Capital Formation Newsletter
July-August, 2006, Vol. 31, N0. 4

ACCF and Center for Policy Research Name New Directors

ACCF, SBE Council Co-Host Forum on Impact of Sarbanes-Oxley Legislation

How Can California and Other States Lead Effectively on Climate Change Policy?

ACCF Hosts 144th Economic Policy Evening

(PDF Version)

ACCF and Center for Policy Research Name New Directors

The American Council for Capital Formation and its economic research and education affiliate, the ACCF Center for Policy Research, are pleased to announce the election of the following new directors.

New ACCF directors are William J. McDonough, vice chairman and special advisor to the Chairman at Merrill Lynch & Co., Inc., and David Rehr, president and chief executive officer, National Association of Broadcasters (NAB). Mr. McDonough served from 2003 to 2005 as chairman of the Public Company Accounting Oversight Board and, from 1993 to 2003, as president and chief executive officer of the Federal Reserve Bank of New York. As president, he also served as the vice chairman of the Federal Open Market Committee, which formulates U.S. monetary policy. Mr. McDonough retired from First Chicago Corporation and its bank in 1989 after a 22-year career there. Dr. Rehr joined NAB as president and CEO in December 2005. Prior to taking the helm at NAB, he was president of the National Beer Wholesalers Association. With more than 20 years of experience on Capitol Hill and in the lobbying community, he has been an advocate for entrepreneurs and small business before the federal government.

Joining the Center’s Board of Scholars is Douglas Holtz-Eakin, Paul A. Volcker Chair in International Economics and director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations. Dr. Holtz-Eakin served as director of the Congressional Budget Office from 2003 to 2005 and was chief economist with President Bush’s Council of Economic Advisers from 2001-2002. He was Chairman and Trustee Professor of Economics, Maxwell School, Syracuse University, from 1990 to 2001. Dr. Holtz-Eakin served as a Distinguished Fellow of the ACCF Center for Policy Research in 1999 and 2000.

ACCF, SBE Council Co-Host Forum on Impact of Sarbanes-Oxley Legislation

The American Council for Capital Formation and the Small Business & Entrepreneurship Council co-hosted a forum on Capitol Hill on July 11 on Sarbanes-Oxley: Is It the Tip of the Iceberg? Forum panelists from academia, the media and the private sector offered their perspectives on the problems businesses face under the Sarbanes-Oxley legislation.

Pictured left to right: Glenn Tyranski, NYSE Regulation, Inc.; Dan Cummings, Merrill Lynch; Daniel G. Pocrnich, Wells Fargo Equipment Finance; and Rep. Tom Feeney (R-FL).

Representative Tom Feeney (R-FL), author of the Competitive and Open Markets that Protect and Enhance the Treatment of Entrepreneurs Act, or COMPETE (H.R. 5405), a bill to reduce the burdens of implementation of Section 404 of Sarbanes-Oxley, was the keynote speaker at the session. Similar but not identical legislation (S. 2824) was introduced by Republican Senator Jim DeMint (SC). Representative Feeney told participants that “85 percent of what’s wrong with the Sarbanes-Oxley bill - and Section 404 in particular - can be remedied by the Securities and Exchange Commission and the Public Company Accounting Oversight Board.” He also said that the bills he and Senator DeMint introduced may end up doing some good by motivating regulatory action.

Under Section 404, SEC rules require corporate management to include in the company’s annual report an assessment of its internal control over financial reporting and an auditor’s assessment. The external auditor must report on whether management’s assessment of the effectiveness of internal control is fairly stated and provide a separate opinion on whether the company’s internal control is effective. The Feeney-DeMint bills would exempt some small companies from internal control reporting requirements of Section 404, an approach the SEC has rejected. Representative Feeney told forum participants that he would prefer it if the SEC amended existing law but noted that regulators have been “timid” to date. He added that if the SEC won’t make the changes, he and the bill’s cosponsors would fight for legislative changes. The Florida Congressman is particularly concerned over mounting evidence that the law is giving overseas financial markets, many of which lack the U.S.’s strict corporate governance laws, a distinct advantage over domestic markets. He noted that companies are turning increasingly to London and Luxembourg instead of New York in order to raise capital. “The London Stock Exchange is going around the country advertising itself as a ‘SOXfree zone’,” he noted.

Pictured left to right: Alan Murray, The Wall Street Journal; Michael Paese, Mercantile Bankshares Corp.; and Professor Eric Talley, UC Berkeley (Boalt Hall) School of Law and Rand Corporation.

The forum’s panel session featured Professor Eric Talley, Professor of Law, UC Berkeley (Boalt Hall) School of Law, and Senior Economist, Rand Corporation, who spoke on “The Empirical Effects of SOX: What Have We Learned (and What Have We Not?).” (Professor Talley’s power point presentation is available at http://www.accf.org/pdf/TalleyPowerPoint.pdf ). A panel of experts from the private sector discussed the impact Sarbanes-Oxley is having on business. Panelists were Dan Cummings, managing director and co-head of Equity Capital Markets for the Americas, Merrill Lynch; Woodie Neiss, co-founder and CFO, FLAVORx, Inc.; Michael Paese, executive vice president and chief administrative officer, Mercantile Bankshares Corp.; Daniel G. Pocrnich, executive vice president and CFO, Wells Fargo Equipment Finance, Inc.; and Glenn Tyranski, senior vice president for Financial Compliance, NYSE Regulation, Inc. (An audiocast of the panelists’ presentations is available at http://www.accf.org/publications/ reports/sarbanes-oxley.html).

Alan Murray, assistant managing editor, The Wall Street Journal, moderated the session. Dr. Margo Thorning, ACCF senior vice president and chief economist, and Karen Kerrigan, chairman, Small Business & Entrepreneurship Council, co-chaired the forum.

How Can California and Other States Lead Effectively on Climate Change Policy?

Several states are evaluating proposals to require reductions in greenhouse gas emissions (GHGs) and some have mandated renewable energy standards and called for reductions in motor vehicle emissions. When states consider proposals that will require curbing energy use or switching to more expensive energy sources, they need to weigh carefully the costs and benefits in terms of economic impacts and environmental effects.

For example, the California Legislature is considering Assembly Bill 32, which requires that California reduce its statewide GHG emissions to 1990 levels by 2020. The bill requires that utilities include the carbon emissions from imported electricity which means that coal-fired electricity would tend to be replaced by electricity produced from natural gas, hydro or nuclear power. In addition, California law already requires that 20 percent of electricity be produced from renewables by 2017. Before adopting a mandatory emission reduction target, Californians may find it useful to examine the evidence on the potential impact of these mandates on economic and job growth. Another key question is whether California’s “going it alone” in mandating emission reductions would make a significant contribution to slowing the growth of global GHG emissions.

A major stumbling block to California’s meeting the AB 32 targets is its projected increases in emissions and population over the next 14 years. California’s GHG emissions are projected to grow by 27 percent from 2000 to 2020 under the baseline forecast (See Figure 1). The baseline forecast already includes assumptions about increased energy efficiency but, even so, GHG emissions are projected to rise to 600 million metric tons of carbon dioxide (MMTCO2) by 2020, compared to the AB 32’s required reduction to 426 MMTCO2 (see Figure 1). Sharp cutbacks in California’s energy use would be necessary to close the gap in 2020 between projected emissions and the AB 32 target. The projected increase in California’s population (from 30 million residents in 1990 to 37 million residents in 2004 and 44 million in 2020) will make emission reductions very challenging, since more people means more energy is needed for home heating and cooling, job growth and transportation.

To illustrate the difficulty of reducing California’s emissions to 1990 levels by 2020, consider that over the 1990-2000 period, per capita emissions in California fell by only 2.9 percent (see Table 1). California’s projections show that, under its baseline forecast, emissions per capita will decline by 2.3 percent from 2000 to 2010 but will increase by 0.9 percent from 2010 to 2020.

The technologies simply do not exist to reduce total (and per capita) emissions over the next 14 years by the amounts mandated in AB 32 - to say nothing of the time and expense required to replace existing energy using equipment - without severely reducing the growth in California’s Gross State Product (GSP) and in employment.

State policymakers should instead focus their efforts on ways to improve their economies and environment, including improving the tax treatment of new investment through faster depreciation and investment tax credits, which could reduce growth of greenhouse gas emissions as well as enhance productivity growth. Further, we should continue to support measures like the Asia-Pacific Partnership on Clean Development, an agreement with developing countries to promote economic development and the spread of clean, less emitting energy technology. Effectively addressing the threat of climate change requires a global, long-term approach.

ACCF Hosts 144th Economic Policy Evening

The American Council for Capital Formation held its 144th ACCF Economic Policy Evening on July 18. The theme for the session was “What Must Congress Tackle on the Economic Policy Front before the End of the Session?” Guests for the evening were key economic policymakers from Congress, top journalists, and business leaders from the private sector. For more information on ACCF Economic Policy Evenings, see www.accf.org. Pictured left to right: 1) ACCF president and CEO Mark Bloomfield, Jamie Coomarasamy Washington correspondent, BBC World Service, and Chuck Todd, editor-in-chief, National Journal’s Hotline; 2) Kraig Naasz, president & CEO, National Mining Association, and Senator Lisa Murkowski (R-AK); 3) Congressman Artur Davis (D-AL) (rigtht) addresses other guests at the dinner; 4) Senator John Sununu (R-NH) and Mr. Naasz; 5) Rick Lawson, vice president of Federal Government Relations, Principal Financial Group, Congressman Chris Chocola (R-IN) and Dr. Matthew J. Slaughter, member, President Bush’s Council of Economic Advisers; and 6) Congressman Davis; Mr. Coomarasamy; Dr. Margo Thorning, ACCF senior vice president and chief economist; and Jonathan Weisman, economic correspondent, Washington Post.