August 8, 1972
Page 27232
REGULATING REGULATORS
Mr. MUSKIE. Mr. President, during the last few months, the Subcommittee on Intergovernmental Relations has conducted several days of hearings on S. 448 to bring the budget requests of our regulatory commissions directly to Congress rather than going first through the President's Office of Management and Budget. Testimony during those hearings, from chairmen and commissioners, pinpointed areas where their agencies have been significantly weakened by OMB cutbacks.
An excellent series of articles, written by Miss Kay Mills for Newhouse News Service, expands on many of the regulatory problems discussed during and since these hearings. I ask unanimous consent that the articles be printed in the RECORD.
There being no objection, the articles Were ordered to be printed in the RECORD, as follows:
REGULATING REGULATORS IS TOPIC Of HEARINGS (By Kay Mills)
WASHINGTON. – Virtually unnoticed, Sen. Lee Metcalf, D-Mont., has quietly conducted hearings over the last several weeks which go directly to the heart of protecting the American consumer.
The central question concerns how much power the White House, through its Office of Management and Budget has over supposedly independent regulatory agencies.
They are the agencies which regulate how much you pay for phone service, who runs your local television station, what claims a drug manufacturer can make about his product, or how much you are going to pay for gas heat.
These agencies, "originally established to protect the consumer," have become the "message carriers of the giant interests," said Sen. Fred R. Harris, D-Okla. To invigorate them means giving them the money to do their job properly – and to return control over their budgets to Congress, Harris added.
"We have a case here of a field mouse trying to control a rampaging rogue elephant, and the executive has left the mouse half-starved at that," Harris adds.
In addition to budget control, the White House also exerts its influence through naming commission chairmen, requiring clearance of agency legislative proposals through OMB, and keeping tabs on what information agencies seek from the industries they regulate, Metcalf's investigators learned.
"As long as the regulatory agencies are under the thumb of the OMB," Metcalf contended, "they will be reluctant to, or foreclosed from, asking for what they really need in money and manpower."
The Senate Subcommittee on Intergovernmental Relations heard testimony on these budget cuts for the current fiscal year 1972:
The most publicized of all, at the Federal Communications Commission, led to temporarily dropping an investigation of American Telephone and Telegraph Co. rates. OMB had cut the FCC request by $3 million – meaning the commission lost 128 additional jobs it wanted. After great public clamor, FCC announced it would resume the probe.
The Securities and Exchange Commission, which regulates the stock brokerage business, wanted to increase its staff from the 1,410 positions authorized by Congress in fiscal 1971 to 1,875. OMB cut the request by 313.
Federal Power Commission Chairman John N. Nassikas testified that $71,000 for an Alaska power survey was cut from his 1972 budget request. The survey, which would have indicated the states existing power capacity and growth requirements, "could make a worthwhile contribution to regulation," Nassikas said.
Looking at the current budget for fiscal 1973, Federal Trade Commission Chairman Miles Kirkpatrick said he had asked for $11.4 million and 582 staff jobs for the commission's antimonopoly regulation. OMB cut that to $9.7 million and 512 positions.
For consumer protection, FTC asked $17.2 million and 877 jobs which OMB cut to $14.5 million and 771 jobs.
Dean Burch, Communication Commission chairman, said someone must coordinate budget requests and set priorities, and added "we have no particular quarrel with the present system of an initial budget presentation to OMB."
But Rep. John D. Dingell, D-Mich., cosponsor with Metcalf of a bill which would return budget control over these agencies to Congress, disagreed. "Many people tend to regard this agency (OMB) as a tool for efficiency in government," he told the subcommittee.
"I tend to regard it as perhaps one of the really outstanding examples of abuse of executive power in America," Dingell added.
Metcalf objects to have OMB's power extended to the regulatory agencies. He said the present procedure provides "a dangerous potential" for restraining the effectiveness of the independent commissions.
The agencies covered by the Metcalf-Dingell bill are the FCC, FTC, FPC, SEC, Federal Maritime Commission, Interstate Commerce Commission and Civil Aeronautics Board.
FTC chairman Kirkpatrick was one of the few agency heads who clearly backed the bill. But he also testified that OMB had advised him the measure is "not in accord with the program of the President."
Some of the congressmen are anxious to return budget control to Congress because they contend the White House is more easily influenced by the industries the agencies regulate.
"It is easier for a Henry Ford or the head of AT&T to slip the right word into the ears of a single man in the White House than in the ears of all of our senators and Congressmen," Harris said.
If Congress controlled regulatory agencies' budgets now, the Oklahoma Democrat went on, "I am certain that . . . we would not have seen earlier this year the sorry spectacle of an FCC chairman, appointed of course by President Nixon, attempting to quash an investigation of the rate structure of AT&T, the first in history, on the grounds that staff was lacking."
That chairman – Dean Burch – testified that FCC had 20 auditors keeping an eye on the telephone company. He added that they would need about 50 more in the FCC's Common Carrier Bureau "to do about a halfway decent effort."
Yet after the Defense Department, one of the phone company's biggest customers, offered FCC the auditors to do the job, Burch expressed reservations. He questioned whether a customer and party to legal proceedings should "supply the investigative talent that determines their own complaint or their own allegation."
Harris said the White House erosion of congressional influence of the agencies has been gradual. But by 1968, he said the process had gone so far "that the Republican nominee was able to send a form letter to 3,000 executives and industry leaders pledging that during the Nixon administration, the Securities and Exchange Commission would follow a soft line."
Budget cuts can affect the number of personnel regulating an industry, the subcommittee heard. But OMB can also inhibit the amount an agency asks for in the first place, staff aide E. Winslow Turner said. Turner cited a memorandum the budget office sent to agency heads outlining the need to control escalation of grade levels of civil servants.
In that memo dated Aug. 5, 1971 OMB said that while the number of government workers declined by nearly 12,000 from 1969 to 1970, the number in high-paid categories went up 14,600. Even a fractional increase in the pay scales adds $160 million to the budget, OMB said.
The memo went on to outline ways to cut back high grade level personnel, then asked for regular reports on agency efforts to accomplish this.
Sen. Edward J. Gurney. R-Fla., called the OMB memo a "meat ax approach" to reducing the cost of personnel without consideration for the needs of the agencies.
What may also have rankled the senators was the fact that while the memo was directed to the heads of executive departments, yet the "independent" regulatory agency chairmen received it, too.
The memo again underlines what congress considers a slippage of its power. When the Budget and Accounting Act was passed in 1921, the regulatory agencies – such, as existed then – were considered arms of congress. But in 1939, President Roosevelt pushed through a Reorganization Act and brought the agencies under what is now OMB.
In addition to the power of the purse strings, the Subcommittee was reminded that the White House now appoints regulatory commission chairmen. Before 1950, the chairmanships rotated among commission members.
"Another control used by the OMB," Harris testified, is the requirement that OMB approve agency questionnaires seeking information "from more than 10 industries they regulate."
"These agencies also must seek the approval of OMB for any legislative proposals they wish to submit to the congress," Harris added, "and the solicitor general has veto power over the desire of regulatory agencies to seek Supreme Court review of lower court decisions."
But most of the commission chairmen who testified said that they had encountered little problem from OMB in these areas.
WHITE HOUSE ASSAILED FOR SEC BUDGET CUTS
(By Kay Mills)
WASHINGTON. – Sen. Lee Metcalf (D- Mont.) charges that interference from the White House Office of Management and Budget (OMB) has "thwarted and frustrated" attempts to police the crisis-ridden securities market.
Specifically, Metcalf pointed to million-dollar budget cuts and reduced manpower requests from the Securities and Exchange Commission. He called the reductions "the worst example we have that OMB influence in a regulatory agency destroyed the enforcement effectiveness of that agency."
In hearings just concluded, SEC Chairman William J. Casey, disagreed vehemently, sometimes pounding the witness table with open palm, saying, "Senator, that's an assertion that cannot be justified ... I'm going to do the job with what I have."
Metcalf just smiled and asked more questions to illustrate what he contends is undue power OMB and the executive branch hold over "so-called independent regulatory agencies."
Metcalf chaired the hearings of the Senate Subcommittee on Intergovernmental Relations, which is considering his bill to transfer control of the budgets of these seven agencies from OMB to Congress.
In addition to SEC, agencies which would be affected are the Civil Aeronautics Board, Federal Communications Commission, Federal Power Commission, Federal Maritime Commission, Federal Trade Commission and Interstate Commerce Commission.
The Montana Democrat contends these agencies – charged with policing such consumer concerns as charter flights, the broadcasting industry, advertising claims, household moving companies and utility rates – have been "prevented from doing their jobs because they haven't been given the proper budget" by OMB.
Since 1970, SEC has had added to its workload enforcement of the Securities Investor Protection Act, involving an insurance system for investors when brokerage houses collapse. It also faces pressure for increased surveillance of the financial status of broker-dealers.
SEC must also police the industry so people with inside information don't buy or sell stocks in advance and others don't defraud investors by misusing their money.
With all this turmoil, the industry "was and still is in a state of crisis," Metcalf told Casey. Yet the subcommittee has documented material showing "OMB pulled the string" on SEC and "completely shattered" attempts to build a staff to handle the work, he added.
For example, Metcalf said that in fiscal 1971 OMB cut 65 positions from the commission's request. In fiscal 1972, it cut 313 requested positions and 283 in fiscal 1973.
In terms of money cuts, subcommittee figures show that in fiscal 1971, SEC requested $22.5 million, from which OMB lopped $463,000. In fiscal 1972, it asked for $28.7 million and OMB cut $2.4 million. In fiscal 1973, OMB cut $4.1 million from the $32.3 million requested by SEC.
Casey countered by saying that his agency still grew despite the cuts – at a time when "the federal establishment was being asked to cut back by five per cent."
The SEC chairman said he has no difficulty with the present budget arrangement, understanding that there must be concentrated responsibility for setting national priorities.
Evidently, "OMB thinks that personnel must be built up on a more gradual basis in light of other considerations. I am ready to adapt" to that broad principle, Casey added.
Metcalf said Casey's testimony ends hearings spread over several months on his bill. "We're going to try to get consideration of the legislation," he said. But he added that Casper W. Weinberger, designated as the new OMB director, indicated he would recommend the President veto the bill.
"Confronted with a potential presidential veto," Metcalf said, "this bill may get pushed aside if we run into a logjam later in the session."
He added, however, that having the subcommittee chairman – Sen. Edmund S. Muskie (D-Maine) – devoting more time to legislation since ending active presidential campaigning won't hurt his bill's cause.
FTC PLANS RUN INTO SNAGS DUE TO MANPOWER CUTS
(By Kay Mills)
WASHINGTON. – Cuts by the executive branch into manpower at an independent regulatory agency – the Federal Trade Commission – have killed FTC plans to investigate costs of hospital supplies, medicines and surgical instruments.
FTC Chairman Miles W. Kirkpatrick said cutbacks by the Office of Management and Budget (OMB) have also:
Interrupted a study on concentration in the auto-making industry.
Eliminated any immediate chance to punish violators of the commission's program to back up advertising claims.
Slowed down checks on compliance with FTC orders to stop unfair or illegal trade practices.
Cancelled an investigation of business conduct of multinational corporations – such as International Telephone and Telegraph – to determine whether their practices adversely affect domestic competition and raise prices.
Kirkpatrick detailed these effects of OMB cuts in his budget for the fiscal year starting July 1 in a letter recently released by Sen. Lee Metcalf (D. Mont.).
The Montana lawmaker is sponsoring a bill to bring budgets of regulatory agencies directly under congressional supervision. Thus his concern with OMB practices.
The FTC chairman said OMB cut 208 jobs from his 1973 budget request, which meant eliminating 46 positions requested for consumer protection activities.
These cuts followed a $620,000 trimming from last year's budget – after Congress had granted the money, Kirkpatrick added. FTC had to abolish 72 jobs for half this fiscal year following that action, he said, adding that 31 of those positions would have been attorneys and consumer protection specialists working in regional offices.
Metcalf said Kirkpatrick's letter "portrays a picture of fiscal manipulation by the chief executive – a grinding down on personnel and funding – which, in my opinion, can only be translated into an 'anti-consumer' and 'antipublic interest' budget for this independent regulatory agency."
SORDID STORY
The senator labeled the situation a "sordid story" and said OMB cuts for next fiscal year represent "a disastrous impact on (Kirkpatrick's) consumer protection, competition, economic investigation and regional support programs."
Kirkpatrick said that at present the commission has only one man spot-checking business compliance with its cease-and-desist orders. A proper program would "require five attorneys full time in Washington" with substantial help from regional offices. "However, this program will now have to be handled on a limited basis."
On ad claims, the commission chairman said, "We probably could bring enforcement actions against roughly 5 to 10 per cent" of the claims for which substantiation was asked.
Even assuming most of those cases wouldn't go to trial, Kirkpatrick said, the program would require 15 lawyers full time, "and we do not have the resources for that kind of program at this time."
OMB disallowed 48 jobs – and $735,000 – in FTC's section handling competition.
"The commission had plans," Kirkpatrick said, using past tense, "to enter the field of hospital and medical costs, including the cost of hospital supplies, surgical instruments and other medical items...”
It wanted "to determine whether or not restraints of trade or unfair practice were contributing materially to the high cost of medical care."
FCC GIVES BANKS BREAK ON BROADCASTING STOCK
(By Kay Mills)
WASHINGTON. – The Federal Communications Commission has changed its rules to permit banks which had been openly violating FCC policy to retain nearly $900 million in broadcasting stock rather than sell it. On the surface, it looks like a dry – although multi-million dollar – decision. But a closer look reveals the stake big banks have in broadcasting – often owning stock in stations whose viewing areas overlap and therefore compete.
The banks maintain they have no intention of trying to control the stations, that they simply hold the stock as trustees for investment purposes.
Critics, such as FCC maverick Commissioner Nick Johnson, have raised the antitrust issue and the dangers they see in multiple ownership of broadcasting properties.
The rule in question involves the percentage of a stock a bank may hold in a broadcasting station before triggering FCC ownership restrictions. It had been 1 per cent, the FCC increased that to 5 per cent, while the American Bankers Association wanted 10 per cent.
The figures may sound low, but a communications lawyer said that in many publicly owned corporations, control can be exercised with such minor percentages. The ABA has countered that much federal law presumes control only at 10 per cent ownership or higher.
The FCC itself reported that if the rule had not been changed, 25 banking companies were violating the 1 per cent rule and would have had to divest – or sell – stock worth $976 million. The report was based on bankers association figures submitted in 1970.
With the rule at 5 per cent, nine companies must divest stocks worth $84 million – but the FCC gave them three years in which to do it. But the FCC move eliminated the necessity for all the banks involved to sell nearly $900 million in broadcast stock.
Neither the commission nor the ABA has identified the banks affected.
With the rule at 10 per cent as the bankers wanted, only one company would have had to sell stock – $4 million worth.
True to form, Commissioner Johnson dissented, saying that decision was made "to satisfy banks and bank-held broadcasters – a change adopted only to avoid divestiture."
Johnson, joined by retiring Commissioner Robert T. Bartley, wrote: "Those seeking relaxation of the Commission rules have totally failed to show how the public interest will be improved."
The majority, he said, did not discuss "the important issues concerning institutional ownership of the stock of other companies, questions of control, influence, collusive or parallel behavior, where a number of institutions own a company, and the impact of institutional ownership" on management decisions to serve the public.
"The majority is content to rely on the assurances" that banks won't interfere with the stations, Johnson said. He added, "One looks in vain for any suggestion that the views of the Antitrust Division of the Department of Justice were requested, despite the fact that the division has pending a suit against a bank's trust holdings of the stock of firms which compete with each other."
Stock ownership by banks figured in the controversy over attempts by Time-Life to sell five TV stations to McGraw-Hill. Ultimately, McGraw-Hill decided to buy only four of the stations.
But in the course of petitioning in the case, lawyers for minority groups protesting the sales sketched a portrait of bank ownership in broadcasting.
Each of four banks – Chase Manhattan, First National City and Bankers Trust in New York and First National of Boston – votes in excess of 1 per cent of McGraw-Hill Stock, the lawyers said.
They also had at least 1 per cent voting stock in stations which would overlap with the new McGraw-Hill stations.
For example, in Indianapolis, where McGraw-Hill bought WFBM-TV, there were two other stations operating directly in the market.
Bankers Trust votes about 59 per cent of the stock of Dun and Bradstreet, owner of one Indianapolis station, while First National City votes more than 1 per cent of the stock of the other owner, Avco Broadcasting, the lawyers said in their FCC petitions.
The petitions also said:
Stations serving Louisville, Cincinnati, Dayton and Ft. Wayne overlap some of the area served by Indianapolis stations. Some of these stations also are owned by Avco and Dun and Bradstreet as well as Taft, Cox and Sonderling Broadcasting.
First National of Boston holds stock in Sonderling and Cox, while Chase Manhattan holds stock in Sonderling and to the other banks' interests in Avco and Dun and Bradstreet.
In the Midwest in general, the lawyers said, the four banks own more than 1 per cent of the stock in companies which run 31 stations.
BANKS CAN KEEP RADIO-TV STOCK
(By Kay Mills)
The Federal Communications Commission has changed its rules to allow banks which had been openly violating FCC policy to retain nearly $900 million in broadcasting stock rather than sell it.
On the surface, it looks like a dry – although multimillion-dollar – decision. But a closer look reveals the stake big banks have in broadcasting – often owning stock in stations whose viewing areas overlap and therefore compete.
The banks maintain they have no intention of trying to control the stations, that they simply hold the stock as trustees for investment purposes.
Critics such as FCC's maverick commissioner, Nick Johnson, raise the antitrust issue and the dangers they see in multiple ownership of broadcasting properties.
The rule in question involves the percentage of a stock a bank may hold in a broadcasting station before triggering FCC ownership restrictions. It had been 1 percent; FCC increased that to 4 percent, while the American Bankers Association wanted 10 percent.
The figures may sound low but a communications lawyer said that in many publicly owned corporations control can be exercised with such minor percentages. The ABA counters that much federal law presumes control only at 10 percent ownership or higher.
The FCC itself reported that if the rule had not been changed, 25 banks were violating the 1 percent rule and would have had to divest – or sell – stock worth $976 million. The report was based on American Bankers Association figures submitted in 1970.
With the rule at 5 percent, nine banks must divest stocks worth $84 million – but the FCC gave them three years in which to do it. But the new FCC move eliminates the necessity for all the banks involved to sell nearly $900 million in broadcast stock.
Neither the commission nor the association has identified the banks affected.
FCC ADMITS IGNORANCE OF BANK IT REGULATES
(By Kay Mills)
WASHINGTON. – The Federal Communications Commission has confirmed that it lacks the names of banks which must sell millions of dollars of broadcasting stock to comply with a recent FCC decision limiting such ownership.
Sen. Lee Metcalf (D-Mont.), frequent critic of both banks and regulatory agencies, says FCC's position is hardly unique. "Collection of data on financial concentration is so inadequate that the government becomes ludicrous in its feeble efforts to determine facts and enforce laws and regulations," he said.
When the FCC issued its decision in May, it gave the banks three years in which to sell – or divest – any stock they held in excess of 5 per cent in any one broadcasting company. Holdings had been limited to 1 per cent.
At that time, the most up-to-date information the FCC had on bank-owned broadcast stock came from a survey conducted by the American Bankers Association in the fall of 1968 and submitted to the Commission May 27, 1969.
The ABA material contains no names of banks, referring instead to firms as Bank 1 or Bank 2.
John Doherty, an ABA Spokesman, said the survey was confidential. "As to who held what," he added, "that we couldn't release."
And "that is the only thing available," says Neal McNaughten, head of the FCC's rules and standards section. A thorough check of the files in the case indicates "there isn't a thing" which gives the names, he added.
That survey, quoted in the FCC ruling, said that if the stock limit were set at 5 per cent unidentified banks would have to sell $84 million in stock in nine firms.
Had the limit been left at 1 per cent, banks would have had to sell $976 million in stock in 25 companies. In a recent Senate speech, Metcalf said, "The commission's rules had been blatantly disregarded by the banks, and instead of enforcing the rules, the commission simply rewrote them.
"And it gave the banks three years to comply with the new 5 per cent rule. Then the banks may come in and get a 10 per cent limit."
As for how FCC could get the names when the time comes to enforce the rule, McNaughten said presumably the commission could require that the stations submit them. Such financial records generally are regarded as confidential at the commission.
The stock ownership level is considered important because of potential control by outside institutions over what programs a broadcaster runs or what news coverage he gives. In publicly owned firms, some laws presume control when one institution owns 10 per cent of the stock; some broadcast lawyers say that if stock is widely held, control can be exercised with 5 per cent or less.
The banks contended in their arguments at the FCC that they held the stock simply as investments, not to attempt to control broadcast policies. Doherty said the ABA doesn't know how many banks at present hold more than 5 per cent broadcasting stock, "there's no reason to think they have stayed the same, especially with the new order in effect."
While the bankers' survey names no names, it does draw a portrait of bank ownership in the broadcasting field, at least as of late 1968. For example, Bank 1 – whatever it was – owned 3.5 per cent of Taft Broadcasting stock, 9.5 in the Tribune Co. and 1.6 of Warner Brothers.
Bank 2 owned 8.4 per cent at Capital Cities Broadcasting, 1.5 of CBS, 50.8 of Corinthian Broadcasting; 5.6 in Crowell-Collier; 2.8 in Metromedia.
Bank 4 owned 4.4 per cent of Capital Cities, 1.3 of CBS, 2.0 in Metromedia, 1.4 in RCA and 4.9 in Westinghouse.
Bank 6 owned 7 per cent of ABC, 6.6 in Capital Cities, 1.6 in CBS, 8.1 in Metromedia, 1.4 in RCA, 5.1 in Storer Broadcasting and 2.5 in Taft.
Critics contend that in this way banks often own stock in broadcasting chains whose stations compete in various areas of the country.
Looking at it another way, three banks each owned 7 per cent or more of ABC with another three each owning more than 1 per cent. The same three banks which owned the biggest percentages at ABC also owned the highest totals at CBS with another five banks each owning at least 1 per cent.
For RCA, parent firm of NBC, five banks each owned at least 1 per cent.
In terms of stocks which banks would have to sell to meet the new ruling – again in 1968 figures – $28.6 million shares of CBS would have gone, $9.5 million of Metromedia; $1.1 million of Time, $22.1 of Crowell-Collier, $3 million of Capital Cities, $10 million of ABC, $3 million of Corinthian and $500,000 of Taft.