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Congress Must Learn from Enron DebacleCongressman Bernie Sanders – Press Release – December 14, 2001
Congressman Bernie Sanders (I-VT) today told a House Financial Services Committee hearing that the collapse of Enron requires Congress to investigate three major issues: campaign finance reform, pensions and the role that major accounting firms play in auditing large corporations. Sanders remarked, “The Enron collapse was brought about by a dishonest leadership which has ripped off the consumers of this country, their employees and the taxpayers. As a result of Enron’s actions we know that Congress must move forward to protect the pensions of all Americans. It is unconscionable that the management of Enron could sell hundreds of millions in stock before the collapse of the company, while they forced their employees to hold on to stocks that were plummeting. In that process, the retirement plans of thousands of workers were destroyed.
Sanders continued; “Congress must also learn from the Enron case that we need strong campaign finance reform. The impact that Enron executives had on the Bush administration, and the Republican Party, which received millions from them in campaign contributions, is incredible. Further, given the shoddy performance of Arthur Anderson, Congress must take a hard look at the role of accounting firm which are supposed to be independent, but act as consultants to drive up profits. Lastly, while the Republican economic stimulus package which provides billions in tax breaks to large corporations is absurd the idea of giving a $254 million dollar rebate to Enron is, even for Republican standards, totally insane.
On these three significant issues Sanders highlighted the following facts:
What did Enron get in return for their campaign contributions from the federal government?
Sanders concluded, “Congress must address these issues if it is to properly understand where the federal governments’ regulatory practices broke down in its oversight of Enron.”
Hitting the TrifectaThe New York Times - by Paul Krugman – December 10, 2001
Shortly after Sept. 11, George W. Bush interrupted his inveighing against evildoers to crack a joke. Mr. Bush had repeatedly promised to run an overall budget surplus at least as large as the Social Security surplus, except in the event of recession, war or national emergency. "Lucky me," he remarked to Mitch Daniels, his budget director. "I hit the trifecta."
Lucky him, indeed. The Enron analogy will soon become a tired cliché, but in this case the parallel is irresistible. Enron management and the administration Enron did so much to put in power applied the same strategy: First, use cooked numbers to justify big giveaways at the top. Then, if things don't work out, let ordinary workers who trusted you pay the price. But Enron executives got caught; Mr. Bush believes that the events of Sept. 11 will let him off the hook.
Earlier this year Mr. Bush used projections of vast budget surpluses to push through a huge, 10-year tax cut. Most of that tax cut went to people with incomes of more than $200,000 per year. Now Mr. Daniels tells us that the budget — not just the budget outside Social Security, but the whole enchilada — will be in deficit through 2004. Since the administration's phony budget math ("fuzzy" just doesn't cut it at this point) gets phonier the further you go into the future, this means that we have effectively returned to a state of permanent deficit.
However, with television busy reporting from the caves of Tora Bora, this revelation — which shows that the tax cut was sold on utterly false premises — wasn't even considered headline news.
Administration officials insist that the economic slowdown and the war on terror, not the tax cut, are responsible for the red ink. But this is flatly untrue: antiterror spending is a minor factor, and the persistence of projected deficits into the indefinite future tells us that it's not caused by the recession either.
Anyway, they're missing the point. Opponents of the administration's plan always warned that it was foolish to lock in a giant tax cut on the basis of hypothetical surplus projections. They urged, to no avail, that we wait to see the actual budget results. Now their warnings have proved prophetic — and ordinary Americans will suffer because they were ignored.
The administration now says that the tax cut was necessary to fight the current recession. But nobody is questioning the $40 billion in rebates actually paid out so far, and few would complain about another round of temporary tax cuts for the year ahead. It's the huge further tax cuts that will take place after 2002 — tax cuts that are now the law of the land — that are the problem. But we're supposed to accept those future cuts as a fait accompli. Hey, Mr. Bush hit the trifecta.
Meanwhile, the return of budget deficits has real, nasty consequences. Prescription drug insurance is, of course, dead. Bolstering Social Security? Don't be silly: payroll tax receipts are being used neither to acquire assets nor to pay down federal debt; instead, they are subsidizing deficits in the rest of the government.
And austerity rules, even in areas you might have thought were of the highest priority. Money to rebuild New York? Sorry, no. The government's own experts say we need $3 billion to guard against bioterrorism? Cut the number in half. Tax cuts are more important.
Meanwhile, state and local governments, savaged both by recession and by new security expenses, are firing teachers and slashing services. How about some revenue-sharing from the feds? Never mind.
Whenever they were asked, voters said that the "compassionate" parts of Mr. Bush's campaign promises — securing Social Security, providing more money for prescription drugs and education — were more important to them than tax cuts. But they were assured that there was enough money for everything. Those assurances were false — but the tax cut is sacrosanct, while the rest is expendable.
Mr. Bush could try to undo some of the damage, by canceling future tax cuts for the top income bracket. Instead, he wants to accelerate those cuts. That's the moral equivalent of the big bonuses Enron gave to executives just days before it went bankrupt.
Horse racing is a zero-sum game; so, it seems, is budget politics. Mr. Bush hit the trifecta; the great majority of Americans lost, big time.
Senator Says Enron Violated 401law, Should PayReuters - by Susan Cornwell - December 8, 2001
WASHINGTON - Sen. Barbara Boxer charged on Tuesday that one-time energy giant Enron Corp. broke the law when it prohibited employees from divesting company shares from their retirement plans.
Boxer, a California Democrat, urged the government to send Enron a bill for tax benefits it accrued for its pension plan, and then distribute the money to Enron workers who lost huge sums when the company's stock price collapsed.
She said she had written to the Internal Revenue Service (IRS) and the Labor Department, urging them to enforce the four-year-old law she authored to protect workers from being too heavily invested in their employers' stock.
``They are going to have to pay back taxes, because they got the benefit of being a government-qualified pension plan,'' Boxer told Reuters.
``They (the government) should enforce the law, they should disqualify the plan, and send them a bill,'' Boxer declared.
Enron spokesman Vance Meyer said the company, which on Sunday filed the biggest Chapter 11 bankruptcy case in history, would have no comment on Boxer's allegations.
The sharp fall in the share price that led up to Enron's collapse was calamitous for thousands of its workers who had heavily invested in the company's 401(k) assets although their investment plan offered them 19 choices.
Boxer's bill, enacted as part of the Taxpayer Relief Act of 1997, imposed new limitations on an employer's ability to require the investment of 401(k) elective deferrals in company stock.
WORKERS FORCED, SAYS BOXER
Boxer asserted that Enron fell afoul of the law when it blocked employees from selling company shares just before the company's disintegration. ``They were forced, and my bill says you can't force them,'' she told Reuters.
An aide to Boxer said Enron essentially became an employer-directed plan, covered by the law, when it told employees they could not move investments out of the company's stock.
``It seems to me they ought to be liable for that and the support of people who counted on them for retirement should be first in line,'' Boxer said.
Her letters were addressed to Labor Secretary Elaine Chao and Internal Revenue Service Commissioner Charles Rossotti.
``I believe Enron violated ERISA (the Employee Retirement Income Security Act) when it 'locked down' its pension funds, preventing employees from selling Enron stock held in their retirement accounts for several weeks,'' Boxer wrote.
Sen. Max Baucus, the chairman of the Senate Finance Committee, also said he was very concerned about the fate of the Enron workers who had invested in the 401(k) plans and had asked his staff to investigate whether there were any legislative remedies.
``I've asked the staff to look at that. I've asked them to give me some ideas,'' the Montana Democrat said.
Boxer's original proposal four years ago was much tougher than what ultimately passed Congress. Her initial bill would have limited the proportion of company stock in 401 (k)s to 10 percent of total plan assets.
She said on Tuesday she was unsure whether any more legislation was needed now, although she acknowledged that legislation might be needed to decide how to distribute any back taxes paid by Enron.
``I'm hoping the IRS can make that determination, but that may require legislation,'' she said.
Labor Dept. Investigating EnronAssociated Press – by Marcy Gordon – December 7, 2001
WASHINGTON - The government wants to know whether thousands of laid off Enron Corp. employees' retirement benefit plans were unfairly handled by the collapsed energy trading company
The Labor Department is investigating Enron's handling of the 401(k) plans, Labor Secretary Elaine Chao said Wednesday.
``Enron's employees have gotten the short end of the stick in the sudden collapse of this company and we are committed to doing everything we can to help them,'' Chao said.
The Houston-based company, which filed for bankruptcy protection from creditors on Sunday, prohibited its workers for several weeks from selling stock held in voluntary retirement plans while the share price plunged. In a statement, the Labor Department said many Enron employees lost 70 percent to 90 percent of their retirement assets after the company said it would restate its earnings. The department said it is reviewing Enron's employee benefits plans, the rules governing them and steps the company took shortly before its collapse to prohibit employees from making transactions with their 401(k) plan assets.
Chao also said the Labor Department is working with the Texas Workforce Commission to help laid-off Enron workers by providing information about how to apply for unemployment benefits and receive free job training. Enron has announced plans to lay off 4,000 employees and put another 3,500 on temporary leave.
Days before filing for bankruptcy, Enron paid $55 million in incentives to 500 employees. A spokesman confirmed the payments, which were reported by the Houston Chronicle, The New York Times and The Wall Street Journal, and said the bonuses were necessary to keep key employees from leaving the troubled company as it tries to revive its battered trading business.
Enron spokesmen at the corporate headquarters didn't return repeated calls to The Associated Press on Wednesday. The Securities and Exchange Commission also has been investigating Enron. Both investors and employees have filed several lawsuits. The SEC also has issued subpoenas to big accounting firm Arthur Andersen LLP related to its auditing of Enron's accounts.
News of the Labor Department investigation came as congressional scrutiny of Enron intensified. Reps. Richard Baker, R-La., and Sue Kelly, R-N.Y., who head two House Financial Services subcommittees, on Tuesday announced a joint hearing next week to examine the Enron debacle.
Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee, also plans a hearing into the company's collapse and its accounting practices. Tauzin is asking the SEC for documents related to Enron's books and records, and a team of committee investigators is visiting Enron's headquarters in Houston.
Following a stunning six-week downward spiral, Enron filed for Chapter 11 bankruptcy protection and reorganization and filed a $10 billion lawsuit against Dynegy Inc. for scrapping a proposed buyout.
Enron listed $24.7 billion in assets - about $38 billion less than it had two months ago - and $13.1 billion in liabilities, making it one of the largest U.S. corporate bankruptcies.
A cash and credit crunch following disclosures in mid-October of questionable financial partnerships had made it difficult for the company to continue doing business.
Just months ago, Enron was the country's seventh-biggest company in revenue. But investors and traders alike evaporated amid revelations of questionable partnerships that helped keep billions of dollars in debt off its books and the company's acknowledgment that it overstated profits for four years.
Congressional Probe Into EnronThe Hill - By Alexander Bolton – December 7, 2001
Citing the failure of House Republicans to scrutinize an energy task force led by Vice President Cheney earlier this year, Democrats on the House Governmental Reform Committee are planning to launch their own investigation into dealings between the Bush administration and the Enron Corp.
Although as the minority party Democrats cannot call hearings or subpoena witnesses, they say that has not stopped them in the past from conducting effective investigations by using the General Accounting Office, congressional requests, and their special investigations division.
Enron, once the world’s largest energy trader, filed the largest corporate bankruptcy in American history on Sunday. In addition to billions in bond and bank debts, the company owed $185 million to two offices of the Chase Manhattan Bank and $126 million to Barclays Bank.
The Democratic probe will likely focus on Kenneth Lay, Enron’s chairman and chief executive, who is also a lavish donor to the Republican Party and a longtime friend of the Bush family.
According to one Senate source, Senate Majority Leader Tom Daschle (D-S.D.) has asked for an investigation of the matter, but Sen. Joe Lieberman (D-Conn.), the chairman of the Senate Governmental Reform Committee, said he has no plans to do so this year. However, Daschle’s spokeswoman denied any knowledge of the request.
Earlier this year, Bush named Lay as one of his top energy advisers, even though Lay personally stood to gain or lose millions depending on which policies the administration adopted.
Democrats are interested in Lay’s involvement with Cheney’s task force and his influence on policy at a time when the country was mired in an energy crisis.
“Senior Enron officials obviously knew about deficiencies in the company,” said Phil Schiliro, chief of staff to Rep. Henry Waxman (D-Calif.), the ranking member on the Government Reform Committee. “There was a scheme for self-enrichment while the company was collapsing. Contemporaneously with that, Enron was lobbying for policies on the Hill and in the administration. At the same time they were continuing to give campaign contributions.”
In a letter to the vice president dated Dec. 4, Waxman demanded that Cheney release information about “secret contacts” his task force had with Enron.
“It is important to know to what extent the task force relied on information from Enron that may have been unreliable or self-serving,” said Waxman in his letter.
Enron officials gave $1.633 million to Republicans compared to only $667,000 to Democrats during the last election cycle, according to the Center for Responsive Politics. President Bush’s campaign received more than $270,000 from Enron.
In addition to regular campaign donations, Lay personally contributed $5,000 to the president’s Florida Recount Committee and $100,000 to Bush’s Inaugural Committee.
Members of Bush’s inner circle have had strong financial ties to Enron in the past.
Karl Rove, Bush’s political guru, owned between $100,000 and $250,000 worth of Enron stock as recently as May. And former Secretary of State Jim Baker, who oversaw the Florida recount for Bush, was hired as a consultant and joint-venture partner to the firm in the early 1990s.
Lawrence Lindsay, the president’s chief economic advisor, served on Enron’s advisory board and reportedly received $50,000 from Enron last year, according to Waxman.
Some experts say price caps imposed by the Federal Energy Regulatory Commission (FERC) at the height of the California energy crisis contributed significantly to Enron’s financial demise.
“Things got very bad when FERC imposed strict price controls,” said Tyson Slocum, who directs energy research at Public Citizen, a consumer rights watchdog. “That is what significantly reduced Enron’s ability to take in high amounts of income.”
Slocum said Bush and Cheney vehemently opposed the decision to put price controls in place.
House Democrats point to press reports from earlier this year that show Enron enjoyed an unusual level of access to the administration. Enron officials met with Cheney’s energy task force multiple times. On one occasion three officials participated in a private meeting with the vice president.
Less than a year later Enron went into bankruptcy, the largest corporate failure in American history, leaving thousands unemployed and shareholders empty-handed.
“What did Lay know, and what did the administration know?” said Schiliro.
“Then there’s a separate question about the relationships between Ken Lay and senior administration officials. … Senior executives enrich themselves to the tune of hundreds of millions of dollars in the largest collapse of any energy company in history, what did the administration know about it.”
Rep. Billy Tauzin (R-La.), the chairman of the House Energy and Commerce Committee, is currently conducting his own investigation. But Democrats want to make sure their concerns are addressed. In the past, Tauzin has declined to look into the Enron-White House relationship.
Ken Johnson, a spokesman for Tauzin said the committee would scrutinize the accounting practices of the company and remain alert for any impact in America’s energy market.
“No one from the White House has asked us to back off this,” he said. “Absolutely no one.”
Though Lieberman said he had no immediate plans to investigate the matter in the Senate, some of his colleagues are pushing for action.
“I think it’s absolutely necessary for [us] to hold hearings on the bankruptcy of this company,” said Sen. Dianne Feinstein (D-Calif.) yesterday
Worker’s Safeguards and Benefits TargetedWashington Post - By Michael Grunwald – December 6, 2001
Republican congressional aide Barbara Kahlow sent the e-mail to a dozen business lobbyists on Sept. 26: "Here's our non-public chart," it said. She underlined "non-public" and put it in boldface.
"This was hush-hush, behind-closed-doors stuff," one of the lobbyists recalled.
Kahlow explained in her e-mail that President Bush's new regulatory czar, John D. Graham, had "asked me to convene key lobbyists to identify and rank" regulations that business groups found overly burdensome. Her chart listed 57 of the most paperwork-intensive rules the business community wants to target. The rules, which deal with health, safety and the environment, govern everything from pesticide use to coal-mine ventilation, to standards for blood-borne pathogens. They cover such areas as air and water quality, food labeling, lead-paint disclosure, truck safety inspections, toxic-release reporting, and family and medical leave.
Graham, who became administrator of the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget in July, after a nasty confirmation fight, acknowledged last week that he had invited Kahlow and others to let him know about overly burdensome regulations. But he said he had not seen Kahlow's chart of 57 "sunset review candidates" and pledged not to change any regulations without input from affected agencies and the public.
Still, the chart and other documents from a fledgling anti-paperwork campaign provide another glimpse of behind-the-scenes strategy-setting by business lobbyists and conservative Republicans in government, during the Bush administration. In April, an industry memo urged lobbyists to get "DRESSED DOWN" like "REAL WORKER types" for an event promoting the GOP tax cut's impact on blue-collar families. In May, an energy lobbyist asking people to pay $5,000 to join a corporate coalition to push the president's energy bill warned in a letter that absolute unity was a must: "I have been advised that this White House will 'have a long memory.' "
Now there is Kahlow's e-mail announcing an Oct. 2 meeting with trade-group lobbyists and GOP staffers to discuss the 57 regulations. "We intend to share the group's list with [Graham] confidentially," wrote Kahlow, who served for 25 years as an OIRA official before becoming deputy director of the House subcommittee overseeing federal regulations. Her e-mail went out to the U.S. Chamber of Commerce, the National Federation of Independent Business, the Business Roundtable, the American Farm Bureau, the Associated Builders and Contractors, the Associated General Contractors of America and the Small Business Survival Committee.
The e-mail and the chart were provided to The Washington Post by a lobbyist who attended the meeting, in the House Rayburn Building. The lobbyist said he was disturbed by what he perceived as an "underhanded" campaign to use obscure paperwork guidelines as a back-door mechanism to gut long-established regulations. He said he was told that the campaign had Graham's blessing, if not his fingerprints. The campaign is being run out of the House Government Reform subcommittee on energy policy, natural resources and regulatory affairs, which is chaired by Rep. Doug Ose (R-Calif.), who is Kahlow's boss.
"This was a secret campaign to circumvent the process," said the lobbyist, who asked not to be named. "With Graham in that job, we figured we could get whatever we want."
Graham's background proved controversial when he was named to oversee the federal government's various rules. He founded the Harvard Center for Risk Analysis, a think tank that is funded in large part by industry groups and individual businesses and that has argued that many regulations and policies are misguided.
Graham's nomination as head of OIRA was opposed by liberal groups and Democrats, who declared him an enemy of regulations. He responded that he supported cost-effective, science-based regulations that promoted public health and welfare and was confirmed by a 61-37 vote.
In September, he signaled his intent to take an activist role in a memo to his staff, warning that "if not properly developed, regulations can lead to an enormous burden on the economy."
In an interview, though, Graham said trade groups might be surprised if they think they will get "whatever they want" in his tenure. He said he had invited business lobbyists and congressional aides to approach him to discuss bad regulations, but that he did not remember telling Kahlow to "convene key lobbyists" to pursue candidates for "paperwork & regulatory burden reduction," as her e-mail said. And echoing a point made by his liberal critics, he emphasized that just because a regulation is onerous does not mean it is bad. "I am happy to meet personally with lobbyists of all stripes to discuss burdensome paperwork and regulatory requirements," Graham said. "However, OMB will not order changes without considering the public benefits of these requirements."
Joan Claybrook, president of the advocacy group Public Citizen, said she wasn't surprised that Graham didn't remember telling Kahlow to convene lobbyists. She said he often replied to questions at his confirmation hearing by saying that he didn't remember. She warned that the Bush administration and its supporters in the business community had launched a campaign to roll back health and safety regulations that protect ordinary people from corporate malfeasance.
"There's no question where all this is headed," she said. "These lobbyists have no shame."
Kahlow declined to comment. But it is no secret that business-friendly Republicans in general and on Ose's committee in particular have pushed to rein in regulations and paperwork. In August, Graham's staff gave Kahlow a computer printout of government rules that produced more than 1 million hours of paperwork a year. Ose then asked OMB to evaluate some of them, governing new drugs, sewage sludge disposal and "safety management of highly hazardous chemicals."
Kahlow then whittled the printout down to 57 "candidates for discussion" before the Oct. 2 meeting. The goal, several attendees said, was not just to reduce unnecessary paperwork, but to persuade Graham to use little-known provisions of the Paperwork Reduction Act to try to weaken paperwork-intensive regulations. Jim Tozzi, Kahlow's former boss at OIRA, said in an interview that he used to do just that, using paperwork technicalities as an excuse to review otherwise untouchable rules. "I have to plead guilty to that," said Tozzi, who is now on the advisory board at the Center for Regulatory Effectiveness. "The paperwork is a way in, you know?"
Another lobbyist who attended the Oct. 2 meeting said that even though Graham was not present, he was almost there in spirit.
"There was the implication that it was something he would want done, if you catch the fine line there," said this lobbyist, who also asked not to be named.
But Bill Kovacs, the U.S. Chamber of Commerce vice president for regulatory affairs, said that even though his group supported the goal of reducing government regulations, it was not impressed with the strategies floated on Oct. 2. He supports a more systematic attack.
"You can't just put 57 regulations on the table and say, 'Go to it,' " said Kovacs, who did not attend the Oct. 2 meeting but sent three staffers. "It would be political suicide."
Some of the 57 regulations, after all, are potentially inflammatory. For example, some business groups would like to reshape the Family and Medical Leave Act to stop parents from taking their leave in small increments, but that could have significant political consequences. Unions would fight any changes to the so-called Davis-Bacon prevailing-wage rules on government construction projects. The Bush administration might be reluctant to tinker with food labeling rules, "needlestick safety" standards for hospital workers and community right-to-know requirements that force industries to disclose their toxic chemicals.
But regardless of the politics, the business community believes that many regulations provide negligible benefits to consumers or workers while inflicting unbearable costs to entrepreneurs. Larry Fineran, a National Association of Manufacturers lobbyist who attended the Oct. 2 meeting, said that paperwork was as good a place to start slimming down as any.
"The cost is just enormous," Fineran said. "And so far, nobody's done much about it."