to the internal review, and then in another 45 days, it will go
external. we are moving toward using what is there -- unless you have an accredited levee, we will only look at the structure. after the process, we will look at the structures that are there and then map with a look like. >> what about the ones that were previously certified? i appreciate that answer and of the work. what about the ones that the been certified before? in my particular situation, some of them fall under the first answer and some of them will fall on to the answer that they are certified from the army corps, and now the certification either does not work or the army corps says they cannot certify any more. can you tell me what about the that were previously certified by the army corps? >> as the army corps look at
what happened to failures, and we continue to see failures this year, they revise the standards so that is what an accredited levee becomes. many do not me that because of design issues, but they offer protection. as we move towards -- we are looking at what is there. we will respond back in writing on where we are at -- >> you know the issue. what we have done through map modernization or whatever, through the army corps and fema not having the same standards or whatever it might be. when we put communities in a situation where, and i have said this before, where the folks that your going to do this certification -- the errors and
omissions are so huge, it puts communities in rural america that are not exactly a fluent relal problems with flood insurance. i look forward to working with you on this to try to get this done. this index almost every community in this country -- this affects almost every community in this country. i think you for being here. >> senator wicker. >> thank you, mr. chairman, and thank you, administrator, for your work and including the recent mississippi river flooding which impacted many state, including louisiana. i agree with virtually all of your comments. i want to underscore something you said, which is the need for a full-blown, longer-term reauthorization. this reauthorization or
extension in tiny increments have really not served our communities or the economy well at all, and i know you know that, and he reflected that in your testimony. according to the testimony terry sullivan, the last lapse we had of the program in june last year led directly to the cancellation or delay of 47,000 home sale closings. this was at a time when we need every closing in sight in terms of trying to revive the economy and the real-estate sector in particular. for no good reason, we shut down permanently or temporarily 47,000 the closings. my first goal is a full-blown, long-term real authorization.
i know it is shared on the committee, and i certainly hope we get there. let me go to some particular issues of how we do that reauthorization. oen is the -- one is the current coverage limits which have not been changed at all since 1994. coverage limitns the the amount is a fraction of what it was in 1994. do you think it is appropriate that we would look at that and i just that in the context of moving the whole program to a much more actuarially sound footing? >> senator, i had some conversations with folks who have a coastal properties and as their homes may have been worth $200,000 in 1994, but they're a prisoner costs would be a quarter of a million dollars or
higher. we have had these homes that have appreciated so much, the insurance is not replacing what they have it. coming back to what senator shelby said earlier, is it best that we do that through the flood insurance program? as a baseook it aat it level coverage? i may be able to afford more than a working-class a fishing family that does not have an expensive property. as we look at those higher levels of coverage, do we do that as a full value with a federal backing, or is this an area that the market might be interested in participating? i agree. we have property out there that we do not cover the replacement costs because of its caps. in many cases, the way to go forward may be one of those opportunities of how we engage the private sector.
>> i am certainly completely open to that as long as there is a path forward. right now, that opportunity for additional coverage is either not widespread or certainly not widely understood or taking advantage of. i do not think it largely exists. i want to go back to back towhich was about levee recertification. in louisiana, a big issue is the fact that the army corps has basically walked away from their historic role in research and fighting levees which they designed and built. after hurricane katrina, they basically said we are walking away from that. as a practical matter, it just proved unworkable. we are talking about
jurisdictions and entities in which 99% of the cases do not have either the expertise or the resources to handle that. again, i am talking about levees that the army corps designed, built, and checked on. the army corps is the logical lead agency can at least, in that ongoing recertification. can you comment on that and how we can make progress on solving that issue? >> what we have done is i think moves us beyond only looking at a levee that the army corps has accredited for those standards. we are working towards looking at levees as built and using those to determine risk. that is that number one. >> let me interrupt. thank you for that policy change. that is enormously important as you indicated before you all made that major policy change.
if it was not up to the 100-year standard, it did not exist on fema maps and did not provide any protection. thank you for that change. as you know, my question still remains. >> we continue to work with the army corps on that. this is primarily with the ownership of the levy has transferred and how they maintain that accreditation. that is something we continue to work with our partners, but i know it is a financial difficulty for local jurisdictions that have those levees to maintain those standards. in many cases, it is the cost of having engineers come out and review the levees which is why we are hoping as we go forward looking at those levees that might not be accredited but are providing significant protection, how we met them -- how we map them. >> i'd encourage you to stay involved in that because the
post-hurricane katrina system is not working. in my opinion, it is the army corps trying to cya frankly so they can point to somebody else rather than somebody else. we need a workable system. thank you. >> thank you, mr. chair, and thank you for your testimony, administrator. i want to echo what my colleague has just said, that it is the sense of the many communities that the army corps has walked away and left them in an almost impossible situation in which they cannot afford the private certification, but without the certification, their business districts and their housing districts are decimated. i just want to make sure that those concerns of communities
being decimated by this change of policy is getting to your ears. i am not sure if you have been out to these communities and understand how this affects everything. homeowners who were not in a flood plain who are now in a flood plain, and their mortgage company demands that they now get flood insurance, businesses that cannot locate in the business district because they cannot afford the policy, a community hit hard by the recession on able to fund the private certification process -- that is assuming all they have to do is get the certification. the world has changed. it is a huge additional cost on top of the certification itself. i want to make sure that this incredibly important issue for economic development in the success of our communities is making it to your ears and you are out talking to communities that are affected.
>> senator, yes. in fact, i personally dealt with lake okeechobee when the systems are around that were not certified and we had to deal with insurance premiums for rural agricultural communities. at that is why i think our plan to move forward is to look at existing structures and map those existing structures. >> let me interrupt you there. i was one of the senators that advocated fears the for that change. i do praise you for responding to our please. let me give you an example of a community in my state, the community of warrenton. it was a situation of having to adopt the new flood zone before
your change in policy, and they had to do that because people could not afford a flood insurance without adopting the new flood zone policies or the new flood determinations. they are now in this situation that that plan did not take into account existing structures. how about for these communities that did not benefit from what is really a more accurate appraisal of a flood risk? would it be possible to go back and rework it with those communities that were unfortunately hit a little before the change in policy? >> absolutely, senator. as we go through our process of doing the internal review, and now and about 30 days to 45 days, we are going to put this out for comment. once we are able to implement the rule, we will go back and
work with trinity's to update their maps based upon the new process. it is not -- it will not go as fast as many communities would want, but it will go back and look at those communities where they did not have a certified levee. >> i think that is great news. thank you. do you anticipate, for example, with a community like warrenton, s that a yerar out ofr a couple years out? " senator, can i respond back in writing? we are still going through the methodology. i think when we have that, that will be about a 60-day process. we will have to adjudicate in the sea. my staff feels like we have an 80% solution. i'd like would -- i would like to respond back in writing.
>> i would appreciate that, and i understand it is a complicated process. you are trying to address it in a thorough manner, and that would be very in terms of the role of certification, the corps played a role where there is a federal structure in ball. we have been working with our communities to make sure we know that every federal structure that could possibly trigger this policy. is the current policy the one from here into the future? is it the walking away from cert? is there a chance to walk back into that role? >> i will defer to the corps of
engineers. we work very closely with the them over the certification process of those who are still federally managed. this will be a resource issue. how do we pay for or maintain these levees that are not federal and understand that that is a tremendous burden and cost for many local communities? >> thank you. >> thanks for being here. i have a couple of quite specific questions that i would like to run by you. as you know, the state or i am from, the state of nebraska, is bordered on the east side by missouri and we are now in this ramp up where an historic amount of water is headed into the state beyond anything the levees have had to endure. it is about twice as much water.
there appears to be three events in bald that caused this issue. one was wearing in montana. event #2 was the snow melts. event #3 was the release that necessarily has to occur by the corps of engineers to avoid dam failures. . as i understand the role relative to flood insurance policy, you have to have it in place 30 days prior to the event. how do you judge in this case when that 30 days start to run? >> that has been a very challenging question. does the flood events start when we start seeing actual damages
or is it because we know the event is coming? i will ask the senators to respond in writing because there are specific things we had to go through to determine when a flood occurs by the legal definition. the challenge is that is when we stop writing policies. when people purchased the policy, if they fled inside that 30 day-. they will not be covered. i would say we should respond back in writing because it does involve managing certain things and sending out adjusters to look at what is going on. >> if you could do that, i would appreciate that. we have many people, not just in nebraska, but all along the river system that have this problem. the second question is probably no less challenging.
in a situation where you have the corps come in and served by a levee and as a result of that and people are in or out of the flood plain, people find themselves out of the flood plain and they don't need flood insurance. they are not worried about the flooding situation. all of a sudden, they are caught in this historic situation again. what happens to those people? are they treated any differently? can they buy flood insurance? what is the situation for them? >> up to the point where a flood is occurring and we are still providing flood insurance, they can purchase flood insurance. the flood occurs outside their purchase window in the first 30 days they would have up flood
protection. this gets back to a common issue -- even though you are not in the 1% or greater risk, it does not mean you won't flood. the reality is that if you leverage all the individual systems programs thefema provides to a homeowner in an event where there's a flood and the governor declares a disaster and the president has granted individual systems is less than $30,000. what happens to people is they end up losing everything. they cannot cover their mortgage. they cannot replace their home. for many people in the middle class, that is there some most significant personal holding and they are totally unprotected without flood insurance. this gets back to the root issue of as people who do not have flood insurance whether it is required or not are flooded, even when we provide federal assistance, we do not make people whole. it is, again, a program that was
designed to prevent those kind of losses but because people are oftentimes misinformed about their risk or they don't need it, they find out unfortunately, and we see this time and again, not only the impact of the flood is the potential impact that is difficult to recover from. >> i will wrap up with this. this is a tragic situation. the average person just simply would not go off and buy flood insurance policy if no one has advised them that it is necessary. if they are not in a 100-year flood plain and the bank has no requirement on the mortgage, the average person would look at the cost of the and ask why would they. you have the historic events and they are flat out of luck. if you can get back with me on
the issue i have raised, i would appreciate it. because this water is headed our way now and next week, i think, we reach that maximum level of discharge by the corps and then i think it holds their into august, maybe all through august. i will guess that i will have to get to know you better in the months ahead. many other senators will, too. >> senator schumer. >> thank you before i get into the substance of my remarks. i want to thank you for being always responsive. we have had a number of disasters in my state during your tenure. you have always been there in your focus has always been there and i appreciate the hard work you do. we have a huge issue on long island. it is one of the most important issues that long island faces.
people whose homes have never been flooded who are as much as 5 miles inland are being told they need flood insurance and it costs them up to $3,000. these are middle-class people. this is not a farm community or a community by river. these are suburban blocks. they are befuddle. it's what it's what makes people hate washington. they say i am being mandated to pay $3,000 when i have never had a flood and i am not near a creek or stream? we looked into this. it affects tens of thousands of people. what we found is fema used information gathered by the army corps of engineers in suffolk county where there has not been as much of a problem to draft the nassau county flood maps. they raised level as to how of
the -- how high the ice -- how high the house has to be above above the flood level. i can have a imagine a storm that would flood things 5 miles inland. they used the wrong map to save money. that was what was told to us. instead of doing a re-mapping, the nassau county population which is not a small area, they had unique geography. it has different coastal entitle characteristics. -- and title characteristics. should have been subject to a different study. when people hear this -- imagine you are all more and you are making $70,000 per year which is the average in, which is not high. our expenses are higher and our
homes are higher. you are told that you have to pay $3,000 because you might be flooded, you can imagine people's reaction. i am asking two things. first, that the best science was clearly not used in nassau county to take a county 30 miles away and say we will use that. we would like to start the re- mapping process over so we can get a look at nassau county. it is not fair to use the suffolk county data. >> we have no updates for other parts of the basin. we are responding back in writing to your request and we will outline how we will address the issue as we go in and do more of the studies that will include other areas.
we're working on that. >> other areas in general? >> other areas in general in the basin. we will take advantage of that to focus on areas you have identified. >> the area of valley stream as 40,000 houses. i will be happy with this letter? >> i am unable to say but it will be responsive and we will continue to work with you. >> i will not be happy unless we really deal with this problem. second, while we are waiting to deal with the problem and i am glad you said something will be done, fema rightly decided to extend eligibility for the preferred risk policy so that the people don't get the jump for two years. can you address if we can extend that beyond the two years until we get a fair adjudication of what is happening in nassau county?
it may not be solved within two years. the prp is totally in fema's discretion. >> we have the requested we are working with our chief counsel to respond to that to determine if we can do that them what would be the reason you could not? >> i would have to refer back to our chief counsel. >> i feel very strongly about this. i am prepared to do whatever it takes around here to get fair treatment for these 40,000 people. they have not been treated fairly by fema. i don't blame you. to save $1 million and use ta different place and grafted onto nassau county and tell so many people that they have to pay so much more in a place that has never had a flood in the
history since are known history, 5 miles inland, with no streams or creeks or rivers or bays, we have to do something about this. >> i understand. >> senator kirk. >> i will be much easier on you. you did a helluva job in illinois. we had quite an inundation. you get very high marks. i want to thank you for working with me and jerry costello. this policy of not recognizing and a levee at all, your letter was detailed and i appreciate the come back. i want to talk more generally about the program. you are about $18 billion in a whole? >> yes, sir. >> we have this policy so the
program has been rolling since 1973. we have this policy of repetitive loss which is now 1/3 of all your losses. any way we can not reauthorize this? rather than have the federal taxpayer getting taken to the cleaners? >> i defer to this body -- yes, we do have repetitive lost properties. we have to ask the question -- how long do we pay to subsidize that risk? we also have a situation where we get the request from the same body to provide that assistance. >> in this hearing everyone is asking for money but you would not have the constraints you have now which require you to lose money. >> this is often times a preferred course is to buy out those properties of they don't fly in the future.
this is done in partnership with state and local governments where we have done by out successfully. some of this recent flooding we have had has been less severe because homes that previously flooded have been bought out. what is the appropriate level to subsidize risk and how long should that risk be subsidized before we say it is no longer going to be managed that way? >> i worry that government always makes the wrong decisions because congress pressures it to lose money as opposed to a private entity which clearly would not write a policy after the third loss. what about not sun setting pre- firm. what about sun setting the whole thing so we can have the map determine the risk? >> i would look at it as for
those that can't afford it, it would be a shock and somewhat painful but it would not result in than defaulting are losing their homes. i think there are real issues with lower income and fixed- income people that a sudden increase in premiums as much as several thousand dollars that they had not budgeted for would be extremely detrimental. i would look at how we can do this for those who can afford it and should be looked to continue to support those where it would create a hardship in them losing their homes or an inability to stay in their communities. >> we just as a news one hour ago that treasury has now said that our debt is going to accede our national income this year rather than three years from now. since we have an underwriting the since 1973, perhaps it might now be the time to stop.
>> this is the body that can make that determination. >> you are with me. the senate made this decision in its legislation. >> weight -- the program will go as it's directed. this was a request that was put in to minimize the impact as the new policy came out. this is something that this body can do. i would caution the unanticipated consequences that could result in impact to those who cannot afford this and it may cause adverse risk that we did not anticipate. >> we are subsidizing people building and investing in flood plains and getting wiped out periodically. >> i would suggest that those who want to build new structures in high-risk areas, it would be better if they were assuming the full risk and not the taxpayer. i am concerned about the existing communities that are there already and what that could do to local economies if
we price people out of their homes because of the price of insurance. >> it would be a growing concern that the program be allowed to recover its own cost. i think the congress is that to the problem, not you. the direction it sounds like you want to take is that we would be far more sound in the running of this program if we were to up -- if we allow you to make these decisions for a program that is a significant drag on the treasury. it seems like operating it in that way as we just heard the news this morning that our debt has exceeded our national income might be the way to go. >> you start moving toward actuarial basis, had we get the private sector to take on this to rest? i think we will still have the highest risk properties as some form of a federal program. i think we can distribute and that is the risk better in private market sector.
>> i would hope that maybe we give you one overarching authority to waive the requirements of congress so that the program can be run without cost to the taxpayer. >> senator menendez. >> thank you. what happens if this program ceases to exist? what happens to the real estate market? >> what would happen is you would have the federal government and any hope of getting the private sector back into underwriting mortgages walk away from all properties at flood risk. this is what happened in the 1960's when the private sector determined that would no longer cover flood as the rest. a risk.
i could not fathom with the trillions of dollars of exposure would look like in a flood. this is a hazard that currently the federal government is the primary provider of that coverage. without that, those people that live in the highest risk areas may not be able to receive financing for their home. i think would end up in a situation where the exposure would be so great that the original program to protect the mortgages would be coming back and that housing market would be affected more than we have seen. >> that would be an enormous body blow to this economy. it seems like we need to act. the question is what we do. in march, in my home state of new jersey, we have a governor who filed a request for a federal disaster declaration. fema denied it on the basis that the minimum uninsured losses took place.
isn't that a perverse disincentive? it seems to me that at a time when we are trying to encourage communities and individuals that is it is in their best interest to participate in the program, does it make sense to penalize communities that have been proactive and successful in getting their residence to purchase insurance? >> we administer the individual systems program that would have come to bear for the uninsured, i feel that way many days. i also recognize our fema programs will not make people whole. the most we will provide to a homeowner if they qualify for everything which is on likely would not even begin to cover their mortgage or replace their homes. last year in the tennessee floods were all of the damage was flood related, the average amount we provided to a family was less than $7,000. calling the individual assistance route has not worked.
>> i agree with you on that. here are communities that for the most part have accelerated their participation in flood insurance yet they get punished for those who don't have the flood insurance. that would certainly be helpful to them to have assistance to be able to meet the challenge in their families. those communities that don't participate to the level that many new jersey people do, they get the benefit. the communities that participate get eight-. it seems to be perverse incentive. -- disincentive. >> this is the one hazard that exists. >> let's talk about another hazard. with billions of dollars spent each year on disaster assistance much of which is going to people in communities who are under or uninsured, do you believe it
would be cost-efficient to provide vouchers for low-income families to get flood insurance? >> that is one option we have looked at. is that going to be sustainable? if we do it for the first year, what about the out years? either we do vouchers or reduce some sort of adjustment based on income to continue some level of participation and protection. those are desired outcomes. it would have to be something that is sustainable. if you have flooding now and you get individual assistance, we require you to purchase flood insurance for the first year and that you have to maintain it for future years. we will oftentimes go back to the community three or four letters -- three are four years later but they could not afford
to continue to pay for flood insurance. >> it seems we need to do something to help those individuals caught in this set of circumstances but don't have the wherewithal with they are facing premium schock. i was a major at one time. -- i was a major at one time there -- i was mayor at one time. shouldn't we be considering incentivizing those communities that face 1/3 of all the flood insurance plan claims. shouldn't we be looking at how maybe we can work to offset some of that loss and a way that we "-- that would be an enormous city to the program but would in santa m by theayors -- but that but would in santa mayors to
take certain -- incentivize mayors to drop certain houses off the list? >> it depends on how much money we have and how many properties we can buy out and how may factor ever -- and how much we can factor that in. >> the buyout program is about how much money it will cost to buy the property. there will be many municipalities that will say that they will lose a r aboveatables. 1/3 of all your claims are over 1% of losses. it seems it makes economic sense to figure out how to incentivized eliminating as possible -- as much as possible. we look forward to working with you on this the. >> two days in a row, your
testimony becomes more exciting as the day goes on. i appreciate the conversation and i would ask you to include me in the letter you will or johanny sent senatejohan . also, i wanted to see if you have any sense that there would be any need to address what i see as perhaps a bias against rural disasters in regard to a disaster declaration and fema assistance. we have a number princess's in which because it is rural, property values and smaller population, the tornado or the flood is just as damaging to the folks who are affected by that but we don't reach the threshold necessary for a presidential
declaration. just recently, clay county had 100% of the roads damaged by a flood of the value will not meet that. redding, kansas tornado had low property values, a small community, almost totally devastated but again, will not meet the threshold. i am not looking for expanding the cost to fema but i want to make certain that we don't have a formula that unnecessarily and excludes those who happen to reside in rural america. what are your thoughts? >> coming from florida which many people think has only a large cities, i come from a small community. the request from the governor is just with the state and the population. it is a disadvantage to smaller communities for the state has the resources.
they look at the impact to the state. they look and a per capita state basis and we look at the per capita impact within those communities. we have taken into account and to let the severity of impact of what it looks to a local community determining what counties to include in the initial declaration. it looks at the state and the state resources versus looking at the community that was impacted. >> when you say you look at the community and the damage per capita, is there a way to override that? >> there are times when a severity or the intensity of an impact would not reach a state per-capita but it would warrant a decision to support a declaration. this is why it fema does the
right ups for the state but is the president's determination. there have been times where we have had such an intensity of impact in a community but it did not meet the state's fragile but the impact local it was catastrophic. >> it is my experience that in many of those small rural communities, they have the least amount of preparation expertise responsibility as compared to a larger community that has small professional ongoing planning and response to that kind of disaster. i would welcome the chance to explore that issue myself further with your help. the idea of saving money -- one of the things that made sense to me -- you talk about the importance of the affordability of coverage. i am interested in knowing what it would take in order for premiums to be put in escrow
similar to property taxes or homeowners insurance. could that help better manage the issue of affordability? do you have the authority to escrow payments? >> i will respond in writing because there is another piece of that we are exploring. just like your other insurance like property tax into your payment whether this be a separate bill comes up -- we have also looked at and have been asked to look at quarterly payments. i am principle in favor of looking at making this fit the other insurance models and fitting the escrow model but also looking at quarterly payments. people by eight years' worth of insurance and they will make payments against that and they are not just buying a quarter's worth. i will respond back in writing.
if you can build it into the reoccurring cost of mortgages and treat this more like we do other types of insurance where people can buy this as a separate policy, right now it is a lump sum. we are looking at how to provide this as a similar process used for other policies. >> if this is an appropriate opportunity, do you have the authority to allow escrow or quarterly payments? >> we are working on that and we will respond back in writing as to what we can and cannot do. >> senator reid -- >> thank you. i want to thank you for your assistance last year for the floods in rhode island. i was stopped by my constituents who ask to commend him for their efforts, not just doing the job of going above and beyond. thank you for that. that ethic begins at the top. thank you very much. well done.
a lot has been discussed about mapping, your risk-map program dictates that 80% of the flood areas, sources indicate we are at 55% at the end of 2012. had we go from 55-80% in two years with constrained budgets. ? >> we are not. where we have to make targeted reductions in our budget, we have looked at reducing funding for modernization. we are not stopping the modernization. it will take longer to complete the work. >> how does that play out? my colleague was talking about issues in his part of the country.
we have areas which are not in flood zones and some that should be. how does that play out on the ground? i would think that the maps would be the first place and the first priority. you can then decide who must have insurance and who should not have insurance. right now, that is based upon 35-year-old data. >> it is not an easy choice nor it is a preferable so choice. part of this has been challenges to the data we have produced, having to go back and validate that and to restudy that because data out comes are not what people thought it should be. that increases the cost.
i agree that the best way to start is to know what your risks are and have accurate maps not only for the purposes of insurance but for zoning and development so we can make better and wiser choices that we build in places that have the least amount of risk and we mitigate against a risk for we know the hazard is. >> has there been any discussion about trying to develop a joint enterprise to do this with the private sector? maybe with the government to also have an interest. >> from my experiences, we have done that in two cases. one was in north carolina in the aftermath of hurricane floyd where they were able to utilize mitigation dollars to produce high-resolution flood maps. my experience in florida when we were mapping coastal communities was to get higher resolution maps and applying that for
future map development. you point out a key issue. much of what we're doing is establishing what are the digital elevation maps. there's a significant economic advantage as we build whether it is flood insurance for highway or water management district on several local problems to be able to integrate the digital data into a national outlets. not only does it provide is the tools for flood insurance but it is a good tool to have the best available data for people planning and looking at future growth of construction all the way through to agriculture. i am firmly committed that as we do this mapping, the baseline data, as much as we can leverage with other people have done. we are marking more with the agencies of the federal programs to make sure that we are identifying where we are doing mapping and other people are doing similar work in making sure we can maximize our investment. >> i agree that these are
difficult judgments you are making. you have been given this responsibility and you are providing a general good, a social good bet lots of other people depend upon. if they could be encouraged and could see the wisdom it would make sense for them to participate and help us. it is not just localities and states the private entities. with technology today, the ability to map things from the sky and do it accurately, i think that might be an approach that would take some of the burden off of view. let me conclude by thanking you for a great effort last year in rhode island. >> thank you, senator. >> i would like to thank the witnesses for being here today to contribute to our real authorization discussion.
[no audio] [no audio] >> the u.s. senate returns next week at 2:00 with voting on two judges for the jurors agreed that will work on an economic development administration bill. there is a vote scheduled at 2:00 p.m. tuesday on an amendment to repeal several at an all-related tax issues. we will have live coverage here on c-span, the house gavels
back in at 2:00 p.m. on monday. that will talk about veterans affairs programs and military construction. live coverage of the house is here on c-span. coming up at noon eastern, the national press club will host a forum on the economy and job creation with austin goolsbee. he will be joined by a number of other economists and labor experts and we will have live coverage of that in about 20 minutes here on c-span. until then, your phone calls on new gingrich for changes in the newt gingrich for president campaign. this is from today's "washington journal."
guest: newt gingrich went on a two-week vacation. this is not the way you run for president. this is a position of being a candidate which is a full-time job. newt gingrich did not look like he was willing to put in that kind of grass-roots effort. a lot of his campaign staff yesterday including his campaign manager, his top strategist, his top advisers in iowa and south carolina and his spokesman all up and left. a lot of them had just come on
to the campaign just recently but it is most telling that the spokesman, rick tyler, and the south carolina adviser, caton dawson left. their departure signals this disapproval at the way he was going to run a presidential campaign. host: at least 16 of the former advisers left. is this unprecedented? john mccain had a big step turnover when he was running in 2008 eddie managed to survive and become the. how typical is this? >> it is not terribly usual. ronald reagan lost it large member of staffers as well before he won his election in 1980. it happened to john mccain so it has happened. it is further evidence that newt gingrich is not exactly the
candidate that he used to be. is not the force in republican party that he used to be. his entrance into the race is greeted more with a yawn and fireworks. he does not rank among most people's idea of top tier. you talk about met romney, tim pawlenti, and perhaps some candidates who have not gotten into the race yet. one thing that newt gingrich does is it opens the door for rick perry, the governor of texas. two of his top political advisers have left to work toward gingrich. now they have free time, they can head back to austin and plan a presidential candidate -- campaign for rick perry which looks more likely than not. rick perry has this giant hole. he has an appeal to tea party activists and has a good path to the nomination. if anything, the realization that newt gingrich is not in the top tier of the presidential
campaigns means that rick perry can be and i would expect him to get into the race in short order. >host: where are members of the newt gingrich team defecting to? >> they are not affecting it yet. -- defect in yet. they're not going anywhere yet. they don't really have to. there is plenty of time left and there are other candidates who will get into this race. we will see michelle bachmann chjohn been probably before the end of the month. rick perry is thinking about his campaign.
they are not exactly leaving one place to start monday somewhere else. the fact that they are leaving the gingrich campaign is evidence enough that he is no longer among the top tier of republican contenders. host: give us a sense of how this happens behind the scene. how does it happen to have so many go in one big block? guest: 4 charlie, i have not had a lot of people quit on me. i guess that is the happy part of my career. this is something that has been building for weeks. it does not just happen overnight. the same thing happened with the mccain campaign. many folks left over growing discontent. it finally comes to a head and i
finally end up leaving. it is not something that just happen spontaneously. it happens over a long period of time. >host: what do we expect to see from newt gingrich? who will listen to now? guest: he has always listened to himself. he keeps his own counsel very closely. he will continue campaigning. he has a events sunday in california and he will participate in the presidential debate on monday in new hampshire. his strategy for the strategies of his advisers that they disagree with had to do with trying to make a big impact at this early debates and try to set itself apart from the field. i would look for fireworks from him. he has to beg -- he has to go big or go home now.
he is having trouble raising money. he is not able to tap into the large network of corporate contributors that gave to newt, inc, his groups that are not his presidential campaigns. campaign laws prevent those contributions to a presidential campaign. newt gingrich has to do something big to get back into this race and make it known that he is the candidate who still has the biggest and best and oldest ideas. we will see if he can do that, monday in new hampshire. it is back is against the wall, he may be up for it. host: thank you for being with us.
call in on what you think the future of the new gingrich presidential career it is. if you support other republican candidates, call on the republican line. all other callers -- let's go to tampa, florida. who are you supporting in the gop candidate race so far? caller: good morning and thank you for cspan. i enjoy the show very much. i'm a faithful watcher. i am supporting rudy giuliani. i wish he would get into the race. i called his law firm in new york. i believe he is a viable candidate.
i think he can take on obama next year. host: do you think about newt gingrich? does he have a future? caller: i think he put his foot in his mouth with bashing mr. ryan. host: beverly, new jersey, frank, on our line. caller: i think it would be a mistake for newt gingrich to run for president. i don't think it is his time yet. i think you'll just see a personality and a political fascination of some of the baggage that he might bring with them. i like him and i think he is a good man. i think he would do a good job but i will support herman cain. i have been listening to what he has to say and i really like what he has to say. i truly believe that he really
cares about the united states. i would like to see a head to head african-american race for the presidency of the united states. i would like to see how the liberal democratic voters who go in and push the button for president obama, go in there and how they could possibly vote for this guy. he has done absolutely nothing for our country. i don't think he has any idea what to do. host: go to norman in illinois. what do you think about newt gingrich? caller: i am sad. i was hoping it would begin rich against president obama. he would be incredibly easy to beat. newt gingrich is typical of republican family values. he served his first wife divorced papers when she was suffering from cancer in the hospital. he has been married three times.
he has had numerous affairs when he was married. he is exactly what the hypocritical republicans of today are. that would be brought out and there would be many independence that would galvanize the democrats to make sure that gingrich would be defeated as much as obama would be reelected. thank you. sheila, is go to democratic caller, from georgia. what do you think about newt gingrich? caller: i don't want to make this personal but it was personal to me -- i am from carrollton, ga., his hometown when he was my congressperson here. my husband and i owned a bakery. he was supposed to come to our bakery. to get a photo opportunity.
he had somebody call me in the morning that he was supposed to come and ask how many employees we had. it was summertime and in the south bakery's don't do that well in the summertime. the next thing i know is i get a call saying that he is coming to town and will pass by the bakery but he is too busy to stop. host: that left a lingering impression for you it sounds like. caller: oh, yeah, i have always been very political and my husband was not at all.
let's go to dallas, texas, supporting another republican candidate. no pro-newt calls yet. caller i think he should get out of the race because he cannot survive. he should stick to being an ibm man. ron paul and he should be the successor to william f. buckley and ronald freeman. they did not run for president but they were conservative intellectuals and there were great for influencing the conservative movement. host: san francisco, calif., also supporting another republican candidate. caller: i could not agree more with what your last caller said. i'm not a newt gingrich supporter. however, i support republicans
to speak their mind and go against the typical republican mantra, a diluted republican mantra. i wish newt gingrich would maintain his role as a voice behind a curtain. i wish he would urge the conservative movement forward but not being its leader per se. host: the numbers to call are on your screen. in fort worth, texas, bett he joins us, good morning. caller: good morning. i personally never really considered newt gingrich a real viable candidate.
i have to agree with the tweet that said he was just promoting his book. someone who is serious i would think would stay here instead of going on vacation and do some actual work. as far as rick perry trying to move into his place, you might want to take go look at a star- telegram poll here in fort worth a couple of weeks ago. they did a straw poll with registered republicans. he got 4% who thought he would make a good president. i am not sure that most people realize that in texas, the governor is just a figurehead. i personally would never vote for mr. perry. i really don't want four more or eight more years of a george bush. host: you are a democratic caller? caller: i sure am.
host:"the new york times" says that the senior strategist of newt gingrich confronted him this week. mr. gingrich defended his holiday as a chance to get away and think but his aides chastised him for lacking the discipline to run a focused presidential campaign that could overcome rising doubts about his candidacy. from twitter -- in dayton, ohio, tom joins us, a democratic caller. caller: good morning.
i don't think newt gingrich ever had any prospects. i think the independence out there should be watching this very closely. a lot of republicans will start backing away from paul ryan's health care plan. people should watch what they are doing to newt gingrich because of his comments about the health care plan. host: what did you make of that? caller: i think they really want to dismantle medicare. they think it is a welfare policy. during the campaign, a lot of them will back away from that to get votes. that is what they're really wants. look at what they are doing to newt gingrich now. host: let's go to a new gingrich
supporter, good morning. what do you think? caller: i think people are counting out newt gingrich wait too early. i draw your attention to the last presidential election in which john mccain had his entire staff quit during the election campaign. i think it was even at a later date. he ended up being the republican. newt is very intelligent and i hope he does not have to get out of the race. it would be a terrible loss in terms of at least ideas even if he does not win. host: what do you think he brings to the race? caller: he is a towering intellect, in my opinion. he knows so much just from being
involved in the process but is also so intelligent. i think he has the real big picture view of how things work. there are things with him that i don't agree with and things i don't like in terms of his baggage here and there but that is true of any candidate. host: let's take a look at this story in "the washington post."
let's go to our next caller, the democratic column. good morning. what do you think about being rich? caller: -- what do you think about newt gingrich? caller: do not think very much about him as a man. no way under the sun would i vote for that guy, and i hope that he does not get elected or does not run, and i hope if he does run, that he does not get elected.
who: let's go to jeb, supports and newt gingrich in florida. caller: good morning. one of the things that came out recently was he had the church to go against paul ryan and the -- the courage to go against paul lion and the establishment on medicare. everyone else felt disenfranchised. he cannot run a campaign, cannot put it altogether. that shows that he may not be ready to be a leader, but if he can get out there and show that he can put another team together quickly, just as obama needs to show where he has been the last three weeks with the economy has been thinking that he has not been out front. that is one of my concerns. a lot of people in washington.
i do not believe that intelligence makes for a good leader. >> let's look at newt gingrich's background and history. he was the republican speaker of the house from 1995 through 1999, he is chairman of a communications and consulting firm that specializes in transformational change with offices in atlanta and washington. he served as general chairman of american solutions for winning the future. he also spent time at the american enterprise institute. he serves as a news and political analyst for fox news. in indiana -- or rather in nevada, last joins us. you are an independent color? caller: i'm a democrat. host: what you think about newt gingrich and how this might change the race? caller: he is pretty good at pr, but the republicans -- i think they are kind of forgetting that
social security and medicare and medicaid -- these are proven to work. call it obamacare, and say all the embarrassing things they want, but in massachusetts, it has an approval rating of over 50%. i just really miss the days of good, moderate republicans where we did not have all of this name calling and knee-jerk reactions.
the republicans in general would be in much better shape if they would have some general support people to run their party instead of these radicals. host: let's go to scott joining us from oklahoma city, joining us on our line supporting another republican candidate. weigh in on this for us. caller: thank you. newt gingrich is a long line of self-proclaimed conservatives who really is not. he does not have anything to say about ending the biggest headache of the country, the federal reserve. he does not want to do anything about the irs and several of the things that so-called conservatives just nibble on the
edges on. he is right along there with them. but ron paul is the only constitutionalist running for president and was the only one running in 2008, even though there were some people's contentions in both years. ron paul wants to abolish our biggest headache, the reserve bank. he wants to do away with things that others are saying you just need to reform, but he realizes that they are unconstitutional. privatizing social security, getting rid of the cia -- these things were not included in the constitution. at a commentook from twitter. one of our follow is making a big bear about governor sarah palin of alaska.
-- making a day there are about governor sarah palin of alaska. e-mails related to her time as governor of alaska coming up. let's look at this time from the "new york times." these e-mails coming out from 2006 through 2008. they were requested about a month after she joined mccain campaign as the vice- presidential nominee, and only now is the state releasing the e-mails publicly, but they are not making them electronic, so reporters are having to go to juneau, alaska, to get their hands on them. some will be uploading them electronically to the website citizens can read them. the "washington post" is doing what is called crowd sourcing and letting the old way in and give their to sense about what they find in the e-mails -- give their two cents about what they find in e-mails.
at least initially, the documents can be had only by either picking them up here in remote juneau, accessible only by plane or boat or having them shipped. as i mentioned, some will be scanning them, including some legislative offices in alaska, which believe they should be made public. let's go to some other political news right now relating to mrtt -- mitt romney. he plans to skip the iowa straw poll, and he offered the clearest signal yet that he may not compete vigorously in iowa. the "washington post" says this presents an opportunity for the former minnesota governor, let's get in east new kentucky
where a democratic collar joins us. weighing in on newt gingrich and of whether or not he can survive politically after many of his top aides survive. george, what do you think? caller: i do not even think he will run. this is a farce. one thing i want everyone to know -- republicans are a corporation. corporations are republican. democrats are obviously for the working class and the core. problem is the pork do not get out and vote -- the poor do not get out and vote. they should really do something about it. >> in chicago republican supporting another republican candidate. good morning. caller: good morning. i do have more of a comment. my comment is that our country is in dire need of everything right now, and i am so tired of
the media [inaudible] all these moral or immoral acts, and i would like the politicians to stand up and say what they have done. this is really wearing, and it covers up all the important issues that we should be concerned about. and, yes, the poor better start voting. i thank you for your time. host: looking at another of the big political stories of the week. congressman weiner told the "new york post" yesterday that he is not quitting office. he said he is making amends to constituents and trying to get work done. let's go to texas, an independent collar -- caller.
caller: good morning. thank you for this privilege. i feel like he will not make it. we need a businessman like donald trump or somebody. we need somebody to get up there behind the desk. host: what do you think, in your opinion, newt gingrich lacks? caller: he's got too much baggage. i just feel like he has not got control of what needs to go on. i just feel like he would be a drag on the election season. at anotheret's look story on mitt romney. the attacks coincide with the surge. he has delivered a widely panned defense of the health care
legislation he signed as governor of massachusetts, and has been -- >> you can see this segment in its entirety on our website, c- span.org. going live now to the national press club for a discussion on the economy and job creation with austan goolsbee. live coverage now on c-span. >> traditional levers of federal monetary and fiscal policy are in essence tapped out. the overnight federal funds rate is effectively -. yes, at the same time, bank lending and consumer spending have not yet rebounded. fiscal policy is now constrained by as yet unresolved partisan ideological wrangling over spending, revenue, and the conditions for raising the nation's debt ceiling. as our leaders did their -- and by the way, i think there are only 13 legislative work days remaining in the house of representatives between today and august to.
we are beginning to see clear unmistakable evidence of a gathering storm here first of april 18, there was the warning by standard and poor's. second, moody's expressed its concerns on june 2. two days ago, an adviser to the chinese central bank warned us surly that even a brief u.s. default would be open " playing with fire." -- would be "playing with fire." concern over eruozo -- eurozone cohesiveness, debt, and the ongoing europe, maybe affecting our budget deficit and our $14.30 trillion national debt set to grow even higher. herbert stein, who once served
as president nixon's chief economist, is often quoted for having said that something is unsustainable, it will stop. the committee for economic development is working to address these serious concerns in two ways. in your packets, you will find a copy of our report. please read it. it is not the typical policy steady. instead, what you will find are several journalistic scenarios of what the coming crisis could look like. this way down will, i think, persuade you that right now, we may perhaps be living through a time similar to august 1914 -- blissful denial soon to be followed by an unexpected shot -- shock and the lights out. approach is to recruit outspoken business leaders who will speak to our political leaders and the american public about the
urgency of ensuring fiscal stability. we have been carrying that message to senior leaders in the house, the senate. last week, to the white house, and also to our fellow citizens. with all of this balloon, is there any hope? -- with all of this gloom, is there any hope? today's presentation comes on the eve of next week's meeting in north carolina, president obama's council on jobs and competitiveness. today's report identifies the need for new business creation, indicate those sectors that are likely to generate these jobs, and lays out what we need to do to ensure that these jobs materialize. as always, it is an honor to share the podium with them. they are unfailingly bright, focus, profound, and relentlessly optimistic. to many, byron, susan, james, and the mackenzie colleagues, thank you for your work here
today and for being with us today. enjoy your lunch. i'm now going to turn the podium over to ced trustee and mckinsey director, lenny. [applause] >> thank you, charlie. i would also like to thank ced for collaborating with us on this event, and look forward to an interesting dialogue with you over the course of the afternoon for today's important topic. i would also like to read knowledge ced trusty bill lewis, who was the founding director of mckinsey global institute. it is good to see you here. before i introduced our honored guest speaker, i would like to take a couple minutes to speak about what motivated us to
publish this report. one of the most troubling institute, as well know, on the mind of leaders and all of us in this room is how we are going to drive growth and renewal in the united states after the deep recession we are in. we have been thinking a lot about this challenge and embarked on a multi-year and multi-faceted exploration of this topic. we have released two reports so far. one on the role of multinationals in the economy and one on the necessity of productivity and innovation in today's economy. we will be following up today's report with one on the importance of solving the debt and overhang issues in the u.s. and then finally won on u.s. public sector productivity. today, what we really want to talk about is jobs. we do not have all the answers to this or the other challenges we are exploring, but we do think we could help frame the discussion in a way that gives us the focus on the most
important issues that will help drive growth and renewal and job creation after this difficult recession. now, let me introduce our honored guest. austan goolsbee will give us an outlook on the economy, the recent jobs numbers, and then some commentary on the reports that my colleagues and i will be presented in a moment. i think you all know austan goolsbee, the chairman of the council of economic advisers and a member of the cabinet for the president. he is on leave, at least from a little bit longer, for the university of chicago school of business where he researched tax policy, american industry, technology and innovation, and a lot of other topics that are crucial to today's economic challenges. he was an economic adviser to president obama in his 2004 senate campaign and is a senior economic adviser to the president during his 2008 presidential campaign. prior to joining the administration more formally, goolsbee was a member of the
panel of economic advisers to the congressional budget office, a research associate at the national bureau of economic research and a research fellow at the american bar association. also a member of the u.s. census advisory committee. he is a former fulbright scholar. he was selected as one of the "financial times" 62 rooms of the future, the best under 40, and named a young global leader at the 2005 global economic forum. he is a frequent columnist when he is not advising the president, and importantly, he is a winner of the d.c.'s funniest celebrity contest. [laughter] with that, it is my pleasure to introduce austan goolsbee. [applause] >> thanks, everyone. i am just going to speak for a little bit. you have quite a program line up -- lined up.
charlie, you kicked us off with a note of optimism. i do not know if that was "we started from crisis and ended and the lights went out and no one was heard from again." [laughter] i would suggest in my reading of the report, that was not the main message i took from the report. i would say that is not the main message of the administration, either. charlie, you were speaking for yourself only on that one. i thought i would just talk about three general points and why i like the report. analytically, there are certain parts of it that i have quibbles with, but i think the effort is exactly what we should be doing because my first point is the nature of the recovery, where we are in crisis/recovery has changed quite a lot.
we go through the first year and a half, really. we are in outright rescue mode. the private sector is in freefall. in my view, anyone saying that what we should have done at that time is just get out of the way and let the private sector solve the problems itself i think was not really paying attention. because that was not in the cards. we are losing 750,000 jobs per month. the gdp is shrinking at a 6% annual rate. we are in the steepest decline, really, of most of our lifetimes. i will not say anything about anyone's age in this audience, but back to the depression days before we saw anything like that. we have now over the last six to 12 months shifted out of rescue mode into something like a transition.
we are trying to transition back to a growth mode where private sector companies start getting money on their balance sheet. they return to profitability. output growth exceeds productivity. so they actually start hiring. the last 15 months, the private sector adds more than 2 million jobs. the last six months, more than 1 million of those jobs in the last six months. we do have a negative jobs report this past month, no question. it follows three quite excellent jobs reports in the months previous to that. i do not think just in terms of what are the economic prospects -- i do not think it is a secret to anybody that you have a series of tragic disasters, both natural and man-made in japan, which have a clear negative impact on the supply chain of manufacturing, really, around the world, not just in the u.s..
you have the event of the middle east, the gas price shocks. some of these european financial issues. those headwinds waiting us down, slowing the growth at the beginning of the year. i learned for many years in academics that economists have very vehement arguments about predicting the past, so stay out of the business of predicting the future. i will simply note that the private sector forecasters and the fed are saying they expect that many of those forces were temporary/partial and expect a rebound in the second half of the year and going into 2012. the labor market remains heavily damaged. but it is on a trajectory of improvement. my point, one, is the nature of where we are in the business cycle is shifting. my second point is where the
focus of policy should be anywhere to expect recovery to come is also changing. so the correct policy, when you are in the debt of rescue mode is all about government- directed stimulus. it is not sustainable. that is not a creep -- critique for people to say this -- it was never meant to be sustained. the government involvement when we're teetering on the edge of the great depression is an advanced -- the government is the primary and in many cases only engine of recovery, but as you shift to better conditions, that is no longer true. it starts to become things that the government can do to facilitate the standing up of the private sector as the nature of where you would see that growth. before people become too directed to "if we cannot get
back to the housing growth we had in the 2000's, if we cannot get back to the consumption spending we have in the 2000's, we cannot recover -- that is the underlying premise of a lot of what you hear in the media -- think for a moment about the 2000's, compared to all previous expansions in the united states, and compared to international expansions in the 2000. looks extremely different. because it is heavily weighted to consumer spending faster than income growth, and to residential construction in the housing market. neither of which is sustainable. both of which were fueled by a bottle and are not, i would argue, a healthy model of what we want to return to. the healthy model that the president has outlined repeatedly that underlies -- when i was on jon stewart, i was
talking about the future, and he said to stop saying that. the basis of that is we need a broad based growth that is not just concentrated in excess of consumer spending and residential construction. we need export expansion. we need business investment to be a driver. we need research and development and innovation and small business to be the drivers of growth. we want it to be spread across a lot of industries, not just in the few that are the direct spillovers of bubble-field recovery -- bubble-fueled recovery. what i like a lot about the report is that it is engaged in the effort of the private sector thinking about where do we view the opportunities for growth going forward. let us not forget that the united states remains the richest country in the world
with the most productive workers in the world. my cea people, being who they are, say i need to stop telling the president that because he needs to stop saying that. they say on the purchasing power adjusted basis, the nation of luxembourg is higher than the united states. and except for 300,000 people in luxembourg, we remain the most productive in the world. for all the talk about china, let's not forget, we are some seven times to 11 times richer than them. in the same way that in my household, our three kids share a lot of growth in height is 100%, but that does not make them taller than us, and we should not forget that as an important component. we have extremely productive industries. we have gotten substantially
more competitive relative to other countries of the world over the last two years, while going through this wrenching downturn. one critique, i guess i would have, of the analysis, however, in the mackenzie report -- in the mckinsey report is the notion of jobs growth -- it makes the argument that there has been a section -- secular change in business cycles. 2001, there is no question that is true. it is almost two full years from the end of the recession before we generate any jobs in 2001. that is, in my mind, totally different from the business cycle we have just gone through. if you say, "how long does it take to get back to where you started?" yes, by that measure, it looks like it is a long time, but there is a major difference
between down somewhat and remaining stagnant and plunging the most you have ever plunged in 75 years and then working your way out of it, adding 2 million jobs over 15 months. that is not jobless recovery. that is, in my view, and incorrect definition of what jobless recovery is. remember that in 1991 and 2001, those are mild recessions. the 2007 recession, which begins at the end of 2007, is intensively deep. let us not confuse the rebuilding with what is stagnant. in the rebuilding, my fourth point -- the mckinsey report, and i would commend everybody to look at the jobs council meeting that is coming on monday -- they are thinking about a lot of these similar issues. they have been working on the factual basis, but the effort that the private sector that we
identify what parts of the private sector will there be opportunities and make sure that we get our workers trained today to be filling the jobs that we are expecting in the year, five years, 10 years down the road is critically important. the jobs council probably has some slightly different views of what are areas of expansion. in the mckinsey report, it foresees broad-based growth but a somewhat negative on the growth of manufacturing over the long term. ministration a jobs counsel are more positive on the prospects for manufacturing job growth -- the administration and jobs council. i think we anticipate quite a significant expansion of exports that we have been through because of some national and international imbalances
that will have a tendency to close, i think the prospects for manufacturing growth are fairly decent. in this part, we go way down. we have started coming back out of the whole -- hole. in this part of our coming back, we are still at a trouble spot and have a long way to go, but out of the 15% that has recovered, let's call it, that looks pretty good. it has been quite broad-base. manufacturing is had the fastest employment growth in almost 15 years. you have seen the health care sector, leisure, entertainment, media growing. you have seen services growing. you have seen retail trade growing. it has been far more broadbased than anything we saw in the 2000's, and the effort is we have to get the growth up, and it has to be powered by the private sector, so things like investment incentives through the tax code for business to build factories in the united
states -- that was an inconceivable policy. that would not have worked -- excuse me, we could conceive of the policy, but it would not have worked at a moment when the private sector is in freefall. we could have passed and investments of city in march of 2009. who in the private sector would have said it is a great time to go build a factory and by a lot of equipment in the united states when the gdp is shrinking 6.5% at an annual rate and people are seriously contemplating whether we are about to go into a depression? now, i feel like we are in a different spot, unless they listened to much to charlie -- too much to charlie. broad-based growth driven by the private sector, analyzed by the private sector, whether from mckinsey, the jobs council, or others, let us think about the areas where we have the opportunity. the last point i will say is we have to live within our means as
a government and as a private sector. on the budget, we have known about the long run fiscal challenge facing the country for 40-plus years, and that problem has not gotten materially worse in the last two years. the problem is rooted in the aging of the population, the acceleration of health care costs, and, i would argue, some of the tax policy choices made in the 2000's. we should and must address that, but let us not forget that that is not the number one issue facing the country. we must deal with that issue and live within our means, but the number one issue facing this country is that we grow, that we remain the richest, second only to 300,000 workers in luxembourg, most productive workers in the world going out now, five years from now, and 25
years from now. that means as we think about what must be cut, the what in many ways becomes more important than the how big. it is not an argument like in 2009 of how big the stimulus is, how big the contraction is. it is -- does it really makes sense to go cut education and training spending at a moment when we know that over the next six to 18 months, there is every possibility that companies will say, "look, we want to hire, but we need people with the following skill sets, and we cannot find people that have those skills sets. we have training programs that can have them ready to fill those jobs as we come out of the downturn, and it is important that we not skimp on the main drivers that have made us the richest country in the world. the skill of our work force, the investment in innovation and r&d, the kind of public and private investment in
infrastructure and capital that have kept us in those situations. so i thank you for your time, and i envy you the panels and research that you are all about to hear. thank you. [applause] >> austan, thank you very much. just two points i would like to make. first, thank you for being with us this afternoon. second, thank you very much for your public service to the country. you have a very important job, and you have held it extremely well. most of the trustees who know me would tell me that i am an optimist, for the most part. we're trying to galvanize the business community to get on board in helping to deal with some of these issues around the country's fiscal health and also the priority of economic growth. if i could just reverse the
normal phrase that you here in washington, we are from the private sector, and we are here to help. [laughter] i would now like to introduce james and susan from mckinsey, who are going to present the findings and recommendations of the report on job creation. james is a senior partner and is one of the leaders of mckinsey's global high-tech media and telecommunications practice. he has a distinguished academic background as well. having a bsc in electrical engineering, first-class degree from the university of zimbabwe. he then went on to be a rhodes scholar at oxford and holds a bachelor's, master's, and another master's degree in
electrical engineering, mathematics, and computer science. he has been a fellow at mit and also at oxford. we are honored to have you with us to present the mackenzie report -- mckinssey rep -- mckinsey report. susan is based here in washington. she has done an enormously wide- ranging amount of research on general issues relating to global financial markets, economic growth, global investments, saving trends, deleveraging, which we hope will soon be over, long-term growth prospects, and a number of very important topics for the economy and the country. she has been at mckinsey since 1996. she has a ph.d. in applied economics from stanford and also an undergraduate degree with class distinction from
northwestern university. james and susan, please come up, and the floor is yours. thank you. [applause] >> good afternoon. i would like to thank the national press club for hosting us today, and i would also like to thank the ced for convening this event, this wonderful event, and i would like to thank all of you for taking time out of your busy days to come and hear what we have to say and discussed what i think is the most important issue in the american economy at the moment, which is the issue of jobs. the issue is, to put it simply, that there are not enough of them, and if trends continue as they are, there will not be enough of them in the future. i think this is a pretty fundamental issue. we are all aware of the specifics -- statistics the
department of labour put out in the last couple of weeks. we could debate whether that is a blip or a trend, but what is largely up for debate at this stage is the fact that there are 7 million-plus americans who are unemployed. 4.3 million of them have been out of work for more than a year. unemployment rates are, depending on how you want to count it, 9.1%. those are pretty substantial fact that represent essentially a crisis. partly because this is a crisis for families and a crisis for america as a whole, and also from economic standpoint. especially at this time, the long-term effects of unemployment really make a fundamental impact on people's lives, and at the same time, for the economy to actually carry and manage and provide services for the large, unemployment public -- unemployed population is a substantial undertaking. these are substantial issues,
and with all due respect to the comments that i think austan made, the prevailing view has been that the economy expands, the right things will happen and jobs will follow. i think that presumption is a belief in question. i think it is a worthwhile debate and discussion to have, to actually examine the facts about that, and that is a lot of what we would like to discuss today. what we have done as part of this report we're going to talk about is we did the usual thing we do, which is to look at the macro economic data, the public data and private data we have access to, so we delve through a lot of that. we spent time with a lot of companies, both large and small, actually talking to them, trying to understand what they were doing, what was happening with jobs, and in addition, we did a pretty substantial survey of business leaders -- about two dozen companies participated -- as we tried to get to the groups
of these questions. i also want to make sure as a we're very grateful for the help we got. we could not have done this war without -- we could not have done this work without them, so we are very appreciative of that. with that, let me get into this. i am going to say some remarks and described the situation as we see it. my colleague will also take us through some of the explanations for why we think all that is happening. i would like to point out four interesting characteristics, just from what the facts seem to suggest. let me start with this -- it is quite striking if you look at the countries that we often compare ourselves to -- the u.k. and germany -- we obviously had a substantial decline in gdp growth. germany and the u.k. actually
had an even deeper decline. yet, when you look at the outcomes from a job standpoint over to the right, you can certainly see that our decline in employment is certainly the deepest. contrast that with germany. i think it raises some interesting questions about the kinds of choices and how we want to think about the choices we make as a society and how we deal with how the economy handle jobs growth and performance over time. as you will see in the report, there are some interesting striking things, for example in the case of germany, that germany did that are certainly worth looking at. not with an eye to replicating them because that is a different culture, but i think there are some instructive things to learn. let me point out to an interesting observation. two things are quite striking. if you take your eye from left
to right, the least skilled workers were affected the deepest. with the colors represent here, the green of the color -- if the color is very green, it means that jobs actually grew for that particular group. it is red, it gives you a sense of the deaths of the decline. as you go left to right, you will see that the least skilled workers in the u.s. economy suffered the most, but if you go to the far right, which probably represents most everybody in this room, you could argue there was not that much of a recession from a jobs standpoint, actually. maybe with the exception of financial services. in those sectors, as you go to the far right, most jobs actually grew. so that is the first observation. the second observation you can make is if you look at the rose by sector, the sectors at the bottom -- educational services, government, and health care -- effectively had no recession at
all from a job standpoint. you could argue those are the sectors that have some natural demand. but it is actually quite striking. the sectors that were hit the hardest -- no surprise, given the secular trend we have seen over the last few decades -- manufacturing is right up there at the top. these are some of the features of the character of the jobs decline we have seen in this particular recession. there is a lot of observation to be made. it is quite striking, but if you put the recession aside, it may well be that our jobs engine was already in trouble even before the recession. if you look at the net change of employment through these different periods, look at 2000- 2007. that was before the recession. job growth even then was not all that spectacular. in fact, you could argue, even
though jobs were growing in 2000-2007, it was probably of the kind you did not want. back to the commons that -- coments that austan made, much of that was linked to what you might call the bubble sectors. much of that was construction work. a lot of these were jobs that always go anyway -- education, health care, government. even that is still a troubling number, even though it is still a positive number. there is a question on the table about was the jobs engine already in trouble even before the recession? the recession just put a sharp light on the problem. then, because of the debate that austan teed up about, whether you call it a jobless recovery or not -- the point is the data is quite striking.
it is the case that you go back all the way to 1948, it used to be that what the chart basically shows is the lag between when gdp bounces back to pre- recession levels and how quickly jobs bounce back to pre- recession levels, so you can see from about 1948 to 1981, it happen more or less like clockwork every six months or so. gdp and jobs bounce back. clearly, something different seems to be happening. to be fair, in 2008, obviously, this was the deepest recession for a very long time, but from the point of view of work, if you are a worker, you still feel this because it still feels as if it is going to take a very long time. the? that is on top of 2008, if we keep creating jobs at the current rate at which we're
doing it, the number will end up looking like 60-something months. if nothing changes from the current trajectory. that is how long it will take to get back to pre-recession levels. this poses an important question about is there something fundamental that has changed quite apart from the fact that this was a particularly deep recession, yes, but has something else changed that causes us to rethink this presumption that as long as gdp comes back, jobs will follow? with that, let me hand over to my colleague, susan, who will take up the next piece of this. >> ok, thank you, james. this picture is troubling, and our research suggests that there are least three things that are different in the way the economy works that is producing these increasingly lengthy periods before we get employment back. unless we address these causes, is unlikely that we will, in fact, get the pre-recession level of jobs for another five
years. the first factor is simply that the competitive dynamics of the economy are different than they used to be. in recessions of the past, workers and companies with both share in the pain of the downturn. if you go back to the 1973 recession, you will see that for every percentage point decline in gdp, employment accounted for about 1/3 of that decline, but the productivity on the part of companies accounted for the other 2/3. fast forward to the 2000's. you see that the decline in employment makes up almost all of the decline in gdp. over time, companies have gotten better at restructuring and bringing efficiency out of processes, so this means that when workers are laid off, is more likely to be a permanently off than a temporary layoff, and rather than going home and wait a few months or quarters until they get the call back to work, workers are now permanently out of a job. this means they have to find a
job, at the very least, in a different company and likely in a different sector and maybe a different location, and all of this takes time. that brings me to the second cause of this increasingly link period it takes to regain employment -- lengthy period. that brings me to where the workers are and where the jobs are and the mismatch that austan talked about between the skills that workers have any skills that employers are look at -- looking for pure looking at the unemployment rate, you will see that the 9% unemployment rate hyde's wide disparity across states and counties. the states with the highest unemployment rate, nevada, is 14%. that is 10 percentage points higher than the state with the least unemployment, which is north dakota. we find that during this session, just three states accounted for 1/3 of all job losses, and that is california, florida, and michigan. the states, while they are
large, account for only 20% of the work force. at a time when many americans to be as mobile as possible, to go to the places where jobs are being created, we find that just the opposite is happening. back in the 1950's and 1960's, you found that one in five americans moved every year. that started to change in the late 1980's. today, with the housing crisis and people unable to sell their houses, you see it is down to one in 10. there are several different reasons for this decline in mobility. part of it is the aging in population. as people get older, they are less mobile. part of it is the rise in home ownership. we find a strong correlation between mobility and whether you are a lender or an owner. sort of unintended consequence of the rise in ownership. finally, you have the will income families. we hear from many interviews with companies that people are not as willing to pick up and move as they used to be.
at a time when unemployment is differ across the country, you have people less able or willing to pick up and move for their jobs. the second half of mismatch is about skills. it is a cruel irony that today, with 9% unemployment and the survey we did of 2000 companies, we found that 40% of companies who say that they want to hire in the next 12 months have had positions open for six months or longer already. this means they cannot find the workers they need. there are shortages in engineering and computer science, and we have heard about this for a long time, but we have heard about skill shortages across a right range of industries, occupations, and different levels -- across a wide range of industries, occupations, and different levels. an executive at one oil services company said it is so hard to find a welder who can work on an oil rig that they are offering salaries of more than $100,000
to get those people. there is a clear mismatch somehow between what students are studying and what they are learning about versus what employers are actually demanding. a final reason for this jobless recovery is is the sharp decline in the rate of new business creation we have seen over the last three years. this chart shows you the number of new businesses created each year. you see that in the 2001 recession, the rate of new business creation fell slightly, about 5%. the same would be true if we had extended the start back to the 1990's and 1980's. but in this recession, you see that the rate of new business formation has fallen by 23%. that is quite a lot. we calculate that had we not seen that drop off, despite the fact that some of those new start-ups would have already failed and gone out of business, you would have had 1.8 million more jobs in the u.s. today. addressing this -- reviving the
new business start up engine will be quite important. these challenges are important because as we look ahead over the next 10 years, we find that the u.s. needs to create 21 million jobs. this is 7 million jobs to replace the ones still lost from the recession and another 14 million jobs because our work force is still expanding. to create employment and get back to a 5% unemployment rate by 2020, the size of the challenge is 21 million jobs. we can argue, an economist will, about what a 5% unemployment rate is the natural rate or whether it should be higher or lower, but we did not take a stake in that debate and said if you take that as a ballpark, you look at needed to create roughly 21 million jobs. can we do it? where will those come from? we decided to take an approach that mgi has used in the past, very successfully, which is to
take a look at sectors of the economy. we did not build a macro economic forecast of where job growth is going to come from. the bureau of labor statistics has won out there. instead, we look at the big sectors of the economy -- six in particular -- that account for about 2/3 of employment today, and we calculate will likely account for 70% to 85% of future job growth. what we looked at was both the macro economic forecasts for demand in the sectors. we look at productivity trends and did a lot of interviews, as james manchin, with people in the sector to identify business models that could push job creation of or down -- as james mentioned. for each sector, we created a low, middle, and high scenario. only in the high scenario does the u.s. actually get back to 5% unemployment by 2020. on one hand, that is quite a
sobering result, and it illustrates the magnitude of the challenge before the country today. on the other hand, we think this is doable. if you remember the chart james showed you about the previous decade, this is the latest job creation you saw in every decade except the last one. we can get back to an economy that even resembles what we had in the 1990's, this is achievable. that means sparking innovation and having topline, sustainable demand growth that creates jobs rather than productivity gains that are driven more by labor- replacing efficiency gains. to get behind these scenarios, i will show you a bit about our sector projections. you see these six sectors at the top are the ones that we did what we call a deep dive. you will see that the big job creators over the next 10 years are likely to be health care, business services, and leisure and hospitality.
i could talk to all the different assumptions in each of them, but to give you an illustration of what this high job growth scenario looks like, let's consider health care. the demand is growing very rapidly for health care services. this is due to the aging of the population. people over the age of 65 spend five times as much on health care services as people under age 18, not surprisingly. at the same time, we had the potential expansion of insurance coverage to many americans who did not have insurance before. this could also drive expansion of demand. many people may ask if we are trying to control health care spending costs, and indeed, the nation is. that can be done in different ways, though. when we talk to professionals and experts in the sector, they say it is possible to control spending costs and not kill the job engine in this sector if we redesign how health care services are delivered and by whom. this will take some regulatory change in terms of the scope of practice laws, but if you look
across the u.s. today, you see some states have different laws regarding who can provide what services to home -- whom, but many models use lower skilled health care professionals to do many of their routine things like administer a strep test or get a flu vaccine. if we can develop a health-care models that equalize across the united states, you could see both job growth and a slower trajectory in health-care spending. manufacturing is another sector that folks look at what at. i will not say that our manufacturing forecast is not optimistic. remember, this is looking over 10 years. the manufacturing sector in the u.s. and every other advanced economy, including japan, south korea, the nation's you think of as big manufacturing countries, have seen manufacturing employment shrank over time, and that is simply due to
technological change. if we have 10 years where we actually hold manufacturing employment flat, that implies we are gaining share. rather than saying there is no potential year, that is quite an outside. indeed, it could be quite difficult to achieve the high job growth scenario if you have manufacturing continuing to shed millions of jobs, as it has in the last decade. even if we get to the high jobs growth scenario, the next challenge is will we have the people we need to fill those jobs? when we overlay the demand on the high job growth scenario, compared to the supply of labor or the future labor force projections, you see that at current trends, we are likely to have not quite enough college graduates. we see a gap of about 1.5 million. at the other end of the spectrum, we see nearly 6 million high school dropouts that are unlikely to have worked
for them. there is definitely a challenge in increasing the trend towards more education. potentially, as troubling or even more troubling is the fact that when students do get post- secondary education, they are often studying things that simply not in demand. at current projections, you see that in 2020, the u.s. will have somewhere in the neighborhood of 55 million college graduates, but you see it will have twice as many people with business and social science backgrounds like my own, than science, technology, engineering, and math. many of the people would go into science, technology, engineering, and math, like james, end up in business. there is sent that -- certainly something to be down around increasing the number of what we call the stem graduates. this is not just about college graduates. you see it at the vocational levels and the associate degree level as well. simply put, either, workers or students do not have enough information about where job
demand is coming from. as charlie pointed out, we do tend to be an optimistic bunch. despite the magnitude of the challenge, we also look at the ways in which technology is changing what we call the nature of work. many of the ways in which work is changing to pose potential challenges for workers, but it also opens up new opportunities for how and where jobs could be created. when we look across the united states at the spread of broadband and the spread of new employment scheduling software, you see that companies are able to deploy workers in a much more flexible manner than they were in the past. partly, this means what we call the virtualization of work. people can work miles apart on different coasts. they can work from centers in different parts of the country. they can even work from home very well with colleagues miles and miles apart. and miles apart. this i