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    Highlights—March 20, 2004
  • Wall Street Journal: How Cuts in Retiree Benefits Fatten Companies' Bottom Lines. Trimming a Health-Care Plan Creates Accounting Gains, Under Some Arcane Rules. A Shield Against Rising Costs. Excerpt:The loud message comes from one company after another: Surging health-care costs for retired workers are creating a giant burden. So companies have been cutting health benefits for their retirees or requiring them to contribute more of the cost. Time for a reality check: In fact, no matter how high health-care costs go, well over half of large American corporations face only limited impact from the increases when it comes to their retirees. They have established ceilings on how much they will ever spend per retiree for health care. If health costs go above the caps, it's the retiree, not the company, who's responsible. Yet numerous companies are cutting retirees' health benefits anyway. One possible factor: When companies cut these benefits, they create instant income. This isn't just the savings that come from not spending as much. Rather, thanks to complex accounting rules, the very act of cutting retirees' future health-care benefits lets companies reduce a liability and generate an immediate accounting gain. In some cases it flows straight to the bottom line. More often it sits on the books like a cookie jar, from which a company takes a piece each year that helps it meet its earnings targets. If link is broken, view Adobe Acrobat version [PDF--44 KB].

  • New York Times: In an I.B.M. Village, Fears of Air and Water Pollution. Excerpt: ENDICOTT, N.Y. - This village, best known as the birthplace of I.B.M., has an unusual look these days. Venting systems, with white plastic tubing that runs from basements to roofs, sprout from 377 houses and businesses. Many houses are for sale, but there are few buyers. "This area is taboo now," said Tim Davis, who lives on Monroe Avenue. "And it's going to stay that way." Mr. Davis lives in what residents call "the plume" - 320 acres encompassing the downtown and stretching across the village, all of which were polluted by industrial toxic substances. The chemicals contaminated soil and leached into groundwater. And they continue to produce vapors that waft into hundreds of basements. Occurring over decades, the pollution is traceable at least in part to I.B.M., which used common solvents in its circuit board assembly. The venting systems were all paid for by I.B.M., which two decades ago employed 12,000 workers in Endicott, just west of Binghamton. Now 1,700 collect I.B.M. paychecks here. Still, residents say they feel trapped in virtually unsalable homes, where they fear the prolonged effects of the vapors on the health of their families. If link is broken, view Adobe Acrobat version [PDF--45 KB].

  • Raleigh News & Observer: IBM in N.C. hums at center of outsourcing debate. Excerpt: Some 13,300 people work here, at International Business Machines Corp.'s largest site in the world. That places them at the epicenter of the ongoing political and economic debate over the virtues and evils of outsourcing. On its sprawling campus west of Raleigh, Armonk, N.Y.-based IBM has retrofitted factories where computers once were manufactured among the North Carolina pines into offices supporting brainpower businesses like consulting and software development. Many of the workers here depend for their livelihood on other companies finding it cheaper to outsource certain tasks to IBM than to do it themselves. At the same time, Big Blue's reported decision to outsource thousands of its own technology jobs to lower-cost workers in Asia has put it squarely in the election year spotlight. ... IBM's computer outsourcing services guarantee that a customer's costs will drop every year they're under contract, Nygard said. The company reported in January that it signed services contracts worth $17.3 billion in the last three months of 2003, compared to the third-quarter figure of $15 billion. Just last month, IBM landed a contract to manage 21 customer service call centers for Sprint Corp. IBM employees in RTP contacted for this story declined to comment by name about the changing jobs picture there. "IBMers are really hunkered down because of job cuts," said Lee Conrad, national coordinator for Alliance@IBM, a group trying to unionize IBM employees. "They know that these job cuts sweep through on a regular basis. Senior employees are being targeted, so they're not going to raise their heads up."

  • "i_be_mad_as_heck" quotes from IBM's 1974 edition of its "About Your Company" pamphlet. Full excerpt: I have a 1974 "About Your Company" book, 502-3801-02. It states the following: Page 17, Benefits Program. "IBM's benefits program is a non-contributory one: the company bears the full cost." Page 32, IBM Medical Plans – General. "While you are a regular employee or receiving regular IBM Sickness and Accident Income Plan benefits or IBM Total and Permanent Disability Income Plan benefits (unless eligible for Medicare) or if you retire under the early retirement provisions of the IBM Retirement Plan, coverage under the IBM Medical Plans continues during your lifetime for you and your eligible family members under age 65 (unless eligible for Medicare). When you or your eligible family members reach age 65 or otherwise become eligible for Medicare, coverage under the IBM Medical Plans will change, but the total coverage for that individual under both Medicare and the IBM Plans generally will be at least equal to the coverage under the IBM Plans alone. An explanation of this coverage is included in the section entitled, 'IBM Medical Plans with Medicare.'" Of course all of the above means nothing. Promises mean nothing when there are legal loopholes. For those that claim the company had to make the changes, explain to me why Lou and his executive buddies have a "top hat" medical plan? Not only did they cut employee and retiree benefits, they increased executive benefits.

  • New York Times: Concerns Raised Over Consultants to Pension Funds. Excerpt: A small but growing part of the $2 trillion in state and local pension funds is being steered into high-risk investments by pension consultants and others who often have business dealings with the very money managers they recommend. After making such investments, a few of these pension funds have come up short, forcing the governments to draw on tax dollars. The Securities and Exchange Commission is so concerned that it has begun an inquiry into the practices of pension consultants, who serve as gatekeepers for thousands of money managers. The regulators will find not just financial consultants but a web of intermediaries — marketing agents, lobbyists, brokers and world leaders — between pension funds and the investments they choose.

  • Wall Street Journal: FASB Move On Cash-Balance Pensions Spurs Opposition. Excerpt: Companies could see an impact on their balance sheets from a recent decision that stands to expand the benefits they owe in controversial cash-balance pension plans. Actuaries and other pension consultants already have begun opposing the decision, made earlier this month by the Financial Accounting Standards Board, a private rule-setter in Norwalk, Conn. The FASB decided at a board meeting on March 3 to change the way companies measure their benefit obligations in cash-balance pensions - hybrid retirement vehicles that combine elements of traditional pensions with 401(k)s. The decision is tentative, but FASB has said it wants to finalize it this year.
    • Janet Krueger comments. Full excerpt: Gosh, isn't this sad... FASB is actually looking at changing the rules so that companies with cash balance plans will actually have to keep enough cash in their pension funds to pay off the account balances if they go bankrupt!!!

  • Computerworld: J.P. Morgan, Bank One merger may lead to IT sourcing culture clash. One bank tends to outsource IT services, the other favors insourcing. Excerpt: While many aspects of the the combined banks' future IT blueprint have yet to be decided, analysts say it's all but certain that the IT outsourcing/insourcing debate will play a pivotal role in shaping its IT direction. For example, J.P. Morgan Chase, the acquiring bank, entered into a $5 billion, seven-year outsourcing deal with IBM a year ago to take over its data processing infrastructure (see story). Under the terms of that deal, J.P. Morgan Chase had planned to transfer 4,000 IT workers and contractors to IBM by the middle of 2003.

  • New York Times: U.S. Videos, for TV News, Come Under Scrutiny. Excerpt: Federal investigators are scrutinizing television segments in which the Bush administration paid people to pose as journalists praising the benefits of the new Medicare law, which would be offered to help elderly Americans with the costs of their prescription medicines. The videos are intended for use in local television news programs. Several include pictures of President Bush receiving a standing ovation from a crowd cheering as he signed the Medicare law on Dec. 8. The materials were produced by the Department of Health and Human Services, which called them video news releases, but the source is not identified. Two videos end with the voice of a woman who says, "In Washington, I'm Karen Ryan reporting." But the production company, Home Front Communications, said it had hired her to read a script prepared by the government. Another video, intended for Hispanic audiences, shows a Bush administration official being interviewed in Spanish by a man who identifies himself as a reporter named Alberto Garcia. Another segment shows a pharmacist talking to an elderly customer. The pharmacist says the new law "helps you better afford your medications," and the customer says, "It sounds like a good idea." Indeed, the pharmacist says, "A very good idea."

  • New York Times: Medicare Actuary Gives Wanted Data to Congress. Excerpt: Richard S. Foster, the chief actuary of Medicare, provided Congress with documents on Friday showing that federal payments to private health insurance plans under a new Medicare law could far exceed what Congress assumed when it passed the measure last fall. For months, lawmakers had been seeking the data, but Mr. Foster said in an interview that he had withheld it under instructions from Bush administration officials. He turned over documents outlining the information at a meeting on Friday with Congressional aides of both parties who work on health legislation. The documents estimate that the new law will increase Medicare payments to private health plans by a total of $46 billion over the next 10 years, not the $14 billion assumed by lawmakers when they voted on the legislation. Mr. Foster had cited the discrepancy in an interview earlier this week, but the documents he turned over on Friday, Mr. Foster said, show that the Bush administration was aware of the gap well before Congress approved the new law. Moreover, the documents show that the administration expects a huge increase in the number of Medicare beneficiaries enrolled in various types of managed care. About 12 percent of the 41 million current Medicare beneficiaries are in such private health plans today. By 2009, Mr. Foster says, the proportion will reach 32 percent, equally divided between health maintenance organizations and preferred provider organizations.

  • Common Dreams News Center: Democracy - Not "The Free Market" - Will Save America's Middle Class. Excerpt:In actual fact, there is no such thing as a "free market." Markets are the creation of government. Governments provide a stable currency to make markets possible. They provide a legal infrastructure and court systems to enforce the contracts that make markets possible. They provide educated workforces through public education, and those workers show up at their places of business after traveling on public roads, rails, or airways provided by government. Businesses that use the "free market" are protected by police and fire departments provided by government, and send their communications - from phone to fax to internet - over lines that follow public rights-of-way maintained and protected by government.And, most important, the rules of the game of business are defined by government. Any sports fan can tell you that football, baseball, or hockey without rules and referees would be a mess. Similarly, business without rules won't work.

    Which explains why conservative economics wiped out the middle class during the period from 1880 to 1932, and why, when Reagan again began applying conservative economics, the middle class again began to vanish in America in the 1980s - a process that has dramatically picked up steam under George W. Bush. The conservative mantra is "let the market decide." But there is no market independent of government, so what they're really saying is, "Stop corporations from defending workers and building a middle class, and let the corporations decide how much to pay for labor and how to trade." This is, at best, destructive to national and international economies, and, at worst, destructive to democracy itself.

  • Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. Some sample posts follow:
    • The score is IBM doublespeak 1 rational HR policies 0 Pt 2 by "Dose of reality". Full excerpt: Unachievable goals – Here we have a fundamental problem with compensation structures in which company performance at a stretch budget level is a pre-requisite to meaningful reward. Business performance goals were set unrealistically high, were not candidly communicated to staff, and the connection between individual staff performance and company performance is miniscule and indirect. If you don’t reward for individual performance, then performers will whine/leave and non-performers will fake it and stay. Retention problems from the first two factors made it even more impossible to meet targets. Compounding this problem is the fact that the base salary reductions were across the board. If equalization was the goal, then differential treatment is called for. It is too convenient and too improbable that the entire staff was 6% overpaid. Again, self-selection will lead to the previously overpaid staff staying, and the fairly/underpaid staff leaving. Employees are stakeholders, and in a services firm they are the sales force, product, and R&D. If you don’t directly recognize and encourage individual contribution, the franchise can't grow.

      I agree with the point that the recent compensation actions are not evil or lying, but they do defeat the whole purpose of compensation, which is to hire, retain, and motivate staff. To that extent they aren't evil - they are dysfunctional. What we have here is a classic case of trying to save our way to prosperity - If you can't grow the top line, then cut costs. The problem is that cost savings have future revenue downsides that are a multiple of the money saved, particularly when the compensation changes are so significant that the entire pretense of reward for performance is obliterated. The reason this is such a tempting strategy is that the cost savings are tangible and immediate, while the connection to revenue is in the future, and revenue issues can be blamed on a dozen other factors. So, I say the whining makes sense. The only thing that keeps the business from imploding is there are enough people that feel they are in the "lucky to have a job" category - this is what they are banking on.

    • Don't Expect Very much Upside by "Dose of reality". Full excerpt: Take it from me - the incentive compensation will not get you any closer to your market value, and annual increases will be minimal at best. Your question as to why so many advise against employment at IBM.

      What you do:
      • There is a hard push to achieve a high degree of utilization (hours charged to clients). If you are not on a project, your “manager” will push to get you staffed on any project where the client wants you, regardless of travel implications, skill set match, career development needs or anything else that is important to you
      • The expense policies are restrictive. Not only will accommodations and flight arrangements be unpleasant/substandard, the reservation system is difficult to deal with, and the T&L reporting system is arcane. Also, you will be expected to do all this on your own time in order to meet the utilization targets.
      Who You Do it With:
      • Project Managers are under tremendous pressure to deliver results against resource plans and timelines that are usually very aggressive, since the bidding process has become extremely competitive, and the revenue targets are so high that we are forced to buy market share at all costs i.e. overpromise. What this means for you is that you will be pressured to deliver 12 hours of work in an 8 hour day. In many cases you will be informally encouraged not to bill the additional 4 hours.
      • Most of the consultants you work with will not think twice about slamming your work. Evaluations are done on a quota basis, with everyone normalized to fit an expected curve. The worse you look, the better they look. This is a natural fallout when you grade on a curve.
      • Unless you are bringing in revenue, don’t expect to be noticed by practice leadership. You are just a body to plug into a project team when needed.
      • Resource managers generally have no idea what your skill set is.
      What you get in return:
      • Virtually no chance of meaningful incentive compensation. You have little direct control over performance measures that impact bonuses, and no idea on what practice/geography targets will lead to reward.
      • Limited or zero annual increases.
      • No sense of community.
      • No real personal development plan or training time/budget allocated. There is too much of a push for utilization, no recognition of the investment value of training, and a philosophy of “it is easier to bring in skill sets than build them internally”.
      • Don’t expect to be here past 4 years (not necessarily the worst problem!) There are well documented cases of IBM laying off staff prior to vesting to save on pension costs.
      • Constant fear that your skillsets will be replaced by offshore resources – i.e. you could be layed off.
Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • Computerworld: Outsourcing means U.S. job creation is a must, Powell says. Excerpt: While outsourcing is a reality of the 21st century and inevitable, the U.S. must create jobs to replace those being lost, U.S. Secretary of State Colin Powell said yesterday in Delhi, India. "Outsourcing invariably does result in the loss of jobs, and we have to do a better job in the United States, a good job in the United States, of creating opportunity in the United States to provide more jobs, so that those who have lost jobs will have opportunities in the future," said Powell at a joint news conference in Delhi with India's external affairs minister, Yashwant Sinha.

  • Washington Post: Outsourcing Debate Turns Spicy for Powell. Excerpt: Pleasing everyone is an impossible task, no matter how noble the cause. That doesn't stop most of us -- even high-ranking cabinet officials -- from trying anyway. Secretary of State Colin Powell rediscovered this eternal truth on a trip to India where he tried to calm an increasingly emotional debate surrounding the outsourcing of U.S. jobs. He "sought to assure Indians on Tuesday that the Bush administration would not try to halt the outsourcing of high-technology jobs to their country," The New York Times reported. He then told India's government that it should return the favor by importing American goods and services, according to the paper. (Powell also spoke about opening up trade in advance of his India trip.)

  • New York Times: An Outsourcing Giant Fights Back. Excerpt: To his compatriots, Azim Premji is the Bill Gates of India. By transforming his family-owned vegetable oil business into a global technology powerhouse, Mr. Premji has become the country's richest citizen, with a net worth hovering around $8 billion. Outside India, however, Mr. Premji is not exactly Mr. Popularity these days. A British newspaper recently went so far as to describe him as "the man who wants to take away your jobs." That has to do with the nature of Mr. Premji's business: his company, Wipro, is one of the biggest outsourcing concerns in the world. ... The point, he said, is that Americans are unduly worried. "We are not dealing with cold reasoning here,'' he said, "but with emotions of Americans whose personalities changed after 9/11 and who feel threatened by anything that hurts their security, their wealth and their jobs.'' Like many others, Mr. Premji argues that shifting jobs to lower-cost countries will benefit the United States in the long run. "Offshore outsourcing is another example of U.S. innovativeness to stay competitive by reducing costs and cycle times," he said. ... But he is hardly oblivious to the outsourcing furor. After he closed his recent deal with an American company, he said its executives understandably did not want to crow about the 30 percent cost savings from shipping the work to India. "They said they could handle a leak but did not want to go straight on the Lou Dobbs show," Mr. Talwar said.

  • Asia Times (Hong Kong): Anti-outsourcing cry unnerves corporate giants. Excerpt: The issue of outsourcing and the resulting political backlash found its way into the corporate boardrooms of global giants, perhaps for the first time, as chief executive officers of top multinational companies including General Electric (GE) and Gillette spent the week discussing the backlash as a risk factor and its impact on their businesses. And worse, for top Indian software companies in the United States, the backlash is increasingly turning explosive. Until now, the outsourcing row has only been a political issue in the run-up to the US presidential elections. ... Vikram Talwar, CEO of Exlservice, a prominent back-office outfit, said: "If this talk continues, and the press continues to write about it, it will be difficult for us. It will also force boardrooms in the US to start worrying about [whether it] impacts their social responsibilities." However, it seems US-based multinationals are worried more about their bottom line than their social responsibilities and consider outsourcing to be unavoidable. GE, for instance, continues to stress the importance of low-cost centers in its global strategy and growth. "Competition from places like China and India [has] evolved beyond low-cost manufacturing labor to include highly competitive engineering graduates who earn less than production workers in the developed world," said GE, adding: "Winning companies must think globally, but understand local consequences. Only competitive companies can serve investors, employees and stakeholders during this dramatic phase of globalization."

  • CNET News: Offshore is in--get used to it. Excerpt: Are you ready for eight more months of demagoguery about how to stop the loss of American technology jobs? I'm sure you're as thrilled about that prospect as I am. With Lou Dobbs morphing into Howard Beale, ranting against the export of our great middle class existence has reached the level of spectator sport. In the run-up to the fall presidential election, rest assured that the noise is only going to get louder. In Northern California, unofficial Ground Zero for the debate on offshore outsourcing, or offshoring, the topic has now elbowed aside stock options as the preferred subject du jour of the digerati. Seems you can always find some bloviating big shot publicly wringing his or her hands about the decline of the nation's technology prowess and the threat to America's future as an industrial leader. ... Scapegoating may make for a satisfying sound bite on the evening news, but outsourcing is not the enemy. To borrow upon The Bard's wisdom, the fault is not in our stars but in ourselves.

  • Computerworld Opinion: How IT has outsourced itself. Excerpt: Americans have an unwavering faith that technology can solve all of their problems, but they tend to forget that it also creates new ones in the process. The leading edge of technology innovation often cuts both ways. Perhaps the best example of this is the current election-year brouhaha over the accelerating trend of outsourcing U.S. jobs in general -- and IT jobs in particular. IT advances aren't the sole cause of the jobs exodus, but as many laid-off programmers and call center staffers have come to realize, IT innovations have accelerated that trend.

  • CBS Evening News: More U.S. Jobs Shipped Overseas. Excerpt: "Protecting jobs leads to job destruction, because if we try to prevent outsourcing, it'll just make American business less competitive in the world market. And that will lead to overall job destruction. So for me there's no choice here. We have to outsource," said Marc Andreesen, head of the California-based software company "Opsware," which helps businesses cut costs by automating. Andreesen says he plans to hire workers in India or Brazil. "By doing that, what I want to be able to do is get more bang for the buck out of those jobs, so that I can grow faster and so I can hire more people in the U.S.," he said.

  • Daily Mis-Lead: New Report: Why Bush Supports Outsourcing. On the eve of his trip to Ohio to "focus on jobs," President Bush claimed yesterday that "we're creating jobs - good, high-paying jobs for the American citizen." His comments come despite the country having lost more than 2 million manufacturing jobs since he was elected. In Ohio, which lost 270,000 manufacturing jobs alone, the economic crisis has raised questions about why the president last month strongly endorsed the outsourcing of U.S. jobs to cheap overseas labor markets. A look at the president's donors offers an answer. Misleader compared the companies that outsource the most U.S. jobs (referred to as "captive remote services companies" on page 11 of the trade association report noted below) with the president's campaign finance records. The analysis shows that the president's campaign has pocketed more than $440,000 and his party more than $3.6 million in just 4 years. These companies have a direct stake in the president publicly supporting outsourcing and doing everything he can to water down or oppose legislation to curb the practice. The breakdown of campaign contributions is as follows...

  • CNET News.com: Tech professionals group wary of offshoring. Excerpt: A major association of technical professionals believes that the outsourcing of high-wage jobs to low-wage countries poses a serious, long-term challenge to the United States' technological leadership, economic vitality and military security. IEEE-USA, the U.S. wing of the Institute of Electrical and Electronics Engineers, said Thursday that the "offshoring" trend also contributes to high unemployment among U.S. techies. "We must develop a coordinated national strategy to maintain U.S. technological leadership and promote job growth in the United States," IEEE-USA President John Steadman said in a statement. "But it's going to be difficult to remain technologically competitive, if we continue offshoring the jobs of our innovators at rates currently projected." In a policy statement, IEEE-USA said U.S. government procurement rules should favor work done in the country and should "restrict the offshoring of work in any instance where there is not a clear long-term economic benefit to the nation or where the work supports technologies that are critical to our national economic or military security."

  • New York Times: India's Light PR Touch; Naming Hot U.S. Markets. A regular look at jobs, outsourcing and trade, from around the World. Excerpt: India is treading lightly when it comes to its outsourcing PR. The trend has been a boon to Indian companies like Infosys Technologies and Wipro, and U.S. companies, including International Business Machines, are beefing up staff in India to match the cost advantages. But amid weak job growth in the U.S., Indian firms and representatives don't want to appear to be gloating. The Financial Times reported this week that an official from the Indian consulate touched only briefly on the country's outsourcing success in a presentation in New York. "A slide showing corporate giants with workers in India, including AIG, HSBC, Ford and Yahoo, flashed quickly across the screen," the FT writes, and instead of using words like outsourcing or offshoring, the slide had phrases such as "services production in global production chains."
Now on the Alliance@IBM Site:
  • Associated Press: Unions Press for Sanctions Against China. Excerpt: Organized labor asked the Bush administration on Tuesday to impose economic sanctions on China, contending that the country has violated workers' rights in order to gain trade advantages against the United States. The request, in a trade complaint filed with U.S. Trade Representative Robert Zoellick, represented the latest effort by American unions to highlight what they see as unfair trade practices that have led to a record $124 billion U.S. trade deficit with China last year and the loss of thousands of U.S. factory jobs. ... The labor group said that many of the labor violations occurred when people traveled from rural areas to take industrial jobs in Chinese factories where their activities are strictly regulated by a system of internal passport controls. The petition contended that these young workers, mostly female, "often step into a nightmare of 18-hour work days with no day of rest, earning meager wages that are often withheld or unpaid altogether."

  • infoWorld: IBM's Palmisano given $5.4 million bonus for 2003. CEO rewarded for steering Big Blue through 'several challenges' and increasing server share.

  • Poughkeepsie Journal: Residents: IBM offers settlement for bad wells. East Fishkill deal involves 62 families. Excerpt: IBM Corp. has offered a settlement to 62 families in a polluted East Fishkill neighborhood who had threatened to file a civil lawsuit against the company and a defunct contractor, Jack Manne Inc., two residents said Tuesday. The terms of the settlement prevent the residents from discussing its details. Residents Denis Callinan and Verna Wren said the threatened suit, which was never filed in court, had been based on covering any future health problems associated with polluted groundwater. ''The main concern was medical monitoring,'' Callinan said. She said the settlement was reached March 1. IBM refused to confirm, deny or comment on any settlement, beyond saying ''there never was a civil suit filed by the homeowners,'' spokesman Steve Cole said.

  • Donald Parry: Medicare Prescription Bill. How can we thank you?

  • John Kotson: Affordable Health Care Action Plan

  • Think Twice for March/April 2004 [PDF]. Articles in this edition include:
    • Tech Worker Job Crisis Starts Hitting Home
    • 2004 IBM Stockholder Meeting in Providence, Rhode Island
    • Stockholder resolutions challenge IBM on Executive Compensation, Offshoring and Pensions.
    • Offshoring Legislation In The Different States
    • IBM ordered to repay workers put on cash-balance pension
    • Outsourced to IBM: Broken Promises Plague New Hires
    • Cuts in incentive plans called “underhanded” by employees
    • Cut by IBM:“Dead Man Walking”

  • Call to Action! Join the Rally to protest Offshoring at the IBM Shareholders' Meeting - April 27 in Providence, RI.
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