Ex-Countrywide Execs’ Firm Modifies Bad Loans for Taxpayer Cash

by Alexandra Andrews, ProPublica

Among the servicers participating in the government’s mortgage modification program is a new recruit that’s not like the others. PennyMac, a firm founded by the former president and chief operating officer of Countrywide, buys distressed home loans on the cheap with the goal of modifying them and later selling them for a profit. The company, whose top management consists mostly of former Countrywide executives, now stands to receive up to $6.2 million in taxpayer money to modify those loans, through the Making Home Affordable program. The government’s incentive payments go primarily to the participating servicer, but some of the money could also go to borrowers and investors.

A March New York Times article profiled PennyMac, focusing on the fact that former top managers at Countrywide were looking to profit from rehabbing high-risk loans that had failed. Countrywide, which made high-risk loans that the company’s CEO himself called “toxic” and “poison” in internal e-mails, has been widely blamed for helping trigger the financial crisis.

But PennyMac may be better suited to helping struggling homeowners than other lenders taking government subsidies are.

Housing counselors have accused many of the participants in the program of being reluctant to modify loans. As a whole, participating servicers have helped far fewer borrowers than anticipated, according to the Treasury Department’s latest data release. Overall, less than 9 percent of eligible loans had entered the trial modification period by the end of July — roughly four months since some servicers first began implementing the program – and the rate was even lower for some individual servicers. Bank of America, for instance, the nation’s largest servicer, checked in at just 4 percent of its eligible loans. Bank of America now includes Countrywide, which, with $5.2 billion earmarked for it, is the biggest participant in the program.

According to Guy Cecala, publisher of Inside Mortgage Finance Publications, servicers and investors are loath to modify loans because most aren’t convinced that it will reduce their losses.
But PennyMac’s business strategy revolves around modification, turning “sub-performing and non-performing loans” into “restructured and re-performing loans,” according to a recent company prospectus.

PennyMac buys distressed loans at fire-sale prices. In January, it purchased nearly 3,000 mortgages from the Federal Deposit Insurance Corp., which sells loans taken over from failed banks. The book value for those loans was $560 million, but PennyMac paid just $43 million.

As a result, it has much more leeway to drastically reduce loan payments than banks holding mortgages at inflated values. “It can afford to lose more,” Cecala says.

“If they’re in fact doing that, I think it’s a wonderful thing,” says Margot Saunders, a lawyer with the National Consumer Law Center, who had initially been critical of the company’s provenance. PennyMac did not return calls requesting comment.

But PennyMac may have a hard time leaving behind its ties to the scandal-ridden Countrywide. PennyMac’s founder and CEO, Stanford Kurland, is facing a civil suit (PDF) brought by the New York state comptroller and New York City pension funds, blaming him for helping push Countrywide into risky lending practices and lax underwriting standards as president. Kurland admitted to the Times that he had advocated a foray into higher-risk lending but said that the riskiest practices occurred after he left the company, in September 2006. Kurland’s lawyer told the Times that the allegations were without merit.

The suit against Kurland says he was one of three executives who “became enormously—almost indescribably—rich from insider sales of Countrywide stock at artificially inflated prices.”

Kurland sold nearly $200 million worth of Countrywide stock before leaving the company, and PennyMac was funded in part by his personal treasure chest, according to the Times.
But if you ask Cecala, “basically anyone who’s been successful in the mortgage business has been tainted” by their involvement with risky subprime loans. “At the end of the day, nothing really distinguishes PennyMac from anyone else.”

As for whether PennyMac will outdo the other participants in the government’s loan modification program, “the proof will be in the pudding,” he says.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.

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University Scholars: Oil Speculators' Dominate Role Calls For Greater Market Regulation

A new policy paper by Rice University’s Baker Institute for Public Policy shows a clear increase in the size and influence of noncommercial traders, or “speculators,” in the oil futures market since regulations were eased by the Commodities Futures Modernization Act of 2000.

Speculators now constitute about 50 percent of those holding outstanding positions in the U.S. oil futures market, compared with only about 20 percent prior to 2002, the Rice scholars find. The report also finds that the correlation between oil and the dollar has strengthened significantly over the past several years.

The coauthors of “Who is in the Oil Futures Market and How Has It Changed?”-- Kenneth Medlock and Amy Myers Jaffe -- advocate that the government should revise its policies to reverse these trends. Kenneth Medlock is an energy fellow at the Baker Institute and adjunct professor of economics. Amy Myers Jaffe is a fellow in energy studies at the Baker Institute and associate director of the Rice Energy Program.

Using data from the Commodity Futures Trading Commission (CFTC), the authors state that the previous claims by the commission that speculation wasn’t influencing oil futures markets were based on inappropriate analysis. The authors present new evidence that speculative trading is playing an increasingly important role in the oil market.

The Rice study jumpstarts inquiry that heated up as oil prices climbed north of $100 in 2007 and 2008, with lawmakers probing the role of energy market speculators in hearings on Capitol Hill.

The Rice authors note that while the question of what has produced sharp swings in oil prices since 2005 is a complex one that requires further and deeper study, there are “inescapable facts” that need to be part of the debate about regulating the activities of institutions betting on movements in oil price purely for financial gain. Specifically, speculators, which the CFTC designates as any reportable trader who is not using futures contracts to hedge, have increased their footprint in the marketplace dramatically since the late 1990s.

Hedgers are typically producers and consumers of the physical commodity who use futures markets to offset price risk. By contrast, speculators seek profits by taking market positions to gain from changes in the commodity price, but are not involved in the physical receipt/delivery of the commodity.

“To protect the U.S. economy and American consumers, there needs to be greater market oversight,” Medlock says. ”The tremendous increase in the market presence of speculators by fifteenfold speaks for itself.”

As noted in a 2007 U.S. Government Accountability Office report, the Commodities Futures Modernization Act made it easier for financial players to obviate speculative limits and made it more difficult for the CFTC to regulate oil futures markets. Changes at the London International Petroleum Exchange, which is now the Intercontinental Commodities Exchange, regarding U.S. delivery-based contracts also created problems with monitoring and limiting speculative activity because these contracts were outside the jurisdiction of the CFTC.

While there were short windows of time before 2001 when the oil price and value of the dollar were correlated more strongly, a dramatic sustained period of high correlation emerged during the 2000s, according to the Baker Institute study. Given this new strong correlation, the authors note, the threat to the U.S. economic health and national security is that the dollar risks getting caught in a vicious cycle where continually rising oil prices feed the U.S. trade deficit, leading to increased U.S. indebtedness and thereby an even weaker dollar, which further drives oil prices higher.

The authors conclude that new policies are needed. When oil prices started rising in 2007 and 2008 from $65 per barrel to $125, governments around the world, including the United States, engaged in building strategic stockpiles. This policy signaled to oil-markets participants and the Organization of the Petroleum Exporting Countries that governments would not use strategic petroleum stocks to ease prices under any circumstances except major wartime supply shortfalls. This allowed speculators to confidently expand their exposure in oil market futures exchanges without fear of repercussions and revenue losses from a surprise release of U.S. or International Energy Agency strategic oil stocks, the Rice scholars say.

“We need to re-evaluate our policies for how we utilize strategic oil stocks in light of the oil/dollar linkages,” says Jaffe. “Clearly, our government needs to fashion a better response.”

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Ill Republican Becomes Health Reform Target

While the news has been filled with images of protests by angry healthcare reform opponents nationwide, some Illinois reform supporters have staged some pro-reform theatrics of their own.

With a giant inflatable Rx bottle as a backdrop, armed with prescription bottles filled with constituents' personal health care stories, members of the powerful senior citizen lobby AARP converged at Peoria Public Library today calling on Rep. Aaron Schock (R-Ill.) to tackle health care reform when he returns to the nation's capital in September.

Like other lawmakers, Schock is back in his district for the August congressional recess, which is now winding down. The month has been spent with opponents and supporters of comprehensive healthcare reform looking to define the issue and gain political momentum once Congress reconvenes and takes its final votes on health reform after Labor Day.

"Failure to pass health care reform legislation this year is not an option," says AARP Peoria-area volunteer Mary Patton. "AARP is bringing to Congressman Schock a prescription for reform from his constituents: fix what's wrong with our health care system, and preserve what's right. We cannot afford not to fix health care."

The youngest member of Congress at 27, Schock is in his freshman term representing Illinois' 18th Congressional District. Prior to Schock, the district which covers central and western portions of the state was represented by Ray LaHood. LaHood left Congress and became transportation secretary in the Obama administration.

After the press conference, the AARP group took the prescription bottles and delivered them to Congressman Schock's office in downtown Peoria, according to an AARP statement on the event.

The group's effort also took aim at debunking the myths, misinformation and "swift boat" style scare tactics being used to derail progress on health care reform, with volunteers working to get the public the facts on the issue, AARP says.

Opponents of health reform are spreading such myths as: health reform will hurt Medicare; it will allow the government to make life-and-death decisions for Americans; and reform is socialized medicine. AARP has set up a website to support healthcare reform.

AARP is a deep-pocketed and politically powerful group in Washington.

Its Peoria event is part of a coordinated campaign to support health reform, which is a top agenda item for President Obama.

As part of the statewide efforts during the congressional recess, AARP says it has been hosting community events and press conferences, aimed at getting the public the facts and "busting" the health care reform myths being spread. AARP has worked to hold "Rx for health care reform" events in every congressional district in Illinois, where volunteers will deliver thousands of Rx pill bottles filled with personal health care stories from constituents to their members of Congress, highlighting the need for reform, the organization says in a statement.

AARP's support for health reform extends to the public option, the federal insurance plan Obama and other Democrats want to compete with private insurance.

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Kennedy Service Act Spawns Big 9/11 Tribute

Organizers are planning a big Hollywood tribute for the Sept. 11 anniversary, in recognition of the day now being dedicated as a national day of service of service and remembrance.

The anniversary of the Sept. 11, 2001, terrorist attacks were officially designated as a national service day this year, when President Obama signed the Edward M. Kennedy Serve America legislation in April. The law was named for the longtime Massachusetts senator, who just this week died following a 15-month struggle with brain cancer.

Prominent officials, including New York Governor David Paterson (D), New York City Mayor Michael Bloomberg and others have been invited to speak at the event, according to an announcement of the tribute.

Also participating in the tribute event will be award-winning actor Gary Sinise and late-night talk-show host Jimmy Fallon, both whom were recognized as "longstanding supporters of the 9/11 community," by tribute organizers.

A number of prominent performers will participate in the diverse tribute, including singer-songwriter Gavin DeGraw, the Harlem Boys and Girls Choir, Grammy Award winners The Roots and 2009 MTV Video Music Award nominee Anjulie, among others to be announced, organizers say in a statement.

Hosting the event are MyGoodDeed, the 9/11 nonprofit that led the effort to establish the Sept. 11 anniversary as a National Day of Service, and ServiceNation, a coalition of more than 200 national and local service organizations. Also supporting the event are the National September 11 Memorial & Museum and the Corporation for National and Community Service, which is the the quasi-governmental federal service agency.

"Our ultimate goal is to leave a positive legacy that honors the victims and those who rose in service," says MyGoodDeed President David Paine, who founded the organization in 2002 along with close friend Jay Winuk, the brother of 9/11 rescuer Glenn Winuk, an attorney, volunteer firefighter and EMT who died in the collapse of the World Trade Center South Tower.

More than 2,900 people perished on Sept. 11, 2001, when Islamic extremists crashed four hijacked commercial airliners. Two aircraft hit the World Trade Center in New York, a third crashed into the Pentagon near Washington, and the fourth crashed in a field in Pennsylvania. Among the dead were more than 400 rescue workers whose heroism saved countless lives.

"We hope to rekindle the spirit of unity and compassion that followed the terrorist attacks, and are truly inspired by the remarkable support for this observance and the help of so many wonderful leaders and organizations that share this hopeful vision," Paine says. "We are especially thankful for the leadership provided in securing this historic 9/11 legacy by former Senator Edward M. Kennedy and Senator Charles Schumer, along with U.S. Representatives Peter King, Carolyn McCarthy, George Miller and Buck McKeon."

Says Winuk: "The anniversary of 9/11 is always a very personal day of sadness and reflection for me and my family, but it can also be a day when the nation comes together to embrace once more the spirit of compassion that helped our family and the entire 9/11 community see us through the very dark days following the attacks. The anniversary of September 11 is now a national day of service and rightly so, and such a designation not only pays appropriate tribute to those who were lost and those who rose in service, but also provides a constructive and meaningful way forward for our nation."

Tickets for the tribute event are free-of-charge and being distributed first to members of the Sept. 11 community and to volunteer service organizations and their members, organizers say. A limited number of tickets also are being made available to the general public through a ticket lottery. Those interested in attending can register their request for tickets online. Those who do not have access to email or the Web can obtain a printed ticket registration request form by calling MyGoodDeed at (212) 613-4979.

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Abramoff Corruption Scandal Not Done Yet -- Former Bush Administration Official Indicted

A former congressional staffer and chief of staff in two federal agencies during the Bush administration has been indicted by a federal grand jury in the District of Columbia on public corruption charges, the Justice Department announced.

The five-count indictment charges Horace Cooper, 44, of Lorton, Va., with one count of conspiracy, one count of fraudulent concealment, two counts of false statements, and one count of obstruction of an official proceeding. Cooper has been ordered to make an initial appearance in court on Wednesday, Sept. 9.

If convicted, Cooper faces a maximum sentence of five years in prison for conspiracy; five years in prison for fraudulent concealment; five years in prison for each of two false statement counts; and 20 years in prison for obstruction of justice. If convicted, Cooper also faces a maximum fine of $250,000.

The indictment alleges that from approximately December 2001 to May 2005, while he worked at Voice of America (VOA) and then at the Department of Labor, Cooper conspired with disgraced lobbyist Jack Abramoff and others.

Currently in prison, Abramoff became the focus for a shocking web of high-level government corruption that already has resulted in the conviction of a dozen or so officials, including former Rep. Bob Ney (R-Ohio). Abramoff initially pled guilty to corruption charges in 2006. Abramoff was a top lobbyist for the firms of Preston Gates & Ellis and Greenberg Traurig.

The indictment of Cooper also alleges that he, Abramoff and others conspired to give and receive things of value to influence or reward Cooper for official acts as a federal executive branch employee.

Specifically, the indictment alleges that during this time, Cooper solicited and received from Abramoff and his colleagues thousands of dollars worth of tickets to sporting events and concerts; that Cooper and his companions allegedly received free or discounted meals and drinks on dozens of occasions at a restaurant controlled by Abramoff; and that Cooper, at Abramoff's invitation and expense, allegedly hosted a Super Bowl party for his friends at another restaurant Abramoff controlled.

The indictment also alleges that Cooper, rewarded and influenced by the tickets and meals solicited and received from Abramoff and his associates, agreed to use his official positions at VOA and the Department of Labor to advance Abramoff's interests and those of his clients.

In addition, the indictment alleges that from approximately 1998 to 2000, Cooper received from Abramoff and his colleagues thousands of dollars worth of tickets to concerts and sporting events while Cooper was serving as a congressional staffer.

According to the indictment, Cooper was employed from approximately 1994 to late 2001 as a House staffer. From approximately late 2001 to December 2002, Cooper served as the chief of staff for VOA, an executive branch agency of the U.S. government and subsequently from December 2002 through approximately August 2005, he served as chief of staff for the Employment Standards Administration of the Labor Department.

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Capitol Idea: Senator Kennedy's Legacy

By Scott Nance

It's often not the case for death to come when all of one's life's work is completed and all loose ends accounted for.

That's certainly true for Sen. Edward M. Kennedy, who died late Tuesday at age 77, of the brain cancer he was diagnosed with a year ago. But solace can be taken that, even in the waning year of his life, Kennedy accomplished important things. Indeed, even in death, this "greatest legislator of his time" may yet help influence his largest goal left undone: healthcare reform.

The liberal lion of the Senate was the last of Camelot, the great Kennedy generation that so influenced the last half of the 20th century. Indeed, Kennedy follows in death only weeks his sister, Eunice Kennedy Shriver. We may well never see again such a celebrated and paramount political dynasty of presidents and senators.

Kennedy seemed to understand that his family's greatness belonged to the 2oth century, not the 21st. The Kennedy mystique had already begun to wane in recent years, and could have only eventually faded completely from benign neglect.

Ted Kennedy, though, was not so passive. He and his family saw in the young Barack Obama many of the ideals and leadership qualities once admired in President John F. Kennedy. We live in an age when most political endorsements don't mean much anymore. But Ted Kennedy used what luster remained of the Kennedy name to embrace Obama right at the moment Obama needed momentum to carry him past rival Hillary Clinton, to the clinch the Democratic nomination and eventually the presidency.

In turn, by not just letting time and events unfold past his family -- by being pro-active and taking such a vital role in a passing of the torch -- Ted Kennedy assured that the Kennedy flame would not just peter out in the 21st century eventually to be forgotten. Rather, that act ensures the Kennedy legend will always be brightened by the happy amber glow of memory. Camelot will live forever as vital heart of 20th century history.

That Kennedy died the chairman of the Senate Health, Education, Labor and Pensions Committee seems altogether appropriate, for those issues are the core of what animated the senior senator from Massachusetts. Certainly, the acronym by which the panel is known, the HELP Committee, neatly sums up what Kennedy was about in more than 40 years of service.

And yet Kennedy died before seeing final resolution to what was perhaps his largest issue -- healthcare.

But perhaps the death of this consumate dealmaker may help influence passage of the comprehensive healthcare reform Kennedy so wanted.

To be sure, the angry throngs who are storming healthcare town hall meetings are not likely to much mourn Kennedy's passing.

But within the Senate itself, some residue of Kennedy's relations with his colleagues may yet carry weight in shaping the chamber's reform package. Kennedy was well-known for his penchant for reaching across the aisle. His repeated legislative partnerships with Utah Republican Orrin Hatch made the two a famous political "Odd Couple," but Hatch was not the only Republican with whom Kennedy was close.

Indeed, just last year when Kennedy rose from sickbed to come to the Senate to cast a vote against Medicare cuts, senators of both parties were so moved as to cause some to change their votes, giving the measure a veto-proof majority against President George W. Bush.

If some senators feel a bit of that old tug as they return to finish their healthcare work, even amidst the bitter partisanship the matter has become, then perhaps Kennedy will be somewhere smiling.

Other than that, as Kennedy himself has said, "the work goes on ... and dream shall never die."

The publisher of On The Hill and its sister sites, Life, The Universe ... and Politics Live, Scott Nance has covered government and Washington for more than a decade. Capitol Idea is his regular column from Washington.

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EPA: Chemicals Found in Wyo. Drinking Water Might Be From Fracking

by Abrahm Lustgarten, ProPublica

Federal environment officials investigating drinking water contamination near the ranching town of Pavillion, Wyo., have found that at least three water wells contain a chemical used in the natural gas drilling process of hydraulic fracturing. Scientists also found traces of other contaminants, including oil, gas or metals, in 11 of 39 wells tested there since March.

The study, which is being conducted under the Environmental Protection Agency’s Superfund program, is the first time the EPA has undertaken its own water analysis in response to complaints of contamination in drilling areas, and it could be pivotal in the national debate over the role of natural gas in America’s energy policy.

Abundant gas reserves are being aggressively developed in 31 states, including New York and Pennsylvania. Congress is mulling a bill that aims to protect those water resources from hydraulic fracturing, the process in which fluids and sand are injected under high pressure to break up rock and release gas. But the industry says environmental regulation is unnecessary because it is impossible for fracturing fluids to reach underground water supplies and no such case has ever been proven.

Scientists in Wyoming will continue testing this fall to determine the level of chemicals in the water and exactly where they came from. If they find that the contamination did result from drilling, the placid plains arching up to the Wind River Range would become the first site where fracturing fluids have been scientifically linked to groundwater contamination.

In interviews with ProPublica and at a public meeting this month in Pavillion’s community hall officials spoke cautiously about their preliminary findings. They were careful to say they’re investigating a broad array of sources for the contamination, including agricultural activity. They said the contaminant causing the most concern – a compound called 2-butoxyethanol, known as 2-BE – can be found in some common household cleaners, not just in fracturing fluids.

But those same EPA officials also said they had found no pesticides – a signature of agricultural contamination – and no indication that any industry or activity besides drilling could be to blame. Other than farming, there is no industry in the immediate area.

In Pavillion, a town of about 160 people in the heart of the Wind River Indian Reservation, the gas wells are crowded close together in an ecologically vivid area packed with large wetlands and home to 10 threatened or endangered species. Beneath the ground, according to the U.S. Geological Survey, the earth is a complex system of folded crusts containing at least 30 water-bearing aquifer layers.

EPA officials told residents that some of the substances found in their water may have been poured down a sink drain. But according to EPA investigation documents, most of the water wells were flushed three times before they were tested in order to rid them of anything that wasn’t flowing through the aquifer itself. That means the contaminants found in Pavillion would have had to work their way from a sink not only into the well but deep into the aquifer at significant concentrations in order to be detected. An independent drinking water expert with decades of experience in central Wyoming, Doyle Ward, dismissed such an explanations as "less than a one in a million" chance.

Some of the EPA’s most cautious scientists are beginning to agree.

"It starts to finger point stronger and stronger to the source being somehow related to the gas development, including, but not necessarily conclusively, hydraulic fracturing itself," said Nathan Wiser, an EPA scientist and hydraulic fracturing expert who oversees enforcement for the underground injection control program under the Safe Drinking Water Act in the Rocky Mountain region. The investigation "could certainly have a focusing effect on a lot of folks in the Pavillion area as a nexus between hydraulic fracturing and water contamination."

The Superfund investigation follows a series of complaints by residents in the Pavillion area, some stemming back 15 years, that their water wells turned sour and reeked of fuel vapors shortly after drilling took place nearby. Several of those residents shared their stories with ProPublica, while other information was found through court and local records. Several years ago a one resident’s animals went blind and died after drinking from a well. In two current cases, a resident’s well water shows small pooling oil slicks on the surface, and a woman is coping with a mysterious nervous system disorder: Her family blames arsenic and metals found in her water.

In two of those cases the Canadian drilling company Encana, which bought most of the area’s wells after they were drilled and assumed liability for them, is either supplying fresh drinking water to the residents or has purchased the land. In the third case a drilling company bought by Encana, Tom Brown Inc, had previously reached an out-of-court settlement to provide water filtering.

Though the drilling companies have repeatedly compensated residents with the worst cases of contamination, they have not acknowledged any fault in causing the pollution. An Encana spokesman, Doug Hock, told ProPublica the company wants "to better understand the science and the source of the compounds" found in the water near Pavillion before he would speculate on whether the company was responsible.

Precise details about the nature and cause of the contamination, as well as the extent of the plume running in the aquifer beneath this region 150 miles east of Jackson Hole, have been difficult for scientists to collect. That’s in part because the identity of the chemicals used by the gas industry for drilling and fracturing are protected as trade secrets, and because the EPA, based on an exemption passed under the 2005 Energy Policy Act, does not have authority to investigate the fracturing process under the Safe Drinking Water Act. Using the Superfund program gave the agency extra authority to investigate the Pavillion reports, including the right to subpoena the secret information if it needs to. It also unlocked funding to pay for the research.

EPA officials have repeatedly said that disclosure of the fluids used in fracking – something that would be required if the bill being debated in Congress were passed – would enable them to investigate contamination incidents faster, more conclusively and for less money. The current study, which is expected to end next spring, has already cost $130,000.

About 65 people, many in jeans, boots and 10-gallon hats, filled Pavillion’s community hall on Aug. 11 to hear the EPA’s findings. They were told that a range of contaminants, including arsenic, copper, vanadium and methane gas were found in the water. Many of these substances are found in various fluids used at drilling sites.

Of particular concern were compounds called adamantanes, a natural hydrocarbon found in gas that can be used to fingerprint its origin, and 2-BE, listed as a common fracturing fluid in the EPA’s 2004 research report on hydraulic fracturing. That compound, which EPA scientists in Wyoming said they identified with 97 percent certainty, was suspected by some environmental groups in a 2004 drilling-related contamination case in Colorado, also involving Encana.

EPA investigators explained that because they had no idea what to test for, they were relegated to an exhaustive process of scanning water samples for spikes in unidentified compounds and then running those compounds like fingerprints through a criminal database for matches against a vast library of unregulated and understudied substances. That is how they found the adamantanes and 2-BE.

An Encana representative told the crowd the company was as concerned as they were about the contamination and pledged to help the EPA in its investigation.

Some people seemed confounded by what they were hearing.

"How in god’s name can the oil industry dump sh*t in our drinking water and not tell us what it is?" shouted Alan Hofer, who lives near the center of the sites being investigated by the EPA.

"If they’d tell us what they were using then you could go out and test for things and it would make it a lot easier right?" asked Jim Van Dorn, who represents Wyoming Rural Water, a non-profit that advises utilities and private well owners on water management.

"Exactly," said Luke Chavez, the EPA’s chief Superfund investigator on the project. "That’s our idea too."

Now that the EPA has found a chemical used in fracturing fluids in Pavillion’s drinking water, Chavez said the next step in the research is to ask Encana for a list of the chemicals it uses and then do more sampling using that list. (An Encana spokesman told ProPublica the company will supply any information that the EPA requires.) The EPA is also working with area health departments, a toxicologist and a representative from the Centers for Disease Control’s Agency for Toxic Substances and Disease Registry to assess health risks, he said.

Depending on what they find, the investigation in Wyoming could have broad implications.

Before hydraulic fracturing was exempted from the Safe Drinking Water Act in 2005, the EPA assessed the process and concluded it did not pose a threat to drinking water. That study, however, did not involve field research or water testing and has been criticized as incomplete.

This spring, EPA administrator Lisa Jackson called some of the contamination reports "startling" and told members of Congress that it is time to take another look. The Pavillion investigation, according to Chavez, is just that.

"If there is a problem, maybe we don’t have the tools, or the laws, to deal with it," Chavez said. "That’s one of the things that could come out of this process."

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.

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UBS and the Taxpayers’ Lost Billions

by Sharona Coutts, ProPublica

Last week, the government announced the terms of its deal with UBS to settle a case that could have thrown the Swiss bank into bankruptcy.

At issue was whether UBS would – or could – hand over the names of tens of thousands of American citizens believed to have used their UBS accounts to hide assets and dodge paying taxes. The amounts are said to add up to billions – not chump change in a country facing historic budget deficits.

The bank had already admitted to many of the facts alleged by the Internal Revenue Service.

UBS bankers routinely visited the U.S., lied to immigration agents about why they were here and even carried encrypted computers with decoy presentations in case immigration agents stopped and questioned them about their activities. One former banker admitted to stuffing diamonds into a toothpaste tube to smuggle them to a client in California.

In February, UBS paid $780 million in penalties and unpaid taxes. The IRS and the Department of Justice then decided to go after the account holders—and that’s what last week’s settlement was about.

The new agreement is a compromise. The U.S. will not get the full list of names it sought. The bank will hand over 4,550 instead of the 52,000 the government reportedly wanted.

Switzerland backed off its initial stance that releasing any names would violate the country’s bank secrecy laws. And UBS has avoided further prosecution.

But the problem of tax evasion isn’t limited to UBS, or even to Switzerland. ProPublica decided this case was ripe for one of our decoders, to parse out what it’s all about and what it will really achieve.

Why should I care about the UBS settlement?

In its 2008 report, “Tax Haven Banks and U.S. Tax Compliance,” the Senate Homeland Security and Governmental Affairs Committee said the U.S. loses $100 billion in tax revenue every year due to “offshore tax abuses.”

To put that in perspective, that’s about what one House proposal for health care reform would cost annually over 10 years.

The committee came up with the figure by relying on studies by various tax experts, so it’s not a hard number. The fact that these accounts are undisclosed to U.S. authorities means it is impossible to say with certainty how much money has been stashed overseas. UBS told the committee it had almost $18 billion held in accounts owned by Americans, but court documents put the number at $20 billion.

Of course, only a fraction of that would be owed as unpaid taxes, but a substantial portion could be eaten up through penalties. Once the bank starts handing over account holders’ names, we should know more about how much money the government is going to recoup.

Who are the people with undeclared UBS accounts?

There are three broad categories of people with UBS accounts that they have not disclosed to the IRS, according to Dave Gannaway, a former IRS criminal investigator who now works at Marks Paneth & Shron LLP,an accounting and consulting firm that advises people with overseas bank accounts.

The first, which is relatively common, is people who inherited an account from a parent – particularly parents who emigrated from Europe to the U.S., Gannaway said.

“In some instances, the children didn’t know they had an account in Switzerland,” he said. “It wasn’t until the account becomes dormant that these banks have reached out and tried to find out who the next-in-line is for this account.”

The second category falls into a gray zone: people who knew they had a dormant account but failed to disclose it to the IRS. “That’s something that those people think they didn’t have to pay any U.S. tax on, because they never took anything out of it,” Gannaway said.

Those people, he said, are distinct from the third group, who opened or used a pre-existing account to hide income.

U.S. bank secrecy law requires people to declare any overseas account holding more than $10,000, regardless of whether that account is active, Gannaway said.

What is UBS’s position?

In a deferred prosecution agreement signed last February, UBS agreed to pay $780 million in taxes and penalties, and “disgorgement of the profits” of its offshore business.

The bank admitted that its employees operated in the U.S. without licenses and in apparent violation of the Securities Exchange Act. The company also admitted that it helped its U.S. clients conceal income from the IRS by referring them to lawyers and consultants who, the bank knew, would help them set up sham offshore companies. Although UBS admitted to conspiring to defraud the United States, the deferred prosecution agreement allows the bank to escape prosecution, and the possibility of conviction, so long as it sticks to certain other conditions.

As part of the agreement, UBS said it would shut down all its Swiss accounts for U.S. citizens and close its “cross-border” business for Americans. The bank sent a letter to its clients in mid-July, advising them that their Swiss accounts would be closed and giving them an option to move their assets into UBS accounts in the United States.

How have account holders responded?

The IRS has said that hundreds of people with overseas accounts have applied to a voluntary disclosure program, which allows some errant taxpayers to escape prosecution by paying their taxes and penalties. People have until Sept. 23 to contact the IRS if they want to participate.
Not everyone will be eligible, however. Anyone who obtained the assets through crime will not qualify, according to the IRS Web site on voluntary disclosure.

The IRS said people should not wait for the deadline but should come forward immediately. If UBS hands over a name before the deadline, that individual won’t be eligible for the program. “Once the Swiss government sends us the name, all bets are off,” said Commissioner Doug Shulman.

How have banks responded?

UBS is not the only bank that has offered accounts to American taxpayers.

Two other large banks, Credit Suisse and HSBC, have asked clients to waive their rights under bank secrecy laws, a move seen as an attempt to sidestep problems with the Swiss government.

Does that suggest those banks also foresee a problem with the IRS?

A spokesperson for HSBC said that the company “abides by the letter and spirit of the law in every country in which it operates and has no offshore U.S. client business of any note in its Private Bank in Switzerland.” Credit Suisse did not return our call seeking comment.

Tax experts say the UBS case will ricochet through the industry. Other banks dread becoming the next UBS, said Ethan Burger, a Georgetown law professor who specializes in international crime. Burger said the case could force industry-wide changes without requiring the authorities to pursue each individual bank or taxpayer.

“What they’re hoping is that releasing a few names will lead more people to come forward than they would ordinarily get, and it’s not just UBS,” Burger said. “It’s going to be a ton of other banks.”

Some hedge funds have also taken defensive steps, according to Gannaway. “We’ve seen some of the hedge funds putting their clients on notice,” she said. “They’ve sent letters to their clients saying, ‘You may have a Bank Secrecy Act filing requirement.’” People with investments in U.S. hedge funds have received this type of letter, Gannaway said, because the hedge funds have made overseas investments that may create filing obligations for the account holder, even though the taxpayer thought she had invested in a domestic company.

Will cracking down on UBS solve the problem of tax evasion?

The U.S. doesn’t seem to be done with Swiss banks and their consultants. On Friday, the Department of Justice indicted a Swiss private banking executive and a lawyer in connection with helping U.S. clients dodge taxes.

While the aggressive actions against UBS have caused optimism among some tax experts, they point out that cracking down on Switzerland or UBS alone won’t solve the problem of rich Americans avoiding taxes.

“There are lots of other jurisdictions that are offering bank secrecy,” said Raymond Baker, at the Center for International Policy. “Indeed, Switzerland is still offering bank secrecy, so it isn’t going to end tax evasion through tax havens.”

While many people have rushed to get their finances in order as a result of the UBS prosecution, others have already moved money elsewhere, Baker said.

“There’s also been some flow of money out of Switzerland into Dubai and Singapore as people continue to look for an alternative,” he said. “This issue isn’t finished, but these are all steps in the right direction.”

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Survey Finds Majority Of Americans Believe 'Myths' About Healthcare Reform

Do Americans believe controversial assertions about health care reform including death panels, threats to Medicare, abortions, illegal immigrants, and other claims which the White House have labeled as untrue "myths?"

Findings from a national survey of Americans by researchers from Indiana University Center for Health Policy and Professionalism Research (CHPPR) and the Indiana University Center for Bioethics says that Americans do believe the "myths" about health care reform, confirming that the White House may indeed be losing this battle.

"A surprisingly large proportion of Americans believe what the White House has dubbed 'myths' about health care reform," says CHPPR Director Dr. Aaron Carroll, M.D. "Ironically, we found that the least believed myths, such as those related to mandatory end-of-life decisions and euthanasia counseling, are those that have gained the most traction in the media and have resulted in changes to the House bill."

From Aug. 14 -18, a random sample of 600 Americans in the 48 contiguous states and the District of Columbia were asked 19 questions about their personal beliefs concerning health insurance reform assertions. A majority believed most of these statements to be true, with an overwhelming number of Republicans and -- for many issues -- independents finding truth in the controversial assertions.

Who and what types of services will be covered if the proposed reforms are passed: 67 percent of Americans believe that wait times for health care services (such as surgery) will increase (91 percent of Republicans, 37 percent of Democrats, 72 percent of independents).

Roughly 6 out of 10 Americans believe that taxpayers will be required to pay for abortions (78 percent of Republicans, 30 percent of Democrats, 58 percent of independents) 46 percent believe that reforms will result in health care coverage for all illegal immigrants (66 percent of Republicans, 29 percent of Democrats, 43 percent of independents).

Level of government involvement with health care if the proposed reforms pass: 5 out 10 believe the federal government will become directly involved in making personal health care decisions (80 percent of Republicans, 25 percent of Democrats, 56 percent of independents).

However only 3 out of 10 Americans believe that the government will require the elderly to make decisions about how and when they will die (53 percent of Republicans, 14 percent of Democrats, 31 percent of independents) –- a topic that has received a considerable amount of media attention.

Impact on current health insurance coverage if the proposed reforms are passed: Interestingly, fewer people surveyed believe statements regarding the impact of proposed reforms on current health insurance coverage.

Only 29 percent of respondents believe that private insurance coverage would be eliminated (44 percent of Republicans, 11 percent of Democrats, 33 percent of independents) and only 33 percent believed that reforms would result in the elimination of employer-sponsored health insurance coverage (56 percent of Republicans, 14 percent of Democrats, 31 percent of independents).

Additionally, only 36 percent of Americans believes that a public insurance option will put private insurance companies out of business (56 percent of Republicans, 18 percent of Democrats, 35 percent of independents).

Costs of the proposed reforms and how the reforms will be paid for:

Almost 6 out of 10 Americans believe that a public insurance option as proposed would be too expensive for the United States to afford (84 percent of Republicans, 27 percent of Democrats, 58 percent of Independents).

51 percent believe that the public insurance option will increase health care costs (79 percent of Republicans, 21 percent of Democrats, 53 percent of Independents), and 54 percent believe that the public option will increase premiums for Americans with private health insurance (78 percent of Republicans, 28 percent of Democrats, 58 percent of Independents).

5 out of 10 Americans think that cuts will be made to Medicare in order to cover more Americans (66 percent of Republicans, 37 percent of Democrats, 44 percent of Independents).

"It's perhaps not surprising that more Republicans believe these things than Democrats," says Dr. Carroll. "What is surprising is just how many Republicans – and Independents – believe them. If the White House hopes to convince the majority of Americans that they are misinformed about health care reform, there is much work to be done."

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Whipping The Public Option: 45 Democratic Senators In Favor?

Inclusion of a public option in healthcare reform may not have the votes to pass the Senate -- but it comes tantalizingly close, according to a new vote count provided by a political action committee that supports establishing such a public option to compete with private insurers.

"Right now, our Senate Whip Count Campaign with OpenLeft and Healthcare for America Now has gotten 45 senators on record in support. We need at least 5 more senators to make a public option bill unstoppable," Charles Chamberlain, political director of Democracy for America (DFA), says in an email.

The creation of a federally run public insurance option has been a centerpoint for the firestorm of national opposition to healthcare reform, including wild claims of "death panels" that will decide whether some elderly patients are allowed to die.

Sen. Kent Conrad (D-N.D.) has been the highest profile Democrat to throw doubt on the public option, saying that such a plan does not have the needed votes in the Senate. Conrad has floated the idea of "co-ops" to provide insurance instead of the government-run public option.

DFA, however, says it wants to attract support for the public option from at least five additional senators. The organization already has claimed there are enough votes in the House to guarantee a public option must be included in legislation coming from that chamber.

"While 45 senators have stood up to be counted, Senators [Max] Baucus (MT), [Kent] Conrad (ND), [Ron] Wyden (OR), [Tom] Carper (DE), [Jon] Tester (MT), [Blanche] Lincoln (AR), [Bill] Nelson (FL) and [Mark] Warner (VA) have not," Chamberlain says in his email. "It's time to get them and other Senate hold outs on the record that they'll vote for a public option in the final bill."

He says that DFA is "putting extra staff and resources on the ground in at least 5 states starting in September and lasting until we win." DFA is built from the failed 2004 presidential campaign operation of Democrat Howard Dean, who has been an outspoken advocate for a public option in recent weeks.

Presumably, at 50 "yes" votes, Vice President Joe Biden could cast a deciding tie-breaker to approve legislation that includes a public option. Biden's boss, President Obama, has said he prefers a public option be included in healthcare reform. However, even at 50 votes, those numbers wouldn't hold up against a Republican filibuster.

Chamberlain acknowledges that fact in his email, which also serves as a fundraising appeal.

"But 5 states may not be enough," he says. "If we can reach $350,000 by the end of today, we can expand it to as many as 10 states."

Democrats would need 60 votes to cut off a potential filibuster -- a number difficult to reach because of the continuing absences of ailing Sens. Robert Byrd of West Virginia and Ted Kennedy of Massachusetts. Without Byrd and Kennedy, that leaves Democrats two votes shy of the 60 needed.

As of yet, no Senate Republicans have shown an interest in crossing the aisle to support a Democratic health reform proposal. Even moderate Sen. Olympia Snowe (R-Maine), who bucked her party in February to support Obama's economic stimulus, is opposing a public healthcare option.

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Congressional Scholar Optimistic On Health Reform, But Climate Odds 'Substantially Lower'

President Obama and his congressional allies likely will overcome fierce option to deliver a comprehensive health reform plan, one that "that achieves the objectives of the public plan [Obama wants] in a different fashion," a highly respected congressional scholar predicts. However, chances that his other signature agenda item -- a bill to contain climate change -- will become law, are "substantially lower," says Thomas Mann of the Brookings Institution.

"In spite of the major obstacles and uncertainty, I do expect health care reform to pass before the end of the year. The odds of climate change are substantially lower," says Mann, a senior fellow at the Washington think tank.

Currently away for their August recess, lawmakers will return to Washington to continue work on healthcare, clean energy/climate legislation, and other work after Labor Day.

With Republicans in such unified opposition, Democrats are left to govern on their own, creating the need to create consensus between the Democrats' liberal and conservative wings, Mann says.

"Liberals are well advised to push for their preferences but in the end find a way of reaching agreement within their party," he says.

That includes dealing with inclusion of a public option in healthcare reform to compete with private insurers, Mann says, speaking in an online forum.

"This has emerged as the sharpest point of contention but probably not the most important element of reform," he says. "The co-op option has substantive problems and a pure public option almost certainly cannot clear the Senate. I expect some compromise that achieves the objectives of the public plan in a different fashion."

Mann identifies such different approaches as "insurance reform," as well as "to set limits on the size of acceptable premium increases for the basic plan."

"Another is to link Medicare payment reforms to private insurance plans in the [healthcare] Exchange," he says. "Others much more knowledgeable than I have additional ideas. It's time to start investigating these alternatives."

In terms of the clean energy legislation Obama also seeks, Mann sees Democratic opposition standing in its way. The House narrowly approved such a bill this summer, with action still to come in the Senate.

"The problem facing the climate bill is less the crowded schedule and more the opposition of a number of Democratic senators and the scarcity of support on the Republican side," Mann says. "I suspect the administration will go to [international climate change neogiations in] Copenhagen with what it already has, including a potent [Environmental Protection Agency] authority to act through regulation."

Passing major legislation over the objection of GOP obstruction may be the only way Obama and Democrats can convince Republicans to drop their unified opposition strategy, Mann says.

"At this point, the best way out is for Obama and the Democrats to succeed in delivering on their promises and building a larger coalition in the electorate. Over time this may be the only way of convincing the Republican opposition to engage in good faith negotiations," he says.

Despite such united GOP roadblocks and uncertainty over healthcare reform, Obama and congressional Democrats already have amassed definite successes, according to Mann.

"The ideological division [between liberal and conservative Democrats] is real, reflecting the differences in their constituencies, but it is worth noting that Democrats have been very unified during the first months of the new Congress," Mann says. "Obama has been successful on 95 percent of his proposals and Democrats have party unity scores of 90 percent. It is tough reconciling differences within the party but there is much more that unifies than divides them."

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More at Stake in Gitmo Court Orders Than Detainees’ Fates

by Chisun Lee, ProPublica

The federal judges who are reviewing lawsuits filed by Guantanamo inmates have found that 29 of the 35 men whose cases they’ve completed have been unlawfully detained. For ordinary convicted criminals, that would mean that the authorities who imprisoned them would have to let them go. But the jailer at Guantanamo – the executive branch – is still holding 20 detainees the judges have cleared for release.

The impasse over releasing these prisoners is usually discussed as a logistical problem of foreign diplomacy or domestic politics. But it also raises a deeper question of principle: What is the meaning of the constitutional right of habeas corpus – a core American right to be free from unjust imprisonment – in the new and potentially expanding context of terrorism detention?

The right appears in the original text of the Constitution and is meant to protect the liberty of individuals even when it’s politically unpopular. That protection comes from the federal courts, where judges are not elected but rather are kept independent of popular sentiment by lifetime appointments. Habeas petitions are most commonly filed by prisoners claiming errors in their convictions due to faulty forensic evidence, prosecutorial misconduct or other wrongs.

The traditional remedy to wrongful imprisonment is release. But in the case of the Guantanamo prisoners, the shape of justice has been much fuzzier. In June 2008, the Supreme Court said the detainees have the right to sue for their freedom via habeas petitions, ending years of litigation by the Bush administration to try to block them. But a February ruling by the federal appeals court in Washington – sought by the Bush administration and embraced by the Obama administration – declared that, while Guantanamo detainees have the right to sue and have their imprisonment found illegal, they don’t have a right to actual release.

The appeals court wasn’t moved by the fact that these foreigners had been taken against their will and erroneously placed under U.S. jurisdiction – a finding that trial judges have made in the overwhelming majority of cases so far. Instead, the court likened the captives’ predicament to that of undocumented immigrants who are caught, saying the president has wide discretion to detain people who for political reasons are difficult to send elsewhere.

Since the February decision, trial judges who’ve rejected the government’s evidence as too flimsy have been barred from ordering the president actually to release detainees. Now the judges resort to a vaguer admonition that the executive branch "take steps" toward releasing them.

The appellate ruling overturned the order of Judge Ricardo Urbina of the U.S. District Court in Washington, who last October directed the government to immediately release a group of Chinese Muslim Uighurs into the United States, American judges not having the power to order release into a foreign country. Urbina wrote that officials’ failure for years to find a suitable country to take the Uighurs amounted to flouting "the court’s authority to safeguard an individual’s liberty from unbridled executive fiat" – an authority necessary, he said, to fulfill the constitutional promise of habeas corpus. Thirteen Uighurs remain at Guantanamo despite having been cleared of terrorism suspicions as early as 2003.

The decision blocking Urbina’s order was authored by Judge A. Raymond Randolph of the U.S. Court of Appeals for the District of Columbia Circuit, who wrote three previous opinions rejecting constitutional claims by Guantanamo detainees. All those decisions were reversed by the Supreme Court. In April, lawyers for the Uighurs asked the high court to take their case and undo this decision as well. But in the meantime, the appeals court decision effectively applies to all the Guantanamo habeas cases, because they’re all governed by the D.C. Circuit.

The Obama administration has urged the Supreme Court to leave the decision alone, despite the president’s public pledge to "abide by" the trial judges’ rulings in habeas cases. The administration’s legal brief argued that detainees who remain at Guantanamo after judges have said they don’t belong there are not being imprisoned but rather are enjoying "harborage" while the president figures out the logistics for a safe release.

The Supreme Court recessed for the summer without saying if it would take the Uighurs’ case. Court observers speculated that the justices were reluctant to intervene at a politically sensitive time. Elected officials were strenuously opposing the idea of releasing detainees into this country, and the administration had managed to find homes abroad for four Uighurs. Recent news reports suggest the others may soon be resettled.

Just days before the court recessed, Congress stepped in to add a new wrinkle. It passed, and Obama signed, a law requiring the president to submit a report to legislators before any Guantanamo captive may be released or transferred using taxpayer funds.

It’s unclear how or whether the new law will affect the courts’ power to enforce detainees’ habeas rights. If Congress tries to delay the release of someone a court has found to be held unlawfully, some legal scholars say, the detainee could sue, claiming the law is an unconstitutional violation of his habeas right or of the separation of powers among the judicial, executive and legislative branches.

Meanwhile, the federal trial judges in Washington are continuing to scrutinize piles of classified evidence and hear closed-door arguments in more than 150 other Guantanamo cases, reviewing details about the detainees’ capture, their alleged hostile conduct and any mitigating facts. In six of the 35 cases completed to date, they’ve agreed with the president that the prisoners are so closely affiliated with al-Qaida or the Taliban that they should be detained indefinitely by the military. But in the vast majority of cases – the mildest and generally least complicated have gone first – they have decided against the government because of weak evidence or poor logic.

Two weeks ago, Judge Colleen Kollar-Kotelly blasted the government’s evidence for detaining Khalid Abdullah Mishal Al Mutairi, a Kuwaiti citizen, for more than seven years, saying the case was based on nothing but "speculation."

In June, Judge Richard Leon said Abdulrahim Abdul Razak Al Janko’s detention as a terrorist affiliate "defies common sense." Janko, a Syrian, may have associated with U.S. enemies for a few days in 2000, the judge said, but by his 2002 arrest, he’d been tortured by al-Qaida and imprisoned for a year and a half in an infamously "horrific" Taliban prison, the uncontested evidence showed. "Surely extreme treatment of that nature evinces a total evisceration of whatever [enemy] relationship might have existed!" wrote Leon, who has ruled against detainees more often than any other judge.

In May, Judge Gladys Kessler invalidated the imprisonment of a Yemeni man, Alla Ali Bin Ali Ahmed, explaining that the evidence against him "is hotly contested for a host of different reasons ranging from the fact that it contains second- and third-hand hearsay to allegations that it was obtained by torture."

The judges couldn’t order that these prisoners be released by a particular date, as they can in ordinary habeas cases. They wrote only that the government should "take all necessary and appropriate steps to facilitate" the detainees’ release "forthwith."

Asked when the detainees cleared so far will be released, Justice Department spokesman Dean Boyd told ProPublica that the State and Defense Departments and other agencies are "working to make appropriate arrangements to carry out transfers of these individuals in a manner consistent with national security and foreign policy interests of the United States, as well as U.S. policies concerning humane treatment."

The Washington Post, citing anonymous administration officials, reported Thursday that nearly a dozen countries have agreed to accept Guantanamo detainees, and that it has been difficult to repatriate some prisoners because they fear they will be persecuted if they return home.

One prominent Guantanamo case could test the now three-way tug-of-war among the branches of government over detainees’ rights. In an exception to the limited orders judges have been issuing, Judge Ellen Segal Huvelle recently directed that President Obama "promptly release" young Afghan Mohammed Jawad, whose detention was chiefly based on a confession that a military judge had earlier rejected for being obtained under death threats. She was able to do so because the administration had already volunteered to end Jawad’s widely criticized military detention and had proposed a concrete timeline for releasing him from Guantanamo. The government mentioned the possibility, which observers view as remote, of filing a more conventional criminal charge. Officials have said that some 30 detainees may ultimately be prosecuted in civilian or military court.

The judge accepted the timeline for releasing Jawad as soon as today, putting the government under court order to live up to its promise. But before Jawad can be put on a plane back to Afghanistan, the president must submit classified details about the transfer to Congress. Boyd said he was "not going to speculate" about what the president would do if Congress balked.

The unusual conflict over the power of the federal courts to enforce the habeas rights of terrorism suspects could affect more than the Guantanamo inmates and could become more complex. Detainees held for as long as six years at a U.S. air base in Bagram, Afghanistan, are also claiming the right of habeas corpus, in a case to be considered this year by the federal appeals court in Washington. And policy makers looking at U.S. detention strategy are pondering the habeas rights, if any, of future captives, as the fight continues against what many view as the global threat of terrorism.

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Harvard Study: Taxing Job-Based Health Benefits Would Hit Working Families Hardest

As the debate over health care reform continues to unfold in town hall meetings and on Capitol Hill, a new study by two Harvard researchers has found that taxing job-based health benefits would heavily penalize insured, working families.

The study, titled "The regressivity of taxing employer-paid health insurance," appears in the August 19 online edition of the New England Journal of Medicine. It was written by Drs. David Himmelstein and Steffie Woolhandler, professors at Harvard Medical School and primary care doctors at Cambridge Hospital in Massachusetts.

The taxation of employer-sponsored health benefits has been advocated by many health economists and lawmakers, including some members of the influential Senate Finance Committee, which is now drafting health care reform legislation. President Obama has said he has not ruled out such a tax to fund his reforms.

Analyzing income and insurance data from the 2005 Current Population Survey of the U.S. Census Bureau and other sources, the authors reveal that taxing workers' job-based health insurance would cost those with low-incomes ($0- $10,000 annually) 18.3 percent of their income, but cost high-income (over $100,000) families a mere 2.7 percent. (See the table from the study here.)

The authors note that the tax rate would drop even lower for the super-rich. "A Goldman Sachs executive who enjoyed the firm's infamous $40,543 health plan got a federal tax subsidy of about $15,367 last year," they write. "But that's only 0.13 percent of the bonuses received by the company's four top earners. So though taxing health benefits would spare the uninsured, the average poor family with employer-paid coverage would be taxed at a rate 140 times higher than Wall Street titans."

Himmelstein, lead author of the study and associate professor of medicine at Harvard, says: "Most economists and many politicians have claimed that taxing health benefits would hit the wealthy hardest, while sparing the poor. But exactly the reverse is true. For a poor, insured family a tax on their health benefits would take almost one-fifth of their total income."

Woolhandler, co-author and professor of medicine at Harvard, says: "Instead of taxing benefits, politicians should embrace the only affordable option for universal coverage: a single-payer, Medicare-for-all program. Single-payer would save $400 billion annually by simplifying administration, enough to assure quality care for everyone. We cannot afford to keep wasteful private health insurers in business, and pay for it off the backs of working families."

Himmelstein and Woolhandler are co-founders of Physicians for a National Health Program, an organization of 16,000 doctors and medical professionals who advocate for single-payer national health insurance.

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Kerry: Climate Bill Could Be Next For Healthcare-Style 'Misinformation Campaigns'

Democrats are clearly worried that the national firestorm that threatens to choke President Obama's plan to reform healthcare may only be a warm-up for an attack as fierce, or even more so, on Obama's other legislative priority this year: climate change legislation.

That concern apparently animated Sen. John Kerry (D-Mass.) to reach out for the first time in months to the network of supporters he still maintains five years after losing the 2004 presidential election to George W. Bush.

Specifically, Kerry worries that the impending clean energy legislation designed to reduce the greenhouse gas emissions blamed for causing global warming could be the next victim of "mistruths and anger" as the healthcare reform plan has been in recent weeks, according to an email Kerry this week sent to supporters.

"The current state of the health care debate reminds us of everything we need to know about stamping out the distortions and fighting back with the truth before lies take root," Kerry says. "The rightwing and their allies have spent weeks and months spreading the most egregious mistruths about the health care reforms of Sen. [Ted] Kennedy [D-Mass.] and President Obama, and whipping up anger. Now, you can't turn on your t.v. or radio without hearing repetition and repetition of misinformation, trying to drown out real debate."

Legislation to address climate change is Obama's second big agenda item this year, along with healthcare reform. The House this summer narrowly approved a climate-related energy bill. The legislation stalled in the Senate just as the battle over health reform began to consume all of the political oxygen, knocking climate change off the national radar screen.

Kerry last month teamed with Sen. Barbara Boxer (D-Calif.) to pen an op-ed in The Washington Post to rebut an earlier opinion piece by former Alaska governor Sarah Palin, in which the 2008 GOP vice presidential nominee criticized Obama's cap-and-trade system for greenhouse gas emissions as "a cap-and-tax" system that would be "an enormous threat to our economy."

In his piece with Boxer, the chair of the Senate Environment and Public Works Committee which has primary jurisdiction on the climate legislation, Kerry writes, "Palin argues that 'the answer doesn't lie in making energy scarcer and more expensive!' The truth is, clean energy legislation doesn't make energy scarcer or more expensive; it works to find alternative solutions to our costly dependence on foreign oil and provides powerful incentives to pursue cutting-edge clean energy technologies."

Palin, likewise, has led opposition on the healthcare reform plan via her Facebook page, arguing that "death panels" will decide to terminate elderly patients.

"Believe me, I've learned this through hard experience - if you let the lies take hold, it gets harder and harder to root them out," Kerry says in his email. "Lies are weeds, choking out our debate, and we need to go after them hard and early to keep them from growing."

Kerry says he will use a website at TruthFightsBack.com, and he uses his email to solicit funds.

"We're going to track all the misinformation campaigns, so everyone will know the truth. But even more than that, we'll give you the tools you need to take the fight into your own hands," Kerry says. "I'll be out there fighting every single day, but - bottom line - I can't do it without you. Without you out there fighting to spread the truth, making sure your friends and neighbors know it, making sure to make your voice heard at townhalls, making sure journalists hear from the truth and not just from the lies, the lies will take hold."

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Six Months of Stimulus: What We’ve Learned

by Christopher Flavelle, ProPublica

The American Recovery and Reinvestment Act celebrated its six-month anniversary this week, and supporters and detractors alike lined up to offer their verdicts. “The Recovery Act is already paying dividends for workers, families, and small businesses,” said Democratic House Speaker Nancy Pelosi. “By any objective standard, the Democrats’ trillion-dollar ‘stimulus’ isn’t working,” countered House Republican Leader John Boehner.

Well, which is it—resounding success or colossal failure? It’s too soon to tell, of course.

Unemployment could keep falling, or climb again. Growth, if it comes, could be tepid. And as more money starts to flow in the fall and spring, inflation could spike – or not. Moreover, we’ll never know for sure what would have happened without the stimulus — or with a different mix of spending and tax cuts.

But there is much we do know. ProPublica looks back at six months of stimulus coverage and finds a mixed record on three key aspects of the package: how wisely the money has been spent; how many jobs have been created (and whether we’ll ever know for certain); and how well the government has met its own pledge of transparency.

You spent it on what?

Apparently it’s hard to spend three-quarters of a trillion dollars without some of the money going toward questionable-sounding projects. However, as ProPublica found over the past six months, some projects seemed silly only until closer inspection; for other projects, the reverse was true.

Two weeks after the stimulus passed, Louisiana Gov. Bobby Jindal said the plan was “larded with wasteful spending,” citing a magnetic levitation train to Disneyland and $140 million for “something called volcano monitoring.” As ProPublica reported, the fantastic-sounding train was a fancy way of describing high-speed rail in California, while volcano monitoring referred to funding for the U.S. Geological Survey for construction and repair projects, including volcano monitoring systems.

In March, ProPublica reported that stimulus money would be spent on new skylights for a state-run liquor warehouse in Montana. But wait: The money was part of an energy-conservation program, and the new skylights would save the state money on the cost of running the building. Some projects may have deserved snickers: Stimulus money also went to 22 concrete toilets at the Mark Twain National Forest in Missouri, new vinyl walls for restrooms in Rose Lodge, Oregon, and renovated bathrooms at the McConnell Air Force Base in Kansas.

In May, Republican Sen. Tom Coburn joined the fray, releasing a list (PDF) of 100 stimulus projects that he called “questionable.” Among the highlights: a guardrail for a dry reservoir in Oklahoma, a homeless grant for a New York suburb with no homeless, and an underpass for turtles in Florida. It also noted that we highlighted a report that the Social Security Administration sent 10,000 checks to dead people. The administration responded that the report was full of inaccuracies.

Some projects merited more serious concern. Also in May, ProPublica co-published a story with USA Today, reporting that $5 billion in stimulus funds for weatherizing homes was going disproportionately to cold states. For every dollar given to warm-weather states, the coldest states got three dollars. However, as a spokesman for the Florida Department of Community Affairs noted, “The heat is just as dangerous as the cold.”

More questionable spending followed. In July, ProPublica, together with CBS News, reported that more than $100 million in stimulus funds was going to airports with fewer than one flight an hour, while the country’s busiest airports had received no stimulus money at all. A month later, the Department of Transportation’s inspector general questioned funding for low-priority airports, calling on the Federal Aviation Administration to withhold grant money for the projects until it can justify their economic merit, and urging a full audit of stimulus airport grants. (The deputy transportation secretary responded (PDF) by defending the grants.)

How many jobs did you say?

One of the administration’s key arguments for a stimulus was the pledge that it would save or create more than 3 million jobs. Before the act was passed, ProPublica reported that predicting the number of jobs created or saved was a matter of economic guesswork. As the stimulus unfolded, it became clear that even after the fact, measuring the number of jobs created or saved was guesswork, too.

In March, the Congressional Budget Office released its own estimate of jobs under the stimulus—though, with a range of anywhere from 1.2 million to 3.6 million jobs created or saved, it could hardly be called a daring estimate. Two weeks later, Earl Devaney, chairman of the Recovery Accountability and Transparency Board (or RAT board), weighed in, saying the job numbers reported on the government’s stimulus Web site, Recovery.gov, had gotten him “very nervous.” He said the difficulty of defining a saved or created job was a concern.

Devaney’s worries were prescient. In a late-April news conference, President Obama said the stimulus had already created or saved more than 150,000 jobs. Where did he get that number?

It turned out the answer was … guesswork: The administration simply prorated its earlier 3 to 4 million jobs estimate. In May, the president’s Council of Economic Advisers released a report sticking to the original job predictions, but adding that accurate numbers would be hard to nail down.

No kidding. In June, the administration announced its formula for counting jobs created or saved: For each worker paid by stimulus dollars, divide the number of hours worked by the number of work hours in a regular schedule — something called the Full-Time Equivalent standard. Congress proceeded to ignore the instructions. At the end of July, the House Committee on Transportation and Infrastructure announced that the stimulus had created or saved more than 48,000 highway and transit jobs. However, as ProPublica reported, that number came from the equivalent of a head count at stimulus work sites — a method the White House Office of Management and Budget says leads to double-, triple- or even quadruple-counting of jobs. Using the FTE approach prescribed by the administration, 48,000 became less than 10,000.

Earlier this month, the administration got a temporary reprieve from questions about job creation, when the Bureau of Labor Statistics announced a slight drop in the unemployment rate in July, to 9.4 percent from 9.5 percent the month before. But the real test for President Obama will come in October, when recipients of stimulus dollars report the numbers of jobs they’ve created. And as ProPublica reported this week, even those numbers are likely to carry a whiff of uncertainty.

Follow the money—if you can

The Recovery Act isn’t only one of the largest bills of its kind in American history; it was also billed as an attempt to set a new standard for transparency in government spending. The president’s signature on the act had barely dried when the government launched Recovery.gov, meant to be the definitive government hub for tracking stimulus dollars. A week later, Devaney, a celebrated inspector general at the Department of the Interior, was tapped to head the Recovery Accountability and Transparency Board, the independent agency created by Congress to oversee Recovery.gov and coordinate efforts to crack down on stimulus fraud.

Some things are easier said than done. ProPublica began raising questions early on about exactly how well the government would be able to live up to its promise of transparency. Among the concerns was the fact that states were only due to report their stimulus spending every three months, as well as the fact that the reporting chain wouldn’t necessarily follow the money all the way to the contractor or sub-contractor level. By the beginning of March, a number of states had launched stimulus Web sites of their own—some of which were better than others.

To give the government a hand tracking those dollars, ProPublica launched a few tracking tools of its own. In March, we introduced an interactive graphic comparing how much residents of each state stood to gain from the tax measures in the stimulus. In May, we went a step further, launching Adopt a Stimulus Project, a citizen-reporting initiative from Amanda Michel, ProPublica’s editor of distributed reporting. In July, we launched StimCities, tracking the change in the economy in eight cities. Earlier this month, we launched our Stimulus Progress Bar, complete with language that actual humans speak. And we introduced our Recovery Tracker, which lets you search for stimulus projects in your area.

In the meantime, problems appeared with Recovery.gov. By April 1, the site still had no details on how stimulus money was being spent or who was getting it—shortcomings that were compounded by formatting irregularities, technical jargon and time lags in posting information. Then, on April 8, a key date was moved back: The Office of Management and Budget, which calls the shots on stimulus rules, pushed back the deadline for stimulus recipients to report how they spend the money, from July to October. The OMB said states and other recipients needed more time to report their information to Recovery.gov. Federal agencies, too, needed time to work the kinks out: In May, the Labor Department corrected an overstatement of $10.4 billion in its stimulus spending.

It turned out that Recovery.gov needed more time itself. Although the site added new features through the spring, glitches remained, including discrepancies between the numbers on Recovery.gov and on federal agencies’ own Web sites. The Recovery Board turned for help to a company called Smartronix, which got a contract to build a “Recovery.gov 2.0” for as much as $18 million. The one catch? When ProPublica filed a request under the Freedom of Information Act to see a copy of the contract, what we got was a bundle of redactions. Questions remain about who ensures data quality, a key problem with earlier attempts at transparency. Like so much of the stimulus, it seems, the push for transparency is a work in progress.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.



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