Statement of Senator Patrick Leahy
Ranking Member, Committee on the Judiciary
On the Budget Point of Order Raised Against S.852
February 14, 2006

I have great respect for the Chairman and Ranking Member of the Senate Budget Committee.  They do important work and are men of principle.  Yet, I disagree with their position on the fiscal impact of the asbestos legislation that we are continuing to debate today.  And I believe that a full reading of the text of our legislation and the Congressional Budget Office’s testimony and recent analysis on the fiscal impact of the asbestos legislation does not support the pending Point of Order or their opposition to this bill. 

Opponents of the asbestos bill claim that enactment of this privately funded trust will add to the federal debt.  Just this week, the Congressional Budget Office made very clear that the asbestos trust fund set up under S. 852 would not add to the federal debt.  The CBO stated in a letter to the committee on Monday that “the legislation would be deficit-neutral over the life of the fund.”  

The CBO letter received yesterday is clear.  It says:

“CBO estimates that, so long as the fund’s administrator does not borrow amounts beyond the means of the fund to repay, the government’s general funds would not be used to pay asbestos claims. Furthermore, section 406 of the bill states that the legislation would not obligate the federal government to pay any part of an award under the bill if amounts in the asbestos fund are inadequate. Thus, CBO concludes that the legislation would be deficit-neutral over the life of the fund.”  

I ask unanimous consent that the February 13, 2006 letter from CBO be included as part of the record.

This is not a federal entitlement program.  It is not subject to discretionary appropriations from Congress and does not obligate the federal government to pay victims of asbestos exposure.  Some opponents have argued that the federal government may be liable because the bill allows borrowing from the Federal financing bank.  Former Senator Nickles raised this concern and the Government Accountability Office responded that “[t]o ensure that the government incurs no liability for repayment of borrowing under the act, Congress may wish to explicitly state that repayment of borrowing is limited solely to amounts available in the fund.”  That is precisely what we did in Section 221(b) of the FAIR Act. 

 A simple reading of the text of the bill reveals that defendants and their insurers are obligated to pay $136 billion to the Fund.  In Sections 204 and 222, these private companies guarantee their own funding obligations and additionally up to $4 billion of the assets expected to be paid to the Fund from existing bankruptcy trusts.  If this level of funding proves to be insufficient, the Fund will terminate and asbestos victims may return to the tort system.  The private companies are required under this legislation to continue making payments to the Fund even after sunset until all of the Fund’s obligations are satisfied under Section 405.  Even the administrative expenses are paid from this private money.

 Finally, the bill clearly states:  “Nothing in this Act shall be construed to create any obligation of funding from the United States Government, including any borrowing authorized. . .” 

 Senator Specter and I have been working on this issue for years.  We have carefully considered the design of the compensation program for asbestos victims and ways to avoid the pitfalls of other federal compensation programs that have been enacted by Congress.  Many of the compensation programs cited by the opponents of S.852 were created by Congress with mandatory federal spending and did not contain a provision to sunset the program if it went under-funded.  We rejected such proposals for asbestos legislation.  Many opponents of our trust fund wanted the claims processing to be in a private corporation.  Labor groups and victims testified that operating this trust fund in a new, private entity would delay compensation to sick victims and would entail significant administrative costs.  Accordingly, we agreed to house the asbestos trust fund within the Department of Labor because it has expertise with compensation programs.  It has existing staff with relevant experience and critical infrastructure and contracting capabilities to ensure an accelerated pace to pay the sickest victims within months of enactment. 

 Members of the financial services community recently contacted my office to rebut the conclusions made in the recent “white paper” distributed by the minority staff of the Senate Budget Committee.  The investment community indicates that this minority staff report circulated last week dramatically overstates the financing expenses to be expected under this legislation.  This document alleges that $125 billion will be spent by the Fund on borrowing because it vastly overstates claims projections and interest rates. The minority staff document ignores the fact that section 221 of the legislation provides that borrowing by the trust fund will be within a 10-year time frame.  The document alleges that the FAIR Act will pay borrowing at an interest rate of a whopping 25 percent.  This assumes an interest rate SIX times higher than the current 10-year Treasury bond rate.  In fact, the financial community opines that due to the structural aspects of the legislative language, it is “overwhelmingly likely that financial markets will treat the trust fund as an investment grade credit” and therefore it would have access to highly favorable borrowing rates.

 I ask unanimous consent to insert the financial institutions’ letter in the Record.

 At the heart of most arguments against the funding structure provided under the FAIR Act are allegations that predictions about the number of claims expected to come to the fund have been underestimated.  Over the past five years, the Judiciary Committee received extensive testimony from a variety of auditing companies, economic analysts and existing asbestos trusts about claims projections.  Three years ago, a leading actuary with Tillinghast-Towers Perrin testified that “$108 billion appears to be more than adequate” while other firms estimated that $130 billion would be sufficient to cover the trust fund expenses.

It is not surprising that projections about future behavior vary from firm to firm because the assumptions are different.  Some professional analysts have estimated that we will experience significantly less than $140 billion in claims and others have estimated that we will experience more.  Last week’s document produced by some staff on the Budget Committee assumes that $160 billion will be paid out in claims based on a worst case scenario of one projection of claims activity. 

The Minority staff document circulated last week adopted claims projections plainly at odds with the experience of the Manville trust and without consideration for the medical criteria in S.852. The overwhelming majority of non-malignant claims paid by the Manville trust go to unimpaired claimants.  The Fund created by the FAIR Act would not compensate these claims so this significant disparity must be taken into account.  The Minority staff document also fails to account for the different medical criteria for malignant claims paid by the Manville trust.  Thankfully, the CBO’s estimate takes the FAIR Act’s specific medical criteria into account when it considered its claims projections.

The CBO considered ALL relevant estimates and met with scores of stake holders, financial experts, economists and auditors in determining whether the compensation provided for victims under S.852 would be adequate.  After years of analysis, they found that while victim compensation could range from $120 to $150 billion, its middle range estimate using its chosen claims projections would yield approximately $130 billion in claimant compensation, and that $140 billion, plus investment income, would be sufficient to cover all claims payments, administrative costs, and borrowing costs. 

Of course opponents can seize upon worst case scenarios in an eleventh hour attempt to scuttle this bipartisan legislation, but $130 billion in expected claims is the CBO’s middle range and is provided for under our legislation.

Finally, opponents of this legislation contend that the fund will not actually receive $140 billion dollars from the private companies obligated to contribute based on their previous asbestos expenditures.  In his testimony before the Senate Judiciary Committee last Fall, then-CBO Director Douglas Holtz-Eakin clearly stated that:  “CBO projects that total receipts to the fund over its lifetime would amount to about $140 billion, including a small amount of interest earnings on its balances.”  The FAIR Act contains several provisions to ensure that the contributions will be collected through numerous enforcement provisions which provide the Administrator with subpoena power and the ability to pursue punitive damages for nonpayment.  In addition, our legislation contains a funding guarantee so that other companies will make up the difference if some companies are unable to pay their own contribution.  Even if the Fund sunsets and victims are allowed to return to the tort system, the private companies are nonetheless required to continue to pay into the Fund until all of the funds obligations from borrowing costs and resolve victim claims are satisfied.  

I understand that some of my colleagues have raised this budget point of order to sink the FAIR Act but I urge them to consider the purpose of such budgetary mechanisms in light of the simple fact that we have created a privately-financed structure that the Congressional Budget Office has estimated will NOT add to the federal debt. 

This point of order is a procedural mechanism intended to promote fiscal discipline.  In light of CBO’s explicit statement that “CBO concludes that the legislation would be deficit-neutral over the life of the fund,” no point of order should prevent such important, completely privately funded legislation as the FAIR Act  

This latest analysis from CBO reinforces the fact that the asbestos trust fund legislation would not add to the government’s federal debt.  The bottom line from CBO is that this bill is “deficit-neutral.”  There is no reason to sustain the budget point of order. The FAIR Act is the right solution for victims and businesses.  This bipartisan bill offers fair and efficient relief to long-suffering victims of asbestos exposure while providing business with financial certainty and an alternative to bankruptcy.

 I recently received a letter from the International Association of Heat and Frost Insulators and Asbestos Workers.  The workers represented by this union know first hand the devastation caused by asbestos, and I know they would hate to see the unique opportunity we have before us be destroyed by a technicality.  They wrote: “We believe S. 852 offers the best hope of providing fair and equitable compensation on a national basis for those who have suffered or will suffer from the devastating effects of asbestos exposure in decades to come.  For these reasons, we urge you to reject the budget point of order, which holds the potential to kill this legislation that is so important to our members.”  Let us not let down the very people we are seeking to help.  I ask unanimous consent that the letter from the International Association of Heat and Frost Insulators and Asbestos Workers of February 13 , 2006 be made part of the record. 

I urge my colleagues to consider all the work that has gone into the crafting of this legislation including the specific provisions I have highlighted in this statement making it absolutely clear that the federal government is simply not liable under this legislation.  The Judiciary Committee received extensive testimony from economists and experts in claims projections. All of this process and expertise was considered as part of the Congressional Budget Office official estimate.   The CBO has testified that the FAIR Act is not predicted to add to the federal debt therefore it should not suffer from the budget point of order raised against it.  I urge my colleagues to waive the point of order.  The victims of asbestos exposure will not benefit from this latest tactic to stop this legislation.

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