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TARGETED JOBS TAX CREDIT 

Y 4. W 36: 103-104 ^ == ^ == ^ === 

Targeted Jobs Tax Credit, Serial No... 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OP REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS / 

SECOND SESSION 



SEPTEMBER 29, 1994 



Serial 103-104 



Printed for the use of the Committee on Ways and Means 




Htot; 












8»-939 CC WASHINGTON : 1995 



/ 



fytto 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-047058-7 



TARGETED JOBS TAX CREDIT 

\ w Y 4. W 36: 103-104 — — = 

Targeted Jobs Tax Credit, Serial No. . . 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

OP THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OP REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 
SECOND SESSION 



SEPTEMBER 29, 1994 



Serial 103-104 



Printed for the use of the Committee on Ways and Means 




U.S. GOVERNMENT PRINTING OFFICE *«^<s^ J '3li^H V 
WASHINGTON : 1995 ^W>7> 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-047058-7 



COMMITTEE ON WAYS AND MEANS 



SAM M. GIBBONS, 
DAN ROSTENKOWSKI, Illinois 
J.J. PICKLE, Texas 
CHARLES B. RANGEL, New York 
FORTNEY PETE STARK, California 
ANDY JACOBS, JR., Indiana 
HAROLD E. FORD, Tennessee 
ROBERT T. MATSUI, California 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE, Pennsylvania 
MICHAEL A. ANDREWS, Texas 
SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
JIM McDERMOTT, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS, Georgia 
L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. McNULTY, New York 
MIKE KOPETSKI, Oregon 
WILLIAM J. JEFFERSON, Louisiana 
BILL K. BREWSTER, Oklahoma 
MEL REYNOLDS, Illinois 



Florida, Acting Chairman 
BILL ARCHER, Texas 
PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, JR., Florida 
DON SUNDQUIST, Tennessee 
NANCY L. JOHNSON, Connecticut 
JIM BUNNING, Kentucky 
FRED GRANDY, Iowa 
AMO HOUGHTON, New York 
WALLY HERGER, California 
JIM MCCRERY, Louisiana 
MEL HANCOCK, Missouri 
RICK SANTORUM, Pennsylvania 
DAVE CAMP, Michigan 



JANICE Mays, Chief Counsel and Staff Director 

DEBORAH G. COLTON, Deputy Staff Director 

FRANKLIN C. PHIFER, Jr., Counsel to the Acting Chairman 

Phillip D. Moseley, Minority Chief of Staff 



Subcommittee on Select Revenue Measures 



L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. MCNULTY, New York 
MIKE KOPETSKI, Oregon 
ANDY JACOBS, JR., Indiana 



CHARLES B. RANGEL, New York, Chairman 

MEL HANCOCK, Missouri 
DON SUNDQUIST, Tennessee 
JIM MCCRERY, Louisiana 
DAVE CAMP, Michigan 






(ID 



CONTENTS 



Page 

Press releases announcing the hearing 2 

WITNESSES 

U.S. Department of Labor, Hon. Robert B. Reich, Secretary 76 

U.S. Department of the Treasury, Maurice B. Foley, Deputy Tax Legislative 

Counsel, Tax Legislation 94 

America Works, Peter Cove 163 

American Health Care Association, Melody Chatelle 225 

Bailey, H. Shepard, National Restaurant Association, Job Opportunities Busi- 
ness Symposium (JOBS), and Pizza Hut, Inc 195 

Balfour, Don, National Council of Chain Restaurants and Waffle House, Inc ... 191 

Burton, Ross J., Q Lube, Inc., and Quaker State Corp 219 

Carey, Ron (see International Brotherhood of Teamsters) 105 

Chatelle, Melody, American Health Care Association and Living Centers of 

America 225 

Cove, Peter, America Works 163 

Dayton Hudson Corp., Edwin H. Wingate 206 

Feiler, Edwin J., Jr., National Association of Home Builders and Metro Devel- 
opers, Inc 231 

Fieldale Farms Corp., Thomas M. Hensley 210 

Hensley, Thomas M., National Broiler Council, et. al., and Fieldale Farms 

Corp 210 

Integrated Resources Institute, Steve Zivolich 166 

International Brotherhood of Teamsters, AFL-CIO, Bart Naylor on behalf 

of Ron Carey 105 

International Mass Retail Association, Edwin H. Wingate 206 

Job Opportunities Business Symposium (JOBS), H. Shepard Bailey 195 

Kmart Corp., James L. Misplon 201 

Living Centers of America, Melody Chatelle 225 

Mclntire, James L., University of Washington, Seattle, Wash 178 

Metro Developers, Inc., Edwin J. Feiler, Jr 231 

Misplon, James L., National Retail Federation, and Kmart Corp 201 

Moody, Hon. Jim, Chambers Associates 105 

National Association of Home Builders, Edwin J. Feiler, Jr 231 

National Broiler Council, et. al., Thomas M. Hensley 210 

National Council of Chain Restaurants, Don Balfour 191 

National Restaurant Association, H. Shepard Bailey 195 

National Retail Federation, James L. Misplon 201 

Naylor, Bart, International Brotherhood of Teamsters, AFL-CIO 110 

Peterson, Hon. Collin C, a Representative in Congress from the State of 

Minnesota 7 

Pizza Hut, Inc., H. Shepard Bailey 195 

Q Lube, Inc., and Quaker State Corp., Ross J. Burton 219 

Rush, Hon. Bobby L., a Representative in Congress from the State of Illinois . 68 
Shipman, Maison & Associates, Ltd., R. Walter Shipman and Scott D. Ship- 
man 235 

Waffle House, Inc., Don Balfour 191 

Wingate, Edwin H., International Mass Retail Association and Dayton Hud- 
son Corp 206 

Zivolich, Steve, Integrated Resources Institute 166 

(ill) 



IV 

Page 

SUBMISSIONS FOR THE RECORD 

American Hotel & Motel Association, James E. Gaffigan, letter 247 

Lorenz, Edward C, Alma College, Alma, Mich., statement 248 

Maryland State Department ofEducation, Division of Rehabilitation Services, 

Robert A. Burns, letter 262 

National Commission for Employment Policy, Anthony P. Carnevale, state- 
ment 263 



TARGETED JOBS TAX CREDIT 



THURSDAY, SEPTEMBER 29, 1994 

House of Representatives, 
Committee on Ways and Means, 
Subcommittee on Select Revenue Measures, 

Washington, D.C. 
The subcommittee met, pursuant to call, at 10:10 a.m., in room 
1100, Longworth House Office Building, Hon. Charles B. Rangel 
(chairman of the subcommittee) presiding. 

[The press releases announcing the hearing follow:] 



(1) 



FOR IMMEDIATE RELEASE PRESS RELEASE #22 

WEDNESDAY, JULY 27, 1994 SUBCOMMITTEE ON SELECT REVENUE 

MEASURES 
COMMITTEE ON MAYS AND MEANS 
U.S. BOUSE OF REPRESENTATIVES 
1102 LONGWORTH BOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20S15 
(202) 225-1721 



THE HONORABLE CHARLES B. RANGEL (D., N.Y.), CHAIRMAN, 

SUBCOMMITTEE ON SELECT REVENUE MEASURES, 

COMMITTEE ON WAYS AND MEANS, U.S. BOUSE OF REPRESENTATIVES, 

ANNOUNCES A PUBLIC BEARING ON THE TARGETED JOBS TAX CREDIT 



The Honorable Charles B. Rangel (D., N.Y.), Chairman, 
Subcommittee on Select Revenue Measures, Committee on Ways and 
Means, U.S. House of Representatives, announced today that the 
Subcommittee will hold a public hearing on the targeted jobs tax 
credit (TJTC) in September 1994 . The specific date and time will 
be announced in a subsequent press release. 

In announcing the hearing, Chairman Rangel stated: "The 
targeted jobs tax credit has played an important role in 
providing incentives for employers to employ individuals from 
various economically disadvantaged groups. In light of the 
impending expiration date of December 31, 1994, it is appropriate 
to receive testimony from representatives of the many sectors 
involved with this program. I welcome any suggestions for 
further improvement of the program which will still maintain the 
goal of providing employment opportunities for individuals 
eligible to be covered under this program." 

BACKGROUND : 

The TJTC was enacted by Congress in the Revenue Act of 1978 
to replace an expiring credit for increased employment. As 
originally enacted, the TJTC was scheduled to apply to qualified 
wages paid before 1982 . The credit has been extended 
successively in various Acts, most recently in the Omnibus Budget 
Reconciliation Act of 1993, through December 31, 1994. 

The TJTC is available on an elective basis to employers who 
hire individuals from nine targeted groups. Certification of 
targeted group membership is required as a condition of claiming 
the credit. The credit generally is equal to 40 percent of up to 
$6,000 of qualified first-year wages paid to a member of a 
targeted group. Thus, the maximum credit generally is $2,400 per 
individual . With respect to economically disadvantaged summer 
youth employees, however, the credit is equal to 40 percent of up 
to $3,000 of wages, for a maximum credit of $1,200. 

DETAILS FOR SUBMISSION OF REQUESTS TO P « "»»"■ 

Individuals and organizations interested in presenting 
oral testimony must submit their requests to be heard by 
telephone to Harriett Lawler, Diane Kirkland, or Karen Ponzurick 
[(202) 225-1721] no later than close of business, Monday, 
August 22, 1994, to be followed by a formal written request to 
Janice Mays, Chief Counsel and Staff Director, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House 
Office Building, Washington, D.C. 20515. The Subcommittee staff 
will notify by telephone those scheduled to appear at the hearing 
as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee [(202 225-9710]. 

Persons and organizations having a common position are urged 
to make every effort to designate one spokesperson to represent 
them in order for the Subcommittee to hear as many points of view 
as possible. Time for oral presentations will be strictly 
limited with the understanding that a more detailed statement may 



be included in the printed record of the hearing. (See formatting 
requirements below.) This process will afford more time for 
Members to question witnesses. In addition, witnesses may be 
grouped as panelists with strict time limitations for each 
panelist. 

In order to assure the most productive use of the limited 
amount of time available to question hearing witnesses, all 
witnesses scheduled to appear before the Subcommittee are 
required to submit 200 copies of their prepared statements to the 
Subcommittee office, room 1105 Longworth House Office Building, 
at least 24 hours in advance of their scheduled appearance. 
Failure to comply with this requirement may result in the witness 
being denied the opportunity to testify in person. 

WRITTEN STATEMENTS IN LIEU OP PERSONAL APPEARANCE i 

Persons submitting written statements for the printed record 
of the hearing should submit at least six (6) copies by the close 
of business on the day of the hearing to Janice Mays, Chief 
Counsel and Staff Director, Committee on Ways and Means, U.S. 
House of Representatives, 1102 Longworth House Office Building, 
Washington, D.C. 20515. If those filing written statements for 
the record of the printed hearing wish to have their statements 
distributed to the press and the interested public, they may 
provide 100 additional copies for this purpose to the 
Subcommittee office, room 1105 Longworth House Office Building, 
before the hearing begins . 

FORMATTING REQUIREMENTS : 

1. Afl atatamanta and any •ocatnpwynQ BWw for pnnanfl, must do typMJ in aanapo apaoo on wow-oct* popof 

and may not oacood a total of 10 ooooo. 

fnatanal anoidd bo rofaranoad and ajuotad of poraptvaoad. AH owaott w>aiano) not inooono, tftooa 







FOR IMMEDIATE RELEASE PRESS RELEASE #24 

FRIDAY, SEPTEMBER 16, 1994 SUBCOMMITTEE ON SELECT REVENUE 

MEASURES 
COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-9710 



THE HONORABLE CHARLES B. RANGEL (D., N.Y.), CHAIRMAN, 

SUBCOMMITTEE ON SELECT REVENUE MEASURES, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCES A PUBLIC HEARING ON THE TARGETED JOBS TAX CREDIT 



The Honorable Charles B. Rangel (D., N.Y.), Chairman, 
Subcommittee on Select Revenue Measures, Committee on Ways and 
Means, U.S. House of Representatives, announced today that the 
Subcommittee will hold a public hearing on the targeted jobs tax 
credit on Thursday, September 29, 1994, beginning at 
10:00 a.m., in the Committee's main hearing room, 1100 Longworth 
House Office Building. 

All other details of the hearing remain the same. (See 
Subcommittee on Select Revenue Measures press release #22, dated 
Wednesday, July 27, 1994.) 



Chairman Rangel. Good morning. The Subcommittee on Select 
Revenue Measures, Ways and Means, will be reviewing the Tar- 
geted Jobs Tax Credit this morning, and we will be taking testi- 
mony on this matter. 

This legislation is scheduled to expire at the end of this year. We 
have had a number of studies concerning the effectiveness of the 
credit, and we will hear from those who made these studies, those 
who administrate the program and those who use the program; and 
then we hope to report to the full committee our views on whether 
it should be extended, as well as improvements that — if any, that 
should be made. 

We will have Members of Congress — we ask them to please come 
forward as a panel — Congressman Peterson from Minnesota, who 
is the chairman of the Subcommittee on Employment, Housing and 
Aviation, Committee on Government Operations; as well as my 
dear friend, Bobby Rush, Congressman from Chicago, 111. 

We want you to talk to us about your specific recommendations 
as it relates to this program because we will soon be listening to 
Secretary Reich, as well as Deputy Tax Legislative Counsel Foley; 
and what we want to hear is whether or not you think it works 
and whether or not you think that it can work better, or whether 
you think it is a waste of time. 

Mr. Payne. 

Mr. Payne. Thank you very much, Mr. Chairman. The targeted 
jobs — and I want to thank you for holding this hearing. I think it 
is a very important hearing. 

The Targeted Jobs Tax Credit Program in my own district has 
been a successful program since it was implemented in 1978, and 
many disadvantaged workers have been employed as a result of 
this program. 

There have been over 10,000 workers who have been employed 
as a result of this program in my State of Virginia, each year, as 
a result of the implementation of the Targeted Jobs Tax Credit. 

Employers are supporting this program in my district. They be- 
lieve it allows them to hire qualified workers from targeted groups 
with a minimal amount of redtape, which is something which is 
very appealing to the employers; and many companies in my dis- 
trict have found productive workers in the economically disadvan- 
taged and among the disabled that would otherwise have been lim- 
ited to no employment opportunities. 

So since this program does expire at the end of this year, I think 
it is very important and very timely that we hold these hearings, 
and I look forward to hearing from all the witnesses today, includ- 
ing my colleagues, Mr. Rush and Mr. Peterson. 

Thank you both for being here. 

Chairman Rangel. Mr. Hoagland. 

Mr. Hoagland. Thank you, Mr. Chairman, for holding this hear- 
ing. I have previously supported the extension of the Targeted Jobs 
Tax Credit, and my support has been based on the impression that 
I have had that it has had a positive impact on the targeted groups 
in my district. 

This subcommittee meets today in part because of a report issued 
by the office of inspector general, the Department of Labor; and the 
OIG, in his report, indicated that the Targeted Jobs Tax Credit as 



presently structured has created an employer's windfall in the 
sense that employers would have hired TJTC-qualified employees 
regardless of the existence of the tax credit. If that is true, why in- 
deed then has Congress given employers a tax windfall? But in dis- 
cussions with employers in my district, I am told, and I think cor- 
rectly so, that the Targeted Jobs Tax Credit does not, in fact, 
produce a windfall. In other words, the availability of it is an im- 
portant factor in determining whether a person from a targeted 
group is hired. 

If, as the OIG indicates, the Targeted Jobs Tax Credit as pres- 
ently structured results in a windfall to certain employers, this 
subcommittee should revise it to eliminate such a windfall, and 
that, in part, is the task before us today. I am hopeful that Sec- 
retary Reich and Counsel Foley are prepared to give this sub- 
committee guidance on this issue. 

I would note, Mr. Chairman, that the Subcommittee on Human 
Resources is currently holding hearings on legislation to reform the 
welfare system. An integral part of welfare reform is putting people 
on welfare to work. To my mind, the Targeted Jobs Tax Credit fa- 
cilitates that goal. In fact, I would suggest that fewer people are 
on welfare today because of the tax credit. 

Finally, Mr. Chairman, as you noted earlier, it is time to make 
the Targeted Jobs Tax Credit permanent. It seems to me, annual 
or biennial extensions of the tax credit is neither good law nor good 
business. I am advised that there are approximately 200,000 
vouchers currently awaiting certification and that the backlog is 
due in large part to erratic extensions of the tax credit. Such a 
backlog dilutes the impact of the tax credit and is detrimental to 
the targeted groups that the tax credit is intended to serve. 

I look forward to working with the administration, members of 
the subcommittee and members of the business community in re- 
vising the TJTC provisions to maximize the benefit of the credit to 
the targeted groups. 

Thank you, Mr. Chairman. 

Chairman Rangel. Thank you. 

Mr. Kopetski. 

Mr. Kopetski. Thank you, Mr. Chairman, and I commend you 
for holding this hearing. I know this is an important issue. In my 
district and in the State of Oregon we have used the Targeted Jobs 
Tax Credit very well to get people to work. The problem, of course, 
is how do we pay for this tax credit? It is my understanding it will 
cost about $300 million, so it is very easy for all of us to sit up here 
and say we really need to do this, but unless there are constructive 
ideas to pay for this tax credit, it isn't going to happen. It won't 
stand a chance. Three hundred million dollars is a lot of money. 

I have to step out for a little bit, but I will be back to hear a 
response from folks who want to comment about raising the FUTA 
base to pay for the Targeted Jobs Tax Credit and whether people 
think that is a worthwhile source of funding. It is around $7,000 
now, and I know that for the regular benefit — unemployment bene- 
fit program, that States such as Oregon, and many other States, 
have for the base about a $12,000 wage figure. The staff is going 
to get the numbers, see how small an increase of the FUTA base 



it would take to raise $300 million; we will have that in about an 
hour or so. 

I would be interested in hearing comments on that funding 
source, because simply, Mr. Chairman, it is going to get down to 
whether we have the time and the political will to do this; and also, 
whether we have a funding source that people can agree upon. 

Thank you. 

Chairman Rangel. Well, we won't have that to wrestle with in 
this committee. If that source is found, it would be in the other 
body, and then we will have to review it. So we won't have to wres- 
tle with that one. 

Chairman Peterson, let me thank you for sharing the benefits of 
the hearings you already had on this matter. No program has been 
lauded more than this one has, even by the President of the United 
States, and no report has been more devastating against it than 
the one that was before your committee. Now people are having 
hearings on the report, so since you have had an opportunity to 
evaluate all of the testimony, it means a lot to us for you to share 
with us exactly what your committee and what you think about 
this program and what, if anything, we can do to perfect it. 

And Congressman Rush, both of your statements will be entered 
without objection into the record, so feel comfortable in sharing 
your views with us, as colleagues, the best that you would want to. 

Chairman Peterson. 

STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTA- 
TIVE IN CONGRESS FROM THE STATE OF MINNESOTA 

Mr. Peterson. Thank you very much, Mr. Chairman. I want to 
commend you for your leadership on this issue and for holding this 
hearing. 

Members of the subcommittee, I am pleased to appear before you 
today and be able to participate in this hearing. As you indicated, 
our subcommittee held a hearing on this 9 days ago. I also want 
to thank my good friend, Bobby Rush, for being with us today as 
well; he is on my subcommittee and has been very interested and 
involved in this issue. 

We heard from a diverse panel of witnesses at our subcommittee, 
both supporting and opposing the program. And I think most strik- 
ing, as you indicated, was the report from the Labor Department 
inspector general, who stated in the report that this is the first 
time that the office of inspector general has ever recommended that 
a program be eliminated; and they did this on the basis of an audit 
that was done in nine States. 

Initially, they looked at a couple of areas, and then they ex- 
panded it because of what they found, to see if they got the same 
kind of results looking at it in a number of States. And as you indi- 
cated, the IG reported that, in their opinion, that the employers 
would have hired 92 percent of their TJTC workers regardless of 
whether the Tax Credit Program was in place or not. 



r^SX at m/stlm IZl hearing to be m ade part of the 
record, if that would be all right 

Chairman Rangel. Without objection. 

[The following was subsequently received:] 






STATEMENT OF CHARLES C. MASTEN 

INSPECTOR GENERAL 

U.S. DEPARTMENT OF LABOR 

BEFORE THE EMPLOYMENT, HOUSING, AND AVIATION SUBCOMMITTEE 

COMMITTEE ON GOVERNMENT OPERATIONS 

U.S. HOUSE OF REPRESENTATIVES 

September 20, 1994 



Good Morning Mr. Chairman and Members of the Subcommittee. Thank you 
for inviting me to testify in my capacity as the Inspector General of the U.S. 
Department of Labor. I am pleased to appear before you today to present the results 
of the OlG's recent nationwide audit of the Targeted Jobs Tax Credit Program. I am 
accompanied by Mr. Joseph Fisch, Assistant Inspector General for Audit. 

The OIG audit was conducted under the authority of the Inspector General Act 
of 1978, as amended, and performed in accordance with Government Auditing 
Standards issued by the Comptroller General. As you know, Mr. Chairman, Congress 
created the Office of Inspector General (OIG) to: 

...(1) conduct and supervise audits and investigations relating to the programs 
and operations [of the Department] ... and (2) to provide leadership and 
coordination and recommend policies for activities designed (A) to promote 
economy, efficiency, and effectiveness in the administration of, and (B) to 
prevent and detect fraud, waste, and abuse in, such programs and 
operations... 1 

From the outset, I would like to emphasize that any views expressed today are 
mine as Inspector General and may not be the official position of the U.S. Department 
of Labor. 

BACKGROUND 

By way of background, the Targeted Jobs Tax Credit (TJTC) Program was 
created in 1978. The program was intended to encourage employers to hire certain 
members of hard-to-employ target groups in exchange for Federal tax credits. 

Currently, there are nine target groups including economically disadvantaged 
youth, economically disadvantaged Vietnam-era veterans, ex-felons, persons with 
disabilities, and public assistance recipients. 2 

Administration of the TJTC program is shared between Labor's Employment 
and Training Administration (ETA) and Treasury's Internal Revenue Service (IRS). 
ETA is responsible for administering the program through cost reimbursable grants to 
State Employment Security Agencies, which review and certify employee eligibility for 
the program. The IRS is responsible for monitoring the tax credits claimed by 
employers. 

Currently, the program allows employers to claim a tax credit of up to 40 
percent of the first $6,000 in annual wages paid to an employee, for a maximum tax 
credit of $2,400 per eligible employee. To claim this credit, the employer needs only 



1 Section 2, Inspector General Act of 1978, PL-95-452. 

'The target groups and our projections of their representation in the total certifications issued 
during our audit period are presented in Appendix 1. 



10 



to retain the worker for the lesser of either 90 days or 120 hours of employment. For 
disadvantaged summer youth, employers may claim 40 percent of the first $3,000 in 
wages paid to an employee, for a maximum tax credit of $1 ,200. 

For these individuals, the employer may claim the credit after retaining the 
employee for the lesser of just 14 days or 20 hours of employment. The Joint 
Committee on Taxation estimates that this program results in annual revenue losses 
to the Treasury of about $300 million. 

THE OIG NATIONWIDE AUDIT 

In total, the OIG has conducted four audits on various aspects of this program. 
The latest, a nationwide audit, was initiated following a pilot audit conducted in the 
State of Alabama. Employers interviewed in the Alabama audit were mostly large, 
nationwide corporations, including fast food chains, discount retailers, hotel/motel 
chains, poultry processors and the like. During that audit, employers acknowledged 
that they would have hired 95 percent of the same individuals, even if the credit had 
not been available. The audit also found that employers typically did not check for 
TJTC eligibility until after a hiring decision had been made. 

The Alabama audit concluded that the TJTC program was a windfall to 
employers in that state and of minimal value to participants. These conclusions 
caused the OIG to launch its nationwide audit to ascertain if the results in Alabama 
were characteristic of the program nationwide. 

Objective 

The overall objective of the OIG nationwide audit was to determine whether the 
TJTC Program is an effective, economical means of helping target group members 
who, without the tax incentive given to employers to hire them, would have difficulty 
finding employment. 

Focusing mainly on activities for the period July 1, 1991 through June 30, 1992, 
we obtained answers to the following questions: 

1) Would employers have hired the applicants without a tax 
credit? 

2) What did the TJTC program cost and what were its benefits 
during the audit period? 

3) What impact did the program have upon target group 
members? 

Methodology 

The audit sample was carefully constructed to allow us to project the sample 
results to the universe of TJTC certifications for the audit period and to project the 
program's costs and benefits nationwide. 3 The audit sample included a total of 1,150 
participants. The audit process consisted of interviews with staff, participants, and 
local employers; and reviews and analyses of documents, including TJTC participant 
records and Unemployment Insurance claim and wage files. 



\Ve used a stratified, two-stage statistical sampling design. First, we ranked all states according 
to the number of TJTC certifications in each state. The states were then placed into 3 strata, with each 
stratum comprised of approximately equal number of certifications. We then randomly selected 3 states 
from each of the 3 strata: California, Florida, Illinois, Maine, Michigan, Missouri, New Hampshire, 
Texas, and Virginia. Second, we drew random samples of 125 individuals from each state (150 in 
Illinois) who had been certified for TJTC during the audit period 



11 



During the course of the audit, participants and their employers were asked 
questions about: 

♦ How and when participants' eligibility for TJTC tax credits 
was determined; 

♦ Whether employers would have hired the participants had 
the credit not been available; and 

♦ What wage participants were paid, number of hours 
participants worked, and what benefits were offered. 

In determining the program's impact upon participants, the OIG also collected 
and compared information from sampled employees regarding their TJTC jobs and the 
jobs they held immediately before and after their TJTC employment. 

Program Effectiveness: Does the TJTC Program Work? 

Unfortunately, Mr. Chairman, the OIG audit determined that the TJTC program 
had virtually no impact on employers' decisions to hire target group members. Based 
upon responses of both employers and participants regarding hiring procedures, the 
OIG projects that at least 92 percent of TJTC employees would have been hired even 
without the tax credit - that is, the tax credit caused the employment of members of 
these targeted groups in only 8 percent of the cases. Equally disturbing, Mr. 
Chairman, is the fact that employers we contacted acknowledged they determined 
TJTC eligibility for 86 percent of the participants in our sample after a job offer was 
made. The audit found that in the majority of the cases, following the hiring decision, 
employers directed employees to call a broker, who, through telephone screening, 
made a preliminary TJTC eligibility determination for the employer. Employers then 
paid brokers a fee, based usually on the amount of the tax credit. 

Ironically, my audit staff had some first-hand experience with this post-hiring, 
TJTC eligibility screening. On two separate occasions, family members of two OIG 
audit employees were asked to call a TJTC-screening broker after being hired for jobs 
at a major grocery store chain and at a nationwide discount retailer. Both were 
assured that the job was theirs and that in no way would the call affect their 
employment status. 

Based on the OIG audit findings, I can only conclude that the tax credit is a 
windfall for employers since the program is inconsequential in encouraging the 
employment of target group members. In a nutshell, TJTC makes virtually 
no difference regarding who gets hired. 

Program Costs vs Benefits: Is the TJTC Program Worth its Cost? 

In addition to the ineffectiveness of the TJTC program, the OIG audit estimates 
that for every dollar in outlays, this program returned only about 37 cents in economic 
benefit - that is, wages and reductions in social transfer payments, such as welfare 
and Supplementary Security Income (SSI) benefits. Nationally, for the 1-year audit 
period, the OIG projected that the program cost about $374 million and that benefits 
totaled $140 million. Thus, the program cost some $234 million more than the 
economic benefits it generated. 

Program Impact: Do Participants Benefit from TJTC? 

The OIG audit also examined the program's impact upon target group members 
by comparing information on individuals' TJTC jobs with jobs they held immediately 
before and after their TJTC employment. Information evaluated included: hourly 
wages paid, weekly hours of employment, fringe benefits offered employees, types of 
jobs, and length of time participants remained in the job. 



12 



The OIG audit determined that, for the most part, TJTC employment included 
jobs as fry cooks, order takers, waiters/waitresses, cashiers, retail clerks, and 
maids/janitors. We found that these are the same type of low-paying, low-skill, high- 
turnover jobs that participants held before and after their TJTC work experience. 

Several disturbing facts disclosed by the audit included that: 

♦ 37% of the employees in our sample were paid no more 
than the minimum wage; 

♦ 61% of the employees worked only part-time; 

♦ 65% of the employees were offered no fringe benefits; 

♦ Littie vocational education or formal skills training was 
offered by employers; and 

♦ TJTC employees' average annual earnings were just above 
the Federal poverty level. 

The audit found that 5 quarters after being hired, only 24 percent of workers in 
TJTC-covered positions were still with their TJTC employer. Furthermore, they were 
somewhat worse off than those who were no longer with their TJTC employer since 
the average wage of the TJTC job was, in fact, less than the average wage 
employees earned in subsequent non-TJTC employment. 

Needless to say, these results further compel us to question the value of the 
TJTC program and whether better results should be expected of programs subsidized 
by the Government. 

OIG Audit Conclusion: The Program Is a Windfall to Employers 

Mr. Chairman, I wish I could tell you that this program is helping members of 
the targeted groups, as intended by Congress. I simply cannot. For the most part, 
the only ones benefitting from this $300 million a year program are the employers. 
After all: 

(1) Most employees would have been hired regardless of 
the tax credit (Clearly, the applicant pool for the marginal 
jobs on which credits are being claimed does not change. 
These are the same people who have typically worked, and 
will continue to work, in these low-wage, low-skill, high- 
turnover jobs that offer no benefits); and 

(2) Most employers make the decision to hire before TJTC 
eligibility is established. (This further confirms that, in 
most cases, the tax credit does not cause the employment 
of these individuals.) 

OIG Recommendation: The TJTC Program Should be Eliminated 

Mr. Chairman, I wholeheartedly believe that the Government needs to have 
programs to help the disadvantaged. However, they need to be programs that work, 
particularly in this era of budget constraints and diminishing resources. I regret to say 
that this tax credit program simply is not one of them. As a result, the OIG audit 
recommends that the Secretary encourage Congress not to reauthorize this program 
when it expires in December of this year. 

I think it is important to stress that, while OIG audits usually recommend 
corrective action to improve weak or ineffective programs, this is the first time the OIG 
has ever recommended that a program be eliminated. 



13 



The Employment and Training Administration (ETA) Response 

Mr. Chairman, as is standard practice in the OIG, we held an exit conference 
with ETA, the agency which administers the program at the Department of Labor, to 
present the OIG audit findings. ETA was then given the opportunity to comment on 
the draft report. In its response to the OIG audit, ETA acknowledged that: 

Even prior to the OIG's examination, there were disturbing indications 
that TJTC's effects fall short of its intentions. The [OIG] draft report adds 
to those indications and deepens our concern about the program's 
current design. 

However, ETA stated that the OIG conducted an audit and not 'a scientific 
study." It indicated that 'ways to strengthen achievement under the program, 
including the commissioning of a scientific study on the program's overall 
effectiveness" would continue to be examined. 

I must say that I was both surprised and disappointed at ETA's response that yet an 
other study of the effectiveness of the program is needed. We do not believe that the 
program needs further study. This program has been repeatedly studied and its 
problems have been widely documented. 4 

Conclusion 

Mr. Chairman, the Vice President's National Performance Review (NPR) seeks 
to root out and eliminate wasteful, ineffective programs. Clearly, any program that is 
as ineffective as the TJTC program is, has to be included on the list of programs that 
need to be eliminated. I am of the opinion that maintaining such a program would be 
inconsistent with the principles of the NPR. Mr. Chairman, this concludes my 
prepared statement. Mr. Fisch and I would be pleased to answer any questions you 
or the other Members of the Subcommittee may have. 



'See Appendix 2 for a list of studies of the TJTC program. 



14 



TARGET GROUP REPRESENTATION 



APPENDIX 1 




This graph depicts eight ot the nine target groups and our projections of their representation to the total 
certifications which were issued during our audit period. 5 As evident from this chart, economically 
disadvantaged youth ages 18 - 22 years of age were the predominant target group certified. AFDC 
participants were also well represented. In contrast, the disabled, ex-felons, Vietnam-era veterans, and 
SSI recipients constituted only small percentages of the total certifications 



Economically disadvantaged youth ages 16-19, who participate in a cooperative education 
program, were excluded from our sample since their certifications are done by the Department of 
Education and not the SESAs. 



15 



APPENDIX 2 
TJTC PROGRAM STUDIES 

THE TARGETED JOBS TAX CREDIT: AN ASSESSMENT, by Edward Lorenz, National Commission 
for Employment Policy, August 1985 

THE TARGETED JOBS TAX CREDIT IN MARYLAND AND MISSOURI: 1982-1987, 
By Edward C. Lorenz. for National Commission for Employment Policy, November 1988 

DOES THE TARGETED JOBS TAX CREDIT CREATE JOBS AT SUBSIDIZED FIRMS? By John H. 
Bishop and Mark Montgomery, Industrial Relations, Vol. 32, No. 3, Fall/1993 

TARGETED JOBS TAX CREDIT: FINDINGS FROM EMPLOYER SURVEYS, by John Bishop and Kevin 
Hollenbock, National Center for Research in Vocational Education, Ohio State University, May 1985 

TJTC: EMPLOYER ACTIONS TO RECRUIT, HIRE, AND RETAIN ELIGIBLE 
WORKERS VARY, General Accounting Office (GAO). February 1991 

APPLYING FOR ENTITLEMENTS: EMPLOYERS AND THE TARGETED JOBS TAX CREDIT, 
Abstract, by John H. Bishop and Suk Kang, Journal of Policy Analysis and Management . Vol. 10, 
Winter, 1991 

IMPROVING THE EFFECTIVENESS OF THE EMPLOYMENT SERVICE: DEFINING THE ISSUES, by 
Robert G. Ainsworth, National Commission for Employment Policy, October, 1991 

FINAL PROCESS ANALYSIS REPORT ON THE IMPLEMENTATION AND USE OF THE TARGETED 
JOBS TAX CREDIT PROGRAM, Macro Systems, Inc. May 7, 1985 

FINAL REPORT ON THE SHORT-TERM NET IMPACT OF THE TARGETED JOBS TAX CREDIT 
(TJTC) PROGRAM ON DISADVANTAGED POPULATIONS Macro Systems, Inc. Jury 1986 

FINAL REPORT ON THE AGGREGATE EMPLOYMENT EFFECTS OF THE TARGETED JOBS TAX 
CREDIT PROGRAM, Macro Systems, Inc., September 1986 

IMPACT STUDY OF THE IMPLEMENTATION OF THE TARGETED JOBS TAX CREDIT PROGRAM: 
OVERVIEW AND SUMMARY, Macro Systems, Inc., Jury 1986 

A STUDY OF THE IMPLEMENTATION AND USE OF THE TARGETED JOBS TAX CREDIT: FINAL 
REPORT ON THE ADMINISTRATIVE COST-EFFECTIVENESS OF TJTC AS A PLACEMENT TOOL 
FOR THE EMPLOYMENT SERVICE, Macro Systems, Inc., July 1986 

FINAL REPORT ON THE EFFECTS OF THE TJTC PROGRAM ON EMPLOYERS, Macro Systems. 
Inc., Jury 1986 

ARE TARGETED WAGE SUBSIDIES HARMFUL? EVIDENCE FROM A WAGE VOUCHER 
EXPERIMENT, by Gary Burtless, Industrial and Labor Relations Review, October 1985 

THE USE OF TAX SUBSIDIES FOR EMPLOYMENT, A REPORT TO CONGRESS BY THE U.S. 
DEPARTMENTS OF LABOR AND TREASURY, May 1986 

EMPLOYMENT TAX CREDIT PROGRAMS: THE EFFECTS OF SOCIOECONOMIC TARGETING 
PROVISIONS, by Dave O'Neill, U.S. Census Bureau, The Journal for Human Resources , 1982 

REPORT ON THE VERIFICATION AUDITS OF TJTC CERTIFICATIONS, by DOL Secretary Lynn 
Martin, to Lloyd Bentsen, Chairman, Senate Finance Committee, August 16, 1991 

TJTC: WHO DOES IT BENEFIT? Compiled by Jennifer A. Wells, TJTC Research Intern, New 
Hampshire Department of Employment Security, 1 990 

TARGETED JOBS TAX CREDIT PROGRAM, STATE OF ALABAMA, 

Office of Audit, Office of Inspector General, U.S. Department of Labor, August 20, 1993 

FINAL SURVEY REPORT, TARGETED JOBS TAX CREDIT PROGRAM, STATE OF TENNESSEE, 
U.S. Department of Labor, Office of Inspector General, September 30, 1992 

REVIEW OF THE TARGETED JOBS TAX CREDIT PARTICIPANT ELIGIBILITY PROCEDURES, Office 
of Audit, Office of Inspector General, U.S. Department of Labor, March 28, 1986 



16 



U.S. Department of Labor 



UK 1 8 1994 



0<no* of miptcw 0»n*'*i 
Wtthmgwn.DC. 2O210 



Ntpty to lh» Atttnilon el: 




MEMORANDUM FOR: 



PROM: 



DOUGLAS ROSS 
Assistant Secretary 

Employment and Training 




SUBJECT: 



W. PETERSON 
Assistant Inspector General 
for Audit 

Targeted Jobs Tax Credit Program: 
Employment Inducement or Employer Windfall 
Final Audit Report No. 04-94-021-03-320 



The attached audit report contains the results of our audit of 
the Targeted Jobs Tax Credit (TJTC) program. The audit included 
program activities which occurred during the period July 1, 1991 
through June 30, 1992, and was performed in seven ETA regional 
offices and nine states. 

We found that the program is not an effective and economical 
means of helping target group members obtain jobs. 

The program: 

did not induce employers to hire members of target 
groups they might not otherwise have hired. We project 
that employers would have hired 92 percent of the 
individuals, even if the credit had not been available. 

was not cost effective. For our audit period, we 
estimate that the TJTC program returned only about 37 
cents of economic benefits for each dollar of tax 
credits and administrative costs. 

provided the majority of participants entry-level, low- 
paying, low-skilled, part-time positions which do not 
offer benefits. 

Consequently, we have recommended the Secretary of Labor 
discourage Congress from reauthorizing the TJTC program when it 
expires December 31, 1994. 

We would appreciate your response to the findings and 
recommendation within 60 days. 

Attachment 



17 



Office of Inspector General 



VS. Deputmo* of Labor 
Office of Audit 



TARGETED JOBS TAXCREDrT PROGRAM: 

EMPLOYMENT INDUCEMENT 

OR EMPLOYER WINDFALL? 



Report No.: ©4-94-42 1 -03-324) 
Date Issued: Mlfi I 8 1994 



18 

Targeted Jobs Tax Credit Program - Tablt of Contents 



TABLE OF CONTENTS 

EAGE 



ABBREVIATIONS iv 

EXECUTIVE SUMMARY 1 

INTRODUCTION AND BACKGROUND 5 

OBJECTIVES, SCOPE, AND METHODOLOGY 11 

STUDY AND EVALUATION OF INTERNAL CONTROLS 14 

RESULTS OF AUDIT 16 



I. PROGRAM EFFECTIVENESS: WOULD EMPLOYERS 

HAVE HIRED THE APPLICANTS WITHOUT A TAX CREDIT? 16 

II. PROGRAM ECONOMY: WHAT DID THE TJTC PROGRAM 
COST AND WHAT WERE ITS BENEFITS DURING THE 
AUDIT PERIOD? 19 

III. PROGRAM RESULTS: WHAT IMPACT DID THE 

PROGRAM HAVE UPON TARGET GROUP MEMBERS? 21 

A. HOW MUCH WERE EMPLOYEES PAID, 

AND HOW DID THEIR TJTC WAGES COMPARE TO THOSE 

OF PREVIOUS AND SUBSEQUENT JOBS? 23 

B. HOW MANY HOURS PER WEEK DID TARGET 
GROUP MEMBERS WORK, AND HOW DID THESE HOURS 
COMPARE TO JOBS BOTH BEFORE AND AFTER TJTC 
EMPLOYMENT? 24 

ii 



U.S. Department of Labor - Office of Inspector General 



19 



Targeted Jobt Tax Credit Program - Table of Content! 



EAGE 

C. WERE FRINGE BENEFITS OFFERED WITH THE TJTC 
JOBS, AND EF SO, HOW DID THEY COMPARE WITH THOSE 

BEFORE AND AFTER TJTC EMPLOYMENT? 25 

D. WHAT WERE THE OCCUPATIONAL AND 
INDUSTRIAL CATEGORIES REPRESENTED BY THE 
TJTC JOBS? HOW DID THESE CATEGORIES 
COMPARE TO THOSE BEFORE AND AFTER TJTC 

EMPLOYMENT? 27 

E. DID TJTC APPLICANTS STAY WITH THE SAME 
EMPLOYER LONGER THAN EMPLOYEES IN THE 

COMPARISON GROUP? 30 

CONCLUSION 33 

RECOMMENDATION 34 

ETA'S RESPONSE 35 

OIG'S CONCLUSION 36 

EXHIBITS 

A SAMPLING DESIGN AND PROCEDURES 38 

B COMPUTATION OF TJTC PROGRAM COSTS 

AND BENEFITS, JULY 1, 1991 - JUNE 30, 1992 40 

C ETA'S COMPLETE RESPONSE TO THE DRAFT 

AUDIT REPORT 43 



U.S. Department of Labor - Office of Inspector General 



20 

Targeted Jobs Tax Credit Program - Abbreviations 



ABBREVIATIONS 



AFDC Aid to Families with Dependent Children 

CFR Code of Federal Regulations 

CY Calendar Year 

DOL Department of Labor 

DOT Dictionary of Occupational Titles 

ES Employment Service 

ETA Employment and Training Administration 

FY Fiscal Year 

IRC Internal Revenue Code 

IRS Internal Revenue Service 

LLSIL Lower Living Standard Income Level 

LOR Letter of Request for Certification 

OIG Office of Inspector General 

SESA State Employment Security Agency 

SSI Supplemental Security Income 

SSN Social Security Number 

TJTC Targeted Jobs Tax Credit 

UI Unemployment Insurance 

VR Vocational Rehabilitation 

WIC Women, Infants, and Children Services 



U.S. Department of Labor - Office of Inspector General 



21 

Targettd Jobs Tax CrtdU Program • Executive Summary 



EXECUTIVE SUMMARY 



The Targeted Jobs Tax Credit (TJTC) program was enacted in 1978 as a means of 
helping certain individuals find employment. In 1994, the TJTC program will cost 
taxpayers nearly $300 million. 1 For that outlay, it is intended the program will entice 
businesses into hiring members of hard-to-employ target groups-predominantly the 
economically disadvantaged--^ exchange for Federal tax credits. 

Our audit focused upon whether the TJTC program is an effective and economical 
means of helping target group members obtain jobs. 

It is not. Consequently, we have recommended the Secretary encourage Congress to 
discontinue the program when it expires on December 31, 1994. 

In arriving at our conclusion, we completed field work in nine states. A sample of 1,150 
individuals was evaluated, upon whom employers had requested and received TJTC 
eligibility certifications during the period July 1, 1991 through June 30, 1992. We also 
analyzed TJTC program and unemployment insurance wage history data maintained by 
the states. 

We asked and obtained answers to the following questions: 

Would Employers Have Hired the Applicants Without a Tax Credit? 

TJTC did not induce employers to hire members of target groups they might not 
otherwise have offered jobs. Nationally, we project that employers, for whom we could 
make a determination, would have hired 92 percent of the individuals even if the credit 
had not been available. 

What Did the Program Cost and What Were Its Benefits During the Audit Period? 

The costs of the TJTC program far exceeds its benefits. Nationally, for the period July 
1, 1991 through June 30, 1992, we estimate that the costs of the TJTC program exceeded 



1 Based upon the Joint Committee on Taxation's estimates of lost federal tax revenue which totals 
$282 million and nearly 916 million in U.S. Department of Labor funds granted to states for them to 
administer the program. 



U.S. Department of Labor - Office of Inspector General 



S? 



22 

Tarjtied Jobs Tax Crtdit Program • Exeeuttvt Summary 



its benefits by over $234 million. That is, only about 37 cents of economic benefits were 
returned for each dollar in tax credits and administrative costs. 



What Impact Did the Program Have Upon Target Group Members? 

Overall, TJTC jobs were similar to jobs individuals held both before and after their 
TJTC employment - that is, entry-level, part-time, low-paying, low-skilled positions. 
TJTC participants' starting hourly wages averaged only $4.96, while one of three 
employees was paid the minimum allowed by law. Two of three employees worked part- 
time. Similarly, two of three employees were not offered any fringe benefits, such as 
health and life insurance, or participation in a retirement plan. 

TJTC employees remained with their employers longer than employees in a comparison 
group with similar wages. Although somewhat better than the general work force, five 
quarters after being hired, only 24 percent of TJTC employees were still with their TJTC 
employers. 

We also reviewed the program's administrative controls and identified weaknesses in 
eligibility verification procedures employed by the states. Also, quarterly reports of 
program activities, submitted by states to the Federal Government, contained 
inaccuracies. Our evaluation of the program's administration has been communicated to 
each state and is discussed in the section of this report titled, "Study and Evaluation of 
Internal Controls." 



ETA's Response 

ETA acknowledged that past studies had cast doubts on the TJTC program's 
effectiveness. ETA stated that OIG's report "deepens our concern about the program's 
design." However, ETA did not believe the OIG audit was sufficient and that a 
"scientific study" with a "carefully constructed methodology" is necessary to determine the 
program's long-term impact. ETA will continue to find ways to improve program 
administration and will commission a scientific study on the program's overall 
effectiveness. 

We have included ETA's complete response to the draft report as Exhibit C. 



U.S. Department of Labor - Office of Inspector General 



23 



Targeted Jobs Tax Credit Program - Executive Summary 



OIG's Conclusion 

Wc are disappointed by ETA's response. We believe continuing the program while 
funding another study of this extensively studied program will only add to its 
considerable expense, delay corrective action, and frustrates the objectives of the Vice 
President's National Performance Review. 

Fewer than one person in ten owed their employment to the tax credits employers 
received. Since the program subsidizes hiring activities which occur regardless of the 
credit, we believe further study on long-term employment impact would be 
inconsequential and wasteful. 

We reviewed the literature on TJTC and noted nearly 30 reports on the program. 
Conclusions in several of the past studies were consistent with those in our report. 
Recently, Secretary Reich cited the results of a study: 2 

. . .according to recent studies by Cornell University's John Bishop and Grinnel 
College's Mark Montgomery, at least 70% of these workers would have been 
hired even without their employers receiving a tax break. 

. . . This is a disturbing list. Investing scarce resources in programs that don 't 
deliver cheats workers who require results and taxpayers who finance failure. 

So here is what we're going to do: 

We 're going to recommend against renewing the targeted jobs tax credit. 

At a White House briefing, on February 2, 1994, the Secretary affirmed that past 
investigations have demonstrated the TJTC program is not working: 

. . .all of the evidence shows that employers would have - in almost every case 
- employed those people [TJTC participants] anyway and, therefore, get a 
windfall. 

Over the past several years, numerous changes have been made to the program in 
unsuccessful attempts to correct its shortcomings. We believe the program should be 



2 The Secretary's speech before the Center for National Policy, on January 27. 1994, titled 
"Gettinfl America to Work: What's Working and not Working in Workforce Policy." 



U.S. Department of Labor • Office of Inspector General 



24 



Targtitd Jobt Tax CndU Program - Extcuti vt Summary 



ended and continue to recommend the Secretary of Labor encourage Congress to 
discontinue the TJTC program when its authorization expires on December 31, 1994. 



U.S. Department of Labor • Office of Inspector General 



25 



Targtttd Jobs Tax Credit Program - Introduction and Background 



INTRODUCTION AND BACKGROUND 



^ ■■ *m nmmmmmm SESAs operate the TJTC Program. TJTC is one of several 

INTRODUCTION Federal programs enacted to reduce unemployment, 
^^■HHBHaMiMi stimulate economic growth, and provide job opportunities 

for groups needing special assistance. TJTC allows 
employers, engaged in a trade or business, to receive a Federal income tax credit for 
hiring and retaining individuals from specific target groups. 

During 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993, which 
extended the program through December 31, 1994. The Act also made tax credits 
retroactive on all eligible individuals whose employment start date was on or after July 1, 
1992. 



mm ^ mmmmm ^"^■^^^ — TJTC began under the Revenue Act of 1978, as an 
BACKGROUND amendment to Section 51 of the Internal Revenue Code of 

" 1954. TJTC replaced the New Jobs Tax Credit (NJTC) 

program created by the Tax Reduction and Simplification 
Act of 1977. According to the Revenue Act of 1978, Part I., Summary, Congress made 
the changes from NJTC to TJTC because of improved economic conditions: 

. . . the unemployment rate has declined sufficiently so that it is appropriate to 
focus employment incentives on those individuals who have high 
unemployment rates, even when the national unemployment rate is low, and 
on other groups with special employment needs. 

. . . The groups have been defined on the basis of their low income or because 
their employment should be encouraged. . . . As a result of increasing 
employment among these groups, the committee hopes to lower outlays for 
these programs. 

Thus, TJTC focused upon specific target groups, in contrast to the NJTC, which focused 
upon creation of new jobs. 



U.S. Department of Labor - Office of Inspector General 



26 

Taijtted Jobs Tax Cndil Program • Introduction and Background 



Since 1978, Congress has repeatedly amended program requirements through provisions 
of the: 

Technical Corrections Act of 1979, 
~ Economic Recovery Act of 1981, 

Tax Equity and Fiscal Responsibility Act of 1982, 

Technical Corrections Act of 1982, 

Deficit Reduction Act of 1984, 

Tax Reform Act of 1986, 

Technical and Miscellaneous Revenue Act of 1988, 

Omnibus Budget Reconciliation Act of 1989, 

Omnibus Budget Reconciliation Act of 1990, 

Tax Extension Act of 1991, and 

Omnibus Budget Reconciliation Act of 1993. 

All participating parties must also follow the Internal Revenue Code of 1986, as amended. 
The changes resulting from the amendments relate primarily to groups which are 
targeted, minimum length of employment, amount of wages which are covered, eligibility 
determination procedures, and extensions of the program's duration. 

The Employment and Training Administration, within the U.S. Department of Labor, 
administers the program through cost reimbursable grants to the SESAs. The U.S. 
Treasury Department, through the Internal Revenue Service (IRS), monitors the tax 
credits claimed by employers. ETA and the IRS have a "memorandum of understanding" 
concerning their individual and shared responsibilities. 



'^^ mmm ^ mmmm ^ mwmmmmmmmmmmmm ETA administers the TJTC program following the 

PRINCIPAL CRITERIA guidelines in ET Handbook 377, Targeted Jobs Tax Credit 

■■■m— — — — mm Program, 5th Edition, August 1991. This Handbook 

rescinded an earlier edition, dated July 1988. ETA 
states that the Handbook provides "general guidelines" for those administering the TJTC 
program. 

Currently, the tax credit allows employers to claim 40 percent of the first $6,000 in 
annual wages paid an employee or a maximum tax credit of $2,400. The employer must 
retain the worker for a minimum of 90 days or employ the worker for at least 120 hours 
before the credit can be claimed. For disadvantaged summer youth, TJTC allows a 
credit which is 40 percent of the first $3,000 in wages paid the employee or a maximum 



U.S. Department of Labor - Office of Inspector General 



27 



Targeted Jobt Tax Credit Program • Introduction and Background 



tax credit of $1,200. Summer youth must work a minimum of 14 days or be employed at 
least 20 hours before a credit is available. Tax credits may be claimed for the wages 
described over a total period of 1 year, except for summer youth who are limited to the 
period of May 1 through September IS. 

The targeted population consists of nine groups for which employers may claim the tax 
credit. The groups are as follows: 

1. Persons with disabilities referred from state vocational rehabilitation or 
Department of Veterans' Affairs programs. 

2. Economically disadvantaged youth, 18-22 years old. 

3. Economically disadvantaged Vietnam-Era veterans. 

4. Recipients of Federal Supplemental Security Income (SSI) benefits within 
the last 60 days preceding the hire date. 

5. Recipients of state and local General Assistance for 30 days or more within 
the last 60 days preceding the hire date. 

6. Economically disadvantaged youth, aged 16 through 19, who participate in 
a qualified cooperative education program and have not graduated from a 
high school or vocational school. 1 

7. Economically disadvantaged ex-offenders hired no later than S years from 
date of their prison release or their felony conviction. 

8. Recipients of Aid to Families with Dependent Children (AFDC), who are 
eligible for AFDC at the date hired and who received AFDC payments 
continuously for the past 90 days or more. 

9. Economically disadvantaged summer youth, 16 and 17 years old, employed 
between May 1 and September IS, and who have not previously worked for 
the employer. 



* Since the SESAi' only responsibility for this group is economic eligiblity determination, the 
SESAs do not track certifications done by the Department of Education. Therefore, none from this 
group were Included in our sample. 



U.S. Department of Labor - Office of Inspector General 



28 

Targeted Jobs Tax Credit Program • Introduction and Background 



The "lower living standard income level" (LLSIL) determines whether an individual is 
"economically disadvantaged." The LLSIL is based upon the Consumer Price Index and 
varies by geographic area. Family income cannot exceed 70 percent of LLSIL, for those 
target groups whose eligibility is based upon "disadvantaged" status. 

Employers may make a preliminary determination of an applicant's eligibility. However, 
the SESA or cooperating agency must make the final determination and the SESA must 
certify the same. The SESA or cooperating agency may provide individuals a "voucher" 
of eligibility determination, which may assist applicants when searching for a job. 

Generally, the participant's start date must not precede the employer's request for 
certification. However, the start date may precede the request for certification date by 
up to 5 days, for persons already vouchered by the SESA or cooperating agency. A 
Qualified Cooperative Education program, such as those conducted in vocational schools, 
must certify that the applicant is eligible. 

According to ETA's guidelines, the SESA should try to obtain documentation of each 
individual's eligibility. However, ETA allows the SESA to accept only the job applicant's 
attestations when his or her eligibility is unusually difficult to document. The SESA's 
determination of economically disadvantaged status is generally good for 45 days. 

As a part of internal control, the SESAs must conduct "audits," involving in-depth testing 
to "establish the credibility and reliability of the eligibility determination and certification 
process." The SESA must retain records of eligible individuals for S years and records of 
individuals determined ineligible for 1 year. Other TJTC program requirements are 
periodically issued by ETA and contained in Federal regulation. 4 



mm * mmmmmmmmmmmmmm ** mm * mmm * ml Economically disadvantaged youth were the 
PROGRAM predominant target group certified. AFDC 

CHARACTERISTICS participants were also well represented. The target 

groups and our projections of their representation to 

' the total certifications which were issued during our 

"^™ audit period are presented in the graph in Figure 1. 



* Additional criteria are contained in Field Memorandum No. 97-90, Change 1. dated January 3, 
1991. which refers to the Wagner-Peyser Act, Section 7 (c) and the Code of Federal Regulations, Title 
29, Parts 93, 97 and 98. 



U.S. Department of Labor - Office of Inspector General 



29 



Targeted Jobs Tax Credit Program • Introduction and Background 



Figure 1 




Little recruitment of these groups was done by the SESAs. In our sample, the SESAs 
assisted few TJTC applicants in obtaining employment. 

For those TJTC employees on whom we could obtain the information, we determined: 

• 8 percent found their jobs through the assistance of the SESA. 

• 65 percent found their jobs "on their own." 

• 27 percent found their jobs through the assistance of others, such as friends 
and relatives. 



U.S. Department of Labor - Office of Inspector General 



30 

Tarftttd Jobs Tax CrtdU Program - Introduction and Background 



Typically, the SESAs' activities were limited to reviewing eligibility certification requests 
sent them by employers or contractors and completing other administrative activities 
related to the certification process. 

We project employers used management consulting contractors, to make TJTC eligibility 
determinations and to assist them with other administrative requirements, for 67 percent 
of the certifications. 



mmmmmum mm ^^■^^^™"" From 1980 to 1990, employers have claimed tax credits 

PROGRAM COSTS estimated at over $4.5 billion. The IRS estimated 
■MMMM^BMM^MMa revenue losses due to TJTC of $180 million in FY 1992 

and $160 million in FY 1993. Based on the current 
design of the program, the Joint Committee on Taxation has projected the following 
losses: 



FY 1994 


$282 million 


FY 1995 


$303 million 


FY 1996 


$357 million 


FY 1997 


$403 million 


FY 1998 


$444 million 



DOL's appropriation was $19,5 18,000 for TJTC administration in FY 1991 and $20 
million in FY 1992. 



U.S. Department of Labor - Office of Inspector General 10 



31 

Targtitd Jobs Tax CrtdU Program • Objectives, Scope, and Methodology 

OBJECTIVES, SCOPE, AND METHODOLOGY 



^ ^ m Our objective was to determine whether TJTC is an 
OVERALL OBJECTIVE effective, economical means of helping target group 

wmmmmmmmm mmmmmm—mmam—m—m members, who would otherwise have difficulty 

finding employment. 



^ ^ ■■ " ■ To satisfy our primary objective, we considered a number of 
SUBOBJECTTVES subobjectives involving the program's operation. We designed 

•mammmmmmmmimmmm—m procedures to answer the following questions: 



• Would employers have hired the applicants without a tax credit? 

• What did the TJTC program cost and what were its benefits during the 
audit period? 

• What impact did the program have upon target group members? 

• How well was the program administered? 



immm ^ m ^ mm Our audit focused on activities for the period July 1, 1991 through June 
SCOPE 30, 1992-Program Year (PY) 1991. However, we reviewed program 

wmmmmmmmmm operations and supporting information for periods before and after these 
dates, when necessary, to complete our audit objectives. 



Audit procedures included staff, participant, and local employer interviews, review of 
documents, evaluation of TJTC participant records, and analyses of UI claim and wage 
files. Hiring decisions were made by local employers. For this reason, our interviews 
were directed to these employers. 

We also matched TJTC participant files with UI wage files, UI claim files, and SESA 
applicant files. The matches allowed us to confirm TJTC participants' employment, 
previous or subsequent involvement with the same employer, length of employment, 
wages earned, and UI claims activity. 



U.S. Department of Labor - Office of Inspector General \ \ 



32 

Targeted Jobs Tax Credit Program - Objectives, Seopt, and Methodology 



We followed requirements for performance audits set forth in Government Auditing 
Standards . 1988 Revision, issued by the Comptroller General of the United States. Work 
was completed in seven ETA Regional Offices and in nine states: California, Florida, 
Illinois, Maine, Michigan, Missouri, New Hampshire, Texas and Virginia. In eight states, 
we selected a random sample of 125 certifications which had been issued during PY 
1991. The sample size in Illinois was ISO. (See Exhibit A.) Consequently, we reviewed a 
sample of 1,150 individuals from a universe of 505,418 TJTC certifications reported to 
ETA during our audit period. We identified the employees associated with the 
certifications, employers who hired the individuals and related contractors hired by 
employers to assist in TJTC program functions. 

Our sample design allowed us to project the sample results to the population of 
individuals with TJTC certifications during the audit period. Our sample also allowed us 
to project the program's costs and benefits to the nation. Our sampling methodology is 
presented in Exhibit A of this report. 

Field work continued from October 25, 1993, through March 31, 1994. Field work was 
followed by verification, evaluation, and statistical projection of the data we had 
collected. Typically, we were able to obtain complete files from the SESAs' 
headquarters locations. Consequently, our field work was usually completed at the 
SESAs' central offices. However, we visited many locations throughout each of the nine 
states in order to interview those individuals we could not contact by other means. 

Audit findings related to each state's activities have been communicated in separate 
correspondence. Comments received from the states were considered in preparing this 
report. 



■■ "^ ■■•■■ "^" To determine the tax credit's effectiveness in encouraging 
METHODOLOGY * e em pl°y men * of individuals who would not otherwise 
-■— — ■ ^ mmm have found a job, we evaluated responses solicited from 
our sample. 



The information was obtained by contacting participants and the related employers. We 
asked how and when participants' eligibility for TJTC tax credits was determined, and 
whether employers would have hired the participants had the credit not been available. 
We also obtained information on wages paid participants, benefits they were offered, 
hours worked, and other information germane to our audit objectives. 



U.S. Department of Labor - Office of Inspector General 12 



33 



Targeted Jobs Tax Crrdis Program - Objectives, Scope, and Methodology 



In determining costs of the TJTC program, we included Federal appropriations for 
DOL's administration of the TJTC program and revenues lost due to tax credits. For 
Federal tax purposes, employers must reduce deductible wage expenses by the amount of 
the TJTC credits taken. Consequently, we reduced costs by an amount which represents 
the tax effect of the credits. 

As benefits, we used the gross wages of those persons whom we concluded would not 
have been hired without the credit. Where identified, we also added savings to Federal, 
state and local governments from reductions in social transfer payments, such as public 
assistance. 

We then compared costs and benefits. Our calculations included TJTC program 
administrative costs, eligible tax credits, tax deductions employers forfeited because they 
claimed credits, and financial benefits. Our computations were based upon sample 
projections. As with other components used in our calculations, projections relate only 
to PY 1991. Our methodology is discussed, at length, in Exhibit B of this report. 

In determining the program's impact upon participants, we collected and compared 
information from sampled employees and their employers regarding their TJTC jobs and 
jobs they held before and after their TJTC employment. The information included 
employees' pay rates, number of hours they typically worked per week and the fringe 
benefits they were offered. We also compared the length of time individuals in our 
sample remained in TJTC jobs (retention) to that of a like population. The comparable 
population consisted of individuals in the work force whom we identified in the SESAs' 
employment data bases. We selected individuals who started jobs during our audit 
period and whose earnings were within two standard deviations of the mean earnings of 
individuals in our TJTC sample. Retention rates of individuals in our sample were 
compared to retention rates of the comparable population. 

To determine if the program was being properly administered, we evaluated the 
existence, adequacy and functioning of internal control procedures for determining TJTC 
applicants' eligibility and reporting program activities. We evaluated procedures SESA 
staff applied in determining the eligibility of those individuals in our sample. We also 
reviewed documentation to determine whether other TJTC quality review procedures, 
mandated by ETA, were being completed. Finally, we evaluated the accuracy of 
quarterly reports, submitted by the SESAs to ETA. Our findings on the states' 
administration of the 'program are included in the following section of this report titled, 
"Study and Evaluation of Internal Controls. " 



U.S. Department of Labor - Office of Inspector General 13 



34 

Targeted Jobs Tax Credit Program - Study and Evaluation of Internal Controls 

STUDY AND EVALUATION OF INTERNAL CONTROLS 

We evaluated the existence and effectiveness of the states' internal controls for verifying 
TJTC applicants' eligibility and for reporting the results of their activities. 



Control procedures prescribed by ETA 5 to ensure 



CONTROL PROCEDURES on ^y eligible applicants are certified include: 



"Quality review," which involves an independent review of forms and other 
documentation that support the certification of eligibility. Reviews are to 
be performed at several points in the eligibility determination and 
certification process and are to be completed within 48 hours of the receipt 
or completion of key documentation. 

"Audit," which involves quarterly, post-issuance examinations of a random 
sample of certifications and the supporting documentation. 



«^ ■■■ ^ ■■■ We reviewed 1,1 50 TJTC participant files to 

PROCEDURAL WEAKNESSES determine whether a quality review was 

mmmmmmmmmmmammmmmmmmmmmmmmmmmmmmm performed. ETA requires that SESAs test the 

validity of all certifications issued, including 
vouchers and other documentation which results in certifications. Quality reviews and 
audits are individual parts of the verification process. Verification should be done by 
someone other than the person who originally processed the actions. 

We were often unable to determine if quality reviews had occurred because most key 
documents contained no evidence that a review had taken place. For example, 90 
percent of the certification documents contained no information that suggested a review 
had been completed. We determined that seven of the nine SESAs did not document 
any quality reviews. Two of the SESAs' methodologies for selecting quarterly audit 
samples were not in accordance with the ET Handbook because items were not 
randomly selected. 



• Requirements are contained in ET Handbook No. 377. Targeted Jobs Tax Credit Program, 5th 
Edition. August 1991. 



U.S. Department of Labor - Office of Inspector General 14 



35 



Targeted Jobs Tax Crtdii Program • Study and Evaluation of Internal Controls 



We did not develop specific procedures to identify ineligible individuals. However, 
through other data analyses, which included automated computer applications, we 
identified 39 ineligible participants. In 16 of the 39 instances, participants had previously 
worked for the employer not as a certified TJTC employee, and, according to the 
Internal Revenue Code, a tax credit should not have been claimed. In other instances, 
various program requirements were not met. We believe these problems were largely 
due to a lack of quality review. 



^ ^ ■^™" We found some states submitted inaccurate reports 

REPORTING WEAKNESSES to ETA identifying program activity. In seven of 
^^^^^^^^^^^^^^^^^^^ nine states, reported certifications did not agree 

with the records we reviewed at the SESAs. In 
most instances, the differences were minor; however, the State of Michigan materially 
overstated the number of vouchers and certifications in its reports, and the Illinois SESA 
had reporting problems in some local offices. 

During PY 1991, the Michigan Employment Security Commission (MESC) reported 
processing 54,706 TJTC vouchers and 49,890 certifications. Based on our analyses of the 
TJTC data base, the correct numbers of vouchers and certifications were 21,101 and 
18,907, respectively. 

The errors resulted from Michigan reporting cumulative year-to-date totals on its 
quarterly reports. ETA instructions indicate quarterly reports should only reflect that 
period's activity. The overstatement could have resulted in ETA overfunding the state's 
TJTC activities since TJTC administrative funds are distributed by a formula based in 
part on numbers of vouchers and certifications. 

We also identified reporting problems in Illinois. We reviewed certifications at ten local 
offices in the State of Illinois and found differences in seven. One local office 
significantly overstated total certifications. We were told the overstatement was largely 
due to misfiling by volunteer workers. The volunteers filed PY 1990 certifications with 
PY 1991 certifications. Another contributing factor was failure to observe requirements 
for proper separation of duties. At least four individuals were signing as the TJTC 
certifying official. This practice resulted in the creation of duplicate files. We identified 
one participant for whom four files existed. 



U.S. Department of Labor - Office of Inspector General IS 



36 



Targeted Jobs Tax Credit Program - Results of Audit 



RESULTS OF AUDIT 



PROGRAM EFFECTIVENESS: WOULD EMPLOYERS HAVE HIRED THE 
APPLICANTS WITHOUT A TAX CREDIT? 



92 Percent of TJTC Employees 
Would Have Been Hired 
Without Tax Credits 



We evaluated the TJTC program's influence 
on target group members' employment by 
determining if employers would have hired 
the applicants without TJTC incentives. We 
found the TJTC program had little impact on 
employers' hiring decisions. 

Figure 2 



EFFECT OF TAX CREDIT 
ON HIRING 



HIRED EVEN 

WITHOUT 

CREDIT 



HIRED 

ONLY WITH 

CREDIT 



7.8% 




U.S. Department of Labor • Office of Inspector General 



16 



37 



Targe ltd Jobs Tax Crtdit Program • Result* of Audit 



Nationally, for our audit period, we project 92 percent of participants, for whom 
we could make a determination from our sample (908 of 983), would have been 
hired regardless of whether the tax credit was available. Conversely, only 8 
percent of the participants were hired because of the credit. See Figure 2 on the 
previous page. Our conclusions were based upon the responses of both employers 
and participants regarding hiring procedures. 

In some instances, employers told us they would have hired applicants without the 
tax credit, although applicants stated their eligibility was checked before they were 
hired. In other instances, employers affirmed they would not have hired the 
applicants without the tax credit, although applicants stated that eligibility was 
determined after they were hired. Regardless, in all such circumstances, we 
accepted the employers' representations. If we could not obtain a response from 
an employer, we accepted the applicant's answer regarding whether his or her' 
TJTC eligibility was determined before or after a hiring commitment was made. 6 

Little variation occurred among industries or among large or small firms in their 
hiring practices. In those cases where we could obtain the information, 86 percent 
of employers said they determined TJTC eligibility after a job offer was made. In 
77 percent of instances, employers indicated that they routinely completed TJTC 
eligibility determinations on all newly hired employees. 

Following the hiring decision, employers either completed a preliminary eligibility 
determination or, more often, referred employees to a contractor. Typically, the 
employees were given a telephone number and directed to call the contractor. 
Through telephone consultation, contractors then made a preliminary TJTC 
eligibility determination. 7 



* We assumed that the employer would not have hired the applicant without a tax credit H. in the 
absence of the employer's answer, the applicant said the employer checked for eligibility before 
offering the applicant a job. Consequently, we believe our estimate, of those hired regardless of the 
credit, is conservative. If we could obtain neither the employer's nor applicant's answer, we dropped 
the applicant from this procedure. Therefore, numbers and percentages in Figure 2 only reflect 
projected data on those TJTC applicants for whom we could obtain answers related to the decision 
to hire. 



1 Large regional, national, and international firms represented two out of three employers who 
obtained certifications allowing them to claim a tax credit. As previously discussed, contractors were 
typically hired by the employers to assist in eligibPrty screening and other program activities. 



U. S. Department of Labor - Office of Inspector General \ f 



38 

Targeted Jobs Tax Credit Program • Result} of Audit 



Our findings indicate that most of the individuals certified for TJTC would have 
been hired even without the incentive. Consequently, the program is a windfall 
for employers who hire participants they would have employed in the absence of 
TJTC. 



U.S. Department of Labor - Office of Inspector General 1 g 



39 



Targeted Jobs Tax Credit Program - Results of Audit 



PROGRAM ECONOMY: WHAT DID THE TJTC PROGRAM COST AND 
WHAT WERE ITS BENEFITS DURING THE AUDIT PERIOD? 



Program Costs: $374 Million 

Program Benefits: $140 Million 
Net Loss: $234 Million 

$ .37 In Benefits Per $1.00 Spent 



We have estimated the TJTC program's 
costs and benefits. We found that for 
every dollar of outlays, the program 
returned only about 37 cents. 
Nationally, for our audit period, we 
project the program cost about $374 
million and benefits were $140 million. 



Consequently, the program cost some $234 million more than it generated in 
economic benefit. 



Figure 3 



Cost vs Benefits 




Total Costs $374,017,181 



U.S. Department of Labor - Office of Inspector General 



19 



40 

Targeted Jobs Tax Credit Program • Results of Audit 



We projected our sample results to the nation. We counted as "benefits' 1 about 
$125 million in projected gross annual wages of those individuals who would not 
have been hired without the tax credit. We added to the benefits $15 million of 
projected reductions in social transfer payments resulting from the TJTC covered 
employment. Thus, total projected benefits were $140 million. 

As costs, we projected a total of $537 million in tax credits could have been taken 
on employees who worked the minimum time required to qualify for a credit. 
Employers must reduce deductible wages by the amount of the tax credit claimed. 
Consequently, the total was reduced by 34 percent (the maximum corporate tax 
rate) to $354 million. 

Finally, we added $20 million in DOL appropriations for TJTC during our audit 
period. Consequently, projected total costs were $374 million. 

Combining the totals, we find the TJTC program's costs exceeded its benefits by 
$234 million. More specifics regarding our calculations may be found in Exhibit B 
of this report. 



U.S. Department of Labor - Office of Inspector General 20 



41 



Target :d Jobs Tax Credit Program - Rt suits of Audit 



m. PROGRAM RESULTS: WHAT IMPACT DID THE PROGRAM HAVE UPON 
TARGET GROUP MEMBERS? 

To evaluate the program's impact upon employees, we compared information on 
individuals' TJTC jobs with jobs they held before and after their TJTC 
employment. The information was obtained from employee interviews and 
questionnaires. We also determined the length of time TJTC employees 
remained in their jobs. We compared this measure with retention rates for a 
similar group of individuals in the general work force. 

We asked how did TJTC employment compare to other jobs they had held 
regarding: 

A. hourly wages paid, 

B. weekly hours of employment, 

C. fringe benefits offered employees, 

D. types of jobs, and 

E. length of time they remained in the job? 



Five quarters after being hired, 24 percent of workers in TJTC-covered positions 
were still with their TJTC employer, while in the comparison group, only 16 
percent remained with the same employer. 

However, by other measures employees in TJTC-covered employment were 
somewhat worse off. For example, the average beginning wage for TJTC jobs 
($4.96) was less than either the ending wage employees earned in the previous job 
($5.22) or the beginning wage in their subsequent job ($5.52). 

TJTC-covered employment was the first job for only 13 percent of the individuals 
we sampled. While variations existed among the jobs, the measures revealed 
more similarities than differences. The TJTC employment mirrored other low- 
paying, low-skilled positions in the employee's work history. 



U.S. Department of Labor - Office of Inspector General 21 



42 

Targeted Jobs Tax Credit Program - RttuUs of Audit 



The TJTC program's legislative history does not indicate the Congress intended 
the program would improve individuals' wages, long-term employment prospects, 
or any of the other factors we have measured. However, data regarding jobs on 
which tax credits are being allowed cause us to question the value of the program. 
For TJTC jobs about: 

• One of three employees (37%) was paid at or below the minimum 
wage prescribed by law; for all TJTC jobs in our sample, starting 
wages averaged $4.96. 

• Two of three employees (61%) worked part-time. 

• Two of three employees (65%) were offered no fringe benefits. 

♦ 

• One of four employees (25%) worked in eating and drinking 
establishments, often as counter help, fry cooks, waiters/waitresses, 
and order takers. 

• Three of four employees (76%) were no longer with the TJTC 
employer five quarters after being hired. 

TJTC employees' average annual earnings were $7,738 ($4.96 average hourly wage 
X 30 average hours per week X 52 weeks). That amount is only $928 more than 
the annual Federal poverty level guidelines of $6,810* for a family of one. We 
question whether better results should be expected of activities subsidized with 
public funds. 

The sections on the following pages contain the comparisons and our conclusions 
regarding each measure. 



'According to the U.S. Department of Health and Human Services Poverty Guideline*, published 
in the Federal Register, February 14. 1992, page 5456. which were applicable to the latter period of 
our audit. 



U. S. Deportment of Labor - Office of Inspector General 22 



43 



Targeted J obi Tax Credit Program - Reiuhi of Audit 



A. How Much Were Employees Paid and How Did Their TJTC Wages 
Compare to Those of Previous and Subsequent Jobs? 



Average Pre-TJTC Wage: $5.22 
Average Starting TJTC Wage $4.96 
Average Ending TJTC Wage: $5.36 
Average Post-TJTC Wage: $5.52 



On average, the program did not 
improve individuals' earnings. The 
beginning pay for TJTC jobs was lower 
than pay of jobs that persons held 
before TJTC. Small gains did occur for 
those who obtained work after their 
TJTC employment. 



Beginning wages for TJTC jobs averaged only $4.96 per hour. From our sample, 
we project 37 percent of the individuals started at or below the minimum wage 
prescribed by law. 

For those who had jobs in the year prior to TJTC, the average ending wage of the 
previous job was $5.22. 9 We compared this wage to the beginning hourly wage 
for TJTC of $4.96. We also compared the average ending hourly wage of TJTC 
employment ($5.36) to the average beginning hourly wage of the job obtained 
after TJTC ($5.52). 

The comparison of average hourly wages of individuals before, during, and after 
TJTC are shown in Figure 4 below: 









Ficrur* 4 


■ 


Sending wage* 

^BEFORE TJTqjjj 


■■AVERAGE HOURLY WAGE« 


(beginning wageM, 
HJafter tjtcjBpjI 


[BEG INN I NG WAG EgENDI NG WAGM 
HttafTJTCsSHH^ 


$5.22 

— = - 


$4.96 


$5.36 


S5. 52 



*We project that 38 percent of the individuals did not have wages in the year prior to TJTC. 



U.S. Department of Labor - Office of Inspector General 



23 



44 



Targtttd Jobs Tax Crtdit Pro tram - Results of Audit 



B. How Many Hours Per Week Did Target Group Members Work, and How 
Did These Hours Compare to Jobs Both Before and After TJTC Employment? 



Ave.Pre-TJTCHrs/Wk- 
A*e, TJTC Beg. HrsAVk « 
Ave.Endlng TJTC HrsAVk 
Ave.Post-TJTC Hrs/Wk - 



that in 61 percent of the hires, 
week). 



TJTC did not improve upon the number of 
hours individuals worked in a week. Most 
individuals worked nearly the same 
number of hours in their TJTC-covered 
employment as in their past job. 

mmm Individuals worked slightly more hours in 
their subsequent jobs. The data indicates 

employment was part-time (less than 40 hours per 



32 
30 
31 
34 



We determined the average number of weekly hours participants worked who had 
a job within one year prior to their TJTC employment. We also determined the 
average number of hours they worked when they started and when they left their 
TJTC employment. Finally, we determined the average beginning hours worked 
in their subsequent jobs. Figure 5 presents a comparison of the averages. 









Figure 


5 


HIDING HOuS 
|§BEFORE TJTCgj 


||lf|["TRA_GE -- HOl 

[beginning hour' 






| 


IRS PER WEEK|B| 

;||SdINg 1 HOURS] 


BEGINNING HOURS 
B|9$AFTER T/JTCUU 


I 




32 


30 


31 


34 


1 



The chart represents a continuum of hours worked by the individuals we 
evaluated. As shown, the averages are significantly less than a full-time 40-hour 
week. 



U.S. Department of Labor - Office of Inspector General 



24 



45 



Targf ltd Jobs Tax Credit Program - Results of Audit 



C. Were Fringe Benefits Offered With the TJTC Jobs, and If So, How Did 
They Compare With Those Before and After TJTC Employment? 



mm ^^ m ^ m ^ m ^ mmmwmmm ^ mmm —** No fringe benefits were offered by two out 
No Fringes, Pre-TJTC - 79% of ta^ employers under TJTC. The same 
No Fringes, TJTC - 65% *** *"* for we j<* obtained after TJTC 

No Fringes, Post-TJTC - 65% employment. These numbers reflect 
^^^^^^^^^^^^^^^^^^ improvement over the jobs held before 

TJTC, of which 79 percent provided no job 
benefits. A higher proportion of TJTC jobs 
offered health insurance, life insurance, retirement (other than social security), or 
paid vacations than jobs individuals held before TJTC. Jobs individuals held after 
TJTC enjoyed a slight advantage in retirement and health insurance. A 
comparison of fringe benefits offered employees in their TJTC jobs and in 
previous and subsequent jobs is presented in Figure 6. 

The "Other Benefits" category includes a wide range of perks, such as dental 
coverage, dining privileges, parking and paid leave. 

We also gathered information on other job benefits such as pay raises, promotions 
and training. We project that 37 percent of TJTC participants received a pay 
raise or promotion in their TJTC-covered job, although average TJTC beginning 
and ending wages differed by only 40 cents. 

Also, we project that 21 percent of the participants received training other than 
that obtained by doing tasks on-the-job (OJT). However, employer responses 
indicate much of the training was of a short-term nature, described as 
"orientation" which all new hires received. OJT aside, we were able to identify 
little formal skills training, vocational education or higher education training 
which was offered by employers. 

It can be argued that the TJTC program helps those who are structurally . 
unemployed because they lack the basic work skills or discipline to do such things 
as dress properly, follow instructions, or show up at work on time. However, the 
argument is not convincing. Arguably, any job exposes an individual to certain 
employment requirements. Some job requirements, such as a dress code, may 
help teach an employee useful information - for example, what attire is 
appropriate in a business setting. However, we believe TJTC applicants, like 



U.S. Department of Labor - Office of Inspector General 25 



46 



Targeted Jobt Tax Credit Program - Rendu of Audit 



other employees, either conformed to an employer's expectations, or they were 
dismissed. Moreover, as noted earlier, TTTC was the first job for only 13 percent 
of the individuals we sampled. 



Ficjurg « 



FRINGE BENEFITS 
PROVIDED TJTC PARTICIPANTS 



Djoa Aran 
BTJtejc* 



«s« 




pmi^j mog MsuvuhMCs v ^^ nw 

BENEFITS 1 BENEFITS 



U.S. Department of Labor - Office of Inspector General 



26 



47 



Targeted Jobs Tax Credit Program • Results of Audit 



D. What Were the Occupational and Industrial Categories Represented By 
the TJTC Jobs? How Did These Categories Compare to Those Before and After 
TJTC Employment? 



mmmmm »^ mmmmmmm » mmmm tmm ^ m Employees' job histories typically consisted of 
TJTC Jobs Included Fast CTtr y level positions with minimum pay, low 
Foods, Fry Cooks, Other skills, and limited, part-time work hours. 
Service Jobs, Low-Skilled Management and professional jobs were in low 
Clerical and Saks, Few supply. Clerical jobs were often retail 
Managers/Professionals cashier/checker occupations; and service 

- occupations often consisted of grocery clerks, 
nurses aides, fry cooks, food cashier/order 

takers, restaurant waiter/waitresses, and hotel or other corporate janitorial 

housekeepers. 

As shown in Figure 7, Professional, Technical, Managerial jobs under TJTC 
decreased from the jobs before but increased in the jobs after TJTC employment. 
Clerical and Sales jobs increased sharply under TJTC, then dropped sharply 
afterwards to near pre-TJTC levels. Service occupations joined Clerical/Sales in 
dominating TJTC employment, as was true for jobs both before and after TJTC. 
Figure 7 shows national projections from our sample of individuals who we could 
determine had jobs before, during, or after TJTC. The statistics are presented by 
broad Dictionary of Occupational Titles (DOT) categories. 

Figure 8 illustrates the narrow range of predominant occupational categories 
which were accompanied by an equally limited range of predominant industry 
categories. Although all broad industry categories had some representation, 
Wholesale/Retail comprised two out of three TJTC jobs, followed by Services 
Industries with near one job in six, based on industry types in the Standard 
Industrial Classification Manual. Eating and drinking places comprised 25 percent 
of the employers in our participant sample. Department stores were a distant 18 
percent in second place, followed by grocery stores, nursing and personal care, 
hotels/motels, and employment agencies. 



U.S. Department of Labor - Office of Inspector General 27 



48 



Targeted Jobs Tax Credit Program - Results of Audit 



Figur* 7 




Figure 8 presents the projection of individuals by the SIC code group of the job 
held before, during, or after TJTC. 



U.S. Department of Labor - Office of Inspector General 



28 



49 



Targeud Jobs Tax Credit Program • Results of Audit 















Figur< 


» • 












1sic»industry1 
|n i vTJ^n am Egfll 


BjQ^BEFOREg 

_____fr jT '4____ 




_____fTJTCB_i 





Kq/ Forest/ 
Fishing 










______ 




4,404 


1.8% 


1,969 


0.4% 


6,405 


2.4% 


1 


Mining/ 
Construct. 














9,813 


3.9% 


5,799 


1.2% 


10,688 


4.0% 


| 2/3 


Manufact. 










14,936 




20,224 


8.1% 


50,903 


10.9% 


5.6% 


4 


Transp/ 
Coraroun . Etc 














6,085 


2.4% 


12,215 


2.6% 


22,846 


8.5% 


5 


Wholesale/ 
Retail, 














137,501 


54,9% 


310,344 


66.4% 


110,903 


41.3% 


6 


Finan./Ins 
Real Estat 














2,322 


0.9% 


4,081 


0.9% 


6,883 


2.6% 


7/8 


Services 
Industries 














63 , 239 


.25.2% ; 


gggHg; 


;i7*j5jt 


90,072 


3:3.5% 


9 


Public 
Admin/Misc 














7,034 


2.8% 


262 


0.1% 


5,809 


2.2% 


______ 


Totals 














250,622 


100% 


467,638 


100% 


268,542 


100% 



Individuals employed after leaving their TJTC jobs were employed in a wider 
variety of jobs than represented by TJTC employment. The data indicates TJTC 
employment is largely directed towards employment in jobs for which no special 
qualifications are needed or applicants already possess requisite skills. 



U.S. Department of Labor - Office of Inspector General 



29 



50 



Targeted Jobs Tax Credit Program • Results of Audit 



E. Did TJTC Applicants Stay with the Same Employer Longer than 
Employees in the Comparison Group? 

TJTC applicants stayed with the same employer longer than a population of 
individuals with similar earnings. 10 However turnover for both TJTC participants 
and the •comparison group" was high. For TJTC participants, 76 percent were no 
longer with the same employer five quarters after being hired. For the 
comparison group, the figure was 84 percent. 

In calculating the percentages, we compared the retention rates for TJTC 
employees to that of all persons in the UI wage files of the states we audited, 
(1) with employment starts during our audit period, and (2) whose annual wages, 
with one employer, were within two standard deviations of the average annual 
wage of TJTC participants in our sample. 

The length of employment for each group, with the same employer, by quarter, is 
presented in Figure 5. 

Regarding those individuals on whom we could make a determination, we 
identified the following reasons they left their TJTC employment: 

• 75 percent voluntarily quit their TJTC job, 

• 12 percent were laid off, and 

• 13 percent were fired. 



10 Information which was available allowed us to determine the percentage of individuals in each 
group that remained in jobs with the same employer. The reader is cautioned that the data does not 
infer members of either group, who left their Jobs, became unemployed. It is likely many left for other 
positions. 



U.S. Department of Labor - Office of Inspector General 30 



51 



Targeted Jobs Tax CndU Program - Rttuht of Audit 



Figure 9 



Length Of Employment 

With The Same Employer 

TJTC vs Comparison Group 



© 

o. 



100 



00 



20 




Quarters 



U.S. Department of Labor - Office of Inspector General 



31 



52 

Targeted Jobs Tax Credit Program • Results of Audit 



We also attempted to team the employment status of those in our sample at the 
time we were completing field work. From those on whom we could make a 
determination, we project: 

• 65 percent were employed (including those employed and in school), 
and 

• 35 percent were not employed (6 percent in school) 

The 35 percent of individuals not currently working compares to 38 percent who 
had not worked during the year prior to TJTC employment. 

This data raises questions of whether TJTC employment improved individuals' 
long-term employment prospects. It is of particular concern that youth represent 
over 50 percent of the target population on which tax credits are taken. 



U.S. Department of Labor - Office of Inspector General 32 



53 



Targeted Jobs Tax Credit Program - Conclusion 



CONCLUSION 



Congress created the TJTC program to provide employers incentives to hire individuals 
from groups who typically experience high unemployment and who may receive public 
benefit payments. Although tax credits were to provide incentives for employers to hire 
members of the targeted groups, employers would have hired most of the participants, 
regardless of the tax credit. 

The TJTC jobs were usually near minimum wage, low-skilled, and often part-time work. 
Only about one job in three offered any fringe benefits to the employee. 

Although Congress designated nine target groups, the TJTC program was heavily 
dominated by economically disadvantaged youth. Because of their age and inexperience, 
the applicants are among the most heavily represented TJTC target groups. They are 
usually candidates for employment which requires few job skills and little education or 
experience. We found employers did not need financial incentives for hiring these 
individuals. 

The TJTC program's costs are hidden, because little Federal money is spent on the 
program. Rather, a majority of the program's costs are the result of lost tax revenue. 
Nonetheless, the program's costs are substantial and have the same financial impact as 
programs requiring Federal appropriations. We estimate that for every dollar in 
program cost, 63 cents is lost. Nationally, we estimate the program resulted in a loss of 
nearly $234 million during our audit period. 

The Revenue Act of 1978, 1. Summary, indicated that Congress wanted the program to: 

' focus employment incentives on those individuals who have high 
unemployment rates... andon other groups with special employment needs.... 

We do not believe the program has met this objective. In most cases, the tax credit was 
not the incentive which caused employers to hire members of the targeted groups. 
Rather, we believe target group members were hired because there was a match between 
the employers' needs for inexpensive labor in high-turnover occupations, and willing 
individuals - who are often members of the target groups - to work for low wages in jobs 
which require little education or skill. Consequently, employers seldom targeted TJTC 
group members because it was unnecessary. 



U.S. Department of Labor - Office of Inspector General 33 



54 



Targeted Jobs Tax Credit Program - Recommendation 



RECOMMENDATION 



The TJTC program will expire on December 31, 1994. We recommend the Secretary 
encourage Congress to not continue the program when it expires. 



U.S. Department of Labor - Office of Inspector General 34 



55 

Targeted Jobs Tax Credit Program • ETA 't Responu 



ETA'S RESPONSE 



On August S, 1994, ETA responded to our report. ETA commented that past studies 
have cast doubt on the TJTC program's effectiveness and that this audit report, "... adds 
to those indications and deepens our concern about the program's current design." ETA 
also advised they shared OIG's concern that the program "does not effectively provide 
incentives for employers to hire individuals in the target groups" and will "continue to 
examine ways to strengthen achievement." 

However, ETA suggests the audit is insufficient and a "scientific study" with a "carefully 
constructed methodology" is necessary to determine the program's long-term impact.* 



V. S. Department of Labor • Office of Inspector General 35 



56 

Tarft ltd Jobs Tax Crtdli Program • OIG't Conclusion 



OIG'S CONCLUSION 



We are disappointed by ETA's response. We believe continuing the program while 
funding another study of this extensively studied program will only add to its 
considerable expense, delay corrective action, and frustrate the objectives of the Vice 
President's National Performance Review. 

We do not believe a study of the program's long-term impact would be illuminating. As 
we previously discussed, most TJTC employment is of a short-term nature. We found 
fewer than one person in ten owed their employment to the tax credits employers 
received. Again we emphasize, the program subsidizes hiring activities which occur 
regardless of the credit. Consequently, the long-term impact of employment that would 
have occurred without a tax subsidy is inconsequential. 

A multitude of studies, analyses, audits and surveys of TJTC program activities has been 
completed. In preparing for the audit, we reviewed the literature and identified nearly 
30 reports on the program completed by a number of credible sources. 

Conclusions in several of the past studies were consistent with those in our report. For 
example, a 1991 report" concluded: 

Because employers find it relatively cheap to certify after the fact eligible new 
employees who would have been hired anyway, this passive mode of 
participating in TJTC predominates.... 

In summary, the evidence clearly indicates that the predominant mode of 
participation in TJTC is passive, and therefore that the windfall element of the 
program is probably quite large. 

Our audit revealed that employers' decisions to hire are based on tax credit incentives in 
only a minuscule number of cases. The decision to continue TJTC subsidies while 
spending additional funds on further studies is inconsistent with the objectives of the 
National Performance Review. 



11 John H. Bishop and Suk Kang, Applying for Entitlement: Employers end the Targeted Jobs Tex 
Credit, Journal of Policy Analysis and Management. Winter. 1991. 



U.S. Department of Labor - Office of Inspector General 36 



57 



Targeted Jobs Tax Credit Program - OIG'i Conclusion 



Recently, Secretary Reich cited the TJTC as a program that did not work. His speech 
before the Center for National Policy, on January 27, 1994, titled "Getting America to 
Work: What's Working and not Working in Workforce Policy, •described the program's 
failings: 

. . .according to recent studies by Cornell University's John Bishop and Grinnel 
College's Mark Montgomery, at least 70% of these workers would have been 
hired even without their employers receiving a tax break. 

. . . This is a disturbing list. Investing scarce resources in programs that don 't 
deliver cheats workers who require results and taxpayers who finance failure. 

So here is what we're going to do: 

We 're going to recommend against renewing the targeted jobs tax credit. 

The Secretary echoed the same thoughts in a White House briefing on February 2, 1994: 

. . .all of the evidence shows that employers would have - in 
almost every case - employed those people [TJTC participants] 
anyway and, therefore, get a windfall. 

A number of amendments have unsuccessfully attempted to "fix" the program since its 
inception 16 years ago. During that time it has been "business as usual." We believe the 
program should be ended and continue to recommend the Secretary of Labor encourage 
Congress to discontinue the TJTC program when it expires on December 31, 1994. 



U.S. Department of Labor • Office of Inspector Central 37 



58 

Tarttud Jobs Tax Crtdil Program - Exhibit/ 



EXHIBIT A 

(Page 1 of 2) 



SAMPLING DESIGN AND PROCEDURES 



The sample design used was a stratified (three strata), two-stage design. Stage one was 
the selection of the states within the three strata. 



STRATA 


STATES k 


CERTIFICATIONS 


STATES 


CERTS 




TRUSTS 




SELECTED 


SELECTED 


1 


38 


161,027 


3 


375 


2 


10 


155,937 


3 


400 


3 


5 


188,454 


3 


375 


TOTALS 


53 


505,418 


9 


1150' 2 



The states were ranked according to the number of TJTC certifications in each, with 
approximately equal number of certifications per stratum. The tabie above shows the 
overall sample design. 

The states within the strata were selected probability proportional to size and the 
variable determining the size was certifications within each state of the strata. Stratum 1 
States included in our sample were Maine, Missouri, and New Hampshire. Stratum 2 
States were Florida, Illinois, and Virginia. Stratum 3 States were California, Michigan, 
and Texas. 

We drew random samples of 12S individuals from each State who were certified for 
TJTC employment during the period of July 1, 1991, through June 30, 1992, with the 
exception of Illinois. In Illinois, a sample of ISO participants was selected. 
Extensive efforts were made to locate and interview sampled participants and the related 
employers. Our success rate was over 75 percent. The non-responses are assumed to be 
comparable to the responses obtained. 



11 For Illinois, procedures were slightly altered because the State's TJTC files were maintained in 
local offices rather than in a central location. The local offices were selected after the Stale's 
selection, then the certifications were selected within the local offices. Ten local offices were selected 
and 1 5 certifications were chosen in each office. In total. 1 50 certifications were selected for Illinois, 
resulting in a national sample of 1,150 certifications. 



U.S. Department of Labor - Office of Inspector General 38 



59 

Targeted Jobs Tax CrtdU Program - Exhibits 



EXHIBIT A 

(Page 2 of 2) 

The major statistics for this report have a sampling error of IS percent for the variables 
estimates and 3 percent for the attributes estimates, based upon a 90 percent confidence 
level. The projections in this report are point estimates. 



US. Department of Labor - Office of Inspector General 39 



60 

Targeted Jobs Tax Credit Program • Exhibits 



EXHIBIT B 

(Page 1 of 3) 

COMPUTATION OF TJTC PROGRAM COSTS AND BENEFITS 
JULY 1.1991- JUNE 30. 1992 
Program Costs 

We determined the costs of the TJTC program by: 

Calculating DOL's appropriations 11 for the audit period; 

Estimating costs to the U.S. Treasury resulting from employers taking tax 
credits; and 

Estimating the savings to the U.S. Treasury from tax deductions foregone 
by employers who could have taken tax credits instead. 

Our computations were as follows: 

Administration 

FY 1991 TJTC Appropriation ($19,518,000) X .25 

(July - September 1991) (FM No. 97-90, Change 1) $4,879,500 

FY 1992 TJTC Appropriation ($20,000,000) X .75 

(October, 1991 - June 1992) (FM No. 88-91) 15,000,000 

Total Administration $19,879,500 

Tax Credit Revenue Losses to U.S. Treasury 

Eligible Tax Credits on Projected 386,087 indvs. 

for Whom Employer Could Claim Tax Credit $536,572,244 



"We were told that the Treasury Department does not charge administrative costs to the program. 



V. S. Department of Labor - Office of Inspector General 40 



61 

Targtttd Jobs Tax CrtdJj Program • Exhibits 



EXHIBIT B 

(Page 2 of 3) 

COMPUTATION OF TJTC PROGRAM COSTS AND BENEFITS 
JULY 1.1991- JUNE 30. 1992 

Tax Deductions on Wage Expenses Foregone by 

Employers Because of Tax Credit Option (34%) M < 182,434,563 > 

Total Adjusted Revenue Losses from Tax Credit $354,137,681 

Total Program Costs $374,017,181 

Program Benefits 

Gross Wages of Indiv iduals Hired Because of TJTC 

Projected Wages of Persons Employers Said 

Would Not Have Been Hired Without Tax Credit; in 

the Absence of Employers' Answers, the Employers 

Who Said They Checked Applicant Eligibility Before 

the Hiring Decision; in the Absence of Employer 

Response, Employees Who Said Employer Checked 

Their Eligibility Before They Were Hired [Projected 

Number of Individuals -31,809 out of 406,812 

(7.8%)] $110,925,823 

Projected Wages of Persons for Whom We Could 

Not Obtain an Answer From Either Employer or 

Applicant as to Whether or Not the Employer 

Would Have Hired the Applicant Without TJTC. 

These Wages Were Prorated at the Same 7.8% 

Rate Cited Above X $182,151,334 Earned by 

59,577 Projected Individuals 14,207,804 

Total Relevant Employee Wage Benefits $125,133,627 



"The estimate of tax deductions foregone is generous because 34 percent was the maximum 
corporate income tax rate. 



U.S. Department of Labor - Office of Inspector General 41 



62 

Targeted Jobs Tax Crtdlt Program - Exhibits 



EXHIBIT B 

(Page 3 of 3) 
COMPUTATION OF TJTC PROGRAM COSTS AND BENEFITS 
JULY 1.1991 -JUNE 30. 1992 

Savings to Federal and NonFederal Governmental 
Entities Resulting From TJTC Employment 

Social Agency Transfer Payments Reduced or 

Eliminated Because of TJTC Employment of Persons 

Employers Would Not Have Hired Without TJTC 

(Including 7.8 Percent of Those on Whom We Could 

Not Obtain Answers as to Motives for Hiring) $14,615,311 

Total Relevant Transfer Payment Savings $14,615,311 

Total Program Benefits $139,748,938 

Total Costs Versus Program Benefit s 

Program Loss (Costs -Benefits) < $234,268,243 > 

Program Benefits Per Dollar Spent 

$139.748.938 fBenefits) 

$374,017,181 (Costs) = $.37 

Note: We measured payment eliminations or reductions in the following programs: 
Unemployment Insurance (UI); Women, Infants, and Children Services (WIC); Aid to 
Families with Dependent Children (AFDC); General Assistance (GA); Food Stamps 
(FS); Supplemental Security Income (SSI); and Vocational Rehabilitation (VR). 

We were able to obtain all payment savings pertaining to UI, all but Texas and part of 
California relating to FS and AFDC, and information on GA except part from 
California. We obtained no VR data from Michigan and only part from California. SSI 
data was received from all States except Florida, Maine, and Michigan. We determined 
that WIC payments would have been virtually unaffected by TJTC employment. Because 
of these limitations, program benefits may be understated. However, we do not believe 
the amount of understatement is significant. 



U.S. Department of Labor - Office of Inspector General 42 



63 



U.S. Department ol Labor Assistant secretary tor 

Employment and Training 
Washington DC 20210 




AUG 5 1994 



MEMORANDUM FOR: GERALD W. PETERSON 

Assistant Inspector General 
for Audit 

FROM: DOUG ROSS •* > ' t 

Assistant Secretary 

for Employment and Training 

SUBJECT: Office of Inspector General Draft Report: 

Targeted Jobs Tax Credit Program : Employment 
Inducement or Employer windfall 

He have reviewed the subject draft report issued on July 13 as 
Report Number 04-94-021-03-320. 

The issuance of the report is timely because it coincides with 
consideration to extend the Targeted Jobs Tax Credit (TJTC) 
program after December 31, 1994. I particularly appreciate the 
diligence the Office of the Inspector General (OIG) has displayed 
in its audit of the TJTC program in selected States. Even prior 
to the OIG' s examination, there were disturbing indications that 
TJTC's effects fall short of its intentions. The draft report 
adds to those indications and deepens our concern about the 
program's current design. 

It is important to note, however, that the OIG — in keeping with 
its mandate and its expertise — has undertaken an audit, and not 
a scientific study. Without a carefully constructed methodology 
it is impossible to either confirm or refute claims made about 
the impact of TJTC on participating individuals and firms. 

This type of study is outside the mission of the OIG, yet 
critical to any decision to pursue reforms in the TJTC program. 
Clearly, more information on the program's long-term effects 
would be helpful to us as policy-makers in pursuing necessary re- 
structuring of the program, since the employment of citizens who 
face the greatest barriers to full participation in the workforce 
must be a continuing objective for the Department's employment 
and training programs. 

The specific reporting problems cited in the draft report have 
been addressed and amended reports have been submitted for the 
periods in question and to date. States have taken appropriate 
corrective action to strengthen the administration of the program 
and these actions have been verified by regional office staff. 

Regarding the OIG's recommendation, the Employment and Training 
Administration shares the concern expressed in the draft report 
that the present TJTC program does not effectively provide 
incentives for employers to hire individuals in the target 
groups. The Departments of Labor and Treasury continue to 
examine ways to strengthen achievement under the program, 
including the commissioning of a scientific study on the 
program's overall effectiveness. 



64 

Mr. Peterson. Mr. Chairman, questions were raised in my sub- 
committee and have been raised to me personally about the meth- 
odology that was used by the IG; and the questions that were 
asked — and I think there may be some reasons to quarrel with 
that, but I think the more significant fact is that over the years 
there have been a number of studies of this program, and they 
have all reached similar conclusions. The only thing is that they 
come up with different levels. Some of the reports say that employ- 
ers would have hired 55 percent, others say 70 percent, others say 
95 percent; this particular IG report said 92 percent. 

Well, whatever those numbers are, I think it is clear that there 
are some problems with this program because a lot of different peo- 
ple have come up with the same kinds of conclusions at different 
levels. 

I want to be clear that I support — I think most of the members 
of my subcommittee, including Mr. Rush, support the goals of the 
TJTC Program and that we need to find a way to encourage em- 
ployers to reach out and hire people who are having a hard time 
finding a job. But I think the undeniable conclusion of my sub- 
committee hearing was that the present program is not, for the 
most part, working as well as it could; and I think we need to rec- 
ognize that. We had witnesses ranging from the president of the 
Teamsters Union to Marriott Corp. to the Labor and Treasury De- 
partments that all agreed that changes in the law are required. 

The administration witnesses took a strong stand against exten- 
sion of the program. They said that if the program is not changed, 
that they would be opposed to extending it. I would have to say, 
regrettably, that they, at that point, failed to recommend any spe- 
cific changes or amendments to this program that they thought 
would make it acceptable, and they have been working on this for 
quite a while. Now, apparently, there are going to be maybe some 
recommendations this morning, and I hope there are. 

Fortunately, however, there were a lot of useful proposals based 
on both firsthand experience and research by other groups; and 
based on what we heard at the subcommittee, I would ask you to 
consider some of the things that have been suggested and pointed 
out. 

First of all, the possibility of eliminating posthiring certifications. 
At present, most employers make their hiring decisions, and then 
they, generally with the help of a consultant, try to obtain certifi- 
cation of eligibility for the tax credit. To avoid this, what has been 
called the "windfall" aspect of the program, certification could be 
limited to workers who bring vouchers or certification of eligibility 
from maybe the employment service or from other public or private 
agencies which serve these targeted groups. 

Another idea is to increase the retention requirement. The cur- 
rent 90-day or 120-hour minimum encourages employers, in some 
people's opinion, to churn their labor force, by filling one job with 
a succession of eligible workers; and once they hit the limit, then 
they move them through the system so they can maximize the 
amount of credit. And in that kind of a circumstance, they are real- 
ly providing minimal employment and work experience to these 
employees, who drift in and out of these unskilled, low-paid jobs. 



65 

In return for the TJTC subsidy, I think that an employer, and 
other people think that an employer should be required to retain 
the worker for at least 1 year. If this leads the employers to im- 
prove the quality of the jobs to reduce turnover, well, that is just 
going to make this a better program. 

Another thing that I think could be considered is raising the 
wage base the amount that the credit is applied against. I think 
this will improve the quality of the jobs. Maybe we can consider 
raising the wage base to $12,000 and changing the credit to 20 per- 
cent. That would still be a $2,400 credit; and if the retention period 
was increased, I think that there is a better chance that these 
workers would get some special services and training. We could 
maybe even change the system so, if they provided training or dif- 
ferent kinds of services, that they get a credit up to 40 percent. But 
there would have to be some otner kind of help or training given 
in order to get that. 

I think you should recall that under the original TJTC Program, 
as you sponsored it, Mr. Chairman, in 1978, they were allowed 
$4,500 credit per worker, but they had to be retained at that time 
for 2 years. So there is some precedent for moving in that direction. 

And, last, I think we should consider requiring employers to 
make special efforts, more than just providing a job, and maybe tie 
that into the system. I have talked about that a little bit already. 
The tax credit is intended to overcome barriers to hiring workers 
who may be or are perceived to be less productive because of lack 
of previous work experience, language, physical or mental disabil- 
ity, et cetera. A representative of Marriott in our hearing, a major 
user of the Targeted Jobs Tax Credit, told my subcommittee that 
her company provides special classes, they make extensive out- 
reach efforts, they give monetary rewards to managers who hire 
TJTC workers; and to me, this is how the program should work, 
but according to a lot of the reports, it doesn't work that way. I 
think that those are some things we can consider. So I recommend 
that we consider requiring the employers to provide some of these 
kinds of opportunities. 

So those are some suggestions that came out of my hearing. We, 
as I say, have looked at this and had a lot of discussion with folks 
from all different aspects of this. I appreciate the opportunity to be 
with you today and look forward to working with you as we look 
at the extension of this program. 

[The prepared statement follows:] 



66 



8TATEMENT OF THE HONORABLE COLLIN C. PETERSON 

BEFORE THE SUBCOMMITTEE ON SELECT REVENUE MEA8URE8 

COMMITTEE ON HAYS AND MEANS 

September 29, 1994 

Mr. Chairman, Members of the Subcommittee, I am pleased to 
appear before you and to participate in this hearing because the 
Employment, Housing and Aviation Subcommittee, which I chair, 
held a hearing on the Targeted Jobs Tax Credit program just nine 
days ago. ' 

We heard from a diverse panel of witnesses supporting and 
opposing the program. Most striking was the report of the Labor 
Department Inspector General who stated: "...this is the first 
time the Office of Inspector General has ever recommended that a 
program be eliminated." On the basis of an audit of nine states, 
the IG reported that employers would have hired 92% of their TJTC 
workers regardless of the tax credit program. He concluded that 
the program is a windfall which cost the taxpayers nearly $300 
million without significantly helping the disadvantaged target 
groups. I am submitting a copy of the IG's testimony at my 
Subcommittee hearing and request that it be part of the record. 

Questions have been raised concerning the methodology used 
in the IG report, but the more significant fact is that over the 
years many studies have reached similar conclusions. They have 
found, for example, that employers would have hired 55%, 70%, or 
95% of their TJTC workers without the tax credit. 

Let me be clear that I support the goal of the TJTC program- 
-to encourage employers to reach out and hire people who are 
having a hard time finding a job. But the undeniable conclusion 
of my Subcommittee's hearing was that the present program is not. 
for the most part, achieving its worthy purpose. Witnesses 
ranging from the president of the Teamsters union to Marriott 
corporation to the Labor and Treasury Departments all agreed that 
changes in the law are required. 

The Administration witnesses took a strong stand against 
extension of the program in its present form. Regrettably, they 
failed to recommend any specific amendments. Fortunately, 
however, others presented useful proposals based on both first- 
hand experience and extensive research. Based on the 
Subcommittee hearing, I ask that you consider the following 
changes: 

- Eliminate post-hiring certifications. At present most 
employers make their hiring decisions and then, generally with 
the help of consultants, try to obtain certification of 
eligibility for the tax credit. To avoid this windfall aspect of 
the program, certification should be limited to workers who 

bring vouchers or certification of eligibility from the 
Employment Service or other public and private agencies which 
serve the target groups. 

- Increase the retention requirement. The current 90 
days or 120 hours minimum encourages employers to "churn" their 
labor force. By filling one job with a succession of eligible 
workers, they can maximize the amount of credit they obtain, 
while providing minimal employment and work experience to the 
employees who drift in and out of unskilled, low paid jobs. In 
return for the TJTC subsidy, an employer should be required to 
retain the worker for at least a year. If this leads employers 
to improve the quality of the jobs to reduce turnover, so much 
the better for all concerned. 

-Raise the wage base. Another measure to improve the 
quality of jobs under TJTC would be increasing the wage base to 
$12,000, with a 20% tax credit. The amount of the credit would 
thus remain $2400. If the retention period is increased and 
special services for these workers are required, the percentage 



67 



for the credit could be raised. This would "sweeten the pot" to 
induce employers to use the more restrictive program. We should 
recall that the original TJTC program, as sponsored by you, Mr. 
Chairman, in 1978, allowed up to $4500 credit for a worker 
retained for two years--a sum equal to $9,000 in 1993 dollars. 

- Require employers to make special efforts. The tax 
credit is intended to overcome barriers to hiring workers who may 
be — or are perceived to be--less productive because of a lack of 
previous work experience, language, physical or mental 
disability, etc. A representative of Marriott International, a 
major user of TJTC, told my Subcommittee that her company 
provides special classes, makes extensive outreach efforts, and 
gives monetary rewards to managers who hire TJTC workers. . To 
me, that is how the program should work but rarely does. So I 
recommend that the law require employers to comply with such 
provisions. 

Thank you for this opportunity to bring you the essence of 
my Subcommittee's hearing. 



68 

Chairman Rangel. Thank you, Chairman Peterson. 
The Chair welcomes Congressman Neal and Congressman Camp 
in joining with us, and now we will hear from Congressman Rush. 

STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF HJLINOIS 

Mr. Rush. Thank you, Mr. Chairman. 

Mr. Chairman, I also commend you for your leadership in this 
particular area. I know that you have worked over the years to en- 
sure not only this program, but other programs and other possibili- 
ties for disadvantaged, unemployed Americans to somehow get a 
job, so that they would be able to provide for their families and be- 
come productive citizens. 

I want to commend the members of this subcommittee also for 
all the work that they have done, and I particularly want to com- 
mend my colleague and my friend and the chairman of the sub- 
committee that I serve on in Government Operations for his out- 
standing work on behalf of the unemployed and on behalf of this 
program and other activities. 

I appreciate the opportunity to appear before you to offer my 
views on the TJTC Program. 

Mr. Chairman, I support the Targeted Jobs Tax Credit Program. 
My support is reflective of my commitment to programs that ad- 
dress the issues of employing this Nation's economically disadvan- 
taged citizens. I view the Targeted Jobs Tax Credit as one of only 
a few Federal programs designed to accomplish this difficult task. 

Treasury Department budget data indicates the average cost per 
job placement for the Targeted Jobs Tax Credit is about $2,000. 
This cost is significantly below that of any major Federal jobs pro- 
gram, including Job Corps ($15,000 per placement — and the Jobs 
Training Partnership Act — $4,000 per placement. For these and 
other reasons, I supported the extension of the Targeted Jobs Tax 
Credit in the Omnibus Budget Reconciliation Act that we passed 
last year. 

However, Mr. Chairman, I am deeply concerned about the inabil- 
ity of the Federal Government to establish, maintain, and support 
programs which will assist our structurally unemployed people. 

As you are painfully aware, since the Targeted Jobs Tax Credit 
was first enacted in 1978, we have had three lapses in the pro- 
gram. The reauthorization for the Targeted Jobs Tax Credit has 
not always been a smooth process, resulting inevitably in some dis- 
continuity in the administration of the program. 

Therefore, it comes as little surprise to me that various studies 
and audits, including the one just completed by the inspector gen- 
eral, conclude that the Targeted Jobs Tax Credit is ineffective as 
an employment program. 

The inconsistency of this program, its temporary status and lack 
of adequate funding, are some of the obstacles that we must over- 
come if the Targeted Jobs Tax Credit is to realize its full potential. 

In fiscal year 1994, Congress appropriated $10.3 million to ad- 
minister the Targeted Jobs Tax Credit. This appropriation was $1.5 
million less than the appropriations for fiscal year 1993. In my 
State, the State of Illinois, administrative funding for the Targeted 
Jobs Tax Credit fell from $1.5 million in 1993 to $600,000 in 1994. 



69 

Mr. Chairman, 16,705 TJTC certifications were issued by the Illi- 
nois Department of Employment Services for the State fiscal period 
ending June, 1994. Approximately 2,241 were issued to residents 
of my district, totaling 13 percent of the certificates issued. 

Labor Department estimates, however, indicate that only 2.5 to 
6.8 percent of eligible disadvantaged youth use the program. Clear- 
ly, the inconsistent Federal commitment to the Targeted Jobs Tax 
Credit is partly attributable to these disturbing figures. 

We can no longer afford the inconsistencies that have plagued 
this program. Mr. Chairman, while I support the extension of the 
Targeted Jobs Tax Credit, I believe that certain changes could be 
made to strengthen the program. 

I must admit, however, that I am concerned that both the Labor 
and Treasury Departments have failed to provide sufficient leader- 
ship to address the problems associated with the Targeted Jobs 
Tax Credit. 

Notwithstanding the President's stated support of the Targeted 
Jobs Tax Credit, neither the Labor nor the Treasury Department 
has developed and presented plans to improve and provide for the 
continuation of the program. I am very, very hopeful that Secretary 
Reich can address this matter and will address this matter in his 
testimony. 

Mr. Chairman, as I indicated, these hearings, by highlighting the 
problems of the program, should also be useful in exploring pos- 
sible solutions. Chairman Peterson in the Government Operations 
Subcommittee has begun to develop — begun to develop possible so- 
lutions and make recommendations. I believe that some of these 
proposals that we have come up with will merit serious attention. 
It is widelv believed that the Targeted Jobs Tax Credits are not 
being used extensively by eligible employers or employees. Some 
believe that it creates a windfall for those employers that do not 
utilize it and encourages fraud and abuse because of insufficient 
oversight by Federal and State agencies. 

Furthermore, it is felt that the TJTC jobs are low paying and 
short term, providing little or no benefits, thereby encouraging high 
employee turnover. 

As we look toward the continuation of this program, I would urge 
this subcommittee to examine the following recommendations: 

Increasing the hired time requirement from the current 90 days 
or 120 hours of employment; 

Establishing program continuity by permanently extending the 
Targeted Jobs Tax Credit; 

Reforming the credit percentage and the wage base from which 
the Targeted Jobs Tax Credit is earned to encourage higher-wage 
jobs; and 

Increasing the administrative funding for the TJTC Program. 

Mr. Chairman, these recommendations are not exhaustive, but 
attempt to establish a framework of discussion for this important 
program. I deeply regret that the political will apparently does not 
exist, not because of lack of your effort, Mr. Chairman, but because 
of indifference by others. The political will doesn't exist to extend 
this tax credit beyond the end of this year. 

Mr. Chairman, I will promise to work with you and with Chair- 
man Peterson, and others on this committee and on my own sub- 



70 

committee, to vigorously — in the next Congress, vigorously work to 
ensure the successful passage of permanent status for the Targeted 
Jobs Tax Credit. Next year, I intend to introduce legislation that 
incorporates many of the recommendations I have cited today. I 
look forward to working with you and your subcommittee on this 
and other matters. 

Again, I appreciate this opportunity to appear before you and to 
join with my colleague, and I will welcome any questions that you 
might have. 

[The prepared statement follows:] 



71 




CONGRESS OF 1 UNITED STATES 

BANKING. FINANCE AND URBAN AFFAIRS 



BOBBY L. RUSH 

,st district HOUSE OF REPRESENTATIVES 

Illinois WASHINGTON. DC. 20615 

government operation:; 



SCIENCE. SPACE AND TECHNOLOGY 



Testimony of 
CONGRESSMAN BOBBY L. RUSH 

Good morning, Mr. Chairman and members of the Subcommittee. I am pleased to join 
my colleagues on this panel. I appreciate the opportunity to appear before you to offer 
my views on the Targeted Jobs Tax Credit (TJTC) program. 

Mr. Chairman, I support the Targeted Jobs Tax Credit. My support is reflective of my 
commitment to develop effective programs that seek to address the issue of employing 
this nation's economically disadvantaged citizens. I view the TJTC as one of only a 
few federal programs designed to accomplish this difficult task. 

Treasury Department budget data indicates the average cost per job placement for TJTC 
is about $2,000. This cost is significantly below that of any major federal jobs 
program, including Job Corps ($15,000 per placement) and the Jobs Training 
Partnership Act ($4,000 per placement). For these and other reasons, I supported the 
extension of TJTC in the Omnibus Budget Reconciliation Act that we passed last year. 

However, Mr. Chairman, I am deeply concerned about the inability of the federal 
government to establish, maintain and support programs which would assist our 
structurally unemployed citizens. 

As you are painfully aware, since TJTC was first enacted in 1978, we have had three 
lapses in the program. The reauthorization for TJTC has not always been a smooth 
process, resulting inevitably in some discontinuity in the administration of the program. 

Therefore, it comes as little surprise to me that various studies and audits, including one 
just completed by the Labor Department's Inspector General, conclude that TJTC is 
ineffective as an employment program. 

The inconsistency of this program, its temporary status and lack of adequate funding, 
for example, are some of the obstacles that we must overcome if TJTC is to realize its 
full potential. 

In FY94, Congress appropriated $10.3 million to administer the TJTC. This 
appropriation was $1.5 million less than FY93. In the State of Illinois, administrative 
funding for TJTC fell from $1.5 million in 1993 to $600,000 in 1994. 

16,705 TJTC certificates were issued by the Illinois Department of Employment 
Services for the state fiscal period ending June, 1994. Approximately 2,241 were 
issued to residents of my district, totalling 13 percent of the certificates issued. 

Labor Department estimates, however, indicate that only 2.5 percent to 6.8 percent of 
eligible disadvantaged youth use the program. Clearly, the inconsistent federal 
commitment to the TJTC is partly attributable to these disturbing figures. 



72 



We can no longer afford the inconsistencies that have plagued this program. Mr. 
Chairman, while I support the extension of TJTC, I believe that certain changes could 
be made to strengthen the program. 

I must admit, however, that I am concerned that both the Labor and Treasury 
Departments have failed to provide sufficient leadership to address the problems 
associated with TJTC. 

Notwithstanding the President's stated support for TJTC, neither department has 
developed and presented plans to improve and provide for the continuation of the 
program. Hopefully, Secretary Reich can address this matter in his testimony. 

Mr. Chairman, I want to thank Congressman Peterson for the leadership he has shown 
in convening Government Operations subcommittee hearings on the TJTC. 

These hearings, while highlighting the problems of the program, have also been useful 
in exploring possible solutions. I believe that some of these proposals merit our serious 
attention. 

It is widely believed that TJTC tax credits are not being used extensively by eligible 
employers or employees. Some believe that it creates windfalls for those employers that 
do utilize it and encourages fraud and abuse because of insufficient oversight by both 
federal and state agencies. 

Furthermore, it is felt that TJTC jobs are low-paying and short-term, providing little 
or no benefits, thereby encouraging high employee turnover. 

As we look towards the continuation of this program, I would urge this subcommittee 
to examine the following recommendations: 

• Increasing the hired time requirement from the current 90 days or 120 
hours of employment. 

• Establishing program continuity by permanently extending the TJTC. 

• Reforming the credit percentage and the wage base from which the TJTC 
is earned to encourage higher wage jobs. 

• Increasing the administrative funding of the TJTC program. 

Mr. Chairman, these recommendations are not exhaustive, but attempt to establish a 
framework of discussion for this important program. I deeply regret that the political 
will apparently does not exist, not because a lack of effort on your part, to extend this 
tax credit before the end of this year. 

I will work vigorously in the next Congress to ensure the successful passage of the 
TJTC. Next year, I intend to introduce legislation that incorporates many of the 
recommendations I have cited today. I look forward to working with you and your 
subcommittee on this and other issues. 

Again, I appreciate the opportunity to appear before you this morning and welcome any 
questions you may have. 



73 

Chairman Rangel. Chairman Peterson, Congressman Rush, let 
me thank both of you for the very constructive recommendations 
that you made to us at this 11th hour when we find the Targeted 
Jobs Tax Credit Program in a very, very precarious situation. No 
program can be effective if employers cannot have some degree of 
assurance as to whether it is going to be extended and how they 
can plan for it. Certainly the testimony that you have given is that 
we know that this is just one effort that we are trying to make to 
get unemployable people, or people who are at risk of not being em- 
ployed, to give them an opportunity, to give them a chance. 

So I accept the challenge, Congressman Rush, that you have 
made; and you and the Chairman, I hope we can get together and 
bring together a group of parties and Members of Congress from 
the different committees to see what we can do to shape legislation, 
with or without tax incentives, to get at one of the core problems 
that our Nation will be facing. 

And I have shared this with Secretary Reich. He welcomes it. It 
shouldn't be a question of the administration just telling us what 
they think is right; it should be us working with them, based on 
our hearings, based on our experiences, as to what we think can 
work. 

As far as I am concerned — and I know that you agree with me, 
Bobby Rush — they can talk all about the deficit. They can talk 
about trade. They can talk about AIDS. They can talk aoout crime 
and jails and drugs and violence, but until we concentrate on jobs, 
which is an anchor as to why people don't even have to think about 
these other things, then I think we are missing the whole thing. 

So we all are reading from the same page, and it is only going 
to be a question of how we can work together and get rid of those 
things that may sound good to the recipients of the benefit, but to 
concentrate on those things that give an extra lift to those people 
that need an additional chance. 

Now, the recommendations that you have made, if the program 
was successful without that report that we keep referring to, the 
recommendations would be good. If this report was accurate — that 
92 percent of the people that were hired would have been hired 
anyway, without the tax incentive — I don't think we would want to 
be talking about this bill; we don't need to give tax incentives for 
a problem that doesn't exist. And so I hope that when you are turn- 
ing over the report that you placed into the record, that you have 
additional reports that are there, so that we can leave to the tech- 
nicians as to how the report was made. 

All we want to know is this: Are employers taking a chance? Are 
they giving additional training? Are they giving hope and a job to 
someone; that if this extra effort was not given, this person would 
have fallen by the wayside? This is not enough, but it is just one 
of the many tools that we hope to have. 

And we nave a Secretary that recognizes that we can't have a 
healthy and productive America unless we have people working — 
not on the streets and not on welfare and not in jail, but working. 
So the response that I got after having hearings, which is so posi- 
tive — not so much in what you have heard, but where we have to 
go. No matter what we are able to do in this session of Congress, 
I look forward to working with you in putting together the mem- 



74 

bers from the various committees to make certain that as we went 
out there for health, as we should have, that we also find the com- 
mittees going out there for jobs and having informal sessions with 
the administration, so that we don't have to fight with the experts. 
The experts will be working with us before we draft the legislation. 

So let me say that this is just a pause in exchanges that our com- 
mittees and our staff will have to perfect this legislation. I thank 
you for the great contribution and constructive criticism that you 
made to improve the existing legislation. 

Mr. Payne. Excuse me. At this point, the record will remain open 
for a statement that the minority ranking member, Mr. Hancock, 
will have to make. 

Mr. Hancock. Thank you, Mr. Chairman. I apologize for being 
late for the start of the hearing. I would ask for unanimous consent 
to introduce my statement into the record. 

Chairman Rangel. Without objection. 

Mr. Hancock. Thank you. 

[The prepared statement follows:] 

Opening Remarks of Hon. Mel Hancock, a Representative in Congress from 

the State of Missouri 

Thank you, Mr. Chairman. I'm very glad this hearing has been called to review 
the Targeted Jobs Tax Credit because lately we've been getting "mixed signals" con- 
cerning the effectiveness of the program. 

In January, the Secretary of Labor said the jobs credit should be scrapped. The 
following month, the President praised the program. During August, a report from 
the Labor Department's office of inspector general concluded that the Targeted Jobs 
Tax Credit Program amounted to a huge windfall to employers. 

Ultimately, of course, the decision to continue the Targeted Jobs Tax Credit Pro- 
gram, or allow it to lapse, is in the hands of the Congress. Before we have to make 
that decision, however, it is very important that we have accurate information. 

Today's forum will give us an opportunity to hear from the program's administra- 
tors and participants. I'm confident that their testimony will give us a better sense 
for whether our original and worthy commitment — to give disadvantaged youths and 
adults a chance for productive lives — is well-served by the Targeted Jobs Tax Credit 
Program. 

Chairman Rangel. Mr. Camp. Mr. Payne. For those seeking rec- 
ognition — are there any members seeking recognition for the pur- 
pose of asking questions of this panel? If not, this is just the begin- 
ning and every one of your recommendations has been one that has 
been made before; and we will be getting together before we draft 
anything. I am asking you to think and your staff to work with us 
so that we can be reading from the same page. Thank you for tak- 
ing the time out this morning. 

Chairman Rangel. The Honorable Robert B. Reich, Secretary. 
My respect and affection for this member of government is embar- 
rassing to me because I don't like to get too carried away with the 
executive branch of government. But, I can tell you that for those 
of us that represent communities such as mine, where no matter 
what country you came from, you ended up someplace in my dis- 
trict in Washington Heights — whether it was from Europe, whether 
it was from the Caribbean, whether it was from the South — New 
York City really has been the community that gave you an oppor- 
tunity. You could get started in a low-level job, and if you didn't 
make it, your kids could make it; and we call it the "city of 
dreams." 



75 

Now, for whatever progressive reasons, we have lost those low- 
level jobs and we still have to compete; and we still have the poten- 
tial and, yet, Mr. Secretary, I have taken every social problem that 
we can end up having from health to welfare to teenage pregnancy 
to AIDS, and somehow I find out that working people don't seem 
that they are as vulnerable to all of these problems as other people. 

I even went so far as to find out if the biggest thing that we have 
to face, at least politically, is crime; and we are going to do three- 
strikes-and-you're-out, 26 death penalties, 100,000 more policemen, 
and God knows how many other jails. I said, OK, I am a politician, 
let's go for it, let's get elected, but who in the hell are in these jails? 

And do you know something? Very few of those people had jobs. 
Did you know that even less of those people were employable, and 
even more of them knew that — when the President was talking 
about higher jobs and higher pay, they knew that you weren't talk- 
ing about them. 

And so then I turned to you and I said, well, it may not be in 
the health bill, it may not be in the crime bill, but there is no ques- 
tion in my mind that if we can get bills that give hope, not only 
to those in the inner city, but even those new Americans that are 
coming, there is room for everybody. 

If we are going to work with the European Common Market, if 
we are going to tell the Asians we had in the beginning we are 
going to keep it and we are going to move forward, if we are going 
to improve our quality of life for everybody through productivity, 
we can't do it keeping people in jails. It may make some people feel 
good, but it is very, very, very expensive. 

So all of your bills, as far as I am concerned, are deficit reduc- 
tions. It is bringing revenue into the country and keeping people 
from being on the payroll. 

You have done a fantastic job, and as you have heard in talking 
with two Members of the Congress, you may be getting more con- 
gressional help than you asked for as we try to put together just 
a jobs task force — Republicans and Democrats, because I don't 
think that welfare asked for your party registration. And in view 
of the contract that my Republican Members made to America yes- 
terday, I want to make life as easy for them as possible when they 
seek new employment opportunities, so that we will have a non- 
partisan group working with you. 

Thank you once again for taking time out and visiting with us, 
and I ask Mr. Hancock whether he too might want to bring greet- 
ings. 

Mr. Hancock. We appreciate the fact that you are here to look 
into an area that I personally have been concerned with for quite 
some time, and that is the creation of jobs. I am firmly convinced 
that the relaxation of the rules and the regulations that burden the 
small business community will do more to create jobs than any- 
thing we might be able to do here in Washington, D.C. 

Needless to say, we have to address these types of situations, 
and so we are going to depend on the expansion of the small busi- 
ness community to create the jobs in the future. Every business 
starts small, but with all the rules and regulations, it is almost im- 
possible to start a small business unless you first hire an EPA at- 
torney, an accountant, and then another attorney. Then you must 



76 

go through all the rigmarole, and by the time you get through, peo- 
ple say it is not worth it. So let's address that situation also and 
I think you agree with this. 

Thank you. 

Chairman Ran gel. Mr. Secretary, your entire statement will be 
entered into the record. Everybody, I think, agrees with the goals 
that we want to accomplish with this. Different people have dif- 
ferent experiences. Certainly I know it has reached the group that 
I intended for it to reach. The questions as to whether or not we 
need an incentive for this group to be hired, whether there is quick 
turnover, whether or not there is enough long-term employment, 
whether or not we should know ahead of time whether these people 
are ones that we want, whether there is outreach. 

As you know, we have all been waiting to hear the guidelines 
that you would recommend; and so if there is no member that 
would like to add anything, we are anxious to hear your testimony 
this morning. Thank you. 

STATEMENT OF HON. ROBERT B. REICH, SECRETARY, U.S. 
DEPARTMENT OF LABOR 

Secretary REICH. Well, thank you. Good morning, Mr. Chairman, 
members of the subcommittee. What I would like to do, with your 
permission, is to put my testimony, my formal testimony, into the 
record and talk about this issue. 

Let me start first with principles because I think that we all 
agree — Republicans, Democrats, Liberals, Conservatives, everyone 
agrees that we need more jobs and that jobs are probably the best 
antidote we have in this country to many of the social ills we face. 

What is the best way of dealing with our crime problem? Well, 
there are many ways of dealing with it, but more jobs and better 
jobs are certainly one of the major antidotes to crime. Welfare de- 
pendency: Jobs, one of the major antidotes to welfare dependency. 
And what we see now in this country, finally jobs are beginning to 
come back; 4.3 million new jobs over the past 19 months, and that 
is good news. 

But that good news has got to be tempered with the understand- 
ing that the jobs are not coming back for all people. If you have 
only a high school degree, or less than a high school degree, your 
unemployment rate is still likely to be 12 percent or higher. In fact, 
in some areas — in some of our inner cities and some of our poor 
rural areas, we find unemployment, nonemployment — these are 
people that don't even show up on the unemployment rolls — 
nonemployment, particularly young youth, among people who have 
not graduated from high school, ranges from 50, 60, to 70 percent. 
That is not tolerable. We have got to do better. 

This administration is committed to doing everything it can to 
getting people into jobs, more jobs and better jobs; and I am sure 
everybody on the panel feels precisely the same way. 

The issue today is the Targeted Jobs Tax Credit as a vehicle for 
doing that. It was enacted in 1978 to improve the private sector 
employment prospects of disadvantaged individuals. It is, as you 
know, scheduled to expire at the end of this calendar year. 

The administration, as you know, has not sought an extension of 
the Targeted Jobs Tax Credit in its present form. Earlier this year, 



77 

I cited the Targeted Jobs Tax Credit as a program that does not 
deliver on its goals, and indicated my opposition to an extension of 
that tax credit without substantial reforms; and I feel exactly the 
same way today. We need either to fix it or to find another ap- 
proach. 

Let me emphasize that the options are to fix the Targeted Jobs 
Tax Credit or to find another approach, not to abandon the goal. 
There are many things we have to do. 

Mr. Chairman, I welcome your continued leadership in this area, 
putting together a caucus of Members who are particularly con- 
cerned about the jobs issue. I welcome that as well. We must do 
it, and we will continue to work with you on this extraordinarily 
important agenda. 

But when I say that we either have to fix the Targeted Jobs Tax 
Credit or find another approach, what I am doing is simply reflect- 
ing a lot of evidence that has come to our attention, evidence that 
was already there, but with the addition of the recent inspector 
general's report, the evidence is fairly conclusive. 

Now, I want to underline the word "fairly," because there are al- 
ways research issues, always questions, could this research have 
been done better, is every one of these reports perfect? As a former 
academic I look at these reports and I say to myself, obviously 
there are research methodologies that could have been undertaken 
better, but the preponderance of all of these reports, taken to- 
gether, suggests to me that the current Targeted Jobs Tax Credit 
is not doing what we want it to do. It is not helping people get the 
jobs they need. It is not helping the disadvantaged population near- 
ly to the extent that it needs to. We are not, as taxpayers, as a so- 
ciety, getting the bang for the buck, as it were. We are not getting 
the jobs we need for the buck. 

The fundamental problem we face here has as much to do with 
the number of jobs as with the quality of jobs. Let me just briefly 
go over with you what the evidence has shown. 

Including the two studies recently issued by the office of inspec- 
tor general, there have been some 12 studies of the results of the 
Targeted Jobs Tax Credit Program completed in the past 15 years. 
Numerous other publications on the Targeted Jobs Tax Credit have 
reviewed the findings and the data of these studies and, as I said, 
while there are limitations to each of these studies, they do provide 
a general indication that the program needs either to be fixed or 
abandoned. 

In general, the research shows the following, and let me summa- 
rize: 

Point No. 1, there is quite a bit of evidence that the great major- 
ity of the tax credits are windfalls to employers who would have 
hired the disadvantaged target group members in any event. While 
TJTC-eligible groups do suffer undoubtedly from high rates of un- 
employment, a large — a very large fraction of the eligible popu- 
lation does, in fact, work mostly in the kinds of low-wage jobs that 
are already subsidized by the Targeted Jobs Tax Credit, but most 
of them don't have those kinds of subsidies. 

Unless employers claiming the TJTC subsidy pay workers more 
or retain them longer or invest more in their training and develop- 



78 

ment, these employers are collecting a benefit with no correspond- 
ing gain to the public. 

Let me emphasize something that is often confused here. Every 
time, almost — almost every time the Federal Government offers 
business a tax credit to do something — and I am talking here about 
an investment tax credit or a research and development tax cred- 
it — there are going to be some employers that get a windfall, be- 
cause they would have done it anyway. The question is not, are 
there some employers who are getting a windfall? The question is, 
how much behavior are you actually changing with the tax credit? 
What proportion of the employers would have done it anyway? 

Existing studies estimate that from 70 to 90 percent of the TJTC 
certifications go to individuals who would have found jobs even in 
the absence of the credit, or in other words, to employers who 
would have hired those individuals even in the absence of the cred- 
it. The most recent inspector general's report projects that employ- 
ers would have hired 92 percent of the individuals even if the cred- 
it had not been available. 

Point No. 2 with regard to the evidence: The typical TJTC work- 
er does not remain in these jobs very long. In fact, TJTC jobs are 
typically very unstable, very short in duration. The office of inspec- 
tor general found that the median TJTC-certified worker remained 
on the job for only 6 months. Other research has confirmed this 
finding. 

The combination of very low wages and low tenure adds up to 
total low earnings, obviously; according to the OIG, the median 
TJTC-certified worker receives less than $4,000 in total wages be- 
fore losing or leaving his or her job. Again, let me put this finding 
in context. 

If it were a choice between no job and even a very low-paying, 
very short-duration job, and if there was evidence that the Tar- 
geted Jobs Tax Credit was indeed motivating a substantial number 
of employers to provide these jobs, even though they were low pay- 
ing, even though they were short duration, I would be the first to 
say a job is better than no job. The problem is, these two findings, 
combined, show that a vast majority of the employers would have 
hired them anyway, and that these are very poor jobs leads me to 
conclude we need some way — if we are going to save this program, 
or if we are going to in any way talk about a Targeted Jobs Tax 
Credit Program, we need some way of ensuring that employers, a 
larger proportion of employers are indeed changing their behavior 
because of it, are hiring people because of it, and ideally, are hiring 
people for a longer period of time and are providing better-quality 
jobs. 

Point No. 3, TJTC participation appears to have little or no effect 
on earning power or long-term career advancement relative to the 
people who are in similar kinds of jobs, the same disadvantaged 
population, without the Targeted Jobs Tax Credit. A 1991 General 
Accounting Office report did not find substantial differences in 
earnings resulting from the TJTC work experience when compared 
with work experience of other TJTC -eligible workers who were — 
certified under the program. 

According to our own analysis of census data, there is little dif- 
ference between the hourly wages of TJTC eligibles who were cer- 



79 

tified under the program and the far greater number who are not 
so certified. 

What is the message in all of this? As I said, the Targeted Jobs 
Tax Credit should not be extended in its current form. Fix it, or 
we need to find another approach. 

I want to make clear — I want to make absolutely clear that the 
goal is vitally urgent: Getting jobs for low-income people who other- 
wise would not get jobs. I also want to make it very clear that 
there are some methodological flaws in each of these studies that 
can be picked out. And I also want to reiterate that as a former 
academic, I can look at these studies and find particular meth- 
odological flaws. But the preponderance of the evidence, if you look 
at these 12 studies, must lead to the conclusion that we are not 
getting, as a society, our money's worth with regard to the Tar- 
geted Jobs Tax Credit as it is now constituted. 

If Congress pursues an extension of the Targeted Jobs Tax Cred- 
it, it should, in my view, incorporate changes in the program to ad- 
dress some of these major shortcomings. I believe that thoughtful 
reforms of the program's administration and design could help to 
turn the Targeted Jobs Tax Credit into an effective tool for improv- 
ing the employment prospects of disadvantaged Americans. 

We know, for example, that in other areas of business strategy, 
other forms of tax credits, particularly capital tax credits with re- 
gard to investment, research and development, they do tend to 
change employer behavior. So the point is not that tax credits in- 
herently won't work to hire people; the point is that, as currently 
organized, there is not enough evidence for me to be able to, in 
good conscience, recommend that the Targeted Jobs Tax Credit be 
extended. 

The administration, particularly in light of the recent inspector 
general's report of the Department of Labor, but even before that 
report, began analyzing possible reforms in the program that ad- 
dress these problems. I want to offer you four avenues of reform — 
four avenues of reform which I believe, when coupled with an effec- 
tive evaluation to make sure that we are, in fact, getting our mon- 
ey's worth may, indeed, be worth pursuing. 

Possibility No. 1: Reduce the employer windfall in the following 
way: All too often, employers screen for TJTC eligibility and certify 
their workers only after hiring them. That is, they hire a group of 
low-income workers and then they try to see how many of them 
qualify for the tax credit. 

One possible reform in this area would be to require eligible 
workers to gain TJTC eligibility prior to being hired, require that 
employers actually know in advance whether there is eligibility. 
This reform coula require that eligibles receive vouchers or some 
form of other certification or referral from the employment service 
or another government office prior to hiring by the employer. 
Again, you can see that this would, in all likelihood, lead to more 
behavioral change on the part of employers than the current sys- 
tem in which an employer often has no idea who is eligible in the 
first place. 

Possibility No. 2 — and here, I think, is a very promising and im- 
portant avenue of reform — improve the incentive to provide longer- 
term jobs or better jobs under the Targeted Jobs Tax Credit. Now, 



80 

I have already described the low-quality jobs currently being sub- 
sidized by the Targeted Jobs Tax Credit. Current program rules, 
which offer a substantial subsidy for only the first few months of 
employment may even — and there is some possibility — may even 
provide some incentive for employers to turn employees over more 
rapidly than otherwise in order to maximize the amount of credit 
that they can get. If they can get 40 percent on the first $6,000, 
then there may be, perversely — now, again, I don't want to suggest 
to you that there are a lot of employers that do this, but there may 
be some perverse incentive to say, you have reached the $6,000 
mark, thank you very much, goodbye, now let's have someone else 
who qualifies for the Targeted Jobs Tax Credit. 

In other words, the current program pays employers to provide 
the same kinds of low-quality jobs that many eligible workers drift 
in and out of on their own, without subsidies, and it gives too little 
incentive to hire and retain workers for the kinds of jobs that can 
lift them out of the dismal cycle of low-skill, short-term, dead-end 
work that so many of them are in. We need to reconfigure the pro- 
gram so that it induces employers to provide jobs that can change 
people's lives for the better. 

Now, how to do this? One way would be to shift incentives in the 
direction of higher-quality, longer-term jobs; that is, by backloading 
the credit. Let me explain. 

Current employers receive a credit of 40 percent on the first 
$6,000 of wages. A backloaded credit would grant a lower subsidy, 
or perhaps none at all, on the first several thousand dollars in 
wages paid, but then a sliding scale, higher subsidy on additional 
wages. This would establish a strong incentive to recruit and train 
and, most importantly, retain TJTC-eligible workers for jobs that 
last longer, pay better, or both — whatever combination of lasting 
longer and paying better. 

The specific parameters of such a backloaded credit could be ad- 
justed to give employers credit while also managing program costs. 

Just to give you a very simple example, now, 40 percent on the 
first $6,000, that means a $2,400 tax credit. Assuming that at the 
extreme each recipient stays only 6 months, earning $6,000, the 
employer for a $12,000 job in effect gets a $4,800 tax credit on a 
$12,000 job. 

But now just change the parameters — bear with me for a second. 
Change the parameters a little bit; assume that we change the Tar- 
geted Jobs Tax Credit so that it was 10 percent on the first $6,000 
and 60 percent on the next $6,000 for that same worker. In other 
words, an employer would get the $600 tax credit and a $3,600 tax 
credit if that employer kept that worker on or if the employer pro- 
vided a better-paying job. This kind of incentive, this kind of 
backloading may be quite appropriate for providing the right incen- 
tive to get employers to provide longer-term and/or better jobs. 

Possibility No. 3: In another alternative approach based on a 
substantial increase in the current minimum tenure requirement, 
you would not give an employer anything unless somebody stays 
longer than 6 months. Rather than a backloaded credit structure, 
you could also give some incentives to improve job quality. I would 
only note here that summer youth employees and cooperative edu- 



81 

cation participants should be exempt from any increase in tenure 
requirements created by these changes. 

Alternative possibility No. 4: Improve the longer-term effects of 
TJTC jobs by creating some incentives for employers to train work- 
ers, upgrade their skills. The current Targeted Jobs Tax Credit 
does not provide enough incentive to build worker skills and thus 
improve their long-term outcomes. Given the importance of skills 
in shaping employment prospects — and I can't emphasize this 
enough; we have so many people in this country who are in cycles 
of poverty in which they simply get one low- wage job after another 
low-wage iob, and they cannot ever get out of that cycle of poverty. 
They need training; they need skills. 

Given the importance of skills in employment prospects, there is 
a strong case for injecting a learning component into a reformed 
Targeted Jobs Tax Credit. One way to do this, for example, would 
be by making the work-based learning slots created in conjunction 
with various programs like school-to-work eligible for the TJTC 
subsidies; and legislative and administrative steps could be taken 
to make participation in the Targeted Jobs Tax Credit more acces- 
sible for low-income individuals — especially low-income school-to- 
work participants. 

Besides school-to-work, there is also the possibility of extending 
the Targeted Jobs Tax Credit to formal training expenses for the 
same TJTC-eligible participants, eligible workers. 

In other words, what we need to do is keep in mind we have this 
target population. We want to maximize the use of the public sub- 
sidy to make sure that this public — that this target population gets 
jobs, stays in the jobs, has a better opportunity with regard to bet- 
ter jobs in the future. 

The ideas that I have suggested may all be ways singly or in 
combination of achieving that goal. 

We need to evaluate it. I would recommend strongly that if the 
program is extended in a modified form, such as I have suggested, 
that it be temporarily extended rather than permanently reauthor- 
ized, simply because of the experience we have had. We would 
want to make sure that these changes do, in fact, work. We need 
a rigorous study of its effects. This will allow us to determine the 
impact of any of the reforms. 

It will allow us to study and make sure that we are, in fact, 
using taxpayer dollars to improve the quality of these jobs and the 
prospect of these jobs for the people who need them most. Using 
new techniques and data sources that have not been available to 
previous researchers, we would be able to determine much more 
definitively the total impact of the revised Targeted Jobs Tax Cred- 
it on improving the employment prospects of the disadvantaged; 
and this will help address the current uncertainty about the cost- 
effectiveness of these kinds of reforms. 

Now, I presented these potential reforms here as a starting point 
for discussion. The details of the options obviously have not been 
finalized. We have not done formal cost estimates. I do believe very 
strongly that each of these proposals represents an improvement in 
the current state of the Targeted Jobs Tax Credit Program. 

And let me finish, Mr. Chairman, members of the committee, by 
emphasizing to you once again how strongly I share your commit- 



82 

ment to the goals of the Targeted Jobs Tax Credit and the goals 
it is meant to serve. Precisely because the goal is so vital, we have 
got to be relentless in making sure that these funds are being used 
to their maximum to create good jobs, to make sure that the target 
populations, the disadvantaged workers, are in fact getting what 

1 Mr° Chairman, members of the committee, I would be happy to 
take any questions you have. Thank you. 
[The prepared statement follows:] 



83 



TESTIMONY OF ROBERT REICH 

SECRETARY 07 LABOR 

BEFORE THE 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

September 29, 1994 

Good morning, Mr. Chairman and Members of the Subcommittee. 
I am pleased to have the opportunity to testify before you on the 
Targeted Jobs Tax Credit. 

The Targeted Jobs Tax Credit (TJTC) was enacted in 1978 to 
improve the private sector employment prospects of disadvantaged 
individuals. The credit is scheduled to expire at the end of 
this calendar year. 

As you know, the Administration has not sought an extension 
of TJTC in its present form. Earlier this year, I cited TJTC as 
a program that does not deliver on its goals, and indicated my 
opposition to its extension without reforms. We need to either 
fix the program or find another approach. 

And let me emphasize that the options are to fix TJTC or 
find another approach — not abandoning the goal. Because although 
the current TJTC is flawed, its objective — to improve the job 
prospects of the least advantaged — is more important than ever. 

Ironically — or more accurately, perhaps, tragically — we have 
seen a steady decline in the economic prospects of less- 
advantaged workers since the TJTC was enacted in 1978. The 
groups targeted by the TJTC, especially youth and welfare 
recipients, are precisely those who have suffered most from this 
decline. Over 11 percent of the American population received 
welfare payments in 1993 — a new record, up from less than 8 
percent in 1978. Unemployment rates among young, out-of-school 
high school graduates have increased from 8.8 percent in 1978 to 
13.3 percent in 1993 — and the situation is even worse for 
dropouts . 

For some groups of Americans, the jobs problem is now a jobs 
crisis. In 1993, one quarter of black males between the ages of 
16 and 24 were idle — neither in school nor working. The lack 
of good job opportunities for youth has helped to produce and 
sustain the high levels of criminal activity that plagues 
America's cities. The number of 18 to 24 year olds in prison 
today is nearly double what it was when the TJTC was enacted, 
despite the fact that the total population in this age group has 
declined since 1978. 

The fundamental problem has as much or more to do with job 
quality as with job quantity. When disadvantaged workers find 
jobs, their wages are typically very low, and have been dropping. 
The median income (in constant dollars) of families led by people 
aged 24 or under has declined by over one-third since 1978, and 
in 1992 was only $15,700 annually. In 1992, some 76% of young 
workers 18 to 24 had annual earnings too low to support a family 
above poverty. Most economists believe that the low wages and 
low job quality available to disadvantaged youth are a major 
reason why so many have dropped out of the labor force 
completely, and why some turn to crime. 

These data illustrate why we must not abandon the goal of 
the TJTC, even as we take a clear-eyed, critical look at how the 
current program performs. An employment tax credit can be an 
important part of an effective strategy to improve the job 
prospects of the disadvantaged. The current TJTC is not working, 
but the Administration is eager to work with Congress in 
designing a reformed TJTC that will accomplish this goal. We 
feel that there are a number of practical reforms available which 
can substantially increase the effectiveness of TJTC. 



84 



Let me briefly describe the program and the evidence we have 
regarding its current effectiveness. TJTC is a nonrefundable tax 
credit that is available to employers who hire the economically 
disadvantaged, including youth aged 18-22; cooperative education 
students 16-19 years old; ex-offenders; Vietnam-era veterans; 
individuals receiving general assistance, Supplemental Security 
Income, or Aid to Families with Dependent Children; or vocational 
rehabilitation referrals. Economically disadvantaged summer 
employees aged 16-17 are also included. The program allows for a 
tax credit of 40 percent of any portion of the first $6,000 
earned by a certified worker within a year of the hire, provided 
the employee works at least 120 hours or 90 days. 

Administration of the TJTC is a joint responsibility of the 
Treasury Department's Internal Revenue Service and the Federal- 
State Employment Service system. The IRS is responsible for 
administering the tax-related aspects of the program, while the 
State Employment Service Agencies, funded by the Department of 
Labor's Employment and Training Administration, are responsible 
for documenting worker eligibility, voucher ing and issuing 
certifications to employers. 

Including the two studies recently issued by the OIG, there 
have been some twelve studies of the results of the TJTC program 
completed over the past 15 years. Numerous other publications on 
the TJTC have reviewed the findings or data of these studies. 
While there are limitations to these studies that I will discuss 
shortly, they do provide a general indication of the program's 
effectiveness. In general, the research indicates the following: 

1. There is evidence that the great majority of the tax 
credits are windfalls to employers who would have hired the 
disadvantaged target group members anyway. While TJTC-eligible 
groups do suffer from high rates of unemployment, a large 
fraction of the eligible population does work — mostly in the 
kinds of low-wage jobs subsidized by TJTC. Unless employers 
claiming TJTC subsidies hire workers with more significant 
barriers to productivity, or pay them more, retain them longer, 
or invest more in their development than other employers, 
participating firms collect a benefit with no corresponding gain 
to the public. Existing studies estimate that from 70 percent to 
90 percent of TJTC certifications go to individuals who would 
have found jobs even in the absence of the credit. The most 
recent Inspector General's report projects that employers would 
have hired 92 percent of the individuals even if the credit had 
not been available. 

2. TJTC jobs are almost always low-wage and low-skill, and 
the typical worker does not remain at these jobs long . Two- 
thirds of program certifications are in retail stores and 
restaurants. Nationally, the OIG found that most TJTC jobs were 
low-skilled and entry- level, with an average hourly wage of 
roughly $5.15 per hour. Our own administrative data confirm 
these low wages. What is perhaps even more important is that 
TJTC jobs are typically unstable and of short duration. The OIG 
found that the median TJTC-certif ied worker remains on the job 
for only about 6 months, and other research has confirmed this 
finding. 

The combination of low wages and low tenure adds up to low 
total earnings. According to the OIG, the median TJTC-certif ied 
worker receives less than $4,000 in total wages before losing or 
leaving their job. 

3. TJTC participation appears to have little or no effect on 
earning power or long-term career advancement. A 1991 GAO report 
did not find substantial differences in earnings resulting from 
TJTC work experience when compared with work experience of other 
TJTC-eligible workers who were not certified under the program. 
According to our own analysis of Census data, there is little 



85 



difference between the hourly wages of TJTC eligibles who are 
certified under the program and those that are not. 

Some claim that the work experience gained in jobs 
subsidized by the credit pays off in better job prospects for the 
future, counterbalancing the low guality of the immediate jobs. 
But the evidence does not support this. A 1988 report found that 
even five years after participation in TJTC, the average annual 
earnings of minority male youth who had been certified under the 
program were only about $7,000 per year (1993 dollars), and those 
of female youth were even less. Also, the Labor Department OIG 
determined that 35% of TJTC participants were unemployed when 
they were contacted about a year and a half after entering their 
TJTC jobs. This compares to 38% in the year before getting the 
job. Again, there is little evidence of improvement due to TJTC. 

4. TJTC accounts for only a small fraction of the 
employment of eligible groups . Among eligible disadvantaged 
youth who are employed, only about 10% have been certified for 
TJTC. Rates of TJTC certification among employed members of 
other eligible groups are even lower. In other words, more than 
90% of employed persons in the eligible population get jobs 
without using the credit. 

I mentioned that although TJTC has been studied before, 
there are many limitations to these previous studies. Because of 
its design, the TJTC is an extremely difficult program to 
rigorously evaluate. Researchers in the field agree that none of 
the studies to date is a reliable estimate of the total impact of 
TJTC on employment and earnings of the disadvantaged. None of 
the evaluations has definitively determined the programs costs 
and benefits. A comprehensive literature review conducted for 
the Department of Labor in 1991 concluded that "because of 
(unavoidable) design difficulties, none of the studies answers 
definitively the question of the net effects of the TJTC." 

I do not raise these research issues to claim that the 
current TJTC has not been extensively studied. On the contrary, 
we feel that the weight of the research clearly shows serious 
problems with the number and guality of jobs generated by the 
existing program. The recent report by the Labor Department's 
Office of the Inspector General reinforces this conclusion. As I 
indicated earlier, we do not believe the TJTC should be extended 
in its current form. 

However, I do wish to make clear that neither the OIG 
reports nor other studies of the program have established that 
employment tax credits cannot be a viable approach to assisting 
the disadvantaged. The existing research evidence certainly does 
not preclude TJTC reform. 

In addition, because of the problems with the current 
research, should the Congress decide to authorize a modified 
version of TJTC, a systematic impact evaluation should certainly 
be required. 

If the Congress pursues an extension of the TJTC, it should 
incorporate changes to the program to address some of the major 
shortcomings. I believe thoughtful reforms of the program's 
administration and design can help to turn the TJTC into an 
effective tool for improving the employment prospects of 
disadvantaged Americans. 

The Administration is analyzing possible reforms in the 
program that address problems in several areas: 

1. Reduce employer windfall. All too often, employers 
screen for TJTC eligibility and certify their workers only after 
hiring them. A promising reform in this area is to require 
eligible workers to gain TJTC eligibility prior to hiring. This 



86 



reform could require that eligibles receive vouchers (or some 
other form of certification/referral) from the Employment Service 
or another government office prior to hiring by the employer. 

In addition to this reform, we also believe that increased 
enforcement of existing program rules can help to address the 
problems of employer windfall. However, better enforcement may 
require increased administrative resources for the Employment 
Service . 

2. Improve the incentive to provide hiah-quality jobs under 
the TJTC. I have already described the low quality jobs 
currently being subsidized by the TJTC. Current program rules — 
which offer a substantial subsidy for only the first few months 
of employment — may even provide some incentive for rapid 
employee turnover in order to maximize the credit amount. 

In other words, the current program pays employers to 
provide the same kinds of low-quality jobs that many eligible 
workers drift in and out of on their own, without subsidies. And 
it gives too little incentive to hire and retain workers for the 
kinds of jobs than can lift them out of the dismal cycle of low- 
skill, dead end work. We need to reconfigure the program so that 
it induces employers to provide jobs that can change people's 
lives for the better. 

One way to shift incentives in the direction of higher- 
quality jobs is to "backload" the credit. Currently employers 
receive a credit of 40% of the first $6,000 in wages. A 
backloaded credit would grant a lower rate of subsidy, or none at 
all, on the first several thousand dollars in wages paid, but a 
higher credit rate on additional wages. This would establish a 
strong incentive to recruit, train and retain TJTC-eligible 
workers for jobs that last longer, pay better, or both. The 
specific parameters of a "backloaded" credit could be adjusted to 
give employers the right incentives while also managing program 
costs . 

Alternative approaches based on a substantial increase in 
the current minimum tenure requirement, rather than a backloaded 
credit structure, could also give some incentives to improve job 
quality. I would note here that summer youth employees and 
cooperative education participants should be exempt from any 
increases in tenure requirements created by these changes. 

3. Improve longer-term effects of TJTC jobs . The current 
TJTC does not provide enough incentive to build worker skills and 
thus improve their long-term outcomes. Given the importance of 
skills in shaping employment prospects, there is a strong case 
for injecting a learning component into a reformed TJTC. One way 
to do this would be by making the work-based learning slots 
created in conjunction with school-to-work programs eligible for 
TJTC subsidies. Less ambitiously, legislative and administrative 
steps could be taken to make participation in TJTC more 
accessible for low-income school-to-work participants. 

Besides school-to-work, there is also the possibility of 
extending the TJTC credit to formal training expenses for TJTC- 
eligible workers. 

4. Improve knowledge of program effects . Finally, we would 
recommend that if the program is extended in a modified form, 
that it be temporarily extended rather than permanently 
reauthorized, and that a rigorous study of its effects be 
undertaken. This will allow us to determine the impact of any 
reforms that are made. Using new techniques and data sources 
that have not been available to previous researchers we would be 
able to determine much more definitively the total impact of the 
revised TJTC on improving the employment prospects of the 
disadvantaged. This will help to address current uncertainty 



87 



about the TJTC's cost-effectiveness. 

He are prepared to discuss the pros and cons of each of the 
issues I have raised today with Congress as part of an effort to 
reform the TJTC. We have presented these potential reforms here 
as a starting point for discussion. The details of the options 
have not been fixed, nor have we done formal cost estimates. 
However, we do believe that each of these proposals represents an 
improvement on the current state of the TJTC program. 

Of course, the Administration's position on specific 
proposals will depend on the overall package, and on what offset 
is used to finance the reauthorization. 

But let me finish by emphasizing that I share your 
commitment to the goals the Targeted Jobs Tax Credit is meant to 
serve, Mr. Chairman. Precisely because the goal is so vital, we 
must be relentless in analyzing, improving, and monitoring the 
means by which it is pursued. 

Mr. Chairman, this concludes my prepared statement. At this 
time I would be pleased to answer any questions that you or other 
Members of the Subcommittee may have. 



88 

Chairman Rangel. Mr. Secretary, we are at a political disadvan- 
tage. If I understood you correctly, you are saying that you could 
not recommend this program in its present form for an extension, 
one; and two, even if we accepted the recommendations that you 
are making to us and we were able to have it adopted in the Sen- 
ate, that even then you would not recommend that it would be 
made permanent. 

But the last thing that you are saying is almost that if both of 
these things were done, that you are in the consideration mode, 
rather than the advocacy role; and that makes a lot of difference 
to us when we don't have that much to work with at the 11th hour. 

This program has been gliding along with a windfall of the most 
efficient, most effective, least expensive. We have had students, we 
have had employees, we have had employers; and all of a sudden, 
the IG comes in the middle of the night at the end of a session 
where this program was not extended and drops a bomb, a bomb 
from which we have not been able to pick up the pieces and evalu- 
ate and improve. And certainly if they are right, we would want 
to get so far away from this program that, you know, and start 
moving on something else. 

But I don't know, Mr. Secretary. You clarify to this committee 
that if, indeed, we just accepted those recommendations that you 
have made, many of which would be good — whether the report was 
good or bad, these are just good recommendations — can we hope to 
get the administration's enthusiastic support to get this legislation 
extended even on a temporary basis so that we could study its ef- 
fectiveness? 

Secretary Reich. Well, let me say this, Mr. Chairman. I obvi- 
ously do not control and should not control the timing of IG reports 
for the Department of Labor. They are an independent part of the 
Department of Labor. It is important to get these kinds of reports, 
obviously, because we want to make absolutely certain that every 
taxpayer dollar is used to the maximum. 

Chairman Rangel. I think we agree. It just 

Secretary Reich. You said that I am not an advocate. I am an 
advocate. 

Chairman Rangel. It is about to expire. Then they come in with 
this very well-done report, at least in their opinion, when many of 
us have had very exciting, positive experiences. And I am not chal- 
lenging their report. It is just unfair to a Congress to wait until we 
are about to go out of session with a piece of legislation that has 
not been extended and to come and just to say this. 

But forgetting that, you have had a chance to evaluate that, and 
other reports, and we will take your word for it. All I am saying 
is that if we do put the time and effort in, if we do put a limit on 
it, if we do try to correct what may be perceived to be wrongs, or 
to perfect the legislation, can we expect that the administration 
would say, yes, give it a year, whatever you think is temporary and 
let's see where we are going? 

Secretary Reich. Mr. Chairman, I am a very strong advocate. 
You mentioned before that I am not sounding like an advocate. I 
am a very strong advocate, and let me tell you what I am advocat- 
ing. 



89 

I am advocating either fixing it or dropping it, and I am a very 
strong advocate for fixing it. I would prefer fixing it, but if we can't 
fix it, then we drop it. 

Now, with regard to when — and I realize that the timing is very 
awkward, obviously, we are at the end of a Congress. We saw 
some — in fact, I registered some concerns earlier on about the pro- 
gram, even before we saw the IG's report. We have been working 
with the Treasury Department since that time before the IG's re- 
port, trying to come up with some good options; and we would be 
certainly prepared to do what has often been the case in the past, 
and that is, assuming that we could move this quickly in the next 
Congress, assuming that we could get some reforms going quickly 
in the next Congress, apply this retroactively. 

Chairman Rangel. Well, it is going to be difficult for us to find 
a funding mechanism, but^before you get to the next session, I still 
repeat, would we be able to go to our colleagues on the other side 
and say that if we can work together, get this language, that we 
can depend on Department of Labor support for this extension, 
even if it is on a limited basis? 

Secretary Reich. Well, I would be willing, and in fact, delighted 
to work with you, work with the committee on adapting the Tar- 
geted Jobs Tax Credit, even on a very temporary basis.I21What I 
don't feel that I can do in good conscience, given the evidence we 
have, is to say at this particular point in time, yes, let's go ahead 
and let's simply extend it without any modification or change. 

Chairman Rangel. No. No. I want to make it clear. I am asking 
the bottom-line question. 

If the changes that you recommended were made — and even then 
we are taking a gamble, but we are suggesting that we are going 
to try. All I am asking is, would you support that in this session 
of Congress and leave it up to us to see whether we can do the 
heavy lifting in getting the funding? 

Secretary Reich. Absolutely. If we can make some or all these 
changes and, again, do it temporarily and put in an evaluation 
component, absolutely, you have our support. 

Chairman Rangel. This idea about these people would have 
been hired anyway, I said earlier, and I mean that if we are not 
increasing the work market, then we certainly shouldn't be giving 
away the taxpayers' money. 

But how would you answer here, if you looked over who was eli- 
gible — and we have economic development for disadvantaged youth; 
economic development for Vietnam veterans; economically dis- 
advantaged, summer youth, you know, SSI, AFDC, handicapped. 
And someone says, you know, if I could find mv way into Charlie 
Rangel's district, I bet you one thing, that I will be eligible for some 
of these credits if I don't ask anything until after I hire them. You 
know and I know they would be right; and that is why so many 
of even your job opportunities and your training opportunities, they 
are targeted to communities that suffer these types of problems. 

Now, if one of these fast food chains took that into consideration 
as to where they were putting these places, clearly that is all they 
would hire anyway. Is any consideration ever given the fact that 
they go to the communities that have a large number of people who 
are eligible and that is the reason why they are able to certify 



90 

them after? Or did this report look into the question of, they may 
never have come into this community in the first place unless they 
thought they could get a little help? 

Secretary Reich. Mr. Chairman, it is highly possible, and you are 
referring, I think, to the inspector general's report. 

Chairman Rangel. Yes. 

Secretary Reich. It is entirely possible that an employer might — 
even though the employer does not change behavior with regard to 
any individual hiring decision on the basis of the Targeted Jobs 
Tax Credit, that an employer might say, in effect, might reason, as 
you are suggesting, this community is a community in which I am 
likely to have a very high proportion eligible for the Targeted Jobs 
Tax Credit, and therefore, yes, I will come to the community. 

I will give you another behavioral possibility. An employer who 
hires, even inadvertently, a lot of TJTC beneficiaries, that em- 
ployer might therefore do better because that employer has a high- 
er profit margin than an employer that doesn't; and that employer 
that unwittingly operates in a community or in an area where that 
tax credit operates, that employer ends up being able to continue 
to employ people. 

Chairman Rangel. But the whole concept of empowerment zones 
is not based on individuals. It is targeting areas that suffer these 
same things that I have listed in my targeted group, and we give 
credit just for the guy coming right in there. 

Secretary REICH. Entirely possible. And indeed the inspector gen- 
eral's report has been criticized on the basis that it looked only at 
the individual hiring decision, not at the kind of macrodecision that 
you are referring to. It did not also consider the possibility that an 
employer might have forgotten why he or she hired the person. 

This was based on a survey. Survey research of that kind is not 
always the most accurate way of doing it. And again, I want to 
stress that not each of these surveys or reports taken individually 
is overly or overwhelmingly persuasive, but when you look at the 
preponderance of the evidence all together, you have got to scratch 
your head, you have got to come to the conclusion 

Chairman Rangel. You have got to scratch your head, but if you 
found for whatever reason these people were employed, we can 
scratch our heads and say, now that they are employed, how can 
we affect it? How can we get them permanently employed? How 
can we increase the training? 

So just saying that I deal with disadvantaged people and that 
you would have done that anyway, I don't think it is an answer. 
If you can get people who border on being on welfare or being un- 
employed, in some way they are hooked up; and you and I can 
work to make certain mat they are not turned over and that they 
are more permanently hooked up, and we can dismiss the IG and 
all of that and say, you just hire poor folks because they are avail- 
able. We say, if you do it, we will make it easier for you. 

Secretary Reich. That is why, Mr. Chairman, I find the back- 
loading alternative that I sketched particularly interesting and at- 
tractive, because there you are lining up employer incentives to- 
ward providing longer-term jobs and/or higher-wage jobs. 

Chairman Rangel. What is the difficulty in not having pre- 
certification? I mean, if we were talking about addresses in the 



91 

empowerment zone, you just show where you live and you are eligi- 
ble. I admit that ex-cons don't like running around showing that 
they are ex-cons, but there must be something that the parole de- 
partment gives them saying, if you are looking for a job and you 
need a little edge — same way we give to veterans — pull this out if 
you need it to show to anyone. 

If you have been on AFDC and SSI, my God, with all the 
fingerprinting and things that are going around, it should not be 
a big deal when you are filling out the application. 

I understand that there may be some civil rights issues with 
some States, with respect to economic disadvantage; but to me, if 
you go someplace in the State and say, I want an edge, I want to 
get a job, I want to show that I am eligible for a Federal program, 
that somebody should be able just to look you up and give you 
something so that you don't have to tell the employer, you can 
check me later, when you fill out the thing. 

You say you are a veteran. You put down your veterans number. 
Why is it such a big deal as to why there are so many 
postcertifications and consultants coming in, screening, seeing 
whether anybody is eligible? 

Secretary Reich. I think unfortunately this is the legacy of a 
time in which the employment service was doing the kind of 
screening that now a lot of consultants are coming in and doing for 
individuals. You are absolutely right that there is and should be a 
much, much simpler way of doing it. 

We are right now trying to become customer friendly, as you 
know, througn a one-stop system and through our proposals for re- 
forming the employment service and merging it with many of the 
services provided through unemployment insurance and many 
other things 

Chairman Rangel. In other words, what we are saying is we are 
not going to attack the employer because we have not had a more 
efficient way for eligible recipients to identify who they are ahead 
of time; and it just seems to me that if I went into the community 
which we call Chinatown and I decided that there is something on 
the books that says Chinese-Americans are entitled to benefits, 
then I will just hire everybody and hire a consultant and find out 
how many are of Chinese extraction, and then you are going to tell 
me I should have known earlier. 

I am saying that all of the things you are recommending to me 
we should do anyway. But it just doesn't seem that we should have 
to overcome a program that in the past has been considered to be 
successful, that you say that no one puts that much faith in the 
IG or the other reports, but when we look at all of it collectively — 
well, we have been looking at all of this collectively for years, and 
we have not had a scintilla of evidence before this committee that 
these horror stories existed. If they did, we would want to make 
certain that the wrongdoers were knocked off, and give more oppor- 
tunity to those people who need an extra chance. 

Having said that, I am satisfied that if we can just patch this 
thing up, see what we can do by the end of the year with your sup- 
port, seeing if we can make it better by having more time; and if 
we start off next year, at least it gives us an opportunity to see how 
you can reach conclusions, which I certainly could reach, if you say 



92 

that you go in a poor neighborhood and guess what they did, they 
hired everybody that was poor? 

Secretary Reich. Well, Mr. Chairman, let me make several 
points. 

First, I don't mean to be misunderstood. I don't want to be un- 
derstood as criticizing the IG's report here. Obviously, there are al- 
ways methodological issues underlying every report, and given my 
background as an academic, one could always criticize a report for 
not being the purest and most perfect methodology; but it is a fact 
that the inspector general at the Labor Department, to my knowl- 
edge, rarely, if ever, has come out as strongly against a program 
on the basis of a particular study; and it is not just one study. 

Again, this has got to be seen against the background of many 
other studies that cast doubt. When I said last September, way be- 
fore the inspector general's report, that I was concerned, that I did 
not think at that time that we needed to just renew the program, 
I was expressing my concern on the basis of a lot of other studies 
that had been already done on the program. So you and I may be 
simply having a discussion about semantics, but I want to make 
sure 

Chairman RANGEL. It is not semantics with me. I think it is un- 
fair for a Federal agency to wait until a session is about to con- 
clude and a piece of legislation is about to expire. And then all of 
a sudden, find that this is a timely manner to educate us as to 
what was wrong with legislation that we found no IG, we found no 
criticism, but at this political time in our calendar, they now raise 
all these questions, and all we are asking for is a crutch to see 
whether we can get over that so that we can take a look at the 
data. 

This is the authorizing committee. We have felt so proud of the 
legislation. We have heard nothing but success stories, and now we 
hear things that we have to look at. 

Secretary Reich. I wish the timing 

Chairman Rangel. We have got 5 minutes, and I hope that you 
can stay with us just for 10 minutes. The members will come back, 
and we want to give you access to our phone and whatever. We will 
rejoin in 10 minutes. 

[Recess.] 

Chairman Rangel. The committee will resume. 

The Secretary has met with the members here and has explained 
his dilemma and legislative problem here; and so members who 
have questions, the Secretary has agreed to respond to those in 
writing. 

[No questions were submitted.] 

Chairman Rangel. And just to make certain that we have a 
clear understanding, Mr. Secretary, if indeed the Senate and House 
Members are able to find a funding mechanism for the TJTC bill, 
and if indeed we are able to accept the recommendations that you 
and your office have made to us, what would be your position as 
it relates to supporting the extension of this legislation, at least on 
a temporary basis? 

Secretary Reich. First of all, Mr. Chairman, I do apologize for 
having to leave. This is extraordinarily important, and these issues 
are right at the top of my agenda. 



93 

Chairman Rangel. Not a problem, Mr. Secretary. 

Secretary Reich. Let me make — again, make it crystal clear 
what I said before, and repeat it. 

We cannot support an extension of the Targeted Jobs Tax Credit 
as it now is. With regard to some of the ideas that I presented — 
particularly what I find most appealing, and that is the 
backloading idea — we certainly could support an extension as long 
as it was an extension which had an evaluation built in at the end 
of it, it was not an unlimited extension and it was an extension 
based upon incorporating these new ideas. 

Yes, by all means. 

Chairman RANGEL. You could and you would? 

Secretary Reich. Not only could we, not only will we, but I will 
do so enthusiastically. 

Chairman Rangel. Well, thank you very much, Mr. Secretary, 
for your patience with us. We have got our job to do, and if we are 
unsuccessful, it means that we will just have to work harder to 
avoid these conflicting reports. And we look forward to working 
with you with this and other legislation. 

I just have to apologize to the committee members, but I know 
you will have members here, and I thank you for your concern and 
your commitment. 

Secretary Reich. Thank you. 

Chairman Rangel. Maurice Foley, Deputy Tax Legislative Coun- 
sel, Tax Legislation, U.S. Department of the Treasury — I guess he 
raises the money for us right now. We have got to fund this. 

Mr. Payne. Could I say something for just 1 minute? 

Chairman Rangel. Let me yield to Mr. Payne. 

Mr. Payne. Thank you very much, Mr. Chairman, and I appre- 
ciate the opportunity to go out of turn here. 

I was going to question the Secretary, but I did have a comment 
that I think is an important one as we consider how it is that we 
make these adjustments and changes that were suggested, both by 
our colleague, Mr. Peterson, Chairman Peterson, as well as the 
Secretary; and I think we need to keep in mind that part of what 
has made this program work as well as it has, according to the — 
many of the comments that we have received from people in our 
districts, is the fact that the private sector has embraced it. And 
they have embraced it because it is relatively simple, and we need 
to be aware of and consult with the private sector as we think 
about changes, because if we are increasing the responsibility of 
the private sector in terms of additional training, additional out- 
reach, longer terms of employment, and at the same time reducing 
the percentage of tax credit, we may well take something that 
works v and turn it into something that is relatively unattractive 
and something that no longer works. 

And so I think that is a very important consideration as we think 
about any adjustments that should be made to the program. 

Chairman Rangel. I certainly agree with you. 

Secretary Foley, your entire statement will be entered into the 
record without objection. And, Secretary Foley, in view of where 
you see the direction of this committee going and in view of the 
statements that have been made by the Secretary, there won't be 
any need for you to give an overall history of where the program 



94 

is and what the objections are. Of course, if you can help us iden- 
tify some funding mechanisms which the Secretary would be will- 
ing to support, tnen we certainly would be with the Secretary of 
the Treasury, battling for him to save this program, which we hope 
is pretty close to his heart. 
But you may continue. 

STATEMENT OF MAURICE B. FOLEY, DEPUTY TAX LEGISLA- 
TIVE COUNSEL, TAX LEGISLATION, U.S. DEPARTMENT OF 
THE TREASURY 

Mr. Foley. Mr. Chairman and distinguished members of the sub- 
committee, I am pleased to have this opportunity to present the 
views of the Treasury Department with respect to the Targeted 
Jobs Tax Credit. 

Chairman RANGEL. Could you bring the mike a little closer to 
you, please? 

Mr. Foley. Sure. 

The Targeted Jobs Tax Credit is jointly administered by the 
Treasury Department through the IRS and the Department of 
Labor through its employment service. The IRS is responsible for 
tax-related aspects of the program; and the employment service, 
through the network of State Employment Security Agencies, is re- 
sponsible for defining and documenting worker eligibility. 

My written statement contains a lengthy discussion of the his- 
tory of the Targeted Jobs Tax Credit and also a description of cur- 
rent law, but because the chairman and members of the sub- 
committee are more familiar with the history than I am, I will not 
repeat that discussion in my oral remarks. 

Under current law, as you know, the Targeted Jobs Tax Credit 
is available to employers for up to 40 percent of the first $6,000 of 
wages paid to a certified worker in the first year of employment. 
And certified workers must be economically disadvantaged or dis- 
abled individuals in one of nine targeted categories. To claim the 
credit for an employee, an employer must receive written certifi- 
cation that the employee is a targeted group member. 

Certifications for employees are generally provided by State Em- 
ployment Security Agencies. The employer must have received or 
filed a written request for certification on or before the date a tar- 
geted member begins work. If the employer has received a written 
preliminary determination that the employee is a member of the 
targeted group, the employer may file a written certification re- 
quest within 5 days after the targeted member begins work. 

While the goals of the Targeted Jobs Tax Credit are laudable, the 
TJTC has been subject to criticism. The most recent example of 
criticism of the program is an August 1994 report by the Labor De- 
partment's office of inspector general. Although the report notes 
that the Targeted Jobs Tax Credit provides some benefits, the re- 
port concludes that the Targeted Jobs Tax Credit is not cost effec- 
tive, and recommends that the Secretary of Labor discourage fur- 
ther extensions of the credit. 

To help crystallize discussions on the Targeted Jobs Tax Credit, 
I would like to highlight three of the credit's main problems and 
offer very general options and principles for addressing those con- 
cerns. These problems are that the credit provides a windfall to 



95 

employers, may encourage churning of employees, and promotes 
only limited training of employees for advanced career positions. 

Perhaps the most significant problem with the Targeted Jobs Tax 
Credit is that it often provides a windfall to employers. This credit 
provides a windfall to the extent it confers a benefit on employers 
for doing what they would have done without that benefit. We be- 
lieve that the most direct way to reduce the windfall is to require 
certification of eligibility before the hiring decision is made. In this 
way, the Targeted Jobs Tax Credit can serve as an incentive in the 
hiring decision. 

In order for the program to work at maximum effectiveness, em- 
ployers need to be aware that they are hiring targeted workers at 
the time the hiring decision is made. A precertifi cation system 
would ensure that the credit was limited to employers that know- 
ingly hired targeted workers. One drawback of the precertification 
system is that it would place a larger burden on employment agen- 
cies that perform certifications. 

As part of our review, we plan to look at ways of streamlining 
the work of these agencies and the level of funding required in 
order for them to perform their roles at acceptable levels. The 
Treasury Department would be very leery of endorsing any self-cer- 
tification system under which individuals or their employers would 
certify targeted status with reduced oversight by government agen- 
cies. We would be concerned that such an nonor system is too sus- 
ceptible to fraud. 

Under the current regime, the principal checks against fraud are 
the employment — agencies make certifications and their actions are 
subject to audit by the Department of Labor. We believe these 
checks are important to curbing potential abuse and should not be 
replaced by more lax measures. 

Another serious criticism of the Targeted Jobs Tax Credit is that 
it may encourage the churning or turnover of employees to maxi- 
mize the amount of the credit. A related problem is a short-term 
position subsidized by the credit is less likely to promote job skills 
that are beneficial to more advanced job positions. 

We have explored two broad approaches to the churning problem. 
Under one approach, churning would be curbed by increasing the 
number of hours an employee must work with an employer before 
his or her wages could be taken into account in computing the cred- 
it. The current minimum employment period, which is the lesser of 
90 days or 120 hours, translates into as little as 3 weeks of full- 
time work. The other approach would limit churning by 
backloading the credit. 

Under current law, the credit is 40 percent of the first $6,000 in 
wages paid to a targeted individual. Under the backloading ap- 
proach, the credit rate applying to wages above some threshold 
would be higher than the credit rate applying to the initial wages. 
This shifts the incentive of employers in the direction of paying 
higher wages and keeping their employees on the job longer. 

One possible downside of these reform proposals may be to re- 
duce the initial hiring incentive for some economically disadvan- 
taged individuals compared to the incentive that exists under the 
current credit. We also need to weigh any increased administrative 
burden resulting from a more complex credit. 



96 

To the extent that the Targeted Jobs Tax Credit influences hir- 
ing and retention decisions, it helps hard-to-employ individuals de- 
velop basic job skills. These include such fundamental skills as 
showing up for work on time, taking directions from managers and 
successfully completing assigned tasks. Nevertheless, the low- wage 
jobs traditionally subsidized by the credit typically do not offer ex- 
tensive training that could directly serve as a springboard to more 
advanced job positions. 

To bolster the TJTC's impact on training, the Department of 
Labor has suggested that the credit might be expanded to individ- 
uals participating in approved school-to-work programs. Although 
it is appropriate that a broad range of options be considered, at- 
tempts to redesign the Targeted Jobs Tax Credit to encourage 
training presents special challenges. Any broad training incentive 
in the Targeted Jobs Tax Credit should attempt to ensure that the 
credits' special emphasis on hiring economically disadvantaged in- 
dividuals is retained. A broad-based training option also could lose 
significant revenue because of the size of the potentially eligible 
population. 

The employment of economically disadvantaged and disabled 
workers is one of the administration's most pressing concerns. 
However, the revenue cost for a 1-year extension of the credit in 
its current form is approximately $336 million over 5 years, while 
a permanent extension of the current law credit would lose ap- 
proximately $1.4 billion over 5 years. Because we are very con- 
cerned about the efficient use of government revenues and the need 
to find revenue offsets, we believe that the problems undermining 
the credit's effectiveness must be addressed before pursuing an ex- 
tension of the credit. 

The inspector general's report raises significant concerns regard- 
ing the effectiveness of the credit. As a result of the problems iden- 
tified in the report and earlier studies, we are engaged in a policy 
review of the credit to determine whether legislative and regulatory 
modifications may improve its effectiveness. 

Over the next several months, we plan to continue our work with 
the Labor Department. We also want to work with this subcommit- 
tee and the Ways and Means Committee in general to develop pro- 
posals that will address in a cost-effective manner the employment 
problems of economically disadvantaged and disabled workers. We 
plan to complete our analysis of this issue prior to submission of 
the administration's budget proposal for fiscal year 1996, and our 
recommendations will be reflected in that document. 

This concludes my prepared remarks, and I would be pleased to 
answer any questions that any of the members have. 

[The prepared statement follows:] 



97 



TREASURY® NEWS 



OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON. DC. • 20220 • (202) 622 2960 

For Release Upon Delivery 
Expected at 10:00 a.m. 
September 29, 1994 



STATEMENT OF MAURICE B. FOLEY 

DEPUTY TAX LEGISLATIVE COUNSEL (TAX LEGISLATION) 

BEFORE THE 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

COMMITTEE ON WAYS AND MEANS 
UNITED STATES HOUSE OF REPRESENTATIVES 



Mr. Chairman and distinguished Members of the Subcommittee: 

I am pleased to have this opportunity to present the views 
of the Treasury Department with respect to the targeted jobs tax 
credit (TJTC) . The TJTC is a tax credit for employers which was 
enacted to promote private-sector hir.ng of workers with special 
barriers to employment. 

The TJTC is jointly administered by the Treasury Department 
through the Internal Revenue Service (IRS) and the Department of 
Labor through its Employment Service. The IRS is responsible for 
tax-related aspects of the program and the Employment Service, 
through the network of State Employment Security Agencies, is 
responsible for defining and documenting worker eligibility. 

I . Background 

The TJTC was enacted by the Revenue Act of 1978 as a 
substitute for what had been a broad-based new jobs tax credit. 
Congress concluded that the unemployment rate had declined 
sufficiently so that it was appropriate to focus employment 
incentives on individuals with high unemployment rates and other 
groups with special employment needs. 

The credit initially was scheduled to expire on December 31, 
1981 and applied to wages earned in the first and second years of 
employment. The first-year credit was equal to 50 percent of the 
first $6,000 earned by a TJTC-hire and the second-year credit was 
25 percent of the first $6,000 earned. 

The TJTC has been extended on a short-term basis numerous 
times over the years. Revisions also have been made by a number 
of tax laws to adjust the amount of the credit, close loopholes, 
and alter the targeted groups of individuals covered by the 
credit. 

The TJTC was amended and extended for one year through 
December 31, 1982 by the Economic Recovery Tax Act of 1981. This 
Act eliminated retroactive certification of employees already on 
the payroll and also required that one targeted group — 
cooperative education students — be economically disadvantaged 
in order to be covered by the credit. Without this constraint, 
employers were able to receive subsidies for hiring individuals 
they likely would have hired in the absence of the credit. Other 
changes made by the 1981 Act included increasing the number of 
targeted groups and modifying certain restrictions on eligibility 
within existing categories. 



98 



The TJTC was extended for two more years through December 
31, 1984 by the Tax Equity and Fiscal Responsibility Act of 1982. 
This Act extended the credit to employers hiring economically 
disadvantaged 16 and 17 year-olds for summer employment. The 
1982 Act also deleted one of the targeted groups — former public 
service employment participants under the Comprehensive 
Employment and Training Act. 

The Deficit Reduction Act of 1984 extended the TJTC for 
another year through December 31, 1985, after which it expired. 
It was extended retroactively for three more years through 
December 31, 1988 by the Tax Reform Act of 1986. The 1986 Act 
reduced the amount of the credit to 40 percent of the first 
$6,000 earned and eliminated the second-year credit. Employees 
also were required to work for a minimum of 90 days or 120 hours 
to be covered by the credit (14 days or 20 hours for summer 
youths) . A minimum employment period was imposed to limit the 
"churning" of employees by some employers. "Churning" involves 
maximizing the amount of credit by rapidly turning over workforce 
to hire additional targeted members. 

The Omnibus Budget Reconciliation Act of 1987 eliminated the 
credit for wages paid to individuals who perform duties similar 
to those of workers who are participating in or are affected by a 
strike or lockout. The Technical Corrections and Miscellaneous 
Revenue Act of 1988 extended the credit for an additional year 
through December 31, 1989; reduced the summer youth credit from 
85 percent to 40 percent of the first $3,000 earned; and 
eliminated 23 and 24 year-olds from the targeted group of 
economically disadvantaged youths. 

The TJTC was extended for nine more months through September 
30, 1990 by the Omnibus Budget Reconciliation Act of 1989. This 
Act also reduced the burden placed on local Employment Service 
offices of verifying worker eligibility. The 1989 Act required 
employers requesting certification of a job applicant for which 
there had not been a written preliminary determination of 
eligibility (a voucher) to specify at least one, but not more 
than two, targeted groups to which the individual might belong. 
The employer also had to certify that it had made a good faith 
effort to determine the individual's eligibility. The prior 
practice of asking local Employment Service offices to verify 
TJTC-eligibility of all new hires burdened these offices without 
creating new jobs. The employer firms already had decided to 
hire the individuals, although the individuals had not yet been 
put on the payroll. 

The Omnibus Budget Reconciliation Act of 1990 retroactively 
extended the TJTC for 15 months through December 31, 1991. The 
conference agreement also clarified the definition of one of the 
targeted groups. This group — "ex-convicts" — was defined to 
include persons who are placed on probation by State courts 
without a finding of guilty. The TJTC was further extended for 
six months through June 30, 1992 by the Tax Extension Act of 
1991. 

Most recently, the credit was extended retroactively for 3 
months by the Omnibus Budget Reconciliation Act of 1993. The 
1993 Act extended the TJTC to cover individuals who begin work 
for an employer after June 30, 1992 and before January 1, 1995. 

II. Current Law 

Under current law, a TJTC is available to employers for up 
to 40 percent of the first $6,000 of wages paid to a certified 
worker in the first year -of employment. This translates into a 
potential credit of $2,400 per targeted worker. The worker must 
be employed for at least 90 days or work at least 120 hours. 
(The credit for summer youth is 40 percent of the first $3,000 of 
wages, or $1,200, and these individuals must work for 14 days or 
20 hours.) The employer's deduction for wages is reduced by the 
amount of the TJTC. 



99 



Certified workers must be economically disadvantaged or 
disabled individuals in one of nine targeted groups. These 
groups are (1) youth 18-22 years old; (2) summer youth age 16-17; 
(3) cooperative-education students age 16-19; (4) ex-offenders; 
(5) Vietnam-era veterans; (6) vocational rehabilitation 
referrals; and individuals receiving (7) general assistance, (8) 
Supplemental Security Income, or (9) Aid to Families with 
Dependent Children. 

For purposes of the TJTC, a worker is economically 
disadvantaged if the worker's family income is 70 percent or less 
of the "lower living standard income level". This level is 
revised periodically to account for changes in the Consumer Price 
Index and varies by geographic and urban area. 



To claim the credit for an employee, an employer must 
receive a written certification that the employee is a targeted 
group member. Certifications for employees are generally 
provided by State Employment Security Agencies. The employer 
must have received or filed a written request for a certification 
on or before the date a targeted member begins work. If the 
employer has received a written preliminary determination that 
the employee is a member of a targeted group, the employer may 
file a written certification request within five calendar days 
after the targeted member begins work. 

III. Criticisms of the TJTC and Options for Reform 

While the goals of the TJTC are laudable, the TJTC has been 
subject to criticism. The most recent example of criticism of 
the program is an August 1994 report by the Labor Department's 
Office of Inspector General. Although the report notes that the 
TJTC provides some benefits, the report concludes that the TJTC 
is not cost effective and recommends that the. Secretary of Labor 
discourage further extensions of the credit. 

To help crystallize discussions on the TJTC, I would like to 
highlight three of the credit's main problems and offer very 
general options and principles for addressing those concerns. 
These problems are that the credit (i) provides a windfall to 
employers, (ii) may encourage the churning of employees, and 
(iii) promotes only limited training of employees for advanced 
career positions. 

A. Employer windfall 

Perhaps the most significant problem with the TJTC is that 
it often provides a "windfall" to employers. The credit provides 
a windfall to the extent it confers a benefit on employers (the 
TJTC) for doing what they would have done (hire targeted 
individuals) without that benefit. 

The most direct way to reduce the windfall is to require 
certification of eligibility before the hiring decision is made. 
In this way, the TJTC can serve as an incentive in the hiring 
decision. We are not unmindful that pre-hiring certification may 
be perceived as conferring a stigma on job applicants. However, 
the TJTC was designed to overcome any negative employer 
perception (stigma) about the likely productivity of targeted 
workers by rewarding employers for hiring them. In order for the 
program to work at maximum effectiveness, employers need to be 
aware that they are hiring targeted workers at the time the 
hiring decision is made. A pre-certification system would ensure 
that the credit was limited to employers that knowingly hired 
targeted workers. 



100 



One drawback of a pre-certification system is that it would 
place a larger burden on the Employment Agencies that perform the 
certifications. As part of our review, we plan to look at ways 
of streamlining the work of these agencies and the level of 
funding required in order for them to perform their roles at an 
acceptable level. 

Treasury would be very wary of endorsing any "self- 
certification" system under which individuals or their employers 
would certify targeted status with reduced oversight by 
government agencies. We would be concerned that such an "honor 
system" is too susceptible to fraud. Under the current regime, 
the principal checks against fraud are that Employment Agencies 
make the certifications and their actions are subject to audit by 
the Department of Labor. We believe these checks are important 
to curbing potential abuse and should not be replaced by more lax 
measures. 

B. Churning of employees 

Another serious criticism of the TJTC is that it may 
encourage the "churning" or "turnover" of employees to maximize 
the amount of the credit. A related problem is that short-term 
positions subsidized by the credit are less likely to promote job 
skills that are beneficial to more advanced job positions. 

We have explored two broad approaches to the churning 
problem. Under one approach, churning would be curbed by 
increasing the number of hours an employee must work with an 
employer before his or her wages could be taken into account in 
computing the credit. The current minimum employment period, 
which is the lesser of 90 days or 120 hours, translates into as 
little as three weeks of full-time work. 

The other approach would limit churning by "backloading" the 
credit. Under current law, the credit is 40 percent of the first 
$6,000 in wages paid to a targeted individual. Under the 
backloading approach, the credit rate applying to wages above 
some threshold would be higher than the credit rate applying to 
the initial wages. This shifts the incentive of employers in the 
direction of paying higher wages and keeping their employees on 
the job longer. 

One possible downside of these reform proposals may be to 
reduce the initial hiring incentive for some economically 
disadvantaged individuals compared to the incentive that exists 
under the current credit. We also need to weigh any increased 
administrative burden resulting from a more complex credit. 

C. Training; of employees 

To the extent the TJTC influences hiring and retention 
decisions, it helps hard-to-employ individuals develop basic job 
skills. These include such fundamental skills as showing up for 
work on time, taking directions from managers, asking questions 
when instructions are not clear, and successfully completing 
assigned tasks. Nevertheless, the low-wage jobs traditionally 
subsidized by the credit typically do not offer more extensive 
training that could directly serve as a springboard to more 
advanced job positions. 

To bolster the TJTC's impact on training, the Department of 
Labor has suggested that the credit might be expanded to apply to 
individuals participating in approved "school-to-work" programs. 
Although it is appropriate that a broad range of options be 
considered, attempts to redesign the TJTC to encourage training 
present special challenges. Any broad training initiative in the 
TJTC should attempt to ensure that the credit.' s special emphasis 
on hiring economically disadvantaged individuals is retained. A 
broad-based training option also could lose significant revenue 
because of the size of the potentially eligible population. 



101 



Before extending the TJTC to school-to-work participants, it 
also would be necessary to understand the relationships of this 
possible category to existing categories and the precise criteria 
used in establishing eligibility. We would also need to evaluate 
whether redesigning the TJTC to include a new training component 
is allocating government resources to programs that work the 
best. 

IV. Administration's Position 

The employment of economically disadvantaged and disabled 
workers is one of the Administration's most pressing concerns. 
However, the revenue cost from a one-year extension of the credit 
in its current form is approximately $336 million over 5 years, 
while a permanent extension of the current law credit would lose 
approximately $1,428 billion over 5 years. Because we are very 
concer/.ed about the efficient use of government revenues and the 
need to find revenue offsets, we believe that the problems 
undermining the credit's effectiveness must be addressed before 
pursuing an extension of the credit. 

The Inspector General's report raises significant concerns 
regarding the effectiveness of the credit. As a result of the 
problems identified in the report and earlier studies, we are 
engaged in a policy review of the credit to determine whether 
legislative and regulatory modifications of the credit may 
improve its effectiveness. 



Over the next several months we plan to continue our work 
with the Labor Department. We also want to work with this 
Committee to develop proposals that will address, in a cost 
effective manner, the employment problems of economically 
disadvantaged and disabled workers. 

We plan to complete our analysis of this issue prior to 
submission of the Administration's budget proposal for Fiscal 
Year 1996. If we decide to support extension of the credit, our 
recommendations will be reflected in that document. 

This concludes my prepared remarks. I would be pleased to 
respond to any questions you may have at this time. 



102 

Mr. Kopetski [presiding]. Thank you, Mr. Foley, very much for 
your complete testimony. 

When the President submitted his first budget to the Congress 
in 1993, he proposed a permanent extension of the Targeted Jobs 
Tax Credit. In the summary of the administration's revenue pro- 
posals, prepared by your Treasury Department, one of the reasons 
given for the permanent extension was that job creation incentives 
are required in the current economic climate. 

Does the administration continue to believe that this is true and 
that the Targeted Jobs Tax Credit is an appropriate means of ad- 
dressing this problem? 

Mr. Foley. We continue to believe that we have to find ways to 
encourage the employment of economically disadvantaged ana dis- 
abled individuals. We also believe that the Targeted Jobs Tax 
Credit may be a viable way to resolve those problems, but I must 
emphasize that we believe that there are modifications that should 
be made to the Targeted Jobs Tax Credit before we extend it. 

Mr. Kopetski. So the key words are it "may be a viable means," 
but you are not sure or you want to see some specific changes and 
then you go back to the certainty of the need for a Targeted Jobs 
Tax Credit? 

Mr. Foley. With some of the improvements that we have set 
forth in this testimony, I think that the Targeted Jobs Tax Credit 
can be a viable way to solve some of the problems that economi- 
cally disadvantaged workers currently have in the labor market. 

Mr. Kopetski. So is the converse true that, without these 
changes, the administration does not support extension of the Tar- 
geted Jobs Tax Credit? 

Mr. Foley. Yes, in order for us to support extending the current 
credit, we believe that certain changes need to be made. We are 
very concerned about some of the criticisms of the credit. 

The Department of Labor has looked into those studies exten- 
sively, and we arrived at the conclusion that there is room for im- 
provement, and when spending about $300 million a year for a tax 
incentive, we believe that we should try our best to make sure that 
the money is spent in an effective manner. So we believe that these 
modifications should be made before the credit is extended. 

Mr. Kopetski. In that same 1993 summary, the Treasury De- 
partment supported expanding the credit to include youth appren- 
tices. 

Does the administration continue to believe that the Targeted 
Jobs Tax Credit is an appropriate means for addressing this prob- 
lem? 

Mr. Foley. Well, let me point out that that is one of the options 
under consideration. You keep referring back to 1993 and let me 
just state that since 1993, we have received new information. There 
have been additional studies since 1993 that have caused us to re- 
consider the effectiveness of the Targeted Jobs Tax Credit, but add- 
ing a new category is one of the options that is under consideration 
right now. 

Mr. Kopetski. Thank you. 

Questions? Mr. Payne. 

Mr. Payne. Mr. Foley, thank you very much for being here and 
for your testimony. Let me follow up with the same question that 



103 

the Chairman had asked Secretary Reich just before he left, and 
that is, if the modifications that you made in your testimony were 
made and if we are able to find offsets, then the Treasury Depart- 
ment would support the extension of this program at the end of 
this year; is that correct? 

Mr. Foley. If the Congress could come up with acceptable offsets 
and if, working with Congress, we could decide on an acceptable set 
of modifications and the Congress could find an appropriate vehi- 
cle, then we would support such a 

Mr. Payne. When you say "an acceptable set of modifications," 
those that are in your testimony, that is an acceptable set of modi- 
fications? 

Mr. Foley. That is right, but Congress may have additional 
modifications that they want to make. And I would like to add that 
these recommendations are still in their formative stages. I mean, 
I think they still require a fair amount of work. 

For example, some of them are very general. We talk about a 
backloading, a backloaded option; and there is a fair amount of de- 
tail that would have to be worked out before that option or any of 
the other options could be put in legislative form, and that requires 
a fair amount of time. 

Mr. PAYNE. I understand the offset that is needed for this pro- 
gram is $350 million, approximately, over 5 years for a 1-year ex- 
tension. 

Mr. Foley. That is correct. 

Mr. Payne. What recommendations does the Treasury Depart- 
ment have concerning how we might offset that $350 million cost? 

Mr. Foley. Well, at this time, we don't have any recommenda- 
tions as to how we would offset that amount, but we would be will- 
ing to work with this committee to come up with offsets if, in fact, 
this committee decides that they would like to do something on the 
Targeted Jobs Tax Credit before the end of the year. 

Mr. Payne. Thank you very much. 

Mr. KOPETSKI. Mr. Hoagland. 

Mr. HOAGLAND. I think it is important, Mr. Foley, to the 
Reinventing Government effort that we scrutinize as carefully as 
we can the existing programs; and I want to compliment the Labor 
Department and the inspector general for having done that. I think 
it is important and refreshing that we continually review the effi- 
cacy of the programs that we have. 

The reports I have gotten from my district in Nebraska, however, 
are that it is an effective program and it does lead to the hiring 
of the handicapped and people in other categories. 

In terms of how this may play out next year, if this timetable 
cannot be met this year, would the Labor Department expect to 
bring legislation in, correcting the program and revising it to meet 
all these standards, or would you be more inclined just to let the 
program go out of existence? 

Mr. Foley. Well, we have been working with the Labor Depart- 
ment for several months to come up with a set of options, legisla- 
tive recommendations and other types of recommendations that 
might improve the credit; and our current plan is to make some de- 
cisions on which options are the best and, hopefully, working with 
Congress, to arrive at that decision. And then those modifications 



104 

and those decisions will be reflected in our budget for fiscal year 
1996. 

Mr. Hoagland. And the options are, one, do nothing; two, bring 
a bill in, right? 

Mr. Foley. Right. A bill with the modifications that we have set 
forth today. 

Mr. Hoagland. And you haven't decided yet which course to pur- 
sue; is that fair? 

Mr. Foley. Pardon? 

Mr. Hoagland. You have not decided yet which course to pur- 
sue? 

Mr. Foley. We have not decided which of these modifications are 
going to be included in our budget for next year. 

Mr. Hoagland. But you do definitely plan to bring legislation in 
modifying the program? 

Maybe we are not understanding each other. 

Mr. Foley. That is very difficult to say, because we are just in 
the beginning of the budget process and we are weighing a lot of 
different things and a lot of different priorities. 

But it is clear, as the Secretary of Labor stated, that this issue 
of finding employment opportunities for economically disadvan- 
taged individuals is a priority, and will be addressed; but in terms 
of what our budget decisions are going to be, those decisions have 
not been made, so I can't really say exactly what is going to hap- 
pen. 

Mr. Hoagland. So you could decide to scrap the program, not to 
suggest any legislation that would keep it going; or you could come 
in with a revised plan, right? 

Mr. Foley. Well, I can't say how much revenue is going to be 
available for any of the administration's initiatives at this point, so 
it is possible that there may not be any revenue available for that 
particular initiative, or a lot of other initiatives, so I am not in a 
position to say that we will definitely have an extension of the 
credit, or I can't definitely say that we will have any of the particu- 
lar administration initiatives in the budget at this time, because it 
is too early in the process to arrive at that conclusion. 

Mr. Hoagland. No, I think that is a fair response, and I appre- 
ciate that. I think all of you have a whole lot of budget decisions 
to make between now and next February and 

Mr. Foley. Right. As you know, we had a very busy legislative 
agenda this year, and not all of those initiatives have passed Con- 
gress. So we are at a stage now where we are looking at everything 
and looking at a wide variety of revenue-raising measures; and it 
is going to take some time, quite frankly, to put our priorities to- 
gether. 

Mr. Hoagland. Now, during Mr. Payne's questions, he referred 
to the budgetary offset, and what is that figure again for 1 year? 

Mr. Foley. For a 1-year extension, it is $336 million and $1.4 
billion for a permanent extension. Now, that is an extension of the 
existing credit with none of the modifications that we have dis- 
cussed. 

Mr. Hoagland. Now, later today at this hearing we are going to 
be receiving testimony from a number of proponents of the pro- 



105 

gram. Have any of them proposed offsets that seem reasonable to 
Treasury or to Labor? 

Mr. Foley. None of them have proposed viable offsets, in my 
opinion, at this stage. 

Mr. Hoagland. Have any of them proposed offsets of any kind; 
do you know? 

Mr. Foley. I don't believe so. I vaguely remember one group pro- 
posing an offset. I don't know whether it was this year or last year, 
but it was quickly dismissed because it wasn't politically viable. 
But we have not been inundated with proposals to offset the cost 
of extending the Targeted Jobs Tax Credit. 

Mr. Hoagland. OK. 

Well, thank you for your testimony, Mr. Foley. 

Thank you, Mr. Chairman. 

Mr. Kopetski. Mr. Foley, you have done a great job. I really ap- 
preciate your directness and forthrightness in presenting your tes- 
timony and answering the committee members' questions. 

We are going to move now to the panels that we have. We have 
three of them. 

The first panel includes Hon. Jim Moody, who was a distin- 
guished member of this committee for many years, and now he is 
vice president of Chambers Associates; James Mclntire, research 
assistant professor from the Graduate School of Public Affairs, Uni- 
versity of Washington, which is in Seattle, Wash., about 180 miles 
from my district. 

Integrated Resources Institute is represented here by Steve 
Zivolich, who is the executive director; Peter Cove, founder of 
America Works; and presenting the testimony for Mr. Carey, who 
is the general president of the International Brotherhood of Team- 
sters, is Bart Naylor, National Coordinator of Corporate Affairs. 

I am certain that members of this panel are as responsible as 
members of the Ways and Means Committee in that they don't 
want to add to the Federal debt and deficit. They will offer to us 
ways in which to fund continuation of the Targeted Jobs Tax Credit 
Program. 

Welcome, gentlemen. We have two more panels and so, as chair, 
I am going to impose the 5-minute rule. There is a red light. There 
will be a yellow light that flashes on, a red light, and then you will 
get ejected out of the hearing room when that comes off after a 5- 
minute period of time. 

So I encourage you to be brief, succinct. We will put your entire 
written testimony into the record. 

Welcome, and I will give the courtesy to Mr. Moody to be our 
first witness. 

STATEMENT OF HON. JIM MOODY, VICE PRESIDENT, CHAM- 
BERS ASSOCIATES, AND FORMER MEMBER OF CONGRESS 

Mr. Moody. Thank you very much. It's a pleasure to be in the 
room where I spent so many years and hours, but on that side of 
the exchange. I am here representing no particular client except 
myself. I am associated with Chambers Associates, but because I 
was actively involved in this program as a House Member, I want 
to see it renewed, improved and certainly not killed at this time. 



106 

I have a printed statement which you have. I just request that 
it be included in its entirety, and I will just make some key points. 

No. 1: The Targeted Jobs Tax Credit is a very important nexus 
connecting the private sector with disadvantaged youth, welfare re- 
cipients and other hard-to-employ persons who seek employment. 
Over 450,000 disadvantaged youths and other eligible persons are 
hired and certified annually under this program, producing be- 
tween 90,000 and 135,000 newly created jobs. Those are indeed im- 
pressive numbers. 

No. 2: Many of the employers base both their hiring and their lo- 
cation decisions, such as in central cities, on the very existence of 
these credits. A large grocery chain, for example, that I have dis- 
cussed this with said that they could not possibly afford to locate 
their stores in the central cities unless they had this tax incentive 
to do so. So there are benefits to this program that go beyond the 
ones we have been discussing here today. 

No. 3 — No. 4 on my printed statement: Job retention for TJTC 
hires is significantly longer than non-TJTC hires, and skill training 
and income effects are also measurably better. The reason I want 
to stress this is that that does not seem to agree with the inspector 
general's report that we have been hearing so much about today. 
But I would refer you to page 9 of the report done by the Univer- 
sity of Washington, which — the author is here today with us, Jim 
Mclntire — which cites the studies that have documented these ef- 
fects. These are careful studies, and Secretary Reich admitted that 
the IG's report is not methodologically very sound. The University 
of Washington study documents significant income improvements 
for people who are in these programs. For example, a GAO study 
found positive wage impacts for those people who had been in the 
Targeted Jobs Tax Credit, which rose 32 percent faster than TJTC- 
eligible but nonincluded comparison groups. Page 9 of the Washing- 
ton study lays out three other studies that do show there are sig- 
nificant income enhancement effects of the TJTC Program, as well 
as enhanced retention effects. 

No. 4: This program is in fact cost effective. That is, cost effective 
relative to what you spend on it, what we spend on tax dollars, and 
cost effective relative to other programs that seek to do the same 
or similar things. According to a Price Waterhouse study cited in 
the Washington report, and a survey of this program which was 
conducted in 1991 for the Department of Labor by TVT — that is a 
great deal thicker, a great deal more detailed and a great deal 
more complete than the IG's study — the cost-effectiveness of the 
Targeted Jobs Tax Credit comes out indeed very well. 

Compared with the cost of over $2,200 per male trainee, and over 
$1,087 for female trainees in JTPA, the Targeted Jobs Tax Credit 
cost of $580 per enrollee is certainly a very good bargain. These 
JTPA figures are the most comparable ones we have relative to the 
TJTC effort. 

No. 5: Letting this program expire would be disastrous in the 
sense that it would destroy a lot of the private industry infrastruc- 
ture that exists that keeps this thing running. Many companies 
hire their own people, and spend a lot of time precertifying TJTC 
hires. They don't want to hire someone who won't be eligible for the 



107 

credit; that would be irrational. So they do spend a lot of resources, 
and they have staffs doing this. That would be lost. 

Finally, I would just try to respond to two points that Secretary 
Reich made. First, the so-called "windfall" effect. It is a bit of a 
cheap shot, if I can say so, Mr. Chairman, because you can make 
that claim of "windfall" against any tax incentive program. Low- 
income housing tax credit, for example. How do we know which of 
those structures would or would not be built without the tax credit? 
Even with the EITC, which is the most precious — and I think cor- 
rectly so — priority in the administration, you could claim that 
working poor would still be working without the earned income tax 
credit. So by itself "windfall" is not an argument. The real argu- 
ment revolves around what extent does a credit produce behavior 
beyond what would otherwise be obtained. On this there is no solid 
evidence regarding the Targeted Jobs Tax Credit, but the burden 
is on those who make that claim to show that in fact there is a 
windfall that is out of line. That has not been shown. 

Second, the issue of longevity or retention the Secretary men- 
tioned. It is not necessarily bad that the TJTC hirees stay on the 
job only 4V2 or 5 months. After all, we want to get these very peo- 
ple into the work force. If they go on to a better job, that is not 
a failure. To me, that is not a criticism of this program. What we 
need to know is what are they doing 1, 2, 3 years from now. Are 
they still in the work force then? The IG's, nor any report, does not 
show that. What fragmentary evidence elements we have on this 
issue, however, is very positive. 

Thank you. 

Mr. KOPETSKI. Thank you, Jim, very much for your testimony. 
We will have some questions, but first I would like to hear from 
the rest of the panel. 

[The prepared statement follows:] 



108 



Statement of Jim Moody 
Chambers Associates 



Regarding 
Extending the 

Targeted Jobs Tax Credit Program 

September 29, 1994 



Mr. Chairman and former Colleagues: 

I appear to request that you support extention for another year of the Targeted Jobs 
Tax Credit (TJTC) Program, now scheduled to expire December 31. The reasons to do this 
are strong: 

1. TJTC is a very important nexus connecting private sector jobs and 
disadvantaged youth and welfare recipients seeking employment. Over 450.000 
disadvantaged youth and other eligibles are hired and certified annually under this program, 
of which between 90,000 and 135,000 are newly created jobs. 

2. The large majority of the companies using the program are either small 
employers who are often franchisees or large corporations in the retail and service industries 
which often provide the most suitable type of entry jobs for the targeted population. These 
corporations have developed extensive TJTC outreach programs to the disadvantaged. 

3. Many of these employers base both their hiring practices and their location 
decisions, e.g. in central cities, on the very exisitance of the credits. A large grocery chain, 
for example, says that it could not afford the extra cost of opening stores in disadvantaged 
and high crime areas without the TJTC credit. 

4. Job retention for TJTC hires is significantly longer than non-TJTC hires. Skill 
training and income effects of TJTC hires are also measurably significant. 

5. The program is cost effective , currently one of the most cost effective federal 
effort to stimulate jobs. Studies show that the net federal cost — after adjusting for welfare 
savings and positive tax collections, etc. (but not crime cost reductions) -- of each TJTC job 
is under $600. This is far less than any other job training/job creating program. (Example: 
JTPA costs over $2,200 per male youth and $1,087 per female youth training enrollee. 

6. Letting the program expire would disrupt and in many cases destroy the 
existing corporate and public structures which carry it out. With 1995 clearly the year to 
address welfare reform, it would be a big mistake to dismantle this public/private 
administrative infrastructure until we see where TJTC will fit into welfare reform. 

7. TJTC's strength is in stimulating, but not mandating, private sector jobs 
through tax incentives. We do not want to kill this incentive as part of the strategy mix for 
creating jobs at the entry level for economically disadvantaged populations, and encouraging 
private sector employers to hire the economically disadvantaged. 

8. A recent report by DOL's Inspector General made criticisms of TJTC but the 
DOL itself has criticized the IG's methodology as "unscientific". Others here today have 
elaborated on the basic flaws in the IG survey. There are areas where improvements could 



109 



be made in program effectiveness, and I urge that improvements be considered in the context 
of welfare reform. 

9. As TJTC is extended, it also is important to incorporate a crucial fix on a one- 
time basis to eliminate the large backlog of certifications estimated at nearly 190.000 by 
December 31. This provision is critically important so that employers who have hired 
economically disadvantaged and disabled workers will be able to take the credit on their 1993 
and 1994 tax returns. A simple waiver request filed by the employer would suffice. 

The backlog exits as a result of the lapse in TJTC in 1992 and subsequent retroactive 
extension of the program, which put the State Job Services far behind in processing TJTC. 
The proposed temporary change in processing would eliminate the administrative backlog by 
putting TJTC on a par with all other tax credits, which are filed by tax payers on their 
returns subject to IRS review and audit. 

Thank you for your consideration and support of extending and improving this very 
valuable program to connect private sector jobs with workers who are hard-to-employ 
without the credits, but who want to work and attain the job skills and experience so 
necessary n today's market. 



110 

Mr. Kopetski. Mr. Naylor from the International Brotherhood of 
Teamsters. 

STATEMENT OF BART NAYLOR, NATIONAL COORDINATOR OF 
CORPORATE AFFAIRS, THE INTERNATIONAL BROTHER- 
HOOD OF TEAMSTERS (AFL-CIO), PRESENTING THE 
TESTIMONY OF RON CAREY, GENERAL PRESIDENT 

Mr. Naylor. Mr. Chairman, my name is Bart Naylor. I am the 
national coordinator for the Office of Corporate Affairs, and I thank 
you for the opportunity to appear here on behalf of General Presi- 
dent Ron Carey and the Teamsters, which has 1.4 million working 
men and women. Needless to say, we pay very careful attention to 
the programs that affect working conditions in the United States. 

Before me, you have heard from officials in Washington that are 
discussing the policy merits and the parliamentary jockeying of 
this law. After me, you will hear some cheerful stories, largely from 
employers, about how this program is wonderful. What I would like 
to do is to try to put a real face on what it is like to be a working 
person that is affected by this program; and to help me, I would 
like to ask some members of the Teamsters who are here with me 
today to stand. 

The real face of these people: Here are Teamster leaders from 
across the country, from Ohio, Chicago, Denver, California, and 
Texas. What we are trying to do is achieve justice at Pony Express. 
Pony Express is what brought us to the Targeted Jobs Tax Credit, 
because what we have found at Pony Express is what we think is 
a perversion of the Targeted Jobs Tax Credit. 

The way I imagine that the Targeted Jobs Tax Credit would 
work is this: An employer would go out and recruit people from ap- 
propriate places. If you are looking for disadvantaged Vietnam vet- 
erans, you would recruit in veterans' halls, perhaps. You would re- 
cruit in employment agencies. Once on the iob, an employer would 
use some of the money from the tax subsidy to work on training, 
perhaps provide decent benefits. This introduces workers into the 
job market with a job they would like to keep. 

But let me tell you about Felicia Lafour from Chicago, who was 
hired, and after that, told to fill out a form to see if possibly she 
could win the company a tax break. Let me tell you about Bill Rak, 
whose training, before he was called on to carry commercial checks 
between banks and Federal Reserves along with HIV-positive blood 
samples or corrosive liquids, one of which fell on his pants and ate 
its way through his jeans, consisted of reading a pamphlet. 

Let me tell you about Hobart Curie, who started his job at $9.18 
an hour in 1984 and now makes $6.75 an hour. Those are not the 
conditions that should be rewarded by a tax credit. But, in fact, 
that is what the Targeted Jobs Tax Credit does. As you have heard 
of the mechanics of how the Targeted Jobs Tax Credit works, it is 
to an employer's advantage to try to churn the work force. 

Now, what happens first? Is the company operating as usual? Or, 
does this tax incentive encourage an employer to create conditions 
so bad that people leave? 

We are not the only ones to raise questions about Pony Express 
working conditions. House Banking Committee Chairman Gonzales 
has asked Chairman Greenspan to look at the problems of carrying 



Ill 

checks around. We met with Chairman Greenspan last week and 
after the fourth Pony Express person told him about some of these 
problems, he asked us if this was legal. OSHA is looking at Pony 
Express. The Department of Labor is looking at them for Service 
Contract Act violations. 

Mr. Chairman, we have four specific recommendations. We think 
hazards are built into the system that require correction. We pre- 
sented these last week specifically before another House sub- 
committee, and we are somewhat flattered that now the adminis- 
tration, Chairman Peterson of that subcommittee and others, have 
submitted similar recommendations. 

There is another alternative. You will hear cheerful stories from 
employers, and no doubt some of them are accurate. Some affirma- 
tively help working people. This program helps them to help those 
people. We have confronted what we think are bad agents. If you 
are unable to institute some of these legislative changes, what I 
ask you to do is to use the powers of persuasion and contact some 
of these companies. Please contact Pony Express. Tell them of this. 
Ask for their response. 

I agree that it is perhaps unfair to hear only one side, and I am 
inviting you to hear the other side. If you are not satisfied with the 
answers, please ask them to reform. 

Thank you. 

Mr. KOPETSKI. Thank you very much, and your entire statement 
will be made a part of the record. 

[The prepared statement and attachments of Ron Carey follow:] 



112 



Reforming the Targeted Jobs Tax Credit 

Testimony of 

Ron Carey 

General President 

International Brotherhood of Teamsters 

House Ways and Means 
Subcommittee on Select Revenue Measures 

September 29, 1994 



Mr. Chairman, members of the subcommittee, the International 
Brotherhood of Teamsters appreciates the opportunity to offer our 
views on the Targeted Jobs Tax Credit here today. 

The IBT represents 1.4 million working men and women in 
virtually all occupations throughout the United States and Canada. 
Naturally, we pay careful attention to government programs designed 
to promote employment. 

We support the goals of TJTC, which we believe are to recruit, 
train and retain economically or otherwise disadvantaged 
applicants. However, we know that there is widespread abuse of the 
program by companies that are using it not to promote these goals 
but solely to improve their bottom line. These are companies like 
Borg -Warner, which takes extensive advantage of the tax breaks 
available under TJTC, but which does not recruit extensively, does 
not train adequately, which provides dead end jobs, turns over its 
workforce systematically, and is rewarded for doing so with a tax 
subsidy. 

Unless TJTC is significantly reformed, so that the benefits 
employers can receive are tied to business practices that actually 
promote the program's goals, it should not be renewed. Without 
these reforms TJTC will continue simply to reward employers for 
creating bad jobs. 

TJTC and Job Promotion 

On the surface, the Targeted Jobs Tax Credit promises to move 
applicants who meet certain criteria of need out of chronic 
unemployment and into productive work. The qualified applicants 
include those who have lived on welfare, who have suffered 
unemployment, and who have served in our military but encountered 
difficulty entering the job market. 



113 



The sponsors of this tax credit envisioned that a company 
would locate qualified hirees by advertising job openings in 
places designed to attract qualified applicants. These would 
include veterans organizations, various agencies working with 
low-income people, public employment offices, and so on. These 
applicants would then contact the employer. During the hiring 
process, the employer would ascertain whether or not the 
applicant qualified under the TJTC. When faced with a decision 
between hiring two otherwise equally suitable applicants, the 
TJTC would motivate the company to favor the TJTC-qualif ied 
applicant. After hiring, the tax credit would help defray the 
cost of training and benefits that the employer might not 
ordinarily provide within its budget. The idea is to give both 
parties something of value: the employee gets a good job, and 
the company gets a good employee. 

As with all expenditures of tax money, the program would be 
accountable for results, with measurable results that would 
enable Congress to fine-tune the program over time. 1 

Borg-Warner: Case Study 

How TJTC is applied for and its benefits utilized within Borg- 
Warner Security Corporation shows how the program's good 
intentions can be corrupted. Borg-Warner, based in Chicago, 
describes itself in its annual report as the world's largest 
security company. It provides guard, armored truck and alarm 
services through its subsidiaries Wells Fargo, Burns and Globe. 
Borg-Warner also owns the nation's largest courier service, Pony 
Express Courier Corporation. Borg-Warner is a large recipient of 
TJTC benefits. In 1987, Borg-Warner Protective Services 
represented 1.5 percent of all TJTC certifications issued 
nationally. At that time, 16 percent of Borg-Warner' s workforce 
had been hired under TJTC. By the company's own account in 
testimony before Congress, "Few, if any, major employers are as 
active in recruiting and retaining TJTC-eligible workers-. " 2 



1 While the program does not involve a direct payment by the 
federal government, the credit counts as a tax expenditure, that 
is, taxes foregone. This is as if the company had made an 
appropriate tax payment and the federal government had sent a 
portion of it back. 

2 Testimony of Dr. Joseph W. Arwady, Director of Performance 
Management for Borg-Warner Protective Services, before the House 
Subcommittee on Select Revenue Measures of the Ways and Means 
Committee, 1988. 



114 



Borg-Warner serves as a good case study for two further 
reasons. First, the Teamsters Union represents roughly 4,000 
employees of Pony Express, one of several Borg-Warner entities 
that take advantage of the program. Many Pony Express employees 
gualify under TJTC, and many more were required to take a TJTC 
phone qualification examination by the company. Our relationship 
with these employees, as their collective bargaining 
representative, has enabled us to construct a detailed profile of 
how TJTC is used and its goals implemented— or not 
implemented— within the Borg-Warner family of companies. And 
second, Borg-Warner has itself examined its use of the TJTC. The 
Teamster members' experience and Borg-Warner ' s study provide 
interesting insight into the difference between what you may hear 
from companies whose profit levels are tied to continuation of 
the TJTC tax breaks and the day-to-day reality experienced by 
employees who were to benefit from jobs created under the 
program . 

Achieving the TJTC's goal of providing jobs for people who 
would not otherwise be hired requires active recruitment as 
outlined above. However, if Pony Express recruits, it does a 
good job of hiding this from the employees that applied for jobs 
with whom we have spoken. Instead, our members find out about 
job openings at Pony Express through normal channels— from 
relatives, neighbors, friends, or others in their community. The 
vast majority found out about the job openings through classified 
advertisements in newspapers. 

Pony Express follows a hiring sequence in which TJTC 
screening is carried out either simultaneously with or after the 
hiring decision. This sequence is clear in the "Pony Express 
Employment Fact Sheet" which is appended to this testimony. The 
fact sheet states that after an applicant's driving record has 
been checked, after an application has been submitted and after a 
quick screening, the applicant may be called in for an interview. 
If the applicant passes the interview and a driving test, then 
the next step is: 

A telephone interview with an employment specialist. 
This has no bearing on your job status; however, should 
you meet certain criteria, we may ask you to make a 

stop at Job Service. This interview is for a 

Federal program called Targeted Jobs Tax Credit in 
which PECC is involved. 

After they are hired, many employees are then asked to call 
a toll free number and answer questions about their personal 
financial background. Many of our members were told at the end 
of their phone interview with the consultant that they did not 
qualify for the program, and yet they were still hired. The 
timing of these calls varied considerably. Some report that they 
were asked to make the call immediately after being hired; others 



115 



told us that they were not asked to do so until some time later. 
For Pony Express driver Burton Ray of St. Louis, TJTC screening 
was clearly an afterthought. He explains: 

Approximately one week after I began working, someone 
in the office asked me if I was a veteran. When I said 
yes they asked me to come to the office and talk to 
someone over the phone. The person on the other end of 
the phone verified all of my personal information and 
asked about the length of time that I served in the 
military service and my service number. The person 
told me that I did not qualify for the program. 

The TJTC program's goal is "encouraging people to hire needy 
youths, and disabled SSI beneficiaries and other categories of 
people who frequently have difficulty finding jobs." 3 However, 
at Pony Express, that goal is not being met because TJTC- 
qualified applicants are neither recruited nor referred by state 
or other employment services, and are not favored by Pony Express 
in the applicant pool. As far as we can tell, they would have 
been hired anyway. This experience squares with findings of the 
Department of Labor's Inspector General, who found that only 8 
percent find their job with the help of an employment agency; 
that in 86 percent of the cases employers determine the TJTC 
eligibility after a job offer has been made, and in 92 percent of 
the cases, the people hired would have gotten the job anyway. 4 
Since Pony Express does not know at hiring time whether an 
applicant might qualify, the prospect of being favored cannot 
apply. 

Once on the job at Pony Express, the poor quality of the 
jobs is a major factor undercutting the TJTC goal of enabling 
needy job applicants to work their way into a long-term place in 
the workforce. Pony Express employees receive little or no 
training, face adverse working conditions and receive poor wages 
and few benefits. 

These poor working conditions are relevant to an evaluation 
of TJTC for two reasons: first, they illustrate the kind of 
employment conditions favored by at least some TJTC companies; 
and second, these poor working conditions promote high turnover 
which is a key structural defect in TJTC. Attached affidavits 
tell of the drivers' experiences with TJTC and the working 



3 "Legislative History," P.L. 95-600, p. 131. 

4 Report, "Targeted Jobs Tax Credit Program: Employment 
Inducement or Employer Windfall," Aug. 18, 1994, U.S. Department 
of Labor, Office of Inspector General. 



116 



conditions they faced after hiring. 

Workers report "garbage working conditions," "atrocious" vehicle 
maintenance, being "forced to drive in winter with bald tires, 
no chains, and with hazardous cargo" such as "petri dishes that 
break, urine and blood samples that break and begin to stink." 
Training is minimal or nonexistent, and employees report that the 
only instruction they receive on handling hazardous materials 
consists of a take-home test they are handed, along with a set of 
answers, to fill out. Some workers at some locations report that 
they were instructed by their supervisors to sign a paper saying 
that they had received training, even though no training had been 
provided. The attached report What is Pony Express Delivering? 
details these and other problems reported to us by Pony Express 
couriers across the country. 5 

Pony Express' Employment Fact Sheet makes no pretense that 
employment conditions are anything but bare bones: "There are no 
medical benefits, paid holidays, vacation days or sick days." It 
comes as no surprise that the company's low wages, little or no 
training, and little prospect for wage increases or promotion 
produce extremely high turnover. According to Borg-Warner ' s 
figures, turnover at Pony Express during the first six months of 
this year was 69 percent. 6 

Under TJTC, employers receive the 40 percent tax credit on 
the first $6,000 paid to qualified employees who are employed for 
a minimum of 90 days or 120 hours. Other things being equal, this 
formula ultimately yields greater rewards for companies with the 
highest employee turnover. To illustrate, let's say that an 
employer— Employer A— hires 100 qualified individuals who remain 
employed by the company for several years. Employer A would 
receive a one-time tax credit in the first year of $240,000. 

A second employer— Employer B— also starts out by hiring 100 
qualified individuals and receives the same $240,000 in tax 
credits once the workers have been employed for 90 days or 120 
hours and have reached $6,000 in earninqs. But in our 
hypothetical case, Employer B pays its workforce only $5.00 an 
hour and creates such poor workinq conditions that half of the 
workers leave soon after the employer has reaped the benefit of 
hirinq them. Employer B then hires another 50 qualified 
employees and starts the clock runninq on those employees, 
eventually receivinq another $120,000 when they pass 90 days or 



3 What Is Ponv Express Delivering?. International 
Brotherhood of Teamsters, Summer 1994. 

* Pony Express Courier Corp, 12-month Turnover Report, by 
district, month endinq: June, 1994. 



117 



120 hours and $6,000 in earnings. With each new cycle, Employer 
B gets more tax relief as the reward for creating marginal, 
throwaway jobs that drive a high percentage of workers out. 

The examples are hypothetical, but the numbers are not 
entirely fictional. The turnover at Employer B is a reasonable 
parallel to Pony Express' actual turnover rate of 69 percent for 
the first six months of 1994. 

The TJTC tax relief that goes to a good employer like 
Employer A seems to be a worthwhile investment; these workers are 
off the unemployment rolls and building a long-term place in the 
workforce . 

The investment in Employer B, however, is a very different 
matter. The more workers that Employer B can turn over, the 
greater the tax benefit. If Employer B also happens to be a 
competitor of Employer A, the damage is even worse. In that 
case, Employer A is under pressure to cut costs by paring away 
wages and benefits. The net result can be erosion of good jobs 
and wages for the whole industry. 

Because of the lack of accountability in this program, we do 
not know the precise dollar total of the tax breaks that are 
flowing to Pony Express and other Borg-Warner entities. He do 
know that Pony Express screens extensively for TJTC and that many 
of our members who are employed at Pony Express fit the profile 
of those who are meant to be served by the program. We also know 
that Pony Express business practices, including its 
extraordinarily high turnover, fly in the face of the program's 
goals and of the nation's interest in spurring the creation of 
good jobs for its people. 

The company that Pony Express workers have described to 
us— and which receives federal tax breaks through the TJTC 
program— could fairly be characterized as a sweat shop without 
walls. 

Borg-Warner ' s Claims 

In 1989 Dr. Joseph W. Arwady, Borg-Warner ' s Director of 
Performance Management, testified before the House Subcommittee 
on Select Revenue Measures of the Ways and Means Committee, 
calling for permanent extension of TJTC. He drew his 
recommendations from his lengthy report, Wage Subsidies and Jobs 
for the Disadvantaged: Applying the Targeted Jobs Tax Credit in 
an Operating Environment , which he described as the only study 
done in a single employer setting up to that time. On the basis 
of our study of the same employer at a later time, we urge that 
the program either be substantially reformed or eliminated. This 
comparison illuminates a wide gap between company and employee 
perspectives. 



118 



For example, in his 1989 testimony, Borg-Warner's Arwady 
asserted: "We pay TJTC workers very well." 7 In fact, Pony 
Express workers average a little more than $5.00 an hour. Many 
are required as a condition of employment to use their own 
vehicles or to enter into expensive leasing arrangements in a 
scheme that nets them less than the minimum wage, when 
under-compensated automobile expenses are factored in. 

Borg-Warner also testified: "...the people that we put a 
uniform on have to look sharp, be there on time, and execute 
without mistakes, or we lose accounts. So we are very rigorous in 
the way we train and counsel these people, as well as in the 
selection process." 8 But Pony driver Ron Bloom, who routinely 
delivers caustic and toxic substances such as bleach, cleaning 
solutions and degreasers, says "I did not receive training on how 
to transport these materials." 9 

Borg-Warner claims that TJTC "is also a retention program." 
In Wage Subsidies Arwady devotes considerable attention to this 
topic. He writes, "The best way to retain workers is to 
accommodate their interests by providing opportunities to earn 
overtime pay, periodic pay increases, and convenient work 
locations and hours." 

We do not dispute that such practices would go a long way 
toward encouraging retention. Unfortunately, none of these 
principles are practiced at Borg-Warner's Pony Express 
subsidiary. The drivers are denied overtime pay; even though many 
of them regularly work 50, 60, or more hours per week, all of 
those hours are compensated only at straight time pay averaging 
$5.50 per hour. Hobert Currie has worked at Pony Express for 11 
years with no pay increase. Drivers in Chicago have actually had 
their pay rates cut over the past several years. Nor do Pony 
Express drivers have "convenient" working hours. This spring 
Robert McCabe was sent out of Pittsburgh on a 340 mile 
delivery— after he had already worked for 24 hours straight. He 
fell asleep at the wheel, careening over a 40 foot embankment. 
Pony Express suspended McCabe for five days for getting into an 
accident and later fired him. 



7 "Targeted Jobs Tax Credit," hearing before the subcommittee 
on select revenue measures, House Ways and Means Committee, 
Serial 101-51. 

'"Targeted Jobs Tax Credit," hearing before the subcommittee 
on select revenue measures, House Ways and Means Committee, 
Serial 101-51. 

'Affidavit, attached to this testimony. ! 



119 



As already noted, TJTC serves to discourage employee 
retention. Does TJTC cause this turnover? Does Borg-Warner 
attempt to churn employees through poor working conditions and 
low wages in order to maximize its tax credit? Is there 
deliberate abuse of this program? Certainly this hypothesis 
cannot be ignored and the company must be held accountable. 

Driver Burton Ray voices a view shared by many drivers from 
across the country when he says, "There is a lot of turnover at 
Pony Express because management has made it clear that they do 
not care about their employees." Another driver, who 
participated in a strike to protest the company's unfair labor 
practices, asked a Pony Express manager, "How do you expect us to 
earn a living on these wages?" The manager replied, "We don't 
expect you to earn a living." 

Several agencies are currently trying to hold Pony Express 
accountable in other areas of its operating practices: 

* House Banking Committee Chairman Henry Gonzalez and other 
members of Congress asked the Federal Reserve to investigate 
the security standards Pony Express applies in its handling 
of checks and other financial documents. 

* The Federal Reserve Inspector General in Washington is 
personally supervising the investigation. Chairman 
Greenspan has met with a delegation of Pony Express drivers 
to discuss their concerns. 

* The Department of Labor is looking into possible 
violations of the Service Contract Act as it applies to 
Federal Reserve contracts with Pony Express. 

* The National Labor Relations Board filed a nationwide 
complaint against Pony Express and is currently prosecuting 
220 separate charges of unfair labor practices against the 
courier company. 

other Miscarriages of TJTC 

This testimony draws chiefly from our knowledge of Borg-Warner 's 
Pony Express subsidiary, but there is no reason to believe that 
this corruption of TJTC's goals is an isolated example. Our 
members' experience with TJTC at Pony Express is echoed by other 
labor organizations' experiences with the program elsewhere. 

For example, the Service Employees International Union 
reports that the program was used in tandem with a state tax 
incentive program to create poorly paid, marginal jobs which 
replaced good jobs in Pennsylvania. The state's Department of 
Public Welfare developed a plan requiring contractors to make a 



120 



good faith effort to fill at least 25 percent of new or vacant 
jobs with qualified public assistance recipients. In exchange, 
contractors could receive up to $6,000 in state and federal tax 
credits over three years for each public assistance recipient 
hired. Tax credits were provided through TJTC and Section 1701a 
of the Pennsylvania Tax Reform Code of 1971. 

Under this program, contract cleaning service workers at 
Haver ford State Hospital, represented by SEIU Local 36, were 
replaced by workers recruited from the welfare rolls. Local 36 
had successfully negotiated a contract with Service Master to 
perform the cleaning services at the state hospital. These SEIU 
members had worked under this contract for three years, during 
which time they had won wage and benefit increases. 

When the contract came up for renewal, a nonunion company 
named Associated Cleaning Consultants and Services, hired public 
assistance recipients off the welfare rolls and, with the help of 
the government-provided tax credits, underbid the union 
contractor. Twenty SEIU members lost their jobs as a result. 

Since the contract was up for renewal, the positions were 
considered "new or vacant jobs," even though union members had 
been performing these services for three years. Those 20 SEIU 
members were clearly displaced from their jobs, but the 
non-displacement provisions of the law could do nothing to 
protect them. 10 

The AFL-CIO has taken a stand in favor of terminating TJTC. 
According to AFL-CIO congressional testimony : ". . . the TJTC 
has failed at its primary mission and has benefited a handful of 
employers at the expense of the Treasury and American workers." 
In 1985 the AFL-CIO testified before the Senate Finance Committee 
Subcommittee on Savings, Pensions and Investments, urging that 
the program be allowed to expire. They listed their concerns as, 
"the windfall tax gain provided to employers who would have hired 
a targeted employee without the credit and yet obtained the tax 
savings, the displacement of nontargeted but no less needy 
workers and the loss of revenue to the Treasury of $500 million a 
year in a time of soaring deficits and savage budget cuts in 
domestic programs." 11 

Policy Recommendations 



10 Analysis provided by Peggy Kelly, Policy Department, 
SEIU, Sept. 15, 1994. 

11 Statement of AFL-CIO before the Senate Finance subcommittee 
on savings, pensions and investment on S. 1250. 



121 



The TJTC program's goal of encouraging decent, stable employment 
for underprivileged groups is one we all should support, but the 
program, as currently structured, is failing to carry out this 
goal. Unless the program is substantially reformed in a way that 
makes the employers who reap its benefits accountable, the 
program must be ended. As currently constituted and operated, 
TJTC is little more than a welfare program for the worst 
employers that actually discourages the creation of good jobs 
with a future. 

We believe that the program should only be retained if the 
following five problems are adequately addressed: 

PROBLEM #1: The TJTC Program does not create employment for 
individuals who would not otherwise ba hired. 

Our members' experience provides supporting evidence to the 
Department of Labor Inspector General's audit finding that TJTC 
hires would have been hired anyway. Again, many are tested for 
TJTC qualifications only after they are hired. This testing is 
often done by a consultant, much the same way that a good tax 
accountant will try to find tax breaks for an individual after 
the tax year has ended. 

RECOMMENDATION: Post-hiring voucher requests must ba prohibited, 
with enforcement to ensure such post-hiring certification is 
eliminated completely from the program. This prohibition should 
ba coupled with a requirement that companies applying for the tax 
credit provide evidence that they have carried out appropriate 
recruiting to identify qualified applicants. 

The tax credits that would be lost would be those that 
should never have been granted in the first place. 

PROBLEM #2: The TJTC encourages high employee turnover. 

Pony Express employee turn-over from January to June of 1994 of 
69 percent cannot be justified under any circumstance. In fact, 
the TJTC discourages employee retention. 

RECOMMENDATION: The hired time requirement for TJTC should ba 
changed to one year or 520 hours. 

While employers may contend that the kind of person served 
by this program is disinclined to work at any job for that period 
of time, we believe that the problem involves the quality of the 
jobs. Rather than blaming the victim, employers should be 
encouraged to create jobs that will attract and keep workers. In 
his 1989 testimony Arwady spoke of the company's success at 
responding to a change in requirements. He said, "We were able 
to manage that [change in requirements] . We were able to build 
rapport and hold on to people longer in order to get the 



122 



certification • . . ."' 2 We believe that if it were to the 
company's financial advantage to do so, they would again manage 
to encourage retention. Employers should be rewarded for 
retaining employees, not turning them over and out. 

PROBLEM #3: The kind of jobs that gain this credit are low- 
wage positions that offer few or no benefits. 

The companies using this credit read like a Who's Who of dead end 
employment. The DOL audit notes that the TJTC "provided the 
majority of participants entry-level, low-paying, low-skilled 
part-time jobs which do not offer benefits." 

RECOMMENDATION: Raise the base salary requirements, while 
lowering the percentage rate; for example, rather than offering 
the credit of 40 percent on the first $6,000 of earnings, offer 
24 percent of the first $10,000. 

This change would not effect the amount of the credit, which 
would remain $2,4 00. However, it would encourage employers to 
hire eligible employees at a higher wage. 

RECOMMENDATION: TJTC should only be made available for jobs that 
offer full medical benefits. 

PROBLEM #4: Lack of oversight and accountability. 

The Department of Labor, through its State Employment Security 
Agencies, certifies whether particular individuals are qualified 
candidates for TJTC credits. The Internal Revenue Service grants 
particular companies large tax subsidies. However, there is 
virtually no oversight of a particular company's use of the TJTC, 
barring an IRS audit, which even then would be unlikely to turn 
up such potential problems such as whether a company may 
intentionally create turnover in order to gain more credit. 

Because the TJTC is a tax program, the records of the 
company are confidential IRS records. Interested parties, 
whether they be concerned nonprofits, labor unions, employees, or 
taxpayer groups, cannot gain access to these records. This 
confidentiality and lack of oversight provide an informational 
black hole which works to the advantage of employers who may be 
abusing the program and to the detriment of workers and taxpayer 
advocates wishing to make the company accountable for how it uses 
the subsidy. 



12 "Targeted Jobs Tax Credit," hearing before the 
subcommittee on select revenue measures, House Ways and Means 
Committee, Serial 101-51. 



123 



RECOMMENDATION: A specific office should be created within the 
Department of Labor Employment Training Administration to monitor 
TJTC use and determine the company's eligibility to receive the 
benefit of this program, violations of EEO, OSHA and other 
applicable federal laws can be grounds for denial or revocation 
of a company's eligibility for program benefits. 

This would constitute a kind of "good employer" test to 
build in incentives for employers to further the stated goals of 
the program and operate within federal laws and regulations. 
This tax credit should be available for good employers that 
demonstrate commitment to the program's goals through meaningful 
training, decent wages and benefits, and lawful operations. It 
should not be available for continued misuse by bad employers 
that subvert its purposes and even exploit the very people whom 
the program was designed to help. 

Conclusion 

We all recognize that good jobs are the foundation of a healthy 
economy. Labor Secretary Robert Reich has used his position as 
an advocate to articulate the concern that is shared by working 
people and business people alike that we build a future of high 
skill, high wage work. 

Some people argue that a bad job is better than no job at 
all, and that companies like Pony Express would go out of 
business if not for the help of programs like TJTC or if they 
were forced to pay better wages or provide training for workers. 
Pony Express jobs pay low wages because they are low-skill jobs, 
the argument goes. 

We believe that the example of UPS contradicts this kind of 
thinking. Like Pony Express, UPS delivers time-sensitive 
packages. UPS invests in its workforce with good wages, good 
benefits, and training. UPS has grown to be the largest 
overnight package delivery service in the world. Pony Express is 
part of a multi-million dollar corporation, Borg-Warner, and is 
itself the largest courier company in the country. There is no 
reason to believe that jobs at Pony Express could not be good 
jobs. And if they cannot become good jobs, there is no reason to 
believe that it would be in the nation's interest to reward Pony 
Express for creating bad jobs. Our tax resources would be better 
invested with companies that have the will and the ability to 
create the good jobs on which our nation's future depends. 

Good jobs do not come from nowhere. They do not come about by 
accident and we cannot rely solely on the goodwill of employers 
to make them happen. We can, through creative use of incentives 
and enforcement build a system of incentives that makes creating 
decent jobs in an employer's self-interest. The current Targeted 
Jobs Tax Credit is all carrot and no stick, and without drastic 
change to make employers accountable for their use of this 
benefit, it will continue to fail those it is meant to help. 

If we cannot build in such accountability, we must dismantle the 
program. For we will never in a million years create good jobs 
for our nation's future until we stop rewarding employers for 
creating bad ones. 



124 



County of Allegheny 
stat* of Pennsylvania 

Affidavit of Ronald C. Bloom 

1. I itata that my nam* is Ronald C. Bloom. I have b««n employed 
aa a Pony Expraas Couriar sinca January 1, 1993. I work 55 houre 
par week on tha average. 

2. z anavarad an edvertieeaent in tha nawapapar and want to Pony 
Expraaa to fill out an application. Approximately six months latar 
Pony Exprass callad to hire ma. Z vent to tha Pony Expreee offiea 
and watched an orientation film, «to. After tha orientation, X was 
handad tha phona and told to answer tha quaationa aekad. Tha 
parson who handad ma tha phona told ma that X had tha job but that 
tha quaationa wara naeaaaary anyway. X anavarad tha quaationa. 

3. xn January 1994, X clipped and fall on tha ica in tha 
coapany'a parking lot. X waa lying thara for 20 mlnutaa calling 

for halp. Finally, a ncxh e e dr i v e r h e lp ed a e- g ee, up a n d o ff -o f *ha>^(?.-A, 
-U#r~ Pony Expraaa had baan warnad of potholaa and of tha 
conditiona in tha parking lot. Tha oeeupatienal Safety and Eaalth 
Adainiatratien (OSRA) had warnad Pony Ixpraas twice. Pony Expraaa 
paid all of my health coata relating to tha aceident, even though 
X technically do not receive benefita aa an employee. 

4. Xn June 1994; on a hot day X began to sweat. Aa X bant ever 
to lift a heavy box at work, ay glaaaas fall off of ay face and 
broke. The company refueed to pay for tha coat of ay new glaeaea. 

5. X use my own vehicle to make deliveries. X did not receive 
training before X atartad working. 

6. X transport "Zep" and other cleaning products. Thay are 
transported in plastic drums which aoaetiaes leak. Theae products 
contain bleach and other cleaning aolutions. Sometimes i aa asked 
to transport dagreasers to butcher chops. These solutions have 
aany cheaieala in thea. X did not raeaive training on how to 
transport these materials. 

z atate that tha foregoing ia true and correct to the best of ay 
knowledge. 



signature of Affiant C*V» rtw-^OAjm >- 



ow A BcmAcl H PoT 



125 



Affadavit of 

John Klotzbaogh. 



Wilkinaburg, Pa. 

X'va vorkad for Pony txprasa for aix and a half yaara. I found out 
about the job from a friand. X didn't haar about it at an 
amployaant off lea, or such thing. Z haard about tha jobs tax. eradit 
whan Z vaa hirad. I vaa told to call this talephona numbar and thay 
aakod ma quaationa auch aa if I "t baan en walfara. Tha oompany 
baaioally hirad ma at tha aama tima thay had ma maka thia 
talaphopna call. 

X work vary long houra. X oarry ohaoka batwaan bank* and tha 
radar* 1 Reserve. I alao carry harazdoua material, of tan at tha aama 
tima. 

Tha company haa ahoddy vahioia maintananova. Vaniohlaa eoma baex 
from tha garage with the eaaa problem they vent in with. 



ffi 



Signed 

iJL 

ohn kiot 




Natarirad by 




county of Cook 
State of Illlnoia 



126 



Affidavit of Pallcla LaCour 



1. X atata that ay nam* la reliole LaCour. X em employed aa a 
courier by Pony Sxpreaa In Chicago, illlnoia. 

a. At tha and of December 1993, I want to tha Pony Xxpreee ofrioa 
to fill out an employment application. Aa part of tha application, 
Pony Ixpraaa took a photocopy of ay MVP and ay COL. Ho joba vara 
avallabla at tha tlaa but tha paraon in tha off loo invitad aa to 
call back in a fav aontha. 

3. in April 1994, X ocntactad Pony Bxpraaa about a job and thay 
aaked aa to ooma into tha offica for an intarvlav. Sandy Maynia 
interviewed ae and aakad aa to go dovnataira to fill out a fav 
foraa. whila Z vaa devnetairg tfandy, a Pony txpreee worker, told 
•a that aha vaa dialing an too phona nuabar and that tha paraon en 
tha othar and vould ba aaking aa a fav queationi. Wendy alao told 
aa that I had to ba approved before I could ba hired. 

4. The woman on the other end of the SCO phone call vea named 
avelyn. the aaked ae if I had ever aerved in the military or 
received public aeeiatance, or if Z vaa currently receiving public 
aeaiotanea. After X anavared her gueetione aha told me that I did 
not qualify for the tea credit. 

5. I told Wendy that I did not qualify for tha tarn credit. She 
told ae that ! vaa hired end aha gave aa a uniform ehlrt. Z began 
work tha next day. 

I state that tha foregoing la true and eorract to tha boat of ay 

knowledge. 



Signature of affiant T~ . 

Signature of Notary Public 



■ONNBIDWARM * 



\ 
\ 



127 



County of Kanawha 
State of West Virginia 



Affidavit of Jeff Naylor 



1. I state that my name Is Jeff Naylor. I have been employed as 
a Pony Express courier since January 1994. 

2. I filled out an application and was hired. I watched a 
training film and filled out other paperwork. I was handed 
the phone and answered questions from the person on the other 
end, which X did. I began work later that week. 



I state that the foregoing is true and correct to the best of my 
knowledge. 



/64gna/ur*e of 7 Affiant^ 





QJLrJJOl 



Signature of Votary Public 




notamvpusuc 

mm 9 t w m 
K&jjta.aHAMauN 

wpn UXAL xn 

'DKKM 



r'll 



mm0t0*0>0* *** >* *0 t * >0>j*0 *0> 0<*<***>0+ 



128 



County of Claarfiald 
State of Fannoylvania 

/ 

Affidavit of Frederick Paintar 

1, I atate that my nana la Freeariek Paintar. I hava baan 
amployad by Pony Express aa a eouriar ainea Juna 1992. 

a. I found out about Pony Expraaa through ay friand who vat a 
laad drivar. I f Iliad out an application In May if 92. in Juna 
1992, my friand eallad tha Pony Expraaa of flea and put ma en tha 
phone. Tha parson en the ether end asked me for some Information 
to identify myeelf and than aeked me about my financial background 
and whether I had ever received public assistance or eerved in the 
military. I answered the questions and started work a couple of 
day a later. 

3. The pay le tarrible, in 1992 I started working for $3.25 per 
hour. Two yeera later 2 am aarning $5.75 per hour. 

4. The vane are in peer condition. Many have no heat or air 
condition. Aloe, the company doesn't train the drivar a. 

z etata that the foregoing le true and correct te the beet of my 
knowledge . 




Signature of Notary Public 



129 



Affidavit of Jeff Naylor 
county of Kanawha 
Stat* of weet Virginia 



1. Z atata that ay name la Jaff Nay lor. Z a ava baan employed by 
Pony Express alnea January, 1994. 

2. Aa a Pony driver, I carry a range of matarial, including 
biohazardoue vaate, drugs, financial documents including chacka, 
ate. 1 driva to banks and tha Federal Reserve. Sometimes thara ara 
apilla. The company doaa not supply the propar equipment to kaap 
•very thing aattled down. 

3. I alao aervad in tha Amy aa a coaaunicationa maintainor. I 
served in the Persian Gulf war. I act Can. Schwarzkopf at King Faud 
International Airport. We called it Caap Zagle II. He seemed like 
a pretty good guy, aoaeone concerned with tha soldiers. 

4. Z like working for Pony, because Z think it would be a good 
career. Z like driving. But the company doesn't treat ua vary wall. 
I make $4.73 an hour with no benefits. I work between 20 hours and 
55 houra a week. I don't think the eoapany la run correctly. The 

company doesn't care about ua. I'm not ao sura about Con. 

Schwarzkopf anymore. 



I atata that tha foregoing la true and eorract to the beat of ay 
knowledge. 



ffgnaXpre of Af f ianT 
Signature of Notary Public 




NOTARY PUBLIC 
■MltVWUM 
KSUlCaSKAWaUN 

SI—MOW 




130 



county of st. Louis 
St«t< of Missouri 

Affidavit of Burton Ray 

1. I state that ay name is Burton Ray. I waa hirad aa a eouriar 
by Pony Expreaa in June 1990. 

2. For two yaare prior to joining Pony Expraaa I waa anployad aa 
a janitor by a church. When tha church laid ma off dua to 
cutbacks, a church member auggaated I contact Pony Express for 
employment. Someone told me that I needed my chauffeure licanae 
for employment with Pony Express bo I obtained it before I vent to 
till out an application with the company. 

3. i vent to the Pony Expreae office and filled out an 
application. X was handed a quiz on driving. The quiz appeared to 
be a federal form from tha U.S. Department of Transportation and 
had approximately eixty-six queetiona on it. The people in the 
office aleo gave ae a copy of a book that contained the anewere to 
all of the queatione. I completed the quiz there. 

4. I vaa hirad and began work the fol loving veek. 

5. Approximately one veek after I began working, eoaeone in the 
office aaked me if I waa a veteran. When I said yaa they aeksd me 
to come to the office and talk to eomeone over the phone. The 
parson on tha other end of tha phone verified all of my pereonal 
information and aaked about the length of time that I eerved in the 
military service and my service number. The person told me that I 
did not qualify for tne program. 

6. Tha working conditione are terrible at Pony Express. There ia 
no aafaty equipment. If you have to lift something that requires 
a forklift or other machinery, you must do it vithout the equipment 
or lose your job. Nothing is available for the vehicles — not 
even an ice scraper . 

7. You never know what you're carrying at Pony. Tha packages do 
not contain labeling. Soaietimes the packages ars marked, 
"Hazardous" but we are never told what thay contain that makes them 
"Hazardous." Sometlmee tha packagee leak but you can't be surs 
what la leaking. Sometlmee when the packagee are unloaded in 
Kansas city, thay have en odor which becomee irritating to drivers. 

8. There ia a lot of turnover at Pony Expreae because management 
has made it clear that they do not care about their eaployoee. Pony 
Expreaa couriers are paid by tha hour and the company has statsd 
that no courier may vork more than sixty hours per veek. The 
exception ie whan a job comas up unexpectedly. Then, Pony 
management will allow couriers to go over aixty hours. There has 
alwaye been sore concern for the package end the delivery than 



131 



there is far the parson. Also, there are no pay increaeee at Pony 
Exprasa. Whan I waa hirad in October 1990, I was making $6.25 par 
hour. After ninety day a I mada $6.75 par hour. Today, naarly four 
yaara latar, I as atill making SC.7 5 par hour. I aa told from tha 
man and women raoantly hirad that thay are paying nav couriers 
$6.00 per hour. Tha company ia trying to replace ua with people 
who thay can pay leee. 

I atate that the foregoing ia true and correct to the best of my 
Knowledge. 



Signature of Affipfit/ 



Signati 
Subscribed and sworn to before me this 13th day of September, 1994. 




Signature of Notary Public 



HELEN L FIELDS Notary Public 
STV.EOFfi^PURI an -9&ST. tfJUli 
MY G0WHSS10H unw ^7/6/ 



132 



county- of Allegheney 
stats of Pennsylvania 

Affidavit of Tony silvagr.i 

1. I state that ay name is Tony Silvagni. I was Jiret hired by 
Pony Express in Kay of 1993. I quit at the and of August in 1993 
whan my houra ineraaaad at a better job et the University of 
Pitteburgh Medical center. Then a month later my hours were 
decreased again, so I vent beck on 11/16/93. Z went to Pony the 
first time becauae I aew an ad In the newspaper. 

2. My firet interview was very laid back, not too many questions. 
They wanted to know about prior driving experience, end Z didn't 
have any. Z explained ebout the job at the hospital. There was a 
position open for six weeks whils someone wee on disability. 

3. After Z vae hired, on my first day of work, they told ma to 
cone in an hour early. My supervisor dialed a number end I talked 
to a women. She asksd me sty eoclal security number, age, name, 
address, whether Z was a veteran, was Z ever on welfece, did Z ever 
get ^employment compensation. I thought that wee etrenge, that's 
why Z remember. She asked me about my other job and what the 
selary was. Z told her Z was making $8.50 an hour, and she said, 
"Oh, that much." She asked if Z vae single or had dependents. Z 
thought it was somebody in Pony Expreee in Charlotte that needed 
something for payroll Information. After Z wes done Z geve the 
phone beck to my eupervieor end he talked for a minute. 

4. There wee a lot of turnover in Pittsburgh before we voted in 
the union; now people eeem to be etaying to see whether we're going 
to get e good contract. The low pay ie the biggest factor. The 
ten and twelve hour routee are very long end difficult - with 40 
of 50 stops on them. The vehicle equipment ween't good et ell, and 
it was hard to find parking. Zt was very disorganised. The 
dispatchers gave the cold shoulder to the new people. Your firet 
month there they didn't really want to deel with you. 

5. I've transported blood, urine end other material* from a 
pathology lab. We hed no training on handling these materials, 
when Z worked et the madicel canter ve got training on this every 
six months. At Pony there vas no orientation. 

Z etate that the foregoing le true end correct to the beet of my 
knowledge. 

signature of Affiant 



jh^iU.*£ Qt /\j<jtfZZ 



3 f 



gnature of Notary Public 



NcwetS* 

XOtiKSuami. 



My CemmMten E&m 



NoByPteie 

entailer 



133 



County of Mlagheny 
Stat* of Pennsylvania 

AFZOAVZT of Oaan SladicX 

1. I scata that ay naaa is oaan Sladiefc. I'va oaan vorKing at 
Pony, aa a courier and in tha varahousa, for tvo yaara and two 
aontne. I found out about tha job through an ad in thapapar. 

2. I filled out an application, and about tvo veeJcs latar thay 
oallad and I want in ofr an intarviav. Than I vaa hirad and 
watched tha training tapa. Than thay callad a nuabar and a lady on 
tha othar and asked a coupla of guest ions, Z ean't raoall axaetly 
what thay vara. Thar a vaa soaething about vhathar X vaa a vataran, 
and if I vaa avar gatting any kind of aaaiatanoa. 

3. Thara'a a lot of turnovar at Tony baoauaa tha pay ia so low, 
tha average ia only about S9. 30 to start, foaa of tha oldar 
vahiolaa varan' t in good ahapa. 

I atata that tha foragoing ia trua and corraot to tha baat of ay 
knovledga . 



Signature of Affiant \ 



3. 



Ot^Oi. 



Signature of Notary Public 






U Cu nMrrfcf ^* 



\1 



134 



county of ciearview 
etatc of Pennsylvania 



Arridtvit of Grey Tliuapeou 

1. i *t«t« thai my name is firsg Thompson. 1 hivs been eapioyed 
by rony Ettpreeo as « vwui'ie? rcj: ■pjwnvim»i- B "iy t ¥ m "^£U 

/! //<y/H< Of^A /<f«/^^ co^/V/l,^*^) 6fV 

2. I found out abcutfthe company through a p«rto?r'vho used to 
vorfc there. I wont ' i new TIiip j ff i i i mti ut*i<ji<- and filled cut an 
application. After chocking my driving record th« company calltd 
a* a couple of weeks later to tell me that I vaa hired. Whiis I 
waa on the phone with them I vaa connected to a person in Atlanta, 
who asked me questions relating to whether Z had ever received 
public assistance. Z apent thres or four minutee on the phons, 
answering the person's ouestions. 

3. There is a lot of turnover at Pony Express. Drivers are fired 
for petty things. 

4. Pony doesn't take good care of their vans. In ens of the vans 
I vaa given to drive, I could see the ground through the bottom of 
the van. The tires are poor. Z vas assigned a van that had not 
been inspected for some time. whan the police stopped r.e I 
explained to then that it vas a company van and th«y eent a 
eitation and fine to Pony Express for failure to have the vehicle 
inspected . 

x state that the foregoing is true and correct to the best of my 
knowledge. 



/"■Signature of Affiant 



signature of Notary Public 



County of Cook 
Stats of Illinois 



135 



Affidavit of Laaont Wallaca 



1. Z atata that ay naaa is Laaont Wallaca. I hava baan aaployad 
as a couriar by Pony Kxprass for approxiaataly ona yaar. 

3. Approxiaataly ona yaar ago, I want to Pony 'a offioas and 
fillad out an application for aaployaont. I wont hoaa and vaitad 
for Pony to chock ay driving racord. Tha paopla at tha Pony offioa 
aiaplacad ay application ao thay aakad aa to com back and fill out 
anothar application. I did so. Thay aakad aa to call thaa back in 
ona vaak to chock on tha atatua of ay application. 

3. I callad than back ona vaak lator and thay told aa x vaa 
hirad. Thay told aa to eoaa in for orlantation and to discuss 
topics such aa starting pay. 

4. Nhan X raturnad to tha offioa X vatehad a 45 ainuta 
oriantation tapa. At tha tapa'a conclusion, X was aakad to dial an 
soo phona nuabar. Tha woaan on tha othar and aakad aa quaatlona 
ralating to ay financial background and to ay potantial vatarans 
atatua. Aftar anawaring tha guaationa, sha told aa that X did not 
gualify for tha prograa. 

5. X atartad work aa a Pony Cxpraaa courisr tha naxt day. 



I atata that tha foragoing ia trua and corroct to tha boat of ay 
knovladga. 




Signatura of Affiant 



ft/ f( /#.'(/' 



/glgnatura of Votary Public 




i,fi 



;/f/ 



136 



County of Allegheny 

state or Pennsylvania 

Affidavit of Robert Valentino 

1. I atata that my name ia Robart valentine. X have been 
employed aa a pony Express courier ainca June 1993. 

2. I vent to the Pony Exprsss office to fill out en application. 
I vae hired. Z vaa then asked to call an 600 phone number and 
answer the questions on the other end. The questions dealt with 
whether I wae on welfare; had a medical disability; take 
nedicati ona; and ay raoe. Z answered tha questions and the parson 
on the other end of the phone told as 1 was not qualified. 1 was 
hirad anyway. 

3. After I worked 90 daye Z became a full-time eapleyea and 
reoeived full benefits. 

4. I an given the Saturday route often, on these days I daiivar 
to and from hospitals end laboratories and drive approximately 330 
alias during the courts of a 12 hour shift. Z did net receive eny 
training on bow to handle materials picked up et the hospital, 
inataad, I was given a pamphlet and asksd to sign a piece of paper. 
Also, ths hospital does not provide inatructions on how to handle 
their samples. 

5. whan Z go to hospitals to transport materials Z em given blood 
and urine eamples which are not packaged. They are plaeed in 
vlala, which are then placed in legal sice envelopes that are not 
sealed, on rare eeoooiono, the hoepitel puts sosta of the samples 
in plaetlc baggies with haeard signs on them. 

6. On one occasion tha urine sample popped open and spilled on my 
ahooa aa well as on the floor of tha van. 

7. On my route It KturmaA'i i aa torcaa to transport coxes ana 
other materials found behind the store. The store maintains a 
cafeteria and dumps ite greats on the loading dock where materials 
are picked up and dropped off by Pony Express couriers such aa 
myself. Z twice werned my supervioor, Richard Kerr, that the 
loading dock was a hazardous aree. On October 4, 1993, I slipped 
on cooking greaee. On January 31, 1994, z had surgery as a result 
of the aooidant. My supervisor foroed me to work againet my 
doctor 'e orders. Zf you refute to work you get eent home and are 
eventually fired. 

8. Z am currently receiving workmen's compensation for having 
picked up a box of ISO lbs. The company has a verbal policy that 
no worker lifts more than 129 lbs. I got hurt lifting e box that 
weighed approximately i«o ibe. 



Zn June *»?*, Mr. fherf, a P?ny »t* 



137 



zoia Dy sons workers that thore wuk n rafmh* b*«wN wiui .»* i*«afc«a. 
Mr. Sharp emt a drivar out with tha truck and told hia to use the 
aaargancy braka. Thraa houra latar tha drivar hit a hills Ida 
because na had no brakea. For.y Expraua fired him. 

j^ 1 OV^TV J l an N on^--ic»^<ntha. company ' t^arklj>g-\lQS. and - ragweed 
r] /todtteirtn;* caap'ajtfaxlon T IhW"coapY«3t was warped that. ii^Kad to plow 
^t&« ,^ar*ing/ loft- ehJTY^-^h* ^thjOaK. .... ^ > — 

11. On tvo separate daya this past wintar, tha Governor daclarad 
a atata of eaargancy dua to tha condition of tha roada. Pony 
Express t oread its drivar • to go out and driva those daya. 

X atata that tha foragolng ia trua and eorraet to tha baat of ay 
knowledge. 



Signature -*f Affiant 



lignatura of Notary Public 






^^v>- 



(?) j^t 



6 



X 






^^JamJ^ <Xt*h, Com. 



■±<*~c 



a 






138 



County of Cook 
stmt* of Illinois 

Affidavit of Derryl walkar 

1. I stats that ay naaa la Oarryl Walkar. I was hirad as a 
oourlar by Pony Sxpraaa on Friday, August 12, 1994. 

2. Z want to Pony Bxprase' offioaa on Auguat 12, to fill out an 
aaploymant application. Aftar filling out tha application, I waa 
given a safaty quit. Tha topics aakad about included driving 
quaationa and propar tochniquaa for lifting haavy objects. 

3. Aftar tha quia Z waa infomad of tha atarting aalary and othar 

vork-ralated iteas. 

4. Z was hirad. 

5. I waa askad to go dovnataira. Khan I want downstairs Nr. 
Comal 1 Morgan aakad »• to dial an 800 phono nuabar that ha 
providad aa with. Tha paraon on tha othar and of tha phona aakad 
aa quaationa about ay job biatory, ailltary background, and 

financial background. Aftar answaring all of tha quaationa, tha 
paraon told aa that I did not qualify for tha prograa. 

6. Z was givan a uniform. X bogan vork on Monday, August 19, 
1994. 

I statu that tha foragoing ia trua and correct to tha bast of ay 
knowlodgo. 

\ 



a fignat^ra of Affiant 

Signature of Notary Public 



■ONNM EDWARDS 
NOTARY PUBUC StAR Of SUNOS, 



139 



County of SpoJcane 
Bx.xiM of Vaahlngtcn 

Affidavit of Jia IJalocho 

1. I stata ay nam is Jla Xalocba. I u asployod by Pony Bxpraaa. 
I hava tacwiadga that vony um tiros that axa ondaraiiod for tho 
vaigb.t of tha oohioio and thoao tiros aro part of an oxparlaantai 
prooxaa aponoord hy tha tira company, it is ay axpariasea that 
thaaa tlraa ara oroatiag a oafaty haaard and that thay of tan throw 
tha spaaaoaaxsr off by about tan niloa par boor. 




signatura of notary PtsiJo 



AUGUST 18, 1994 



/SSL, 




'i/v. - 



County of B*xar 

stat* of Texas 



140 



Affidavit of Lula Kerala* 



i. I atata that ay name ia tula Morales, X hav* been enpioyed aa 
a couxiar by »ony Express for aix year*. 

a. I wont to tha Pony Expre** office and fiiiad out an 
application. A paraon from tho affia* eallod m* back within tvo 
days and hirad mo. Tho company had rotriavod ay driving roeord 
froa Austin. 

3. At our branch thar* ia an 85% tumevor rat*. Z r*e*iv*d a 
starting salary of 94. BO p*r hour. I worked for Pony for four 
y*ars before I r*o*iv*d a paid vacation. Aside froa the pay and 
benefits, th* turnover i* larg* b*cau** th* company ha* no concern 
for th* verkars and there i* obviou* favoritism — oertain p*opl* 
can get avay vlth having long hair and certain peopl* cannot, for 
example. 

4. Th* vans or* in poor condition. Many of th* van* hav* at 
least 400,900 all** or. them. sos*tis*« th* herns don't work. The 
tir*a or* alvay* vary worn. Th* door* don't lock and *om* don't 
■hut completely. Tha company has four rout** that d«iiv*r in town. 
Th* rest of th* routaa 90 out of town. Vans that app*ar unaaf* 
stay on tha routes working in town, so they don't break down far 
froa the office, van* that or* in reasonably good condition era 
sent on out-of-town routes. The company also receives test 
vehicles, for which the company doesn't pay. 

5. in son Antonio it is absolutely necessary that ears have air 
condition. There haa net baen air condition on any van for tne 
past two yeara. That mean* that duet, etc file* into th* van* 
while driving. It aleo bum that when th* von* ere stopped 
somewhor* end th* window* are kept open for ventilation purposes, 
th* vans are eompl*t*iy unsecured. 

6. I regularly pick up radioactive aaterisl*. There 1* never any 
paperwork — just a packing *lip. Our vehicles are unmarked and do 
not ten the public w* «• carrying haserdou* materials. I sm 
often asked to carry blood and urine eamplee that era contained in 
a cardboard bom. The people Z take the materials from are clothed 
in glove* and a*ak*. Th*y place th* containar* with hazardous 
notarial* into load container*. X am not provided with gloves or 
maaka and have to reach into th*e* lead eontainere to retrieve the 
packages. At an army hospital on ay route, X put a package down 
next to e aeigar counter end the counter started to tick. The 
radioactive materials that are driven froa Delias end Houeton to 
San Antonio are placed in the middle of tha truck 00 that if tha 
driver is stopped, th* police cannot aae that the driver is 
carrying hasaxdous materials. 



141 



7. Thsr* is no workman's ooaponsation aval labia to Pony txpraaa 
eouriara in san Antonio. Tba company imvlamantad its own plan with 
its own doctors and its own rulas. Ths eompany also aakad sll 
courlars to sign a waivsr stating that wo would not sua ths 

company. 

X stata that ths foregoing is troa and oorrsot to tha boat of ay 
Jcnowladga . 



^ llgnatura of Affiant 



St £y»JL re- (Af- Kji 

Signature of Votary Public 



ESMERALDA ROSS I 
NeatyPvkfc » 

y o—tHMbSasaMMI v 




SUBSCRIBES AND SWCRN TO BEFORE ME 
THIS In DAY OF o£u?/>»»l 



1994. 






Esmeralda Ross 

MY COMMISSION EXPIRES 8-28-95 



142 



County of St. Lou la 
Stat* of Missouri 



Affidavit of Ar.gala &urle 



I atata my r.aaa ia Ar.gala Burle. I an employed as a drivar for 
Pony Expraaa. I vae denied a eic* day I requaeted during my 
pregnancy. I ml of tan aaeignad to unicad paekagea in axcaaa of 150 
pounda, although I am midway through my pragnancy. 



signature" zZ Affiant 



State c£ Missouri 



Subscribed and svon; to oetcre ae this 1 0th Hay af .-ujj?-, 1?^ 

/ 

-y <**'•-. rffl' ■ ' \ H C LEN L. fliLOS. Notery »"AHc 

/'" ' \ " 'S S *■' ' SriTr3FBrtS0li»: UTY'.SiT .guw. 

Sj.gr.atura-01 



ixgnatura-of Notary PubiiS 



143 



County cf St. Louis 
State of M^awcuri 

.Affidavit af Jim sylveater 

i. 1 stat* ay na-e ie Jir. Sylveeter. I am employed aa a drivar at 
Pony Expreee. The 30 gallon garbage bag* filled with bund lad paper 
worX and chtcVs from the rederal vaaerve and tha Boatman's Bank ara 
If poorly tiad and constantly fly open during dalivary. I hava had to 

retrieve these decumente frca tha atraat after this has happened. 

2. 1 hava knowledge that Merrill Raybcrn, another longtime St. 
Louis Pony driver, saw his hours cut from 58 to 17 in ona week in 
-ha companies effort to hire more part time workare. 

3. I hava knowledge that Pony sxpraae never paid Clary Bruce for 
about 130 htmrs that he verked. Bruce vae ordered by Pony to punch 
ort tne cIock ana wait tor a aexivery zrom cnieego vnlon ne tnen 
had to deliver. 

(,. As an EVL driver, * am required to laaa* or purchase ny own 
««l:i»le end jiay -h» vcnnexcial registration, auto insurance, ana y . 

car aair.t.*nanca and repair bills. My compensation is $f-. 50/hour and#^ 
S.17/mile. A bookkeeper, I asked to calculate it out for me, aaid 
that my auto expanses ate up 3C% of my wagea. 



Signature of Affiant 



state of Missouri 

Subscribed ami 5'.citi tc befoxt n« »ris iOth Say of August. 199-1. 

.^WJrA/ cfa //Ac^LOy srare of msscua, cm or si isua 

signature of; Notary Public my cowaiSSiON w«b -#/&/f? 



144 



County of Danvar 
Stat* of Colorado 



Affidavit of Joaaph Faluabo 



1. i stata that ay naaa la Joaaph Paluabo. Z hava haan aaployad 
by Pony Expraaa as a oouriar for tha laat fiva yaar*. I work 
batvaan 59-60 houra par vaak. 

2. I aa currant ly racalvlng workman 'a ooapanaatian dua to a job- 
ralatad injury. Pony Expraaa owna puahearta that ara in naad of 
aaintananea. Many of thaaa carta hava vhaala falling off of thaa. 
In my rout* that taka* aa to tha Fadaral Baaarva Bank I usa thaaa 
puahearta to cart cancalad chaoks into ay vohicla. I hava told ay 
■uparvlaor* that thaaa carta naad rapair. On Jun* 17, 1994, vhila 
using on* of thM* puahearta vith a looaa vhaal, I puahad th* cart 
and tha vhaal jamnad. Tha cart atoppad and Z injurad ay knaa aa a 
raault. Z had aurgary on ay knaa on July 39, 1994. 

3. Pony Expraaa tranaporta aatariala to and froa tha Unitad 
Stata* Poatal sarvica. Pony Sxpr«*a do*a *oa* work which r*quir*« 
ua* of DSPS tub* and puahearta. Pony Expraaa haa atolan thaaa tub* 
and puahearta for uaa during non-USPS rout**. Por axaapla, ona 
couriar who ragularly dalivara library book* to and from achoola on 
a library axchanga program, claim* that USPS *quipaant ia uaad for 
thaaa dalivarias, avan though USPS work ia not involved. . At Pony 
Expraaa' branch off ic* thara ara USPS carta with 'USPS- rout* nuabar* 
writtan on thaa that ara uaad for Pony Expraaa work on rout** othor 
than USPS. 

4. Pony Expraaa paya aa $• p«r hour bacaus* Z us* ay own vahicla. 

whan ay vahiola 1* baing repaired and I u*« a Pony Expraaa van, th* 
company paya a* $5 par hour. T«aporary *aploy**s ara paid aora 
than $8 par hour for th* *aaa work. 

5. Tbl* paat wintar (1993-94) Pony Expraaa aaployad John Banoit 
to driva tha routa to Grand Junction (approximately 2*0 ailaa) . 
During ona bliaaard, Mr. Banoit etarted to driva but tha waathar 
aada driving haiardou*. Mr. Banoit callad tha effico to tall thaa 
of th* condition* and to toll thaa ha did not want to contlnua 
driving. Th* off ica thraatanad to f ira hia or diaciplina hia if ha 
diaeontinuod tha routa. Mr. Banoit continuad driving and 
•ub**qu*ntly slid off of th* road, hit an aabankaant, and dan tad 
th* back buapar. Two waak* latar tha company' a auparviaor aakad 
hia to aign an aceidant raport. Mr. Banoit r*fu**d to *ign th* 
report *o th* company firad him. 

Z atata that tha foragoing i* trua and corr ac t to tha baat of ay 
knowladga. 



145 



W- ■>■■' /-Lb 

sign«t»r« of Affiant 
Signature of Notary Public 




'UBLlC 



fP9° 



146 



County of Allegheny 
State of Pennsylvania 

Affidavit of William J. Rak 

1. I state that ny nam* is William J. Rak. I have been employed 
by Pony Express as a courier approximately one year and five 
months. I was told at the time I was hirsd that wy ^""'Ition would 
become a full-time position within 90 days. I am not yet a full- 
time employee. I do not receive benefits or vacation pay. I do 
not recevie compensation at the rate of time and a half for all 
hours worked past forty. I work approximately 60 hours psr week. 

2. The vans that Pony Express has given us to drive around in arc 
not in good condition. Some vans have over 300,000 miles on them. 
One day in the middle of my route the back doors of the van flew 
open and checks that I was carting from a Paderal Reserve bank flew 
everywhere. I had to collect them from the ground. 

3. In May 1994, Pony Express employed Robert McCabe as a courier. 
Mr. McCabe was a relief driver and drove the night shift. After 
two assignments where he drove nearly two days straight, his 
supervisor called him back in after dismissing him. The supervisor 
asked him to make another run of 340 miles. Mr. McCabe explained 
how tired he was, but the supervisor would not listen. Mr. McCabe 
fell asleep at the wheel and went over a forty foot embankment. 
Pony Express usually terminates employees for such accidents, 
however the company acknowledged it was their mistake for sending 
Mr. McCabe out. The company forced Mr. McCabe to sign 
documentation relieving them of any liability. Later, the company 
fired Mr. McCabe. 

The foregoing is true and correct to the best of my knowledge. 



\ 



u;i 



X 



Signature of Affiant 



^ 



Signature of Notary Public 



r.VOcr-j- sr/:s«* 






147 



Pony Express Courier Corp. 

2325 St. iCin Susti. Poniand, 0-*fion 07214 
• ' (503)238-2943 

tunOVHENT TACT SHEET 

Thank you {o\ you\ intt\ut in tnptoymwt oppoKtunitiu. At Pony tepxu* Couti.tA. Cap. 
(PECC). Cue to thi ptctitia\itiu e{ oui op motion*. thU ia.cz thtit ha* bitn p'.tpa\id 
{on youA in{o\r»ition pnion to \tctiving an Application. 

PECC dot* not initially hi\t {ull-tl-ni t-nploytu. PECC ki\i* tmploytt* 
to vun ^ja $o SO kouM a with.. . Zoulu v&\y j^ {oun haunt to Utvtn hewu a 
day, Monday thnough Fniday. Thixz ii limittd wtiktnd wonk Avcilobtt. Thtil 
opining* ail {ox C-Ounien guaxO* involving pickup. ZAOn&poKtation, and dtliviny 
o{ itiu {ok nigulan automvu. Uni{ew dnd vtkiclu «e enovidtd. 

■Thent a-xi no midical bmt{it*, pcJji holiday*, vAcAtion day*, ok tizh 
day*. 



1. 



10. 







A{tm 10 day* ii.06, then a{ttn [/ ' 
z lav (ox *Couniv.!<kiand' ** to bt is 



Thi ttoAling vagi i* #J.5J pen Iwuu. 

a Ito day MvilUI, ii.ts. It ii a itati Law {o 

paid ntgJLan pay ovtn 43 houm \alhi\ than thi ncnmal tirt-arA-A-hU{. 

Em-itoyit Vihicli Lia*t OppGKtunititi - PECC hat opiningi {o\ airpcny implcyid 
■wiOUviduan. Tht*t ptopti liati tnZin on* vihialt to ivivict oni o{ oun 
Aoutti. The \atc o{ pay it dttv.iUntd by thi houn*, mill*, typi oi vihiali 
mid. Thi xanqi ii fSOO to USO pin with. 7> 

Good d*J.\>ing tkilli mi a matt. 'A kooA tut ii Mouinid bi{o\t you can bt 
hintd, Cunntntly, we ate nst impToying Anyont who cannot inJbii A pan it van . - 

You rxut poiilii thi cabibility oi UAtina and tannying tip to 75 lb*. Sent 
iXvm oai bulky end di({italt to kandlt. 

Gtnenal Muting, knoutlidgt o{ thi Portland mitno anta it ntcmany. tetaitid 
knouiltdat ii bettu. 

Much o{ thi woxkday takti ptan away (*om dinicX mpenvitien, l{ you ant 
a AUpcniibll and iili-mctiv&Xid individual, you would tn/oy being a PECC 
iouAitA/Guaiid. 

Tfii wo\h U intfAtAting, venitd and vi\y piopti~o\ltntid, lit oai looking 
(o\ vnploym who wih. Mviilop And maintain a pltaiAnt tappo/U with thi 
autOBiiAt. '• 

SizaiLii oi thi timt'itniitivi natuni o{ oun. busini**, wc ant looking {o\ 
individu&U mith a pa*t mnJk kitto\y o{ no tandinut, and a vt/iy lota *ati 
o{ abttntivUm, > 

ThiA.i ii no p*Ajkonal tint oH g\antld duning *'— 10-dau prj>batiana\u piKiod. 
KitiA. tnt pnfibationiAy .pvuod, pt/^onai Ximi c^ tan onlyM AUnangtd ont 
month in advanct \by wuttin mvnoj, ' Appnoval/ola&ppn.ov-cl ii band on 
eptnaxional cantidtnatian. 8ec<uue oi thi incnioitd ttutomm comitntnti, 
thv.t U no tint oii gnontid duning tnt holiday tvuon (No^embeA I Sth-Januany 
lUt\. tvtnyont ha* Tkdnhigiving Vay, chUitma* tay and New Vedti day oil. 

'* -*•*> A littr Induiirisi Cen-p*ny OO 



12. 



148 



1Z ii thi policy o{ Pony Ixpntii CswUsa Conp. to hiAi ptcpit who an.i 11 
41SAM o{ agi and ovvl. 



IS. ttio\i youA. .unploymwt can commtnci, yom wiU. be Mquinid to givi tht company 
youn. comint to xiquut a thick o{ youn. dsiiving KiconA. Ponmi {on thii ant 
availabll at turn 0{ hini. PKC will thin icnutiniit (hi Mitt and compose 
iX to youn. employmtnt application.. 1{ thi in{omnationpniiinttd ii connicX 
and actiptabll, thin youn. continuid Vnploytimt with this company will biing 
you mutt pnuint a valid OREGON dnivvu llcin&t. 

14. Cncl youn application hoi biin tannid in, you may niciivt a quick icniming. 
you wXll bi notified by phoni ihould we have noutli opining up and an 
intinviw would be ichidulzd thin. Should you pan thi intvwim, thi 
nixt itipi go 04 iollom: 

A. A dniving tut will be adminiittAid. 

8. A tiliphom intinuiivi with an imploymint ipizialiit. Thii 

hoi no biaxing an you job tt&tui, howivtA., ihould you milt ctntain 
cnituiia, wi may oik you maki a Atop at Pontllfnd lob Sinvici. Thii 
intinvizw it {on a Pidwal pnognan catlid TARGETED JOES TAX CREDIT 
in which ?ECC ii involvtd. 

C. linifonm will be iiiuid and you will be imtnuctid whin to mpont 
to waik. 

V. Pauchidu am -untied on fxuiay, ion. thi. piivioui xttki pay. 

Again, thank yen. ion. ycut intviut in PECC. A{iin having mad thi abovi ihould 
you aiiir.i to apply ion. imploymint with PECC, pltOil iign bilow. 

I Azknowlidgi that 1 havt mad and undimtand thi above inionaation. 



NAME: PATE i 

ScgnatuM oj AppUcant 



149 



WHAT IS 

PONY EXPRESS 

DELIVERING? 





International Brotherhood off Teamsters 



150 



WHAT IS 
PONY EXPRESS 
DELIVERING? 



For its corporate image, Pony Express Courier Corporation borrows from history, 
playing on our memory of an adventurous enterprise running on the barest essentials: 
mail to deliver, strong horses, and young, wiry riders. 

But reality is far less romantic. Today's Pony Express is a cog in a corporate wheel - 
a wholly owned subsidiary of Borg-Warner Security Corporation, which is 47% owned 
by the giant investment bank Merrill Lynch & Co, and affiliated companies. 

And for the nearly 5,000 drivers and other workers who do the work at today's Pony 
Express, reality is anything byl romantic. 

■ Deliveries today include hazardous biomedical materials along with toxic 
chemicals and time-sensitive financial documents. Hazardous cargo is routinely 
mixed with regular packages, including financial documents such as Federal 
Reserve Checks and even, in at least one reported incident, candy deliveries. 

■ For their horses, the workers are given decrepit, and often unsafe, company 
vans - or are forced to pay out of their meager paychecks to lease a vehicle, a 
system which keeps many of them below the poverty line while they work 50, 
60, and more hours a week. 

■ Today's "riders" are workers like any others in their communities struggling to 
make ends meet and hoping for what every worker wants - decent wages, a 
job with a future, health care, safe working conditions, and respect for their 
rights on the job. 



151 



What Pony Express workers face daily is a company that mistreats workers and 
customers through: 

■ Inadequate security 

■ Exposing employees and cargo to hazardous material 

■ Violating federal labor laws and safety and health regulations 

■ Failing to train couriers properly 

■ Poverty wages 

■ Little or no health insurance 

■ Dangerously long hours on the road, often without rest between shifts and with 
nothing but straight time pay for hours that routinely run to 50, 60, and more 
per week. 

During the past two years, nearly 4,000 Pony Express workers have voted to join the 
Teamsters Union to begin to make their hopes a reality by negotiating a contract. But 
Pony Express is doing everything in its power to delay those negotiations, hoping that 
the workers will lose heart and abandon their efforts to improve wages and working 
conditions. The company harasses and fires workers who speak out and stand up for 
their rights. 

Pony Express workers in many cities are out on strike over the company's unfair labor 
practices, and workers in many other cities are making strike preparations. The 
workers are taking their case to the people in the community at rallies and leafleting 
locations throughout the community, where they are asking for support in their struggle 
to rein in a company that is trampling not only on its workers, but also on its 
customers and the general public. 

Adopted images are as unreliable for taking the measure of companies as they are for 
sizing up people. Companies, like individuals, should be evaluated on their actions. 
And in action, Pony Express today is an outlaw company that puts profits before its 
workers' basic rights and before public safety. 

This paper recounts some of the stories that Pony Express drivers tell about the 
terrible and unsafe working conditions they have united to try to change. Their 
struggle to rein in this company's excesses is a fight in which everyone in their 
communities has a stake. 



152 



Pony Express Delivers... 
Risk on the Road 

Pony Express drivers carry everything from cancelled checks and payroll documents 
to hazardous biomedical lab samples and chemicals to heavy equipments parts. 
Some drivers tell of being required to handle hazardous materials and to clean it up 
when it spills with little or no training or protective gear. Others are forced to lift 
heavy, bulky cargo weighing as much as 200 pounds without any assistance or lifting 
equipment. Many drive company vehicles that are so worn and decrepit as to pose 
what the Oregon Occupational Safety and Health Administration has called a serious 
highway safety risk. Drivers complain that they are compelled to drive under extremes 
of fatigue and weather conditions that further multiply the risk factors for them and 
others who share the road with them. 

Radioactive Cargo 

Georgia. Some Pony Express Drivers in Atlanta claim that they are ordered to carry 
boxes of blood samples, urine samples, and radioactive substances to area hospitals 
and laboratories — with their bare hands. 

When Pony drivers drop off hazardous packages — including boxes marked 
"radioactive" — they are received by hospital personnel wearing protective face masks 
and proper clothing. Pony Express doesn't even give its drivers a pair of gloves. 
Pony driver Melvin Banks and his co-workers say they have never received training 
from the company on how to safely handle these or any other hazardous materials. 

Texas. Pony Express tells its Houston drivers to hide boxes of radioactive substances 
in the middle of their vans and pile other packages around them, explains Houston 
Pony driver Wilma Jackson, because the company doesn't want to get caught by a 
Department of Transportation inspection. 

"It's illegal what they are doing," Jackson says. "Pony doesn't mark its vans 
properly to indicate that hazardous materials are on board, so they have us hide the 
hazardous packages." 

Herman Greer, another of the Houston Pony drivers who delivers radioactive 
pharmaceutical supplies, says that the company has never trained him on how to 
handle radioactive material, or what to do in the case of a spill. 

Blood, Toxic Chemicals and Illegally Transported Explosives 

Pittsburgh. Pony driver Robert Valentine delivers blood and urine samples for disease 
testing to hospitals and laboratories. One of his co-workers delivers leaky five-gallon 
plastic drums filled with chemical agents and toxic degreasers to butcher shops. But 
Pony has not trained either of them on how to safely handle hazardous materials. 
The company hasn't even given them rubber gloves. 



153 



Blood, Toxic Chemicals and Illegally Transported Explosives continued 

Oregon. Pony drivers say that the company forces them to work in a minefield of 
hazardous matenals-from leaky drums of toxic chemical cleaners to flimsy packages 
of blood and urine. They also complain that the company provides no protective gear 
or comprehensive training to its employees. 

Hazardous cargo is often poorly packaged. Just a few months ago, Salem Pony 
driver Bob Hawley was assigned a delivery that included plastic vials of urine packed 
in zip lock bags. Phil Berg-Rempel, another Salem driver, has transported vials of 
blood packed in paper envelopes. 

Pony Express left a blood spill on the floor of its courier room in Salem, even 
though some blood-borne diseases such as hepatitis can live in dried blood, until a 
state safety inspector saw it three weeks later. 

In Oregon, as elsewhere around the country, Pony drivers say that they deliver 
drugs from pharmaceutical companies and toxic chemical solvents in unmarked plastic 
totes. When the hazardous substances leak out into the vans, drivers must clean up 
the spills themselves without knowing what they are. 

Several years ago, Berg-Rempel watched a spill of concentrated car wash solvent 
turn from green to orange when it hit the metal of his Pony van. 

West Virginia. Jerry Darquenne of Fort Nutter had a spill in his van that ate the rubber 
weather seal off the bottom of the door and part of the metal below that. A few days 
later he says he got some kind of liquid from one of the packages on his pants that 
ate right through them. 

Illegally Transported Explosives 

Tennessee. Knoxville Pony driver Claude Bates knows that he could jeopardize his 
livelihood as a driver if the Department of Transportation caught him transporting 
Freon-a Class A explosive-without the proper papers, vehicle markings, or 
endorsement on his license. Yet that is exactly what Pony Express expects him to do. 

Pony knows that it is illegal for its drivers to carry the explosive materials without 
proper licensing and paperwork, Bates says, so the company doesn't hassle him when 
he refuses to pick up the shipments in Chattanooga. Yet Pony eventually makes the 
delivery anyway, as not all of its employees are as knowledgeable about DOT 
regulations as Bates. Bates says Pony doesn't provide sufficient hazardous materials 
training for its drivers. 



154 



Deficient Training 

Several drivers have signed affidavits stating that when they were given the hazardous 
materials test they were also given the answers. Al Wilman says, "We didn't receive 
proper training, just the answers to the test. We were given a book that is supposed 
to tell us what to do with hazardous materials, but no information or instructions on 
how to use the book. It takes a lawyer to figure out." 

Risky Business on the Road— "Test" Tires and Tired Drivers 

Texas. The tires on many Houston Pony vans are so worn that the wire radials are 
showing, but Pony still won't change them, according to its Houston drivers. The tires 
are "test tires" which Pony gets for free in exchange for a promise to push the tires as 
far as possible to test their durability for tire companies, and the drivers end up as the 
guinea pigs. To Pony Express, free tires are worth more than people's safety on the 
road, Wiima Jackson says. 

Washington. Drivers on Pony's northern routes often ask the company to put snow 
tires or new tires on its vans during the icy winter months, but Pony says it can't 
change the worn "test" tires. Seattle Pony driver John Flansaas says there have been 
numerous accidents that could have been prevented if Pony used safer tires. 

In Spokane, Pony driver Jim Meloche says that the free tires Pony gets from tire 
companies are actually undersized for the weight of its vehicles — even before they are 
loaded. Employees say that the undersized tires throw the speedometer off by about 
ten miles per hour. 

Too Many Hours 

Pony's apparent practice of sending drivers out on deliveries when they are already 
fatigued from one or more consecutive shifts illustrates how Pony Express puts profits 
before the safety of workers and the driving public. 

Pennsylvania. When a Pony Express supervisor sent Robert McCabe on a 340 mile 
delivery— after he had already worked for 24 hours straight— McCabe fell asleep at the 
wheel and careened over a 40 foot embankment. 

McCabe knew he was too tired to drive, but feared he would lose his job if he 
refused to make the delivery, "it'll be amazing if I don't fall asleep at the wheel," he 
told co-workers before he left. Pony Express suspended McCabe for five days for 
getting into an accident and later fired him. 

Colorado. As a relief courier in Denver, Christopher Rudd has no set hours - he's at 
the company's mercy. After driving a long night shift, Pony told Rudd to take the next 
day shift as well. He got just a few hours of sleep. The next day, Rudd fell asleep at 
the wheel and ran into a sign post. Pony fired him for getting into a "preventable 
accident." 



156 



Decrepit Delivery Vans, Extreme Weather Conditions 

Texas. Houston Pony driver Charles Turner barely made it back to Pony offices after 
his company van filled with gas fumes, contaminating the already blistering air inside. 
When Wilma Jackson looked at the van afterwards, she found near the dashboard the 
remains of a gas credit card that had completely melted down. Even the dash itself 
had started to melt from the combination of heat and fumes. Like most of Pony's 
vans, this one did not have air conditioning. 

Pony driver Herman Greer says that most of the vans in Houston have over 
200,000 miles on them. In many, the brakes are worn down to metal on metal. Two 
weeks ago, one Pony van rear-ended another when its brakes failed just two blocks 
from the branch office, crashing the second van into another vehicle, according to 
Greer. 

On another occasion, the front wheel flew off a Pony van while a courier was 
driving. Pony supervisors have sent out vans with caved-in sides from previous 
accidents that have never been repaired. 

Pennsylvania. Pittsburgh Pony employee Anthony Didolce says he often has to drive 
a delivery van with no speedometer or emergency brake. 

While most delivery companies have communications radios in their vans, Pony 
generally does not. This means that drivers are forced to hunt for pay phones to keep 
in contact. Veteran Harry Stubenvort says that using a pay phone late at night in 
northside Pittsburgh reminds him of his days in Beirut. He adds, "One of my 
coworkers died of a heart attack in his vehicle and was only discovered after a 
customer called to complain that his delivery hadn't arrived. I keep thinking that this 
poor fellow may have lived if he'd been able to radio for help." 

Another Pittsburgh driver, Bobby Valentine, once wrote up a vehicle as unsafe. 
But when he got back to the hub he found out that instead of repairing it, Pony had 
just assigned it to someone else. 

Colorado. By the time Pony driver John Benoit got to Vail, the storm his supervisor 
had sent him out in had become a severe blizzard. When he phoned in to the Pony 
office to let the supervisor know that conditions were unsafe for driving, Pony 
threatened to fire him or discipline him if he stopped. To save his job, Benoit kept 
driving. His vehicle hit an icy patch on the road and slipped into an embankment, 
denting the back bumper. A couple of weeks later, Pony asked him to sign a form 
stating that the accident was "preventable" and would count on his record. 

West Virginia. Fred Anderson, a Charleston driver, had a 12:30 a.m. run in an ice 
storm that was so bad that police warned all motorists to stay off the road. But 
Anderson's supervisor insisted that he make the delivery. The trip took much longer 
than normal, and when he arrived at his first customer, they took him to a hotel for the 
night. 

Another employee, Ralph Fouty, initially refused to go out in that same storm, 
citing police warnings, but was ordered out anyway. He wrecked his vehicle and was 
fired. 



156 



Back-Breaking Work 



In Oregon, Pony Express is limited to 75 pounds per package by the state law. 
However, the company routinely requires its workers to lift packages weighing twice 
that maximum and more. 

Oregon. In Salem, driver Phil Berg-Rempel injured himself lifting a 132 pound 
package that the company required him to deliver. After he filed an OSHA complaint 
with the state. The agency investigated further, turning up 269 violations by Pony 
Express. The comapny was fined $26,900. 

Missouri. St. Louis driver Angela Burie delivers some of Pony's heaviest packages. 
On Friday nights, Burle - who is in the second trimester of her pregnancy - unloads 
heavy John Deere tractor parts by herself. She says that a tractor rim she moved 
recently weighed more than 150 pounds. 

West Virginia. In Charleston, West Virginia, Jim Cavender can usually get help 
loading his heaviest freight— including car parts that weigh over 100 pounds — but 
Pony Express leaves him to unload the parts himself at the delivery site without the 
help of a hand truck or lifting device. 

Indiana. In Clarksville, Indiana, Pony driver Dennis Hobbes had to unload a 170 
pound John Deere tractor gas tank by himself. 

Missouri. In St. Louis, as in other Pony locations, cancelled checks are transported by 
Pony Express between banks and the Federal Reserve as part of the check clearing 
process. The checks are bundled and stuffed into trash bags that often weigh as 
much as 150 pounds. Jim Sylvester says that he and the other drivers who handle 
these routes are expected to hoist these unwieldy, overweight bundles of financial 
documents unaided. 

Pony Express Delivers... 

Crushing Blows to Workers' Efforts to Improve their Lives 

In 58 cities across the country, Pony Express workers organized into a union to 
improve their miserable wages and working conditions. But Pony Express is doing 
everything it can to stop them — threatening and firing workers, cutting hours, changing 
\^ork routes, and trying to thwart employees' efforts to win better on-the-job conditions 
by delaying negotiations. 

The National Labor Relations Board issued a complaint alleging over 120 violations of 
federal labor law and is currently holding hearings on these charges. 

Meanwhile Pony Express is continues its efforts to weaken workers' resolve and erode 
confidence in their union. 



157 



Want a Better Life? You're Fired.. 



Georgia. In Statesboro, Pony Express fired or forced out all but five of its 18 
employees who tried to organize to improve their poverty-level wages and miserable 
working conditions When Pony couldn't find an excuse to fire a worker, the company 
simply stopped assigning the driver deliveries and refused to let them punch-in on the 
time clock. The drivers were forced to quit. 

Kentucky. The supervisors at Pony Express' Lexington terminal got tired of Dennis 
Arvin's efforts to organize his co-workers to improve their poverty-level wages and 
miserable working conditions. So they stopped assigning deliveries to him, he says. 

With a wife and two children to provide for, Arvin couldn't afford to stand by while 
Pony kept him waiting for assignments that never came. He was finally forced to quit 
and find another job. 

Racism 

Missouri. Hobart Currie, a Vietnam vet and a Pony Express driver for 1 1 years, is 
paid $7.25 per hour, and works a schedule that puts the hardest workers to shame. 
During the week ending August 5 his pay stub showed 80 hours - all at straight time. 
He has worked as much as 100 hours a week repeatedly. As a senior driver he trains 
other drivers, maps out routes, sets up, or acts as dispatcher. 

He is put in charge on weekends often because, as he says, "managers like to be 
home on weekends." 

Currie has trained his own supervisors, who have been promoted while he is 
passed over. The people Currie trains to become his supervisors are white, while he 
is black. He writes to General Schwarzkopf: "I thought equality was for everybody. I 
practiced what you preached in the service, but it took my return to civilian life to see 
what racism is, and equality isn't." 

All Work — and Some for No Pay 

Missouri. Pony Express has never paid Gary Bruce for some 130 hours he has spent 
at work. When his route ends at 1:30 a.m. in St. Louis, Pony makes Bruce punch off 
the time clock, even though he then has to wait — sometimes until 4:00 a.m. — for the 
arrival of a delivery from Chicago which he must take home with him to Poplar Bluff. 



158 



Georgia. In Atlanta, Melvin Banks said he and a co-worker have never been paid for 
the dispatch work they did for Pony one weekend. Most of the drivers have to work 
60-hour weeks just to take home a check that can cover the bills. Pony doesn't offer 
its drivers full benefits until they have been working for two years. Even then, some 
workers still don't get benefits if the company doesn't feel like awarding them. When 
Banks and 14 other drivers went on strike to protest their intolerable conditions, Pony 
fired three of them outright. 

The company couldn't find an excuse to fire Banks, but they cut his pay by 75 
cents an hour when he returned to work — down to $6.25 an hour. Since then, Pony 
has done everything it can to try to harass Banks. "They'll write you up for any little 
thing, suspend you, try to discredit you in every way they can," Banks said. 

Pony's Working Poor 

Oregon. In Portland, Pony Express paid Lynn Curtis and Joyce Moon only $6.50 an 
hour. Five months ago, Curtis had to find another home for her son because she 
could no longer support him on her income. She has no health insurance or benefits. 

When Pony Express cut Joyce Moon's hours, she could no longer afford her rent 
and had to find homes for her children. Moon drove for Pony during the day and slept 
in her car at night. 

Kentucky. When Pony Express first hired Mike LeMaster in 1986 in Ashland, the 
company paid him $4.35 an hour. Today — after eight years of service to the 
company — Mike is still waiting for his first raise. His pay is still only paid $4.35 an 
hour. 

In January of 1993, during the fuel crisis, Pony levied a 3% surcharge on its 
customers to offset the increased prices. But drivers like Nicholasville's Al Williams 
who lease their vehicles to Pony got no relief because the company wouldn't increase 
their mileage rates. Williams and the other drivers continued to be paid only $4.35 an 
hour and fifteen cents a mile. 

Dodging Benefits with More Part-Timers 

Pony Express workers wages are so low that the vast majority of them have to work 
well over 40 hours to scratch out a subsistence level living for their families. Now 
Pony has added a new wrinkle. Pony Express is cutting hours for its full-time 
employees, workers believe, to avoid paying for benefits. 

Missouri. The company recently cut six-year employee Earl Getes' 10- to 11 -hour 
route down to 7 and a half or 8 hours. But Pony hasn't stopped delivering to his old 
stops. Instead, it has hired a new part-time worker to take up the difference. 



159 



Merrill Rayborn, another long-time St. Louis Pony driver, saw his hours cut from 58 
down to 17 in one week. A brand new part-timer delivered to Rayborn's old stops. 

"They're trying to get it down so that everyone is part-time so they don't have to 
pay any benefits," said another St. Louis driver, Jim Sylvester. "As it is, you don't get 
vacation until you work three years for the company. And no paid sick leave ever." 

Pony' Spells Poverty: EVL 

Many Pony drivers do not drive company vehicle*, but use their own cars under 
Pony's Employee Vehicle Leasing (EVL) plan. Under this plan, the employee is 
required to lease a vehicle and the company pays a small amount, allegedly to cover 
the costs. In reality, the company's payments do not begin to cover the actually costs 
of leasing, operating, and maintaining these leased vehicles, and the drivers are stuck 
in a constant struggle to stay afloat. 

Missouri. As an EVL driver, Jim Sylvester is required to lease or purchase a vehicle 
and pay his own commercial registration, auto insurance, car maintenance, and repair 
bills. Pony Express pays him $5.50 an hour plus $.17 per mile. A bookkeeper who 
Sylvester asked to calculate it out for him says his auto expenses ate up 30% of his 
wages last year, leaving him only $3.86 per hour to pay for housing, food, and other 
necessities. 

West Virginia. In Charleston, EVL driver Cavender is required to lease or purchase a 
vehicle and pay his own commercial registration, auto insurance, and car maintenance 
and repair bills-all on $5.00 an hour, with no overtime. 

Last year, Pony told Cavender that the Escort wagon he was driving was too small. 
His supervisor threatened to switch him to a shorter route with fewer hours and less 
pay unless he leased or purchased a new, full-sized vehicle. 

Now, to meet payments on his new Ford van and still provide for his two children, 
Cavender has had to take a second job on weekends to stay out of bankruptcy. 



160 



Firing the Victims 

Texas. Houston driver Laveta Hayes' ball point pen almost killed her. Hayes' Pony 
Express van was broad-sided by a reckless driver who ran a red light, forcing her to 
veer into a pole. The pen she always carries in her shirt pocket punctured straight 
through her jaw. 

At the hospital, the Pony supervisor asked how soon she could return to work. But 
just a few days after her return, Pony Express fired Hayes for getting into a 
"preventable" accident. The police had not even given her a ticket. 

Forcing a Choice Between a Job and Health 

Missouri. St. Louis driver Angela Burie was afraid that her pregnancy was going to 
miscarry. After her doctor recommended that she take a week off work, the four-year 
driver for Pony Express called in to ask for just one night off to recover. But her 
supervisor threatened to fire her if she didn't show up for work. 

"When I'm sick, I'd like to be able to take a day off and not worry about losing my 
job," Burie said. 

Burie's doctor also told her not to work more than 35 hours a week. But at $6.75 
an hour, Burie says she has to work at least 50 hours a week just to pay her bills and 
eat the healthy diet her doctor recommends. She is now about midway through her 
pregnancy. 

Washington. When one Seattle Pony driver showed up to work complaining of being 
ill, his supervisor told him that there was no one to cover his route — he would have to 
go out. The driver collapsed and died of a heart attack in Everett. 

Workers report that Pony dispatchers, concerned about getting his route back on 
schedule, instructed another driver to get the van keys out of his pocket, even while 
emergency medical personnel were still trying to resuscitate him. 

Pony Express Delivers... 

Less than Customers Bargained For 

Beat-Up Vehicles, Lax Procedures Breach Security 

Pennsylvania. William Rak spent 45 minutes one day picking up Federal Reserve 
checks off the Pittsburgh street when they flew out the broken back door of his Pony 
Express van. The door locks had never been fixed because Pony had fired its only 
mechanic. 

Missouri. Rounding up loose Federal Reserve and Boatman's Bank checks that have 
flown out onto the street is a routine part of Pony driver Jim Sylvester's work day. He 
says that the 30 gallon garbage bags stuffed with bundled paperwork and checks are 
poorly tied and constantly fly open during delivery. 



161 



Beat-Up Vehicles, Lax Procedures Breach Security continued 

Washington. Seattle Pony Express driver John Flansaas would never have known 
that the packages he delivered to University Hospital contained samples of monkey 
blood infected with the AIDS virus if he hadn't finally asked a hospital nurse himself. 
There were no markings on the boxes at all, which were loaded side-by-side with 
packages of Easter candy and Halloween sweets. 

Flansaas says that Pony Express never trained him on how to handle biological 
materials and never told him what the boxes contained. He says that Pony's 
hazardous materials training consists of a five minute session in which a Pony 
supervisor gives employees the answers to a multiple choice quiz. 

Colorado. Pony Express transports materials to and from the United States Postal 
Service in Denver, but the company is hauling away more than the USPS thinks. 
Pony supervisors tell their drivers to steal the USPS push carts, says Joe Palumbo, a 
five-year Pony employee, "because Pony's carts are falling apart and there are not 
enough of them to go around." 

Oregon. A few months ago at the Portland terminal, a Pony driver came to his 
supervisor holding a bloody package he had found in a bag of bank work. The 
supervisor told him to dig through the shipment and find the leaky package of blood. 



Who's Riding Herd on Pony Express 

U.S. House Banking Committee & the Federal Reserve 

Congressman Henry Gonzalez, who chairs the House Banking Committee, has called 
on the Federal Reserve to investigate Pony Express' contractual relationships with the 
Federal Reserve and its branches. 

The Inspector General has agreed to carry out a thorough investigation and has 
committed to personally oversee the investigation. Particular security concerns 
include: 

■ Background checks have failed to screen out security risks. In Oregon, for 
example a driver was hired while he was on parole, a fact that was not 
discovered until the Portland police arrested him for allegedly robbing a bank. 



162 



U.S. House Banking Committee & the i-eaerai reserve uuiiunueu 

■ The indiscriminate mixing of hazardous cargo with other material, raises 
security and public health questions. The lack of training for hazardous 
materials handling has led to OSHA citations. OSHA has also found safety 
violations at some terminals and has declared some equipment unsafe. 

■ Lax security in delivery procedures. In Wisconsin, for example, an individual 
whose work put him in contact with Pony Express couriers reported that 
vehicles were routinely left unlocked with the tailgate wide open while the driver 
delivered other cargo inside the building. 

In addition, there is reason to believe that at least some Federal Reserve 
contracts with Pony Express may violate the federal Service Contract Act, which 
requires that contractors must be paid wages that meet certain minimum standards. 
Pony's rock-bottom wages are so low that some Pony families are actually below the 
poverty line. 

In Oregon, for example, the Department of Labor's Wage Determination 
Numbers for package carriers calls for a minimum hourly wage of approximately 
$8.00. But Portland Pony Express drivers are paid wages as low as $4.50 per hour. 

National Labor Relations Board 

The NLRB has issued a nationwide complaint including over 120 specific charges of 
labor law violations against Pony Express. These charges are currently the subject of 
hearings across the country. 



163 
Mr. KOPETSKI. Mr. Cove from America Works. 

STATEMENT OF PETER COVE, FOUNDER, AMERICA WORKS, 

NEW YORK, N.Y. 

Mr. Cove. Thank you, and I want to thank the committee mem- 
bers for inviting me here to speak to you today about the Targeted 
Jobs Tax Credit. Let me tell you briefly about my company and 
how we have used the Targeted Jobs Tax Credit. I will then give 
you some recommendations. 

America Works is a for-profit company which was founded by me 
in 1984. America Works has placed over 5,000 people, previously 
on welfare, into jobs. Studies have shown that 75 percent are still 
working and off welfare after 17 months. We operate in four cities, 
including New York, Indianapolis, Hartford, Conn, and the Capital 
District in upstate New York. 

The elements that make us unique include, first, we are paid 
only if we get a person working and they stay on the job; second, 
we market and sell a service to the businesses who hire our can- 
didates; and third, for a 4-month period, we provide onsite support 
services after the person is placed in a job. 

As part of the overall package that we provide to employers, 
America Works in its sales presentations and written materials in- 
forms employers that all our candidates are TJTC eligible. We do 
not specify that they are on welfare. We also let the businesses 
know that we will do all of the paper processing of the Targeted 
Jobs Tax Credit as part of our service and present them with the 
appropriate paperwork. Most of our employers are pleased to make 
full use of this credit. 

We understand that the current legislation calls for the Targeted 
Jobs Tax Credit to expire this year. We also understand that stud- 
ies have shown that it may not be accomplishing what it was set 
out to do. It is our belief that there is a fundamental flaw in the 
construction and execution of the Targeted Jobs Tax Credit, but 
that the concept remains innovative and should be retained with 
some modifications: 

One, currently when a person applies for a job, by law, they can- 
not be asked which target group they belong to. If an employer 
asked such questions, they would be accused of discriminating. 
What employers are doing is, at the point they hire someone, they 
have them fill out a questionnaire, or in some cases, call an 800 
number with a separate company in order to determine TJTC eligi- 
bility. 

There is the catch-22. Rather than being used to encourage hir- 
ing, the credit is being used after the fact for a person the company 
has already chosen to hire. 

This is not the case at America Works, since the company is 
aware, before interviewing, that the people that they will be seeing 
are all TJTC eligible. In this case, it is a part of the overall pro- 
gram that is offered to the employers. In this manner, we would 
recommend that the key to determine a company's ability to use 
the credit is that it was known prior to hire that the person was 
eligible. 

The most practical way to accomplish this is through the use of 
intermediaries, like America Works, who can market the concept 



164 

and the targeted groups to businesses. This would also include any 
not-for-profits and governmental agencies whose mandate is to 
place TJTC-eligible workers. This would eliminate one of the big- 
gest weaknesses. 

Another reason for the use of intermediaries in referring TJTC- 
eligible people is that the paper processing of the credit is quite 
cumbersome. Most employers, even when they are aware of the 
program, hesitate to use it because of the number of bureaucratic 
steps involved. In order to file for the credit, a company must reg- 
ister the worker by sending them in person and/or sending a letter 
to the Labor Department before the person starts work. A certifi- 
cate or voucher needs to be received from the same department, 
and wage information, along with the form filed with taxes. Al- 
though each State runs it differently, four locations we operate in 
make this tracking, recordkeeping and finding lost certificates a 
time-consuming and not always satisfactory system. This is why so 
many companies who know they are likely to have a number of re- 
ferrals have used outside services just to process the paperwork. In 
order to be effective, the processes should be streamlined and made 
more user friendly for business. 

Three, despite the number of years the Targeted Jobs Tax Credit 
and its predecessor credits have been around, it is amazing how 
few businesses know of their existence. The marketing and selling 
of this program by the government has been limited. Again, at 
America Works we utilize a portion of this credit and pass the re- 
mainder on to the business. Therefore, we have an incentive to 
educate our employers about the program. More creative marketing 
should be done. 

In addition to the above, the tax credit, as it turns out, is not 
as much of an incentive as it should be. I am not an accountant; 
however, my accountant tells me that to get the credit, we cannot 
take the labor costs of that worker on our expenses, therefore in- 
creasing taxable income. In many cases, the real worth of the credit 
is diminished by the ratio between the credit amount and the tax- 
able amount. Simplification and a dollar-for-dollar credit would 
make this more of an incentive for businesses even if the credit 
was less. 

In closing, I would like to urge the committee to extend and 
change the Targeted Jobs Tax Credit. We are all concerned with 
the mounting problems of those excluded from the workplace, in 
particular the high unemployment rates of minorities. We believe 
work is the ultimate social program and the only way to bring dig- 
nity and mainstream values to those that are less advantaged. 
When you speak to labor market economists about the host of 
mechanisms available to stimulate job growth and target hiring, 
they always mention a form of tax incentives to business to achieve 
these goals. The program we have is flawed; however, I would en- 
courage you to extend and modify what exists. 

Mr. Kopetski. Thank you, Mr. Cove. 

[An attachment to the prepared statement follows:] 



165 




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166 

Mr. Kopetski. Mr. Zivolich from Integrated Resources Institute. 

STATEMENT OF STEVE ZIVOLICH, MA, EXECUTIVE DIRECTOR, 
INTEGRATED RESOURCES INSTITUTE, IRVINE, CALIF. 

Mr. Zivolich. Thank you. The testimony I am presenting today 
will present the critical impact of the TJTC Program on employ- 
ment opportunities for persons with significant disabilities. My 
presentation will highlight research and experience that indicate 
that the intent of the program has been met for the TJTC-disabled 
target groups; and second, recommendations to make the program 
more effective. 

I serve as the executive director of Integrated Resources Insti- 
tute, which is a nonprofit agency that was established with a mis- 
sion to provide technical assistance to businesses and government 
agencies developing innovative employment opportunities for per- 
sons with disabilities. Since it was founded in 1988, IRI has helped 
develop more than 14,000 job opportunities for persons with dis- 
abilities and these employment efforts have been accomplished 
with the active collaboration of three corporate partners — Pizza 
Hut, Inc., Brinker International and Restaurant Management Co. 
The employment outcomes are also fostered by grants from the 
U.S. Department of Education: Projects with Industry, the Social 
Security Administration, and a joint grant by Health and Human 
Services and the Department of Labor. 

It is our experience that these 14,000 jobs and related corporate 
commitments are a dramatic demonstration of the positive impact 
of the Targeted Jobs Tax Credit. The Pizza Hut initiative to hire 
persons with disabilities began in 1988, 4 years prior to the pas- 
sage of the ADA. The Targeted Jobs Tax Credit was and is the pri- 
mary reinforcement for Pizza Hut to engage in this innovative em- 
ployment effort. As a result, Pizza Hut is not only one of the larg- 
est users of the Targeted Jobs Tax Credit; it is also the largest em- 
ployer of persons with significant disabilities in the Nation. 

While persons with disabilities represent at least 10 percent of 
TJTC participants, the unemployment rate remains, for 19 million 
American working-age persons, above 75 percent. After 2 years of 
ADA implementation, disabled advocates realize that there has 
been no perceivable increase in hiring patterns by private industry 
as a result. I am not proposing that ADA is not an essential compo- 
nent to the long-term goal of Congress of eliminating discrimina- 
tion toward persons with disabilities in employment, but rather I 
am pointing out the importance of having a program like the Tar- 
geted Jobs Tax Credit that rewards the private sector for doing the 
right thing — that is, hiring persons with disabilities. 

The cost of unemployment to U.S. taxpayers for persons with dis- 
abilities in SSI/SSDI and medical payments alone exceeds $57 bil- 
lion each year. Of the 2.2 million SSI recipients, only 8 percent are 
working and each year, less than V2 of 1 percent return to the labor 
force. As an alternative to the welfare program, the TJTC Program 
has helped to develop corporate employment programs, such as 
"Jobs Plus" with Pizza Hut and "Team Works" with Brinker Inter- 
national. 

The success of the Targeted Jobs Tax Credit is evident through 
several other significant corporate initiatives that will probably be 



167 

presented here, which also include Marriott and McDonald's. In 
1991, we concluded a 2-year economic evaluation study that com- 
pared a benefit-cost analysis of the Targeted Jobs Tax Credit for 
the Social Security Administration. The research focused on the 
benefit-cost of placing and supporting TJTC- and SSI-eligible per- 
sons into employment. We found for every taxpayer dollar invested, 
taxpayers received a return of $1.21 in the first year. Our benefit- 
cost research clearly indicated TJTC dollars invested in the pro- 
gram as substantially sufficient for taxpayers and the participants. 

In a second study through — 1989-91, we surveyed 5,000 TJTC 
employees with disabilities. The results indicate dramatic increases 
in employment opportunity, wages and tenure; 75 percent of the 
workers reported they had been unemployed for the previous 6 
months, and the overwhelming majority of those employees re- 
ported to us this was their first job ever. The average weekly wage 
was a 104 percent increase, and their annual retention rate was 
five to six times better than their coworkers that were not TJTC. 

With these private-sector demonstrations of TJTC Programs, we 
can establish an economically efficient model if Congress would 
make the Targeted Jobs Tax Credit permanent and would author- 
ize an expansion of the program for all persons with disabilities. 
Currently, only about 10 percent with disabilities qualify for the 
program. 

Thank you for the opportunity to share my observations of a Fed- 
eral tax incentive program that is highly effective in its multiple 
goals that benefit taxpayers, employers and employees with disabil- 
ities. I urge you, on oehalf of 9.9 million Americans with disabil- 
ities who have stated they want to work, if just given the chance, 
to reauthorize, expand and make the Targeted Jobs Tax Credit a 
permanent tax credit. 

[The prepared statement follows:] 



168 



liMfrsXeJ- Rptowu** If+tfcfaU 



& 



THE CRITICAL IMPACT OF TARGETED JOBS TAX CREDIT 

PROGRAM ON EMPLOYMENT OPPORTUNITIES FOR 

PERSONS WITH SIGNIFICANT DISABILITIES 

Testimony Presented to the House Ways and Means Committee 

United States Congress 

by Steve Zivolich, M.A. 

Integrated Resources Institute, September 29, 1994. 

The testimony I am presenting today will address the critical impact of 
the 'ij'l'C program on employment opportunities for persons with significant 
disabilities. 

The primary intent of TJTC is to provide employment incentives for 
the private sector to provide job opportunities for specific groups that are 
structurally unemployed and result in: 

1. A reduction in structural unemployment. 

2. Employment opportunities to the disadvantaged. 

3. Employers to seek out and hire the disadvantaged. 

4. Cost effective outcomes for taxpayers and society. 

5. Improved income, training, and retention for the 'Ij'l'C employee. 

This presentation will highlight: 

V Research and experience that indicate that intent of 'Ij'l'C have been meet or 
exceeded for the TJTC disabled target groups. 

V Cost effective recommendations to make TTTC even more effective for 
persons with disabilities and employers in the future. 

Integrated Resources Institute 

I serve as the Executive Director of Integrated Resources Institute (IRD, 
which is a national non-profit agency that was established in 1988 to provide 
research, educational support and technical assistance to businesses and 
government agencies developing innovative employment opportunities for 
persons with disabilities. 

Since it was founded, IRI has been instrumental in creating more than 
14,000 job opportunities for workers with disabilities. These employment 
efforts have been accomplished with the active collaboration of three 
corporate partners: Pizza Hut Inc., Brinker International, and Restaurant 
Management Company. The employment outcomes and research were also 
fostered by grants from the U.S. Department of Education: Projects With 
Industry, Social Security Administration, Health and Human Services, and 
the Department of Labor. 

It is our experience that these 14,000 jobs and related corporate 
commitments are a dramatic demonstration of the positive impact of TTTC. 
The Pizza Hut program initiative to hire persons with disabilities (Jobs Plus) 
began in 1988, four years prior to the passage of the ADA. TJTC was and is the 
primary reinforcement for Pizza Hut to engage in this innovative 
employment effort. As a result, Pizza Hut is not only the single largest user of 
TJTC, it is also the largest employer of persons with significant disabilities in 
the nation. 



169 



IRI's experience in designing and coordinating these corporate employment 
initiatives has convinced us that TJTC must not only be renewed, but also 
expanded to all persons with disabilities and "reinvented" to reduce 
government regulative and paper chase disincentives. 

Hi ghest Unemployment Rate 

While persons with disabilities represent at least 10% of TJTC participants 
under the categories of Disabled Veterans, Vocational Rehabilitation, and 
SSI/SSDI, the unemployment rate for 19.1 million working age persons with 
disabilities is estimated at 75% (U.S. Commission on Civil Rights, 1983). For 
persons with significant disabilities (those likely to qualify under current 
TJTC regulations), the rate of unemployment is known to be even higher. 
These persons can be described in broad labels which include mental 
retardation, significant physical disabilities, and long-term mental illness. The 
unemployment rates for 1.9 million developmentally disabled working age 
individuals have been estimated at 87% (Kiernan and Stark, 1989). 

According to Census Bureau data, the unemployment trend for persons 
with disabilities is not improving. For example, between 1980 and 1988 the 
proportions of working-disabled men, aged 16 to 24 years, working full-time, 
declined, while the unemployment rate steadily increased. As a result, the 
ratio of earnings between men with disabilities and men without also fell. 
Similar changes were also reported for women of working age. After 
substantial relative gains in the 1960s and 1970s, persons with disabilities are 
losing economic ground in the 1980s and 1990s (Yelin, 1991). At the same 
time, a survey conducted by Harris and Associates documented the strength 
of this group's desire to work, and their frustrations about barriers to 
employment (Harris, 1986). In that survey, 65% of the respondents indicated 
that they would like to work if given the opportunity. 

After two years of ADA implementation, disabled advocates realize that 
there has been no perceivable increase in hiring patterns by private industry. 
The majority of ADA litigation and employer focus has been directed to 
current employees with back injuries, filing complaints related to 
termination and accommodations. ADA is essentially a poorly funded EEOC 
sanctioning effort, that has little if any positive impact on the employment 
rate for persons with disabilities. I am not proposing that ADA is not essential 
to the long term Congressional goal of eliminating employment 
discrimination toward persons with disabilities. Rather, I am pointing out the 
importance of having a program like TJTC that rewards the private sector for 
doing the right thing, that is hiring persons with disabilities, rather than 
assuming that the remote possibility of punishment under ADA will really 
have the desired effect alone. 

The cost of unemployment to U.S. taxpayers for persons with significant 
disabilities in SSI/SSDI and medical payments alone exceeds $57 billion each 
year. Of the 2.2 million SSI recipients with significant disabilities, only 172,000 
or 8% are working. Social security further reports that less than 1/2 of 1% of 
these potential workers return to the labor force annually (Social Security 
Administration, 1991). In addition, SSI claims based on disability have 
increased by 20% since 1984, which demonstrates the lack of control on 
expenditure growth for a welfare approach to disabilities. 

SSI was developed 17 years ago to insure persons with significant 
disabilities maintained an economic income above the poverty level. 
However, at this time, SSI benefit levels are substantially below the federal 
poverty level. As one state administrator commented at an SSI public 
meeting "...the SSI Program is simply inadequate to meet basic human needs 
(food, shelter, clothing, etc.)..." (SSA, 1991). 

The major alternative approach to welfare for persons with significant 
disabilities is a redistribution strategy, promoted by vocational rehabilitation. 
The prime example is sheltered workshops which is one of the oldest and 
largest programs. Sheltered workshops were developed to create jobs and 
employ persons with significant disabilities. Currently, public funds are 



170 



redistributed to 5,000 workshops (Kiernan and Stack, 1989) with more than 
250,000 clients (Smith, 1987). Most persons receiving these services earn less 
than half of minimum wage, do not transition to unsubsidized employment, 
and continue to receive SSI benefits. 

The current annual taxpayer cost of this sheltered approach to create work 
in sheltered settings exceeds $1.5 billion. In addition to expenditure growth 
concerns, sheltered workshops have not transitioned employees to the labor 
market in significant numbers, nor have they responded to the change to a 
service sector economy by modifying an outdated manufacturing job training 
emphasis (Yelin, 1991). 

As an alternative to sheltered workshops, the TJTC program has helped IRI 
to develop corporate employment programs such as "Jobs Plus" with Pizza 
Hut Inc., Restaurant Management Company and 'TeamWorks" with Brinker 
International. The Pizza Hut Jobs Plus program alone is recognized as the 
most successful corporate effort to date, with more than 13,000 TJTC disability 
placements since 1988. These TJTC corporate efforts were mentored by the 
OSER supported employment initiatives, and Projects With Industry and are 
now a significant component of federal, state, and local agency emphasis and 
services. The success of the RSA federal initiative and TJTC is evident 
through several other significant corporate initiatives such as Marriott and 
McDonalds. 

These private sector, corporate led efforts rely heavily on a public funded 
supported employment training strategy, as well as Targeted Job Tax Credit 
(TJTC). Rehabilitation advocates have reported that TJTC has helped offset 
some of the additional support employees with disabilities require from 
employers. As a result, the rehabilitation field believes that TJTC has had a 
significant positive effect on hiring (ARC, 1993).. 

Comparative Benefit-Cost Analysis of II TC 

In 1991 we concluded a two-year economic evaluation study comparing the 
resource costs and pecuniary outcomes of a TJTC employment program 
serving individuals with significant disabilities for the Social Security 
Administration. 

The research focused on the benefit - cost of placing and supporting TJTC 
and SSI eligible persons with significant disabilities into employment. 

The economic analysis utilized was an ex post facto evaluation study 
analyzing the costs and pecuniary outcomes of an employment program 
serving individuals experiencing significant disabilities in Pizza Hut over two 
years. 

Characteristics of Sample Population 

Fifty-nine TJTC participants from 10 states were included in the Job Plus 
Mentor (JPM) program sample. Inclusion in the evaluation study was based 
on entry and participation in the program between July 1, 1990 and January 
31, 1991 (a six month period). Seventy-five percent of the participants were 
identified with some level of intellectual disability, while the remaining 25% 
were described in terms of other primary disabilities. The majority of 
participants (67%) did not finish high school, with 33% attending 12 or more 
years of school. Seventy-eight percent of the sample were Caucasian, 9% 
African American, and 7% Hispanic. The majority of JPM participants (84%) 
received SSI only, while the remaining 16% received SSI and/or SSDI 
benefits. 

Collection of Cost Data : 

Costs for the JPM program were collected on a program expenditure basis. 
Costs that may have been incurred through employer tax credit programs 
(TJTC) were also reviewed. All JPM employers participated in Target Job Tax 
Credit subsidies and received, on the average, $1,415 per client. 



171 



Collection of Benefit Data (Pecuniary) : 

According to Benson (1978), Cohen (1979), Gramlich (1981) and Taggart 
(1981), employment earnings are used as the major pecuniary outcome 
measure in employment and training benefit-cost research. In response to 
this convention, benefits for the study were based on wages earned for hours 
employed. Due to the impact of earnings data on subsequent taxes paid and 
reductions in welfare (transfer) payments, these latter categories were also 
assessed as benefits associated with each of the employment options in the 
study (Thornton, 1985; Collignon, Dodson, & Root, 1977; Dodson, 1979; Hill & 
Wehman, 1983). 

Data Reduction : 

Cost data from the program were converted into mean cost per worker. 
Program outcomes (benefits) were initially transformed into five categories: 
1.) average hours worked per week, 2.) average hours worked per month, 3). 
average hourly wage, 4.) monthly earnings, and 5.) annual gross earnings. 
From these data two additional categories were added to the analysis: 6.) State 
and federal taxes paid on gross earnings and 7.)reductions in Supplemental 
Security Income (SSI) due to monthly wages. 

Tax calculations were assessed at 23% of annual gross earnings. This 
percentage was initially established by Pechman and Okner (1974) and 
subsequently used by Thornton (1985), Hill, Hill, Wehman, and Banks (1985) 
in determining annual state and federal taxes paid by low wage earners with 
disabilities. 

Reductions in welfare payments were computed using the SSI's standard 
income adjustment formula for earned income. Tax and SSI reduction 
formula were applied to the earnings of each participant in the JPM programs. 

Configuring Data into Costs and Benefits from Three Perspectives : 

Based on economic convention, pecuniary values described in the 
(Results section) were organized into a series of costs and benefits that reflect 
three different perspectives: program participant, taxpayer, and society. 
Program participants are identified as individuals who attended the JPM 
programs within the described time horizon. Taxpayers are those individuals 
who pay state and federal taxes but are not included as program participants. 
Finally, society is defined as the group composed of both participants and 
taxpayers. The appropriate configuration of benefits and costs across 
participant and taxpayer perspectives should equal the value described for 
society (Thornton, 1985; Gremlich, 1986). The format used in this study for 
configuring benefits (+) and costs (-) is identified in Table 1. 

Table 1: Costs and Benefits into Participant. Taxpayer, and Society Perspectives 



B-C Configuration 


Participant 


Taxpayer 


Society 


Benefits: 






Earnings 


+ 





+ 


Taxes 


- 


+ 





SSI (Transfer) 


- 


+ 





SSI Adm. (Costs) 





+ 


+ 


Alternative 








Prog. Savings 





+ 


+ 


Cost: 








Program Cost 





- 


- 



172 



Rationale for Configuring Costs and Benefits : 

Program costs are viewed as no cost to the participant but clearly translate 
into costs for taxpayers and society. Earnings benefit the participant, have no 
effect on the taxpayer, but when both perspectives are totaled, they equal a 
benefit to society. State and Federal taxes are a cost to the participant but a 
benefit to the taxpayer. By totaling these perspectives, the benefits and costs 
nullify each other, having zero impact on society at large. 

Determining the benefit or cost status of Supplemental Security Income 
(SSI) reductions from the three perspectives is somewhat more complex. 
When SSI payments are reduced due to wages earned from work, this 
translates into a reduction of income that would have been available if the 
participant had not worked. Therefore, the reduction in SSI is seen as a cost to 
the participant. From the taxpayer's perspective, the reduction is seen as a 
benefit in two ways: First, the amount of the reduced payment is a tax savings, 
and second, the cost of administering those funds is also saved. Thus, the 
taxpayer's benefit is computed by adding the reduction in SSI to the savings in 
administrative costs (Barnett, 1985; Thornton, 1985). From society's 
perspective, the reduced SSI payment is viewed as a transfer of hinds from one 
group of people in society (the participants in the study) to another group 
(other welfare recipients). Hence, the reduction in SSI payments is just a shift 
of funds (transfer payment) and does not constitute a savings to the society as a 
whole. In contrast, society observes the obviated administrative costs for SSI 
as a savings in actual resources. Therefore, the latter are observed as a benefit 
to society (Barnett, 1985; Thornton, 1985). 

Results : Benefit-cost Analysis : 

Individuals in JPM programs benefited $1,584 annually from their 
participation in this Ij'l'C model. The benefit-cost ratio for the taxpayer's 
investment in JPM programs equaled .74, while the ratio from society's 
perspective was 1.21. Thus, for every taxpayer dollar invested in JPM 
participants, taxpayers realized a return of 74 * and society $1.21, see (Table 2). 

Table 2 : JPM Program Analysis: 



Job Plus Mentor Program 








(Program B-C Analysis) 








Component 


Participant 


Taxpayer 


Society 


Benefits (Pecuniary) 
A. Outputs 

1. Gross Earnings 

2. State & Federal Taxes 


$3,978 
($915) 




$915 


$3,978 



B. Reduced Dependence 

On Transfer Programs (SSI) 

1. Reduction In SSI 

2. Reduction In Admin. Costs 


($1,479) 



$1,479 
$148 




$148 


Total Annual Benefits/Person 


$1,584 


$2,542 


$4,126 


Costs (Pecuniary) 
A. Inputs 

1. Total Annual Cost/Person 

2. Target Job Tax Credit 






$2,006 
$1,415 


$2,006 
$1,415 


Total Annual Cost/Person 





$3,421 


$3,421 


Benefit-Cost Ratio 




0.74 


1.21 



173 



The benefit-cost research clearly indicates, TJTC dollars invested in the 
Jobs Plus program as substantially efficient. From participant, taxpayer, and 
society perspectives, this translates into increased levels of productivity which 
were not realized when greater resources were spent on individuals receiving 
welfare, (SSI), or sheltered workshop approaches. 

Clients with significant disabilities in the Jobs Plus program experienced 
increased benefits by choosing to participate in the Jobs Plus program as 
opposed to welfare. From a public policy perspective, the Jobs Plus program 
clearly satisfies Cohn's (1979) criteria for public funding (B/C > 1). The return 
to society exceeds the point of parity for each TJTC dollar invested. These data 
provide a sound rationale for public support of the TJTC program. 

Clearly, the programmatic strategies utilized by the Pizza Hut TJTC model 
reflect substantive improvement in maximizing the economic efficiency of 
each TJTC dollar spent on employment activities for persons with disabilities. 

Benefits to Participants with Disabilities 

The benefit-cost data presented is compelling in terms of describing the 
potential effects of TJTC policy decisions on the earning power of individuals 
with significant disabilities, their marketability in competitive labor markets, 
and the fiscal impact of habilitation decisions on taxpayers and society at large. 



Three Year TJTC Survey 

Through 1989 to 1991 we surveyed 4,972 TJTC employees with 
disabilities hired by Pizza Hut. The results indicated dramatic increases in 
employment opportunity, wages and tenure. 

74.9% of the workers reported that they had been unemployed for the 
previous 6 months prior to their job with Pizza Hut. For the majority of these 
workers it was also their first job ever, as well as their first pay check. 

The average weekly wage for these TJTC hires was a 104% increase over 
their previous reported wage income. 

The annual turnover rate for TJTC hires was tracked at 29%, which is five 
times superior to non-TJTC co-workers turnover which was 170% for the 
same period. 

Recommendations 

The Pizza Hut, Brinker, and RMC TJTC programs for persons with 
disabilities are providing a necessary bridge between publicly funded 
rehabilitation programs and privately supported employee assistance 
programs in corporate institutions. With these private sector demonstrations 
of TJTC programs are establishing an economically efficient and 
programmatically sound model for emerging public and private industry 
partnerships. 

The conceptual framework for the TJTC programs could undoubtedly 
serve as a model for private industry to begin assuming the primary 
responsibility for post-school employment training of individuals with 
significant disabilities, if Congress would implement the following 
programmatic changes. 

V TJTC should be made a permanent tax statute to avoid private sector 
reluctance associated with termination dates and the doubt of renewal. 

Employers often take a wait and see attitude regarding renewal which reduces 
hiring activity. 

V Develop and disseminate an EEOC sanctioned pre-offer TJTC questionnaire 
to assist employers to practice the TJTC goal of preferential hiring of target 



174 



groups. Employers are currently fearful of litigation and conflicting EEOC 
directives in this area. 

V Develop a standardized one page TJTC authorization form for all State 
employment certification sources to utilize. Currently there are 50 different 
forms in use, which unduly burdens multi-state employers from 
implementing the program. 

V Expand the TJTC program to all persons with disabilities. Currently the 
program requires persons to be registered with their state rehabilitation 
agency or SSA. However, only 10% of persons with disabilities who are 
structurally unemployed are registered with state rehabilitation or receive 
SSA support. 

To accomplish this inclusion effort, additional public and private agencies 
will need certification authority, e.g. Special Education, Private N on-Prof it 
Agencies for the Disabled, Independent Living Centers, State Developmental 
Disability Agencies. 

Summary 

The TJTC program is providing a necessary incentive as a bridge between 
publicly funded rehabilitation programs and privately supported employee 
assistance programs in many corporate institutions. 

TJTC programs are establishing an economically efficient and 
programmatically sound model for emerging public and private industry 
partnerships. The framework of the current TJTC program could undoubtedly 
serve as a model for private industry to expand it's TJTC efforts and begin 
assuming the primary responsibility for post-school employment training of 
individuals with significant disabilities. 

These efforts have the potential to have an even greater impact on the 
reduction of structural unemployment, if the program expands to all persons 
with disabilities and implements the "re-inventing" efficiency strategies that 
have been recommended. 

Structurally Unemployed 

Persons with disabilities represent 10% of all TJTC authorizations. They 
also have the highest unemployment rate of any identified minority group. 

Employment Opportunities to the Disadvantaged 

TJTC jobs are providing essential initial job training and career 
opportunities to persons with significant disabilities who are essentially 
unskilled. The TJTC opportunities present the most efficient training possible 
for this population, by teaching job skills on the job. 

Employers to Seek Out and Hire the Disadvantaged 

The TJTC program is an essential component to reaching the ADA goals 
of employment and elimination of discrimination for workers with 
disabilities. Employment opportunities for disadvantaged individuals with 
disabilities have been driven in large part by TJTC. 

Cost Effective Outcomes for Society 

Our research indicates a positive return to taxpayers for each TJTC hire in 
the first year. In addition, the superior retention rate and on the job training 
opportunities further supports this taxpayer investment for workers with 
disabilities. 

Improved Income. Training, and Retention 



175 



TJTC has dramatically impacted employment, wages, training and 
retention rates for persons with disabilities. 

Thank you for the opportunity to share my observations of a federal tax 
incentive program that is highly effective in its multiple goals that benefit 
taxpayers, employers, employees with disabilities and our country. 

I urge you, on behalf of the 9.9 million unemployed Americans with 
disabilities who have stated that they want to work, if just given the chance, 
to re-authorize, expand, and make TJTC a permanent tax credit 



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178 

Mr. KOPETSKI. Thank you, Mr. Zivolich. 

Mr. Mclntire, welcome from the western part of the United 
States. 

Mr. McIntire. Maybe the Ducks will make it to the Rose Bowl 
this year. 

Mr. Moody. Wisconsin will be there, I think. 

STATEMENT OF JAMES L. McINTIRE, RESEARCH ASSISTANT 
PROFESSOR, INSTITUTE FOR PUBLIC POLICY AND MANAGE- 
MENT, UMVERSITY OF WASHINGTON, SEATTLE, WASH. 

Mr. McIntire. I appreciate the opportunity to appear before the 
subcommittee today regarding the reauthorization of the Targeted 
Jobs Tax Credit. I recently completed a paper summarizing the em- 
pirical evidence of the program's effectiveness, which I submit to 
you for inclusion in the record. I have also prepared a response to 
the inspector general's report, which I would also like to include in 
the record. I would like to highlight four points from my study and 
then comment on the DOL inspector general's study. 

First, the Targeted Jobs Tax Credit is not just a wage subsidy 
program. It is also a recruitment and screening subsidy that en- 
courages employers to hire workers from applicant pools they 
would otherwise not encounter or consider. Two separate studies 
have found that 45 percent of TJTC employers made special efforts 
to recruit, screen, and hire eligible workers. These employers ac- 
count for 80 percent of TJTC certifications. Their efforts can cost 
between 10 and 35 percent of the typical gross tax credit. 

Studies have found that the recruitment and screening efforts by 
TJTC employers raise the probability of employment for eligible 
youth and AFDC recipients by 10 percent. However, none of the 
studies conducted to date, including the inspector general's report, 
have been able to accurately estimate the impact of the tax credit 
on the substitution of TJTC-eligible workers for noneligible work- 
ers. 

Second, the Targeted Jobs Tax Credit has strong positive impacts 
on the employment and incomes of participants. Several studies 
suggest that the Targeted Jobs Tax Credit leads to longer employ- 
ment. The payroll tax data in the inspector general's report con- 
firms this effect, finding that five quarters after hire, TJTC work- 
ers are 50 percent more likely to remain on the job than a compari- 
son group. Three longitudinal studies have found that most groups 
of TJTC workers experience higher earnings for 2 to 5 years follow- 
ing the initial year of hire. 

Third, the Targeted Jobs Tax Credit creates new jobs. The tax 
credit to the employer lowers the cost of recruiting, screening and 
employing eligible target populations. In many cases, this subsidy 
freezes additional resources that can be used to hire additional 
workers. Two studies have estimated the number of new jobs cre- 
ated to be between 13 and 50 percent of certifications. I believe 
that the appropriate range for job creation is between 20 and 30 
percent of certifications. 

Now, both of these studies focused on disadvantaged youth. If 
this estimate holds for other target populations, then 450,000 cer- 
tifications each year would result in 90,000 to 135,000 new jobs an- 



179 

nually, jobs which will not be there if the tax credit is allowed to 
expire. 

Fourth, the Targeted Jobs Tax Credit is surprisingly cost effec- 
tive. The inspector general claims that the Targeted Jobs Tax Cred- 
it returns only 37 economic benefits for each dollar of public costs. 
However, if you set aside the IG's questions about employer wind- 
falls, then by his own calculation, each certification has a net pub- 
lic cost of only $518 after accounting for lower tax deductions and 
income transfer payments. 

I think that $518 per TJTC certification is a good deal, especially 
when the cost for each JTPA youth who finds a job is over $2,300. 

Unfortunately, the inspector general failed to include in his study 
the employment and income benefits accruing to TJTC participants 
after the initial program year. In my paper, I use longitudinal data 
on TJTC-participant incomes developed by Professor Lorenze to re- 
calculate the net present value benefits of the TJTC Program in 
Alabama, where the inspector general made a similar claim. I 
found a return to society of $1.81 for every $1 in public costs. 

I think the inspector general's desire to weed out employer wind- 
falls is admirable. However, the methodology he used is simply not 
appropriate for the task. The question he asked is vague, hypo- 
thetical, mildly intimidating and significantly after the fact. 

As an economist who conducts surveys of low-wage employers, 
this is a big ticket to bad data. I like to tell my students that eco- 
nomics is a study of observable behaviors that reflect choices about 
scarce resources. Answers to vague, hypothetical, ex post facto 
questions are not good survey research, and they are definitely not 
good social science. 

The question the inspector general asked begs the question of 
employer windfalls because it assumes that the employer would be 
confronted with the choice of hiring the individual in the first 
place. While the employer might have found the TJTC worker an 
acceptable applicant after spending the time, trouble and money to 
find and screen him or her, this does not mean that the employer 
would have had the opportunity to hire him or her in the absence 
of the tax credit. 

Empirical evidence on employer recruitment and hiring strate- 
gies, and on the overall composition of employee characteristics is 
far more pertinent to evaluating the success or failure of the TJTC 
Program than the particulars of individual hiring decisions. 

The employment opportunities made available through the Tar- 
geted Jobs Tax Credit can and do provide an entree to real in- 
creases in employment and income for participants. I urge your re- 
authorization of the Targeted Jobs Tax Credit along with a longitu- 
dinal, quasi-experimental evaluation of the program that would 
permit some controlled variation in tax credit rates. This way, we 
could look at a variety of tax credit rates and wage bases for maxi- 
mizing the participation, training and career potential of the Tar- 
geted Jobs Tax Credit. 

This concludes my statement. I would be happy to answer any 
questions. 

[The prepared statement and attachment follow and the effec- 
tiveness study is being retained in the committee's files:! 



180 



Statement of Dr. James L. Mclntire 

Research Assistant Professor 

Institute for Public Policy and Management 

University of Washington 

before the 

Committee on Ways and Means 
Subcommitee Select Revenues 
U.S. House of Representatives 

September 29, 1994 



Mr. Chairman, I appreciate the opportunity to appear before the Subcommittee today 
regarding the reauthorization of the Targeted Jobs Tax Credit. I have recently completed a 
paper summarizing the empirical evidence of the program's effectiveness, which I submit to you 
for inclusion in the record. 

I would like to highlight four points from my study, and then comment on the recent DoL 
Inspector General Study. 

■ First, the TJTC is not just a wage subsidy, it is also a recruitment and 
screening subsidy that encourages employers to hire workers from applicant 
pools they would otherwise not encounter or consider. Two separate studies 
have found that 45 percent of TJTC employers made special efforts to recruit, 
screen, and hire eligible workers. These employers account for 80 percent of 
TJTC certifications. Their efforts can cost between 10 and 35 percent of the 
typical gross tax credit. 

Studies have found that the recruitment and screening efforts by TJTC employers 
raise the probability of employment for eligible youth and AFDC recipients by 
roughly 10 percent. However, none of the studies conducted to date, including 
the Inspector General's report, have been able to accurately estimate the impact 
of these recruitment and screening efforts on the substitution of TJTC-eligible 
workers for non-eligible workers. 

" Second, the TJTC has strong positive impacts on the employment and 

incomes of participants. Several studies suggest that the TJTC leads to longer 
employment. The payroll tax data in the Inspector General's report confirm this 
effect, finding that five quarters after hire, TJTC workers are 50 percent more 
likely to remain on the job than a comparison group. Three longitudinal studies 
have found that most groups of TJTC workers experience higher earnings for two 
to five years following the initial year of hire. 

■ Third, the TJTC creates new jobs. The tax credit to the employer lowers the 
costs of recruiting, screening, and employing the eligible target populations. In 
many cases, this subsidy frees resources that can be used to hire additional 
workers. Two studies have estimated the number of new jobs created to be 
between 13 and 50 percent. I believe that the appropriate range for job creation 
is between 20 and 30 percent of certifications. 

Both of these studies focused on disadvantaged youth. If this estimate holds for 
other target populations as well, then 450,000 certifications each year would 
result in 90,000 to 135,000 new jobs annually -- jobs which will not be there if 
the tax credit is allowed to expire. 



181 



Fourth, TJTC is surprisingly cost effective. The Inspector General claims that 
the TJTC program returns only 37 cents of economic benefits for each dollar of 
tax credits and administrative costs. However, if you set aside for a moment the 
Inspector General's question about employer windfalls, then by his own 
calculations, each certification has a net public cost of only $518 after accounting 
for lower tax deductions and income transfer payments. Mr. Chairman, I think 
$518 per TJTC certification is a pretty good deal, especially when the cost for 
each JTPA youth who finds a job is over $2,300. 



Unfortunately, the Inspector General failed to include in his study the employment 
and income benefits accruing to TJTC participants after the initial program year. 
In my paper, I use longitudinal data on TJTC-participant incomes developed by 
Professor Lorenze to recalculate the net present value benefits of the TJTC 
program in Alabama, where the Inspector General made a similar claim. I found 
a return to society of $1.81 for every $1.00 in public costs! 

I think that the Inspector General's desire to weed out employer windfalls is admirable. 
However, the methodology he used is simply not appropriate for the task. The question he asked 
- "Would your company have hired the individual had a tax credit not been available? If not, 
why?" — is vague, hypothetical, mildly intimidating, and significantly after-the-fact. As one who 
conducts surveys of low-wage employers, I can tell you that this is a quick ticket to bad data. 
I like to tell my students that economics is a study of observable behaviors that reflect choices 
about scarce resources. Answers to vague, hypothetical, ex post facto questions are not good 
survey research, and they are definitely not good social science. 

The question the Inspector General asked really begs the question of employer windfalls, 
because it assumes that the employer would be confronted with the choice of hiring the 
individual in the first place. While the employer might have found the TJTC -eligible candidate 
an acceptable applicant after spending the time, trouble, and money to find and screen him or 
her, this does not mean that the employer would have had the opportunity to hire him or her in 
the absence of the tax credit. 

It is unfortunate that too much attention has been focused on when the employer checks 
the worker's TJTC eligibility status. If employers actively recruit eligible workers and use 
indicators to screen applicants for likely eligibility, then it should not matter whether eligibility 
was actually determined before or after hire — as long as the employer is able to certify a high 
enough proportion of those hired to offset the added costs of recruitment and screening. In 
many cases, a job offer must be extended prior to determining eligibility in order to keep the 
worker actively involved in the hiring and eligibility determination process. 

The Inspector General does not seem to appreciate the fundamental intent and design of 
the TJTC. The collective incentives for hiring TJTC -certified workers are needed to pay for 
the costs of restructuring recruitment and hiring procedures, as well as the wages, that will apply 
to all TJTC -related hires. Empirical evidence on employer recruitment and hiring strategies, 
and on the overall composition of employee characteristics, is far more pertinent to evaluating 
the success or failure of the TJTC program than the particulars of individual hiring decisions. 

The employment opportunities made available through the TJTC can and do provide an 
entree to real increases in employment and income for the participants. I urge your 
reauthorization of the TJTC, along with a longitudinal, quasi-experimental evaluation of the 
program that would permit some controlled variation in tax credit rates. Such a study would 
help settle the empirical disputes that have kept this program in purgatory for far too long. 

Mr. Chairman, this concludes my statement and I will be happy to respond to any 
questions. 



182 

September 21, 1994 
Dear Member of Congress: 

TJTC: Response to the Inspector General's Final Report 

The Department of Labor's Office of the Inspector General (OIG) persists in using faulty 
methodology to criticize one of the most cost effective employment programs funded by the federal 
government. In the report, "Targeted Jobs Tax Credit Program: Employment Inducement or Employer 
Windfall?," the OIG makes three primary claims: (1) that employers would have hired 92 percent of the 
individuals even if the credit had not been available; (2) that the TJTC program returned only 37 cents of 
economic benefits for each dollar of tax credits and administrative costs; and (3) that the majority of 
participants received entry-level, low-paying, low-skilled, part-time positions which do not offer benefits. 

I would like to address each of these points before commenting on the OIG's apparent lack of 
understanding of the nature"of the TJTC. 

Employer Windfalls 

The OIG's methodology for measuring the impact of the TJTC on employer hiring practices for 
target populations is seriously flawed, Quite simply, the OIG asked the "employer" about a single hiring 
decision made roughly two or three years earlier: "Would your company have hired the individual had a 
tax credit not been available? If 'No', why?" 

Although this question may seem simple and intuitively appealing, there are several reasons why it 
cannot be used to evaluate the presence of employer windfalls: 

• The question is extremely vague, hypothetical, and references an event long since past to which 
the respondent may not have been a party. 

For example, the question does not ask if the company would have hired as many individuals as it 
did without the credit. The hypothetical nature of the question allows for respondent interpretation - 
- did the questioner mean "was the person qualified to do the job without a subsidy?" or did the 
questioner mean "are there other persons you would have hired without a subsidy?" This question 
was asked at least 16 months, and in most cases two or three years after the event occurred - 
during which time hundreds of others might have been hired, and hiring managers and supervisors 
might have changed jobs or employers. If the employer did remember the hiring decision, it would 
be after he had gotten to know the individual in question and might thus be inclined to justify the 
decision. 

• The survey begs the question by assuming that the employer would be confronted with the 
choice of hiring the individual in the first place. 

There are really two assumptions here: (1) that the employer did not request TJTC -eligible referrals 
or otherwise search and/or recruit potential TJTC hires for consideration (despite repeated studies 
suggesting that this practice is used for the large majority of TJTC hires); and (2) that without the tax 
credit, the employer would not have automatically screened-out this candidate based on some less 
costly and time consuming method for selecting employees, such as age, education residence, school, 
work history, etc. In either case, while the employer might have found the TJTC -eligible candidate 
an acceptable applicant after spending the time, trouble, and money to find and screen him or her, 
this does not mean that the employer would have had the opportunity to hire him/her in the absence 
of the TJTC program. 



>s 



183 



• It is logically impossible to measure the aggregate effect of the TJTC program based on 
information about individual hiring decisions. 

It is not possible to measure the aggregate job creation impact of the TJTC solely on the basis of this 
question. The TJTC provides a wage subsidy to the employer, lowering the cost of hiring the eligible 
target populations, and freeing additional resources that can be used to hire additional TJTC-eligible 
and non-eligible workers - most studies estimate the number of new jobs created to be about 20 to 30 
percent of certifications. This added employment cannot be measured by evaluating individual hires 
because all of the TJTC-eligible hires may be similarly qualified and only through their collective 
hiring (and subsequent subsidy) is the employer enabled to expand employment opportunities. 

• The question posed to employers is likely to have been intimidating and interpreted as a question 
about possible employment discrimination. 

This question was preceded by the question "If the employee is no longer working for you, why was 
the individual terminated?" Note the pejorative tone of the IG's question — not was, but whyl In this 
context, a young assistant manager is more likely to interpret the question "Would your company 
have hired the individual had a tax credit not been available?" as a question about compliance with 
equal employment laws — prompting an affirmative answer — than as a question about the 
achievement of TJTC program objectives. 

The results of this question clearly cannot be interpreted with any degree of reliability, and are certainly not 
consistent with several other more rigorous estimates of preferential hiring and job creation. 

Cost Effectiveness 

Although the benefit-cost analysis employed by the OIG demonstrates some marginal improvement 
over the OIG's earlier attempts to evaluate the TJTC, the methodology is still incorrect. In particular, the 
measurement of the benefits generated by the TJTC program is lacking in two important respects: (1) the 
magnitude of the benefits is heavily dependent on the estimate of hires that can be attributed directly to the 
TJTC program - an estimate that is based on faulty methodology (as shown above); and (2) the OIG fails to 
evaluate the wage and employment benefits accruing to TJTC participants after the initial program year - 
benefits which have been empirically documented by in-depth, longitudinal studies. When both of these 
factors are accounted for, the economic benefits of the TJTC program far outweigh both the foregone tax 
revenue and the administrative expenditures. 

By the OIG's own calculations, each TJTC -certified hire has a net public cost of only $518 - a gross 
credit of $1,390 minus $472 for lower wage deductions and $400 for reduced income transfer payments (see 
Exhibit B). This measure is only a fraction of the cost of "make-work" public service jobs and less than one 
quarter the cost per positive termination for youth participants in JTPA ($2,345 in 1985). Clearly the TJTC 
program is one of the federal government's most cost effective jobs programs -- an important point to keep in 
mind as policy makers struggle to find ways to create employment opportunities for AFDC recipients, who 
represent 20 percent of TJTC participants. 

Quality of Employment Opportunities 

The OIG reports that the majority of participants received entry-level, low-paying, low-skilled, part- 
time positions which do not offer benefits. This finding is not new or particularly surprising - the real 
question is why does the OIG consider this a reason for allowing the TJTC program to expire? The TJTC 
program was designed to create employment opportunities for particularly disadvantaged populations with a 
disproportionately high share of workers who have few skills and little work experience. It should come as 
no surprise then that most TJTC jobs are entry-level jobs requiring relatively few skills - this is an 
appropriate job match. That these jobs are low-paying and offer few fringe benefits is simply a reflection of 
the general low-skill labor market conditions. 1 Just for the sake of argument, consider the alternative -- if 
TJTC jobs were high-paying, high-skilled full time positions with full benefits, would a wage subsidy really 
be necessary or appropriate? 



184 



What is surprising is the OIG's failure to emphasize the impact of TJTC on job retention rates, which 
according to the OIG's own estimates are 50 percent higher than for the general population of low-wage 
workers after five quarters of employment with the initial employer. This finding is similar to another 
finding reported in an earlier study by the OIG on the TJTC program in Alabama. That study found that 
more than four out of five TJTC jobs required the same or higher skill levels than the participants' previous 
jobs, and two-third's of TJTC participants' next jobs had similar or higher skill expectations. The absence of 
any follow-up information on this measure suggests a lack of due diligence in the OIG's attempts to examine 
the positive, as well as the negative, aspects of the TJTC program. 

A Disturbing Pattern 

The OIG's assessment of the TJTC program demonstrates a disturbing lack of understanding of the 
fundamental intent and design of the program. The TJTC program provides an incentive to employers to hire 
workers from disadvantaged populations. As with most tax incentives, it is intended to encourage employers 
to use one type of resource over another by lowering the price. When employers adopt a strategy for using 
more of this favored resource, the collective incentives from hiring TJTC-certified workers can be used to 
pay for the costs of restructuring recruitment and hiring procedures (as well as the wages) that will apply to 
all TJTC -related hires. In this context, empirical evidence of employer decisions about labor force 
recruitment, hiring strategies, and employment levels are far more pertinent to evaluating the success or 
failure of the TJTC program than the particulars of individual hiring decisions. 

It is unfortunate that far too much attention has been focused on when the employer checks the 
worker's TJTC eligibility status. If, as some case studies have illustrated, employers actively recruit TJTC- 
eligible workers and use eligibility indicators to screen applicants for likely eligibility, then it should not 
matter whether eligibility was actually determined before or after hire - as long as the employer is able to 
certify a high enough proportion of the persons hired to offset the added costs of recruitment and screening. 
In many cases, a job offer must be extended prior to eligibility determination in order to keep the worker 
actively involved in the hiring and (invasive) eligibility determination process. 

The employment opportunities made available through the TJTC program may not be high-skill, high- 
wage jobs with good fringe benefits, but empirical, longitudinal studies have documented that they can and dc 
provide an entree to real increases in employment and income for the participants. The fact that the IG 
evaluates a human capital program such as the TJTC solely on the basis of those benefits accrued only during 
the period of subsidy suggests a failure to grasp the dynamics of both the labor market and the fundamental 
intent of employment and training programs. Indeed, the patterns of employment and earnings after the 
period of subsidy may be more pertinent than the wages during the program. 

I would concur with the response of Assistant Secretary Ross, particularly with respect to his 
comments on the need for a scientifically sound, longitudinal study to better evaluate the impact of TJTC on 
participating individuals and firms. Clearly, some improvements in the TJTC program could be made to 
better serve the needs of the target populations, andi [wej stand ready to assist the Department of Labor to 
improve what we already believe is a vital and cost effective program. 

Sincerely, 

James L. Mclntire, Ph.D. 

Institute for Public Policy & Management 
of the Graduate School of Public Affairs 
University of Washington 



Note that the IG finds that despite the low level of benefits, the proportion of TJTC participants receiving employer-provider health 
i benefits nearly doubles with their TJTC -hire and with subsequent employment. 



185 

Mr. Kopetski. Thank you very much, and as I said earlier, all 
statements will be made a part of the record in addition to the ma- 
terials that you wanted placed in the record. 

Jim, suggestions are plentiful in terms of some modifications of 
this program. Do you think we ought to require employers to pro- 
vide a specific level of training to new employees in order to obtain 
the Targeted Jobs Tax Credit? 

Mr. MOODY. I don't think we should load this program with very 
many requirements. I think the beauty of it is, and the appeal of 
it is, that it leaves it to the employer to make intelligent, cost-effec- 
tive decisions as to what initial training they should offer, how long 
they should keep people and so forth. 

The more we load onto it, the more "one-size-fits-all" require- 
ments we may impose on it, I think, the more it will cut down its 
attractiveness for employers and, therefore, the fewer persons will 
be hired. 

The employers, I think, can get a sense fairly early on which em- 
ployees would make sense for more training. I don't think you nec- 
essarily need training before you hire people. In many cases, these 
jobs are low-skilled entry jobs that don't require preemployment 
training. In some cases you do need prehire training; but not al- 
ways. 

On the other hand, once employees are in the work force, em- 
ployers are probably the best equipped to see which employees 
should be trained if they are going to remain in that firm. 

But as I said earlier, much of the most important benefit of this 
program is that it imparts work discipline, the ability to show up 
on time, get up every day and go to work, to internalize work hab- 
its — those things that it imparts to young people who may not have 
otherwise have been in the work force. That is the most important 
training of all in a sense. 

Having that under their belt, then they move on to other jobs 
where there is more opportunity for advancement, more training, 
et cetera. That is not a sign of failure, as I said in my prepared 
comments. 

So I am not convinced that we should load this program with 
training requirements, precredit, or precertification. 

Mr. Kopetski. Let me ask you also in terms of the retention 
issue — it is not clear in my mind if these people are moving quickly 
to higher-paying jobs or jobs with health care benefits, et cetera. 
Do you have any thoughts on the retention rate in terms of its use 
as a measurement of the success of the program? If we do use it 
as a measurement of success, then do we want to increase reten- 
tion by increasing the credit or make some other changes along this 
line? 

Mr. Moody. Well, the Secretary talked about backloading the tax 
credit, which means you provide more tax benefits if thev stay 
longer. I think you could possibly design a system that would give 
an enhanced tax credit for longevity, but again, I don't think that 
should be the overriding or dominating goal of the program. Much 
of the goal is to get people off welfare and into the work force. 

We know that is the most important first step — getting into the 
work force, that crucial crossing of the Rubicon for many low- 
skilled young people who haven't yet held a job. But I don't think 



186 

there is anything wrong with dialing up the tax credit for longer 
periods of retention, so long as it is realistic. But I wouldn't want 
to put an employer in a posture where, if an employee leaves after 
4 or 5 months, for whatever reason including the employee's own 
reason, that suddenly that employer receives no benefit whatso- 
ever. That would be kind of a roulette system and it would sub- 
stantially lower the overall attractiveness of the program for the 
employer. In many cases, this would make it just not worth their 
while. To put it more analytically, it would lower the statistical 
value of hiring someone, anyone, because you don't know which of 
those people will end up not finishing out the full 8 months or 
whatever cutoff the Secretary might have had in mind. All new po- 
tential hires become less desirable, and the goal of inducting youth 
into the work force is undermined. 

Mr. Kopetski. Well, your commitment and expertise on this 
issue is valued by the committee, and I truly appreciate your tak- 
ing the time to come here. 

Mr. Moody. Thank you. 

Mr. KOPETSKI. Let me move to Mr. Naylor. I would like to focus 
on your general suggestions for improving the program. Would a 
requirement that employers demonstrate that they nave a recruit- 
ment program for TJTC-eligible individuals eliminate the windfall 
you perceive? 

Mr. Naylor. I think it is one of the elements that will help elimi- 
nate the windfall, the hazards I was talking about. As you see, we 
think that training is the difference between a dead-end job and a 
job that actually sends that worker on an upward trajectory. 

Mr. Kopetski. How about a requirement that employers provide 
specific training to employees in order to obtain the credit? Does 
this address the problem you raise of high employee turnover, and 
will employers then have an incentive to keep the employee be- 
cause they have invested in that employee? 

Mr. Naylor. Yes. This is the type of trajectory that I think is 
positive. If you have invested in that employee, you have a com- 
pletely different view of them than if you haven't. 

With no training, they become a disposable employee, and this 
creates, as we have at Pony Express, 69 percent turnover in the 
first 6 months of this year. 

Mr. Kopetski. What is your response to Mr. Moody's approach 
that we try to keep this as simple a program as possible and not 
load it up with preconditions? 

Mr. Naylor. I worry that it feeds the same hazards. You are giv- 
ing a taxpayer reward to a company for creating as bad a job as 
he or she can create; and the difference between "loading up" and 
not is the difference between moving away from that hazard and 
creating a hazard. 

Mr. Kopetski. Do you think one of the benefits of the program 
is to get in the work ethic of arriving at work on time, punching 
the timeclock? 

Mr. Naylor. Yes, and that is solved, I think, by prevouchering. 
The most damning statistic I have heard is that some 84 percent 
of the people are hired without regard to TJTC eligibility. In other 
words, they are hired and then the company says, are you quali- 
fied? 



187 

So if we are honest about trying to recruit disadvantaged people 
and give them an advantage, we should know if we should give 
them that advantage. 

When two people come before us to be hired, one guy is going to 
bring us the tax credit and is disadvantaged and the other isn't. 
The program is supposed to favor that disadvantaged person, not 
to be oblivious to the question and discover, by accident, if you 
hired one of these people. 

Mr. Kopetski. These two areas of change are — one, the recruit- 
ment program, and two, the training program. If these were made 
a part of the tax credit, would the Teamsters support the extension 
of the tax credit? 

Mr. Naylor. If those two of the four recommendations we make 
are accepted? 

Mr. Kopetski. Yes. 

Mr. Naylor. Sure. 

Mr. Kopetski. That is what I like. I like short answers. Thank 
you very much. You earned your paycheck today, let me tell you. 

Mr. Kopetski. Mr. Cove, are there flaws in the OIG's audit of 
the TJTC Program, do you think; and could you suggest ways to 
design a more scientific study of this program? 

Mr. Cove. I don't know that that is my field of expertise, design- 
ing studies. What I do know is that, in fact, the Targeted Jobs Tax 
Credit can be an effective mechanism for integrating someone into 
the world of work and attaching them to the labor force; and I 
think that is a critical element, getting them in, getting them 
working. 

We have dealt principally with welfare recipients and we have 
found that the Targeted Jobs Tax Credit is — the companies are in- 
terested in taking advantage of that tax credit. But candidly, we 
feel that companies don't make the hiring decision principally on 
a Targeted Jobs Tax Credit — except as now with after the fact, 
kind of throwing the fishnet out there and seeing who they catch. 

Secretary Reich made a point this morning. He said, other tax 
credits really do work, such as investment tax credits and research 
tax credits. The reason that they work is because those are things 
that the businesses are in business to do anyway. If you look at 
this tax credit, it isn't something the businesses are in business to 
do anyway, which is hiring disadvantaged people. You are really 
trying to increase the up-tick of the hiring. 

My suggestion is that you use some form of intermediaries to 
market this and to prejudge whether the people are eligible, as we 
do in America Works. I think that you would find many of the 
problems that have been raised today eliminated. 

Mr. Kopetski. Let me see if this fits in. 

Do there need to be other incentives created for the private sec- 
tor to train and hire targeted groups? 

Mr. Cove. You asked the question before to members of the 
panel, would requiring businesses to do education and training be 
something that you would advise? 

I suggest, no, not to require them, but perhaps to make some in- 
centives available to companies to do upgrading through education 
and training. 



188 

What we have found in welfare-to-work programs — as has most 
of the research — education and training does not work very well as 
a first strike in removing a dependent person on welfare and get- 
ting them into work. It just doesn't seem to work. However, it 
works very well once the person is attached to the labor market. 

You might want to take some of the incentives that are now 
there for job program training, before the person goes into a job, 
and place it in the workplace as an incentive for the employer, ei- 
ther as a voucher that the — that the welfare recipient or other 
TJTC-eligible person had, or as a direct training grant to the com- 
pany for that individual. 

Mr. Kopetski. What about a different rate on the tax credit? 

Mr. Cove. I am sorry. 

Mr. Kopetski. What about a different rate on the tax credit a 
business has? 

Mr. Cove. I haven't really thought that through. I don't have a 
comment on that. 

Mr. Kopetski. That is very helpful. Thank you. 

Mr. Zivolich, how do you reconcile EEOC law with your sugges- 
tion that questionnaires be used in the TJTC Program? 

Mr. ZrvoLlCH. I don't. I think that is up to them, and that is my 
proposal. That is why I think the strategy is to identify people 
prior to hire. But I will leave that up to EEOC to come up with 
a questionnaire that would meet those needs. 

Mr. Kopetski. You suggest we provide private agencies with cer- 
tification authority under the TJTC Program. It is relatively un- 
usual to use private entities to certify a Federal benefit. What safe- 
guards can you suggest to ensure that appropriate standards are 
being applied in the certification process? 

Mr. ZrvoLlCH. I think the private agencies I proposed were non- 
profit agencies that are usually certified by State rehabilitation and 
other State agencies within a State, and I would hope there could 
be some safeguards set out that way. I made that recommendation 
because I would say that about 90 percent of people with disabil- 
ities are not currently eligible for the Targeted Jobs Tax Credit. 
State rehab only services about 10 percent of people with disabil- 
ities, and about another 2 percent are on SSI, so I made that rec- 
ommendation to hopefully streamline and get more people involved 
in the program so that they could come to a job with a voucher. 

Mr. Kopetski. I see. And Mr. Mclntire, could the money spent 
on the Targeted Jobs Tax Credit be better spent on a different, 
more cost-effective type of jobs program; and if so, what are your 
recommendations? 

Mr. McIntire. In many cases, I would argue that tax expendi- 
tures would be far better spent than credits programs; but in this 
case, I don't think that we can make the argument that you can 
reach as many people and that as many people are going to get a 
real job in a private- sector opportunity as you do with this pro- 
gram. 

The cost of $518 per certification is a very low per-person cost. 
As I said, if you look at successful JTPA participants, the people 
that do get jobs out of JTPA among a similar population, we are 
talking about a cost of $2,300 per job. So I have some concern that 
we could do better than the Targeted Jobs Tax Credit. However, I 



189 

do think that there is room to make the Targeted Jobs Tax Credit 
better. 

But I do think that we need to do some work looking at and un- 
derstanding what are the appropriate tax rates and wage bases for 
achieving maximum potential. 

Mr. KOPETSKI. You suggested a reauthorization and then an em- 
pirical study. How long of a study? 

Mr. MclNTlRE. Well, one of the issues that needs to be clearly 
understood is what the impacts are over time. Since the benefits 
to the participants in this program are not realized just in the year 
of subsidy, in fact, many of the benefits may be realized in the sub- 
sequent 2, 3, 4, or 5 years. So to some degree, the longer the study, 
the better. But I would suggest that you need to look at at least 
2 or 3 years' worth of data to be able to capture that part of the 
issue. 

I think in a shorter-term study, you can begin to answer the 
question what are the employer windfalls if you have some vari- 
ations in tax rates. That would allow us to essentially measure the 
responsiveness of employers to different tax rates and therefore 
help us understand how employers are actually behaving with re- 
gard to the composition of their employees. 

Are there employees made up of higher proportions of TJTC- 
eligible people if the tax rates go up? Does the proportion go up? 
I think it is an empirical question. Unfortunately, with an entitle- 
ment program, we have not been able to answer that question con- 
clusively. 

Mr. KOPETSKI. So you would look at employer behavior and also 
employee wages, I assume. 

Mr. MclNTlRE. And the continuity of work as a participant in the 
work force. 

Mr. KOPETSKI. Is there any one or two other major bits of infor- 
mation you as a scientist would really like to know? 

Mr. McIntire. The other piece that I would like to see looked at 
is in terms of training and screening investments. Those are front- 
end investments that employers have to make. A lot of employers 
of low-wage workers want their workers to stay longer, but they 
don't. It raises the risk of the investment to the employer if you 
backload those credits. 

So I would argue that if you really want to focus on that, what 
you want to think about is adding another training credit that 
could be negotiated, say between the employer, the employee and 
the employment service as a way of trying to get the employers to 
make that added training investment. 

Washington State is experimenting right now with an effort to 
do this with getting injured workers back to work. It is an idea 
that was set up by a joint business and labor task force and they 
are now just beginning to experiment with it. It is not a tax credit. 
It is a direct subsidy, but it is very much the same concept. 

Mr. Kopetski. So you would say, if I understand you, that rather 
than have it as a precertification requirement for an employer to 
have a training program, you would say that that could be some- 
thing extra, get the person employed and then they would get addi- 
tional credit if there was a training program at the jobsite. 



190 

Mr. McIntire. That is right. And empower the employee to enter 
into the negotiation about what that training is going to look like. 
And at the same time, give them the benefit of having the employ- 
ment security agency sort of looking over the shoulder saying, yes, 
this is a valid training program and activity. 

Mr. KOPETSKI. Jim. 

Mr. Moody. I was just going to say it is not in the employers' 
interest to churn these employees. They put a substantial amount 
of costs into hiring, screening, and providing whatever initial train- 
ing there is. And I think we need to rebut the presumption that 
some people seem to have that there is an advantage for turning 
these people over — for churning hirees, and that we need to build 
a new incentive so they keep people. There is already a strong eco- 
nomic incentive to keep people. 

Every time they have to start over with a new person, there is 
a front-end cost the employer has, regardless of what the Federal 
programs might be. So if we add to those front-end costs, we are 
making it more difficult for them to enter that program. The incen- 
tive is there already not to lose people once you have taken them 
on. 

Mr. KOPETSKI. Mr. Naylor, I will give you this last word with 
this panel. 

Mr. Naylor. I respectfully disagree. There is an incentive be- 
cause once somebody works for Pony Express for awhile, they begin 
to question management. They begin to join unions like the Team- 
sters. They begin to be a problem. They question $5 an hour. They 
question why they have to carry corrosives. They don't question 
their employer for the first couple of months. They are happy to 
have the job, but after the next couple of months, they begin to 
question them and then the company just starts over with another 
low- wage worker. 

Mr. Kopetski. OK. Well, Mr. McIntire, did you have a comment? 

Mr. McIntire. Just one observation, and that is that the inspec- 
tor general found that the average gross tax credit is just under 
$1,400. The total that each TJTC certification is worth is about 
$2,400. You would expect to see a much higher level of gross aver- 
age tax credit if, in fact, employers were trying to maximize the tax 
credit benefits to them. 

In a churning mode, what you do is use people for 6,000 dollars' 
worth of wages and then turn them off. They are not getting even 
$6,000 out of most of the people. So I don't see that that — it raises 
costs — it would raise their costs to have them leave before they had 
actually maximized the credit. 

Mr. Kopetski. Do you think that there may be some specific in- 
dustries or companies, though, that are taking advantage? 

Mr. McIntire. I think that is very possible. 

Mr. Kopetski. Mr. Naylor, I will give you the last word and 
move on. 

Mr. Naylor. We don't think Pony Express is so finely tuned that 
they have calculated that after $6,000, 90 percent of the workers 
will be gone. We think that churning exists. The 69-percent turn- 
over is the proof. 

Mr. Kopetski. OK Well, we can't solve all the problems here in 
this hearing today, but we will make a stab at some of them. I 



191 

want to thank each one of you for your time and your testimony 
and your expertise. We will move to the next panel. 

The National Council of Chain Restaurants is represented by 
Don Balfour; the National Restaurant Association and Job Oppor- 
tunities Business Symposium is represented by H. Shepard Bailey; 
National Retail Federation and Kmart Corp. as represented by 
James Misplon, the International Mass Retail Association, Edwin 
Wingate; and the National Broiler Council, Tom Hensley. 

Welcome, and I will review for this panel the rules of the game. 
We have a 5-minute summary of your testimony. Your entire testi- 
mony will be placed in the record. So we do appreciate, if you 
could, summarize in a roughly 5-minute time period. We will begin 
with Mr. Balfour who is assistant vice president-advocacy, Waffle 
House, Inc., from Norcross, Ga. Welcome. 

STATEMENT OF DON BALFOUR, ASSISTANT VICE PRESIDENT- 
ADVOCACY, NATIONAL COUNCIL OF CHAIN RESTAURANTS, 
WAFFLE HOUSE, INC., NORCROSS, GA. 

Mr. Balfour. Mr. Chairman, thank you. I am here also as the 
chairman for the National Council of Chain Restaurants. The 
NCCR is a national trade association whose membership is com- 
posed of 40 of the Nation's largest multi-unit, multi-State res- 
taurant chains. Collectively, these companies operate over 90,000 
establishments nationwide and employ an excess of 2 million peo- 
ple. 

Today, on behalf of NCCR's members who utilize the TJTC Pro- 
gram, I am here to urge that Congress extend this vital program. 
We believe that the Targeted Jobs Tax Credit Program has helped 
to change hiring practices in the industry. By the very nature of 
the TJTC's targeted population, many of the eligible people have 
little or no work experience. 

Historically, in our company, about 20 percent of those workers 
are welfare recipients. In my company, we give close to 50 percent 
of that credit back to the unit hiring manager's P and L, which, 
in turn, then becomes a bonus to him and each hiring manager 
gets close to about 50 percent of the credit in bonuses for doing the 
hiring and retaining of the TJTC worker. 

I find it interesting that the OIG's study suggests that 90-some 
percent of these employees would be hired anyhow. If that is the 
case, in my company, we must be crazy to be giving so much of this 
credit out in bonuses to hiring managers if we would have hired 
them anyhow. The program was initiated to give economically dis- 
advantaged people a leg up in the interview process. 

The people targeted by this program again are structurally un- 
employed and have little work experience and the credit is an in- 
centive to put these people in entry-level positions where they can 
learn basic work skills and develop a work history and start on a 
career path. I believe that without this program, many of these 
people could be left behind. The Targeted Jobs Tax Credit is the 
only program that Waffle House uses. 

Many of the Federal job training programs that exist we find to 
be overly burdensome. In looking at some of the Secretary's re- 
marks, I would encourage this committee to be very careful about 
putting too many requirements on the program that would possibly 



192 

kill the program by making it so burdensome that it will be almost 
impossible to use. 

Mr. Balfour. We prefer the streamline approach. However, 
there seems to be some instances where corrections need to be 
made. I would encourage that. Number one, we would support re- 
quiring employers to determine probable eligibility prior to offering 
a job. That is a little different than what the Secretary of Labor's 
position is in his statement this morning. We would support before 
hiring any employee, having an employer check to see whether a 
worker is probably eligible. We should be reasonably certain that 
these people are qualified before we go through the hiring process 
at all. 

In the Secretary's comments this morning, he talks about getting 
a certification or voucher from a government office prior to being 
hired. It takes sometimes up to 3 months to get a certification from 
a State agency. So if this were put in effect, it would, I believe, 
hurt the program. 

There are other things that I think we could do to make it more 
efficient and in closing, I would suggest that corporately we spend 
a lot of time and money trying to retain people. The idea that we 
would possibly hire someone and after $6,000, fire them, wouldn't 
make any economic sense. It goes without saying, I think, that 
each of us up here, if we could, would hire people and keep them 
forever. We would rather have 100 percent retention all the time. 
So the idea that companies are out there churning employees, I 
know in our company, this would not be the case. Tnank you very 
much, Mr. Chairman. 

[The prepared statement follows:] 



193 



TESTIMONY OF DON BALFOUR, WAFFLE HOUSE, INC. 

ON BEHALF OF 

NATIONAL COUNCIL OF CHAIN RESTAURANTS 

Mr. Chairman and members of the subcommittee, my name is Don Balfour I am a Vice 
President of Waffle House, Inc., which is headquartered in Norcross, Georgia and I am also the 
tax chairman for the National Council of Chain Restaurants. I am accompanied today by Terrie 
Dort who serves as the Executive Director of the National Council of Chain Restaurants (NCCR). 

NCCR is a national trade association whose membership is composed of 40 of the 
Nation's largest multiunit and multistate restaurant chains Collectively these companies operate 
over 90,000 establishments nationwide and employ in excess of 2 million people. Today, on 
behalf of NCCR's members who utilize the Targeted Jobs Tax Credit (TJTC), I am here to 
advocate that Congress extend this vital program. 

Waffle House has over 900 restaurants in 20 states. We believe in the Targeted Jobs Tax 
Credit program. We believe in it because our experience has shown that because of TJTC we 
have changed our hiring practices so that we now actively hire structurally unemployed workers 
that otherwise we would not have considered. By the very nature of TJTC's targeted population 
most of those eligible have little or no basic workplace skills. It is the credit that allows us to 
develop programs to seek out, recruit and train TJTC eligible workers. Since 1981, Waffle House 
has employed over 9,000 TJTC eligible individuals. From January 1, 1994 through August 31, 
1994, Waffle House has actively recruited, employed and received certifications for over 100 
TJTC workers per month. Historically, twenty percent of these workers are welfare recipients. 

Waffle House does have a very aggressive recruitment program for TJTC eligible workers. 
We use over 50% of the credit in bonus programs for our managers. Corporately, we give a 
bonus to the hiring manager and the TJTC associate. We also place the TJTC credit on the unit's 
profit and loss statement. This allows the unit manager and upper management to receive a 
percentage bonus which amounts to 30% of the credit. As a result, other bonuses also may be 
received. The credit is reflected in the unit's bottom line, specifically to encourage our hiring 
managers to give TJTC eligible applicants extra consideration and to retain economically 
disadvantaged workers once they are on the job. 

The OIG report states that many of the employees hired under the TJTC program would 
have been hired anyway. This finding is so contrary to Waffle House's experience, i.e. our 
aggressive recruiting program and bonus incentives, that we must take issue with the 
methodology used. We understand that the OIG questioned employers by first asking, "Is the 
individual working for you?", "If the employee is no longer working for you, why was the 
individual terminated?", followed by "Would your company have hired the individual had a tax 
credit not been available?". Given employers' concerns about violations of EEO laws, the hiring 
manager would always answer in the affirmative. This obvious intimidation of hiring managers, 
we believe, led to extremely prejudicial results and renders the study completely invalid. 

After all, the program was initiated to give economically disadvantaged people a step up 
in the interview and hiring process. Again, the people targeted by this program are the 
structurally unemployed. They have little or no basic job skills and many have never held a job. 
The credit is an incentive to put these people in entry level jobs, where they can learn basic work 
skills, develop a work history and get on a career path. Don't be mistaken, without TJTC, 
economically disadvantaged participants will not have that same advantage and will be left behind. 

The TJTC is the only job program Waffle House uses. Many of the Federal job training 
programs that exist we find to be overly burdensome. In many instances the workers are pre- 
trained and yet we always need to re-train. We prefer the streamlined TJTC process where we 
can bring in people who truly need a job and train them to perform their duties. Many of these 
workers go on to be highly valued and highly productive employees. In addition, we have found 
that many of our TJTC workers stay with the company longer than non-TJTC eligible employees 



194 



For all of these reasons, we strongly support the extension of the program If there need 
to be changes to satisfy concerns about the program, then I would encourage 

1) requiring employers to determine eligibility prior to offering a job; or 

2) requiring employers to notify the Job Service Centers of their willingness to hire TJTC 
individuals; or 

3) requiring employers to develop outreach programs similar to our bonus systems and/or 
agreements with community based agencies. 

Our biggest problem with TJTC is that every year we are fighting for an extension. Our 
management knows that TJTC is due to expire on December 31, 1994. The question I am getting 
from management is, "Why should I continue to recruit, employ and train TJTC eligible 
individuals, if the program is about to die?" Their confidence in TJTC has diminished based on 
previous years' experience, most specifically the lengthy hiatus between July, 1992 and August, 
1993. Without confidence that the program has a future, the infrastructure that has been built 
over the past several years will deteriorate. Even a short lapse in the program causes our 
managers to lose interest. We must have an extension of the program if we are to build on its 
successful record. 

Thank you. 



195 

Chairman Rangel [presiding]. Mr. Bailey. 

STATEMENT OF H. SHEPARD BAILEY, DIRECTOR OF TAXES, 
PIZZA HUT, INC., ON BEHALF OF JOB OPPORTUNITIES 
BUSINESS SYMPOSIUM (JOBS); AND NATIONAL RESTAURANT 
ASSOCIATION 

Mr. Bailey. Yes, good afternoon, Mr. Chairman. I am the direc- 
tor of taxes of Pizza Hut, Inc. based in Wichita, Kans. I am appear- 
ing today on behalf of the National Restaurant Association and the 
Job Opportunities Business Symposium, a coalition of nine major 
employers. 

I appreciate the opportunity to address this committee on behalf 
of and in support of a permanent extension of the Targeted Jobs 
Tax Credit. I will keep my remarks brief, but I would request that 
my report be submitted into the record. 

Chairman Rangel. Without objection. 

Mr. Bailey. The Targeted Jobs Tax Credit really is a clear exam- 
ple of a government program that achieves its intended result and 
really any allegation or indication to the contrary is perhaps found- 
ed in an inadequate understanding of how the program works on 
a day-to-day basis and on the hiring practices of employers. 

In today's competitive environment, companies continually strive 
to be the least-cost producer in their category. To this end, compa- 
nies look for ways to leverage their cost structure. Tax incentives 
such as the Targeted Jobs Tax Credit work to do just that. The 
TJTC provides companies the ability to hire and train people in a 
more cost-efficient manner. 

As an example, since 1990, Pizza Hut has hired over 30,000 
members of the targeted groups outlined in section 51 of the Inter- 
nal Revenue Code. The important part of this statistic is the 20 
percent compounded growth in our hiring of TJTC employees, cul- 
minating in our 1994 forecast of 8,000 individuals. 

As a major part of our TJTC initiative, Pizza Hut sustains an ag- 
gressive program to hire persons with disabilities. We refer to this 
program as Jobs Plus. Through our Jobs Plus Program, Pizza Hut 
is recognized as the largest employer in the Nation of persons with 
significant disabilities, with more than 13,000 TJTC disability 
placements since 1988. 

Over the years, Pizza Hut has been recognized by various Fed- 
eral, State and local agencies for our efforts in employing the dis- 
abled. In 1993, for example, Lisa Hawkins, a restaurant manager 
of ours in Cookeville, Tenn., received the Employer of the Year 
Award from the President's Committee on Employment of People 
with Disabilities. We are very proud of what our Jobs Plus Pro- 
gram has been able to accomplish over the years. 

Like many employers presently using the Targeted Jobs Tax 
Credit, the tax credit provided by the program was an important 
factor in Pizza Hut starting our Jobs Plus Program. Pizza Hut is 
committed to making our entire TJTC Program work the way it 
was designed. We have found the largest barrier to a successful 
program is a lack of awareness at the hiring level of not only the 
mechanics, but the intent of the program. And we think we have 
actually cracked the code to that. 



196 

First, in 1991, we brought into the tax department as national 
TJTC coordinator, Alan Mclntire, a former restaurant manager of 
ours, who had successfully developed TJTC Outreach Programs in 
his restaurant. His duties are now to focus full time on developing 
and expanding Pizza Hut's TJTC Program. Recently, we further 
strengthened our program by adding three more people into the tax 
department to focus on the Targeted Jobs Tax Credit. 

Next, we instituted a system to motivate our restaurant man- 
agers to focus on the Targeted Jobs Tax Credit. Managers who 
drive their hiring and retention results receive a $75 bonus for 
each new hire. I think these elements clearly show Pizza Hut's in- 
vestment in the Targeted Jobs Tax Credit. Frankly, I believe that 
more employers would like to invest even further in the Targeted 
Jobs Tax Credit. However, the on-again, ofF-again approach has 
caused a reluctance on the part of many employers to even bother 
with the program, much less invest in it. 

Additionally, I think States have similar concerns. Allowing the 
current program to lapse into hiatus again will cause irretrievable 
losses of not only the momentum at the States and at the partici- 
pating employers, but more importantly, the employment opportu- 
nities afforded to individuals from the targeted groups. 

The Targeted Jobs Tax Credit is an efficient program which does, 
in fact, encourage companies to provide jobs to workers who need 
to learn communication skills, how to work as a member of a team, 
how to come to work on time in a presentable manner and also to 
learn literacy skills. It is a time-tested fact that tax incentives such 
as the Targeted Jobs Tax Credit strongly motivate the private sec- 
tor. 

It is a natural conclusion, therefore, that if the Targeted Jobs 
Tax Credit is not renewed, this will act as an economic disincentive 
for employers to sustain their current TJTC hiring initiatives. 
Pizza Hut respectfully requests that this TJTC legislation be re- 
newed without delay and also be made a permanent part of the 
Tax Code. This assurance of stability would enable employers to 
factor in the economic effect of the tax credit in their future hiring 
forecasts. With timely and permanent renewal, the Targeted Jobs 
Tax Credit can and will continue to be an efficient way to increase 
job opportunities for workers facing special barriers in the work 
force. Thank you. 

[The prepared statement follows:] 



197 



STATEMENT BY H. SHEPARD BAILEY 

DIREC TOR - T AXES, PIZZA HUT 

HOUSE COMMITTEE ON WAYS AND MEANS 

SELECT REVENUE MEASURES SUBCOMMITTEE 

SEPTEMBER 29, 1994 



Good morning. My name is Shep Bailey, and I am the director of tax at 
Pizza Hut, Inc., based in Wichita, Kansas. I am appearing on behalf of the 
National Restaurant Association as well as the Job Opportunities Business 
Symposium, a coalition of nine major employers, in support of a 
permanent extension of the Targeted Jobs Tax Credit CTJTC). 

TJTC is a clear example of a government program that achieves its 
intended result. Any allegation or indication to the contrary is founded 
perhaps in an inadequate understanding of how the program really works 
on a day-to-day basis, and its effect over time on the hiring practices of 
employers. 

In today's competitive environment, companies continually strive to be 
the least cost producer in their category. To this end, companies look for 
ways to leverage their cost structure. Tax incentives such as TJTC work to 
do just that TJTC provides companies the ability to hire and train people 
in a more cost efficient manner. Without such hiring incentives, many 
companies will likely turn to other cost cutting measures, such as 
automation, thereby reducing the need for employees. The restaurant 
industry now provides many entry level and other jobs suitable for persons 
with little or no job history. 

Since 1990, Pizza Hut has hired over 30,000 members of the targeted 
groups outlined in Section 51 of the Internal Revenue Code. The 
important part of this statistic is the year-to-year growth in hiring of TJTC 
employees. In 1990, we hired just over 4,000 members of targeted groups. 
With the exception of the latter part of 1992, and first half of 1993, the 
period dramatically impaired by the expiration of TJTC, our hiring of 
members of targeted groups has increased to our 1994 forecast of 8,000 
people. This represents a compounded growth rate in hiring of over 20% 
for the 5-year period. 

As a major part of our TJTC initiative, Pizza Hut engages in an 
aggressive program to hire persons with disabilities. We refer to this 
program as Jobs Plus. Through our Jobs Plus program, Pizza Hut is 
recognized as the largest employer in the nation of persons with 
significant disabilities, with more than 13,000 TJTC disability placements 
since 1988. Over the years, Pizza Hut has been recognized by various 
federal, state and local organizations for our efforts in employing the 
disabled. In 1993, Lisa Hawkins, our restaurant manager from Cookeville, 
Tennessee, received the Employer of the Year Award from the President's 
Committee on Employment of People with Disabilities. 

Another example of the success of Jobs Plus is described in a letter we 
recently received from Mindy Miller of the Indian Summer Foundation in 



198 



Harleysville, Pennsylvania. The letter states that "Pizza Hut has been a 
major supporter of our Supported Employment program to provide real 
jobs in the community for people with developmental disabilities. Carol 
has been employed as a prep person/dishwasher at the Souderton Pizza 
Hut for more than two years. The staff at the store have been a 
tremendous support to Carol, providing transportation and friendship as 
Carol's skills expand. We can attribute much of Carol's success today to 
the efforts of those staff persons that gave her a chance at Pizza Hut. In 
addition to Carol's success, other trainees from Indian Creek's 
Employment Program are working at Pizza Huts in Lansdale and at the 
Airport Square store. I can not begin to tell you how pleased our trainees 
are to be competitively employed at Pizza Hut!" 

We are very proud of what our Jobs Plus program has been able to 
accomplish over the years. Like many employers presently using TJTC, the 
tax credit provided by the program was an important factor in Pizza Hut 
starting our Jobs Plus program. 

Pizza Hut is committed to making our entire TJTC program work the 
way it was designed. We have found the largest barrier to a successful 
TJTC program is a lack of awareness at the hiring level of not only the 
mechanics, but the intent of the program. We believe we have "cracked the 
code," and our solution involves three points: 

First, in 1991, an exceptional Pizza Hut restaurant manager in the 
Atlanta area began successfully hiring and retaining a significant number 
of members of targeted groups. He was determined to make the program 
a success, and did so by building outreach programs which led to a strong 
and profitable team in his restaurant. To leverage his particular skills, we 
moved him into our tax department as our National TJTC Coordinator. 
His name is Alan Mcmryre, and he is here with me today. Many states' 
employment security agencies as well as employers have solicited his 
advice in trying to find new and simpler ways to manage their TJTC 
programs. 

Our second point in making TJTC successful is that Pizza Hut has 
markedly, albeit cautiously, expanded its investment in supporting TJTC. 
Earlier in 1994, we hired three more people as regional TJTC coordinators 
reporting to Alan. They are focused full-time on training, follow-up and 
improvement in our program. 

Third, and perhaps most importantly, we have instituted a system to 
motivate our restaurant managers to focus on TJTC. The more the 
managers engage in driving their TJTC hiring and retention results, the 
more they can improve their own bonuses. On average, for every member 
of a targeted group that a manager hires and certifies, Pizza Hut pays out 
$75 in additional bonus to the hiring manager. 

These three elements, combined with the tax credit, have been the 
winning combination that has allowed us to make this program successful 
at Pizza Hut. Please note that the three aspects discussed above represent 



199 



a real dollar cost to Pizza Hut. These expenditures, combined with our 5- 
year compounded hiring growth rate in excess of 20%, show clearly that 
Pizza Hut has not "reaped a windfall" as some have mistakenly asserted, 
but rather has succeeded in accomplishing Congress' intent by investing in 
TJTC. 

An example of our successful investment in the program is the work Mr. 
Mclntyre has done with the states' employment security agencies around 
the country. Most recently, Mr. Mclntyre has made two trips to New York 
to assist the state in its project to redesign the certification process. The 
effect of Mr. Mclntyre's efforts was to dramatically simplify and reduce 
the documentation required for certification, thus promoting program 
utilization. This type of involvement between the private sector and the 
states is critical due to the complexity caused by 50 states administering a 
single federal program in 50 individual ways. 

Another example of Pizza Hut's successful involvement is in the area of 
employee retention. Congress' addition in 1986 of a minimum retention 
requirement of 90 days or 120 hours acts as an excellent gauge of how a 
company is doing at employing persons whose historical turnover is higher 
than the national average. Has Pizza Hut been able to "hold onto" its 
people longer? Clearly, yes. For the 12-month period ending with the 
law's expiration in June "92, members of targeted groups met the retention 
requirements at Pizza Hut 82% of the time. For the most recent 12 months, 
it's 91%. For year-to-date 1994, it's 95%. 

Frankly, I believe more employers would like to invest even further in 
TJTC. However, the "on again, off again" approach which employers 
have had to endure since 1979 has bred widespread skepticism, and has 
caused a reluctance on the part of many to even bother with the program, 
much less invest in it. As you may know, the most recent hiatus was for 13 
months. The disruptive effects are still being felt today, both in employers' 
efforts to sponsor the program, as well as in states' efforts to administer 
the program. Many states, wanting to avoid being "burned" again, have 
not staffed up to pre-hiatus levels, and some, in fact are beginning to close 
offices. New Hampshire has virtually shut down their TJTC services. 

When the law was renewed in August of last year, Pizza Hut alone had 
a backlog at the States' employment security agencies of 8,500 vouchers 
awaiting approval. We have just recently been able to reduce our backlog 
down to 2,000 vouchers. Allowing the current program to lapse into hiatus 
will yet again cause irretrievable losses of not only the momentum of the 
states and participating employers, but more importantly the employment 
opportunities afforded to individuals from the targeted groups. 

TJTC is an efficient program which does in fact encourage companies to 
provide jobs to workers who need to learn communication skills, work as a 
member of a team, come to work on time in a presentable manner, and 
learn literacy skills. It is a time-tested fact that tax incentives such as TJTC 
strongly motivate the private sector. It is a natural conclusion that if TJTC 
is not renewed, this will act as an economic disincentive for employers to 
sustain their current TJTC hiring initiatives. 



200 



Pteza Hut respectfully requests that the TJTC legislation be renewed 
without delay, and further that the renewal not be in the form of a 
temporary, stop-gap measure. Rather, the renewal should be a 
rxjrmanent addition to the tax code. This assurance of stability would 
enable employers to factor in the economic effect of the tax credit m 
building their future hiring forecasts. With timely and permanent renewal, 
and the continued and increased investment in the program by employers 
like Pizza Hut, TJTC can and wul continue to be an efficient means to 
increase job opportunities for workers facing special barriers in the 
workplace. Thank you. 



201 

Chairman Rangel. Thank you. 
Mr. Misplon. 

STATEMENT OF JAMES L. MISPLON, DIVISIONAL VICE 
PRESIDENT, CORPORATE TAXES, KMART CORP., ON BEHALF 
OF NATIONAL RETAIL FEDERATION, AND KMART CORP. 

Mr. Misplon. Good afternoon, Mr. Chairman. I am Jim Misplon. 
I am divisional vice president, corporate taxes, for Kmart Corp. 
headquartered in Troy, Mich. I am testifying today on behalf of the 
National Retail Federation and Kmart Corp. 

The National Retail Federation is the world's largest retail trade 
association with membership that includes the leading department, 
specialty, discount, mass merchandise and independent stores. Our 
members represent an industry that encompasses over 1.3 million 
U.S. retail establishments which employ nearly 20 million people, 
1 in 5 American workers. 

These retail establishments registered sales last year which were 
in excess of $2 trillion. Kmart Corp., my employer, and a member 
of the NRF, employs 300,000 associates in support of its 4,000 spe- 
cialty and general merchandising stores, which operate in all 50 
States, Puerto Rico and the Virgin Islands. 

I appear before you today to tell you that the Targeted Jobs Tax 
Credit Program does what it was created to do. It is a valuable tool 
that should not be allowed to expire. Congress enacted the Tar- 
geted Jobs Tax Credit Program in 1978 as part of President 
Carter's Urban Initiatives Program. 

The Targeted Jobs Tax Credit sought to induce the private busi- 
ness sector to create employment opportunities for structurally un- 
employed individuals who face extraordinary barriers to entering 
the mainstream labor market. In studying ways in which Kmart 
could maximize the utilization of this credit, we have developed a 
program which we call the Outreach Program. We believe this pro- 
gram creates a win-win situation for the targeted group member, 
the U.S. taxpayer and Kmart. 

Let me briefly explain. The first step in our program is to insti- 
tute a system to coordinate the recruitment of TJTC individuals 
with the local jobs service office. Kmart is proud of the fact that 
we have developed a nationwide TJTC Outreach Program in part- 
nership with local job service offices that is being actively used by 
our Kmart store managers across the country. 

These partnerships are now an inherent part of Kmart's cor- 
porate policies and practices. Our present system requires each 
new or expanded Kmart store to coordinate with local employment 
service offices to assist in the recruitment of qualified applicants. 

The second step in our program is to notify our store managers 
that the TJTC benefit would be passed back to the store's budget. 
This provides the store manager with the funds to absorb addi- 
tional training and coaching that is most often needed. It also pro- 
vides the motivation to the store manager to seek out additional 
TJTC eligible employees. 

Our third step, once we hire TJTC-eligible individuals, is to pro- 
vide the necessary training that develops their skills and allows for 
long-term employment. As a result of the Targeted Jobs Tax Cred- 
it, rather than being hard to employ or structurally unemployed, 



202 

thousands of welfare recipients, disadvantaged youth, Vietnam vet- 
erans and others now wear the uniform of an employed U.S. work- 
er. 

As I said, this program represents a win-win situation for all in- 
volved. The target individual is now gainfully employed learning 
job skills and becoming a good employee. The Federal and State 
governments have one less person receiving some type of govern- 
ment assistance. 

The Kmart Corp. has a good employee and is provided a tax cred- 
it to help defray the cost of extra training and to motivate the store 
manager to continue the cycle. Our experience shows that TJTC- 
eligible employees often are more committed and stay longer than 
non-TJTC-eligible employees. While turnover is not an unusual 
event in the retailing industry, many of our associates have been 
with Kmart for many years. 

This year alone, Kmart Corp. will distribute 32,900 service rec- 
ognition pins. These pins are given to associates celebrating a 5- 
year increment anniversary. This year's recipients represent 
336,847 years of service to our company. 

Mr. Chairman, we believe the Targeted Jobs Tax Credit Program 
does work and we believe it would be an injustice to allow it to ex- 
pire. Thank you for providing me the opportunity to appear here 
before you. 

[The prepared statement follows:] 



203 



Targeted Jobs Tax Credit 

Statement of James L. Misplon 
On behalf of the 
National Retail Federation and Kmart Corporation 

On behalf of the National Retail Federation (NRF) and Kmart Corporation, I am 
honored to be here today to testify in support of the Targeted Jobs Tax Credit (TJTC). 
My name is James L. Misplon and I am the Divisional Vice President, Corporate Taxes 
for Kmart Corporation. 

The National Retail Federation is the world's largest retail trade association with 
membership that includes the leading department, specialty, discount, mass 
merchandise and independent stores. NRF members represent an industry that 
encompasses over 1.3 million U.S. retail establishments which employ nearly 20 
million people, or 1 in 5 American workers. These retail establishments registered 
sales last year which were in excess of $2 trillion. Thirty national and 50 state 
associations are affiliated with the NRF. NRF's international members operate stores 
in over 50 nations. 

Kmart Corporation employs 300,000 associates in support of its 4,000 specialty 
and general merchandise stores which operate in all 50 states, Puerto Rico and the 
U.S. Virgin Islands. In addition to the company's 2,350 core Kmart stores and Super 
Kmart Centers, Kmart Corporation currently owns Builders Square, Borders and 
Walden Books, OfficeMax and The Sports Authority. International operations stretch to 
the Czech and Slovak Republics, Canada, and through joint venture operations, 
Mexico and Singapore. 

Since its inception in 1978, the Targeted Jobs Tax Credit is an innovative 
program that has created a partnership between government and the private sector. 
Designed to reduce structural unemployment, TJTC provides important employment 
and training incentives that, in turn, bring thousands of "hard to employ" citizens into 
the job market. 

Kmart Corporation is a proud partner in local job service programs that have 
been developed to support the Targeted Jobs Tax Credit. As a result of these local 
partnerships, each year Kmart hires thousands of people nationwide who otherwise 
likely would remain structurally unemployed. Not only do retailers like Kmart provide 
jobs to these individuals, as their employer, we also provide training that develops 
their skills and open long-term opportunities and employment prospects. 

As I mentioned, 1 in 5 American workers are employed within the retail industry. 
In today's increasingly service-oriented economy where consumers are looking for 
value, convenience and selection, many retail employers, such as Kmart Corporation, 
are growing by opening new or expanded stores in cities and towns across the nation. 

Nationwide, in our cities, suburbs and smaller rural communities, Kmart is 
engaged in a $3.5 billion modernization and expansion program. In 1994 alone, we 
will open, expand or modernize over 240 of our Kmart and Super Kmart Center stores. 
Each time we expand or build a new store, we offer additional jobs -- jobs for which 
TJTC-eligible applicants are recruited. 

A new Kmart store employs 150 to 200 full-and part-time workers. An average 
Super Kmart Center store, which operates 7 days a week, 24 hours a day, employs 
between 400 and 600 workers. These "around-the-clock" stores meet the needs of 
shoppers who are time-pressed and enjoy the "always open" convenience; but also, 
they fill an important employment need for many of our employees who cannot work 
during the day or are only available to work part-time. Each of these new stores seeks 
and hires TJTC-qualified employees. Each of these stores offers jobs to citizens who 
otherwise would remain structurally unemployed. 

At times when other industries are eliminating jobs forever, the retail industry is 
providing critical employment opportunities that are vital to our nation's economy. 



204 



When we open a new store, for example, frequently we receive 4 to 5 times the 
number of applicants we actually need. Now, perhaps more than ever, the Targeted 
Jobs Tax Credit program needs to be continued to ensure that these employment 
opportunities continue to be extended to those who otherwise might be ignored as 
"hard to employ." 

Kmart Corporation is proud of the fact that we have developed a nationwide TJTC 
outreach program in partnership with local job service offices that is being actively 
used by our Kmart store managers nationwide. These partnerships are now an 
inherent part of Kmart's corporate policies and practices. At Kmart, each of our store 
managers is responsible to meet a business plan. The tax credit they receive by hiring 
these TJTC-eligible employees provides an important incentive that motivates our 
individual store managers to seek out these special applicants. 

Managers of newly opening Kmart stores assign preference to TJTC applicants 
who the local job service offices have provided. If there are 5 entry level positions 
available, for example, and 3 out of 10 applicants are TJTC eligible, the store manager 
will attempt to fill 3 of the 5 positions with the TJTC-qualified applicants. Typically, 
these jobs are in our store processing centers, or are cashier and stocking positions. 
We pay at the prevailing wage for the market. They are trained and often times, TJTC- 
eligible employees are assigned "job coaches" who provide ongoing individualized 
support. All of our employees receive regular increases after 90 days on the job, and 
additional wage increases on their first year anniversary. Employees also are eligible 
for regular promotional increases determined by the jobs which they hold and how 
well they perform their responsibilities. 

In addition to working with local job services agencies to recruit TJTC-eligible 
employees when we open new stores, our partnerships with the local job services 
offices are ongoing. After the new store is established, the job service continues to 
send TJTC-qualified individuals to our stores as we fill additional jobs. These job 
service outreach partnerships did not exist prior to TJTC. Clearly, TJTC is the central 
link in these critical public-private sector employment partnerships. 

As a result of TJTC, rather than being "hard to employ" or "structurally 
unemployed" thousands of welfare recipients, disadvantaged youth, Vietnam-era 
veterans and others now wear the uniform of an employed U.S. worker. 

Our experience shows that TJTC-eligible employees often are more committed 
and stay on longer than non-TJTC eligible employees. While turn-over is not unusual 
in the retail industry, we take many steps to minimize turn-over. TJTC-eligible 
employees do not turn-over faster than their non-TJTC colleagues. As our record for 
TJTC indicates, our actual experience is at odds with the conclusions of the Office of 
the Inspector General of the Department of Labor. 

Certainly, every retailer or other company that participates in TJTC could provide 
facts and figures about their track record. In 1994 alone, Kmart will hire approximately 
12,000 employees who work in our stores as a result of TJTC outreach programs. 

While facts and figures should not be ignored, neither should the names and 
faces of these now-working citizens. People like Sandy and Brian in Clearfield, 
Pennsylvania both of whom joined Kmart a year and a half-ago as a result of a local 
job service TJTC-referral and both of whom are good workers who Kmart has already 
promoted. People like Marcella and Charles in Dunkirk, New York who joined Kmart 
in the summer of 1993, also as a result of their store manager working with the local 
job service program. Both Marcella and Charles show solid potential having already 
earned promotions. And we should not forget people like Virgil in Lexington, Kentucky 
who is a deaf mute. His store manager reports that he is doing a great job in the 
store's processing center where he has worked for two years. 

The list of real people could be much longer. The important point to make is that 
today they have learned new skills and are contributing members of our company. 
Clearly, Kmart is proud of our success in working with local job service programs and 
we recognize the incentive TJTC provides to these efforts by our store managers. 



205 



Critics of the Targeted Jobs Tax Credit might tell you, the people we hire 
through TJTC programs would have been hired anyway. To some extent this may be 
true. However, this fact alone does not mean TJTC is not working. TJTC outreach 
programs provide access to many of the "hard to employ". From our perspective, 
elimination of TJTC would threaten the benefits experienced by the individual citizens 
and remove the incentive for our store managers to pay special attention to these 
prospective employees. 

I would suggest that the members of this committee consider the recent 
Congressional testimony of Mr. Douglas Ross, Assistant Secretary of the Department 
of Labor, Training and Development who states that if only 30 percent of eligible 
workers are hired as a result of TJTC, that "the program's benefits easily exceed its 
costs ... (and) ... the TJTC would in fact be a cost-effective program." It is our 
contention that because of the outreach and job services programs, TJTC exceeds this 
30% threshold. 

If the critics prevail and TJTC is eliminated or allowed to lapse, there would be at 
least three significant and immediate effects: 

1) Retailers would reduce the number of TJTC-eligible hires. Preference 
assigned to these job-candidates will dissipate without volunteered financial support 
for these hires. 

2) Funds for supplemental training of TJTC-eligible employees will be reduced. 
TJTC-eligible employees who require additional training beyond the initial training 
period currently are assigned "job coaches" who provide individualized attention and 
support. Tax credits help to defray the business cost of this extra-support. If the funds 
are not available, the critical training and coaching would likely stop as the time and 
resources would be used elsewhere. 

3) Opportunities for advancement would be reduced. In the past year, Kmart has 
promoted over 1 ,200 hourly associates to salaried management positions. TJTC- 
eligible employees are included in those ranks. Kmart strongly encourages these 
types of promotions and have had years of success in doing so. With reduced 
preference of TJTC qualified individuals, these opportunities are diminished. 

The critics of TJTC should not prevail. Much more economic good can be done 
through continuation of the Targeted Jobs Tax Credit program. 

The National Retail Federation and Kmart Corporation strongly support the 
continuation of Targeted Job Tax Credits for its role in providing a source of applicants 
for our stores, and also for the financial support in developing those recommended 
and hired. Any improvements which need to be made in the TJTC program can be 
worked through. It is not our intent, or role, to recommend specific suggestions at this 
time. Our experience suggests, however, that improvements can best be made as the 
program remains active and vibrant. 

The National Retail Federation and Kmart Corporation strongly encourage a 
commitment to TJTC and the continuity of the program. Since its inception in 1978, 
there have been 2 significant lapses in the TJTC program. Such "stops and starts" are 
not good business. They hurt the "hard to employ" and in turn the communities in 
which these citizens live. They also hurt the state administrative agencies who help 
administer TJTC. The historic interruptions should not be repeated. The Targeted 
Jobs Tax Credit should be extended and not allowed to lapse for a third time come 
December 31, 1994. 

In the spirit of the TJTC public-private sector partnerships that are working 
nationwide, and on behalf of the National Retail Federation and Kmart Corporation, I 
urge this Subcommittee to find a way to extend this valuable program while Congress 
determines what, if any, long-term changes need to be made. Thank you. 

### 



206 

Chairman Rangel. Mr. Misplon, I mispronounced your name. I 
apologize. 

STATEMENT OF EDWIN H. WINGATE, SENIOR VICE PRESIDENT 
FOR PERSONNEL, DAYTON HUDSON CORP., ON BEHALF OF 
THE INTERNATIONAL MASS RETAIL ASSOCIATION 

Mr. Wingate. Mr. Chairman, I am Edwin Wingate. I am senior 
vice president, personnel, for the Dayton Hudson Corp. We are 
headquartered in Minneapolis, Minn. I am testifying on behalf of 
the International Mass Retailing Association, referred to as IMRA, 
which represents about 160 mass retailers around the United 
States, operates more than 54,000 retail stores, employs about 1.3 
million employees and in sales volume represents the vast majority 
of the about $245 billion mass retail industry in this country. 

The discount retail sector has been referred to as the new engine 
for job creation. The discount retail industry has represented about 
20 percent of job growth in the United States since the economic 
recovery began in 1991. 

Dayton Hudson Corp., which is my employer and is a member of 
IMRA., is the Nation's 15th largest employer with about 175,000 
employees. Our operating companies include target stores, an 
upscale discount retailer, and several department store companies, 
including Mervyn's, Marshall Field's, Hudson's and Dayton's. We 
operate 930 stores in 33 States. 

Since 1984, Dayton Hudson has hired about 120,000 TJTC- 
eligible individuals. Without the Targeted Jobs Tax Credit, we 
would have been far less likely to hire, train and retain those who 
are not work-ready and by work-ready, we mean those who do not 
have work experience, training or track record, do not have the 
basic customer service skills that we need or who cannot perform 
entry-level job requirements without extra training and investment 
on our part. 

Like many other companies, Dayton Hudson maintains an inter- 
nal staff to work with all stores within our corporation to develop 
relationships with State employment agencies and other sources of 
underemployed individuals. There are several reasons why the Tar- 
geted Jobs Tax Credit works from our standpoint. 

First, it places the initiative to hire with the employer without 
a great deal of bureaucratic complication. While the hiring man- 
ager does not know for a fact that a given applicant is qualified, 
that manager has gained the knowledge through experience in 
looking at applications and has a very clear indication of that qual- 
ification, such as periods of unemployment, lack of work experi- 
ence, spotty employment histories, et cetera. 

Second, once an individual is hired and working, the employee's 
qualification is known and the credit has a significant influence on 
our willingness and ability to train and retain such employees. 

Third, because of the tax credit, every district in our business 
has direct contact with numerous local agencies which help place 
disabled workers, AFDC recipients, and members of other unem- 
ployed groups. We also have a national agreement with Goodwill 
Industries, which helps us place candidates, many of whom and 
most of whom are TJTC-eligible. 



207 

The program is an important factor in our efforts to hire, train 
and retain eligibles under their regulations. What we hear you ask- 
ing, as we have sat through this meeting this morning is does this 
program truly result in hiring, training and retaining individuals 
whom otherwise would not be hired, trained and retained and our 
truthful answer is, yes, it does. 

First, in the area of hiring, it would be helpful if we had a prac- 
tical way to know before the fact. And if that is achievable, fine. 
But as I have mentioned earlier, we have become skilled at guess- 
ing, looking at backgrounds as to those who are qualified. 

Second, in training, we are more patient and give added effort 
and expense to develop job skills and they are eligible because of 
the financial incentive. And in terms of retention, our willingness 
to continue employment of TJTC employees is greatly increased in 
spite of skill deficiencies as a direct result. And the true situation 
is the longevity of TJTC individuals is about the same in our com- 
pany as it is for those who are not qualified. 

We are a low-wage industry and some of the comments that the 
Secretary of Labor made I believe we would argue with. First of all, 
the idea of having a back-end loaded incentive would work against 
our efforts because the cost of training and developing is in the 
early portion of employment and not in the later portion. The off- 
again, on-again history of this program has a disruptive effect on 
the fulfillment of the objectives of the Targeted Jobs Tax Credit. 

If such an intermittent program continues, it will erode ours and 
others' willingness to involve government agencies to give it appro- 
priate support. Therefore, we are here to argue that not only 
should the TJTC Program be continued, but that it should be con- 
tinued on a 5- to 10-year basis or a permanent basis so that it will 
have the solidified effort that it needs in order that we will con- 
tinue to give it our full support. 

Thanks very much for our being here and we would be very 
pleased to work with your staffs in identifying those areas whicn 
would improve the program if the Congress moves in that direction. 
Thank you very much, sir. 

[The prepared statement follows:] 



208 



STATEMENT OF EDWIN H. WINGATE 

SENIOR VICE PRESIDENT, PERSONNEL, DAYTON HUDSON CORP 

ON BEHALF OF 

THE INTERNATIONAL MASS RETAIL ASSOCIATION 

Mr. Chairman, Committee Members, 

My name is Ed Wingate. I am Senior Vice President of Personnel for the Dayton Hudson 
Corporation, headquartered in Minneapolis, Minnesota. 

I am testifying on behalf of the International Mass Retail Association (TMRA). IMRA 
represents more than 160 mass retailers, including discount department stores, warehouse 
clubs, and off-price stores, as well as 550 major suppliers. IMRA's retail members operate 
more than 54,000 retail stores and employ over a million individuals. In terms of sales 
volume, IMRA's members represent the vast majority of the $245 billion mass retail 
industry in the United States. 

The discount retail sector is often referred to as the "new engine" for job creation. Since 
1991, the number of jobs in the discount retail industry alone increased over 48% and has 
represented over 20% of job growth in the U.S. since the economic recovery which began 
in 1991. The number and nature of retail jobs has caused the Targeted Jobs Tax Credit 
offering to be a real factor in retailers' willingness and ability to employ TJTC eligible 
individuals. 

Dayton Hudson Corporation, my employer and a member of IMRA, is the nation's 1 5th 
largest employer, with about 175,000 employees. Our operating companies include Target 
stores (an upscale discount retailer), and several department store companies, including 
Mervyn's, Marshall Field's, Hudson's and Dayton's. We operate over 930 retail stores in 33 
states. 

In Dayton Hudson alone, since 1984, we have utilized the Targeted Jobs Tax Credit 
program as an incentive to seek out, hire, train and retain over 120,000 TJTC-eligible 
individuals. 

We rely on TJTC to help offset the incremental costs of hiring and training individuals who 
do not come "work ready." Without TJTC, we would be far less likely to hire, train and 
retain most of those who are participants in the program. (When we refer to individuals as 
not "work ready," we mean those who do not have experience, training, or a track record of 
being at work at scheduled times, who do not have basic customer service skills, or who 
cannot perform entry-level job requirements without extra training and investment on our 
part.) TJTC has motivated our hiring, training, and retention of such individuals. 

In our efforts to utilize the TJTC offering, we have, for 10 years, maintained an internal 
staff to work with all of our stores on TJTC, to develop relations with state employment 
agencies, to educate our hiring managers and to give evidence to our entire company of the 
value of our being active participants in TJTC. 

This committee and other members of Congress are now deliberating on the alternatives of 
continuing or ending this program. 

There are several reasons we find TJTC to be effective in its purposes: 
First, TJTC places the incentive to hire with the employer. While the hiring manager does 
not know for a fact that a given applicant is TJTC qualified, that manager looking at a given 
application form has a very clear indication of that qualification (e.g. periods of 
unemployment, lack of work experience, spotty employment history, etc.). 

Second, once an individual is hired and working, the employee's TJTC qualification js 
known, and the TJTC credit has a significant influence on our willingness to retain eligible 
employees. 

Third, because of the TJTC credit, every district of our various businesses has direct contact 
with numerous local agencies which help place disabled workers, AFDC recipients, and 
members of other under-employed groups. We also have a national agreement with 
Goodwill Industries to place their candidates, many or most of whom are TJTC eligible. 



209 



In short, TJTC is an important factor in our efforts to hire, train, and retain those eligible 
under TJTC regulations. 

What we hear you asking is, "Does TJTC truly result in the hiring, training, and retention of 
individuals whom you otherwise would not hire, train and retain?" 

Our answer is: yes. I will briefly address each of these phases of employment. 

1 . Hiring 

It would be helpful if we were allowed to determine eligibility prior to employment 
offer. But as stated earlier, we have become skilled at "guessing" and, in fact, have 
a clear record of employing TJTC eligibles. 

2. Training 

We are more patient and give added effort to the development of job skills in TJTC 
eligibles because of financial incentives offered through TJTC. 

3. Retention 

Our willingness to continue employment of TJTC eligibles is greatly increased, in 
spite of skills deficiencies, as a direct result of the TJTC program. 

The off-again/on-again history of the program has been disruptive to the optimal fulfillment 
of the objectives of TJTC. If such intermittence continues, it will erode further the 
willingness of businesses and involved government agencies to give it appropriate support. 

Therefore, we argue not only that TJTC is effective and should be renewed prior to the 
December 31, 1994 expiration date, but also that you give TJTC either permanent status or 
a long-term life of five to ten years. 

If Congress contemplates substantive changes in a renewed TJTC program, representatives 
of our company would be eager to be of counsel to you and your staff organizations on 
issues of concern. 

Thank you, Mr Chairman, for this opportunity to testify in favor of TJTC being renewed on 
a permanent or long-term basis. 



210 

Chairman Rangel. Mr. Hensley. 

STATEMENT OF THOMAS M. HENSLEY, VICE PRESIDENT AND 
CHIEF FINANCIAL OFFICER, FDSLDALE FARMS CORP., 
BALDWIN, GA., NATIONAL BROILER COUNCH., ET. AL. 

Mr. Hensley. Thank you, Mr. Chairman. I am with a company 
named Fieldale Farms Corp. in Baldwin, Ga. We are in the busi- 
ness of producing and processing chickens. I prepared a written 
statement which I think has been distributed, so let me just sum- 
marize what it says. 

I am appearing today to express support for the Targeted Jobs 
Tax Credit, not only on behalf of Fieldale Farms, but also for 25 
national, regional and State poultry associations representing vir- 
tually every poultry company in the United States. 

Let me tell you how the TJTC works for our company. Fieldale 
Farms hires about 250 people each month. About 40 percent of 
those people are referred to us by the Georgia Department of Labor 
and we know historically that about 50 percent of those people 
qualify for the Targeted Jobs Tax Credit. 

For many years, we have sought TJTC-eligible employees 
through the Labor Department. They know we will hire these peo- 
ple and they send them to us. We try our best to give hiring prior- 
ity to referrals from the Labor Department because we know they 
will qualify for the Targeted Jobs Tax Credit. 

Most of our TJTC-eligible new hires are disadvantaged youth. 
We also hire many disadvantaged ex-offenders and AFDC recipi- 
ents. For many of these people, this is their first job. We have to 
teach them basic work skills and they have to develop a work ethic. 
These people often require additional supervision and on-the-job 
training and we willingly provide it. 

We give these folks an opportunity to turn away from life in the 
streets and embrace the dignity of work. About a fourth of our 
TJTC-eligible employees stay with us for more than 1 year and 
many become long-term employees. There is a particular young 
man who I will refer to as Mike who has been with us since 1982. 
Mike was eligible for the TJTC as a disadvantaged youth when we 
hired him. He has worked hard and has fit in well with us. 

He has developed leadership skills and now he is one of our su- 
pervisors and we have many examples similar to Mike. The opposi- 
tion to this program has described it as corporate welfare. I dis- 
agree. Let's look at the numbers. The program provides for a 40 
percent tax credit of the first $6,000 of wages. That is $2,400. But 
you have to add the $2,400 back to your taxable income. We are 
a subchapter S company so we are in the 40 percent Federal tax 
bracket. 



211 

We pay $1,000 of that credit back to the government in taxes. 
That leaves us with a credit of $1,400, but when we hire an eco- 
nomically disadvantaged person, he no longer qualifies for govern- 
ment assistance: Medicaid, food stamps, AFDC, SSI, et cetera, so 
we believe that the government actually makes money on this pro- 
gram after a couple of months. This is not corporate welfare. We 
believe the Targeted Jobs Tax Credit works. It works for us and 
it works for our entry-level employees. Please let it continue. 
Thank you very much for allowing me to testify. 

[The prepared statement follows:] 



212 



TESTIMONY OF TOM HENSLEY 
NATIONAL BROILER COUNCIL 

My name is Thomas Hensley. I am Vice President and Chief Financial Officer for the Fieldale 
Farms Corporation in Baldwin, Georgia. Fieldale Farms is a major poultry producer and 
processor. I am appearing before you today to express support for the extension of the Targeted 
Jobs Tax Credit (TJTC), not only on behalf of my company, but also for the national, regional, 
and state poultry associations that are listed here: 



National Broiler Council 
National Turkey Federation 
Southeastern Poultry & Egg Association 
National Poultry & Food Distributors Assn. 
Pacific Egg & Poultry Association 
Alabama Poultry & Egg Association 
Arkansas Poultry Federation 
Delmarva Poultry Industry 
Florida Poultry Federation 
Georgia Poultry Federation 
Kansas Poultry Association 
Kentucky Poultry Federation 



Mississippi Poultry Association 
Michigan Allied Poultry Industries 
Missouri Poultry Federation 
Nebraska Poultry Federation 
North Carolina Poultry Federation 
Ohio Poultry Association 
Pennsylvania Poultry Federation 
South Carolina Poultry Federation 
Tennessee Egg & Poultry Association 
Texas Poultry Federation 
Virginia Poultry Federation 
West Virginia Poultry Association 



The associations listed here as supporting this statement represent virtually every poultry 
company operating in the United States. The Targeted Job Tax Credit was and continues to be 
a good idea. It benefits workers and it rewards employers who make the extra efforts to employ 
individuals who, for a variety of reasons, would otherwise not be the most attractive candidates 
for jobs. Since its enactment, the TJTC has been refined and improved, but the basic premise 
of providing hiring incentives has remained. 

Fieldale Farms Corporation hires about 250 people each month. About 40 percent of these 250 
people are referred by the Georgia Department of Labor and about one-half of these referrals 
are Targeted Job Tax Credit (TJTC) eligible. 

For many years we have sought TJTC eligible employees through the Georgia Department of 
Labor. They know that we will hire these people, give them every opportunity to become 
successful workers, and will help them to be productive. We try our best to give priority to 
people referred to us by the Labor Department because these people need a good work 
opportunity and we, as employers, are willing, in part because of the TJTC incentive, to give 
them the opportunity they need. 



Most of our TJTC eligible new hires are disadvantaged youths, 
disadvantaged ex-offenders and AFDC recipients. 



We also hire many 



For many of these people, this is their first real job. We have to teach them basic work skills 
and they have to develop a work ethic. These people often require additional supervision and 
on-the-job-training, but we willingly provide it. We give these people an opportunity to turn 
away from life on the streets and embrace the dignity of work. 

About one-fourth of our TJTC eligible employees stay with us for more than one year and we 
have many who become long-term employees. 

In preparing my statement, I discussed the TJTC with poultry companies and poultry associations 
across the United States. As the listing of supporting associations at the beginning of my 
statement indicates, there is widespread interest and support in our industry for the continuation 
.of the program. Our industry is expanding. Even with the rapid movement to automation in 
our processing plants, we remain a labor-intensive business. The need for reliable workers 
willing to take on increasing work responsibilities has never been greater. 

The poultry industry does not receive government supported prices for its products. We are 
market-oriented both for the domestic market and the rapidly expanding export market. We do 
not seek nor want government protection from market forces. We only ask for the opportunity 
to compete and be able to accept the market risks of expanding and adjusting production to meet 
consumer demand. 



213 



A program such as the TJTC that can slightly lessen the risk of investing in new plants and 
equipment so that a business can grow is a welcomed incentive. Without such an incentive, the 
disadvantaged worker becomes even more greatly disadvantaged and a greater burden on social 
programs and government budgets. 

The TJTC was originally designed to provide the private sector with an incentive to change 
hiring practices and seek out the structurally-unemployed. Despite the current relatively low 
unemployment rate, joblessness still remains higher among the structurally-unemployed. If the 
TJTC is allowed to expire, I believe unemployment figures in these categories will increase 
dramatically. 

For many hired under the auspices of the TJTC, it is a chance to learn basic work skills which 
they will carry with them throughout their adult lives. TJTC employment is usually entry-level 
work. Many of those who qualify for TJTC do not have the most basic of work skills. They 
must be taught to show up for work on time, to behave appropriately while on the job, and to 
perform their jobs at the highest level of which they are capable. These are skills that you and 
I might take for granted. But, many people attempt to enter the work force without them. The 
TJTC gives employers the financial incentive to take the time to train and retain these 
structurally-unemployed individuals. 

Retention of TJTC workers is an important factor that is often overlooked. And yet, a 1993 
study by the Department of Labor found that the employment retention was significantly greater 
for TJTC workers than other low-wage workers. According to the Department of Labor study, 
the employment retention rates reported for the TJTC program participants were significantly 
higher than those for all other low-wage employees through out the year examined. Nearly half 
of the TJTC workers were employed for at least six months, and by year-end, the employment 
retention rate for TJTC workers was more than double that for other low-wage workers. These 
retention rates are significant in industries where high turnover rates prevail. 

Reauthorization of the TJTC has not always gone smoothly and has resulted in a great deal of 
uncertainty for employers. Since the chairman is the chief architect of the original legislation, 
I do not think it is necessary to provide a legislative history of the TJTC. 

But I do think it is worthwhile to reiterate to the chairman and his distinguished colleagues on 
the committee the good things that the TJTC does and the need for continuing this program. 
Certainly my company has found the program to be worthwhile, and thousands of others across 
the country in a broad spectrum of industries agree with me. The studies on the effectiveness 
are certainly not unanimous in their support, but as an employer I can tell you that I have seen 
it first hand over the past several years and it does work . It works for entry level employees 
and it works for employers. It works to get people into the work force and off public assistance. 
It gives young people the basis for a productive life. It gives many people a second chance, and 
more often, their first chance. 

In short, TJTC works. To take away this program without an appropriate replacement is not 
a social or labor force experiment we should try. 

I respectfully request that you do not abandon the Targeted Job Tax Credit program. Thank you 
for this opportunity to present our industry's input regarding this important, fundamental issue. 



214 

Chairman Rangel. Thank you. Let's see what we agree on. First 
of all, as you know, I think it is tremendously unfair to take a pro- 
gram that has only received the best of support from the private 
sector and public sector, in terms of its lack of administrative cost, 
then to wait until it is about to expire and to find ourselves in this 
legislative period now trying to figure out how to respond to a re- 
port that everyone says falls short of being accurate. 

But since we are here, we are going to have to respond to the 
criticism. And I guess the biggest one is that we agree that here 
we find people at risk, the disabled, those on welfare, the economi- 
cally disadvantaged — these people are getting a chance to have an 
opportunity and you make a special effort to go out and get these 
people and to make certain they work within your business so that 
you can become productive. And out of this group — they develop 
some loyalty to the firm. 

In any event, enough people come to visit me saying they started 
off at the bottom and now they are part of the management. Hav- 
ing said that, how do you answer someone that asked, well, would 
you have done that anyway because you really didn't have that 
much of a choice? 

Now, I asked the Secretary, if somebody was going to look into 
a community that had a lot of people that they could just look at 
the census and see that they will be eligible, they could say, hey, 
I moved into that neighborhood and you bet your life everybody 
that I hired I thought would be eligible and I would have hired 
them anyway except maybe I wouldn't have gone to that neighbor- 
hood. 

I would have gone to a different neighborhood because I was tak- 
ing this into consideration before I made the choice. But taking 
away that, how do you respond, Mr. Wingate, in saying that you 
just put an ad in the paper? This is a hypothetical, not your clients. 
One hundred thousand people show up. You hire 50,000. And then 
while you are going through that, you send someone out, they see 
how many of the 50,000 are eligible for any type of credit. Twenty- 
five are eligible for the credit and now you come to me saying don't 
stop that. I say cut it out. 

You just ran out there and out of the 100,000 people who came 
in, you hired 50,000 that you would have hired anyway. You 
weren't concerned with the credit one way or the other. How would 
you answer that? 

Mr. Wingate. First of all, we know we are going to get some help 
in the training and development and we have developed a skill in 
looking at the backgrounds and have a fairly good idea, in fact. 

Chairman Rangel. Why do you have to look at a background? 
I am coming in crippled. What do I have to do to show that I am 
eligible? I am broke. I am an ex-con and a veteran and I have got 
all of these things. Why do you have to take a gamble? Why do you 
have to know who you are hiring? 

Mr. Wingate. We know we find you qualified to start and if you 
prove to be a good employee, you will be retained. And if you were 
going- — 

Chairman Rangel. Say for example Rangel came in. He was 
black. He was broke. He was a felon and he was a veteran and he 



215 

was crippled and so, hey, sign the papers and I knew I was going 
to get something back. Now comes the next guy. 

Mr. WlNGATE. That is right. 

Chairman Rangel. And it is not written all over him, but you 
hired him. Now you are filing for him. 

Mr. WlNGATE. We know in a very short time whether or not that 
second individual is qualified. If he is, we are going to give some 
extra effort. 

Chairman RANGEL. Someone has made the remark that 92 per- 
cent of the people that were hired would have been hired anyway. 
And I am trying to figure out how you, Mr. Wingate, would have 
said, no, that wouldn't be the case. 

Now, you can't tell me — or that is as a lawyer for you, that I am 
going to say you shouldn't — it is all in the eye. We can look at them 
and tell. No, we got to do better than that. 

Mr. WlNGATE. In our own case we are working with the agencies. 
We are working with the different unemployed representative 
groups and we know we are going to be hiring quite a few people 
who qualify. Once we do that 

Chairman Rangel. I am a lawyer. Don't tell me that. Someone 
do better than Mr. Wingate. Don't tell me what you know and what 
you feel. I want to know if someone has said that all of the people 
that you hired, you would have hired anyway. I want someone to 
say tnat is not so. 

Mr. Wingate. Well, that is not so. That is not so. 

Mr. MlSPLON. That is exactly the reason we set up the program 
that we have with the Outreach Program where we, with the store 
manager in partnership with the job service office, we ask them to 
send us their TJTC-eligible employees. The manager recognizes 
that there is a benefit to hiring that individual and he seeks those 
individuals out. And if there is — if there are 5 openings and we get 
10 applicants, but 3 are TJTC-eligible, it means they have been 
sent to us by the job service office 

Chairman Rangel. Well, these people have already been 
screened so you are in good shape to explain it. 

Mr. Misplon. Right. 

Chairman RANGEL. You can say you never would have hired 
them. But somebody said they give a bonus to the person who se- 
lects the people who are eligible for the target. In other words, it 
doesn't say they give a bonus for the person that keeps them the 
longest. They give a bonus for the person that reaches out and 
hires these people. Who testified to that? 

Mr. Balfour. Mr. Chairman, many companies in our industry 
provide similar incentives. We have about three different ways we 
give bonuses to the hiring manager. It is similar to when you set 
up the Targeted Jobs Tax Credit in the first place. You established 
the Targeted Jobs Tax Credit as a way to incentivize corporations 
to hire the economically disadvantaged. We take the same attitude 
and we take that credit and we give it back to the hiring managers. 
I don't hire them in the corporate office. They hire them out in the 
units. So we put that on that unit P&L. We do three things. We 
give a $25 bonus just for going through the process and hiring that 
TJTC person. That is the first. 

Chairman Rangel. OK. I am the manager. 



216 

Mr. Balfour. You are the manager. 

Chairman Rangel. Twenty-five percent there. 

Mr. Balfour. Excuse me, $25. 

Chairman Rangel. Twenty-five dollars. 

Mr. Balfour. The TJTC credit gets put on your P&L and 27 per- 
cent gets bonused out to you, the hiring manager, about the next 
level up in management. 

Chairman Rangel. So I get more money for him. 

Mr. Balfour. You get more money and your boss, the next guy 
above you, gets more money. And the reason for that is if you are 
not doing a good job and he wants to make more money, then he 
is going to push you to do a better job and get him more the TJTC- 
type people. 

Chairman Rangel. OK, now suppose I have understood this sys- 
tem now and I am the guy that gets the $25 and a percentage of 
how long it is and I figured out that if I can hire one of these tar- 
geted people for one job every year, then I am going to make $25 
off of each one. Every year after I am going to hire a new one and 
we all can make a lot of money. Where did I go wrong? 

Mr. Balfour. You are speaking on the churning issue? 

Chairman Rangel. I am speaking about making a buck, about 
you giving me $25 for every one of these people I hire. The more 
I hire, the more money I make. 

Mr. Balfour. You are also being bonused based on retention. We 
have a retention incentive built in. For instance, a TJTC credit is 
given to them as these employees work more and more hours. If 
they work more hours, the manager gets credit because you receive 
a higher bonus based upon the individual making more. 

Chairman Rangel. After the first year 

Mr. Balfour. Well, after the first year, you are still being 
bonused on retention of not just TJTC employees, but all employ- 
ees. 

Chairman Rangel. I am talking about the Targeted Jobs Tax 
Credit — I am talking about making a buck on your bonus now. 

Mr. Balfour. You are going to make a whole lot more money by 
retaining 100 percent of your employees, which no one can retain. 

Chairman Rangel. There is a balance that I will be penalized by 
turning over employees even though I got $25. 

Mr. Balfour. Absolutely. 

Chairman Rangel. We are going to have to find some way to 
have all the beneficiaries of this wonderful program respond in a 
more effective political way. I have not heard any bad things about 
the program until this DOL report. Now everyone wants answers 
and you can't blame them. But it would seem to me that if some 
of the employees knew that, they never would have had this oppor- 
tunity, had you not taken a risk, and that many of you would not 
have taken the risk if you weren't receiving some kind of help with 
that risk, the whole world should be saying I was blind, I was crip- 
pled, I had a record, but look what happened, and now nobody is 
saying anything. 

People are making outlandish charges saying you would have 
done this good work anyway. And we don't find anyone coming for- 
ward in a political way. Another thing I don't understand, Mr. 
Wingate, is all of this certification, precertification, after- 



217 

certification issue. I am a veteran. And I know when I got dis- 
charged they said I am a veteran. They gave me a card saying I 
am a veteran and I can go to all of you guys and ask for a job. And 
if there was someone equally qualified and I went in the back of 
my pocket and I said, I am a veteran and you say, well, that is dif- 
ferent because I will get a little help in hiring you. Then every 
place I would go, I would have my veterans' card. 

What is the big deal with the private sector saying that you don't 
have to go to Labor. If you are disabled, do you have to go to the 
Department of Labor to show you are disabled? Can't you accept 
something from a doctor? I mean, if the guy comes and he has got 
a fingerprint from the prison department saying he was dis- 
charged, do you have to go any further? 

Welfare recipients also have certificates. They are eligible for 
Medicaid. Why do you have such a problem with precertification? 
Why do you have to wait for the Department of Labor? 

Mr. WlNGATE. I don't think we do. 

Chairman Rangel. Then why do we have the backlog? Why don't 
you know exactly who you are hiring instead of waiting, as some 
people would suggest, to get a consultant to see whether you are 
going to get money? You should know when you hire what you got. 
If you get a bonus when you hire someone and it turns out later 
that they were eligible, OK. But generally speaking, if the program 
is going to work, you nave to know what you are doing when you 
are hiring, not after. 

Now, the broad accusation is made that you don't find these 
things out until after a consultant goes through your employees' 
list. You were kind of inferring, Mr. Wingate, that you got a pretty 
good eye so you are pretty good. Why do you have to have a good 
eye? Why can't you say I would like to help you. You look eligible, 
but give me something. Can't you do that? 

Mr. WlNGATE. Certainly, if we knew in advance, it would be help- 
ful, yes. 

Chairman Rangel. How can we help you to do it in advance? 
What makes it difficult for you to do it in advance? Why do you 
need this big administration, State, Labor to tell you that a blind 
person is blind or an old person is old or a felon is a felon? 

Mr. MlSPLON. Well, beforehand, you ran the risk of a discrimina- 
tion case that an individual didn't get hired because we knew they 
were a veteran or were disabled. So you really aren't allowed to ask 
those questions. 

Chairman Rangel. How have we been able to get by with this 
veterans preference for so long? Who is saying "the guy next to me 
had a Purple Heart and I only had one cluster"? How do we sue? 
If it is a problem, how can we correct it? We are saying we want 
to give an advantage to someone who has a handicap. The crippled 
people have been doing it forever and we say that is the way it is. 
They have a handicapped place to park in the supermarket parking 
lot. We don't sue them. 

Mr. Bailey. I think employers, excuse me, Mr. Chairman, would 
very much welcome a tool such as a prescreen questionnaire that 
would be sanctioned by the EEOC as not causing any problems, 
and with that type of safe passage, if you will, we would be very 
willing to utilize it to a certain extent. 



218 

Chairman Rangel. It certainly would be a lot easier for you to 
say that you would not have hired them or that you went out of 
your way to hire these people because you looked at it. I just don't 
really see if you fired 50 out of 100 people and you found out later 
that 25 were eligible. Maybe you can say it because you are saying 
that you go to a particular agency that specializes in producing this 
type of an eligible applicant. 

Mr. Hensley. Yes, sir, we do, the Georgia Department of Labor. 

Chairman Rangel. I can understand tnat. If he is saying I al- 
most always go to these people, they are almost certifying even 
though you did say something like 50 percent. 

Mr, Hensley. That is correct. 

Chairman Rangel. Then that other time you said you knew they 
would be eligible so there is a big gap between that. But they could 
give you a stamp and tell you which ones are eligible. 

Mr. Hensley. Yes, sir, they do. 

Chairman Rangel. Well, then you are OK. Because you go out 
of your way to use this agency. 

Mr. Bailey. At this point, Mr. Chairman, for instance, the entire 
State of New Mexico has sanctioned a prescreen questionnaire so 
it is available to all of our restaurant managers as a very useful 
tool for them to know well in advance of any hiring decision. 

Chairman Rangel. Don't you have some way of showing that you 
could have hired somebody that was not crippled, that was not a 
criminal, that maybe had a first year in college, but you just felt 
that with the training and the loyalty and the credit that you made 
a special effort? How can someone tell you that here we are thank- 
ing you for your outreach and doing what we wanted you to do and 
then someone comes and says but, Chairman Rangel, they did it 
because they would have done it anyway? How do you help me to 
respond to that? 

Mr. Wingate. One thing is we can say 12 V2 percent of the people 
we are hiring turn out to De qualified. So that — that clearly is evi- 
dence of our focus. 

Chairman Rangel. But, Mr. Wingate, you can retain me, but I 
wouldn't promise you that you would win, because you can go out 
there with anything and grab 10 percent out of the air. How would 
someone that says that they were really looking, they can't figure 
out how 10 percent of these people are not eligible. You are just 
lucking out with your plan. 

Mr. Balfour. By focusing. 

Chairman Rangel. You are going out of your way to find out 
who has the credit. If one of you moved into my district and it is 
the first minority district you ever opened up in, you could tell me 
I never would have come here unless I thought I would get the 
credit. You've got to be able to say something that I did this delib- 
erately. You get the awards and who would believe you did it be- 
cause it was the right thing? But if someone can say, look, we hire 
a lot of crippled people because you give us a break and we want 
to do it because it is the right thing, we don't lose a lot of money 
doing it. 

Mr. Balfour. Mr. Chairman, not only is there tax incentives, we 
have a number of checklists that we have set up at our corporate 
headquarters for each manager to go through. One thing I did not 



219 

mention, one of the first things that we do is a prescreening quali- 
fication that we go through and we ask certain questions to find 
out if people are in certain categories. I would suggest to you that 
probably about 80 percent, and I am taking this off the top of my 
head, but about 80 percent of those people we find out are TJTC- 
eligible. The other 20 percent, some of the numbers they gave us 
maybe weren't correct and when you went through the offices 

Chairman Rangel. We have to adiourn for 10 minutes. You 
know what the problems are. It would be wrong for me to advocate 
that you people get involved in any lobbying on the other side. It 
just seems to me, though, that you have so many thoughtful em- 
ployees that are concerned about the great opportunities that you 
have given to them and that without this Senate's effort those op- 
portunities may expire. 

And because of their feeling of generosity toward you, they may 
just want to thank the Senators who are supporting this effort and 
remind the others of how important it is to them during the next 
couple of weeks, because we are winding down and I assure you, 
once we get started again, we won't have this problem. I regret 
that the notice came so late, but it came late for all of us. And let's 
continue to hold on to what we got because even if we don't make 
this deadline, we hope to make whatever we do retroactive. But 
we've got to have better records. 

And, Mr. Wingate, we can help you to know ahead of time so 
that it would be 12 percent that you don't get the eligibility for be- 
cause we know what we are doing and we know what our goals 
are. And even if the sweetener is not enough, you may want to do 
more. You may want to do more in training. This is just one thing. 
And we would like to be partners with you. Thank you very much. 
We stand adjourned for 10 minutes. 

[Recess.] 

Chairman Rangel. The committee will resume its hearing. Let 
me apologize to this panel as to the previous one. In addition to our 
committee work, we have to vote. So it takes us back and forth, but 
we want to thank you for your patience and let you know that your 
testimony is invaluable because of the controversy that arrives at 
such a late hour and the fact that we don't have too much time to 
attempt to remedy this, or at least to make certain that it doesn't 
happen next year. 

So on behalf of the full committee in the Congress, I thank you 
for taking time out and look forward to your testimony. We will 
start with Mr. Burton, the controller of Q Lube, Inc. 

STATEMENT OF ROSS J. BURTON, CONTROLLER, Q LUBE, INC., 
SALT LAKE CITY, UTAH, A WHOLLY OWNED SUBSDDIARY OF 
QUAKER STATE CORP. 

Mr. Burton. Thank you, Mr. Chairman. On behalf of Quaker 
State and Q Lube, Inc., we appreciate the opportunity to address 
the subcommittee for the TJTC Program. 

Our company is based out of Salt Lake City, Utah. We employ 
approximately 2,500 employees throughout the country. Our parent 
company, whom I am also representing, employs about 15,000 
across trie country. 



220 

The TJTC Program could give our company the opportunity to 
hire individuals at higher starting salaries and be able to keep 
them longer to reduce our turnover rate, be able to use the credit 
and still be competitive in the workplace. Our industry is ex- 
tremely competitive. 

Because of the technical nature of our business, we are not inter- 
ested in churning employees. We need employees that will come to 
work for us and stay with us. It is too costly to keep training em- 
ployees just to get another tax credit. 

We have faith in the TJTC Program. We feel that some changes 
need to be made in order for the program to work more effectively 
for employers. I would like to discuss some of the problems that we 
see with the program, possibly some solutions. 

Let me discuss the problems first. There is a lot of information 
out there about the existence of the TJTC Program. Most employ- 
ers know about the program. Most employers would like to use the 
program, but there is a lot of information that needs to be commu- 
nicated to them as to how to make the program work. 

State employment agencies will certify an individual if you sub- 
mit a voucher or applications to them, but it is confusing and bur- 
densome and difficult to get more information on how to voucher 
an individual from a State agency. We don't believe that 
vouchering individuals on the day of hire is the best way to assist 
the economically disadvantaged, and we have decided not to go 
down this path. Even though companies are placing targeted indi- 
viduals this way, the voucnering for the most part is done after 
they have made the decision to hire them. 

We feel there is a lot of uncertainty that exists with the TJTC 
Program right now. The private sector doesn't know whether Con- 
gress is committed to the program or not. It is hard to spend a lot 
of money or energy on something that may not be around in the 
future, and I think this discourages a lot of companies. 

We would like you to consider implementing the following 
changes. No. 1, provide more information to the private sector by 
printing and distributing TJTC brochures with names, addresses, 
and phone numbers of people to contact for more information. The 
information would include agencies that work with targeted 
groups, such as Job Corps, Metro Program in Nashville and other 
JTPA programs, Project Rio in Texas and the Peach Program in At- 
lanta. I am sure there are many more organizations in the country 
that employers need to know about. 

No. 2, train the personnel in the State employment agencies to 
give the same information that I just mentioned out to employers. 
Information should be volunteered to employers and not when they 
ask. Most employers don't know where to start. They need help, es- 
pecially with finding individuals that don't come into the State 
agencies. They also need help with how to prescreen individuals be- 
fore they make the decision to hire them. 

No. 3, empower independent agencies or government branches to 
qualify individuals under their assistance for TJTC certification. 
This would eliminate any question of whether an individual is 
qualified or not. Individuals would be more attractive to employers 
because they would already be qualified. We cannot place a further 
burden on tne employers with more paperwork. 



221 

No. 4, in order to let employers know that the government is se- 
rious about the program, extend the TJTC Program for a period of 
4 years at least. 

To conclude, No. 1, we need to bring the employers and the quali- 
fied individuals together easier by providing more information to 
the private sector on how to find enough individuals, and how to 
prescreen employees prior to hire that do respond to employment 
ads that we put in the paper or other means. 

No. 2, train State employment agencies to offer more helpful in- 
formation about independent agencies and other information as to 
how to make the program work. No. 3, empowering independent 
agencies to prequalify individuals; and No. 4, extend the Targeted 
Jobs Tax Credit for a period of 4 years. We believe that with these 
changes, the potential benefits of the program can finally be un- 
leashed. 

Thank you. 

[The prepared statement follows:! 



222 



TARGETED JOBS TAX CREDIT HEARING 

ROSS J. BURTON 

CONTROLLER FOR Q-LUBE, INC. 

WRITTEN TESTIMONY 

SEPTEMBER 29, 1994 



INTRODUCTION 

Q LUBE, INC. is a wholly owned subsidiary of QUAKER STATE 
CORPORATION. Q LUBE is based in Salt Lake City, Utah. We have 
approximately 450 automotive fast lube centers spread throughout 
the United States. Approximately 3 00 are company owned. We employ 
approximately 2500 employees in our subsidiary. Of these 2500 
employees, we have approximately 1300 crew level employees, 600 
Service Supervisors or Assistant Managers, 430 Store Managers, 36 
Area Supervisors, 2 Market Managers, 4 Regional Managers, and 110 
Corporate employees. Our company has a great deal to offer 
individuals who are entering the work force and want to learn more 
about all facets of operating a business. We have a system for 
training crew level employees to become Store Managers and run 
their own store and progress further if they show initiative and 
potential . 

Our company became interested in the TJTC program in our search to 
find large pools of available and capable individuals to hire. 
Because of our high employee turnover at the entry level, the TJTC 
program appeared a viable means to offer higher starting salaries 
in order to reduce our turnover rate at the entry level . 

The process that we have gone through as a company to try to hire 
qualified individuals has not been an easy one. It has been full of 
obstacles and red tape. In order to use the program in a 
significant way, there needs to be some changes to make the TJTC 
program more attractive and easier to use for companies. We are 
really trying to find a way to make the program work not only for 
our subsidiary but for our parent company as well. 

The following is an account of what we went through to gain enough 
information to try to utilize the TJTC program, some problems that 
we see with the program, and some suggestions to improve. 

THE SEARCH FOR A WAY TO MAKE IT WORK 

Upon gathering some general information from our parent company 
about the TJTC program, we set out to try to find additional 
information. Our first contact was the state employment office in 
Salt Lake City. The individual that handles the certification 
process was very pessimistic about the program. He stated that 
there were not many applicants that were eligible. He indicated 
that most individuals have a short time frame that they are 
eligible, and that makes them hard to find. He mentioned that the 
large majority of certification took place from employers screening 
new hires on the day of hire. He also stated that they did not 
actively recruit individuals because they were so hard to find. 

We then started talking to other employment agencies in states that 
we had business interests. Even though many states like Texas were 
quite helpful, they did not try to put us in touch with possible 
agencies that we could work with directly to get a large number of 
applicants to interview. 

Quite by accident, I had called directory assistance in the 
Portland, Oregon area and asked for the local Job Service office. 
The operator instead gave me the Job Corps phone number. When I 
called the number and asked for information on the TJTC program, 
the person answering the phone knew of someone in their 
organization who works with TJTC certified Job Corps students. I 
talked with this person several times over a period of a week, and 
found that she is very willing to work with us to place some of her 



223 



students with our company. She also provided me with other 
information about Job Corps and a directory of other Job Corps 
centers throughout the country. As a result, our Southeast Regional 
Manager is now working with a Job Corps center in Knoxville, 
Tennessee. They have scheduled a meeting the first part of October 
to work out a plan to start hiring their students for the Nashville 
area and the Charlotte area. The first students will tentatively be 
hired in January 1995. The will let us recruit 2 months before they 
graduate. If this works for us in the Knoxville office, we plan on 
working with Job Corps offices wherever we have stores. We have 
already started dialogues with Job Corps centers in Atlanta, 
Dallas, Seattle, Portland, Salt Lake and Phoenix. 

Had it not been for that directory assistance operator giving me 
the wrong number, I would not have connected Job Corps with the 
TJTC program. Never did any state employment agency suggest looking 
into Job Corps or any other independent agency in order to 
accommodate our needs. In fact, the Arizona Department of Economic 
Security stated that they were under contract not to disclose the 
names of independent organizations unless I mentioned the name to 
them first. 

For the past few months, we have been trying to determine if there 
are other independent organizations and governmental agencies that 
deal with specific groups of the TJTC program. The Job Training 
Partnership Act works with economically disadvantaged individuals 
that qualify for TJTC. The Veterans Administration works with 
Vietnam Vets. Many states have programs that work with placement of 
individuals entering the work force out of prison. States have 
organizations that administer General Assistance programs and 
Vocational Rehabilitation. I'm sure that there are other 
organizations out there that we have not found that deal with other 
categories of the TJTC program. 



PROBLEMS WITH THE PROGRAM 

Since the reduction in support for the TJTC program at the state 
level in the 80' s, we have gone from a pre-vouchering system with 
state support to a mail -in vouchering system with the burden placed 
on the private sector for the paperwork to send in. The vouchering 
process is burdensome and confusing. Most states have different 
forms and procedures . 

Since pre-vouchering was discontinued, there are no guarantees that 
the person you hire will be TJTC certified. They could appear to be 
eligible under the stated requirements, but after examination by 
the State they may not get certified. 

A great deal of uncertainty exists with the program. Because it has 
been revoked, reinstated, and extended on a temporary basis 
companies are not sure if the program is here to stay. Many 
companies therefore do not consider using the program very 
seriously. Looking at it from the private sector, it is hard to 
spend a lot of time on a program that may not be here in the 
future . 

Some states are better than others with giving information about 
the TJTC program. Most states will take orders if you request a 
person that will qualify for TJTC, but almost all states will not 
give any assistance with recruiting individuals outside of those 
that come in to the state employment offices. States will find one 
or two individuals for you, but not numbers of individuals large 
enough to make the employment office a valuable source of employees 
for a company. 

Many companies that are taking advantage of the TJTC have adopted 
a policy of using consulting companies to screen new hires for 
eligibility for the credit. Some have in-house experts that screen 
all new hires. Most have found that 10% to 15% of the individuals 
hired qualify for the credit, and can realize a nice tax savings by 



224 



going through this process . But they would have hired the person 
anyway, and therefore the TJTC was not what motivated them to hire 
the individual . 

Companies need more literature on which agencies to contact for 
specific information about specific targeted groups. State 
employment agencies are happy to certify individuals submitted, but 
are not helpful with giving information about any independent 
agencies that work with these individuals. It is hard on a large 
scale basis to find enough people to interview that are certified. 

SUGGESTIONS TO CHANGE THE PROGRAM 

-Train the State Employment agencies to be able to give more 
assistance and information about how companies can find qualified 
TJTC individuals, and to share information about other 
organizations like Job Corps and JTPA offices. 

-Update TJTC brochures to include information on these specific 
organizations that deal with particular targeted groups complete 
with phone numbers to call for additional information. Even a 
central office that would field calls and provide information about 
how to implement a plan on a large scale if needed. An agressive 
marketing plan targeted at the private sector would help to 
generate interest in the TJTC program. 

-Empower all organizations that deal with targeted groups to be 
able to certify individuals prior to being employed. All of these 
organizations would be responsible to maintain complete files of 
all certifications. 

-Extend the TJTC for a period of at least 4 years to show the 
private sector that the government is committed to the program. 
This step would eliminate any doubt about the program's continued 
existence. 



CONCLUSION 

The potential benefits from the TJTC program could be staggering. 
Not only could unemployment rates improve dramatically in these 
targeted groups, but indirect benefits could be widespread and far 
reaching. Costs to society such as welfare assistance, youth 
crimes, incarceration, etc. could be significantly reduced. Long 
term benefits could include a better environment in the home for 
the children of today's TJTC certified individuals, so that they 
could have a chance at improving their quality of life. Eventually, 
the gap between the middle class and the poor could narrow, and the 
number of middle-class families could increase. And levels of 
education with our youth would continue to improve. And the nation 
and the world as a whole could see that the United States is indeed 
the land of opportunity for everyone. Is that asking too much for 
one program? Yes it is. TJTC cannot accomplish all of these things 
alone. But the TJTC program compliments and supports other programs 
so well that it could be the catalyst to bring a lot of good 
changes to pass. The demand for Job Corps students could increase 
astronomically if only employers knew how to seek them out and make 
it work for them. The Job Training Partnership Act could be much 
more effective if more employers knew about it. Vocational rehab 
individuals could be placed in productive jobs faster if companies 
knew how and where to go for information. The same applies for the 
other targeted job categories. But we need to turn our focus from 
screening applicants on the day of hire to getting individuals 
certified and marketing them to companies that are not currently 
participating. By providing more information to the private sector, 
empowering other agencies to certify, and extending the program for 
4 years we will have made a step in the right direction. 



225 

Chairman Rangel. Thank you, Mr. Burton. 

American Health Care Association, Melody Chatelle, director of 
governmental relations from Austin, Tex. 

STATEMENT OF MELODY CHATELLE, DIRECTOR OF 
GOVERNMENTAL RELATIONS AND PUBLIC AFFAIRS, LIVING 
CENTERS OF AMERICA, AUSTIN, TEX., ON BEHALF OF THE 
AMERICAN HEALTH CARE ASSOCIATION 

Ms. Chatelle. Thank you, Congressman Rangel. I am here 
today representing not only Living Centers of America, my com- 
pany, but the American Health Care Association based here in 
Washington. 

I appreciate the opportunity to speak with you briefly about the 
Targeted Jobs Tax Credit. I will also say, Congressman Rangel, I 
wanted to thank you. I saw you on television just a couple of days 
ago in Austin, Tex., saying very nice things about our retiring Con- 
gressman and all the people in Austin. Thank you for those re- 
marks. 

Chairman Rangel. He was a great Member of this committee 
and the Congress, and we are all going to miss him. 

Ms. Chatelle. We will miss him too in Texas. We thank you. 

We would like to also say thanks to you, and your colleagues in 
the Senate, Senators Boren and Packwood for their companion leg- 
islation. We are in full support of all legislation to continue perma- 
nently the TJTC Program. 

At Living Centers, we employ approximately 17,000-plus people 
who work in our nursing homes and centers for the developmen- 
tal^ disabled in 10 States, including not only Texas, but Nebraska 
and Louisiana as represented on your committee today. 

We very much support the TJTC Program because it helps us 
hire the structurally unemployed. We do this in several ways, pre- 
dominantly four ways. 

One, we pay facility representatives a bonus for hiring at least 
one TJTC employee per month. Two, we pay a performance bonus 
based on facility profitability, which is increased the more that our 
facilities utilize a program. Three, we provide a corporate policy 
which gives preference to the TJTC-eligible employee, and last, we 
place standing orders with local job service offices for TJTC refer- 
rals. 

And if I may, with regard to the comment about we would have 
hired these folks anyway, which seems to have recurred — been dis- 
cussed a great deal this morning, I think we may be losing sight 
of the fact that the TJTC Program has provided a great incentive 
to get rid of the negative perceptions that have existed about these 
employees in the past. 

I know within the long-term health care industry, we had a bias, 
I can tell you, years ago before the Targeted Jobs Tax Credit, that 
perhaps hiring an economically disadvantaged worker would mean 
that they would require more training, perhaps they would be 
greater risk, especially on the floors of nursing homes and devel- 
opmentally disabled centers. Perhaps they might be terminated 
more quickly than the regular non-TJTC employee, and I am here 
to tell you that we have learned from the Targeted Jobs Tax Credit 



226 

that those perceptions were actually misconceptions. We have 
learned a great deal from this program. 

That bias has gone away and we would like to see the program 
continue so that that bias will stay away and that we will continue 
to hire the economically disadvantaged folks who do want to work 
and improve their standard of living. 

Chairman Rangel. Couldn't you respond by saying as long as it 
was kept confidential, that you could show your hiring policy for 
the last 2 years that it did not include a lot of these people, but 
thought you would give it a chance and then take a look at the 
first, second and third year? Couldn't we just put to rest this alle- 
gation that 92 percent of the people would have been hired anyway 
in some type of managerial way? 

Ms. Chatelle. I think we could put that to rest certainly in our 
industry, in the long-term health care, health and human services 
industry. When I go out and talk to our staff and our people in our 
facilities, they will tell you they are not so sure they would have 
hired them anyway. And before the Targeted Jobs Tax Credit, we 
are here to tell you, we don't think we did. 

Chairman Rangel. No one can blame them if they can bring in 
people that have less risk. 

Ms. Chatelle. Exactly, especially when you are caring for the 
vulnerable elderly and persons who are very dependent on staff 
care. 

Chairman Rangel. Especially when you prejudge the conduct of 
the potential employee. 

Ms. Chatelle. Absolutely. We still have a ways to go in that re- 
spect, Congressman, and we will continue to work hard to get rid 
of those misconceptions in our industry. 

We also need to work harder within our industry to talk about 
the merits of the program and market the program, and we need 
some help from our governmental entities. We especially need help 
from the Department of Labor. 

For example, computerizing the systems in the local job service 
offices so that they can respond more quickly to our needs so that 
we can get employees in our facilities working. We need better 
computerized systems out in the fields, and we think that the De- 
partment of Labor should work toward that end and help us in 
that regard. 

Chairman Rangel. Why should they? Why should they not go to 
the Department of Labor and say, I am going out looking for a job 
and Labor gives them a card. Then they come to you and they have 
it, no computer, nothing, except they can say that I am eligible for 
the job. 

Ms. Chatelle. It takes too much time. We need the staff in the 
facilities working immediately to care for our residents. 

Chairman Rangel. Where do they come from? 

Ms. Chatelle. I am sorry? 

Chairman Rangel. How do you hire these people? Where do they 
come from? 

Ms. Chatelle. Sometimes they come from the local job service 
offices that were referred to us. 

Chairman Rangel. Why can't a job service, like you give provide 
a note that says, I am from the local job service. In addition, the 



227 

note says I am also eligible for targeted jobs? Why would they have 
a problem? 

Ms. Chatelle. We are willing to try that. 

Chairman Rangel. Everyone is saying that they ought to really 
gear this up so the processing could be a lot earlier and we can 
know ahead of time that we are eligible. I agree with you. I just 
don't know why it is so difficult for a veteran, a cripple, a felon, 
an aged person to have somebody just sign a paper saying I am 
over 65, I am a cripple, I am black, I am a felon, I am on welfare, 
and just take it to you and say, hey, give me a chance. 

I am not saying that it wouldn't be easier if they didn't give you 
some piece of paper and a certificate, but just a driver's license is 
enough to rent a car. OK, I understand now. 

Ms. Chatelle. Also, we would beg to differ with the OIG's study 
with regard to wages and the notion of earning powers. Within our 
company, we are predominantly driven by the Medicaid reimburse- 
ment in our States as to what our starting wages could be, but 
even so, they are higher, Congressman, than minimum wage. 

Traditionally within Living Centers on the average, they range 
from $4.54 an hour to $9 an hour, and we see that as a great earn- 
ing power for these employees. And interestingly enough, as this 
starting salary goes up and minimum wage goes up, the reliance 
on the Targeted Jobs Tax Credit goes down which, to us, will tell 
you it is doing what it was intended to do, and that is, take care 
of the economically disadvantaged. 

The other comment I would make is on the notion we heard ear- 
lier about benefits and advancement, that perhaps there is not a 
way for these employees to advance. We would say to you that is 
not the case within our industry. 

For example, nurses aides. When they come into our facilities, 
they receive a certified training program. A certified nurse's aide 
traditionally makes 10 percent higher than the noncertified nurse's 
aid. Once they get that certification, their advancement opportuni- 
ties are far greater. So we do see a lot of advancement opportuni- 
ties for many of our employees who come in the doors of the Tar- 
geted Jobs Tax Credit. 

Also, 84 percent of our employees work at least 32 hours per 
week and this qualifies them for fringe benefits that they probably 
would not ordinarily receive. For example, the largest of which is 
medical insurance, as I am sure you can understand. 

However, beyond that, we provide dental insurance at relatively 
low cost, and many of our employees take advantage of this benefit. 
With regard to the medical insurance portion, Living Centers, my 
company, pays two-thirds of a family premium should that em- 
ployee have a spouse or children. We also offer paid vacation time, 
holiday leave, sick leave, inasmuch as our State Medicaid systems 
will allow us where we operate. 

One recommendation I would make, if and when hopefully the 
program is extended, would be regarding the age category. Several 
years ago, the 23- and 24-year-old economically disadvantaged 
youth, as you are aware, was deleted from this program. We see 
that that needs to be changed. There is really no reason that we 
can understand why this age category was deleted. 



228 

We would like to have this age person in our facilities working. 
They want to get back to work and in many times, it is discrimina- 
tory, especially for the military service person who might not have 
come out of the Vietnam military service, but is a little bit older. 
We would like to have them in our facilities working. We would 
suggest you add that age category back into the program. 

We at the American Health Care Association and Living Centers 
want to do more to utilize this program, but as you heard earlier, 
the stops and starts and the hiatus make it very difficult to move 
into long-term planning as opposed to short-term programmatic 
needs, but if this program is extended, we feel very confident that 
we can improve our planning process. We can better computerize 
systems out in the local entities, and the end result will be that 
more people will be able to get work who need to work. 

So we would applaud your efforts. We are here to help you in any 
way, and we are also here to say that the program works in our 
industry and it should be permanently continued. 

Thank you for the time. 

[The prepared statement follows:] 



229 



TESTIMONY OF MELODY CHATELLE 

DIRECTOR OF GOVERNMENTAL RELATIONS AND PUBLIC AFFAIRS 

LIVING CENTERS OF AMERICA 

Mr. Chairman, members of the Subcommittee, I am Melody Chatelle. On behalf of 
the American Health Care Association (AHCA) and Living Centers of America, I would 
like to thank you for the opportunity to testify with respect to the Targeted Jobs Tax 
Credit (TJTC) program. 

First of all, AHCA and Living Centers would like to commend you and 
Congresswoman Johnson for introducing H.R. 325, legislation to permanently extend the 
the TJTC program. In the Senate, comparable legislation has been introduced as S. 600, 
by Senators Boren and Packwood. We would like to offer our full support for both of 
these bills. 

At Living Centers, we employ approximately 1 7,500 employees at 223 facilities 
located in 10 states, with a particularly strong presence in our home state of Texas. We 
believe the TJTC program is important in that it encourages employers to promote the 
hiring of the structurally unemployed. At Living Centers, this is accomplished by: 

• paying facility managers a bonus for hiring at least one TJTC employee per month; 

• paying a performance bonus based on facility profitability, which is increased by 
utilizing TJTC; 

• providing a corporate policy which gives preference to the TJTC eligible employee; 

• placing standing orders with local job service offices for TJTC referrals. 

Before TJTC was enacted, nursing facilities were reluctant to hire the 
disadvantaged. There was a perception among employers that they: 

• required more training; 

• were poor performers; 

• were a higher risk, given the nature of our business; or 

• terminated more quickly than the non-TJTC employees. 

The TJTC Program required Living Centers and other nursing facility chains to 
evaluate these perceptions. That evaluation proved these individuals were not a bigger 
risk. Some of our best employees were TJTC certified and without the program our 
facility managers might not have hired them. Without the program, these employees may 
never have had the opportunity to improve their standard of living. 

In the nursing facility industry, there still is a lot of persuading to be done 
regarding the merits of hiring TJTC eligible employees. This is especially true in 
smaller nursing facilities. With possible termination of the program, and with high 
turnover of hiring managers, these old perceptions will return. The benefits of hiring the 
structurally unemployed will again become suspect. 

Business and industry need to be educated as to the merits of the TJTC program. 
Improved computerized systems need to be developed so that the local job service offices 
and outreach services can respond in a timely fashion to requests for TJTC eligible 
employees. The Department of Labor, responsible for administering the program, must 
be given the mandate and the tools to make the program more employer friendly. 
However, with every TJTC hiatus, marketing the program becomes more and more 
difficult. 

Contrary to the study conducted by the Office of Inspector General (OIG), Living 
Centers, as is the case with many nursing facility chains, has an average starting wage for 
TJTC employees that exceeds minimum wage. Unfortunately, the amount of the starting 
wage is tied directly to the state's Medicaid reimbursement program. Based on state 
location, entry level positions in the nursing home industry range from an average of 
$4.54 to $9.00 per hour. Interestingly, we have found that as the starting wage increases, 
the number of employees qualifying for TJTC declines. This is a strong indicator that 
TJTC, as it is presently designed, is a program that is helpful to the most disadvantaged 
individuals in our society. 

In addition to an initial orientation, nursing homes provide training programs that 
certify nurse aides. On the average, the starting wage for a certified nurse aide is ten 
percent higher than a noncertified nurse aide. After earning the designation of certified 
nurse aide, the employee is able to compete more effectively for positions at other 
nursing homes, especially those in smaller organizations. 

Once orientation is complete, 84% of our employees work at least 32 hours per 
week and thus qualify for fringe benefits, the most important of which is medical 
insurance. Living Centers pays two-thirds of a family premium, should the employee 



230 



have a spouse or children. In addition, dental benefits are also available at very 
inexpensive rates. Additional benefits, such as paid vacations, holidays, and sick leave 
are provided as Medicaid reimbursement rates allow. 

Previously, 23 and 24 year old economically disadvantaged youths were eligible 
to be included in the progiam. Several years ago, this category was dropped for unrelated 
budget reasons. However, there is still a need for these age groups to be added back into 
the program. We have found there is little difference among the 18 to 22 year old group 
and the 23 to 24 year olds. In fact, when applying for a job, it may be more significant 
that a 23 or 24 year old had not been working. And yet, under current policy, this group 
is denied hiring preference. 

Living Centers would like to do more to encourage the utilization of the TJTC 
program. However, the uncertainty as to the continued existence of the program creates a 
problem. This is especially true for the local agencies responsible for placing these 
employees in positions. We have found that the system and people, though well 
intended, often lack a mandate to utilize the program to its fullest extent. 

Mr. Chairman, continued exposure to a program that has an uncertain future puts 
employers and agencies in a short term thinking mode. There can be no planning for long 
term planning programs. 

I feel confident that once the TJTC program is made a permanent part of the 
corporate and governmental planning process, the effeciencies of recruiting individuals 
and opportunities for these targeted groups will be improved. Companies will be assured 
of a supply of workers, and agencies will be able to market the program so that those with 
the most need will be made aware of jobs that are available to them. Jobs that can 
provide a meaningful future for them. 

In closing, I would like to encourage this Subcommittee to support a permanent 
extension of the TJTC program. This valuable program is set to expire on December 31, 
1994, and with it, the goals of thousands of this country's disadvantaged unemployed. I 
urge Congress to act now to extend the TJTC program. 

Mr. Chairman, this concludes my prepared statement. I will be happy to respond 
to any questions you or other members of the Committee may have. 



231 

Chairman Rangel. Thank you, Ms. Chatelle. 
Ed Feiler, the National Association of Home Builders, Savannah, 
Ga. 

STATEMENT OF EDWIN J. FEILER, JR., DEVELOPER-BUILDER, 
METRO DEVELOPERS, INC., SAVANNAH, GA. ON BEHALF OF 
THE NATIONAL ASSOCIATION OF HOME BUILDERS 

Mr. Feiler. Mr. Chairman, my name is Ed Feiler. I am a second 
generation builder and developer from Savannah, Ga., representing 
the National Association of Home Builders and its 180,000 mem- 
bers. We congratulate you for holding this hearing and appreciate 
the opportunity to appear here today. 

At the outset, I would like to thank and congratulate you for 
your continued efforts in attempting to obtain permanent exten- 
sion, and especially improvement of the TJTC Program. This pro- 
gram has had a significant impact on the hiring and training of 
young workers throughout this country who otherwise might not 
have gained employment in our industry. For this, you are to be 
particularly commended. 

I would also like to note that the home construction industry is 
largely composed of small business owners. In fact, I think our in- 
dustry has the highest percentage of its members who own their 
own business of any major trade organization in the country. In 
this regard, the loss of any tax incentive has a more dramatic im- 
pact on the bottom line of our businesses. In this regard, we urge 
that the tax deduction for the health insurance cost of the self-em- 
ployed also be extended prior to the conclusion of this Congress. 

The TJTC is scheduled to expire on December 31, 1994. This en- 
courages employers throughout the Nation to hire individuals who 
have, as a result of economic disadvantage or a disability, found it 
difficult to enter the private work force, regardless of the condition 
of the economy. 

These structurally unemployed individuals are economically dis- 
advantaged youth between the ages of 18 and 22, economically dis- 
advantaged cooperative education students, vocational rehabilita- 
tion referrals, economically disadvantaged Vietnam veterans, eco- 
nomically disadvantaged ex-felons, qualified welfare recipients, and 
economically disadvantaged youths seeking summer employment. 

The National Association of Home Builders, through our non- 
profit educational arm, the Home Builders Institute, is actively in- 
volved with the Targeted Jobs Tax Credit. The Home Builders In- 
stitute helps place Job Corps graduates which it trains into posi- 
tions in our industry after training them in needed construction 
trades. 

The Home Builder Institute instructors teach these trades at 58 
of the 108 Job Corps centers nationwide. Instruction includes, 
among others, carpentry, landscaping, painting, and brick masonry, 
as well as apartment maintenance. Upon graduation from the Job 
Corps, the Home Builder Institute national coordinators help to 
find employment for these disadvantaged workers with employers 
throughout the building industry. Our national coordinators are re- 
sponsible for frequent followup on former trainees placed on a job 
to check on their performance. 



232 

The Targeted Jobs Tax Credit has been instrumental in helping 
us to persuade private sector employers to hire disadvantaged 
workers. Although our national coordinators contact thousands of 
potential employers nationally, many of these employers are reluc- 
tant to hire disadvantaged workers without an additional incentive. 
The most common reasons given are that the trainees have little 
actual on-the-job experience when, as you are no doubt aware, 
thousands of experienced individuals are currently out of work in 
our industry. 

There is also a perception on the part of some employers that 
disadvantaged youths may also be unreliable. This tax incentive al- 
lows a young person to get his or her foot in the door to sharpen 
their skills, learn the work ethic, and rebut negative presumptions. 

Our industry places approximately 2,000 Job Corps graduates 
into jobs each year. Approximately 75 percent of such job place- 
ments used the Targeted Jobs Tax Credit. Indeed, several HBI 
placement coordinators use the Targeted Jobs Tax Credit for 100 
percent of their job referrals. The loss of this option will remove the 
incentive to hire these young employees. 

When the Targeted Jobs Tax Credit expired in June 1992, job 
placements were directly affected. This is something that we would 
like to end by making the job — the Targeted Jobs Tax Credit per- 
manent. It is an invaluable tool to encourage employers to hire 
newly trained young people. Not only is this program Deneficial in 
terms of assisting the provision of affordable housing, but the fact 
that it affords the opportunity for structurally unemployed citizens 
to learn a marketable and needed skill cannot be overstated. The 
NAHB fully supports the permanent extension of the Targeted Jobs 
Tax Credit. 

[The prepared statement follows:] 



233 

STATEMENT OF THE 

NATIONAL ASSOCIATION OF HOME BUILDERS 

BEFORE THE 

HOUSE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON 
SELECT REVENUE MEASURES 

September 29, 1994 

Mr. Chairman, members of the Committee: 

My name is Ed Feiler. I am a developer from Savannah, Georgia. On behalf of the 
National Association of Home Builders (NAHB) and its 180,000 members, I congratulate you 
for holding this hearing and appreciate the opportunity to appear here today. 

At the outset, I would like to thank and congratulate Chairman Rangel for his continued 
efforts in attempting to obtain permanent extension and improvement of the TJTC program. The 
TJTC program has had a significant impact on the hiring and training of young people in the city 
of New York who otherwise might not have gained employment in our industry. For this. 
Chairman is to be particularly commended. 

The TJTC (Internal Revenue Code Section 51) is scheduled to expire December 31, 
1994. The TJTC encourages employers throughout the nation to hire individuals who as a result 
of economic disadvantage or a disability have found it difficult to enter the private workforce 
regardless of the overall condition of the economy. These "structurally unemployed" individuals 
are economically disadvantaged youth between the ages of 18 and 22; economically 
disadvantaged cooperative education students; vocational rehabilitation referrals; economically 
disadvantaged Vietnam veterans; economically disadvantaged ex-felons; certain welfare 
recipients; and economically disadvantaged summer youth employees. 

The National Association of Home Builders (NAHB) through our nonprofit educational 
arm, the Home Builders Institute (HBI), is actively involved with the TJTC. HBI helps place 
Job Corps graduates into positions in our industry after training them in the construction trades. 
HBI's instructors teach home building trades at 55 of the 108 job corps centers nationwide. 
Instruction in the skilled building trades includes, among others, carpentry, landscaping, 
painting, building and apartment maintenance, and brickmasonry. Upon graduation from job 
corps, HBI national coordinators help to find employment for these disadvantaged workers with 
employers in the building industry. The national coordinators are responsible for following up 
on former trainees placed on a job to check on his or her performance, from time to time. 

TJTC has been instrumental in persuading private sector employers to hire disadvantaged 
workers. Although our national coordinators contact thousands of potential employers 
nationally, many of these employers are reluctant to hire disadvantaged workers without 
additional incentive. The most common reasons given are that the trainees have little actual, on- 
the-job experience when, as you are no doubt well aware, thousands of experienced individuals 
are currently out of work in our industry. There is also a perception on the part of some 
employers that disadvantaged youths may be unreliable. This tax incentive allows a young 
person to get his or her foot in the door to sharpen their skills and to rebut any such 
presumptions. 



234 



Our industry places approximately 2,000 Job Corps graduates into jobs each year. 
Approximately, 75% of such job placements use the TJTC. Indeed, several HBI placement 
coordinators use TJTC for 100% of their job placements. For the July 1993 to 1994 program 
year, HBI placed 2,294 graduates nation wide. Many employers have been encouraged to hire 
job corps graduates because of TJTC availability. Moreover, the TJTC has had a most 
significant impact on small business employers during the nation's economic difficulties. 

Loss of the TJTC option will remove the incentive to hire these young employees. When 
the TJTC expired June 30, 1992, job placements were directly affected. One placement 
coordinator reported to us that a certain large company in Houston, Texas that had hired over 
20 job corps graduates in the past few years, stopped hiring job corps graduates because they 
could no longer receive the tax credit. 

The targeted jobs tax credit is an invaluable tool to encourage employers to hire newly 
trained young people. Not only is this program beneficial in terms of assisting in the provision 
of affordable housing, but the fact that it affords the opportunity for structurally unemployed 
citizens to learn a marketable skill cannot be overstated. NAHB fully supports the permanent 
extension of the TJTC. 



CONCLUSION 



The National Association of Home Builders agrees with Chairman Rangel's long stated 
position that failure to adequately utilize the abilities and potential of structurally unemployed 
citizens contributes in no small way to lost federal and state revenues and our increasing deficit. 

By creating job opportunities for all Americans, the housing industry can not only be the 
engine that leads the national economy but also one that leads the battle against under- 
employment, under-education and un-affordable housing. NAHB looks forward to further 
working with you and your staff to propose and implement solutions to sustain the Nation's 
economic recovery. 



235 

Chairman Range l. Thank you. 
Mr. Shipman. 

STATEMENT OF R. WALTER SHIPMAN, PRINCIPAL, ACCOM- 
PANIED BY SCOTT D. SHIPMAN, MANAGER, GOVERNMENT 
AFFAIRS, SHIPMAN, MAISON & ASSOCIATES, LTD., CHICAGO, 
ILL. 

Mr. Walter SHIPMAN. Thank you, Chairman Rangel. Mr. Chair- 
man, distinguished guests, committee members, my name is Walter 
Shipman, principal of the firm Shipman, Maison & Associates in 
Chicago. Our firm, based in Chicago, is a developer of computer- 
oriented tax, financial, and governmental affairs programs. 

I have been involved with the Targeted Jobs Tax Credit Program 
since its creation in 1978, and while I advocate the extension of the 
program, I would like to approach the request for extension from 
the various State departments of employment security agency per- 
spective. In the limited time provided, and in the accompanying re- 
marks of my testimony, I will share this perspective with tne com- 
mittee. 

My intent here today is to say that through the use of automa- 
tion, funding to administer the program throughout the United 
States at the various agency levels, will be considerably reduced. 
It should not take $16 million of the government's money to admin- 
ister this program at the State — at the various State levels. 

Mr. Chairman, I hold in my hand a diskette capable of admin- 
istering a State agency TJTC Program. This diskette is in use on 
a pilot oasis in our home State of Illinois. This diskette permits the 
administration of the TJTC Program faster, more efficiently, and 
more accurately as it permits any State to focus on employer and 
State charters of service to the respective community. 

This is not to say that any State relishes not being able to re- 
spond even faster, because they don't. They are all working very 
hard and are willing to provide as much service as they possibly 
can. They are merely lacking in resources which limit their produc- 
tion and effectiveness. This has been reiterated throughout all the 
various States of which we have been discussing. 

Specifically, this diskette administers the TJTC Program by sys- 
temically organizing the program, starting with the ability to issue 
a certificate in less than 10 minutes, right on through initiating 
employer community services rather than responding to same. This 
improvement in the TJTC administration gives the local employ- 
ment office the strength to service the community, to more effi- 
ciently provide pools of TJTC-eligible workers for job placement 
consistent with the original intent of the TJTC legislation back in 
1978. 

Additionally, the reporting now performed by the State agencies 
to the DOL on a quarterly basis can now be done on a daily basis 
if desired. 

In my prepared comments, there are some times and compari- 
sons in there which show the difference in the time that it takes 
to roll these numbers up. This could all be done within 1 day's 
time, if necessary. 

Further, this diskette is consistent with the Vice Presidents 
Reinventing Government Initiative. It is consistent with Secretary 



236 

Reich's one-stop shopping concept and it is consistent with the 
goals of the Black Caucus, that is, to serve inner-city youth in their 
search for meaningful employment. 

As stated above, this software is in use to administer the TJTC 
Program on a pilot basis, and in the areas where the software has 
been used, has been permitted to respond on a rapid — in rapid 
fashion to employers by being able to more efficiently process appli- 
cants and satisfy the information needs of the employers. 

I would like to thank you for giving this program the attention 
it deserves and for the opportunity to address these issues in this 
forum. Should you or the committee have any questions regarding 
this testimony, I would be only too happy to try to answer them 
at this time. 

Thank you. 

[The prepared statement follows:] 



237 



STATEMENT OF R. WALTER SHIPMAN 

PRINCIPAL 

SHIPMAN, MAISON & ASSOCIATES, LTD. 

Introduction 



Thank you, Chairman Rangel. Mr. Chairman, distinguished members 
of the committee, and honored guests, my name is Walter Shipman, 
Principal of the firm Shipman, Maison & Associates, Ltd. Our 
firm, based in Chicago, Illinois, is a developer of computer 
oriented tax/financial and governmental affairs programs. 

I have been involved with the Targeted Jobs Tax Credit (TJTC) 
program since its creation in 1978, and while I also advocate the 
extension of the program, I would like to approach the request 
for extension from the various state departments of employment 
security agency perspective. In the limited time provided, and 
in the accompanying remarks of my testimony, I will share this 
perspective with the committee. 

Mr. Chairman, I hold in my hand a diskette, capable of 
administering a state agency TJTC program. This diskette is 
currently in use helping employment security offices on a pilot 
basis in our home state of Illinois. This diskette permits the 
administration of the TJTC program faster, more efficiently, more 
accurately, as it permits a state to focus on employer and state 
charters of service to their respective community. This is not 
to say that the states relish in not being able to respond even 
faster, they don't, as they are there willing to provide as much 
service as they possibly can, they are merely lacking in 
resources which limit their production and effectiveness. 

Specifically, this diskette administers the TJTC program by 
systematically organizing the program, starting with the ability 
to issue a certificate in less than 10 minutes, right on through 
initiating employer/community services rather than responding to 
same. This improvement in TJTC administration gives the local 
employment office the strength to serve its community, to more 
efficiently provide "pools" of TJTC eligible workers for job 
placement, consistent with the original intent of the TJTC 
legislation back in 1978. 

Further, this diskette is consistent with the Vice President's 
reinventing government initiative, is consistent with Secretary 
Reich's "one stop shopping" concept, and is consistent with the 
goals of the Black Caucus, i.e., to serve inner-city youth in 
their search for meaningful employment. 

The Illinois Department of Employment Security (IDES) is 
currently using this software system to administer the TJTC 
program on a pilot project basis. In the areas where the 
software has been used, IDES has been able to respond to 
employers by being able to more efficiently process applicants 
and satisfy the information needs of the employers. 

I would like to thank you for giving this program the attention 
it deserves, and for the opportunity to address these issues in 
this forum. Should you or the committee have any questions 
regarding this testimony, I would be more than happy to try to 
answer them at this time. 



238 



Overview 

Essentially, in order to administer the TJTC program, a local 
employment office is responsible for the identification, 
verification and certification of an applicant, and "refer" the 
applicant to an employer for job placement. Our intent herein is 
to analyze each aspect of TJTC administration, and provide 
examples of comparing/contrasting local office activity 
with/against that which can be by utilizing software systems. 
The service aspect of administration is very important, as many 
office staffs are overburdened with current workload, hence, slow 
to respond to the needs of the community employer regarding TJTC 
certified applicants 1 jobs placement. With computer software, 
the exact opposite could be the creation of TJTC eligible "pools" 
- as was the design in 1978. 

Identification 

The identification process is the first step in determining which 
applicants are eligible for TJTC certification. Eligibility 
determinations are made based on an applicant's membership in one 
of the nine targeted groups, generally: those receiving some 
sort of welfare or state aid, those who have been to vocational 
rehabilitation programs, those who have served in the military 
between 1964 and 1975, young adults between the ages of 18-23, 
years old, or are 16 or 17 years old at the time of hire, (summer 
youth category) , those applicants convicted of a felony, or those 
applicants who are in a cooperative education program. 

Currently, when an applicant visits a local employment office, 
the applicant must first complete form, and "register" with that 
office before TJTC screening can begin. Naturally, completing 
forms, (all manually) and registration creates long lines with 
potentially slow service, and is subject to local custom. 

Through the use of technology, software systems offer: on-line 
access to information, easy, and uniform targeted group 
identification, and standardization of service. 

o On-Line Access : 

Software can be linked with other state 
agencies to provide comprehensive information. 

o Target Group Identification : 

All questions used to interview an applicant 
are on screen. A simple "Y" for "Yes" entry 
will identify the correct target group. 

o Standardization : 

The screening process eliminates pre-screening 
forms for the applicant to complete. Questions 
concerning the nine targeted categories are on 
the screen before the interviewing officer and 
are worded to standardize the entire interview 
hence not left subjectively to the interviewer 

Through the use of software, eligibility determination can be 
reached in two minutes or less, per applicant. Local offices not 
having software available take much longer. 



239 



Verification 

The second step of TJTC administration involves verification. 
Verification means that once an applicant is identified as a 
member of a targeted group, the applicant must provide specific 
documentation evidencing eligibility in a particular target 
group. 

Once the local office verifies that the documents prove that the 
person is a member of a targeted group, the office will issue a 
voucher for the applicant to take to an employer who has job 
openings. In return for hiring this vouchered applicant, upon 
certification, the employer may receive a tax credit. Currently, 
vouchers can take 30 minutes per applicant to complete, and are 
often unreadable with carbon copy and/or sloppy handwriting. 

For those offices with TJTC software, computer data entry takes 
approximately 1-3 minutes, with legible results. Thus, service 
is greatly enhanced as applicants may now be referred to employer 
job openings by the local job service office. Since the software 
is mobile, it can be "loaded" on a notebook computer, or laptop, 
and set up at a job fair, or other on-site screening. Again, 
this service enhances local office involvement in the community. 



Certification 



The third and final step in TJTC administration is the issuance 
of the certificate. This document evidences that the applicant 
is a member of a targeted group, and that once this applicant has 
worked for an employer for the required period of time, the 
employer may take a tax credit of 40% of the first $6,000 of the 
members' qualified wages. At the local office level, issuing a 
certificate may take 30 minutes to complete, whereas with a soft- 
ware system, certification is issued at the touch of a button. 

The local office address, applicant address, date, social 
security number, etc. is automatically recorded as a result of 
the initial screening or registering process. The local office 
official needs to sign and date the certificate, then mail it to 
the employer. Again, because the system is mobile, the software 
may be set up anywhere there is an electrical outlet, and the 
local office will be in service. Again, the entire process from 
registration to certification is done in less than 10 minutes. 



240 



Reporting 

All local employment offices need to report TJTC activity to a 
central office, for monitoring, and reporting to regional and DOL 
offices. At the local office level, it currently takes hours to 
compile the quarterly report and includes running the risk of 
errors which require additional hours to reconcile. Each level 
of "roll-up" again requires innumerable hours to compile. 
Utilizing software, the entire quarterly data is compiled daily 
and reporting is, again, with the touch of a button. 

Real world examples drive the need for a software system. Many 
employers or employer representatives call the local and state 
employment offices to inquire about the status of the person sent 
in for TJTC determination, or call about the status of the 
certification. This checking is extremely time consuming for the 
local office, particularly if the request is (as often the case) 
more than 2 years old. Because of the volume, the local offices 
have to go back into stored files to find the information. Some 
states have to shut down the entire process when conducting 
status searches. Hence, quite naturally, the states are 
reluctant to perform the search until a more opportune time, thus 
creating additional bottlenecks and more employer questions. 
With the software system, a simple entry of the applicants' 
social security number would retrieve the answer immediately. 

Recently, a local employment office had two opportunities to use 
the software system. In one instance an employer inquired as to 
the number of individuals the office had interviewed, and of 
those interviewed, the number of those individuals determined to 
be TJTC eligible. The local office was able to give this 
employer complete reports, by target group, in less than 5 
minutes. By contrast, in another instance, a local office had 
three employment officers servicing applicants manually, while 
another officer used the software system. At the end of the day, 
each officers had to report totals. The three officers were 
still manually accumulating totals, while the officer with the 
software was finished. 

Additionally, officers utilizing a manual process have to return 
to their office, prepare and record the appropriate vouchers and 
mail them to the employer for the appropriate employer signature, 
receive the vouchers in return from the employer then prepare 
certificates and mail to the employer. Officers utilizing 
software may issue vouchers and certificates on site, thus 
permitting the employer to allow the eligible employee to go to 
work not needing to return to the local job service office for 
additional information. 



241 

Comparison: Manual Versus Software TJTC Administration 



To review, basic TJTC administration involves identifying who is 
eligible for the program, verification as to being a member of a 

target group, and certifying the individual for the employer. 
The following is a chart contrasting the speed, accuracy, and 
ability of the current local employment office (manual) procedure 
versus a software based system: 

Identification 

Manual Software 

Screening: 5-10 Minutes 2 Minutes or Less 

Register: By Paper Electronically 

Other Data: Calling other Agencies Database 

Questions: Subjective, by locale Objective 

Verification 

Application: By Paper, with Carbon Copies Electronically 

Time: 10-30 minutes by hand 5-10 minutes 

Accuracy: Varies, by locale Objective 

Certification 

Application: By Paper, Typed Electronically 

Time: 10-30 Minutes Seconds 

Accuracy: Variable Total 



TJTC federal funding is proportional to the number of 
certificates issued. The funds received for the TJTC program 
does not cover the full cost necessary to administer the program. 
Therefore, time is taken away from other employment security 
office duties, including job placement. By computerizing the 
TJTC process, the local office could consider scheduling 
opportunities to address other areas of responsibility and 
possibly provide even more service to the local community such as 
job placement "pools", hence, getting back to the original intent 
of the TJTC program. 



242 



Conclusion 



Our testimony will close with some recommendations and a final 
thought regarding the TJTC program. 

To Enhance the TJTC Program 

o Extend the program for at least 6 years. 

o Offer a credit for 2 years - 25% first year, then 75% 

second year, to encourage retention, 
o Set the minimum salary to qualify at $6 per hour, 
o Reinstate 23 and 24 year olds as a targeted group, 
o Make all veterans an eligible target group, 
o Add a targeted group to include those over 55 years old. 
o Add a targeted group to include those who have exhausted 

unemployment insurance benefits, 
o Eliminate the Letter of Request, and issue certificates 

for individuals hired through the State Employment 
Service Agency (SESA) . 
o Allocate funding for automation, 
o Increase funding for advertising the program. 

Comments from employers who have "heard something" 

about the program still leaves a lot to be desired. 



The TJTC program has provided an incentive for employers to hire 
the disadvantaged. While modifications are necessary and 
appropriate to enhance the program, administration of the program 
needs to be improved. Current technology is available to help 
assist the local office in providing a complete service to the 
community so that all who seek jobs will be referred to an 
employer who has openings. Through software, the local office 
will be able to reassert its position in the community, rather 
than be just the alternative for those seeking employment. A 
software system would benefit the employer, the applicant, and 
the local office by saving each of these entities time - of 
which, in the business world, there is never enough. 



243 

Chairman Rangel. Thank you, Mr. Shipman. 

Now, what you are saying is that by putting this on software in 
a computer, you can expedite the necessary information for a po- 
tential employer, right? 

Mr. Shipman. That is correct. 

Chairman Rangel. And so 

Mr. Shipman. They could go into the job service office, create a 
pool of eligible employees employers can call, request them for job 
orders, and they are already prescreened. They come out with the 
voucher. 

Chairman Rangel. Why can't they find out now when these peo- 
ple go to an employment office, the first thing they know is that 
they are unemployed. So you don't need a computer for that. 

Mr. Shipman. That is correct. 

Chairman Rangel. They came there. They said, I am unem- 
ployed. I assume that they would have their age on there. Just as- 
suming. You file an application. Then somebody asks, have you got 
any disabilities? They put that on there, and then they ask have 
you ever been in the military? What time? And you put that there. 
Have you ever been in prison? And you put that there. What is 
your income? And you put that in there. 

Now, I am assuming that no matter what you do in business 
today, that your service will make it easier to do that. What I don't 
understand is why we have all of this problem with certification, 
and you can help me 

Mr. Shipman. I believe it is the volume. 

Chairman Rangel. If I am the State agency and I am sending 
my people to these three who use them, I know I could do better 
if I had your service, but if I sent them, why can't I tell them that 
these people are eligible when I send the application? 

Mr. Shipman. I believe, Mr. Chairman, it is because of the vol- 
ume and the staffing at the local level. 

Chairman Rangel. If I were the person looking for a job and I 
went to the State Labor on Monday and I went to see Ms. Chatelle 
as soon as she asked for the slot, you mean I would never get into 
that group that would be interviewed until after they certified? 

I just want you to send me to whomever and explain that I want 
to get a job and I am eligible for the Targeted Jobs Tax Credit. I 
know I could do it faster and send it to a lot of people, but what 
would normally happen? Do I have to wait for you, State Labor, to 
certify me before I can go get a job? 

Mr. Shipman. That is the preferred way because if that employer 
does not want to hire that person, for whatever reason, maybe the 
type of job that they are interested in, they are not able to do that, 
by then being registered up front at the job service office, they 
might be placed somewhere else where their services could be used. 

Chairman Rangel. Well, you are a salesman and so you have to 
know the potential client's demand. Suppose you were trying to sell 
this to the State and they would say, look, Mr. Shipman, I can't 
get these notices out fast anyway. 

If I had a backlog of people that I had to send out, you could help 
me, whether it was Federal or State, whether it was credit or no 
credit, but if the people are coming in and I am sending them out, 
I don't know why I can't tell them whether they are eligible or not 



244 

at that time. Certainly for the recordkeeping and dealing with the 
IRS, I wouldn't want to go home without you, but I don't really 
think that a logjam here is based on the fact that DOL or the 
States cannot get the information to these potential employers. 

Mr. Shipman. That is much of the problem. That is much of the 
problem. They are overburdened. They are overburdened with re- 
quests for information for which they can't find the answers. 

Chairman Rangel. They are not overburdened in taking down 
the names and information that they are unemployed, are they? 

Mr. Shipman. Requests come in from employers in various places 
for information in a — in any particular State. In some States, the 
staffing is so slim that they have to shut down the TJTC function 
in order to respond to that request. They are reluctant to do that. 
They don't have the staffing for it. 

Chairman Rangel. We are going to have to look into that, and 
the fact is that as far as I am concerned, if you are hiring low-in- 
come people and you can show a record that with a little Federal 
assistance you are keeping them, that you are taking a little more 
risk, that they are getting into the job market, I would find some 
way to try to encourage you to do it. Instead of saying you would 
have done it anyway, I would find out how you can keep them 
there longer and how they can really be on their feet. Instead of 
saying there is a lot of turnover, I would try to find out why there 
is turnover and try to remedy that. 

Unfortunately, we got blindsided here and now they are telling 
us at the last minute that we have problems that we have never 
known about. And so it gives you an opportunity to go back and 
to regroup and it is not comfortable to say that you would not have 
taken the risk if there was not the Federal credit. 

People like to believe they do the right thing even without the 
credit. Obviously we need some statements to say that business is 
not like that. We try to avoid risk where we can. We try to avoid 
taking unnecessary chances and where we have taken them and it 
has worked out, we have done so with a little Federal assistance 
and it works for us. 

So this program is not going to go away, but it seems to me that 
with all of the beneficiaries of the program, someone should know, 
maybe you didn't have to tell anybody because we have been limp- 
ing along by getting an extension, then having it retroactive, and 
all of you agree that you can do better planning if you knew you 
had something permanent to work with. 

So let me suggest that we all agree that you are dealing with the 
right work group, that we do want to make it permanent, that we 
do want to make certain that we have permanent and long-lasting 
jobs. We do want to expedite the information that you would need 
so you would know what you are working with. We don't need a 
lot of unfounded allegations as to what you would have done, since 
nobody knows what you would have done anyway. 

But we need a better way to respond to some of the questions, 
not necessarily from this panel, but certainly from previous panels, 
and if they have the problem, like Mr. Wingate, who has to wait 
until everybody is hired before knowing if they are eligible, clearly, 
Mr. Shipman, your service is badly needed for those types of peo- 
ple. 



245 

Mr. Shipman. Most definitely. 

Chairman Rangel. But in existing law, there is an opportunity 
for the person to leave the State employment office with a piece of 
paper saying, I am eligible. I know I am missing something be- 
cause I don't administer the law. I don't know the problems and 
I am not belittling the real problem, but under the law, we have 
tens of thousands of people that go to the employment office, they 
apply for the job, say what they can do, what they can't do, and 
they are sent out. Some of them are given these little slips that say 
trust me, give me a chance, the Federal Government will be with 
me. 

I don't know, Mr. Shipman, why that doesn't work, not nearly as 
effectively as your system would, or a variety of other efficiencies, 
but I can't see why Wingate's group can't know that 80 percent of 
the people he hired are not eligible. 

Can anyone say what problems would arise if everyone left the 
employment office with a plastic card saying, I am eligible, I am 
certified, and it is none of your business why? 

Mr. Burton. Mr. Chairman, I think that would work great for 
individuals that come into the employment office. One thing that 
we are faced with is that we need a lot more individuals. We need 
a lot more individuals than the job service or other employment of- 
fices can supply. 

Just to give you an example, we happened to stumble on Job 
Corps, which is going to be very beneficial to us because of the 
number of people that they can supply us, and they are 100 percent 
certified. The reason why I say we stumbled upon it is that infor- 
mation was never offered to us by employment agencies. I guess 
that is why we are so in favor of employment agencies being able 
to give us that kind of information, so that we can work with indi- 
viduals outside of the State employment system. 

Chairman Rangel. So we get the National Government to say, 
if you qualify for this, go into your local office, pick up a card. And 
then the employers put a sticker in their windows saying we pro- 
vide jobs for Targeted Jobs Tax Credit and everyone would be at- 
tracted to you and come in, with the certificates. 

Listen, there has to be a way to match it up, but you just can't 
be hit with the allegation unless you have ways of better knowing 
that you are helping the targeted people. We can perfect it, but you 
have to help us to do it, especially if we can solicit a reasonable 
fee from Mr. Shipman's office to provide this. 

We would need you anyway, but while we are waiting to catch 
up with this high tech, I just don't want people to say that I hired 
100 people and find out 2 months later that 80 of them were eligi- 
ble. 

There has to be an easier way, because it is that type of system 
that allows people to say that you really didn't care who you were 
hiring, although I can see where you went to a community where 
these people normally would be and that you wouldn't have gone 
into a community unless you thought that 80 percent were eligible. 

In any event, let me thank you for your patience with this com- 
mittee. I hope you heard the Secretary, that we have got some type 
of commitment from him. The problem, as you know, is the funding 



246 

at this time of the year. We cannot talk about taxes to anybody 
until after the election, but it is a good program. 

We want to thank you for using it, and don't hesitate to send let- 
ters to the Secretary of Labor and share with him how successful 
it has been, and if you know the name of your U.S. Senator, you 
might share with him how important this is to you in these closing 
days. 

Meanwhile, we will do all we can to try to preserve the program 
and get an extension. If for some reason we cannot find the funding 
or we cannot get an agreement with the Senate, you can rest as- 
sured that one of the top priorities of next year, as we move for- 
ward, will be to have even more tools for you than just this. We 
hope to have educational tools available to you for those that hire 
the people that still would want some assistance in getting higher 
training. We hope that you could just go into areas. 

Is Q Lube, Inc. what you do? You might say that you are going 
to open up in areas, not because of what the employees are like, 
but because of the condition of the community, and get the credit 
just because you went into that community, or anyone else if you 
wanted to have a living — what is it, of the 

Ms. Chatelle. Living center, nursing home. 

Chairman Rangel. Nursing home. You want to normally go into 
the suburbs and you didn't like inner cities because the costs were 
too high, insurance was too high, and we say, we will give you an 
incentive if you decide to anchor there, not just for the employees, 
but for the investment, because this Secretary recognizes that 
working people are less likely to cause us social problems that in 
turn, impact the budget. 

If it takes training to do it, we took the risk, but a lot of people 
went to the military. We took the risk with a lot of people like me 
who got the GI Bill, and there is no reason why we can't do the 
same thing with a lot of Americans that have the potential, if given 
the opportunity. You people have done it. Mr. Shipman wants to 
help you to do it more effectively and we thank you for the con- 
tributions you make. 

This committee stands adjourned until the call of the Chair. 

[Whereupon, at 3 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 



247 



American Hotel & Motel Association 
1201 New York Ave, NW, Ste 600 
Washington, DC 20005-3931 
(202)289-3120 



September 29, 1994 



The Honorable Charles B. Rangel 

Chairman, Subcommittee on Select Revenue Measures 

Committee on Ways and Means 

U.S. House of Representatives 

Washington, DC 20515 

Dear Chairman Rangel: 

The American Hotel & Motel Association, the trade association of the lodging industry, 
representing in excess of 10,000 properties through a federation of state and local lodging 
associations, offers the following comments for the record of the Subcommittee's September 29, 
1994 hearing on the Targeted Jobs Tax Credit (TJTC). 

The American Hotel & Motel Association commends the Subcommittee for holding hearings on 
TJTC, particularly with its December 31, 1994 expiration date quickly approaching. We find it 
unsettling that once again this important program is on the brink of expiration. We are 
particularly concerned in light of the fact that its revival in 1995 and retroactive application is 
very likely assured if past history gives any clue as to future action. The fact that a number of 
bills have been introduced to extend and improve TJTC is evidence of its continued importance. 

TJTC has proven to be an effective program for companies in our industry, having a positive 
effect on the hiring of individuals in the designated categories. The existence of a partial tax 
credit has helped offset higher training costs, initial lower productivity, and the extra 
expenditure of management time necessary to bring these employees up to levels of 
productivity equivalent to others in the work force. By allowing companies a method of 
offsetting those costs, TJTC has created a positive incentive to seek out and hire qualifying 
individuals. 

Much has been made recently of reports and statements suggesting that many if not most 
individuals hired under TJTC would have been hired anyway to fill positions and that 
therefore TJTC is ineffective. We believe this is not the case. While it is admittedly true that 
positions in our industry and other industries will be filled when vacancies exist, it is less likely 
that they would be filled with individuals who are TJTC qualified, absent the program. The 
very lack of job skills and access to the job market which has kept these individuals out of the 
job market would continue to be a bar to them absent the TJTC program. The program exists 
because it was recognized that some individuals need help in breaking into the job market. 
TJTC provides that help by creating an incentive for employers which balances out the extra 
costs associated with bringing a less qualified person into the work place. In addition it 
identifies individuals for willing employers to bring into the work force. It is a classic win-win 
situation. 

Despite the fact that this program has been disrupted several times by limited extensions which 
have been allowed to lapse and by short term renewals, it continues to be strongly supported 
both by business groups and individuals who are benefited by the opportunities created. TJTC 
should remain available on a reliable basis into the future to continue the salutary effect it has 
had on bringing into the work force individuals in the targeted disadvantaged categories. 

We urge the Subcommittee to extend the TJTC, on a permanent basis, to ensure that this 
workable program remains available and is no longer threatened by periodic interruption. 

Sincerely, 



James E. Gaffigan 

Vice President, Governmental Affairs 



JEG:kmj 



248 



STATEMENT OF EDWARD C. LORENZ 

DEPARTMENTS OF HISTORY AND POLITICAL SCD2NCE 

ALMA COLLEGE, ALMA, MICH. 

The publication in the last year of two reports from the Department of 
Labor's (DDL) Inspector General [10] documenting the failure of the Targeted Jobs 
Tax Credit (TJTC) has reignited the debate about the continuation of the credit 
[OIG, 1983; OIG 1984]. That debate has been a heated one ever since studies in 
the early 1980's documented fundamental weaknesses, if not failures in the 
program. Yet, each time TJTC faced renewal, despite considerable evidence of 
problems, it has been renewed, often with minor changes which made failure more 
likely. In fact, the findings of the Inspector General aire not in the least 
surprising, given the earlier social scientific research on TJTC, most of which 
has been part of the record of TJTC oversight. 

Among the comparable studies of TJTC impact which used "a 'carefully 
constructed methodology'" 1 were two conducted for the House Committee on Hays 
and Means by the National Commission for Employment Policy, the first in 1985, 
with a follow-up in 1988 [Lorenz, 1985; Lorenz, 1988]. They assessed the success 
of the program in raising the earnings and improving job retention of program 
participants. Since the Inspector General's national report contains 
considerable information on worker retention and income, the NCEP findings may 
be correlated with it to see if the two studies reinforce or contradict each 
other. Since both studies call for major change in employment tax credit policy, 
the reports's consistency, based on data independently collected over many years, 
would represent a powerful argument for reform. 

The Inspector General 's August 1984 report identifies the following specific 
earnings and retention findings which can be compared to NCEP data: 

1. "One of three employees (37%) was paid at or below the 
minimum wage prescribed by law; for all TJTC jobs in our 
sample, starting wages averaged $4.96." 

2. '^Vo of three employees (61% worked part-time." 

3. "One of four employees (25%) worked in eating and drinking 
establishments ..." 

4. "Three of four employees (76%) were no longer with the TJTC 
employer five quarters after being hired." 

5. "TJTC employees' average annual earnings were $7,738 {$4.96 
average hourly wage X 30 average hours per week X 52 weeks) . " 

Quite significantly, the NCEP findings fully support, sometimes more 
negatively, each of these measurements by the Inspector General. Of course, the 
NCEP study often asked slightly different questions or collected data in slightly 
different ways than did the Inspector General . Most different was the selection 
of the NCEP samples. The NCEP wanted to answer questions about variations in 
program impact by race, sex, and targeted group. Therefore a stratified random 
sample was constructed to assure each category had a significant number of cases. 
Consequently, the total NCEP sample was composed of groups of nearly equal 
numbers, while the actual TJTC participation by group varies greatly, with over 
half in one category and as few as three percent in another used in the NCEP 
studies. 1 This sampling procedure made combining NCEP group data into a "TJTC 
average" unnecessary. Because data varied only little by group, with 
qualifications the NCEP group data can be averaged for a rough estimate of total 
NCEP findings. These qualifications about the averaging of NCEP data would be 
important if the NCEP results conflicted with the Inspector General 's , Since the 
two seem consistent, it is doubtful that the sampling differences matter. This 
may be the case especially given the Inspector General 's conclusion that at least 
92 percent of all credits are windfalls. If that number is correct, then TJTC 
is having such a negligible impact on participants that any sampling technique 
would find nearly the same results, short of one that only targeted the eight or 
fewer percent who may have gained from TJTC employment. 

Tracking a stratified random sample of 1,808 people vouchered in 1982, the 
NCEP studies reviewed incomes after two and five years and compared them to pre- 
employment earnings. In addition to sorting data by targeted group, race, and 
sex, the study distinguished whether or not the voucher was retroactive. A 
comparison group of workers found eligible but not hired was included. While the 
studies found, as shown in Table 1, significant income gains for all participant 
categories in the first year after vouchering, by the fifth year, two-thirds of 
the groups no longer had significantly better incomes than the comparison groups. 
Perhaps most disturbing, only one of seven minority categories continued to have 
significantly higher income after five years [Lorenz, 1988]. 



249 





TABLE 1 






MEAN INCCMES, B1 


GROUP AND YEAR 




1981 


1982/83 


1983/84 


1985/86 


1986/87 


1292 


4180 


4827 


62746 


70136 


1335 


3952 


40353 


4611 


46326 


1516 


3647 


4259 


50506 


54876 


751 


2647 


2956 


39976 


44956 


2834 


6106 


5980 


8008 


8714 


1008 


4232 


2960 


38586 


40496 


2590 


4757 


5547« 


53486 


46486 


3015 


5143 


48946 


62846 


69006 


1147 


4637 


5570 


7271 


7157 


991 


3946 


4355 


56056 


52526 


2017 


4882 


5353 


8178 


8987 


1462 


3811 


45626 


5468 


6156 


907 


3672 


3808 


6749 


6443 


1135 


3602 


4041 


4831 


56756 


914 


3059 


24276 


31676 


44636 


1318 


1935 


3143 


4655 


5142 


1239 


2047 


2441 


3261 


3725 


1155 


1869 


2578 


3784 


4277 


1143 


1442 


1745 


3196 


4259 


1533 


1626 


2271 


3297 


3749 


531 


1206 


1448 


2180 


2326 


1516 


2699 


4133 


6616 


6343 


2692 


3224 


4049 


5297 


6947 


1090 


1467 


2355 


3188 


3785 


1318 


1560 


2699 


4750 


4739 



GROUP 

Regularly Voucher ed 

White male youth 

White female youth 

Minority male youth 

Minority female youth 

White Voc. Rehab. 

Minority Voc. Rehab. 

Minority Viet. Vet. 

White Viet. Vet. 

White AFDC 

Minority AFDC 
Retroactively Vouchered 

White male youth 

White female youth 

Minority male youth 

Minority female youth 1135 

Minority AFDC 
Comparison Group 

White male youth 

White female youth 

Minority male youth 

Minority female youth 1143 

White Voc. Rehab. 

Minority Voc. Rehab. 

Minority Viet. Vet. 

White Viet. Vet. 

White AFDC 

Minority AFDC 

6 Indicates figure is not significantly different than figure for 
same comparison sub-group. 

The starting wages earned by workers in the NCEP study were 
very similar to those found by the Inspector General, if changes in 
the value of the dollar are considered. Table 2, below, shows that data. The 
vouchered are those who were found eligible before hire. The retroactives were 
those first employed, and determined eligible for TJTC later. Among the five 
vouchered groups for which there was a retroactive group, the average starting 
wage was $3.60/hour. Among the retroactives it was $3.45/hour. Converting 
these to 1993 dollars, the vouchered starting wage averaged $5.29 and the 
retroactive $5.07.' The IG's figure would be $5.23 (in 1993 dollars). 





TABLE 2 






MEAN STARTING WAGE 




CATEGORY 


VOUCHERED 


RETROACTIVES 


White male youth 


$4.05/hr 


$3.40/hr 


White female youth 


3.36 


3.41 


Minority male youth 


3.69 


3.41 


Minority female youth 


3.38 


3.53 


White vocational rehab. 


3.84 


* 


Minority voc. rehab. 


4.31 


* 


Minority Vietnam vet. 


3.95 


* 


White Vietnam vet. 


4.58 


* 


White AFDC 


3.81 


* 


Minority AFDC 


3.50 


3.50 



SOURCE: Lorenz, 1985, p. 
cases. 



19; * indicates insignificant number of 



In the Inspector General 's national study sixty one percent of workers hired 
under TJTC in 1991 worked part-time. While the NCEP study did not ask if the 
initial job was part-time, it did report mean income figures as well as track 
those who earned a full credit for their employer. Both of these numbers reveal 
the proportion ofworkers working sufficient hours to approach the earnings of a 
full-time minimum wage worker (52 weeks X 35 hours X $3.35/hour or $6, 09? '/year) . 
In contrast to the IG, which found 39 percent of TJTC workers working full-time, 
only 28 percent of the vouchered workers in the NCEP sample achieved minimal 
full-time earnings ($6,000/year) and only 25 percent of the retroactively 
certified. 



250 



The Inspector General's national report found concentrations of TJTC hires 
in job classifications and industries which traditionally offer little 
opportunity for advancement. The NGEP study data agrees with the IG's 
conclusions. Table 3 below shows the occupational findings. While the economies 
of the two states (Missouri and Maryland) used in the NCEP study and the 
difficulty of combining data collected on stratified samples makes comparisons 
of IG and NCEP data imprecise, again the similarities in patterns would verify 
the general point of the IG and NCEP studies, that TJTC led to few jobs in 
occupations usually associated with opportunity. 

TABLE 3 

TJTC PLACEMENTS BY JOB CLASSIFICATION 

JOB CATEGORIES IG PERCENT NCEP PERCENT 



Prof./Mgmt. 


3.2 


2.8 


Clerical /Sales 


38.5 


23.8 


Service 


37.6 


47.5 


Ag/Forest/Fish 


0.2 


0.8 


Processing 


2.5 


4.3 


Machine Trades 


3.2 


3.0 


Benchwork 


4.8 


9.0 


Structural 


2.9 


1.5 


Miscellaneous 


7.2 


7.5 



SOURCE: OIG, 1994, p. 28; NCEP, 1985, p. 21; NCEP Percent based on 
employment of Vouchered and Retroactively Certified Youth and AFDC 
recipients only. For they compose the bulk of the certified. 

Likewise the industry data of the firms employing the TJTC eligibles shows 
remarkable similarities between the NCEP and IG data. This data is shown in Table 
4, below. 

TABLE 4 
TJTC PLACEMENTS BY INDUSTRY 



INDUSTRY 


IG PERCENT 


NCEP VOUCHERED 


RETROACTIVE 


Service 


17.5 


26 


35 


Wholesale/Retail 


66.4 


43 


53 


Manufacturing 


10.9 


18 


9 


Other 


5.2 


13 


3 



SOURCE: OIG, 1994, p. 29; and NCEP, 1985, pp. 22-24. 

A notable fact reported in both NCEP reports, but ignored in most others, 
including the IG report, is the rather significant differences in the experiences 
of those vouchered before hire and the retroactively certified. While both were 
heavily concentrated in retailing and services, clearly the vouchered were less 
so. This difference supports the assumption of the original TJTC supporters that 
vouchering is a valued part of the program. Unfortunately, pre-employment 
vouchering has been minimized in recent years for all but the handicapped. 

Another impact upon workers measured by the Inspector General was 
retention. The IG found that 76 percent of workers hired under TJTC were no 
longer with their employer after five quarters. The NCEP study, while measuring 
credits earned by employers rather than quarters of retention, found 72 percent 
were gone after one year. Obviously, retention has remained a problem of TJTC, 
and one with a direct impact upon the earnings of TJTC workers. 

The Inspector General used the mean wages and hours and average weeks of 
employment of TJTC hires to calculate a mean annual income for participants. 
Assuming a 1993 wage of $5.23 and 30 hours of work in an average week multiplied 
by 52 weeks, the IG annual income would be $8,162. The NCEP computed annual 
income by tracking actual wages paid by the TJTC employer to those in the 
stratified sample. Those vouchered before hire earned a mean annual income (in 
1993 dollars) of $5,929. The retroactives earned $5,620 (in 1993 dollars). 
Here the Inspector General's figures are considerably more positive than those 
of the NCEP study. The differences may result from the different sampling used 
in the NCEP and IG research, as well as from the two methods of determining 
annual income. Since the NCEP data are less positive than the IG findings, the 
IG conclusion would only be reinforced, that, "We question whether better results 
should be expected of activities subsidized with public funds." Clearly, the 
current TJTC has failed to achieve dramatic changes in the employment 
opportunities and earnings of the disadvantaged. 



251 



THE REASONS FOR FAILURE: 

The failure of TJTC resulted from both some of the assumptions inherent in 
most tax credit and vouchering schemes and in some of the specific TJTC rules 
that carry those assumptions to extremes. Supporters propose tax credits and 
vouchering as the most efficient means to address a variety of public policy 
problems related to low income populations, from the absence of health insurance, 
to the absence of educational choice, to encouraging reinvestment in enterprise 
cannunities and empowerment zones.' Proponents maintain tax credits can achieve 
redistribution of resources with minimal public management through reliance on 
the private market. They also ccntc-d that the role of special interests can be 
minimized and the influence of experts enhanced in the tax policy process through 
the adoption of the proper policy making models. 1 Yet, ignored in these 
proposals are the lessons of minimally managed, redistributive, tax credit 
programs, particularly the Targeted Jobs Tax Credit (TJTC). TJTC's designers not 
only emphasized minimal management, they also placed great faith in continuous 
program evaluation to correct deficiencies uncovered during program 
implementation. However, both elements provided opportunities for special 
interests to distort first management and later program analysis to the benefit 
of those that contributed little to the credit's goal of increasing employment 
opportunities for the poor. The extent of credit distortion and the length of 
TJTC's survival raise fundamental questions about the effectiveness of the 
current policy process in protecting the integrity of narrowly targeted 
redistributive tax credit and vouchering schemes.' 

TJTC experience does not prove that vouchering and tax incentives will not 
work to redistribute opportunity. It does indicate that a sophisticated 
understanding of the limits of human rationality, as well as aggressive and 
competent public management, and rigorous empirical program evaluation are 
essential if minimally managed tax credit programs are to succeed. Discounting 
the need for competent, if minimal, management, underestimating the influence of 
special interests, or replacing empirical analysis with rational argument doom 
such policies to distortions that benefit only organized interests, not the 
disadvantaged. The integrity of minimally managed redistributive programs can 
be protected by emphasis on independent, empirical impact assessment, 
competent administration by the remaining public managers, and the aggressive 
search for widespread participation in the policy review process. The TJTC 
policy process undervalued these program features, as do most other vouchering 
and tax credit proposals. 

The Congress created the TJTC in 1978, during an earlier era of deregulation 
and anti-bureaucratic sentiment. Supporters called it an efficient alternative 
to intensively-managed employment and training programs, such as those created 
under the Comprehensive Employment and Training Act (CETA).' Employers could 
receive the tax credit for hiring job seekers from one of seven targeted groups: 
disadvantaged youth, Vietnam-era veterans, and ex-offenders, recipients of 
general assistance, vocational rehabilitation clients, supplemental security 
income recipients, and high school cooperative-education students. The credit 
was to be marginally above the amount that would lead employers to change 
employment decisions. In 1978, a business could earn a maximum credit of $4,500 
an each eligible worker - 50 percent of the first $6,000 earned in the first year 
of employment and 25 percent of the first $6,000 paid in the second. 

To receive these credits employers had to hire eligible job seekers 
vouchered by an authorized public employment agency. To free employers of the 
necessity of dealing directly with these agencies, the job seeker was the one who 
needed to go to a public employment office to get the voucher. The employer's 
contact with government could be carried out entirely by mail [see Bishop, n.d.; 
O'Neill, 1977]. Freed of their fear of government bureaucrats by these 
procedures, proponents believed employers would base program utilization 
decisions solely on the rational calculation of the marginal excess of credit 
benefits over the costs of hiring the disadvantaged [see Tax Foundation, 1969; 
Barnekov, 1989]. In contrast to their confidence that employer sophistication 
would result in precise calculation of costs and benefits, credit supporters 
believed public officials lacked the wisdom to manage successfully complex 
programs. By relying on labor market cost-benefit factors, they felt TJTC would 
be so easy to manage that the existing intergovernmental employment programs 
could not fail to administer it well and could even do so with little additional 
funding.' If there were unforeseen implementation problems, the Revenue Act of 
1978 required that a program evaluation process be begun inmediately, to be 
completed before the credit's expiration at the end of 1980. 

The U.S. Departments of Labor and Treasury shared responsibility for 



252 



developing TJTC regulations and evaluating the tax credit. Existing state and 
local employment programs were to determine eligibility, promote the program, and 
conduct reviews of the eligibility process. The Department of Labor decided that 
the state employment security agencies (SESA's), be given responsibility for the 
worker certification process. DOL held that the "SESA's have more contact with 
target group members seeking jobs than other participating agencies, and also 
have experience with job placement" [Fitzpatrick, 1980]. This was an intriguing 
decision since many SESA's had a record of giving weak support to employment 
programs to help the disadvantaged [see U.S. Dept. of Labor, 1977; Robertson and 
Judd, 1989]. 

Generally businesses received certification by mailing back to the SESA a 
voucher brought to them by the job seeker. There were three ways to initiate 
vouchering: 

1. A job placement agency, either the SESA or an agency working with it, such 
as a CETA office, gave a voucher to a job seeker whom the agency was hoping 
to place into employment. Then, the job seeker took the voucher on the job 
search, showing it to prospective employers, until offered a job, or 

2. A job seeker, learning of the credit, went to a placement agency and 
requested a voucher to use on the job search, or 

3. An employer, knowing of the credit, initiated vouchering by: 

a. Requesting that a job placement program, such as the SESA, refer vouchered 
applicants to a job opening, or 

b. Requesting that the SESA screen already hired employees. 

The policy evaluation process mandated under the Revenue Act contained two 
key limitations on program failure: enactment for only two years and a 
requirement that "the Secretary of Treasury and the Secretary of Labor . . . 
jointly . . . submit to the Congress a report on the effectiveness of the 
targeted jobs tax credit in improving the employment situation of the targeted 
groups and on the types of employers claiming the credit" [U.S. Senate, 1981]. 

By the middle of 1979, low participation rates in TJTC were noticeable [de 
Haven Smith, 1983]. Four unanticipated responses to the credit had occurred: 

1. Since employment and training agencies were not paid for vouchering, many 
were reluctant to do it;' 

2. Especially in the early months, few employers sought certifications from the 
SESA's; 

3. Likewise, few job seekers asked for vouchers; and 

4. Consequently, TJTC spawned another initiator of vouchering — in fact, a 
whole industry — management assistance companies (MAC's) or TJTC consultants 

to assist uninformed or reluctant employers get their certifications [Macro 
Systems, 1985]. 

One of the first reasons MAC's appeared was that the original TJTC had a 
retroactive certification feature designed to reward utilization of the program 
immediately upon passage. Full implementation of the new TJTC vouchering 
procedures would take several months beyond the September 26, 1978, effective 
date. The U. S. Departments of Labor and Treasury needed to develop operating 
procedures and then train state and local officials in vouchering and 
certification. State and local officials responsible for routine program 
operation needed to be trained. Consequently, the Revenue Act of 1978 allowed 
eligibility to be verified before hire. 

When most businesses overlooked their eligibility for credits on workers 
hired during 1979, some enterprising personnel consultants offered to help them 
correct the oversight. These consultants reviewed the eligibility of all 
employees hired after the program's start date and arrange for the SESA's to 
voucher retroactively and certify those found eligible. Once the consultants 
developed a relationship with a business, it was only logical that they would 
try to make it permanent. Soon they formed TJTC management assistance companies 
to provide continuing help to companies willing to maximize TJTC utilization. 
One-time retroactivity became a permanent feature of the program [Carmichael , 
1981] . The development of retroactivity was only one of the ways TJTC vouchering 
failed to meet initial expectations. There were four specific criticisms of 
credit utilization and vouchering that were particularly troubling: 

1. That persons hired, even without MAC intervention, would have been hired 
anyway [U.S. Library of Congress, 1985; Fitzpatrick, 1980]; 

2. Vouchering was more of a stigma to the disadvantaged than a help in their job 
search [Burtless, 1984 and 1985]; 

3. Participation by businesses and eligible workers was very low and did not 
have a significant impact on the employment problems of the disadvantaged 



253 



[Sullivan, 1982; O'Neill, 1982]; and 
4. Minimal intergovernmental management was not working well [de Haven-Smith, 
1983]. 

While the first two never were proven, the last two clearly were problems. As 
data accumulated, the low levels of business utilization and the minimal impact 
an the disadvantaged became clear, as did troubling variations in management 
effectiveness. 

A number of studies questioned the effectiveness of program management, 
identifying three causes of administrative problems. First was the recurring 
opposition within some SESA's to serving the disadvantaged. Without firm 
national management, SESA ambivalence about the agencies 's proper relationship 
to redistributive policies undermined vigorous credit promotion. Then there were 
the interagency rivalries inevitable in the fragmented employment and training 
system. Finally, MAC's put increased pressure on SESA's to voucher retroactively 
thousands of new employees hired by their clients in the service and retail 
sectors . 

Except during the first two years of TJTC, when the Carter Administration 
pushed implementation, the Department of Labor did not compel the employment 
service to support the program. By the mid-1980 's state vouchering rates varied 
greatly, explainable most easily by the extent of SESA commitment to the program. 
For example, in 1987, Missouri vouchered as many as California. The national 
leader, Ohio, vouchered eligible people four times as frequently as California 
and seven times more often than New Jersey." Complicating the reluctance of 
some employment services to voucher were continual declines in funding. 
Nationally, employment service staff peaked at 30,000 in 1966, held steady until 
1980, and then fell to 17,000 by 1990 [Aguilar, 1991]. Especially during periods 
of high unemployment, such as in the early and late 1980's, SESA's were not in 
a good position to give support to TJTC without added funding. Other employment 
programs also experienced budget cuts, made worse by inflation. TJTC 
demonstrated there was a limit to minimal management. 

In order to work well the TJTC vouchering process required exceptional 
intergovernmental cooperation. Depending on the targeted group, a variety of 
federal, state, and local agencies maintained the most direct contact with 
eligible job seekers. The federal Social Security Administration, Veterans 
Administration, and U.S. probation officers each served a group. State 
employment services, probation offices, and vocational rehabilitation agencies 
had primary contact with some targeted job seekers. Finally, local job training 
programs, county welfare departments, and schools served others. Given good 
will, generous funding, and luck, the coordination of these agencies might have 
worked. Since there often were interagency rivalries for access to the best jobs 
and clients, and with budget problems nearly universal after 1980, TJTC 
implementation faced formidable barriers. Of course, such barriers are a 
perennial problem in the fragmented U.S. administrative system." 

Each of the above barriers to success were worsened by the increasing 
pressure from MAC's to issue vouchers to their clients' employees. MAC generated 
vouchering led to two types of program distortions. First, the workload from MAC 
referrals caused agencies to reduce vouchering the unemployed. Second, it led 
to a de facto shift in targeting to the less disadvantaged. Since MAC's referred 
to the employment services workers hired routinely, without reference to a pre- 
employment voucher, their clients tended to be in prosperous regions, certainly 
not often in distressed inner cities or rural poverty pockets . During the mid- 
1980 's, the NCEP study found a trend away from determinations in cities and 
growth in suburban and rural vouchering [Lorenz, 1988]. As with earlier 
redistributive programs , pressures increased to ease eligibility rules and allow 
less disadvantaged youth to qualify." 

EVALUATION AND OVERSIGHT 

If the TJTC evaluation mandated by the Revenue Act of 1978 had been 
completed as scheduled in 1980, most of the implementation problems might have 
been detected before interest groups, such as the MAC's, organized to defend the 
status quo. In 1978, Congress could not know that the evaluation would be 
completed in 1985, not 1981. !1 Presumably, the evaluation would have led to 
either fine tuning the credit or terminating it in 1981. Since three credit 
renewals took place before the completion of the evaluation, Congress established 
a tradition of basing program modification and renewal decisions primarily on the 
persuasive arguments of interest groups . What had begun as a two year experiment 
to be incrementally fine tuned to reach maximum impact had become a subject 



254 



analyzed by anecdote. With each delay in the official evaluation, the oversight 
process fell increasingly under the control of those wishing to argue rationally 
and ideologically, but not investigate empirically the consequences of policy 
decisions. 

Failure to complete the formal evaluation on schedule was only one of a 
number of TJTC implementation problems. All were rooted in four assumptions at 
the heart of the minimal management, tax credit concept: 

1. That the disadvantaged would be able to use the voucher to change their 
experiences, 

2. That many employers would change their behavior, specifically their routine 
rejection of disadvantaged job seekers, because of the credit, 

3. That public administrators, while incapable of defining or administering 
rules that could reduce windfalls or wasted credits, would administer the 
credit vigorously and voucher a significant proportion of the eligible 
population, and 

4. That the pluralist policy process, dominated by self-interested groups and 
their lobbyists, would sort through empirical policy evaluations to select 
the best policy reforms, much as the free market gives most workers the best 
job. 

The first two assumptions rested on questionable faith that job seekers and 
employers clearly could understand market costs and benefits and do so 
dispassionately to maximize benefits. The third, by contrast, implied that 
public administrators could do an assigned job well, even though they lacked the 
ability to master information as well as business owners. The last assumption 
relied on self-interest to produce truth. 

The periodic Congressional oversight of TJTC were textbook examples of the 
failure of the legislative review process to strengthen policies, particularly 
those with redistributive goals. Ripley and Franklin [1986] found that, with 
age, policies designed to help the disadvantaged tend to be converted into 
distributive policies, primarily giving benefits to vocal interests. This trend 
follows the formation of subgovemments composed of supportive members of 
Congress, key program administrators, and the policy's special interests [Dodd 
andSchott, 1979]. Increasingly ignored are the interests of the less articulate 
and poorly organized intended beneficiaries, such as job seekers under TJTC. 
Also ignored is careful analysis of program strength and weakness. 

The failure of the oversight process is not the fault of the Congressional 
sponsors of TJTC, for they built into the program a comprehensive analysis and 
welcomed critics at early TJTC hearings. Rather, the decline had other causes. 
First, administrators at the Labor and Treasury Departments in the 1980 's 
increasingly were unwilling to compare credit costs and benefits. Rather, they 
opposed TJTC ideologically [Shull, 1983]. Second, TJTC interest groups that 
benefitted from focusing the credit on their employment practices became 
organized by 1981. "[T]he fast food industry . . . singled out the tax credit as 
a top legislative priority for the year" [Keller, 1981]. Such interests were as 
unwilling as the President's staff to debate program costs and benefits, seeking 
rather the quiet conversion of the credit into a distributive policy. Finally, 
the growing federal budget crisis reduced policy options and support for 
experimental policies, limiting criticism by general supporters of any program, 
lest their calls for reform become justification for its elimination. 
Representative Pete Stark, of California, pointed out the consequences of this 
dilemma for TJTC, saying in 1985, "I do not like tax credits, as most of my 
colleagues on this committee know, they're inefficient. . . . But I dislike these 
tax credits least ... I support the continuation of the job credits because of 
the cuts being made in other spending programs. This has become almost the only 
game in town" [U.S. Congress, 1985]. 

The 1985 hearings demonstrated how extensive had been the decay of the 
oversight process in this atmosphere. Instead of substance, the later hearings 
featured a parade of favorable witness, including literally disabled veterans and 
a blind worker, whose testimony in 1985 brought the hearing room to applause. 
However moving and accurate were these personal accounts, policy review should 
have been based also on substantive analysis of representative cases, and it 
should have been debated vigorously. The stories presented at the hearings in 
1985 were mere anecdotes to be interpreted emotionally.'' 

Lobbyists orchestrated the 1985 hearings to include veterans and the blind 
because efforts at general tax reform placed intense pressures on TJTC supporters 
to reduce its tax expenditures. One easy way to achieve reductions would have 



255 



been to end retroactivity. The lobbyists's clients, however, received most 
credits through retroactive vouchers . Therefore they needed a justification for 
an alternative cost reduction proposal . They found it in the arcane world of 
econometrics, in studies computing the marginal productivity difference between 
TJT£ eligible persons and average workers. One study found that since the 
productivity difference was only seven percent, the credit was much too large." 
This information provided the TJTC lobby with the rationale for an attractive 
trade-off. They would give-up the second year credit and accept a reduction in 
the first year credit from fifty to forty percent of wages. They did not 
emphasize that their clients seldom retained their youthful workers beyond a few 
months nor cared about large credits, only a large number of short term 
subsidies. The Tax Reform Act of 1986 incorporated these changes, abandoning all 
pretense of rewarding retention or high wages. The "reforms" after 1986 
continued these trends." 

By the 1990' s, after a dozen years of experience and several major 
reauthorization hearings, the reduction of the credit and the abandonment of 
retention were two of four major departures from the original TJTC concept . The 
other two were the rejection of mass vouchering and the weakening of targeting. 
Together these departures fundamentally changed the credit from a redistributive 
to a distributive program. Rather than promote the employment of the underclass, 
the credit now provided large tax write-offs to service and retailing firms for 
their routine high turnover employment, not to mention generating substantial 
fees for the MAC's." The reduction of the credit's value, did the most to 
bring about this change. 

In 1978 the maxinun tax credit allowed on a worker retained for two years 
was $4,500. In constant dollars, the original two year credit would have been 
worth about $9,000 in 1993. However, by 1993, there was no second year credit 
and the first year maxinun had been reduced to $2,400, a decline of nearly 75 
percent, in constant dollars, from 1978. Studies by the New Hampshire Employment 
Service [n.d.] and the NCEP [Lorenz, 1988] called for significant increases in 
the credit to reward retention and higher wages. However, the service and 
retailing firms utilizing TJTC were quite content with the smaller credit. Their 
legislative goal for the early 1990 's was to convert TJTC into a permanent part 
of the tax code, ending the pretense and danger of periodic reform." 

Each of the changes in TJTC after 1981 were ones effective policy making 
would have rejected. The most extreme critics of the program believed it should 
be ended. That option could be justified easily, given its failure to focus on 
either the truly disadvantaged, retention, or well paid jobs. Among those who 
continued to hope the original potential of TJTC could be restored, there were 
calls for reforms to encourage targeting, retention, and training. Most 
independent observers also called for ending retroactive vouchering [Levi tan, 
1987; U.S. GAO, 1991]. But, none of these defensible options were selected. 
Rather, the credit was allowed to become so small and of such short duration that 
it was only popular with high turnover, low pay employers. The review process 
had been distorted to allow selection of the worst of all possible policies. 

By the 1990' s, three fundamental problems with vouchering, tax credit 
schemes were clear. One was the naive confidence in the ability of voucher 
programs to function with minimal contra. tment of resources to public management. 
Second, was the excessive faith in the ability of the public, whether employers 
or job seekers, to respond to marginal incentives to truly help the 
disadvantaged. Third, was the unwarranted belief that an incremental policy 
review process could be kept free of special interest domination. The TJTC 
experience does not prove that any of these problems are insurmountable. It does 
prove they must be addressed, if extreme program distortion is to be avoided. 
It also suggests ways of addressing each. 

First, administrative excellence must be assured at all levels of 
government. Under-funded administration should not be an inherent consequence 
of minimally managed, redistributive, tax credit programs. Reliance upon market 
policies must be distinguished from acceptance of poor management. Because 
market based tax credit policies rely on comparatively few public managers, there 
is all the more reason to assure that they be competent, adequately supported, 
and encouraged to investigate thoroughly program problems. The market theory on 
which tax credit schemes are based has a tendency to disparage public oversight 
of market failure. Confidence in market resource allocation does not preclude 
vigorous policing or clear public direction of how market incentives are used. 
For example, targeting could include elimination of credits for personal service 
and retail employment, since such employment does not result in major 



256 



improvements in income or job security. Furthermore, assuring excellent 
management at the state and local levels is an integral part of good federal 
management of schemes, such as TJTC, that are administered intergovernmental ly. 
The advantages of state and local management are close contact with the people 
and knowledge of local differences. They should not include indifferent or under 
funded administration. Most importantly, for TJTC, they should include standards 
and penalties to compel vigorous voucher ing of the disadvantaged. 

Second, defenders of market incentives fail to appreciate the irrationality 
inherent in personal responses to the incentives. Credit programs can be very 
efficient in only subsidizing real needs, not "make-work." However, if the 
credits are so low that potential users do not believe they compensate for risks, 
the incentives become windfalls, paying people for what they would have done 
without the subsidies. Reducing the TJTC subsidy in the 1980 's to just above the 
empirically determined productivity difference between the typical TJTC worker 
and the average non-eligible employee converted most targeted credits into 
windfalls for the retail and service sectors. To succeed, the subsidy needed to 
be large enough to overcome perceived productivity differences as well as be 
sufficient to off-set employer prejudice about hiring disadvantaged persons, 
especially minorities. 1 ' At a time of budget crisis, there is constant danger 
that subsidies will be too low to change behavior. 

Finally, with the tendencies in the American system to foster policies of 
benefit primarily to special interest rather than the general public interest 
and, more recently, to favor ideologically correct solutions for many complex 
problems, precautions must be taken to assure widespread public participation in 
policy review and to defend vigorously the integrity of empirical policy 
analysis. The lengths to which interest groups will go to distort the policy 
process should not be underestimated. In the case of a rather obscure program 
such as TJTC, well funded interests quickly developed the capacity to compromise 
major, long established institutions, such as the Congress and the media. 11 
Preventing such distortion probably includes reforms far more general than 
changing the tax credit process, such as beginning public campaign financing and 
strengthening party government. !! However, the process could be improved by 
determined utilization of empirical policy analysis and more attention to 
defining who represents special interests and who speaks for the public interest. 

Critics of these proposals will point out rightly that empirical analysis 
cannot determine the best policy choice. Furthermore, distinguishing the public 
interest from self interest is extremely difficult. Who can say what is the long 
term public interest? While those criticisms unquestionably are correct, 
empirical analysis can identify many policy options that clearly cannot serve the 
public good. In the case of TJTC, it nay have been in the public interest either 
to end TJTC or to greatly increase the credit and focus it on retention and 
training of the truly disadvantaged. Empirical analysis cannot tell which of 
these opposite choices to select. But, analysis could tell unequivocally that 
the minimally managed, marginal credit was a wasteful windfall to a few special 
interests. It is clear that a tentative definition of the public good, derived 
from vigorous debate about the meaning of program data, is essential if the 
policy process is to function with any restraint and integrity.' 1 

Given the unlikely elimination of special interest distortion of the 
redistributive policy process, the TJTC experience suggests another strategy to 
avoid policy distortion. Since the poor participate less than the affluent in 
the policy process, especially when it relates to taxation, it is difficult to 
maintain the integrity of redistributive tax credit policies. Once implemented, 
such policies are especially prone to capture by special interests. 1 ' A better 
strategy would be to address problems chronic among the disadvantaged through 
proposals that benefit all citizens [Wilson, 1992]. Rather than target an 
employment credit or voucher scheme on the poor, a national employment and 
training subsidy and voucher scheme available to all citizens should be less 
subject to policy distortion. Articulate, nan-disadvantaged citizens will 
defend the integrity of such policies, while the poor will be freed of the stigma 
attached to participation in a "poverty" program. 11 Unfortunately, the current 
political realities of budget deficits and fixation an inflation control make the 
development of universal job and training subsidies less likely than TJTC reform. 

INCREMENTAL REFCHM: 

As the eleventh expiration of TJTC approaches, given the extensive evidence 
of failure, there should be only two options under consideration: 

1. Termination or 

2. Significant short-run changes followed by complete reform or redesign. 



257 



The primary reason for rejecting credit demise has nothing to do with the merits 
of the current TJTC structure but rather arises solely from the continued 
deterioration in employment opportunities for disadvantaged workers, especially 
minority youth. Simple justice requires that, in the absence of a national full 
employment program, attention be given to targeting employment and training 
resources on this population. While the recently implemented empowerment sane 
program may do some of that, the number of empowerment zones is so limited that 
they can impact only a fraction of the disadvantaged population. 

However, if the reason for not terminating TJTC is to help the disadvantaged 
find jobs, fundamental change must be made immediately in the credit. There is 
no reason to delay taking action that would reduce, if not eliminate, most of the 
current windfalls. Current subsidies for high turnover, low paying jobs need to 
be replaced with credits earned by employers who change their employment 
practices and give opportunity to the economically disadvantaged and the 
disabled. Congress can implement this reform simply by changing a few lines in 
the current tax law. 

The only change needed to make a significantly increase TJTC's impact on the 
poor is to reform the credit percentage and the wage base upon which it is 
earned. The following formula would be one way to institute this reform: 

1. A credit of 10% of the first $4,000 paid in the first six months of 
employment, for those workers retained at least three months but not 
beyond one year; 

2. A credit of 20% on wages above the first $4,000 but under the first $8,000 
paid in the first year of employment for those retained between six months 
and one year, but terminated before the end of the first year; 

3. A credit of 40% of the first $15,000 in wages for workers retained for more 
than one year; and 

4. A credit of 20% of the first $15,000 in wages paid in the second year of 
employment, available only for those earning at least $7,500 in the first 
year of employment. 

Since relatively few of the current jobs eligible for the credit would qualify 
for any subsidy under this revised formula, there would be adequate savings to 
pay for the new larger credits. 

In addition to reforming the rate at which the credit is earned, 
certifications should only be allowed on workers interviewed in person and found 
eligible by participating agencies before the first day of employment. This 
change would free the staff of agencies such as the Job Service from the current 
burden of processing thousands of letters requesting credits and allow them to 
focus upon vouchering job seekers. Regulations should be changed to require that 
vouchering agency staff inform job seekers referred by potential employers of 
their right to use the voucher at any business. 

After these short-run reforms have been made, a study could ccmnence 
reviewing their impact and proposing redesign to better target the subsidy on 
permanent jobs with training opportunity. The study also should examine the 
vouchering process to make certain there is vigorous outreach to job seekers and 
a cross section of the business conmunity. If the reforms result in better job 
opportunities for the disadvantaged, the reformed credit should be made 
permanent, so employers and communities with large eligible populations could 
plan its use when making location and production decisions. If studies find the 
reformed credits can not stimulate more jobs for the poor, then employment tax 
credits can be abandoned as insufficient to overcame education and geographic 
barriers to employment of the disadvantaged. 

MOTES 

1. These words are from the Employment and Training Administration response 
to the Inspector Generals 1984 report on TJTC, p. 35; they are paraphrased here 
to emphasize that there is no justification for further delay in TJTC reform or 
termination. "Scientific" studies of the program have been done, and their 
conclusions are in general agreement. 

2. For a detailed explanation of the sampling used see Lorenz, 1985, pp. 3-8. 

3. This report used the annual Consumer Price Index to compute the ratio of 
dollar value in each year, with 1993 being 1.00. 

4. For example, on health care see: 0. S. GAD, Tax Policy: Health Insurance 
[1994]; on education see Zuckerman [1991]; on enterprise zones see Cloud [1992]. 

5. On the incremental model see Lindblom [1959], Hayes [1992], and Heineman 
et al. [1990]. 

6. On redistributive policies see Ripley and Franklin [1986] and Lowi [1964]. 



258 



7. Por CETA problems see Mucciaroni [1990], Mirengoff [1976]; example of 
credit proposals: Eisner [1978], Pressman [1984]. 

8. On minimal management see Barnekov [1989], Peterson [1982], and de Haven- 
Smith [1983]. 

9. For example, letter from Eugene Wiegman, Commissioner, State of Washington 
Employment Security Department, to Jess Ramaker, U. S. Department of Labor, 
Employment and Training Administration Regional Administrator, February 5, 1979; 
see de-Haven-Smith [1983], Ripley and Franklin [1986]. 

10. For data on TJTC participation see: U.S. Department of Labor, Employment 
and Training Administration, "Targeted Jobs Tax Credit Program Vouchers and 
Certifications," for each fiscal year; also see Lane and Berry [1989]. 

11. Janoski [1990] compares U.S. and German administration; also see 
Robertson and Judd [1989] and Peterson [1982]. 

12. Levitan and Gallo [1987] and Bishop and Kang [1981]; Ripley and Franklin 
[1986] discusses similar trend under CETA. 

13. "The Study of the Implementation and Use of the Targeted Jobs Tax 
Credit," was commissioned August 1984 by the U. S. Department of Labor, 
Employment and Training Administration; conducted by Macro Systems, Inc. 
[1985], appeared in five reports in 1985 and 1986. 

14. See testimony of Paul Egan and Daniel Simpson at U. S. Congress, House 
[1985]; an hearings as a parade of anecdotes see Keefe and Ogul [1964]. 

15. John Bishop testimony at U. S. Congress, Senate [1984]; 
also see U. S. Department of Labor [1986]. 

16. TJTC renewals after 1981 included the Tax Equity and Fiscal 
Responsibility Act of 1982, Deficit Reduction Act of 1984, Tax Reform Act of 
1986, Technical and Miscellaneous Revenue Act of 1988, and the Omnibus Budget 
Reconciliation Act of 1989. 

17. See Hollenbeck [1989]; also Gleckman [1989]; the importance of TJTC for 
retail and service industries is indicated by the disproportionate interest of 
such industries in the tax credit, a review of periodical articles on TJTC in the 
period 1981-1991, that 15 of 28 citations were in retail periodicals such as 
Nation's Restaurant News, Upscale Discounting, and Restaurant Hospitality, while 
Borg Warner Protective Services cooperated with the Wharton School to produce a 
favorable account of TJTC use by their security guard operations, see Arwady 
[1988]. 

18. See Targeted Jobs, January 1992, this is the newsletter of the TJTC 
Consultants 'National Employment Opportunities Network. 

19. Some state enterprise zone legislation includes such restrictions; for 
example, Arkansas amended its enterprise zone law in 1989 to eliminate most non- 
manufacturing businesses by use of a Standard Industrial Classification criteria, 
see Arkansas Act 462 of 1989; Hawaii limits enterprise zone benefits to firms in 
"manufacturing, wholesaling, or the repair and maintenance of tangible personal 
property" according to brochure supplied by the Hawaii, Department of Business 
and Economic Development. 

20. Overcoming what Wilson [1992] calls statistical discrimination is 
relevant here. 

21. For example TJTC lobby, through the Chicago Alliance of Business, 
including the President of The Chicago Tribune, received editorial endorsement 
on September 1, 1985; also they received the endorsement of The New York Times 
on January 6, 1986, and The Oregonian on December 20, 1985; and see "TJTC 
Editorial Campaign," Committee for Employment Opportunities, Targeted Jobs Tax 
Credit: Fourth Progress Report, November 15, 1985; during the 1989-90 election 
cycle Federal Election Commission records show TJTC consultants and major TJTC 
users contributed four percent of the funds to the campaign of Charles Range 1 , 
Chair of the House Subcommittee on Select Revenue Measures; six percent of Guy 
Vander Jagt, the ranking Republican; and ten percent to a key TJTC supporter - 
Pete Stark. 

22. Heineman et al. [1990]; some are less critical of current system such as 
Hayes [1992]. 

23. For a recent review of methods of improving program analysis, see U. S. 
GAD [1992]. 

24. See Lowi [1969] and Bardach [1977]; while Quinn and Shapiro [1991] find 
the business lobby not very effective in tax policy formulation, that does not 
seem true in redistributive tax policy. 

25. Mucciaroni [1990] contrasted U.S. poverty related employment policy and 
Swedish general employment policy; Lowi [1969] favored broad fiscal and monetary 
policies. 



259 



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262 



Maryland State Department of 

EDUCATION 



DIVISION OF REHABILITATION SERVICES 



Nancy S. Grasmick 2301 Argonne Drive Info. (410) 554-3000 

Slate Superintendent of Schools Baltimore. MD 21218-1696 Admin. (410) 554-3276 

Robert A Bums WD <4,0> 554_J277 

Assistant' Stat Superintendent FAX < 410 > 554-3299 
in Rehabilitation Services 



August 25, 1994 



Janice Mays, Chief Counsel 
Committee on Ways and Means 
U.S. House of Representatives 
1 1 02 Longworth House Office Building 
Washington, DC. 20515 



Dear Ms Mays: 



As chief executive officer of the State's vocational rehabilitation program for persons 
with disabilities, I want to express my strong support for the continuation of the Targeted 
Jobs Tax Credit (TJTC). I am requesting that my comments be included in the official 
record of the hearings which will be conducted by the Committee on Ways and Means 
on the TJTC in September. 

National studies have consistently demonstrated that over two-thirds of persons with 
disabilities are unemployed despite their desire to work. Attitudinal barriers, social 
stigma, and discrimination present substantive barriers to employment for disabled 
individuals. 

The experience of the Maryland Division of Rehabilitation Services is that the TJTC 
provides an important tool in facilitating job placement for the individuals that we serve. 
It helps the employer to begin to see the economic benefit of hiring disabled workers in 
their company; first in the form of a tax credit, and then the long-term economic benefit 
to the organization as a result of the disabled worker's motivation, dependability, and 
job skills The TJTC provides a mechanism for the rehabilitation worker to open the 
door to employment opportunities for a segment of our population that is oftentimes 
excluded. 

As you are well aware, economic growth in this country will be sustained through the 
growth of small business; job growth is now predominately in the small business sector 
The small businessman is burdened with incredible responsibilities and challenges The 
TJTC program benefits this important component of the nation's economy , and at 
the same time it benefits individuals with disabilities in achieving greater employment 
opportunities 

I am optimistic that within a number of years, we will not need the TJTC to facilitate the 
employment of persons with disabilities We are beginning to see a greater 
appreciation for diversity in the workplace, and an understanding of its benefits to an 
organization Unfortunately, at present we need this crucial job placement tool. 

Thank you for your consideration of these comments I would ask the favorable 
recommendation of your committee for the continuation of the Targeted Jobs Tax Credit 
(TJTC) 



Sincerely, 



*f-vw3^ 0^. yp^ — r 



Robert A Burns 
Assistant State Superintendent 
in Rehabilitation Services 



263 



Statement on the Targeted Jobs Tax Credit by 

ANTHONY P. CARNEVALE. Chair 

NATIONAL COMMISSION FOR EMPLOYMENT POLICY 

Thank you for this opportunity to submit for the record my own views and 
those of the National Commission for Employment Policy (NCEP) on the Targeted 
Jobs Tax Credit (TJTC). Although the Commission has not undertaken a recent 
study of TJTC, in the 1 980s, at the request of this Subcommittee, it sponsored 
two studies of the tax credit program that were conducted by Professor Edward C. 
Lorenz. NCEP staff members associated with those projects have sought to keep 
abreast of developments with respect to this credit. 

The Targeted Jobs Tax Credit was designed to provide an incentive for 
private sector employers to hire certain classes of workers 1 that they might not 
otherwise hire because of the presumed issues of lower productivity and perhaps 
increased costs of bringing such workers up to accepted productivity levels. Most 
of the evaluations and analyses we have examined indicate that the original 
objective is not being met. Our Commission-sponsored studies, now several years 
old, and the DOL Inspector General's study, now only several weeks old, draw 
roughly the same conclusion: Employers are hiring workers they would ordinarily 
employ and are receiving tax credits for employing some of them. Moreover, these 
workers are being hired for low-wage, high turnover, jobs that offer no benefits. 

In this brief paper, I will discuss two issues that seem to go to the heart of 
the TJTC problem. They are the administration of TJTC vouchering and the 
general lack of retention of employees for whom the credit is claimed. 

TJTC was planned as a device (to increase employment opportunities for 
disadvantaged workers) that would involve little bureaucracy. Workers' eligibility 
would be determined by the Employment Service or other public employment 
agency; eligible workers would be given vouchers - signifying the availability of the 
tax credit for employing them - to use in marketing themselves to employers; and 
employers would be able to receive the credit at tax time. The worker with the 
TJTC voucher was to be his/her own job developer. 

This idea of advance vouchering has not worked out in practice and a private 
bureaucracy has emerged to fill part of the void. Since TJTC was passed initially in 
1 978, budgets for the Employment Service have been reduced substantially and 
the resources simply have not been available for aggressive outreach and 
recruitment for the program. Similarly, the other agencies with authority to 
determine initial eligibility and to voucher job seekers have not had the resources to 
make substantial use of the program. 2 This lack of resources (and perhaps lack of 



1 Nine groups of disadvantaged workers are listed in the law. The credit is 
used most often for disadvantaged youth. 

2 One exception appears to be agencies that serve persons with disabilities. 



264 



interest) in the public sector made possible the development of a new industry: 
The TJTC consultants. 

The studies done for NCEP in the 1 980s and the audits performed by the 
DOL Inspector General point to the central role played by these consultants. 
Employers who make use of the tax credit follow their normal recruiting methods 
and procedures for selecting employees. Once the workers are selected and the 
hiring decision is made, the worker's background is reviewed, frequently in a 
telephone call using an 800 number, to determine whether she/he is eligible. If so, 
the worker is sent or taken to the Employment Service and a voucher is issued 
retroactively. The voucher is returned to the employer who completes a brief form 
which is returned to the ES which in turn sends a certificate to the employer; this 
certificate entitles the employer to take the credit on its next tax return. If the 
worker is not TJTC eligible, she/he usually is sent on to work. 

The process just described, shows how a windfall is made. It would not be 
worth the elaborate process for a single worker. But for a large employer of low- 
wage workers -- such as a large chain of retail stores or a chain of fast food 
restaurants -- taking advantage of the credit can amount to a considerable sum for 
both the employers and their consultants. 

If TJTC is to be retained for any substantial period, we recommend that the 
vouchering process be returned to its original concept, i.e., vouchering in advance 
by a public agency: the ES, local JTPA entities, local social service agencies 
administering AFDC and JOBS, and state agencies serving persons with disabilities. 
Returning to vouchering in advance would provide a greater opportunity for the 
disadvantaged than appears to be the present case. 

This suggestion for advance vouchering is made with an awareness of earlier 
studies suggesting that vouchers of this sort tend to stigmatize the bearer of the 
voucher making him/her less attractive to employers. However, it is not clear that 
there has been any concerted effort to use TJTC as a form of employment subsidy 
in placing persons who are completing training programs or some other sequence 
of services under JTPA or JOBS. We believe that an aggressive use of the credit 
should increase the possibility that TJTC can be made to serve more disadvantaged 
persons, the supposed beneficiaries of the credit. 

The other issue is the matter of retention on the job for which the credit is 
claimed. Lorenz found in 1985 that TJTC workers who remained on their jobs for 
at least 12 months experienced a significant increase in their earnings while those 
who stayed for only a few months did not have such an increase. He and other 
recommended at the time that the TJTC incentive be structured so as to encourage 
the retention of workers for longer periods. 

The Inspector General's report showed some increase in starting and ending 
TJTC wages and a small increase in post-TJTC job wages. However, only a 
minority of workers were in their TJTC jobs for more than two quarters. 



265 



We recommend further that if TJTC if is to be retained, should be amended 
to encourage retention of the employee for a longer rather than a shorter period of 
time. The Tax Code should provide that in order for the employer to claim and 
receive the full tax credit under TJTC that the participant for whom the credit is 
claimed must have been with the employer for one year or more. This proposal 
increases the amount of wages on which the credit could be claimed and provides 
a sliding scale for credits for persons retained less than a full year: 20% of the first 
$10,000 paid to the employee for the first 6 months of employment; 25% of 
$10,000 for 6 to 12 months; and 40% of $10,000 for employment of one year or 
more. This kind of scheme would encourage retention and would still provide the 
employer with some credit for those who can not be retained for the full year. 

We recommend that if TJTC is extended, that the Congress add a provision 
to be effective during the next tax year requiring longer retention of the TJTC 
participants and that a proviso be added to the effect that the program will expire 
at the end of the next Congress unless: 

-- The legislation is revised to insure that there is advanced eligibility 
determination and vouchering by a public agency; and 

-- There is a much clearer effort to tie the use of the credit to federal 
purposes. 

It may very well be that the time for TJTC has come and gone. Many 
changes in the labor market have occurred since the New Jobs Tax Credit was 
passed in the late 1970s and later replaced by TJTC. Much of the low-skill work 
has been moved from the cities where so many of the disadvantaged reside and 
from rural areas as well. Many of the retailers who employ low-skill workers are 
now in the suburbs instead of the central city. There is some evidence that the big 
employer users of TJTC conduct their business in suburban locations — locations 
that are not easily accessible to the most disadvantaged youth. 

The growth in the number of contingent workers is no doubt a factor in the 
employment of young TJTC participants. Many young people just out of school 
(and some just out of college) are having a difficult time finding permanent, full- 
time jobs with benefits. It should not be surprising that the Inspector General 
found that substantial numbers of participants were in part-time jobs. 

The organization of work has changed so much that it is entirely possible 
that the tax expenditures for TJTC would be better used if the credit were 
transformed into a training tax credit ~ a credit to employers for structured training 
that would add to participants skills and thus position them to compete in the labor 
market more effectively. 

If the Congress decides to move in a new direction with the Targeted Jobs 
Tax Credit, it will no doubt wish to have new information on the design of the 
credit. The National Commission stands ready to assist in any way the 
Subcommittee would deem useful. 



O 



BOSTON PUBLIC LIBRARY 



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ISBN 0-16-047058-7 



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