Mortgage Aid Program Continues to Move Slowly, As Homeowners Try to Hang On

By Alexandra Andrews, ProPublica

The Obama administration estimates that it’s going to help as many as 4 million homeowners modify their loans. To date, “over 200,000” of these loan modifications have been offered, according to the Treasury Department. That leaves millions of homeowners waiting their turn.

Deborah Sherman from Oakland, Calif., is somewhere in that queue. She says she applied for a loan modification through the government’s program one day after it was announced on March 4. Since then, she says, all she’s heard from Chase, her loan servicer, is: It could take up to 90 days. Please keep waiting.

She’s still waiting.

Sherman’s story is hardly unique. As we reported in early June, the program got off to a chaotic start as hordes of homeowners nationwide jammed servicers’ phone lines and overwhelmed their staffs. Housing counselors and frustrated homeowners reported long delays and mixed messages about eligibility requirements.

Last Tuesday, President Obama expressed disappointment with the program’s progress, saying at a press briefing, “I think … our mortgage program has actually helped to modify mortgages for a lot of people, but it hasn’t been keeping pace with all the foreclosures that are taking place.” Obama said that he gets complaints from homeowners every day and is still asking his staff to tweak the program and make it more aggressive.

His remarks were echoed by Elizabeth Warren, chairwoman of the Congressional Oversight Panel, which oversees the Treasury Department’s response to the financial crisis, and Richard Neiman, superintendent of banks for the state of New York, at a congressional hearing on Wednesday.

At the hearing, Warren and Neiman grilled Herb Allison, the Treasury Department’s bailout overseer, about the administration’s mortgage plan, citing some of the same problems we’ve been hearing about. Allison said that it had taken a couple of weeks for the government and the banks to get the program off the ground, but that things are now “moving very rapidly.”

But at times, Allison’s testimony seemed at odds with the reports we’ve been hearing from homeowners and housing counselors, a disconnect Warren was quick to point out.

For instance, Allison said: “I think it’s important that the public realize they don’t have to have missed a payment on their mortgage to get help. If they see that they have a problem … they should get in touch with their servicer.”

Warren responded, “What we continue to hear is that you can’t get a servicer on the phone, or when you do get a servicer on the phone, you receive incorrect information.” She said she’s heard from homeowners who say they were told by their servicers that they’re ineligible for the government’s program because they aren’t behind on their payments, which is incorrect. We’ve heard borrowers say the same thing.

Warren added: “I feel bad if what comes out of this is you say I want to tell Americans that they need to reach out to their servicers. They’re doing that.”

Indeed, Sherman, the California homeowner we’ve been in touch with, has reached out to Chase by phone, by fax, by mail and in person at her local Chase homeownership center. But the “We’re here for you!” banner at the homeownership center was not for her, she says, it was only for customers who were facing foreclosure.

Sherman is a self-employed commercial photographer who purchased a condo in 2000. She started really struggling last year when her work dwindled to almost nothing. She’s now looking for work in a different field. She doesn’t owe more than her home is worth. When she heard about Obama’s plan, she thought, “This is perfect.”

She passed all the eligibility hurdles on the government’s Web site, she says, and went to Chase’s Web site the day after the plan was announced. It had all the information and all the necessary forms. Sherman faxed in months of bank statements, two years of tax returns, a hardship letter, income statements and other financial documentation – more than 60 pages in all.

Sherman says she followed up consistently after that, but “I’ve received nothing. Not a phone call, not an e-mail, not a letter, nothing.” Her loan officer’s voice mailbox is full, she says. Everyone she speaks to tells her it could take up to 90 days.

Tom Kelly, a Chase spokesman, says the bank first started processing loan modification applications for the government’s program on April 4 and that it has given highest priority to the most delinquent customers. It has also hired 950 new loan counselors since Jan. 1, he says. “We’re just working our way through the applications.”

When Sherman spoke with a Chase representative in mid-June, she says, she was told she’d have to send in updated financial information since she’d now been waiting for three months.
Sherman complied, but she had a question for the Chase rep: “So all this time – these past 90 days – that I’ve been thinking an answer could come any day, no one was even looking at my file?”

She says that all the rep could say was that files were getting forwarded to a new department for processing.

In a New York Times article on Monday, Michael Barr, the assistant Treasury secretary for financial institutions, expressed frustration with loan servicers. “They need to do a much better job on the basic management and operational side of their firms,” he said. “What we’ve been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet.”

Barr estimated that by the end of August, the program would be churning out 20,000 loan modifications a week.

Update: Chase said today that it has approved 87,100 trial loan modifications through the government’s program.

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The Perils, Promise Of White House 2.0

Barack Obama won election last fall in no small measure due to his campaign's embrace of online social networking and "Web 2.0" technologies. And while, as president, Obama has also sought to continue that embrace, the use of those systems in government has been fraught with challenges, according to a lawyer who helped set up Obama's WhiteHouse.gov site.

While online technology poses a "few different hurdles that could be problems," says Peter Swire, "They're all solvable."

Senior fellow at the Center for American Progress in Washington and a law professor at the Ohio State University, during the Obama-Biden transition, Swire was the lawyer for WhiteHouse.gov as it was getting set up, and for the Change.gov transition site, as well.

"One challenge is scale. Instead of getting a couple hundred or a few thousand comments, you can get tens of thousands or even millions of comments," Swire says. "But a second challenge, and this is actually a bigger deal, is what they call clearance. In the White House that means before you answer something, you have to clear it with all the right experts. WhiteHouse.gov has chosen certain things that it does in order to be able to be effective while working within the constraints of the White House.

"The president will sample 10 letters or emails every night that get sent to him, and he chooses a relatively small number of them," Swire adds. "They have voting systems where people do thumbs up or thumbs down on different kinds of proposals, such as for health care, or something like that. The White House might get thousands of questions, but the voting system helps select some of the top ones."

Another hurdle is how to fit government procurement procedures into a realm of free use of websites and software.

"The answer that we've come up with is what I call the conditional use approach," Swire says. "You want to have a lot of open use of this cool new software, but you want to have some rules in place. If one kind of software's being used, you ought to have a way for the other vendors or for people who like a different software approach to propose alternatives to the federal government.
"So if we use 2.0 to control 2.0, if we have feedback to get to better 2.0, and if we use 2.0 with better policies in place, we can have openness and embrace the new technologies, but still uphold the other things we care about as the federal government does this," he adds, speaking in a recent web video.

Because of the nature of the federal government, use of the websites gets tied up in specific legal and policy considerations, Swire says, including privacy, access for the disabled, terms of use, and avoiding advertising.

"Privacy problems are ones that I worked on back when I was in the Clinton White House. During that time, I worked in the Old Executive Office Building right over our shoulders here. My office was up there on the third floor. When a user goes to a federal website there's strict privacy rules to make sure the federal agency isn't grabbing lots of data from that person, setting cookies on that person, etc. But when the person goes to a free web service, a Web 2.0 service, those same privacy protections might not be in place," he says.

Accessibility is a key issue. "The federal government is there for all the people. Section 508 of the Disabilities Act says the federal government has to be very good about being accessible to people who are colorblind, who can't hear, who can't see. A lot of those Web 2.0 services haven't been as careful about meeting all the federal standards for access," Swire notes.

Another question is whether federal employees should be able to use Facebook and other Web 2.0 sites when they're at work.

"Well, we sure want to let federal employees use their initiative, sign up for useful services, try to find a way for a thousand flowers of Web 2.0 to bloom," Swire says. "We want to encourage openness, we want to encourage experimentation. But we also eventually have to have the policies step in that are supposed to be there."

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George W. Bush's Court Appointments Emphasized Ideology Over Diversity

The judicial appointments of former president George W. Bush suggests that his motivation for appointing nontraditional judges was driven more by ideology and strategy than concerns for diversity, a new analysis shows.

The examination of all the federal judicial appointments over the two terms of the Bush presidency show that while he did make a number of diverse appointments, especially with Hispanics, overall the federal courts did not gain in the number of minority judges during Bush's tenure.

The analysis appears in an article in the current issue of Judicature and was written by Jennifer Segal Diascro, an assistant professor in the Department of Government at American University, and Rorie Spill Solberg, an associate professor in the Department of Political Science at Oregon State University.

"The key is to look at the replacement patterns," says Spill Solberg. "Bush did appoint many minorities, but in order to have a gain in diversity, you have to replace more seats with diverse judges than you started with or else it doesn't equate with a diverse bench."

Diascro and Solberg relied on statements from President Bush and members of his administration to determine that ideology played a role in his appointments, and relied on statistical analyses by Carp et al. (published in the same issue of Judicature) that reveal that his appointees to the lower courts were indeed conservative. To assess the relative ideology of Judge Sonia Sotomayor and other women on Obama's short list, Diascro and Solberg utilized the Judicial Common Space scores developed by Lee Epstein and colleagues. The empirical measurements used to assess ideology are all reliable and valid measures employed by political scientists.

According to the article, when compared with all presidents since Jimmy Carter, Bush maintained the status quo in appointing nontraditional judges to the bench. He appointed more men (78 percent overall) then women (22 percent) and more whites (82 percent) than minorities (18 percent), but as Spill Solberg points out, that pattern was true for Bush's predecessors.

When comparing total appointments, Bush appointed more white females (50) than Carter (32), Ronald Reagan (27) or George H.W. Bush (31), but less than Bill Clinton (83). He appointed more Hispanic females (12) than Clinton (5), but fewer African American females (8 compared to 15) than Clinton, so the overall diversity representation is about the same, or in some cases less than during Clinton's presidency.

In particular, Spill Solberg says, African-American judges did not see a significant increase under the Bush administration. "At the end of eight years in office, African Americans held 8.5 percent of the seats on the court of appeals, an increase of only half a percent from the end of the Clinton administration," the study points out.

Spill Solberg says that like Carter, Reagan and George H.W. Bush, George W. Bush often appointed minorities to seats for political gain or for ideological purposes.

"There is a tendency, and we see this across the political spectrum, to use bench appointments to gain clout with certain voters," she says. "The Bush administration was actively courting the Hispanic vote, so it isn't surprising that he made more appointments of Hispanic judges than African Americans, but it was often also based on judicial philosophy."

In contrast, the study shows that Clinton often stressed diversity and representation over ideology. He often picked moderate and conservative minority and female judges even though they did not necessarily reflect his own political philosophies. Diascro said Democrats have had an easier time appointing a diverse bench that also serves their political and ideological goals as nontraditional candidates tend to come from groups that vote Democratic.

"We suspect that Bush had many Hispanic conservatives from which to choose when filling vacancies on the bench, and he chose to appoint traditional candidates instead," Diascro says. "He cared about diversity, but it was not his first priority."

The study's authors stress that diversity in the federal court system remains important as a way of representing the broad range of experiences of the public that the system is supposed to serve. This is true from a symbolic perspective, lending legitimacy to an otherwise non-democratic branch of government; but it may also be true substantively, says Diascro.

"Personal experiences matter and impact how you view the law," Spill Solberg says. "The experiences of woman may differ from those of a man in the same way that the experiences of a prosecutor may differ from the experiences of other lawyers. It is more complicated as we see with Justice Thomas who brings the experiences of an African American filtered through the lens of a conservative ideology."

Looking ahead, Diascro and Spill Solberg analyze what the judicial legacy of Barack Obama's presidency will be compared to his predecessors. Their conclusion so far is that Obama will emphasize diversity over ideology like Clinton and that his nomination of Judge Sotomayor to the Supreme Court is a demonstration of this.

"His nominations thus far demonstrate his reluctance to appoint ideologues," the authors write. "This is especially true for Judge Sotomayor, who is not the most liberal choice among the female candidates reportedly on the President's short list."

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How a Loophole Benefits General Electric in Bank Rescue

By Jeff Gerth, ProPublica, and Brady Dennis, Washington Post

This article was published in the Washington Post on June 29, 2009.

WASHINGTON – General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's key rescue programs for banks.

At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.

The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.

As a result, GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company's massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government's actions have been "powerful and helpful" to the company, GE chief executive Jeffrey Immelt acknowledged in December.

GE's finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government's historic intervention in the financial crisis.

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

"We'd like to regulate companies according to what they do, rather than what they call themselves or how they charter themselves," said Andrew Williams, a Treasury spokesman.

GE's ability to live in the best of both worlds – capitalizing on the federal safety net while avoiding more rigorous regulation – existed well before last year's crisis, because of its unusual corporate structure.

Banking companies are regulated by the Federal Reserve and not allowed to engage in commerce, but federal law has allowed a small number of commercial companies to engage in banking under the lighter hand of the Office of Thrift Supervision [4]. GE falls in the latter group because of its ownership of a Utah savings and loan.

Unlike other major lenders participating in the debt guarantee program, including Bank of America, Citigroup and J.P. Morgan Chase, GE has never been subject to the Fed's stress tests or its rules for limiting risk. Also unlike firms that have received bailout money in the Troubled Assets Relief Program, or TARP, GE is not subject to restrictions such as limits on executive compensation.

The debt guarantee program that GE joined is administered by the Federal Deposit Insurance Corp., which was reluctant to take on the new mission, according to current and former officials who were not authorized to speak publicly. The FDIC also initially resisted expanding the pool of eligible companies, fearing it would add more risk to the program, the officials said.

Despite those misgivings, there have been no defaults in the loan guarantee program. It has helped buoy confidence in the credit markets and enabled vital financial firms to raise cash even during the darkest days of the economic crisis. In addition, the program has raised more than $8 billion in fees.

"The TGLP program has been a money maker for us," FDIC chairman Sheila Bair has said. "So I think there have been some benefits to the government and the FDIC."

For its part, GE said that it properly applied for and qualified for the program. "We were accepted on the merits of our application," company spokesman Russell Wilkerson said.

The Cash Cow

The current good fortune of General Electric, ranked by Forbes as the world's largest company, has roots in the Great Depression, when it created a consumer finance arm so that cash-starved families could buy its appliances.

What grew from those beginnings is now a powerful engine of profit, accounting for nearly half of its parent's net earnings in the past five years. GE may be better known for light bulbs and home appliances, but GE Capital is one of the world's largest and most diverse financial operations, lending money for commercial real estate, aircraft leasing and credit cards for stores such as Wal-Mart. If GE Capital were classified as a banking company, it would be the nation's seventh largest.

Unlike the banking giants, GE Capital is part of an industrial company. That allows GE to offer attractive financing to those who buy its products.

At the height of last fall's financial crisis, GE's cash cow became a potential liability. As credit markets froze, analysts feared that GE Capital was vulnerable to losing access to cheap funding – largely commercial paper, or short-term corporate IOUs sold to large investors.

Company officials projected confidence. "While GE Capital is not immune from the current environment," Immelt said in October, "we continued to outperform our financial-services peers." Behind the scenes, they urgently sought a helping hand for GE Capital. One key hope was a rescue plan taking shape at the FDIC.

The program emerged during a hectic weekend last October as regulators scrambled to announce a series of rescue efforts before the markets opened.

They found a legal basis for the program in a 1991 law: If a faltering bank posed "systemic risk," then the FDIC, the Fed, the Treasury secretary and the president could agree to give the FDIC more authority to rescue a failing institution. The financial regulators applied the statute broadly, so it would cover the more than 8,000 banks in the FDIC system.

The FDIC hurried to approve the program Oct. 13.

"This was crisis management on steroids," said a person familiar with the process. "A lot was made up on the fly."

The author of the systemic-risk provision, Richard Carnell, now a law professor at Fordham University, says it was intended to apply to a single institution, and that in their rush to find legal footing for unprecedented new programs, regulators "turned the statute on its head."

The FDIC launched the program Tuesday, Oct. 14, the same day Treasury officials announced large capital infusions into nine of the country's banking giants under TARP. That day, the FDIC also expanded its deposit guarantees to a broader range of accounts.

Within days, the FDIC held conference calls with bankers to explain the program. Agency officials explained that not all companies that owned banks were eligible. "The idea is not to extend this guarantee to commercial firms," David Barr, an FDIC spokesman, said during one of the calls.

A Broader Program

GE was watching closely. Though GE Capital owned an FDIC-insured savings and loan and an industrial loan company, they accounted for only 3 percent of GE's assets. Company officials concluded that GE couldn't meet the program's eligibility requirements.

So the company requested that the program "be broadened," GE's Wilkerson said. GE's main argument was fairness: The FDIC was trying to encourage lending, and GE Capital was one of the country's largest business lenders.

GE deployed a team of executives and outside attorneys, including Rodgin Cohen, a banking expert with the New York firm Sullivan & Cromwell.

"GE was among the parties that discussed this with the FDIC," along with the Treasury and Fed, according to FDIC spokesman Andrew Gray. He said the details about eligibility "had not been specifically addressed" in the beginning.

Citigroup, the troubled banking giant, also was pressing for an expansion of the FDIC program. Though Citigroup was included in the debt guarantee program, its main finance arm, Citigroup Funding, appeared ineligible. Fed Vice Chairman Donald Kohn wrote to the FDIC's Bair on Oct.
21, arguing that debt issued by Citigroup Funding should be covered "as if it were issued directly by Citigroup, Inc."

Two days later, the FDIC announced a new category of eligible applicants – "affiliates" of an
FDIC-insured institution. Bair explained that "there may be circumstances where the program should be extended" to keep credit markets flowing. That meant "certain otherwise ineligible holding companies or affiliates that issue debt" could apply, she said.
GE Capital now was eligible.

Raising Billions

GE Capital won approval to enter the FDIC program in mid-November with support from its regulator, the Office of Thrift Supervision. The company used the government guarantee to raise about $35 billion by the end of 2008. By the end of the first quarter of 2009, the total reached $74 billion, helping to cover the company's 2009 funding needs and about $8 billion of its projected needs for 2010.

Despite government support, GE lost its Triple-A rating [8] for the first time in decades this year and was forced to sharply cut its dividend. But the outlook could have been much worse.

The debt guarantee program has "been of critical importance" to the fiscal health of GE Capital, said Scott Sprinzen, who evaluates GE's finance arm for the Standard & Poor's credit-rating company. He said the FDIC program enabled GE to "avoid an exorbitant price" for its debt late last year.

GE has not disclosed how much the company has saved because of TLGP backing.
Like other companies in the program, GE pays the FDIC fees to use the guarantees – a little more than $1 billion so far. But as Bair explained to bankers last fall, the fees, while "healthy," are "far below certainly what the cost of credit protection is now in the market."

Not every finance company has had that peace of mind. One of GE's competitors in business lending markets, CIT Group, a smaller company, has had a harder time raising cash. It has been unable to persuade the FDIC to allow it into the debt-guarantee program, at least in part because of its lower credit ratings. A recent Standard & Poor's analysis cited CIT's "inability to access TLGP" as a factor in the company's declining financial condition.

Two weeks ago, the Obama administration said it would seek to eliminate the Office of Thrift Supervision and force companies like GE to focus on commerce or banking, but not both. That could require the industrial giant to spin off GE Capital.

Last week, Immelt said GE had no intention of doing that. "GE is and will remain committed to GE Capital, and we like our strategy," he said in a memo to staff.

In its proposal to overhaul financial regulation, the Treasury Department pointed out that some firms operating under the existing rules, including collapsed companies such as American International Group, "generally were able to evade effective consolidated supervision and the long-standing policy of separating banking from commerce."

GE's Wilkerson said the company generally supports regulatory reform but thinks that it should be permitted to retain its structure. "Bank reform has historically included grandfathering provisions upon which investors have relied, and there is no reason this settled principle should not be followed here," he said. He said the company "didn't have any choice" but to have OTS as its regulator.

The company also objects to the Treasury's proposal to force firms to separate banking and commerce because that issue "had nothing to do with the financial crisis," Wilkerson said.
Wilkerson said GE has remained profitable and avoided some of the exotic financial products that contributed to losses at other institutions. He also said that GE performed an internal stress test this year and found that its capital position was "quite strong by comparison to the banks."

The FDIC has been working to wean financial institutions off the program. The TLGP originally was slated to end in June, but at the Treasury's request the FDIC agreed to extend it until Oct. 31. Some participants have stopped using the program, but GE Capital continues to do so for the overwhelming majority of its debt.

Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the "cliff," the agency would have to make good if companies such as GE are unable to honor their obligations. FDIC officials say they are comfortable that the agency has collected more than enough money to cover potential losses.

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House OKs Climate Bill With Gore Endorsement

Despite attacks from the left and right, the House approved an historic measure aimed at curbing greenhouse gas emissions -- and in doing so, won an enthusiastic endorsement from the man most known for the issue of climate change.

Lawmakers approved the the American Clean Energy and Security Act on an incredibly close vote of 219 to 212. The bill would establish limits on the carbon emissions blamed for global warming, and establish a national trading system for those emissions, known as "cap and trade."

Only eight Republicans supported the legislation -- and 44 Democrats walked away from it. The GOP attacked the bill as an "energy tax," while some Democrats and progressives criticized it for not going far enough. President Obama made approval of the legislation one of his top domestic priorities, alongside healthcare reform. An item on the White House website says plainly that Obama "weighed in heavily" to pass the bill. The president spoke at length in support of the bill yesterday at the White House.

The climate change bill came to the House floor only after its authors -- Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) -- painstakingly negotiated support from more moderate and conservative Democrats.

Winning their support, however, seemed to cut its legs out from among progressives. Earlier this week, the organization Progressive Democrats of America (PDA) emailed its supporters saying it wanted to "overhaul or scrap" the House bill. PDA objects, in part, because the bill, HR 2454, doesn't consider either the revenue-neutral carbon tax and cap-and-dividend as alternatives to cap-and-trade. PDA outlined its objections in a letter to progressive lawmakers.

House Speaker Nancy Pelosi and other House Democratic leaders lobbied members hard to OK the climate bill. Rep. Lloyd Doggett (D-Texas) was one of those who thought HR 2454 didn't do enough -- but he ultimately agreed to vote for the bill.

"I struggled deeply about whether to support the American Clean Energy and Security Act, but I finally determined that voting for it was my best hope for making it better," Doggett says. "Earlier today I voiced my strong objections to this bill. I voted against the rule to permit this debate because of its rejection of some amendments that I thought would have improved this legislation. I'm voting yes in the hope that we will have a better bill and we will have the international accord that we so desperately need to deal with this critical matter."

In the end, Pelosi and her team held just enough Democrats together like Doggett to pass the bill, winning the gratitude of former vice president Al Gore. Gore won the Nobel Peace Prize for his efforts to deal with the climate change issue.

"The American Clean Energy Security (ACES) Act is one of the most important pieces of legislation Congress will ever pass," says Gore. "This comprehensive legislation will make meaningful reductions in global warming pollution, spur investment in clean energy technology, create jobs and reduce our reliance on foreign oil.

"The next step is passage of this legislation by the Senate to help restore America's leadership in the world and begin, at long last, to put in place a truly global solution to the climate crisis," Gore adds.

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White House Is Drafting Executive Order to Allow Indefinite Detention; Move Would Bypass Congress

By Dafna Linzer, ProPublica, and Peter Finn, Washington Post

The Obama administration, fearing a battle with Congress that could stall plans to close Guantanamo, is drafting an executive order that would reassert presidential authority to incarcerate suspected terrorists indefinitely, according to three senior government officials with knowledge of White House deliberations.

Such an order would embrace claims by former President George W. Bush that certain people can be detained without trial for long periods under the laws of war. Obama advisers are concerned that bypassing Congress could place the president on weaker footing before the courts and anger key supporters, the officials said.

After months of internal debate over how to close the U.S. military prison at Guantanamo Bay, Cuba, White House officials are growing increasingly worried that reaching quick agreement with Congress on a new detention system may prove impossible. Several officials said there is concern in the White House that the administration may not be able to close the facility by the president's January 2010 deadline.

White House spokesman Ben LaBolt did not directly respond to questions about an executive order but said the administration would address the cases of Guantanamo detainees in a manner "consistent with the national security interests of the United States and the interests of justice."

One administration official suggested the White House was already trying to build support for an executive order.

"Civil liberties groups have encouraged the administration, that if a prolonged detention system were to be sought, to do it through executive order," the official said. Such an order can be rescinded and would not block later efforts to write legislation, but civil liberties groups generally oppose long-term detention, arguing that detainees should either be prosecuted or released.

The Justice Department has declined comment on the prospects for a long-term detention system while internal reviews of Guantanamo detainees are underway. The reviews are expected to be completed by July 21.

In a May speech, President Obama broached the need for a system of long-term detention and suggested that it would include congressional and judicial oversight. "We must recognize that these detention policies cannot be unbounded. They can't be based simply on what I or the Executive Branch decide alone," the president said.

Some of Obama's top legal advisers, along with a handful of influential Republican and Democratic lawmakers, have pushed for the creation of a "national security court" to supervise the incarceration of detainees deemed too dangerous to release but who cannot be charged or tried.

But the three senior government officials said the White House has turned away from that option, at least for now, because legislation establishing a special court would be both difficult to pass and likely to fracture Obama's own party. These officials, as well as others interviewed for this story, spoke on the condition of anonymity because they were not authorized to speak publicly about internal deliberations.

On the day Obama took office, 242 men were imprisoned at Guantanamo. In his May speech, the president outlined five strategies the administration would use to deal with them: criminal trials, revamped military tribunals, transfers to other countries, releases and continued detention. (Read our sidebar: "Review of Gitmo Detainees Has Been Slow and Complex.")

Since the inauguration, 11 detainees have been released or transferred, one prisoner committed suicide and one was moved to New York to face terrorism charges in federal court.

Administration officials said the cases of about half of the remaining 229 detainees have been reviewed for prosecution or release. Two officials involved in a Justice Department review of possible prosecutions said the administration is strongly considering criminal charges in federal court for Khaled Sheik Mohammed and three other detainees accused of involvement in the Sept. 11, 2001, attacks on the United States.

The other half, the officials said, present the greatest difficulty because these detainees cannot be prosecuted either in federal court or military commissions. In many cases, the evidence against them is classified, has been provided by foreign intelligence services, or has been tainted by the Bush administration's use of harsh interrogation techniques.

Attorney General Eric Holder agreed with an assessment offered during congressional testimony this month that fewer than 25 percent of the detainees would be charged in criminal courts and that 50 others have been approved for transfer or release. One official said the administration is still hoping that as many as 70 Yemeni citizens will be moved, in stages, into a rehabilitation program in Saudi Arabia.

Three months into the Justice Department's reviews, several officials involved said they have found themselves agreeing with conclusions reached years earlier by the Bush administration: As many as 90 detainees can not be charged or released.

The White House has spent months meeting with key congressional leaders in the hopes of reaching agreement on long-term detention, even as public support for such a plan has wavered as lawmakers have sought to prevent detainees from being transferred to their home states.
Lawyers for the administration are now in negotiations with Sens. Carl Levin, D-Mich., and Lindsey Graham, R-S.C., over separate legislation that would revamp military commissions. A senior Republican staff member said that senators have yet to see "a comprehensive, detailed policy" on long-term detention from the administration.

"They can do it without congressional backing, but I think there would be very strong concerns," the staff member said, adding that "Congress could cut off funding" for any detention system established in the United States.

Concerns are growing among Obama's advisers that Congress may try to assert too much control over the process. Earlier this week, Obama signed an appropriations bill that forces the administration to report to Congress before moving any detainee out of Guantanamo and prevents the White House from using available funds to move detainees onto U.S. soil.

"Legislation could kill Obama's plans," said one government official involved. The official said an executive order could be the best option for the president at this juncture.

Under one White House draft that was being discussed earlier this month, according to administration officials, detainees would be imprisoned at a military facility on U.S. soil, but their ongoing detention would be subject to annual presidential review. U.S. citizens would not be held in the system. (Last month, ProPublica explored the key issues around preventive detention.)

Such detainees -- those at Guantanamo and those who may be captured in the future -- would also have the right to legal representation during confinement and access to some of the information that is being used to keep them behind bars. Anyone detained under this order would have a right to challenge his detention before a judge.

Officials argue that the plan would give detainees more rights and allow them a better chance to one day end their indefinite incarceration than they have now at Guantanamo.

But some senior Democrats see long-term detention as tantamount to reestablishing the Guantanamo system on U.S. soil. "I think this could be a very big mistake, because of how such a system could be perceived throughout the world," Sen. Russ Feingold, D-Wis., told Holder.

One administration official said future transfers to the United States for long-term detention would be rare. Al-Qaida operatives captured on the battlefield, which the official defined as Iraq, Afghanistan, Pakistan and possibly the Horn of Africa, would be held in battlefield facilities. Suspects captured elsewhere in the world could be transferred to the United States for federal prosecution, turned over to local authorities, or returned to their home country.

"Going forward, unless it's an extraordinary case, you will not see new transfers to the U.S. for indefinite detention," the official said.

Instituting long-term detention through an executive order would leave Obama vulnerable to charges that he is willing to forsake the legislative branch of government, as his predecessor often did. Bush's detention policies suffered successive defeats in the courts in part because they lacked congressional approval and tried to exclude judicial oversight.

"There is no statute prohibiting the president from doing this through executive order and so far courts have not ruled in ways that would bar him from doing so," said Matthew Waxman, who worked on detainee issues at the Defense Department during Bush's first term. But Waxman, who waged an internal battle inside the Bush administration for more congressional cooperation, said the "courts are more likely to defer to the president and legislative branch when they speak with one voice on these issues."

Walid bin Attash, who is accused of involvement in the bombing of the USS Cole in 2000 and who was held at a secret CIA prison, could be among those subject to long-term detention, according to one senior official.

Little information on bin Attash's case has been made public, but officials who have reviewed his file said the Justice Department has concluded that none of the three witnesses against him can be brought to testify in court. One witness, who was jailed in Yemen, escaped several years ago. A second witness remains incarcerated, but the government of Yemen will not allow him to testify.
Administration officials believe that testimony from the only witness in U.S. custody, Abd al-Rahim al-Nashiri, may be inadmissible because he was subjected to harsh interrogation while in CIA custody.
"These issues haven't morphed simply because the administration changed," said Juan Zarate, who served as Bush's deputy national security adviser for counterterrorism and is now at the Center for Strategic and International Studies in Washington.

"The challenge for the new administration is how to solve these legal question of preventive detention in a way that is consistent with the Constitution, legitimate in the eyes of the world and doesn't create security loopholes that causes Congress to worry," Zarate said.

Washington Post staff researcher Julie Tate contributed to this report.

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Help Identify Health Care Lobbyists on the Hill

By Amanda Michel, ProPublica

Don't let the 80s hue of this photo fool you into thinking you're looking at a scene from years ago. It was taken last week by a National Public Radio photographer covering a June 17 congressional hearing on health care reform. The hearing was one of many happening on the Hill as committees began reviewing draft health care legislation. NPR has uploaded the pic to its Web site and is asking its listeners to identify attending lobbyists.

Health care lobbying is big business. So far this year, more than $1.4 million has been spent each day lobbying Capitol Hill on health care, according to a report (PDF) released Wednesday by Common Cause, a nonpartisan government watchdog group. That's a 73 percent increase since 2000.

We think NPR's call-out is a great idea; so much so that we are asking you -- our readers and members of ProPublica's Reporting Network, our citizen journalism initiative -- to send NPR names and numbers if you've got 'em.

We plan to launch a ProPublica Reporting Network blog shortly where, in addition to updates about our projects, we'll promote open investigations hosted by other newsrooms and independent media outlets. Got something you'd like us to share with our network? E-mail me.

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Reich Challenges Senate Democrats To Fight For Public Health Insurance Option

Former Labor Secretary Robert Reich is urging Senate Finance Committee Democrats to condemn false "bipartisanship" standing in the way of President Obama's overhaul to the nation's health care system. Reich says Democrats must support a public health insurance option because it's the best way to control costs, citing evidence in a new report released yesterday by the Health Care for America Now (HCAN) coalition.

The coalition, made up of a number of progressive advocacy groups, says its principles for healthcare reform are supported by Obama and some 190 members of Congress.

Obama supports the public option, while most of the GOP is opposed. Some Senate Democrats are either opposed or are waivering.

Finance Committee Chairman Max Baucus (D-Mont.) is playing a key role in shaping a healthcare reform package.

With health care costs skyrocketing, the report shows that the number of Americans in families with problems paying medical bills climbed to 57 million, or one in five, up from one in seven in 2003. Millions of these people have health insurance but are forced to go without essential care. Further, the lack of health insurance coverage causes 22,000 deaths each year in the United States.

"It's time to forget the Republicans and to insist on a real public health insurance option," says Reich, who has served to advance progressive ideas since departing Labor after President Bill Clinton's first time "The public health insurance option is the linchpin of quality, affordable health care for all. And it can pass with a majority vote, which is possible if we give up on trying to persuade a handful of Republicans to cross over."

Reich made the remarks yesterday on a conference call with reporters organized by the Campaign for America's Future, a member of the HCAN coalition. Health care expert Jacob Hacker joined Reich on the call, previewing his testimony before the House Education and Labor Committee, one of the three key committees writing health reform legislation.

"A public health insurance option -- combined with drug-price competition and a requirement that businesses insure employees or contribute to the cost of their coverage -- is the best way to reduce the overall cost of health reform and make coverage more affordable," says Hacker.

Hacker also highlighted a series of public opinion polls conducted this month by the Kaiser Foundation, Employee Benefit Research Institute, NBC/Wall Street Journal and CBS/New York Times that shows broad public support for a public health insurance option. About three-quarters of people polled favor creating a public option to compete with private health insurance plans.

Hacker says that the cost of health care reform proposals would drop substantially if they included the public insurance option. He also explained why state or regional health insurance cooperatives will not control costs.

Campaign for America's Future co-director Roger Hickey joined Reich and Hacker on the call.

Hickey emphasized the Health Care for America Now report that shows that the nation is suffering from a "growing crisis of health care unaffordability," underscoring the need for real reforms. The report documents how health insurance premiums and out-of-pocket costs are increasing much faster than wages, ranking the 50 states by the impact of these trends.

"Americans are paying more and more for health insurance -- and getting less and less coverage for themselves and their families," says Hickey. "Skyrocketing premiums and out-of-pocket costs are threatening our standard of living and hurting our competitiveness around the world."

The HCAN report says that the cost of health insurance has risen 120 percent while wages grew only 29 percent from 1999 to 2007. Health insurance premiums have risen so high that experts forecast 52 million Americans will be uninsured next year.

Employees have seen their health insurance copayments and deductibles climb by 40 percent since 2004. The value of employer-based health benefits declined, forcing families to spend more of their own money on care. At the same time, health insurers resorted to saving money by limiting benefits, causing 45 percent of Americans to say they are "very" worried about having to spend more on health insurance premiums and medical costs.

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Some Banks in ‘Healthy’ Bank Bailout Program Appear Not So Healthy

By Paul Kiel, ProPublica

Ever since the Treasury Department under Hank Paulson decided to invest billions in banks across the country, Treasury officials have touted the TARP investments as ways to bolster “healthy” banks during tough economic times. More than 600 banks (and credit card companies and soon, insurance companies) have received money through the Capital Purchase Program, the first bailout program Treasury launched and still the one representing the largest sum of TARP funds ($134 billion), even after ten large companies returned $68 billion.

Recipient banks across the country have emphasized that the program is not a bailout for banks. But some of the banks receiving money under the program don’t meet a commonsense definition of “healthy.” Citigroup and Bank of America, for instance, were among the first banks to receive money, only to need further injections of money.

Two recent reports call attention to the banks in the program that are struggling despite having received TARP funds.

The Sacramento Bee focuses on one local bank, Community Business Bank, one of the hundreds of community banks that have received TARP funds under $5 million. The Bee found that “those likely to benefit most from the taxpayer-funded windfall are a small group of insiders and their associates,” since about one-third of the bank’s loans has gone to those insiders, real estate loans that now imperil the bank. The CEO defended the bank’s health and practices, saying, “Our lending practices are very good…. The problem is, the economy sucks.”

Separately, the Wall Street Journal reports today that three banks have stopped paying dividends to the government in order to conserve capital. Under the terms of the investments—in which the overnment gets paid five percent interest annually for the first five years—the banks can choose to suspend the quarterly payments up to six times. After the sixth payment is missed, the government can appoint two members to the bank’s board of directors.(Overall, the Treasury has received about $4.8 billion in dividends from banks in the program. Citigroup and Bank of America have paid an additional $1.1 billion for their extra $40 billion in aid.)

The three banks that recently stopped payment of the dividends, Pacific Capital Bancorp, Seacoast Banking Corp, and Midwest Banc Holdings are large community banks with TARP investments ranging from $181 million to $50 million. One equity analyst told the Journal that the decisions to suspend dividends surprised him and shows that Treasury did not adequately vet the banks receiving funds under the program.

But there is evidence regulators knew some of the banks were on shaky ground even before the banks received funds. In the case of Seacoast, for example, the bank disclosed when it received TARP funds last December that it had reached an agreement with its primary regulator, the Office of the Comptroller of the Currency, to devise a strategy to diminish the bank’s exposure to risky assets. Recently, Seacoast said it had suspended dividends to the government on the basis of advice from the Federal Reserve. The bank emphasized that it remained “well capitalized” by regulatory guidelines.

A recent report from the Goverment Accountability Office said that 17 banks did not pay a dividend in May, most because state or federal regulations prohibited declaring dividends. One bank told Treasury it was because the bank was worried about its profitability. Three banks provided no explanation. All told, banks have missed about $6 million in payments, the GAO said. The report did not identify the banks.

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Gay Rights Duo On Agenda This Week

Lawmakers are taking on the issue of discrimination against gays and lesbians on two fronts this week -- including taking on President Obama over the issue.

A group of more than 70 lawmakers wrote Obama yesterday, once again imploring him to end the "Don't Ask, Don't Tell" policy banning open gays and lesbians from serving in the military. Members also plan this week to re-introduce legislation aimed at curbing employment discrimination against gays more broadly, as well.

The letter, originated by Rep. Alcee Hastings (D-Fla.), calls "Don't Ask, Don't Tell" a "failed" policy that is harmful to the nation's security as well as being unfair to gays and lesbians. The letter notes that 250 gays and lesbians have been discharged since Obama took office Jan. 20, "which continues to undermine and demoralize the more than 65,000 gay and lesbian Americans currently serving on active duty."

"Although we are confident that you will remain true to your campaign promise to end Don't Ask, Don't Tell, our [lesbian, gay, bisexual and transgender] service members and our country's national security will continue to suffer if initial action is delayed to 2010 or 2011," the letter says.

Set in place by President Bill Clinton, Don't Ask, Don't Tell was a compromise. Clinton wanted to lift the ban on gays in the military entirely, but was met by conservative and military backlash.

Obama as a candidate said he would end Don't Ask, Don't Tell but in nearly six months in office has not fulfilled that promise. Indeed, gays and lesbians have been a Democratic constituency Obama has largely disappointed, although last week he extended benefits to same-sex partners of federal employees.

Meanwhile, lawmakers tomorrow plan to take action themselves on discrimination by re-introducing the the bipartisan Employment Non-Discrimination Act, known as ENDA, which will be introduced in the House tomorrow.

The primary sponsors of the ENDA bill are Reps. Barney Frank (D-Mass.) and Ileana Ros-Lehtinen (R-Fla). Frank is openly gay. A similar version of the bill passed the House in the previous session of Congress. Currently 12 states and the District of Columbia ban job discrimination on the basis of sexual orientation or gender identity.

ENDA, if passed, would extend federal employment discrimination protections that are currently provided on race, religion, gender, national origin, age, and disability to cover sexual orientation and gender identity. Provisions in ENDA would allow any American who thinks he or she has been discriminated against because of his or her perceived sexual orientation or gender identity to file a complaint with the federal Equal Employment Opportunity Commission (EEOC).

"Our nation's core principles, as well as an overwhelming majority of the American people, support full and equal rights for all our citizens, including those who are lesbian and gay," says Rep. Chaka Fattah (D-Pa.). "For far too long the law and administrative practice have discriminated against LGBT Americans, and it is way past the time to end this discrimination."

"I am pleased to join with my colleagues in the Congress to call for an end to the wrong-headed 'Don't Ask Don't Tell' policy that restricts patriotic gays and lesbians from military service, and to legislate an end to employment discrimination through ENDA," Fattah adds.

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Administration Releases Stimulus Job-Counting Rules

By Amanda Michel, ProPublica

Today’s roundup of stimulus coverage:

Yesterday the administration released its long-awaited rules for counting jobs created by the stimulus, reports the AP. The government’s formula is simple: For each stimulus-funded employee, divide the number of hours worked by the number of hours in a full-time schedule. So someone who works full-time for four months would count as one-third of a job. (See Page 33 of yesterday’s OMB memo (PDF) for more details.)

The administration also made public what it calls a “one-stop shop for funding recipients to provide their funding information.”

In other words, it’s creating a Web page where recipients of stimulus funds can upload data on how they’re spending the money. FederalReporting.gov is currently a filler page with the usual disclaimer and an unusual exclamation point—“The online recipient reporting tool is expected to be available for the quarterly report due October 10, 2009!” You can, however, preview a reporting spreadsheet here (PDF). We look forward to viewing all reports online at Recovery.gov, where OMB Director Peter Orszag promised [2] (PDF) yesterday they would eventually be posted (see Section 2.11).

The Business Insider has assembled a slideshow of the 10 most expensive stimulus road projects using a list prepared by my colleague Michael Grabell. A two-lane tunnel in Oakland, Calif., tops the list at $192 million.

Just a little more than one-half of Americans think the stimulus will correct our economic downturn, according to a new Washington Post-ABC News poll. The poll is conducted monthly; you can see the full results here.

Adding a high-speed rail system to the American landscape won’t necessarily change our energy consumption, writes Allison Bush over at Great Lakes Echo, a project of the Knight Center for Environmental Journalism. The federal government has set aside $8 billion in stimulus funds this year for high-speed rail and plans to invest $1 billion annually over the next five years. But unless gas prices skyrocket, argues a researcher from the University of California at Berkeley, people will continue driving to work.

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Obama Boosts In-Home Services for the Disabled

By Jennifer LaFleur, ProPublica

President Barack Obama announced today measures to increase the ability of people with disabilities to live at home, rather than in institutions.

Today marks the 10th anniversary of the U.S. Supreme Court decision Olmstead v. L.C., which said that making services for disabled people available only in institutions and not at home violated the Americans with Disabilities Act. Scant progress has been made toward that goal, and disability advocates have been disappointed that the issue has not thus far figured in the administration's health care reform plans.

"The Olmstead ruling was a critical step forward for our nation, articulating one of the most fundamental rights of Americans with disabilities: Having the choice to live independently," President Obama said in a statement intended to kick off what he termed "The Year of Community Living."

"I am proud to launch this initiative to reaffirm my Administration's commitment to vigorous enforcement of civil rights for Americans with disabilities and to ensuring the fullest inclusion of all people in the life of our nation," Obama said.

Currently, services in nursing homes are mandatory for Medicaid recipients, while services in the community are optional. Tens of thousands of people who live in institutions such as nursing homes, rehab centers and state hospitals around the country would rather receive services at home. With the appropriate assistance, such as an aide to help them get out of bed, dress and bathe, many can do so.

In today's announcement, President Obama directed Health and Human Services Secretary Kathleen Sebelius and Housing and Urban Development Secretary Shaun Donovan to identify ways to improve access to housing and community services for people with disabilities.
The administration also provided more than $140 million in Recovery Act funding for independent living centers across the country, which assist people who want to move out of institutions and into their own homes.

"We hope that in 2009, the 'Year of Community,' we can get rid of the entitlement only to nursing homes, and community services become a real choice," said Bob Kafka, a disability activist with ADAPT, a national group that has pushed for the Obama administration to address long-term care as part of its proposed health care reforms.

Sebelius announced today that her agency would be providing grants to help states offer more community services to people with disabilities.

The administration also said that HUD will provide additional Section 8 housing vouchers to help people with disabilities move from institutions into the community. The lack of affordable, accessible housing is a significant barrier for people seeking to move back home.

Disability groups were pleased with today's announcements, but most continue to hope that the president's plans to change the health care system will address this issue and end a system that makes institutions the first option for people with disabilities.

"The elephant in the living room is the fact that we're doing health care reform right now," said Andrew Imparato, president of the American Association of People with Disabilities. "None of today's statements talk about dealing with the institutional bias now that we have the attention of Congress on health care reform."

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Forty Banks Fail in First Half of 2009

By Jake Bernstein, ProPublica

The FDIC shuffled three more banks off to oblivion on Friday. All three had been under cease-and-desist orders from federal banking regulators, but the agreements had failed to save them. With six months left in 2009, the demise of the three bring the total number of bank failures for the year to 40. The total cost to the FDIC’s insurance fund for the day’s failures amounted to $363.2 million.

The last to be pronounced dead was First National Bank of Anthony. The Kansas-based bank was established in 1885 but bad bets on real estate in the Kansas City-area proved its undoing. The FDIC entered into an agreement with Bank of Kansas to assume the deposits of the failed bank. The failure will cost the FDIC a relatively paltry $32.2 million.

The biggest bite of the day for the FDIC, at $217 million, was the failure of Cooperative Bank of Wilmington, N.C. The FDIC entered into an agreement with First Bank of Troy, N.C., to take on Cooperative’s non-brokered deposits. This past April, another Wilmington bank—Cape Fear Bank—also failed.

Georgia, the state with the most bank failures this economic downturn, rounded out Friday’s list with the failure of Southern Community Bank of Fayetteville. United Community Bank of Blairsville, Ga., agreed to assume Southern’s non-brokered deposits. Seven banks have failed in Georgia this year, most in the Atlanta area.

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Nursing Homes Get Old for Many With Disabilities

By Jennifer LaFleur, ProPublica

ST. LOUIS -- Melody Ping never thought she would be trying to move out of a nursing home.

She lived in a St. Louis apartment for 19 years and worked as an accountant until two years ago, when she lost her job. Ping, who has multiple sclerosis, couldn't find new work. When her unemployment ran out, she ended up on Medicaid in a nursing home.

Ping, 51, is among tens of thousands of people nationwide who want to live on their own, but instead remain in nursing homes, rehab centers or state hospitals, often at a higher cost to taxpayers because of a historic bias toward institutional care.

Ten years ago today, the U.S. Supreme Court said that bias amounted to discrimination. Now, as disability advocates celebrate the anniversary of that landmark ruling, they worry the Obama administration is backing away from a pledge to give more people with disabilities the option to live at home.

As a senator, Barack Obama co-sponsored the Community Choice Act, pending legislation that would give Medicaid recipients equal access to services in the community and not force them into institutions. But the administration recently said it would not address the issue as part of its proposed health care overhaul.

Disability rights advocates were so angered that at least 90 were arrested during an April protest outside the White House. For some, the dispute was a blunt reminder of how hard it has been to put an end to discrimination even with affirmation from the Supreme Court.

"I don't think most policymakers see it as a civil rights issue," said Andrew Imparato, president of the American Association of People with Disabilities. "I don't think most people see the ability of getting out of bed and dressing in your own home as a civil right."

A spokesman said President Obama continues to support efforts to help people with disabilities move out of nursing homes.

About one in five nursing home residents responding to a survey by the Centers for Medicare and Medicaid Services indicated they would prefer to live in their communities. That translates to 270,000 of the nation's 1.35 million nursing home residents.

Demand for community services is likely to mushroom in coming decades. Improvements in medical technology help more people survive serious injuries, but often with a disability. Baby boomers entering their retirement years are demanding alternatives to nursing homes.

"If you can't hear the thunderstorm coming, you're not listening," said disability advocate Mark Johnson of Atlanta. Living at home "is what people would want for themselves and their families."

Thousands Waiting

That was the motive for the Olmstead case -- named for defendant Tommy Olmstead, Georgia's human services commissioner when the case was brought by two mentally disabled women, Elaine Wilson and Lois Curtis. They said they were segregated unnecessarily in a state hospital, and that with proper support, they could live at home.

The Supreme Court ruled that funding services for Medicaid recipients only in institutions violated the Americans with Disabilities Act.

The decision touched off a wave of hope. The U.S. Department of Health and Human Services recommended that state Medicaid directors draft plans for helping people who wanted to move out of institutions. Twenty-nine states produced plans, but few resulted in actual changes. Many are now out of date.

Nationally in 2007, more than 331,000 people were on waiting lists for community services. About two-thirds have developmental disabilities, and the rest have other disabilities or are elderly.

In Missouri, where about 48,000 people live in institutions, including nursing homes, about 45 percent of the state's Medicaid long-term spending goes to home services. About 4,000 people are on a waiting list for community services -- most are developmentally disabled people, some who do not live in institutions.

In Illinois, which has at least 97,000 people in nursing homes and other institutions, about 30 percent of Medicaid long-term spending goes to community services. Disability activists in that state worry that the current budget shortfall may force more people into institutions.

Disability advocates blame the slow progress on opposition from the multibillion-dollar nursing home industry and from unions that represent state institution workers. Also, many states have been unwilling to alter budget structures that favor institutions.

The American Federation of State, County and Municipal Employees has declined requests by disability groups to endorse the Community Choice Act, which it worries could cost the union's members jobs.

The American Health Care Association has never taken an official position on the act, said Susan Feeney, a spokeswoman for the organization representing the nursing home industry. "We do support the ability for individuals with disabilities to receive the care they need in the most integrated setting."

But industry groups have opposed measures to make community services mandatory, saying they could jeopardize funding for people who need nursing home services.

"It's difficult to bring about a cultural change," said Stephen Gold, a Philadelphia lawyer who has handled dozens of lawsuits for people seeking to move out of institutions. "It's like a big ship, and we're slowly turning it."

More than 140 lawsuits have been brought across the country. While many led to individuals leaving institutions, they haven't always changed state Medicaid programs.

Missouri was among the first states to allow Medicaid funding to follow a resident who leaves a nursing home. Federal grants and pilot efforts have encouraged similar policies.

Two obstacles tend to stand in the way of people like Ping: They cannot get or find the services they would need at home, such as an attendant to help them get out of bed, dress or bathe. And they cannot find affordable, accessible housing, which is in short supply.

In St. Louis, the waiting list for low-income housing vouchers is "closed indefinitely." And housing options in other Missouri cities can be hard to come by.

Peter Lloyd of St. Charles knows how much harder it is to move out of a nursing home than into one. He landed there after being hospitalized by an infection and spent more than a year arranging for services so he could move to his own apartment.

"I needed to be around younger people in the same situation," said the 44-year-old Lloyd, who has cerebral palsy. "None of the activities are geared for people my age. How many times a week can you play bingo?"

After months of paperwork and phone calls, he got an apartment through the St. Charles County Housing Authority. He also got funding for an aide to help him wash, dress and cook.

Seven years later, Lloyd is really on his own. He no longer needs a personal attendant. He drives a van, adapted for his power scooter, to St. Charles Community College, where he is pursuing a degree in English. On the weekends, Lloyd drives to Chesterfield, where he works for a computer help desk.

But the chances of making a transition like Lloyd's vary widely from state to state.

In Tennessee, only 1 percent of Medicaid long-term funds for disabled and elderly adults went to community services in 2007. By contrast, Arizona spends 64 percent of Medicaid long-term care money on community services.

Debating Costs

Disability advocates argue that real progress won't come until more is done to keep people at home. They have pinned their hopes on the Community Choice Act.

Similar bills have come before Congress for at least a decade. As a senator, Obama cosponsored the bill in 2007.

But for now, long-term care is not part of his health care reforms. White House officials cited cost as the reason in a meeting with disability advocates in April.

Obama's staff wouldn't say what his current position is on making community programs mandatory. The White House Web site had said Obama would support the Community Choice Act. Recently, the site was changed to say he would "build on existing efforts to encourage states to shift more of their services away from institutions."

Disability advocates say that letting more people have services at home will save money, one of Obama's goals in health care reform.

The average annual cost of a nursing home nationally is about $75,000, according to a recent study by AARP. Community services that allow people to remain at home are about $23,000 a year, according to an analysis of Medicaid data by the Center for Personal Assistance Services at the University of California, San Francisco.

Critics warn that even if costs are lower in individual cases, overall costs will rise because more people with disabilities will request services if they are available.

In Texas, where 18,000 people have moved from nursing homes since 2001, officials say they have seen the savings firsthand. "It certainly does not cost more," said Marc Gold, a state official who directs the Texas Promoting Independence Program.

Chris Hilderbrant, of the Center for Disability Rights, said Obama and congressional leaders are missing an opportunity to fix a long-standing injustice. Once again, people with disabilities are left on the sidelines, he said. "We're going to get to you later," Hilderbrant said, "means we're going to get to you never."

In St. Louis, Melody Ping is still waiting in a nursing home, longing for a return to apartment life, where she likely will need an attendant to help her.

"I'm used to making my own choices," Ping said. "Here, they tell you when to get up and when to eat."

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Study: Tobacco Companies Changed Cigarettes Without Telling Smokers

Researchers call on FDA to require complete disclosure from tobacco companies of changes made to cigarettes

As President Obama prepares to sign a bill giving the Food and Drug Administration (FDA) oversight of the tobacco industry, a new study from Harvard School of Public Health (HSPH) researchers shows that tobacco manufacturers have continually changed the ingredients and the design of their cigarettes over time, even if those changes have exceeded acceptable product variance guidelines. The result, say the researchers, is that consumers who buy the same brand of product are not made aware of how that product has been altered and what effect those alterations might have on their levels of addiction or harm.

"I hope the FDA requires disclosure of any changes made to tobacco products and that the changes are disallowed if shown to increase appeal, addiction and harm," says Greg Connolly, director of the Tobacco Control Research Program at HSPH.

Obama has said that he is looking forward to signing landmark legislation approved by Congress this month that, for the first time, will give the FDA wide powers to regulate cigarettes and other tobacco products.

The Harvard study, supported by the National Cancer Institute, appears in the "Online First" section of the Journal of Tobacco Control and will appear in an upcoming print issue of the journal.

For their study, Connolly and lead author Geoffrey Ferris Wayne, an HSPH researcher, studied internal tobacco company documents released following the 1998 Master Settlement Agreement. These documents describe significant changes made to commercial products over time, including blend, processing, casing, flavoring and physical design features. For example, new methods were developed to process tobacco, altering the smoke chemistry and the form of nicotine delivery, and the levels of processed tobaccos were regularly adjusted within brands.

Despite the constant innovation of tobacco products, which in many cases have exceeded the levels of acceptable variance established within the tobacco industry, for the most part, these changes were not disclosed to consumers, say the researchers.

"Even incremental changes that occur over a period of years can result in significant design differences. The resulting product may have altered chemistry or delivery, yet the smoker is largely unaware of these changes. This underscores the need for industry transparency and accountability," says Ferris Wayne.

The study builds on earlier research done at HSPH on how products are designed to enhance appeal and addiction. At Senate hearings on the FDA bill last year, Connolly discussed that research, including how tobacco companies have increased nicotine content over time, manipulated menthol and added candy-like flavors to enhance appeal to children.

Until regulators have a system in place for assessing product revisions, Connolly and Ferris Wayne advise that all changes to tobacco products be reported to the FDA and that no changes be allowed until they have been scientifically shown to reduce addiction or harm.

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Sen. Ensign’s Affair Threatens to Ensnare Other GOP Leaders

By Robin Fields, ProPublica

Sen. John Ensign, R-Nev., has landed in our No. 2 spot on Scandal Watch.

This post has been updated (June 19, 2009 6:40 p.m.)

The fallout from an extramarital affair between Ensign and Cindy Hampton, a campaign staffer, is threatening to ensnare other Republican leaders as they try to marshal opposition to the Obama administration.

A June 11 letter written by Hampton's husband, published today in the Las Vegas Sun, claims that at least one of Ensign's colleagues, Sen. Tom Coburn, R-Okla., knew about the affair more than a year before Ensign's public confession, but did not act to remove him from party leadership.

Though unconfirmed -- Coburn's communications director said Coburn would not comment on the claims made in the letter -- the allegation could turn one of Washington's periodic sex scandals into something of larger significance.

Initially, it seemed as though the splatter would be confined to Ensign's political ambitions. After admitting to the affair on Tuesday, Ensign -- a rising star among conservatives who was thought to be considering a presidential run in 2012 -- resigned his post as the Senate's fourth-leading Republican.

Then it emerged that Cindy Hampton's salary -- paid from Ensign's political payroll -- had doubled during the time of their affair, which went on from December 2007 to August 2008.

Also in that period, Hampton's son landed a $1,000-a-month internship with the National Republican Senatorial Committee -- chaired by Ensign. After Hampton and her husband, Doug (also a top Ensign aide), were dismissed by Ensign, the senator allegedly helped Doug Hampton find a job with a Las Vegas airline that is among his major campaign contributors.

Now the Sun is reporting that, days before Ensign acknowledged his affair with Cindy Hampton, Doug Hampton wrote a letter to Fox News anchorwoman Megyn Kelly, begging her to help expose Ensign's "unethical behavior" because his fellow lawmakers had not.

The letter claimed that Doug Hampton had confronted Ensign repeatedly about the affair, including once in Ensign's Washington, D.C., home in February 2008 in front of "a group of his peers."

"One of the attendee's [sic] was Senator Tom Coburn from Oklahoma as well as several other men who are close to the Senator," it says.

Hours after the Sun posted the letter, Ensign fired back. His spokesman released a statement saying Doug Hampton had approached Ensign for a pay-off within the last month, making "exorbitant demands for cash and other financial benefits" through an attorney.

If indeed Coburn and others were aware of Ensign's problems for as long as Hampton says, they could face thorny questions about why his stature within the Republican Party continued to rise. Ensign was chairman of the Republican Senate Policy Committee, which sets out the party's legislative agenda, and just weeks ago, he traveled to Iowa, fueling the presidential speculation.

The controversy is a distraction Coburn hardly needs as he attempts to spearhead Republican opposition to the Obama administration's stimulus plan. Coburn recently issued a report criticizing 100 stimulus projects, then found himself in a dust storm when administration officials called the report misleading and error-filled.

Update (June 19, 2009 6:40): Hours after the Sun posted the letter, Ensign fired back. His spokesman released a statement saying Doug Hampton had approached Ensign for a pay-off within the last month, making "exorbitant demands for cash and other financial benefits" through an attorney.

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Congressional Hearing: Officials Acknowledge Program to Treat War Contractors Is Seriously Flawed

By T. Christian Miller, ProPublica

This story was co-published with the Los Angeles Times.

Washington — Lawmakers on Thursday sharply criticized a federal program that relies on private insurance companies to provide medical care and benefits to civilians injured while working in support of the U.S. military effort in Iraq and Afghanistan.

Members of a House subcommittee charged that the insurance firms had exploited the taxpayer-supported program to reap enormous profits while shortchanging injured workers.They promised action to improve the delivery of benefits to civilians, who now outnumber U.S. soldiers in Iraq and Afghanistan.

"We've got to straighten out this mess and we're going to do that," said Rep. Elijah Cummings, D-Md.

Testifying before a panel of the House Committee on Oversight and Government Reform, insurance executives, injured civilians and Obama administration officials all agreed that the program, created in 1941, is inadequate to meet the demands of modern-day warfare.

The Defense Base Act, a World War II-era law, requires federal contractors to purchase workers' compensation insurance for civilians working overseas. Taxpayers pay the premiums, which are built into contract costs. The government also reimburses insurance carriers in full for combat-related injuries and deaths.

The program grew dramatically after the U.S. sent tens of thousands of civilians into war zones in Iraq and Afghanistan to cook, clean and translate for U.S. troops, among many other tasks. More than 1,500 civilian workers have died in the two countries, and more than 31,000 have reported injuries.

Injured workers testified Thursday that they had to fight insurers for months and sometimes years to receive basic medical care. The hearing featured several dramatic moments when workers confronted insurance executives, who sat beside them in the hearing room.

John Woodson, 51, a truck driver from Oklahoma who lost a leg and most of his vision to a roadside bomb in Iraq, held up a magnifying glass. He said American International Group Inc. had challenged his doctor's recommendation for prescription glasses.

"I ask why? Where has the oversight been? Who is in charge of this operation?" Woodson said.
Kevin Smith, 39, a Texas truck driver who was injured in a shooting in Iraq, said he struggled to persuade AIG to approve treatment for post-traumatic stress syndrome. He turned to face insurance executives as he described his experience.

"We're not asking for millions in bonuses or lavish parties or even parades," said Smith. "We want what we're entitled to."

Seth Harris, deputy secretary of the U.S. Labor Department, which oversees the insurance program, acknowledged "systemic problems." The list of flaws, he said, is "extensive and troublesome."

"Tinkering around the edges is not going to work here," said Harris, recently confirmed as the second-highest official at the Labor Department. "I think we need to look at fundamental reform."

Thursday's hearing was prompted by an investigative report by the Los Angeles Times, ABC News and ProPublica, which found that AIG and other insurers routinely denied basic medical care for injured contract workers.

Sen. Bernie Sanders, I-Vt., said he was outraged by evidence that insurers made windfall profits. Chicago-based CNA Financial Corp. earned as much as 50 percent profit on some of its policies for war zone workers, according to company records submitted to the subcommittee.

"What we're looking at is a horrendous situation," Sanders said. "There has been huge wartime profiteering. That is an abuse of taxpayer money that is not acceptable."

Insurance executives said they had done their best to dispense benefits fairly under challenging conditions. They said it was difficult to verify claims from a war zone, where medical and employment records were elusive.

Charles Schader, AIG's president of worldwide claims operations, said his firm had increased its claims-handling staff from five to 70 people over the past seven years. AIG holds a near monopoly on the market for the war-zone insurance, handling about 85 percent of all claims.

"We do agree that there are many changes in this system that would help in administration and provide a better product," Schader said. "I want to make it very clear.... that we really do owe [civilian workers] a debt. This is not anything vindictive or a corporate policy of denial. It's a question of the administration of a program under an act that is ill suited" to modern demands.

George R. Fay, executive vice president of CNA Financial Corp., said his firm had worked hard to make sure that injured civilians received medical care and benefits.

A retired U.S. Army Reserve general who served in Iraq, Fay called the war-zone insurance program "a flawed statutory and regulatory scheme." He noted that the law requires payments for injuries within 14 days — a timetable he said required carriers to issue denials to protect their legal rights.

"A regulatory scheme that creates such incentives can only produce unintended, and sometimes, tragic results," Fay said.

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