RESOLUTION TRUST CORPORATION'S MINORITY AND WOMEN-OWNED BUSINESS PROGRAMS WEDNESDAY, MARCH 2, 1994 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GEN- Washington, DC. The subcommittee met, pursuant to notice, at 10:08 a.m., in room 2222, Rayburn House Office Building, Hon. Floyd H. Flake [chairman of the subcommittee] presiding. Present: Chairman Flake, Representatives Velazquez and Roth. Also present: Representatives Roybal-Allard, Wynn, and Watt. Chairman FLAKE. OK. We would like to begin. We were trying to give just a few moments for persons in consideration of the weather conditions over which none of us obviously has any control. For some reason, somebody is seemingly upset, the people upstairs there, and they are taking this season-New York will have its 15th snowstorm today, and Washington is somewhere close also. So we would like to begin, though, so that those persons who have come as our witnesses might be able to know that within a reasonable timeframe they will be able to get back to their responsibilities. Thank you very much. I would like to call to order the Subcommittee on General Oversight, Investigations, and the Resolution of Failed Financial Institutions. Good morning and welcome to this hearing. This morning we consider the implementation of the management reforms of the RTC Completion Act of 1993 and its amendments to the Minority and Women-Owned Business Program. Today's hearing is very important to me as well as to other members of this subcommittee, as well as members of the full Banking Committee. I, along with many of my colleagues on this subcommittee, have heard from individuals nationwide who, in too many instances, have consistently encountered difficulty when attempting to conduct business with the RTC. As a government corporation established to dispose of and manage the assets of failed savings and loans, it is imperative that all individuals receive equal opportunity to participate in this process. While these financial crises cost the taxpayers billions of dollars, it also creates a variety of financial opportunities for related businesses regardless of race, ethnicity, or gender, yet it has been widely reported that there are too many examples of only insiders being able to secure viable deals with the RTC. Other examples of flagrant abuse and misuse of power by RTC personnel as reported to this subcommittee, I believe, can be attributed to a lack of responsible oversight and management from the top of those individuals responsible for executing the directives. I want to state for the record that I am somewhat dismayed that here we are 1 year and $10 billion later, and we still do not have a Chief Executive Officer who will be accountable to this Congress and to the American taxpayer in directing the RTC to abide by the laws. How can we expect to see the long overdue results we need to see in the MWOB Program under these circumstances? Yet, I am certain that you as representatives of the RTC are prepared today to dazzle this subcommittee with stellar numbers reflecting record achievements when I have proof to the contrary. It is unfortunate that Mr. Altman could not be here with us today, but he has assured me that Mr. Jack Ryan, the permanent Deputy Chief Executive Officer will respond in full to the subcommittee's questions and be accountable for the RTC's policies outlined today. Toward that end, there are specific areas that the subcommittee will be targeting this morning and will continue to monitor carefully until the RTC completes its task. Specifically, we will focus on the progress the RTC is making in advancing its management reforms agenda. I am including those concerns in my opening statement because I want to make it absolutely clear that these are the areas of greatest importance to me and other members of this subcommittee and the Banking Committee as it relates to these specific areas. I want to know what the RTC is doing to maximize the use of minority and women-owned businesses; to increase opportunities for small investors; to promote and guarantee adequate competition and fair and consistent treatment of all persons; to ensure that contracting policies and procedures require the purchase of sound, cost-effective services; to ensure that contracts are adequately planned, including clear assessment of services needed, cost estimations, and scope of work definitions; to ensure that all policies and procedures are followed in the solicitation, selection, and awarding of contracts; and last, but certainly not least in importance, to provide the training and necessary oversight to guarantee that all the RTC program and field offices understand the minority and women's programs and its requirements and incorporate those into their daily operations. I have read the status report of the RTC Completion Act management reforms, section 3(a), and am requesting a copy of the forthcoming directive regarding the contracting policy and procedures revision due to be finalized later this month. Further, I would like to know what affirmative actions the RTC has taken under the revised minority preference in acquisition statutes to ensure the participation of minority acquirers in the regulation solution of failed thrifts; and I would like to review in advance the new minority resolution preference guidelines to ensure that they reflect the intent of the RTC Completion Act and, in fact, maximize MWOB participation. Much to my dismay, the RTC issued guidelines on January 10, 1994, which were immediately rescinded as not complete nor fully reflective of RTC's implementation plans. This flawed guidance was provided to potential minority acquirers and caused serious problems. And I might add a number of phone calls and a great deal of dismay on the part of those who were seeking to do business with the RTC. Even more distressing is the issuance of the Directive on Minority Preference in Resolutions, dated February 28, 1994, which I received a copy of yesterday, which followed the RTC's solicitation of bids nationwide without this directive available or in place. This is not good. Please know that if there is some confusion as to what Congress meant when it adopted this language, we will be more than willing to help you to interpret the statute so that it becomes more clear and more concise. Also I, along with other members of this subcommittee, will be monitoring very carefully the RTC's complete implementation of the 10 management reforms. We do not intend, however, to allow the RTC to continue working in such a haphazard and inconsistent manner. Time is of the essence here and since this is Congress' last opportunity to ensure the RTC is operating in a safe, sound, and equitable manner, I must stress the importance of consistent policy and guidelines and the implementation of reasonable mechanisms to ensure this. Therefore, this subcommittee is requesting a monthly status report on the implementation of all 1993 management reforms and the specific details of the sale of each of the remaining 63 institutions. I would like an analysis of all bids and awards included in the documentation of these institutions. This subcommittee will be carefully monitoring the effectiveness of the implementation of the reforms and the efforts made by the senior Treasury and RTC executives to make certain that those charged with the task of implementing these reforms on a day-by-day basis are doing so as was intended by law. The RTC is scheduled to terminate its operations on December 31, 1995, and the window of opportunity for minority and womenowned businesses is closing. Last March 23, I was pleased to welcome Roger Altman as interim Chief Executive Officer of the RTC. At that time I thought that I made it very clear in my opening statement that there has to be a commitment to minority, women, and small business participation from the top down for the RTC to function in accordance with law. Further, I believed that the new administration needed time to implement those changes particularly as it related to diversity within the RTC. However, here we are 1 year later and the RTC appears to be operating in a business-as-usual atmosphere without fear of reprisal. This must stop. And the RTC must increase contracting opportunities for MWOBS and MWOLFS in the management and disposition of RTC's remaining assets in business and legal services contracts, asset purchases, including investor funds, and the acquisition of thrift institutions. As chairman of the subcommittee, I believe that there is a direct correlation between effective implementation of these rules and increased opportunities for all qualified contractors and acquirers. It is imperative that those at the top recognize that we will be unable to successfully implement reforms in these final months unless we integrate and diversify the RTC's work force, particularly those positions charged with impacting policy and performance. The subcommittee will also continue to monitor the employment practices of this agency as it considers its transition into the FDIC. At this time, I certainly would like to welcome the witnesses, hear from the other Members of the Congress who wish at this time to be recognized for their opening statements, and to that end I recognize my college from New York, Ms. Nydia Velazquez. [The prepared statement of Chairman Flake can be found in the appendix.] Ms. VELAZQUEZ. Thank you, Mr. Chairman, and good morning to our witnesses. I commend the chairman for his continuing scrutiny over an issue of great importance to our Nation-increased economic opportunity for minority and women-owned businesses. Greater diversity in the financial services industry spurs economic development in predominantly minority neighborhoods and creates more jobs for people of color and women. Perhaps most importantly, minority and women outreach programs like the one before us help to ensure that we no longer squander the immense talent and energy of our people. In the end, all Americans benefit. Unfortunately minority and women involvement in RTC activities has been and remains a problem. Only about 10 percent of minority and women-owned businesses are currently participating. We must do better. The RTC must maximize economic opportunities for minority and women-owned businesses and institutions in the remaining 18 months of its charter. I look forward to hearing from Mr. Ryan and his colleagues on the RTC's outreach to minority and women-owned businesses over the past year and their plans for increasing minority and women participation in the coming 18 months. Thank you, Mr. Chairman. Chairman FLAKE. Thank you very much, Ms. Velazquez. [The prepared statement of Ms. Velazquez can be found in the appendix.] Chairman FLAKE. I would ask unanimous consent to have any other written statements and/or questions read into the record, without objection. At this time, we would like to present the witnesses for today's hearing: John Ryan, who is the Deputy Chief Executive Officer of the Resolution Trust Corporation; Johnnie B. Booker, Vice President and Director of Minority and Women's Programs, Resolution Trust Corporation; J. Paul Ramey, Vice President and Director of Resolutions; and Ellen Kulka, who is Senior Vice President and General Counsel at RTC. Good morning and welcome to the subcommittee. And Mr. Ryan, I suppose you will be beginning and either speaking for the whole or in part for this body. You may proceed either with your written testimony or you may summarize, if you so choose. STATEMENT OF JOHN RYAN, DEPUTY CHIEF EXECUTIVE OFFICER, RESOLUTION TRUST CORPORATION; ACCOMPANIED BY JOHNNIE B. BOOKER, VICE PRESIDENT AND DIRECTOR OF MINORITY AND WOMEN'S PROGRAMS; J. PAUL RAMEY, VICE PRESIDENT AND DIRECTOR OF RESOLUTIONS; AND ELLEN KULKA, SENIOR VICE PRESIDENT AND GENERAL COUNSEL Mr. RYAN. Mr. Chairman, I would like to summarize my testimony and ask that the full text be incorporated into the record. Chairman FLAKE. You may do so by unanimous consent. And without objection. Mr. RYAN. Good morning, Mr. Chairman, and members of the subcommittee. This is my first appearance before the subcommittee since being appointed Deputy Chief Executive Officer of the RTC in early January. I would like to thank the chairman and members of the subcommittee for their efforts in securing, helping secure funding for the RTC. With your help, the RTC Completion Act was enacted last December and the RTC will now be able to complete its mission, close its doors, and bring the S&L cleanup to a close. We are here today to address the reforms found in section 3 of the RTC Completion Act that provide minority and women-owned businesses and minority and women-owned law firms with enhanced opportunities to do business with the RTC and provide minorities with enhanced opportunities to acquire institutions from the RTC. I am pleased to report on the record we have built and the steps we have taken to provide opportunities for minority and womenowned businesses at the RTC. Some of the steps we have taken include: First, to demonstrate the RTC's commitment, the Minority and Women's Program was moved up in the organizational structure to the division level. Its manager was made full vice president, serves on the executive committee, and reports directly to the CEO. Second, the Minority and Women Program Division is now fully involved in the contracting process, particularly participating in virtually every phase of contract operations, including presolicitation, solicitation, evaluation, selection, contract administration, and postaward activity. The record demonstrates the effectiveness of these actions. Of the $3.7 billion awarded in nonlegal contract fees since its inception, $786 million, or 21 percent, has been awarded to minority and women-owned businesses. Nonminority women have received 11 percent of total fees and ethnic minorities have received 10 percent. In 1993, RTC paid nonlegal fees of $500 million, with minority and women-owned businesses receiving $155 million, or 31 percent. Nonminority women received 11 percent of total fees and ethnic minorities received 20 percent. That 20 percent represents an increase from 14 percent in 1992. The RTC has continued its efforts to encourage the use of minority and women-owned law firms. Between January and May 1993, the RTC conducted symposiums in each of its regions to identify new minority and women-owned law firms. By yearend, we had identified 1,083 such firms and put them on the RTC's list of counsel, and that compares to 771 such firms that were on that list a year before. Last year, minority and women-owned law firms re |