Transcripts For CSPAN3 Politics And Public Policy Today 20240622

I think it seems to me we all have agreement that we need to fix it, even within the department. And professor light, you made a comment that i think is very important, something im concerned with. We could work real hard, have all of these intensive negotiations, Everything Else, but it doesnt seem like its that difficult to me. I think that the money were spending now we need to come up with a simple fix. Not a 100 dollar saddle on a 10 horse. For those involved in this, keep it simple and get it done quickly. We need to get the Inspector Generals back to the point where they can do their job, a very important job that theyve done very well for many years. Thank you, mr. Chair. Before i ask questions i know that senator leahy has questions in writing to both panels. Expect that, and maybe from the other members that arent here. Whats the normal time that we wait . Up to one week well take questions for answer in writing. Youve all had a chance to read the oic opinion and hear the testimony on the first panel. My first question to all three of you is, what do you think the weakest ling of estest link of the oic opinion is . Mrs. Bryan. Theyre ignoring the fact that the congress meant all. Its similar frankly, as i know you have dealt with in the whistleblower protectionings where there is the question of any, did any mean any when congress meant any disclosure. Its a willful disregard of what congresss intent was. Mr. Light . It actually was in the order of presentation regarding the deletion of the house provision dealing with a blanket exemption from the privacy act. The oic reads this and says, well this is you know, the blow that congress did not intend full access. They deleted this statute with this eloquent language or or this provision in 1978. The oic actually reached that by saying that you know deletion allows with holding. In fact the deletion was a very mundane effort to clean up the statute. The senate is looking at the house statute and says you know, this provision is unnecessary sir and kind of insulting. The senate was concerned about, you know all of the justice departments, objections to this. There was a 1977 memorandum from justice that was very intense about the unconstitutionality of this concept. So the deletion of this provision is readily oic as the statement that congress did not mean access to all. And its wrong. The deletion is explained earlier in the laej lay tifegislative report, four page earlier that we were cleaning up certain features of this act. Thats it. But if you reverse the order, it looks like a dramatic moment of great Senate Consideration to dump this provision in an effort to say all does not mean all. I found that the most disturbing actually because youre reordering legislative history and that is absolutely not acceptable. Mr. Miller before you answer my first question, i want you to think about the second one, because were looking for the language that would make it clear enough to ensure that the Inspector General really do get access to all records belonging to their respect i agentive access to all records belonging to their respect i agentive agencies. You can answer both of those right now, mr. Miller. Thank you, mr. Chairman. The weakst part of the opinion is when it deals with the appropriations language, section 218. I think that was clear and i think the discussion of the oic. Thats probably the weakest part. To make it clear they do have language at various parts of the oic opinion. I believe on page 46 or so it talks about the notwithstanding language. It mentions that a number of places. On page i think it begins on page 45 but mainly on page 46, it talks about other statutes where it would not apply because it has language saying notwithstanding any other law or notwithstanding any statutory prohibition or disclosure et cetera et cetera. And then at the end it talks about a clear statement being clear manifest and unequivocal. I think any sort of fix would have to be clear manifest and unequivocal. I think thats on page 56 57 of the opinion, first full paragraph. And again, the problem with saying notwithstanding any other law is you run into this problem that you mentioned, mr. Chairman, that there are so many laws that, you know if you tried to list them all and say they dont apply. What if you forget one or what if one is passed after the statute. There is that problem. You know i do think that the counsel of ig on integrity and efficiency did come up with some pretty good language. And i quote that language in my written testimony at the end, and that simply says actually, i dont have it in front of me right now. But i read it earlier. But that language was very clear and says here it is. No law or provision restricting access to information applying to inspectors general unless that law expressly so states and that such unrestricted Inspector General access extends to all records available to the agency regardless of location or form. Okay. I think im going to end with this question, ms. Bryan. Your organization has been leading advocate of transparency and accountability about as long as the ig has been in effect. In that time weve seen the importance of having watchdogs within each agency that are truly independent. What do you think will be the practical result of the oic opinion Going Forward if we dont fix it legislatively . Thank you, senator grassley. Actually our origins, we were the project on military recruitment originally founded by your old friend ernie fitzgerald. The indications for whistleblowers who are generally some f the first line people are reporting to the igs. They will have legitimate concerns as they already do about coming forward now this is going to amplify the problem. But its also going to prevent the protection of the whistleblowers by the igs which is what were hoping the igs are going to be more capable of doing as they move forward. We see this as unnecessary in some senses because as weve heard before, and i think senator cornyn made a good point, fits wrong just withdraw it rather than congress having to change the law. It certainly appears that the congress was clear in what they meant. But we all know that the agencies will with able to take advantage of what they want to see from the olc opinion and as a result we do need congress to fix this or were not going to get the oversight that we need from our igs. I want to thank all of you for your testimony and for the large number of people weve had from the various ig offices. Thank you all very much. We untend to fix this. We will get it fixed and e with will have igs do their job which is very important. Theyre very essential to those of us who take the constitution of oversight very responsibly. They help us in that regard. They arent the only people in government that help us with that but theyre a very important part of it. Thank you all very much. Thank you. Thank you. Sunday night on q and a, former emergency manager of detroit, kevin orr talks about detroits Financial Issues and overseeing the largest bankruptcy in u. S. History. If detroit took the 1. 5 billion that it borrowed in 2005 and 2006 when the stock market went down to 6200 and invested it in an index fund whatever, the stock market is now trading at 18000, almost three times what it was. They not only would have tripled their money, they could have paid the pensions in full and got back in the business of declaring the 13th check, giving pensioners a 13th check at the end of the year in addition to the 12 they are due. So it could have fixed itself if there had been some sort of sober management Going Forward, just like any organization in the United States as well. If you have some strong leadership and some focused leadership, you can resolve these problems. But it takes a lot of effort. Sunday night on cspans q and a. At the Heritage Foundation education analysts talked about School Choice programs and the irp mentation of Education Savings Accounts including analysis of how School Choice has worked in arizona. This is an hour. [ applause ]. Thank you, john. And thank you, everyone, for being here today, which today would have been friedmans 103rd birthday. The university of chicago nobel prizewinning economist is, of course, considered the father of the modern day School Choice movement. And what a movement it has become. Today, 59 private School Choice programs operate in 28 states and here in the district of columbia. These options, whether vouchers, tuition tax credit Scholarship Programs, or Education Savings Accounts, which were here to discuss today, provide families the opportunity to choose schools and learning options that meet their childs individual and unique learning needs. Instead of being assigned to a school based on where their parents live, these models of School Choice and free people, free children from assignment by zip code residential policies that bound them to a school in their neighborhood. In other words, as Milton Friedman says School Choice ensures children are free to choose and free to learn. It was in 1955 that friedman first outlined this concept of School Vouchers. In iz essay the role of government in education fried man said that Government Administration of schools is neither required by the financing of education neuer justifiable in its own right in a pro dominantly Free Enterprise society. In other words, friedman argued we should separate the financing of education from the delivery of services. That is choose where a child attends school. He operationalized this idea of separating financing the education from delivery of services through School Vouchers. A set amount of dollars to School Families instead of School Districts. Enabling families to choose a school that met their familys needs. Milwaukee, wisconsin became the first city to implement friedmans idea. And in 1991 established the milwaukee Parental Choice program. It was the first large scale k12 Scholarship Program in the country. But friedman didnt stop thinking or tinkering with this idea of School Vouchers when that happened. In an interview with the journal education next in 2003, when friedman was 90 years old, he first proffered up this idea. He said why not voucher for math in one place, english or science somewhere else. Why should schooling have to be in one building. Why cant children take some lessons at home with the ability of the internet. He was very forward thinking. That brings us to esas. It brought friedmans idea of the partial vouch tore life. We will hear a lot today about how they work. But Education Savings Accounts, which allow parents to direct every single dollar of their childs education thats in their account to not just a single private School Choice but to multiple services and products and providers represent the next generation of School Choice. Esas are a refinement of that voucher model that friedman put forward back in 1955 and are one of the most promising ways forward for School Choice. Before i introduce our panelists, i should note it is ironic that after todays event to honor Milton Friedman who popularized theres no such thing as a free lunch, there will be a free lunch in the lobby. Jason is a policy and cyst with the center of educational freedom. He previously served as a legislator in the New Hampshire house of representatives and Education Policy Research fellow at the Josiah Center for Public Policy. He published numerous studies on Education Choice programs with organizations such as the Friedman Foundation for educational choice, pioneer institute, show me institute, and widely published in print and online media. He received his masters in Public Policy from the john f. Kennedy school of government at harvard university. Jonathon butcher serves as education director for the goldWater Institute. His work appeared in education next and georgetown journal of law and Public Policy. And his commentary appeared nationally in places such as real clear policy, national journal, along with newspapers across the country. Jonathan is a member of the Arizona Department of Education Steering Committee for the empowerment Scholarship Program, the nations First Education Savings Account Program. And hes also a senior fellow at the Beacon Center of tennessee. Jonathan previously studied education policy at the department of education reform at the university of arkansas and worked with a School Choice demonstration project. The Research Team that evaluated the Voucher Program in washington, d. C. And in milwaukee, wisconsin. And prior to that, studied education and family policy here at the Heritage Foundation. Jonathan holds a b. A. In english from Furman University and ma in economics from the university of arkansas. Last well hear from tim keller who serves as institute for justices Arizona Office managing attorney. He joins the institute as a staff attorney in 2001 is and litigates School Choice, economic liberty, and other constitutional cases in state and federal court. Tim led the institutes defense of the arizonas individual credit tax Scholarship Program and Tuition Organization v. Wen which culminated in a United States Supreme Court victory. Tim also successfully defended arizonas esa program. And perhaps what is the most interesting part of his bio, in addition to defending educational choice programs in arizona and nationwide, tim has helped knock down barriers to entrepreneurship on behalf of many hardworking individuals, including eyebrow fretters in arizona, african hair braiders, florists in louisiana. Among these victories was his work on behalf of christian elf, a teenager from tempe, arizona to put steel mesh around senior houses. Very interesting bio. Them he stepped in an and Arizona State agency demanded that the young entrepreneur procure an exterminators license. Very interesting bio. He has a degree in economics from asu. Please join me in welcoming our panelists. [ applause ]. Thank you very much, lindsey. Thank you, heritage, for putting this event together. As i was driving over here in my uber, i was speaking with the driver. He asked what i was doing. I said we were having a panel on the future of education. He said, well, you know, theres two ways to solve the problem with education in this country. So of course i was very interested to hear what he had to say. He said theres the natural way and the miraculous way. I said whats the natural way . He said the natural way is if a an angel of the lord were to come down and to teach us exactly how we should create a quality learning environment for every student at a reasonable cost. And i said well, thats the natural way. Whats the miraculous way. He said the miraculous way is youll figure it out yourself. I first heard from from Professor Jay green from the university of arkansas. It heights the challenges before us. One of the first places we should start is at the incentive structure. Milton friedman and other economists talked about four different ways we can spend money. He pointed out you can spend your money or somebody elses money. And you can spend that money either on yourself or on someone else. So when youre spending your own money, you have an incentive, very strong incentive to economize. When youre spending money on yourself, you have an incentive to maximize the value for what you get. The best structure is where youre spending your own money on yourself. Thats where you will maximize the value and youre going to economize. Unfortunately, our Public School system in this country is category four spending. Theres other people spending other peoples money on other people. So you have a weak incentive either to economize or to maximize value. We have seen the last four decades, the cost of k12 education has actually and this chart shows the total cost of k12 education, kindergarten through high school over the years has tripled. Inflation adjusted dollars. And yet we see that test scores have been absolutely flat over the same period. So were spending, even after adjusting for inflation, three times as much but not getting more bang for our buck. Part of this has to do with how much more we are spending on teachers and other staff. Theres been a staffing surge. Here this chart for the national enter for Education Statistics shows that weve had about a doubling in the student population since 1950. And yet the number of total School Personnel has gone up by about 400 . Teachers, only 250 . But the number of nonteaching staff has increased by 700 over that same period. When the number of students has only just about doubled. And parents arent getting what they want. The Public School system is actually crowding out other alternatives. So when this is a poll from the Friedman Foundation last year. They found that 40 of parents, if they had the ability, would send their children to a private school. Another 11 would home school and 10 go to charter. Wu if you look at where the kids are going 83 are going to the Public School system. So thats where friedman as idea that he discussed about 60 years ago comes in. The School Vouchers. As lindsey explained, the idea that we would separate the financing of education from the actual provision of education. To ensure every child had access to a quality education but wouldnt necessarily be the ones that was running the system. So going back to the four ways of spending money. That is a significant improvement. Now we have parents spending money on their own children, maximizing the value they are going to get. But theyre still using other peoples money. They dont have a very strong incentive to economize. And we see this with higher ed vouchers, also known as pell grants. That the tuition and fees have far outpaced the inflation over that period. This is called the bennett hypothesis. So School Choice, you see here in this little cartoon, theres the Public Education system, which is one size fits all. And then School Choice, you get a variety of options of different schools. But just as a shirt is not the sum total of ones wardrobe, schooling is not the sum total of education. And a voucher can only be used at another school. And so thats where Milton Friedman said, how do we know how education will develop, why is it sensible for a child to get all of his or her schooling in one building. Why not spend math in one place and english or science somewhere else. Why cant the student take some lessons at home, especially now with the availability of the internet. So Education Savings Accounts are Bank Accounts parents can use for a wide variety of educational expenses and save for future expenses. So this doesnt get us quite all the way and you see the arrow doesnt go all the way into the green box because the government is still putting a portion of those funds they would have spent on that student in a Public School into the account. So the parents are still spending other peoples money, to an extent. But now they are able to spend it in one place and able to save. With a voucher, if you get a 5,000 voucher, you can only spend that at a school and you have to spend the entire amount. A school would be foolish to charge less than 5,000 because if theyre getting a 5,000 voucher, theyre leaving money on the table. Here, though, theres downward pressure on price because there is no forward. They can save it and use it in multiple places. This allows for the unbundling of the education system. So what is it that is killing the soup newspaper so to speak. Its not just the Huffington Post providing the news sources. There is google, yahoo people are turning to. But things like match. Com and e harmony are taking a bite out of their section. Craigslist and ebay are taking a bite out of classified ads. Urban spoon, cars. Com, the automotive section, the culture and food section. So you have all these different players coming in and unbundling this whole bundle of services that the newspapers were providing. Likewise, we have the same thing happening in education. So john butcher and i did a study a couple years ago on the Education Savings Account program in arizona to see how are they using this program. 65 of the people in our survey were using the funds, the esa funds, for Traditional Private School education. Although a good number of them were also buying things like Educational Therapy. Now, in the first year these were all families with students with special needs. But they were also we just lost power on that. But they were using a whole bunch of services. Educational therapy. They were using can i get that back. Were going to need some of this. Keep talking. Okay. They were able to completely customize a la carte the education for their kids. Some of them were doing home schooling, some online learning. But they were able to figure out what worked best for their kids. We now have a question, how should we regulate this system. Essentially theres the taxicab cartel model and then the uber model. We have some people that believe, well, were going to let them have is choices. But essentially youre going to have to choose, you know, among you can choose any car you want as long as its yellow and as long as it follows these guidelines. The uber model says we will give more freedom to the drivers and we are going to allow the customer to have the ultimate say. Accountability is going to rest with the customer. Likewise, rather than having a system of common core and a system of standardized testing where everybody has to meet the same standard, we should be moving in the direction where there are actually different forms of accountability. There are competing standards. There are competing school models. Parents have the ability to choose among these different models and see what works best for them. Its a process of experimentation, evaluation, and evolution. So experimentation meaning that the schools are going to try different things. We dont know the one best way to provide an education. Assuming there even is such a thing. So we should have a system that allows a great amount of innovation and diversity. And then we allow parents and the end user, parents and students, to evaluate what works best for them. And then the evolution comes when there is a market response to that. Where the schools see where the parents are going, what theyre looking for. And they either, if theyre successful, they expand their model. If theyre not very successful, they change what theyre doing based on what is working and what parents and students are looking for. So thats the direction we should be going. And thats what educationsavings accounts allows us to do. Its a fundamental transformation of the system. Thank you very much. Ill turn it over to jonathon. [ applause ]. They are working on a backup. No problem. Thank you. Thank you, lindsey. Thank you, jason. Good afternoon, everyone. My name is jonathan butcher. Im the education director at the gold Water Institute headquartered in phoenix, arizona. Its a pleasure to be here in washington with you today. The First Education savings passed in arizona in 2011. It was right about that time that i got to know a couple of families. I got to know the family of cathy and jordan visser. I got to know Lynn Mcmurray and her children. And i got to know amanda and Michael Howard and their son nathan. I would like to introduce you to them for just a moment. So cathy and her husband christo moved their family from one part of the valley, as we call phoenix, to a different section, up to the northeast corner. And as they looked to move and find a new school for jordan, they saw that they were going to have to negotiate with their School District to find the best services for jordan. Jordan has mild Cerebral Palsy and some other learning delays. The school he was attending on the other side of phoenix, they had a preschool and Kindergarten Program that worked with his unique needs and were able to provide services that helped jordan make it through each day. When they moved into the scottsdale area, the School District wasnt prepared and wasnt interested in providing the services that jordan needed every day to make it through the school day. And so cathy and christo tried to negotiate and discuss with the district what jordan needed. But they could not come to an agreement on how to provide a great education for jordan. So, fortunately, for the vissers, this was about the time arizona lawmakers enacted Education Savings Accounts. Cathy and christo applied for jordan. They used their account first to send jordan to a private school that had a focus on helping children with special needs like jordan. As jason was describing just a moment ago, many of the families in that first year used their Education Savings Account for private education tutors services or Educational Therapy. What happened next is an interesting part of the story. It was after that first year that cathy and christo decided they wanted Something Else for jordan. They took him out of school and began paying for personal tutors, Educational Therapy that he was already receiving outside of the classroom, as well as Additional Services in the home for jordan. So his school day looks like a combination of providers coming to the vissers home to help him each day. And this was the idea. This is what separates Education Savings Account from the other options available today either in the traditional School System or outside the School System for children in arizona and nevada, tennessee, and mississippi, and florida. And this is why we are so excited about the potential that the accounts have for families across the United States. There is a video of cathy and jordan going to an educational therapist and paying for that service by taking out their Education Savings Account card which looks much like a visa card that i know many of you have your in your wallets right now. And they swipe it across the square on the providers iphone. And thats how they pay for it. So imagine with the complicated plans we have in the state and the federal government today, if our students anywhere could go and pay for a service unique to their needs with something as simple as that. Let me talk for a moment about amanda and nathan howard. Amanda and her husband michael tried early on, as any parent would, to help their son nathan learn how to speak. So they worked with the preschool program. They worked with the Kindergarten Program. And they tried to help get nathan to come out of his shell. Eventually they took him to a specialist who found that he was on the autism spectrum. So they found specialists outside the classroom to help nathan day to day. Still they were not able to get nathan to reach this important milestone that so many families look forward to with a child. In the first year of the Education Savings Account program, amanda and michael were some of the first to apply for their son. And it was after about six months of finding a school that was unique for children that were on the autism spectrum and some Additional Services outside of the home for nathan, that amanda was sitting on the couch reading a book to nathan when he pointed to a picture on the page and said whats that . And now it was amandas turn to be speechless. And these are the kinds of life changes that we see in families using the accounts that separates it from Everything Else that we have tried in the traditional system or otherwise to help every child have the chance at a great education. So finally, the last thing i would like to talk to you about is Lynn Mcmurray and her adopted children alicia, uriah and valerie. They used savings account after arizonas law expanded beyond just children with special needs. And lynns children were eligible because they were adopted from the States Foster care system, which shows how the law has evolved over time. I will speak to that in just a moment. Lynn and her family used the accounts to pay for Public School activities, such as Extracurricular Activities at the school as well as tutoring. So what is unique about lynn and her familys situation so lynn is my left, the top left corner up there. That is lynn and alicia in that picture. And then you have cathy visser and jordan on the tire swing there. So what is unique about their situation is they are using the accounts for Public School services. So they stretch beyond even what is offered in the private sector. And so weve talked about thats fair. Anyway. Im not sure which. Which button is it . Theres no button. You have to tell it. So on the next slide we have the howard family, which i talked about just a moment ago. So on the slide after next slide, please. You can go to the next slide. As jason was talking about, the amount of money that we spend on education across the United States is staggering. And he gave you some numbers about how much we spend at large. We spend about 13,000 per student across the u. S. But taken on the big scale, like jason was talking about just a moment ago, we are right around 600 billion in state, local, and federal dollars around the u. S. Thats such a big number. Its hard to visualize what that means. So lets look at it like this. How high would a pile of 1 million a make in thousand dollar bills if you were to stack them up. Seven inches. Now high would a pile of one billion dollars make in 1,000 bills. 28 feet higher than the washington monument. It takes on a whole new meaning. Next slide, please. The graphs that were up just a moment ago thank you with the map of the United States, the short story is that we dont compare well internationally. When you put the United States, were right down there about number 27. Compared to when you look at 15yearold math scores around the country. Next slide, please. If you look at children from highly educated families, families where at least one of the parents has a college degree, that figure is right about the same. So what that means is we actually dont really have two systems where our highly educated students are somehow over here and the rest of the nation is over here. We have a system when compared to other nations, regardless of where on the scale you look, right, the United States is still right there at about the bottom. Next slide, please. So what does the future of education look like . Clearly were here to talk about Education Savings Accounts. The state deposits public money in a private bank account that parents use to buy educational products and services for our children, as we have been describing. Next slide, please. Thank you. Next slide, please. We covered that part too. As i was explaining, educational savings account cards look like the visas you have in your wallet right now. There are five important issues that we talk about when we explain how this works state to state. We talk about eligibility, who is eligible, how to apply for an Education Savings Account, what the award is, the amount of each award, how the accounts can be used, and we talk about what the audit process is to make sure families are using the accounts for their intended purpose. Next slide, please. I know that you cant see whats on this chart. I have copies i can provide to anyone here. And i will email them to lindsey. The point of the chart is to explain there are five laws across the states. Arizona passed it in 2011. Florida passed it in 2014. And this year three states, mississippi, tennessee, and nevada, enacted educational savings account. What is important to note in the different areas that i was listing for you, audits, awards, are all slightly different from state to state. What that means is these states have taken an excellent idea about how to give every child the chance at a flexible education and adjusted it for the laws and regulations and the way that they do business in their state. And they have taken the time to make it something that will fit for the way that they have done Education Funding and even School Choice programs in their state. Next slide, please. In 2013, i did a focus group study of families using Education Savings Account in arizona. What we found were the two bars on the left that are taller than the others. When parents went to look for ways and ideas for how to use their empowerment scholarship account as its called in arizona, many of them went to a yahoo message board created by parents already in the program. There was no government rule. There was no prodding from the state department that pushed parents a to create this online message board. It was something they created because they knew parent to parent, mom to mom in most cases, that that was the best place to find ideas for how to use the new cards. As many families were talking amongst themselves about how to use Education Savings Account as they are we are going to the state department of education. Next slide, please. The next thing we asked is how satisfied they were. This was early on, generally speaking, in arizonas program. The satisfaction levels were very high both in this focus group and next slide please a larger survey of families using the accounts in arizona. What is critical about this chart right here is that the top bar was asking them how many had some level of satisfaction with their previous Public School before they moved to an Education Savings Account. Then we asked the same families how satisfied they were with an Education Savings Account after they had left the traditional School System. And you find that there was unequivocably some level of satisfaction without exception there among families when they talked about Education Savings Accounts. Even though in the prior question who said they were satisfied with their Public School. Which for a new program is a very good sign. Next slide, please. So what comes next . Now that we have five states using Education Savings Accounts, two of them now have at least one year of implementing these accounts among thousands of families. The next thing comes, how are state governments going to regulate the it . What are the rules going to be and how are they going to intervene . So what i would urge state lawmakers to do is go to australia, at least briefly. The reason is years and years ago, decades ago, the government of australia thought it would be a good idea to introduce king toads because beetles were eating their sugar cane. They got rid of the beetles and now they have a problem with cane toads. Oddly enough a couple months ago there was a news report that came out and said they found a humane way to kill cane toads. It has to do with catching them, putting them in your freezer and freeze them. Probably the same thing should be done with the heavy hand of rules and regulations that are going to be applied to Education Savings Accounts. We should put them on ice. Both arizona and florida lawmakers have written guide books for families and vendors who are active in the Education Savings Account programs in those states about the rules that work for families and keeping track of how they spend their money, tracking to make sure they follow the guidelines and the law. Same thing with the vendors, right. So we have states that have begun implementing these cards and awarding them to families. Those are the places we should be looking to guide us as we make new rules and regulations. In fact, nevada, just in the past couple of months, just in the past six weeks, they have begun Holding Public hearings about what rules and regulations they are going to implement. And nevadas laws is significant among all the laws because nevadas law is the only one that is available to every Public School student in the state. So is its going to be critical that they do, in fact, get the rules and regulations right for their program so as to provide great opportunities for all kids in that state. The last thing i would like to leave you with is also a quote from Milton Friedman. And from his book capitalism and freedom. I know many of those in this odd yes or no sure have read. Its so important and is shaping the way we have thought about not just the free market but also about education. He said our problem today, and hes talking about education e. Our problem today is not to enforce conformity. Sit rather we are threatened with an excess of conformity. Our problem is to foster diversity. And the alternative would do this and the alternative he is talking about is School Choice. Would do this far more effectively than a nationalized School System. That is what Education Savings Accounts bring to the United States. Now we can talk about education. What is more a learning experience as unique as the children that is using their account. Thank you. [ applause ]. In the opening scene of the avengers, the villain lokey arrives on earth and he declares that he has come with glad tidings of a world made free to which shields director nick furry asks free from what . Lokeys oneword response, freedom. The opponents of educational choice are trying to keep parents free from freedom. And unfortunately the opponents of educational choice programs have been at this for years. In fact the institute of justice opened our doors in 1991. And since then, there hasnt been a single day that we havent been in court someplace in this country defending an educational choice program. And today im going to give you a little bit of a preview of what is our most likely next School Choice case. Defending the program just passed in nevada. So we are expecting the usual suspects to bring a constitutional challenge to nevadas educational Savings Account Program in state court. Who are the usual suspects . Well, the individuals who are making the most statements are the local aclu, the national aclu, the americans united for separation of church and state, and, of course, the teachers unions. So some combination of these groups are likely to join together to file the litigation challenging nevadas esa program. They will do so in state court, not federal court. Why . Because in 2002, the u. S. Supreme Court Essentially took away all of the federal constitutional claims from those who oppose educational choice programs. And zelman v. Simmons, United States Supreme Court, said a program that is neutral with regard to religion, in which the government does nothing to either favor one religion over another and leaves the decision of which school to choose in the hands of parents so parents exercise a genuine private school will pass constitutional muster. Even in parents choose to enroll their children in Religious Schools. So there is no federal constitutional claim we expect to see challenging nevadas program. However, we expect to see them invoke two state constitutional claims. One of the claims i believe is a serious claim. The other claim i believe is frivolous. So im going to spend a little bit of time talking about the serious constitutional claim first, and then well wrap up with the frivolous constitutional claim. What is the serious constitutional claim . Well, nevada is a state that has in its constitution what is commonly referred to as a blain amendments. We find them in 37 states. What is a blain amendment . They are typically phrased to Say Something like there should be no state appropriations in aid of, or for the benefit of sectarian schools or sectarian institutions. Ill read you nevadas blain amendment here. It says no public funds of any kind or character whatever state county or municipal, shall, used for sectarian purpose. Thats nevada constitution article 11, section 10. Thats the provision we expect to be invoked to challenge nevadas esa program. So what does the term come from . It is named after a former maine u. S. House of representative, speaker of the house and United States senator james g. Blain. Mr. Blain served in the congress in the late 1800s at a time when we saw a huge influx of immigrants. Many of these immigrants were catholic. These individuals is were not warmly received by the protestant majority. We saw in state after state numerous clashes between the protestant majority and new immigrants, over primarily, though not exclusively, the common School System. You see the Common Schools of that are what we would refer to as Public Schools. Were not always the thoroughly secular schools were familiar with. In the late 1800s, they were primarily protestant in orientation. In fact, one of the goals of the early School System was to take children of catholic immigrants and essentially protestantize them or americanize them. There was real concern that somehow the catholics would take their direction from rome and upset our wonderful democratic republic. And so when our new found immigrants started enrolling their kids in Common Schools, they found a very hostile environment for their children. What they did is started agitating for their own system of publicly funded catholic education. If the protestants have their School System, why dont we have our School System as well. There was a tremendous backlash. A handful of states adopted blain amendments prohibiting funding of sectarian schools. And as the u. S. Supreme court itself has recognized, that word sectarian was code for catholic. It was an open secret. Everybody knew exactly what they meant. And so mr. Blain, who wanted to ride this wave of anticatholic bigotry into the white house, introduced an amendment to the u. S. Constitution, which would have prohibited funding for sectarian schools. In 1876, the provision passed the United States house of representatives with the required twothirds majority to send it to states for ratification. However, in 1877, the amendment failed in the u. S. Senate. However, it did garner a majority vote, just not the requisite twothirds to send it to the states. But because there was still a majority of senators and congressmen in the u. S. Congress, they were able to force or require new states entering the unit to include in their state institutions blain amendments dripping with anticatholic animus. That is interesting. Because the history there is slightly different. They voluntarily chose to amend their state constitution in 1877, the same year that the blain amendment failed at the congressional level, u. S. Congressional level. And the reason they did so was because the state assembly had been making appropriations to a catholic orphanage. There was a large Mining Operation in nevada. And unfortunately it was a very dangerous occupation. It still is. Even more so back in the late 1800s. And there were many orphans in the state. And the Catholic Church operated orphanages to take care of them. And the state had made a number of appropriations over the years to help control those costs. This was a huge source of controversy, primarily because the orphanages were themselves catholic. So an assemblyman named boxford introduced legislation that would ultimately became article 11, section 10, which i read to you a moment ago. And whats interesting is as the amendment was coming up for a vote, the nevada daily tribune praised assembly man boxman and and said this. This is a move in the right direction and will trust meet with the hardy approval of every citizen of nevada for this is a steppingstone to the final breaking up of a power that has long cursed the world. And it is obtaining too much of a foot hold in these United States. So you can see that nevadas blain amendment is also dripping with the same anticatholic animus that motivated the Blaine Amendment. So what does this mean for the challenge . It means, number one, we know exactly what the nevada blain amendment was intended to do. It was invented to prevent funding state institutions directly. It has nothing to say about programs that provide parents with benefits in a completely religiously neutral manner in which the state does not put its thumb on the scale in an effort to coerce parents to choose one option over another. In fact, it gives them free choice to choose the same schools they could choose without Financial Assistance to satisfy their childrens compulsory education requirement. So we dont think the Blaine Amendment itself, based on its historical purpose, applies at all to this program. Moreover, if you just look at the plain language of the provision and ignore its ugly history, the provision itself is designed to constrain the actions of government officials, not private citizens as to where they use their own private benefits. The analogy i like to use is with state medicaid. Medicaid is both federal and state dollars. But individuals are permitted to use those benefits at religious hospitals, religious health care providers. Why . Because the government itself is not making the decision as to whether to use those benefits. The government makes these appropriations for the purpose of providing health care. And they allow the recipient to obtain the health care wherever they would like. The esa serves the same purpose. The purpose underlying the nevada esa and all of the esas that have been adopted around the country is to improve education, to give parents control over their childrens education. To allow parents to uniquely tailor their childs Educational Program to meet that childs unique educational needs. From the states perspective, the only purpose that it served is education. No sectarian purpose is served. In fact, i think if you ask the parents their perspective on this, their perspective would also be that they are using these funds to obtain an education regardless whether they choose a Religious School or nonReligious School. If you ask any parent why they are using a Religious School, they would say they want their child to get a better education. So were confident we will be able to successfully defend nevadas esa program from the attack under the states Blaine Amendment as we have in other states. So what is the frivolous challenge . Well, shortly after we won our case in the u. S. Supreme court, the nea, National Education associations chief lawyer, was debating the issue of School Choice in new york. And he said weve lost the federal constitutional issues. We will now abandon the federal establishment laws. And we will turn to state constitutions. And we will grab on to any provision we can there from lofty principles such as church and state, to mickey mouse. Procedural issues. These are his words. Robert shannon. Now retired lawyer from the nea. He said we will pick and choose lofty principles and mickey mouse procedural tactics. Well, the other issue is you didnt expect that, did you . The other issue that our opponents have been talk building quite publicly is the provision of the constitution that requires the state to establish and maintain a Public School system. That provision says this. The legislature shall provide for a uniform system of Common Schools. And then goes on to say it shall be open six months a year and open to all students in the state. Opponents often grasp on to these educational uniformity clauses and make an argument that these clauses require the legislature to Fund Education exclusively through the Public School system. Their argument changes the meaning from one of uniformity to one of exclusivity. Now, theres only been one state that accepted this argument. That was florida in 2004. Since that time, every corp. To consider it rejected it and has found these provisions establish a floor not a ceiling. A floor upon which state legislatures are free to build other Educational Options for their students. And i think well be able to easily defend this program from this constitutional claim in large part because one of the issues when interpreting state constitution is to interpret the provisions of the constitution together so they dont conflict. And nevadas education article actually begins with this statement. It says, the legislature shall encourage by all suitable means the promotion of intellectual, literary, scientific mining, mechanical, agricultural, and moral improvements. When read in conjunction of a system of Public Schools, i believe its very clear that Public School system is the minimum requirement put on the Nevada Legislature and theyre free to establish other options such as Charter Schools, magnet schools and the educational Savings Account Program to provide their citizens with the most robust Educational Options for their kids. Why is all of this important . Jonathan told Great Stories and im going to conclude with a story myself. Because School Choice is impacting real people. I want to talk about a client from arizona whose name is austin fox. Austin has aspergers syndrome. He was in a school where he had a 2. 0 gpa. The reason he was struggling, as his mom described it, was that he experiences sensory overload in a large environment. For you sitting here this morning, its relatively quiet in here. But for every tapping of a pencil, every rustle of a seat it would be like vegas casino for austin. Try as the school might, his Public School just couldnt provide him the quiet learning environment he needed. He was desperate to get out of school. He couldnt stand being there. They really did try hard. This is not an example of a school that didnt bend over backwards to try and accommodate austins needs. They just couldnt based on the way the school was set up. He was about to drop out when the esa program was enacted. His mom begged him to give a shot. They found a small private school that actually functioned and operated very similar to a home school environment. Instead of sitting in a class, the students sat on their own and had a Master Teacher where they could master each individual subject, and as soon as they had mastered the subject, they could progress. Austin spent two years at this school. He started as a junior. He went from a 2. 0 gpa to a 4. 0 gpa. And he scored in the 98th percentile on the s. A. T. S and got a fullride scholarship to asus polytechnic campus. Pretty cool. Thats really incredible. So with that, i turn it over to lindsey. Thank you. [ applause ] we have ten minutes for q a. So if youll just raise your hand if you have a question and wait for the mic to come around to you. Yes, sir in the back there. Hi, im from the Heritage Foundation. This is a general question. The use of educational savings accounts are interesting. Instead of a school voucher, parents get to choose various aspects of their kids education and how theyre chosen. But my question is regarding University Admissions. University admissions are based on High School Transcripts as well as standardized test scores. If students are experiencing a diversity of aspects getting education from different sources, how do you think University Admissions will change in the long run . I think for students using Education Savings Account to attend a private school, theyll have a private School Transcript just like any other private School Student would. If theyre using it to home school, all states have home school laws that have within them ways to get a high School Transcript. So nothing changes there either. I think if a child is spending time buying individual online classes or, you know, paying for personal constitutors to come to the home, that would qualify probably under the home school laws so they would go through the same procedures. I dont think there was enough in the saving account that woint fear with the way students complete high school and prepare for college. How will that change how colleges handle their own admissions . I think that is a larger question. Lindsey knows more about Higher Education than i do. I think Education Savings Accounts moves closer to is finishing school based on proficiency and not just based on how much time you spent in a seat. Arizona has a program called the grand canyon diploma which allows students to test out of various requirements after even as early as ninth or tenth grade. And so i think arizona at least, i think there are other states doing something similar, theyre moving in this direction, right . Theyre beginning to see that seat time requirements are a thing of the past. I think both Education Savings Accounts and on line education are moving towards that. This is also an area where we can expect technology to step in. As i was preparing for today, i ran across an app that allows parents to basically categorize all the different places their child is receiving an education. It actually interacts with other wellknown educational providers. So if theyre obtaining online classes from a wellknown school like the veritas academy, it ranks that higher than if you just do something on your own. I havent investigated it tremendously, and i dont have the name unfortunately of the app, uhbut i expect these things will develop over time so students who are getting the a la carte education will be able to collect that data in one place and that app will help process it and package themselves so when they apply to colleges and universities theyll be able to demonstrate their mastery of various subjects. I think were starting to see universities reconfigure how they think about, admit students as well. And you think about just the fact that in general were starting to embrace competency based learning models a little more. You havent had a chance to read south hans pool house, hes a great example of how folks are starting to think about learning and education and how we measure that. Youre probably familiar with that great line in the book where he says right now the learning that occurs that a child whatever a child learns in school is variable when it should be fixed. And to competency based, we flip that model to make sure that learning is fixed and the time it takes to get there is what is variable. So as soon as youre ready to move on, can you move on. If you need more time, take more time. So were seeing that at the university level. I think University Administrators need to recognize that theyre doing it and that it also applies to k12. Yes, maam. If youll just wait for the mic. Mr. Keller, can you explain why the groups like aclu and the teachers unions are opposing this in nevada . I try never to presume motive that is actually a lesson i learned from the goldWater Institute. So, you know, better for them to address why theyre opposing it. But again, theyve been opposing the programs for over 20 years. We see challenges by those groups in arizona, georgia, florida. Theyre always the ones who are on the front lines leading these charges. Its probably worth noting the challenge they placed on the first esa program in arizona, they called it a voucher. They said this is still a voucher. Were going rule it was found unconstitutional. The court didnt. They said, no, this is fundamentally different than a voucher. So that was a significant finding in arizona along with other states that have passed the law. Yes, sir . Just a little bit of lateral thinking here. Im hoping i want to say, please tell me that arizona legislators are listening to so many pleased constituents about these educational savings accounts that theyve ishad a little light bulb go off in their head and say, how about Health Savings accounts . Originally the program was only for students with special needs. Theyve since then expanded it to a number of different categories. Children of military families, foster children, children living on native American Reservations children attending lowperforming Public Schools. So they are listening to their constituents. And jonathan mentioned the Student Satisfaction survey. One thing that is really important about that is we also broke down the questions on satisfaction by income. And the families that were the least well off financially earning 27,000 a year or less were the least satisfied with their previous Public School experience. More than half of them expressed dissatisfaction dissatisfaction. Just over one in five were satisfied. By contrast, they were the most satisfied with the Education Savings Account program. 89 said that they were very satisfied with the Education Savings Account. The rest were either somewhat or just satisfied. So the lowincome families have the most to gain, and i think that a lot of politicians are recognizing it works for everybody, especially those who are the least well off now. Yes, maam . What kind of safeguards are being used to protect the interest of Young Students that dont have responsible adults to advocate for them . In terms of how they use their cards, you mean . Thats a great question. In arizona, we pioneered this idea that the deposits to these Education Savings Accounts are made quarterly. So after a fiscal quarter ends parents report back to the state department of education what they use their cards for. They report their receipts back to the department. The department reviews them make sure everything is in line, and then they make the next quarters disbursement. The county can intervene and withhold funding from the next disbursement if theres a problem with the way the families have been using the card. To date, the Arizona Republic just recently said there have only been five instances where theres been a significant financial, you know, issue or misuse of the cards which among now going on probably, were getting close to 3,000 accounts coming up this school year. Thats pretty good for the first 4, 4 1 2 years of the program. Were never going to have a perfect system. We should judge policies by their feasible alternatives as opposed to some idea we know well never achieve. For example, no child left behind in theory, thats fantastic. The fact is that not a single state met the proficiency standards after dramatically lowering the bar state by state for what the standards were. So with the Education Savings Accounts by putting parents in the front seat again, theyre spending something that is like their own money on their own children. You aligned the incentives much better. Parents arent flying completely blind. There are a number of ways without any government regulation whatsoever we can provide accountability and we can empower parents to make better choices. One, private certification. If you think of underwriters, laboratories or the good House Keeping seal of approval, these are private organizations that come in and say, yes, this product or service meets our standards. There are crediting agencies for private schools and stuff like that. I think well see more of that as the market expands and there is more consumer demand for that private certification. Then there is private expert reviews. I think Consumer Reports or in food, you know, these are people who are experts in their field and they provide reviews of different products and services so that parents have access to that. I know that Manhattan Institute has something now and they just released and the other organization thats are building out this type of private reviews of schools. The most important so amazon. Com, angies list, yelp this is the way that users are able to share their personal experience with this product or service with everybody else. Matt who is an education expert in arizona told me that for students that are attending the great hearts Charter Schools said more than half of the parents that apply to the school have already checked them out at greatschools. Com, which is a place where parents can go to review the schools. So parents are becoming more armed with information. We want informed parents and schools to be accountable for the parents. I would just add, being the first state to pioneer esas, i think arizona really struck the right balance. They said, yes, fiscal accountability to taxpayers for how were spending the money. But accountability for outcomes should go to the people for whom that matters the most, the parents. They left that rest with parents. I think that is a good balance that they struck there. Time for one more question. Yes, sir . You think the Supreme Court will ever find in the first 14 precedent a right to publicly fund the educational choice for parents . The u. S. Supreme court has already said theres no federal constitutional right to a Public Education and those rights are found in each individual state. So i dont foresee a time in the future when the Supreme Court goes back on that rule. I just dont. Great. Thank you all for being here today. It was a great discussion. Please give another round of applause to our panelists. [ applause ] the alliance for Health Reform hosts a discussion today on the relationship between housing and health care, spskly on medicaid and housing policy. Panelists include an official from the housing and urban Development Department and local housing officials from around the country. Thats live at noon eastern on cspan. And at 4 00, a hearing on wildfire management. The Senate Energy and Natural Resources committee examine the impacts on communities prone to wildfires such as arizona. Wildfire experts as well as thomas tidwell, the chief of the u. S. Forest service, testified. Thats at 4 00 p. M. Eastern. And in unemployment news this morning, the latest jobs report is out. U. S. Employers adding 215,000 jobs in july with the Unemployment Rate holding at 5. 3 for a second straight month. The Associated Press reports monthly job growth has averaged 211,286 so far this year indicating that employers are confident that the sixyear recovery from the Great Recession can sustain strong consumer demand that require more workers. That from the a. P. Next up, a hearing with labor secretary thomas perez. He recently testified before a Senate Subcommittee on a proposed rule aimed at eliminating conflicts of interest for retirement advisers. Obama Administration Officials maintain the rules would discourage bending existing conflict of interest rules while financial industry representatives say they would increase costs for future retirees. A second panel of witnesses included critics of the rule. Welcome all our visitors, secretary labor, secretary perez, other members that will testify in a little bit. And certainly, always glad to have my Ranking Member frank in here. He keeps me straight all the time. If not straight, at least he keeps me laughing. You keep me laughing, too. Is that the proper thing to say . That sounds good. No, were good friends. We are. And youre the cosponsor of my very first bill. Thats right. I wanted to mention it on television. I appreciate it. It was the second comment i didnt like. Well talk about that later. Were going to not rehash our personal history. Only good friends talk like this. Let me welcome all of you now. A comfortable retirement is a part of the american dream. Unfortunately, the fine print included in hundreds of pages of Department Labor regulations, which seek to redefine a single word, fiduciary would deny millions of americans a chance to plan for one. Limit access to Investment Advice for the families who need it most. And in my opinion is a solution in search of a problem. By way of example, in terms of that one word being defined by pages of regulation, thats the regulation and the comments of the department of labor on fiduciary rule change. Just to give you an idea of the paperwork it took to explain it. Is that a gift for me . Im going to let you take that home and read it tonight. Or do whatever else youd like to do with it. The regulation intentions are commendable to ensure that low and middle income families receive the same quality of advice about their investments as wealthy people do. Under the proposal, people who provide Investment Advice must act in the best interest of the investors or forfeit their fees. Under the new rule, providers of Retirement Savings vehicle such as i. R. A. S and 401 k s must either enter into a contract that says it will act as a fiduciary and benefit the investor. The problem is that the regulations that govern the advisers would limit retirement accounts and increase fees so much so that low and moderate income people would be more low income, more moderate income and less informed. Also requires disclosure of more information that is reasonable or often times possible to provide. Advisers must estimate the cost, level of fees investor to pay over multiple years. Because fees often fluctuate as do rates and return, such estimates are inevitably wrong. For that reason, they are considered misleading and actually banned by the securities and exchange commission. In my private life of 33 years, i dealt with regulation z in terms of disclosure of real estate and mortgage information and expressing annual percentage rates and other rates of return at any one point in time can by its very nature be wrong the next day because of changes in markets. And you can penalize people for something that was no fault of their own. The regulation would also restrict i. R. A. Investors to a list of products that the department of labor deems appropriate. While the Labor Department should meddle in decision defies all logic. Yet, there is a one size fits all open approach would prevent investors from diversifying and ways to protect from the downside risk. The hundreds of Investment Options that Retirement Savers would have would be reduced to a mere handful for most americans. This seems entirely counterintuitive of increasing planned participation for all citizens of our country. Worse because investors must have a contract with their head advisers to receive recommendations about which to put in their investment counts. The millions of existing i. R. A. S and 401 k s would be blocked from getting ongoing advice because those contracts werent in place when the accounts were created. Millions of people will receive letters from the Brokerage Firm telling them theyll no longer be able to get personalized assistance. By one estimate, a third of the financial representatives would be forced to leave the business because they couldnt be properly licensed. And having a personal representative matters. According to the 2012 study, 3 4 of nonretired consumers contributed to an i. R. A. Plan, Retirement Plan or i. R. A. While fewer than half of the consumers that dont have advisers save for retirement. In other words, many working families will not be able to get the advice they need to feel comfortable about decisions that are made. Studies have shown that losing that losing personnel personal assistance for Retirement Savings could produce about 40 , the amount of savings saved by low and moderate income people. As i told secretary perez on the phone, im as interested as he is to seeing people get quality advice, those that advise him are responsible and accountable for that advice and do everything we can to prevent the access low and moderate income families have. The matter is not the goal. Its how you get to the goal and how you define it. In my judgment, that many pages of regulation and that much explanation of a single goal is entirely too much and too restrictive on the access to free advice that these people need to get. With that said, ill turn it over to our Ranking Member from minnesota. Thank you, senator, isaacson. This is my first hearing as Ranking Member of the employment and Workplace Safety subcommittee. And i look forward to working with my friend, chairman isaacson and members of the committee on the Important Role of the subcommittee plays with jurisdiction over a variety of employment issues, including workforce education and training, the health and safety of americas workforce, and workplace flexibility. In todays hearing, we are discussing another important issue, protecting americas workers Retirement Savings. And in particular, a review of the department of labors proposed rule to resolve conflicts of interests when managing the retirement nest eggs. We have read the headline time and time again that americans are not saving enough for retirement. I have heard it many times from hard working minnesotans about how hard theyre working just to keep up. And provide for their families let alone save for retirement. Saving for retirement is hard. And investing can be intimidating for those without any experience, leaving many to rely on advisers to help guide them through their Retirement Planning. Now, most advisers and brokers put the interests of their clients first. And i have heard from a number of them who have sent me letters recently in support of the department of labors proposed rule. Including im going to mispronounce charlies name. But its Something Like bolignino. I think it means meat sauce in in some language. But he is of side by side Financial Planning in plymouth, minnesota. And the best meat sauce comes from the western suburbs of minneapolis. Charles buck of buck Financial Advisers in woodbury, minnesota, and other minnesota Financial Adviser who has gotten ahold of me and in support of this rule. We will also hear from scott piritz later today. The managing director of rebalance ira and hell be testifying. He offers his Clients Asset Management and custom investment portfolios for iras and offers oneonone consultation. And he charges some of the lowest fees in the industry. But there are also those who charge much higher fees. And sometimes even lower returns for the retirees. And when that happens, its hard for working americans who are planning for retirement. And they pay the price. These hardworking people shouldnt have to worry about the fact that some advisers dont have their best interests in mind. I think we can all agree to that. The department of labors proposed conflict of interest rule seeks to address this issue. Many groups are supportive of dols role. But there are also those that believe the rule will result in unintended consequences. And thats what this hearing is about. And its why its so important. This is a process. And we will hear from a range of perspectives today to help us understand the benefits and short comings of the proposed rule. Thats why i was a little taken aback by the title of todays hearing, which is restricting advice in education, d. O. L. s unworkable proposal for American Families and retirees. If id been naming it, i could have named it d. O. L. s fiduciary proposal. What a great rule. But that i dont think that wouldve helped much. Right . No. Of course not. See, youre in agreement. I think that the departments intent with proposed rule is very clear to help american investors keep more of their hardearned money for retirement, but as the saying goes, the devil is in the details and that 400 plus pages gift wrapped beautifully. There are many details in this rule. I look forward to hearing from secretary perez to better understand how this proposed rule will work and from other witnesses on how we can make this rule even better. Thank you, mr. Chairman. Thank you, senator, franken. Well now turn to secretary perez, the department of labor. Secretary perez . Thank you, mr. Chairman. If you could hold your remarks to about five minutes, wed appreciate it. Ill do my best. Thank you. Members of the committee, its an honor to be here with you. I want to start by talking about a real person. Behind every regulation or proposed regulation is a real person. A navy veteran and electrician did everything right. He and his wife raised four kids in suburban chicago. They built a solid middle class life. They saved their money. They built up an impressive portfolio with vanguard. And when he was stricken with alzheimers and could no longer manage the finances, she made an appointment at the bank. Theyd used this bank for years. They trusted them. The banks investment broker told her to liquidate the vanguard portfolio and sold them a very complex, variable annuity to the tune of 650,000. Merlin was Something Like 75 or 78 years old at the time of the sale of this variable annuity. Elaine trusted this advice, thought it was in their best interest. The annual fee on that variable annuity. The annual fee was 26,000. And if needed to access the money right away, a 7 surrender charge would cost them more than 45,000. In the end, the brokers conflicted advice cost a hard working family more than 50 thourkds. 50,000. This story is tragic, but not unique. Also not illegal because someone concluded that the advice was suitable. Conservative estimates by the counsel of economic advisers placed the cost of conflicted advice at more than 17 billion annually. Arissa is over four decades old. In my parents generation, when you retired, you got a pension, pen, a party. And that pension was a defined benefit pension. Today, we have an 11 trillion market of defined contributions of 401 k s and iras. 11 trillion. Times have changed. Consumers now have to make critical decisions about how to invest these funds that they have so hardearned. And you know what, three of the most important decisions people now make are medical, legal, and financial. When you go to a doctor or lawyer, they have a medical legal obligation to put your best interest first. Its about making sure the same set of rules, best interest of the consumer, apply to when you are getting help in retirement. Most people assume the standard already exists. And that is indeed the case for many advisers like the one my wife and i use who is a fiduciary. And he puts our best interest first. The majority who operate under this commitment, who operate in this space are under no such commitment, although in many cases, their market actually suggests they are. Its important to make one thing clear and senator franken alluded to this. While there are undeniably bad apples, this is not a case about bad people doing bad things. Trying to do the right thing every day. The nub of the problem is good people operating within a structurally flawed system. A market that sees personal, financial interest of the visser and the firm all too frequently misaligned from the best interest of the customer. The result is what happened. So our goal in this proposed rule making is straightforward. To align the best interest of the customer with those of the adviser and the firm and i appreciate the support weve gotten from so many in the industry. People like brian moynahan, the ceo of bank of america who said we believe that doing in what is the best interest of our customers is the right thing to do. Jack vogle, the founder of vanguard, supporter of the rule, well hear from a witness shortly who plays in this space every day as a fiduciary, who said when you put your customers first it is great for your business. And a transcript from the house shows there is an interesting thing happening right now. The conversation is shifting from whether to have a bestinterest standard to ensuring that a best interest standard can be implemented. Im heartened by that shift and we welcome any and all suggestions on how to improve the proposed rule to make sure it can be implemented. We heard and understand concerns such as point of sail disclosure, date after tension and the mechanics of impleaing the best implementing the best interest standard. And as far as we dont lose sight of our bright star, we can get it done. This is providing guard rails and not straight jackets. And it is important as we remember going through the rule making that a subset of the add advisors operate nor a fiduciary model and serve a wide array of customers and serve small investors and they do it well. We know it can be done because it is being done by so many businesses. A number of folks have raised concerns that the proposed rule will shut out the small saver from Investment Advice. Entities such as the Consumer Federation of america, aarp, they take a backseat to no one and they are concerned about small investors and they strongly support this rule. And weve consulted with several profitable firms whose Business Model is all about working with the little guy. And there was an Investment Firm in palo alto called well front as they cite their success as living proof not only is it possible to provide fiduciary service at low cost to small investors nationwide but the market greatly rewards this effort. And when i talk to firms like this and tell them about the argument on the other side that our rule making will make it impossible to serve the small saver the most frequent advice i get is give them my phone number and my email because ill take their business any day of the week. I know that the industry can adopt to serve this 11 trillion market and im confident that we can work with them. Weve reached out in addition to small savers to Small Businesses who want to ensure that their employees have access to Retirement Plans to recruit the best and the brightest. Our proposed rule has a number of safeguards and safety valves to access Retirement Plan options for employees. As carry conklin, a Small Business owner from new jersey told us, i am all for this proposal. I dont have a big firm with our own inhouse Financial Team that can advice me, i want the Financial Advisers i work with be required to represent my interest. And we want to build a big table and invite everyone up. When you are building a rule, you have a big table and listen and have a healthy dose of humility the and that is our faith. Humility and a keen mind and ear. Our best interest is in the line of ronald reagan, trust but verify. The marketing material said you look out for your customers best interest and this is memorializing what is in those interests and we look forward to continue to hear from as many voices as possible. Weve extended the Comment Period. Were convening three days of public hearing next month and then well reopen comment after we publish the transcript of those hearings. We look forward to the engagement and we have gotten so much good feedback from so many businesses that have come in with a gettoyes attitude and they have challenges and questions and concerns but they have a gettoyes attitude and they recognize like jack vogelsong said it is great for your customer and great for business. This is about middleclass security and one of the pillars is Retirement Security and i look forward to working with this committee and the stakeholders to continue the process of producing a rule that will work for american savers and will work for American Business and work for all stakeholders. So mr. Chairman, thank you for your time. Thank you, secretary perez. We appreciate your attendance and service to the country. What if your rule was implemented as it is currently contained in this stack of papers here, what would have happened differently to merlin and his wife with the 650,000 they cashed in at vanguard and bought a variable annuity . What would you rule specifically have done with the 26,000 fee which was the maintenance fee annually or the early withdrawal fee or anything else you night have determined what was wrong. That person advising them would have to look out for what is in their best interest. Excuse me. I understand what they went to is a bank is that correct. Yes. Would that would a bank be considered to meet the fiduciary standard you require. They went to a broker dealer at a bank, so a broker dealer has an obligation had a suitability obligation, which is less which creates part of the challenges that we have in this situation. So the brokerdealer under the proposed rule would have an obligation to look out for the best interest of the consumer. And the challenge that we see, and the 17 billion annual cost of conflicted advice is born out of the fact that there are multiple products that can be suitable and that brokerdealer is totally within his or her bounds to then take four or five suitable products and steer the customer to the product that generates more fees for him or her at the expense of the customer and that isnt right and we think that should be changed. In your vision, how could they remedy the situation with the broker dealer. What would be the broker dealers obligation to the ladies and gentlemen who bought the variable annuity. To put the customers best interest first. How do you do that . What if he said that was the best interest of the customer . What penalty is there . What do you do to the broker dealer or the person offering the advice for what you consider is bad advice. You would file a claim for excessive fees to recover the losses incurred as a result of conflicted advice. So it basically creates a cause of action for an individual, if they feel like they have been aggrieved to file for a remedy, is that right. Right. And it has a provision in an individual claim like this that the particular bank could have an arbitration clause and they require if there is any claim that arises out of the service we provide it would be resolved through arbitration. That is one of the proposals in the rule that is in the red so the adviser would do that or the individual would no, the institution that is working with this individual could, as part of the agreement, working with that individual, would be able to include an arbitration clause. So in other words, if we have a problem, you cant go and file a claim in state or federal court you have to go through arbitration. I understand. And that is a proposal that is taken from we spoke to a lot of other agencies that are involved in this issue, s. E. C. And other regulators, and that is basically parallel to the procedures used in other agencies. Its a meritorious move. You made the statement i wrote so fast if i missed it, tell me. You said the rub of the problem is, quote, good people operating in a flawed system. Would you explain that. Sure. There is a misalignment between the incentives that a person giving advice has and the best interest of the consumer. So for instance, again, getting back to the tofls, if you have four or five different projects under the current suitability rule that are suitable and the first product, the variable annuity generates 26,000 a year in fees and another product which would have a comparable return has a fraction of those fees, you have perverse incentive to steer them to the product that generates the most fees. And again, that is totally permissible so im not casting aspersions on the person that does it, but im saying that is not right. And we can devise a system and i underscore what i said in my testimony, there is a substantial number of people including one of the witnesses from the next panel that operate under a fiduciary model already and demonstrated this can be done and this is being done. Senator franken. Thank you, mr. Chairman. Secretary perez, i know today is the last day of the official Comment Period. And next month a public hearing is scheduled, followed by a second Comment Period. Ive heard from stakeholders who said they are participating in this process and are thankful for the department that the department has provided opportunities for feedback. Can you share with us how the department has incorporated this feedback in the rule that we have before us today. Well, i can talk about the feedback that we have gotten. We havent made any decisions yet, senator, on what to do because the Comment Period is still open. So we want to take in all the comments that we get during that Comment Period. What i can say to you with confidence is weve gotten some weve gotten some great advice. And again, there have been a number of people who have come in from industry who talked about talked about how we agree there should be a best interest standard and we want a level playing field, as you staid from your testimony. We have concerns about things like theres a theres some Data Retention obligations. And we think you could do it differently. Theres a bestinterest contract framework, and weve heard feedback from folks saying its clunky and theres a more streamlined way to do it. We have a point of sale disclosure requirement and people have said that that is not necessary. And so what weve done in every circumstance when someone said that the best interest contract is clunky, our response is tell us how to do it better. How do we retain that north star of enforceable best interest contract and do it better . Thats the feedback were getting, and its been really, really helpful. And youve incorporated it. We havent made final decisions yet. We wont put out a rule until weve gotten all of the comments. Im confident if history is a guide the final rule will be materially different than and better than the proposal because you have to be a good listener in this business. We havent made any decisions and we continue to keep that open mind. And you are open to suggested fixes from industry were not only open, we have affirmatively reach lded out for it because theres a lot of folks who know a lot about this and we want to get their insights. Darlene miler from minnesota is going to be testifying in the next panel. Shes the president of Permac Industries in burnsville minnesota. Shell be talking about being a Small Business owner. She offers a 401 k plan on roughly 30 employees. Darlene is helping her employees prepare for retirement and setting the right example for many other businesses, but she has some concerns that the proposed rule will jeopardize her ability to provide this important benefit to her employees Going Forward. Can you assure us you will work with Business Owners like darlene to make sure that these rules dont have unintended consequences . I welcome the opportunity. I read ms. Millers testimony, and shes a very successful business owner, not to mention a minnesotan. Weve spent time with Small Business owners. Small Business Owners, what they tell me most frequently is im an expert at making my product, my widget. I have 10 or 15 people. I dont have expertise in 401 k s, but i know i want to offer it because i want to attract the best and the brightest. What we have done in this proposal is include a number of carveouts for Small Businesses so that they can continue to do that. And actually what we do to help protect people like ms. Miller is were changing the status quo, because the status quo right now and shes had a good experience with her adviser, and others havent. And when you have a bad experience with your adviser, under the status quo, if litigation ensues, the defendant is the business, not the adviser, because under the current status quo, the person providing the advice is actually off the hook. I think that is kind of perverse. And i think it doesnt help people like ms. Miller so i would like to sit down and explain to her the carveouts that help her and other Small Business owners as to why the status quo presented challenges for Small Business owners and we look forward to doing that with her and other Small Business owners. We look forward to doing that with her and other Small Business owners. Okay. Running out of time but let me end with this. Some have said this proposed rule may limit their ability to market their services and products to clients and limit Small Business employers and employees from access to education and financial advice. How would you briefly respond to that . Sure. Weve sought to clarify the line between education and advice. Education is critical. The educated consumer is the best customer. And what weve done here is clarify that, for instance, if you want advice on how to apportion your portfolio, how much is index fund or Asset Allocation. That is total education. Can you run simulations about different Asset Allocation models and that is education. Those are the critical nuts and bolts of advice. And what weve told people who have said to us, we feel the line between education and advice is either blurred or should be drawn differently, again, our response is how would you do it better and what ideas do you have . And so weve heard feedback to that effect. We attempted to be responsive the first time around and our proposed rule is quite different from the 2010 rule in the educationadvice context and we continue to look forward to hearing more advice. Okay. Thank you. For the benefit of the panelists who are going to testify on the second panel, im going to be very strict on the fiveminute rule. Id appreciate you holding your answers to a concise answer so we can get everybodys questions in. Were on a definite hard stop at 4 00. I dont want to cut our other testimony short by running out of time. Senator scott. Thank you. Good to see you. Thank you. Good to see you too. Over the last years s. E. C. Has been the primary regulator of brokerdealers and investment advisers. And that is why doddfrank involved them in revisiting the standards of care for security transactions and your rule making and referred to pages and pages of documentation about meetings and calls between d. O. L. Staff and chair whites staff. Now it is one thing to coordination but that doesnt tell us the whole story. I realize you cannot speak for chair white. She can speak for herself. But based on your private coordination meetings with chair white and the s. E. C. , is it your impression there is no daylight between your thinking and their thinking on this issue . Well, i cant speak for chair white on this. What i can certainly say is that the feedback from chair white and the career staff there has been extensive. Weve been talking to the housework force committee and given them i think 800 pages of documents showing the extent of the coordination. In short, i think the proposed rule is a better proposal as a result of our coordination. I would node we have some overlap. We are the agency that congress has encharged with enforcing erisa for over 40 years and while we have overlap we have distinct jurisdictional responsibilities and that is why it is in our lane and weve gotten good feedback from them and continue to incorporate it and we continue to have that responsibility. And that you guys are on the same page or you cant suggest you are on the same page at this point . What ive heard from chair white and she stated this i think a couple of times they shes that she thinks that the best interest standard is the right standard for the s. E. C. Purposes. The definition of best interest that we used in the proposed rule is taken from the 2011 s. E. C. Report that was prepared in the followup to the dod frank law and was done because we heard feedback we should try to harmonize to the best extent possible the work between the d. O. L. And the s. E. C. And in fact, the key definition is taken in large measure from that 2011 report. On the Fee Structure that you mentioned on the example that you gave on the person who had 700,000 and had what would be an appropriate Fee Structure for an investment with a proper risk allocation Asset Allocation. I wouldnt be able to answer that question because i dont know all of the facts about their risk tolerance threshold and what they told their client. Im sorry. Pardon. So you cant really answer that question. Do you have any idea what went into the actual Fee Structure in the product sold . Was it a mutual fund or was it it was a variable annuity. A complex instrument. Did it had a Lifetime Income factored in the Fee Structure. It did. And it was given to a person in his mid to late 70s and who kept copious records. And what i have seen, senator. Did it had a Life Insurance component. I dont know if it did. What variable annuities help guard against the risk and give you more reward and what ive seen in the outreach we have done is that weve had a number of significant challenges in the variable annuity context and this family, 50,000 is what they lost. And i believe the soninlaw came and testified because mr. Tofl passed away a few months ago and there was a hearing in one of the committees here and it was a sad story and avoidable i believe. And while i believe we do have an opportunity today to discuss the success or failures of a representative that in the most part so Many Americans will be dependent on Social Security than on funds because they will have fewer advisers in the market and i find youll have fewer folks playing at the most important level of access which is the minimum level of access, somewhere around the 100,000 to 200,000 accounts and i think youll have more folks making Investment Decisions on the internet where they can have help there. But too many people make their opinion on expertise but on who they hope is a good decision. And i disagree and there is a witness on the next panel who is doing a lot of work happy to continue the discussion. Senator murray. Thank you chairman, isakson and senator franken for holding this important hearing. Thank you to the secretary for coming to testify and our second panel. It seems to me that families have a lot to worry about today and questioning the advice that they get for their retirement account shouldnt have to be one of those things so we should all be concerned that workers are losing money out of their pensions that they were counting on for secure retirement and making sure retirement advisers are working in the best interest of their customers is essential for advisers and brokers and this best interest standard is best for the economy to make sure seniors have access to a secure retirement. So it is absolutely important that we get this rule right and i hope all sides will participate in this process and submit their comments and we make sure that the final rule reflects the important feedback that you have heard and i hope that our debate can really center on how to get the final language of this rule right. I know there has been an enormous amount of work put into this since the original version of 2010 and ive heard some critics say that the new rule is worse than that or we didnt learn from the 2010 version so i wanted to ask you, while you were here, can you walk us through some of the changes youve made since the 2010 proposal to make this one better . Sure. One of the critiques we heard is that there wasnt sufficiently robust economic analysis. There is a much more robust economic analysis. One of the concerns that was echoed was about a provision we had to regulate esops and appraisals and we heard from people that should be removed. That has been removed from the proposed rule. We heard that we need to establish a vehicle to enforce the best interest requirement and so the best interest contract vehicle is that vehicle. It was not there in the 2010 rule. We made a number of changes in response to feedback that we got from people about where the line between education and advice should be. And so that is another example, senator. And there are others. But in the interest of time ill cite those four. And again, what weve said is so give us feedback on how this works for you and how we can effectively implement it and if there are changes were all ears. And senator franken asked you about what you were hearing and you cited a number of things, monkey, data enrollment, point of sale discussion and a lot of things and i assume you are remaining open to making appropriate and necessary adjustments to the rule to ensure that both works and workable as you get comments back at the end absolutely. And again weve gotten great feedback from all stakeholders but weve had probably 50 meetings since the proposed rule came out and ive been impressed by the get to yes attitude and others have said this is the right thing to do and they have questions and concerns about how to do it and given us great feedback. And i want to also just ask, the current rule was established about 40 years ago. How has retirement market changed . If you could define that for us, since then that we should be conscious of in the ozzie and harriet world of yetteryer, people worked 30 years and at the end of it, they had their Pension Party and it was a defined benefit plan and now the world is shrinking and it is 20 of the market. You have defined contributions between iras and 401 k , that is 11 trillion market and roughly 2. 8 trillion in the d. B. Market and in a year from now that disparity will continue to widen. And so people have to own in the modern family universe, they have to own these decisions and that is why a rule established 40 years ago when 401 k was a rural highway in the midwest and ira was your elderly uncle, told those are part of our lexicon and that is why todays rule todays Consumer Protection framework needs to reflect todays realities. Thank you. Thank you for all of your hard work on this and for your continuing work to make the rule work at the end of the day, i really do appreciate it, mr. Chairman. I will yield back my time. I know you have a second channel. Senator baldwin. Thank you, mr. Chairman. I was told you werent ready. Are you ready now . Senator baldwin. Thank you, senator, for yielding and i want to thank the chairman and Ranking Member for convening todays discussion. Secretary, you just outlined some of the significant changes in the retirement market place. If you think about the ways in which it has changed since a rissa was passed in 1985 it is quite significant. I worry about what the future looks like for those trying to achieve the american dream, living in the middle class, worked hard their entire life but perhaps in the recession lost work, needed to dip into savings, needed to do so for sending their kids to college,