Filter | only charts
Robert VerBruggen - September 30, 2014

Jonathan Cohn offers seven charts over at The New Republic. This one, from the Kaiser Family Foundation, shows how premiums changed when people switched from non-compliant to compliant plans:

Can Flextime Help Working Families Have It All?

Teresa Wiltz, Stateline - September 30, 2014

For 16 years, Dena Adams investigated child abuse cases for Covenant House, a Manhattan nonprofit. But when the agency put her on the overnight shift in 2011, the single mother found herself scrambling to find child care for her 11-year-old daughter.

Adams didn't feel comfortable leaving the girl alone at night in her Brooklyn neighborhood, which could be dangerous, so she asked Covenant House for an evening shift instead. The agency refused -- and then fired her. (Covenant House declined to comment on Adams' specific case, but said it has "a strong commitment to working with each of our employees to provide the flexibility that is so vital in today's workplace" and that it must balance employees' needs "with the critical needs of a 24-hour crisis shelter.")

"I thought they would work with me and they worked against me," Adams said. "I can work anywhere, any job. Just give me the flexibility to care for my daughter. That's all I ask."

Some cities and states are trying to give that flexibility to their own employees. California, Iowa, Massachusetts, Oklahoma, Oregon, Rhode Island and South Carolina all direct state agencies to allow "flextime" schedules for their workers, according to the National Council of State Legislatures.

Some states and cities are going further, by applying the same rules to the private sector. At the beginning of this year, Vermont and San Francisco began mandating that private employers consider employees' requests for flextime without retaliation. New York City may soon follow suit.

In June, New York City Comptroller Scott Stringer published a report recommending that the City Council pass "Right to Request" legislation creating a formal mechanism for employees to ask for flexibility without fear of reprisal. The legislation is expected to be introduced over the next few weeks.

"It's time for the public and private sectors to work together to reshape the workplace," Stringer said in the report. "'Right to Request' legislation would create a process to discuss flexible arrangements. Whether it's in finance or law, retail or health care, all industries can benefit from flexible work arrangements. New York City should be a trailblazer in creating models for the 21st century workplace."

There's interest on the federal level as well. In July, Democratic Reps. George Miller of California and Rosa DeLauro of Connecticut introduced the Schedules That Work Act, which would give hourly workers more control over their schedules. In June, President Barack Obama directed federal agencies to give employees more leeway in their work schedules. And last year, Democratic Rep. Carolyn Maloney of New York introduced the Flexibility for Working Families Act, which would authorize employees to ask for a permanent or temporary change in their work schedules.

"I hope as these bills are introduced around the country, the onus will be on the employer to make this work, and [that they will] address the critical issue of scheduling and adequate hours," said Ellen Bravo, executive director of Family Values @ Work, a national network of 21 state and local coalitions advocating for family-friendly workplace policies.

"When people doing the work have some say in their work, they tend to do a better job. Let's make it about policy, not about favoritism or how clever you are at talking to your boss. We need to have protections people need so they can be successful in their jobs and in their lives."

Family Changes
Eighty-two percent of American children are growing up in households where both parents work, but a 2012 study by the University of Minnesota's Carlson School of Management found that employees who asked for flexible working arrangements to care for a child or elderly relative often faced negative consequences. According to the National Women's Law Center, less than half of employees across the country have any say in their work schedules, while more than one-third of parents believe a request for a flexible work schedule cost them a promotion.

According to the New York City Comptroller's report, one in five workers in the U.S. is responsible for elder care, while 65 percent of caregivers report having to alter their schedules or take time off from work to care for family. Nearly 75 percent of employees of both genders report not having enough time for their children.

Given all that, advocates for working families say, there is a pressing need for more flexible work schedules. Under the Vermont and San Francisco laws, private-sector employees can ask for more flexible working schedules to care for a child, take care of their own chronic health condition or go to school. Employers are required to seriously consider the worker's request and provide concrete explanations if the company can't accommodate the flextime request.

Such legislation also helps employers by providing a structure for such requests, according to Liz Watson, director of Workplace for Justice at the National Women's Law Center.

"This simplifies things for (human resources) workers," Watson said. "They shouldn't be figuring it out on their own. These are the most compelling and urgent needs in society today that we're not meeting. Unless you have a bona fide business reason not to, grant the request for the person who needs it."

But flextime can be a challenge for managers, particularly when employees have to work in teams, said Teresa Amabile, professor and a director of research at Harvard Business School. This is particularly true if the schedule change is unexpected, she said. "That can just wreak havoc on the rest of the team; how they're going to get information from them or how they're going to do handoffs."

Coordinating workflow and communications is the biggest challenge facing managers and companies, Amabile said. But she said these hurdles can be managed using technology, and that flextime can work well for both companies and employees.

"It's a wonderful tool from the company's perspective of retaining talented employees," said Amabile, the co-author of "The Progress Principle: Using Small Wins to Ignite Joy, Engagement and Creativity at Work." "From the employee's side, people are more engaged with their work and perform more productively and more creatively when they feel they have more autonomy in their work."

Flexible Working in the U.K.
The "Right to Request" concept started in the United Kingdom, where parents or registered caregivers of children younger than 16 can request flexible work hours without fear of being penalized. Earlier this year, the U.K. strengthened the "flexible working" law. Now all employees, regardless of family status, are allowed to request different start and stop times or to work from home. Employers must deal with the requests in a "reasonable manner." Other European countries have followed suit, and New Zealand passed similar legislation in 2007.

In the U.S., the notion of flexible work schedules has been bouncing around for some time. The late Democratic Sen. Ted Kennedy of Massachusetts pushed the Family Medical Leave Act as a way to address some of the issues, and in 2007, he introduced the Working Family Flexibility Act.

The debate about flexible work hours heated up a couple of years ago when Facebook's Chief Operating Officer Sheryl Sandberg urged women to "Lean In" and take charge of their careers, while Yahoo CEO Marissa Mayer rescinded the company's previous flextime and telecommuting policies in favor of "face time" in the office. Meanwhile, The Atlantic declared that women "still can't have it all" -- at least not without a massive workplace overhaul.

Some labor researchers worry that the talk about flexible work arrangements will focus exclusively on middle-class, white collar workers while ignoring the needs of working class shift workers who are often at the mercy of managers who can change their schedules on a whim. Fewer than three out of 10 employees say they have the ability to change their daily starting times, and only one in 10 employees participate in formal flextime schemes, according to the Institute for Women's Policy Research.

In some instances, a flexible work schedule can actually harm employees, said Bob Bruno, professor of labor and employment relations at the University of Illinois. "When you ask workers to define a flexible work schedule, they come up with something that's different from what their employer comes up with. How do you reconcile that? In a non-union place, the employer dictates what happens."

After nearly 18 months of unemployment, Dena Adams found work with an agency that finds housing for homeless women.

"It's excellent," Adams, 46, said. "The director there is all for family, 'whatever you have to do for family, we can rearrange your schedule.' She gets it. She says, 'I know once your kids are fine, you're better.'

"This is what employers need to know," Adams says. "We will bend over backwards for our employers -- if they bend over backwards for us."

This piece originally appeared at
Stateline, an initiative of The Pew Charitable Trusts, where Teresa Wiltz is a staff writer.

Inside the New York Fed

Jake Bernstein, ProPublica - September 28, 2014

Barely a year removed from the devastation of the 2008 financial crisis, the president of the Federal Reserve Bank of New York faced a crossroads. Congress had set its sights on reform. The biggest banks in the nation had shown that their failure could threaten the entire financial system. Lawmakers wanted new safeguards.

The Federal Reserve, and, by dint of its location off Wall Street, the New York Fed, was the logical choice to head the effort. Except it had failed miserably in catching the meltdown.

New York Fed President William Dudley had to answer two questions quickly: Why had his institution blown it, and how could it do better? So he called in an outsider, a Columbia University finance professor named David Beim, and granted him unlimited access to investigate. In exchange, the results would remain secret.

After interviews with dozens of New York Fed employees, Beim learned something that surprised even him. The most daunting obstacle the New York Fed faced in overseeing the nation's biggest financial institutions was its own culture. The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.

The report didn't only highlight problems. Beim provided a path forward. He urged the New York Fed to hire expert examiners who were unafraid to speak up and then encourage them to do so. It was essential, he said, to preventing the next crisis.

A year later, Congress gave the Federal Reserve even more oversight authority. And the New York Fed started hiring specialized examiners to station inside the too-big-to fail institutions, those that posed the most risk to the financial system.

One of the expert examiners it chose was Carmen Segarra.

Segarra appeared to be exactly what Beim ordered. Passionate and direct, schooled in the Ivy League and at the Sorbonne, she was a lawyer with more than 13 years of experience in compliance -- the specialty of helping banks satisfy rules and regulations. The New York Fed placed her inside one of the biggest and, at the time, most controversial banks in the country, Goldman Sachs.

It did not go well. She was fired after only seven months.

As ProPublica reported last year, Segarra sued the New York Fed and her bosses, claiming she was retaliated against for refusing to back down from a negative finding about Goldman Sachs. A judge threw out the case this year without ruling on the merits, saying the facts didn't fit the statute under which she sued.

At the bottom of a document filed in the case, however, her lawyer disclosed a stunning fact: Segarra had made a series of audio recordings while at the New York Fed. Worried about what she was witnessing, Segarra wanted a record in case events were disputed. So she had purchased a tiny recorder at the Spy Store and began capturing what took place at Goldman and with her bosses.

Segarra ultimately recorded about 46 hours of meetings and conversations with her colleagues. Many of these events document key moments leading to her firing. But against the backdrop of the Beim report, they also offer an intimate study of the New York Fed's culture at a pivotal moment in its effort to become a more forceful financial supervisor. Fed deliberations, confidential by regulation, rarely become public.

The recordings make clear that some of the cultural obstacles Beim outlined in his report persisted almost three years after he handed his report to Dudley. They portray a New York Fed that is at times reluctant to push hard against Goldman and struggling to define its authority while integrating Segarra and a new corps of expert examiners into a reorganized supervisory scheme.

Segarra became a polarizing personality inside the New York Fed -- and a problem for her bosses -- in part because she was too outspoken and direct about the issues she saw at both Goldman and the Fed. Some colleagues found her abrasive and complained. Her unwillingness to conform set her on a collision course with higher-ups at the New York Fed and, ultimately, led to her undoing.

In a tense, 40-minute meeting recorded the week before she was fired, Segarra's boss repeatedly tries to persuade her to change her conclusion that Goldman was missing a policy to handle conflicts of interest. Segarra offered to review her evidence with higher-ups and told her boss she would accept being overruled once her findings were submitted. It wasn't enough.

"Why do you have to say there's no policy?" her boss said near the end of the grueling session.

"Professionally," Segarra responded, "I cannot agree."

The New York Fed disputes Segarra's claim that she was fired in retaliation.

"The decision to terminate Ms. Segarra's employment with the New York Fed was based entirely on performance grounds, not because she raised concerns as a member of any examination team about any institution," it said in a two-page statement responding to an extensive list of questions from ProPublica and This American Life.

The statement also defends the bank's record as regulator, saying it has taken steps to incorporate Beim's recommendations and "provides multiple venues and layers of recourse to help ensure that its employees freely express their views and concerns."

"The New York Fed," the statement says, "categorically rejects the allegations being made about the integrity of its supervision of financial institutions."

In the spring of 2009, New York Fed President William Dudley put together a team of eight senior staffers to help Beim in his inquiry. In many ways, this was familiar territory for Beim.

He had worked on Wall Street as a banker in the 1980s at Bankers Trust Company, assisting the firm through its transition from a retail to an investment bank. In 1997, the New York Fed hired Beim to study how it might improve its examination process. Beim recommended the Fed spend more time understanding the businesses it supervised. He also suggested a system of continuous monitoring rather than a single year-end examination.

Beim says his team in 2009 pursued a no-holds-barred investigation of the New York Fed. They were emboldened because the report was to remain an internal document, so there was no reason to hold back for fear of exposure. The words "Confidential Treatment Requested" ran across the bottom of the report.

"Nothing was off limits," says Beim. "I was told I could ask anyone any question. There were no restrictions."

In the end, his 27-page report laid bare a culture ruled by groupthink, where managers used consensus decision-making and layers of vetting to water down findings. Examiners feared to speak up lest they make a mistake or contradict higher-ups. Excessive secrecy stymied action and empowered gatekeepers, who used their authority to protect the banks they supervised.

"Our review of lessons learned from the crisis reveals a culture that is too risk-averse to respond quickly and flexibly to new challenges," the report stated. "A number of people believe that supervisors paid excessive deference to banks, and as a result they were less aggressive in finding issues or in following up on them in a forceful way."

One New York Fed employee, a supervisor, described his experience in terms of "regulatory capture," the phrase commonly used to describe a situation where banks co-opt regulators. Beim included the remark in a footnote. "Within three weeks on the job, I saw the capture set in," the manager stated.  

Confronted with the quotation, senior officers at the Fed asked the professor to remove it from the report, according to Beim. "They didn't give an argument," Beim said in an interview. "They were embarrassed." He refused to change it.

The Beim report made the case that the New York Fed needed a specific kind of culture to transform itself into an institution able to monitor complex financial firms and catch the kinds of risks that were capable of torpedoing the global economy.

That meant hiring "out-of-the-box thinkers," even at the risk of getting "disruptive personalities," the report said. It called for expert examiners who would be contrarian, ask difficult questions and challenge the prevailing orthodoxy. Managers should add categories like "willingness to speak up" and "willingness to contradict me" to annual employee evaluations. And senior Fed managers had to take the lead.

"The top has to articulate why we're going through this change, what the benefits are going to be and why it's so important that we're going to monitor everyone and make sure they stay on board," Beim said in an interview.

Beim handed the report to Dudley. The professor kept it in draft form to help maintain secrecy and because he thought the Fed president might request changes. Instead, Dudley thanked him and that was it. Beim never heard from him again about the matter, he said.

In 2011, the Financial Crisis Inquiry Commission, created by Congress to investigate the causes behind the economic calamity, publicly released hundreds of documents. Buried among them was Beim's report.

Because of the report's candor, the release surprised Beim and New York Fed officials. Yet virtually no one else noticed.

Among the New York Fed employees enlisted to help Beim in his investigation was Michael Silva.

As a Fed veteran, Silva was a logical choice. A lawyer and graduate of the United States Naval Academy, he joined the bank as a law clerk in 1992. Silva had also assisted disabled veterans and had gone into Iraq after the 2003 invasion to help the country's central bank. Prior to working on Beim's report, he had been chief of staff to the previous New York Fed president, Timothy Geithner.

In declining through his lawyer to comment for this story, Silva cited the appeal of Segarra's lawsuit and a prohibition on disclosing unpublished supervisory material. The rule allows regulators to monitor banks without having to worry about the release of information that could alarm customers and create a run on a bank that's under scrutiny.

Silva had been in the room with Geithner in September 2008 during a seminal moment of the financial crisis. Shares in a large money market fund -- the Reserve Primary Fund -- had fallen below the standard price of $1, "breaking the buck" and threatening to touch off a run by investors. The investment firm Lehman Brothers had entered bankruptcy, and the financial system appeared in danger of collapse.

In Segarra's recordings, Silva tells his team how, at least initially, no one in the war room at the New York Fed knew how to respond. He went into the bathroom, sick to his stomach, and vomited.

"I never want to get close to that moment again, but maybe I'm too close to that moment," Silva told his New York Fed team at Goldman Sachs in a meeting one day.

Despite his years at the New York Fed, Silva was new to the institution's supervisory side. He had never been an examiner or participated as part of a team inside a regulated bank until being appointed to lead the team at Goldman Sachs. Silva prefaced his financial crisis anecdote by saying the team needed to understand his motivations, "so you can perhaps push back on these things."

In the recordings, Silva then offered a second anecdote. This one involved the moments before the Lehman bankruptcy.

Silva related how the top bankers in the nation were asked to contribute money to save Lehman. He described his disappointment when Goldman executives initially balked. Silva acknowledged that it might have been a hard sell to shareholders, but added that "if Goldman had stepped up with a big number, that would have encouraged the others."

"It was extraordinarily disappointing to me that they weren't thinking as Americans," Silva says in the recording. "Those two things are very powerful experiences that, I will admit, influence my thinking."  

Silva's stories help explain his approach to a controversial deal that came to the New York Fed team's attention in January 2012, two months after Segarra arrived. She said the Fed's handling of the deal demonstrated its timidity whenever questions arose about Goldman's actions. Debate about the deal runs through many of Segarra's recordings.

On Friday, Jan. 6, 2012, at 3:54 p.m., a senior Goldman official sent an email to the on-site Fed regulators -- including Silva, Segarra and Segarra's legal and compliance manager, Johnathon Kim. Goldman wanted to notify them about a fast-moving transaction with a large Spanish bank, Banco Santander. Spanish regulators had signed off on the deal, but Goldman was reaching out to its own regulators to see whether they had any questions.

At the time, European banks were shaky, particularly the Spanish ones. To shore up confidence, the European Banking Authority was demanding that banks hold more capital to offset potential future losses. Meeting these capital requirements was at the heart of the Goldman-Santander transaction.

Under the deal, Santander transferred some of the shares it held in its Brazilian subsidiary to Goldman. This effectively reduced the amount of capital Santander needed. In exchange for a fee from Santander, Goldman would hold on to the shares for a few years and then return them. The deal would help Santander announce that it had reached its proper capital ratio six months ahead of the deadline.

In the recordings, one New York Fed employee compared it to Goldman "getting paid to watch a briefcase." Silva states that the fee was $40 million and that potentially hundreds of millions more could be made from trading on the large number of shares Goldman would hold.

Santander and Goldman declined to respond to detailed questions about the deal.

Silva did not like the transaction. He acknowledged it appeared to be "perfectly legal" but thought it was bad to help Santander appear healthier than it might actually be.

"It's pretty apparent when you think this thing through that it's basically window dressing that's designed to help Banco Santander artificially enhance its capital position," he told his team before a big meeting on the topic with Goldman executives.

The deal closed the Sunday after the Friday email. The following week, Silva spoke with top Goldman people about it and told his team he had asked why the bank "should" do the deal. As Silva described it, there was a divide between the Fed's view of the deal and Goldman's.

"[Goldman executives] responded with a bunch of explanations that all relate to, 'We can do this,' " Silva told his team.

Privately, Segarra saw little sense in Silva's preoccupation with the question of whether "should" applied to the Santander deal. In an interview, she said it seemed to her that Silva and the other examiners who worked under him tended to focus on abstract issues that were "fuzzy" and "esoteric" like "should" and "reputational risk."

Segarra believed that Goldman had more pressing compliance issues -- such as whether executives had checked the backgrounds of the parties to the deal in the way required by anti-money laundering regulations.

Segarra had joined the New York Fed on Oct. 31, 2011, as it was gearing up for its new era overseeing the biggest and riskiest banks. She was part of a reorganization meant to put more expert examiners to the task. 

In the past, examiners known as "relationship managers" had been stationed inside the banks. When they needed an in-depth review in a particular area, they would often call a risk specialist from that area to come do the examination for them.

In the new system, relationship managers would be redubbed "business-line specialists." They would spend more time trying to understand how the banks made money. The business-line specialists would report to the senior New York Fed person stationed inside the bank.

The risk specialists like Segarra would no longer be called in from outside. They, too, would be embedded inside the banks, with an open mandate to do continuous examinations in their particular area of expertise, everything from credit risk to Segarra's specialty of legal and compliance. They would have their own risk-specialist bosses but would also be expected to answer to the person in charge at the bank, the same manager of the business-line specialists.

In Goldman's case, that was Silva.

Shortly after the Santander transaction closed, Segarra notified her own risk-specialist bosses that Silva was concerned. They told her to look into the deal. She met with Silva to tell him the news, but he had some of his own. The general counsel of the New York Fed had "reined me in," he told Segarra. Silva did not refer by name to Tom Baxter, the New York Fed's general counsel, but said: "I was all fired up, and he doesn't want me getting the Fed to assert powers it doesn't have."

This conversation occurred the day before the New York Fed team met with Goldman officials to learn about the inner workings of the deal.

From the recordings, it's not spelled out exactly what troubled the general counsel. But they make clear that higher-ups felt they had no authority to nix the Santander deal simply because Fed officials didn't think Goldman "should" do it.

Segarra told Silva she understood but felt that if they looked, they'd likely find holes. Silva repeated himself. "Well, yes, but it is actually also the case that the general counsel reined me in a bit on that," he reminded Segarra.

The following day, the New York Fed team gathered before their meeting with Goldman. Silva outlined his concerns without mentioning the general counsel's admonishment. He said he thought the deal was "legal but shady."

"I'd like these guys to come away from this meeting confused as to what we think about it," he told the team. "I want to keep them nervous."

As requested, Segarra had dug further into the transaction and found something unusual: a clause that seemed to require Goldman to alert the New York Fed about the terms and receive a "no objection."

This appeared to pique Silva's interest. "The one thing I know as a lawyer that they never got from me was a no objection," he said at the pre-meeting. He rallied his team to look into all aspects of the deal. If they would "poke with our usual poker faces," Silva said, maybe they would "find something even shadier."

But what loomed as a showdown ended up fizzling. In the meeting with Goldman, an executive said the "no objection" clause was for the firm's benefit and not meant to obligate Goldman to get approval. Rather than press the point, regulators moved on.

Afterward, the New York Fed staffers huddled again on their floor at the bank. The fact-finding process had only just started. In the meeting, Goldman had promised to get back to the regulators with more information to answer some of their questions. Still, one of the Fed lawyers present at the post-meeting lauded Goldman's "thoroughness."

Another examiner said he worried that the team was pushing Goldman too hard.

"I think we don't want to discourage Goldman from disclosing these types of things in the future," he said. Instead, he suggested telling the bank, "Don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily."

To Segarra, the "inquisitiveness" comment represented a fear of upsetting Goldman.

By law, the banks are required to provide information if the New York Fed asks for it. Moreover, Goldman itself had brought the Santander deal to the regulators' attention.

Beim's report identified deference as a serious problem. In an interview, he explained that some of this behavior could be chalked up to a natural tendency to want to maintain good relations with people you see every day. The danger, Beim noted, is that it can morph into regulatory capture. To prevent it, the New York Fed typically tries to move examiners every few years.

Over the ensuing months, the Fed team at Goldman debated how to demonstrate their displeasure with Goldman over the Santander deal. The option with the most interest was to send a letter saying the Fed had concerns, but without forcing Goldman to do anything about them.

The only downside, said one Fed official on a recording in late January 2012, was that Goldman would just ignore them.

"We're not obligating them to do anything necessarily, but it could very effectively get a reaction and change some behavior for future transactions," one team member said.

In the same recorded meeting, Segarra pointed out that Goldman might not have done the anti-money laundering checks that Fed guidance outlines for deals like these. If so, the team might be able to do more than just send a letter, she said. The group ignored her.

It's not clear from the recordings if the letter was ever sent.

Silva took an optimistic view in the meeting. The Fed's interest got the bank's attention, he said, and senior Goldman executives had apologized to him for the way the Fed had learned about the deal. "I guarantee they'll think twice about the next one, because by putting them through their paces, and having that large Fed crowd come in, you know we, I fussed at 'em pretty good," he said. "They were very, very nervous."

Segarra had worked previously at Citigroup, MBNA and Société Générale. She was accustomed to meetings that ended with specific action items.

At the Fed, simply having a meeting was often seen as akin to action, she said in an interview. "It's like the information is discussed, and then it just ends up in like a vacuum, floating on air, not acted upon."

Beim said he found the same dynamic at work in the lead up to the financial crisis. Fed officials noticed the accumulating risk in the system. "There were lengthy presentations on subjects like that," Beim said. "It's just that none of those meetings ever ended with anyone saying, 'And therefore let's take the following steps right now.'"

The New York Fed's post-crisis reorganization didn't resolve longstanding tensions between its examiner corps. In fact, by empowering risk specialists, it may have exacerbated them.

Beim had highlighted conflicts between the two examiner groups in his report. "Risk teams ... often feel that the Relationship teams become gatekeepers at their banks, seeking to control access to their institutions," he wrote. Other examiners complained in the report that relationship managers "were too deferential to bank management."

In the new order, risk specialists were now responsible for their own examinations. No longer would the business-line specialists control the process. What Segarra discovered, however, was that the roles had not been clearly defined, allowing the tensions Beim had detailed to fester.

Segarra said she began to experience pushback from the business-line specialists within a month of starting her job. Some of these incidents are detailed in her lawsuit, recorded in notes she took at the time and corroborated by another examiner who was present.

Business-line specialists questioned her meeting minutes; one challenged whether she had accurately heard comments by a Goldman executive at a meeting. It created problems, Segarra said, when she drew on her experiences at other banks to contradict rosy assessments the business-line specialists had of Goldman's compliance programs. In the recordings, she is forceful in expressing her opinions.

ProPublica and This American Life reached out to four of the business-line specialists who were on the Goldman team while Segarra was there to try and get their side of the story. Only one responded, and that person declined a request for comment. In the recordings, it's clear from her interactions with managers that Segarra found the situation upsetting, and she did not hide her displeasure. She repeatedly complains about the business-line specialists to Kim, her legal and compliance manager, and other supervisors.

"It's like even when I try to explain to them what my evidence is, they won't even listen," she told Kim in a recording from Jan. 6, 2012. "I think that management needs to do a better job of managing those people."

Kim let her know in the meeting that he did not expect such help from the Fed's top management. "I just want to manage your expectations for our purposes," he told Segarra. "Let's pretend that it's not going to happen."

Instead, Kim advised Segarra "to be patient" and "bite her tongue." The New York Fed was trying to change, he counseled, but it was "this giant Titanic, slow to move."

Three days later, Segarra met with her fellow legal and compliance risk specialists stationed at the other banks. In the recording, the meeting turns into a gripe session about the business-line specialists. Other risk specialists were jockeying over control of examinations, too, it turned out.

"It has been a struggle for me as to who really has the final say about recommendations," said one.

"If we can't feel that we'll have management support or that our expertise per se is not valued, it causes a low morale to us," said another.

On Feb. 21, 2012, Segarra met with her manager, Kim, for their weekly meeting. After covering some process issues with her examinations, the recordings show, they again discussed the tensions between the two camps of specialists.

Kim shifted some of the blame for those tensions onto Segarra, and specifically onto her personality: "There are opinions that are coming in," he began.

First he complimented her: "I think you do a good job of looking at issues and identifying what the gaps are and you know determining what you want to do as the next steps. And I think you do a lot of hard work, so I'm thankful," Kim said. But there had been complaints.

She was too "transactional," Kim said, and needed to be more "relational."

"I'm never questioning about the knowledge base or assessments or those things; it's really about how you are perceived," Kim said. People thought she had "sharper elbows, or you're sort of breaking eggs. And obviously I don't know what the right word is."

Segarra asked for specifics. Kim demurred, describing it as "general feedback."

In the conversation that followed, Kim offered Segarra pointed advice about behaviors that would make her a better examiner at the New York Fed. But his suggestions, delivered in a well-meaning tone, tracked with the very cultural handicaps that Beim said needed to change.

Kim: "I would ask you to think about a little bit more, in terms of, first of all, the choice of words and not being so conclusory."

Beim report: "Because so many seem to fear contradicting their bosses, senior managers must now repeatedly tell subordinates they have a duty to speak up even if that contradicts their bosses."

Kim: "You use the word 'definitely' a lot, too. If you use that, then you want to have a consensus view of definitely, not only your own."

Beim report: "An allied issue is that building consensus can result in a whittling down of issues or a smoothing of exam findings. Compromise often results in less forceful language and demands on the banks involved."

In Segarra's recordings, there is some evidence to back Kim's critique. Sometimes she cuts people off, including her bosses. And she could be brusque or blunt.

A colleague who worked with Segarra at the New York Fed, who does not have permission from their employer to be identified, told ProPublica that Segarra often asked direct questions. Sometimes they were embarrassingly direct, this former examiner said, but they were all questions that needed to be asked. This person characterized Segarra's behavior at the New York Fed as "a breath of fresh air."

ProPublica also reached out to three people who worked with Segarra at two other firms. All three praised her attitude at work and said she never acted unprofessionally.

In the meeting with Kim, Segarra observed that the skills that made her successful in the private sector did not seem to be the ones that necessarily worked at the New York Fed.

Kim said that she needed to make changes quickly in order to succeed.

"You mean, not fired?" Segarra said.

"I don't want to even get there," Kim responded.

It would be unfair to fire her, Segarra offered, since she was doing a good job.

"I'm here to change the definition of what a good job is," Kim said. "There are two parts to it: Actually producing the results, which I think you're very capable of producing the results. But also be mindful of enfolding people and defusing situations, making sure that people feel like they're heard and respected."

Segarra had thought her job was simple: Follow the evidence wherever it led. Now she was being told she had to "enfold" business-line specialists and "defuse" their objections.

"What does this have to do with bank examinations," Segarra wondered to herself, "or Goldman Sachs?"

Segarra worked on her examination of Goldman's conflict-of-interest policies for nearly seven months. Her mandate was to determine whether Goldman had a comprehensive, firm-wide conflicts-of-interest policy as of Nov. 1, 2011.

Segarra has records showing that there were at least 15 meetings on the topic. Silva or Kim attended the majority. At an impromptu gathering of regulators after one such meeting early that December, her contemporaneous notes indicate Silva was distressed by how Goldman was dealing with conflicts of interest.

By the spring of 2012, Segarra believed her bosses agreed with her conclusion that Goldman did not have a policy sufficient to meet Fed guidance.

During her examination, she regularly talked about her findings with fellow legal and compliance risk specialists from other banks. In April, they all came together for a vetting session to report conclusions about their respective institutions. After a brief presentation by Segarra, the team agreed that Goldman's conflict-of-interest policies didn't measure up, according to Segarra and one other examiner who was present.

In May, members of the New York Fed team at Goldman met to discuss plans for their annual assessment of the bank. Segarra was sick and not present. Silva recounts in an email that he was considering informing Goldman that it did not have a policy when a business-line specialist interjected and said Goldman did have a conflict-of-interest policy -- right on the bank's website.

In a follow-up email to Segarra, Silva wrote: "In light of your repeated and adamant assertions that Goldman has no written conflicts of interest policy, you can understand why I was surprised to find a "Conflicts of Interests Section" in Goldman's Code of Conduct that seemed to me to define, prohibit and instruct employees what to do about it."

But in Segarra's view, the code fell far short of the Fed's official guidance, which calls for a policy that encompasses the entire bank and provides a framework for "assessing, controlling, measuring, monitoring and reporting" conflicts.

ProPublica sent a copy of Goldman's Code of Conduct to two legal and compliance experts familiar with the Fed's guidance on the topic. Both did not want be quoted by name, either because they were not authorized by their employer or because they did not want to publicly criticize Goldman Sachs. Both have experience as bank examiners in the area of legal and compliance. Each said Goldman's Code of Conduct would not qualify as a firm-wide conflicts of interest policy as set out by the Fed's guidance.

In the recordings, Segarra asks Gwen Libstag, the executive at Goldman who is responsible for managing conflicts, whether the bank has "a definition of a conflict of interest, what that is and what that means?"

"No," Libstag replied at the meeting in April.

Back in December, according to meeting minutes, a Goldman executive told Segarra and other regulators that Goldman did not have a single policy: "It's probably more than one document -- there is no one policy per se."

Early in her examination, Segarra had asked for all the conflict-of-interest policies for each of Goldman's divisions as of Nov. 1, 2011. It took months and two requests, Segarra said, to get the documents. They arrived in March. According to the documents, two of the divisions state that the first policy dates to December 2011. The documents also indicate that policies for another division were incomplete.

ProPublica and This American Life sent Goldman Sachs detailed questions about the bank's conflict-of-interest policies, Segarra and events in the meetings she recorded.

In a three-paragraph response, the bank said, "Goldman Sachs has long had a comprehensive approach for addressing potential conflicts." It also cited Silva's email about the Code of Conduct in the statement, saying: "To get a balanced view of her claims, you should read what her supervisor wrote after discovering that what she had said about Goldman was just plain wrong."

Goldman's statement also said Segarra had unsuccessfully interviewed for jobs at Goldman three times. Segarra said that she recalls interviewing with the bank four times, but that it shouldn't be surprising. She has applied for jobs at most of the top banks on Wall Street multiple times over the course of her career, she said.

The audio is muddy but the words are distinct. So is the tension. Segarra is in Silva's small office at Goldman Sachs with his deputy. The two are trying to persuade her to change her view about Goldman's conflicts policy.

"You have to come off the view that Goldman doesn't have any kind of conflict-of- interest policy," are the first words Silva says to her. Fed officials didn't believe her conclusion -- that Goldman lacked a policy -- was "credible."

Segarra tells him she has been writing bank compliance policies for a living since she graduated from law school in 1998. She has asked Goldman for the bank's policies, and what they provided did not comply with Fed guidance.

"I'm going to lose this entire case," Silva says, "because of your fixation on whether they do or don't have a policy. Why can't we just say they have basic pieces of a policy but they have to dramatically improve it?"

It's not like Goldman doesn't know what an adequate policy contains, she says. They have proper policies in other areas.

"But can't we say they have a policy?" Silva says, a question he asks repeatedly in various forms during the meeting.

Segarra offers to meet with anyone to go over the evidence collected from dozens of meetings and hundreds of documents. She says it's OK if higher-ups want to change her conclusions after she submits them.

But Silva says the lawyers at the Fed have determined Goldman has a policy. As a comparison, he brings up the Santander deal. He had thought the deal was improper, but the general counsel reined him in.

"I lost the Santander transaction in large part because I insisted that it was fraudulent, which they insisted is patently absurd," Silva said, "and as a result of that, I didn't get taken seriously."

Now, the same thing was happening with conflicts, he said.

A week later, Silva called Segarra into a conference room and fired her. The New York Fed, he told Segarra, who was recording the conversation, had "lost confidence in [her] ability to not substitute [her] own judgment for everyone else's."

This story originally appeared at ProPublica and was co-published with This American Life, from WBEZ Chicago. Hear the radio version on these stations or download the episode now. Producer Brian Reed of This American Life contributed reporting to this story. ProPublica intern Abbie Nehring contributed research. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

Carbon Tax: It's Back and Worse Than Ever

Ethan Greene - September 25, 2014

Last month in Aspen, Colo., several bigwigs of the environmental movement met at the American Renewable Energy Day conference. Participants included Jimmy Carter, Ted Turner, Theodore Roosevelt IV, and Rachel Kyte (the World Bank's special envoy for climate change). On top of the enormous amount of influence their names and positions alone carry, these figures are backed by millions of dollars of support.

At one point, Carter brought up a carbon tax, a notion that was met with applause and cheers -- and that returned to the news this week in the context of the U.N.'s climate summit. The tax, in its simplest form, requires businesses to pay for the amount of carbon dioxide output they produce. (No one has yet called for taxing the CO2 produced when humans breathe.)

The proposals under consideration in the U.S. apply only to large plants and the transportation industry. However, the costs of the tax would be passed through to these companies' customers, including local farmers and small businesses. The evidence suggests that economic damage of a carbon tax would be substantial, while the environmental benefits would be small. 

Several key lessons here come from Australia. The Australian government repealed its carbon tax after the scheme devastated small businesses.

One area hit particularly hard was the farming industry. The Australian government reported that "many agriculture, grower and forestry businesses consume high levels of energy to meet irrigation and processing requirements." That resulted in hefty price increases for fruits, vegetables, and grains.

When the tax was repealed, Australian prime minister Tony Abbott proclaimed, "Today the tax that you voted to get rid of is finally gone, a useless destructive tax which damaged jobs, which hurt families' cost of living, and which didn't actually help the environment is finally gone."

In America, meanwhile, a study commissioned by Citizen's Climate Lobby and conducted by Regional Economy Modeling claims that a revenue-neutral carbon tax would be economically beneficial in all but some southern states. It just so happens that these states rely heavily on farming and coal production.

Perhaps the increasing prices can be overlooked for the sake of helping the environment. But studies show that carbon taxes fail to significantly affect climate change. A ten-year study on Norway's carbon tax, conducted by the University of California San Diego, found that despite Norway's tax being one of the heaviest in the world, the "policy measure had only a modest influence on greenhouse gas emissions."

Although the goal of environmental sustainability trumpeted at the Renewable Energy Day conference is noble, we should ask Carter and his ilk to save their breath on more taxes. Instead, powerbrokers and wealthy investors should focus on making renewable energy sources more economically viable. Only then will clean energy take off.

Ethan Greene is a research fellow at the Taxpayers Protection Alliance, a nonpartisan, nonprofit educational organization dedicated to a smaller, more responsible government.

Fact-Checking Feinstein on Assault Weapons

Lois Beckett, ProPublica - September 24, 2014

In the ten years since the federal assault weapons ban expired, Sen. Dianne Feinstein, D-Calif., has kept trying to renew the law, which she authored. In a press release this month honoring the 20th anniversary of the ban, she wrote, "The evidence is clear: the ban worked."

But gun violence experts say the exact opposite. "There is no compelling evidence that it saved lives," Duke University public policy experts Philip Cook and Kristin Goss wrote in their book "The Gun Debate: What Everyone Needs to Know."

A definitive study of the 1994 law -- which prohibited the manufacture and sale of semiautomatic guns with "military-style features" such pistol grips or bayonet mounts as well as magazines holding more than ten bullets -- found no evidence that it had reduced overall gun crime or made shootings less lethal. "We cannot clearly credit the ban with any of the nation's recent drop in gun violence," the Department of Justice-funded study concluded in 2004. "Should it be renewed, the ban's effects on gun violence are likely to be small at best and perhaps too small for reliable measurement."

As we recently reported, key gun control groups say they are no longer making an assault weapons ban a priority because they think focusing on other policies, including universal background checks, are a more effective way to save lives. The Center for American Progress released a report earlier this month suggesting ways to regulate assault weapons without banning them.

Feinstein introduced an updated version of the assault weapons ban last year, in the wake of the mass shooting at Sandy Hook Elementary School, in which the shooter used a type of rifle that had been targeted by the ban. She told her Senate colleagues to "show some guts" when they voted on it in April. The measure failed, 40 to 60. The push to improve background checks also failed, but attracted more support

The key statistic that Feinstein cited in her recent press release -- that the ban "was responsible for a 6.7 percent decrease in total gun murders, holding all other factors equal" -- was rejected by researchers a decade ago.

Feinstein attributed the statistic to an initial Department of Justice-funded study of the first few years of the ban, published in 1997.

But one of the authors of that study, Dr. Christopher Koper, a criminologist from George Mason University, told ProPublica that number was just a "tentative conclusion."  Koper was also the principal investigator on the 2004 study that, as he put it, "kind of overruled, based on new evidence, what the preliminary report had been in 1997."

Feinstein's spokesman, Tom Mentzer, contested the idea that the 2004 study invalidated the 1997 statistic that Feinstein has continued to cite. But Koper said he and the other researchers in 2004 had not re-done the specific analysis that resulted in the 6.7 percent estimate because the calculation had been based on an assumption that turned out to be false. In the 1997 study, Koper said, he and the other researchers had assumed that the ban had successfully decreased the use of large-capacity magazines. What they later found was that despite the ban, the use of large-capacity magazines in crime had actually stayed steady or risen.

"The weight of evidence that was gathered and analyzed across the two reports suggested that initial drop in the gun murder rate must have been due to other factors besides the assault weapons ban," Koper said.

Cook, the Duke public policy expert, told ProPublica that the "weak results" of the 1994 ban "should not be interpreted to mean that in general bans don't work."

He said Feinstein's updated version of the ban, which she proposed in 2013 and is more restrictive, might be more effective. An American assault weapons ban might also have an impact on drug and gang-related violence in Mexico, he said.

"Around 30,000 Americans are killed with guns each year; one-third of those are murders," Feinstein said in a statement to ProPublica. "Obviously there's no single solution, which is why I support a wide range of policy proposals to bring sense to our firearms laws.  I continue to believe that drying up the supply of military-style assault weapons is an important piece of the puzzle -- and the data back this up." (See Feinstein's full statement below.)

Gun rights groups have long criticized the ban, and Feinstein's defense of it.

"Gun rights organizations, Second Amendment people, always take Dianne Feinstein with the whole shaker full of salt," said Dave Workman, the communications director for the Citizens Committee for the Right to Keep and Bear Arms.  "She's been a perennial gun-banner." 

"One would think the lesson learned from banning alcohol, marijuana, and many other drugs and items [is that] it never works for anyone intent on obtaining any of these items," Jerry Henry, the executive director of, told ProPublica. "All it does is put it in the background and helps establish a flourishing black market."  

The National Rifle Association did not respond to a request for comment.

Full Feinstein statement:

Around 30,000 Americans are killed with guns each year; one-third of those are murders. Obviously there's no single solution, which is why I support a wide range of policy proposals to bring sense to our firearms laws. We need to expand background checks, strengthen gun trafficking laws and make sure domestic abusers, the seriously mentally ill and other dangerous people cannot access guns.

I continue to believe that drying up the supply of military-style assault weapons is an important piece of the puzzle -- and the data back this up. These weapons were designed for the military and have one purpose: to kill as many people as possible, as quickly as possible. They are the weapon of choice for grievance killers, gang members and juveniles, and they shouldn't be on the streets.

A 2004 Justice Department study found clear evidence that the ban on manufacture and transfer of assault weapons reduced their use in crimes. The percentage of assault weapons traced as part of criminal investigations dropped 70 percent between 1993 and 2002, and many police departments reported increases in the use of assault weapons after the ban expired. In less than a decade, the ban was already drying up supply. The study suggested the law would have been even more effective if it had banned weapons already in circulation and if it had continued past its 10-year duration. Unfortunately those limits were part of the compromise that had to be struck to pass the ban into law.

Let me be clear: Assault weapons allow criminals to fire more shots, wound and kill more individuals and inflict greater damage. The research supports that. A ban on assault weapons was never meant to stop all gun crimes, it was meant to help stop the most deadly mass shootings. That's why it needs to be a part of the discussion, or rampages like Sandy Hook will continue to happen.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

In Some States, Low Poverty Rate Obscures
Deeper Despair

Jake Grovum, Stateline - September 24, 2014

The overall picture of poverty among states is a familiar one: Some states, such as Mississippi, have long claimed the highest poverty rates according to the federal income standard. Others, such as Hawaii, Maryland and Massachusetts, often are at the opposite end, with poverty rates less than half those in more impoverished states.

But a Stateline analysis of new state-by-state poverty data released by U.S. Census Bureau last week shows that some states with the lowest overall poverty rates in 2013 also had some of the highest percentages of low-income residents living in deep poverty -- defined as earning less than half of the federal poverty level, or about $12,000 per year for a family of four.

The persistence of deep poverty in states that have been relatively successful in reducing their overall poverty rates is a vexing problem, one that might expose serious shortcomings in the country's safety net, according to economists and anti-poverty advocates.

To see how the composition of those living in or near poverty varies state to state, click here for Stateline's data visualization.

The Census' measure of income includes earnings before taxes and a range of other benefits, but notably excludes food stamps and housing support, which often supplement poor Americans' household spending.

Maryland's Poverty Predicament
Maryland illustrates the dilemma. In 2013, 20.6 percent of Americans were living at, below, or just above (up to 125 percent of the poverty standard, or about $30,000 for a family of four) the federal poverty line. In Maryland the rate was just 13.3 percent, the third-lowest percentage among the states plus the District of Columbia.

However, nearly 38 percent of Maryland's low-income residents were living in deep poverty, highest among the states (though lower than the District of Columbia).

There are several possible explanations for the discrepancy. Some point to pockets of poverty in rural western Maryland that are detached from economic growth and safety-net programs. Others point to concentrated economic despair in Baltimore: A recent Brookings Institution analysis found more than one in 10 of the city's poor residents live in areas where the overall poverty rate tops 40 percent, a concentration that can perpetuate a lack of economic opportunities and make addressing the issue even more of a challenge.

It's a reality familiar to Bill McCarthy, executive director of Catholic Charities of Baltimore. He said there are areas of Baltimore where poverty rates top 90 percent and many residents are homeless. In some parts of the city, more than 70 percent of residents are unemployed and many of them have criminal records that make it difficult for them to get hired. In those cases, he said, the typical approaches to dealing with poverty have limited effect.

"Our traditional safety-net programs…really in this context aren't effective," McCarthy said. "They address certain symptoms for short brief periods but don't bring what I'll call real change to people."

In response, Catholic Charities has centralized its own assistance programs, providing job training, behavioral health care, housing help and other services in a single place. The approach recognizes that for some people, traditional anti-poverty programs such as food stamps, welfare and unemployment benefits simply aren't enough. For one thing, some of the poorest people in Baltimore don't have an address where they can receive those benefits.

"I remember when they declared the Great Recession over and I said we weren't seeing it," McCarthy said. "There's still a significant amount of need."

Problems Seen Elsewhere
The challenges aren't unique to Maryland. The percentage of Hawaii residents living below, at, or just above the poverty rate is 14.5 percent, the fifth lowest when compared to the states and D.C. But Hawaii has the sixth-highest share of its low-income residents in deep poverty, almost 37 percent. Advocates noted last week that the state's extraordinarily high cost of living exacerbates the problem for many who live there.

Massachusetts is another example: The state's 15.3 percent rate of residents below, at or near the poverty rate puts it at 43rd overall. But 36 percent of Massachusetts low-income residents are living in deep poverty, which is 10th highest among the states and D.C.

Nationally, the share of low-income residents in deep poverty is 34 percent; Vermont has the lowest rate, at 26.3 percent.

Half of Americans who are mired in deep poverty are younger than 25 years old, a report from the Urban Institute found, and more than a third of those are younger than 17. To help poor children, the government and advocates can provide free or reduced-price lunches in schools and health care programs targeted toward children, Programs such as the Special Supplemental Nutrition Program for Women, Infants and Children (known as WIC) help many children as well.

Reaching childless adults in deep poverty can be more difficult because many safety-net programs such as tax credits for the working poor or Temporary Assistance for Needy Families (commonly referred to as "welfare") are tied to work, or are limited to parents. Just 4 percent of deeply poor people older than 16 worked full time for a full year prior to the survey the Urban Institute analyzed. Three-fourths hadn't worked at all.

"Most people in poverty are working," said Elizabeth Lower-Basch of the Center for Law and Social Policy, a low-income advocacy and research group. "Deep poverty tends to have less connection to work. You're seeing people there who either aren't working at all or are in very intermittent work."

Many of the deeply poor are struggling with issues that make finding work a difficult task, or even a secondary one. It's an especially potent problem in D.C., where nearly 45 percent of low-income residents are in deep poverty.

"A lot of the parents have these kinds of barriers that need to be addressed first. It might be an issue with domestic violence, it might be a mental health issue," said Jenny Reed of the D.C. Fiscal Policy Institute, a research group originally established by the left-leaning Center on Budget and Policy Priorities. "The challenge is that there isn't necessarily support for parents or even people who aren't parents while they're trying to solve those barriers."

"It's really hard to get a job if you don't have a place to go at night," she added. "It's sort of a circular problem. It's very difficult for people who are in deep poverty to start to climb out."

But some say that any help for the deeply poor -- or, for that matter, people who are hovering near the poverty line -- that doesn't emphasize work and self-sufficiency is doomed to fail. Many conservatives argue that job training and work requirements for safety-net programs are the keys to reducing both poverty and deep poverty.

"We have this huge welfare system, and yet the rate of self-sufficiency of Americans has not really improved," said Rachel Sheffield of the conservative Heritage Foundation. "It doesn't mean that living conditions have not improved, they certainly have. But that was not the intent of the War on Poverty."

This piece originally appeared at Stateline, an initiative of The Pew Charitable Trusts, where Jake Grovum is a staff writer.

Child Tax Credits and the Poor: A New Approach

Robert VerBruggen - September 22, 2014

In the current issue of National Affairs, I have a lengthy piece (paywalled) about family policy. It addresses a lot of questions -- Does daycare hurt kids? Should child care be tax-deductible? Are families with two working parents overtaxed relative to families where one parent stays home? -- and I hope it will prove worth reading for those who care about such things. But in this teaser, I'd like to flesh out a small point I make late in the essay.

Over the last few years, reform conservatives ("reformicons") have taken up the cause of the child tax credit. To simplify a bit, under current law, parents are given a credit worth up to $1,000 per child age 16 or under, plus a dependent exemption worth about $500 per child. The reformicons say that's not enough: Children contribute to the future health of our society and economy -- especially entitlement programs -- and are more valuable to the government than the current level of tax relief implies. Reformicons would like to expand the credit significantly.

There's a wrinkle in their plan to do this, however. The credit they suggest (an additional $2,500 in Sen. Mike Lee's proposal) can count against both income and payroll taxes, but beyond that it's not "refundable" -- that is, if a parent doesn't pay at least $2,500 in taxes to begin with, that parent won't get the full credit. Since the logic behind the credit is that raising a child should count as a $2,500 contribution to the public fisc, these parents are essentially overpaying their taxes and not getting the money back.

But as the economist Robert Stein, who authored a Room to Grow chapter about the credit, has pointed out, there's a wrinkle in the wrinkle too: People who make so little money that they won't get the full credit often qualify for poverty programs -- and poverty programs themselves act as a sort of child credit, giving more benefits to families with more children. Over the course of a year, a family with one child can receive nearly $3,000 more from the Earned Income Tax Credit than a family with no children, for example. And expanding a household by one person increases the maximum food-stamp benefit by around $150 a month.

Stein defends the reformicon proposal on the grounds that it holds poor families harmless while giving middle-class families tax relief, and he points out that giving even more benefits to the poor could encourage irresponsible childbearing (especially when those benefits are explicitly conditioned on recipients' having children). Liberal critics, most prominently Matt Bruenig, suggest a fully refundable credit (delivered in the form of a monthly child "allowance") layered on top of existing poverty programs.

I say we should go a third route: Why not make the child credit completely refundable, but then cut poverty spending on parents to compensate, seeing as this spending has been made redundant? Not only would this make the expanded child credit more intellectually coherent -- a child counts as a tax contribution of $2,500, and if you overpay you get your money back, period -- but it would help to address a major problem with poverty benefits.

As countless analysts across the political spectrum have pointed out, means-tested programs often have very high implied tax rates: As the poor make more of their own money, their benefits are quickly taken away. This means that pursuing economic opportunity -- taking on more hours, getting a better job -- isn't as rewarding as it should be. In rare circumstances, someone who gets a raise can even lose money.

This is a very tricky problem to solve. You can cut benefits for the very poorest so that they have less to lose as they make more, but that's not a particularly nice thing to do. Or you can take benefits away at a slower rate as income rises, but this costs money, and it involves giving people taxpayer dollars above and beyond what they need to support themselves.

The beauty of a fully refundable child tax credit, therefore, is twofold. First, it is not a welfare payment but a reflection of the value that parents provide, so there's no problem with giving it to families that don't need it to make ends meet. And second, it simply stays the same as a family's income changes -- it won't be pulled out from under poor parents as a punishment for working hard.

Importantly, this approach would also largely address conservatives' concerns about further subsidizing irresponsible childbearing decisions. Ideally, a poor family that's eligible for the maximum amount of poverty relief would face the exact same incentives it faces today, except that some of the money would come from the child tax credit instead of means-tested benefits. (However, for some families the child tax credit would inevitably be worth more than the benefits it replaced, simply because poverty relief phases out and the child credit would not.)

In short, this idea would make the child tax credit more than just a way to reduce taxes for middle-class parents. Made fully refundable, with some poverty relief cut to compensate, the credit would properly account for the contributions of parents regardless of their income -- and it would give poor parents a smoother route into the middle class.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

A New Way Insurers Are Shifting Costs to the Sick

Charles Ornstein, ProPublica - September 18, 2014

Health insurance companies are no longer allowed to turn away patients because of their pre-existing conditions or charge them more because of those conditions. But some health policy experts say insurers may be doing so in a more subtle way: by forcing people with a variety of illnesses -- including Parkinson's disease, diabetes and epilepsy -- to pay more for their drugs.

Insurers have long tried to steer their members away from more expensive brand name drugs, labeling them as "non-preferred" and charging higher co-payments. But according to an editorial published Wednesday in the American Journal of Managed Care, several prominent health plans have taken it a step further, applying that same concept even to generic drugs.

The Affordable Care Act bans insurance companies from discriminating against patients with health problems, but that hasn't stopped them from seeking new and creative ways to shift costs to consumers. In the process, the plans effectively may be rendering a variety of ailments "non-preferred," according to the editorial.

"It is sometimes argued that patients should have 'skin in the game' to motivate them to become more prudent consumers," the editorial says. "One must ask, however, what sort of consumer behavior is encouraged when all generic medicines for particular diseases are 'non-preferred' and subject to higher co-pays."

I recently wrote about the confusion I faced with my infant son's generic asthma and allergy medication, which switched cost tiers from one month to the next. Until then, I hadn't known that my plan charged two different prices for generic drugs. If your health insurer does not use such a structure, odds are that it will before long.

The editorial comes several months after two advocacy groups filed a complaint with the Office of Civil Rights of the United States Department of Health and Human Services claiming that several Florida health plans sold in the Affordable Care Act marketplace discriminated against H.I.V. patients by charging them more for drugs.

Specifically, the complaint contended that the plans placed all of their H.I.V. medications, including generics, in their highest of five cost tiers, meaning that patients had to pay 40 percent of the cost after paying a deductible. The complaint is pending.

"It seems that the plans are trying to find this wiggle room to design their benefits to prevent people who have high health needs from enrolling," said Wayne Turner, a staff lawyer at the National Health Law Program, which filed the complaint alongside the AIDS Institute of Tampa, Fla.

Turner said he feared a "race to the bottom," in which plans don't want to be seen as the most attractive for sick patients. "Plans do not want that reputation."

In July, more than 300 patient groups, covering a range of diseases, wrote to Sylvia Mathews Burwell, the secretary of health and human services, saying they were worried that health plans were trying to skirt the spirit of the law, including how they handled co-pays for drugs.

Generics, which come to the market after a name-brand drug loses its patent protection, used to have one low price in many insurance plans, typically $5 or $10. But as their prices have increased, sometimes sharply, many insurers have split the drugs into two cost groupings, as they have long done with name-brand drugs. "Non-preferred" generic drugs have higher co-pays, though they are still cheaper than brand-name drugs.

With brand names, there's usually at least one preferred option in each disease category. Not so for generics, the authors of the editorial found.

One of the authors, Gerry Oster, a vice president at the consulting firm Policy Analysis, said he stumbled upon the issue much as I did. He went to his pharmacy to pick up a medication he had been taking for a couple of years. The prior month it cost him $5, but this time it was $20.

As he looked into it, he came to the conclusion that this phenomenon was unknown even to health policy experts. "It's completely stealth," he said.

In some cases, the difference in price between a preferred and non-preferred generic drug is a few dollars per prescription. In others, the difference in co-pay is $10, $15 or more.

Even small differences in price can make a difference, though, the authors said. Previous research has found that consumers are less likely to take drugs that cost more out of pocket. "There's very strong evidence for quite some time that even a $1 difference in out-of-pocket expenditures changes Americans' behavior" regarding their use of medical services, said the other co-author, Dr. A. Mark Fendrick, a physician and director of the University of Michigan Center for Value-Based Insurance Design.

Fendrick said the strategy also ran counter to efforts by insurance companies to tie physicians' pay to their patients' outcomes. "I am benchmarked on what my diabetic patients' blood sugar control is," he said. "I am benchmarked on whether my patients' hypertension or angina" is under control, he said. Charging more for generic drugs to treat these conditions "flies directly in the face of a national movement to move from volume to value."

If there are no cheaper drugs offered, patients might just skip taking their pills, Fendrick said.

The authors reviewed the drug lists, called formularies, of six prescription drugs plans: Harvard Pilgrim Health Care in Massachusetts; Blue Cross Blue Shield of Michigan; Blue Cross and Blue Shield of Illinois; Geisinger Health Plan in Pennsylvania; Aetna; and Premera Blue Cross Blue Shield of Alaska. They wanted to see how each plan handled expert-recommended generic drugs for 10 conditions.

The conditions are not all high cost like H.I.V. and Parkinson's. They also include migraine headaches, community acquired pneumonia and high blood pressure.

Premera and Aetna had preferred generic drugs for each of the 10 conditions the authors examined. Harvard Pilgrim, a nonprofit often considered among the nation's best, did not have a lower-cost generic in any of the 10 categories.

Four of the six plans had no preferred generic antiretroviral medication for patients with H.I.V.

In a statement to ProPublica, Harvard Pilgrim said it charges more for some generics because they are more expensive. The cheapest generics carry a $5 co-payment for a 30-day supply. More expensive generics range from $10 to $25, or 20 percent of the cost for a 30-day supply. The health plan said its members pay less for their medications than the industry average.

Blue Cross and Blue Shield of Illinois said that its preferred generics had no co-payment at all, and that non-preferred generics cost $10. "We historically only had one tier of generic drugs at a $10 co-pay," the spokeswoman Mary Ann Schultz said in an email.

The Blue Cross Blue Shield of Michigan spokeswoman Helen Stojic said the editorial looked only at its drug plan for Medicare patients, which the government closely regulates. Under Medicare, patients can appeal a drug's tier and seek to pay a lower co-payment, she said.

Geisinger did not respond to questions.

Health plans that participate in Medicare's prescription drug program, known as Part D, have been moving rapidly to create two tiers of generic drugs. This year, about three-quarters of plans had them, according to an article co-written by Jack Hoadley, a health policy analyst at Georgetown University's Health Policy Institute. The practical effect of such arrangements probably varies based on the difference in cost, he said.

Dan Mendelson, chief executive of Avalere Health, a consulting firm, has studied the way in which health insurers structure their benefits. He said the increasing number of drug tiers in some plans was confusing for patients.

"Consumers often don't understand which drugs are where," he said. "They don't understand the purpose of tiering. They just get to the pharmacy counter and it gets done to them."

This piece originally appeared at ProPublica, where Charles Ornstein is a senior reporter, and was co-published with The New York Times' The UpshotHave you experienced price confusion at the pharmacy? Email Charles Ornstein to let him know about what happened.

Why the Increasing State Prison Population Should Not Have Come as a Surprise

Ryan King & Brian Elderbroom, Urban Institute - September 18, 2014

The Bureau of Justice Statistics (BJS) announced on Tuesday that the national prison population increased during 2013, breaking a streak of three straight years of decline. This sudden about-face caught many off guard. However, a deeper dive into the data suggests that maybe we should have been prepared for this sobering news.

Particularly noteworthy is that the states, not the federal system, were the primary driver of the population increase. In recent years, states have led the way in downsizing their prison populations, while the federal system lagged behind.

Across the nation, states have revised sentencing laws, cut down on revocations from community supervision, and invested in a range of innovative, evidence-based policies that held the promise of reducing the size of the correctional population, saving states money, and protecting public safety. We in the justice policy community watched with great hope as the states seemed to be rejecting the "tough on crime" policies that defined the 1980s and 1990s and, instead, sought strategies that were "smart on crime."

And the early returns gave us reason to be hopeful. After nearly 40 years of unabated growth, the state prison population declined in 2010. Admissions to prison began to decline in 2007, and the number of people leaving prison annually exceeded those entering beginning in 2009 until 2013.

These trends occurred during a period when crime remained at historic lows not witnessed since the 1960s. It seemed possible that we were entering a new era of prison reform -- one that might finally get the United States in line with the rest of the world. But in 2013, these trends reversed. State prison admissions increased by 4.5 percent and releases dropped by 2.1 percent.

We may have been celebrating too early. Here's where we need to shift our focus to make a meaningful and sustainable reduction in the number of people in prison.

Too Much Weight Was Given to National Numbers
While national numbers are symbolically important, the number of people in prison is inherently a function of policy and practice in each state. While the overall state prison population declined by 3.9 percent between 2009 and 2012, the number of people in prison actually increased in 24 states. Two-thirds of the national decline was due to a reduction in California's prison population resulting from "realignment," which redirects persons convicted of nonviolent, non-sex, and non-serious offenses to the counties.

Indeed, larger states have a disproportionate impact on the national numbers. In 2013, 27 states reported an increase in their prison population, contributing to a net increase of 6,300. Four states alone (Arkansas, California, Florida, and Texas) grew by more than 7,000 prisoners.

The reality is that some states are doing better than others, and the gains that have been made are tenuous at best.

Recent Policy Reforms Are Only the First Step
While a necessary first step in rejecting the "tough on crime" policies of the past, reforms targeting people who have been convicted of nonviolent offenses are not sufficient to effect deep and sustainable reductions in the prison population.

Make no mistake, policies targeting community supervision and the sentencing of low-level drug and property offenses have likely contributed to the recent declines in some state prison populations and addressed some longstanding racial and ethnic disparities in the criminal justice system. But significant reductions will require policymakers to consider the entire population in prison.

For starters, most current reform efforts do not even apply to the majority of sentenced inmates. In 2011, slightly more than half (53 percent) of people in state prison were serving a sentence for a violent offense, up from 45 percent in 1991. This does not include people in prison whose most recent conviction was for a nonviolent offense, but who have a prior conviction for a violent crime, have had their sentence enhanced as a result, and may be ineligible for certain reforms aimed at reducing length of stay.

People in prison for violent offenses have been the primary driver of the prison population over the last decade, accounting for 80 percent of growth between 2001 and 2011. During this period, the number of people serving a state prison sentence for a violent offense increased by 17 percent, while property offenses increased by less than 1 percent and drug offenses actually declined by 12 percent.

Recent trends in prison admissions suggest that violent offenses will continue to be the major driver of the population. In fact, two-thirds of the decline in overall admissions to prison between 2006 and 2011 was due to a drop in drug offenses, while admissions to prison for violent offenses have remained flat.

Again, an emphasis on expanding alternatives to incarceration for drug offenses is a critical first step to reducing mass incarceration. But these reforms must be put in the proper perspective—sizable reductions cannot be achieved without taking a hard look at those serving the longest prison sentences.

Moving Forward, We Need to Tackle Long Prison Sentences and Time Served
The nature of an offense should not prevent us from subjecting sentence length and time served to the same cost-benefit analysis that we currently apply to many drug and property crimes. How much more public safety benefit does an additional day, week, month or year in prison provide? This is a critical question because people serving long sentences in prison "stack up" and make it difficult to achieve sustainable reductions in the prison population.

The best research has failed to find a significant impact of longer prison sentences on future criminal offending. The evolving consensus is that criminal offending is not deterred by the severity of the punishment (sentence length), but rather the certainty and swiftness of receiving a sanction. In fact, much of the current policy conversation is focused not on making punishment harsher, but improving the efficiency of the criminal justice system in order to increase the certainty of apprehension and punishment.

However, the focus of policies designed to instill swift and certain sanctions have been limited to nonviolent offenses. States should subject length of stay to the same scrutiny they are currently giving the decision about whether an individual should receive an incarceration or community-based sanction. The lessons learned for drug and property offenses should also be applied to violent offenses and people serving long sentences.

For example, analyses of release cohorts in Florida, Maryland, and Michigan found that thousands of people in prison for nonviolent offenses could have been released from prison earlier with little impact on public safety. Expanding these types of analyses to violent offenders could help build the case for reforms targeting a broader swath of the prison population.

The biggest reductions can be found among individuals serving the longest sentences. This population, which has been completely ignored by recent reforms, holds the promise of dramatically reducing the prison population without posing a threat to public safety.

Ryan King is a senior fellow, and Brian Elderbroom is a senior research associate, in the Urban Institute's Justice Policy Center. This piece originally appeared on the Urban Institute's MetroTrends blog. Follow Ryan and Brian on Twitter.

California's Unwitting Health Care Guinea Pigs

Craig H. Kliger - September 17, 2014

Imagine waking up to find, as Dorothy famously did in The Wizard of Oz, that you're not in Kansas anymore, having been transported somewhere else without your volition or consent. The people you trust are nowhere to be found, and the ones you encounter range from "good" to not-so-"wonderful" to even "wicked."

This has become reality for thousands of Californians who are eligible for both Medicare (available to the elderly and disabled) and Medicaid (available to the poor), called "dual eligibles," many of whom have complex medical problems. Unless they actively opt out of pilot programs authorized in 2010 by the Golden State -- now called "Cal MediConnect" -- they are automatically (magically?) enrolled in managed-care plans. Unlike traditional Medicare, which allows enrollees to see any provider willing to accept it, these plans typically limit the doctors patients can see, potentially disrupting long-established care relationships with providers should they not participate.

Of course, California isn't in this alone. The Medicare-Medicaid Coordination Office (MMCO) within the Centers for Medicare and Medicaid Services (CMS) approved the state proposal that permitted the opt-out in early 2013, ostensibly consistent with the MMCO's statutory goal of "making sure [dual eligibles] have full access to seamless, high quality health care and to make the system as cost-effective as possible."

Yet because many of these patients don't have English as a first language and/or have limited educational backgrounds, navigating the complexity of the opt-out process may be challenging despite the state's promise to send "multiple notices" prior to automatically enrolling patients. As a result, untold numbers have been or will be enrolled in these plans without their knowledge and likely against their wills. About two-thirds of those eligible require a 30-day notice after receiving 60- and 90-day ones, suggesting they haven’t responded. So it seems reasonable to presume the ultimate number will be very high. More disturbing, it seems the process is relying on these questionable-at-best circumstances to maximize participation and potential savings.

The state of California and CMS will almost certainly counter that these demonstration projects are an attempt to improve care (by coordinating the services offered through the two programs) while reducing its cost to the state and the federal government. Certainly both are noble goals. And I am confident those involved are well-intentioned. But a careful read of the authorizing state statutes and federal documents strongly suggests that improving quality is not the priority.

While there are nebulous provisions that might allow CMS to request modifications to address quality issues, the agency's only hard requirements for modification or termination have to do with cost overruns. California has similar provisions: The program will become "inoperative," for example, if the director of finance determines there are no "cost savings" (see Section 34).

In fact, because CMS's directive from Congress (see §1115A(b)(3)(B)) envisions only three acceptable outcomes -- improving the quality of care without increasing spending, reducing spending without reducing the quality of care, or improving the quality of care and reducing spending -- the demonstration would be deemed a failure and shut down if it substantially improved quality while only slightly increasing costs.

Further, a program truly dedicated to quality improvements would not use auto-enrollment, because changing someone's health insurance -- and, as suggested earlier, the set of providers he or she has access to -- can have serious consequences. The unwitting enrollment of a California man in a regular Medicare Advantage (managed care) program in 2012 disrupted his planned treatment for age-related "wet" macular degeneration and resulted in legal blindness in the affected eye while things were sorted out. His case and others may have inspired CMS to give those that might be passively enrolled the opportunity to disenroll from or reenroll in the program monthly. Aside from the chaos this might cause, this provision does little to help those like this man, who need urgent or emergency care and have no idea where they can seek it.

The irony is that California saves very little on the provider services that are most disrupted by this process. The details are complicated, but essentially this happens because California's Medicaid fees are low and services already must be administered through managed care wherever possible regardless. Where the state might save money is in the coordination of long-term-care services. But these almost certainly could have been addressed separately.

MMCO has as a statutory goal of "increasing dual eligible individuals' understanding of and satisfaction with coverage under the Medicare and Medicaid programs." So, how can it possibly defend what amounts to legitimized duping of huge numbers of the very people it is charged with protecting?

It's not as if efforts haven't been made to stop this. Aside from the hundreds of comments filed with CMS that did result in some revisions, the Los Angeles County Medical Association and others recently sought an injunction -- denied to date -- largely based on technicalities.

And it shouldn't take a lawsuit for CMS to realize it is creating two classes of Medicare recipients by discriminating solely on the basis of economic disadvantage. Those with Medicare alone -- an entitlement earned by working and paying payroll taxes over many years -- retain their ability to choose managed care, not be forced into it, while those who happen to have Medicaid in addition become subject to this grand experiment.

Don't get me wrong. This is not an indictment of all managed care, and I am clearly in favor of saving money if we can. But how we do that is important, and as well-intentioned as this might have been, it's time for the man (or woman) behind the curtain at CMS -- who, having government insurance, almost certainly doesn't face the threat of waking up one morning locked into a health plan he or she had no say in picking -- to demonstrate respect and concern for these vulnerable patients.

There's still time: CMS's Memorandum of Understanding with California allows the agency to terminate the program "without cause" with 90 days' notice. For the sake of the welfare of the patients CMS is charged with protecting, this option should be exercised.

Craig H. Kliger is an ophthalmologist and executive vice president of the California Academy of Eye Physicians and Surgeons.

School for Scandal at Cheatin' U

Thomas K. Lindsay - September 17, 2014

As online education grows, so do the ranks of its critics. One of the charges leveled by online learning's doubters is that it is easier for students to cheat on exams given over the Internet. One report quotes a college senior who has taken three online courses as saying, "If the teacher schedules an exam, you can have a bunch of people in one room sharing textbooks and taking the test at the same time." Doubtless, no one wants to make it easier for students to cheat, robbing both them and society of the character- and mind-strengthening struggle from which moral and intellectual excellence grow.

According to one report, "the rate of students who admit to cheating at least once in their college careers has held steady at somewhere around 75 percent since the first major survey on cheating in higher education in 1963." Having taught several college courses online over the past year, I shared the concern over whether the same -- or even more -- rampant cheating is occurring online. I thus investigated the issue, with a focus on the evolving technology aimed at preventing online cheating.

This technology is impressive -- so much so that the real problem today with cheating is almost certainly concentrated in traditional classrooms, not online.

The largest provider of online proctoring is ProctorU, which serves more than 500 partner schools. The company's technology allows students to take their exams from virtually anywhere in a secured environment. Since 2008, ProctorU has monitored nearly one million exams for test-takers in more than 75 countries. In an effort to see how the sausage was made, I recently witnessed a demonstration of tProctorU's security protocol in order to experience what the student experiences during the course of a proctored online examination.

Having taught college for a couple of decades, I am all too familiar with the plethora of cheating tactics employed by students. Armed with this knowledge, I tested whether such tactics can outsmart ProctorU's secured online framework. I was happy to find that they cannot.

Notes can't fly, either on the student's desk or on his or her hands or wrists, because the online proctor (a real person) can see everything in the student's room. Before taking the test, students must do a 360-degree webcam tour of the room to spot notes (whether on the test-taker's desk or on the wall behind the computer screen). In addition, the webcam tour will spot any others the test-taker has recruited to be present in the room for "assistance," and all others are made to leave the room. Ongoing surveillance prevents others from entering the room during the test, and also keeps students from using their cellphones to solicit answers from others via texting. The webcam monitoring also will spot any "Bluetooths" in students' ears, thus preventing them from masquerading the solicitation of answers from others as merely reading the questions out loud.

What about students Googling the answers? Most plagiarism today comes from Wikipedia, social-networking sites, and other online resources where students can collaborate and "share" work from previous classes. This is prevented when schools opt to employ ProctorU's secure browser, which disables the web-search function during the test (unless the professor indicates such searches are acceptable). Even when schools do not choose this option, students' on-screen behavior is monitored in real time via screen-sharing technology. If a student is seen attempting to Google answers, the proctor will give a verbal warning and, if needed, intervene to prevent the breach. Often, schools prefer that proctors document such acts and report them back to the instructor.

Another cheating tactic is for a student to have someone else take his or her online test. In addition to requiring test-takers to provide photo IDs at the start of every exam, ProctorU employs practices used by the banking and health-care industry, including biometric data, to authenticate students' identities. To give one example, schools can opt for the company to employ an algorithm that can tell from the pattern of a student's keystrokes who he or she is. (Only two in every 10,000 individuals have the same keystroke pattern.)

In short, having witnessed various cheating tactics for years in a brick-and-mortar classroom setting, this teacher couldn't make a dent in ProctorU's security framework. The widespread, salutary effect of this is clear when we recall that at public universities, which the majority of students attend, roughly half of classes are mass-lecture courses populated by hundreds of students. What hope has a professor, aided only by a graduate assistant, of ferreting out cheating in this needle-in-a-haystack setting? Not much. From my days as an undergraduate student at a public university, I both saw and heard accounts of whole rows of students in lecture courses copying answers off the one or two students who had studied for the exam. The statistics cited above prove that my observations were far from unique. Instead, they are the rule.

Given the scandalous rise of grade inflation, about which I've written in this space, you almost wonder why students today feel the need to cheat. After all, studies show that in the early '60s, 15 percent of all college grades awarded were A's. Today, 43 percent of all college grades are A's. In fact, an A is today the most common grade given in college. At the same time, it is reasonable to conclude that "successful" cheating only exacerbates the grade-inflation crisis.

However this may be, there will doubtless continue to be criticisms of online learning as an alternative to traditional instruction.

But increased cheating should not be one of them.

Thomas K. Lindsay directs the Center for Higher Education at the Texas Public Policy Foundation and is editor of He was deputy chairman of the National Endowment for the Humanities under George W. Bush. He recently published Investigating American Democracy with Gary D. Glenn (Oxford University Press).

Robert VerBruggen - September 16, 2014

This morning saw the release of the Census's much-anticipated poverty report for 2013. There are plenty of interesting facts and charts to be found in its 60 pages, but the biggest revelation is that the poverty rate ticked down a bit for the first time since 2006 (from 15 percent in 2012 to 14.5 percent in 2013), and here's a graph showing changes since 1959:

Should Governments Control the Internet?

Paul Rosenzweig, Brett D. Schaefer & James L. Gattuso - September 16, 2014

The Internet is now critical to the U.S. economy. A recent Hudson Institute analysis estimated that the information, communications, and technology sector accounted for nearly 10 percent of the total growth of the U.S. economy from 2002 to 2007 – in other words, the sector was responsible for more than $340 billion of the $4.6 trillion increase in real gross output of the U.S. economy over that period. Small wonder, then, that Congress has taken a keen interest in the Commerce Department's March 14 announcement that it intends to end its current supervisory role over ICANN -- the Internet Corporation for Assigned Names and Numbers -- and facilitate the transition to a new, private-sector led, bottom-up system under which ICANN will operate. Most importantly, the U.S. will no longer oversee the Internet Assigned Numbers Authority (IANA), which is responsible for the global coordination of the domain-name system -- the system that, for example, ties "" to this site.

But some of ICANN's recent actions have raised concerns about the corporation's commitment to private-sector control. Last month, ICANN announced a plan to change its bylaws to require its board to accept recommendations from governments, which act through a "Government Advisory Committee" or GAC. Under the proposal, ICANN's board of directors would be required to adopt advice from the committee unless two-thirds of the board members voted against it.

Obviously, the proposed change would enhance the power of governments, many of which are hostile to an open and free Internet, within ICANN. Therefore, it poses a threat to Internet security, stability, and openness. Here are three more specific reasons to reject it.

Wrongful Equation of GAC Advice to Broader Stakeholder Recommendations: Currently, the board can reject GAC advice by a simple majority vote. Supporters of the proposal to increase the threshold to reject GAC advice to a two-thirds majority note that ICANN bylaws currently give favored status to some recommendations from the GNSO Council, which represents a broad group of stakeholders, provided that they are passed by a supermajority.

Governments believe that their advice should be no less privileged than that of the GNSO, but there are good reasons to give GNSO a higher standing. Advice from the GNSO Council is the product of bottom-up development from multiple stakeholders. The vetting done during that process bestows a presumption of legitimacy on the resulting recommendation. By contrast, GAC advice is the product of hierarchical, top-down direction from governments alone, some of which do not even democratically represent their own citizens.

To be sure, governments are also constituents of ICANN. If they were to participate in the development of policy through the GNSO structure, their input would have the imprimatur of the multi-stakeholder process. But standing alone, GAC advice does not have such an imprimatur of legitimacy. Essentially an effort to have a last-word veto, the GAC proposal runs counter to ICANN's commitment to a multi-stakeholder decision-making process.

Risk of GAC Control of ICANN: By raising the threshold for rejecting GAC advice, the proposal would increase the power of governments in determining Internet policy. Since the establishment of ICANN, the U.S. government's stated goal has been to minimize the role of governments in managing the Internet. Government advice is important, as is the advice of other constituents. But the power of governments is such that care must be taken that they not swamp input from other constituencies.

Supporters of the rule change argue that the GAC's role would still be limited, since its recommendations must be adopted by a "consensus" of governments, which is defined in the GAC operating principles as "the practice of adopting decisions by general agreement in the absence of any formal objection." But this requirement could be changed by a majority vote in the GAC. In fact, some governments have already proposed that the consensus requirement be changed so that GAC decisions can be adopted by majority vote. It is possible, perhaps likely, that in the near future a majority of countries will modify the current operating procedures and then, under the new procedures, push through advice from the GAC that is contrary to the broader interests of the Internet community. Raising the bar for rejecting GAC advice, as the proposed change would do, could allow authoritarian governments to dominate ICANN as they dominate other international organizations, such as the U.N. General Assembly.

Inconsistency With the U.S.'s Goals in Turning Over the Management of the Domain-Name System: The National Telecommunications and Information Administration, which is part of the U.S. Department of Commerce and the main U.S. government participant ICANN activities, has set forth a number of conditions for the impending transition, the clearest of which is that the U.S. will "not accept a proposal that replaces the NTIA role with a government-led or an inter-governmental organization solution." The reason for this position is clear: Enhancing the power of governments, many of which are hostile to an open and free Internet, would threaten the security, stability, and openness of the Internet. Instead of moving away from governmental control as the U.S. government has requested, the proposed bylaw change would enhance the authority of governments within ICANN by making it more difficult for the board to reject GAC advice.

The ICANN board should oppose any change to its bylaws that would erode its independence and increase governmental influence in its operations. If the board does adopt the proposed change, the U.S. government should promptly reevaluate its conclusion that ICANN "has matured as an organization and has taken important steps to improve its accountability and transparency" and can be trusted with coordination of the Internet's domain-name system absent U.S. supervision.

Paul Rosenzweig is a visiting fellow in the Heritage Foundation's Allison Center for Foreign and National Security Policy. Brett D. Schaefer is Jay Kingham fellow in international regulatory affairs in Heritage's Thatcher Center for Freedom. James L. Gattuso is senior research fellow for regulatory policy in Heritage's Roe Institute for Economic Policy Studies.

More States Enforce Food Stamp Work Requirements

Jake Grovum, Stateline - September 16, 2014

In the coming months, food stamp work requirements suspended during the Great Recession will be reinstated in at least 17 states, jeopardizing benefits for hundreds of thousands of Americans.

In those states, work requirements will be back in place for able-bodied adults who are 18 to 50 years old and have no children. It's possible the requirements will return in more than 17 states, but the U.S. Department of Agriculture doesn't yet have a full count, even though states were supposed to report their plans by Labor Day.

Hunger advocates worry that fulfilling the work requirements will be a challenge for recipients who live in areas where both work and job training opportunities remain slim. But others note that the suspension of the requirement was always intended to be temporary, and that the economy has improved sufficiently to end it.

Typically, low-income, able-bodied adults without children can receive food stamps for only three months in a three-year period, unless they are working or participating in a training or "workfare" program for at least 20 hours a week. But as part of the 2009 economic stimulus law, the federal government allowed states to suspend the normal work requirements for food stamps, formally known as the Supplemental Nutrition Assistance Program. Nearly every state chose to do so.

The childless adults affected by the requirements comprise 10 percent of the total food stamp population, which was 46.5 million in June, the most recent month for which data are available.

A few years ago, the relaxed standards began to phase out. Some states (Iowa, Minnesota, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Vermont, Virginia and Wyoming, as of fiscal year 2014) were no longer eligible under the federal government's guidelines, which are based on local economic conditions. For fiscal year 2013, Nebraska, New Hampshire, North and South Dakota, Vermont and Wyoming weren't eligible.

Other states, such as Kansas, Oklahoma, and Utah, reinstated work requirements over the course of the past year despite being eligible for at least partial waivers. Ohio, New York, Texas and Wisconsin all waived the work requirements for only part of the year or in certain areas of their states, even though they were eligible to waive the requirements statewide.

This coming year, just 35 states and the District of Columbia are eligible to waive the work requirements, while last year, 42 states and D.C. could suspend them. In 2010 and most of 2011, 47 states and D.C. met the guidelines to waive the work requirements, and all but Delaware suspended them at some point during the Great Recession. Only Nebraska, North Dakota and South Dakota weren't eligible as of 2011. The stimulus suspended time limits for getting food stamps in all states from April 2009 through September 2010.

At least two of the states eligible for waivers this year, Maine and New Mexico, have said they plan to enforce the requirements anyway, but more could decide to join them, as pressure to reinstate the requirements has grown.

Exact figures for how many people would be affected by reinstated work requirements in each state are hard to come by. In some states, such as Ohio, it is estimated more than 140,000 would be subject to the rules. But in every case, if most or all the adults were able to meet the work requirements — either through finding a job, enrolling in a training program or even volunteering — they could continue receiving benefits as long as they remained otherwise eligible.

Hunger Advocates Worried
While the recession's spike in food stamp enrollment has begun to recede, the USDA reported this month that last year nearly 15 percent of Americans were "food insecure," or were forced by their diminished finances to reduce their food intake or scale back the quality or variety of their diets. Meanwhile, the decrease in food stamp enrollment overall has lagged behind improvement in the unemployment rate, as Stateline has reported.

In Ohio, for example, hunger advocates argue that a dearth of jobs and lack of training activities would make it nearly impossible for some food stamp recipients to meet the requirements, which are being enforced in all but 16 of the state's 88 counties, exempting mainly rural, Appalachian regions. By January of this year, 16,000 recipients had been either suspended or kicked off food stamps due of the requirements.

"In an environment where we have college graduates that are now competing for low-wage jobs, for folks with multiple barriers to employment, it's going to be difficult for them to find work," Lisa Hamler-Fugitt, of the Ohio Association of Food Banks, said earlier this year.

In the ensuing months, the issue grew larger. Food banks joined other advocates to continue to push officials to take up Washington's offer of a waiver. And the coalition has even filed a civil rights complaint with U.S. agriculture officials arguing the 20,000 who have lost benefits are disproportionately people of color.

A Return to Normalcy
Yet officials in Ohio and other states reinstating the requirements cast the move as a return to normalcy for a safety net program that saw enrollment and spending skyrocket during the recession, when some states had as many as one in four residents on the program. In many cases, states have paired the renewed standards with investments in job creation and training programs to help those who can't find work.

"People who are in need deserve a hand up, but we should not be giving able-bodied individuals a handout," Maine Gov. Paul LePage, a Republican, said in a statementannouncing the change in his state in July. "We must continue to do all that we can to eliminate generational poverty and get people back to work. We must protect our limited resources for those who are truly in need and who are doing all they can to be self-sufficient."

Officials in New Mexico pointed to other safety net programs, such as Temporary Assistance for Needy Families (commonly referred to as welfare) that also have work requirements. They stressed that the suspension of the requirement was always supposed to be temporary.

But the move aroused vocal opposition there as well: Officials had to relocate a recent public hearing on the changes to a bigger auditorium because of large crowd expectations.

The New Mexico Conference of Bishops blasted the reinstatement of work requirements in a statement last month. "Some in our state government are poised to strike another blow to our still-weak communities. The administration of the state wants to deny food benefits to those who cannot find a job in a market that isn't producing any."

Despite the protests, a return of the rules is probably inevitable, as the stimulus measure was written to respond to the recession. Work requirements for safety net programs have been a key component of food stamps and other welfare benefits for decades. An Obama administration proposal to waive work requirements for TANF during the recession hit similar roadblocks.

Some in Congress, including many Republicans, have advocated an even quicker reinstatement of the work requirements, although those proposals have mostly failed amid broader sparring between the GOP-controlled House and Democratic-controlled Senate over the food stamp program. Some Democrats in Washington and the states, who tend to be more supportive of the food stamp program, also have called for a reinstatement of the work requirements.

This piece originally appeared at Stateline, an initiative of The Pew Charitable Trusts, where Jake Grovum is a staff writer.

Unseen Toll: Wages of Millions Seized to Pay Debts

Paul Kiel, ProPublica & Chris Arnold, NPR - September 15, 2014

Back in 2009, Kevin Evans was one of millions of Americans blindsided by the recession. His 25-year career selling office furniture collapsed. He shed the nice home he could no longer afford, but not a $7,000 credit card debt.

After years of spotty employment, Evans, 58, thought he'd finally recovered last year when he found a better-paying, full-time customer service job in Springfield, Mo. But early this year, he opened his paycheck and found a quarter of it missing. His credit card lender, Capital One, had garnished his wages. Twice a month, whether he could afford it or not, 25 percent of his pay 2014 the legal limit 2014 would go to his debt, which had ballooned with interest and fees to over $15,000.

"It was a roundhouse from the right that just knocks you down and out," Evans said.

The recession and its aftermath have fueled an explosion of cases like Evans'. Creditors and collectors have pursued struggling cardholders and other debtors in court, securing judgments that allow them to seize a chunk of even meager earnings. The financial blow can be devastating 2014 more than half of U.S. states allow creditors to take a quarter of after-tax wages. But despite the rise in garnishments, the number of Americans affected has remained unknown.

At the request of ProPublica, ADP, the nation's largest payroll services provider, undertook a study of 2013 payroll records for 13 million employees. ADP's report, released today, shows that more than one in 10 employees in the prime working ages of 35 to 44 had their wages garnished in 2013.

Roughly half of these debtors, unsurprisingly, owed child support. But a sizeable number had their earnings docked for consumer debts, such as credit cards, medical bills and student loans.

Extended to the entire population of U.S. employees, ADP's findings indicate that 4 million workers 2014 about 3 percent of all employees 2014 had wages taken for a consumer debt in 2013.

Carolyn Carter of the National Consumer Law Center called the level of wage garnishment identified by ADP "alarming." "States and the federal government should look on reforming our wage garnishment laws with some urgency," she said.

The increase in consumer debt seizures is "a big change," largely invisible to researchers because of the lack of data, said Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin-Madison. The potential financial hardship imposed by these seizures and their sheer number should grab the attention of policymakers, he said. "It is something we should care about."

ADP's study, the first large-scale look at how many employees are having their wages garnished and why, reveals what has been a hidden burden for working-class families. Wage seizures were most common among middle-aged, blue-collar workers and lower-income employees. Nearly 5 percent of those earning between $25,000 and $40,000 per year had a portion of their wages diverted to pay down consumer debts in 2013, ADP found.

Perhaps due to the struggling economy in the region, the rate was highest in the Midwest. There, over 6 percent of employees earning between $25,000 and $40,000 2014 one in 16 2014 had wages seized over consumer debt. Employees in the Northeast had the lowest rate. The statistics were not broken down by race.

Currently, debtors' fates depend significantly on where they happen to live. State laws vary widely. Four states 2014 Texas, Pennsylvania, North Carolina and South Carolina 2014 largely prohibit wage garnishment stemming from consumer debt. Most states, however, allow creditors to seize a quarter of a debtor's wages 2014 the highest rate permitted under federal law.

Evans had the misfortune to live in Missouri, which not only allows creditors to seize 25 percent, but also allows them to continue to charge a high interest rate even after a judgment.  

By early 2010, Evans had fallen so far behind that Capital One suspended his card. For months, he made monthly $200 payments toward his $7,000 debt, according to statements reviewed by ProPublica and NPR. But by this time, the payments barely kept pace with the interest piling on at 26 percent. In 2011, when Evans could no longer keep up, Capital One filed suit. Evans was served a summons, but said he didn't understand that meant there'd be a hearing on his case.

If Evans had lived in neighboring Illinois, the interest rate on his debt would have dropped to under 10 percent after his creditor had won a judgment in court. But in Missouri, creditors can continue to add the contractual rate of interest for the life of the debt, so Evans' bill kept mounting. Missouri law also allowed Capital One to tack on a $1,200 attorney fee. Some other states cap such fees to no more than a few hundred dollars.

Evans has involuntary paid over $6,000 this year on his old debt, an average of about $480 each paycheck, but he still owes more than $10,000. "It's my debt. I want to pay it," Evans said. But "I need to come up with large quantities of money so I don't just keep getting pummeled."

Companies can also seize funds from a borrower's bank account. There is no data on how frequently this happens, even though it is a common recourse for collectors.

The garnishment process for most debts begins in local courts. A company can file suit as soon as a few months after a debtor falls behind. A ProPublica review of court records in eight states shows the bulk of lawsuits are filed by just a few types of creditors and companies. Besides major lenders like Capital One, medical debt is a major source of such suits. High-cost lenders who deal in payday and installment loans also file suits by the thousands. And finally, an outsized portion comes from debt buyers 2014 companies that purchase mostly unpaid credit card bills.

When these creditors and collectors go to court, they are almost always represented by an attorney. Defendants 2014 usually in tough financial straits or unfamiliar with the court system 2014 almost never are. In Clay County, Missouri, where Capital One brought its suit against Evans in 2011, only 7 percent of defendants in debt collection cases have their own attorneys, according to ProPublica's review of state court data. Often the debtors don't show up to court at all: The most common outcome of a debt collection lawsuit in Missouri (and any other state) is a judgment by default.

In a Clay County courtroom recently, the court was filled with creditors, but debtors were in short supply. Attorneys for hospitals, debt buyers, and lenders milled about, approaching the podium when their cases were called. Often they simply asked for default judgments when debtors failed to show.

Christopher McGraugh, an associate circuit court judge in St. Louis, said the system is designed to give debtors a chance to dispute allegations in suits against them. But in debt collection cases, "it just doesn't happen that much."

Some debtors, he said, may believe that they had no reason to attend since they owe the debt. For others, unable to afford an attorney, handling the case on their own is "beyond their sophistication," he said. As a result, the facts of most cases are never questioned, leaving the plaintiff with a judgment and the ability to pursue a garnishment.

McGraugh, who has presided over thousands of debt collection cases, said when defendants do obtain lawyers, particularly in cases involving debt buyers, they can point to possible holes in the suit. Those cases, he said "are rarely pursued."

Millions of debt collection lawsuits are filed every year in local courts. In 2011, for instance, the year Capital One went to court against Evans, more than 100,000 such suits were filed in Missouri alone.

Despite these numbers, creditors and debt collectors say they only pursue lawsuits and garnishments against consumers after other collection attempts fail. "Litigation is a very high-cost mechanism for trying to collect a debt," said Rob Foehl, general counsel at the Association of Credit and Collection Professionals. "It's really only a small percentage of outstanding debts that go through the process."

"Legal action is a last resort," said Capital One spokeswoman Pam Girardo, and the bank only filed suit after Evans "didn't complete the payment plan we agreed to."

Experts in garnishment say they've seen a clear shift in the type of debts that are pursued. A decade ago, child support accounted for the overwhelming majority of pay seizures, said Amy Bryant, a consultant who advises employers on payroll issues and has written a book on garnishment laws. "The emphasis is now on creditor garnishments," she said. Today, only about half the seizures are for child support, she said.

To illustrate the rise overall, Bryant provided ProPublica and NPR payroll statistics from a major retailer with approximately 250,000 employees nationwide. The company allowed the data to be used on the condition its name was not used. Since 2007, the number of employees who had their pay seized for consumer debt roughly doubled. As of June of this year, 2 percent 2014 about 5,000 employees 2014 had ongoing garnishments for consumer debt and just under 1 percent for student loan debt.

ADP's analysis also found that the rate of garnishment for child support was most common (3.4 percent), but closely followed by consumer debt, including student loans. The next most common reasons for garnishments were tax levies and payments for bankruptcy plans. (Disclosure: ProPublica retains ADP to provide it with professional employer organization services.)

Wage seizures for student loan debts are governed by different laws than other consumer debts. Collectors can obtain a garnishment after an administrative procedure set by federal rules. Borrowers must also be more than nine months behind before a collector can seek one. Finally, such seizures are capped at 15 percent of disposable income.

Department of Education data shows that approximately $1 billion has been collected each year over the past several years through these garnishments. The amount is up by about 40 percent since 2006, even after the figures are adjusted for inflation. ADP's analysis did not break out student loans from other types of consumer debt.

Bryant said the rise in garnishments has become an unanticipated burden for employers.

"It becomes very complicated," she said, particularly for national employers who must navigate the differences in state laws. "It's very easy to make a mistake in the process." If an employer does not correctly handle a garnishment order, she said, they can become liable for a portion or even the entirety of the debt in some states.

The burden was enough to prompt the American Payroll Association to request in 2011 that the Uniform Law Commission draft a model state law on wage garnishment. Bryant said employers are hoping that the new law, which is still being drafted, will be adopted by a large number of states and reduce complications.

This piece originally appeared at ProPublica and was co-published with NPRProPublica asked readers to share their experiences being sued over debt. Here are a few of their stories. Have you been pursued by debt collectors? Share your story here.

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