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The Federal Trade Commission appears headed for a fiscal crisis. The Congressional Budget Office is estimating the agency’s cut of Hart-Scott-Rodino Antitrust Improvements Act filing fees for the 2003 fiscal year at $150 million, FTC officials said. That is $26.6 million less than the agency needs to cover projected spending. The shortfall is significant because FTC Chairman Timothy J. Muris must ask congressional appropriators to make up the deficit. That already would be a challenge given the need to finance the war on terrorism while limiting deficit spending. It will be even tougher, however, because one of those appropriators is Sen. Ernest Hollings, who is angry with Muris for adopting a merger clearance accord with the Department of Justice. The accord assigns all media mergers to the Justice Department as part of a comprehensive division of labor between antitrust enforcers. The senator wants the FTC to oversee media deals. Hollings, D-S.C., has threatened to eliminate funding for all FTC political appointees unless the accord is changed. As chairman of the Senate Appropriations subcommittee responsible for the FTC and antitrust division, Hollings has the clout to deliver on his threat. “This is a tricky situation for the commission right now,” said Albert Foer, president of the American Antitrust Institute. “I don’t know if the money will be found or not.” Foer urged Muris and Hollings to resolve their difference now before the funding shortfall turns into a crisis. Without the additional financing, the FTC is expected to leave vacancies unfilled, stop hiring outside consultants and delay all discretionary spending. “This seems to be the worst time to be in a battle with Sen. Hollings,” Foer said. “The agencies and Hollings need to find a way to come together, and they need to do it sooner rather than later. There is a lot at stake here.” Muris called the budget situation “serious,” telling the American Bar Association antitrust section last week there is no guarantee that Congress will make up the shortfall. “Congress will regard funding the FTC as a spending increase even if it is the same amount as last year,” he said. Roxane Busey, chairwoman of the ABA antitrust section, said the group wants Congress to fully finance the FTC even though the section’s members often defend companies before the agency. “It is better to have a well-run, well-funded agency,” Busey said at the ABA meeting. Muris said the problem is the link between HSR fees and antitrust budgets. Such a link makes little sense, FTC officials said, because law enforcement activities should not depend on fee collections. Also, the FTC must use its cut of the fees to fund antitrust and consumer protection missions. Muris would prefer that Congress appropriate money to the agencies regardless of HSR fee levels. President Bush’s budget estimated HSR collections at $350 million for 2003, which would have been enough to fully fund both the FTC and Justice Department. The revised HSR fee estimate does not affect the antitrust division. Its $150 million cut of expected HSR fees is sufficient to cover its $141 million budget. The antitrust agencies have been headed toward a fiscal crisis for the past two years. In the late 1990s, when M&A activity was at record highs, HSR fee income skyrocketed. To respond to extra work, the FTC and the Justice Department’s antitrust division added more staff. Financing larger antitrust budgets was an obvious choice for Congress because HSR fees completely covered the spending hikes. This meant the agencies could add staff without affecting the deficit or other programs financed in the Commerce, Justice, State and the Judiciary appropriations bill. That has changed. In the fiscal year that ended Sept. 30, the agencies spent $240 million but only collected $173 million in HSR fees. Though the difference was automatically made up out of general funds, it did put Congress on notice of a potential problem. The agencies also are on pace to outspend HSR collections this year. Congress authorized the FTC to spend $156.6 million in 2002 and the antitrust division $130 million. But as of March 31 — the halfway point in the fiscal year — the agencies had collected $69.6 million in HSR fees. That is slightly less than a quarter of the $287 million needed, according to data the FTC supplied. Net fee income in March was $12 million, down $1 million for the same period a year earlier. In February, merging companies paid $10.5 million, up $3.5 million from 2001. January collections were $13.3 million. It is impossible to compare the January number to 2001 because Congress imposed a new HSR fee schedule that took effect Feb. 1. The new system imposed a $280,000 fee on deals valued at more than $500 million and a $125,000 fee on deals valued between $100 million and $500 million. Those valued between $50 million and $100 million continued to pay the $45,000 fee. The law also raised to $50 million from $15 million the threshold for requiring merging companies to make HSR filings. In the first six months, companies made 596 HSR filings. The agencies collected $69.6 million, compared with $79.9 million in the first half of 2001. Half of the collections, which total $35.1 million, are from the 281 reported deals valued at $100 million to $500 million. Deals worth more than $500 million generated 93 filings and $26 million in fees. The small deals were more common, generating 202 filings, but brought in only $9 million. Copyright (c)2002 TDD, LLC. All rights reserved.

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