Can Lawmakers Now Afford To Be Obstacles To Reform?

By Mitch Frank

Washington has its own version of the business cycle: when times are good, get rid of pesky regulations that companies complain are holding them back; when things turn sour, start crying for rules. No legislator wants to appear to be blocking reform now, especially in an election year, but previous efforts have faded away when the headlines did. Here are four areas of reform and the hurdles they face.

--By Mitch Frank. With reporting by Sally B. Donnelly/Washington

AUDITING LAWS

"We were wrong." When Senator Bob Torricelli of New Jersey said those words in a hearing last Thursday, it marked a dramatic turnaround. For years, Congress has aided the accounting industry's efforts to avoid new auditing rules. Torricelli is one of many lawmakers (including Connecticut Senator Joe Lieberman) who have pressured the SEC several times over the past decade to back off on tougher regulations for auditors. Clinton-appointed SEC chairman Arthur Levitt tried to enact rules that would have kept firms from auditing and consulting for the same clients and forced companies to publicly disclose more liabilities, such as executive stock options. Each time Congress quashed Levitt's efforts. But that opposition was gone at last week's hearing. "Perhaps the era of self-regulation is over," said Tennessee Senator Fred Thompson. But President Bush's SEC chairman, Harvey Pitt, doesn't share Levitt's concerns. As a lawyer and lobbyist for the accounting industry for more than 20 years, Pitt led the fight against Levitt's proposals. Now he's pressing for a new industry-funded oversight board. But the current board never flunked an auditor in 25 years of peer reviews. Pitt's proposal "lacks teeth and independence," says Levitt. The Senators may be talking about stricter regulation in televised hearings, but they're not proposing many bills. Will their change of heart last long enough to result in real action?

401(K) REFORM

It's impossible to find anyone on Capitol Hill these days opposed to new protections for 401(k)s. No members of Congress want voters to think they don't care about Enron employees who watched their retirement savings disappear into a black hole of creative accounting. Talking of how his mother-in-law lost $8,000 in Enron stock, President Bush put together a Cabinet team to study the issue. Senators Barbara Boxer and Jon Corzine are pushing a bill that would limit the amount of an employer's stock in its 401(k) plan and ease restrictions on how soon employees could sell it. Boxer only had to dust off a similar bill she proposed in 1997, when Texas retailer Color Tile went bankrupt. No one is vocally opposing the Boxer-Corzine bill--yet. "There's a lot of shrapnel up here," says a Senate staff member. "People are keeping their heads down." But businesses and their lobbyists don't like the idea, arguing that the restrictions would push employers to stop offering matching contributions. They fought Boxer's 1997 bill until it quietly died in committee. One person keeping quiet is Phil Gramm, usually a leading opponent of such restrictions. Gramm's wife Wendy served on the audit committee of Enron's board, and the Texas Senator has recused himself from Enron matters. His fellow Republicans are also holding their fire, for now.

ENERGY DEREGULATION

Anyone who watched both the struggle to keep the lights on in California and the implosion of Enron might be getting cold feet about deregulation. Not Joe Barton. The Texas Congressman, who chairs the House subcommittee on energy, hopes to get a bill further deregulating public utilities to the floor by the end of next month. Barton and other proponents see Enron as an isolated example. The White House has no plans to hold off on its energy bill and proposals for drilling in the Arctic National Wildlife Refuge. Opponents are adding Enron to their arguments, though no one new is fighting the bill. But the scandal has won converts to government oversight of energy-futures trading. Enron had persuaded Washington not to monitor the trades.

CAMPAIGN FINANCE

Enron broke the logjam on the long-stalled campaign-finance bill. House sponsors obtained 218 signatures--including those of 20 Republicans--last Thursday to force the G.O.P. leadership to take it to the floor. Charles Bass of New Hampshire provided a key Republican signature last week after failing to persuade Speaker Denny Hastert to allow debate. The bill still faces a tough vote; House majority whip Tom DeLay plans to fight it. But the 186 Representatives and 71 Senators who took Enron money may find the bill the easiest way to wash their hands. Opponents hope that Bush will veto it.

With reporting by Sally B. Donnelly/Washington