2006 economic report

Douglas Holtz-Eakin delivered a significant blow against the effort to revive asbestos-reform legislation when he testified earlier this month that a cost assessment of the measure he had provided in November as director of the Congressional Budget Office (CBO) was unrealistic.

Some say that the testimony was a surprising reversal, but others note that since leaving the CBO Holtz-Eakin has taken a position created by a $5 million grant from a source adamantly opposed to the controversial legislation.

Holtz-Eakin is highly regarded on Capitol Hill, attracting praise from both sides of the aisle. But the funding of his organization has raised some conflict-of-interest concerns about his views on the pending asbestos-reform bill.

Senate Judiciary Committee Chairman Arlen Specter (R-Pa.) is pushing to bring the bill to the floor for a vote, but Senate Majority Leader Bill Frist (R-Tenn.) has said he will not do so unless it clearly has enough support to pass. A previous effort by Frist to pass the legislation fell a few votes short this year.

As CBO director, Holtz-Eakin testified to the Senate Judiciary Committee that a trust fund that would be set up by the bill to pay asbestos-related medical claims would have little effect on the federal budget.

But when he appeared again before the committee seven months later, Holtz-Eakin compared the trust fund to three of the largest mandatory government programs, Social Security, Medicare and Medicaid, and declared that now is ?a particularly bad time? to start such a new program.

Critics of the Specter legislation have criticized it as a costly program that could significantly add to the deficit years down the road.

At the beginning of this year, Holtz-Eakin became the head of a think tank funded by a foundation set up by one of the biggest opponents of the asbestos-reform bill, American International Group, an insurance giant better known by its acronym AIG.

AIG is one of several entities that have poured tens if not hundreds of thousands of dollars into an effort to defeat the asbestos reform bill, according to internal industry documents.

AIG also created the charity organization that endowed a think tank, the Maurice R. Greenberg Center for Geoeconomic Studies, named after AIG?s longtime chairman, that Holtz-Eakin now heads.

Holtz-Eakin has become a pivotal player in the behind-the-scenes battle to bring asbestos reform back to the Senate floor because of his residual authority as Congress?s former chief accountant. Holtz-Eakin?s damaging testimony on the asbestos bill was widely reported.

And the Coalition for Asbestos Reform, an alliance of corporations that oppose Specter?s asbestos-reform bill that is lobbying senators on the issue, has pounced on Holtz-Eakin?s words as support for their position.

?The testimony of former Congressional Budget Office Director Douglas Holtz-Eakin validates the criticism that the Coalition for Asbestos Reform has made for many months about a federal trust-fund approach to the asbestos litigation situation,? the coalition announced in a press release the day of the testimony.

Specter said at the hearing that there was ?a 180-degree difference? between what Holtz-Eakin estimated the program would cost as CBO director and his subsequent comment that its cost was highly uncertain. The first time Holtz-Eakin testified it was at Specter?s invitation as CBO chief. The second time he was invited by an opponent of the bill, though it is unclear which member sought his testimony.

The coalition, which is funded in part by AIG, identified Holtz-Eakin as an important figure in a planning document it drafted in December. The document quoted Holtz-Eakin?s testimony the previous month on the trust fund and suggested portions that could be used to undermine the bill by questioning the accuracy of CBO?s cost estimates and bolstering the credence of much-higher-cost projections.

The planning document also identified AIG as one of the nine biggest funders of the Coalition for Asbestos Reform, along with other major insurance firms: Allstate, Hartford Insurance, Liberty Mutual and Nationwide Insurance.

AIG?s founder has also provided the bulk of the funding for the geoeconomic-studies center that Holtz-Eakin now heads. The center was endowed with a $5 million grant from the Starr Foundation in 2000, according to the publicly available 990 form that the foundation submitted to the Internal Revenue Service.

The foundation, in turn, was established by AIG?s founder, Cornelius Vander Starr. It earned nearly $50 million by selling 470,000 shares of AIG in 2000, according to the tax form.

Ken Frydman, foundation spokesman, said the group had no role in hiring Holtz-Eakin to head the Greenberg Center.

Specter asked Holtz-Eakin at this month?s hearing if the difference between his earlier and later testimonies was ?attributable to [his] position working for the Greenberg Center.? But Specter did not discuss the sums of money involved, and news accounts of the hearing did not report Specter?s concern.

?I receive no funds from AIG, and my views today are my own,? Holtz-Eakin replied. The former CBO chief said that he is merely director of the Greenberg Center and that he is ?funded by the Council on Foreign Relations.? ?And my funding is from the Paul Volcker Chair in International Economics,? he added.

The council, too, has received substantial funding from the Starr Foundation. The council has received $27 million in grants from the foundation since 1960, said Anya Schmemann, the Council on Foreign Relations? spokeswoman.

Holtz-Eakin defended his conflicting testimony in a recent interview. He said that as CBO director his job was to put a price tag on legislation, not to give his opinion of bills. He also said that his recent assessment questioning the certainty of the CBO?s cost estimates was a personal opinion, something he was not allowed to give as CBO director.

?CBO doesn?t take positions; it prices bills,? he said. ?My personal opinion is that you can?t take this bill at face value. I think a future Congress will change it.?

Holtz-Eakin said he was required as head of the CBO to take the asbestos-reform bill at face value and assume that the program would sunset when it ran out of money, thereby sparing taxpayers its cost. But as a private citizen, Holtz-Eakin said he is now free to express his opinion that that scenario is unlikely because Congress would rather pay to keep it afloat then let it close.

?These are my views,? he said. ?I didn?t know that Maurice Greenberg had an opinion on the bill.?