[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
APPROPRIATIONS
ANDER CRENSHAW, Florida, Chairman
MARIO DIAZ-BALART, Florida JOSE E. SERRANO, New York
TOM GRAVES, Georgia MIKE QUIGLEY, Illinois
KEVIN YODER, Kansas MARCY KAPTUR, Ohio
STEVE WOMACK, Arkansas ED PASTOR, Arizona
JAIME HERRERA BEUTLER, Washington
MARK E. AMODEI, Nevada
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
John Martens, Winnie Chang, Kelly Hitchcock,
Ariana Sarar, and Amy Cushing,
Subcommittee Staff
________
PART 5
Page
Federal Communications Commission................................ 1
Securities and Exchange Commission............................... 109
Office of Management and Budget.................................. 189
S
________
Printed for the use of the Committee on Appropriations
PART 5--FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR
2015
?
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
APPROPRIATIONS
ANDER CRENSHAW, Florida, Chairman
MARIO DIAZ-BALART, Florida JOSE E. SERRANO, New York
TOM GRAVES, Georgia MIKE QUIGLEY, Illinois
KEVIN YODER, Kansas MARCY KAPTUR, Ohio
STEVE WOMACK, Arkansas ED PASTOR, Arizona
JAIME HERRERA BEUTLER, Washington
MARK E. AMODEI, Nevada
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
John Martens, Winnie Chang, Kelly Hitchcock,
Ariana Sarar, and Amy Cushing,
Subcommittee Staff
________
PART 5
Page
Federal Communications Commission................................ 1
Securities and Exchange Commission............................... 109
Office of Management and Budget.................................. 189
S
________
U.S. GOVERNMENT PRINTING OFFICE
88-192 WASHINGTON : 2014
COMMITTEE ON APPROPRIATIONS
HAROLD ROGERS, Kentucky, Chairman
FRANK R. WOLF, Virginia NITA M. LOWEY, New York
JACK KINGSTON, Georgia MARCY KAPTUR, Ohio
RODNEY P. FRELINGHUYSEN, New JerseyPETER J. VISCLOSKY, Indiana
TOM LATHAM, Iowa JOSE E. SERRANO, New York
ROBERT B. ADERHOLT, Alabama ROSA L. DeLAURO, Connecticut
KAY GRANGER, Texas JAMES P. MORAN, Virginia
MICHAEL K. SIMPSON, Idaho ED PASTOR, Arizona
JOHN ABNEY CULBERSON, Texas DAVID E. PRICE, North Carolina
ANDER CRENSHAW, Florida LUCILLE ROYBAL-ALLARD, California
JOHN R. CARTER, Texas SAM FARR, California
KEN CALVERT, California CHAKA FATTAH, Pennsylvania
TOM COLE, Oklahoma SANFORD D. BISHOP, Jr., Georgia
MARIO DIAZ-BALART, Florida BARBARA LEE, California
CHARLES W. DENT, Pennsylvania ADAM B. SCHIFF, California
TOM GRAVES, Georgia MICHAEL M. HONDA, California
KEVIN YODER, Kansas BETTY McCOLLUM, Minnesota
STEVE WOMACK, Arkansas TIM RYAN, Ohio
ALAN NUNNELEE, Mississippi DEBBIE WASSERMAN SCHULTZ, Florida
JEFF FORTENBERRY, Nebraska HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida CHELLIE PINGREE, Maine
CHARLES J. FLEISCHMANN, Tennessee MIKE QUIGLEY, Illinois
JAIME HERRERA BEUTLER, Washington WILLIAM L. OWENS, New York
DAVID P. JOYCE, Ohio
DAVID G. VALADAO, California
ANDY HARRIS, Maryland
MARTHA ROBY, Alabama
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah
William E. Smith, Clerk and Staff Director
(ii)
Statement Submitted by Senator Christopher J. Loeak, Chairman,
Kwajalein Negotiation Commission, on Behalf of Kwajalein Landowners
My name is Christopher J. Loeak, Chairman of the Kwajalein
Negotiation Commission. I appreciate the opportunity to present the
views of the KNC today.
Recently I submitted testimony to the House International Relations
Committee regarding the views of the KNC on the proposed agreement
between the United States and the RMI with respect to a new Military
Use and Operating Rights Agreement. I append that statement to the one
that I submit to you today.
The position of the KNC on the proposed MUORA can be summarized by
the following points:
The compensation amounts for landowners of Kwajalein are
insufficient to provide for the long-term benefit of the people of
Kwajalein. The amount of compensation for the people of Kwajalein must
be at least $19.1 million in 2004 fully indexed for inflation.
The term of the agreement is insufficient and must be made
longer to adequately plan for the use of Kwajalein for our people.
Although the U.S. portrays this agreement as an agreement of over 50
years duration, it only guarantees use of Kwajalein for seven years
beyond 2016. Thus the agreement is only a 7-year extension with a
series of 1-year options to terminate, leaving the landowners in a
state of suspended animation for years to come. This term is far worse
than the present 15-year term in the present MUORA.
The Landowners will not sign a new Land Use Agreement
until and unless acceptable changes are made to the MUORA to address
these deficiencies. The 7-year extension of the MUORA as proposed is
legally insufficient and cannot be implemented.
Thank you for this opportunity and you can be sure that we will
pursue every opportunity to reach an acceptable agreement through the
constitutional processes of our respective governments.
______
Statement Submitted by Senator Christopher J. Loeak, Chairman,
Kwajalein Negotiation Commission, on Behalf of Kwajalein Landowners
My name is Christopher J. Loeak, Chairman of the Kwajalein
Negotiation Commission. I appreciate the opportunity to present the
views of the KNC today.
Besides being Chairman of the KNC, I have been a Senator in the
Nitijela representing the Atoll of Ailinglaplap since 1985.
I am also a major landowner on Kwajalein Atoll.
Mr. Chairman, I am honored to present the following statement on
behalf of the people of Kwajalein and I would like to express my
appreciation and sincere thanks to you and the members of this House
International Relations Committee for giving me the opportunity to do
so.
ABOUT THE KWAJALEIN NEGOTIATION COMMISSION
I represent the Kwajalein Negotiation Commission (KNC), an
organization established in October 2001 by the people of Kwajalein to
represent them in the Compact renegotiations. The KNC is an
unprecedented alliance of the traditional leaders of Kwajalein whose
purpose is to provide an opportunity for the U.S. to enter into a long-
term relationship guaranteeing secure and uninterrupted use of
Kwajalein. The divisions within the local traditional leadership that
marred the entry into the first Compact have been put aside in the
interest of this relationship. As you know, compact renegotiation
discussions between the U.S. Government and the Government of the
Republic of the Marshall Islands (RMI) were finalized in January of
this year.
The fast Compact was negotiated when RMI was still a territory.
Many provisions were accepted by RMI in the interest of achieving self-
government as early as possible and sometimes to the detriment of its
regional or individual island atoll interests. The Kwajalein people in
this context accepted agreements pertaining to Kwajalein, even though
the agreements were not completely satisfactory to the people. Indeed,
in the plebiscite on the Compact in 1982, the people of Kwajalein
overwhelmingly voted to reject adoption of the Compact (the Compact was
nonetheless approved by the RMI by a close margin).
The KNC was formed in large part in order to adequately represent
the interests of the people in this regard to ensure that any agreement
reached would be equitable and in the interests of the people at large.
Part of the Compact agreement reached in January of this year
between the RMI and the U.S. Government included a new agreement on the
Military Use and Operating Rights Agreement, otherwise known as the
MUORA. The KNC opposes the new agreement as presently structured and we
are asking Congress to either change the agreement to include
additional compensation for landowners or postpone approval of the
MUORA until a satisfactory agreement can be reached between all the
parties.
THE MILITARY USE AND OPERATING RIGHTS AGREEMENT
The current Military Use and Operating Rights Agreement (MUORA)
governing Kwajalein expires in 2016. Some argue that the U.S. already
has rights to Kwajalein until 2016 and therefore no new agreement
should be negotiated before expiration of that agreement. The people of
Kwajalein honor the right of the U.S. to Kwajalein until 2016. However,
as other matters in the Compact are brought up for discussion or
modification, it is only fitting that the most important component of
that agreement, namely U.S. defense rights in the Marshall Islands, be
revisited. We believe this exercise to be of mutual interest and
benefit because it can eliminate those aspects of the first Compact
that are unfair to the landowners while at the same time guarantee the
long-term access that the U.S. seeks. A mere extension would perpetuate
the existing hardships and inequities and would ignore the lessons
learned in the first fifteen years of the Compact.
Any extension of the MUORA beyond 2016 requires the approval of the
people of Kwajalein as stipulated by our Constitution. Moreover, any
change to the MUORA that would extend the use of Kwajalein by the
United States beyond 2016 requires that a new Land Use Agreement
(``LUA'') be implemented between the RMI and Kwajalein Landowners.
Accordingly, the new MUORA agreement cannot be implemented without a
new LUA.
The KNC rejects the notion that the execution of a new LUA is
exclusively an internal matter between the national government of the
RMI and the landowners of Kwajalein. Although we understand that it is
the position of the United States that the U.S. negotiates ``sovereign
to sovereign'' and that it must respect the nationally recognized and
duly chosen representatives of the people of the RMI, the United States
always takes into account the practical considerations that exist in a
country when implementing new agreements. For example, in 1982 the U.S.
required that the original LUA be implemented before the U.S.
Government agreed to the present MUORA in force between our
governments.
The point has been made that if the people of Kwajalein have an
issue with the MUORA we should take it up with our own government in
the RMI and that we do not have standing to petition the Congress for
changes to the agreement. This type of thinking is not credible and
belies the reality of the process in which we are all now engaged. The
RMI in fact is petitioning the Congress for changes to the new Compact
in the areas of infrastructure, inflation, FEMA and other areas. In
1982, Congress legislated changes to the negotiated Compact that
increased coverage for the RMI on programs related to FEMA, Education,
and other items. The issue of increased compensation to Kwajalein is
but one in a number of issues to be addressed by the Congress.
The United States and the RMI recognized the importance of securing
the participation of the KNC in the negotiations when we were invited
to participate in several negotiating sessions between the U.S. and the
RMI. However, when the meaningful bargaining began between the parties,
the KNC was excluded from negotiations. The reasons for this exclusion
are unclear to us. We were left with the proposition of ``take it or
leave it''. Accordingly, we have made it absolutely clear that we will
not support execution of a new LUA until such time as the new MUORA
reflects a fair and equitable deal for the people of Kwajalein.
THE INADEQUACIES OF THE RECENTLY ANNOUNCED MUORA
The term
The KNC opposes the recently announced MUORA proposal because it
does not adequately provide for the long-term needs of the people of
Kwajalein. When these negotiations started, the KNC proposed a 50-year
long-term lease of Kwajalein. We believe that a 50-year commitment on
behalf of both of our governments is in our mutual self-interests.
However, the new MUORA falls short of this commitment. While the new
MUORA purports to be a 50-year extension from 2017 until 2066, with a
possible 20-year extension beyond that, in reality the new MUORA is a
7-year extension, since the U.S. can exercise a termination notice in
2016 that could terminate the MUORA by 2023. After 2023, the agreement
is essentially a year-to-year lease, since the termination notice right
can be exercised in any year after 2016. Accordingly, the KNC, on
behalf of the people of Kwajalein, must consider the social and
financial implications of a termination of the MUORA at a date as soon
as 2023, notwithstanding that the U.S. has falsely described this lease
as long-term.
The people of Kwajalein have consistently expressed their
commitment to providing the U.S. full access to Kwajalein and they
hereby reaffirm this commitment. However, it is also their position
that a piecemeal approach is not a satisfactory arrangement to either
side. Our proposal for a 50-year lease would give the U.S. advantage of
long-term security enabling substantial investments in its missile
defense program while the people of Kwajalein will have the advantage
of economic security. Short-term options do not provide either and in
fact will leave our people in a state of suspended animation, severely
limiting the ability of determining an appropriate development program
for Kwajalein.
The compensation amounts
When the KNC joined negotiations with the RMI and the U.S. in the
early fall of 2002, the RMI and the KNC proposed a joint package based
upon an 8-point comprehensive formula that addressed the totality of
programs that affect the use of Kwajalein by the U.S. Included in the
proposal were provisions dealing with the MUORA Term, Kwajalein
Landowners Compensation, Taxation, a Kwajalein Landowners Trust Fund,
Kwajalein Impact funding, Ebeye Special Needs, Early Termination, and
the SOFA. These items were linked together and the adequacy of funding
for one of the provisions affected the adequacy of funding for the
other.
With respect to the Kwajalein Landowner Compensation amount, the
Kwajalein Landowners proposed a funding index supported by economic and
population indexes that were intended to reflect the inflation indexed
value of the compensation amounts in the original MUORA supplemented by
population growth. This amount, $19.1 million in 2004, was economically
supported and justified by data.
In the negotiations, one-by-one the United States whittled away at
the 8-point proposal and isolated each part of the package so that the
negotiations appeared to be progressing towards agreement upon items of
the package without respecting the interplay between theprovisions
themselves. For instance, the proposal to allow the FM to tax
expatriate workers at Kwajalein at the prevailing national rate of
taxation (an increase from 5% to 12%) was intended to ameliorate a tax
subsidy to the U.S., while at the same time, providing a means of
providing a growth-oriented revenue source to the RMI for landowner
funding. Notwithstanding this basic right of national sovereignty, the
U.S. rejected any increase in taxation amounts, even to the national
rate, depriving the RMI government of its most effective means of
raising revenue to pay for the welfare of its people. We know of no
other example where the United States enjoys such a tax subsidy to the
disparity and detriment of another country. And this agreement locks in
this subsidy for the entirety of the term of the MUORA!
At the same time, the U.S. offered amounts for landowner
compensation that were below inflation adjusted amounts and were
offered without economic rational or justification other than that they
were above what is presently offered in the present MUORA. In the final
offer by the U.S., a $15 million base was offered beginning in 2004 as
landowner compensation. On an inflation basis, this amount represents a
degradation of 60% of the value that the landowner's compensation
amount achieved in 1979. Accordingly, it was no surprise that the KNC
rejected the U.S. offer on Landowner funding as inadequate,
particularly since the U.S. would not offer an alternative means of
achieving landowner compensation through taxation.
The lack of a Landowner's Trust Fund
A basic tenet of the philosophy of the landowners in formulating
their proposal for a long-term lease of Kwajalein was that the term and
the amount of funding for landowner's compensation be sufficient to
provide for the long-term needs of the people of Kwajalein. The U.S.
government states that the new MUORA is a billion-plus deal that will
last until 2086. But as I have already described, the agreement is
actually a short-term extension until 2023 with the possibility that
the U.S. may decide to stay longer. In effect it is an agreement until
2023 with a series of rolling annual 1-year options to terminate if and
when the U.S. chooses to leave after 2023.
Under these circumstances, the landowners are concerned that the
compensation amounts provided in the new MUORA be sufficient that a
corpus of funds be retained that would provide annual income to
landowners sufficient to replace the compensation payment if and when
the U.S. departs. At the $19.1 million level (in 2004), the landowners
offered to voluntarily contribute 10% of the annual compensation amount
into a trust fund for this purpose. This amount was to be matched by a
contribution from the RMI through tax receipts.
The present MUORA offer does not meet the objectives of the people
of Kwajalein in this regard and must be rejected as insufficient to pay
for our long-term needs.
As we have stated time and again, the people of Kwajalein are
committed to long-term access to Kwajalein on the basis of an equitable
arrangement between both parties. If the U.S. and the people of
Kwajalein cannot reach an acceptable arrangement at this time, however,
we would prefer to postpone our discussion related to extension of the
lease beyond 2016 to another time. It is far preferable to us to delay
our talks to the alternative of having to debate a deal that we
consider is unfair and inequitable and which cannot be implemented. Put
another way, the present circumstances will breed division and
opposition in our country.
If on the other hand the U.S. prefers to close out the Kwajalein
Reagan Test Site in 2016, then it should be prepared to discuss now the
terms of that closure including resettlement, restoration, re-
adaptation, and rehabilitation. Environmental clean up and the planting
of crops will take at least 7 years and therefore planning and
agreements cannot wait until 2016. It is the preference of the
landowners that the U.S. remains in Kwajalein, keeping with our mutual
defense agreement. However, should the U.S. plans demand otherwise,
then we should all face up to that possibility by carefully and
adequately planning for it.
SUMMARY
In conclusion, the leadership and people of Kwajalein wish to
reaffirm their full support for the U.S. military activities in
Kwajalein atoll and hope to continue their friendship and cooperation
with the United States. At the same time, we are hopeful that through
changes to the new MUORA we will achieve a fair and just arrangement
for the continued use of Kwajalein. We have formulated several
alternatives as a basis for changing the new MUORA that can lead to
implementation of a new LUA. Indeed, there are many inconsistencies,
other than the Kwajalein land use issue, contained in the draft compact
which may very well justify delaying the approval of this agreement for
one year. This would allow time for both sides to resolve differences
which if allowed to remain in present form will only foment division
within our country and undermine the foundation of our unique
relationship. I make these observations not only as a Kwajalein
landowner but also as a member of the Nitijela. We thank the Committee
for this opportunity and look forward to working with our negotiators
to reach an agreement that will gain early approval by both the U.S.
and the RMI in accordance with their Constitutional processes.
?
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
APPROPRIATIONS
ANDER CRENSHAW, Florida, Chairman
MARIO DIAZ-BALART, Florida JOSE E. SERRANO, New York
TOM GRAVES, Georgia MIKE QUIGLEY, Illinois
KEVIN YODER, Kansas MARCY KAPTUR, Ohio
STEVE WOMACK, Arkansas ED PASTOR, Arizona
JAIME HERRERA BEUTLER, Washington
MARK E. AMODEI, Nevada
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
John Martens, Winnie Chang, Kelly Hitchcock,
Ariana Sarar, and Amy Cushing,
Subcommittee Staff
________
PART 5
Page
Federal Communications Commission................................ 1
Securities and Exchange Commission............................... 109
Office of Management and Budget.................................. 189
S
________
Printed for the use of the Committee on Appropriations
PART 5--FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR
2015
?
?
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
APPROPRIATIONS
ANDER CRENSHAW, Florida, Chairman
MARIO DIAZ-BALART, Florida JOSE E. SERRANO, New York
TOM GRAVES, Georgia MIKE QUIGLEY, Illinois
KEVIN YODER, Kansas MARCY KAPTUR, Ohio
STEVE WOMACK, Arkansas ED PASTOR, Arizona
JAIME HERRERA BEUTLER, Washington
MARK E. AMODEI, Nevada
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
John Martens, Winnie Chang, Kelly Hitchcock,
Ariana Sarar, and Amy Cushing,
Subcommittee Staff
________
PART 5
Page
Federal Communications Commission................................ 1
Securities and Exchange Commission............................... 109
Office of Management and Budget.................................. 189
S
________
U.S. GOVERNMENT PRINTING OFFICE
88-192 WASHINGTON : 2014
COMMITTEE ON APPROPRIATIONS
HAROLD ROGERS, Kentucky, Chairman
FRANK R. WOLF, Virginia NITA M. LOWEY, New York
JACK KINGSTON, Georgia MARCY KAPTUR, Ohio
RODNEY P. FRELINGHUYSEN, New JerseyPETER J. VISCLOSKY, Indiana
TOM LATHAM, Iowa JOSE E. SERRANO, New York
ROBERT B. ADERHOLT, Alabama ROSA L. DeLAURO, Connecticut
KAY GRANGER, Texas JAMES P. MORAN, Virginia
MICHAEL K. SIMPSON, Idaho ED PASTOR, Arizona
JOHN ABNEY CULBERSON, Texas DAVID E. PRICE, North Carolina
ANDER CRENSHAW, Florida LUCILLE ROYBAL-ALLARD, California
JOHN R. CARTER, Texas SAM FARR, California
KEN CALVERT, California CHAKA FATTAH, Pennsylvania
TOM COLE, Oklahoma SANFORD D. BISHOP, Jr., Georgia
MARIO DIAZ-BALART, Florida BARBARA LEE, California
CHARLES W. DENT, Pennsylvania ADAM B. SCHIFF, California
TOM GRAVES, Georgia MICHAEL M. HONDA, California
KEVIN YODER, Kansas BETTY McCOLLUM, Minnesota
STEVE WOMACK, Arkansas TIM RYAN, Ohio
ALAN NUNNELEE, Mississippi DEBBIE WASSERMAN SCHULTZ, Florida
JEFF FORTENBERRY, Nebraska HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida CHELLIE PINGREE, Maine
CHARLES J. FLEISCHMANN, Tennessee MIKE QUIGLEY, Illinois
JAIME HERRERA BEUTLER, Washington WILLIAM L. OWENS, New York
DAVID P. JOYCE, Ohio
DAVID G. VALADAO, California
ANDY HARRIS, Maryland
MARTHA ROBY, Alabama
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah
William E. Smith, Clerk and Staff Director
(ii)
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2015
---------- --
--------
Tuesday, March 25, 2014.
FEDERAL COMMUNICATIONS COMMISSION
WITNESSES
TOM WHEELER, CHAIRMAN
AJIT PAI, COMMISSIONER
Mr. Crenshaw. I want to welcome our witnesses, Chairman Tom
Wheeler and Commissioner Ajit Pai for the committee today. This
is the first time both of you have appeared before our
subcommittee, so I want to welcome you and thank you for being
here today.
The focus of today's hearing is the FCC's fiscal year 2015
budget request. Your request is for a $35 million, or a 10.5
percent, increase over the current level. And while the FCC is
funded by fees, these are fees directly passed on to consumers
so I believe that Congressional oversight is an important check
on the Commission's activities.
Learning that the Commission, prior to your arrival, had
planned to spend money on an inappropriate study outside the
agency's jurisdiction on newsroom operations, leads me to think
that perhaps the Commission has more money than it really
needs.
While we understand that you may have some funding needs in
order to keep up with the ever-changing technology landscape,
we expect you to look at your current spending first before
coming to us for increases. As you both know, the Middle Class
Tax Relief and Job Creation Act of 2012 provided the FCC with
the authority to conduct spectrum incentive auctions, and this
is in itself a complicated process. It is expected to raise
over $25 billion in revenue, as well as create a nationwide
communications network for first responders. So these auctions
will be quite a task for the FCC to implement and I look
forward to hearing more about the development of these auctions
and how we are moving forward.
Given today's technological and competitive landscape, my
interest in seeing a leaner, more efficient, and a more
transparent FCC has not diminished.
Chairman Wheeler, I hope you can take serious the
committee's request to review your organizational structure, to
reform and reorganize the FCC to more appropriately reflect the
Commission's current role, and to keep up with the pace of
technology in the industries that you regulate. This committee
is committed to fiscal responsibility and we take that charge
seriously. We expect all the agencies that are under our
jurisdiction to operate as efficiently and effectively as you
can and that includes the FCC.
The industries and services that the FCC regulates are
crucial, critical to American communications and businesses.
These technologies are advancing at an ever-quickening pace,
and the FCC must keep up while not deterring or stifling
competition and innovation.
Over-regulation hurts American businesses and markets. The
FCC should consider the impact of its regulations and should
employ rigorous, cost-benefit analysis in its rulemakings
wherever possible. I look forward to discussing these important
issues with you all today and there is much to discuss.
So, again, thank you for being here today. I look forward
to your testimony. And now I will turn to Ranking Member
Serrano for any remarks he might have.
Mr. Serrano. Thank you, Mr. Chairman. I would like to join
you in welcoming Chairman Wheeler and Commissioner Pai before
the subcommittee. Both of you are testifying before this
subcommittee for the first time, so we will try not to be too
hard on you. Besides, we are too close to be angry.
Technology places an ever-growing role in the lives of most
Americans. People increasingly depend upon television, radio,
satellite, and Internet service to connect with others to
better understand the world and to expand their economic
opportunities. And from ensuring consumer access to the
Internet to promoting media diversity, the FCC is the primary
regulator ensuring fair access to and fair play within every
aspect of our wide variety of communications methods.
As technology rapidly changes, it is important that the FCC
be able to continue to meet these responsibilities and that is
why we are here to discuss your budget request today.
Given those broad and growing responsibilities, it is not
surprising to see that you are requesting additional resources
for fiscal year 2015. Your budget request is approximately $36
million higher than the funding level you received in fiscal
year 2014. I look forward to discussing how you will prioritize
this money and how we can better understand the various
increases in light of your goals to protect consumers and
ensure the integrity of the public airwaves.
One area of particular interest to me is some of the
problems that have cropped up with regard to the growing use of
smartphones. As smartphones become common in our society, their
use has been accompanied by a steep rise in the number of
thefts of these devices. Unfortunately, while some steps have
been taken by the FCC and others, not enough has been done to
deter smartphone theft, which can be lucrative both here and
abroad.
I recently proposed legislation to require all smartphone
manufacturers and service providers to make, I hate the word, a
kill switch available to consumers which will allow individuals
to render their smartphones completely useless if taken from
them and would eliminate any incentive to steal these devices.
I will give you an example. In New York City I think 40 percent
of crime now is related to the stealing of a smartphone. I
think 20-something attorney generals, including New York's,
have come forward and said that this is a serious issue, one
that we have to address. I hope to get your thoughts on this
issue and on what more needs to be done in this area to protect
consumers.
Once again, we welcome you, and I must say that this is one
of those hearings, notwithstanding our starting hour, that I
take very seriously because I am a technology user. I have
every iPad you can think of. I have every smartphone you can
think of. I am not ashamed as a member of Congress to say that
I watch TV. You know, most members of Congress say they only
watch CNN or Fox and nothing else. I admit that I watch the
Westerns channel and everything else. I listen to the radio. I
have satellite radio in both cities. And so I take seriously
what you do and what chances you have to better the quality of
service that you provide the American people, understanding
always that the airwaves belong to the American people.
And, Mr. Chairman, lastly, years ago I was very strong on
the issue of when the FCC was going after some broadcasters for
the way in which they conducted their programming. And I said
at that time, All you have got to do is turn Howard Stern off.
If you do not like it do not get upset, just turn it off. And I
am a big believer in that freedom of expression even if it
upsets someone. So thank you and thank you for being here with
us.
Mr. Crenshaw. Thank you, and now I turn to Chairman
Wheeler. We will make your written statement part of the record
and if you would limit your remarks to about five minutes that
would be great.
Mr. Wheeler. Great. Thank you very much, Mr. Chairman, Mr.
Serrano. As you both have pointed out, this is my first time
presenting a budget before an Appropriations Subcommittee. It
is not my first time presenting a budget, however. And what I
thought might make some sense would be if I revert to form
today as during my days as a businessman and just kind of hit
the issues that I think are important that we ought to be
paying attention to in this budget.
You were absolutely right, Mr. Chairman. This is a $35
million increase. This is a 10 percent increase. This is
serious money. You have the right to take a serious and hard
look at it because it demands explanation.
The increases break into approximately thirds. About one-
third is for technology upgrades, which is a cost-saving and
efficiency-increasing expenditure. About one-third is for
Universal Service Fund reform, which is expanded enforcement
and new rules. And about the final third is for two things.
One, it is inflation, salary, benefits, mandatory things that
we have to do and we are required to do. And the other is the
movement of the broadband map from NTIA's responsibility to the
FCC's responsibility and how we pay for it. So let me see if I
can unpack each of those just very quickly.
For information technology, $13.5 million is our request.
Our IT is old. It is inefficient and is insecure. Forty percent
of our IT systems are more than 10 years old. This means that
for many of them there is no vendor support. And they are
costly to maintain. We have, amazingly I discovered when I came
in, 207 different computer systems for an agency of 1,725
people. There is not a business in America that would put up
with that. Our systems are incompatible. They cannot talk to
each other. And they are highly inefficient. And worst of all,
they are insecure.
I would be happy to go into more detail about that in a
non-public setting, but there are serious challenges that we
have. Thirteen million dollars, as you point out, Mr. Chairman,
is a lot of money but the reality here is if we do not spend
that now we will spend that in the next two years in the baling
wire and glue that we have to use to hold the existing systems
together.
The second issue, Universal Service Fund reform, is about a
$10.8 million expenditure. We oversee an $8.4 billion Universal
Service Fund program that is going through significant change
that brings sizeable challenges with it. The Lifeline Program
has been abused. We will save $160 million this year through
eliminating unqualified recipients. Companies, not just
consumers, have been involved in this. We need to beef up
enforcement. If you talk to the Enforcement Bureau folks, my
line from day one has been, I want heads on pikes. And we need
enforcement capability that we do not have.
The high-cost, rural part of universal service, we are
shifting from voice to broadband. We are running some trials in
rural areas to help accomplish that, as well. The resources of
our Wireline Computation Bureau are constrained and pulled in
other directions, not the least of which is overseeing the
transition to all IP networks, which is a key component of
this. And we do not have the resources there.
And finally, the E-Rate Program, the third part of the
Universal Service Fund, is an 18-year-old program built around
18-year-old priorities that is not focused on the priority of
broadband delivery to schools and libraries. It needs
redirection. It needs cost-efficiency. And we are in the midst
of developing new rules to accomplish that.
But let me talk a little bit about management here. We need
more muscular enforcement of what is going on in the Universal
Service Fund. I am starting up a strike force to focus on
waste, fraud, and abuse. We have today 25 FTEs for enforcement
and an $8.4 billion program. I do not think it is sufficient to
do the job. We need more muscular enforcement. We need
investigators. We need auditors. We need financial enforcement.
It is not just more lawyers. We need people who are out there
and can make sure that the program is being administered
efficiently and we need to spread them throughout the agency:
in the Enforcement Bureau, in the Office of Managing Director,
in the Office of the Inspector General, and in the Wireline
Bureau.
The last leg, the last third, as I said, there is $5.7
million for mandated personnel pay, benefits, obligations and
about $3 million for the broadband map that NTIA used to pay
for.
Finally, Mr. Chairman, two quick notes. As you noted, the
agency pays for itself through fees. And also as you noted,
this is a huge growth area for the economy. We are trying to
bring to regulation, we are trying to wean from regulation, the
idea that the regulator knows best. We are trying to encourage
competition as a force that regulates the marketplace, to
protect competition, to expand competition. And we are trying
to have a regulatory policy that reflects that when there is
competition there is less need for regulation. And we also have
the responsibility to make sure that we are providing stability
for those who make the investment in the capital, for those
that create jobs, and that we are fulfilling the consumer
protection obligations that the Congress has laid down for us.
I take your admonition about our responsibility for fiscal
responsibility very seriously and look forward to discussing it
more with you.
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Mr. Crenshaw. Well thank you very much. Commissioner Pai,
would you like to make an opening statement?
Mr. Pai. I would, Mr. Chairman, that would be great.
Mr. Crenshaw. The floor is yours.
Mr. Pai. Chairman Crenshaw, Ranking Member Serrano, and
members of the subcommittee, thank you very much for inviting
me to testify here today. I expect and welcome your questions
about the budget-specific nature of this hearing in the
colloquy, but today in my opening statement I would like to
focus on two very important policy issues before the FCC.
First, the incentive auction and second E-rate reform.
First the incentive auction. Given this subcommittee's
focus on appropriations, it is worth noting that the FCC is one
of the few agencies in the U.S. government that can generate a
profit for the government. Between 2005, and 2008, for
instance, the FCC held spectrum auctions that raised over $33
billion that was devoted to the deficit reduction. The
commission's auction program has not always turned a profit.
From January 2009 until December of 2013, the FCC raised a
paltry $72 million in auction revenue. Indeed, when you account
for the commission's spending on auctions our auctions program
actually lost money during those five years.
In 2012, Congress tasked the FCC with pushing new spectrum
into the commercial marketplace and raising at least $27.95
billion for national priorities. Specifically, the Spectrum Act
targeted more than $20 billion for deficit reduction and $7
billion for the build-out of a nationwide, interoperable,
public safety broadband network. Now that build-out makes good
on a recommendation, a long-standing one, from the 9/11
Commission, that first responders need interoperable
communication systems in times of disaster. The Spectrum Act
also set aside up to $135 million for state and local public
safety officials, up to $300 million for the research and
development of wireless public safety communications, and up to
$115 million for the deployment of next-generation 911.
Now the broadcast incentive auction will be the
commission's best opportunity to hit that $27.95 billion
target. Now at this point, my greatest worry about the
incentive auction is about participation. In order for the
incentive auction to be successful, we will need robust
participation, both by broadcasters and by wireless companies.
And that in turn means avoiding unwise policy choices that will
deter participation in both the reverse and the forward
auctions respectively. My own position on the reverse auction
is simple. Prices paid to broadcasters for their spectrum
should be determined by the market. The commission should not
set those prices by administrative fiat.
On the forward auction, the commission should not limit the
carrier's ability to participate, such as by setting a spectrum
cap. The result of doing that would be less spectrum for mobile
broadband and less funding for national priorities, a higher
budget deficit, and an increased chance of a failed auction.
Under the law we have only one option, which is success,
because we only have one chance to get it right.
The second issue I would like to discuss briefly is the
Universal Service Fund's $2.4 billion schools and libraries
program, better known as E-Rate. Now in many ways, E-Rate has
been a success. Just last year, for instance, 87 percent of
educators responding to an independent survey reported that
they had ``adequate bandwidth for robust instructional needs''
in all or most classrooms on a school campus.
But E-Rate also has had its share of difficulties. The
application process for one is so complicated that the majority
of the Universal Service Fund's entire administrative cost is
focused on E-Rate. Many schools and libraries feel compelled to
hire outside consultants to manage all the complexities. Others
do not even bother applying at all. Services like paging are
prioritized over next-generation services like connecting
classrooms. Money is wasted.
One Brooklyn school, for instance, has received millions of
dollars in E-Rate funding even though it does not allow its
students to access the Internet. And there is no meaningful
transparency with respect to either the amount or the impact of
E-Rate funding.
To solve these problems I have proposed a student-centered
E-Rate program. This means an upfront allocation of funding and
a matching requirement so that schools and libraries know in
advance how much money they can spend and have strong
incentives to spend it wisely. This means simplifying the
application process. This means targeting funding at next-
generation technologies while still letting local schools set
their own priorities. This means making all funding and
spending decisions accessible on a central website.
My proposal would reduce administrative costs and in its
first year alone a student-centered approach would provide an
extra $1 billion for next-generation services, all without
collecting an extra dime from the American people. Accordingly,
my view is that we should not increase the E-Rate Program's
budget. And under no circumstances should we do so without
finding corresponding savings elsewhere in the Universal
Service Fund. We cannot ask Americans to pay even more on their
monthly phone bills, especially when the median household
income in this country is now lower than it was in 2007.
Finally, I should note that while all commissioners are
asked to vote on a budget proposed by the chairman and
submitted to the Office of Management and Budget, I have not
been asked to participate in the development of our agency's
budget request. With that context in mind, I will do my best to
respond to any questions you may have.
Also, Chairman Crenshaw and Ranking Member Serrano, thank
you once again for inviting us to testify. I look forward to
your questions and to working with you in the days to come.
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Mr. Crenshaw. Well, thank you very much and as we get into
the questions we are going to observe what we call the five-
minute rule. I will recognize Members in order of seniority if
they were here when the meeting started. Then the latecomers
will be recognized in order of their late-coming and we will go
back and forth from side to side.
Let me start by just reiterating what Commissioner Pai
said. He was not involved in putting the budget together. That
is something the chairman does from his office. But he will
have a perspective and so if people want to ask him or Chairman
Wheeler about budget items, certainly feel free to do that.
I would like to start by just saying that Chairman Wheeler,
you came out of the private sector. You had a lot of experience
and probably bring a fresh approach to a lot of the issues that
will come before your Commission. You and I talked a little bit
about how you balance regulation, both from inside and outside.
You have become somewhat famous for your famous seesaw. So
maybe you could tell the subcommittee a little bit about your
view of that seesaw as it relates to regulation.
Mr. Wheeler. Thank you, Mr. Chairman. Yes, and you have got
the movement down really well. It is a simple concept. If we
are existing in an area where there is competition that is
watching out for consumers and the marketplace, then there is
less need for the agency to do things. But the important thing
is to recognize that the seesaw goes both ways. Our
responsibility is how do we encourage this? In a period where
there is so much rapid change in technology, we need to
recognize that we are not as smart as the Internet. We should
not be trying to second-guess it. We should be facilitating
competition. We should be protecting competition where it
already exists. I talked in my testimony about how we are
trying to wean ourselves from the old regulatory model that the
regulator knows best and that is the approach that we are on.
Mr. Crenshaw. Well, when you talk about the 10 percent
increase you outline, I appreciate that. As it relates to the
regulatory aspect, did you find any places where you could save
money where maybe not as much regulation might be needed,
because bureaucracies tend to just say, ``I will take whatever
I had last year and I will add onto it.'' And one of the things
that I think you probably learned in the private sector is that
sometimes it is good to make sure you are spending the money in
the right places to start with before you ask for more. So I am
just curious, did you find any areas that you might be able to
save money?
Mr. Wheeler. One of the hardest adjustments in coming to
this job is the inflexibility that you have in allocations. So
you have got 70 percent of our S&E budget being people. In
business you can deal with employees in a way that you cannot
in the government. So what you do is you end up moving people
around as priorities shift. And what I can assure you is that
priorities are constantly shifting because of the new realities
in the marketplace. And one day you are over here worrying
about narrow band spectrum activities and you get through that,
which was a huge undertaking, and you have got to pull those
people off to go over and plug this dike. And it is a constant
situation of doing that.
[The information follows:]
Mr. Wheeler. It is also important to note that the
Commission is at a 30 year low for FTEs and we have almost
halved our contractors since 2011. Our staff includes highly
credentialed and experienced technologists, engineers,
economists, attorneys and para-professionals. We detail and
move people as needed to different bureaus and task forces, but
we are still working below the staffing levels necessary to
carry out our core mission, especially with regard to USF and
IT.
Mr. Crenshaw. So you are looking at that. That is good. Let
me just ask Commissioner Pai the same kind of question,
recognizing that it is the Office of the Chairman that really
puts together the budget, but when you look at the way the FCC
is working, does it look like the budget is as lean as it could
be, are there areas that you have observed, without being a
part of putting the budget together, that there could be some
savings?
Mr. Pai. Mr. Chairman, I do think that there are
programmatic efficiencies that the FCC could wring out of the
system, some on our own and some frankly with Congress' help.
To give you an example of the former, my own E-Rate proposal
would dramatically reduce the administrative costs that the FCC
has to spend because it would simplify the application process.
So all the hundreds and thousands of forms that we have to
monitor, that schools and libraries across the country have to
submit, we could dramatically simplify that with my approach.
Mr. Wheeler. And we need to simplify it for the schools and
libraries that are applying as well because of the fact that we
have created this structure that does not work for them,
either.
Mr. Pai. Exactly. And I completely agree with my colleague
because what we found is a lot of schools and libraries do not
even bother seeking these funds because the process is so
complicated. With respect to the latter category, costs we
could save if we had Congress' help, a great example is the FCC
Consolidated Reporting Act. Right now FCC staff, and I can say
this because I used to be one of them, spend a lot of time
compiling, reviewing, and submitting reports to Congress on an
individual basis and this takes up a lot of staff resources.
With the passage of the Consolidated Reporting Act, we could
submit to Congress a single book, essentially detailing all of
the facets of the communications industry. That would save us a
lot of resources and frankly would be better for Congress, as
well. You would have a one-stop shop where you could go for all
the facts that you need to discharge your legislative
responsibilities. Those are just two examples, but we would be
happy to go into further detail.
Mr. Crenshaw. Well, thank you very much. Let me turn to Mr.
Serrano.
Mr. Serrano. Thank you, Mr. Chairman. I seem to get the
sense that you both agree that changes need to take place but
you do not agree on how the changes or what changes need to
take place, at least that is what I am getting from this
conversation here.
The FCC is one of the few agencies that touches just about
every American. I mean, who does not have a phone or a TV set
or a radio, and so on? And so, I would like to see wherever
possible, and I am the Ranking Member, I am not the Chairman,
but I think I speak for him also in saying that we would like
to see a more united front in telling us how and what role we
should play. It is not simply for us to say, You are spending
too much money, which I must remind people the $35.5 million
increase is fee-funded and does not increase the deficit at
all. So they are not asking us directly for money. But I would
like to see, if I can be a mediator here, more of a joint
effort in telling us how we can help you. And you can start off
by talking about my personal bill, the Smartphone Theft Bill.
Now, does your information, Commissioner, say that that
crime has gone up in the country? And in our bill, which is put
together with the assistance of Attorney General Schneiderman
in New York, we leave it up to the manufacturers to use the
technology that they have available. We do not say you must do
it this way or you must do it that way, and they have the
ability to do it. Number one, have those crimes continued to go
up, is that an issue that either one of you or both of you are
concerned about? And secondly, can, in fact, Congress not waste
time in telling manufacturers to Use what you have available to
make sure this does not happen anymore.
Mr. Wheeler. So thank you, Mr. Serrano. Let me take both
parts of that. I agree with you about the importance of a
commission that is working together, and Ajit and I actually
checked this before coming here, Ajit and I have agreed on 90
percent of the votes taken at the FCC since I have arrived.
Sure, we disagree on some issues. We disagree on some major
issues, and I think that is what makes the commission stronger;
and the other part about it is that at some point in time we
have to sit down and decide. I think that my job as chairman is
to help push decisions, and when you can have an environment
where you have got 90 percent of the time you are agreeing, and
10 percent of the time you are not, and when you are moving
into decisions, I think the commission is better for that.
Now, let me talk specifically about your bill. I agree it
is a problem. I agree it is growing. I just had a meeting,
interestingly enough, with my counterpart, the director of
communications in Colombia who was talking to me about the
great problems they have. It is not drugs any more. It is cell
phones, and how do we work together on this. And the kill
switch is an idea that is right in concept but with problems in
implementation which I think can be solved. I mean I am a guy
that came out of the technology business. So I believe in
technology to solve things. I mean the problem is that I lose
my cell phone; I think it has been stolen; I call and they kill
it, which means they fry the innards. I find it in the seat of
the couch two days later. My phone is shot. There has got to be
a way of overcoming that problem.
Mr. Serrano. But when you are in the subway, because I do
not want to knock my city, but if somebody rips it off of you,
you know you did not lose it in the couch.
Mr. Wheeler. So, you have got to be able to deal with both
situations. I am on the phone later this week with--I will not
say who it is, but a major figure in the production of devices
that have redefined the way in which we use mobile devices, and
this is my topic with him: What can we do?
Mr. Serrano. Does it have a fruit attached to it?
Mr. Wheeler. It has a fruit attached to it, and you are
very perceptive, sir. This is one of my topics. We have got to
solve this, and I think one of the jobs, and I think this is
something that Ajit and I agree, again, another one of these
places that we agree, is that it is not just true that thou
shalt regulate, but it is also true that we have a bully
pulpit. And I think we have got a responsibility as a bully
pulpit. He has been doing a great job with hotel safety from
his bully pulpit. We are going to try and move on this. As I
say, I am talking to folks about it. But I understand your
issue and it is a legitimate issue.
Mr. Crenshaw. Maybe just quickly, Mr. Pai.
Mr. Pai. Sure, I appreciate the question, and the chairman
has eloquently stated the rationale behind some of the
legislation that you have talked about. I do want to say that
by and large we do agree on a lot of issues. I want to lay down
a marker now, however there is one issue we are never going to
agree. He is never going to root for the University of Kansas.
I will never root for Ohio State. Nonetheless.
Mr. Wheeler. I will stipulate to that, sir.
Mr. Pai. I do agree on the power of something he said in
his answer, and that is the power of technology to solve
problems. That is where we unite. Technology has the ability to
cross borders, to cross cultures, and to really solve problems
that hitherto have been unsolvable. Now, we might disagree
about how we get there, but I never question his love of
country, his care for the agency, his knowledge about the
issues, and his determination to meet what he believes to be in
the public interest. And my own view of regulation is a little
bit different. I of course think generally speaking that it
should meet three criteria: be consistent with the statute, the
cost should always be outweighed by the benefits, and, finally,
it should be restrained in recognition of the fact that these
are very dynamic markets. But as he said, nine times out of 10
we tend to agree. And that I think heralds well for the course
of our dialogue going forward.
Mr. Crenshaw. Thank you.
Mr. Serrano. Just very briefly, Mr. Chairman, I was just
informed by the good people who are always smarter than I am
and more prepared back here, that our legislation allows for
technology, which exists already, not to fry it as you said,
but actually to bring it back to life in a certain way, but
only by the owner, and not by anyone else.
Mr. Wheeler. I do not want to have a hearing on this, but I
understand that point, and the challenge becomes how do you
prevent that from being hacked. There are solutions. We have
got to find those solutions. That is why I am talking to these
folks and saying, Let's go find them.
Mr. Crenshaw. Thank you. Mr. Womack.
Mr. Womack. It is refreshing to know that the two of you
can agree on a lot of things, with the exception of rooting for
each other's team. I am assuming that one of you will not be
rooting for Dayton, and the other one will not be rooting for
Stanford in the context of the NCAA Basketball Tournament. But
I want to join in congratulating you on your positions and
welcoming you to the committee.
I want to go to cyber first. While examining the budget
request, observed a surprisingly strong emphasis on improving
cyber security. The proposed improvements include storage
expansion, big data cyber security analytics, cyber security
metrics, among other things. Can you expand on the commission's
goals of these programs, both in the near term and over the
long haul?
Mr. Wheeler. Okay. Yes, and I would be happy to go into
more detail without cameras.
Mr. Womack. Absolutely.
Mr. Wheeler. We are on the edge of the DHS minimum
standards for what is expected for a federal agency for
security. We need to fix that. You just ran through the things
we want to put in place to address that. If we are charged with
responsibility for the networks of America and everybody keeps
saying, ``those networks have to be secure, well we better be
secure in what we are doing. So as you point out, using big
data to do tests in real time on security, I mean security has
moved so far past white lists, and black lists, and firewalls.
How do you use big data for real time security? How do you make
sure that you have got networks in place that themselves are
secure, and that the equipment is secure, and that you are not
using software programs that themselves are so easily hackable.
When you are using 10 year old equipment, this is kind of per
se that it is an invitation to hack, but I would be happy to
talk a lot more about it. Cyber security has to start at home
and it has to start with us.
[The information follows:]
Mr. Wheeler. The Commission's IT request is $12.5 million.
The cyber security efforts include IT storage expansion, Big
Data Cyber security Analytics, Cyber security authorization,
admission and education, cyber security metrics and
modernization of the aging IT systems. Under IT storage
expansion, the Commission will expand the tiered enterprise
storage solution to include off-site backup and replication
technologies--this will lead to improved disaster recovery and
COOP capabilities. Current big data technology includes massive
data repositories, cloud technology and the use of unstructured
data. Big data will present options that automate capabilities,
reduce analyst burdens and improve the ability to quickly
perform functions. In addition to improved authorization
techniques to ensure security with virtualized computers and
additional education for internal uses, the Commission also
must commit to a global modernization of aging IT systems to
ensure that they can resist outside attacks.
Mr. Crenshaw. Mr. Pai.
Mr. Pai. Congressman, with respect to internal systems that
are used by the FCC, I agree that cyber security is critical.
Under the law the FCC's authority with respect to cyber
security is relatively narrow, and so I see the FCC's role in
the overall public dialogue about cyber security as being more
of a supporting one. I think other executive branch and
independent agencies might be better placed to take a leading
role when it comes to that important issue.
Mr. Womack. How do you work with other agencies?
Mr. Wheeler. We are part of an interagency working group on
this. We also are the home of multi-stakeholder processes,
which goes in exact point to what the chairman was talking
about, is how do you get the people themselves to worry about
it, rather than walking in and saying, I am smarter than you
and here is how I am going to do it. So for instance, we have
what is called CSRIC, which is a working group on security and
reliability of networks. That includes all the major network
providers, all of the major suppliers. They have come out with
voluntary standards to address the BOTNET issue with standards
on DHS security, with standards on router security, that they
all did voluntarily, sitting around a table that we asked them
to come to. We have now asked them to help develop metrics. You
have got to understand, okay, are we meeting the goals, because
that allows you to say, Okay, then I need to zig, or zag to do
that. To use this same kind of a process, we've initiated the
multi-stakeholder process to address other issues that may be
arising in cyber, but doing it in a way where we are bringing
the industry in, and we are the convening force. We are saying,
Okay, what do you think we need to work on? How do we work on
it? Let's come to conclusions on it.
Mr. Womack. Good. I know I am about out of time. I will
yield back on this round.
Mr. Crenshaw. Mr. Quigley.
Mr. Quigley. Thank you, Mr. Chairman. Gentlemen, thank you
for your service. In my district and obviously in the country
there have been incidents that bring about the need for the
implementation of positive train control as quickly as
possible. It is a difficult enough issue for the rail industry
to meet, in the timeframe that has been given, and the cost
that are involved, but we are learning of other issues which
makes this even more difficult. You all play a role with the
poles that are going to be involved with transmitting this
information, and while I hear that, you know, they are going to
be able to get done within the timeframe needed for a hearing
otherwise, it is sometimes you single one can take three to
four months. How does this work out where we meet both these
deadlines? Yes.
Mr. Pai. Are you asking me?
Mr. Quigley. Yes.
Mr. Pai. Well, Congressman, I think it is a critical issue,
and I think that the FCC's general focus on speeding the
deployment of wireless infrastructure really hits home, when it
comes to the positive train control question.
Recently as the chairman can elaborate, the Wireless
Telecommunications Bureau issued a public notice involving
trying to streamline this process to identify what some of the
roadblocks are, and in a nutshell I am hopeful that in the
coming weeks and months you will find a much speedier process
that would allow the industry to deploy in a manner that
satisfies both the statute and the interests of your
constituents.
Mr. Quigley. Both hearing it is taking three to five
months.
Mr. Wheeler. Yes, there are two components to PTC. One is
spectrum and how you have to have the spectrum to be able to do
that, and we have facilitated the transfer of spectrum, the
licensing of the spectrum, and I think that you would hear from
the railroad folks that that has been quite a success.
On the tens of thousands of poles that have to be put along
railroad tracks, there is a statutory requirement that we have
to consult with the Native American tribes on the placement of
any such poles. It is been true of every cellular tower ever
put up. That I think was never really factored into the
thinking on this, but there is a clear statutory requirement.
I think also that the railroad industry was not mindful of
that until recently, and in fact went out and put thousands of
poles in without this kind of approval and then realized oh my
golly, we have to do it. Everybody has been in a scramble to do
these things.
Here's what we have done. So, we have convened two meetings
thus far with the various tribal groups and the railroads, to
sit down and develop an expedited batch processing. Frankly
they just were not structured for the kinds of tens of
thousands of requests that are coming in. It used to be, okay,
here is this pole in this area, one at a time kind of thing.
So, we have got a batch processing structure in place, and so
what we are trying to do is two things. One, we are trying to
expedite the process, and two, we are trying to be true to the
statute that we are mandated to enforce. And it is crucial that
we have the rapid deployment of PTC, period.
Mr. Quigley. Well there is another issue, and I appreciate
your response from both of you, but for communal rails in urban
areas like mine, like Metra, there is an additional issue of
the extraordinarily high cost associated with the purchase of
broad spectrum that has going to have to take place there. Is
there something you are considering that will help along these
lines to assist these rail industries across the country, the
industries like Metra?
Mr. Wheeler. So, my understanding is that a group of these
freight railroads got together and acquired spectrum, and that
that spectrum is now being shared with metro and others, and
that we have been working to facilitate the necessary license
transfers, et cetera. If there is another situation and we are
not aware, I would be happy to get on top of it.
Mr. Quigley. We will get back to you on that.
Mr. Wheeler. Great.
Mr. Quigley. Thank you both for your answers.
Mr. Crenshaw. Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman. Gentlemen, thank you
for being here, and just listening to the discussion today. I
can only imagine how difficult it is, the broadness of the
issues from railroads to cellular communications and spectrum.
Mr. Chairman, quickly about a proposed, I guess, rule that
has going to be changed here or I guess taking effect at the
end of March, dealing with JSAs. I know the intent of the
commission is to provide more diversity to be in the
marketplace, and there seems to be a lot of disagreement that
that might not be the desired outcome, and in fact it might
have an adverse effect on diversity in the marketplace. Do you
sense that this rule change will provide more minority
ownership of stations and broadcasting, or less minority
ownership?
Mr. Wheeler. More. Let me give you a couple of statistics.
In 2006, there were 19 African American TV stations in this
country; today there are four. During that period, there was an
explosion, a tripling of the number of these JSA waivers, and
let's just make sure that we define what is going on here and
what happens in a JSA waiver. The commission approves a waiver
from its rule that says there can be only one owner per
television station per market.
What has happened is, as there has been this explosion in
JSAs, it has enabled the companies that are the base companies
for that, that have the agreement with other stations, to buy
stations at a price that frankly is higher than would be
otherwise available for an independent entrepreneur to come in
and buy it, because they have these economies of scale. And so
the issue about JSAs is that JSAs are a way around the
commission's longstanding rules, and that they have been done
in an off-the-record, nontransparent manner over the years.
What we are going to be proposing at the end of the month
is that it be made transparent, that you need to establish why
it is that this JSA is in the public interest, and that we
believe that one of the results, this is not the main purpose,
but one of the results will be an opening up of broadcast
licensees for minorities, women, small entrepreneurs, because
they are currently being sucked off the market. This is one
place that is not part of the 90 percent.
Mr. Graves. Just for clarification for record, you said in
2006, there were 19 minority owned JSA.
Mr. Wheeler. Television broadcasters.
Mr. Graves. And today?
Mr. Wheeler. Four.
Mr. Graves. Four.
Mr. Wheeler. And three of those four are existing under
JSAs.
Mr. Graves. And if I could get Commissioner Pai's thoughts
on that. Do you agree? Will it provide more or less minority
ownership of broadcasting?
Mr. Pai. This proposal, if adopted, will result in less
minority and female ownership of broadcast properties. Anecdote
and then data: the general manager of WLOO, Pervis Parker, in
Jackson, Mississippi, sat on my chair in my office and told me
point blank that without the cost efficiencies in the JSA that
he is involved in with WDBD allows him, he would have to hire
his own sales staff. He would have to stop gathering as much
news, and long term he worried that the entire station would
have to go under. WLOO simply does not have the cost structure
that allows them to employ their own sales force, and if you
think about it, any business, especially one in the
broadcasting industry has certain fixed costs. It cannot avoid
those costs.
If the JSA allows a small entrepreneur like Mr. Parker to
spread some of those costs among other parties while still
retaining the independence of his own news and entertainment
operation, that is a good thing. That helps minority
entrepreneurs across the board.
With respect to data, Mr. Parker is not alone. Forty-three
percent of broadcast television stations owned by women operate
under JSAs. As my colleague has pointed out, 75 percent of
African American owned broadcast television stations operate
under JSAs. To me it strains credulity to suggest that you
could take away those efficiencies, predominantly in smaller
and medium sized markets where you are not getting the huge
revenues that you might get in a New York or a Los Angeles, and
it is the hope to have diversity embodied in this industry. It
is simply not going to happen given the current economic
environment.
Mr. Graves. Mr. Chairman, if I could ask one follow-up
here, because there is disagreement between you two on this,
and I know the rule is taking effect at the end of the month. I
mean is this something that the commission has had an
opportunity to vote on and have an open dialogue and debate
over?
Mr. Wheeler. We are voting on it at the end of the month.
Mr. Graves. It is taking place when?
Mr. Wheeler. End of the month, 31st, the vote takes place.
Mr. Graves. Yeah, okay, and the rule takes effect?
Mr. Wheeler. Well, there are two parts to it. One is a rule
that will then follow and the other is a notice for proposed
rulemaking, which will solicit comments.
Mr. Graves. I see, I see.
Mr. Wheeler. I need to be clear. There is a danger. If we
are going to talk anecdotes, we can talk anecdotes, because the
difficulty is that the bad practices often hide behind the
skirts of good people. The reality that we are facing here is
the JSAs are being used to circumvent the commission's rules.
And if we are going to name anecdotes, let's talk about the
anecdote where one broadcaster buys a station, realizes that it
is in either a conflict situation because they can not have it,
gives it to his mother, and then agrees to operate it, and
takes all of the cash from it. And then buys another station,
gives it to his former financial manager, and takes all the
revenue from that.
We have a situation where public company broadcasters are
saying to the SEC, ``we have control of these stations,'' and
saying to the FCC, ``Oh no, that is a different company.'' What
we are trying to accomplish here is transparency, openness, a
common set of rules, and indeed a waiver process that will make
sure that the examples that Ajit gave get taken care of, while
at the same time we are being faithful to our rules and our
process.
Mr. Crenshaw. We will have time to come back to this. Each
of you all got one anecdote.
Mr. Wheeler. I have got more.
Mr. Crenshaw. I mean Mr. Wheeler's was more complicated,
but let me call on Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman. I know we think that
being here today, I do not expect to come out of our five
minutes speed dating process, here in the next few minutes. So,
but I expect to follow-up off the record with you.
Anyhow I represent an area that has largely rural. It used
to be the whole state of Nevada minus Las Vegas, now it is
about half of what it used to be. I have got to tell you, my
rural folks whether they are broadcasters or carriers are
scared to death. They are scared to death because they do not
think that while we are talking about things for the majority
of the population that we should, that there is a lot of
protection for folks who are still over the air folks in those
rural areas in a backup context, in terms of how that has going
to be handled, and even the carriers in terms of the cell
carriers in those same areas. When you talk about getting rid
of spectrum in that area, all well and good, but do we have
some sort of safety net for them?
I want to highlight that for both of you in terms of, you
know, what is going on with the rural. Just off the top of your
head, does the FCC have an office or something that is kind of
focused on rural service in both of these contexts, that we
could use as a point of contact, or is it something where the
same folks are trying to handle things all across the board?
Whether it is packaging for broadcast, sale of spectrum for
purposes of communications, how do you handle that internally?
Mr. Crenshaw. You want to do it?
Mr. Pai. Sure, listen, there is no particular office that
is focused on rural issues, but I can tell you that a lot of
people, myself included, are. I come from a rural area myself
and I have visited everywhere from my hometown to small towns
of 60 and less.
Mr. Amodei. Well, with all due respect, Kansas is a pretty
big state compared to Nevada, but go ahead.
Mr. Pai. That is right.
Mr. Amodei. They made a movie about somebody there,
Dorothy, and her dog.
Mr. Pai. Right, 75 years ago this year. But I think rural
issues pop up in all sorts of different contexts, and so in the
wireless context for example, one of the things I have been
focusing on is trying to make more infrastructure available in
rural areas, where you might not necessarily see a business
case for doing so. On the wireline side, I have tried to focus
on getting the U.S. to assume more standalone support for
broadband, so that some of these rural companies can deploy.
Mr. Amodei. We will be back in touch with you specifically
just to get an update on that, so we can get into a little more
specifics, and I appreciate that. Also, there is an issue in
terms of, and once again, it has to do with billing for
communications carriers in terms of, hey, you want to make sure
the folks from big places like Kansas are not getting their
service in Nevada because they can get a better deal, and I get
that. I do also have a concern that it appears, and I hope I am
wrong, it appears that that is being done kind of without any
regard for what the state public utilities commission processes
are and stuff like that to where it is like; I do not know
whether I want to say that has a major charm school faux pas or
whatever. Is there anything that prohibits the FCC from saying,
This is where you need to end up, but you can go through these
processes so they at least feel like they have had the benefit
of their communications public utilities regulation processes
at the state level before you get there?
Mr. Wheeler. Yeah, and we actually have joint boards that
work with the National Association of Regulatory Utility
Commissioners in identifying issues that need to be addressed,
and how do you address them together, and who does what.
Mr. Amodei. So that has something we can follow up with?
Mr. Wheeler. Absolutely.
[The information follows:]
Mr. Wheeler. The Commission has always recognized that
universal service is a joint federal-state partnership, and has
recommended various issues to the Federal-State Joint Board on
Universal Service over the years. The Federal-State Joint Board
on Universal Service was established in March 1996, to make
recommendations to implement the universal service provisions
of the 1996 Telecommunications Act. The Joint Board is
comprised of FCC Commissioners, State Utility Commissioners,
and a consumer advocate representative. State members are
nominated by the state commission or the governor, and
appointed by the FCC. There is also a Federal-State Joint Board
on Jurisdictional Separations and a Federal-State Joint
Conference on Advanced Telecommunications Services, with
different responsibilities. The National Association of
Regulatory Utility Commissioners (NARUC) is the national
association representing the State Public Service Commissioners
who regulate utility services, including telecommunications.
The Commission regularly solicits input from the states on
rural and universal service issues, in particular through
NARUC, and Commission staff interact regularly with our state
colleagues.
Mr. Amodei. They will be some ongoing discussion on how
that works.
Mr. Pai. Yes, if I could add a quick comment to that, so
this rate floor issue that you are discussing was adopted in
2011, before the chairman and I got to the FCC.
Mr. Amodei. A lot of stuff that Congress did before I got
here. I can appreciate that.
Mr. Pai. I have spoken out against it because in some areas
it will increase the rates that rural Americans pay by up to 46
percent, without saving a single dollar for the universal
service fund. So, I hope that we reevaluate that policy.
Mr. Wheeler. So let me just be clear. I did not realize
that was the specific issue you wanted to talk about,
Congressman.
Mr. Amodei. Probably a poor question, but go ahead.
Mr. Wheeler. And so as Ajit just said, this is something we
both inherited that was a unanimous vote of the commission that
was following through on the statutory instructions from the
Congress that said, ``there must be reasonable comparability
between urban and suburban rates, and rural rates. So the
commission and as I said--by a unanimous vote of the
commission--developed an algorithm. What that algorithm
determined was what the commissioner just said, a difference
where there are subsidies going not to the high cost of
building, not just to the high cost of building in rural areas,
but there are subsidies going from urban suburban consumers to
rural consumers to lower their actual bills.
The law says that they have to be reasonably comparable.
The question becomes the implementation. We put this out for
comment. Comments are due on Monday. I am going to be proposing
that we do a couple of things. One, we need to be moving the
effective date on this to provide more time for people to get
ready; and two, we need to be thinking about how do we phase it
in, so there is not sticker shock in this. But we have got a
statutory mandate as to what we are supposed to do. I think our
challenge is how do we make sure adjustments have a big impact.
Mr. Amodei. I appreciate that, and I see my time is up. And
I do not disagree with the purpose at all, and I will yield
back Mr. Chairman. I would just say that you do not have a
mandate to ignore state regulatory processes when you
accomplish the federal mandate into the extent that you can
accommodate those that would be a nice thing for the federal
government to endeavor to do in this context.
Thank you, Mr. Chairman, I yield back.
Mr. Crenshaw. Thank you. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman, commissioners, Mr.
Chairman, thank you for joining us today, a special welcome to
a fellow Kansan, from God's country out there near Parsons
where I grew up.
Mr. Pai. Objectively spoken, sir.
Mr. Yoder. Yeah, I understand, sure, very good. I
appreciate that, and certainly as a Jayhawk you want a lot of
jocks where you want a lot of respect on this side. So, doing
well so far. Thank you both for coming. Thanks for your work
and service, as we debate about what our priorities are as a
country, as we debate our priorities within the FCC budget,
certainly our job is to help support those programs and things
that have the greatest amount of support, and we think are
consistent with our values as a country.
I know one of the sort of more controversial issues that
has come up in recent months is related to the multi-market
study of critical information needs, and I thought for the
benefit of the committee, you might give us a little bit of
background on how we got to this point, and certainly we have
limited agenda in terms of what the FCC can accomplish each
year. Dollars are scarce and so clearly this got to be a top
agenda item, and I guess the chairman I guess asked how we got
to this point what the methodology was, what the theory was?
What you were aiming at? Why was it eliminated? You both might
speak to the thoughts on that. Was this a division on the SEC?
And then going forward, what does the future look like in terms
of the objectives that were originally attempted to be
achieved? Are those objectives going to be achieved in a
different way?
I think what we all want on either side of the aisle is
protection of free speech and to ensure that our federal
government is not in a position where they may be putting
pressure on our media entities to portray the news in a certain
way, which we certainly would hope would not be the aim or goal
of any of our agencies.
Mr. Wheeler. And we identify entirely with. The act
requires us to do occasional studies on the critical
information needs of various segments of the economy. It is
something that commissions have done, whether they are
republicans or democrats sitting at the head of it.
When I came in, I discovered that there had been a decision
made to move ahead on one of these and that there had been some
concerns raised about some of the specific questions that seem
to tend towards asking for news judgments. And I raised
questions about that. We subsequently heard from the Energy and
Commerce Committee about it. And I asked that those questions
be removed from the survey.
Subsequent to that, Mr. Pai wrote an op-ed piece in the
Wall Street Journal and this became a cause celeb despite the
fact that the questions were out. I took the whole thing and
shut it down, the whole survey. I mean I think it really became
the dog that did not bark because (a) the questions were taken
out and then (b) it was shut down. The reason that they were
taken out is that we have a strong, and I can assure you, I
have a strong sense of the appropriate role of the federal
government in news rooms, period.
Mr. Pai. Period end of answer or period end of sentence?
Congressman, my position is pretty simple. The government does
not belong in the newsrooms of America; government-funded
researchers do not belong in the newsrooms of America asking
questions such as, What is your news philosophy? Have you ever
been asked to cover a certain story, but been told by
management that you should not do so?
Not only are those questions inappropriate as a matter of
constitutional principles, they are inappropriate and
completely irrelevant to our duty under Section 257 to report
on barriers that entrepreneurs and small businesses face. There
is no relation whatsoever.
Moreover, if the goal, as stated by some who supported the
study, is to increase minority participation in the broadcast
business. I am chock full of ideas. I was the first one to come
out over a year and a half ago and support increased foreign
investment in the broadcast business.
I have been out front talking about the need for a media
incubator to allow women and minorities and others the
opportunity to enter this business. I have been up front in
saying and I championed a revitalization of our AM radio rules.
Historically, one part of the communications industry where
minorities have disproportionately been represented in terms of
ownership. There are a lot of ways to actually take action on
this issue without devoting up to a million dollars to a public
health researcher that apparently has no expertise whatsoever
in FCC related issues. And so I applaud the chairman for
stopping the study. I look forward to working with him and my
other colleagues to focus on what really matters the value
underlying Section 257, which is to get new entrants into this
business.
Mr. Yoder. Well, I appreciate both of your answers and I
think if this was in the study at one point, certainly there
was a lack of acknowledgment that it was a problem at the start
and I applaud chairman and commissioner for both of your
efforts to move us forward. Obviously, we have to continue to
be vigilant in this regard because if it was thought of as a
good idea at one point, it does not mean that someone is not
going to say well, let's just ask it in a different way or try
to get to this in a different manner. I think we have to
continue to be vigilant and I appreciate both of your efforts
to ensure the FCC's role is one that respects the right of free
speech in the country, thank you.
Mr. Crenshaw. Thank you Ms. Herrera Beutler.
Ms. Herrera Beutler. Thanks Mr. Chairman and thank you both
for being here. I apologize. I was actually in another
appropriations subcommittee. I have got a lot of work going on
these days. Following up on Mr. Amodei brought up and he raised
about the issue of the urban rate floor.
Commissioner Wheeler, what I am really interested in is our
details regarding the data that the commission used to
determine the urban rate floor, specifically, the data and the
methodology used. As was said a lot of folks in my area are
still struggling especially the rural areas. And I want to know
more specifically how the commission determined this rate
because a 46 percent increase in their phone bill, in my view
is not leveling the playing field. I think it is putting an
unfair pressure on folks who have the least ability to pay.
And I think, I would say Commissioner Pai, you definitely,
I think hit the nail on the head in your statement on the URF
and I would love you to expand on that if there is still
remaining time.
Mr. Wheeler. Sure. One, we are statutorily required to do
it; two, before either one of us arrived, the commission came
up with an algorithm, which I will be happy to get to you. I
can not cite it to you. And it produced these results. Seeing
these results, your response is a legitimate response. I must
say, we have a statutory responsibility. We had a unanimous
vote of the commission to use this algorithm; it produced this
result.
The question becomes what is the best way to stick with our
statutory responsibility and to cause as little impact as
possible? And that was why I am going to be proposing that one,
we move the date out; and two, that we have a phase-in process.
So, that it is not bam, a 46 percent sticker shock hit, but you
move it out over time.
There are parties, including in the industries, who are
opposed to that; that has not been my position though. And as
the chairman of the commission, that is what I intend to
propose.
Ms. Herrera Beutler. I understand that if you put data,
information into an algorithm, it is going to pop out
something. I guess what I would like to know is the data that
went into it and I want to know the validity and the quality of
that data.
Mr. Wheeler. Like I said I will be happy to get that for
you.
Ms. Herrera Beutler. Sounds good.
[The information follows:]
Mr. Wheeler. The FCC conducted a survey of the fixed voice
and broadband service rates offered to consumers in urban
areas. The FCC is using the survey data to determine the local
voice rate floor and reasonable comparability benchmarks for
fixed voice and broadband rates for universal service purposes
in accordance with the November 2011 USF/ICC Transformation
Order. The data is available on the FCC's website at: http://
www.fcc.gov/encyclopedia/urban-rate-survey-data. The form and
content of the Urban Rate Survey for fixed voice services was
adopted in an Order released in April 2013. That Order
concluded that the urban rate survey would be conducted from a
statistically valid sample of fixed terrestrial voice providers
drawn from 2010 Census urban areas and urban clusters within
Metropolitan Statistical Areas. The Urban Rate Survey asked for
voice service rates from a sample of service providers. To
determine which voice providers to sample, the Wireline
Competition Bureau (Bureau) relied on data collected via FCC
Form 477, which is a biannual voice and broadband data
collection. The Bureau used the U.S. Census Bureau's definition
of urban to determine what areas were eligible for the survey
and then defined as the sample pool any fixed terrestrial voice
service provider that operated in these areas.
Mr. Pai. I would simply add that we do have a statutory
responsibility with respect to comparability, but that gives
the FCC a lot of discretion. And I think if you ask the average
person, well if people in Washington pay $21 and people in
Parsons, Kansas, who receive telephone services from a company
that gets USF support pay $14, do you think it makes sense for
the people in Parsons to suddenly pay $21? I do not think many
people would agree that that is very fair and certainly not
consistent with the overall promise of the statute that
universal service should mean just that, that everyone has
access to telecommunications services.
I do hope we revisit that decision and try to, not just
focus on the data and the algorithm, but the entire concept of
what it means for these services to be comparable.
Mr. Wheeler. You know the joy of being chairman is that you
get all of these on your desk. The Universal Service Fund
statutorily exists for the purpose of off-setting high
construction costs so that rural consumers can have equivalent
pricing. That is a transfer from urban, suburban consumers to
rural companies on behalf of rural consumers.
What this study identified, and your question about the
inputs is spot on, but what the study identified was that there
is a transfer from urban and suburban consumers, not just to
companies to offset their higher costs, but to subsidize rural
consumers. That is not provided for in the law. And so my
challenge is being incredibly sensitive to the point you raise
about the impact on real people, but how do we obey the law and
mitigate the impact on people. And that has been what I am
trying to work towards.
Ms. Herrera Beutler. Thank you.
Mr. Crenshaw. Thank you. I think we have time for another
round of questions, if people have more questions. I would like
to ask one question to start with. We talked about it earlier.
Chairman Wheeler, you have been involved in the
telecommunications industry and now you are head of an agency
that regulates that industry. And sometimes people's
perspective changes when you go from being regulated to being
the regulator, so I would like to ask you when you were in the
private sector, can you give me an example of one or two
complaints you might have had about the FCC when you were not
the chairman?
Mr. Wheeler. Yes, sir, two things. One, I think my
philosophy in the chair, as chairman, is based upon what I
learned in business and that is that competition is the root of
everything. Competition encourages investment, competition
protects consumers, and competition is the goal that ought to
be primary.
The thing that business people hate more than anything else
is uncertainty. It is not knowing what the rules are. When an
agency is not decisive in terms of saying, like it or not, here
are the rules. We are not going to run away from tough
decisions. People get paid a lot of money to figure out how to
exist within the rules--just tell me what the rules are.
My goal has been one, how to be competition driven. How to
have competition as the goal and two, how to make sure that we
do not keep competitors in limbo and that means you have to
make decisions.
Mr. Crenshaw. Now, the second part of my question is,
having outlined those criticisms and complaints, how do you
plan to address those now that you are the chairman?
Mr. Wheeler. So, I hope that in the first five months of my
chairmanship, we have demonstrated that we are going to make
decisions and that we are pro competition and that we believe
in the regulatory seesaw. And I hope to keep pursuing that kind
of a path.
Mr. Crenshaw. Mr. Pai, can you comment on that because you
mentioned it in your written statement, and you talked about
the JSA and the controversy there. As I recall there is a new
rule and I think you mentioned in your testimony that there are
some things that are statutory requirements that the Commission
had not done yet. One of the things has to do with ownership,
which I guess the quadrennial review addresses that I think is
required, and yet had not been done yet.
I would like you to comment on that. Maybe first comment on
what we talked about and what you observe that the Commission
is doing to address the complaints that the Chairman talked
about. And then second, touch on your view of new rules versus
statutorily-required things to do.
Mr. Pai. Sure. Thanks for the question, Mr. Chairman. I
agree 100 percent with the chairman that uncertainty is one of
the things that frustrates businesses most and I certainly
defer to him in his 29 years. He has accumulated vast expertise
on the private sector.
Mr. Wheeler. I was going to say, where is your math?
Mr. Pai. But speaking for myself, two of the things that I
have found in my somewhat shorter time in public service are
number one, beware of industries and companies seeking the
regulation of rivals. A lot of companies would support a
particular regulation probably entirely because it would
disadvantage some of their rivals. We see it in non-FCC related
context from Uber to Tesla to food trucks in Washington; we see
it all the time at the FCC. Number two: be restrained about
regulation of dynamic markets.
I can tell you when I first got into this industry, 1998 in
the Department of Justice, the hot issue considered to be the
burning issue of all time was whether to let local telephone
companies into the long distance business. A few years later we
were told in the context of a merger of AOL and Time Warner,
that if we allowed the merger to be consummated, AOL would have
a strangle hold on the instant messenger business. A few years
later we were told that MySpace needed to be scrutinized
because they would have a dominating foothold in the social
media industry.
What I have come to understand through this position is
that markets change and ideally, regulations would be tailored
to the marketplace as it is, not as regulators would wish it to
be or, you know as it might end up being, they think it might
end up being in a few years. Things go in unexpected
directions.
Just before the hearing, the chairman and I were talking
about the fact that the iPhone, a platform for innovation that
we now take for granted, did not even exist a few years ago and
now we see all sorts of applications and services being
delivered on that platform.
The lesson I take is that regulators should be modest.
Certainly they should stay within the constructs of the
statute, but more importantly, I think they should have a sense
of restraint because consumers benefit the best when the
marketplace is left generally unfettered from government
intervention.
If there is an anti-competitive actor or particular
competitive harm, then we have a role to step in and play, but
otherwise we would do well when we regulate a little bit more
modestly.
With respect to your question about media ownership, as I
pointed out in my testimony, Congress charges us to reevaluate
our media ownership rules every four years. We still have not
completed the 2010 quadrennial, long before the chairman and I
got there. Needless to say, some of these rules have not been
updated since 1975. They are screaming out for updates. I
support pro-competitive regulations that reflect the
marketplace as it is, as opposed to the way it might have been
in 1975. And I would hope that my colleagues agree with me on
that score.
Mr. Crenshaw. Well, thank you for that. And I would hope
you all would talk about that as a Commission because so often
agencies pick and choose what they do and do not do and I am
sure there are probably reasons why things happen slower or
faster. But this is something to bear in mind as you seek to
restructure the agency, bring it up to date, do all those kind
of things. I think that would be something to consider doing.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman. You know about the
study, I understand why some of our colleagues, especially from
the majority party, would be concerned about an intrusion or a
lack of freedom of the press and so on. Then there is the other
side of the story. As an elected official, I know I will never
get a positive story. That is just not the way it works. You
read about Benjamin Franklin and all those guys and they never
got a positive story either.
As a Latino, I would like to know at times how people
decide to pick what stories they put forth and why it seems
that there are so many negative stories and very few positive
stories about what we do on a daily basis, like any other
community. You know we are no different than any other
community.
I find myself, and this is really going to sound like a
politician, agreeing with both of you because I do not want
intrusion. I do not want the government to tell people what
they must print and what they must put on the air.
Then I also say as we said, you know growing up in the
public housing project, give me a break. Why does it always
have to be so negative? And so, I wonder if you could comment
in your new-found unity that I found today if there is a middle
ground where we cannot intrude, where we can get my colleagues
on the other side not to say that it is a violation of freedom
of speech or freedom of the press, but at the same time find
out why some groups are treated in a certain way and some
groups do not play a role at all in any positive source.
Mr. Wheeler. So, you wrote the article. Do you want to
respond?
Mr. Pai. You are the chairman.
Mr. Wheeler. Mr. Serrano, I think that the information is
needed. The question is what is the impact of a survey that
arrives with a federal eagle on it? So, I would hope that we
will see academics, we will see foundations, and we will see
groups such as that conducting these kind of surveys.
Basically, I think the question you raise is entirely
appropriate. And I think that Mr. Yoder's question about the
role of a federal agency in that is legitimate as well.
Mr. Serrano. We have been agreeing a lot lately.
Mr. Wheeler. And so here we are, we are all agreeing.
Mr. Serrano. Yoder and I agreeing a lot lately, which
worries me to death.
Mr. Wheeler. But there are solutions and not all solutions
reside in the federal government.
Mr. Serrano. Right, right. So, how do we get to protect
those who do not get a chance to be seen properly?
Mr. Pai. Congressman, I am certainly sensitive to that
issue. I can tell you that growing up in a small town in Kansas
in the late 1970s, early 1980s, it never even occurred to me
that someone like me could be an FCC commissioner; frankly
could even be a lawyer. Everyone in my family was a doctor or
an engineer or something of the sort. I never saw from the
popular media anything depicting Indian Americans as
participating in American public life in the way that they are
now. It is important for us to make sure that the media
landscape represents all Americans.
The question is how do you get there? And so my own view is
that nothing, certainly from the FCC or from the law itself
prevents anybody from studying these issues, from talking about
them, from publicizing gaps in coverage or poor coverage as you
might say. But when it comes to the government, there is a
special limitation on what we are able to do. It is not just
what we are permitted to do, but the mere appearance of what we
might be doing to others raises constitutional concerns. I
think that with this particular study, you saw a lot of the
concern being raised.
I will say I feel like I personally represent both of your
polls. I was born in New York and raised in Kansas and so I am
quite confident we can come together on this as well as many
other issues.
Mr. Serrano. He is a New Yorker. Let me, can I just ask one
more question?
Mr. Pai. Certainly.
Mr. Serrano. Let me ask one more question and I do hope
that we reach a middle ground because we need to have that
information. The last point on that would be yes, government
should not intrude, but in this area it is different because
those airwaves do not belong to the government, they belong to
the people and everybody knowing that. If you are lucky enough
to get an air wave to transmit, I think you have a
responsibility to be fair to all the people that you are
reaching, or ignoring, or whatever. Let me just talk to you
very quickly about the JSAs.
Your claim that JSAs support minority, Commissioner Pai,
support minority ownership is undermined by the fact that
nearly every minority media group, including the Minority Media
and Telecommunications Council, National Association of Black
Journalists, and the National Hispanic Media Coalition, and
public interest groups decry, these arrangements as harmful to
promoting a diversity of voices. They claim JSAs and the
consolidation they allowed denied them ownership opportunities
and resulted in the loss of jobs. How do you explain this
difference of opinion between those advocacy groups who do this
job on a daily basis and you?
Mr. Pai. Mr. Serrano, I work well with many of those
advocacy groups on a regular basis, but all I can tell you is
what the facts on the ground are. In my home state of Kansas,
for example, a JSA between two Wichita stations allows
Entravision, a Univision affiliate, to provide the only Spanish
language news in the entire state of Kansas. Without the JSA
they have told me point blank that news goes away.
Mr. Wheeler. We need one clarification, just to be clear
here. There is nothing in what we are doing that would make
that go away.
Mr. Pai. We hope. Wall Street has spoken. You have seen the
tanking of broadcasting stocks in recent weeks in anticipation.
Mr. Wheeler. That is a whole different issue. Are we
talking about encouraging minority voices or protecting Wall
Street barons?
Mr. Pai. Well, never having spent any time in the industry,
I certainly do not shill for them. But the point is access to
capital is the lifeblood of a lot of these broadcasters. If
they do not have the capital, they either cut back on what they
are doing or they go dark altogether. A lot of broadcasting
companies across the country have told me that these have been
pro-competitive arrangements that have allowed them to do
things that otherwise they cannot do.
Similarly across the border in Joplin, Missouri, a JSA
between Nexstar and Mission Broadcasting has allowed those
stations to save $3.5 million in costs. They have poured some
of those costs into better news programming and they have
poured some of it into Doppler radar.
When the tornado hit Joplin, Missouri in 2011, I would
vouch that a number of lives were saved precisely because they
had those cost savings. My point is, not necessarily that I
think the chairman is acting in bad faith, I would never
obviously believe that. What I do think is that if his concern
is correct that you have a bucket of apples and there are a few
bad ones in there, let's pluck out the bad apples. Let's not
throw the entire bucket away saying this is an anti-competitive
arrangement that was meant to circumvent the FCC's rules. I
certainly would never advocate that.
Mr. Wheeler. The reality is we are trying to deal with a
situation where, and as I have said before, there are people
hiding behind the skirts of good people. There is no way,
shape, or form that the kinds of positive things that you have
been talking about here will not be allowed under the process
going forward. But the decision has to be made in public, on
the record transparently with a known set of rules because what
used to happen, is that broadcast attorneys would go and meet
with the media bureau of the FCC, they would sit there and say,
Okay, now what do we have to do to get this through?
What we have done is say, We want this to be out in the
open and we want there to be a known set of rules. And that
when there are these situations, which I stipulate to, we want
those to continue as well. We do not want the people that are
doing a good job getting the Spanish language into Kansas to be
the excuse why others have an opportunity to flaunt the rules
established by the commission on the basis of the instructions
from the Congress.
Mr. Crenshaw. We will give you the last word. I sound like
I am on television, last word.
Mr. Pai. A quick word. So, I think it is all too easy to
say that the waiver process the FCC is about to adopt will
allow the good ones through and keep the bad ones out. But
point number one, this goes to certainty. How is any
broadcaster, who is not involved in a JSA, supposed to know in
advance whether or not the FCC is going to approve one or not.
Mr. Wheeler. They did not before.
Mr. Pai. Now they will not know until, except on a case-by-
case basis.
Mr. Wheeler. They did not before until they sat down and
started dealing with the same kind of situation.
Mr. Crenshaw. He is going to wrap it up, Mr. Chairman.
Mr. Serrano. Just when I had them getting along.
Mr. Pai. No, number two, I do not think that the fortunes
of broadcasters that are involved in a JSA should depend on a
temporary femoral majority of politically appointed FCC
commissioners. It should be based on the facts on the ground.
And if the facts on the ground identify particular bad apples,
let's address those problems discreetly without changing the
overall rule structure and then setting up an inchoate waiver
process where people have to come in individually and hope that
they can get relief from the FCC.
Mr. Crenshaw. Thank you.
Mr. Wheeler. I will follow your instruction.
Mr. Crenshaw. Unless Mr. Graves wants to ask you all to
keep going. I am just going to ask Mr. Graves to ask a
question.
Mr. Graves. Well, the topic left with me last time and I
want to point out what I appreciate here and that there is a
debate, there is a dialogue, and it is very respectful, and
there is two different opinions. I think coming into this
meeting today, there was the understanding that this was going
to be a rule that takes place without a lot of open discussion
or debate or without potentially even a vote from the
commission. Maybe there is some confusion in the industry.
There is a lot of uncertainty. You have had some anecdotes in
which individuals say they would lose potentially their station
or the ability to connect with those whom they are trying to
share their information with. I haven't heard you provide an
anecdote in which it would advocate, or advance, or give
additional licenses or broadcasting in areas with minority
ownership either.
I think there are different opinions and I hope that the
process that moves forward continues an open and robust and
maybe slow down the process a little bit to make sure that all
voices are heard because there is clearly some division here in
what the outcome is.
Mr. Wheeler. Thank you, Mr. Graves.
Mr. Graves. Chairman, I hope you will take that into
consideration. One thought that was on my mind and I would like
both of your opinion on this because in my district I have
heard a lot about it. And it was a few weeks ago that it was
announced that the U.S. would relinquish control of the
Internet. It is something that I think we see as a space where
a lot of enterprise takes place. There is a lot of freedom of
expression. We talk about freedom of speech.
Then you have the United Nation's Secretary General
praising this decision from the administration and I guess it
is the Department of Commerce and not, I guess moving forward
with signing a contract in 2015. Is this something that each of
you support? Is this the right direction moving forward for the
department? I know it is not your agency or department, but
there is an overlap of some sort and I think you have already
made some comments on the record previously. So, commissioner I
know you have probably spoken, Mr. Chairman?
Mr. Pai. Sure. I think that as I said in my statement that
the multi-stakeholder model of Internet governance has worked
tremendously well over the past several years. Whenever there
are changes to that model, we are going to suggest that there
could be risks. I think it is critical as we move forward that
there is rigorous scrutiny from this body, as well as many
others, to make sure that that model preserves. Whatever the
next model is going to be, if there is one, it preserves the
Internet freedom we have come to enjoy. And that comes into
particularly sharp relief when you consider some of the things
going on around the world, from Turkey banning Twitter, to
Russia blocking particular websites.
A recent Pew study suggesting that overwhelming majorities
of people, not governments, but people in developing countries
want there to be a free Internet. I think it is critical for
the United States to make sure that the multi-stakeholder
model, which has yielded so many benefits, continues into the
future.
Mr. Graves. Thank you.
Mr. Wheeler. I think we agree on the importance of the
multi-stakeholder model. I think we also both agree that we are
grateful that this is not on our plate. We have enough things
that we can wrestle with, but you know it is interesting that
this was used by other countries of the world, as an example of
American control over the Internet and therefore why they had
to restrict Internet freedoms in their country.
These two responses are indicative of the decisions that
you all have to make every day, that we have to make, that
here, Commissioner Pai is saying it hurts Internet freedom, if
you do this. On the other hand, countries at WCIT in Dubai and
other International events, like the one coming up this next
month in Rio are arguing that America's role in this, in ICANN
is the basis for why they themselves can not trust the Internet
and have to get in and do it themselves. That is the challenge
that we all face.
In a dynamic situation like the Internet, as Commissioner
Pai said, the multi-stakeholder process has proven itself to be
far smarter than people like us. My understanding is that this
is allowing the multi-stakeholder process to work.
Mr. Graves. Well, my hope would be that this decision that
has being made by the department does not lead to less freedom
on the Internet for our citizens whatsoever and I suspect that
is your same feelings as well.
Looking long term, you talk about multi-state stakeholders,
the United Nations is certainly very supportive of this, which
causes concern as you can imagine with some. Do you sense that
this will diminish the freedom of American's access to the
Internet, and sites on the Internet, or use of the Internet?
Mr. Wheeler. I have a hard time jumping to that conclusion,
sir.
Mr. Graves. But you can not rule it out.
Mr. Wheeler. I do not see the connection points. How this
would affect American's access to the Internet. In fact, I
think as I said, what it does is it opens the door for removing
an argument to deny others in the world access to the Internet.
I agree with you that the Internet is an incredibly powerful
force that must remain open on this side of the Atlantic, and
Pacific, and other sites as well.
Mr. Pai. I certainly hope that this does not portend
diminishing of Internet freedom for Americans or frankly for
anyone around the world. It is an unprecedented platform for
innovation and democratization and it would be a tremendous
shame for everybody if that went away, thank you.
Mr. Crenshaw. Thank you. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman. On that note the idea
that the Internet has been such an inspiration for creativity
and innovation in the country and the opportunities it is given
for communication and entrepreneurship has been unprecedented.
I guess I would like to know in that vein, does the Internet
need FCC regulation? In light of the United States Court of
Appeals decision tossing out the FCC's Net Neutrality rules,
does the FCC tend to go around the Court of Appeals in some
manner or is it going to abandon this effort going forward?
What does the future look like under this agreed to premise
that it seems like everybody is on the same table here that we
want to keep the Internet free and open. Is it free and open
because of FCC regulation or in spite of it? What does the
future look like as the FCC attempts to expand its role in this
area because it gives great concern to many of us that once the
FCC gets engaged in this effort, then it begins to have impacts
on what is already such a great opportunity for freedom and
creativity. Why do we need the FCC in this world? And what does
the future look like once it gets in it?
Mr. Wheeler. An open Internet is essential to an open
economy, to an open government, to the things that we have all
been talking about here. I am a big history buff. I think that
you start looking at today and tomorrow by looking at
yesterday. The history of networks has been how do you use
networks to shut things down? The way AT&T was built was on the
basis of Theodore Vail saying to independent telephone
companies, Hey, I have got these long lines here, and unless
you sell out to me, you are not going to be able to get on.
The Internet is not a thing. The Internet is a connection
of other networks, of multiple networks and we need to make
sure that those kind of connections continue to exist and that
there is openness in the ability to use the Internet.
I would say one thing, Mr. Yoder, the court was very
explicit in saying that the FCC had jurisdiction over the
operation of the Internet based on Section 706. I am sorry,
based on the openness of the Internet. We are not trying to get
into the operation of the Internet. I want to be real clear
about that, but on the openness of the Internet based on
Section 706. What I have announced that I will propose is that
we go back and follow the court's direction on how that should
be achieved. The court clearly laid out in its opinion how that
could be done and we intend to follow that.
The interesting thing is that immediately after the court
decision--which threw out two of the three specific rules, but
said you have authority to fix the rules this way or that--
immediately after that I got calls from the CEOs of the major
Internet service providers, all the household names that we all
talk about, telephone companies, cable companies saying, ``do
not worry, we intend to stick with the rules, even though the
rules are not in place.''
The question then becomes one that demonstrates that they
are not burdensome, but at the same point in time, you need to
go back to this issue of certainty because well, I have got a
voluntary agreement by four guys over here, but nobody else
over there really has to stick with that. And so how do you
come up with certainty that obeys what the court has said and
puts forward a structure that the carriers themselves have said
they can live with that keeps the Internet open--and that is
what we are going to do.
Mr. Pai. Congressman, everyone believes in an open Internet
and so the four freedoms that then Chairman Powell endorsed
over a decade ago, freedom of consumers to choose content that
they wish to view that was lawful, the freedom to use devices
of their choice as long as it did not harm the network, the
freedom to know what some of these practices were in terms of
network management, et cetera. All of these principles existed
and were vindicated prior to the adoption of any so-called net
neutrality or open Internet rules.
The Internet was open before the FCC took action in this
area and I would dare say that assuming the FCC prioritizes
what it should prioritize, which is removing barriers to
infrastructure investment, that will continue to be the case
tomorrow.
My own view is the net neutrality debate has been a
solution in search of a problem. And so I think it is also a
distraction from what I think is the higher priority, which is
removing barriers. I would also add tying it back to the
discussion we just had on international Internet governance, it
is increasingly difficult for us to say on an international
stage that governments should not have a role in regulating the
Internet, whether it is operations or openness or what have
you. When at home there are strident voices saying that we
should classify all broadband Internet access as essentially a
utility, like the electric company or like the railroads. That
would deter an investment that would increase government
regulation, and that would increase the difficulty of some of
these multi-billion dollar investment decisions that companies
have to make.
In short, it would increase uncertainty to the detriment of
consumers. And so I hope that whatever the course the FCC
decides to chart in years to come, it is mindful of the fact
that businesses have to invest based on a regulatory
environment that is certain and the direction that the debate
could go is one that would not lend itself to that.
Mr. Crenshaw. Well, before we wrap things up, Mr. Serrano
has a brief comment.
Mr. Serrano. Thank you, Mr. Chairman. I have a TV watcher's
question which is on the minds of most Americans, but no one
gets a chance to ask like I do. ME-TV, COZI TV, Antenna TV,
they were the results of what action taken by the FCC? Was that
the transition to digital? Was that the spectrum or all of the
above? Or how do those channels show up?
Mr. Wheeler. Well, those are digital channels that are
existing on cable networks and other distribution facilities
such as the Internet.
Mr. Serrano. But they are owned by?
Mr. Wheeler. Well, ME, I guess, is owned by Fox, and that
is a digital television transition.
Mr. Serrano. COZI, I think, is owned by NBC. Because in New
York, for instance, at 7:00, they go to the NBC news, then they
switch back to their own programming.
Mr. Wheeler. Kind of Like MSNBC does.
Mr. Serrano. Just one last point: why are some channels 4.1
or 4.2 or something like that?
Mr. Wheeler. That is what the digital television transition
did, where you have channel 4 and then you have other channels
that now can fit inside that spectrum.
Mr. Serrano. Okay. And that's what this is?
Mr. Wheeler. On some of them. I can't generalize,
Congressman, for all of them.
[The information follows:]
Mr. Wheeler. Antenna TV, COZI TV and ME-TV are digital
multicast networks which became available after the digital
television transition. Local television stations air these
networks as a digital multicast channels, usually on a .2 or .3
channel depending on the city and the station. In addition to
being available over-the-air, most major cable companies carry
local affiliate feeds of these channels. Launched in 2011,
Antenna TV is owned and operated by Tribune Broadcasting and
originates from facilities at WGN-TV in Chicago. COZI TV is
owned by NBC. ME-TV stands for Memorable Entertainment
Television and is owned by Weigel Broadcasting and distributed
by Metro-Goldwyn-Mayer.
Mr. Crenshaw. I think if he pulls out his TV Guide, you
will probably figure it out. You do not get the TV Guide? Do
they still make that?
Mr. Serrano. It is an app now. There is an app for
everything. It is something that pops up. I watch--and people
have asked, Where are those channels coming from?
Mr. Pai. Congressman, as the father of two children under
three I am not familiar with television since, say, August of
2011. I am not quite sure of the answer to some of your
questions.
Mr. Serrano. Thank you so much.
Mr. Crenshaw. Well, let me just thank you both for being
here today and for your candid testimony. I think you each
bring a great perspective that helps us. And remember: we have
a role to play. We are not using taxpayer dollars, but we are
using money that is ultimately extracted from consumers.
When we talk about regulation, we start out talking about
that seesaw, and generally speaking when agencies say, I want
more money, that means they are going to do more regulation.
That does not necessarily have to be true, but I think smart
regulation and reasonable regulation is necessary. As you work
on that seesaw, keep in mind that it tilts both ways. We have
talked so much about creativity and innovation, the competition
that drives so many things that you all see. We would hope that
you keep that in mind as you make the rules that impact so many
people.
So thank you again for being here. This meeting is
adjourned.
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Tuesday, April 1, 2014.
SECURITIES AND EXCHANGE COMMISSION
WITNESS
MARY JO WHITE, CHAIR, U.S. SECURITIES AND EXCHANGE COMMISSION
Mr. Crenshaw. The hearing will come to order.
I want to welcome our witness, SEC Chair Mary Jo White.
Thank you for being here today to testify before our
subcommittee.
The Securities and Exchange Commission has a uniquely
important job of maintaining fair and efficient securities
markets, encouraging capital formation, and protecting
investors. This is not an easy task, but it is a critical part
of keeping our economy thriving.
For fiscal year 2015, the SEC is asking for a $350 million,
or 26 percent, increase over last year's funding level. This is
an especially large increase for any agency, and while the SEC
is funded by fees, I believe congressional oversight over your
budget is an important check on the Commission's activities.
What we want from the SEC is a securities regulator who is
both capable and economical. It is easy to argue that money
will solve all the problems in the world, but we expect to see
results before appropriating additional dollars.
Last year, the House included bill language fully funding
the Office of Economic and Risk Analysis. I am anxious to hear
about how you are using that funding to hire more economists in
order to increase the cost-benefit analysis performed during
the SEC rulemaking process.
In addition, I am interested to hear your thoughts on the
municipal advisory rule, which the SEC released early this
year. I am concerned that it might be regulatory overreach in
an area that could benefit from more competition and not less.
American investors and all those who use the U.S. Security
markets deserve to know that there is a cop on the beat who is
protecting our markets. The Commission has had embarrassing and
damaging inspections and enforcement lapses in the past, such
as the failure to catch the Madoff and Stanford Ponzi schemes,
as well as lapses in management, best practices, and due
diligence, such as the Constitution Center lease debacle, the
improper destruction of documents, and material weaknesses in
the Commission's financial statements. With the increases that
Congress has given the SEC over the past decade, there can be
no more excuses.
Chair White, your fiscal year 2015 budget request asks for
increases in almost every office and division across the SEC,
including an overall request of 467 new FTEs. We have heard the
claim that the SEC needs increased staffing and funding to get
through the Dodd-Frank mandated rulemakings; however, the
staffing and funding levels at the SEC cannot exponentially
increase forever. This is not an efficient use of your funds,
nor will it protect American investors. I am eager to hear how
the SEC plans to judiciously use its funding in key areas in
order to best leverage its expertise and capabilities to
protect our capital markets and investors and facilitate the
overall growth of capital.
So thank you again for being here today. I look forward to
your testimony.
And now I would like to recognize Ranking Member Serrano.
Mr. Serrano. Thank you, Mr. Chairman. I join you in also
welcoming Chair White back before the subcommittee to testify
on the fiscal year 2015 budget request for the Securities and
Exchange Commission.
Last year when we spoke, Chair White, you were just
settling into your new position. Now, with almost a year of
service in this new position, I have been heartened by what I
have seen in many areas.
I appreciate that, as a former prosecutor, you have taken a
tough line on wrongdoers by moving to require more admissions
of guilt in settlements. You have also made Dodd-Frank
implementation an ongoing priority and have moved the ball
forward on some of the law's most important and complicated
provisions.
All that said, you cannot continue to protect investors and
to make sure that our financial system is secure without
sufficient resources. For all the important compromises that
were reached in last December's appropriations bill, I think we
did fall short of the mark in providing the necessary funding
for the SEC.
I am concerned about the impact this funding level is
having on the Commission currently, and I believe that more
needs to be done in fiscal year 2015, which brings us to your
request today.
Your request of $1.7 billion in fiscal year 2015 allows the
SEC to keep pace with the growing markets you oversee, the
increasingly complex transactions that take place, and the
expanded role you play in the wake of the financial crisis.
Without a significant increase from the fiscal year 2014
funding level for the SEC, we are sending a signal that market
actors should not expect consequences for risky, unethical, and
illegal behavior. And I think that should be extremely
troubling for all of us.
At this point, we all know the consequences of an SEC that
is underfunded and unable, or unwilling in past
administrations, to oversee Federal securities laws. Our
markets suffer, our investors suffer, our taxpayers suffer,
and, ultimately, our Nation suffers. We need a strong cop on
the beat for Wall Street to ensure that we have strong
protections in place and to deter future misconduct. I take
your request for additional resources seriously, and I hope my
colleagues will, as well.
Chair White, once again, welcome. And I look forward to
your testimony.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you, Mr. Serrano.
And now I would like to recognize the ranking member of the
full committee, Mrs. Lowey.
Mrs. Lowey. Thank you very much, Mr. Chair. And welcome. I
would like to certainly thank Chairman Crenshaw, Ranking Member
Serrano for holding this hearing.
And it is a delight--welcome, Chair Mary Jo White--for
testifying before us today. And we thank you for your agreeing
to serve this great country of ours. We know how important the
responsibility you have is.
Madam Chair, you come before us with a budget request for
fiscal year 2015 of $1.7 billion, which would support the SEC's
responsibilities as well as the hiring of an additional 639
employees. These additional positions would help the SEC to
examine investment advisors, enhance its core investigative
functions, continue improvements in technology to keep up with
the changing markets.
Year after year, the SEC's budget authority has been kept
below what is needed to meet demand and the needs of our
increasingly global economy. In fact, the Republican majority
kept the SEC budget at more than $300 million below the
President's request in fiscal year 2014. This approach is
nonsense. The SEC is entirely fee-funded, and, as such,
providing adequate funding authority will not take a dime of
U.S. Taxpayer dollars, nor will it have any impact on the
deficit or the debt.
I worry that the Republican majority's budget restrictions
on the SEC are purposely intended to make it more difficult for
the SEC to do its job. By robbing the SEC of its needed
funding, the Republican majority is making it more likely that
fraud will go undetected and that investors will be left at
risk. And when this occurs, they will use that opportunity as a
way to deny future funding. It is a cynical and unnecessary
cycle.
For our economy to succeed, investors need faith in the
ability of the regulator to do its job. These misguided budget
restrictions only harm the ability of the SEC to succeed.
I look forward to discussing the importance of the SEC's
budget request in a moment, and I thank you again for appearing
before us.
Mr. Crenshaw. Thank you.
I would like to now recognize Chair White for your opening
statement. Your written statement will be made part of the
record, and if you could keep your remarks to about 5 minutes,
that will give us more time for questions.
Please.
Ms. White. Thank you very much.
Chairman Crenshaw, Ranking Members Lowey and Serrano, and
members of the subcommittee, thank you for inviting me to
testify in support of the President's fiscal year 2015 budget
request for the Securities and Exchange Commission.
Now, more than ever, investors and our markets need a
strong, vigilant, and adequately resourced SEC. From fiscal
year 2001 to fiscal year 2014, trading volume in the equity
markets more than doubled to a projected $71 trillion. The
complexity of financial products and the speed with which they
are traded increased exponentially. Assets under management of
mutual funds grew by 131 percent to $14.8 trillion, and assets
under management of investment advisors jumped almost 200
percent to $55 trillion.
Today, there are over 25,000 SEC registrants, including
broker-dealers, clearing agents, transfer agents, credit rating
agencies, exchanges, and others. During this time of
unprecedented growth and change in our markets, the SEC has
also been given new and significant responsibilities for over-
the-counter derivatives, private fund advisers, municipal
advisors, crowd funding portals, and more.
The President's $1.7 billion budget request would enable
the SEC to address critical core priorities, including
enhancing examination coverage for investment advisers and
other key entities who deal with retail and institutional
investors; protecting investors by expanding our enforcement
program's investigative capabilities and strengthening our
ability to litigate against wrongdoers; leveraging technology
to make our operations more efficient and to improve our
ability to identify a variety of market risks, including
emerging frauds.
As you know and have alluded to in your opening remarks,
the SEC's funding is deficit-neutral, which means the amount
Congress appropriates does not impact the deficit, the funding
available for other agencies, or count against caps in the
congressional budget framework.
Nonetheless, I fully recognize my responsibility to be an
effective and prudent steward of the funds we are appropriated
and to pursue only those things we need to advance our mission.
I believe our accomplishments this past year should give
Congress and the public confidence that we will do so.
While certainly more remains to be done, since my arrival
in April 2013, the Commission has adopted or proposed more than
20 significant rulemakings, including many mandated by the
Dodd-Frank and JOBS Acts, across the regulatory spectrum of our
jurisdiction.
We are also now more aggressively enforcing the securities
laws, requiring for the first time admissions to hold certain
wrongdoers more publicly accountable and obtaining orders for
penalties and disgorgement of $3.4 billion in fiscal year 2013,
the highest in the agency's history.
And we have taken a data-driven, disciplined approach to
addressing complex market structure issues, such as high-
frequency trading and dark pools, implementing a powerful new
analytical tool called MIDAS.
This budget request would permit the SEC to increase its
examination coverage of investment advisers, who everyday
investors are increasingly turning to for investment assistance
for retirement and family needs. While the SEC has made the
most of its limited resources, we nevertheless were able to
examine only 9 percent of registered investment advisers in
fiscal 2013. As a point of reference, in 2001 the SEC had 19
examiners per trillion dollars in investment adviser assets
under management; today we have only 8. More coverage is
plainly needed, as the industry itself has acknowledged.
Very importantly, this budget request would also allow us
to better leverage technology across the agency to support a
number of key initiatives, including EDGAR modernization, a
multiyear effort to simplify the financial reporting process
for public companies and other filers; completion of the
enterprise data warehouse and additional analytical tools which
will allow us to organize, integrate, and analyze large amounts
of data for improved risk analysis and fraud detection;
enhancements to the Tips, Complaints, and Referrals System to
maximize our ability to move quickly to act on the high volume
of tips that we receive; information security to upgrade tools
and processes, responding to the ever-increasing cyber and
other security threats; and modernization of SEC.gov to make
one of the most widely used Federal Government Web sites more
informative for investors and public companies.
This budget request also allows us to continue augmenting
our Division of Economic and Risk Analysis by adding financial
economists and other experts to assist with economic analysis
in rulemaking, risk-based selection for investigations and
examinations, and structured data initiatives.
I firmly believe that the funding we are seeking is fully
justified by our important and growing responsibilities to
investors, companies, and the markets. Your support will allow
us to better fulfill our mission and to build on the
significant progress the agency has achieved, which I am
committed to continuing and enhancing.
I am happy to answer your questions. Thank you.
Mr. Crenshaw. Thank you very much.
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Mr. Crenshaw. Let me start by asking a couple questions
about efficiency. One of the things that I think most of us are
aware of, is the funding for the SEC, I think, in the last
decade has increased about 66 percent. And if you go back to
2001, from that point until now, the funding has increased
about 220 percent.
So, over the years, there has been a lot of money spent by
the SEC, and, as has been pointed out by everyone, that it is a
fee-funded agency, but we take our oversight responsibility
seriously. We are trying to make sure that, whether it is
taxpayers' dollars or fee-driven money, that it is spent
effectively and efficiently.
Last year, when the SEC asked for a 26 percent increase,
you had been on the job a month, but now you have been on the
job a year, and your view is that you need another 27 percent
increase.
So, when you talk a lot about the importance of technology,
let me just ask you, can you point to some of the savings that
you have been able to leverage due to this technology and this
analytical capability? Is that something you have been working
on? Could you tell us a little bit how you have been working on
that side of the equation?
Ms. White. Yes. And this is done really throughout the
agency, but I specifically work with our chief operating
officer on savings throughout the agency, whether it is driven
by investments in technology, which it often is, or wherever
else, in the agency. To the extent we get more efficient,
obviously, there are cost savings that are measured, really,
under different metrics.
And I can give you two examples. We saved $6 million a
year, including for this year, from consolidating our
operations center. It is now all in headquarters. So we will
save $6 million in fiscal 2015 and $6 million, going forward
for a number of years. We also achieved $18 million in cost
avoidance by our investment in technology to really improve our
data infrastructure, enhancing various of our processes, making
maintenance less required. And so those are two examples.
But I take very seriously, Chairman Crenshaw, that with the
funding that we do get, and then obviously I have made my I
hope impassioned plea for, we certainly do need that funding
for me to do and the agency to do its job responsibly. But part
of that very important, serious responsibility is also to
effect cost savings with these moneys, and we are doing that
and fully committed to doing it.
Mr. Crenshaw. Thank you.
Now, the one other thing that I have noticed is that you
have a pretty large amount of carryover funding from previous
years. I think the quarterly report says that the balance was
$112 million. So that was last year, when you were subject to
the sequester, and that fenced off $66 million, or about 5
percent of your appropriation. And this carryover still amounts
to about 8 percent of your total appropriations level.
So you take that with the fact that you have access to this
$100 million mandatory reserve fund and you can spend up to
$100 million per year. I know that you always talk about
additional resources and certain constraints, but could you
tell us why you have such a high carryover balance?
Ms. White. We have, as you know, no-year funds, so we are
actually able to carry over balances if we don't spend it in
that year.
And, Chairman Crenshaw, it is a product, in my view, of
responsible financial planning. We basically, because of the
continuing resolution, spent very conservatively in early 2013,
so that is some of it.
We also tried very hard to hire in our new positions when
we do get appropriated funds very wisely. So we are hiring the
right people to do the job most effectively and efficiently.
The fact we have the no-year funds allows us to do that.
And I think about $30 million of that is also from, again,
I think, very good financial management by our folks, which is
from de-obligating moneys that were committed on closed-out
contracts.
And these moneys are, I will say--and I have spent a lot of
time on this--very much taken into consideration in terms of
the request we are making.
Mr. Crenshaw. Now, at the end of 2014, do you expect to
have a carryover balance?
Ms. White. You know, I can't answer that as I sit here.
Certainly, we are committed to and we have actually enhanced
our HR function so that we will be able to hire more
efficiently as well as continue to hire prudently. And so that
is where a lot of that expense comes from.
But we do think in terms of the request that we have made
in 2015 that we would be able, if granted those funds, to hire
in those positions. Again, we want to be prudent about those
hires, but we do think we can do that, yes, sir.
Mr. Crenshaw. Well, thank you very much.
We are going to go to questions among the committee
members, and we will observe the 5-minute rule. People will be
recognized by seniority if they were here when the meeting
started. The latecomers will be recognized in the order of
which they arrived.
We will actually make a special concession for our ranking
member, Mrs. Lowey, and call on her for the next round of
questions.
Mrs. Lowey. You are very kind. Because, unfortunately,
there are several hearings going on at the same time. Thank you
very much.
Madam Chair, in fiscal year 2013, due to budget
constraints, the SEC examined only about 9 percent of
registered investment advisers. Over the past decade, the
number of investment advisers has increased by 40 percent, and
the assets under management by these very advisers has more
than doubled to $55 trillion. And yet funding for the SEC has
not kept up with the need.
The overwhelming majority of investment advisers work with
their clients's best interests in mind, helping them save for
retirement, making smart investments, but, like every
profession, there are always bad apples. And I am sure we could
all agree that examining 9 percent of investment advisers is
much too low.
If only 9 percent of investment advisers are examined per
year, how does the SEC prioritize examinations? Why are these
exams important to mom-and-pop investors? And how can investors
have faith in the market if 40 percent of investment advisers
have never been examined?
Ms. White. There is no question that this is a stark
example of the extreme challenge presented by our current level
of funding. It is elsewhere throughout our functions, but in
this investment adviser space, what we do with our limited
resources is to obviously try to apply them as wisely as we
can. We do risk-based assessments of where we should go based
on various parameters--the size of the investment adviser,
rates of return, recidivism, kinds of products.
I have also instructed our examiners in our national exam
program that I don't want to be absent from the smaller spaces
either, because that is where more and more retail investors,
in particular, are relying on investment advisers to tell them
what to do with their retirement money, with their money for
their children's educations. They cannot afford to lose these
moneys.
And they are also helped by every exam we do, not only at
the smaller level but the ones that we do of the larger
investment advisers, as well, because their pension funds, you
know, tend to be managed by those larger investment advisers.
And just as another data point of concern--I mean, I have
to say it exactly that way--we do find issues when we do these
examinations. Seventy-five to 80 percent of our exams across
our registrants receive a deficiency letter of some kind, 35 to
42 percent of those have a significant deficiency finding,
which means basically a finding by our staff that there is
either harm to a customer or client or a significant risk of
harm to a customer or client or some kind of recidivism.
A good thing that happens when we examine, just in terms of
value return for the exams we do, 86 to 93 percent of the
investment advisers we do examine and find a problem with will
tell us represent that they have remediated those problems. We
obviously test it down the road. About 15 percent of the
findings are actually referred to enforcement.
We also return value. Actually, when we visit an investment
adviser and we find a problem with fees that may have been
overcharged or misallocated, they voluntarily will return them
to investors as a result of our exam.
So it is a critical function that we just must find a way.
And we are obviously, I believe, using our resources very
wisely to get greater coverage.
Mrs. Lowey. Following up on that, the news often carries
stories of the large frauds, and justifiably so, but what we
don't hear day-to-day are the stories of working class families
being targeted and taken advantage of by fraud.
What trends has the SEC noticed in security frauds? How
would the budget request help meet the investigatory and
enforcement needs to combat these frauds?
Ms. White. A large part of our budget request is directed
directly to trying to meet our examination and enforcement
needs so that we can better protect investors.
What we are seeing in enforcement, we clearly still have
cases of various kinds against very prominent Wall Street
firms. There is a rise in microcap frauds, which can impact the
retail investor quite particularly and quite significantly.
We see a rise in affinity frauds, which are some of the
most galling kinds of securities violations that one can come
across, which is essentially frauds directed at victim
investors, based on race, religion, age, or status such as
whether they are veterans. And it is something we have been
very aggressive about in order to be able to, you know, meet
these, really, crimes that are occurring against our retail
investors.
There is an uptick really across our range of enforcement
priorities: financial reporting frauds, various kinds of market
abuses, insider trading, market integrity issues with respect
to some of the exchanges, FCPA. So it really is across the
board. We obviously try, again, to use our resources in the
wisest way we can to go to priority areas.
Mrs. Lowey. Just lastly, Mr. Chairman, I just wanted to
mention one other issue which has concerned me greatly, and I
have been part of many briefings focused on this issue, and
that is the whole cyber attacks.
Companies have a responsibility to their shareholders. I
know that, in the past, when companies should have made
security breaches public, which could have helped prevent
future breaches conducted in a similar manner, that rather than
sharing this information, companies have kept it private,
leaving many more at risk.
I do think investors have the right to know if companies
that they are invested in have been the victim of cyber attacks
so that they can ensure the steps are taken to prevent and
mitigate future criminal actions.
So if you can just comment briefly. Should companies that
report with the SEC be required to disclose cyber attacks? And
when you meet with private-sector partners, what resources do
they need from the government to help effectively manage cyber
threats? And how can the SEC encourage information-sharing?
This has been a major issue, and I don't know that we are
making much breakthrough in it. If you could just----
Ms. White. I share your concerns about how serious and
long-term this threat is, really across the issues, not only
the impact on investors but to our economy, to our national
security, no question about that.
We actually held a roundtable last week on cybersecurity
really to emphasize that, and not only with respect to our
registrants and public companies, but to bring together the
various government agencies who are charged with dealing with
the cyber threat--to talk about, among other issues, the
coordination among the government agencies. The Department of
Homeland Security, for example, which is a national security
agency, is, in effect, the coordinating agency among the
Federal agencies.
And the emphasis there, which is so critical, is that we
must have a public-private partnership on this. I think the
government needs to do better at sharing information with the
private sector if they get requisite security clearances.
In terms of disclosure by public companies, just to commend
the staff of the SEC, in 2011 the staff of the SEC actually put
out guidance to public companies regarding their obligations to
disclose cyber risks and cyber incidents if they were material,
which, of course, is the basis to our disclosure regime.
It has been, I think, regarded as very helpful guidance.
The staff has followed up on that, too, to see if the
disclosures have improved. We think they have improved, but it
is a continuing process and priority.
Mrs. Lowey. Thank you.
And thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Womack.
Mr. Womack. Thank you, Mr. Chairman.
Chair White, as I am sure you are aware, I, along with my
colleagues, many of whom are on this dais and others on the
Financial Services Committee, sent you a letter asking for an
update on actions by the SEC after the proxy advisory firm
roundtable back in December. And, as you know, two such firms,
one of which is in the process of being sold, control about 97
percent of that market and actually become, kind of, de facto
corporate governance standard bearers in the United States.
These firms have obvious conflicts of interest, and their
services sometimes don't necessarily reflect their fiduciary
responsibility to their clients. So is it safe to assume that
the SEC hosted the roundtable because it recognizes that we
have problems there?
Ms. White. We hosted the roundtable--which, by the way, I
thought was quite constructive and there were actually, I
think, more areas of agreement than we might have expected
before we called the roundtable. I would make two upfront
points.
I mean, one, I think the proxy advisory firms are quite
important to our proxy system and engagement of shareholders
with the companies they own. But there is also no question that
a number of concerns and issues have been raised, including
whether the disclosures that they are actually required to
make, have been adequate on conflicts of interest. So there was
a lot of dialogue about that.
There was also dialogue about the fiduciary duty that
investment advisers have when they actually retain a proxy
advisory firm, because the investment advisers have a fiduciary
duty and they retain that fiduciary duty. So that brings with
it certain duties to make sure that the proxy advisory firm is
discharging the service they are providing for the investment
advisory firm as well and so forth.
I can say, I have actually received quite recently,
following that roundtable, recommendations from our staff,
primarily in Corporation Finance and Investment Management, as
to what steps, if any, what action, if any, the SEC should take
following that roundtable on those issues. I expect in fairly
short order to be discussing that with my fellow commissioners.
Mr. Womack. In your opinion, were there broad areas of
agreement on improving the transparency?
Ms. White. I think there was agreement, at least at that
roundtable, and I think probably more broadly than just at the
roundtable, that in terms of some of the disclosures of
conflicts of interest, in particular, that there was room for
improvement there.
Interestingly, the Chamber has actually put out a best
practices guide on this, if I might call it that, which I think
has also spurred very useful dialogue both before and after
that roundtable.
So I think one of the positive things that came out of that
roundtable is that the various interested parties are
continuing to discuss issues that divide them a bit, to try to
close that gap and really make the process work better. I think
that is very healthy, as well.
Mr. Womack. It is my understanding that these firms are
relying on SEC staff guidance in choosing not to disclose
conflicts of interest. Do you share my concerns that the
Commission is effectively encouraging these firms to withhold
this information?
Ms. White. The answer is no and I don't think that actually
came out as--certainly not as an area of agreement at the
roundtable.
I think, from the point of view of the SEC, we want to be
sure there is clarity on those issues. And so, to the extent
that questions have been raised about that, we want to make
sure that there is perfect clarity. And we obviously pay--you
know, we would like to pay a lot of attention to, whether it is
guidance or one of our rules, what impact it is having. So that
is one of the topics we will be considering as we go forward.
Mr. Womack. Is the Commission reviewing the Egan-Jones no-
action letters that allow for the conflicts to occur unchecked?
Ms. White. Well, again, I think I have described the
status, which is I have gotten the recommendation from the
staff as to what action, if any, should be taken--
Mr. Womack. When would you expect action?
Ms. White. Well, I would expect to be in discussion with my
commission and my commissioners about next steps, in pretty
short order, within a matter of weeks, I think.
Mr. Womack. Okay. Thank you, Madam Chair.
Mr. Crenshaw. Thank you.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
One of the things you are going to continue to hear and we
continue to hear here from a group of folks, in the majority
party especially, is about cuts, cuts, cuts, cuts in the budget
in general. And I don't think we pay attention, at times, to
the ramification of those cuts.
So my question to you is, are you confident that the
meltdown caused by Wall Street in 2008 won't happen again,
especially if Congress continues to cut? Or do you think that
there are mechanisms in place or is there a balance of both
resources for oversight and mechanisms in place that can, in
fact, stop us from a meltdown like we had in 2008?
Ms. White. Without making, perhaps, predictions I can't
make, at least categorically, certainly the actions and
initiatives, including the legislative initiatives, that we
have taken since the crisis are designed to prevent that.
And there has been a lot of progress on that. I think the
regulatory agencies are doing their respective jobs a lot
better. They are more focused on systemic-risk issues. They are
working better with each other.
One of the big mistakes we could make, though, is falling
into any kind of complacency about the possibility of a
repetition of any kind of event even near to what we faced
during the financial crisis. The SEC, I think, is a very
important agency to be sure it is not underresourced so that it
can do its job to prevent risks from actually materializing in
the ways that they should not and can be prevented.
I think one of the other mistakes we should not make is
that, when we have a reform like, we now, which I think is very
positive, regulate the over-the-counter derivatives market--
that we are able to implement those rules that we have adopted
or are in the process of adopting. So resources for
implementation of these reforms is critical. And I do worry
that we may be underresourced for that task, and I think that
would be a mistake.
Mr. Serrano. Now, let's assume for a second that I was
wrong with my opening part of the statement and that we, in
fact, come up with more funding for the SEC. What areas would
you like to see where more enforcement should take place?
Ms. White. I think as, you know, broad enforcement as we
can bring to bear is what our responsibility is. Let me be a
little clearer about that. I think we need to be acting and
sending very strong messages of deterrence across market
participants. We need not to be neglecting the smaller
violations, because smaller violations can become bigger
violations. On the exam side, I think we have to, again, be
focused on and broadly covering problems before they actually
materialize into serious enforcement issues.
So if we were to get sufficient funding--and, clearly, what
we are asking for in fiscal year 2015, we asked for 126 new
positions in enforcement and some technology that will help us
be smarter in detecting fraud sooner. That will help us also
when we get tips in--we get 15,000 tips in a year--to not only
take them in in the right way but analyze them in the right
way, analyze them quickly, and get them out to, you know, our
investigative staff, to really jump on them when they occur.
Then what we can do is try to act before the money is all gone
in a very serious fraud. We can try to freeze assets, we can
try to suspend trading. And we do that to good ends.
So across the band of our enforcement functions is where I
would apply those resources.
Mr. Serrano. Now, have the number of SEC enforcement
actions dropped recently? And if so, was this the function of
the sequester, or are there other dynamics going on, such as
the complexity of cases or ongoing investigations?
Ms. White. We brought, actually--and I think, again, the
numbers don't tell the whole story, and that is very important
always to emphasize, because we brought very high-quality, very
complex cases not only this past year but, certainly, I think,
for a number of years. We brought, in numbers, 686 enforcement
actions in this past fiscal year, compared to, I think, 734 in
the prior year, so that is a 48-case difference.
It is hard to tease out the effect of sequester,
specifically on that. I think the 686 cases we brought was
really a very robust, strong effort by enforcement. Sequester
and the budget limitations certainly impacted us elsewhere in
enforcement and across the agency.
Mr. Serrano. I have to tell you something, Mr. Chairman. I
don't know if I asked a great question or a bad question, but
half the audience left as I was asking that question.
Ms. White. It was probably my answer.
Mr. Serrano. I have no idea what that is about, but
something is going on here that makes me nervous. So I will
just stop right here, Mr. Chairman.
Mr. Crenshaw. Why don't you ask another question and we
will clear out the room?
Thank you.
Mr. Diaz-Balart.
Mr. Diaz-Balart. Thank you very much, Mr. Chairman.
I just want to make sure that I understood you, Chairman
Crenshaw, when you talked about that the SEC's budget has
increased 220 percent since 2001 and, I believe, two-thirds, 66
percent, in the last decade.
And the reason I wanted to just repeat what you said is
because I think only in D.C. is a 220 percent increase, you
know, since 2001 is considered a cut. I just thought that was
illustrative of, kind of, some of the issues that we deal with
here in Washington, that I think the American people would have
to differ on whether that is a cut or not, and I don't think it
is.
Madam Chairwoman, thank you for being here.
Let me throw out a couple of related issues to you in
regards to the implementation of the municipal advisory
provisions of Dodd-Frank, which, now, many banks--and I am
really particularly concerned about community banks. They are
having some difficulty determining whether they need to or they
don't need to register with the SEC as municipal advisors.
And it is no secret that community banks have long provided
financial services to local municipalities, and yet very few of
them have ever had to previously register with the SEC. And now
I understand that the staff of the SEC is working to develop a
set of facts that would assist banks, fortunately, in
determining whether registration is necessary.
Now, the deadline for that evaluation, to evaluate their
situation and decide whether or not to register--and, by the
way, which also would be potentially whether or not they could
continue to provide their services to municipalities--is, I
believe, coming up on July 1st.
Any idea, can you estimate for the subcommittee, let us
know when those facts, which I think would be very helpful,
will be available to guide the community banks?
Ms. White. I can't give you a specific timeframe. The staff
did put out in January FAQs, staff guidance on a number of
issues in that space and who is to register and under what
circumstances. It sounds like from your question that those
FAQs may not have fully answered the question that you are
posing now.
The staff has since--and, by the way, we also actually put
off, in effect, the effective date until July, it was actually
in January, to give the industry and potential folks who might
need to register more time to, dialogue with the staff. That is
going on as we speak and has been since before January when the
FAQs were put out and also afterwards.
So, you know, I think it is anticipated we will put out
additional guidance on some of the additional questions that
have been raised before the July effective date, but I can't
give you a precise time.
Mr. Diaz-Balart. It would be great if, once the staff has a
better idea, if they could just let us know, let our staff
know.
Ms. White. We will.
Mr. Diaz-Balart. And then, also, kind of a related thing
about the rulemaking. The Municipal Securities Rulemaking Board
has proposed a rule for, again, municipal advisors that may--
could force, I should say, some banks, including the community
banks and some regional banks, to choose between, we are being
told, between providing advisory services or traditional
banking services, whether it is deposits or taking loan money
or whatever, to State and local municipalities.
And I understand that the proposed rule, there is a new
fiduciary duty which would impose, I believe--that says any
entity providing advisory services could not act as a principal
in providing other financial services.
Now, the concern is that, obviously, some local
municipalities have long looked at banks to provide both
banking services and also advisory services. And yet my
understanding is, under that rule, that banks would have to
choose which one of the two. And I may be wrong, which is why I
am kind of throwing it out there. So if that is true, then,
some local school boards or town counsels would have to, kind
of, decide which one of the two and, frankly, may even have to
break long-existing relationships that have worked for them.
So if that rule, and if I am accurate about what I believe
to be the case, if it is submitted in that way, will the SEC
attempt to make the rule workable to prevent this disruption,
this potential unnecessary disruption, in many relationships
that might affect a lot of municipalities and school boards?
And to, you know, kind of, throw a pun out there--because,
hopefully, if they like their bank, they should be able to keep
it. You know, if you like your bank, you should be able to keep
it. So, hopefully, that rule will take that into consideration.
Any thoughts on that? And if, in fact, that rule does come
out, would you be willing to work with banks and municipalities
to make sure that they don't face that?
Ms. White. Again, it sounds like what you are describing
implicates MSRB rules----
Mr. Diaz-Balart. Yes.
Ms. White [continuing]. That will come to the Commission.
And, if it comes to the Commission for approval, obviously, we
will, focus on all aspects of it.
I will say, I may need to get back to you with whatever
additional information I can provide specifically----
Mr. Diaz-Balart. Great.
Ms. White [continuing]. That is responsive at this stage. I
am not sure there is any additional information I can supply.
I will say that when the MSRB and the SEC considers any
rulemaking, I mean, you look very, very closely at the economic
impacts of those rules, the cost-benefit analysis the chairman
was alluding to in his opening statement. That is a very
critical aspect of all of our rulemaking.
And so, you know, I can't really speak more specifically
today to that point, but maybe I will be able to supply some
additional information.
Mr. Diaz-Balart. Right, because the rule hasn't come out
yet, as far as we know.
Ms. White. Right.
Mr. Diaz-Balart. But if it does come out, that is when it
gets interesting for you.
Ms. White. Yeah, no, no, it is--and, also, if we pass on
and, you know, I can't get ahead of that train.
Mr. Diaz-Balart. Right.
Ms. White. Okay.
Mr. Diaz-Balart. Thank you.
Thank you, Mr. Chairman.
Mr. Crenshaw. Mr. Quigley.
Mr. Quigley. Thank you, Mr. Chairman.
Welcome, Madam Chair.
As you know, the SEC requires public companies to report
their financial statements in XBRL structured data format.
Unfortunately, the SEC doesn't necessarily enforce the quality
of that data. And what we are hearing from many is that that
renders it virtually useless for them, that the trust that is
needed to trust this data to make critical decisions is tough
to rely upon.
Can you update us on your efforts to enforce the quality of
these submissions for public companies?
Ms. White. Yes. Let me just say, and as you know, the
Commission actually began to require that certain financial
information be filed in the XBRL format with the largest
issuers, actually, in 2009. And then, over the next 4 years,
the requirement was phased in for the midsized and the smaller
filers, basically allowing them more time to, sort of, adjust
to the new requirements, which do have some complexity to them.
This actually also allowed the larger and more
sophisticated companies to assist in the market's development
of software tools to meet these obligations, provided some, you
know, additional time for diversification of the support
community that you really need to assist filers in tagging
their data.
Over the last 5 years, we have actually seen, from our
staff's perspective, an improvement in the quality of data as
filers have become more familiar with the process and, frankly,
as the number of vendors actually providing the support
services has increased.
We still believe there is room for further improvement,
nevertheless. And our Office of Risk Assessment and Interactive
Data, which is actually within our Division of Economic and
Risk Analysis, continues to be a resource for both issuers and
vendors with questions about filing XBRL. We have gotten a lot
of positive feedback on that.
And staff in our divisions, in not only the Division of
Economic and Risk Analysis but also Corporation Finance, have
actively participated really in trying to educate the XBRL
filer community on how to actually, you know, be able to do
this more easily.
And we are basically continuing to evaluate, ways to
enhance the usefulness of XBRL and, again, try to give specific
guidance--because I know it has been needed and asked for by
those who must file. So that is the current status of it.
Mr. Quigley. And what would it take? I mean, the data is
important; the reason we have them file is important. What
would it take, besides guidance and education, to let them know
that you are serious about this, there is too much at stake to
get bad information?
Ms. White. Again, I think we have, particularly in the
last, year-plus, been sending a very, I believe, strong
message. Maybe not strong enough, from your question. And I
will look into it, immediately, actually.
But, really, having our Division of Economic and Risk
Analysis as a resource, on these issues, I think, really has
helped significantly. But I will see whether there is more we
can't do.
Mr. Quigley. Well, I certainly appreciate that. If you
could get back to the committee----
Ms. White. Yes.
Mr. Quigley [continuing]. We would certainly appreciate
it.
Let me hop over to the JOBS Act.
Mr. Chairman, I think I am correct that every member of
this subcommittee voted for the JOBS Act. I think it passed 390
to 23--not something that happens every day here.
But, you know, there has been some delay and some slow
progress in implementing all the rules here. Can you give us an
update on where the SEC is on that process?
Ms. White. Yes. And, as I said before I was confirmed and I
have said after I was confirmed, about a year ago now, that one
of my immediate top priorities was to implement, you know, both
the Dodd-Frank Act and the JOBS Act rulemaking mandates given
to the SEC.
We did in July, this past July obviously, lift the ban on
general solicitation. We also at the same time, same day
actually, adopted the disqualification of bad actors from that
new market. That is actually a Dodd-Frank provision, but very
important that they went together.
We have proposed the crowdfunding rules. We have proposed
Reg A-Plus. The comment period, I think, has just closed in
February on the crowdfunding proposal and in March, actually,
with respect to, as we refer to it, Reg A-Plus.
We have some additional JOBS Act rulemakings to do. Some of
them are really, kind of, conforming our regulations to what
are already statutory mandates. But we are quite focused on
getting them done.
Mr. Quigley. Anything else close to being finalized?
Ms. White. Well, once the comment period closes, I, at
least--let me say it this way: They are all priorities for
2014.
Mr. Quigley. Okay. Thank you.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Commissioner, welcome. Thank you for--Madam Chair--thank
you for joining us today.
Last year, as you may recall, the Appropriations Committee
considered an amendment and adopted it on a bipartisan basis
that would have required the SEC and the CFTC to develop a
single rule as to how they apply the cross-border application
of swaps and derivatives regulations.
I think as we have all said repeatedly, it just seems like
good government to have the SEC and the CFTC on the same page
and have one standard when dealing with a single marketplace on
how that market is being treated when regulated. Yet, the CFTC
and SEC, I believe, have chosen not to issue a joint rule or a
rule that is similar in nature.
And so my questions are: Can you let the committee know
what differences, if any, still exist between the SEC's
proposed cross-border regime and the one that has been
implemented by the CFTC?
Can you let the committee know what steps the SEC may have
taken during the past year to ensure consistent application of
Dodd-Frank's rules to transnational swaps and security-based
swaps?
And then, as you know, your European counterparts have been
highly critical of the approach that has been taken by former
Chairman Gensler of the CFTC and that they had chosen to take
him when Chairman Gensler was there. Will you commit to us that
you will work as collaboratively as possible with international
regulators to ensure that the U.S. Has a cross-border
regulatory approach that works for the global market and
doesn't disadvantage U.S. Companies relative to their foreign
competitors?
Ms. White. I certainly can give you that commitment. And,
really, since I have first arrived, I have been not only in
dialogue with the CFTC at the principal level, including with
Acting Chair Mark Wetjen now and then presumably his successor,
if confirmed, Tim Massad, about this, as well as former
Chairman Gensler and our international counterparts.
I guess I would say several things.
I think there are more similarities in our proposed rules
and the CFTC rules than there are differences and we have been
working to close gaps.
We are really entering our adoption phase in 2014 at the
SEC. One of the specific sets of questions that we posed in our
cross-border proposal was precisely about the importance of
consistency, because we recognize that to be important. We are
not actually obligated to do a joint rule, so it is not a joint
rulemaking in a technical sense, but we certainly recognize the
importance of consistency.
And so, we will be, working and are working with CFTC and
our foreign counterparts, you know, on that aspect of these
rulemakings. To some degree, we have the benefit of what has
gone before, in terms of what is needed to, close the remaining
gaps there.
I am not suggesting they will be identical, at the end of
the day. The markets are somewhat different, so there may be,
some differences. I think a couple of differences I would cite
that are still there between SEC and CFTC are, how we go about
defining a U.S. Person and the approach to substituted
compliance.
But, in substance, we are much more in sync than we are not
in sync, and we are going to continue to work on the
differences.
Mr. Yoder. Well, and I would say the ``U.S. Person''
difference is pretty significant in terms of ones that are
remaining.
Ms. White. Yes.
Mr. Yoder. And, frankly, when the Appropriations Committee
addressed that issue last year in full committee, that was one
of the thrusts behind why I think the committee chose to take
it up, is that we have the SEC and CFTC defining who a U.S.
Person is differently. You know, that is a real problem for,
you know, certainty in the markets and predictability.
And I think we are all concerned, and I am sure you are, as
well, about the, really, backlash we received from European
treasury secretaries and folks about the CFTC's rules. SEC has
been much, I think, clearer and better in their approach, and
we just hope that they will follow your lead and that you will
continue to provide leadership to help them work together.
I understand the SEC, I think--and my colleague, Mr. Diaz-
Balart, was discussing the muni-bonds issue, I guess. I
understand the SEC is close to finalizing a rule that would
regulate money market mutual funds. There are concerns that
further regulations would particularly harm State and local
governments by increasing their borrowing costs and shrinking
the market for municipal bonds.
What steps are you taking to ensure that any final rule
does not negatively impact municipal financing?
Ms. White. Again, you know, we focus very carefully on all
impacts of the rule. I mean, clearly, we have gotten a number
of comments since we proposed the money market fund rules, I
think it was last--last June.
Whether, in effect, the muni funds should be exempted like
the government funds are is a major comment that we have
received. And the staff has been quite focused on that, as have
our economists, in particular, in our Division of Economic and
Risk Analysis.
I can't be more specific as to where we are on this, you
know, the specifics, because it is something that is currently
in discussion between the staff and the Commission.
Mr. Yoder. All right. Thank you, Madam Chair.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Chairwoman White, thank you for joining us. It is good to
see you again. And I can only imagine how difficult it has been
over the last year, your first year, to balance the difficult
task of consumer protection and free markets in investing and
responsibility. And then you combine that with the laws that we
pass and ask you to enforce, and the difficulty in doing that,
and I know you are doing your best that you can.
I really appreciated your comments a minute ago when you
referenced the economic analysis. That is very important as you
consider rules that you are going to adopt. And it seems of
late one of the most highly concerning rules right now is the
Volcker Rule, as you are well aware.
And in an effort to, sort of, work with the authorizing
committee some, we would have an interest, I guess, as a
subcommittee here, as to the response you gave them to their
letter when they asked about the economic analysis. And I guess
in the letter it referenced that it had not been performed and
yet you were moving forward with the rule, which was in
violation of the law, and they had asked for a response to
that.
Were you able to provide that response to them? And if you
had, could we get a copy of that, as well?
Ms. White. Sure. I would be happy to give you the response.
We did respond to that.
I mean, first, I would say we did--and the agencies, again,
did not have to do a joint rulemaking on this but did actually
act jointly on this. And there was economic analysis done,
which is reflected, actually, throughout the rule on various
issues. And comments came in, raising economic-impact issues,
and the final rule actually was quite responsive to a number of
major issues.
What we did not do, given the context of the joint dynamic
of the rulemaking, was apply our guidance and no other agency
applied a specific agency procedure to the rulemaking. So I
think that is what that reference is.
We basically, as a legal matter, we adopted under the Bank
Holding Company Act, which, as you know, doesn't have the same
requirements as our SEC acts do with respect to various other
factors we take into account.
But, as I say, the main point is economic analysis was very
much a part of that rulemaking but not per our specific one
agency guidance.
Mr. Graves. Did the economic analysis that you provide
comply with, in essence, the judge's ruling--and I, sort of,
have the reference here that the case was the Chamber of
Commerce v. the SEC, when the court indicated that an adequate
economic analysis had not actually occurred. And, in fact, it
was said, ``And its failure to apprise itself--and, hence, the
public and the Congress--of the economic consequences of a
proposed regulation makes promulgation of the rule arbitrary
and capricious and not in accordance with law.''
So I guess it meets what the court's request is, as well?
Ms. White. Well, you never know until a court tells you, I
think, what it meets, but----
Mr. Graves. Well, they made it pretty clear there.
Ms. White. But I think the references and the opinion were
to various requirements under the securities laws, which are
really statutory requirements. Again, this particular rule was
adopted under the Bank Holding Company Act, which has different
provisions in it.
Mr. Graves. Okay.
And if I could ask just another quick question, I have here
that the SEC claims that there is an interagency working group
that is tasked with the coordination, I guess, of some other--
and this is, again, referencing something that the authorizing
committee had sent you--but a working group that is working
together on some of these, I guess, supposed rules and such.
Can you share with us who is a part of that working group
and when they have met, how many times they have met, and such?
Ms. White. I can't give you a precise number on how many
times they have met. I mean, essentially, there is staff,
senior staff, from all of the adopting agencies, so that means
the Federal Reserve Board, CFTC, SEC, FDIC, OCC. I think I got
everybody in there. And they meet quite frequently in person.
They also meet by telephonic conference call when issues arise.
They have been focused on issues of interpretation. They
have been focused on compliance issues that are to come,
enforcement issues that are to come. And, again, I think there
is a real recognition of the importance, even though not
required, to act consistently and as jointly as possible. And
that is, I know, one of the, you know, major concerns that has
been raised since the rule.
Mr. Graves. Right. It is an amazing rule, and I know it is
going to have an impact. And I would hope that this working
group adopts some metrics to share with everyone so that
everybody knows what they are working towards and that there is
no ambiguity moving forward.
But thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
I think we have time for another round of questions, if
folks have other questions, and I will start.
Madam Chair, it has been brought up a couple times, the
whole rulemaking about municipal advisors. And, in fact, I
wrote you a letter some time ago that the rule that came out
defining ``municipal advisor'' was so broad that, for instance,
if an issuer, whether it is a school board or a nonprofit
hospital, somebody that was going to issue debt, and a broker-
dealer came in and said, I have a great idea, here is a way you
can refinance your debt, or here is a new way to finance your
debt that can save you a lot of money--I think, initially, when
the rule came out, if an underwriting firm, a broker-dealer,
came in and said, here is a great idea, then the issuer would
be precluded from hiring that entity that came up with the good
idea to actually underwrite the deal, because somehow they
became a financial advisor as opposed to an underwriter.
And then I understand that some clarification came out so
that if you walked in with a great idea and said, I am actually
an underwriter, but here is an idea--now, do you know, has it
been clarified? If somebody came with that idea, would they be
able to underwrite the deal that they brought in and said, here
is a way to save money? Do you know yet where that
interpretation has gone?
Ms. White. I think that--and I believe, if I remember your
letter--and maybe my response actually came before we actually
had issued those FAQs and staff guidance. And, clearly, we
addressed, that kind of, questioning the range of the
underwriter exemption and also what could be done and could not
be done without necessarily triggering the registration
requirements. But I don't know if the precise issue has been
covered.
I can say that, since we did that staff guidance, we
actually have not really gotten, much continuing complaint or
interest in that set of issues from the broker-dealers. But, it
doesn't necessarily mean it is solved. I would have to see. But
we addressed a pretty full range of issues in those FAQs that
came out in January.
Clearly, you can't just do anything and not trigger the
registration requirements. I mean, the guidance is not that
broad. But it did clarify in a number of areas, so it may have
met that concern. I would be happy to be more specific and give
you a more specific response on that.
And I will say again, as I did in an answer to an earlier
question, that the staff continues to dialogue with those
affected by the rule to see whether there are other areas where
we need to give further clarification.
Mr. Crenshaw. Great. Well, I think that is important,
because I think everybody would agree that we need regulation,
it needs to be reasonable and not burdensome and not have an
unintended consequence.
And in a situation like that, you have a pretty competitive
marketplace, and also you have some pretty sophisticated
issuers, whether it is a school board or whether it is a
nonprofit hospital or a county commission, and you always have
to ask yourself, what is their responsibility? They are the
ones that are making this decision. And while you want to be
reasonable in your regulation, you can't oversee and protect
everybody all the time from themselves. I mean, some people
make bad decisions and some people make good decisions, and the
government can't always step in and make sure that everybody is
being protected from themselves.
So I appreciate the fact that the Commission is aware of
that. And as you try to write these rules and regulations, that
you can work with the folks that are impacted by this--that is
what economic analysis is all about.
I want to ask you, too, it has been brought up, about the
whole money market fund reform. That has been kicking around
for some time now. And I guess you are close to promulgating
those rules.
I think we all have to recognize that we want to make sure
that any kind of reforms don't decrease liquidity or cause
rates to go up or increase costs. So we put some language, as
you might recall, in last year's bill that said here are some
thoughts that you should consider when you are reforming the
money market funds.
I think one of the commissioners has come up with an idea
that you could either have the floating-rate debt or you could
have some sort of redemption penalty--it was like an investor
choice model.
Do you know where all that is? You touched on that. Are we
close to seeing the proposed rules? And have you taken into
consideration some of the different alternatives?
Ms. White. We certainly--and, again, we are in the active
stages of discussion towards adoption. I can't give you a
specific, you know, timetable on that.
I am familiar with the alternative that you referenced,
which has been part of the discussion. I mean, again, I think
our proposal, which I think was a robust proposal, basically
had two alternatives--the fees and gates, the floating NAV for
prime institutional--or could be done in combination.
We got a lot of comments, a lot of points of view on the
proposal, which we have considered, you know, very seriously.
Again, we did some reforms in 2010 that I think made the money
market funds more resilient, but we are focused on preventing
that redemption run risk in times of stress that occurred
during the financial crisis.
So we want our proposal to be robust, very robust. And the
proposal certainly was. I expect the adopted rules to be
robust, as well. But we are considering all of the ideas and
impacts and clearly also are sensitive to, not damaging
gratuitously the product.
Mr. Crenshaw. Great. Thank you very much.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
Before I ask a couple of questions, I wanted to comment on
something you just said, because I think you put in a nutshell
part of what I am concerned about--and I am not saying you are
agreeing with me, but part of what you hear from this side
about resources and about enforcement.
You are right, government can't be in everybody's lives,
telling them what to do. But when an individual or a couple of
individuals are making decisions that affect a whole lot of
people, such as happened in 2008, where there was a national
meltdown that then had an effect worldwide, then that kind of
involvement, that kind of enforcement by government, that kind
of interference, if you will, by government is totally proper,
in my opinion, to make sure it doesn't happen again.
And that is what we are talking about here. At least the
comments I make whenever I say, you know, we need more
enforcement, that is to make sure that what happened then
doesn't happen again. Because those folks were not making
decisions that affected them only; they made decisions that
affected a lot of people, and we are still suffering from it in
so many ways.
Mr. Crenshaw. I would only say, when we talk about
municipal securities, if a school board in New York issued $5
million in debt and they made a bad decision----
Mr. Serrano. Right.
Mr. Crenshaw [continuing]. I don't think that is what
caused the world economy to almost collapse. But I think, in
the broad sense, I agree with you----
Mr. Serrano. Right.
Mr. Crenshaw [continuing]. And what you are saying.
Mr. Serrano. Thank you. Thank you, Mr. Chairman.
Madam Chair, there has been a lot of press lately about
high-frequency trading. Are you concerned about these
practices? Does the SEC have the resources to keep up with
these new technologies?
Ms. White. I think----
Mr. Serrano. It seems that every time you have a solution
to a problem, a new one comes up, right?
Ms. White. Well, you have to be vigilant--which is why we
need sufficient resources. But you have to be ahead of the
market as much as you can. And, clearly, the marketplace is
vibrant, it is evolving and constantly changing. So, it is very
important, obviously, for the SEC to be on top of that.
And I think I said, actually, before I was confirmed that
one of my immediate priorities for the SEC, in addition to
implementing the congressionally mandated rulemakings and
strengthening enforcement, was to make sure that the SEC had
thoroughly reviewed, really, the range of market structure
issues, equity market structure issues, and then decided what,
if any, you know, changes should be made.
Our approach at the SEC on these issues is to be data-
driven and disciplined to determine where high-frequency
traders fit into the range of market quality issues, to look
into all the questions that have been raised, and then to take
appropriate action if changes are needed.
Now, clearly, we are focused at the SEC and have been for,
you know, quite some time on any unlawful trading practices of
high-frequency trading firms, really, of any of our market
participants. And that is a very important focus of our
enforcement and examination program.
We currently have, I can't talk about specifics, but a
number of ongoing investigations regarding various market
integrity and structure issues, including high-frequency
traders and automated trading. So we are very much focused on,
you know, any abuses in that space.
On the policy side, questions have been raised there,
should any of the rules be changed. And, again, our approach
there is very data-driven, very disciplined. Our experts in
trading and markets are, very much involved in this issue, very
much on top of these issues.
And I think, you have to sort, separate out, what are the
questions you are asking there. I mean, for example, there are
many market metrics that show that high-frequency traders,
provide greater liquidity, they reduce costs, they lead to
better prices. There is another school of thought----
Mr. Serrano. Right.
Ms. White [continuing]. However, that raises various
concerns about unfairness, the lack of a level playing field,
what is the real value added. So, I think people would agree
that there are advantages of speed, but what is the impact of
the advantages of speed? Is it harmful? Is it not harmful? Who
does it harm, if it harms?
But these are all, you know, issues that we are very much
reviewing intensively and on top of.
Mr. Serrano. Let me ask you one more question, then, Ms.
Chairman. Your request of $1.7 billion will support 639 new
positions. You are requesting 126 new positions in enforcement,
316 in compliance, and 25 each in corporate finance, trading
and markets, and investment management.
Can you explain what function these will serve and why they
are needed? Will they put you more in line with how other
financial regulators are staffed?
Ms. White. We still won't actually be in line with the
other financial regulators', staff. But what we are asking
for--and, again, we really have tried to be very surgical about
our needs here, and I think particularly with the requests for
the additional examiners and the additional enforcement
staffing. They are critically needed to carry out our
responsibilities. And we have talked a fair amount about the
investment advisers and frequency of examination there, so I
think I don't need to, say more about that.
On the enforcement side, we are also keeping up with a
very, complex, fast-moving market. We need to know what Wall
Street knows and, how they may be trying to come in between
some of the rules so that we can, be right there on the
enforcement side.
Mr. Serrano. Oh, they wouldn't do that, would they?
Ms. White. No, of course not, right?
Mr. Serrano. Right.
Ms. White. So, those are--and one of the other things that
I think has been an emphasis, certainly in enforcement, and
certainly is my emphasis in enforcement, is to focus very
closely on responsible individuals as well as institutions.
Mr. Serrano. Sure.
Ms. White. So we have an increased focus on responsible
individuals. That, one would assume, and has to some degree
already, led to more litigation, more trials. Individuals tend
to contest more than companies do. And so some of those
resources in enforcement are really to enhance our litigation
capacity, which I think is extraordinarily important to a
strong enforcement presence.
Mr. Serrano. Thank you.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Womack.
Mr. Womack. Thank you.
A lot has been said already about the MSRB and the
rulemaking for municipal advisors. The problem is, not
everybody has said it. So let me associate my remarks with
those of Mr. Diaz-Balart and our chairman.
And, basically, from the context of I was a mayor for 12
years, issued a lot of debt, had a lot of great ideas presented
to me by people, and so I think my overriding concern is that
we don't do anything that--I recognize, as my friend, Mr.
Serrano, has said, that there is a place for legitimate
regulation to protect those people that make decisions that
affect a whole lot of other people, which we certainly did. But
there has to be a careful balance in there that we don't
disincentivize companies, people representing companies, that
have workable ideas.
We saw a lot of this when we saw interest rates going down
and a whole lot of issuers capitalizing on the fact that they
could restructure, do some second-lien bonds, those kinds of
things, and really maximize the value, leverage their potential
with a lot of capital investment.
So I just want to make sure that we are not going to do
something that is going to take away the incentive for these
advisory-type folks to be able to give us the proper advice
because of some rule that may prevent them from being able to
participate in the issuance of the debt.
Ms. White. Well, it is a balance, but, obviously, the need
for the rules was a provision of Dodd-Frank. I mean, that
marketplace certainly has enforcement investor protection
issues that we are responsive to, even apart from the
registration requirements.
But I think if you look between our proposal and what we
adopted--I am not saying you agree with everything that is in
the adopted rules there--that I think we very carefully, looked
at how broad should that rule be, who should it apply to, to
what activities should it apply to, and, again, considered, the
impacts on municipalities and really across the board.
And, we are continuing, as I have said, to dialogue about
issues that still remain subject to interpretation and concern.
Mr. Womack. And very quickly, on your budget, to kind of
pick up on something that Mr. Serrano said just a few minutes
ago--and I couldn't agree more that there is a need to protect
people that make decisions that affect larger groups of people.
But as it concerns the new hires, can you quantify the amount
of resources that you are currently using to examine private
fund advisors?
I am asking because investors in those funds generally are
well-off--millionaires, billionaires. And I get the need to
make sure that private funds are above board, but my bigger
concern are the retail investors. In my opinion, we should
spend more time protecting the mom-and-pop retail investors who
may not be as sophisticated when it comes to investing.
So walk me through that scenario.
Ms. White. Well, I think that investors across the board
are entitled to protection, and the SEC is their advocate. I
mean, I certainly don't exempt anyone from, my thinking on
that. It is very important.
And I think, plainly, you have particular concerns for--
heightened concerns for retail investors, particularly if they
are not advised at all or advised by either a dishonest advisor
or not an able advisor.
But I think, again, the registration of advisors to private
funds is something that, we have the authority in the Dodd-
Frank act to do that. My sense is, our examination staff's
sense is that, we have tried to target our resources. We have
done some presence exams, which are not the same as full-blown
exams, not as resource-intensive in the beginning, on some of
this space. But we have found significant issues where we have
gone, particularly with respect to allocation of fees and so
forth.
So I think there is, a need for resources in that space. We
want to be smart about it. We certainly, do not want to
compromise protection of retail investors. As I think I said
earlier, though, you also have the phenomenon of, the larger
investment advisors that are responsible, nevertheless, for the
pension funds of the retail investors, so you have that
indirect benefit.
Mr. Womack. And, very quickly, of 600-and-some-odd
employees if this budget were approved that you would hire, can
you break those down as to who goes where, where your
priorities would be insofar as the allocation of those
resources?
Ms. White. I don't know if I can be more specific than--I
mean, you have the number for, how many would be, in exam,
which was about 240----
Mr. Womack. 316?
Ms. White [continuing]. I think. 316 is the total. I think
the difference, the delta there, is for broker-dealers and
other registrants. So where it is most, frankly, desperately
needed is in the investment adviser space.
In terms of, sort of, how they would be deployed across,
various kinds of investment advisers, I mean, that is something
that, to a large degree, will be driven--I may be able to give
you more specific information in a follow-up--by our, risk-
based assessment of where the biggest concerns are, the biggest
needs are, and, again, trying to make certain that we are not
absent from the smallest spaces as a part of that, too. Because
you might not trip, a risk-based metric in the smallest of the
investment advisers. So we want to make sure we are there, as
well.
Mr. Womack. Madam Chair, thank you so much.
I am out of time. I yield back.
Mr. Crenshaw. Thank you.
Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Madam Chair, my colleague, Mr. Womack, mentioned earlier in
his questioning the proxy advisory firms, and I agree with the
concerns he has raised.
Last week, Commissioner Gallagher gave a speech that
addressed broader concerns around the proxy process. It does
seem that some of the Commission's rules around this process
are outdated, in need of updating. No one wants to interfere
with shareholders, who have legitimate points, from placing
proposals to their fellow shareholders, but when we examine who
we are making many of these submissions, it feels we have
ventured from the original goals of the proxy process.
Consistent with Commissioner Gallagher's speech, do you
believe that the Commission should revisit the resubmission
thresholds and the holding period requirements?
Ms. White. I think that--and I know the proposal you are
referencing. I think we call it, in part, the proxy plumbing
proposal.
And, I think it has a number of issues in it, including the
proxy advisory firm issue that we were discussing, and I think
the issues are important to investors and important to
companies. And by that, I mean there is a range of issues, I
mean, not just the period of time that should be applied in
terms of purchases and so forth.
I think that that whole set of issues is one that certainly
has my attention. We obviously are trying to prioritize a lot
of rulemakings there, but it contains a number of important
issues, I think.
Mr. Yoder. One of the issues we raised last year and was
subject of debate before this committee and has some strong
bipartisan support is legislation moving through Congress
called the Email Privacy Act. Myself and Mr. Graves, along with
a bipartisan group of Congress men and women, have cosponsored
this bill, I think most people on this subcommittee. And it
responds to concerns that have been raised about the IRS, the
SEC, and a number of our regulatory agencies, that they are
engaging in a practice of reading electronic correspondence of
Americans without the due process of achieving a warrant or
showing probable cause for reviewing those emails.
The SEC has, I think, admitted to this practice. And I
think it has come under some concern from a lot of Americans
that the Federal Government would treat somehow electronic
correspondence different than paper correspondence. The paper
documents on our desk versus the, you know, file folders
contained in our email accounts all seem to probably have
Fourth Amendment protections.
This legislation is gaining a lot of steam in the House.
And I guess my question for you is, is the SEC engaging in the
practice of reading emails or other electronic correspondence
of Americans without a warrant?
Ms. White. And I think we had this conversation last year--
--
Mr. Yoder. We did, yes.
Ms. White [continuing]. As I recall. And we certainly
aren't reading emails live, which I think was part of our
discussion last year.
What the SEC has--and we are not a criminal law enforcement
agency, so we don't have the authority to get a criminal
warrant. So that is one point.
What we do have--and, essentially, there is a long line of
established Supreme Court cases--we have the administrative
subpoena power, as do most civil law enforcement agencies in
one form or another, that can be used to ask a subscriber for
their emails or ask a third party, who may have documents,
emails, including an ISP, you know, for those emails.
So that is the authority the SEC has. A subpoena is very
different than, seizing something as you might when you need to
have a warrant in a typical case. The practice that the SEC has
always followed with these is to, if they are subpoenaing the
ISP, which I think is the area of interest, to give notice, to
the subscriber, who then has the opportunity to contest that
subpoena if they so desire.
I understand the privacy concerns. I think we talked about
that last year, as well. I think there are a number of
different accommodations that can be made to actually heighten
the privacy protections.
What concerns me, as the head of a, in part, large part, I
suppose, law enforcement agency, is that we not put out of
reach of lawful process--and, again, it is a process that gives
notice and opportunity to be heard--what is often sometimes the
only or critical evidence of a serious securities fraud. I
think you can balance the two. We are certainly, happy to
discuss exactly how to do that. And we use that authority, I
think, quite judiciously, but it is extremely important to law
enforcement.
Mr. Yoder. Which, clearly, your point is that you are not
conducting law enforcement, you are conducting administrative
review, you are conducting subpoena--I mean, if you are going
to go forward with law enforcement, you are not looking at
criminal sanctions on folks. And we believe just very strongly
that that process needs to be one that protects the Fourth
Amendment rights of every American.
And there is this sense that we get from not only
statements of the IRS that has blatantly said Americans do not
have an expectation of privacy when it comes to their email,
there is a sense that these subpoenas that are being issued--so
we are not even talking about warrants--administrative
subpoenas that are being issued don't give due process, don't
give notice, which you have described as protections for those,
that these are being taken without notice to the subscriber.
And that is one of the chief concerns that has driven the
interest in fixing this.
And so I would love to see your comments or thoughts on, I
think it is, House Resolution 1852 to know what the SEC would
amend or change about that to allow you to continue to carry
out your functions while protecting the Fourth Amendment rights
of our constituents, who are, frankly, alarmed at just the
intrusions of privacy that go on every day at this government,
particularly when it comes to electronic correspondence, that
somehow, perceived to be in the bureaucracy of this vast town,
that the Fourth Amendment doesn't apply there like it applies
everywhere else.
I know you have stated here you believe it does and you are
respecting that in your efforts, but I think we have some
disagreements about how that is being administered. And I would
love to see your thoughts on how our bill could go forward to
protect Americans with your input.
Ms. White. Happy to do that.
And, again, I would just say that I do think, you know,
that civil law enforcement--and I do call it law enforcement,
because I think that is what it is--is extraordinarily
important. I also think the privacy interests that you are
referencing are extraordinarily important, too.
And I think the way the SEC has done this, satisfies those
requirements, or should. But, again, I think there are any
number of ways to do this, and we are very open to, talking
about other measures, as well.
Mr. Yoder. Thank you, Madam Chair.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Madam Chair, again.
And appreciate the gentleman's leadership on that issue.
Very important to everyone, not just one side of the aisle or
the other. It is really for everyone. And I appreciate your
interest in trying to work with us on that.
If I could quickly, just to go back to the previous
comments and questions I had earlier in relation to the
interagency working group and such, and you referenced, you
said there were senior individuals of those five agencies, is
it possible for us to get a list of those, I mean, to our
office at some point? I know you said you couldn't recall off
the top of your head who the individuals might be or the
meetings times or places.
Ms. White. I don't see any reason why those names couldn't
be provided.
Mr. Graves. Good. Thank you. And----
Ms. White. Someone may tell me there is a reason, but I
don't know it as I sit here.
Mr. Graves. That happens to me oftentimes, too.
And then, next, just thinking about a lot of confusion with
the different agencies being involved and a lot of concern in
the marketplace, is it possible that one agency might have some
input or send out a letter or request to work within the
rulemaking process one way and another agency maybe have
different correspondence otherwise?
If I could ask, is it safe for the marketplace to assume--
or could you assure the marketplace that if they receive
correspondence from any of those five that has a specific
request on how to operate within the rulemaking process and
such, that it is consistent amongst all of them and they
shouldn't expect something different from another agency, as it
relates to the Volcker Rule?
Ms. White. I think--and I don't want to overstate the
assurance, but let me say two things.
I mean, one, I think that the marketplace should know--I
mean, they know who their primary regulator is, and so I think
addressing questions to the primary regulator is the best way
to go.
I can also say that all of the agencies are very focused on
talking about and being as consistent as possible in terms of
their, you know, approach on interpretations and other issues.
And that is something that, again, I think, just as I think it
was critically important to the rulemaking that it be jointly
done, it is certainly critically important as we go forward on
implementation that that happen.
I don't want to guarantee somebody can't get a letter from
someone that, hasn't taken it before the group, but the
objective of that group on any issues of significance is to
discuss them first. It could be you could have--and this is
what everybody is worried about--you could have ultimately a
difference in point of view, and then that would create, the
inconsistency you are concerned about.
Mr. Graves. Right. And I think, really, I am thinking about
the reporting requirements, you know, that----
Ms. White. The metrics, yes.
Mr. Graves [continuing]. Someone in the marketplace may
have oversight with different agencies, and the OCC sends them
one reporting requirement for the same rule and potentially the
FDIC or another agency sends them another, that as much
consistency and continuity is better for the marketplace during
this development time and the new rule being implemented. So
anything you could do to reassure us as a committee that that
is occurring----
Ms. White. Yes.
Mr. Graves [continuing]. Because, ultimately, we get the
calls that say, hey, what am I doing, which----
Ms. White. Yes.
Mr. Graves [continuing]. Letter do I go by?
And then, lastly, I would just like to get your thoughts on
the future of the market with the collateralized loan
obligations. What do you see the future there? Because there is
a lot of concern with the Volcker Rule and the implications on
that market.
Ms. White. Yes. And that is an issue, on the CLOs, that
really has been, in this interagency working group but has the
attention of the principals of the agencies, as well. It is one
of those that, as we speak, we are very focused on. So I can't
tell you how it comes out, but it is something that we are,
very focused on.
Mr. Graves. So it is safe to say that the interagency
working group is looking at this, that it is--you don't see
CLOs being banned in the future at all, in totality?
Ms. White. You know, I think the question is, how do you
interpret the provisions with respect to the CLOs. So I don't
want to get ahead of the group on this.
Mr. Graves. I understand. And I guess you know a lot of
industry really relies on that opportunity, so I appreciate how
that working group is looking into this and understands that
importance.
Thank you.
Mr. Crenshaw. Thank you.
I don't think there are any more questions. We want to
thank you for your testimony today.
I hope you can appreciate, that we are all concerned that
we have the right kind of regulation. That is a tough job. And
I think there is also a concern that we want to do everything
we can to do those jobs efficiently and effectively.
Last year, when we fully funded the Division of Economics
and Risk Analysis--I hope that that is helping to do more cost-
benefit analysis of the rules that you are putting out. I know
that all these Dodd-Frank rules are going to require more
people, and then you have to ask yourself, what do you do with
all the people after all the rules are written?
And that is where I think the IT that you talk about,
upgrading those areas, hopefully can be leveraged into doing a
lot--like when we talked initially about how only 9 percent of
the investment advisors are being looked at. You would hope
that somehow the IT, the money that is being spent there, would
help doing that job.
So we recognize you have a tough job, and we appreciate the
hard work that you are doing. And we thank you for being here
today.
Ms. White. Thank you.
Mr. Chairman, could I just say one----
Mr. Crenshaw. Sure.
Ms. White. In terms of the Dodd-Frank and the JOBS Act
rulemakings, I mean, I think, in terms of resources going
forward, that is really a matter of implementing those rules.
It is not as if we are going to have lots of people, sort of,
freed up from writing the rules. I mean, so that is factored
into the request, though.
Mr. Crenshaw. Gotcha.
Ms. White. Okay.
Mr. Crenshaw. Well, thank you so much.
Ms. White. Thank you.
Mr. Crenshaw. The meeting is adjourned.
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Wednesday, April 9, 2014.
OFFICE OF MANAGEMENT AND BUDGET
WITNESS
SYLVIA MATHEWS BURWELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
Mr. Crenshaw. Okay, the hearing will come to order.
Director Burwell, we want to welcome you to our hearing
today. OMB has a significant responsibility in assisting the
President, and that is any President, Democrat or Republican,
in the development and execution of their policies. In meeting
with this responsibility, OMB develops the budget requests,
coordinates management, legislative, regulatory, financial,
procurement and other proposals to make sure that the Federal
agencies' practices are good for the country and consistent
with the Administration's objectives. OMB does this with fewer
than 500 people.
The purpose of today's hearing is to discuss OMB's
appropriation request. Since OMB is the Agency that prepares
the budget request for the entire Federal Government, we will
also want to discuss some of the important policies and
assumptions in the President's overall request for fiscal year
2015.
I know you are pleased that the deficit dropped to 4.1
percent of GDP last year, but we have to remember the deficit
is also higher than it has ever been under any other
Administration, and last year, maybe the year before, it
exceeded 100 percent of GDP, and it looks like it is going to
continue to stay there for the rest of this Administration. So
it would have been nice to do a little bit more to help reduce
spending.
Now, the mandatory spending proposed in your budget is
estimated to grow from $2.5 trillion in 2014 to $3.6 trillion
in 2019. That includes over $750 million in gross interest
payments on the debt in fiscal year 2019, and that is more than
the entire defense appropriations bill. I think it would be
best if the Administration could propose some mandatory
spending reforms that would rein in more of this spending. So I
urge you to work with the Budget Committee and the authorizing
committees to implement responsible mandatory reforms. As an
appropriator who has implemented spending reductions since
2011, we want to encourage you to make progress on the
mandatory side.
I was a little concerned that the budget request was
submitted late. We are 6 years into the Obama Administration,
and the budget request is still late. I know that the fiscal
year 2014 appropriations process didn't finish until January,
but the Ryan-Murray agreement provided fiscal year 2015 top
line appropriations to use in December, and the request was
still late. So I hope next year's budget is submitted on time.
Regarding your appropriations, I am a little concerned that
you still are asking for an increase in your operating account.
These are difficult fiscal times and most Americans want to see
their Nation's leaders lead by example. Between 2010 and 2014,
total discretionary spending has been reduced by 13 percent.
During the same time period, the House Members' office budgets
have been reduced by 16 percent, but OMB's operating budget has
only been reduced by a little over 3 percent.
So I know that you have a lot to do and your staff have a
lot to do, but, again, I would love to see more leadership,
leadership by example. That is why we reduced the Members'
budgets by 16 percent. Our constituents don't ask us to do 16
percent less work. We just have to find a way to do all our
work, and we do it with existing resources.
Regarding your request for a $12 million increase in the IT
oversight and reform, I appreciate the fact that the
Administration has made efforts to improve the use of IT
resources. You are doing cloud computing and data entry
consolidation and other efforts. But I would like to understand
how the healthcare.gov failed to launch successfully and maybe
how we can make sure those don't happen in the future.
We may not always agree on budget policies, and I have
raised some concerns with your budget request. But I do
recognize the challenge that you face, and the Committee
appreciates your hard work and all the hard work that is done
by OMB. So we look forward to hearing your testimony.
Now I would like to turn to Ranking Member, Mr. Serrano.
Mr. Serrano. Thank you. And, by the way, I know why it
didn't launch the way we wanted. They should have gone to a
college dorm and gotten a couple of kids, and they would have
done it right away with no problem.
Thank you, Mr. Chairman. I also would like to welcome our
Director of OMB. OMB is the Agency in charge of ensuring that
our government operates in an efficient, fair and responsive
manner. Your role in developing the budget and managing Agency
performance and coordinating regulatory action places you at
the core of how our government operates. Because of this, your
budget request, while somewhat small compared to other agencies
under our jurisdiction, has a wide-ranging impact. Your request
for this year includes a small increase to help ensure you have
the personnel needed to meet these various responsibilities.
It should be noted that the President's fiscal year 2015
budget prepared with your counsel stands in stark contrast to
Representative Ryan's Republican budget. The Republican budget
fails to create jobs while slashing critical parts of the
Nation's social safety net, such as Medicaid, which is cut $732
billion over 10 years, and SNAP, otherwise known as food
stamps, which is cut by $125 billion. On the other hand, the
Administration's budget request creates a strategic plan that
makes investments in the American people, their livelihoods and
their welfare. I commend OMB for your role in these efforts.
OMB also plays a vital role in coordinating our
government's policies with regard to Federal employees,
contracting and procurement. Because of the sequester over the
past few years, the size of the Federal workforce has shrunk.
We must make sure that even in tough budget times, we are
working to protect those people who do such important work on
behalf of the American people. And when we use contract
workers, it is important that we hold those contractors to the
highest standards of fairness and equality. That is why I was
heartened by the President's recent Executive Order to raise
the minimum wage for all new contracts signed by the Federal
Government and yesterday's Executive Orders to help eliminate
gender-based pay disparities among government contractors.
I am also interested in your efforts to promote data-driven
innovation, DDI, in fiscal year 2015. As the coordinator for
DDI activities, OMB is partnering with leaders in States,
localities, foundations and research organizations to help
ensure good policy making through data-driven analysis. This is
important work, and as with every Federal Agency, I want to
encourage OMB to work with leaders, officials and entities in
the Territories as part of these efforts as well as in the
States, of course.
OMB's mission parallels the responsibilities of the
Appropriations Committee, examining the effectiveness of
Federal programs and creating a budget that reflects our
Nation's priorities. I hope that we can have an honest
conversation about OMB's challenges and what this Subcommittee
can do to partner with your agency to ensure the successful
completion of both of our missions.
Thank you for your service and for appearing in front of
this Subcommittee today, and I look forward to a productive
discussion.
Thank you, Mr. Chairman.
Mr. Crenshaw. Director Burwell, we will turn it over to
you. We will make your written statement part of the record. If
you could limit your oral testimony to about 5 minutes, that
would be helpful. The floor is yours.
Ms. Burwell. Will do. Thank you.
Mr. Chairman, Ranking Member Serrano and Members of the
Subcommittee, I want to thank you for the opportunity to
present the President's fiscal year 2015 budget for the Office
of Management and Budget. I want to begin by thanking this
Subcommittee for all the work on the Consolidated
Appropriations Act of 2014, an important step to returning to
the appropriations process and regular order. Today I will
discuss the President's fiscal year 2015 budget request for OMB
and our work in the management, budget and regulatory spheres,
work that this Subcommittee is deeply familiar with.
First, through the budget development process, support of
the appropriations process and ongoing management and oversight
of Agency budgets, OMB drives high quality execution of the
Nation's fiscal policy and management of critical government
functions.
Secondly, by working with more than 100 Agencies throughout
the Federal Government, OMB aims to improve overall management
and deliver impact through improved efficiency, productivity
and quality of critical government services. For example, we
are encouraging and expanding strategic sourcing, our effort
for the Federal Government's buying power to save on essential
purposes. These efforts have saved over $300 million since
2010.
In the regulatory space, OMB's work protects the health,
safety and environment of Americans while promoting economic
growth, job creation and innovation. The regulations that OMB
has reviewed over the past 5 years are expected to have an
overall value of $200 billion annually when implemented. And at
the same time, the Administration has also focused on
streamlining, modernizing or repealing regulations on the books
that impose unnecessary burdens or costs.
This regulatory retrospective review, or look-back, has
resulted in over 500 initiatives that the agencies are pursuing
to reduce costs, simplify the system and eliminate redundancy
and inconsistency with $10 billion in savings already in the
near term and more to come in the future.
OMB's budget request is designed to deliver against these
core missions while supporting our expanding role in a number
of key priority areas that the Congress has called on OMB to
take on, including implementation the Budget Control Act,
supporting performance management through the Government
Performance and Results Modernization Act, ensuring improved
financial management and transparency and accountability under
the Federal Funding Accountability and Transparency Act, and
supporting new contracting spending and security requirements
under the National Defense Authorization Act.
As this Committee knows well, even while OMB has taken on a
number of new functions and responsibilities in recent years,
our funding and staffing levels have been significantly
constrained. As a result of sequestration, OMB employees were
required to take 8 furlough days last year. That is the most of
any agency in the Federal Government. The budget request would
bring OMB back up to staffing levels comparable to 2009, though
well below staffing levels of recent years. This is a critical
investment with large returns in the form of improved program
management, budgetary savings, smarter regulations, important
outcomes that the administration, Congress and the American
people look to OMB to deliver.
Thank you for the opportunity to testify today. I look
forward to continuing to work closely with the Subcommittee on
our shared priorities for OMB and supporting the Committee's
efforts moving forward on the fiscal year 2015 appropriations.
I would be pleased to answer any questions you have.
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Mr. Crenshaw. Thank you very much.
We will have questions, and I think we will try and observe
the 5-minute rule, so Members can keep that in mind. There is a
little light that will help the Members to remember the 5-
minute rule.
So let me just make sure you know one of the most important
things you do is submit the budget for the Federal Government
and when you submit it late, it makes everything else get
behind, and we are all trying to get back to regular order, and
we are doing a pretty good job this year. I just want to be
sure you understand that it is due the first Monday in
February, right?
Ms. Burwell. Absolutely, and I respect those deadlines. The
mid-session review since I became OMB Director we delivered a
week earlier. In addition to meeting the top line, in order to
do the work that an Appropriations Committee, we actually
needed the appropriation level. Seven weeks and one day from
the date on which we got those numbers, because we received the
numbers the same day they were posted for Members to see in
terms of the vote, we put out a budget.
So we take that very seriously. We wanted to get these
numbers up as quickly as possible. We took what is a 3 and a
half month process and did it in 7 weeks. I take deadlines
extremely seriously and continue to work to meet them. I want
to work as part of a team to return to regular order.
Mr. Crenshaw. Great. And so, next year, we are going to
work to have them right on time.
Ms. Burwell. I am excited to see all appropriations bills
delivered to us on October 1st, and we will be there.
Mr. Crenshaw. Great.
Let me just ask you about your request this year. I know
that last year, I think there was money to add 40 new staff
members. I think this year you proposed another 25 in your
budget. Maybe if that is not right, you can tell me. You are
requesting a little bit over 4.5 percent increase this year,
and I know you have lots of responsibilities. But other
agencies that you oversee when you submit their budget, some of
those programs are cut for different reasons.
So tell us how you go about, I know you have a lot to do,
how do you decide what areas in the other parts of government
aren't going to be funded as much as last year and how do you
decide that you need just a little bit more each year?
Ms. Burwell. So I know this Committee knows the constraints
of the 2015 levels and you all understand that while we have
some of the sequester buyback, it is still a very tight level,
and as we went through the entire budget process, it was
difficult to make the tradeoffs and decisions that we made. And
I take very seriously your point in your opening statement
about leading by example and want to do that.
In the case of OMB and the decision that we made in terms
of the dollars and the amounts, you are correct, we have a $4.2
million increase that is a 4.6 percent increase on our budget.
From the period of 2010 to the present, OMB has had a 9 percent
decrease in constant dollars in its budget. With regard to our
FTEs, that translates to 11 percent, because OMB is only
people. We don't really have anything else to cut. We don't
do--there aren't grants. We don't do a lot of mailings. We
don't do anything. We are people. So that is a deeper cut.
At the same time, during that same time period, CBO has
increased by 9 percent. And while the functions are different
in terms of, as you articulated, we do execution, post-passage
of legislation, our colleagues there have seen increases.
When we think about--I listed some of the things that
Congress has asked us to do in addition. Since I was here
before, take for instance GPRA, GPRA modernization. In GPRA,
the first Government Performance Results Act, what we saw was
18 mentions of OMB. In the current one there were 40 mentions
of OMB. Right now, we have taken the over 2,000 pages that were
on different Web sites and brought that together in one forum.
We have set cross-agency priorities. So across the board, the
functions that OMB has been doing have been continuing to
expand.
In addition as I look and make decisions, OMB went in some
of the ratings of the Federal employee survey, which I take
seriously as I try and manage an institution, we went from 3rd
to 34th in a number of ratings. And I think that is a
combination of things that have happened over a period of
years. And what we want to do is make sure we are able to serve
and deliver both for the Administration and the Congress and
the American people.
Mr. Crenshaw. Thank you.
Mr. Serrano.
Mr. Serrano. Thank you so much, Mr. Chairman.
You have been here now almost a year, but you served as
Deputy Director there during the Clinton administration. Can
your give us an impression of the agency and its employees and
what changes you have seen from the time you were there as
Deputy Director and now in your new role?
Ms. Burwell. A couple of changes that I have observed in
the year, and probably one thing that I didn't completely
recognize as I was coming back to take the job, and that is the
strain that has been put on our career staff. And career staff,
as you reflect, that is career staff for any administration,
Democrat or Republican. And that strain in terms of what it has
meant to have the hiring freezes, the pay freezes, the
furloughs that occurred for the team. My first day at OMB last
year was an alternative furlough day. And what all that means
at the same time is the uncertainty.
We like regular order. We like to do the budget on a
timetable. But if we don't have the numbers, we are trying to
guess, trying to scramble. The implementation of sequester last
year, all of these things have contributed to what I think is
an additional strain on the organization.
The other thing that I have seen is, and I think this is a
positive thing that we should do, and that has been a greater
expansion of the management responsibilities that have been
given by the Congress to OMB. That is an area, which I am sure
we are going to talk about today, from information technology
to the performance management, and the idea it is one of the
first times in implementing the GPRA modernization that we have
cross-agency priorities and Agency priorities that are printed
as part of the budget. So we get that alignment of goals and
money and we start bringing those things together.
Mr. Serrano. Now, you have practically answered my second
question, which was the effect of sequestration and the
shutdown, and we have been asking all the agencies this and you
told us really. But in your case, or in the case of your
agency, our understanding is that morale is very low at OMB and
that it has been for a while, and your agency has rated low in
job satisfaction surveys. What do you think accounts for that,
and what are you doing to fix it?
Ms. Burwell. So a number of things----
Mr. Serrano. We have so many different agencies that face
so many difficulties, and then you wonder why this one is the
one that gets rated lowest. What is the issue?
Ms. Burwell. A couple of different things. One, I think
because we are all people, any of the cuts, as other agencies
have attempted to manage during fiscal constraints, they have
been able to change other things. Other Departments actually
have a larger ability, whether that is through their grant-
making, their conference spending has been cut, travel has been
cut. OMB does a very limited amount of that. So the only places
we cut are people.
At the same time, the dramatic uncertainty that occurs.
When I first started, we thought we would have 10 furlough
days. We were able to manage it down to 8. But that dramatic
uncertainty and people not being paid for those days.
The other thing is handling all of these things. Sequester
is a very difficult thing to handle and manage Department by
Department. It has never been done and done in this way, and I
am sure I am going to get some questions and actually
conversations about why sequester was applied. Applying
something like that, doing all the work to help the agencies do
it, helping all the agencies during shutdown. While they are
making the decisions, they consult with us in terms of are they
breaking the Antideficiency Act.
The other thing is we will have to weigh all training and
development. And just like you all going back to your
districts, that is how you learn what is going on. When we
can't have an examiner go and visit at least some semblance of
the work, the programmatic work they are doing, that inhibits
their ability to do their job, and that is the type of thing
that I think is affecting morale. And that is why we have the
money for training and development in the budget. That is one
of the increases you see in our numbers.
Mr. Serrano. So the answer to what are you doing to fix it
is you are trying to get us not to do those things again----
Ms. Burwell. And our budget.
Mr. Serrano. That added to it, and having a budget on time.
You are requesting money funding for a paid summer intern
program. Could you explain why that is needed, and who those
interns would be?
Ms. Burwell. So the paid intern program is something that I
think is actually very important to recruiting high quality
people. In 1985, I was a Lyndon Baines Johnson intern here on
the House side, Cannon 252, Congressman Nick Joe Rahall. I
wouldn't have been able to do the program had I not had some
type of pay. I worked at the beginning of the summer at another
job and at the end to make it all work in terms of what I
needed to do.
These paid internships I think are a very important part of
making sure that the people that we get in the Federal
Government are not just people who can afford to not work, be
paid for a summer. So in my own personal case, I think it is
extremely important to build the institution and to recruit in
a high quality way that is actually cost-efficient. This is an
important program.
Mr. Serrano. Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
Director, good to see you. I know you and I have had some
conversations. I think it would help the Committee here, the
panel, to learn a little bit about the process you are working
through, because I think many Members in the House have
struggled with some of the decisions that have come forward.
And for the panel's sake, in this case, I will be speaking
about the Savannah Harbor Expansion Project, where it was
authorized in 1999, has had bipartisan support in State for
that entire period of time. And through the budget agreement of
last year, it was provided for and then even in the Omnibus as
well, and then OMB sort of made a decision to hold until we
understand WRDA passes, gets through its final stages here.
So, Director, could you just explain to us your thinking
and why a hold is in place at this point, why the Corps is not
allowed to proceed until WRDA passes and how that impacts other
projects, because I know there is a tremendous backlog? There
is a lot you are dealing with, and I want to commend you on
what you are trying to do to bring fiscal responsibility to
this place. So if you don't mind, I would appreciate that.
Ms. Burwell. I would be happy to. I would be happy to. I
first want to say the Savannah project is a great one. It is an
important one economically from a macroeconomic perspective for
the Nation. It is important for the region itself. It is
something that we support and are excited to see come to
fruition.
The issue in terms of where we are in the process for this
project actually has to do with the basics of fiscal
responsibility, and it has to do with the fact that when
projects have been a certain period of time and have certain
cost increases, and often that occurs because it has been a
while since the original authorization, that you see cost
increases occur in these projects.
When that occurs, we believe that the Congress needs to
speak again in terms of authorization, and that is why we
believe this project needs to go to WRDA, go through and be
passed as part of what you all choose. This is a place where we
work with the Congress, both in terms of the priorities and the
fiscal responsibility. And so I am clear about that.
The backlog in Army Corps projects is $60 billion. That is
how much we already have approved in starts and everything
going. While this is a terrific project, if one makes the
exception that this does not have to have the reauthorization,
there are many other projects, and I think some of you may know
them that have very, very high percentage increases in costs,
and without some mechanism of control, the issues of fiscal
responsibility.
So this is very tough because this is, as I have said, a
very worthy effort. But in trying to maintain some control,
this is why we have made the judgments we have made. We are
excited to see WRDA passed. We are working hard, as you and I
have discussed, to try and figure out, are there ways to speed
once that happens? But we do believe we need to work with the
Congress on the question of starts and controlling Army Corps
spending. And it is a very, very difficult thing because these
things are important in people's States and districts, and we
recognize that.
Mr. Graves. Thank you.
And if you could maybe expand upon that, too, just to help
us understand how we as a Congress, as a House, need to be
thinking and processing. Assuming there is a project where
expenses have gone up, no fault of their own, it has just been
time, maybe it is various reports, requirements that Congress
has imposed on it as well.
At what point should reauthorization be sought? And I am
speaking for any project out there, should Members be mindful
of. I think that would be helpful to know that so that we are
all looking ahead and preparing. Because I imagine some of
these that you mentioned in the backlog are probably quite old,
probably date pre-1999, I would imagine.
Ms. Burwell. So, with regard, I think the Army Corps has a
set formula actually that determines when a project meets that
standard and needs reauthorization.
I think one of the things that is also helpful is because
the authorization process and the appropriations process of
things are not always completely aligned, the question of the
information that I just shared in terms of the backlog isn't
always presented as you are doing authorizations. And I think
it is important to connect the two as it will be very important
and many great things are going to be done hopefully in WRDA.
But making sure that everyone is actually clear that what you
are actually voting on is a certain amount of spending is the
other thing that I think is a helpful part of the process,
because otherwise, it doesn't happen until the back end that it
all gets added up. So I think that is important. And the Army
Corps has a set number that when these projects need to be
reauthorized.
Mr. Graves. Thank you for your support of the project. You
have been very supportive. I know the President has been, the
Vice President as well, and our Georgia delegation entirely.
And you are right, it is regional. It is not about Georgia,
quite frankly. It is regional. Assuming WRDA does pass, as it
is written currently and from the House and the Senate
perspective, what should the Corps expect next from OMB? A
direction to move forward?
Ms. Burwell. The Corps' processes are what happens is also
related to the guidance we receive from the Congress with
regard to new starts in fiscal year 2014. So at the next stage,
what we will have to do is review how the new start language
that we were given as part of the fiscal year 2014
appropriation process interacts with the approval and
authorization in WRDA, and we will look to find ways to work
with the Congress on that issue. But that will be a constraint
that we may face.
Mr. Graves. Thank you.
Mr. Crenshaw. Thank you.
Mr. Quigley.
Mr. Quigley. Thank you, Mr. Chairman.
Director, thank you for your service. I know OMB works very
hard on transparency issues, but I want to talk about an aspect
that perhaps we can all improve, that we can do better on, the
lobbyist reporting with OIRA. GAO's recent testimony and some
reports talked about how some of the lobbyists disclosure
issues could be improved upon by OIRA. Have you contemplated
this, or is there action taking place right now within OIRA to
your knowledge?
Ms. Burwell. With regard to the transparency issue, we
always do believe we can do better. Right now in terms of what
currently occurs is any time a rule is within OIRA and there is
any meeting or contact, that meeting is publicly recorded, the
attendees at that meeting are publicly recorded, and if there
is any paper delivered as part of that process in terms of
stating a position, that becomes a part of the public record.
So in an effort to try to make those things public, that is our
effort today.
Mr. Quigley. But are you aware of the GAO testimony
recently and some of their reports analyzing perhaps some
shortcomings, as they describe them, of OIRA's reporting along
the lobbyist reporting lines?
Ms. Burwell. I have not seen the specifics of shortcomings
with regard to lobbyist reporting, so I am not familiar with
the specific issue that GAO has raised.
Mr. Quigley. We will pass that along and if you could take
a look at that and get back to the Committee, we would
appreciate it.
Ms. Burwell. I would be happy to.
Mr. Quigley. The other aspects of transparency, you have a
lot of data on the central Web site now and you have made
extraordinary efforts making this all accessible. But some of
the budget summaries and numbers, why we need this part of
budgets, is still scattered across a number of government Web
sites. These justifications are not always available in, as a
term of art, searchable sortable formats. Many are in formats,
such as PDF, that are hard for third parties to easily pull the
data information out of that.
So are you aware of this issue, and what is OMB doing to
try to make one location, one place, a usable format for all of
this information?
Ms. Burwell. So I think the question of CJas, or
congressional justification to Appropriations Committees, has
been an evolutionary process, and some of that transparency has
increased in terms of even getting things up on the Agency Web
sites in terms of how they do it. One of the things is that
each Subcommittee, actually each Department works with their
own Appropriations Committee, and part of the standardization
has to do with different committees have different demands in
terms of what they believe will help them do the job.
So as we think it through this process, I think what we
need to do is understand, what are the needs of the committees,
and how can we meet those? And are the committees in a place
where they are willing to agree on a standardized process or
approach, and how we can think about doing some of that
standardization to get to what you are suggesting in terms of
something that could be overall?
So it is an issue that I think we need to work closely with
the Congress, because in its initial form, the congressional
justifications are about serving the Appropriations Committee.
I think that should be something that is, you know, it is
publicly posted on many of the agencies' Web sites, but we need
to think through if there can be further standardization.
Mr. Quigley. So how much of the issue is the disparate type
of information you are getting, or the fact that you are
working with different Subcommittees?
Ms. Burwell. It would be both because we do not tell the
agencies, here is how you do your--we would work the agencies
on their congressional justification, but at the programmatic
level, they are much closer to it and they do it. I think they
tend to want to work very closely with their committees so that
they are providing the accurate information. So it is a
combination of both things, the need that different Departments
are producing different information, but it is also that they
are working with different committees.
Mr. Quigley. Mr. Chairman, I look forward to working with
the Committee on this and the full Committee as a whole with
the Administration on this.
Thank you so much.
I yield back.
Mr. Crenshaw. Thank you.
Mr. Diaz-Balart.
Mr. Diaz-Balart. Mr. Chairman, thank you very much.
First, again, thank you again for being here, and I must
say on a personal level, Mr. Speaker--Mr. Chairman. I keep
promoting you, which is a good thing.
Mr. Serrano. Don't start a rumor here.
Mr. Diaz-Balart. Right. Exactly.
Let me start this all over again. Mr. Speaker, President
and Chairman.
Again, on a personal note, it is an Administration that
even the press has dubbed as one of the most closed. I will
tell you, you have been very accessible, and I think that is
very important; it is helpful. So I want to first thank you for
that. I think that leads to good working environments. So,
again, I just want to bring that out here publicly.
Ms. Burwell. Thank you.
Mr. Diaz-Balart. Thank you for that. I don't want to--the
Chairman has already talked about some specific issues. Let me
talk about more of the budget recommendation. At a time when,
according to the CBO, revenue collection will exceed its 40-
year average level, which is a good thing obviously--that is a
good sign--but yet the Administration is still proposing some
revenue increases, i.e., you know, revenue, tax, whatever you
want to call it, revenue increases.
And the question is--and in the conversation that you and I
had, we talked about a little bit I think one of the
disappointments, and I think we had a very positive
conversation, is the fact that we don't see the Administration
really tackling, leading on tackling really the driver of our
debt, which is the mandatory portion of the budget. So even
though the revenues are going to be at a record level and even
though you have revenue increases in the President's--the
President has revenue increases, my understanding is that it
doesn't balance for at least a long, long time, and I don't
know if it ever balances.
So the question is this: After 10 years, if we were to
embark on that budget, what would be the actual debt held by
the public and also how about the unfunded liabilities? When
you look at mandatory, actually, do you have those numbers? If
you don't have them now, I would suspect you have those on the
top of your head.
Ms. Burwell. Some of those. Let's start with the publicly
held debt to GDP ratio. Currently, the number is about 74
percent, and in our budgets, by the end of the cycle, you get a
decline, a stabilizing and declining debt to GDP ratio, and our
numbers show it to be 69. So you do see what is a declining
debt to GDP ratio. And I do think that is a very important
point because I am fortunate to have had the opportunity to
actually work on balanced budgets.
When I was at OMB before, I have worked on three of the
four balanced budgets that we as a country have had in decades,
so it is something, obviously, I think can be important. But I
think the broader fiscal picture, a balanced budget is one
piece of the picture and can be a measure and a tool, but I
think what is more what I focus on more is the debt to GDP. But
what is most important is economic growth and jobs and
opportunity. And I think what we hope is that the budget that
we have created is a budget that puts us on the right
trajectory for now.
So, right now, and I think even in the Chairman's remarks,
the idea of further discretionary change right now is
contractionary and can harm our growth, both in the short and
the long term, with things like investments and infrastructure.
Then the question is how one goes about handling those
long-term entitlement issues that you just raised. And when you
look at the drivers of those long-term entitlement issues, they
are basically twofold. The first one is the issue of health
care costs, and the second one is our demographics as a Nation.
And then you come to how you address. And in our budget,
what we try to do is build on what is already built in, which
is the Congressional Budget Office, since the Affordable Care
Act was passed in 2010, its 2014 through 2020 numbers, which
was the window they had at that time, has a $900 billion
decrease in health care costs. And while all that is not
attributable to the Affordable Care Act, there are other
structural changes that cause that, we start to see that
declining. We see controlling health care cost numbers. And
then we have an additional $400 billion in health care savings
that is in our budget.
In addition, we believe that the issue, when you start
thinking about those demographic issues, that is part of why
immigration is so important, because when the Congressional
Budget Office went to look at that, the questions of increasing
the labor force was a very important part of what contributed
to the economic health.
So that is how we put together the pieces. The issue of
revenue, we believe that even with the cuts, and it is $5.3
trillion over the period, that is how much there is in cuts and
spending and deficit reduction if you look at our budget from
the 2011 period. But two-to-one is the ratio of cuts to revenue
in that, and we just believe you can't get the numbers to work
without some of these revenue changes.
Mr. Diaz-Balart. I am out of time.
Thank you, Mr. Chairman.
Mr. Crenshaw. Thank you.
Mr. Womack.
Mr. Womack. Thank you, Mr. Chairman.
And Ms. Burwell, it is great to see you again. I want to
associate myself with the remarks of my colleague Mr. Diaz-
Balart, who talked about your openness and your willingness to
be a dance partner with us. We have been going stag to this
dance for quite some time now, and it is really, really good to
have the relationship that we have with you.
But as a matter of disclosure, it should be noted that she
was once a constituent of mine, so I would expect that out of
her.
I have said this in a number of hearings, that when you
look at the Federal Government in the totality of the Federal
Government, there are a lot of inefficiencies. I mean, we just
see them all the time. This government just is terribly
inefficient in a lot of ways and has been under lots of
different Presidents, in my strong opinion.
Before you came to OMB, you were the president of the Wal-
Mart Foundation. Now, there is a difference between the
foundation and the company itself, but the cultures are very
similar. And you know what the culture is there. It is very
efficient, among the most efficient, which would explain why it
is the biggest company in revenues in the world between, well,
one day to the next, but with another big company.
Is there not a way that this Federal Government can do a
better job of asking the private sector, the Wal-Marts of the
world, who are experts at creating efficiency, how could we do
a better job of asking our private sector companies to help us
through these processes?
Ms. Burwell. So I think in the management efforts and the
management agenda that I mention in my written testimony,
turning to some of these private sector practices is exactly
what we should and need to do. For instance, in the area of
shared services and the idea that what we should do is you find
a place that does it best in the government and most
efficiently, and then you have them do it. So certain financial
functions, HUD is actually going to turn to Treasury because
they are more efficient and more effective.
So that is one of the things that the private sector does
and that I had the opportunity to see when I worked at a place
that believed in EDLP and EDLC, every day low cost and every
day low price, and those two things come together as you think
about it.
Another specific example that I believe we can do more and
more of is strategic sourcing. So the question of making sure
that the pencil that is bought or the pen that is bought at the
Department of Agriculture, if that is the lowest cost value,
then at the Department of Veterans Affairs, they should be
getting that deal, too. So strategic sourcing, where you look
across the Federal Government. And we have already started
saving money by doing that. But those are two very specific
examples. And I think there are any number of others. And what
we need to do is take those practices and move them as much as
we can into the Federal Government.
Mr. Womack. You have already mentioned in your testimony
that you were a Deputy Director of OMB when there were balanced
budgets under the Clinton Administration, and I give you credit
for that. I am sure there were times that you thought, you know
what, I am just the Deputy Director. If I was Director, by
golly, this is what I would do.
So here is your softball question. Now that you are the
Director, having experience in balancing the budget, how can
you take that experience now as Director and help this
Administration get to balance again?
Ms. Burwell. I think there are a couple of things, and they
have been touched on in a number of different places. I think
one point actually is relationship, and that is getting us to
the point where we all have enough relationships, and I think
that is what got us to the place where we have deals and pieces
of things. We are not all going to get everything we want, but
if we can, build that. So that is one of the reasons in the
role and the outreach that I do is because I think that is an
important part.
The other thing that I think is an important thing now that
I am Director and want to do and think is important is focusing
on the M, the management. And while as Director of OMB I think,
you know, I love the budget side, I love the appropriations
process, I think it is extremely important; I also think it has
to be integrated with the management. As you can hear through
these specific examples, I spend a lot of time on the M because
I think that is a place where we make government more efficient
and effective in terms of what we deliver for the American
people.
The last thing, in terms of what I believe, is building a
strong institution. Because as you can hear in the question we
just discussed, it is a very tough policy issue on a thing like
Savannah, which I think is terrific, but trying to keep some
semblance of fiscal responsibility. So building strong teams,
teams that are great analytically and that can support you in
kind of showing you the issues to help you make decisions that
are tough.
Mr. Womack. I want to thank you again for the openness you
bring to the table, the fact that you are willing to have a
dialogue with us. I congratulate you for that and look forward
to our future dialogues. Thank you so much.
Mr. Crenshaw. Thank you.
Ms. Herrera Beutler.
Ms. Herrera Beutler. Thank you, Mr. Chairman.
And thank you, Ms. Burwell, for reaching out. I know we
weren't able to connect, but I really appreciate your efforts.
I wanted to bring up the Army Corps in a little different
angle than was previously brought up. The Administration did
voice their support for infrastructure in boosting U.S.
Exports, Washington State being a very trade dependent State
and we have a lot of ports and aging infrastructure in our
region. But the President's fiscal year 2015 request didn't
actually--it actually reduced funding for the Corps by about a
billion under the 2014 enacted levels. And when I think about
our jetties and other things, it is the equivalent of seven
Katrinas a year hit the jetties at the mouth of the Columbia
River. That is quite a beating they take. As you can imagine,
they are crumbling, and it is incredibly important to the
fourth largest inland waterway system that transports $1
billion worth of agricultural products down and out.
One way we can address this is Congress needs to step up
and put money here. I believe in that. Another way we can
address this is we can fully spend the Harbor Maintenance Trust
Fund, and that is something that you all have more input into.
And I wanted to see if you could explain why the Administration
hasn't necessarily addressed some of the local and critical
infrastructure needs for our ports and our waterways.
I am mostly interested in small ports and maintenance. We
have spent a lot of money in deepening the Columbia River
channel. Now the silt is pouring into the ports along the way.
So we don't want those last 20 years of work to be for naught.
I was hoping you could speak to that.
Ms. Burwell. So a couple of things. One is in the
infrastructure space, and I think infrastructure is broadly
defined, and that is from ports to our roads to our critical
infrastructure with regard to airports, next generation
airports, to making sure that there is funding actually for
veterans hospitals in terms of that core infrastructure. Across
the board, in the budget, we have put funding in for those
things. In addition, with regard to the roads and that part of
infrastructure that is more Department of Transportation
related, we have said we would use the one time revenues from
changes in corporate taxation to do that, to see if we can find
a place where we can come together.
Ms. Herrera Beutler. I apologize. I am specifically
speaking of the Harbor Maintenance Trust Fund, fully utilizing
the trust fund.
Ms. Burwell. With regard to the question of how exactly the
ports and those decisions on a port-by-port basis are made,
those are made by the Army Corps, generally speaking, and they
use a set of criteria. So the Army Corps generally makes the
decisions with regard to which ports are funded, and they do
that on a basis that has to do with tonnage coming through and
a number of other criteria.
Ms. Herrera Beutler. Absolutely. I guess from your
perspective, maybe speak to the difference between the billion
dollar cut in the President's budget for the Corps.
Ms. Burwell. With regard to that, there were difficult
choices, as was reflected in the opening statement of the
Chairman, and we did have to make difficult choices. And in
making those choices, that was a place where we had to make the
choices that we made. What we have done though is emphasized
the importance of ports within that context, though. So there
is the question of the overall Army Corps funding.
Ms. Herrera Beutler. And you are familiar with the Harbor
Maintenance Trust Fund and how it is not getting fully spent?
Ms. Burwell. The question of it not getting fully spent is
the part that I am happy to get back to you on. In terms of the
question of it not getting fully spent is something that would
be an issue.
Ms. Herrera Beutler. Perhaps it would be an area where we
can look at, and I urge you to see if there are more ways to
fully spend the money. It is taxed basically for people who use
the ports, and they are begging us to use that money then for
maintenance, recognizing the backlog we have everywhere else.
And that is something that perhaps you can be helpful with.
Ms. Burwell. I would be happy to. I think probably because
of the inflow doesn't occur through the process. So I will
follow up.
Ms. Herrera Beutler. Can I bring up another? So flooding
and flood risk management specifically in Lewis County in my
district, they have had an authorization and years of Army
Corps look and study and so on and so forth. It is I-5. It is
this area around I-5 in Lewis, so it is between Vancouver and
Seattle. Did you live on the west side of the State? You
probably did.
Ms. Burwell. Yes, I lived--I was in Seattle, so, yes. I
have driven down to go to Portland, so I think I am on the road
right now that you are talking about in my mind.
Ms. Herrera Beutler. Exactly. We are hoping moving forward,
and we will provide you with more information, we are working
with the Corps, that OMB and the President will provide a nod
to this in his budget next go-around. It is an issue that the
Corps has committed to helping with, but we have had a lot of
bumps along the road.
The budget--the Governor has convened a group in that area
to put together the proposals that they want and need that will
both protect I-5 and protect the region from flooding risk, and
it is something we are going to need help from your office in
promoting in the fiscal year 2016 budget. So I guess I will
just leave you with that.
Ms. Burwell. Thank you. And I look forward to getting some
more information about that specific that would be helpful.
Mr. Crenshaw. Thank you.
Ms. Kaptur.
Ms. Kaptur. Yes. Thank you, so much, Mr. Chairman.
I am sorry I had conflicts and couldn't be here for the
formal testimony. But I welcome Director Burwell here today.
Thank you for your service to our country now and in former
years as well.
In that regard, I wanted to ask you in terms of your budget
request this year, if you were to compare the size of the
Federal budget today and our population as a country to the
earlier period in which you served and you look at the staffing
levels of OMB today, what observation did you make when you
arrived back?
Ms. Burwell. So we talked a little bit about it, but in
specific terms, when I was at OMB before we had 516 people, and
that was with the fewer responsibilities. And we have discussed
some of those that the Congress has asked that I think are
important, because many of them are about management, program
management, actually direct management of the government and
that sort of thing, I think they are important
responsibilities. But the number has gone from 516 down to we
have been in the 450-460 range. And both in 2014 and why we are
asking for the request in 2015 is to try and bring us back part
of the way, certainly not to the numbers that we saw in that
time.
But in terms of this question of the size of the government
and the size of different things, as one thinks about the
percentage of GDP that our discretionary spending represents,
if we are at the 2016 sequester levels, it will be the lowest
that we have seen since basically it was recorded, which is the
end of the Eisenhower Administration in terms of that spending
as a percentage of GDP, to give you some levels of comparison.
Ms. Kaptur. Thank you. Thank you for placing that on the
record.
Let me ask you, one of the biggest issues that we have been
facing with the Department of Defense and the Department of
Veterans Affairs is the electronic records sharing issue.
Whatever you can do to dislodge the stalemate will be most
appreciated. OMB seems to have a way, an ability, an uncanny
ability to make things happen.
This has been--everyone on the DOD committees, everybody on
the VA committees up here, is completely frustrated, especially
with the Department of Defense. I say why don't we just hire
the Department of Veterans Affairs? Let them take care of it.
But somehow we have got to get these records seamless, and we
are having real difficulty doing that. So for the electronic
medical records and their symmetry, we would hope that OMB
might be able to help us out.
Ms. Burwell. Information technology is a space that I think
you see in our budget that we are asking for additional funds.
To give you a sense of the numbers, the Federal Government
spends $78 billion on IT on an annual basis, and we are asking,
it would be $20 million for us to do that oversight and
management. I hear the frustration with this issue. It is
something that we will engage with and are engaged with.
Ms. Kaptur. Thank you.
We notice that the agencies seem to be spending less on IT
now than at the beginning of the Administration. Can you tell
us more about how OMB is working to improve government programs
and operations to maximize the government's return on its
technology investments?
Ms. Burwell. Yes. Thanks to this Committee and the
Congress, there were funds that were put in to do IT oversight.
As part of that effort, in terms of that IT work, much of that
work at this point has saved $2.1 billion, and it comes in a
number of different forms. It comes in data consolidation--
consolidation of data centers so we have fewer of those. It
comes in the form of reviewing projects that go and have
problems and that we get in and try and create further savings.
So that is a report we do on a regular basis to the
Congress, and we have seen that savings and we are
appreciative, and that is part of why we are asking for
funding. Because while we have been able to do very well on
efficiency, better costs, clearly, October shows us we weren't
very good on effectiveness, and that is the next frontier that
we think we want to work on at OMB.
Ms. Kaptur. Thank you.
Finally, I just wanted to make the observation and
recommendation that some of your budget examiners take a look
at, especially the policy examiners, take a look at the
different Federal Departments and ways in which revenue that
they recover, whether it is asset recovery on the drug side,
whether it is IRS agents working very hard to collect taxes,
whether it is the FBI or an Inspector General doing something
that brings revenue back. Right now what happens is they don't
get any reward. It all goes back to the general fund. The
Agency, the Department doesn't get rewarded, and the individual
doesn't get rewarded. I am saying, what is the incentive?
So if there is anyway through the channels that you operate
in you can offer performance credit to those who are actually
doing an exceptional job of recovery, I think that would be a
very constructive way in which to move. You probably have your
own organizations you have to work with that are out there on
the executive side. But it just seems to me that we are missing
the boat here in not rewarding outstanding performance. If a
team does something really extraordinary, it seems to me we
can't knock at Wall Street's door hard enough. And if there is
a team over at FBI that does a really good job, by golly, we
ought to incentivize them to do more. Thank you very much for
your testimony.
Ms. Burwell. Thank you.
Mr. Crenshaw. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Director Burwell, thank you for joining us today. I
appreciate your dialogue and openness, as others have remarked.
I want to discuss some of the comments that my colleague Mr.
Diaz-Balart brought up regarding the deficit and the national
debt. It is $17 trillion. It has gotten to a point where many
Americans, it is even hard to understand what that means to our
future, what compounding debt and interest means going forward
as we continue to pay off the excess of previous Congresses,
and then we continue to overspend every Congress following.
Budgets are submitted from the Administration. They don't
really have an end point where the budget would balance, much
less ever pay off the debt. So I think a lot of Americans just
ask us if we are going to borrow money that we have to have a
plan on how we are going to pay it back. It seems pretty
simple. We have to do that in our personal lives. Government
should have to do that.
It seems to set a really bad precedent for our country that
this town and this culture has sort of become indifferent to
this. Since it has always been it, it is sort of part of the
culture. And I know you have experience working when we had
some balanced budgets. I think in the last 50 years, the budget
has been balanced maybe six times.
So both parties got us in this mess. So rather than maybe
point the finger at one party, let's say that this town, both
parties have been irresponsible with tax dollars in at least
balancing our budgets.
But there is precedent for the two parties working together
to solve these problems, and you were part of several years in
a row where you had a Republican House and Senate and a
Democratic Administration and they found a way to put together
a balanced budget. And we had some good revenue coming in;
there were some unique circumstances. But at least it is a
shining light in the darkness maybe of how we can get to some
solutions in this town. So I am eager to work with you on how
we get there.
Mr. Diaz-Balart sort of questioned what our debt looks like
going forward. I have seen estimates by the CBO that we may
borrow another $8 trillion over the next decade. I can't find a
constituent that wants to see us do that. So when we have an
entire set of constituents in every one of our districts that
says that is an unacceptable outcome, yet that is the path we
are headed down. We have $3 trillion in new tax revenue coming
into this Congress, to this town over the next 10 years from a
variety of tax increases that have occurred, yet we always get
back to more revenue, more revenue, more tax increases, more
tax increases. And Mr. Diaz-Balart was heading down this path.
You talked about growth as being a key part of this
solution, and I think we would all agree that a rising tide
that lifts all boats helps this country, brings in revenue. But
we can't increase spending with that. So we need lids on
spending so that when revenue comes in, we know that we can
reduce the debt as part of that.
But I guess I am more interested in your long-term
solutions. I think we can debate about what to do this year.
But as we ignore the long-term problems, they get worse and
worse. And I noted that the Social Security trustees, the
Treasury Secretary, Kathleen Sebelius and others who are on
this say lawmakers should address the financial challenges
facing Social Security and Medicare as soon as possible. Taking
action sooner than later will leave more options and more time
available to phase in changes so the public has adequate time
to prepare.
I note that in 1962, we spent 14 percent of our budget on
entitlements. Today we spend 47 percent of our budget on
entitlements. In 2030, we are expected to spend 61 percent on
entitlements. So not only is that an unsustainable amount of
revenue, we couldn't bring in enough tax dollars to sustain
that, it also crowds out education spending, research spending
cancer research, transportation spending, things that are
important to both sides of the aisle.
I note the President has a responsibility and I think the
statute says if there is a Medicare funding warning made in a
year, the President shall submit to Congress within the 15-day
period, beginning on the date of the budget submission to
Congress under subsection A for the preceding year, proposed
legislation to respond to such warning.
Has there been a warning? Has the President responded to
that? And if you agree that short-term--that there is sort of
an understanding that short-term reductions is one topic, what
are our long-term solutions? How do we fix this problem,
particularly when it comes to entitlements?
Ms. Burwell. So the entitlement issue, I think, is the one
that we need to focus on and we have discussed a bit. I think
the real question, though, is how one goes about addressing
that entitlement problem. It is a problem. We want the deficits
to come down, but what are the alternative choices, and what
paths do you put things on? You are absolutely right.
I have had the opportunity to actually work. We created a
Social Security lockbox so that those moneys would not be
spent. That was in the last forum when we got to balance so
that that money actually went to deficit reduction, but it
extended the life of the trusts, you know, to your point about
those things.
So I think the real question is what path we agree on that
downward trajectory of spending in the entitlement space, and I
know there have been many criticisms of the Administration with
regard to our Medicare Advantage changes in terms of Medicare
changes. When we look at what we see in the proposal of the
Ryan budget, it is about the specifics in the space, and what
we believe is we put forward specifics that take us on that
right trajectory.
We need to also continue to do the steps that promote
overall cost containment. We have seen healthcare costs slow.
That is important for the Federal Government and the deficit,
but it is also important for the private sector.
So I think the question is, what do you want as the slope
of that line of decline on entitlements, and what are you
willing to do to do it? And I think we were hopeful last year
the Administration put forward in its budget actually a deal,
which was a very unusual budget construct. It embedded what
people refer to as the Boehner deal. That isn't what got us
there. Clearly we weren't able to do that in terms of all of us
coming together in a bipartisan fashion.
What we are hopeful this year is that our expression of the
vision of what we think is the right way, that we can end up
this is how we believe we should do it, and here are the
specifics of how we do it. If there are conversations that
others want to have, we welcome them about better ways than we
have and what we have proposed. But we believe we have the
right slope and the right slope for economic growth, because
while I think that many Americans are definitely interested in
these issues of can you balance, how do you spend, I have had
to tighten my belt over the last years in terms of the
difficult economic situation, I think they are also interested
in jobs and growth, and figuring out what tools we use to make
sure that we are continuing on that trajectory is an important
part of fitting all the pieces together.
Mr. Crenshaw. Thank you.
We have got time for a couple more questions. I would like
to start that by asking two questions. One is about we talked
about IT, information technology, and as you know, in 2012 this
Subcommittee started appropriating money to OMB to oversee and
reform some of the information technology, and I think most
people would say there have been a lot of good things that have
happened. And when you mentioned $78 billion spent on IT, I
think at one time it might have been 80 billion----
Ms. Burwell. Eighty.
Mr. Crenshaw [continuing]. So there has been some savings,
and that is all well and good.
I guess the question becomes when you look at the rollout
of the healthcare.gov that you hopefully were overseeing, and
you would have to say it didn't work out all that well, was
that something that you were kind of trying to oversee, because
it was trying to coordinate a lot of different agencies,
together? Do you know what happened, learn any lessons about--
as you look ahead to see how you can coordinate all the IT,
were there some lessons learned there?
Ms. Burwell. So one of the things that I think did work is
the portfolio stat process is a process that came of this
funding, and it was a part of the IT process, which is a
process of when you see a problem, how you put in a SWAT team
to solve, and that part in terms of the problem occurred, the
team goes in, a team of highly specialized individuals, to work
in a focused and concentrated way to get the site to the place
where it is functioning.
In terms of some of the things that we have learned and
that we are going to act upon----
Mr. Crenshaw. Did the SWAT team step in on this one or step
in too late?
Ms. Burwell. At the point at which we knew something was
wrong, and that obviously is after October 1 when we all knew
something was wrong.
With regard to some of the lessons learned as you review
this, and these are things that we are focused on, and that is
what the money in the budget is about, one of the things that
wasn't working well is the business owner and the IT owner. And
this happens in the private sector as well. People go--IT
people fix it, and the business owner doesn't engage. The two
have to engage together. So it is not just usually an IT
problem, it is also about, how is it going to work? How should
it work for the customer and that the business owner
understands better? So getting a closer connection between the
IT people and the business ownership, issue one.
Issue two----
Mr. Crenshaw. But that is not a money issue, is it?
Ms. Burwell. No. Some of these are management issues. But
the way in which you get it to happen, and that is what this
money is for, is to create a team of best practices. We don't
want to create this all over the government. We believe there
should be a centralized place with the skills and best
practices that then apply to different places in the
government. So you don't create it all over the government, but
these people are the people that help you do three things.
The other thing is historically, and this has to do with
procurement in the Federal Government, we have kind of done a
waterfall approach instead of a more iterative approach, which
is important to IT, because in IT you need to take shorter
bites. Things change. You need to test and try, test and try
and redo. We weren't doing enough of that.
The last thing is end-to-end accountability, from point A
to point B.
And those are three things that we want to work on, and the
ways we want to do it are we want to focus on best people
working on IT, best partners, because sometimes it is about the
partner, and that is often, not always, but sometimes private
sector. And then the third element is best procedures.
There are complexities in the system that sometimes make it
hard to get number two and number one, because some people
don't want to come and work because they are like you don't do
this in an iterative fashion, you do it in a waterfall, and I
as an IT person am not used to doing that. Or trying to get the
best companies, it is too hard.
And so just a week ago, GSA started something called FBO
Open. What it is is a process where we can better source, and
people can gain information. They can open the PDFs--to Mr.
Quigley's conversation about search, you can open the PDFs, and
so people who are high-tech firms who want to see if there are
contracts they might want to do, they are able to search that
better, so we may be able to track better players.
And so there are a number of things that we need to do
across the board to do that in terms of the problems identified
and the key goals we are going to work against.
Mr. Crenshaw. Sounds like a lot of those are management,
and I know you have asked for an extra $12 million to be added
to the $8 million. That is $20 million. That is a pretty big
increase.
Ms. Burwell. It is people.
Mr. Crenshaw. A lot of times when you talk about IT, when
you say $80 billion or $78 billion, people go crazy, because
every agency says, if you just give me some more money for IT,
then everything will be working right, and it doesn't always
seem to do that. So we will look at that funding request, but I
appreciate the fact that you are looking at the way people
operate, and their efficiencies, and the way they manage their
time and energy and things like that, because I think that is
part of the problem as well.
Ms. Burwell. Right. And part of that is, I think, having
the people to go in and do the examinations at the front end.
What has happened with the IT money we have gotten, it is, you
know, about consolidations, data center consolidations, a
number of things that are important, or coming in at the
problem like we did in October, and in portfolios we tended to
do that. You can save a lot of money that way, and we do that,
but I think we can do a much better job both with efficiency,
better spending of the taxpayer dollars, but also
effectiveness. One of the things we need to do is make sure
that these technologies deliver for the customer. That
customer-facing element, whether it is a private-sector
business or an individual who wants to get their veterans
benefits, we need to work to make that work better.
Mr. Crenshaw. Thank you.
Mr. Serrano.
Mr. Serrano. Thank you, Mr. Chairman.
You know, just a little while ago I said to myself, in the
final round I will speak about IT, and it seems that everybody
had the same thing in mind because that is where we went.
And then it dawned on me something, and I say this with all
due respect to the majority party. There are Members of the
majority party who have been in a cost-cutting mood for the
last couple of years, and all you hear from them is cut, cut,
cut the budget. But IT presents a unique challenge. We could
give you a bundle of money now, and in a year and a half from
now, half of that equipment you bought is obsolete, or the
programs are obsolete.
And so we talk about entitlements, for instance, and how
they keep growing, or how they are going to be around for a
while no matter how much you cut them. I don't think we
factored in yet in our mentality in the House, or in the Senate
for that matter, the fact that IT costs are here to stay.
When I first came to Congress, it was all about paper
records somewhere in Tennessee or in Iowa, somewhere. That is
not true any longer. Everything now is somewhere on a computer,
whether that is good or bad.
Then after 9/11 you got into the issue of cyber attacks and
the fear of people doing a number on you and getting
information that they shouldn't have, and then your personal
privacy came in, although that is another issue not necessarily
tied to you.
So my question to you is can we ever reach, again, to
satisfy folks who want to cut the budget, a neutral point in
the IT area, when it seems that anything we do for you changes
in a couple of years? I mean, you even see it in what we have
at home. With all due respect to Apple, which is great, you
notice every time they turn out a new gadget, the charger is
different, and you have to go buy a new charger. So breaking
that down, that is breaking it down to its lowest denominator.
But at your level there are chargers that are different. There
are programs that are different. Will you be able to say, for
instance, to Mr. Yoder and Mr. Graves or the Chairman, we are
at a level field now and we don't need any more money for IT
for a while, we are all set? I don't think that will happen.
Ms. Burwell. I think embedded is actually an important
concept. Being at OMB, I think about what is fundamental that
has changed that 5, 10 years from now that we need to be
thinking about, and it is in the space of information
technology. Information technology is going to continue to be
something that both provides opportunity for cost savings in
times, but also provides exposure as well. And the cyber
security, I think, is extremely important in the space.
Whether or not we will ever get to a level where we don't
need more--I think IT spending in the Federal Government has
gone down. It was 80 down to 78, and that is through better
management. There probably are diminishing returns and
investments that we should be doing that we are not doing in
terms of certain types of things we need to advance.
But to your point of how we think about that, that concept
of capturing flexibility is a little bit of the waterfall
versus the iterative. And another example I would give is this
year one of the things that was done, cloud computing is
something that is important to use, but I am sure you can
understand, to your point about cyber security, we have to be
very careful. And for any department, they would go to a cloud
computer, and they would have to go through a bunch of
different certifications because we need to make sure the
Federal Government is safe.
Having said that, what we did was we basically created a
situation if a company goes and meets certain standards, and
you are the Department of Agriculture, and they met the
standards overall, then if the Department of Veterans Affairs
wants to use it and they have been certified, we create that
efficiency.
Cloud computing is also a way that we don't take on a ton
of that capital expenditure in the case that you are saying,
the charger, and we try and create flexibility that we can use.
I think this is going to be a place that, you are right, we are
going to focus on for a long time. I am hopeful we can continue
to find cost savings, but we also have to increase
effectiveness.
Mr. Serrano. I have been around here long enough to
remember, for instance, Y2K, and how we felt the world was
going to come to an end at midnight, strictly at midnight. Of
course, people forgot that midnight is not in the same place at
the same time everywhere in the world, but that was the fear.
And nobody will really know, unless someone writes a book about
it someday, whether it was Congress' involvement that drove
that--I mean, that is all we spoke about. I remember in those
days we would have a hearing, Mr. Chairman, and the first
person would ask, what is going to happen with Y2K? Are you
ready for it?
Ms. Burwell. Are you compliant?
Mr. Serrano. Everybody was terrified of it, and that was
the question, right? That was the only question of a hearing to
start off. And we got through that.
But this is not going away. This is the way of the present;
it is not the way of the future. So I suspect that at as we
look towards expenditures, government expenditures, in our
desire to bring about balanced budgets and so on, that this
particular area will continue to cost us loads of money for a
long, long time, especially as we get into the area of other
countries that can never match up to us militarily or
otherwise, but can with a computer and a cyber attack.
So I just put that out for a thought because it is a whole
new world, and maybe we can find a charger that fits all.
Thank you so much, and thank you for your service.
Mr. Crenshaw. Like every other aspect of government, I
think it is not so much how much you spend, but how you spend
the money you spend, so we have to keep that in mind.
Mr. Graves.
Mr. Graves. Thank you, Mr. Chairman.
And I always enjoy Mr. Serrano's comments. I try to never
take your questions--I didn't mention IT or cuts for that
matter. But we do have a role----
Mr. Serrano. It was on your mind.
Mr. Graves. It was on my mind, yeah.
But I will say for the Director's credit, they have
operated with a lot less personnel than previously. You have
mentioned, what, 2009 levels in essence, a lot of furloughs,
and so, you know, we have to somewhat commend agencies and
departments when they embrace the cuts or reductions and
operate as well as they can, and they have certainly done a
good job here, and I want to thank you for that.
It is not easy for anyone to have to go through what we
have been through, and I think back on the State of Georgia,
and, you know, teachers have been--the education system has
been through the same strains, and furloughs have been there,
and everyone working together is always the best way forward.
In thinking in that vein just a little bit, you have
referenced regular order and getting back to that, and that is
something we all embrace here in this Committee. Do you have
any recommendations, just looking ahead from a budget process
perspective, because it seems like we are--we are pushed as
appropriators into a window that you can't quite accomplish
what you are tasked to do because of where we might receive the
budget request from the Administration or even for that part
our own budget passing the House or the Senate, and the window
seems to be narrowing over time. Do you have recommendations?
You have an extensive resume of being part of a lot of
successful areas and such. What would you suggest from a
process perspective that we can make it through?
Ms. Burwell. So I thought a little bit about it, but it is
interesting, because at the core it is about forcing the
decisionmaking. And so I think the most fundamental question is
how we get to a place where the decisionmaking and the choices
and the tradeoffs can be made, and the committee process is
actually a very important part of that.
And so the question is would a process change or a
structural change in the process change that empowerment of the
committee process, because, to your point, to get the work done
and to get the choices, your colleagues depend on you all to
know more than anybody else about this topic.
What has been missing in the past year is when you do
continuing resolutions, and that you don't have a budget
process actually where we have a hearing and we actually have a
conversation, as we are today, about--you know, we can differ
on different points, but we don't have the opportunity to talk
about the issues or the importance of something big that is
coming down, like IT.
And so on the process front, I don't know that a process
change will fix that, and it is a little more--it is
interesting, because I have thought about it, and I actually
think it is actually more a question that you all will be able
to answer than I would be able to answer because I think you
have a better sense of what is preventing the process from
getting to the point where the Committee makes choices, because
these are tradeoffs. We can all talk about our single issues,
but when you, the Committee, have to review, and you have a
number of different pieces in your bill that are complicated,
and you have an allocation, that is when the choices get made,
and that is how it happens, and that has not been working. So
the question I have is what would help and support that
process? That is on the nondefense discretionary and defense
discretionary side. The mandatory is another issue.
Mr. Graves. Yeah, I think that is a question for all of us,
and Mr. Yoder has been putting together some working groups to
sort of think through this, because our goal is to work through
each bill in a very deliberative manner, to debate what our
preferences and priorities as minority and majority parties,
and try to avoid the continuing resolution scenario or the
large bill all packed together.
And we see what happened ultimately was while it is good
that we have a 2-year budget agreement and such, when it
happened in the omnibus, then your budget is a little bit later
than normal, which shortens our window to accomplish for the
fiscal year. So it is how can we get the gyration correct.
Right now we just seem to be out of whack a little bit. But
thank you for your thoughts on that.
Mr. Crenshaw. Thank you.
Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman.
I have a question about the management side of your
operation. In trying to make the best use of the precious
taxpayer dollars, to pay the costs of war that we have borne
now for over a decade, and the gigantic Wall Street-induced
recession which caused a level of employment not seen since the
Great Recession, the costs of digging out of all of that and
the total collapse of this economy have been extraordinary, and
we have to pay those bills.
Meanwhile there are those who suggest, well, the way--you
know, you cut it out of seniors or you cut it out of hungry
children, and some of us choose not to make those choices.
So really my question goes to, on the management side, do
you have a mechanism to look at certain cost drivers of
programs and suggest alternatives to them? For example, at the
U.S. Department of Agriculture in the invasive species account,
in the last 15 years, if you were to look at those carefully,
you would be amazed at what has happened. The American people
are paying for the unaccounted costs of free trade. Emerald ash
borer has eaten through ash trees all across the Midwest, to
name just one species and one tree. It is costing a boatload to
try to replant, to get our Forest Service involved in some of
that, to try to remediate all the problems associated with just
that particular creature.
Right here in Virginia, the stink bug. People are selling
their homes. Came in on Chinese packing crates. The
perpetrators came in on cardboard. Who is paying the cost for
remediation? Local governments, State governments, and the
Federal Government, research projects, try to get rid of these
things. That account has just ballooned and from a few million
dollars to in the billions.
That is a cost driver. What are we going to do about it?
The answer isn't to have uninspected material that comes over
the border or to place a fee on those places that have shipped
in product that has truly caused great harm here. That's one
account.
One can look at areas of our country that have had repeated
disasters, coastal areas for example, areas that have been
flooded. And, you know, we pass flood insurance, or we do this
and that, and then the communities go back and rebuild in a
place that climate change--forget climate change if you don't
believe in it; look at the record--where homes simply can't
withstand the weather, and yet we are asked to pay to rebuild.
HUD has asked for money, and EDA has asked for money. So this
repeated disaster-prone account, whatever we want to call it,
if you put it all together, the increasing costs because of
people behaving in very irrational ways.
Another arena deals with intelligence. For many years we
had the CIA. Some people liked it; some people didn't like it.
It performed an important function, but now we have the DIA and
we have JSOC. And if you look at some of these accounts and
what is happening to them, you will go, why do they each have
duplicative systems in a given area?
So my question really is you can look across the government
and look at what I call cost drivers that have a solution, but
we can't seem to get clarity on how to get there. I think we
could save a lot of money, and I would only encourage you to
perhaps ask your examiners to pinpoint some of those accounts
and to look at them very carefully.
Ms. Burwell. I do think that there are a number of areas
where we can think through how do we get to a better place with
regard to these issues, and the examiners do watch them and
bring them up as part of our review process is when you start
to see them. One specifically that actually is in the budget
that this Committee would probably be very interested in is the
Civilian Real Property Committee that would--there is property
that is in excess and not used in the Federal Government and,
you know, as an example of what you are talking about, but
one's ability to get rid of that property, you know, because
it, to be honest, is district by district, is very difficult.
And so you need a process where everyone buys in, and that
there is an up-or-down vote so that it is owned by all, and
people don't have to. So we look for these places and then try
to move them forward.
Yesterday the GAO testified on the cuts and consolidations,
the cuts report that is a duplication report, and the good news
is that actually in the last few years, we have found a couple
areas where we actually have made progress. And so the list has
gone from 200 down, and that is actually because we have gotten
some of those savings.
And so I think it is a matter of identifying them and then
finding the way that we can work together, because almost any
of the issues, and even the ones that you mentioned--I am sure
you all are very familiar with the flood bill that was recently
voted on, and so there are obviously different points of view
about some of the issues you raised. But I think if we can
identify them and then start to work them, but I agree with
you. I think there are a number of places, and we do need to
keep track. And some of the things that increase, you have to
get to the bottom of why. And some of the things in terms of
why there are things in two places, ask the question. Sometimes
it is a legitimate answer, and sometimes it is not.
Ms. Kaptur. Thank you very much.
Mr. Crenshaw. Thank you.
Mr. Yoder.
Mr. Yoder. Director Burwell, I actually want to dovetail a
little bit off of my colleague Ms. Kaptur's comments in that I
think one of the challenges we face is that--and correct me if
I'm wrong--but we don't have the type of ability to know what
real property the Federal Government owns, where it is, what it
is costing the taxpayers in a centralized spot where a
constituent could go and search areas of the country and know
what the Federal Government owns.
I mentioned this to the GSA when they came before a
Committee. They are actually working on a database in response
to some of our concerns, and that is just such a small sliver
of our property. If we can't account for what we own, how could
we ever properly manage our assets? And so I think that is an
area where we are going to have to--and if you have proposals,
we need to fix that problem to keep the Federal Government
accountable to taxpayers.
I want to go back to the conversation we were having about
the national debt, and long term versus short term. We are
looking out not only 5, 10 years, but 30, 40 years because of
the demographics you raised as well, challenges that our
country is going to be facing. And I guess the House is going
to consider budgets this week. They are going to consider the
President's budget, I believe. They are going to consider the
House budget. They are going to consider other options, the
different coalitions and caucuses.
In terms of the President's budget, the House budget, I
think, that is going to go forward balances within a 10-year
window. When does the President's budget balance?
Ms. Burwell. The President's budget balances in the
outyears. And as I said earlier, it is not because we at this
point in time believe in the 10-year window. That is not the
objective or goal.
Mr. Yoder. I understand that. You say in the outyears. Does
the President's budget ever balance?
Ms. Burwell. Yes, it does.
Mr. Yoder. What year?
Ms. Burwell. I would have to go, but as I said, because we
don't focus on it as the budget number. I am happy to get the
year.
Mr. Yoder. I understand, but we are focusing on longer
term. I am trying to get away from the short term. I think this
Congress and this city spends too much time focused on 1, 2, 3,
even the 10-year window. I mean, we are looking at where are we
going with the entitlement programs over the next decade, the
next two decades, the next three decades. And so if the
policies we are pursuing don't balance within 10 years, I am
assuming the President's budget doesn't balance within the next
decade?
Ms. Burwell. That is correct.
Mr. Yoder. Okay. So it doesn't balance within the next
decade. The House budget does. I guess we need some certainty
if we carry these policies out, does this budget ever balance?
Because my theory is since we have never run balanced budgets
in this town, that that culture has gotten to the point where
the Administration--and Republican Administrations may do this
as well--that we are not even submitting budgets that ever
balance. And so I would love for you to let us know when we
could expect the President's proposal to balance.
There was another question I asked in an earlier dialogue
regarding the Medicare warning. And my question was regarding
the Federal statute that says if there is a Medicare funding
warning made in a year, the President shall submit to Congress,
within the 15-day period beginning on the date of the budget
submission to Congress under subsection A for the succeeding
year, proposed legislation to respond to such warning. Has a
Medicare funding warning been issued, and has the President
issued proposed legislation to respond to such warning in
accordance with Federal statutes?
Ms. Burwell. I would leave the first question in detail to
my colleagues that are the Medicare trustees, Secretary
Sebelius and Secretary Lew. But, yes, warning. And we consider
our budget our proposal for how to handle the Medicare issues.
That is what we believe is our proposal, in terms of responding
to the second part of your question.
Mr. Yoder. You think that meets the statutory requirement?
Ms. Burwell. Yes, we do, and we believe we follow the Bush
Administration's interpretation of that statutory requirement.
Mr. Yoder. Which could also be incorrect.
I think the idea is that the way the statute reads is that
after a budget submission, there is a separate proposal related
to the Medicare funding warning.
We can argue, I guess, if it is within the budget or not,
but it gets back to my fundamental point we were having in our
last dialogue. My question really was what are the long-term
entitlement solutions, Medicare, Social Security solutions? And
your response was, I think, one of which we hear a lot from the
Administration, which is we have got to find balance, we have
got to figure out the slope we are on.
The House has put together a proposal. They call it premium
support. It really came out of the Clinton White House in some
form or another. Alice Rivlin and others who were part of the
Administration you were in talked about the idea of Medicare
Advantage for all. It had bipartisan support. It may not be the
answer. It is something the House is going to consider again.
What is the approach of the Administration; what are
specific proposals related to response of that Medicare
warning? So if they are in the budget, what are the specific
Medicare fixes that the Administration has put forward in
response to that statutory obligation?
Ms. Burwell. So we have a number of proposals that add up
to about $400 billion, and those proposals include things from
making sure that we address what we believe are excessive and
overpayments that--actually things that have even been written
about as recently as yesterday with regard to things that have
been recommended by issues by the GAO and MedPAC as well. They
address those kinds of issues. They try and put in structural
reforms that create the incentives for types of delivery that
will then result in further savings when people are incented to
deliver impact, and so putting certain constraints on funding.
So there are a number of different proposals that add up to
$400 billion in our budget.
I guess I would also say I think it is about the choices
that we make. With regard to the premium support issues and the
proposal that is part of the Ryan budget, when one looks at
that, one sees that for traditional Medicare, that you will
increase premiums between $800 and $1,500. In the CBO report,
it is pretty clear. You are going to make a choice between
increasing premiums or savings. You can't actually do both.
And so I think the question then becomes what specifics.
And so if the choices are about those kinds of premium
increases--and there are numbers that say you could do this
possibly without increasing premiums, but when do you that, you
don't get the savings. And then the question is is so what
actually is the plan in terms of Medicare, specific Medicare
proposals, that will result in those kinds of savings?
Mr. Yoder. I guess I would just submit that the response of
the Administration, albeit maybe well intentioned, does not
respond to the Medicare funding warning in a way that would
actually fix the problem. And I know there is a lot of risk
that goes in with the courage to address these issues, and I
understand that, and people in both parties get beaten up in
the House and Senate for taking that sort of courageous stand.
Both parties have done it, and both parties don't do it. So it
is not a partisan attack other than to say in order to solve
this problem, we are going to need strong leadership from the
President to be able to respond to these warnings in a way that
actually fixes the problem.
And I understand you are saying overpayments, and everyone
is going to agree on that and certain things, but the warnings
and the statement from the trustees that say lawmakers should
address the financial challenges facing Social Security and
Medicare as soon as possible, taking action sooner than later
will leave more options on the table and more time available to
phase in changes so the public has adequate time to prepare. I
just wish the Administration would be willing to do that and
provide the leadership.
And with that, Mr. Chairman, I will yield back.
Mr. Crenshaw. Thank you. And I think we want to all work
together.
Let me ask one last question. We worked together when we
passed the omnibus spending bill in January, and it shows you
that when we get together, we can work together.
But I want to ask you a question about executive authority,
because it is concerning sometimes that when we do work
together, and then if you hear the President say, well, if it
doesn't work out exactly the way I would like it to work out,
then I can issue an Executive Order. Some people say where does
he get that authority? And you are kind of working in the White
House every day. Does the OMB get involved in deciding what
laws to enforce or not enforce; like with some of the
affordable health care, the decision to delay things, is that
something OMB gets involved in?
Ms. Burwell. Our role is in our statutory areas, and so in
the space of regulation or in the spaces when--IRS regulations
don't come through OMB. That was something that was a decision,
and a memorandum was written during the Reagan years, and so we
follow what has been protocol since then.
Mr. Crenshaw. Do you know who in the Administration makes
those decisions? The reason I ask that is because that impacts
spending and revenue, and I want to--sometimes when those
changes get made, whether it is an Executive Order, an
extension, whatever you want to call it, that has to impact in
some way, shape or form the revenues and expenditures that are
taking place. So that is part of what your job is to keep track
of that. I wonder, that is why I ask that question, who makes
that decision?
Ms. Burwell. I think it varies in terms of which thing one
is talking about. In terms of the issues of data collection, in
terms of some of the things that were announced this week, and
in terms of the issue of what data a Federal contractor will
keep and show, data transparency, you know, that is something
that the Department of Labor will implement, because if
anything is going to relate to Federal contractors, because
contracting is a part of what OMB does, those things do come
through. So it depends on which area or----
Mr. Crenshaw. But when it does impact either the revenue or
spending side, is that something somebody tries--I guess like
some of the health care changes, when you change some of the
mandates that are going to impact somehow overall spending,
somebody keeps track of that?
Ms. Burwell. Yes, and in those spaces we are consulted. OMB
is consulted, and our health team is consulted in spaces that
impact in that space, sort of the Executive Orders or those
sorts of things, and that is why I think it depends on an
issue-by-issue basis where it will come in and have contact
with OMB. When the Department of Labor is asked to do a
rulemaking, that will come in through OIRA. With regard to some
of the kinds of changes you are talking about, that is
sometimes done in consultation with the health team depending
on what it is and where it is coming from. The IRS makes its
decisions on----
Mr. Crenshaw. I just wanted to be sure somebody's keeping
track.
Ms. Burwell. The puts and takes with regard to the dollar
shift.
Mr. Crenshaw. Got you.
Mr. Serrano.
Mr. Serrano. Thank you.
I just have one last question that came to mind. The more I
hear about what problems we face in the future, the more I am
convinced that we have to do something about immigration reform
and put everybody out of the shadows and get them paying taxes
and so on. We talk about what is going to happen in the next
decades. Well, we would know under immigration reform that at
least, at least 11 million people, not to mention the children,
would be forced to do the right thing, which now they may not
be doing not only because some of them want to get away with
something, but because they can't openly or publicly say, I am
here, and I am working, and I am paying taxes.
So my question to you is, how far off do you think all the
estimates are--you know, everybody has an estimate on how much
it would bring into the economy if we did immigration reform? I
have even seen, you know, $160 billion over a couple of years
mentioned. Does OMB get into that, into trying to find out what
the real numbers could be if we were able to do immigration
reform?
Ms. Burwell. As part of our budget, we have used CBO's
estimates. So we have used the CBO estimates that exist, and
that is where we--you know, we have based our numbers on CBO's.
Mr. Serrano. And CBO believes that the numbers are huge,
right?
Ms. Burwell. Yes. And CBO analyzed the particular title,
and I think this is what you are referring to, is when you have
that increase in the labor force, that is something that
positively impacts our GDP and a number of things in our
Nation. And so that is a specific title in the bill, and so
when CBO scored it, that is what it was, and so we use that as
the basis for what is in our budget.
Mr. Serrano. This is just sort of an aside immigration
comment. I have found out that there are Members of Congress,
in some cases on both sides of the aisle, who have two concerns
with what we, some of us, propose. One is you broke the law
coming into the country; we shouldn't reward you for that. And
then there is the unfortunate political issue of, well, in the
case of Latinos, for instance, they will all be Democrats.
Well, this will probably cause me a lot of trouble, but
once you get immigration off the table, you will be surprised
how some people are more conservative than you think they are,
but as long as immigration is on the table, they will lean one
way only because they see one group supporting them on
immigration.
I can't predict what Latinos will be like as voters once
this issue is off the table. I suspect they will be like all
other Americans. I mean, didn't Hawaii and Alaska come in at
the same time, because we were certain Hawaii was going to be
Republican, Alaska Democrat? Tell that to Don Young. It didn't
work that way.
But anyway, thank you for your service, and thank you, Mr.
Chairman, for the time allotted, the extra time.
Mr. Crenshaw. Thank you.
Mr. Yoder, do you have any further questions?
Mr. Yoder. We will stay at rest there. Thank you, Mr.
Chairman.
Mr. Crenshaw. Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman.
Mr. Crenshaw. Well, once again, thank you so much for being
here today. I know you have got a big job and a tough job, and
we want to work together with you any way we can to help keep
things on the right track. Thank you very much.
Ms. Burwell. Thank you, Mr. Chairman.
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Burwell, S. M.................................................... 189
Pai, Ajit........................................................ 1
Wheeler, Tom..................................................... 1
White, M. J...................................................... 109