[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. [The information follows:] [GRAPHIC] [TIFF OMITTED] T8192A.001 [GRAPHIC] [TIFF OMITTED] T8192A.002 [GRAPHIC] [TIFF OMITTED] T8192A.003 [GRAPHIC] [TIFF OMITTED] T8192A.004 [GRAPHIC] [TIFF OMITTED] T8192A.005 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. [The information follows:] [GRAPHIC] [TIFF OMITTED] T8192A.006 [GRAPHIC] [TIFF OMITTED] T8192A.007 [GRAPHIC] [TIFF OMITTED] T8192A.008 [GRAPHIC] [TIFF OMITTED] T8192A.009 [GRAPHIC] [TIFF OMITTED] T8192A.010 [GRAPHIC] [TIFF OMITTED] T8192A.011 [GRAPHIC] [TIFF OMITTED] T8192A.012 [GRAPHIC] [TIFF OMITTED] T8192A.013 [GRAPHIC] [TIFF OMITTED] T8192A.014 [GRAPHIC] [TIFF OMITTED] T8192A.015 [GRAPHIC] [TIFF OMITTED] T8192A.016 [GRAPHIC] [TIFF OMITTED] T8192A.017 [GRAPHIC] [TIFF OMITTED] T8192A.018 [GRAPHIC] [TIFF OMITTED] T8192A.019 [GRAPHIC] [TIFF OMITTED] T8192A.020 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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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. [The information follows:] [GRAPHIC] [TIFF OMITTED] T8192A.077 [GRAPHIC] [TIFF OMITTED] T8192A.078 [GRAPHIC] [TIFF OMITTED] T8192A.079 [GRAPHIC] [TIFF OMITTED] T8192A.080 [GRAPHIC] [TIFF OMITTED] T8192A.081 [GRAPHIC] [TIFF OMITTED] T8192A.082 [GRAPHIC] [TIFF OMITTED] T8192A.083 [GRAPHIC] [TIFF OMITTED] T8192A.084 [GRAPHIC] [TIFF OMITTED] T8192A.085 [GRAPHIC] [TIFF OMITTED] T8192A.086 [GRAPHIC] [TIFF OMITTED] T8192A.087 [GRAPHIC] [TIFF OMITTED] T8192A.088 [GRAPHIC] [TIFF OMITTED] T8192A.089 [GRAPHIC] [TIFF OMITTED] T8192A.090 [GRAPHIC] [TIFF OMITTED] T8192A.091 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. [GRAPHIC] [TIFF OMITTED] T8192A.092 [GRAPHIC] [TIFF OMITTED] T8192A.093 [GRAPHIC] [TIFF OMITTED] T8192A.094 [GRAPHIC] [TIFF OMITTED] T8192A.095 [GRAPHIC] [TIFF OMITTED] T8192A.096 [GRAPHIC] [TIFF OMITTED] T8192A.097 [GRAPHIC] [TIFF OMITTED] T8192A.098 [GRAPHIC] [TIFF OMITTED] T8192A.099 [GRAPHIC] [TIFF OMITTED] T8192A.100 [GRAPHIC] [TIFF OMITTED] T8192A.101 [GRAPHIC] [TIFF OMITTED] T8192A.102 [GRAPHIC] [TIFF OMITTED] T8192A.103 [GRAPHIC] [TIFF OMITTED] T8192A.104 [GRAPHIC] [TIFF OMITTED] T8192A.105 [GRAPHIC] [TIFF OMITTED] T8192A.106 [GRAPHIC] [TIFF OMITTED] T8192A.107 [GRAPHIC] [TIFF OMITTED] T8192A.108 [GRAPHIC] [TIFF OMITTED] T8192A.109 [GRAPHIC] [TIFF OMITTED] T8192A.110 [GRAPHIC] [TIFF OMITTED] T8192A.111 [GRAPHIC] [TIFF OMITTED] T8192A.112 [GRAPHIC] [TIFF OMITTED] T8192A.113 [GRAPHIC] [TIFF OMITTED] T8192A.114 [GRAPHIC] [TIFF OMITTED] T8192A.115 [GRAPHIC] [TIFF OMITTED] T8192A.116 [GRAPHIC] [TIFF OMITTED] T8192A.117 [GRAPHIC] [TIFF OMITTED] T8192A.118 [GRAPHIC] [TIFF OMITTED] T8192A.119 [GRAPHIC] [TIFF OMITTED] T8192A.120 [GRAPHIC] [TIFF OMITTED] T8192A.121 [GRAPHIC] [TIFF OMITTED] T8192A.122 [GRAPHIC] [TIFF OMITTED] T8192A.123 [GRAPHIC] [TIFF OMITTED] T8192A.124 [GRAPHIC] [TIFF OMITTED] T8192A.125 [GRAPHIC] [TIFF OMITTED] T8192A.126 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. [The information follows:] [GRAPHIC] [TIFF OMITTED] T8192A.127 [GRAPHIC] [TIFF OMITTED] T8192A.128 [GRAPHIC] [TIFF OMITTED] T8192A.129 [GRAPHIC] [TIFF OMITTED] T8192A.130 [GRAPHIC] [TIFF OMITTED] T8192A.131 [GRAPHIC] [TIFF OMITTED] T8192A.132 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. [GRAPHIC] [TIFF OMITTED] T8192A.133 [GRAPHIC] [TIFF OMITTED] T8192A.134 [GRAPHIC] [TIFF OMITTED] T8192A.135 [GRAPHIC] [TIFF OMITTED] T8192A.136 [GRAPHIC] [TIFF OMITTED] T8192A.137 [GRAPHIC] [TIFF OMITTED] T8192A.138 [GRAPHIC] [TIFF OMITTED] T8192A.139 [GRAPHIC] [TIFF OMITTED] T8192A.140 [GRAPHIC] [TIFF OMITTED] T8192A.141 [GRAPHIC] [TIFF OMITTED] T8192A.142 [GRAPHIC] [TIFF OMITTED] T8192A.143 W I T N E S S E S ---------- Page Burwell, S. M.................................................... 189 Pai, Ajit........................................................ 1 Wheeler, Tom..................................................... 1 White, M. 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