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News - December 2000
THE WALL STREET JOURNAL - By ELLEN E. SCHULTZ - December 22, 2000
Big defense contractors are among those opposing a proposed new contract-accounting rule that would require them to make retiree medical benefits nonforfeitable, like pension benefits.
The new rule proposed by the Cost Accounting Standards Board, a quasi-independent body that develops accounting standards for government contractors, would affect millions of employees and retirees at aerospace giants including Boeing Co., Lockheed Martin Corp. and Raytheon Co. as well as those at other companies that also have substantial contracts with the government including Alcoa Inc., International Business Machines Corp. and General Electric Co. At all of these companies, the proposed rule would apply to defense-related workers for whom the businesses have received government dollars to fund the expense of future retiree medical benefits.
In a nutshell, the rule would require that, in order to obtain government funding for medical and life-insurance benefits for retirees, contractors would have to provide some assurances that the employees would actually receive the benefits. "The board believes there must be a greater expectation that the benefits will ultimately be paid to the employees," notes the proposed standard. "At a minimum the right to the benefits must be communicated to the plan participants, and the benefit must be materially nonforfeitable once eligibility is attained."
Millions From Government
In the past decade, contractors have received hundreds of millions of dollars from the government to pay for such retiree medical and life-insurance benefits. Such coverage typically provides medical benefits for retirees until they reach age 65 and qualify for Medicare, and afterward pays for items that Medicare doesn't, such as prescription drugs.
But, like companies in other industries, contractors have cut retiree medical benefits steeply in recent years. Allegheny Technologies Inc., General Dynamics Corp., Northrop Grumman Corp., TRW Inc. and Tektronix Inc. are among the companies that have made changes to their retiree medical programs that have reduced benefits, federal filings show. Some businesses have shifted more cost to retirees; most have limited the company's exposure to rising health-care costs by establishing maximums they will pay for benefits; a few, including McDonnell Douglas Corp. and Unisys Corp., eliminated medical coverage altogether for most retirees. Spokesmen for the companies confirm the information.
The CASB's concern is that, under current rules, taxpayer dollars don't necessarily end up being used for their intended purpose. "The board is concerned that the contractor could reap a substantial gain" if it discontinued its benefits, the CASB proposal states. The board's members are government officials, defense contractors and academics, and their mandate is to develop binding rules for the exchange of money between government and contractors. (The better-known Financial Accounting Standards Board develops rules for better disclosure to shareholders.) The CASB will issue a final ruling in 2001 following review of comments that were due this week.
Opposition to Provisions
The defense industry strongly opposes the nonforfeiture provisions, which "could jeopardize contractors' ability to control costs and thereby ultimately increase costs to the government," noted a comment letter sent to the CASB this week by the Aerospace Industries Association, a group of 64 trade members. It concludes that ultimately, the nonforfeiture requirement could lead companies to decrease or terminate benefits and would discourage companies from doing business with the government altogether.
"We don't want to be tied into a guaranty that employees are going to get post-retirement benefits other than pensions," said Dick Powers, a spokesman for the AIA.
Retiree medical and life-insurance benefits have been easy targets for cuts, because they aren't protected by vesting rules, the way pensions are. Once an employee is vested in a pension plan, earned benefits cannot be taken away, although future benefits can be reduced or eliminated.
Dow Jones - December 20, 2000
Two men pled guilty on December 18, 2000 in Chicago to federal racketeering conspiracy and pension fund kickback charges arising out of hundreds of thousands of dollars in commission kickbacks paid to two trustees of Chicago-based labor union pension funds.
United States Attorney Donald K. Stern, announced that CHRISTOPHER P. ROACH, age 34, and RICHARD S. TRINGALE, age 56, of Detroit, Michigan and Sarasota, Florida, pled guilty in the Northern District of Illinois to conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and with paying kickbacks to trustees of employee benefit plans. ROACH also pled guilty to tax charges stemming from the money-laundering and kickback scheme.
William V. Close, age 67, of Chicago, Illinois, a former trustee of the International Brotherhood of Teamsters, Local Union Number 710 and the Automobile Mechanics Local Union Number 701 pension funds, pled guilty earlier to receiving kickbacks and to money laundering.
Federal prosecutor Jeanne M. Kempthorne told the court at Monday's hearing that ROACH and TRINGALE controlled a Detroit-based brokerage firm known as East/West Institutional Services, Inc. through which they contracted with clearing brokers to pay them commissions generated by investment trades of labor union pension plan assets. During the period of the conspiracy, from March 1994 through August 1997, ROACH and TRINGALE made promises and threats to investment advisors that Local 710 and 701 pension fund business would be won or lost depending on whether the investment advisors agreed to funnel commissions through the clearing brokers to East/West.
ROACH and TRINGALE paid hundreds of thousands of dollars in kickbacks to two union pension fund trustees, William V. Close and Robert J. Baker, who died in 1997. Both trustees influenced and voted on the selection of investment advisors to the Local 710 and 701 pension funds. Millions of dollars of commissions were transferred from bank accounts in the United States to Cayman National Bank in the Cayman Islands and then distributed to accounts in various names for the benefit of Baker, Close, ROACH, and TRINGALE. Close then transferred the funds to accounts in England and the Isle of Man.
As fiduciaries, pension fund trustees are prohibited by federal law from accepting or soliciting gifts or kickbacks in connection with their actions or decisions with respect to the pension funds.
ROACH also pled guilty to having caused his corporation, Christopher Roach, Inc., to under report commission income related to the scheme for tax years 1995 and 1996, in the total amount of over $740,000.
The racketeering conspiracy charges against ROACH and TRINGALE also include allegations of international money laundering and interstate and foreign travel in aid of racketeering.
The defendants have agreed to the forfeiture of over $7 million in commissions paid to the racketeering enterprise.
The court set no date for sentencing pending the defendants' cooperation. ROACH and TRINGALE face a maximum sentence of 20 years in prison on the racketeering conspiracy charge, and three years' imprisonment on each of the 26 kickback counts alleged against them. ROACH faces a total maximum sentence of 8 years on the tax charges.
The investigation leading to the racketeering and kickback indictment was conducted by agents assigned to the Boston offices of the Federal Bureau of Investigation and the Department of Labor's Division of Labor Racketeering and Pension Welfare and Benefits Administration. It is being prosecuted by Special Assistant U.S. Attorneys Jeanne M. Kempthorne, Alex Whiting and Victor Wild, in Stern's Office, with the assistance of the U.S. Attorney's Office in Chicago. The tax charges were investigated by the U.S. Internal Revenue Service and the U.S. Attorney's Office in the Eastern District of Michigan.
The Charlotte Observer - December 15, 2000
Negotiators for Freightliner LLC and the United Auto Workers will likely talk today until an 11:59 p.m. deadline, seeking to avert a threatened shutdown of the truck maker's Mount Holly plant.
Freightliner, based in Portland, Ore., has said it would move most of the plant's 1,900 jobs to Mexico if the two sides can't agree on a new contract by midnight.
A subsidiary of troubled DaimlerChrysler, Freightliner is the nation's No. 1 maker of heavy trucks. The UAW represents about 1,743 workers at the plant.
Members of UAW Local 5285 say they will strike if their demands, which include safer working conditions and improved pay, aren't met.
In contract talks, threats from both sides are common. The two sides have been negotiating since Oct. 31, and meetings this week have gone late into the evening. The union says it has made progress on health and safety issues, but none on economic concerns.
Neither the union nor the company would say what the union is demanding in wage hikes. Some workers are worried not because they think the plant will close but because they fear a protracted strike, said one union worker, who asked not to be named.
Workers "think this is all a big game, and they are waiting it out," the worker said. "People don't believe they will go to Mexico."
Union leaders did not return phone calls seeking comment , and company spokesmen could not be reached. In an interview last week, Freightliner President Jim Hebe said the company would not operate the plant without a contract.
"We need a contract for the protection of our employees," Hebe said. "We can't plan a schedule without a contract and a stable work force. If the union operates without a contract, they are free to conduct their business as they see fit, with walkouts and short-term strikes."
Freightliner's Mount Holly production and maintenance workers voted for UAW representation in 1990. Since then, the two sides have negotiated three contracts.
In 1997, contract talks went down to the wire, with an agreement reached just three hours before a midnight deadline.
In 1994, the union's contract proposal came about an hour before a planned strike. A 1991 deal came after a 17-day strike.
The Carolinas are the least unionized states in the country, and strikes are rare.
However, United Steelworkers of America Local 850 staged a yearlong strike against Continental General Tire in Charlotte in 1999.
While the economic gain was questionable, the union's solidarity was clear, with just 15 of 1,450 members crossing the picket line. Local 850 President Larry Murray said Freightliner workers helped strikers by joining pickets, providing food and giving Christmas toys to union children. If Freightliner workers strike, "We will be there for them," Murray said.
"I hope and pray they can work this out, because I know strikes are damaging for both sides," Murray said. "But they need to stand their ground and get what they think is fair. They can succeed if they stick together."
"Companies sometimes will use unions as an excuse to do what they want to do," said Hoyt Wheeler, business professor at the University of South Carolina. "They can come out looking better and blame the union. But I don't know if Freightliner is trying to do that. I don't have any idea."
New York Times - December 13, 2000
Microsoft agreed to pay $97 million yesterday to settle an eight-year-old class-action lawsuit in which thousands of temporary employees accused the company of improperly denying them benefits.
Microsoft reached this settlement, one of the largest ever received by a group of temporary employees, after the workers had sued the company, maintaining that they were actually permanent employees, not temporaries, and therefore deserved the same benefits as regular workers.
The lawsuit, originally filed in December 1992, was by far the most prominent lawsuit in the nation attacking a popular practice in which many companies hired workers as temps, kept them for a year or more and did not provide them with regular permanent employee benefits.
In recent years, partly in reaction to the lawsuit, Microsoft has taken several major steps to change its employment policies.
David Stobaugh, a lawyer for the plaintiffs, estimated that 8,000 to 12,000 former temporary workers would qualify for an award under the settlement, with the average award expected to run about $10,000. "This case has gotten a lot of publicity, and as a result, a lot of employers have decided to change their policies," said Mr. Stobaugh, whose Seattle-based law firm stands to gain 28 percent of the settlement. "These employers recognized they shouldn't have people working at their company for a long time who don't get benefits. And for those companies who haven't changed their policies, this settlement sends a message that it could be very expensive not to change."
These temp workers at Microsoft, who called themselves "permatemps" because many worked there for more than two years, asserted that the company maintained a fiction that they were temp workers by hiring them through temp agencies to avoid paying them stock options, pensions and health coverage.
In 1997, the United States Court of Appeals in San Francisco ruled that according to the rules governing Microsoft's employee discount stock purchase program, these temp workers should be considered regular workers and they should, therefore, have been able to take part in the stock purchase program. The court was not asked to deal with the issue of whether the temps were entitled to take part in the far more lucrative stock options program.
Temp employees, who had to wear orange badges, while regular employees wore blue badges, often complained that they were not invited to company Christmas parties or summer outings and were not allowed to shop at the company store, where employees received deep discounts. Microsoft now has about 42,000 regular employees worldwide, as well as 5,000 temporary employees.
Since Microsoft has more than $20 billion in cash and cash equivalents, company officials said the settlement would have little effect on the company's bottom line. And Mr. Pilla said the settlement would not have a material effect on Microsoft's financial results.
Larry Spokoiny, one of the eight named plaintiffs, hailed the settlement. Mr. Spokoiny, who worked at Microsoft from May 1989 to September 1990, testing Microsoft Word software, said he was surprised what happened after he answered a Microsoft employment ad. When offering him a job, a company official told him that he was not going to receive employee benefits even though he was to do the same work as many regular employees.
"This is a huge victory for the workers," Mr. Spokoiny said. "Before, they used to do this just to save some cash for themselves. It sounds to me as if they learned something from this lawsuit, and I think many other companies across the nation are going to sit up and take note."
As the two sides sparred for years in the lawsuit, Microsoft officials estimated that the plaintiffs would receive less than $10 million, while the plaintiffs' lawyers predicted an award in the hundreds of millions. The settlement covers temp employees who worked at Microsoft from January 1987 to June 2000.
Microsoft embraced the use of long-term temps in the early 1990's after the Internal Revenue Service found that it and many other companies had wrongly classified as independent contractors thousands of full-time workers who should have been considered regular employees.
Dow Jones Newswires - December 13, 2000
WASHINGTON -- The bull-market earnings boost provided by overfunded pension plans during the 1990s could result in a post-2000 corporate hangover if the market continues to decline.
So far, only one company - aerospace concern Northrop Grumman Corp. has warned that its 2001 earnings might be affected by a drop in pension income. Whether more warnings will come depends not only on the market's performance over the next few weeks, but also on how much an individual corporation's earnings are driven by pension fund income next year - two unknowns at this point. One thing is certain, however: If the market goes through a protracted downturn, the companies at risk for pension-related earnings declines are those that have depended most on such income.
Some of 1999's biggest pension revelers included metals manufacturers, former Baby Bells, and older companies with large workforces. USX-U.S. Steel Group (X), Allegheny Technologies Inc. (ATI), Verizon Communications (VZ), SBC Communications Inc. (SBC) and General Electric Corp. (GE), all showed earnings gains from their pension funds' income last fiscal year.
What's at stake now isn't their 2000 results, but 2001 and beyond. That's because companies must pay their anticipated pension costs at the beginning of a fiscal year, and the prior year's portfolio returns can be used to cover that expense. In a good year, those returns can be so strong that the surplus is booked as income; when the market wipes out portfolio performance, corporations must foot the pension bill themselves, creating an expense.
Pension Income Isn't Cold Hard Cash
Although any income or expense from a pension is reflected in earnings, corporations don't spend a pension surplus; it is reserved for their workers' retirement. The only way pension excess can get spent is through a company's decision to close its pension fund and offer a different, less expensive plan, a move that some corporations have taken in their switch to cash-balance plans.
Recording pension income has not only become the norm after years of a bull market, it's required under U.S. accounting standards. It's a minor bookkeeping footnote for companies that don't derive much of their earnings performance from their pensions. It can become a problem, however, when pension performance becomes a significant contributor to operating income - then is obliterated by a tumbling stock market.
The only way USX-U.S. Steel (X) reported a profit in 1999 was through its pension income, which totaled $234 million, or 156% of its operating income. The Pittsburgh-based metals producer hasn't issued any warnings for 2001, and officials wouldn't comment on their outlook for the pension income.
Allegheny Technologies, another Pittsburgh metals producer, had net pension income of $60.4 million in 1999, or 35% of its operating income that year.
Richard Harshman, acting chief financial officer of Allegheny, refused to comment on his company's pension outlook for 2001. He said in general, he doesn't think the stock market's travails have been bad enough to wipe out corporations' pension income next year.
"I would be surprised if companies who have been reporting significant pension income would all of the sudden be reporting no pension income," he said.
"Could there be a significant impact on some companies? Perhaps...but that depends on their investment performance and the underlying performance assumptions they've made," he added.
Morgan Stanley Dean Witter steel analyst Waldo Best said even though metals companies enjoyed some of the biggest pension income, most have portfolios that contain at least 50% bonds, which could insulate them from the market.
"I don't think we're looking at anything material," said Best.
Northrop Grumman, which warned last week that reduced pension income could trim 45 cents a share from analysts' projections of $9.15 a share for 2001, had a portfolio in 1999 with 50% in U.S. equities and 14% in international equities. Most companies don't detail their investment mix in annual reports.
SBC Communications reported pension income of $844 million last year, or about 7% of its operating income. Verizon - the result of a merger between GTE Corp. and Bell Atlantic Corp. - would have pulled in $1.925 billion of pension income last year, or 12% of its operating income, if the two had been combined in 1999. A spokesman for the company said it hasn't changed its guidance for its pension expectations next year. He said Verizon differs markedly from Northrop Grumman's dependence on pension income; Northrop recorded $353 million in pension income in 1999, or 36% of its operating income.
"We have a telecom business that generates significant income," said spokesman David Frail.
General Electric, which booked $1.38 billion in pension income last year, or almost 5% of its operating income, refused to comment on its outlook for 2001. But spokesman Gary Sheffer said even though the dollar amount is large, it's a relatively small factor in the company's profit growth from 1998 to 1999.
"Last year's earnings would have grown 14% rather than 15%" if pension fund income had been excluded, he said.
Hard To Predict Who Gets Hit
Accounting mavens say it's impossible to predict at this point which companies will suffer first and worst during a market downturn that affects pension income…
Ciesielski said from his perspective, investors shouldn't be that interested in companies that book a significant percentage of income from their pensions in the first place, since it isn't actually cash that can be spent.
"If it's up or down, investors ought to be indifferent. They shouldn't be caring a lot about the numbers made by pension plans because it's not money they're ever going to get their hands on," he said.
Dow Jones - December 12, 2000
The Communications Workers of America has scored a victory for shareholders at General Electric Co., with GE agreeing to end a pension and life insurance benefit for new non-employee members of the board of directors. CWA has been spotlighting GE's inequitable treatment of retirees, pointing out that non-employee members of the board of directors are entitled to retirement income of $75,000 a year, plus full survivor's benefits for spouses, while many retired workers who made the company so successful still receive poverty level pensions.
In a letter to CWA President Morton Bahr, GE's associate corporate counsel indicated that the company was ending the pension and life insurance plan for non-employee directors as of May 2001.
At GE's annual shareholder meetings, the CWA Pension Fund, representing CWA members and GE stockholders, has regularly submitted a resolution calling on the board of directors to end such benefits unless they are specifically submitted for shareholder approval. That resolution won 32 percent of voted shares at this year's meeting in Richmond, Va. Also supporting the CWA measure was the GE Retirees Justice Fund.
Some 17,000 members of IUE-CWA work at GE; CWA also represents broadcast employees and technicians at NBC, a division of GE.
Despite decades of employment at GE, many retirees continue to earn poverty level pensions, CWA has pointed out. Even with the pension increase announced in April 2000 -- the first since 1996 -- GE retirees are losing ground, because they have no cost of living provisions in their pensions and the value of their retirement benefits does not keep pace with inflation. Some who retired from GE before 1985 have seen their purchasing power drop by 45 percent, CWA noted.
GE's pension fund accounted for $1 billion of GE's $10.7 billion in profits last year. GE has made no contributions to the pension trust since 1987.
The Charlotte Observer - December 9, 2000
Federal regulators are due to announce next week whether to rein in power-plant emissions of mercury, which has contaminated scores of rivers and lakes in the Carolinas coastal plain.
Mercury is one of the most toxic substances in nature.
A single gram - 1/70th of a teaspoon - is enough to contaminate a 20-acre lake, by one estimate. Especially vulnerable are pregnant women, who could deliver babies that are brain damaged, mentally retarded or blind if they eat fish in which mercury accumulates.
The Carolinas are ground-zero for this poison that falls from the sky. The two states, along with Georgia and Florida, catch some of the nation's highest deposits of mercury in rainfall. Fish-consumption advisories are now posted on 61 Carolinas waterways. An N.C. study detected mercury in frequent fish-eaters at up to 33 times normal levels - the highest ever recorded in the United States.
Health authorities in both states say the people most at risk, those who make a steady diet of certain fish, aren't getting the message. Warning signs are torn down, vandalized or ignored. The states say they have no money for the face-to-face notification they believe is needed.
"We need to do a better job of getting the message out," said Dr. Luanne Williams, science adviser to the N.C. health director. The state also may need to lower the level of mercury on which it bases fish-consumption advisories, she said.
All this surrounds a silvery, liquid metal that is all around us, from dental fillings to fluorescent lights. Because mercury is a naturally occurring element, it never goes away. It can, however, be dispersed in the environment, such as when a power plant burns coal that contains mercury. Coal-fired power plants are the country's largest source of manmade mercury emissions.
"On balance, mercury from coal-fired utilities is the hazardous pollutant of greatest potential public health concern," an Environmental Protection Agency report says.
Utility emissions join those from other sources in a global pool of mercury in the atmosphere. Researchers say the pool is two to three times as large as it was in pre-industrial times. Mercury also can assume a form that accumulates in fish, as it has in the Carolinas…
At the Carolina Raptor Center in Huntersville this summer, a 2-year-old bald eagle became the first of nearly 8,000 birds treated there to be diagnosed with mercury poisoning.
"He was able to stand but very wobbly, very uncoordinated," said rehabilitation coordinator Mathias Engelmann. "He was unable to flap his wings. He never even tried to fly to a perch."
The bird, from the N.C. coast, was euthanized in August. A second bald eagle, from Stanly County, also had elevated mercury levels but died of injuries. The center plans to test its resident eagles and, from now on, those that arrive for treatment.
The EPA is to decide by Friday whether to force utilities to limit mercury emissions. If the agency goes forward, it would decide later how deep to make the cuts.
Progress Energy (formerly Carolina Power & Light) releases 2,300 pounds of mercury a year from its coal-fired power plants, mostly Down East. Stripping all mercury emissions could cost up to $70,000 a pound, said spokesman Mike Hughes.
Duke Power's plants release about 1,400 pounds of mercury a year, said spokesman Joe Maher…
The Charlotte Observer - December 9, 2000
Freightliner said Friday it will close its Mount Holly plant and move most of the work to Mexico if 1,743 union workers don't agree to a new contract by Dec. 15.
"It has been our position in this company since the contract was first established in 1991 that we will not operate any plants without a contract," said Jim Hebe, president of Portland, Ore.-based Freightliner, a subsidiary of Daimler-Chrysler.
Hebe said management workers could continue to build some trucks, but most of the work on Freightliner's Business Class line of medium and heavy-duty trucks would be moved to Santiago, Mexico.
"This is the toughest stance you can take: Either you agree with what we're proposing or you're out," said Hoyt Wheeler, University of South Carolina professor of labor management. "There's no way to judge whether they are serious or not."
United Auto Workers officials in Mount Holly and Detroit did not return phone calls Friday. A union source, who asked not to be named, said the talk of a shutdown is just a negotiating threat.
"That's what they want people to think," the source said. "But a lot of people don't want trucks made in Mexico. This is just negotiations. We have to hang tough."
Negotiators for Freightliner and the UAW have talked since Oct. 31. Talks continued Friday. The three-year contract expires Dec. 15.
The company made its first comprehensive contract offer Thursday, saying it would extend the current contract for three years with no changes except for selected wage increases for top scale workers…
USA Today - December 8, 2000
OK, so we hated managed care. The restrictions. The referrals. The hassles. But employers loved it. They were able to pay less for a few years. And we got to see a doctor at our HMO for $10 a pop. Now, though, the biggest jumps in health premiums in a decade are forecast for next year - 10% to 13% for larger employers, 20% or more for smaller ones - frustrating consumers and raising questions about the future of health insurance. Medical inflation is back, besting managed care at the very thing it was supposed to solve.
"We are in the same mess as 10 years ago," says Kenneth Sperling of the benefits firm Hewitt Associates. "In the early '90s, we saw these kinds of cost increases, but we had the alternative of managed care as a low-cost option."
Some say managed care failed. Others say Americans rejected it without giving it enough of a chance. Either way, experts agree that no one now has a good idea how to control costs without it. And the cost problem is clearly not going to go away:
Spending continues to rise, driven by an aging population, expensive new drugs and treatments, consumer demand and a growing ability of doctors and hospitals to resist managed care payment cuts.
Although most health insurers are making profits this year - because they've been able to raise premiums higher than the underlying medical inflation - PacifiCare and Aetna have reported lower earnings, blaming their inability to control costs.
Medicare spending is increasing faster than previously forecast, with the cost of the $218 billion program expected to double by 2010. An advisory panel last week said rapidly rising spending means Medicare's hospital trust fund will go broke four years earlier than expected, in 2021.
With the strong economy, patients and employers have fled the tightest forms of managed care, HMOs, for looser, more expensive versions that allow patients to, among other things, refer themselves directly to specialists or see "out-of-network" doctors.
Americans simply don't like restrictions. But employers, concerned about double-digit inflation in health care premiums in the late 1980s and early 1990s, pushed workers into choice-limiting HMOs and other forms of managed care. And, for a time, it worked. Premium increases fell. Hospital costs went down.
But some HMOs went too far. Patients rebelled. Horror stories about denied care led lawmakers to ban some of the most hated insurance practices: short hospital stays for childbirth, refusal to pay for ER visits, unappealable denials of experimental treatments. Juries awarded several multimillion judgments against insurers. "The backlash was quite real," says Larry Levitt of the Kaiser Family Foundation, a non-profit research and education group.
"A small minority of people experience these problems every year," Levitt says. "The media fuels the backlash by covering these horror stories, causing people to worry about whether it might happen to them." Much more common, Levitt says, are day-to-day annoyances: the long waits for the insurer to answer the phone, delays in getting a doctor appointment, having to see one doctor to get a referral to another, then having to make three more phone calls.
"Those things affected about half of all patients," Levitt says.
And the backlash continues. Controversy over whether patients should have an expanded ability to sue their health plans for denials of care - as one version of the so-called patient's bill of rights would allow - awaits the new president and Congress. Lawyers, fresh from the fight with tobacco companies over liability for smoking-caused illnesses, have turned their sights on managed care companies, filing a host of class-action suits.
"We conned HMOs into rationing for us," says author and industry consultant Ian Morrison. "Then we said, 'Oh, sorry, we're not going to support you in this.' We've defanged managed care, but we don't have another idea about how to contain costs."
Now spending is again on the rise. "We overestimated the capacity of managed care or the market to control health care spending," says Stuart Altman, professor of national health policy at Brandeis University.
Altman and some other health policy experts say managed care didn't fail as much as it was hobbled by opposition, from doctors, from patients, from the media and from politicians.
"I believed in managed care," Altman said. "We gave it a chance, but then the medical community, the press fought back. Collectively, we gave a system that had problems a gigantic black eye."
Still, managed care reduced insurance premium increases for a few years, mainly by cutting payments to doctors and hospitals and requiring strict oversight of expensive drugs and treatments.
Premiums increased on average only 2% a year from 1994 through 1998 as business-hungry insurers fought for market share, according to the Center for Studying Health System Change, a Washington, D.C., non-profit research group.
Without managed care, the total amount spent on health care - now at about 13.9% of the gross domestic product - would surely have been higher, many say.
Princeton economist Uwe Reinhardt says Americans this year will spend $350 billion less on health care than the Congressional Budget Office forecast for the year 2000 back in 1993.
"Managed care did the temporary fix we asked it to do, to break spending inflation," says Reinhardt. Still, many of those savings were one-time costs, he says.
Some who study health care take a more controversial stance: that managed care failed to deliver on its promise to save money at all - and may have increased costs.
"This was a poorly thought out scheme that was foisted on the public long before there was any evidence that managed care or HMOs in particular could save money," says author Kip Sullivan, a Minnesota consumer advocate.
In an article in the July/August issue of Health Affairs, Sullivan attributed the slowdown in health care premium increases in the mid-1990s to a drop in the underlying level of inflation, along with health plan and hospital mergers that led to price competition. Many insurers set prices well below actual costs to gain market share, he says.
Now those same insurers are raising rates rapidly to catch up.
Sullivan says HMOs did succeed in reducing the amount of time patients spend in hospitals and lowering payments to doctors and other medical providers. But, he says, those savings were offset by rising administrative costs, caused by such factors as increased paperwork and the practice of reviewing and denying claims.
"If you want to hire people to police doctors, you have to pay their salaries," Sullivan says. United Health Group a year ago surprised the industry when it said it would do away with most such authorizations for tests, procedures and hospitalizations. United said its own studies showed it cost more to process such requests than the program saved. Other insurers have also relaxed some of their cost-control restrictions.
Other policy experts take issue with Sullivan's thesis. They argue that greater oversight can and has saved money. The failure of managed care is that it hasn't truly changed the fragmented health system, they argue. A more organized system would be better able to control costs by more closely managing patients with chronic diseases and standardizing how doctors treat particular illnesses.
"Most of what we've experienced is price discounts, not managing care," says economist Robert Reischauer, president of the Urban Institute.
Stanford Professor Alain Enthoven says some managed care organizations, such as Kaiser Permanente, save money because they oversee their own hospitals and doctors, rather than contracting with a wide selection of independent hospitals and doctor groups. That makes it easier for Kaiser to set and enforce standards.
"Organized delivery systems can do the job for a lot less," Enthoven says. "Unfortunately, for the most part, HMOs didn't reorganize the delivery system very much."
While citing many successes of managed care - reduced hospital costs and an attention to creating standard "best practices" for the treatment of illnesses - the system hasn't been able to stem demand, says Dr. David Cochran, senior vice president for strategic planning at Harvard Pilgrim Health Plan, an insurer that is recovering from financial difficulties.
"There are things outside of managed care's control," he says. If it can be faulted, problems arose because "managed care insulated the individual consumer from the costs of care."
The $10 co-payment for an office visit or a prescription drug disguises the true cost of medical services, he argues. Indeed, many policy experts believe the next evolution in health care is likely to focus on ways to get consumers to pay more of the cost of medical care, with employers shifting costs to workers. Still, some economists say Americans are too worried about rising health care spending.
"Health care spending will always grow as a percentage of the economy - that's something a postindustrial society invests in," says J.D. Kleinke, a medical economist and president of Denver-based Health Strategies Network. "It's not a bad thing at all."
Spending on health care is creeping toward 14% of the gross domestic product. By the end of the decade, some projections show that nearly $1 of every $5 could be spent on medical services.
"Instead of making cars and hula hoops, we will make hospital rooms and operations," says Reinhardt at Princeton. "It's just a choice. Right now, we spend more on admissions to entertainment events than for prescription drugs per capita. If we spend more on drugs and less on football, that doesn't trouble me."
Others say the rising spending will cause problems, cutting into employers' budgets, driving up premiums and keeping many self-employed people and low-wage workers from being able to afford insurance. The number of Americans without health insurance is already nearly 43 million. That number is expected to grow with each percentage point increase in health premiums.
"We stopped offering insurance two years ago; it was pricing itself out of reach," says Bob Klinefelter, who owns a commercial print shop with 11 employees in Las Vegas.
He really wants to offer insurance. But unless there's some kind of universal pool for small businesses, he doesn't see a chance to compete.
"I would almost be in favor of a plan where businesses are forced to pay into the program," Klinefelter says. "That way we're all on the same footing."
But that's not a likely option. The last time that idea was floated - in the Clinton health plan back in 1993-94 - it drew enormous business opposition.
Yet, "at some point the business community will revolt and say enough is enough," says Tom Robinette, co-owner of Robinette Demolition just outside Chicago.
Like most employers, he's facing a health premium increase this year. And, like many, his company will not ask workers to pay more. Surveys by major benefit consultants show that most employers this year are still reluctant pass costs along to workers, but more say they will do so if premiums continue spiraling. "We're looking at a 15% increase for next year. That's fine," says Robinette. "You have to have good benefit policies to retain good people. If you start playing with their money or their benefits, you're asking for trouble."
Major changes to health insurance - or the amounts workers pay - likely won't happen until there's a downturn in the economy and more workers are unemployed.
"You can use managed care techniques on employees only when they're running scared," Reinhardt says. From 1989-92 "employees were much more worried about losing their jobs than losing their doctors." Eventually the economy will slow. And health insurance will change. But no one really knows how it will look. It's possible employers will again ask insurers to tighten up, cut extras and limit medical care. But if the lesson of the 1990s is that managed care didn't work, employers will cast about for new ways to reduce costs - and some may even get out of offering insurance altogether.
Americans want a simple solution to the challenge of how to limit spending on health care while ensuring that everyone gets what they need. But there isn't one.
"The fact is, we've never had the answer to this question," says Levitt of the Kaiser Family Foundation. "We just stopped looking for a few years."
The Wall Street Journal - December 8, 2000
TALLAHASSEE, Fla.-- In a stunning court victory that could put Al Gore in the White House, a divided Florida Supreme Court ordered a recount of 9,000 undervotes from Miami-Dade County.
The recount was ordered to begin immediately, along with recounts of undervotes in all other Florida counties that hadn't already conducted manual recounts.
The court also ordered Secretary of State Katherine Harris to add to the election tally votes counted by the Miami-Dade and Palm Beach county canvassing boards during their frantic Thanksgiving weekend recounts -- recounts that were started but not completed in time for a 5 p.m. Nov. 26 deadline the Supreme Court had previously set.
Those tallies give Mr. Gore a net gain of 383 votes, slicing Texas Gov. George W. Bush's victory margin to a mere 154 votes statewide. The Gore campaign is convinced that a thorough tally of the undervotes -- ballots that were cast but which failed to register a presidential vote on tabulating machines -- will put the vice president over the top.
Appearing at the courthouse steps just after 4 p.m., court spokesman Craig Waters said the justices had directed that counters tally any ballot bearing a clear indication of the intent of voters, a generous standard advocated by the Gore campaign.
The justices pointedly noted that this was the standard set in existing law by the Legislature -- even as across the street from the court, the Legislature's Republican leaders were steering a historic special session to appoint a slate of electors for Mr. Bush. The high court's reference to the Legislature was doubtless intended to rebut repeated Republican charges that the court has been rewriting, rather than merely interpreting, laws now on the books.
Justices Harry Lee Anstead, R. Fred Lewis, Barbara J. Pariente and Peggy A. Quince formed the court majority. Dissents were filed by Chief Justice Charles T. Wells and Justices Major B. Harding and Leander J. Shaw Jr.
The court heard oral arguments on Wednesday in Mr. Gore's appeal from a Monday ruling by Circuit Judge N. Sanders Sauls. Judge Sauls had dismissed the Gore contest, refusing to examine the contested ballots because the vice president had failed to show that he had probably won the Nov. 7 election.
Mr. Gore's lawyers had said that was putting the cart before the horse -- that it was impossible to know if the vice president had won unless the contested ballots were first counted. The state Supreme Court apparently agreed, and it ordered Judge Sauls to take charge of the recount effort for the Miami-Dade ballots that were brought to Tallahassee under his order.
Earlier Friday, Mr. Bush had suggested he would appeal to the U.S. Supreme Court should he lose at the Florida high court. On Monday, a unanimous U.S. Supreme Court had returned to the Florida court its Nov. 21 decision extending the deadline for the hand counts, asking it to clarify on which federal and state laws it relied.
The momentous ruling from the state Supreme Court came less than two hours after Mr. Gore met disappointment from two Leon County circuit judges, who rejected Democratic voter contests seeking to toss out 25,000 heavily Republican absentee ballots from Martin and Seminole counties.
Those voters had argued that elections supervisors had tainted the absentee voter pool by allowing GOP operatives to correct Republican absentee-voter applications that lacked required identification numbers. 'Despite irregularities in the request for absentee ballots neither the sanctity of the ballots nor the integrity of the election has been compromised,' the court said in a statement read at 2:25 p.m. by the court administrator. 'The election results reflect a full and fair expression of the will of the voters.'
Judge Nikki Ann Clark heard the Seminole case, Judge Terry P. Lewis the Martin case. The pair conferred after holding separate trials and issued a joint statement on Friday.
Both sides had vowed to appeal a defeat and lawyers for the plaintiffs immediately filed a notice of appeal with the Florida Supreme Court.
Gerald Richman, who represents Democrat voter Harry N. Jacobs in the Seminole case, said the circuit-court decision sends a message 'that political parties can get away with this kind of chicanery.' Mr. Richman said he knew of at least 34 Democrat voters whose applications were rejected for lacking identification numbers -- proof enough, he insisted, of disparate treatment that disfavored the Democrats. Republicans were pleased with Friday's circuit-court ruling. 'This was an important decision. Important to see that both lawsuits were fully denied,' said Al Cardenas, chairman of the state Republican party. 'I believed there was no remedy called for and the judges agreed.'
The Gore campaign was not formally involved in the suits, because of fears that asking to throw out ballots would undercut the principle behind the vice president's own election contest: that every vote should count. In recent days, however, Mr. Gore has said that he was troubled by the allegations that elections supervisors in Martin and Seminole counties had cut Republicans a break without giving similar opportunities to the Democratic Party.
Orlando Sentinel - December 8, 2000
The union representing more than 4,000 trade workers at Walt Disney World overwhelmingly accepted a new contract Thursday night, averting what would have been only the second strike in the resort`s 29-year history.
Members of the Craft Maintenance Council -- who include carpenters, warehouse workers and key electricians and engineers who maintain and inspect theme park rides -- voted 1,576 to 733 in favor of the contract, rejecting a strike set to take effect Dec. 22.
"Obviously, we`re pleased," Walt Disney World spokesman Bill Warren said. "It`s apparent that union members recognized the value of this contract, and we look forward to a continued good relationship."
The trade workers, who had overwhelmingly voted down two previous contract offers, had never come so close to calling a strike.
Union officials had warned that a walkout would disrupt park operations during the peak holiday season, which Disney officials denied.
The contract gives a 9 percent pay raise over three years for most workers, and a $150 increase in monthly pension benefits for employees who have put in 25 years of service. Union members` salaries range from $9 to $21 an hour.
Disney workers rejected the same contract by a 2-to-1 margin Nov. 14 because they were dissatisfied with the company`s pension benefits. Disney does not match 401(k) contributions for hourly employees.
Craft Maintenance negotiator Carl Murphy said the union got the best deal it could, citing a 20 percent increase in pension benefits.
"The main thing is that we avoided what could have been a catastrophic problem," he said.
Some union members may have been swayed by a Dec. 2 letter from Disney management, warning that anyone who chose to strike would lose their health insurance benefits and would be replaced in their jobs. The only strike Walt Disney World has had involved band musicians in the early 1980s.
The Kansas City Star - December 6, 2000
State regulators are investigating UtiliCorp United Inc. for allegedly making improper profits on natural gas that it resells to 730,000 natural gas customers in five states, including Missouri.
The investigations were sparked by an anonymous letter to regulators from a person who claimed to be a UtiliCorp employee. According to the letter, UtiliCorp's gas supply division, which purchases gas for its utilities, was told it had to achieve an annual profit goal of nearly $10 million in a way that would not be detected by regulators.
"I feel that these business practices are not appropriate and should be brought to your attention," the letter to regulators said.
The letter stated that the practices affected UtiliCorp's utilities in Missouri, Michigan, Minnesota, Iowa and Nebraska. Among the utilities in question is Missouri Public Service Co. in Raytown. The letter did not mention UtiliCorp's Kansas utilities, Kansas Public Service and People's Natural Gas. Kansas officials have not launched an investigation.
UtiliCorp said Wednesday that it was undertaking its own review of the allegations and was cooperating with investigators. The company said it was confident that in the end it would be found to have complied with all regulations.
"While the allegations are anonymous and questionable, we nevertheless are taking them seriously," said George Minter, a UtiliCorp spokesman.
Michigan, Iowa, Minnesota and Missouri have opened investigations. Nebraska officials could not be reached.
Kevin Kelly, a spokesman for the Missouri Public Service Commission, said the commission's staff recommended that the allegations were serious enough to justify an investigation. The commission approved the recommendation last month.
The allegations are serious, in part, because a regulated utility is prohibited from profiting from the purchase of gas it resells to customers unless the proceeds benefit ratepayers or unless there is an incentive program that allows a utility to share in the profits. UtiliCorp doesn't have an incentive program, and the letter alleges that any profits went to the company.
UtiliCorp's priority was not to purchase economical natural gas, the letter states, but to make the gas supply division profitable. The letter alleges that various techniques were used to make money and to keep regulators from noticing the profits.
For example, utilities purchase space on interstate pipelines to move the gas they sell to their customers. But sometimes a utility doesn't need the pipeline space and resells it to another company. When UtiliCorp did this, according to the letter, it did not post all the money or credit it received.
Employees of UtiliCorp's gas supply division were paid bonuses based on the money they made managing the natural gas that was already paid for by the ratepayers, according to the letter.
UtiliCorp said Wednesday that it would not allow practices that would be a detriment to ratepayers and violate state regulations.
Utilities say they pass along only the costs of natural gas to consumers and don't profit from the transactions. The issue is particularly sensitive during times of high gas prices. Current prices are at all-time highs.
Natural gas bills this winter are expected to be 40 percent to 50 percent higher than last year. And that doesn't include a dramatic surge in gas prices in the past week.
Wholesale natural gas prices have climbed about 40 percent in the past week because of fears that supplies are tight. Gas prices set another record Wednesday when they jumped 73 cents per 1,000 cubic feet, closing at $8.73 per 1,000 cubic feet. A year ago, prices were $2.14 per 1,000 cubic feet. An average household in the Midwest is expected to use 90,000 cubic feet of gas this winter.
The National Law Journal - December 6, 2000
A Youngstown, Ohio, jury has returned one of the largest-ever employment discrimination verdicts to one person, awarding $30.675 million to a former branch manager of a home health care services agency who was dismissed at age 68.
The jury determined that Olsten Health Services Inc. discriminated against plaintiff Donna Fredrickson on the basis of her age, not by terminating her from her position as branch manager, but by refusing to give her another job in the company, said plaintiff's attorney Ellen S. Simon of Cleveland's The Simon Law Firm.
The plaintiff had offered to settle the case for $300,000, said Simon.
Fredrickson had been working at Olsten for more than 13 years in 1997, when, said Simon, the company "decided to merge the offices in Warren and Youngstown," neighboring cities in Ohio. Olsten eliminated Fredrickson's position and named the Warren manager, who was 46, as manager.
Fredrickson asked to be given another job in the company, but "she was given no options, just to retire or be fired," Simon reported.
By the time her employment was terminated in September 1997, Simon said, Fredrickson was making nearly $50,000 per year. After her dismissal, she eventually found a $9-per-hour sales job.
In 1998, Fredrickson sued Olsten Health Services and its then-parent, Olsten Corp., charging age discrimination. Fredrickson v. Olsten Health Services Inc., No. 98CV1937 (Ct. Common Pleas, Mahoning Co., Ohio).
The defendants denied any discrimination, saying that the Warren branch manager was better qualified and that Fredrickson was unqualified for other positions, said Simon.
The award includes $30 million in punitives. This portion of the judgment is not subject to statutory caps because the action was filed in state court rather than federal court, said Simon.
Olsten Health is now Gentiva Health Services. A Gentiva spokesman said the company "is assessing an abundance of post-trial options."
The Charlotte Observer - December 6, 2000
It's no secret: When employers downsize, one of the first things the remaining employees do is update their resumes.
Retaining good employees is a challenge for all employers in today's tight labor market, but some of the toughest workers to keep are those who don't get laid off during a downsizing. They worry they'll be next, and they're unsure about the company's future.
But a recent study shows that employers are not doing enough to keep those employees. It's a problem that's likely to continue because more downsizings are on the way, according to a national study by Lee Hecht Harrison, a New Jersey-based job outplacement firm.
This year, the Carolinas have seen thousands of layoffs across industries from manufacturing to banking to Internet consulting.
"Without a solid transition, the survivors (of a layoff) won't stay," said Michael York, a consultant to Lee Hecht Harrison who discussed the study's findings Tuesday with Charlotte human resource professionals. The survey of 450 human resource professionals whose organizations had made significant layoffs in the past three years showed that since a similar survey six years ago:
There's been no significant increase in organizations that use company events to rebuild morale.
Fewer organizations are helping those who stay deal with the increased workload.
More than 60 percent of human resource executives saw low employee morale after their most recent downsizing, down from 86 percent in 1994. While they also saw less trust in management, productivity and teamwork, fewer reported so this year compared to 1994. Almost half of the companies anticipate another downsizing before 2003.
So what can employers do to prevent losing the layoff survivors? A lot of it is the same retention strategies they should be using - such as showing employees they are valued and providing a career path in the company.
But much of it also has to do with how the downsizings are communicated to employees. When appropriate and possible, all employees, not just those who are laid off, should be told about the downsizing on the same day, said Shawn Butterworth, senior vice president of human resources in First Union's commercial banking group. Otherwise, others are waiting and wondering, she said.
First Union's massive restructuring, launched in June, affected about 5,500 jobs.
Being honest is crucial, as well as telling employees what's going to happen next and sticking to it, said Jim Swanson, senior vice president of human resources for the Matthews-based photography business PCA International. Being truthful is essential in keeping the trust of those who stay, said Swanson, who spoke from his experience as head of human resources at a Phoenix-based company that laid off 100 workers. What follows a downsizing is just as critical.
When Duke Engineering & Services, a division of Charlotte's Duke Energy, laid off 300 employees nationwide last year, officials could have better explained the situation to employees, said Bob Dillon, vice president of human resources.
"The ripple effect is still there," he said. "We had to refocus our attention on who's left."
So, the company surveyed its 2,000 employees on their concerns. Employee groups are now making recommendations. Based on the employees' suggestions, Duke Engineering & Services now offers flextime and a business casual dress. The company also changed the incentive program to make it more focused on individual performance, rather than on company results.
"We had never taken the pulse of our company," Dillon said. "We've done a really good job of narrowing down what we had to do."
The New York Times - December 6, 2000
NEW YORK (Reuters) - Shares of defense contractor Northrop Grumman Corp. (NOC.N) slid nearly 3 percent on Wednesday, reversing Tuesday's gains, on concerns about the effect of lower income from pension funds on total earnings next year.
The stock dipped $2-5/16 to $82-11/16 on the New York Stock Exchange, off a year high of $93-7/8, but up from a low of $42-5/8. Northrop's weakness combined with declines across the sector pushed the Standard & Poor's aerospace and defense index (.SPAERO) down 2.73 percent to 1,380.57 as the broader market fell.
On Tuesday, Northrop told investors and analysts at a conference here that earnings for 2001 should be in the range of $8.70 to $9.00 per share, with pension income totaling about $450 million to $470 million. However, if pension income hits $500 million to $520 million, reported earnings in 2001 would be up another 45 cents to $9.15 to $9.45 per share, in line with analysts' target of $9.37 per share, according to tracking firm First Call/Thomson Financial.
Meanwhile, Goldman Sachs analyst Howard Rubel lowered his earnings estimate for 2001 to $9.40 from $10.00 per share, but maintained his rating of market outperformer. Bear Stearns kept a neutral rating on the stock.
Pension fund proceeds account for about half of Northrop's earnings. Before pension income, earnings are expected to rise 15 percent, the company noted, adding that operating gains from information services and defense electronics could offset pension fund returns.
Northrop's dependence on income from pension funds makes it unique in the defense and aerospace sector. Other companies, particularly financial services firms, have also booked pension fund gains in their bottom lines…
USA Today - December 5, 2000
Pension regulators are taking aim at fees that can cost 401(k) plan participants tens of thousands of dollars over the course of their careers.
The Department of Labor is forcing more employers to refund fees that had been shifted to retirement plans. The effort affects both pensions and 401(k) plans and focuses on a variety of fees, including the cost to shut down a plan.
The enforcement push comes at a time when publicly traded companies, in particular, are under pressure to boost the bottom line.
''There is a tremendous push to cut expenses, and when it comes to the benefits department, there is pressure to put more expenses on retirement plans,'' says Fred Reish, a Los Angeles pension lawyer. The trend to shift more administrative fees to 401(k) plan assets hurts workers even more now as they brace for major carnage as a result of the market downturn. And as companies siphon more fees from pension surpluses, there will be less available to provide cost of living increases for retirees.
The Labor Department's Kansas City, Mo., regional office began focusing on fees last year. Recently, offices in New York, Atlanta and San Francisco have followed suit. But it is not a national program, says Alan Lebowitz, deputy assistant Labor secretary. In general, federal law says that pension and retirement plan assets can be used only to pay benefits and legitimate expenses to administer the plan.
But industry groups say the agency has been vague about what qualifies as a legitimate expense. ''It's unreasonable to punish people in the absence of clear guidance,'' says Brian Graff, head of the American Society of Pension Actuaries.
Some industry groups complain that the government has changed the rules. ''It's creating havoc,'' says Edward Ferrigno of the Profit Sharing/401(k) Council of America.
Lebowitz says the effort merely reflects a change in focus. And he says the agency is looking into ways to provide more guidance.
Last year, the Kansas City office investigated 100 companies for fee-related infractions and found 65% to be in violation of the law, Lebowitz says. In contrast, 25% of all Labor Department investigations generally find violations.
The agency has not released names of the 65 companies because the cases were voluntarily settled out of court. The firms agreed to reimburse the plans for the expenses, plus interest. The amounts ranged from $20,000 to nearly $1 million, Lebowitz says.
Among the fees that the Labor Department says companies should pay: IRS penalties, the cost to conduct union negotiations and the cost to convert a pension to a cash balance plan, which favors younger workers because benefits build steadily each year.
The Washington Post - December 4, 2000
It's no secret the agriculture industry is utterly dependent on illegal foreign workers, but for years lawmakers have been unable to agree on a way to curb the flow of illegals without harming the farmers who need them.
Now a compromise plan has emerged in Congress that would allow as many as 1 million illegal farm employees to stay in the country permanently and add perhaps 1 million more foreigners temporarily through an expanded visa program.
"The current system is broken, and this compromise takes the first steps to fix it," said Anthony Bedell, a lobbyist for the American Nursery and Landscape Association.
It's unclear whether a lame-duck Congress that returns this week will want to tackle such a difficult issue, though those who worked on the plan are hopeful.
"We remain cautiously optimistic," said Sen. Bob Graham (D-Fla.), one of the lead negotiators. Texas Rep. Lamar S. Smith (R), chairman of the House Judiciary's immigration panel, is critical of efforts to let illegal immigrants stay.
"Providing green cards to people who are already here amounts to an amnesty, and the chairman absolutely opposes amnesty," said John Lampmann, Smith's chief of staff.
Smith supports expanding the visa program, but the Clinton administration has threatened to veto a bill that did only that. Advocates hope a compromise involving both visas and green cards will win White House approval.
Earlier this year, Congress nearly doubled the number of visas for foreign high-tech workers--to 195,000 a year--after high-tech companies complained about acute labor shortages. Critics say it is unfair for Congress to help those companies while ignoring the plight of farmers.
More than half the country's 2 million farm workers acknowledged in 1998 that they were here illegally, according to a Congressional Research Service survey released in March, leading industry experts to conclude the actual figure is much higher.
Farmers say they walk a line between bankruptcy and committing a crime because of their reliance on illegal labor, said Kerry Whitson, a plum farmer and president of the Tulare County Farm Bureau in California. Wages in the depressed farm economy fail to attract domestic workers, he said. "You try to determine who is legal and who is not," he said. "It becomes so fraught with fraudulent documentation, that becomes a nightmare in itself."
The H-2A visa program allows foreigners to work on farms as many as 10 months a year at a federally calculated wage rate in housing that farmers must provide.
Critics say the program allows unscrupulous employers to abuse workers by threatening to have them deported if they demand better wages or conditions. Marcos Camacho, general counsel for United Farm Workers of America, has compared the program to "indentured servitude."
Farmers also complain about the program. The cumbersome application process takes months, which farmers say is too long for them to wait when they need laborers quickly to respond to sudden weather changes that alter planting and harvesting schedules.
Despite complaints, the number of workers covered by the visas has grown from 15,000 in 1996 to nearly 42,000 in 1999, according to the Labor Department.
The compromise plan would shorten the visa application process from months to days. Now, U.S. inspectors investigate farmers to ensure they will pay adequate wages and provide housing before issuing visas. The bill would let farmers obtain visas by promising to adhere to federal laws. Those who do not would be fined.
The proposal also would freeze the wages visa holders earn for three years. Farmers complain the average wages now required are too high because the formula used to calculate them includes non-farm jobs. Illegal workers who can show they worked at least 100 days in agriculture in the last 18 months would be allowed to pursue a green card.
The New York Times - December 1, 2000
HARTFORD, Nov. 30 - More than a year after the State Ethics Commission began looking into three dozen pension fund investments made by Connecticut's corrupt former treasurer, a Dallas-based investment firm today became the first to agree to pay a cash settlement to avoid further scrutiny.
State officials hope the settlement, worth $1.2 million, will be the first of several they reach in the months ahead with investment firms under investigation for their dealings with former Treasurer Paul J. Silvester. In September 1999, Mr. Silvester pleaded guilty to federal bribery and money laundering charges for agreeing to invest in certain firms if the firms paid huge fees to his friends and family members.
The $1.2 million to be paid by the Dallas firm, Crossroads Investment Company, is punishment for having paid what the Ethics Commission determined were illegal contingency fees to two Hartford-region consultants who helped the firm gain access to treasury officials starting in 1987. It would be the largest settlement ever collected by the Ethics Commission, which enforces state lobbying and financial disclosure laws.
Whether the state will get the money, however, depends on the outcome of a Superior Court case between Crossroads and the two local consultants, George C. Finley, of West Hartford, Conn., and Peter G. Kelly, of Glastonbury, Conn.
In return for their political access, the two men received hundreds of thousands of dollars in consulting fees from Crossroads. But after Crossroads stopped paying them last year, they filed suit to collect the amount they said was owed them - $1.2 million.
Crossroads agreed to pay the settlement only if it won the lawsuit and the right to retain the $1.2 million it has withheld from Mr. Finley and Mr. Kelly.
The commission also fined the firm $2,000 for making the contingency payments, but Alan S. Plofsky, the executive director, stressed that Crossroads had inadvertently, not intentionally, violated Connecticut's lobbying laws.
"The money is important, but the principal is more important," Mr. Plofsky said. "We hope that this will be the first of several settlements with the funds."
John Buser, chief operating and chief financial officer of Crossroads, declined to comment publicly on the settlement, citing the ongoing lawsuit with Mr. Kelly and Mr. Finley.
Crossroads currently has contracts to invest about $300 million of the state's $22 billion pension funds, said Howard Rifkin, the deputy state treasurer. There are no immediate plans to cancel the state's contracts with the firm, he added.
The federal government last month indicted four people who prosecutors said profited enormously from illegal payments orchestrated by Mr. Silvester.
The four indicted are Ben F. Andrews Jr., 59, a former adviser to Gov. John G. Rowland who ran for secretary of the state on Mr. Rowland's ticket in 1998; Lisa A. Thiesfield, 30, of Hartford, who managed Mr. Silvester's 1998 election campaign; and Frederick W. McCarthy, 57, and Charles B. Spadoni, 52, both of Triumph Capital Group, a Boston firm in which Mr. Silvester invested state pension funds in return, prosecutors said, for payments to Mr. Andrews and Ms. Thiesfield.
Aside from the ongoing federal investigation, the Ethics Commission is investigating about 19 firms, lawyers and lobbyists and their relationships and the fee arrangements with Mr. Silvester, 38, who is still giving information to federal investigators and has yet to be sentenced.
Among those under scrutiny are Mr. Kelly, a Hartford lawyer and prominent Democrat who was a pillar of Vice President Al Gore's presidential fund-raising network in Connecticut, and Mr. Finley, a lawyer in West Hartford.
Both men have repeatedly said they have done nothing illegal or unethical.
R. Bartley Halloran, the lawyer representing Mr. Kelly and Mr. Finley, denounced the timing of today's announcement, while the two men's lawsuit against Crossroads is still pending in Superior Court. He also called the agreement toothless because it demands that Crossroads pay to the state only what it was obliged, according to Mr. Halloran, to pay his clients.
The $1.2 million Crossroads payment, he also said, includes a waiver of the $548,623 the firm has spent on legal fees to defend itself against Mr. Finley and Mr. Kelly's suit. "By paying a $2,000 fine," Mr. Halloran said, "they are getting a $500,000 benefit."