Press Briefing by National Economic Advisor Gene Sperling and Special Assistant to the President Tom Kalil on the Digital Divide

The Briefing Room

2:40 P.M. EST

MR. KENNEDY: We now have Gene Sperling, who is Director of the National Economic Council; and Tom Kalil, who is a Special Assistant to the President for Technology Issues, and they're here to discuss the President's initiatives in bridging the digital divide.

Gene.

MR. SPERLING: Today the President put out his budget initiatives for this year on the issue of how we can close the digital divide and make sure that the wonders and opportunities of the new information age shared broadly among our society instead of leading to a new divide between those with more resources and those with less resources. This is not a new issue for the President. When we came into office, the federal budget for education technology issues was $23 million. Last year, due to the initiatives put forward, nearly solely by this President, the amount spent was $766 million, a 3,000 percent increase.

Most of that comes from the President's new initiative on the technology literacy challenge which is funded at $425 million. In addition, the President, and particularly the Vice President, have also led the passage and implementation of the e rate, which over the last two years has led to $3.25 billion in discounts ranging from 20 percent to 90 percent discounts for schools depending on their income, which has led to over a million classrooms being wired.

So the initiatives that we put forward today are a continuation in what has been an effective process, an effective effort, one that's included national mobilization of net days and other efforts to try to close this digital divide. This is important not only for opportunity, but also for economic productivity. If you can speed up by 10 years or even five years the time when every American student, every American worker is technologically literate, the impact of productivity growth would be significant.

And so for those who say that's -- why get involved over period of years and years, this divide will close anyway -- are missing opportunities lost to real people, to real children during that time, and the productivity lost to our country by not being able to have a truly technology-literate work force that's needed for people to get good jobs, but also for companies to want to continue to locate high value-added jobs on our shores.

Let me just say that when you're talking about closing digital divide, people often mean different things; all of them are important. One is simply making more people just comfortable, literate with the Internet and computers. That, in and of itself, can be a big deal. Look at any family where the 9-year-old is more comfortable than the 59-year-old doctor or lawyer parent. It is the comfort level, literacy.

Second is knowing how to explore and get all of the resources from the Internet, which can be at this point cheaper prices or better health care or maps, or all of the things that can improve the quality of one's life. Third is whether the Internet and new education technology can actually be a source of learning, learning in the classroom, whether or not it can help engage children in quality critical thinking and learning.

And fourth is whether people actually have the skills to actually be workers in the information technology field, whether there are enough going into the scientific and engineering fields. We feel to accomplish all of these goals, you need a comprehensive approach that focuses not only on access, not only on the computers and hook-ups to the Internet, which are a critical first step, but also on whether you have the teachers and skilled training and whether you have the content in the software that allows people to discover and learn and think for themselves.

In terms of the divide, the divide is great in many ways. Three percent of poor, rural households are connected to the Internet, compared to 60 percent of upper-income, urban households. Eight percent of poor, rural households have computers compared to 80 percent of wealthy urban households. Seventeen percent of white households in the 15 to 35,000 range are connected to the Internet compared to eight percent of African-American households.

Our poorest schools in the last report, less than 40 percent of classrooms are connected, while over 60 percent in the wealthiest schools. But these divides are made greater often by the differences in teacher quality and the differences of access to content.

What the President is trying to do is, as we've often done, make this a national mobilization. He's doing that with the initiatives he's putting forward, building on what he's done in the past several years. He's also doing that by devoting an entire new markets effort, a significant part of the week in April in which he will focus on closing the digital divide. We expect to have very significant participation from some of the leading high-tech companies and CEOs both in thinking through what the goals should be and in terms of support and contributions to this effort.

The President's budget initiatives I think you have paper on, but to just list them briefly, $2 billion is tax incentive, much of that is an extension of the existing computer donation tax incentive, which allows an enhanced deduction for computers, either double the cost or cost plus half the profits in the donation. We not only extend that to 2004, but we now make that eligible not just for schools, but for community technology centers and libraries.

We also offer a 50 percent tax credit, which is quite significant because that does not take away from the deduction for corporations who sponsor community technology centers and empowerment zones, enterprise communities and possibly other targeted low-income areas. And then, finally, we give a 20 percent tax credit for companies who provide this type of basic training for their workers.

We have $150 million to train all new teachers entering the work force to use technology effectively. That's a good start, but it is just a start. Obviously, we have to also reach the teachers who are already teaching. Community technology centers didn't exist a few years ago in terms of federal funding. We put $10 million in a demonstration project. Last year, we tripled that to $32.5 million. This year, again, we're tripling it to $100 million. That allows for 1,000 community technology centers with funding of $60,000 to $100,000. That is enough to provide significant computers, wiring and on-site teachers, particularly when it is combined with private sector and local contributions.

A $50-million partnership. This is actually something that came to us. CEOs, bright young people came and said they wanted to work with us on a partnership, perhaps a $100-million partnership to explore the idea of giving home access to the Internet to the poorest families in our country so that it would truly become as universal as the phone is today. We have $50 million in our budget; we're hoping to make that at least a $100-million initiative with the private sector, and that's something that we're continuing to work on with different people in the private sector.

We also have $45 million which is promoting the innovative initiative that's at the Commerce Department, and $25 million, which is designed to accelerate broad band into world communities, and finally $10 million to prepare Native Americans for careers in IT and other technical fields.

Before I take your question, Joe wanted me to clear up one thing he had said previously concerning our marriage penalty tax cut. He said that it was targeted towards 42 million people with the marriage penalty. The fact is we have two components. One is a piece that is specifically marriage penalty relief. That is targeted only to people who actually have a marriage penalty as opposed to a marriage bonus. That is the bulk of our tax cut in that area and that goes to just under 10 million couples who do face the marriage penalty.

There is, in 2005, we also have a general, across-the-board increase in the standard deduction of $500 for couples and $250 for singles. That brings the overall number of people to 42 million. But the number who are targeted for marriage penalty relief is between 9 and 10 million.

With that, either Tom Kalil or myself are willing to take questions.

Q: What in the package provides an incentive for individual families to go out, get a computer, get access to the Internet on their own? I mean, much of what you described basically encourages corporations to donate this sort of activity. Where is the incentive on the other side?

MR. SPERLING: Well, we are starting to explore how we can make that access more available to everyone. I think that if one were to go to the step of the federal government providing funding directly to individuals to buy computers, I think you would have to face some questions about how to weigh that versus money -- we might want to give more for food or for basic essentials. Those would require very difficult public policy tradeoffs.

What we tried to do was say, in addition to everything we're doing on the school front, which really should continue to be our primary focus, to make sure all of our children have the access and content and teachers to learn, in addition to that we do want to move towards having every family having access to the Internet. One way is by doing this home access demonstration that we're talking about, which we believe could reach over a million families.

But secondly, the community technology centers are a way in which by putting community technology centers in 1,000 communities, you are in a sense saying that for even those who do not have the benefits of a computer or Internet right in their home, we are at least taking the step of making sure they have that in their community so that if they truly do need access to the Internet for job search, for important health issues, for learning courses, that they can have that opportunity.

So perhaps if you did the analogy to the phone, you would like to start moving to a time when the Internet -- people have as much access to the Internet as the phone. But one thing we do do with the phone is that even for the 7 percent of Americans who don't have a phone in their homes, there are public phones nearby so that everybody at least has access.

This is a start in that direction. The e-rate put significant discounts of up to 90 percent as another way of bringing the access there. So these are all steps forward and we think that if we mobilize and work together with the private sector, we can start moving ever closer to that time when there is universal access.

Q: Gene, I am confused about what your concerns are about the content of the Internet and what do you see as the federal government's role in promoting the content that you feel needs to be there that isn't there right now.

MR. SPERLING: I think just if you look in the classroom -- I went through different divisions. Certainly, for a young person to have access to the computers and the Internet, just having that comfort level, that knowledge, that sense of literacy with computers, that itself is important. But when you come to actually learning in the classroom, to the degree that there was more accessible content, imagine one goal of education is often to give individual attention to students, to let them be able to learn at the appropriate pace, deal with the issues.

There are software that provides the type of content where young children can work at their own pace, where they can be graded, where they can go back and forth and learn. If you imagine that there was that kind of access in all sorts of classrooms and all sorts of different topics and you had teachers who helped students be able to learn in that area and where their parents could work with them, that is the type of content that could be very helpful.

Obviously, private sector might have somewhat more incentives to provide -- use their innovation for the kind of games that people buy over Christmas. But there are also, as many of us probably have learned or purchased, there are learning games that people -- that children can use that are fun or enjoyable for them, but also can help them learn. That is a form of content improvement.

I don't know, Tom, do you want to comment any more?

MR. KALIL: Yes. I think what we're interested in exploring is how we can use information technology as a powerful tool for empowering low-income individuals in communities. For example, the Department of Commerce program has sponsored a number of innovative pilot projects that show potential applications of information technology, like public health information systems that raise the childhood immunization rates in inner-city Detroit, or the ability to allow adults that find it very difficult to participate in traditional classroom-based instruction to get access to GED or adult basic education anytime, anywhere.

So there's been a lot of attention focused on electronic commerce, and that's certainly driving the Internet. But we also want to explore the role of the Internet and these new technologies in empowering low-income individuals in communities.

MR. SPERLING: Just one thing on content. We have a couple of times, ourselves, gone to -- somebody put up a couple of million dollars where they give awards to younger people to develop the content. One of the beautiful things about this is when somebody comes up with a tremendous way of teaching history or geography, it's not like you have to print up 10 million books and ship them out; you can make these learning devices instantly accessible everywhere, and that is just an enormous opportunity or possibility for expanding learning.

I think one can imagine in the future situations where people truly have access to different kind of learning devices for different grades, where you have almost instant access. But these things these kids did were absolutely phenomenal, and they put -- and the beauty of it is they go right on the Internet and they're available to any other kid or any other teacher across the country instantly.

Q: Gene, these grants and other programs that are giving the access to the net and discounts and stuff, are they clean in the aspect of they don't come with any strings, or do they, that if you're going to get a discount from the government or whatever to get internet access, do you also have to put content-filtering software on the machines?

MR. KALIL: Some of the grants that we have, for example, the Department of Commerce grants require grantees to develop an acceptable use policy, but it doesn't proscribe a particular filtering or blocking technology.

Q: Second question. On improving -- accelerating the private sector development for broad band networks, are there any types of broad band technologies specified in there, or does it go to the cable, DSL, wireless --

MR. KALIL: It's technology-neutral, and the type of things that we're interested in, in inner cities for example, there have been broad band wireless projects that have helped people move from welfare to work by doing out-sourcing of jobs that can now be done over the Internet, and that addresses two of the biggest problems associated with welfare to work, namely child care and transportation.

We also are interested in figuring out how we can stimulate more broad band access in rural communities, because in today's digital economy, the access of this technology is becoming increasingly important for site selection. So if businesses don't have access to these high-speed networks, it will be like not having roads and bridges in a rural community.

Q: Specifically, on the tax incentives, we're living in an age where Internet access can be gotten for free, and the prices of computers are dropping. In fact, many corporations have stepped up to the plate already to provide hardware to low-income communities. So given that, why the big -- basically, some people are saying that this is a form of corporate welfare, however well-intentioned, you're basically giving huge tax breaks to Silicon Valley in an election year when --

MR. SPERLING: No, no, no. No, no. Corporate welfare would be where somebody, in the course of doing their business, asks for relief from the government in a way that people feel is an inappropriate subsidy to the market. These are, by any definition, charitable efforts. Also, most of these donations have come under the time when there has been this tax incentive. So this tax incentive has existed, it's existed for elementary and secondary schools; now, we're extending it both lengthwise to the end of 2004, to continue this, and secondly, we are allowing it for libraries and community technology centers.

But the thing you should remember is that it is cost-based. So if the costs are coming down, and if people are able to give computers at $100 or something, that will be the cost that they give, but I know that we were just in Davos and, of course, there are all sorts of people talking about the waves of the future and what's going to be and Web TV and cheaper devices and things. You know, that's all fine, but we just went to a school in a fairly poor area where there are real, live computers there the kids are working on. Those kids are in 12th grade right now, 11th, 12th grade, they're getting opportunities for jobs, et cetera.

So the fact that someday in the future these things may be more accessible doesn't change the fact that right now this can make a huge difference for people, and if this is part of a mobilization effort in which the government -- President -- challenges people to do things, but gives them a bit of an incentive to encourage people to do good by doing well -- or do well by doing good -- that's what we've done with the welfare-to-work tax cut and other measures.

I think you're right, a lot of the larger companies may be doing some of these things anyway, but there are still a lot of areas around the country and I don't know how much the existing tax incentive has encouraged some of the generous contributions that have been made.

Q: Gene, when do you expect the administration to officially declare that the economic expansion has reached the 107th month?

MR. SPERLING: Good point, good question. I think that our understanding is that this is a decision that is normally made by the National Bureau of Economic Research, and I think the general understanding has been initially that it would be at the end of February, so that you would wait and decide. There was another school of thought that said once you go into the first hour of February 1st, you are in the longest expansion in history.

It is my understanding that the National Bureau of Economic Research is now leaning towards that latter time, in which case, that would make right now the longest economic expansion in history. But I think that's -- so if you all want to run to your phones right now, I'll understand.

Q: -- kind of like the millennium celebration.

MR. SPERLING: Yes. Paul Begala still says we haven't had the millennium yet, so be at Begala's house on December 31st.

Q: I want to ask you about oil for a minute. Did the swap proposals for the Strategic Petroleum Reserve, does that give you a way around legal restrictions about releasing oil in the reserve? And secondly, how do you reconcile views that the government should do something about high oil prices with the broader philosophy that the market should determine, or should set prices?

MR. SPERLING: We absolutely believe that the market should be the determinant for prices. We have taken steps through LIHEAP to help people who are poor people who are suffering at this time. That is the only step that we have taken.

I know there has been discussion on the outside, about possible steps that could be taken. But I really don't have any comment on those at this time. We generally have a policy of not commenting on rumors that have market sensitivity. But our view is that the market should be the determinant of prices, and we have no plans to do anything that would be inconsistent with that.

Q: Gene, some people argue that OPEC distorts the market, because periodically they drive prices down, periodically they drive them back up -- we're in the up phase at the moment. And the argument also goes that if you could use the SPR to smooth out that wave of prices --

MR. SPERLING: Well, the SPRO, or SPR, is not, by law, intended to be used to manage price fluctuations. It is designed to deal with emergencies, national emergencies. So that is the legal restriction under which we manage the SPRO.

Q: Maybe you can't answer this question, but Charles Schumer of New York has the distinct impression that there is some sort of decision coming soon from the White House on the swaps. Is he simply misinformed, or --

MR. SPERLING: I really have to go back to what I said before. The problem with questions like this is that -- you know, I mean, this does kind of remind me of the time when they asked -- you know, I told you before, when they asked Rubin about the exchange rate discussion the President had with Hashimoto, and he wanted to go off the record. And then he went off the record and he said, "no comment."

The point is, is that once you get questions about things in which people are -- whether they're faults or not -- once you get questions in those areas, any kind of response can have some kind of market impact anywhere. And so the best thing for an administration to do is have a general policy of not commenting on market-sensitive rumors, or market-sensitive issues, or market-sensitive questions. So if you want to ask me about the Fed, I can rehearse that same answer, too. I'm sorry.

Q: Is this a political issue or -- I mean, is this going to vanish now that the New Hampshire primary is over?

MR. SPERLING: I'm not sure I understand. I mean, there, unquestionably, has been real problems with rising home fuel prices for people and LIHEAP, and that's all we've done policy-wise, and anything else is just a rumor.

Q: The digital divide, one more. This seems to be heavy on hardware, things like computers, wiring. Are we focusing too much on that side of it, at the risk of not enough -- I know you have teacher training and that sort of thing in here, but isn't that where the real need is right now?

MR. SPERLING: I think your question is a good one and we feel strongly that you should have an overall balance. And I think that we look at every time to make clear that it really does have to be the hardware and wiring plus the content plus the teachers and the training.

In terms of whether we have hit that balance just right, I'd say we've tried to. The $150 million is a significant commitment to train all new teachers. If you look at the tax cuts, the last tax cut was for workers to -- was for companies to encourage them to provide technology training to the workers, so that was completely dedicated to that. And then on the community technology centers, we very explicitly made that 50-percent credit not just for hardware, but that would be for donations made to support teacher training, or teachers or teacher training.

And when you look at the community technology centers, if you look at a $100,000 grant, we do not expect or assume, in fact, these are usually set up that that provides some computers and access but also funds teachers. So I agree with the gist of your question. You have to do this.

I think that we've tried to hit the right balance. I think that it is a fair question to say that in the past some of them are high profile things on NetDay, may have given some people the impression that we are more focused on hardware and wiring, but that really wasn't the case. It's just that was a first step. It was a necessary, but not sufficient condition, and so we will try to make clear that you need not just teachers who can teach somebody how to turn on the computer, but teachers who can help students turn on to the whole exploration and learning potential of the Internet.

Thank you.

END 3:10 P.M. EST