[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2019
_____________________________________________________________________________
_____________________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
_________
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
TOM GRAVES, Georgia, Chairman
KEVIN YODER, Kansas MIKE QUIGLEY, Illinois
JAIME HERRERA BEUTLER, Washington JOSE E. SERRANO, New York
MARK E. AMODEI, Nevada MATT CARTWRIGHT, Pennsylvania
CHRIS STEWART, Utah SANFORD D. BISHOP, Jr., Georgia
DAVID YOUNG, Iowa
JOHN R. MOOLENAAR, Michigan
NOTE: Under committee rules, Mr. Frelinghuysen, 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.
Dena Baron, Ariana Sarar, Marybeth Nassif,
Brent Baglien, and Brad Allen
Subcommittee Staff
_________
PART 5
Page
Department of the Treasury................................... 1
Internal Revenue Service..................................... 37
General Services Administration.............................. 65
The Judiciary................................................ 91
Office of Management and Budget.............................. 149
Members' Day................................................. 193
Securities and Exchange Commission........................... 213
Federal Communications Commission............................ 249
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
32-599 WASHINGTON : 2018
COMMITTEE ON APPROPRIATIONS
----------
RODNEY P. FRELINGHUYSEN, New Jersey, Chairman
HAROLD ROGERS, Kentucky \1\ NITA M. LOWEY, New York
ROBERT B. ADERHOLT, Alabama MARCY KAPTUR, Ohio
KAY GRANGER, Texas PETER J. VISCLOSKY, Indiana
MICHAEL K. SIMPSON, Idaho JOSE E. SERRANO, New York
JOHN ABNEY CULBERSON, Texas ROSA L. DeLAURO, Connecticut
JOHN R. CARTER, Texas DAVID E. PRICE, North Carolina
KEN CALVERT, California LUCILLE ROYBAL-ALLARD, California
TOM COLE, Oklahoma SANFORD D. BISHOP, Jr., Georgia
MARIO DIAZ-BALART, Florida BARBARA LEE, California
CHARLES W. DENT, Pennsylvania BETTY McCOLLUM, Minnesota
TOM GRAVES, Georgia TIM RYAN, Ohio
KEVIN YODER, Kansas C.A. DUTCH RUPPERSBERGER, Maryland
STEVE WOMACK, Arkansas 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 DEREK KILMER, Washington
DAVID P. JOYCE, Ohio MATT CARTWRIGHT, Pennsylvania
DAVID G. VALADAO, California GRACE MENG, New York
ANDY HARRIS, Maryland MARK POCAN, Wisconsin
MARTHA ROBY, Alabama KATHERINE M. CLARK, Massachusetts
MARK E. AMODEI, Nevada PETE AGUILAR, California
CHRIS STEWART, Utah
DAVID YOUNG, Iowa
EVAN H. JENKINS, West Virginia
STEVEN M. PALAZZO, Mississippi
DAN NEWHOUSE, Washington
JOHN R. MOOLENAAR, Michigan
SCOTT TAYLOR, Virginia.
----------
\1\ Chairman Emeritus
Nancy Fox, Clerk and Staff Director
(ii)
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2019
----------
Tuesday, March 6, 2018.
UNITED STATES DEPARTMENT OF THE TREASURY
WITNESS
HON. STEVEN T. MNUCHIN, SECRETARY, UNITED STATES DEPARTMENT OF THE
TREASURY
Mr. Graves. Good morning, Mr. Secretary.
Secretary Mnuchin. Good morning.
Mr. Graves. Thank you for joining us. We welcome you today
to this hearing and look forward to hearing from you and
discussing the Department's budget request that I know you have
taken a lot of time to prepare, as well as some of the economic
assumptions in the policies, including the President's overall
request for the fiscal year of 2019.
Before we get into the details of your budget request, I
would like to just take a quick moment to look back over this
past year, because 2017 has been a year of accomplishments,
great accomplishments, and that couldn't have happened without
the support and the leadership of the President and the
administration, including yourself, Mr. Secretary, and we want
to thank you for that. Because after years of high unemployment
and stagnant wages, hardworking Americans finally saw the
economy start booming again in 2017. Unemployment is now at a
17-year low. Almost 2 million new jobs were created in the last
13 months, and for us, that means 2 million of our constituents
today are working that weren't working as of January in 2017.
Wages are growing at nearly 3 percent, and according to the
Department of Labor, this is the fastest growth in almost a
decade. Manufacturing expanded in January at nearly the fastest
pace since 2004, and small business optimism is at its highest
level since Ronald Reagan was President. And this just didn't
happen by accident. It happened because Congress and the
administration worked together to reform the Tax Code for the
first time in more than three decades. It happened because we
slashed nearly 1,500 unnecessary rules and regulations,
lightening the load of small businesses all across this
country, and it happened because we freed businesses, both big
and small, to grow and to thrive once again.
So, Secretary Mnuchin, I know you played an important part
in this success, so I just want to say thank you. Thank you for
your hard work and for your commitment to making America reach
these milestones that we have now seen over 2017.
But now on to your budget request. As you look ahead, we
know that your next year's request for the IRS is at $11.5
billion, which includes program integrity cap adjustments of
$362 million. In addition to this request, the IRS is seeking
another $397 million to implement the Tax Cuts & Jobs Act over
the next 2 fiscal years.
Now this request includes $159 million for the Office of
Terrorism and Financial Intelligence. And this is a $36 million
increase from last year. This office has the dual purpose of
safeguarding our financial system against illicit use and
protecting our citizens from national security threats. And
today, there is no problem more urgent than the serious threat
posed by North Korea.
The Treasury's budget is proposing $15 million in 2019 to
isolate North Korea's regime, in addition to the supplemental
request of $15.5 million for 2018. Now, this funding will allow
Treasury to hire additional intelligence analysts and maximize
economic pressure against North Korea and its enablers, so we
will look forward to hearing more about that as you give your
testimony later.
The Secretary's budget today also proposes $17.5 million to
support a terrorism financing targeting center in Saudi Arabia,
which is a collaboration with the six Gulf Cooperation Council
countries, and counters the financing of terrorism. This
funding is in addition to the $9.5 million request in this
year's supplemental.
Now, I am curious to learn how Treasury plans to use this
funding and carry out these initiatives, and I know you have a
plan for that, and we would like to hear that today. Another
important topic to me and this administration is cybersecurity.
Your budget includes $25 million for Treasury wide
cybersecurity investments. This account was established in our
most recent government funding bill to strengthen Treasury's
cybersecurity posture, and mitigate threats to the U.S.
financial infrastructure. Cybersecurity is of critical
importance to our national security, and I hope to hear from
you today, Mr. Secretary, on how the Treasury is going to use
these resources that were recently provided to protect against
and to respond quickly to some of the cyber threats that you
see and we face as a Nation.
But before wrapping up my opening remarks here, I want to
take a moment to commend the Senate Banking Committee and their
chairman, Mike Crapo, for his bipartisan efforts to move the
Economic Growth Regulatory Relief and Consumer Protection Act,
which is a major regulatory reform bill.
And as you know, our Financial Services Appropriations bill
last year included many of these similar provisions that the
Senate is now moving through their body.
So I am curious to hear your thoughts on the Senate package
and how that compares to what we have passed as a committee, as
well, and for your thoughts on its potential for a final
passage, and should we include some of those provisions in our
2018 final bill here that we are working through the House.
So, Secretary Mnuchin, thank you again. Thank you for your
good work over the last year. Thank you for joining us today
and taking time to share with us about your budget request, and
we will all look forward to hearing from your testimony in a
moment. And now, let me turn to my ranking member here, Mr.
Quigley, from Illinois, for any remarks he may have.
Mr. Quigley. Thank you, Mr. Chairman. I look forward to
working with you over the upcoming fiscal year 2019
appropriations season, and anticipate additional spirited
discussions as we begin our hearing. Also, I would like to
welcome the Treasury Secretary back to our committee. As I have
said in the past, the vital role that the Treasury Department
plays in both the domestic and global economy cannot be
overstated. Not only do you and your Department oversee the
Federal Government's ability to collect trillions in revenue
and finance government operations, but you are also charged
with investigating and protecting our financial system from the
illicit and criminal activities, as well as carrying out
sanctions used to deter hostile actions from foreign actors.
But again, this year, the Treasury budget request before us
would slash various programs that will help us--will make us
less effective, less efficient and more vulnerable to outside
risk. After almost a decade of cuts nearing $1 billion, leading
to a loss of more than 17,000 employees, the IRS would suffer a
$100 million reduction in this request. In order to meet this
new funding level, the IRS would need to reduce staffing
further by 6,000. These cutbacks would come from critical areas
such as taxpayer services enforcement.
It is hard to imagine why this administration would want to
weaken the IRS and give taxpayers less resources right after
passing a complex tax bill. After strong bipartisan support
from Congress, I was also deeply troubled by the
administration's refusal to back off its request to eliminate
the Community Development Financial Institution Fund.
CDFI plays a vital role in spurring both economic growth
and revitalization in our most underserved and neglected
communities. There are numerous other cuts to the Department
that are harmful as well, including questionable reductions to
cybersecurity enhancement at a time when hacking and identity
theft are at an all-time high, and a premature 57 percent cut
to the Special Inspector General for TARP, which is still
charged with auditing the $38 billion in open TARP programs
that will last until 2023.
But I also want to quickly highlight one area, in
particular, that I find concerning. Under the Terrorism From
Financial Intelligence Program only four additional employees
are budgeted for Russia-related sanction activities. That
compares to 69 additional employees budgeted for North Korean
activities. While I strongly agree that we must take seriously
the North Korean threat to our national security, and provide
TFI with the necessary tools to counter North Korean
aggression, when placed side by side with a request for Russian
activities, the obvious lack of urgency is quite stark.
Taken together with other actions, or lack thereof, from
the Treasury Department on the Russian threat, it shows an
administration that does not prioritize the security of our
elections, or punishing those who wish to harm our democracy. I
look forward to discussing these and other issues with you
today. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley, and now I would like to
take the opportunity to recognize the chairman of the full
committee, Mr. Frelinghuysen, with any opening remarks, and
thank you for your great service. This may be your last time
visiting with Mr. Mnuchin in a committee hearing.
The Chairman. Perhaps in a hearing, but perhaps in another
venue, as well. Thank you, Mr. Chairman, for the time. I also
want to thank Secretary Mnuchin for appearing before your
committee. Again, we look forward to your testimony in hearing
your frank and candid views on a wide number of issues.
As I say at every hearing, the power of the purse lies in
this building. It is the constitutional duty of Congress to
make spending decisions on the dollars you collect on behalf of
the people we represent at home. We try to do our best in that
regard. We intend to adequately fund important programs,
including yours, while working to reduce and eliminate waste
and duplication. With these priorities in mind, the committee
and the full committee and the full House of Representatives
passed the Fiscal Year 2018 Financial Services and General
Government Appropriations bill last September. We continue to
work with the Senate, our Senate colleagues to finish those
bills, and to send a bill to the President for his signature.
And I look forward, while she is not here, to continuing my
work with our ranking member, Mrs. Lowey, and certainly with
Mr. Quigley, to rapidly move the fiscal year 2019
Appropriations bill forward, as well.
I have long held, and I believe it is even more important
now than ever before, we cannot take a step back from our
responsibilities on the world stage. Like the chairman, I was
pleased to read in your request a proposed increase in funding
for the Office of Terrorism and Financial Intelligence and
their activities to protect the U.S. and international
financial systems, along with countering networks that support
terrorists and rogue regimes.
As we face increased threats from North Korea, Iran, and
Russia, it is imperative we have the tools to respond to their
aggression with maximum economic pressure. As you well know,
Mr. Secretary, the United States and our allies around the
globe are facing constant pressure from China and its expanding
sphere of influence. While I note your Department's recent
actions against a Chinese bank facilitating North Korean money
laundering and sanctions evasion, I would like to hear, and I
think all of us would this morning, how the Department is
positioned to respond to China's every attempt to subvert and
weaken our financial system.
I have been doing some travelling lately, and have
familiarized myself with the One Belt, One Road. It is not only
a physical development that should alarm us, but they are also
snagging a lot of different countries and putting them in a
position which makes them beholden to the Chinese leadership,
and I think that should be of concern to us. Of course, as a
debtor nation, we should be mindful that a lot of those nations
in Southeast Asia and around the world now find themselves in
debt to the Chinese, and that debt is a political debt as well
as a financial debt. But we look forward to hearing your
testimony and thank you for the good work you have been doing
on behalf of our Nation. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Chairman, and thanks for your
leadership in getting this bill and all 11 others through the
House last year. And hearing your call, we are glad to have
with us the ranking member of the full committee Mrs. Lowey
with us, and I recognize you for any opening remarks you may
have.
Mrs. Lowey. Thank you, Mr. Chairman. I would like to thank
Chairman Graves and Ranking Member Quigley for holding this
hearing, and Secretary Mnuchin, welcome. Thank you for being
here this morning.
Mr. Secretary, your fiscal year 2019 budget request, as you
know, I am sure you know, would harm taxpayers by slashing IRS
funding by $100 million, and stall Federal investments in
economic development by eliminating all discretionary grant
programs in the Community Development Financial Institutions
Fund.
Under your budget, the IRS would not have enough manpower
to catch bad actors, ranging from those who cheat on their
taxes to those who perpetuate identity theft scams that prey on
the elderly and nonnative English speaking populations. It is
not just enforcement that we need to be concerned about, it is
also taxpayer services.
In her 2017 annual report to Congress, taxpayer advocate
Nina Olson identified the IRS limited telephone service as one
of the most serious problems facing taxpayers. She wrote,
``Because of the IRS' archaic telephone technology and
operations, taxpayers face long wait times with the worry that
the IRS's telephone assisters will not be able to answer their
questions if they are able to get through,'' yet your budget
cuts the IRS by $100 million.
This is all the more important as the Republican tax scam,
which was rushed into law last year that has created a great
deal of confusion, taxpayers are turning to the IRS for
clarity, and just not getting it. This has been a particular
issue in high cost-of-living areas, like New York. When you
testified before this committee last year, I made clear how
unwelcome any reductions to the State and local tax deductions
would be in tax reform. Less than a year later, a deduction
that 45 percent of my constituents take at an average of
$26,000 has been slashed beyond recognition. I am sure you are
aware of that. I think you are still a New Yorker, so I am sure
you are aware of it, and I am sure you hear this from your
friends and neighbors.
The impact of this scam is so disastrous that I have called
on the IRS to accept prepayments of 2018 State and local taxes
that many New Yorkers made in 2017. At least 17,000 taxpayers
paid some portion of their 2018 taxes in advance at an
estimated $51 million. I hope that you and the IRS will at
least give this break to families that will be hurt by the new
tax policy for years to come. But quite frankly, I am concerned
that your proposed budget cuts will make it harder for the IRS
to assist my constituents.
Let me be clear, capping the SALT deduction at $10,000
targets residents of high cost States, like New York and
California, which you know all too well. In 2015 alone, New
York sent $48 billion more in taxes than it received. Senator
Moynihan, the late Senator Moynihan, stressed that over and
over again. Simply put, the new tax law is a scam that unfairly
takes money from the pockets of hard-working families living in
States that send more money to the Federal Government than we
get back in Federal investment.
One bright spot of your budget is the increase for the
Office of Terrorism and Financial Intelligence of $36 million.
This is an essential number, and an essential service, and I
look forward to working with you. This is essential to
combating terrorist financing, and other national security
threats, and I am really pleased it is included.
Mr. Secretary, I trust that you are aware of just how
influential your position is, and I am disappointed by some of
the distractions surrounding your tenure. It is my hope that
going forward, you will respect the taxpayers I represent in
New York by acting as a good steward of their dollars, both in
policies you implement, and your actual use of them. I look
forward to a productive discussion this afternoon, and to
working to serve the best interests of the American taxpayer.
Thank you for appearing before us.
Mr. Graves. Thank you, Mrs. Lowey. Mr. Secretary, thanks
again for joining us, and now we welcome any opening statement
you may have, and as you can imagine there will be a few
questions following that from each of the members here, but
thank you again, and we look forward to hearing from you.
Secretary Mnuchin. Good. Thank you very much. Chairman
Graves, Ranking Member Quigley, and members of this
subcommittee, it is good to be here with you today to discuss
the President's budget and the priorities for the Treasury
Department. Today, I would like to highlight the
administration's priorities of protecting America's financial
system and national security in implementing the historic Tax
Cuts & Jobs Act.
The President's 2019 budget request increased resources for
the Office of Terrorism and Financial Intelligence and the
Financial Crimes Enforcement Network. This will be used to
economically isolate rogue regimes in North Korea and fund the
new terrorist financing targeting center in Saudi Arabia.
It will allow us to implement the Countering America's
Adversaries Through Sanctions Act, including funding for our
Russia and Iran programs, and counter illicit financial
networks. We are aggressively targeting terrorist
organizations, transnational crime organizations, proliferators
of weapons of mass destruction, and other threats.
As the importance of our economic tools continue to
escalate, we need additional funding to enhance the
administration's efforts and implement congressional
priorities. This budget also provides for Treasury-wide
cybersecurity protection. As I previously noted before this
subcommittee, protecting both Treasury and the financial system
from cyber attacks is critical for our Nation's financial
stability. These attacks not only have the potential to affect
financial markets and the broader economy, they implicate our
national security as well.
In particular, I want to highlight this Cybersecurity
Enhancement Account. This initiative makes proactive and
strategic investments in enterprise-wide cybersecurity
capabilities. These capabilities will ensure the Treasury is
better prepared to defend against cyber attacks, and respond
appropriately when such attacks occur.
I would also like to highlight two of the administration's
priorities for the 2018 Appropriations bill. The Tax Cut & Jobs
Act included hundreds of provisions that will provide tax cuts
for middle income families and make American business more
competitive. Implementing the tax law will require a great deal
of work in 2018 and 2019. Accordingly, the IRS will need $397
million in order to carry out this critical mandate. The
administration is also requesting $25 million above the
President's 2018 budget for TFI to fund the Terrorist Financing
Targeting Center and to immediately deploy additional resources
to counter posed threats by North Korea.
Mr. Quigley, let me just comment on one of the things that
you raised in your opening statement, which was the allocation
between Russia and North Korea money in the request. Let me
acknowledge that I was very, very involved in the top line
request for the money. I always think of this as we have the
ability to move these resources around, so I just want to
comment that the allocation that is in the proposed budget is
an oversight; it does not reflect my current thinking of the
resources we would put in towards Russia, and at the time that
this was raised to me, we had already printed this, so I want
to acknowledge what you have said.
The policies in the President's budget will foster economic
growth, set our country on a sound fiscal path in the long-
term, and carry out the administration's commitment to
protecting national security of the United States.
Thank you very much.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Well, thank you, Mr. Secretary, and if you
could, for a moment, just, I am going to just ask one or two
questions as it relates to tax reform and the positive impacts
that you see. We have heard today that there is a lot of
concern about the impacts on the IRS. Could you address the
impacts of tax reform on the average American and small
businesses, and the positive impacts that you have noticed so
far and what you expect to see in the days ahead?
Secretary Mnuchin. Well, as you know, we are early in the
process of implementing this, but I think we have been very
pleased with the reaction so far. Our first priority was to
make sure that the withholding tables were updated to reflect
many middle class Americans getting tax cuts so that they saw
that in their paychecks in February.
We have also now released a withholding tax calculator to
allow taxpayers to actually check the calculations themselves.
We are also very pleased by close to 400 companies that have
announced one-time bonuses or raises, so we are very pleased
with what has gone on so far, but there is a lot of work at the
IRS to implement this.
Mr. Graves. As far as the impact on the average American
family, there have been a lot of numbers thrown around as to
the average family could expect to see more resources at home
or in their paycheck as a result of tax reform. What is your
latest figure that the average family can expect this year as a
result of the passage and signing of this bill?
Secretary Mnuchin. Sure. So the average family will see a
direct reflect of a few thousand dollars, and on top of that,
we expect over time that wages will increase close to $4,000.
So it is quite a significant impact.
Mr. Graves. And then as far as small businesses?
Secretary Mnuchin. Small businesses now have the lowest tax
rates since the 1930s. In particular, the ability for them to
automatically expense capital investment we are already seeing
the impact on that in the growth in that sector.
Mr. Graves. That is great. Thank you. Thank you for your
work on that. And now I would like to turn to Mr. Quigley for
any questions he may have.
Mr. Quigley. Thank you, Mr. Chairman. Mr. Secretary, last
August we passed a pretty strong law in response to the Russian
interference in our elections. This administration is refusing
to follow through on its implementation, claiming the passage
of the law itself is enough to deter businesses from dealing
with Russia. Probably not. Regardless of how the President
personally feels about the sanctions, or the fight he put up
toward its passage, he signed them into law, and is obligated
to act.
By doing nothing, the President is effectively telling the
world that there are no consequences for attacking our
democratic process. I am a member of the Intel Committee as
well, and I was there when Mr. Comey said ``the Russians will
be back.'' At this point we are not prepared, and we are
sending a message to them that it was OK. So the only piece of
the sanctions bill that is being completed is, frankly, a
laughable report on Russian oligarchs not nearly enough.
So will this administration fully implement the Russian
sanctions mandated by Congress?
Secretary Mnuchin. Mr. Quigley, as I have testified before,
I fully assure you that we will implement them. Last week, I
gave the Senate a classified briefing on the report and where
we are on sanctions. I would be more than happy to meet with
members of the House to also do a classified briefing. There is
an enormous amount of work that has gone into the report, the
classified version with the intel community. As I have said, I
expect, in the next several weeks, we will be moving forward
with sanctions on Russia as a result of the act, so I can
assure you that both in my discussions with the President, he
is fully supportive of the work we are doing, and we have a
large team working on it as we speak.
Mr. Quigley. So the sanctions from the entire bill will be
enforced?
Secretary Mnuchin. Absolutely.
Mr. Quigley. So is this, in your mind, contra to the
President saying that we don't need to do this? I mean, I read
you the quote. Has he changed his mind?
Secretary Mnuchin. Again, I can tell you in recent
conversations with the President, he is fully supportive of the
work we are doing. As I said, there will be sanctions that come
out. The Treasury Department is responsible for the sanctions
on the political figures and the oligarchs. We are working with
the State Department on the sanctions as it relates to other
areas of industry.
Mr. Quigley. Understand our confusion. The President at
different times has said this is a hoax. It may not have been
the Russians, it could have been a big guy in Jersey that did
this. He has also said we are not going to enforce this. So,
now, instead of the President announcing this, we have you, in
a classified setting, telling people, Oh, we are, and today
announcing that we are. So you can understand why we would
question this and wonder. And why does it have to be a
classified setting as to the fact that there are going to be
sanctions, and why can't the President make that announcement?
Secretary Mnuchin. Again, I have said in multiple
unclassified settings, including today, including at the White
House press room that sanctions are coming. Again, I am happy
to explain the process. There is an enormous amount of work
that goes into building each one of these packages from intel
work to legal work. As I have said, the President is completely
supportive of us moving forward with this.
Mr. Quigley. You can also understand our concern when the
numbers I brought out that you--and I appreciate your
addressing them saying that the disparate number of resources
based on targeted toward North Korea versus Iran, I took that
to mean that you were going to look at that and make it right,
for lack of a better word.
Secretary Mnuchin. I added that into my opening statement
because I wanted to acknowledge that that does not reflect my
view of the relative resources, and as I have said, I always
look at--we have a number of resources in TFI, and we actively
move them around. So it is the same people that work on Russia,
Venezuela, North Korea, and Iran. We constantly reprioritize,
so the relative number that was put into the budget does not
reflect my current thinking of the allocation.
Mr. Quigley. And at some point, can you tell us the
resources that you are going to spend on North Korea, Iran,
Russia, Venezuela and all the other countries that we are
concerned about? And Russia, in previous sanctions, as it
relates to Ukraine?
Secretary Mnuchin. Again, we had a very large amount of
sanctions on Russia that we did last year that we did under our
Ukrainian authorities. We will continue to use those
authorities, as well as the new authorities, and, again, I can
assure you the reason why we want more resources at TFI is
because we firmly believe, and the President believes, that
sanctions do work. We have seen this in North Korea. There is
no question in my mind, a big part of the reason why they are
coming to the table now and talking about negotiating is
because our sanctions have had significant economic impact on
their economy.
Mr. Quigley. And I appreciate this dialogue, and, Mr.
Chairman, I look forward to perhaps having a discussion where
we can go into more details, because I went to Cyprus for a
reason. There is a reason the Russians are laundering money
there, and if folks can launder money and get around our futile
efforts and lack of resources to look at it, it is not just
what the Russians did, it is the real threat from Iran, from
North Korea, as you know, counterterrorism because if they can
get around sanctions by money laundering, we are much, much
less safe. Thank you, Mr. Chairman.
Secretary Mnuchin. I agree with you, Mr. Quigley.
Mr. Graves. Mr. Yoder, and then Mr. Cartwright.
Mr. Yoder. Thank you, Mr. Chairman. Mr. Secretary, welcome
to the committee. I want to associate my remarks with those of
the chairman related to the value of tax reform and its impact
on constituents in our districts. Over the last few weeks, like
many of my colleagues, I have been going around my community
meeting with small businesses, talking to workers from, you
know, blue-collar workers and checkout clerks at places like
Home Depot or Walmart, you know, real Americans that are
working hourly jobs who are talking about the bonuses they
received, or the greater withholding in their--less withholding
in their paycheck that they are getting a bigger paycheck, I
guess.
We have also seen the bonuses, salary boosts, benefits like
family leave that some companies are adding, so, you know,
workers are really benefiting from the tax reform. And I think
they are really surprised that Washington actually did
something to help them. They are used to Washington putting a
greater burden on them, a greater regulation, a higher tax, and
so the fact that we rolled that back and it really impacted a
lot of middle class working class families, I think, has been a
surprise, particularly with the media disinformation that
occurred throughout all of that, so thank you for your work to
implement that. My own district we think about the third
district of Kansas, a typical family will be receiving a $2,728
tax cut this year.
Now the President's budget request projects around 3
percent economic growth per year over the next decade. The
goal, the Tax Cuts & Jobs Act, along with other elements of our
progrowth agenda was to help to get to that number.
What does that 3 percent do to the economy? What does it do
to unemployment and job growth? How does it help families at
home? And are we on track to hit that and are there other
policy areas that Congress needs to address to get to 3 percent
or more growth per year?
Secretary Mnuchin. Well, thank you. We do think we are on
track to meet that. We have had two quarters of over 3 percent
growth. There is still some work to get to the long-term
impact, because we want 3 percent or higher sustained economic
growth. That will add trillions of dollars to the government,
and tens of trillions of dollars to the economy. It is a
combination of tax reform, regulatory relief, and trade
negotiations, so that is a major focus of ours. As I said, we
are pleased with the initial results.
Mr. Yoder. Thank you, and I appreciate you bringing up
trade, because I would like to ask you a little bit about the
tariffs discussion that is happening and the recent policies
that the administration has announced. You know, in Kansas,
many of my constituents, many of our businesses rely on trade
and exports. Over 400,000 jobs in Kansas are supported by
trade, $17 billion in annual exports to help boost our economy.
And many of my constituents, many of our local businesses, many
of our farmers believe that tariffs and the potential trade
wars that could result could inevitably create big challenges
for Kansas workers and farmers.
Tariffs on steel and aluminum, for example, are going to
negatively impact Kansans who work in manufacturing. I have got
a GM plant in my district with 2,200 people employed, and
retaliation from our trading partners will also end up hurting
Kansas farmers and ranchers who are already struggling as they
try to export wheat, beef, and other agricultural products
around the world.
I am concerned that after everything we have done to help
our constituents through tax reform, that tariffs that the
President recently announced are going to undermine some of
these recent gains. Do you share any of these concerns about
the impact of these tariffs, and do you believe that these
tariffs will make American businesses more competitive on the
global market?
Secretary Mnuchin. So first let me just say, I have
participated, and we meet on a weekly basis on trade on our
economic team. These things are discussed very carefully, and
we are trying to balance different issues. The President is
personally involved in these decisions. I think on the steel
and aluminum tariffs, we are trying to balance protecting these
industries, which are very important, with making sure that we
don't do undue harm to the economy.
So as the President just announced, Canada is a very
significant partner that buys steel and sells steel. To the
extent that we are successful in renegotiating NAFTA, those
tariffs will not apply to Mexico and Canada, but we look
forward to the President releasing the specific details and
working with other people. We are not looking to get into trade
wars. We are looking to make sure that U.S. companies can
compete fairly around the world.
Mr. Yoder. Well, and that brings to mind the separate trade
dispute over Chinese washing machines and solar panels. We are
already seeing retaliation on our sorghum producers in Kansas.
Kansas sorghum, our farmers produce over half of the U.S.'s
sorghum supply, so this Chinese retaliatory action poses a
direct threat to their livelihood at a time when commodity
prices are already very low.
So this indicates to me, in a very real-world example, that
the tariffs on those washing machines and solar panels actually
led to a retaliation at the detriment of American farmers,
constituents of the President and mine. Is the President aware,
and are you aware, Mr. Secretary, that these retaliatory
measures are already occurring, and is he aware of the
potential for retaliatory impact to Kansas farmers, should
other countries retaliate because of the new tariffs on steel
and aluminum?
Secretary Mnuchin. Well, as it has been reported in the
press, I and Director Cohn, Ambassador Lighthizer met with Liu
He last week, who is now our primary counterpart and an adviser
to President Xi on trade issues. We had very direct
discussions. The Chinese understand and agree that the
objective is to lower the trade deficit. This is something that
the President is very focused on. I think the good news is that
President Xi and President Trump have a very close relationship
and communicate regularly on these issues, but President Trump
has been very clear. We want to make sure that U.S. companies
have the same ability to do business in China as Chinese
companies have here.
Mr. Yoder. Thank you, Mr. Chairman. Thank you, Mr.
Secretary.
Mr. Graves. Mr. Cartwright, and then Mr. Stewart.
Mr. Cartwright. Thank you, Mr. Chairman. Thank you for
being with us, Mr. Secretary. I want to follow up the
discussion on trade a little bit. You have indicated recently
the administration is considering reentering negotiations on
the Trans-Pacific Partnership, and I do have a lot of
constituents in my district in northeastern Pennsylvania who
were seriously harmed from the impact of trade agreements like
NAFTA. If the administration plans to go back into TPP talks,
what specifically are you going to do to ensure that American
workers come out as winners from any new trade pact?
Specifically, will you fight to protect improved labor and
environmental standards from the other trading countries with
actual enforcement mechanisms?
Secretary Mnuchin. So let me just comment that, you know,
our priority at the moment is to renegotiate NAFTA and to focus
on our trade relationship with China and have fair and balanced
trade with China.
When the President was at Davos, he did say that he would
consider going back into TPP if we could renegotiate the deal,
and I think that is something that I have had some discussions
with my counterpart. I would say we are not in active
negotiations with that at the moment, nor is that the priority.
But again, I think it is a willingness on the President's part
to say we want the best deals for American companies to be
treated fairly. If we can do it bilaterally, that is our
preference. If we can enter multilateral agreements under the
right terms, we will consider that as well.
Mr. Cartwright. All right. Now I want to shift gears. You
recently spoke at UCLA regarding a number of issues, including
the White House's economic agenda, and the obligation that you
personally feel toward helping working families. The
administration's tax plan that you have been talking about, has
been touted as an example of that. As we are seeing that tax
plan take effect, and you talked about it earlier, it appears
that only a small percentage of the $150 billion tax windfall
is going to workers, while the majority is going to
shareholders. In fact, you mentioned that--you cited 400
companies that have announced one-time bonuses or raises. Gosh,
if we only include traditional C corporations, there are 1.7
million of them in the United States. My math is that means 400
divided by 1.7 million is three-tenths of 1 percent, meaning
99.7 percent of traditional C corporations are not on your list
of 400 companies announcing one-time bonuses or raises.
According to a report recently by JUST Capital, only 6
percent of the $150 billion tax windfall ends up in the pockets
of employees. Sixty percent ends up in shareholder dividends.
Now, 80 percent of stock value in this country is owned by the
wealthiest 10 percent of Americans. In November of 2016, you
pledged that any tax plan would not give an absolute tax cut to
the wealthiest Americans. That has subsequently been dubbed the
``Mnuchin Rule.'' I think the last time you testified here, you
said, Well, that is not really a rule. But here is the
question: As the Secretary of the Treasury, what are you going
to do in the future to make sure the working families of
America get a fair shake?
Secretary Mnuchin. Well, thank you, and I think you raised
some very good points. I do not agree with necessarily the
numbers that you have referenced. We believe that the majority
of the benefits in the tax bill will go to the middle class,
and will go to companies that will pass on those benefits to
the middle class. So our primary objective on the tax bill was
make U.S. businesses competitive. We have had a worldwide
system that if you deferred the tax, left trillions of dollars
offshore, we wanted to fix that. We wanted to have a
competitive tax rate for both big business and small business,
which we did, and we believe that those will be passed on to
workers. So we cited the number, and I realize there is
different people who cite different things. We believe that it
will be over 70 percent of the tax burden is borne by the
worker, and that will be passed on.
Just briefly I just want to clarify this so, yes, I did say
originally, it was the President's objective that there was not
going to be a reduction on the top end. That was never a
pledge. That was our objective, OK. I was not the one who named
the Mnuchin Rule it was Senator Wyden who dubbed it the
``Mnuchin Rule,'' and we worked very closely with the House and
Senate as we designed this, to get what we thought was a
competitive tax bill for our businesses and for the middle
class.
Mr. Cartwright. Last question, Secretary Mnuchin.
Obviously, the expected growth from the tax cut is what is
fueling a lot of what the benefits you are talking about. That
is what the hope is. My question is, aren't you concerned, or
are you concerned, about sinking our Nation $1.5 trillion
deeper into debt, what effect that will have on the national
growth rate?
Secretary Mnuchin. Sure. Well, let me just comment. I am
concerned about the size of the debt. The Nation's debt has
gone from $10 trillion to $20 trillion in the previous 8 years.
What I have said before I will repeat. I am comfortable--and,
again, our assumptions I believe will be correct, but we will
see--that the tax cuts will pay for themselves. Having said
that, there are other spending issues. This year it was a big
priority of the President to get additional funding for the
military. As a result of getting that passed, there is big
increases in nonmilitary spending, but I do share your concerns
about the size of the debt, and the issue of budgets in the
future.
Mr. Cartwright. Thank you, sir. I yield back.
Mr. Graves. Thank you, Mr. Cartwright. Mr. Stewart, and
then Mr. Serrano.
Mr. Stewart. Thank you, Mr. Chairman. Mr. Secretary, thank
you for being with us once again. I am sure you look forward to
these. You know, I have something I want to talk to you about,
which is CFIUS. But I want to come back and address some of the
questions or issues that have been brought up by other members
of the committee, and elaborate on a few of them if we could. A
very easy one that I just want to put on the table and allow
you with clarity to state, and that is, there has been some
concern over cuts to the IRS budget. Can you assure the
American people that the IRS will have the manpower that is
necessary to enforce current law and to collect the taxes that
are due to the Federal Government?
Secretary Mnuchin. Sure. Let me just comment. I do not
always look forward to testifying, but I do look forward to
coming to this committee because you control important funding
that we need, so it is always a pleasure to be here.
Mr. Stewart. We appreciate that.
Secretary Mnuchin. As it relates to the IRS, I am meeting
every day with a combined team of the Office of Tax Policy at
Treasury, and members of the IRS leadership team. It is one of
my top priorities, making sure we implement the tax plan, which
impacts literally everything at the IRS from customer service
to forms to technology. That is why it is so important that we
get the additional funding for it, and I can just say, look,
there have been issues at the IRS in the past. We have tried to
deal with these issues, but the vast majority of the workers at
the IRS, I think, are incredibly hard working people.
Mr. Stewart. Mr. Secretary, I want this to be a simple
answer. Just tell us yes or no, can you enforce the law so we
collect our taxes?
Secretary Mnuchin. Yes, we can.
Mr. Stewart. Thank you. And I just--I want you to say that
with clarity, because there are some that will say we are
unable to, and I think that is nonsense. Of course we can. You
know, I love people to talk about tax reform, and the longer
our Democratic colleagues talk about it, the better it is for
us I think, because the American people aren't stupid. And when
80 or 90 percent of them look at their--look at their earnings,
and actually see that they are making more money now than they
were a year ago and when they see the economic growth--again,
you can call it a scam, and I love Mrs. Lowey, she is one of my
favorite people in Congress. I wish she wouldn't have left
because I would like to say that to her, but you can call it a
scam, but the American people aren't dumb, and they can see
whether this is benefiting them or whether it is not.
And the fact is, is that 80 or 90 percent of them it is,
but I think your point about--you know, we have two elements to
this: One is that they are getting a tax refund, they are
getting more money, they are able to keep more of their money,
but I think the more important thing is what you said in your
opening statement, and that is that the economy is growing. You
said it is something like $4,000 for an average family. Can
you, very quickly, help connect the dots for members of this
committee and other Americans why this tax reform leads to
economic growth? And then I am going ask my second question,
because I want you to try and divide this up in the 2 minutes
we have left. I am concerned about CFIUS. As a member of the
Intel Committee, we have very real concerns about how that
plays out from an intelligence and from a security concern. Are
you willing to work with us to support some reforms in the
CFIUS process that would address some of those national
security concerns that we have?
Secretary Mnuchin. Yes, so on the first part, you know, we
fundamentally believe we can get to 3 percent economic growth.
The single most important issue is to create growth in the
economy. The tax bill is the center stage on that and that
critical to the growth.
In regards to CFIUS, I share your concerns with the current
CFIUS. There is limitations. We have been working with the
Senate on the FIRRMA bill. We look forward to working with you,
as well. We need additional resources for CFIUS with new
controls, expanded controls. So that is a top priority for us
working with Congress.
Mr. Stewart. And in the minute we have left, can we
balance--and tell me, and I don't know if you can address it
here, maybe this isn't is the right forum, but can we balance
our strategic economic concerns, and that is, when we partner
and when we have the free flow of information and capital
across borders, et cetera, that is generally a good thing, but
we have to do it knowledgeably and recognizing that we have to
protect our security, and also protect, I think, strategically,
our economic interests. Can we do both of those, and what
reforms would you suggest would help us to do that regarding
CFIUS?
Secretary Mnuchin. I believe we can, and I look forward to
working with you and your staff on the specific reforms and
some of the shortfalls.
Mr. Stewart. OK. Thank you, Mr. Secretary. Thank you, and
Mr. Chairman, I yield back.
Mr. Graves. Thank you, Mr. Stewart. Mr. Serrano, and then
Mr. Young.
Mr. Serrano. Thank you, Mr. Chairman. Secretary, thank you
for being here. As you know, Puerto Rico has gone through an
unprecedented humanitarian crisis because of two Category 4
hurricanes that struck the island 6 months ago. As a result,
Puerto Rico has lost tax revenues and even had to lend $300
million to PREPA, the island's electric utility. The Governor
of Puerto Rico has informed us, that the Treasury Department
has yet to approve the community disaster loan, which was
approved by Congress last October, and that Treasury is only
offering $2.06 billion out of a possible $4.7 billion, so I
have a couple of questions. My first one is, mindful that the
78 municipalities are submitting separate CDL applications, why
is Treasury only offering a fraction of the amount approved by
Congress? And why has Treasury taken so long in approving the
CDL loan?
Secretary Mnuchin. Well, thank you for asking that
question, and I share your concerns of obviously the impact
that this has had on the economy there.
So first of all, let me just clear up certain issues.
Within the overall bill, there was money that can be allocated
to Puerto Rico. Not the entire bill was allocated to Puerto
Rico, so that is number one. There are restrictions as to what
can be allocated.
Number two, which has been misreported in the press, we
have given the Governor and the committee a term sheet, so we
are prepared to move forward with documents. We have been doing
that. We have documents in front of them. They are asking for
certain things, but we stand ready to lend them the money. We
are also monitoring their cash balances on a weekly basis, and
as part of my commitment to this I am actually going to stop in
Puerto Rico on the way back from the G20 Finance Ministers
Meeting to see the damage and make sure that the money is
getting there quickly. So we are working with them, and I can
assure you we have a team at Treasury that stands ready to lend
them money right away. We are not holding this up.
Mr. Serrano. Now, what is the main holdup, though? I mean,
it is being held up. You are saying you are not holding it up.
Secretary Mnuchin. Again, I would be happy to sit down with
your staff and talk about this privately. There are things that
they--they are asking for more, but I do not want to go into
what the negotiation here is in this setting, but I can tell
you there are documents that are in front of them that we are
ready to lend, A; and, B, we are monitoring their cash flows to
make sure that they have the necessary funds.
Mr. Serrano. Well, I hope we can get that money flowing as
soon as possible, and feel free to share with us when you wish
what the problems may be because maybe we can be helpful with
you.
Secretary Mnuchin. Thank you.
Mr. Serrano. And, you know, with the government on the
island.
Most CDL loans have historically been forgiven by the
Federal Government. Why is Treasury more concerned with
imposing stringent terms on the loan than in forgiving CDL
debt, something that is very concerning in light of Puerto
Rico's precarious financial situation?
Secretary Mnuchin. We are not making any decisions today
whether they will be forgiven or they will not be forgiven.
What we are focused on is, as I said, making sure that they
have access to the funds, and we are prepared and ready to lend
to them now.
Mr. Serrano. So you are prepared to lend to them now, and
you will make at a later date the decision whether these loans
will be forgiven or not? I mean, this is historically something
that has been done. This is not--wouldn't be something that you
would be called out for in the press or anywhere for doing. It
has been done before often.
Secretary Mnuchin. Again, we are happy to follow up with
you and your staff and talk through the specifics of that and
get your views.
Mr. Serrano. OK. There seems to be a lot of, I wouldn't
call it secrecy, but a lot of things you can't say in public
about the dealings of Treasury with Puerto Rico. I hope that
that secrecy or inability to say these things in public does
not continue to hold up the funds.
Secretary Mnuchin. There is no secrecy. What I am being
very clear on, and let me be perfectly clear, we have documents
in front of them that we are prepared to lend. I think it would
be inappropriate in this forum, there are changes that they
want to these documents. I think it would be inappropriate for
me to go through that level of detail. There are no secrets.
Again, we are ready to fund to them now. There are things that
they are asking for that is holding this up. But let me assure
you, we are monitoring their cash balances, and as I have said
to you as function of the importance of this I am actually
stopping in Puerto Rico on the way back from my trip to the
G20.
Mr. Serrano. So in 2 seconds, the headline for today's
meeting, and my question is, are you ready to lend now?
Secretary Mnuchin. Absolutely. Money is ready.
Mr. Serrano. Thank you.
Mr. Graves. Thank you, Mr. Serrano. Mr. Young has stepped
out for a moment, so we will go to Mr. Moolenaar, and then Mr.
Amodei.
Mr. Moolenaar. Thank you, Mr. Chairman, and good morning,
Mr. Secretary, and thanks for joining us today for your
testimony. My guest for the State of the Union was a gentleman
from Clare, Michigan, Mr. Greg Rynearson, and I believe you had
the chance to meet him before the speech that night. He is a
former police officer, who, along with eight of his former
colleagues on the force, saved the local bakery and doughnut
shop from closing, and now nearly a decade later, they have
worked hard, grown their business, and it is really an American
success story.
They are excited about tax reform. They say it is going to
help their business. They recently announced plans to open a
new store in our State. And another company in my district, a
printing company with two locations, announced bonuses are
being paid to their employees' retirement accounts. And so all
of this, as you would agree, is good news: higher wages;
bonuses; better benefits; helping the hard-working people in
our State keep more of their hard-earned money, and that is
always a good thing. I want to compliment you, because Treasury
turned around very quickly the implementation of the
withholding rate that passed as part of tax reform, and your
budget asked for $397 million to help implement this new law.
And I am wondering, how much of it will go towards
improving better service for those who need help from the IRS,
for example, hiring employees to answer phone calls of
concerned constituents, and I am sure you are already getting
calls already, but how much of it will go towards improved
service in that way?
Secretary Mnuchin. Sure. Thank you. So, first of all, that
request is a 2-year request, but that is money we need ASAP to
implement this. A lot of it will go to service, some of it
directly, where we will hire more people to answer the phones,
particularly during the peak of tax filing season. A lot of it
will go to technology that will help interact and everything
else. It was commented earlier, we have antiquated telephone
systems. We want to modernize the technology so we can provide
better customer service. We need to update all the forms to
reflect the simpler ability to file, so there is--a lot of this
money will help directly and indirectly. That is a major focus
of ours.
Mr. Moolenaar. Thank you. And if I can shift gears a minute
and talk about the question of sanctions that we have been
discussing. Your Department is asking for increased funding for
the implementation of sanctions on hostile nations, including
Russia, North Korea, and Iran, and I am pleased to hear that
you are implementing those sanctions and want to encourage you
to move swiftly and decisively because I agree with you, I do
think those sanctions in the case of North Korea, as you
mentioned, are bringing them to the table and have been
effective.
Your Department is monitoring financial transactions all
over the world, and has the incredible task of identifying and
dismantling threats to our country's financial system,
including cyber attacks. I am wondering which countries and
organizations are launching the most attacks on our financial
system, and what is the cost of these attacks to Americans?
Secretary Mnuchin. So, again, let me just first comment on
the sanctions. We just released, 2 weeks ago, the largest
package of sanctions that we have ever had on North Korea, so
as you know, North Korea has been our number one priority. We
are now reallocating a bunch of these resources for Russia
sanctions, which are going to come out very shortly. On cyber
and on the banks, again, we are constantly taking in lots of
information from the banks, big data dumps to look at illicit
activity.
In regards to cyber, I am not comfortable mentioning which
countries specifically, but I am pretty sure you know the
highlighted ones, and we are very focused on this.
Mr. Moolenaar. And do you need increased funding to prevent
these attacks? Is that something we are going to see more of in
the future?
Secretary Mnuchin. It is.
Mr. Moolenaar. OK. And then another question I had is how
can we improve information sharing with Department of State and
other agencies to make sure sanctions are imposed effectively?
It seems that there are a number of departments, agencies
involved in this process, and what can we do to improve the
communication there?
Secretary Mnuchin. I actually think that works very well. I
would say, first of all, through the NSC, we meet on a regular
basis, multi times a week we are in communication.
Any of our sanctions do go through, whether we are doing
them or not, they do go through what we call an interagency
clearing process of both getting the Intel declassified and
then seeking consent of State and others. So I think this
process is working very well, both through the NSC coordinated
process as well as direct conversations between myself,
Secretary Tillerson, and our staff.
I also have regular meetings with Director Pompeo and other
members of the National Security/Intel areas, because we could
not do our work without what they do.
Mr. Moolenaar. Thank you very much.
Mr. Graves. Mr. Amodei, then Mr. Young. And then if there
are additional questions, we will alternate between both sides,
based on seniority down the dais here.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
Good morning, Mr. Secretary.
Secretary Mnuchin. Good morning.
Mr. Amodei. Real quick first, CFPB. I had seen in some of
your earlier ruminations that, first of all, CFPB. Let's just
say you were interested in the concept of a five-person board.
And I know you guys are doing the best you can with Mick
Mulvaney kind of filling in, but your thoughts changed on going
to a five-person board for governing that outfit?
Secretary Mnuchin. No, my thoughts have not changed. I
think that, one, it should be subject to appropriations. I see
no reason why that agency should be off balance sheet. And two,
I do support the concept of a board to oversee it.
Mr. Amodei. OK, great. Thank you.
The second thing is a little more pedestrian, but
nonetheless, and I think we had let your staff know. It is
like, hey, I don't want to talk to him about this in the
appropriations hearing, but we are kind of where we were before
that.
I had a request from a constituent who is entitled to some
payments out of the Guam World War II Act, World War II claims
fund. And so she had contacted our office, because she had been
pursuing this through Representative Bordallo's office, who had
sent Treasury Department, 2 months after you were sworn in last
year, a letter asking about some interpretations. And that
letter was in April, and she sent it to you and to Interior
Insular Affairs, and Interior sent her back a response on the
11th.
So we contacted your office 2, 3 months ago and said, hey,
you know, what is the deal on this letter? And we have
contacted them about three times. And so I am not going to
spend a lot of time on it. And rather than going through the
gee whiz and all that other sort of stuff, my request is, can
you send somebody from your Department under your supervision
to my office to give us a briefing on this and whatever the
response is to the letter that Representative Bordallo has been
waiting for for over a year?
Secretary Mnuchin. Absolutely. That will happen tomorrow,
whenever is convenient. It is unacceptable that we have not
responded to you. I can tell you I have met with them several
times on this issue. We want to get it resolved. It is a little
bit of a complicated issue, but it is unacceptable we haven't
been responsive to you. So we will, whether tomorrow or the
next day, whenever is convenient for you, we will have people
come over.
Mr. Amodei. Thank you. Good morning.
And I yield back, Mr. Chairman.
Secretary Mnuchin. Thank you.
Mr. Graves. Thank you.
All right. Let's see. Mr. Young, do you have any questions
for us down there? Then we will start over.
Mr. Young. Thank you, Mr. Chairman.
Welcome, Mr. Secretary.
Secretary Mnuchin. Thank you.
Mr. Young. I was just out in the hallway talking to a
farmer from Iowa, and he says there is not a day on the farm
where a farmer doesn't touch steel. The agricultural industry
and everyday farmer are worried about these tariffs on aluminum
and steel. How much do you know about the proposed tariffs?
Secretary Mnuchin. I know a lot about the proposed tariffs.
I can tell you the President loves farmers and the agricultural
community.
Mr. Young. It doesn't seem so with some of the policies
that are coming out. And there is great concern with folks in
the heartland and concerns as well with retaliation and what
that may mean to our economy. We have seen that the Tax Cuts
and Jobs Act was great. We are really feeling the benefits of
that. And there is a fear out there that any kind of a
potential trade war or retaliation could really blunt the
positive effects with the economy from the Tax Cuts and Jobs
Act. Can you comment on that? Are you concerned at all with
that?
Secretary Mnuchin. Again, I am well aware of the fears of
trade wars. I can tell you I have had very specific
conversations with several of my counterparts. We are trying to
deal with this on a case-by-case basis. The President is very
involved in this. Again, I look forward to having the details,
the exact details of this released. We are trying to get it out
as quickly as we can this week.
Again, I think when people see this, again, I want to be
clear that the President does want to make sure we protect the
steel and aluminum industry. He does understand the potential
impacts it has on the economy, and I think we have a way of
managing through this.
Mr. Young. So when the President's team was going through
this and deciding whether or not to issue tariffs on aluminum
and steel, did they meet with the stakeholders out there who
could potentially be impacted by this? Did they meet with the
agricultural leaders on this?
Secretary Mnuchin. I can assure you that the Secretary of
Agriculture has had significant input into these discussions. I
can assure you that Director Cohn and myself have received lots
of feedback on all these issues, and we are balancing the
various issues.
Mr. Young. So you are supportive of the President's move on
the tariffs on aluminum and steel?
Secretary Mnuchin. I am supportive of them. I am supportive
of the mechanism as the President has announced, and I look
forward to him announcing the specific details; that in the
case of Canada and Mexico, our objective is to have a new
NAFTA. Once we do that, which I am cautiously optimistic on,
the tariffs will not apply to them.
Mr. Young. And regarding NAFTA, I certainly welcome the
relooking at NAFTA and making sure that it is enforced and
modernized. I would just urge that the administration not scrap
NAFTA altogether. That would be devastating to the American
economy, let alone the agricultural economy. And I thank you
for being here.
I yield.
Mr. Graves. Thank you, Mr. Young.
Mr. Secretary, I think you have a few more minutes with us.
We have some remaining questions. I know I have a couple, and
then we will see if Mr. Quigley and others do.
You have in the past referred to the Senate bipartisan
regulatory reform bill as a balanced and thoughtful approach,
and you have called on both chambers to move that bill through.
There are many--I guess most of the components of the Senate
bill, there are similarities with what we passed in the House
CHOICE Act, of which this committee included basically the
entirety of the CHOICE Act in our 2018 appropriations bill. And
as we are wrapping up that final discussion, we are finding
there are some similarities of a common thread of some of the
Senate bill that is in our proposal.
Can you give us a little bit of your thoughts about the
Senate bill provisions and your prospects for how that may move
through the Senate, the House, or a conference, and whether or
not we should include those provisions in our final 2018
conference bill?
Secretary Mnuchin. Sure. Well, let me just first say I meet
with Chairman Hensarling and Chairman Crapo on a regular basis.
These are very important issues that we address. I am very
pleased that things are moving forward in the Senate. I think
this is very important legislation that strikes the right
balance, particularly as it relates to community banks and
regional banks and making sure that they can grow.
One of the big issues we have is that the top eight banks
are too big. We need to make sure that community and regional
banks can grow; they know how to lend. And I look forward to
working with the members of the committee in the House as this
moves forward.
Mr. Graves. Are those provisions you would like to see in
our 2018 conference bill? Because we have currently included
those provisions and more, and much more. And I think Chairman
Hensarling and myself and others would like to see a more
robust package, understanding where the Senate is. But there is
a thought that maybe some of those should be included in our
Financial Services appropriations bill as well, including CFPB,
as you referenced earlier.
Secretary Mnuchin. Look, you know my views on CFPB. I look
forward to working with the House and the Senate on these
issues. I think the most important issue is that we do get a
bipartisan bill passed, that we need these changes and we need
it to help the economy and our banks.
Mr. Graves. OK, thank you.
And then as it relates to the Terrorism Financing Targeting
Center, you and I have had some good discussions about that.
What is the administration's vision for the Center? If you
could just sort of describe that to us in a little bit more
detail today.
Secretary Mnuchin. Sure. Well, this is one of my major
priorities. I went to Saudi Arabia last summer to launch it. We
have three buildings there that the Saudis have provided to us.
We need to make sure we now have the appropriate staffing.
One of the buildings is designed specifically for us. We
need to build out our necessary intelligence capabilities. One
building is a shared building where everybody can come and work
together. And then another building is for the Gulf countries.
I have committed to go back every year to make sure that we
follow through on this. We need to get staff on the ground. The
idea is to share intelligence and to do joint sanctions, and I
think these can be very meaningful in our shared goals to stop
illicit financing and combat terrorism. The money that we will
spend on this has huge, huge, huge returns in its capabilities.
Mr. Graves. And with your current request, we will have, I
guess it is $25 million worth of request. What will the other
countries be--what would be their involvement or their
resources that they are including in this?
Secretary Mnuchin. Again, the Saudis have paid for the
physical buildings and various aspects there. The other
countries will be contributing resources of similar amounts. We
expect all the Gulf states to make a significant commitment to
this.
Mr. Graves. That is good. That is something we want to
hear--that we are not financing this solely ourselves, but we
have partners.
Secretary Mnuchin. No, not at all. This is a shared vision.
Mr. Graves. Thank you, Mr. Secretary.
Mr. Quigley.
Mr. Quigley. Thank you, Mr. Chairman.
Mr. Secretary, I just want to make sure we understand your
commitment to come back to the committee with the details of
how you are intending to use resources to enforce the sanctions
that we spoke of earlier.
Secretary Mnuchin. Absolutely. We will follow up with you
on that.
Mr. Quigley. Thank you.
We are talking about the tax bill. Let me just throw out a
few numbers and get your reaction. The independent Joint
Committee on Taxation estimates that the plan will add $1.5
trillion to the deficit over the next 10 years. They are saying
under the best of circumstances, even after accounting for
economic growth, we are adding a trillion, which pushes back on
your point that it would, with respect, pay for itself.
But Goldman Sachs, not exactly a bastion of liberal
economic thought, concluded that it would add as little as 0.3
percent to the GDP over the next 2 years and could be slightly
negative if we trend to the time in 2020 and beyond. The Tax
Policy Institute--I am sorry, the Tax Policy Center estimates
that the new tax law will increase GDP by 0.8 percent in 2018,
but with trends, little effect by the end of the next 10 years.
So we are talking about a manufactured extraordinary
addition to the debt crisis with, over time, extraordinarily
little results to counter that. Your reaction to these pretty
conservative institutions?
Secretary Mnuchin. Let me just say I respect different
people have different views, and the numbers will be clear. I
think we are beginning to see the numbers, but this is all
about economic growth.
Again, the bill scored to a trillion and a half dollars
static, $500 billion of differences between baseline and
policy. We look at it as a trillion dollar issue. That is about
30 basis points of growth is the break even. So we think there
will be close to 90 basis points of growth, but there is about
30 or 35 basis points of growth. Although certain things I
agree with Goldman Sachs on, their research is not one of them.
Mr. Quigley. I pass this on. Thank you, Mr. Chair.
Mr. Graves. Thank you.
I am going to ask a question or two on behalf of my
colleagues who have stepped out a second.
On cybersecurity, given a lot of the national security
threats and implications that we have already discussed in the
financial sector, a lot of cost associated with that. Can you
help us understand what Treasury is doing to establish and
maintain cybersecurity standards across the industry? And then,
as a former information officer yourself in the finance world,
what is your impression of the cyber threats in the private
sector now that you are Treasury Secretary? You have a
different vantage point today, obviously.
Secretary Mnuchin. Sure. Well, again, this is something I
am spending a lot of time on, and it is something we need to
continue to spend a lot of time on and take seriously, since
these cyber threats will only increase, not decrease over time.
Yesterday, I participated in a principals meeting that DHS
led specifically on cyber. We have responsibility for the
financial sector. It is something that we take very seriously.
This is a function of both--it is a private-public partnership.
The primary responsibility for the financial sector is
obviously in private companies, but we are working with them
very closely. We are sharing intelligence with them closely. We
are also working with the regulators very closely.
So, through my role on FSOC, I have convened the
regulators, through the Financial and Banking Information
Infrastructure Committee (FBIIC) and other areas. We are very
closely working with all the appropriate regulators and making
sure we have a coordinated approach to cyber.
Mr. Graves. Thank you. I understand it is very, very
complicated.
Mr. Serrano, do you have any further questions?
Mr. Serrano. Thank you.
Let me first say, Mr. Chairman, that I was very nervous for
a second. Whenever I hear one of my colleagues mention the
Jones Act, I get nervous because not too many people know that
there are two Jones Act. One has to do with shipping, and one
was this week in 1917 Puerto Ricans got American citizenship.
So I hope they don't make a mistake when they tinker with the
Jones Act. Don't take away the wrong one, in my case.
Mr. Secretary, the CDFI Fund has helped entities invest
billions of dollars in economically underserved areas,
including in my district in the Bronx, New York. Nevertheless,
your fiscal year 2019 budget proposes to eliminate all CDFI
discretionary grant programs. I will be working with my
colleagues on both sides of the aisle, with all due respect, to
make sure that that does not happen.
However, since you propose to eliminate CDFI, how do you
plan to cover the gap in providing affordable credit and
investment capital to low-income communities and individuals?
Secretary Mnuchin. Sure. Well, thank you. First, let me
just acknowledge that the CDFI funds do provide significant
benefit to many communities, and I know there is bipartisan
support. So we look forward to working with you on this.
The decision to eliminate the CDFI was just a difficult
decision as we looked at spending priorities across the
Department and thinking that there are other mechanisms that we
have and that there are private sector solutions. But, having
said that, if Congress decides that they want to fund that, we
will dutifully do that, and we acknowledge there are
significant benefits.
Mr. Serrano. Well, that took care of my second question,
because you do admit publicly, which is a good thing, that it
has bipartisan support--it always has--and it does a good job.
And I hope that we can work together on saving the program and
helping it grow, honestly.
Mr. Secretary, one last question. You have been quoted as
saying that cutting personnel from the IRS can actually hurt in
the collection of revenues. And I have always had to describe
this concern that every time we cut an agent, we lose money,
money that could be collected.
You are cutting thousands, it seems to me. How do you
balance what you have said in the past and what you are doing
in the budget? And I understand that some of these decisions
are not easy to make. You just admitted the CDFI, you were not
against it, but it was a decision that had to be made. What is
the problem here?
Secretary Mnuchin. Well, again, let me just say, you know,
as we look at the IRS--and let me just commend, as I said, the
many people at the IRS that do an incredible job collecting our
revenues. It is an enormous organization, and we are making
some difficult decisions on funding.
So, we asked for additional funding. We have also asked for
an additional $386 million in what we call program integrity
cap adjustments. I know this is something that Congress has
been reluctant to give us in the past, but I would encourage
you to look at. It is a way of us raising additional money that
can be used appropriately.
Specifically, in your comment in enforcement, there is no
question additional people we put in enforcement do yield
significant benefits in terms of revenue. We have asked for
correction error authority, which will also simplify things.
So, again, we are just trying to manage difficult resource
requirements across the IRS.
Mr. Serrano. Thank you, Mr. Chairman.
Mr. Graves. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Secretary, I just want to make sure I am clear on where
we are at in terms of tariffs on Canadian aluminum and steel.
Did you say the plan is to exempt Canada from those tariffs?
Secretary Mnuchin. Again, I want to be careful about going
into the specifics. The President will be announcing the
specifics of this later in the week. But what I can confirm,
and he has mentioned this, to the extent that we reach our
objective in renegotiating NAFTA, which is the priority, that
Canada and Mexico will be exempt from those tariffs.
Mr. Cartwright. OK. And the other thing is, you were
recently in the news about gun safety legislation. Obviously,
we had another horrific shooting in Florida. We are at a point
now in our republic where nine out of ten Americans support
universal background checks. Eight out of ten Americans support
banning sales to individuals who are on Federal no-fly lists
because of being suspected terrorists.
You were testifying in front of the House Ways and Means
Committee and you were questioned by Representative John Lewis,
our colleague, and you said, quote: ``I will say personally I
think the gun violence, it is a tragedy what we have seen
yesterday, and I urge Congress to look at these issues.''
And then later, I think that same day or the day after, a
Treasury spokesman walked that back. But I want to hear it from
you, Mr. Secretary. Do you still urge Congress to look at these
issues and, if so, what is it you are urging us to do?
Secretary Mnuchin. Okay. Well, first of all, thank you, and
I am glad I have the opportunity to clarify that. I, like most
Americans, think that the shooting was obviously a tragedy and
I think that gun violence is an issue, number one.
Number two, my comment that we clarified--it was not
intended to be walking back; it was intended to clarify. When I
urged Congress to look at these issues, it was a question in
regards to do we have enough funding for different things on
gun violence.
Let me just say this is an area, and although there are
many things in the government that I focus on and I think I
have some level of expertise, this is not in my lane. I do not
have much expertise on this. I do commend the President for
getting people together and the fact that he is willing to
address this issue. It is an important issue and, you know,
that is something that I know he is focused on.
Mr. Cartwright. To be clear, are you urging us to do
something?
Secretary Mnuchin. Again, what I was urging, the question
was, is there enough money, in that part I was responding to, I
urged Congress to look at the money issue.
As it relates to Congress and congressional legislation,
this is completely out of my line. But, again, I know the
President has been having active discussions on both sides of
the aisle and reaching out to people, and this is an area that
he cares a lot about.
Mr. Cartwright. So, yes, you were urging us to look at the
money issue as respects gun safety. What money issue are you
talking about?
Secretary Mnuchin. Again, it was a question as to whether
there was enough money in the budget for gun safety and other
issues. But, again, I want to acknowledge, like most Americans,
this is a tragedy, and I am glad that the President is working
with Congress in looking at these issues.
Mr. Cartwright. I yield back, Mr. Chairman.
Mr. Graves. Thank you, Mr. Cartwright.
I understand Mr. Quigley has no more questions.
Mr. Serrano, any more questions?
Mr. Cartwright.
Mr. Cartwright. No.
Mr. Graves. Mr. Secretary, thank you again for joining us.
As you have noted in the past, this is a very thoughtful and
insightful committee and great questions and concerns about
budget requests and policy. And I thank you for taking the time
to join us today, to give us good, complete, and thorough
answers to the best of your abilities. And we certainly
understand the limitations of some places in which you can
discuss and respect that. But I am grateful that you offered
yourself and your staff to join members in alternate settings
to help clarify any questions they may have.
Secretary Mnuchin. Glad to be here.
Mr. Graves. But thanks again, Mr. Secretary.
Meeting adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wednesday, April 11, 2018.
INTERNAL REVENUE SERVICE
WITNESS
DAVID J. KAUTTER, ACTING COMMISSIONER, DEPARTMENT OF TREASURY
Mr. Graves. Well, good morning. Good morning, everyone. And
we are going to go ahead and call this meeting to order and we
look forward to hearing the testimony today from the Acting
Commissioner, Mr. Kautter. So thanks for joining us, and we
appreciate your service and willingness to be a part of this
subcommittee this morning to discuss the IRS budget for 2019.
And we realize you are testifying before us in this committee
for the first time, but this is also a very busy time of year
for you, so thanks for taking the time to be with us.
Late last year, Congress passed and President Trump signed
into law the Tax Cuts and Jobs Act. And as a result of this
historic tax reform legislation, American families are taking
home more of their hard-earned money. Businesses are expanding
and confidence in our economy is growing, which means more jobs
and opportunities for the American people.
As Mr. Kautter is well aware, implementation of this law
falls primarily on the IRS, which is why we provided $320
million for its implementation in last month's government
funding bill. Specifically, this funding will go toward
updating 100 different IRS IT systems to accommodate more than
100 new tax code provision before the next filing season. This
subcommittee is also committed to providing an additional $77
million in 2019 to finish the law's implementation. So, I look
forward to hearing how this implementation is progressing and
how we can maintain that momentum as we move ahead through this
year.
But continuing on to the 2019 budget request that is before
us, it also includes more than $500 million for Operations
Support. And I know the Inspector General and the Government
Accountability Office repeatedly commented on the IRS
mismanagement of IT projects in the past. From insufficient IT
work plans to legacy systems that run on software language from
the 1950s, this mismanagement puts our tax collection
operations at risk.
This committee expects better as I know you do as well, Mr.
Acting Commissioner. So, I look forward to discussing how these
funds will contribute to the replacement of legacy systems in
the days ahead, and the positive impact it will have on the
overall taxpayer's experience.
Additionally, the IRS is a prime target for cyber and
identity theft, because of the massive amount of personal
information it receives and stores. We learned just a little
while ago that over 2 million attempts any given day are
against the IRS and that information. In recent years, the IRS
faced problems from data breaches in some of its e-services
such as the GET Transcript Identification Protection Pen Apps,
and the Free Application for Federal Student Aid Form, which as
we know, is parents with kids going to college as FASFA.
These breaches allowed cyber criminals to access taxpayer
information and file fraudulent tax returns. The IRS must
improve its cyber defenses and do more to protect taxpayer
data. Similarly, improving a taxpayer's experience is a major
focus of this subcommittee and has been for the years that we
have all served on it. In the past two annual appropriations
bills, we have provided the IRS with targeted funds to improve
the customer service experience.
With the 2018 filing season drawing to a close, I am very
interested in learning what kinds of improvements our
constituents are experiencing, and what they can look forward
to this year. But to that end, my top priority on this
committee and in writing the appropriations bill as we look
ahead is ensuring that the taxpayer is truly respected. The IRS
is on the front lines but it does not have the best track
record. So, I look forward to hearing how our targeted
investments are making life easier for the taxpayers and
holding the IRS accountable for bad behavior.
So, before wrapping up my comments, I want to zoom out our
focus just for a moment and as we begin to look at the 2019
bills, and as a subcommittee, not forget the success we had
last year. We had tremendous success, not only as a
subcommittee but as a full committee, in defying all the odds
as we passed all 12 appropriation bills for the first time in
over a decade and regular order with a lot of minutes, a lot of
debate, and a lot of discussion.
So I hope that we have that same commitment this year. All
of us together, to work together to do the same as we have
begun our hearing process and hopefully have all our hearings
done as a subcommittee by the end of the month, and maybe full
committee next month, and have them all out of the House in
June. Would not that be great if we could do that? Or early
July, I would be OK with that.
That said, Mr. Kautter, thank you again for taking the time
to meet with us today. I look forward to working with you and
hearing your testimony. Thank you for your position that you
have taken here. I know that you have two hats, two jobs that
you are performing, and I look forward to hearing your
testimony. But at this moment, I would like to turn to my
ranking member here, Mr. Quigley from Illinois, for his
comments.
Mr. Quigley. Thank you, Mr. Chairman. I share your
optimism. I know, I am a Cub fan, so I am not sure what that
means. I want to also join you in welcoming the Acting
Commissioner for the IRS, David Kautter, to this subcommittee.
Mr. Kautter, I want to thank you for taking time and look
forward to listening to your testimony. I am going to keep my
remarks brief in the interest of allowing sufficient time for
our witness to share his thoughts in response to the panel's
questions.
This hearing comes at an important time as taxpayers
nationwide prepare to submit a tax return for the 2017 tax
year. The IRS is tasked with the core Federal responsibility
for the collection of more than 3 trillion in taxes,
distributing more than 400 million in refunds and providing
service to millions of taxpayers in the process. Funding to
support the IRS's mission constitutes the single largest
category of spending under this subcommittee's jurisdiction.
And we take seriously our responsibility to ensure that the
agency is able to perform its functions in a fair and competent
manner.
With this in mind, I was disappointed and surprised to see
the President's budget request for the IRS in fiscal year 2019
seeks a reduction in resources for the agency. This comes at a
time when the national taxpayer advocate has sounded the alarm
on irresponsible cutbacks to frontline employee training. The
Inspector General for the Tax Administration is reporting that
24-hour taxpayer assistance centers, which provide a crucial
in-person service for many older and rural taxpayers, are
currently closed during the height of the filing season, due to
insufficient funds.
Even more confusing is the fact that for the fiscal year
during which this administration's new tax law is due for
implementation, this budget proposes to reduce taxpayer
services, staffing at the agency by thousands of positions.
After multiple years of inexcusably long wait times and
unanswered phone calls, taxpayers finally saw an improvement in
the level of service delivered last spring during the filing
season. And yet, for the coming year, when taxpayers face a
brand new system of rules and systems, your budget request
promises a drop from 78 percent level of service down to just
54 percent.
This year, with the resources appropriate for the IRS by
Congress, the IRS will make 7,761 staff available in answering
the toll-free phone line. Your fiscal year 2019 Request will
cut the number of staff for this purpose to just 6,023
available to answer the IRS toll-free line. I sure hope that
you can help us make sense of this during our discussions
today, and I thank you again, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. I would like to
recognize the acting commissioner for his testimony. I know you
have a statement for the record, but feel free to make some
remarks if you would like to here. And then we will go in to
some questions that we may have for you. Thank you again for
joining us, Mr. Kautter.
Mr. Kautter. Perfect. Thank you, Chairman Graves, Ranking
Member Quigley, and members of the subcommittee. And thank you
for the opportunity to discuss the IRS Budget and current
operations.
I want to begin by thanking Congress, and especially this
subcommittee, for providing the IRS with an increase in funding
for fiscal year 2018 in the Omnibus Budget Bill enacted last
month. This funding will allow the IRS to continue delivering
on critical priorities including improving taxpayer service,
updating our information technology infrastructure, increasing
cybersecurity, and safeguarding taxpayer data. I also want to
express my appreciation for the additional $320 million in
funding to implement the Tax Cuts and Jobs Act and especially
for the flexibility we were given to shift resources between
accounts.
Implementing the new tax law is a critical priority for the
IRS this year and next. This is the first major tax reform
legislation in more than 30 years and will require extensive
work by the IRS. Our goal is to ensure taxpayers and tax
professionals can understand and navigate the changes made by
the new law.
Implementing tax reform is a huge undertaking. We estimate
the IRS will need to create or revise about 450 tax forms,
publications, and instructions. We will need to publish
extensive guidance, including regulations, notices, frequently
asked questions, and we will need to reprogram about 140 inter-
related, integrated tax return processing systems to be ready
for the 2019 filing system.
So I am extremely grateful that we are receiving this
additional funding in the early stages of our work on the new
tax law. It ensures we can start critical implementation
activities on time, and knowing funding is available through
next year allows us to let contracts appropriately and have the
resources needed to test our processing systems in the first
quarter of Fiscal 2019, shortly before the beginning of the
next tax filing season. The broad scope of our efforts required
us to begin our implementation work almost immediately, as soon
as the law was enacted.
Our initial steps to implement the new tax law included
revising the withholding system to take into account the
various changes by the statute. We have also begun issuing
guidance including several notices to help corporations begin
complying with the new transition tax under code section 965.
Our work to implement the new tax law as continued while we
have been administering the 2018 filing season. Even with this
challenge, I am pleased to report that the filing season has
gone well.
As of last Friday, April 6, the IRS has received more than
103 million individual tax returns which is about two-thirds of
the returns we expect to receive. We have issued more than 79
million refunds for more than $226 billion. About 80 percent of
the returns filed so far claimed a refund with the average
refund totaling about $2,900. These numbers are consistent with
those for 2017 with the number of returns received up from last
year by about 150,000, which is about one-tenth of 1 percent.
The number of returns filed electronically up by about 440,000
or one-half of 1 percent, and the average size of the refund up
$13.
The other major challenge during the filing season was the
need to implement tax-related provisions in the bipartisan
budget agreement, enacted in February. This required us to
reprogram our processing systems to handle the retroactive
extension through December 31 of this year of more than 30
individual and business tax benefits that expired at the end of
2016. It was the first time the IRS had ever been required to
implement retroactive tax extensions in the middle of a filing
season.
Looking ahead, the President's Fiscal 2019 Budget requests
an appropriation of $11.497 billion for the IRS which is
$11.135 billion in base resources plus $362 million provided
through a Program Integrity Cap adjustment. The President's
budget submission seeks less costly ways of delivering taxpayer
service and maintaining enforcement using technology, training,
and internal efficiency. The budget balances competing
priorities and increases funding to operations support by 6.2
percent.
Dedicated funding is needed now to modernize IRS hardware
and software so that we have the technology needed to run day-
to-day operations, transform the taxpayer experience, improve
cybersecurity, and ensure we can continue to safeguard taxpayer
data. The IRS is subject to 2.5 million attacks on average each
day, 1 million of which are sophisticated attacks. Some of the
attacks are efforts to acquire taxpayer data and some are
efforts to disrupt the functioning of the United States
government.
Against this backdrop, it is important to realize that 59
percent of the IRS hardware and 32 percent of its software is
obsolete. In regards to taxpayer service, we understand
Congress' concerns. We are taking steps to improve service on
our various channels and we look forward to working with
Congress in this area. I would note that the investments needed
to improve IRS information technology that I mentioned a moment
ago are critical to our efforts to improve taxpayer service. It
is clear that one of the most important things we can do for
taxpayers is upgrade our IT infrastructure.
In addition to ensuring adequate funding for the agency,
Congress can also help the IRS by enacting three pieces of
legislation that will improve tax administration: renewing
stream-lined critical pay authority, allowing correction
procedures for specific errors, and giving IRS authority to
require minimum qualifications for tax return preparers. These
provisions, along with the other items highlighted in the
budget, will help the IRS continue building on its work to
serve the Nation's taxpayers.
Chairman Graves, Ranking Member Quigley, and members of the
subcommittee, that concludes my statement and I would be happy
to answer any questions.
[The information follows:]
Mr. Graves. Thank you, Mr. Kautter. And this morning, we
have a lot of subcommittees meeting today, so I think over 50
percent of the appropriations subcommittees are meeting, so we
will have members come in and out. And I know even some of our
members here even have other committees they need to join this
morning.
So, I am going to defer my questions to a little bit later
this morning and I think Mr. Quigley has agreed to do the same.
And with that, we will start with Mr. Moolenaar and then Mr.
Cartwright will be next with any questions they may have for
the Acting Commissioner. Mr. Moolenaar, you are recognized.
Mr. Moolenaar. Thank you, Mr. Chairman. And thank you, Mr.
Kautter. I appreciate you being here today with us. I wanted to
follow up with you on some of the issues you have raised on IT
modernization. You mentioned that more than 59 percent of the
IRS's hardware is past its useful life and 32 percent of the
software was behind.
And so, I just wondered if you could comment in more in-
depth on what your plan is to ensure that the hardware and
software are updated. And can you explain why this has
happened. Because that seems to be a pretty serious problem,
especially in this era of cybersecurity.
Mr. Kautter. Sure. Thank you. I think it is important to
recognize that although 59 percent of the hardware and 32
percent of software is out of date, the IRS has done a pretty
good job, in my opinion, over the last several years of
prioritizing where it spends its money. The core processing
system for filing and processing tax returns has been
modernized and updated.
And that is where a substantial amount of the funding that
this committee has appropriated to the IRS has gone. The cyber
defenses around that system have operated fairly well, but
cyber criminals are constantly evolving and changing their
approaches and so the IRS spends a substantial amount of money
trying to ward off those cyber attacks.
Where a lot of the inefficiency, where a lot of the
obsolete equipment and software rests, is in the day-to-day
equipment used by IRS employees. So the laptops, the printers,
fax machines, and so forth. Last week, we conducted a series of
four calls with IRS managers.
And so, as somebody new to the agency--I have been with the
IRS about 5 months--it was interesting to participate in those
calls. What I took away from the call, frankly--those four
calls, we had about 3,000 employees--was a desire on the part
of people at the IRS to do a good job, to perform at a high
level, and to carry out their responsibilities for taxpayer
service.
The sense of frustration with laptops that might take 2 or
3 weeks to be repaired, with software, with help support
questions that took a day or two to be answered, with software
updates that were not quite working the way they were supposed
to and interfacing, was one of the most clear messages anybody
could have received. So, you know, I think when we talk about
how much is obsolete, it is easy to get concerned that the core
system is in bad shape. That is not the case. That is in pretty
good solid shape in my opinion. But a lot of surrounding
operations is where the challenges are.
Mr. Moolenaar. So, if I were to summarize, you do not feel
like taxpayer personal data is at risk because of these
outdated systems or machines, but maybe in terms of the work
environment and the frustrations of sort of day-to-day
operations that that is where the problem lies?
Mr. Kautter. I think that that is a fair way to state it. I
do worry about cybersecurity every minute of every day, to tell
you the truth. And I do worry about hardware that is out of
date and software. When we say obsolete, what we mean is that
the software is at least two updates behind.
Mr. Moolenaar. OK.
Mr. Kautter. And that worries me. But the core system, we
are really focused intently on that and I think doing a pretty
good job.
Mr. Moolenaar. OK. And then, I wanted to just change
directions a little bit and talk with you a little bit about
some of the cryptocurrency or virtual currency that has become
popular. And my understanding is that in 2017, one Bitcoin
equaled over $19,000, U.S. dollars. And the most recent IRS
guidance on existing tax principles applied to transaction
using virtual currency goes back to 2014. And I am just
wondering what your plans are, either to update that guidance?
I understand it is considered property, and do you believe that
should be updated?
Mr. Kautter. That is a topic that we are very intently
focused on. You are exactly right. The latest guidance is 2014.
We treat cryptocurrency as property, as basically capital asset
and not as a currency. There are many unanswered questions that
we are dealing with, with respect to cryptocurrency. There are
so-called ``forks'' with cryptocurrency where the currency sort
of divides, and we have a taskforce, we have a group within the
IRS, focused on those questions.
The biggest concern we have got, frankly, with
cryptocurrency, is not just the tax treatment. It is the fact
that cryptocurrency seems to be a way to evade Federal Income
Tax. And so, the Criminal Investigation Division is very much
focused on this. They have got some investigations underway.
So, it is both issues, both the technical side and then what is
happening on the tax evasion and avoidance side.
Mr. Moolenaar. Thank you very much.
Mr. Kautter. Yes, sir.
Mr. Moolenaar. Thank you, Mr. Chairman.
Mr. Graves. Mr. Cartwright and then Mr. Yoder.
Mr. Cartwright. Thank you, Mr. Chairman. And thanks for
being here, Mr. Kautter. I appreciate you taking the time and I
want to talk about a couple of things. The effect of the cuts
to your administration asked for in The White House Budget. I
understand the President's proposed funding cuts will have a
particularly harsh effect as you all implement the new tax
plan.
Last year, roughly 25 percent of Americans who attempted to
contact the IRS could not get through. National taxpayer
advocate, Nina Olsen, reported to Congress that up to 60
percent of Americans will not be able to get through during the
2018 filing season. My question first is: is additional funding
the only barrier keeping the IRS from better serving the
American people?
Mr. Kautter. I would say funding is a key factor. Yes, sir.
Mr. Cartwright. OK. And other than requesting additional
funding, what specific steps have you taken to develop or
implement a plan to deal with that particular issue?
Mr. Kautter. With the taxpayer service issue?
Mr. Cartwright. That is right.
Mr. Kautter.Well, what is actually interesting, I think, is
that of the calls the IRS receives, only about 5 percent relate
to the tax law itself. Ninety-five percent relate to account
questions, refund questions, things like that. We have tried to
move as much of that online as we can and do it in a user-
friendly fashion.
For the taxpayer assistance centers, for example, there are
363 of those. They will help about 5 million taxpayers this
year. About half the people that call for an appointment at a
taxpayer assistance center get their question answered on the
phone. And so, a lot of the technical assistance for taxpayers,
we are trying to put out as much as we can in terms of guidance
on www.IRS.gov. And we are trying to connect forms around the
country and help tax return preparers get up to speed as well
as our own people.
I know, as a 40-year tax practitioner and being on the
other side of the table from the IRS, taxpayer service from the
IRS is critically important. I know how important it is and I
have lived it day in and day out. The choices in the budget
that have been submitted, it is basically a recognition. Not
that taxpayer assistance is not important; it is important. It
is recognition that at 2.5 million cyber attacks a day, we have
got to make sure that we have got our equipment and our
software up-to-date and we fend off those attacks.
Mr. Cartwright. OK. And not to put too fine a point on it,
the President's budget for fiscal year 2019 asks for 24.5
million in cuts. You do not want that, am I correct in that?
Mr. Kautter. I would say the IRS could put to good use any
money that this subcommittee decides to appropriate.
Mr. Cartwright. OK.
Mr. Kautter. We have plenty of use.
Mr. Cartwright. Another place that money is well-spent is
on audit staff, right?
Mr. Kautter. Yes, sir.
Mr. Cartwright. It is the backbone of our ability to catch
tax cheats in America, right?
Mr. Kautter. Yes, sir.
Mr. Cartwright. Now, there has been a steady decline in
annual audits and what we have is a new tax plan that really is
rife with opportunities for tax avoidance that can set the
stage for significant increases in tax evasion in this country.
So, my question is first, the IRS has stated in the past that
increased cuts lead to lower rates of enforcement which results
in about $5 billion in tax revenue going uncollected each year.
We continuously make these cuts to taxpayer services, weaken
tax enforcement, and create more opportunities for evasion
under these circumstances. Do you believe that we can afford to
sustain this system of voluntary compliance and keep reducing
audit staff?
Mr. Kautter. There is a point, Congressman, at which the
cuts in enforcement and the reduction in enforcement will have
a dramatic effect on revenue. I do not know, nor can anybody
tell us, exactly where that point is. But the audit rate
overall is down 37 percent over the last 10 years. It is down
in every single area that we audit but one, which is estate and
gift tax, which is sort of hard to explain. But in some areas
the audit rates are down 40, 50 percent and we have been able,
I think, to manage fairly effectively. I think the agency has
done a fairly good job but it is at a point where I think we
need to start focusing on additional resources.
Mr. Cartwright. All right. And finally, your testimony
speaks for itself, of course. But instead of the $24.5 million
in cuts as came out of The White House Budget, what is the
increase you are looking for?
Mr. Kautter. Well, we are looking for the additional
funding for tax reform implementation. And I think we have not,
at least to my knowledge, Congressman, decided on a specific
number that we would recommend. So at this point, I am
supporting the $11.1 billion. I think the Program Integrity Cap
of $362 million would help a lot. So I think that added to the
$11.1 base budget would help us quite a bit.
Mr. Cartwright. Thank you. Mr. Chairman, I yield back.
Mr. Graves. Thank you, Mr. Cartwright. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman. Mr. Commissioner,
thanks for being with the committee today. I appreciate your
testimony. I want to start by asking you about the minimum
standards ideas for qualified prepares who provide tax
services.
And I know in your testimony, you echoed the President's
budget request proposal to require that all tax preparers meet
minimum standards to prove they are qualified preparer
services, and I think you state that there are around 400,000
uncredentialed tax preparers in the country. And I guess I
would like to know what is the impact of that? How does that
impact our tax collection? How does it affect fraud? How could
creating a set of minimum standards improve the efficient
collection of taxes or reduction in fraudulent payments?
Mr. Kautter. Sure. Thank you, Congressman Yoder, for that
question. About 56 percent of all returns prepared are prepared
by paid tax return preparers. There are about 650,000 tax
return preparers in the country, 400,000 of which, as you point
out, are uncredentialed, which means they are not attorneys,
they are not CPAs, and they are not enrolled agents. Our
experience has been that individuals who are not credentialed
do not tend to file returns at the same level of accuracy that
credentialed preparers file.
We are also concerned that some of those uncredentialed
preparers engage in fraud and impose burdens on unsuspecting
taxpayers. It is also expensive from an administrative point of
view, right? The time that we have to spend chasing people who
have improper returns where the returns filed that do not match
the data that we have on hand. And so our experience has been
that credentialed preparers' returns tend to be of a higher
caliber and require less effort on the part of the IRS to
enforce the law.
Mr. Yoder. And so, one of the solutions that the IRS has
proposed over the years is to go to this tax preparer
qualification program.
Mr. Kautter. Yes, sir.
Mr. Yoder. Does the IRS currently have statutory authority
to pursue such a program? And if yes, are you working on
developing such as system? Do you need changes in law? And can
you describe for the committee what that tax preparer
qualification program would look like? How would the preparers'
qualifications be assessed?
Mr. Kautter. Sure. In 2011, we attempted to impose or issue
a tax return preparer program, and it would require certain
levels of education and competency. That was struck down in
2014 by the courts. In 2014, we embarked on a volunteer
education program for tax return preparers which has been very
modest in its success, so we believe we would need statutory
authority to issue or provide such a program for tax return
preparers. So, legislative authority, we believe, is necessary.
Mr. Yoder. OK. I want to turn our attention to our error
and fraud rates in general and what we are doing to combat
that. This is my 8th year on the committee, and with your
predecessors, I think almost every year we have talked about,
in particular, the Earned Income Tax error and fraud rate.
Your agency has stated publicly that between 21 and 26
percent of all Earned Income Tax credits or claims are paid out
in error, which is a staggering number for government programs,
which we know have lots of bureaucracy and waste in everything,
really, that we try to do at a governmental level. But 21 to 26
percent fraud or error is really its own league in how
problematic that is. And that accounts for tens of millions of
taxpayer dollars that were improperly paid out.
According to the Treasury Inspector General, as of March 1
this year, the IRS has already processed 9.4 million returns,
with $46.9 billion in EITC refunds. In the PATH Act passed by
Congress in 2015, the IRS is required to hold back EITC refunds
for returns that trigger additional review. Can you tell the
committee what percentage of total returns claiming the EITC
have been flagged for review, what indicators are most common
for triggering review, and have we made any progress in
reducing the fraud and error rate in this program?
Mr. Kautter. Congressman, I do not have the statistics for
this year yet. We have implemented a series of additional
filters and screens to try to identify in the EITC program. We
are focused on it. I think the PATH Act provisions requiring us
to hold those returns until February 15th has been very
helpful. I think we will find that that has substantially
reduced the amount of improper payments. We are in the midst of
filing season. We have got 6 days to go, and so I can get those
numbers for you as we have them.
Mr. Yoder. Well, I know you are quite busy right now, but I
would love to see those numbers.
Mr. Kautter. Yes, sir.
Mr. Yoder. Because we want to see if we are making
progress. So, if you would follow up with the committee and my
office, I would really appreciate it.
Mr. Kautter. It is a serious problem. Yes, sir.
Mr. Yoder. Thank you, Mr. Commissioner.
Mr. Kautter. Thank you.
Mr. Graves. Thank you, Mr. Yoder.
Mr. Quigley.
Mr. Quigley. Thank you, Mr. Chairman. Thank you again, Mr.
Kautter. The National Taxpayer Advocates' 2017 annual report to
Congress highlighted the implementation of the IRS' private
debt collection program as one of its most serious problems and
concerns. The report found that not only is the program failing
to generate revenue, but also the implementation is
inconsistent with the law and disproportionately focuses on
low-income and average working taxpayers.
Can you give us your take on that report and specific
actions the department will take in response to the report's
findings and recommended actions to improve the IRS's private
debt collections program's oversight and administration?
Mr. Kautter. Yes, sir. A little bit of background, and we
are in the process of responding to the Taxpayer Advocates'
report. Last April, we entered into contracts with four private
debt collection agencies. Since that time, we have turned over
about 305,000 accounts for collection. That is about a little
over $2 billion of outstanding debt that individuals owe. We
have spent about $45 million so far on getting the program up
and running, and we have collected about $35 million under the
program.
Now, the $45 million represents the total cost of getting
the program up and running. Part of that cost was we wanted to
be meticulous in making sure that taxpayer data was
appropriately secure and that the systems that the various debt
collections were using were secure. We have also conducted
onsite visits with each of those debt collection agencies and
have found that, for the most part, they are acting in
accordance with IRS regulations and standards. We will go back
again shortly and do another review of those debt collection
agencies.
I understand that this is a very sensitive issue. A large
number of those accounts that are turned over are accounts that
are below, say, 250 percent or 400 percent of the poverty
level, so it is a lot of low-income accounts that are turned
over. It turns out that when you look at the data for where the
outstanding debt is, a substantial amount of the outstanding
debt in that taxpayer group.
Mr. Quigley. When you turn these accounts over, is there
sort of a sensitivity or awareness of who you are targeting?
Mr. Kautter. It is----
Mr. Quigley. I mean, is there also a balance that you may
be going after people who just do not have the money?
Mr. Kautter. Every account that is turned over is an
account where a taxpayer, we believe, owes the Federal
Government money. If it turns out that the money cannot be
collected, we engage in our normal processes, and if we cannot
collect it, it cannot be collected. But we try to pursue what
is available under the law and what is expected of us in terms
of pursuing a balance that is owed the Federal Government.
Mr. Quigley. How do you compare the effectiveness of what
they are doing versus--if you can, apples to apples--with how
you normally collect, go after it from a debt collection point
of view?
Mr. Kautter. It is a very similar process, congressman. The
only accounts that are turned over are accounts that the IRS
pursued to the full extent of its resources and has concluded
we just do not have the capability, the resources to pursue the
account any further. And so, those are the accounts that tend
to be turned over to the private debt collection agencies.
Mr. Quigley. Does that mean they are harder to collect?
Mr. Kautter. They are harder to collect, yes, sir. We have
tried everything we can before we turn over an account. It is
not that we just select a group of accounts and turn those
over. We go through our full array of processes in dealing with
taxpayers before the account is turned over to a private debt
collection agency.
Mr. Quigley. If there is more time, I would go into more
debt--more concerns on these things. But, you know, we used to
have concerns about people posing as debt collectors. Has this
not muddied those waters, where we used to tell them that there
are not private people doing this, and now there are? So, it is
harder to advise people who are particularly vulnerable, like
senior citizens, of how to distinguish this.
Mr. Kautter. It is. We have tried to put in place processes
so that it is clear who is acting on behalf of the IRS and who
is not. Having said that, we have problems across the board
with individuals trying to impersonate the IRS and basically
defraud people out of their own money. And those techniques
continue to evolve.
This year, there is a technique where somebody will call
you be on the phone, usually the elderly, claim they are from
the IRS, claim that an excess refund went into their account,
and they owe the IRS money. And if they do not pay the IRS the
money almost immediately, that they will levy on the account.
And it is not an IRS person; we do not do business that way.
So, it is a constantly evolving challenge to keep track of the
ways individuals will try to defraud people out of money and
using the IRS as its imprimatur.
Mr. Graves. Thank you, Mr. Quigley. Mr. Young, from Iowa,
you are recognized.
Mr. Young. Thank you, Mr. Chairman. And I want to pick up
on the conversation you were just having with my colleague, Mr.
Quigley, regarding those scams that are out there. It is April;
people are doing their taxes. And many times, in their
interactions with the IRS they realize something is not quite
right, and maybe their identity has been stolen, or there has
been some real issue.
Aside from what you just highlighted with Mr. Quigley, what
are some of the other kind of IRS-type scams that are out there
that the American people need to know about? One. And, two, how
are you informing the American people about these, and how to
be watchful for them?
Mr. Kautter. Well, Congressman, whenever we become aware of
a scam, we immediately issue press releases; we try to get on
radio; we try to communicate with taxpayers in whatever way
that is available to us. Sometimes the fraudsters are so
convincing and so compelling that, no matter what we say,
people are intimidated into believing the IRS is after them,
and they are defrauded from their money. So, the scams are
important for us to focus on.
And as I said, it would be nice to be more proactive, but
we end up being reactive, because we do not know where the
crooks are going until they actually engage in that sort of
behavior and we hear about it. I think the one area where we
have made a lot of progress is with respect to taxpayer
identity theft. And we have worked closely with the tax return
preparer industry and with state revenue departments. And with
respect to tax-related identity theft, the reported cases have
gone down from about 697,000 two years ago to 242,000 at the
moment.
We have set up a separate unit within the Wage and
Investment Division of the IRS to help people who are the
victims of identity theft. We resolve those cases now; 75
percent of those cases get resolved with 3 months, maybe 3 to 4
months, which is about half of the time it used to take. So,
when we become aware of something that is systemic, we put in
places processes and procedures to deal with it. And I think we
have had pretty good success, but it is the continuously
evolving nature of these scams that is the biggest challenge.
Mr. Young. There are a lot of them out there, a lot of bad
people who want to bilk people of their money. I would advocate
that you highlight somewhere--maybe it is just on your website,
or have a social media account, Twitter account--you talk about
issuing a press release about the scams out there. I know you
probably go beyond that.
Mr. Kautter. Yes, sir.
Mr. Young. But highlight those right away on social media,
what to look out for, those kinds of things. And you say that
75 percent of those cases of ID theft get resolved. When you
find the perpetrator, they get sent over to the Department of
Justice for prosecution. Tell me about that.
Mr. Kautter. So, there are two aspects, the victim and the
perpetrator. And the victim is where we set up that separate
unit, and we get those cases resolved, as I said, 3 to 4
months--robably closer to 4, as I think about it. We also get
the Criminal Investigation division of the IRS involved in
these particular situations. They work very closely with the
Department of Justice on referrals with respect to prosecution.
We try to highlight those prosecutions as a deterrent for
others who would think that they may engage in this sort of
behavior. And my personal experience is the Criminal
Investigation division at the IRS is a very effective division.
They do a very good job. They are very thorough, they are very
quick, and I have had great confidence in the job they do.
Mr. Young. So what are the penalties? The people who are
taking others' identities; are they just getting a fine? I want
to see them in jail.
Mr. Kautter. It is. I mean, it depends on the nature of
what they do, but it could be tax fraud, which could be
criminal, could be a felony. And we try to prosecute to the
full extent available under the law.
Mr. Young. Do you find that the DOJ is cooperating with you
all in making sure that this is a priority?
Mr. Kautter. They are. We have a very strong working
relationship with the Department of Justice, and they are very
responsive to our needs.
Mr. Young. Thank you for your testimony and for being here
today.
Mr. Kautter. Thank you.
Mr. Graves. Thank you Mr. Young. I have a couple of
questions, and then if members have some additional questions
afterwards, we will continue.
I wanted to ask you a little bit about the Income
Verification Express Service. It was something that in a recent
funding bill, we had some report language directing the IRS to
write a report on potential automation of the IVES program,
which is known as data-sharing API. Today, I understand the
process still involves some paper and fax machines to do some
of this work. And this is really some important information
that lenders need to provide more capital to the small
businesses and such. So, can you give us a little update on how
a change like this can occur, and hopefully will occur, and
what the process is for that?
Mr. Kautter. Sure. Thank you, Mr. Chairman, for that
question. We have been working with the mortgage industry to
make sure that the IVES system works in a way that facilitates
their needs. We have gotten third-factor identification; so,
username, password, and then a text.
When we first implemented that, that created some problems
for the mortgage industry. We worked through that; we have set
up a working group that is meeting periodically and with the
managed services industry to make sure that they can get access
to the information they need, while balancing the risks to
taxpayer privacy as part of that system.
There is no right answer to this system. Different people
would do it different ways. The inspector general would do it
differently than the way we are currently conducting it. I will
tell you, I have had some discussions with representatives of
the mortgage industry, and they are, in fact, looking at
another alternative to accessing the IRS databases, and we are
fully supportive of helping them facilitate whatever needs to
be done to make sure that system works effectively. I think it
has been working pretty good. We have gotten favorable comments
back recently.
Mr. Graves. That is good. Well, is this a process that will
take some time still? It sounds as if you have begun the
process and are still working with the industry, but you are
open to modifications as time goes on.
Mr. Kautter. That is exactly right. As I said, the industry
has been looking into another database at another agency which
they think may serve their purposes, and if that works better
for them, we will do everything we can to facilitate that. We
want the system to work. It is that balance between giving
third parties access to taxpayer information and making sure
that we do not improperly disclose taxpayer information.
Mr. Graves. Right. Thank you. We spoke a little bit earlier
about the new tax reform law that has been implemented, and
this is going to be a huge challenge, I know, for the IRS in
its implementation. We have some additional resources to work
with, and the President signed an additional $320 million for
that implementation. Can you describe the progress that is
being made to update--and I know a lot of this is going to be
IT-related--a lot of your systems to accommodate this new law?
Because it is going to be tremendous.
And then, as we move forward, I know that as taxpayers--
looking to the next 6 days as the filing season comes to a
close--it will be the last time that the old tax law is being
used to comply with and going into the new one. And so, I know
you are taking a lot of steps. You have additional resources.
But my hope, and maybe you can reassure this for me, that next
year will be easier from a filing perspective, but also an
imitation from the IRS's interface with the customer.
Mr. Kautter. Sure. So, first of all, for the third time,
thank you again for the $320 million. It is a great benefit,
and especially the flexibility. The way we plan to spend that
money: 73 percent of the funds are earmarked; we believe will
be used for technology. So, updating those 140 integrated tech
systems that operate the taxpayer filing programs.
About 19 percent of the funds will go for taxpayer
education and outreach. We expect probably an additional 4
million calls as a result of the tax bill, so a significant
part of the funding will go for outreach, education, and
seminars for tax return preparers.
Four percent of the funds will go for forms, instructions,
and publications, and another 4 percent of the funds will go
for guidance, regulations, frequently asked questions, and
other press releases and other guidance. We expect we are going
to have to update about 450 forms--it could be less than that--
put forms, publications, and instructions.
Where things stand; we expect by the end of this month to
have most, if not all, of the forms for next year drafted. We
expect to have the instructions for those forms pretty much
done by the end of May. The plan is to release over the summer
those forms and instructions for public comment and review. We
will be working on the publications over the summer as well and
may release some of those, but we do not often release those
for comment.
Starting at the end of April, once we have the forms
designed, the core forms, the technology piece will start. So,
we will start in May to revise our programs to incorporate the
revised forms and instructions. Guidance we are working on
continuously. There are 79 grants at regulatory authority in
the bill, not to mention other broader grants that we have.
We have issued a number of notices. We are working on
regulations constantly. We hope to have a steady stream of
guidance in the form of frequently asked questions, notices,
proposed regulations, and final regulations coming out this
spring--we have already issued some--but the spring, summer,
and fall. It will take us a couple of years at least to get
guidance out on the entire bill.
I think the two most challenging parts of the bill, from an
administrative point of view, to implement will be the new
international provisions and the 20 percent deduction for pass-
through entities. In both those situations, we are basically
building new tax regimes that did not exist before, so we have
gone from a worldwide system of taxing our multinationals to a
pretty much territorial system. And that is a completely new
system for the United States.
It comes with base erosion provisions, which are
controversial. Some of our international trading partners have
some concerns with some of those provisions. So, that is an
enormous part of the challenge. The pass-through provision I
think is going to be challenging to draft. I think we can do
it, but I think we will spend inordinate amounts of time on
those two parts of the law, implementing that.
Mr. Graves. We have great confidence in you. That is an
ambitious schedule, and thanks for laying that out. That helps
us. And I know 6 months ago or so, when you stepped into your
role here, you probably did not anticipate the challenges that
lie ahead. Thank you for the progress and laying out the plan
there. Mr. Quigley?
Mr. Quigley. Thanks, Mr. Chairman. I just want to follow up
on that. The original estimate from the IRS was about $495
million for the cost of implementation. Was that over a period
of years, or you just settled for $320 million because that is
what you could get?
Mr. Kautter. That is a great question. Thank you. So, the
$495 million was an estimate that was sort of a back-of-the-
envelope estimate that we came up with, looking at
implementation of the Tax Reform Act in 1986.
Now, in 1986 there was no internet; there were no PCs; and
a large part of the cost of implementing the 1986 Act was
printing forms. Well, that is a much smaller cost today. So,
what we did was, after doing that back-of-the-envelope
calculation, we went back and did a grassroots bill of all the
forms we thought we had to change, all the instructions, all
the publications, and try to refine the numbers best we could.
And what we found was the cost of printing and distributing
forms had gone down substantially; the internet and the ability
to communicate technologically dramatically helped our ability
to reduce the cost in implementing this bill.
And so, $397 million is a number that has been developed
from the operating divisions up, and it is fairly detailed. Is
it perfect? I doubt it. But we did the best we could, and I
think we will be in pretty good shape with that amount of
money.
Mr. Quigley. But it runs into next year's request----
Mr. Kautter. Oh, yes, yes.
Mr. Quigley. Which is a downward departure. I am just
curious: how do those two flush together to allow you to move
forward?
Let's say this is enough, and you are absolutely right, to
do what you need to do and probably can do in 2018. But 5
percent of the calls that you say that come about the tax law
now; the decimal point may even move over next year. So, how
does the fact that you may have enough this year run into next
year's request?
Mr. Kautter. Sure. So, we put the budget together before we
knew what the number was going to be for tax reform
implementation. And so, that is why, for this year and next
year, we requested a separate amount of $397 million for tax
reform implementation, in addition to the $11.1 billion base
request. So, we have got $320 million that we can use this year
and next year; our original request was for the $397 million;
our belief is we still need that additional $77 million. The
flexibility to use that money over 2 years is really very
helpful.
Mr. Quigley. And have you talked to the administration
about what you just said in terms of what your needs are going
to be?
Mr. Kautter. Yes, sir.
Mr. Quigley. And their reaction?
Mr. Kautter. Well, the $397 million number that we have
proposed was developed with full discussion with the Secretary
of the Treasury. In fact, I meet with the Secretary every day
on tax reform implementation. And so, he is fully supportive of
the $397 million number.
Mr. Quigley. So, this next time year, it is going to be a
happy-happy, joy-joy discussion, things will have folded under?
You are going to have enough money, right?
Mr. Kautter. If we get 397, I think we can do the job. I
think we can do it.
Mr. Quigley. Thanks.
Mr. Kautter. Yes, sir.
Mr. Graves. And I can say that I have had multiple
conversations with the Secretary of the Treasury about that
very same number, and he has full confidence as well. And you
have an additional role; I know that you work very closely as
Assistant Secretary to the Treasury of Tax Policy.
Mr. Kautter. Yes, sir.
Mr. Graves. Correct? Mr. Amodei has joined us and has a
question for you.
Mr. Amodei. Thank you, Mr. Chairman. Mr. Commissioner,
welcome. And you may not know this, but if you do not, that is
fine. I can take the answer offline. You know, we hear a lot of
talk these days about agencies responding to, or not responding
to, requests for various committees, at least in the House,
regarding data information for stuff they are looking at.
As we sit here, are you aware of any outstanding data
requests from any committees in the House that have not been
fulfilled? And if you are not, that is fine. But I would just
like to ask you on the record to kind of check on that and give
us an answer to say, ``Hey, as far as''--I know some of that
stuff started quite a while ago in the previous administration,
but as we are finding out, there is a lot of stuff from the
previous administration that is still hanging fire. So, I am
just curious as to, is there anything outstanding where
information is forthcoming?
Mr. Kautter. I will follow up on that.
Mr. Amodei. I appreciate that. I yield back, Mr. Chairman.
Mr. Kautter. Thanks. Mr. Amodei, I will say, at one point
in my career, I was a Senate staff person for a member of the
Senate Finance Committee, and sensitivity to responding to
Members of Congress and their requests is paramount, in my
mind.
Mr. Amodei. And I appreciate that. And it is not the reason
I get up in the morning, but when you hear that it is an
extended amount of time, whatever you like, in your business,
and mine, you do not always like the news, but you think you
have got a right to know what the information is. So, I
appreciate it.
Mr. Kautter. It is a fair point.
Mr. Amodei. Thank you.
Mr. Kautter. Thank you.
Mr. Graves. Easiest question of the day right there. I have
an additional quick question, and then, Mr. Young, if you have
a question after that, you are recognized. I guess it was
earlier this year, and just last month, the Ways and Means
Committee, one of our subcommittees, released a draft proposal
called the Taxpayer First Act, and I just want to get your
thoughts on that.
Mr. Kautter. Sure.
Mr. Graves. And if you can share, how does that fit into
your plan and the IRS's plan moving forward? And any feedback
as they work through that.
Mr. Kautter. Sure. We have had discussions with the Ways
and Means Committee staff as they put that bill together, and
for the most part, we are supportive of the provisions in that
bill. I mean, we would have to go through them one by one, but
for the most part, we think it is pretty constructive.
I do think there is one provision that seems small but is
very important to me as someone who has come into the
government from private practice, and it is the ability to
allow the IRS to change its structure after consulting with
Congress. The current structure of the Internal Revenue Service
was put in place in 1998, so it is 20 years.
There are not many organizations in the country who have
had the same operating structure for the last 20 years, and I
think there are things that can be done to facilitate taxpayer
service. So, organizational management, the basic thing is that
structure follows strategy.
If the strategy is taxpayer assistance, and we are not
happy with the level of taxpayer assistance at the moment, then
I think we have to figure out what needs to be done to improve
that and implement a structure that supports that strategy. And
other than that, the provisions are fairly straightforward,
very functional, and I think for the most part pretty sound.
Mr. Graves. Great, thank you. And I encourage you and your
staff, the team you are working with--that is encouraging to
know you have that relationship to give them your thoughts
there as well. Mr. Young, questions?
Mr. Young. Thank you. Just one question. My understanding
is when there is a dispute between the IRS and the taxpayer,
the IRS will reach out the taxpayer and say, ``There is an
issue here,'' or sometimes the taxpayer will reach out to the
IRS and think there may be an issue there with their return or
something to do with the IRS. And there is an appeals process,
and they go through that.
For the taxpayer to get the information they need to have
everything necessary for the appeal to present their case, they
have got to go through a FOIA request to the IRS to get the
information the IRS has that they may be using as an
information or a tool against them. Do you think that is
ridiculous? Because I do, and a lot of people do.
Mr. Kautter. One of the areas that the Ways and Means
Committee is working on as part of this restructuring bill is
exactly that.
Mr. Young. That is the FAST Act?
Mr. Kautter. Yes, how the appeals process works. And I do
think there are changes that could be made there that would
facilitate taxpayer knowledge and assistance and simplify the
process, frankly, for both the IRS and the taxpayer.
Mr. Young. So, we have your full endorsement of the
legislation?
Mr. Kautter. I did not know that I said that exactly.
Mr. Young. You did not, but it is good to hear that, just
internally, you recognize there are ways to improve this for
the experience for the taxpayer; transparency, accountability,
and cooperation. It is needed. Thank you for recognizing that.
Mr. Kautter. I agree, and that is why I think the IRS
restructuring act can be a catalyst for generating change with
the agency. So, I think it is a good path to get at, frankly.
Mr. Young. Thank you for recognizing that there are
commonsense approaches that we can all agree on. Thank you.
Mr. Graves. Mr. Kautter, thank you for your thoughtful
responses to a very thoughtful committee. They have a lot of
great questions and insights here and hope you see that we look
forward to working with you. And we want to make sure that you
are successful, and your agency is successful. Because that
means our constituents' needs are being met, and that they are
pleased with their interactions and interface with the IRS,
which is not always the most pleasant interaction to ever have.
So, thank you for your willingness to step in as an acting
commissioner this time in your career. And I know you have
other responsibilities. It is a busy time of year for you, as
it is for us. Thanks for your time today in joining us.
Mr. Kautter. Thank you, Mr. Chairman. Thank you, Mr.
Quigley.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Tuesday, April 17, 2018.
GENERAL SERVICES ADMINISTRATION
WITNESS
EMILY W. MURPHY, ADMINISTRATOR
Mr. Graves. Good morning, everyone. We will call this
hearing to order. I would like to welcome the General Services
Administrator, Emily Murphy, to the hearing today. Glad to have
you. I know this is your first hearing before our subcommittee,
but you have been a part of other hearings and you have a great
distinguished history of being a part of this process. So you
are no stranger, and we know that, and we look forward to
spending some time with you this morning.
Last year, we were on a very abbreviated timeline and we
expect to do the same this year. We are going to accelerate the
timeline, and hope to have things done this year in committee
and the House by early summer.
You are a part of that process here. I am going to take a
few minutes to share with you some of my thoughts this morning.
Mr. Quigley will do the same. We will have some questions for
you but look forward to hearing your testimony in just a few
minutes.
As I reviewed your request, I was pleased to see that you
included funds to help address the land ports of entry backlog
that we have all experienced, which is a top priority for many
of our members, including Martha McSally in Arizona. We heard
from her several times last year.
Additionally, this request builds off the IT investments
that we all made as a subcommittee and full committee in last
month's government funding bill through the Technology
Modernization Fund. This is something we heard about from many
members, including Will Hurd from Texas and the majority
leader, and members on the other side of the aisle as well.
Cybersecurity is one of my top priorities. I know it is one
of Mr. Quigley's top priorities as well. I am interested to
hear a little bit more from you on how GSA will use these funds
to secure and improve the efficiency of the IT platforms across
all the different agencies and different infrastructures we
have.
Finally, I want to highlight the committee's commitment to
shrinking the Federal footprint, which you oversee, and
divesting the government of unnecessary property that is no
longer being used. Last month's government funding bill
established the Public Buildings Reform Board which will help
dispose of underutilized and unused Federal properties. And we
would like to hear a little bit more about that today, the
implementation of it and how those funds will be used.
With that, I would like to turn it over to Mr. Quigley, the
ranking member from Illinois, for any comments he may have this
morning.
Mr. Quigley. Thank you, Mr. Chairman. And thank you so much
for being here. We appreciate your work and your service. This
year, the GSA budget includes significant new spending for
construction, and repairs, and alterations. I am pleased to see
the proposal for much needed investment in maintenance and
improvement projects in light of a massive 1.4 billion backlog
of projects currently waiting for action.
I agree with the chairman. I am also interested in learning
more about the steps you are taking to reduce unused or
unutilized real property, in particular, how the $31 million
request to assist agencies with improving their real property
inventory will be used to modernize the Federal real property
profile, which has remained unreliable and unusable for far too
long.
At the same time--excuse me--I am extremely disappointed
and confused as to why the GSA scrapped a decades long plan to
build a new FBI headquarters in the DC metro area. After
widespread interest by Members of Congress and tens of millions
already spent to see this project through, GSA has decided to
instead build a new headquarters on its current site. The
economic and national security justifications provided by GSA
remain insufficient, and I am encouraged that the GSA's
inspector general is investigating this sudden reversal.
But until the findings are made public, too many questions
remain unanswered. I also remain troubled by the leasing
arrangement between GSA and the Trump International Hotel
located at the Old Post Office Pavilion. This time last year, I
questioned the then acting administration on possible conflicts
of interest.
At that time, we were provided with little clarity into how
the GSA could have determined that President Trump is not in
violation of the Trump Hotel lease, despite the fact that the
President will personally profit from the hotel. Because the
President overseas both you and the GSA, he effectively became
landlord and tenant when he was sworn in to office. This, of
course, is prohibited, since the lease agreement clearly states
that no elected official of the government of the United States
shall be admitted to any share or part of this lease or to any
benefit that may arise therefrom.
I remain concerned with the lack of transparency in the
GSA's review of the lease terms, as well as your ability to
objectively enforce the lease. I look forward to further
discussing this very important issue with you today. And thank
you, again, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. Ms. Murphy, it is a
delight to have you here this morning to be with this
subcommittee. As you can see, there are a lot of subcommittees
meeting this morning from our Appropriations Committee, as we
are on this accelerated time schedule to get our work done. So,
you may see members come and go throughout the morning.
At this moment, if you are ready to give some opening
remarks, know that your full statement is already submitted for
the record. We look forward to hearing from you this morning
and offering some questions a little bit later.
Ms. Murphy. Good morning, Mr. Chairman, Ranking Member
Quigley, and members of the committee. As the new Administrator
of GSA, I am grateful for your invitation to testify on the
President's fiscal year 2019 budget request for the agency.
GSA's mission is to deliver value and savings in real estate,
acquisition, technology, and other mission support services
across government.
First, I would like to thank the committee for the funding
provided in fiscal year 2018. The monies appropriated by this
committee will allow GSA to undertake important projects that
will improve the security of our Nation's land ports,
facilitate critical repairs to our public buildings, enable
agencies to modernize their antiquated IT systems, and enhance
the effectiveness and efficiency of government through the
implementation of shared services and smarter acquisition
strategies.
For fiscal year 2019, I would like to first highlight our
support for the Nation's Federal infrastructure. Our public
buildings serve a critical role in helping agencies conduct
their missions. They house over 100 agencies across 422
bureaus, encompassing 371 million rentable square feet.
GSA has a duty to maintain public buildings and ensure they
meet modern standards. Unfortunately, our repair backlog is
over $1.4 billion. With the support of this committee, we have
an opportunity to change this. For fiscal year 2019, the
President's budget request is $10.1 billion for the Federal
Building Fund. Of that amount, GSA is requesting a total of
$2.2 billion in construction acquisition and repairs and
alterations to make much needed investments in GSA's owned
inventory.
Numerous studies show that housing Federal agencies in
owned space is better for the American people. For example, the
fiscal year 2019 request includes $768 million to purchase the
lease facility that houses the Department of Transportation
headquarters. This will meet the department's long-term housing
needs and save lease costs of $49 million per year.
GSA is also requesting $70 million for the consolidation
program to better utilize Federal space. Since its inception,
GSA has funded 78 consolidation projects which, when complete,
will result in an annual lease cost avoidance of $132 million
and a space reduction of almost 1.7 million square feet. The
fiscal year 2019 request allows provides for initiatives to
make the government's real estate footprint more efficient,
including funding for implementation of the Federal Assets Sale
and Transfer Act and GSA's Real Property Utilization and
Disposal Program.
In conjunction with the Modernizing Government Technology
Act, GSA is requesting $210 million for the Technology
Modernization Fund. The TMF is an important first step in
changing the way the government manages its IT portfolio. It
will enhance our ability to protect sensitive data, reduce
costs, and deliver services to the public. In addition, GSA
proposes a $6 million investment to support a digital identify
management pilot. This will improve the security of citizens'
digital interactions with government agencies.
To promote an efficient and effective Federal Government,
the fiscal year 2019 request proposes $50 million to improve
the Federal Government's ability to recruit and retain top
talent and reskill the workforce to meet 21st century needs by
providing one-time funding for targeted workforce initiatives
across the government. GSA will continue critical government-
wide policy activities, including supporting coordinated
regulatory review processes with the agencies in the public,
managing the government-wide guidance, such as the FAR and the
Federal Travel Regulations, and delivering important
information to decisionmakers, including through the Federal
Real Property Profile.
The request also provides $2 million for the activities of
the Office of Shared Solutions and Performance Improvement.
This will support management in oversight of high-quality,
high-valued shared services that improve performance and
efficiency throughout government. As a lead for the Shared
Services Initiative and the President's Management Agenda, I am
also pushing all of GSA to identify ways we can better support
shared services across government.
The funding that this committee invests in GSA is
essential. It supports the programs and activities that allow
agencies to focus and deliver on their core missions. I look
forward to working in partnership with this committee, thank
you for the opportunity to appear before you today, and I am
happy to answer any questions you may have.
Mr. Graves. Thank you very much. This morning, I want to
pass on any questions of my own in the beginning and go to Mr.
Quigley, if he has any questions first. And if not, I would go
to Mr. Bishop. Mr. Bishop, you are recognized, and then Mr.
Moolenaar would be next, if he is ready for any questions.
Mr. Bishop. Thank you very kindly, Mr. Chairman and Mr.
Ranking Member. And welcome to you, Ms. Murphy. Let me get
right to it. The Federal Assets Sale and Transfer Act of 2016
requires GSA to establish a publicly accessible database with
specific information about each property. And the GSA has
published a data set with much of the required information.
However, the data on utilization rates is incomplete, as no
data is yet available on annual operating costs.
I would like for you to tell me whether or not GSA has a
timeline for when the data set will include all of the
information that is required by the Federal Assets Sale and
Transfer Act. And secondly, the real property management has
been on the Government Accountability Office's high-risk list
since 2003. The ongoing issues identified by GSA is the fact
that GSA only lists warehouses as unused if they are in the
process of being disposed.
As a result, GSA listed as used some warehouses that have
been vacant for many years. GSA indicated that it was
developing a guide for strategic warehouse planning that might
address this concern. Could you tell us whether GSA has
completed this plan; if not, is there a timeline for the
completion?
And the third question is the omnibus for 2018 provided
$100 million for the Technology Modernization Fund. This is
less than the $228 million that the administration requested.
So, I would like for you to address what your priorities will
be to be funded with the 2018 appropriation.
Ms. Murphy. Thank you, sir. I appreciate the questions. If
I could start with your question on the Federal Real Property
Profile? As required by law, GSA published the first version of
the data for fiscal year 2016 in December of this year. We
published the updated data in March of this year. So, we have
the 2017 data as now available.
We are working very hard with our agency partners to
improve the quality of the data. There is a working group right
now that is working to first improve the search capabilities
and then we are also looking at providing geolocation data, as
well as trying to improve the accessibility of the utilization
rates and the utilization data, because we understand this is
an important tool for policymakers such as yourself.
Your second question, I believe, dealt with the issue of
the high-risk list. And the high-risk list is one of my top
priorities. I have been meeting with the comptroller general.
He has been kind enough to agree to meet with me every other
month, so we can really dig down into these areas. I also hired
someone who came from an I.G.'s office who is coordinating
GSA's response to both the management challenges and the high-
risk list to make sure that we are not seeing those just as a
paper exercise, but that we are looking at those as systemic
issues and really looking at them as ways we can improve the
direction of the agency and live up to our mission of
delivering value.
I have to confess that I am not aware of the warehouse
issue. I would like to take the opportunity to go back to my
staff and find out an answer for you so that I make sure that I
give you the correct information. And your third question, I
believe, dealt with the Technology Modernization Fund.
And so, in terms of the Technology Modernization Fund,
first GSA is very grateful for the $100 million that this
committee arranged to have appropriated as part of the fiscal
year 18 appropriations bill. And GSA serves as the custodian of
those funds, and we are a member of the board that makes the
decisions. The board is meeting once a week now and is
reviewing all of the plans that agencies have submitted for
ways that they can address technology modernization
requirements.
Specifically, they are looking at technology that can be
leveraged across agencies, so it is not just a one-time fix. It
is something that we get long-term return out of. That it is
not a new issue. It has got to be an identifiable issue that we
can really address. And we have been working very hard with
them to establish that criteria.
Just yesterday, I announced that we have appointed an
executive director who is going to help coordinate the
technical reviews of those proposals, as well as the fiscal and
business reviews of the proposals, to make sure that the
dollars spent come back with a return on investment, that they
are able to repay the fund, and continue that cycle of
reinvesting. That is part of the reason GSA is requesting
another $220 million this year, as part of our fiscal year 2019
request. This is the last year that we are authorized to
request funds for the fund.
But given that the Federal Government spends about 90
billion a year on IT and IT services, and we have a
demonstrated need to do a better job in managing and addressing
those services, I will give you an example. In GSA, I have 173
systems that support the Federal Acquisition Service. That is
down from over 7,000 the last time I served at GSA.
So, GSA has made an important commitment to reducing those
systems. However, many of them still use COBOL as the
underlying programming language. In doing so, that creates the
number of systems drive processes that create barriers to entry
for small businesses, which is something I take very seriously.
But they also create barriers to access for customer agencies
that want to access our contract vehicles. And more
importantly, they also drive business processes that are
outdated and do not best reflect our ability to deliver value
to taxpayers. So, trying to make sure that we invest in those
areas and really do a better job at understanding that our
ultimate customer, the taxpayer, is served is one of my top
priorities.
Mr. Bishop. With the Technology Modernization Fund, are you
prioritizing, also, security measures for your IT?
Ms. Murphy. GSA is indeed prioritizing security measures.
We spend about 7 percent of our IT funds on security right now,
including support for the public key infrastructure across
agencies. GSA is having action items under half of the
recommendations to the President in the report on technology
modernization. We are supporting DHS in its work on helping
smaller agencies address their cybersecurity initiatives. And
we are also, through our data center consolidation initiatives,
not only saving taxpayer dollars but helping agencies improve
their cybersecurity and their security posture.
Mr. Bishop. Thank you. Thank you very much, Ms. Murphy.
Ms. Murphy. Thank you, sir.
Mr. Graves. Thank you.
Mr. Moolenaar.
Mr. Moolenaar. Thank you, Mr. Chairman. Thank you for being
here, and your testimony. In the last 3 years, this committee
has funded the construction of 13 Federal courthouses,
addressing what was a longstanding backlog in courthouse
construction. However, in the same time, funding was provided
for only three land ports of entry. And I wondered if you could
speak to the need for construction funding for our Nation's
land ports of entry, and is this a priority, as well as how
closely does GSA work with Customs and Border Patrol on
identifying project and funding needs for land ports of entry.
Ms. Murphy. Thank you, Mr. Moolenaar. GSA works very
closely with CBP. We each year sit down with them; we have a
list of their ongoing requirements, but each year we sit down
and try to reprioritize those to make sure that we are
addressing their most pressing requirements as we are
formulating our budget requests. This year, I know that we have
got a request in for funding for the Calexico land port of
entry for phase 2. I know that last year we were grateful to
the committee because it did provide funding for two of the
land ports of entry.
That said, I know that we have got a backlog on land ports
of entry. I believe in your district we have got the Sault
Sainte Marie port of entry, and we are closely monitoring the
situation there and trying to work with CBP, and hopefully with
this committee, on ways to address that.
Mr. Moolenaar. Just on that note, I did last year visit
Customs and Border Protection's station in Sault Sainte Marie,
and at that point, it was No. 21 of 71 on DHS's priority list.
And it is a leased building, an old grocery store built in the
1950s, with many safety and security insufficiencies. For
example, asbestos is prevalent throughout the building, there
is no fire suppression system, and the building did not even
have smoke detectors until last year. And to my knowledge, the
lease on this building, which is set to expire in October of
2018, has yet to be evaluated.
And I am just wondering, since the building is leased by
GSA, does GSA or DHS have the responsibility to evaluate the
safety and security of the building? I just wonder, how does
GSA ensure that the managed facilities are safe and secure
working environments?
Ms. Murphy. Thank you, sir. It is actually a shared
responsibility between GSA and the Department of Homeland
Security through the Federal Protective Service. It is actually
the issue I believe that your colleague Mr. Bishop was asking
about the GAO high-risk list. This is an area where GAO has
specifically drawn GSA/DHS's attention to the fact that we need
to do a better job of coordinating the security assessments
that the Federal Protective Service, within the Department of
Homeland Security, does with the work the GSA does on physical
security, and that is one of my priorities.
I have met with the Department of Homeland Security about
ways we can address the issue. I hope to be making progress on
this, but I understand that, you know, there are substantial
issues there that we need to address as part of the lease
renewal. Actually, there is also a wall in Sault Sainte Marie
that is in a phase of starting to collapse and that we need to
make sure that is addressed so that it continues to serve its
important purpose of actually facilitating the border
crossings.
Mr. Moolenaar. So, can I use a baseball analogy? Do you
like baseball?
Ms. Murphy. I am a Cardinals fan.
Mr. Moolenaar. You are? OK, good. Well, you will get this.
So, you know, in baseball, when there is a pop-up fly ball, you
know, you have got two fielders running to it. One of them has
to make the call and, you know, not kind of go back and forth.
And I guess I am wondering, in this case, who ultimately makes
the call?
Ms. Murphy. Ultimately, GSA will either award or recompete
the lease, so that part of it will be our call. The program
requirements will always be--and whether the building meets
those program requirements--CBP's call. And I know that that
sounds like a terribly bureaucratic answer, or perhaps maybe a
lawyer answer, where I am just pointing back and forth, but
statutorily, that is how the responsibility has been set up.
And so, it does require that important level of coordination
between the two agencies. I actually met with the former Deputy
Secretary of DHS recently, and this was one of the issues that
we discussed; how we can do a better job here.
Mr. Moolenaar. OK. And I appreciate that you brought up
Sault Sainte Marie, and I would say it is on your radar screen.
Ms. Murphy. It is.
Mr. Moolenaar. So, thank you for that. With that, I yield
back, Mr. Chairman.
Mr. Graves. Thank you, Mr. Moolenaar.
Mr. Quigley.
Mr. Quigley. Thanks, Mr. Chairman. Thank you so much for
being here and, again, for your service. To your knowledge,
when did the administration make the decision not to build the
suburban FBI facility and instead rebuild where it is?
Ms. Murphy. Thank you, sir. It is my understanding--and,
again, I was confirmed in December of last year, so I want to
be clear that I was not involved with many parts of this
decision, but I am going to try and answer your question as
fully and completely as possible--that last July the GSA and
the FBI, working with OMB, reevaluated the lease exchange that
had previously been proposed for building a new FBI
headquarters and prioritizing the need that there was a new FBI
headquarters that is absolutely required.
EPW, the Environmental Public Works Committee--forgive me--
asked GSA and the FBI to go back and provide them with a
report, a plan, on the alternatives, given that it had also
been 14 years since the original program requirements had been
developed.
Mr. Quigley. Before you go there, who briefed you on this
to catch you up?
Ms. Murphy. The Commissioner of the Public Building Service
and some of the individuals within the National Capital Region
provided me with the details of the history of the program, and
then I also spoke with the director of the FBI.
Mr. Quigley. Was anyone else at the White House involved
with briefing you? Or, to your knowledge, did the President or
any of the other officials at the White House consult with any
of these agencies in the decision-making process?
Ms. Murphy. Sir, the FBI came to me and said that their
requirements had changed. They no longer required a campus for
11,000 individuals. They were looking at a campus, and they
only had a requirement for about 8,300 individuals. And based
on that, they wanted to put the J. Edgar Hoover site back into
play. They actually requested that GSA consider renovating the
building.
In my conversations with GSA, and then with the FBI, we
pushed back and did not believe that that was the right answer.
We thought that the renovation of the building was a point to
address the setback issues, and, frankly, given that it uses
something called post-tension cabling to support it, that any
hardening we tried to do with the building would not be
successful. And it would be a long-term project that put the
FBI's mission at risk.
So, GSA then suggested that instead, if the requirement was
to stay in proximity to the Department of Justice, and that
location worked, and it had the infrastructure in place, that
GSA proposed instead taking the opportunity to demolish the
current FBI headquarters and rebuild on that site something
that had the setbacks, that could have hardening, that could
meet the requirements of the FBI for that new reduced
headcount.
Mr. Quigley. But, again, to your knowledge, was the
President or anyone at the White House involved in those
discussions, either with your predecessors or people you are
working with now or yourself?
Ms. Murphy. Sir, to my knowledge, the direction that we got
came from the FBI. It was the FBI that directed GSA as to what
its requirements would be. Given that it is a substantial
budget request, we coordinated that request with OMB to provide
for funding, but the requirements were generated by the FBI.
Mr. Quigley. So, correct me if I am wrong. I am looking at
a spreadsheet that talks about the differences. Full
consolidation; new campus--and, again, it shows 11,000 workers,
but I understand what you are talking about--versus the rebuild
of 8,300 workers. The rebuild I am showing at $5.180 billion,
and the new campus at, roughly, a little over $4 billion. Are
those numbers accurate, to your knowledge?
Ms. Murphy. Those are not the numbers that I am familiar
with, and so I am not sure of the spreadsheet you are using. I
would be happy to have someone come in and walk you through all
the numbers, though.
Mr. Quigley. So, what is your understanding of the numbers?
Ms. Murphy. Between GSA and the FBI, we currently have
about $700 million that has been appropriated for new
headquarters. We have requested another $2.2 billion. It was
first requested as part of the 2018 ad-back through your sister
subcommittee with CJS last year. This year, we have requested
instead $200 million to be used as a payment towards a civilian
building fund that is being proposed as part of the new basis
for the infrastructure environment; over $2.2 billion.
Mr. Quigley. I am sorry, I do not mean to interrupt, but I
am just short on time. I want to take into consideration what
we are hearing is a $479 million cost for swing space, right?
Moving everybody out and back in, which has other issues. And
if we need to go back to the next round, Mr. Chairman, that is
fine to do this. Does that take into consideration with your
figures? And also, what is your complete understanding of the
total cost, new construction versus rebuild?
Ms. Murphy. I do not have the specific numbers in front of
me. This is too important for me to get it wrong, so I want to
make sure I get it right. And I have asked the question
directly that the numbers that we proposed as part of the 2018
ad-back and then the $2.2 billion, including the $700 million
that has already been appropriated, do indeed include the swing
space for the FBI employees.
Mr. Quigley. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. I am going to ask a
couple questions and then go to Mr. Cartwright. Calexico--is
that the administration's top priority in terms of land ports
of entry right now?
Ms. Murphy. That is our top priority for fiscal 2019, sir.
Mr. Graves. OK. On to construction projects. The
administration transmitted $3 billion in new construction and
major repairs requests in the fiscal 2018 addendum to the
budget request. The funding bill we enacted provided for
several courthouses and one land port of entry. So, looking
ahead, in 2019, of all the projects that were not included, how
do you prioritize those projects in the 2018 addendum and 2019
request?
Ms. Murphy. Thank you, sir. As you know, the 2018 addendum
was formulated at the same time we were formulating the 2019
request, so it was an interesting balance for the two. But each
year, we sit down with our partner agencies. We make sure we
understand their priorities. We have an ongoing list of needs,
but we each year revisit those needs to make sure that, you
know, do any of them need to be escalated?
Can any of them step back in exchange for another? What are
the current priorities of our customer agencies? And then we
propose those as part of the President's budget. I do want to
say thank you for the three courthouses last year and the two
land ports of entry you provided us. We are very grateful, and
we have already started getting to work on those.
Mr. Graves. Thank you. Back to the FBI headquarters, when
will there be an updated prospectus and justification for the
requested funding level?
Ms. Murphy. Sir, I met with the Commissioner of the Public
Building Service yesterday about the steps that are being taken
to prepare that. We are working on it. We are working with the
FBI and OMB on trying to make sure that we are moving forward
with that.
Mr. Graves. So, no specific timeline?
Ms. Murphy. I made a commitment, at one point in time, that
we were going to meet the deadline for the report that was
promised by the Deputy Commissioner of the Public Building
Service in August, and we missed that. And I do not ever want
to miss another deadline. I take it very seriously. I spent 9
years as a Hill staffer. When people promise you a deadline,
you had better be able to back it up. So, I want to make sure
that we are working on it, and I am happy to give you progress
reports. I do not want to commit to a specific deadline if I am
not positive that I can make it.
Mr. Graves. I understand. Knowing the accelerated timeline
we are on as a subcommittee and full committee, and the
questions you have from the ranking member and myself and, I
imagine, some other members as we look ahead, it is probably
good to have that report sooner than later.
Ms. Murphy. Yes, sir.
Mr. Graves. And then, lastly, before going to Mr.
Cartwright, in the 2018 funding bill that we just enacted, we
had $5 million in funding for the Asset Proceeds and Space
Management Fund. You addressed that earlier in your opening
comments, because this subcommittee is about reducing the
footprint of the Federal Government as much as we can and doing
away with unused properties. Can you just give us a quick
little update on that?
How will you use funding that we provided you in 2018? And
as far as standing up the board, when do you see it up and
running? When do you expect the fund will begin implementing
the board's recommendations? When will we begin seeing that
reduction? There is strong interest, particularly from Mr.
Denham from California, in this effort here.
Ms. Murphy. First of all, thank you for the funding as part
of 2018. We are holding that money. We have worked with the
Office of Management and Budget to make sure we have all agreed
upon the criteria that the board will be using, that we have
got the data in place for them to be assessing.
We have gone out with two data calls to agencies to make
sure that they have already gone and identified properties and
that we are ready as soon as--obviously, the chairman of the
board needs to be confirmed by the Senate, and the other six
Members are presidentially appointed in consultation with the
Speaker of the House and the minority leader, sorry, the Senate
majority leader and the Senate minority leader. So, as soon as
those individuals are in place, we are ready to go.
I think that because we have done so much preparatory work,
they should be able to hit the ground running. And so, we see
the, you know, initial funding helping support their initial
analysis in the contracts, and the additional funds would be to
do the necessary environmental remediation or adjustments so
that we can get the full value or we can get the best value for
those properties that we are auctioning off, or for the
consolidation efforts that the board is going to be
undertaking.
In my confirmation hearings, I had to say that we had 372
million square feet of office space. I can now say that we have
371 million square feet of office space, and I want to see that
number go down. I have been meeting with each of the Cabinet
Secretaries or their deputies to actually talk to them about
their utilization rates, so I can get a commitment from the top
that they are going to work with me to push those numbers down,
so we can deliver a better value.
Mr. Graves. Thank you for your work on that. It is not too
uncommon for us to hear that someone is waiting on the Senate.
We hear that quite a bit. Mr. Cartwright, and then Mr. Amodei.
Mr. Cartwright. Thank you, Mr. Chairman, and welcome,
Administrator Murphy.
Ms. Murphy. Thank you.
Mr. Cartwright. On behalf of the subcommittee, I apologize
for Mr. Moolenaar's using a baseball analogy. For anyone from
Michigan to represent that they know anything about baseball
when the Tigers are four and nine is a blatant
misrepresentation.
But I wanted to ask you a little bit about the Inspector
General. Of course, we have inspectors general in the Federal
Government, and they act as watchdogs over the agencies, and
GSA is no exception. Right? You guys have an inspector general,
right? GSA's Inspector General recently issued a report that
found that last year, GSA followed a new policy for
communicating with Congress, with us, based on ``oral guidance
and direction from the White House.'' And you are familiar with
that report, I take it?
Ms. Murphy. I am, sir, yes.
Mr. Cartwright. According to the Inspector General for GSA,
the new policy prohibited responding to ``oversight'' or
``investigative'' congressional inquiries made by Members other
than chairmen. GSA officials told the IG that the policy was a
change from GSA's prior practice, and the IG reported, ``GSA
officials stated that the prior practice had been to process
all congressional inquiries for a substantive response, while
sometimes providing redacted responses or more limited
information to Members than would be provided to chairmen.''
First, are you familiar with that, and do you agree with that
characterization?
Ms. Murphy. Sir, I am familiar with the IG's report, and as
I mentioned, I have been on the job now for 4 months. One of
the first things that I did was go back and direct that they
revise the communications policy to address the IG's concerns
to make it absolutely clear that whistleblowers and others have
the right and the obligation to bring forward issues, and that
no policy at GSA keeps them from doing so.
I have also used my position as the Administrator to make
sure that we are responsive to all Members of Congress. And I
think that if you look at the last 4 months, you will see that
GSA has been very responsive to any requests we have gotten,
whether from a chairman, a ranking member, or other Members of
Congress.
Mr. Cartwright. I do not mean to interrupt you. Are you
done?
Ms. Murphy. Yes, sir.
Mr. Cartwright. Are you disagreeing with the Inspector
General's statement about what the policy is?
Ms. Murphy. I believe that they are referring to a policy
that was in place last year. I have issued a new policy and
made it absolutely clear and have also testified to this policy
in front of the Oversight and Government Reform Committee that
GSA will be responsive to all Members of Congress.
Mr. Cartwright. Now, is that a written policy or an oral
policy?
Ms. Murphy. There is a written policy that addresses how we
respond to Members of Congress. I spent 9 years as an Oversight
staffer. And I had the experience of asking GSA for information
and not getting my call returned, or not getting the
information sent back to me, or waiting on a letter, or waiting
on a report. And when I showed up at GSA, one of my first
questions was, ``Do I now get the briefing I have been asking
for?'' So, I do not want to ever put anyone else in that
position. I want to be as transparent as possible and provide
you all with the information you need to do your jobs.
Mr. Cartwright. OK, so that is a change from policy, which
would have prohibited responding to oversight or investigative
inquiries. Is that correct?
Ms. Murphy. I am not sure that I would characterize the
original policy as prohibiting response, but I wanted to make
it explicitly clear that GSA responds to requests, yes.
Mr. Cartwright. Well, that was how the IG characterized the
prior policy. And you are saying that has changed now.
Ms. Murphy. And that has changed.
Mr. Cartwright. OK.
Ms. Murphy. And I believe if you talk to any of our
oversight committees, they will tell you we have been trying
diligently to make sure that we are responsive.
Mr. Cartwright. The IG reported on May 19, 2017, the White
House provided GSA's Associate Administrator for the Office of
Congressional and Intergovernmental Affairs written guidance on
responding to letters from Members of Congress. Are you
familiar with that written guidance?
Ms. Murphy. I am, sir, in that I know that there was an
additional letter that was provided by Mr. Short to Senator
Grassley----
Mr. Cartwright. Well, stay with me.
Ms. Murphy. OK.
Mr. Cartwright. I am talking about the May 19, 2017 written
guidance. Will you provide a copy of that written guidance?
Ms. Murphy. It is not a GSA document, so I want to make
sure that I am allowed to provide that. If I am allowed to,
then we will work to make sure you get it.
Mr. Cartwright. But you are saying to us today, no matter
what anybody else says, your office is going to be responsive
to oversight or investigative inquiries from Congress.
Ms. Murphy. That is correct. And I believe that Mark Short
sent a letter to Senator Grassley, explaining that the heads of
agencies have broad discretion, and I intend to use that
discretion to be as responsive as possible.
Mr. Cartwright. Thank you. I yield back, Mr. Chairman.
Mr. Graves. Thank you, Mr. Cartwright. I think, with Ms.
Murphy's extensive background on the Hill, she understands the
importance of communication with each and every office. She has
got great, great history, and a legacy. Mr. Amodei, and then
Ms. Herrera Beutler.
Mr. Amodei. Thank you, Mr. Chairman. Welcome, Madam
Administrator.
Ms. Murphy. Thank you, sir.
Mr. Amodei. I am not going to take much time. I just wanted
to use our time here today to let you know that I want to get
on your staff's calendar to get sort of an in-depth briefing on
the little bit that you do in northern Nevada.
My understanding is that your holdings consist of a couple
courthouses and a Federal building that are in kind of the
urban area of my district. And so, I just kind of want to get
with them to say, ``OK, here is what we have got. Let's make
sure we know what we have,'' and then to see what is going on.
I think your regional office is probably located in San
Francisco for that area. But to talk about what the plan is, if
there is any, in terms of how GSA stays nimble in terms of
those areas where it owns square footage and also is at least
open-minded to opportunities to upgrade or modernize. Because
one of them is a fairly new courthouse, which I am sure is
probably OK; but another Federal building and another older
courthouse, whether there are asbestos issues in those
buildings, and the operational type of stuff.
So, I would like to use that time with your staff to go,
``So, what is the usual policy in terms of assessing where our
properties are, what they are in terms of--I know there is
square footage and the rental income. But what is the state of
the building? And then, also, to see what, if any, there is any
medium- or long-range plan for GSA operations in western
Nevada, in this instance. So, I am assuming that that is just a
matter of getting a hold of whoever your liaison is and getting
with the right folks. And we will come to you.
Ms. Murphy. Yes, sir. And I believe you are right: We are
three Federal buildings in the Second District of Nevada. We
have got a 1995 courthouse, which I think is the largest of the
properties, in Reno. There is another Federal building in Reno
as well, and then there is a third building that I believe is
in Carson City that is smaller. The second building in Reno is
from 1965, and the other building is, I think, a 1970s
building.
So, yes, we do an evaluation of those buildings every year.
I would be happy to give you an in-depth briefing on how we
look at them and the long-term strategy as we look at our
overall portfolio.
Mr. Amodei. OK, great. Thank you. Thank you, Mr. Chairman.
Mr. Graves. Ms. Herrera Beutler, and then Mr. Young next.
Ms. Herrera Beutler. Thank you, Mr. Chairman. Thank you,
Ms. Murphy, for being here with us. I was happy to see that you
addressed the Technology Modernization Fund in your opening
comments. Modernizing our government IT. infrastructure to be
more secure, more cost-effective, more efficient, more
streamlined, especially as we expand our digital platforms, is
critical. I mean, we often compare it to the private sector,
and it is a challenge.
Now, I understand you have named the members of the
Technology Modernization Board and sent initial guidance out to
eligible agencies. And since we just approved $100 million for
the Fund in the 2018 Omnibus, I have a few questions. And I
understand that Mr. Bishop asked about priorities and
prioritizing security, so I am going to skip to my second
there. Given your strong mission focus on improving citizen
services and increasing the effectiveness of government
operations, how do you anticipate using TMF funds to help
enhance delivery of citizen services? And is improving mission
delivery a priority for this TMF funding?
Ms. Murphy. Thank you very much, Congresswoman. You are not
going to remember me, but I had the privilege of staffing you
when you were on the Small Business Committee years ago.
Ms. Herrera Beutler. Oh, my heavens. Years ago, because I
am so old now.
Ms. Murphy. No, no. I think Jessica Wixon was your staffer
at the time.
Ms. Herrera Beutler. Yes, she just left. I am
brokenhearted.
Ms. Murphy. She was wonderful. I very much enjoyed working
with you back then.
Ms. Herrera Beutler. Good.
Ms. Murphy. So I look forward to the opportunity to do so
again. GSA appointed the Commissioner of the Federal
Acquisition Service, Alan Thomas, as GSA's representative.
There are representatives from other agencies as well that have
been appointed. Citizen services; GSA is the custodian of the
Federal Citizen Services Fund, so it is something we take very
seriously, and we work very hard on.
Furthermore, since I have come into office, we have created
a center of excellence that actually focuses on citizen
services and is working with the U.S. Department of Agriculture
on how we can improve citizen services for them. I spent some
time with them, actually, in Kansas City, meeting with farmers
on the challenges that they are facing in terms of the outdated
technology that the USDA is using and how we can leverage that.
I believe that USDA, among others, are going to be submitting
business cases to the TMF that will allow for the improvement
of those citizen services. I will give you an example.
There was one wonderful woman who was a farmer there who
was telling us the story of her tractors; actually talk to
satellites and can tell you exactly how many acres have been
plowed. And then they have to transmit that data, though. They
have it themselves. When they go to get crop insurance or deal
with USDA, USDA uses old paper maps that are not nearly as
accurate. And so, how can we improve that process? We also
heard about two different offices that require the same data in
different formats, and both required paper. So, it takes them
an hour and a half to go each way. So, how can we improve that
process?
And I think that there are simple, low-dollar value
approaches we can work on there, and I think that one of the
great uses for the Technology Modernization Fund would be to
invest in citizen services, especially in a way we can leverage
across other agencies.
Ms. Herrera Beutler. How often do you find that two or
three or multiple agencies are requiring different technology
and in paper form? You know, it is basically conflicting. How
often do you find that?
Ms. Murphy. Frequently, actually. And so, I had a
conversation with one Cabinet Secretary who was telling me
about a challenge he had where his agency is required to
receive paperwork that then has to be Fed-Exed back to the
person who sent it to them, who then has to send it to another
agency, who then sends it back to them, who then sends it to a
third agency, who sends it back to them, and asked if we could
help them come up with a way that we stop, first of all, the
back-and-forth, which is costing small businesses and our
citizens a lot of money, but also improve the process and do a
better job there. It is also a case inside of agencies as well,
though. I saw a great robotics process automation
demonstration. I am going to get a little geeky, if that is all
right.
Ms. Herrera Beutler. That is fine.
Ms. Murphy. I saw a great process where a GSA employee, on
their own initiative, went and figured out a way that they
could take a process that normally takes an hour and bring it
down to under 20 seconds. And we are looking to see if this is
something we can replicate, but if it is, it means I can use my
contract specialists to be working on higher-value ad, better
interaction with citizens, better services to other agencies,
rather than doing paperwork and data entry, which is--I think
one of the great tenets of the President's management agenda is
looking at high-value work rather than low-value work, and how
do we move the talented men and women who work for the Federal
Government to that high-value work.
Ms. Herrera Beutler. That is good. I appreciate it. In the
last 15 seconds, your 2019 budget proposal included a request
for $210 million for TMF. Given the complexity of kind of what
you just discussed, and Federal IT needs, and the need to
modernize, is $210 million sufficient?
Ms. Murphy. I think so. This is a proof of concept, and
this is the second and last year we are allowed to ask for
appropriations under the legislation, so we are asking for the
$210 million. That would give us a total of $310 million. It is
a revolving fund; it allows us to go and make targeted
investments, get the return on those dollars, reinvest them
into the next set of projects, and have this as a continual
improvement process.
It also should highlight areas where we can get
demonstrable savings, and then agencies can themselves come
back and ask for additional appropriations as necessary.
Ms. Herrera Beutler. Got it. All right. I yield back. Thank
you.
Mr. Graves. Mr. Young, then Mr. Quigley.
Mr. Young. Thank you, Mr. Chairman. Administrator, welcome.
Ms. Murphy. Thank you, sir.
Mr. Young. I appreciate your pledge to be responsive,
having been on the other side as a staffer in the oversight
process. Myself, having been a staffer as well--and regardless
of who is in the White House, Republican or Democrat, it gets
frustrating, so I appreciate your pledge to be responsive.
How do we get a list of all the GSA properties in our
districts? Is there a magic website somewhere that we have not
found yet?
Ms. Murphy. There is. There actually is.
Mr. Young. This is a great day.
Ms. Murphy. I am happy to give you that list. I am also
happy to have someone pull the data for you. There is a Federal
real property profile database, and for GSA properties, it will
not only give you a list, but it will actually do geolocation
for you. So, it will, you know, show you on a map where they
are as well.
Mr. Young. So, with those properties, will it tell us how
long those properties have been under the management of GSA,
ownership of GSA and the Federal Government?
Ms. Murphy. I believe. I want to be careful, but I do
believe that is does have the age of the property as one of the
factors. For GSA, some of those date back to 1949, when Harry
Truman signed GSA into being, but some of the properties
themselves are older than that.
Mr. Young. What is the process when GSA takes a look at
that list and says, ``I do not know why we still have that; the
community and the public may have a need for this''? What is
that transfer like? What is that process like? How long does it
take?
Ms. Murphy. First, to identify the properties, GSA works
with other Federal agencies, because usually--it is rare that
it is just GSA occupying a space. It is usually other Federal
agencies in that space. If those agencies tell us they no
longer have a need for the space, or we can work with them on
consolidation so that we can free up that space, we will then
make it excess.
Excess property we turn around and we offer to other
Federal agencies first, and then, if they are not willing to
purchase the property from GSA, we will then declare it
surplus. Surplus property; we then go through a screening
process where we look at whether or not State and local
governments or qualified nonprofits, especially those helping
the homeless, are interested in the property.
Generally, once we have cleared title on the property,
which can sometimes be very complicated, and dealt with
environmental issues, it takes us about a year to dispose of
it, which is one of the reasons I am very grateful that
Congress, in 2016, passed FASTA, because that gives us the
opportunity to pilot an expedited disposal, so we can see a
faster return on those underutilized properties and turn them
into funds that can actually support ongoing operations.
Mr. Young. Great. I know the GSA is currently attempting to
acquire land in Des Moines for a new courthouse. I would just
urge you--whether it is Des Moines or any other municipality or
city--with that process, to make sure that you are always
informing the constituents, the people in those areas, about
the process, what you are looking at, public comment, those
kinds of things. Because it did not start out that way with the
Des Moines courthouse, and we kind of had to rattle some cages
here with GSA to make sure that the public was being informed
and that the city was being informed about the process and what
was being looked at.
It is just good to build that relationship, to build that
trust, to make sure people's voices were heard. Not everybody
may agree with the end result, but they can agree that a
process went forward that was fair and where people were heard.
So, I would just urge you to continue to do that or make that a
policy.
Ms. Murphy. Sir, one of my four priorities is transparency.
As I said, ethical leadership, increase in competition,
reducing duplication, and improving transparency. I want to
make sure we are as transparent as possible in dealing with
communities, with stakeholders. I know that there was a meeting
last week that I believe one of your staffers and many of your
constituents attended dealing with the courthouse in Des
Moines, and I look forward to continuing to work with you to
make sure we get to the right result.
Mr. Young. Thank you for that. And then, finally, public
benefit conveyance. There are certain qualifications a State or
local government and nonprofits must meet for public benefit
conveyance. Sometimes this is for educational purposes, parks,
recreation, homelessness assistance, and those kinds of things
and more. But there was recently a case in the Third District I
represent where a transportation company was not allowed to
receive a public benefit conveyance because public
transportation was not considered a public benefit.
Can you think of any good reason why that would not
considered a public benefit, and if you would be opposed to any
kind of movement to consider public transportation within the
definition of public benefit? And if you would, could that be
done internally, or is the onus on Congress to make that fix?
Ms. Murphy. Sir, I appreciate you bringing it to my
attention. I would really like to learn more about this and
where the definition of public benefit came from. Before I make
any commitment, I want to understand what the statute says----
Mr. Young. Fair enough. Thank you.
Ms. Murphy [continuing]. And make sure that I give you a
complete and thorough answer.
Mr. Young. We will connect our staffs together.
Ms. Murphy. I would love to work together, yes. Thank you.
Mr. Young. Thank you. And I yield back the last--well, I do
not have any time left. Thank you, Mr. Chairman.
Mr. Graves. You always have more time. Mr. Quigley, and
then Mr. Stewart.
Mr. Quigley. Thanks again, Mr. Chairman. I have got to tell
you, this question would be a lot easier if you were not so
nice and apparently conscientious, and I appreciate your
wanting to get back. But I think these are fair questions, and
I would at least like your reaction. But I appreciate your
service, and I want you to know that I think that we need to do
these things on an ongoing basis, because circumstances change.
I mean, currently, I believe the President owns about a 77
percent interest in the Trump hotel lease. That arrangement
seems to allow the President to invest today's profits into the
hotel and then receive profits after he leaves office. And
given who can use that facility, it opens up, if not real, the
possibility of conflicts. And it can be, I believe, and is a
conflict of interest for the President to appoint the head of
an agency tasked with administrating that very lease.
So, what analysis was done? What analysis goes on on an
ongoing basis to ensure that the contract with the President
has not resulted in the President receiving any emoluments from
foreign governments? And does the GSA have concerns that it may
be administrating a contract that violates the Constitution?
Again, not just how it got to that point initially, but what it
has done since then.
Ms. Murphy. As you know, sir, last March, a career
contracting officer made a determination, supported by other
career lawyers, that the tenant for the Old Post Office was not
in violation of his lease. Since that time, GSA has cooperated
with the Inspector General. We have turned over a large number
of documents for their review so that they can do a review of
the analysis that took place. There is ongoing litigation that
is directly addressing the questions you are raising.
Obviously, we know that GSA is watching those cases very
closely, and we are looking to a final determination by the
courts. However, given that there is ongoing litigation, it is
inappropriate for me to go into, you know, a lot of detail
about it. We are watching those cases, and we will obviously
follow any final determinations.
Mr. Quigley. But the fact that there is ongoing litigation
does not limit, as you would understand, the responsibility to
review this on an ongoing basis. You can at least say that you
are reviewing the practices on an ongoing basis, correct?
Ms. Murphy. As the Administrator, I am trying to be very
careful to never put my finger on the scale to weigh one
contract or another. I believe that it is my job to make sure
that we have got the right people and the right processes in
the job; that they are being conducted in a transparent
process; that if people have concerns with how they are being--
those processes are being implemented; that they have the
ability to raise those to their supervisors or as
whistleblowers; and that we respond to inquiries from
committees, from Members of Congress; that we also, you know,
work, you know, with the courts as they are looking at
important constitutional issues and as they resolve those.
Mr. Quigley. I understand you referenced the Inspector
General. But to your knowledge, is there any other process that
allows you to take this, again, to some other neutral third
party to review, analyze--someone independent, perhaps, to give
an opinion?
Ms. Murphy. For contract administration, we really do not
have another option that I am aware of. I mean, GSA is
considered to be the expert on the interpretation of its own
contracts. That is why we have worked very closely with the
Inspector General on that. In cases of litigation, obviously,
we defer to the courts.
Mr. Quigley. Let me just go back to the FBI headquarters
for a second.
Ms. Murphy. Yes, sir.
Mr. Quigley. And if you cannot answer any of these, these
would be more--I would be appreciative if you could get back to
us. The CIA, DIA, NSA, and the Department of Homeland Security;
they all have their own campuses to mitigate both physical and
espionage threats.
As I understand it, the FBI is the only member of the intel
community with its main campus located in an urban setting that
does not have a standalone campus, you know. To your knowledge,
did the FBI discuss this issue with you? Did GSA comment on
that and raise--did either raise concerns about that? And I
guess--so I can get all these out in the short period of time--
what changed since fiscal year 2017 that no longer makes the
best option to consolidate the FBI in either Maryland or
Virginia?
If the FBI decided that this was no longer the best option,
what was GSA's role in helping to come to that decision? Does
the GSA not have a role in advising other Federal agencies to
make the most cost-efficient decision compatible with the
agency's mission?
And, finally, can you commit to the committee that the
FBI's new plan to consolidate in its current location is more
cost-efficient than the earlier plan to exchange FBI Hoover
building for a new site in either Virginia or Maryland?
Ms. Murphy. Sir, I am going to try and answer those
questions quickly, because I know that I am running over on
time.
Mr. Quigley. I am, too.
Ms. Murphy. All right. So, on the issue of a main campus,
the FBI told GSA that they considered proximity to their parent
department, Department of Justice, to be paramount, so that
they wanted to make sure that they were close to their parent
organization. They also said that, you know, they wanted to be
close to transportation, that they had other security
requirements.
As to your question as to is it not GSA's job to help them
inform their requirements: yes, it is. However, GSA does not
have the expertise to substitute its judgment on matters of
national security for that of the FBI. What we do have the
ability to tell them is here are the most cost-efficient and
cost-effective ways to meet those requirements.
When the FBI came and told GSA that they believed that
proximity to the Department of Justice was paramount, that
changed the calculation. The other item thatchanged the
calculation was that instead of looking for a requirement to
accommodate 11,000 employees, they were now looking for an
option that would accommodate just over 8,000 employees. That
put the site on Pennsylvania Avenue back in play. There would
have been no possible way to accommodate 11,000 employees at
the current J. Edgar Hoover site. However, there is a way to
accommodate those 8,000 employees at that site.
I am trying to think if there were other questions that I
missed, and if there are, I would be happy to get back to you
on them. Hopefully, that will address your concerns.
Mr. Graves. You did well. Mr. Stewart, Ms. Herrera Beutler,
and then Mr. Amodei, and that should wrap us up today.
Mr. Stewart. Thank you, Chairman. We appreciate your
patience and understanding. Like everyone, we have got multiple
hearings and bounce back and forth. Ms. Murphy, thank you for
being here. It is always fun to read your people's resumes, and
yours is impressive; 11,600 people is an enormous
responsibility. I also found it interesting you were one of the
leaders in a technology startup company, because my question is
going to lend itself in that direction, if we could.
I am curious to hear about GSA's efforts to improve the
information technology, especially on the kind of citizen-
facing applications. I am older than you; I am older than most
people in the room, maybe everyone in the room.
Ms. Herrera Beutler. Not me.
Mr. Stewart. Yes, I am definitely older than Ms. Herrera
Beutler, by a lot. You know, people in my age and generation,
we generally kind of seek face-to-face interactions with
agencies or with businesses; certainly not true of my kids. You
know, we text way more than we talk. I would prefer to talk,
but, you know, it is just easier, and you end up texting all
day, which I enjoy as well. And when a citizen needs
interaction with the government, again, we need to consider
that.
I saw something interesting, and I think maybe my staff can
back me up. It might have been an IRS study. But they said that
a personal interaction was about $54 per interaction versus an
electronic one was pennies, like 20 or 30 pennies is all.
Now, last thing, and then I will get to my question. Last
year, Congress enacted the Modernizing Government Technology
Act, which I am sure you are familiar with. It appropriated
certain money--$100 million--and I want to know what you guys
have done with some of that money. What is the status of TMF
within GSA? And give us some good news, will you, please?
Ms. Murphy. Yes, sir. Thank you very much. The
appropriations for $100 million--we are very grateful to this
committee that we received those last month. GSA moved quickly.
The OMB Director appointed the board; I appointed as GSA's
representative a gentleman named Alan Thomas, who is the
Commissioner of the Federal Acquisition Service, who has got a
lot of expertise actually working for a small business that was
trying to do business with the government, which I thought was
an important point of context as well as being technologically
savvy.
They are in the process right now of reviewing the second
round of business cases, and they have established criteria. We
have appointed an executive director to help support some of
those--in the assessments. We want to make sure that the
investments that are made with that $100 million deliver
returns to taxpayers.
Mr. Stewart. I am going to accelerate your answer, if you
could.
Ms. Murphy. Okay.
Mr. Stewart. So, you are in the process of defining and
putting a team together to implement, true?
Ms. Murphy. The team is in place.
Mr. Stewart. So, give us an idea of what your goal is. I
mean, what do you envision is going to be different once you
have been able to design and implement your plans?
Ms. Murphy. My understanding is the board's criteria are
that they are looking for investments that will see a positive
return, so they can repay the fund quickly; that will have
technology that they can leverage across agencies, so they will
not just be hitting a specific issue; that will be improving
the security of the data and the information that is being--and
that are going to improve citizen services.
I wanted to comment on your--you were discussing contact
centers or how we make it possible. One thing GSA is doing
outside of the Technology Modernization Fund is we are in the
process of putting in place a new contact center contract for
other agencies that works with them, and we have also got a
center of excellence trying to further it, to make it easier
for individuals to contact the government the way they want to,
whether it be trying to make sure first that their websites
have the information available easily and readily so that they
do not need to call--because if you can avoid a phone call to a
government agency, that usually makes most people happy.
But when they do need to contact, can they do it through
text message, through phone? What is the way that they want to
reach us, and how do we facilitate that happening, so they get
the result quickly and that we respect their time? As a small
business owner, I think you probably know that time is what
kills everyone in dealing with the government. So, trying to be
respectful of that.
Mr. Stewart. Yeah. I appreciate that. And so, bottom line,
are you optimistic that we are going to have a better
experience for U.S. citizens on this?
Ms. Murphy. Oh, yes, I am. And I will tell you another
reason I am optimistic about it. If you look at the President's
management agenda, it puts an incredible amount of emphasis on
the citizen experience and making sure we always put that first
in all the investments or all the initiatives we are trying to
pursue.
Mr. Stewart. And this will take how long?
Ms. Murphy. The Technology Modernization Fund--we are just
starting the President's Management Agenda. We have quarterly
deliverables that are supposed to be accompanied by successes.
However, it is a 10-year plan with quarterly milestones that,
each quarter, we come back and we deliver.
Mr. Stewart. I was loving your answer until I hear the 10-
year plan part. But----
Ms. Murphy. I think 10 years is actually--I think you
should love 10 years, because if we told you we could do it in
a year, it would not be a candid answer. If we told you that we
were going to take successes every quarter and build upon those
and have it be an iterative process, that is a real answer.
Mr. Stewart. Okay, I can accept that. I appreciate your
candor. We have already established I am old. I might not even
be alive in 10 years, but do what you can. Chairman?
Mr. Graves. Ms. Herrera Beutler, and then Mr. Amodei.
Ms. Herrera Beutler. Thank you, Mr. Chairman. I am going to
switch over to transportation. The budget proposes to purchase
the DOT building headquarters located here in DC. I am
pointing, because it is that way. Let's see, where are we? Yes.
It is not too far. We walk by it from time to time.
Ms. Murphy. Yes, down by the ballpark.
Ms. Herrera Beutler. Yes, down by the ballpark.
Ms. Murphy. It is all back to baseball.
Ms. Herrera Beutler. For $768 million. GSA is currently
renting the building for about $490 million annually. Two
questions: Where does GSA prioritize this lease purchase among
the other construction requests in the Federal budget fund? And
secondly, are there timing constraints for executing this lease
purchase, and what are they?
Ms. Murphy. If I answer the second question first, and
then----
Ms. Herrera Beutler. All right.
Ms. Murphy. There are, indeed, timing constraints. The
building was a build-to-suit for the Department of
Transportation. It is a 15-year lease, and we have got a
purchase option that we can exercise at a fair market value. We
have to notify the vendor--sorry, the lessor--of our intention
to exercise that option so that we can achieve the savings.
If not, we can pay them to extend that option, but that
again means more cost for taxpayers. So, that is why it is part
of this year's budget, and that is part of how we prioritized
the requirement.
Obviously, the Department of Transportation needs a
headquarters within the District. We have got a site that meets
their requirements. Having them move and build a new site is
not--is going to cost billions of dollars. This will allow us
to have that property and continue to maintain and invest in it
for decades to come, so it can be a long-term asset and part of
the Federal patrimony in terms of our infrastructure.
Ms. Herrera Beutler. Okay, great. So, in terms of
prioritization among other construction requests in the
building fund, it is up there?
Ms. Murphy. It is. One of our top requests for 2018. I
think, dare I say, we have got a few other requests in there as
well--the land port of entry at Calexico is a priority--and so
all of these together we think are an important--they make a
comprehensive package request.
Ms. Herrera Beutler. Got it. Thank you. I yield back.
Mr. Graves. Thank you, Ms. Herrera Beutler. And for the
final question, Mr. Amodei is recognized.
Mr. Amodei. Thanks, Mr. Chairman. Madam Administrator, if
you could just have your staff figure out which assisted living
facility Mr. Stewart will be in at that 10-year thing, and if
you could get him that information----
Ms. Murphy. We cannot speak to that.
Mr. Amodei [continuing]. That would be great. I will go
ahead and pay for that out of my campaign account. Just let me
know.
Okay, I want to expand our earlier discussion just a little
bit. If it could include also, to the extent that your agency
knows, its lease portfolio in that neck of the woods, I would
like an idea of that, because that follows on to--I do not know
if you are aware or not, but if you are, what other agencies
are not going through you to perhaps lease properties in the
area? And, obviously, the reason for wanting to know that is
what is the Federal footprint in a given area?
I know that your actual ownership footprint is not that
extensive, which brings to me to the last one. I would like to
have a discussion with your folks on FASTA and the concept of
Federal lands bills. And everybody goes, What is he talking
about? Well, when you are in the West, you are talking about
the fact that the Federal Government, usually through the
Department of the Interior--skip the Department of Defense for
now--owns a heck of a lot of land.
And there are lands bills that come from time to time, and
in my district, there are two that are being prepared for the
counties in both urban areas of the state, which is Washoe
County, where Reno is, and Clark County, where Las Vegas is.
And so, when we talk about this appropriations process, and
it is like, Well, hey, if you want a Federal building or
whatever, then that costs money, and you have got to go through
the--I get all that, except that in some instances where there
may be a Federal estate which can, quite frankly, potentially--
GSA can be given a piece of land on the perimeter that somebody
else wants to do something else with that can potentially
provide some proceeds to do something downtown or wherever
else. Now, I am fully cognizant of the phrase earmark, but if
it is not for just one district, or if it is--you know, there
are ways to do that legitimately without making it that. But I
suggest that only as something that maybe ought to be looked at
in terms of providing another funding source for the Federal
Government consolidating its administrative footprint in areas
where it operates.
So, I would like to have that on the table, too, when we
talk; the lease picture, as well as--has anybody thought about
the potential application of something like that to use the
Federal estate to Federal benefit where there is a growth
issue?
Ms. Murphy. Thank you, Congressman, and I would be happy to
make sure we give you all the lease information as well. As you
know, about half of our square footage at this point in time is
leased, and so, to get a full picture of what our portfolio is,
you do have to look at the lease space. We are making every
effort to move people out of leased space and into Federal
buildings. I actually met with the GAO, and we are actually
helping them move all of their offices into Federal buildings
and consolidate those right now.
Mr. Amodei. And so, I guess it goes without saying that for
those buildings that are yours that you lease, you lease them
at a rate where GSA breaks even or makes money. It is not a
red-ink proposition for leasing space in a Federal building to
a Federal agency. Is that correct?
Ms. Murphy. When we lease space from the private sector, we
pay the negotiated rent that goes through a prospectus process
here and is approved by both our authorizing committees and
ultimately through the appropriations process.
When we are leasing out space within Federal buildings, we
do it at commercial rates so that we do break even, and we can
maintain the building. The exception being things like land
ports of entry or where there is really not a commercial
equivalent, where they are so specialized, and we do those at a
return on investment rate.
Mr. Amodei. So, potentially expanding your fee hold or
interest in Federal space is not a money-losing proposition,
because the user pays whatever the costs are for that.
Ms. Murphy. I want to be careful, because I have not though
about this before, and I want to make sure I give you a full
answer on it. But it is something I would love to talk to you
about and make sure that we get you the information necessary.
Mr. Amodei. Fair enough. Thank you. I yield back, Mr.
Chairman.
Mr. Graves. Thank you very much. Ms. Murphy, thanks for
joining us today. It has been a delight to have you, and
congratulations on making it through your first Appropriations
Subcommittee hearing. You did very, very well, and we
appreciate your thoughtful responses to a lot of thoughtful
questions by the committee members.
I am looking forward to working with you in the days ahead
as we finalize this product and move it through the committee
and through the House floor. Thank you very much, and with
that, this hearing is adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wednesday, April 18, 2018.
THE JUDICIARY
WITNESSES
HON. JOHN W. LUNGSTRUM, CHAIR, COMMITTEE ON THE BUDGET OF THE JUDICIAL
CONFERENCE OF THE UNITED STATES
HON. JAMES C. DUFF, DIRECTOR, ADMINISTRATIVE OFFICE OF THE UNITED
STATES COURTS
Opening Statement of Chairman Graves
Mr. Graves. Good afternoon. We will call this hearing to
order. Today we would like to welcome Judge John Lungstrum.
Thanks for joining us today and being a part of this hearing.
As the new chair of the Budget Committee for the Judicial
Conference, we welcome you to your first hearing.
I have enjoyed our time together, as we have met
previously, and I know that you have taken over a role from
somebody we had dear affection for and that is Judge Gibbons
who was fantastic. We know that you will fill those shoes very
well in your tenure as budget chair. Mr. Duff, we welcome you
back.
Mr. Duff. Mr. Chairman.
Mr. Graves. You have been a longstanding participant in
these hearings and have done a magnificent job, and we
appreciate your service. I expect today we will have members
coming and going throughout the day. We have a busy schedule
for all Members on our 12 subcommittees as we have an
accelerated process right now to move the appropriations bills
through the subcommittees and full committee.
So, as you see members come and go, we will ask you each
questions throughout the afternoon. We certainly look forward
to your testimonies and remarks, and if the ranking member has
any opening remarks, he will be recognized right now.
Opening Statement of Ranking Member Quigley
Mr. Quigley. Thank you, gentlemen. Thank you, Mr. Chairman.
I would like to join you in welcoming Director Duff back before
the subcommittee, as well as Judge Lungstrum for his first
appearance--is that correct?
Judge Lungstrum. Yes, sir, that is correct.
Mr. Quigley. Very good. We will keep our remarks brief in
the interest of allowing sufficient time for questions. And as
I have said many times, a well-functioning Federal court system
is a key pillar to our democracy and is fundamental to ensuring
the constitutional rights of all Americans are not infringed.
But it cannot properly function without the support of this
committee. It is crucial that we provide these courts with the
resources needed to effectively and efficiently perform their
constitutional duties. As a former practicing lawyer, I
understood and deeply value the work that you do.
The recently enacted fiscal year 2018 appropriations bill
included an increase of $184 million over the prior year's
discretionary appropriations, and you budget request for the
fiscal year 2019 continues the work to rebuild and invest in
the future of our court system.
In particular, it is my view that the adequate funding of
the Federal Defender Services Program must be a priority. I was
pleased that Congress was able to provide a 3 percent increase
for the program in 2018 and I would like to follow the needs
closely to be sure that we stay on top of the resource
requirements.
I remain a staunch advocate and defender of the work you do
and will do all I can to ensure that robust funding for the
judiciary remains a priority. Once again, welcome, and we look
forward to your testimony. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. Judge, you are
recognized for any opening comments you may have. We know that
you have submitted a written statement for the record and we
have all viewed that.
Opening Statement of Judge Lungstrum
Judge Lungstrum. I will make very brief oral remarks in
keeping with the thought to save as much time as we can for
questions.
Chairman Graves, Ranking Member Quigley, and other members
of the subcommittee as you may come and go, thank you for the
opportunity to appear here today with Director Duff to testify
on the judiciary's fiscal year 2019 budget request.
In February, I succeeded Judge Gibbons as chair of the
Judicial Conference's Budget Committee. Judge Gibbons, of
course, appeared before this panel many times. I look forward
to working with the subcommittee in my new role.
In the interest of time, I will make very brief opening
remarks, highlighting our 2019 funding priorities and our
ongoing cost-containment efforts in our space and facilities
program.
First, and most importantly, I want to thank the
subcommittee for the 2.7 percent increase we received for 2018
and the recently enacted omnibus appropriations bill. We are
particularly grateful for the $10 increase in the daily payment
to citizens performing Federal jury service, as well as the $6
increase to the hourly rate paid to private attorneys serving
as court-appointed defense counsel. We greatly appreciate you
again making the judiciary a funding priority.
For 2019, we ask for a 3.2 percent overall increase above
the 2018 appropriation level that we assumed in building our
request. We are recalculating our 2019 appropriations
requirements based on the final enacted 2018 funding and will
inform the subcommittee of the changes that the recalculation
will bring about later this month.
A 2.4 percent increase is necessary to maintain current
services. The remainder of the request is for targeted
enhancements for courthouse security and infrastructure costs,
initiatives in our probation and defender services programs,
and other priorities.
We seek funding increases for several security-related
items, including $5.5 million to begin implementation of a
multi-year strategy to replace aging building access systems
and $2 million for additional court security officers to
improve courthouse security. Our request also includes $12
million associated with new courthouse construction projects.
GSA funds the construction of new courthouses, but certain
telecommunications, security, and other infrastructure expenses
are the judiciary's responsibility. So, we are requesting funds
for those also.
In our probation program, we are requesting $13 million to
replace the case tracking system which our officers use to
supervise offenders released from prison and living in the
community and defendants on pre-trial release. This enhancement
is much needed and will improve officer and public safety.
In our defender services program, we seek an additional $2
million for an additional $6 increase to the hourly rate paid
to court-appointed private attorneys. The Judicial Conference's
goal is to attain the full statutory authorized hourly rate of
$147 and the requested increase would put us within $1 of that
goal.
We also seek $3 million to support hiring in federal
defender offices consistent with recently developed staffing
formulas. Other enhancements include four additional magistrate
judges to address workload needs in Puerto Rico, Texas, South
Dakota, and Georgia, and several other smaller initiatives for
cybersecurity and training.
We have a number of cost-containment efforts under way,
which include those in our space and facilities program, which
are achieving significant savings. Our space reduction efforts,
combined with changes to rent pricing policies that were
negotiated with the GSA, generate judiciary rent savings of
nearly $80 million annually.
I discuss these savings in greater detail in my written
testimony. Thank you again for the opportunity to appear here
today, and I reiterate that I look forward to working with the
subcommittee.
I ask that you make part of the record my statement and the
statements of the other judiciary entities on whose behalf we
submit budget requests. That concludes my remarks, and I am
happy to respond to any questions.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Great. Thank you, Judge. Before we go to
questions, we will recognize Director Duff to share any remarks
he may have. Thank you again, Director.
Opening Statement of Director Duff
Mr. Duff. Thank you, Mr. Chairman and Ranking Member
Quigley. It is great to be with you and members of the
subcommittee again today. I am pleased to appear before you and
to provide also very brief opening remarks. A more detailed
written statement has also been provided to the subcommittee. I
first will join the thanks of Judge Lungstrum for our 2018
appropriations. We are very grateful for that.
My first task today as Director of the Administrative
Office of the United States Courts is to present its budget.
For fiscal year 2019, the A.O. requests $89.9 million, which
represents current services levels.
Although there are no new spending initiatives planned for
fiscal year 2019, our request will provide critical funding to
sustain the work of the A.O. as it facilitates the judiciary's
national programs and policymaking processes, and supports
courts, probation and pre-trial services offices, and Federal
defender organizations around the country.
My second task is as secretary of the Judicial Conference
of the United States and that is to ask for the subcommittee's
support for a handful of Judicial Conference priorities that
are beyond the Administrative Office's own budget request and
extend to the judiciary as a whole.
The first of these priorities is continued, 1-year
extensions of eight temporary judgeships whose authorizations
otherwise would expire in fiscal year 2019. Without these
extensions, affected districts could lose a critically needed
judgeship, which will increase caseloads for the remaining
judges and slow the processing of cases.
While we continue to hope that the authorizing committees
will create new permanent judgeships in these districts, we
respectfully request your assistance in obtaining the necessary
interim extensions.
A second Judicial Conference priority for which we are
seeking the subcommittee's support is the sufficient funding of
judiciary needs within the budget of the General Services
Administration. For fiscal year 2019, we request $25.4 million
for GSA's Capital Security Program. The Capital Security
Program addresses serious security deficiencies in courthouses
where renovations are viable alternatives to new construction.
In addition, we ask that any funds for new courthouse
construction be applied consistent with the Courthouse Project
Priorities plan that is in effect at the time the appropriation
is made.
We understand that there are many competing demands for the
funding in your subcommittee's jurisdiction and for that reason
remain very grateful for your generous and continued support of
the judiciary's priorities and needs. That support directly
enables the judiciary to perform its vital constitutional role.
As always, we hope to retain your confidence and your
support moving forward through another year of effective
performance of our duties and careful, efficient stewardship of
taxpayer resources. That concludes my opening remarks, and I
would be pleased to answer any questions you may have.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
JUDICIAL VACANCIES
Mr. Graves. Thank you both. I have a few questions, and I
know Mr. Quigley will as well. When Judge Gibbons was before us
last time, we had a discussion about judicial vacancies. Can
you give us an update on what you have seen in terms of the
filling of these vacancies? It seemed like it was well over 100
at the time. Has it improved?
Mr. Duff. Judicial vacancies are being filled in the
current Congress and the administration. But we are also having
judges take senior status, which creates new vacancies. We have
about 140 vacancies at the moment, and it is important that we
do fill those as best we can.
Of the 140 vacancies that exist, 68 of those vacancies are
what we consider emergencies, and that is a determination that
is made by a couple of formulae. One is having an excess of 700
cases per judge in a particular district where a judgeship is
vacant. Another is if there is a greater than 18 months vacancy
period of time. So, vacancies remain a very important part of
our agenda and we work to see that they are filled as best we
can.
Mr. Graves. We recognize that it is a little bit out of
your control given the Senate confirmation process. It seems to
be a little slower than we would like to see right now. How do
you reflect the vacancies in your budgeting? That has got to be
a challenge.
Judge Lungstrum. What we generally do is make an assumption
based on historical trends. And then, of course, we have to
adjust if, in fact, there are fewer confirmations than history
would predict; then, that means we have allowed for too much.
On the other hand, if there are more, then we go the other
direction.
With this number of vacancies, should they, in fact, be
filled over a short period of time, that would be a budgetary
pressure because we are not predicting that necessarily based
on historical figures. So, that higher than usual vacancy
number could play out as requiring some adjustments in terms of
how to pay for that.
CYBERSECURITY
Mr. Graves. Addressing cybersecurity, I think each of you
referenced it in your statements as one of the pressing issues.
I think we recognize that and I know Mr. Quigley joins me with
concerns about those issues throughout all the different
agencies we oversee in this committee. Can you give us a little
update on the judiciary and cyber readiness?
I know we provided, $85 million in the last spending bill.
There was a new request for $95 million this year. Can you
justify the new spending? Is it something we should expect each
year?
Judge Lungstrum. Let me sort of start with the last part of
the question and work back. The answer is yes, sadly, because
the people who are out there trying to engage in activities
that we do not want to have take place keep developing new
approaches, new techniques. They try to outsmart whatever
hardware, software, and behavioral techniques are used to
defeat them.
So, our thought is that we are probably going to be looking
at an ongoing request at about this year's level because it is
just that complicated an issue. I am not a technology person,
in terms of my own personal skills and understanding, but the
best minds that we can find tell us that it is just going to be
an ongoing consideration. We have to deal with attempting to
prevent intrusions. We have to deal with recognizing when
somebody has beaten the firewalls or whatever and deal with the
problem if that should occur.
And we have to make sure that the user, both court
personnel and judges alike, are very sensitive to all of these
activities. And that simply, both in terms of hiring people and
in investing in various programs, is an expensive proposition.
And frankly, I think we are just left with a situation of
having to come back and continue to ask for a significant
amount of funding to deal with what is our number one
administrative priority within the judiciary.
Mr. Graves. So, as you look at spending this money, it will
be on people, infrastructure, software. A combination of
things. We met with GSA earlier this week and they have a
priority as well government-wide.
I know our committee has concerns about rebuilding a lot of
silos that ultimately are not connected, or are not
communicating, or are not in parity with software versions, or
modern technology, or abilities. How do you keep parity? And
how do you work with the GSA as well?
Judge Lungstrum. Jim, I will defer to you on that.
Mr. Duff. Sure. And we have additional challenges in that
we are coordinating among all the districts around the country
and all the circuits around the country in our efforts. So, it
is a massive coordination challenge for us. We have devoted
substantial resources, both in, thankfully, the appropriations
we have received and the people we have put on the task.
Trying to stay ahead of those who are trying to break into
the system is a challenge, not only for us in our branch, but
for government and business as a whole, as you know. But just
to give you a sense of that challenge, we have had in fiscal
year 2018 already 11 million attempted break-ins to the system.
So, it is, as you have articulated, a challenge. But it is one
that, as Judge Lungstrum mentioned, is our highest priority in
the branch.
Mr. Graves. Great, thank you. Mr. Quigley, you have any
questions?
FEDERAL DEFENDER STAFFING
Mr. Quigley. Thank you, Mr. Chairman. Thank you again for
being here. The Federal Defender Program took a hit during
sequestration. Can you give us an update of where we are now
and how your fiscal year 2019 request addresses that?
Judge Lungstrum. Thank you for asking about that because
that is a subject, I think, that we are very much desirous of
making sure we get it right with our request, and I think we
have. The defenders lost a considerable amount of staff during
the period of sequestration and we have had to work hard to get
them built back up. And that has largely been accomplished back
to the pre-sequestration levels.
With this year's request, we would then put them up to
approximately 98 percent of their work measurement formula that
is relatively new to the defenders.
Mr. Quigley. What percentage of cases do they handle?
Judge Lungstrum. I cannot give you an accurate number with
that, compared to Criminal Justice Act (CJA) panel attorneys,
other than based on my own district. I know in my own district
it is about a 60/40 split. With the work measurement formula, I
think we have gotten more people in defenders' offices. So,
that means that defenders can take cases, other than where
there is a conflict, to a greater degree than they were able to
before, which lowers the CJA panel attorney utilization.
On the other hand, we do not want to keep CJA panel lawyers
from handling cases too much, diverting cases to the defenders,
because they need to be able to keep their expertise on those
cases. So, it is kind of a delicate balance to keep the CJA
panel attorney numbers as high as possible.
But I think, generally speaking, the proportion of cases
handled by the defenders compared to CJA panel lawyers has been
on the increase over the last couple of years.
DAILY JUROR COMPENSATION
Mr. Quigley. We got an increase in juror pay for 2018 and
glad to be a part of that. I appreciate my colleagues support
on that. Just how much has that mattered? I mean, are we able
to analyze what the impact is in the system for just how much
jurors are getting paid?
Judge Lungstrum. I think it is too soon to tell whether, in
fact, that is going to make an actual difference in terms of
the rate of jurors who attend rather than try to figure out
some way not to attend. But I cannot tell you how appreciative
we are of that increase. $10 does not sound like a lot of
money, but it has been sitting at this level since 1990 while,
if it had been adjusted for inflation, they would be making
closer to $75 a day.
And so, even though $10 does not get to even a realistic
number compared to what inflation would be, I think, if nothing
else, it shows a commitment by all of us, both the judiciary
and the Congress, to treating citizens well who are spending
their time making very difficult decisions, only because their
name came up by a random draw. And in many places, it may be
only 40 percent of businesses actually help out with jurors
when they lose pay by virtue of serving.
So, how it is going to translate into better numbers of
people showing up? It is too early to tell. But I am convinced
that it is going to make people feel better. We are trying, and
I think it is going to make them feel like the experience is a
better one for it.
Mr. Quigley. Can you explain, just so we have a public
understanding of this, how that relates to the grand jury
situation and how long they sometimes sit?
Judge Lungstrum. Honestly, the grand jury situation is a
whole other matter. I mean, as you know as a person that
practiced law, you can have a jury trial that lasts a day or
two. You can have a jury trial that lasts months. So, you can
have that in a jury situation. Almost all grand juries sit for
as much as 18 months. And they may come in every month or 6
weeks and take 2 or 3 days of their time. So, how those people
are able to function with that----
Mr. Quigley. Do they get paid the same amount?
Judge Lungstrum. They do. I wish there were another
approach to that. I have presided over grand juries as a
district judge a number of times. I have been a district judge
since 1991. So, I have presided over a number of grand juries.
And when you select that grand jury, those folks come in and
you say, ``Congratulations. You are going to get to be with us
for the next year and a half.'' And you will see a lot of
people looking like they have just gotten some bad news handed
to them.
[Judge Lungstrum submitted the following for the record:]
Effective May 7, 2018, Federal jurors will be paid a fee of
$50 for each day of actual attendance at a trial or hearing.
This amount is set in statute (28 U.S.C. 1871) and, as noted by
Judge Lungstrom, applies to both petit and grand jurors. The
statute also provides that petit jurors serving more than 10
days on a single case or grand jurors serving more than 45 days
of actual service may be paid an additional $10 per day, at the
discretion of the presiding judge. For this reason, you may
find some grand jurors sitting for multiple months and
receiving higher compensation than other grand or petit jurors
who are participating in shorter proceedings.
What is interesting--and this is, I think important not to
forget--both with trial juries and grand juries, almost always,
when you talk to them after they finish their service, they
have felt that it was really worthwhile. Once they get past
that initial shock, that they are having to do this, having
done it, they almost always say, ``Wow, this is something I am
glad I had the chance to do, to participate as part of our
system.''
I always explain to the jurors in the voir dire process
that, in addition to voting, this is one of the times in which
you are actually exercising that citizen's right and power to
be part of your governmental structure.
And by the time it is all over, they are feeling pretty
good about it. So, I am somewhat reassured that, generally
speaking, the process is well received. That does not mean it
is not a hardship or an inconvenience. And I think that is an
issue.
Mr. Graves. Mr. Cartwright, you are recognized.
WORKPLACE CONDUCT
Mr. Cartwright. Thank you, Mr. Chairman. Judge Lungstrum,
thank you for being here. And Director Duff, you too. Director
Duff, as head of the Federal Judiciary Workplace Conduct
Working Group----
Mr. Duff. Yes, sir?
Mr. Cartwright. I do not want to try to pronounce the
acronym for that. I trust you can shed some light on some of
the specific initiatives that you have taken to improve
reporting procedures for misconduct in the workplace.
Mr. Duff. Yes, sir.
Mr. Cartwright. There is an awful lot of talk about that
lately, and probably rightly so.
Mr. Duff. Yes.
Mr. Cartwright. In your letter to Senators Grassley and
Feinstein, you say that, ``the working group is removing
barriers to filing complaints.''
Mr. Duff. Yes, sir.
Mr. Cartwright. And so, what I am interested in is if you
can shed some further light on specifically what barriers have
been removed and can you describe how filing a complaint now
differs from how filing a complaint was before the working
group's current initiative?
Mr. Duff. Thank you for the question, and I am pleased to
report on the progress of the working group. As you know, I was
directed by the Chief Justice in his year-end report to put
together the working group. His year-end report was issued on
January 1st. We assembled the working group by January 12th. We
have met as a group. We have eight members--I would say seven
distinguished members and myself--so totaling eight.
But we have met three times in person and been in daily
contact since January 12 with regard to our efforts to analyze
and improve processes and procedures within our branch of
government on workplace conduct, complaints, and issues. And we
have been able to determine where some immediate improvements
can be made.
We had an initial challenge of some misunderstanding with
regard to our confidentiality provisions in our ethics rules
that were implemented, frankly, in the aftermath of social
media to preserve confidences within the branch,
understandably.
But those had been misinterpreted by some employees and law
clerks as to prohibiting disclosure of workplace misconduct.
That was never intended. And so, we have made revisions already
to the confidentiality provisions in our ethics guidelines for
our employees and law clerks.
But there are a number of other areas where we have already
discovered potential improvements, and we have opened up our
process of review to employees and law clerks for their
participation. We have had a lot of feedback directly to our
working group and within the circuits around the country from
employees and law clerks as to what those barriers to filing
complaints might be. This is still an ongoing process; we have
not finished our work and probably will not. It will be an
ongoing project because we will want to review the progress
that we have made.
But what we have determined, clearly, is that one of the
barriers to filing is the formality of our complaint process.
There are really two mechanisms to file a complaint right now.
One is under the Conduct and Disability Act, which is a
statutory provision with very detailed requirements to file a
formal complaint. And the second formalistic complaint process
is through the employment dispute resolution process. There
again, it requires a formal complaint. And what we have been
hearing, and what is supported by all the studies that we have
examined up to this point, is that employees need and want a
less formalistic process. The formal complaint process works to
the extent it is utilized.
But many employees just want guidance, counseling, and, we
think, intervention earlier on in the process so that you do
not need to get to the formal complaint process.
And so, we are going to create other outlets for employees
within the branch, both at a national level and throughout the
circuits. And we have relied on an EEOC study which, I think,
demonstrates what we have also learned in our process of
listening to employees and law clerks as to their concerns.
And the EEOC study, which was an 18-month study of
workplace conduct in all walks of life--both public and
private, determined that 75 percent of people who have
experienced harassment in the workplace never file a report,
never report it to their superiors never pursue process.
And that figure is stunning. And so, we took the approach
of how do you identify those barriers? How do you remove them?
How do you ensure that our employees have a safe work
environment and one in which they feel free to complain without
retaliation?
Mr. Cartwright. That is where I was going to go. And if the
chairman will indulge me one more question? I think about the
close-knit confines of judicial chambers.
Mr. Duff. Yes, sir.
Mr. Cartwright. You have a brand-spanking new lawyer out of
law school: bright-eyed, bushy-tailed, and regards the Federal
judge that he or she works for as a part of the pantheon of
demigods and----
Judge Lungstrum. They are soon disabused of that.
Mr. Cartwright. But it is such a small, close-knit
operation that what I wonder is the working group doing
something to enlarge the protections that an employee has who
files a complaint, either formal or informal?
Mr. Duff. Yes. And again, I think providing more options to
the employees and to the law clerks----
Mr. Cartwright. I mean protections against retaliation, as
you mentioned.
Mr. Duff. Yes. And, actually, those protections exist.
Within the model employment dispute resolution plan, there is a
specific provision that prohibits retaliation against those who
complain.
Judge Lungstrum. If I could just interject for a second. I
have been a chief judge and I have been a district judge for a
long time. And I think one of the points that Jim is trying to
make is that there is a misunderstanding about confidentiality
compared to trying to have grievances addressed. Because
obviously you do not want your law clerk going out to their
friends and saying, ``Wow, I am working on this case and it
could well invalidate a patent''--obviously, whatever it might
happen to be. That has to be strictly confidential. That is
what the confidentiality thing is all about.
I do not expect my law clerks to not talk. If they want to
go out and say I am not a very good judge, that is up to them.
If they want to go out and say they do not like the fact I am
bald, then that is fine. We are not hung up on those things.
At the most pertinent stage of things, I think we recognize
there are bad apples in any barrel. But I think, by and large,
we all recognize we are held to very high standards for the
reasons that you have stated, and that we should be held
accountable if we violate those standards.
So, I think once some of this informational situation is
taken care of so that people understand where things are, I
believe that will help. Because I think a lot of it is tied up
in what I have just described.
Mr. Duff. And I think it is education, too, within our
branch and with our employees. Many of them were unaware of
these outlets that already exist.
Mr. Cartwright. And protections.
Mr. Duff. And protections. In particular, the protections
against retaliation. They were simply unaware of them. So, we
have to elevate and raise the level of training.
And one of the things we are going to do in the orientation
process for new employees and new law clerks is have a separate
session on this topic. It will not be on the same day you are
getting all your orientation about your insurance coverage,
where you are inundated with paperwork and it is just added on
to that. We are going to have a separate day of orientation
that educates our employees and law clerks as to----
Mr. Cartwright. Is that new?
Mr. Duff. Yes, sir. Yes.
Mr. Cartwright. Thank you. I yield back, Mr. Chairman.
Mr. Graves. Thank you, Mr. Cartwright. The gentleman from
Iowa, Mr. Young, is recognized.
THE JUDICIARY'S RELATIONSHIP WITH GSA
Mr. Young. Thank you, Mr. Chairman. James, how are you
doing? It has been a while. Still a big Wildcat fan?
Mr. Duff. Oh. Yes, sir.
Mr. Young. Yeah.
Mr. Duff. We have Georgia football. We have Loyola
basketball. We have got it all covered up here today.
Mr. Young. Nice to see Kansas represent the South.
Mr. Duff. Do not leave.
Mr. Young. Well, I see GSA did not make a request for a
courthouse this year. What is your relationship like with GSA
and do you feel that we are addressing the judiciary's needs
for courthouses adequately? Just tell me about your
relationship with GSA on that.
Mr. Duff. Thank you for the question. Our relationship with
GSA is improving. They have challenges. And we have challenges
with them, certainly in certain pockets of the branch and in
certain courts.
But we have been working with them very closely on a
validation initiative that has recalculated how they determine
what our rents will be. We have to pay rent to GSA for our
courthouses. And we have seen great improvement there and a
willingness on the part of GSA to work with us on that. So, I
would say that the relationship is improving greatly.
Mr. Young. Yeah, we were just--the Third District, Des
Moines, is going to get a new courthouse here soon and GSA has
been working on that. I just wondered what your involvement was
on that? Do you have certain specification, the metrics that
have to be met for the land and the site, and that kind of
thing?
Mr. Duff. We do. And we understand that for the courthouse
in Des Moines, there is progress that is being made with GSA
and with the city of Des Moines. I know the location of it was
an issue.
Mr. Young. An issue that has been corrected simply through
making sure that there is participation by the folks in the
Third District. Transparency. A chance to weigh in and just
have their voices heard. So, thank you for that help.
Mr. Duff. Yes, sir.
COURT SECURITY OFFICER STAFFING
Mr. Young. I know you are all in your third year of the
phased implementation of the new court security officer
staffing standards. My understanding. And I see you have
requested 35 new CSOs when last year the number was flatlined.
And I wonder, here with this new request, is this
sufficient? Are you simply acting within your budget
constraints? Or are you really pushing for the number that you
need? Tell me a little bit about that number.
Judge Lungstrum. Thank you. That is an excellent question.
When the Marshals Service came to us a few years ago and said
that they felt that we needed to increase the number of CSOs by
almost 350, both the Marshals Service and the judiciary
recognized that that was something that would have to be phased
in over time. That was not only from a budgetary standpoint,
but also simply from the standpoint of the ability to bring
people onboard. It is not that easy to hire a CSO, as it all
turns out.
Well, that is kind of what caught up with this zero-out of
the past round. That was simply catching up with what the
Marshals Service was able to do to get us to the number of CSOs
that they could bring onboard.
Now we believe we are in a position to bring an additional
amount onboard each year incrementally for the next several
years to bring us up to 100 percent. We have met about 50
percent of that goal now, with this request, and over a few
more years then we will work our way up to 100 percent.
I think that is reasonable. The need for those CSOs, I
think, is for forward watch positions to be concerned about
active shooters or terrorism; for positions in the control
rooms, particularly in the large courthouses, to monitor
cameras; and especially positions at the screening lanes.
Notice, that could be the Rayburn Building today, which had a
huge long line.
Well, we have that same situation with courthouses, only a
lot of those folks coming in maybe are not just here to talk to
their representatives about what they would like to have going
on in their district, but some of them are coming in with maybe
a different mindset. So, it is important to have an adequate
physical presence in the screening lane. And we have had some
problems in the past with inadequate staffing of the screening
lanes.
But I think the Marshals Service is confident that if we
continue on pace with this request and keep this request up
over the next several years--and probably increasing a little
bit incrementally--we will be fine.
Thank you for that interest, though, because it is very
important. Of course, that security is for the public that is
there on their business, as well as the courthouse staff. It is
a very important public issue that we are concerned about.
Mr. Young. Well, unfortunately, we have to worry more and
more about security in this world. And I wish we did not have
to do so, but we have to take precautions. Thank you.
Judge Lungstrum. Yes.
Mr. Young. Mr. Chairman.
Mr. Graves. Thank you. And Judge, I wanted to inform you
that your representative, Mr. Yoden is doing his duties. He is
actually chairing another subcommittee--his own subcommittee--
at this moment and was unable to be here.
Judge Lungstrum. Well, would you please tell him I missed
seeing him today, and, ``Rock Chalk.'' Would you pass that on
to him?
Mr. Graves. I will--I wanted to make sure you knew he was
working hard on behalf of his constituents.
Judge Lungstrum. I will report to the people of Kansas that
Mr. Yoder is doing his job.
CHANGING ENFORCEMENT PRIORITIES AT THE DEPARTMENT OF JUSTICE
Mr. Graves. One final thought from me, and maybe you each
could address. I know the administration has taken a new
interest in immigration and enforcement policies. How is that
impacting the judiciary, and your budgeting, and your
forecasting? How do you account for that? Is it just more court
time? Maybe just give us a feel for that, what you are
experiencing.
Judge Lungstrum. Thank you. That is a very good question.
As of yet, the impact has not really hit. And that is largely a
function of how long it has taken to get new U.S. Attorneys in
place.
It is amazing how much difference that makes. If you have a
district that does not have a confirmed U.S. Attorney, they are
kind of out there just doing whatever they have been doing.
When they get a new U.S. Attorney in there, that individual
tends to set an agenda and maybe follow an agenda that is maybe
being driven from higher up.
So, we have not seen yet as much of a dramatic increase as
I think we expected to see or are probably going to see. And it
is not our practice to budget for something that we think is
going to happen. We do not want to come to you and say, ``Hey,
pie in the sky. Give us some money.''
But if, in fact, enforcement is more aggressive, as the
administration has indicated it would be, that will affect us
at all levels. It will run up a need for defenders or for CJA
panel counsel. It will run up probation office workload. And of
course, as it is, our five border courts have 75 percent of the
felony immigration cases and 25 percent of the felony drug
cases across the country. And this is just in five courts on
the border.
But those immigration cases, they affect Chicago. They
affect Kansas City. I am sure they affect Dalton, Georgia. They
affect people all over the country because folks do not just
stop when they get across the border. They come to various
places. And so, therefore, it can have an impact on the
workload of judges throughout the United States. But we have
not seen the impact yet. We just anticipate it.
Mr. Graves. So, you are prepared and have the ability to
monitor the pipeline.
Judge Lungstrum. Absolutely. And it is something we are
really keeping track of. And if it comes to pass in the next
year, that would be factored in probably to requests that we
make.
Mr. Graves. Great. Thank you for your explanation. Mr.
Quigley, you are recognized.
PANEL ATTORNEY COMPENSATION
Mr. Quigley. Sure. Well, to finish the thought on how
different pay matters. We talked about Federal Defenders and
jurors. But the panel attorney, we got a bump again, six above
COLA increase in the hourly payrate. Are you able to gut,
Judge, just how much that pay impacts willingness to
participate and quality of attorneys? Have you been able to do
that over recent years?
Judge Lungstrum. I can do that sort of backwards because I
cannot tell yet what this actual increase is going to do, other
than anecdotally in talking to my friends who are CJA panel
lawyers or people who appear in my court who are CJA panel
lawyers, who are very grateful. And of course, I tell them it
is Congress. We have been asking but it is Congress who
delivered for them. So, they are very appreciative.
But what we do know is that the survey that was done as
recently as 2015 showed that over a third of judges had
encountered difficulty getting lawyers to serve on CJA panel
appointments. And over half the time that is because of pay
issues. That same survey reflected that numerous lawyers on the
CJA panel were indicating they just simply could not afford to
do it because their regular average hourly rate is really about
twice of what the panel rate is now. Even with the increase to
$140 an hour they have average overhead that is maybe more than
half of that $140 an hour.
And really, the struggle is this. I know it is great that
we got that $6 increase. I cannot thank you enough. I would
like to get that next $6 increase because we need to keep these
really well-experienced CJA panel lawyers. Being a Federal
defense lawyer is not just being a good advocate. It is not
just being Perry Mason, coming into the courtroom, and showing
that somebody else did it.
It is being an expert on the intricacies of the sentencing
laws and various other Federal statutes that are so
complicated. When I first became a judge, I had been mainly a
civil practitioner, and I was shocked to see the guideline
manual. It was like the IRS code. You cannot just be a good
lawyer and be handed a Federal criminal case and be expected to
defend it competently.
So, you need to be experienced and you need to understand
what is going on. So, we have implemented programs to try to
bring new lawyers in and train them--with the Second Chair
program, for example, that we are very active with in our
district to be able to build up that experienced bench, so to
speak. So, I think it is very important that we continue to
fund the CJA panel rate at as close as possible within your
budgetary constraints to what the law allows because I think
that benefits everybody. It benefits the public because it is
in the interest of justice to make sure people have a vigorous
defense.
But a lot of times a vigorous defense involves knowing when
not to have a trial. Or knowing when to resolve something in a
way that saves time and money for everybody down the line. So,
in some ways, having really good counsel works to everybody's
benefit, not just the individual who is being represented. So,
I do not mean to get up on my high horse here, but I think it
is a really important point.
Mr. Quigley. Yes, for me and those who I knew who did a lot
of this is it was some sense of responsibility to help. But
none of them are going to make a living.
Judge Lungstrum. Well, certainly in Chicago they are not,
and not even in Kansas City, probably.
Mr. Quigley. If they had time----
Judge Lungstrum. Right.
Mr. Quigley [continuing]. All the overhead is there with
their office and staff. Sort of the logic is the marginal costs
are not as great as in others. And frankly, especially during
hard times, there are fewer and fewer people who can just pay
outright.
Judge Lungstrum. Right, and there is a pro bono component
to it, in a sense. As you say, a lot of lawyers do it because
they think it is a good thing to do. But it is not fair either
to expect people to come in and devote the quantity of time
that it takes. You might be appointed to a criminal conspiracy
trial that takes weeks. Well, okay.
That means you are not out doing something else. You are
sitting there in Judge Lungstrum's court. I have had 10 or 12
defendant trials where the Federal public defender maybe has
one of those defendants and the other ones are all CJA panel
lawyers. Well, they are sitting in front of me for weeks at a
time and that is really all they are able to do.
Mr. Quigley. Final point, I think it impacts the rest of
their practice.
Judge Lungstrum. Yes, it does.
Mr. Quigley. They are not out getting other people.
Judge Lungstrum. It does.
Mr. Quigley. Thank you.
Mr. Graves. Thank you, Mr. Quigley. I have no further
questions, and I do not think Mr. Quigley does either. I do
want to thank both of you. Thank you for joining us today for
your first hearing before us. Fantastic job.
I want to thank you for your preparation and your
thoughtful responses, as well for presenting the budget on
behalf of the judiciary and how that impacts each of our
districts in its own unique way. Good to see you. Good to be
with you today. Thanks for your work. And with that, this
hearing is adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wednesday, April 18, 2018.
OFFICE OF MANAGEMENT AND BUDGET
WITNESS
HON. MICK MULVANEY, DIRECTOR
Mr. Graves. Good morning! We will call this subcommittee to
order. I would like to welcome today's witness, my good friend
from South Carolina, OMB Director Mick Mulvaney. The OMB
Director is always a headline hearing, but this is truly a
first for us. We also have the Consumer Financial Protection
Bureau Director with us, testifying before the Appropriations
Committee.
So, Director Mulvaney, is this the first Appropriations
Committee meeting you have attended as the Director of the
CFPB?
Mr. Mulvaney. Yes, sir.
Mr. Graves. We are delighted to have you. Thank you--in any
capacity, we are always glad to hear from you. We appreciate
your service, particularly your dual-hat capacity in which you
serve the administration and our country.
Before we get to the details of your budget request, I
would like to point out how far we have come since the last
time you testified before this subcommittee. 2017 was a great
year of accomplishments, and I know you played a big role in
moving the administration's pro-growth vision forward. The
results are making a real difference for American families, for
my constituents, and for our constituents across the board
here.
For example, unemployment is at a 17-year low; 2.5 million
new jobs have been created since President Trump took office
and you took over in your new role. Wages are growing at nearly
3 percent. That is the fastest growth in almost a decade. Small
business optimism is at a historic high level. We all know this
didn't happen by accident. This happened because Congress, the
administration, yourself, we all worked together to reform the
Tax Code for the first time in more than three decades. It has
happened because we slashed nearly 1,500 unnecessary rules and
regulations. It has happened because we freed businesses, big
and small, to grow, and to thrive.
Director Mulvaney, let me just say thank you. Thanks for
the important role you have played in all of this over the last
several months.
Now, on to today's hearing. In addition to your budget
request, there are a few areas I would like to discuss in a
little bit more detail, and I know Ranking Member Quigley would
as well.
We have all seen the reports of the rescissions package
from the White House. Overall, I think this is a good tool. It
is a good idea. I am interested to hear your thoughts as we
move forward. But I would like to encourage you, as we have
discussed, to reach out to members of the authorizing
committees, reach out to members of the Appropriations
Committee and committees of jurisdiction about the areas under
consideration. I think you will find great cooperation there.
I think it is safe to say some Members of Congress have
many great ideas about where we can continue to save taxpayer
dollars, and we would all like to hear more about how you plan
to use this tool and your congressional outreach plan as well.
Finally, I am curious to hear about your work as the Acting
Director of CFPB. Prior to your tenure, this agency earned a
reputation as an unaccountable, unconstitutional Washington
bureaucracy. I am interested to hear a little bit more about
your efforts to rein that in and to reform this agency.
So we look forward to hearing from you this morning. Before
we hear your testimony, I would like to recognize Ranking
Member Quigley for any remarks he may have.
Mr. Quigley. Thanks, Mr. Chairman. Thanks for holding this
hearing.
Director Mulvaney, welcome back. This is your second
appearance before this subcommittee in your capacity as OMB
Director. Thanks again for making time to be here.
Obviously, we are primarily here to discuss OMB's request
for its own budget needs in fiscal 2019, but one of the OMB's
core responsibilities is the production of the President's
budget governmentwide. I understand that cheers some and
disappoints others, but it is clear that the President's budget
would create an annual deficit of $984 billion in its first
year. This trend continues in subsequent years, adding up to a
grand total of $7 trillion over 10 years.
To make matters worse, the President's budget fails to
honor the recently passed Bipartisan Budget Act by funding
agencies at $57 billion below the new nondefense discretionary
cap.
It is easy to write off the importance of a category within
a title of nondefense discretionary, but just so we are all
clear on this: This category of funding, where your budget cuts
more than $57 billion below the cap is where one finds
resources for activities including veterans' programs, law
enforcement, diplomatic operations, education, research, and in
fact; this is precisely where the government is poised to
invest in the very efforts that boost jobs and improve economic
security. And yet your budget seeks $103 million for OMB, a 2-
percent increase above 2018, this after your agency received a
6-percent increase, by far the largest growth in salaries and
expenses across all the agencies in the entire financial
services bill.
By comparison, the salaries and expenses account was cut by
10 percent for the Department of Treasury, 18 percent for the
Federal Communications Commission, 2 percent at the Federal
Trade Commission, 13 percent at GSA, and the list goes on.
In your testimony, you suggest that your request reflects
belt-tightening since, compared to 527 FTEs at OMB in 2010,
your request of 493 is a significant reduction. But that is not
actually a fair representation.
While President Obama was in office and you were serving in
the House, the FTE numbers at OMB dropped to an all-time low of
457, thanks to the refusal of congressional Republicans to
provide adequate funding. In fact, you yourself voted for bills
that would have cut it even below that level. Yet, as of 2018,
you expect to be back up to 487, fully 30 FTEs above the level
in 2013 and 2014. And now you are asking for six more FTE.
Meanwhile, your budget request for other agencies under the
jurisdiction of this subcommittee includes cut after cut to
agency administrative budgets and staffing levels. And that is
just the FSGG subcommittee.
Director, while you leave $57 billion on the table, which,
by the way, was passed through Congress on a bipartisan basis
and signed into law by the President, these are just some of
the significant activities and functions that are eliminated in
your budget request: the Legal Services Corporation, the
National Endowment for the Arts, the National Endowment for the
Humanities, the Corporation for Public Broadcasting, the Global
Climate Change Initiative, the Manufacturing Extension
Partnerships, the Rural Business and Cooperative Services, and
the Economic Development Commission.
We look forward to discussing these and other issues with
you today.
Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley.
Director Mulvaney, you are recognized to present your
testimony, and then we look forward to asking you a few
questions.
Mr. Mulvaney. Mr. Chairman, thank you very much, as always,
for having me.
Ranking Member Quigley.
It is good to see all my former colleagues again.
By the way, to your opening point about have I ever been
here before as the chairman or the Director of the Bureau of
Consumer Financial Protection--which, by the way, is the formal
name of the CFPB. The CFPB technically doesn't exist. We have
tried to start using BCFP instead of CFPB. It is very difficult
to do, but the actual name of the agency, the Bureau, is the
Bureau of Consumer Financial Protection. And no, a Director has
never been before any Appropriation Committee before because
the Bureau does not receive appropriations. So I look forward
to maybe talking about that some today.
Real briefly. I am not going to read my opening statement.
You all have seen it. I know we get a chance to talk about it
at your pleasure. I will point out that we are asking for a
small increase from 101 to 103, so just under 2 percent, much
of which is going to be directed to the Office of Information
and Regulatory Affairs. We can talk about that. We can talk
about the ITOR budget.
I do want to raise two specific issues which I do address
in my opening statements, which I want to draw to your
attention. Number one is to thank you for what we call the TMF,
the technology modernization fund. You all put a bunch of money
in there. We really appreciate that. This is I think a very
innovative program where we have a group of folks from all over
the executive branch who get together and essentially we have a
competitive process where we will pick programs that we think
might actually work, and we will spend money on those to try
and update our IT.
I encourage you folks to continue your oversight of that.
We would be happy to share information with you. We think it is
one of the most innovative programs that we have come up with
together, the administration and the Congress. We look forward
to keeping you all abreast of the progress there.
The other is to draw your attention to something that is
not functioning as well, which is the Federal Building Fund.
This is the money we use for buildings. It is one of the rare
things where the name is actually what it is. About $7.2
billion has been diverted from that in the last several years,
and we fear that, if that trend continues--and it did continue
in the omni--that it will start to materially impact our
ability to maintain the physical infrastructure of the
government. But that is all in the opening statement.
The fun part about these hearings for me is that I am
liable to be asked everything, literally everything. You
mentioned our fiscal year 2019 budget. Mr. Quigley talked about
the proposed fiscal year 2018 budget we sent to Congress, and
in fact, I think we sent two different versions of it because
of the various pivots and so forth.
My guess is I will get questions on rescissions, SNAP,
something called SNPLMA when Mr. Amodei walks in, the Southern
Nevada Public Land Management Act, and, obviously, the Bureau.
So all I can tell you is I enjoy it. It is a fascinating
intellectual pursuit for me to sit here and see what the
questions are going to be.
All I can tell you in advance is there is no way to prep
the entire Federal Government. So it may be that some of my
answers are ``I don't know; can I get back to you?'' And I look
forward to working with you folks on getting all your questions
answered as best as we possibly can.
With that, I thank you, Mr. Chairman.
Mr. Graves. Thank you. I have not known you to answer ``I
don't know'' before. So, if we reach that level, we have dug
pretty deep today.
Mr. Mulvaney. I am up-to-date on SNPLMA, I think, when
Amodei gets here.
Mr. Graves. Well, I will start with the rescissions. That
seems to be something in the news of late after the recent
budget and passage of the spending bill that was signed into
law by the President. And I think this committee knows that the
House, the Senate, and the White House were working together to
come up with the recent budget agreement.
As you have discussed previously, there is a rescission
package being presented by the administration. Can you just
give us an update on that? And, prior to that, let me just say
for our committee's sake that I think we all recognize this is
a useful tool. It has been used by administrations going back
many, many years, but it is not something that we have used
recently. So it is new, in that respect, and there may be a
little bit of education here. But I think it is a useful tool,
especially in conjunction with consultation with the
authorizing committees and appropriators, so I appreciate you
bringing forward this tool for more efficiency.
Mr. Mulvaney. Thank you. It is new, but it is certainly not
unique. It is new to many of us, myself included, because if
you have only been here since 2010, you have never done one of
these things before. Actually, that is not true. If you only
have been here before 2000, you have never done one before.
It is part of the 1974 Budget and Impoundment Act. Every
President that was able to use it--Ford, Carter, Reagan, Bush,
and Clinton--used them. So Presidents from both parties with
control of Congress in both parties used rescissions in the
past. For various reasons, it was not used during the George W.
Bush administration nor was it used during the Obama
administration. But there have been I think several thousand
rescissions sent to the Congress by the White House over the
course--since the 1974 act was passed into law.
So, while it is new, since it hasn't been done since 2000,
it is not at all unusual. In fact, there are a lot of folks out
there now who are saying that they would never countenance
voting for one who have actually voted for them in the past,
which I find interesting.
The system works very simply, which is that we find things
either in the omnibus or that are not in the omnibus that we
just don't think you should spend the money on. That is
important, by the way. It is not just the matters that were
addressed in the last spending bill. There is money that has
been previously appropriated that hasn't been spent yet. These
are carryover funds, they are zero-year funds, they are
multiyear funds that we might look at and together say: You
know what? Even though we thought 4 years ago that was a good
program to spend some money on, either we don't need to spend
any more on it or our priorities have changed. And rescissions
give you the ability to do that.
So we look forward to working with both the House and the
Senate to send those down. If we do, the process is
fascinating. If we send you a rescission package, then the
spending on whatever we propose is automatically stopped for 45
days. Then there are various ways for votes to be taken in the
House and the Senate that bypass the ordinary rules. One-fifth
of your body can require a vote in the House. One-fifth of the
body can require a vote in the Senate. And it is a majority
vote in both bodies. So it is one of those rare things, again,
under the Budget Act of 1974, as we deal with reconciliation,
for example, that only requires a simple majority in the
Senate.
So it is a fascinating tool, a tool that has been used by
both parties over the course of the decades, and we look
forward to working with you, Mr. Chairman, and whoever is
interested in maybe bringing some sanity to the spending to see
what we can do together.
Mr. Graves. Can you give us any sense of timing? Is it one
package, or is it something that can be done throughout the
year? Is it tethered to the passage of a spending bill?
Mr. Mulvaney. No, it is not tethered to the passage of a
spending bill. The only limitation seems to be that we cannot
send you the same rescissions twice. We could, I guess, in
theory, send you a thousand separate rescissions, which we are
not going to do, but we can send some now, some a month from
now, some later on in the fall. Again, that just depends on our
discussions with you folks and our own internal discussions as
we sit there and try to figure out what would be the
appropriate things to send down for you folks to consider to
rescind on spending.
Mr. Graves. And timing?
Mr. Mulvaney. Hope to have something here in the next
couple of weeks. I know that we don't have any big House breaks
again until the Fourth of July. So it is a chance to do a good
bit of work, with the House at least, between now and
summertime.
Mr. Graves. Great. Thank you.
Mr. Quigley.
Mr. Quigley. Thank you, again, Mr. Chairman.
The appropriation bills passed in 2017 and this year, they
stated that prior approval from the Appropriations Committee
must be secured before an agency can reprogram funds for a
variety of purposes, including creating or reorganizing
offices, programs, and activities.
It has come to our attention that at least one agency under
this subcommittee's jurisdiction initiated a reorganization
plan that involved the closing of two regional offices without
notification to the subcommittee and the committee, let alone
securing approval.
The agency contended that they had been authorized to
proceed on account of OMB's approval, but that is not, in my
mind, what the law stipulates. What is your view on the
responsibility of agencies to follow the law? We are talking
about Federal Labor Relations.
Mr. Mulvaney. Okay. That was my question, is which--because
that one didn't immediately come to my attention.
The answer is we follow the law. That is what we do, right.
I am not familiar with the specific limitation. We are working
on a governmentwide reorganization, which we have been very
public on. And I guess, to the extent we have been spending
time on it, we have been spending money on it. I am not sure
about the specific closure of the two--is it the Federal Labor
Relations board offices you are talking about?
Mr. Quigley. Federal Labor Relations Authority.
Mr. Mulvaney. Mr. Quigley, I am sorry. Not only am I not
familiar with it, I have never heard of that. So I will have to
find out what that is all about.
Mr. Quigley. They are moving forward with consolidation, is
the understanding. It is within the appropriations bills that
there at least must be notification--we believe approval--
because this is an alteration.
Mr. Mulvaney. I guess my question, Mr. Quigley, and I don't
know the answer off the top of my head, is closing an office
that the agency considers to be surplus, is that technically a
reorganization?
Mr. Quigley. Sure.
Mr. Mulvaney. I don't know the answer----
Mr. Quigley [continuing]. If you are moving, I think the
definition of reorganizing, because you are moving people
around. Let's have this discussion.
Mr. Mulvaney. I would be happy to.
Mr. Quigley. If you could get back to us with how you
believe this constitutes--how this doesn't seem to apply to the
appropriation bills passed, again, in 2017 and this year. But
they do state that prior approval from the Appropriations
Committee must be secured before an agency can reprogram funds
for a variety of purposes----
Mr. Mulvaney. We didn't do that, right? We are agreeing we
didn't do that.
Mr. Quigley [continuing]. Including creating or
reorganizing offices, programs, or activities.
Mr. Mulvaney. Right.
Mr. Quigley. It seems like it is in that--give us your best
argument, if not today, then at some point, why this doesn't
apply.
Mr. Mulvaney. I will be happy to. Again, off the top of my
head, I can't imagine that simply closing two offices--I have
no idea how many offices they have, if it is 2 of 2, or 2 of
100--how that constitutes a reorganization. Reorganization, Mr.
Quigley, is something a lot more dramatic than that. We would
actually move functions, for example. If I have got 100 offices
and two of them are in areas that are no longer needed, I don't
think closing those offices constitutes reorganization.
Mr. Quigley. Well, let's have that discussion.
Mr. Mulvaney. Happy to.
Mr. Quigley. Appreciate it.
In your testimony, you discussed the need for OMB to hire
staff at OIRA. You are familiar with this?
Mr. Mulvaney. Yes, sir.
Mr. Quigley. With tax expertise. I understand that OMB and
IRS have agreed to a memorandum of understanding that OMB will
in fact play a role in the development and review of certain
tax regulations.
Mr. Mulvaney. Yes, sir.
Mr. Quigley. I am sort of hoping you can help us understand
this. Why is it OMB's view that it was necessary to change what
was a past practice of Treasury having independence in the
promulgation of tax law regulations? Do you understand the
distinction?
Mr. Mulvaney. I don't know what the distinction is. I would
be happy to explain the memorandum of understanding with
Treasury and why it leads to the need for the additional
personnel.
Mr. Quigley. The point being the IRS already had the
personnel in place with this expertise, and that is how we did
it before.
Mr. Mulvaney. Fair enough. That is how you have done it for
a period of time.
Mr. Quigley. The possibility of duplicative actions.
Mr. Mulvaney. No. In fact, the exact opposite is the truth.
This goes back to I think it is a memorandum of understanding
or agreement between Treasury and OMB that dates to the 1980s,
and what it did is sort of move part of Treasury out of OIRA
oversight for a variety of reasons. We think, and Treasury
tended to agree, because, again, we worked very closely with
Treasury on addressing this situation, that the practice had
grown beyond the intent of the original memorandum of
understanding.
Here is the classic example I use, Mr. Quigley. One of the
functions of OIRA is the cross-cutting, the cross-agency
analysis that we do on regulations. If Commerce passes
something or wants to do a regulation, propose a regulation,
there may be a circumstance where that impacts, say, I don't
know, the Department of the Interior. Commerce is not set up to
sort of share its information with all the other agencies in
the executive branch. OIRA in OMB performs that function for
them.
Treasury is no different. Treasury may be doing something
that is impacting Commerce, but Treasury is not
organizationally set up to do that sort of cross-cutting type
of analysis; OIRA is. And that is what we brought in. And that
is one of the reasons we were able to reach that understanding
with Treasury, because I think they acknowledged the value of
that. Again, this is a voluntary agreement between Treasury and
OMB.
Mr. Quigley. Thank you.
My time is up.
Mr. Graves. Thank you. Mr. Stewart, and then Mr. Cartwright
will be next.
Mr. Stewart. Thank you, Mr. Chairman.
Mr. Mulvaney, good to see you.
Mr. Mulvaney. Hey, Chris.
Mr. Stewart. We are proud of you and the work you are
doing. You are in the fight. I know it is not easy----
Mr. Mulvaney. It is fun.
Mr. Stewart. But you are doing a great job. The chairman
said he didn't think you would answer any questions with ``I
don't know.'' Can you tell me, Mr. Mulvaney, when is my
birthday?
Mr. Mulvaney. I am going to blame my staff for poor prep
work on that, Mr. Stewart.
Mr. Stewart. Mr. Chairman.
Mr. Mulvaney. I know Mr. Amodei's birthday because he
doesn't have one. He was sort of just hatched.
Mr. Graves. I did say I haven't known him to answer that
way. That is now new.
Mr. Stewart. Again, Mr. Director, CFPB, BCFP?
Mr. Mulvaney. BCFP, yes, sir.
Mr. Stewart. We will try to comply with your new acronym
for that.
I think--and I would be surprised if you don't agree with
me on this--I think it is one the top two or three worst pieces
of legislation ever written. It is a good illustration of
something that we have seen, and that is in the heat of the
moment--don't tell me your staff----
Mr. Mulvaney. July 15. Interestingly, however, it did not
put the year. So we saved you that one.
Mr. Stewart. Thank you. Obviously, it was many, many years
ago.
Again, it is a piece of legislation I think that is a great
example of when we legislate after a crisis, many times we
overreact. I think the PATRIOT Act is a good example of that.
Rather than being thoughtful, I think the CFPB and some of the
other--Dodd-Frank legislation is we overreacted after a very
emotional and what some people call a crisis. And it was, no
question, a dramatic event. I think, in those instances, it is
a good thing to go back and see if we can moderate or improve
some of this legislation.
One of the problems many of us have the BCFP is that it is
not accountable. It is not accountable to Congress. It is not
accountable to the President. It is not accountable to any
oversight. It is not accountable to the American people. The
Director, like yourself, is not elected in any way.
I know that you have suggested that we can do better on
that, maybe a five-person bipartisan commission. I believe you
have suggested that in the past. I would certainly support
that.
Share your thoughts on that, will you please, and how we
can actually implement some of these changes, because if we
can't do something that is achievable, then we are just
thinking. What can we do to actually bring accountability to
this?
Mr. Mulvaney. I will give you the short answer, because we
just sent our semiannual report to the House Financial Services
and the Senate Banking Committee and I encourage you folks, if
you are curious about that, to take a look. We actually lay out
the details on four specific proposals.
I will give you the big one: Please appropriate us.
Seriously, I just don't get it. I don't get why Republicans and
Democrats don't agree that maybe the Bureau should be
appropriated. I just don't understand why you all would
voluntarily give up that control----
Mr. Stewart. I couldn't agree with you more.
Mr. Mulvaney [continuing]. And the insight that comes with
it, Mr. Stewart. And this is what is important: I testified
just last week to the House and Senate and reminded them,
pointed out to them--I am sure for the first time--370 people
who work for me at the Bureau make more money than you do: 370
people.
My guess is you would never know that but for me telling
you that. You would know that if you put us on appropriations.
What else? Half of the time of our professional economists
is spent doing self-directed research on things that can have
nothing to do with financial services. You all would never know
that but for me telling you that. But if you put us on
appropriations, even if you want to spend more, you want to
spend less, that is not the point; the point is it brings that
sunshine, and you get to ask questions of what goes on at the
Bureau that you don't get to ask otherwise.
I am voluntarily giving it to you because I want to sort of
open the doors, but if a future Director doesn't want to, he or
she doesn't have to. In fact, I think I have made news by
pointing out that I did not have to answer questions. I did not
have to respond to questions at the Senate or the House the way
the statute is written right now. The statute can be improved.
There are a bunch of ways to do it. Putting us on
appropriations, making us come to this committee, would be the
best thing you could do.
Mr. Stewart. I appreciate that. We are glad you are here.
We are glad you are sharing that information. But the next
Director might not. I think that is our concern. Once again,
though, would you address the five-member board? Do you think
that is a step forward? Is it possible? Would you support that?
Mr. Mulvaney. I would. It was not in our four things
because we focused on things that we thought would have more
immediate--I think doing the five-member commission, which I
absolutely support, that is not my point--I think that prevents
some of the dramatic sways in the direction that the Bureau can
take. All right. I am a different person than the previous
Director, and he wanted to go this way, and I wanted to go this
way. All right. I think if you have a five-member commission,
it sort of reduces the dramatic swings that you might get from
a single-person Director. I think that is advisable. I think
that the industry has the right to know what the future holds--
I think consumers have the right to know what the future
holds--and not be subject to this wild uncertainty based upon
who is running the place. So, yes, I absolutely support that
proposal.
Mr. Stewart. Thank you, Mr. Mulvaney.
I will just conclude. My time is nearly up. I imagine or
try to imagine when this legislation was created, what is it
that they thought was so sanctified about this board or this
organization that it could not have any oversight by anyone
ever?
Mr. Mulvaney. Elizabeth Warren didn't think that a
Republican would ever win a Presidency.
Mr. Stewart. Yeah.
Well, thank you.
Mr. Chairman, I yield back.
Mr. Graves. Mr. Cartwright, and then Mr. Moolenaar.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Mulvaney, since being placed at the helm of the
Consumer Financial Protection Bureau, the CFPB, I am troubled
that you have essentially been working against the work you
have been entrusted to do because you don't agree with the aim
of the CFPB.
For example, you froze hiring. You froze new protections
going into effect. You froze civil penalty payments for your
first 30 days. You issued a memo to your staff stating that the
CFPB will no longer, quote, ``push the envelope,'' unquote. You
have brought no new actions against financial institutions.
And, as reported by Reuters, you are dragging your feet on the
Equifax investigation. In an interview with the Credit Union
Times in 2014, you described the CFPB as a sick, sad joke. And
then you reconfirmed those sentiments to Senator Jeff Merkley
during your OMB confirmation hearings.
On February 13 of this year, an article that you authored
appeared in USA Today, and you stated, referencing the CFPB,
quote: ``If I am going to run a government agency like that, I
am going to do it with humility toward those we serve,''
unquote.
You have changed the CFPB mission statement to focus
foremost on deregulation. In January, you issued requests for
information, RFIs, and specifically asked for feedback from
financial institutions on how they would most like to be
regulated.
Can you please clarify for us who it is you serve with
humility and why it seems consumers' interests--which was the
point of the CFPB--it seems consumers' interests under your
tenure have taken a back seat at the Bureau, a bureau created
to protect them?
Mr. Mulvaney. I serve the law. I serve the statute. That is
what I do. That is what a member of the executive branch does:
I execute the law.
I can go through these very quickly, if you want to. We
didn't freeze the Civil Penalty Fund for 3 days. I think we did
it for about 24 hours just so I could figure out where the
money was going.
Mr. Cartwright. Yes, you did. You froze it for 30 days.
Mr. Mulvaney. No, sir. Actually, I think we made the
payments right after I was there. I was appointed November 22.
I think the first checks went out the end of November, the
first week in December. And I approved them the second or third
day--first or second day I was there.
The data collection freeze, I haven't talked about that. We
do have a cyber problem over there. No new actions. That is a
true statement. Mr. Cordray didn't make any in his first 6
months. We have pursued 25, and we have about 100 ongoing
investigations.
The Reuters article is just flat out wrong, which anybody
could look at--could confirm by simply looking at Equifax's 10-
Qs and 10-Ks.
My conversations with Mr. Merkley are always a lot of fun.
The mission statement did not put de-reg first and
foremost. We simply added it because it is in the statute. The
statute says we are supposed to look for overly burdensome
regulations and so forth, and that had never been in the
mission statement for some reason in the previous
administration. So we added that to the mission statement
because it is in law. We serve the law. You all make it; we
execute it. That is the way it is supposed to be.
Mr. Cartwright. How are the American people supposed to
have faith in your ability to lead the CFPB when you are
actively trying to transform this agency from a watchdog for
the American consumers into a lapdog for the financial
institutions they are supposed to regulate?
Mr. Mulvaney. I have the ability--we have 26--when I took
over, we had roughly 26 lawsuits ongoing. I had the discretion,
the absolute discretion, without answering to anybody,
including you folks, of dismissing all 26 them. I dismissed 1
because the other 25 I thought were pretty good lawsuits. We
were actually executing the law, going after bad actors, which
we will continue to do, under my leadership. That is how you
convince people back home that we are still taking care of
consumers.
Mr. Cartwright. I want to talk about the 3-percent growth
that you talk about a lot.
Mr. Mulvaney. Yes, sir.
Mr. Cartwright. You have said, you have warned Americans
not to trust headlines bellowing slower growth and a stalling
economy or projections saying sustained 3 percent growth is
unreasonable.
As you know, the CBO, the Federal Reserve, and reputable
private institutions have stated that 3 percent growth--we all
want that, we would all love that--but these reputable sources
have said that should only be expected for the next 1 to 2
years and that growth will settle at around 1.9 percent for the
following 8 years.
Can you tell us specifically why your growth projections
outstrip CBO, Federal Reserve, and reputable private economic
institution projections, they are so much higher than these,
and why the American people should trust you and not these
reputable sources?
Mr. Mulvaney. Sure. Because we have been right so far, and
the CBO has been wrong. That is why they should trust us. The
CBO said that growth this year--with Obama leaving office and
us coming in, the CBO said growth this year would be about 1.9
percent. We are going to be just under 3 already, by the way,
which is 3 years I think sooner than we thought we would get it
when we first drafted the budget. So we have been right so far.
Yes, the CBO has finally found religion and decided that
the economy is going to grow faster than 1.9 percent this year,
which is why they raised their projections for this year and
next year. But then, the year after, they fall back into the
same mistakes they made before of assuming that 1.9 percent
growth is the new normal. We absolutely reject that.
Why do we think it is sustainable? Because we have done a
lot more than just lower marginal rates. I would argue too, Mr.
Cartwright, that lowering rates like the Bush administration
did in the early 2000s, is a short-term boost to the system. It
is a sugar high. We have done a lot more than that. We have
changed the fundamental structure of the American economy in
how we create and tax wealth. It goes well beyond taxes and
deals with things like our deregulatory policies, our energy
policies, our trade policies. We think we have actually changed
the fundamental structure, and that is why we think 3 percent
growth is sustainable.
Mr. Cartwright. Mr. Chairman, I yield back.
Mr. Graves. Mr. Moolenaar and then Mr. Bishop.
Mr. Moolenaar. Thank you, Mr. Chairman.
Director Mulvaney, good to see you again.
Mr. Mulvaney. Mr. Moolenaar, sir.
Mr. Moolenaar. Last year, we discussed the Soo Locks.
Mr. Mulvaney. Yes, we did.
Mr. Moolenaar. As you know, they are in northern Michigan.
Your office was kind enough to work with us on clearing up a
couple of issues. That being said, the Soo Locks, specifically
the Poe Lock, remains a single point of failure in a multi----
Mr. Mulvaney. Did you just say Poe Lock?
Mr. Moolenaar. I know. I get a hard time every time I say
that. It is the Poe Lock.
Mr. Mulvaney. I am as much Polish as I am anything else. I
just don't know if I should take that, Mark.
Mr. Moolenaar. Well, a Homeland Security report dubbed the
Achilles' heel of the Great Lakes navigation system and the
North American industrial economy. Nearly 100 percent of our
domestic supply of iron ore flows through this single lock, and
a shutdown could cost 11 million Americans their jobs.
Last year, when we talked about this, you mentioned you had
recently found out that OMB uses a discount rate of 7 percent
whereas the Army Corps of Engineers uses a discount rate of
3.125 percent. In the unique situation we have with the Soo
Locks, I remain concerned that policy, use, and feasibility
analysis don't accurately assess or reflect the value and
national significance of a project, as you know, that could
significantly change how the project is viewed on paper.
Since that time, have you been able to determine why those
two rates are used, and are there any changes that can be made
that would help improve this process?
Mr. Mulvaney. It is a historical--I don't think it is
statutory--it is a historical thing that OMB has used a number
and the Army Corps has used a different number. We don't really
think it changes many outcomes because, as long as we look at
all of our projects at OMB with the same discount rate, it
doesn't prejudice one program over another.
We are looking at a bunch of different ways to change the
way we analyze this, along with the Army Corps, to sort of, for
example, prioritize non-Federal shares. But I do know that
there was $28 million for this project in the budget this year,
which includes $3 million for dredging and $2 million for gate
repair. So we did take your words to heart last year,
recognized the importance of this, and look forward to
continuing to work to improve that infrastructure.
Mr. Moolenaar. Because it is a 50-year-old piece of
infrastructure--and I appreciate the maintenance efforts in
trying to keep it up and running--but I think, in the long
term, even in the near short term, we are going to have to have
a new lock there. I just don't see another way around it.
I think the Assistant Secretary of the Army for Civil
Works, Mr. James, is planning on taking a trip to the Soo
Locks. I know he was interested in having someone from OMB go
along with him to review the project. If that is something you
could support, I think it would be a big help.
Mr. Mulvaney. We have done that for several Members of
Congress in both parties and Governors as well to go out and
actually physically look at the stuff, because you are right: a
lot of times there is no substitute for actually going to look
at stuff on the ground.
Mr. Moolenaar. Thank you.
And then another topic we discussed last time was the Great
Lakes. As you know, the Great Lakes hold nearly 20 percent of
the world's fresh water and 90 percent--95 percent of our
Nation's supply of fresh surface water, and drinking water for
48 million people. They are vital for interstate and
international economic commerce, bordering two countries.
Last year, I had asked you about what you saw as the
Federal role in support of the Great Lakes. I know, in the
budget, it didn't really reflect too much support. In the
appropriations process, we have been able to fully fund the
Great Lakes Restoration Initiative, but I was disappointed to
see it was a 90-percent cut again.
I am just wondering if you are able to take a closer look
at the Great Lakes Restoration Initiative and funding that.
Mr. Mulvaney. We absolutely will continue to work with you.
And there are a lot of delegations, obviously, that are
interested because it does touch seven States or I can't
remember how many. That 90 percent reduction is actually not as
much a reduction as the previous year. When I was here last
year, I was defending a 100-percent reduction. I think one of
the points that you made was that what was unique to the Great
Lakes, at least unique in some fashion, was the international
component and some of the other factors. So we did put I think
$30 million in the budget proposal. Obviously, the omnibus
spent more than that. So we will continue to work with you on
that.
We continue to have concerns about it, Mr. Moolenaar. Maybe
the increase that we put in there last year as part of your
inquiry should just signal our continued willingness to work
with you folks.
Mr. Moolenaar. Just one last quick question on the high-
intensity drug trafficking areas.
Mr. Mulvaney. Yes, sir.
Mr. Moolenaar. Do you have a timeline for HIDTA grants and
programs to be available and what would be the best information
I could get to law enforcement agencies who might be interested
in applying?
Mr. Mulvaney. This is going to be really close to an ``I
don't know.'' My understanding is that the grants are ongoing.
Some grant programs fund all at one time. These are ongoing. So
I don't know the best way to answer your question, but we are
happy to get you some more details on that.
Mr. Moolenaar. Thank you.
Thank you, Mr. Chairman.
Mr. Graves. Mr. Bishop, and then Mr. Yoder.
Mr. Bishop. Thank you very much, Mr. Chairman.
Welcome, Mr. Mulvaney. I have got a couple of questions for
you. The first one: The President's budget request for fiscal
year 19 proposes to slow the frequency of step increases and
install a pay freeze for all employees in fiscal year 2019,
while increasing performance-based pay for workers in ``mission
critical'' areas.
GAO and the Chief Human Capital Officers Council Working
Group have identified critical skills gaps in cybersecurity,
auditor, human resources specialists, contract specialists,
economists, and generally in the science, technology,
engineering, and mathematics fields.
Can you tell me what mission critical areas will receive
the increased pay under the President's budget? Are they the
same ones that were identified by GAO and the Chief Human
Capital Officers Council Working Group, and if so, does that
mean that law enforcement, air traffic controllers, lawyers,
doctors, nurses, among others, won't receive a pay raise in
fiscal year 2019 under the proposal?
And let me just ask a second question quickly. You issued
the ``Comprehensive Plan for Reforming the Federal Government
and Reducing the Federal Civilian Workforce'' on April 12,
2017, and the memorandum lifted the hiring freeze instituted by
the President on January 23, 2017. In addition, the memorandum
sets forth steps that the executive branch department and
agencies were directed to take to fulfill other requirements of
the hiring freeze memorandum and the March 13 Executive Order
13781 on reorganizing the executive branch.
OMB was required to develop an agency reform plan, detail
agency actions to achieve near- and long-term Federal workforce
reductions, and outline agency actions to improve employee
performance.
What progress has been made on developing the agency reform
plan, and how will the reports be evaluated and reported, and
what is the schedule for evaluating the implementation?
Mr. Mulvaney. Thank you, sir.
Very quickly, on the first matter, the proposal was rooted
in data that we had that essentially--I am going to paint with
a very broad brush here; I would be happy to get more detail in
a followup, if you like--of the analysis of the way that we
paid Federal workers seemed to indicate that we overpay at the
lower levels and underpay at the upper levels.
Keep in mind, the GS system, which most of you work on--
folks at the Bureau do not, which is why they can make so much
more money at the Bureau of Consumer Financial Protection--but
the GS system was created I think in 1949 and hasn't really
been dramatically overhauled since, and it has led to a
situation where we pay entry level more than we probably
should, but we don't pay the really advanced, experienced
people as much as we should.
So, with the proposal, we say: Look, we are going to freeze
everybody and then put a bunch of money in this pot to try and
give us the flexibility necessary to reward the people that
were really performing well.
Again, I hope we can all agree, with 2 million nondefense
Federal workers, that some of them might be good at their jobs,
and some might not be. Yet we come close to paying them pretty
much the same. There can be improvements there. And that is
what our proposal was based on.
As to the re-org, we have made a lot of progress in that,
and we are hoping to I think roll it out in May, is when it is
coming out.
How do we get to that reduction we talked about? One of the
things we focused on is duplication of services. I am going to
butcher the numbers here--and I apologize because I didn't
expect this exact question--I think we have 46 different
Federal workforce training programs across 16 different
agencies. That doesn't make much sense, and it probably opens
the question as to whether or not there is duplication of
services that could be more efficiently provided.
And, by the way, we have data on some of them that actually
work. The apprenticeship program, for example, we have hard
data that says, if you go into an apprenticeship program, you
are likely to get a higher paying job than you were if you
didn't go in the apprenticeship program.
Most of the programs don't have that type of results-driven
data. So what we try and do is redirect attention to programs
that work and consolidate programs that don't.
Mr. Bishop. I thank you for those answers. On the step
increases, it seems to me that what you do when you put the
freeze there and you remove those step increases is you remove
the incentives to get people to work for the Federal Government
who are highly skilled or who have hopes of a good career that
would be remunerative to them and makes it less competitive
than the private sector.
Mr. Mulvaney. I absolutely agree, Mr. Bishop. I contrast it
with this: If you and I go to work at the Department of
Commerce and we come in the exact same day, have the exact same
background and you do a great job and I dog it, the tools
available to our managers to differentiate between our pay are
extremely limited. And we are trying to fix that. So that we do
reward folks like you in that circumstance who do good work and
make it easier to either pay me less or get rid of me if I am
performing poorly. That is what we are shooting for.
Mr. Bishop. But, normally, you do performance reviews.
Mr. Mulvaney. I do that actually at the Bureau. So it is
not exactly apples to apples because of the way we are
structured.
There used to be a five-category performance review, and
you had to be in the top two to get your step increase or
whatever we called them at the Bureau. The previous management
reduced it I think to two, either pass or fail. I think the
pass rate was 99-point-something percent. So you can
effectively get to the point where it is a completely
meaningless review process, and we are trying to avoid that. We
are trying to reward the folks who do a good job, because that
is when we can look the taxpayers in the eye and tell them it
is a good idea.
Mr. Bishop. You could have gone back to the five-step
review process.
Mr. Mulvaney. I am not going to tip my hat. I have a
collective bargaining agreement with the union. Of course, any
changes we would make would abide by all of our agreements with
the third parties and so forth. So, yes, sir, we were going to
look at ways to run the Bureau more efficiently.
Mr. Bishop. Thank you. My time is up.
Mr. Graves. Mr. Yoder and then Mr. Amodei.
Mr. Yoder. Thank you, Mr. Chairman.
Director Mulvaney, welcome back to the committee. I note
the dialogue we have been having this morning about the CFPB
and some dissatisfaction that some Members of Congress have
with decisions that you have made at the CFPB.
This committee has actually been fairly bipartisan in its
support for putting the CFPB back on budget and even has had
some bipartisan support for the five-member board. And what I
would suggest to my colleagues that are dissatisfied with your
actions is that, if we want an agency that is unaccountable to
Congress and has been called the most powerful, most
unaccountable agency ever created in the Federal Government,
then, depending on who wins the Presidency, you are either
going to love or hate what the agency does, and there is going
to be very little consistency, very little predictability, and
those problems are going to, sort of, to the victor go the
spoils.
It would be much smarter for those who proposed a CFPB in
the first place to work with Republicans to reform it to make
it an effective, consistent agency.
So I just sort of leave those comments. I think there are
real opportunities, and I would encourage my colleagues across
the aisle. I think we could really work together to reform and
fix the agency in a way that might make both parties happier.
Mr. Mulvaney, I want to turn your attention to regulatory
reform and recall Executive Orders 13771 and 13777. 13777
directed Federal agencies to create regulatory reform task
forces. And my first question would be: Have all Federal
agencies subject to this regulation successfully created their
regulatory reform task forces? And if not, which agencies, and
how far away are they from completion?
Mr. Mulvaney. I think everybody has, Mr. Yoder. If that is
not the case, we will clarify. I am trying to think off the top
of my head. Everybody has been in my office with de-reg ideas.
So I imagine they--I have not asked that specific question. We
judge them more by their conduct. And they are all working on
the issue. So I imagine they have put them together, but I can
clarify that for you.
Mr. Yoder. That would be helpful. And then my second
question is on Executive Order 13771 that required Federal
agencies to identify two existing regulations to eliminate for
every new regulation that is promulgated by the agencies.
Are all agencies subject to the executive order currently
compliant with its requirements? And, if not, do we know which
agencies aren't complying and what steps are being taken to
bring them into compliance?
Mr. Mulvaney. It may be, Mr. Yoder, that individual
agencies are not compliant right now. Because what we told them
we would do was look at them on an annualized basis. So we did
not require them to do two and then one and then two and then
one. If you wanted to create a new one and then, after the
fact, get rid of four, that was fine with us. We didn't want to
micromanage how they did it.
And keep in mind, sometimes you have to put out a new
regulation to fix an old regulation. Is that a deregulation or
not? So it was a gray area there, and we tried to give them the
flexibility. But they all know, by the end of the year, they
have to be at the two-to-one.
The good news is, I think the last time I looked at this,
writ large, we were 16 to 1 for a while and then 22, 23 to 1
after that. So we are exceeding those targets without question.
Whether or not each individual agency is at two-to-one right
now, I can't tell you.
Mr. Yoder. Well, I appreciate your work and the work of the
administration in that regard.
As we travel our districts and talk to small business
owners and entrepreneurs and folks that are trying to create
jobs and grow the economy, they feel palpable reductions in
weight from the Federal Government on their efforts to create
this economy. It is noticeable. We hear about it in the
district.
I would love to see what numbers your administration is
churning out in terms of the economic results of that, the
correlation that we are seeing.
You know, Americans now, their second biggest line item in
their budget is the expense of Federal regulation. I don't
think most Americans realize how pervasive it is in everything
they do, from buying groceries to buying a house to clothes for
their children to paying for healthcare expenses.
So that hidden tax is really a regressive tax, hitting the
poorest of our constituents the hardest, because it is a much
bigger portion of their income. And so, when we look at things
like the Clean Power Plan, one of the things that the left
conveniently leaves out is who pays for it. Right. The poorest
of my constituents, which their electric bill is maybe one of
the biggest bills they pay, are going to pay for that. The
richest of my constituents, they don't really even notice those
expenses.
So these regulatory costs are a critical part of what you
are doing when it comes to tax reform and the tax cuts that
many working families in our districts or most working families
in our district are receiving, but the regulatory reform is one
that we need to continue to press on.
Mr. Mulvaney. You make an excellent point. I have often
told the story--I think you and I have talked about this
before--everyone tells the story about how, when you wake up in
the morning and you turn on the lights, you are taxed; you go
to the refrigerator, you are taxed; you turn the water on, you
are taxed; you get on your cell phone, you are taxed; you get
in your car, you are taxed.
That same thing throughout your entire day can be said
about you are regulated. That adds additional costs on top of
the tax.
To answer your question, I don't think we have got really
solid data yet on the individual contribution of that, but I
will point out that the economy turned around before we passed
the tax bill--before you passed the tax bill. That is in large
part we think attributed to the deregulatory agenda of the
administration, things we were able to do before taxes to jump-
start the economy even before we expected to.
Mr. Yoder. I can tell you I haven't had many constituents
come and say: I wish I had a new Federal regulation that came
from an unaccountable bureaucrat to respond to and which I
don't have the personnel to handle.
That conversation has never happened. But I have had, as my
colleagues will say, hundreds, if not thousands, of
conversations or contacts from constituents who have said: This
is making it harder for me to do my job. This is marking it
harder for us to provide customer service. This means our small
banks are going to have to close. This means that we may not be
able to keep our lights on.
We all, I think, need to agree in a bipartisan way that
those regulations have a cost on people, and your relief of
them is helping the economy in many ways maybe more than the
tax cuts in a way that people don't necessarily recognize. So
thank you for your work there, and I will yield back my time.
Mr. Mulvaney. Thank you, sir.
Mr. Yoder. Mr. Amodei, and then Mr. Young.
Mr. Amodei. Thanks, Mr. Chairman. Good morning, Mick.
As you can imagine, my questions might center more on the
State of residence of the true superstar of the Mulvaney
family, which is your brother.
Mr. Mulvaney. He likes to refer to it as Re-yes, not Re-no.
Mr. Amodei. The short part first. You have----
Mr. Mulvaney. For those of you who don't know, my brother
is one of his constituents, which frightens me to death, but
that is fine.
Mr. Amodei. Which is a fact that I try to lever every
chance I get. Thank you for disclosing that, Mr. Director.
So, for the second year in a row, you have proposed in your
budget stripping the unappropriated funds in the Southern
Nevada Public Lands Management Act. I don't want to spend much
time on it; just that I have, when all else fails, read the
bill.
So I would like to ask for a followup in terms of--I get
balancing the budget and things like that--but what OMB thinks
is the authority for stripping those funds based upon a reading
of the act, which says: Here is what you can use the money for.
I assume that that is something that you are going to have
to take a look into. And if there is a strong case to be made,
we think those are available for changing from what the purpose
stated in the legislation is to put into the Treasury, then we
would just like kind of citation to that authority.
Mr. Mulvaney. Yeah. And I don't know if I have to have
specific statutory authority to propose a rescission, but I
will speak to your point, which is, listen, we would love to
work with you. Here is the problem. That money has been sitting
in that fund for a long time. You all have done some really
good work. I have got some notes here. I think you spent like
$3 billion on this program already, which is great; it has
worked to that point. But there is like $600 billion sitting
there. And some of it has been sitting there for several years.
So we would love to work with you on figuring out a way to use
it properly.
The one criticism of the plan is that you all have run out
of good projects. So let's work together to find good projects
so that you can use the money. If not, we will go back next
year and ask for it to be rescinded again just because I am not
in the job of letting $600 billion of money sit around and not
be well used.
Mr. Amodei. I appreciate that, and I look forward to that.
If there is some authority--you say, listen, I think it is
general authority or whatever it is; I am not suggesting what
the answer is--but whatever the answer is we would kind of
appreciate that offline.
I want to draw your attention to an Interior account that
deals with the Bureau of Land Management specifically. You and
I had talked about it, and it is my fault that I haven't
followed up on it since, but I will with your staff; you gave
me the name of a person.
But I want to paint a picture for you, and that is, unlike
no other State in the Nation, the Bureau of Land Management
controls the vast, vast supermajority of the State, somewhere
in the mid-80s. So I try to bring that point home by saying
this: That State director and his or her six district managers
control by a factor of 7 much more real estate in the State of
Nevada than the Governor, the legislature, any county
commission, and any city council, which means that their jobs
are very, very important and that we need to have good people
in there and they need to be staffed.
Now, I am not a guy who says more money is the answer to
every problem, but when you talk about a Western State with
growth issues like that and you have real estate slots that are
open and other slots on the nonfire side of those budgets that
have to do with the everyday multiple-use management of that
Federal estate and it takes years to do routine stuff, it is
like: Hey, we need to take a look at that.
And when I see budgets that, quite frankly, talk about
moving that agency in Nevada back to 2011 levels, I am a little
disturbed.
Now I get that we need to separate fire from the nonfire
stuff, so we will do that already, but I want to let you know
that I am going to be knocking on the door of your staff to
say: Hey, if we have got people that are misused, then let's
get them used directly, but that these kind of continuing
cuts--and I won't speak for other States, but I will just tell
you this--Mr. Stewart left--I would love to have control of 25
percent of the acres in my State. I am at about half of that.
So what that agency does in managing the Federal estate is
phenomenally important. So we are going to be coming to you as
we go through this process. We have done some stuff 10 years--
we looked back 10 years, we looked at the last year, that sort
of thing--to try to sensitize OMB as well as the budget folks,
the Under Secretary for budget purposes at Interior to go: Hey,
we need to look at what the mission is here. Is it resourced
properly? Do you need to move existing assets, things like the
real estate slots?
As you can imagine the two urban areas of the State, Las
Vegas and Reno, when those districts' offices are down on staff
and it takes them 2 years to process a routine right-of-way
request on an existing right-of-way, that may be some
organizational issues, but I know when there are empty slots,
there are also some resource issues.
So we are going to be kind of coming at you on that. I know
what the history has been. And by the way, this is not a
Republican thing. It is bipartisan. I know that State and
defense are kind of the sexy things, but in my neck of the
woods, no disrespect, Interior is a phenomenally important
Federal agency.
Mr. Mulvaney. Well, I appreciate the work you have done
with me, including when I was in this Chamber as one of your
colleagues, on educating somebody from the Southeast, where the
Federal Government owns almost none of our land--Mr. Graves is
in the same situation in Georgia. I had no idea that happens.
That influences things like BLM. It influences PILT, something
you didn't mention. It influences fire management. So we do
appreciate you taking the time to get us up to speed on those
issues. I look forward to continuing to work with you.
Mr. Amodei. I do, too.
Mr. Graves. Mr. Young, and then Ms. Herrera Beutler.
Mr. Young. Thank you, Mr. Chairman. It is good to see you.
Director, $20 trillion in debt. Both sides are complicit in
this----
Mr. Mulvaney. Twenty-one.
Mr. Young. $21 trillion. Thank you for that, for
clarifying.
Mr. Mulvaney. Sorry.
Mr. Young. It is realistic. It is reality. That is where we
are. We talk about the next generation, handing that down to
them. We are probably, what, 10 generations down, what we are
doing to the future of this country?
Tough decisions have to be made, primarily by Congress,
through legislative means, but we need a willing partner at the
other end of Pennsylvania Avenue as well.
How are we doing in convincing the President and your
colleagues in the administration that we need to come to the
table to really make these tough decisions? And they are going
to be tough decisions, but we have to make them.
Mr. Mulvaney. Thank you for that, Mr. Young. I encourage
you to take a look at the budget--I know you probably have--but
look specifically at the proposals we have made in mandatory
spending.
We come under criticism sometimes because people accuse us
of not looking at mandatory spending, what some people call
entitlement programs. And nothing can be further from the
truth.
When the President ran, he said he wasn't going to change
your Social Security or Medicare. And we don't. But we have
made some really good proposals on how to change, for example,
Social Security Disability Insurance, how to fix payments in
Medicare to non-Medicare folks.
I had no idea until I got in this job that we use Medicare
money to pay for graduate medical tuition. We use Medicare
money to pay hospitals for delinquent accounts from folks who
didn't pay who aren't on Medicare.
So there are a lot of abuses of the system where money is
siphoned off into other things. We propose to fix that. Those
are big things.
The budget we sent up last year is the largest proposed
reform of mandatory spending in the history of budgets. So we
look forward to continuing to do that. Because you are actually
right: a dollar is a dollar. We have to look for every one that
we possibly can. You are absolutely right: you can't get $21
trillion in debt without both parties being complicit.
We look forward to being part of the solution and working
with you and the Democrats, if they like, on doing just that.
Mr. Young. You and the President have a pretty powerful
bully pulpit, and I would ask you to exercise it on this issue
as often as you can.
Mr. Mulvaney. Yes, sir.
Mr. Young. Regulations. First of all, you talked about your
budget that you released. Thank you for that. You do it
annually. It is the law.
I love the fact that at the end of the budget you have got
a list of all the folks who worked on the budget. You have got
their names there. They own it. When we introduce bills and
amendments, we have to put our names on those bills and
amendments.
When it comes to regulations, we talk about the nameless,
faceless bureaucracy. We don't say that just to say it. It is
pretty much true. Because when rules and regulations come out,
nobody signs. The many, many people who work on those and issue
those, we don't know who they are, because they don't sign
their name to it.
I would just ask you again to look at a bill that I
introduced, H.R. 1460, the Fingerprints Act, which says, under
any administration, any rule or regulation that comes out, the
people who work on it and write it, they have got to write
their name on it and their title. I think that can be--because
when you do that, when you own something, you are going to
offer a better product because, if you don't, they know where
to go. So there is a transparency there, and it is
accountability, as well.
I think this is something you all can do administratively,
if you really took a look at it, and I would ask you just to--
--
Mr. Mulvaney. That is a great idea. By the way, thank you
for the comments about the Office of Management and Budget. I
would love to take credit for that, but that is a longstanding
tradition at OMB. I am pretty sure it is not statutory. They
want to do it. They are proud of the work they do. They are
just as proud of the work they do for this administration as
they did for the previous administration. I have got some folks
who I think who have been here since the Carter administration.
I know I have had folks there since the Reagan administration.
They are good bureaucrats. I know that has word has come under
a lot of pejorative sort of attack, but they are good folks,
and they take pride in their work. But you are absolutely
right. There is no reason we could not do that voluntarily at
every single agency, and I will mention that to the Cabinet.
Mr. Young. Right. And on the budget, they put their name on
it because they are proud to own it.
Mr. Mulvaney. Yes, sir.
Mr. Young. They want to let people know. So thank you very
much. Thanks for what you do.
Mr. Mulvaney. Thank you.
Mr. Graves. Ms. Herrera Beutler, you are recognized for
questions.
Ms. Herrera Beutler. Thank you, Mr. Chairman.
Thank you for being here.
A few different things. I do want to associate myself with
the remarks of the gentleman from Kansas with regard to the
regulatory reform. This is one of the areas where I agree it is
not as easy to link the cause and effect, but we know we are
seeing more economic vitality because we are deregulating,
period. It is amazing to see. And you are right, that economic
turnaround started before the Tax Cuts and Jobs Act, although
now I think you talk about the 3.3-percent projected growth, I
would add a big part of that is because we then followed on
with tax reform. And that is why 1.5 percent wasn't good
enough, at least not for the folks I serve and for the folks
that the administration is serving. So I am very excited about
what we are seeing there.
On the regulatory side, I think I could use your help in a
few areas. The first one has to do with a bill that we passed--
Congress passed in 2014. It was bipartisan. It marked more than
5 years of work by the West Coast Congressional delegation to
fix problems with regard to West Coast fisheries. We call it
the REFI Act. I can't tell you what the acronym stands for
because I never pay attention to acronyms. But the bill was
bicameral, and it had administrative support.
What it did was it provided authority needed to refinance
the commercial fishing loans for fishermen participating in the
Pacific ground fish fishery. However, as we sit here today, the
bill is still not enacted.
So, while CBO noted that the legislation was fully graphic,
meaning there were no new appropriations required, this is not
difficult, and they were required to implement under law, OMB,
under the previous administration, who had input beforehand--
afterward, just said: Well, no, we are not going to do it. We
need an additional $10 million, and we need transfer authority
to refinance the $26 million loan.
It really--we have not gotten to the bottom of it. It has
been very, very difficult. So these fishermen are facing very
high regulatory costs that threaten to drive them out of
business. While they fish, they have sacrificed--really, we are
having a real difficult time here.
In addition to the regulatory costs, these fishermen pay
the Federal Government another 5 percent off the top every
single time they land their catch.
So, Congress passed it, the President signed it into law,
CBO gave it a zero score, and yet we still cannot seem to get
it moving. And I wanted to see if you could provide an update
and you can help me identify someone on your staff to help, if
there are specific challenges, have someone help us work
through it.
Mr. Mulvaney. I have got some notes on it. I don't think it
answers your specific questions. The person you can call is me.
By the way, you are supposed to use my new email address at
OMB; you can't use my old email address. It is very strange. I
am now subject to FOIA.
By the way, this goes to all of you. If any of you have
called me on my old number, I don't--it is John.M.Mulvaney@OMB
or something like that.
Anyway, let me know, and we can get on it. I do have some
notes, but I don't think I am going to be able to
satisfactorily respond to your question. It may have to do with
administrative PAYGO, is the first thing that comes to mind.
But that is not a very satisfying answer. So we can get you
something in more detail.
Ms. Herrera Beutler. That would be great. It was something
I wanted to get to the bottom of. It was something we passed a
number of years ago.
The other thing I wanted to bring up, and it had to kind of
follow along with what Mr. Amodei talked about with regard to
Federal lands in the West.
Mr. Mulvaney. Yep.
Ms. Herrera Beutler. I am glad this is an area where folks
who maybe don't have as much Federal ownership in their land
are joining the cause. One of the challenges I have really been
seeing has to do with our Federal forests--I mean, there are a
number of challenges--and what seems like an unwillingness of
local regional directors in certain areas to just help us with
good ideas.
So one of my counties is 97 percent owned by the
government; 85-plus percent is federally owned. When the
Federal Government came in and said, ``You can't cut down any
more of these trees, we are going to protect a bird,'' the
families that depend on this land have really been driven near
poverty. I mean, police, fire, counties, schools. It is a
travesty.
They have had some really good ideas with comanagement
ideas and with some of the local foresters. We have had great
ideas. And I just can't get some of the bureaucrats who are
sitting on top of it even to let us try some innovation.
And so this is an area where--and I realize you are not
directly over Interior, but in terms of the budgets that you
all submit, when you see that there is less revenue coming in
and you make cuts, part of the reason there is less revenue is
because of there is an unwillingness to work it in a way that
is both beneficial to the environment and to the endangered
American taxpayer.
So this is an area where I would like to maybe provide more
information as we move forward and so that I think this can be
more of a revenue-generator, quite frankly, and so you might
not need to cut as much when you are looking at the forest
lands, BLM, Fish and Wildlife. Again, another issue there. I
think maybe if there is, again, someone on your staff or on
your team, we could bend their ear. I would like to peel back
some layers.
Mr. Mulvaney. We would be happy to talk about it because we
absolutely agree. There is no reason for folks to know this,
but when we sent up the supplemental on the forest fires, I
guess it was last fall, we included a bunch of land management
reforms because we know that, if you don't fix it, you are just
going to have the same problems again and again.
I have talked to Secretary Zinke about this generally.
There is a lot of stuff he wants to do. There is some stuff he
can do administratively, but a lot of stuff is going to take
statutory change. So we look forward to working with you on
trying to get the necessary legal changes.
Ms. Herrera Beutler. Absolutely. Tell us what tools you
need. I have said that to him as well. I know there is a lot
going on. I know you guys put together the budgets.
Mr. Mulvaney. Yes, ma'am. You have got it. I look forward
to doing that with you.
Ms. Herrera Beutler. I yield back.
Mr. Graves. Director, we may have a few more questions. I
think some members still have some interest. I will start off.
I was intrigued by your comments earlier regarding the CFPB
and your directorship there and the fact that you are not
required to appear before the Appropriations Committee. There
is no oversight. There is no accountability. But you seek that,
which is against your own self-interest. So I applaud that.
Mr. Mulvaney. Actually, it is a little deeper than that,
Mr. Chairman. It is not that I don't have to appear before the
Appropriation Committees. The statute very specifically says
that I shall appear before Congress twice a year--twice in the
House and twice in the Senate, so four times--and that I shall
appear. That is it.
Mr. Graves. Not respond, not reply.
Mr. Mulvaney. If you look at other sections of Dodd-Frank,
other directors of other agencies and bureaus have to appear
and testify or appear and answer questions. I just have to
appear.
So I would suggest to you, as I suggested to Mr. Hensarling
and Senator Crapo, that I could have come in, made my
presentation, kicked back my feet up on the table, twiddled my
thumbs, and not answered a single question. Obviously, I didn't
do that. I stayed as long as they wanted to. We didn't even do
a hard stop.
But ask yourself in the future: What if a Republican comes
in? Are you going to be satisfied with that? Or, if a Democrat
Director comes in, are you all going to be satisfied with that?
The bill was written very quickly. I can't remember who it
was who said that bills that we do in response--maybe Mr.
Stewart--to emergencies are sometimes not our best drafting
efforts. This thing can be fixed and can be improved, and that
is one of many, many examples.
Mr. Graves. I think it is in the best interest of each of
our constituents to have accountability, whether we like or
dislike the direction of the agency, to have that oversight,
that accountability.
So, assuming that our efforts are successful and that Mr.
Quigley and I and others can come together and agree in a
bipartisan fashion that you should be under appropriations, as
you have personally requested, what would you request in fiscal
2019? If you were to present your budget to us, what would it
be?
Mr. Mulvaney. I think the number we put in was 450 and
change. We are running it right now at just north of 6. I think
450 would take us back to 2015 levels. I don't think anybody
was complaining that the CFPB wasn't doing enough in 2015. I
think we can run a very effective agency at that level. 485 was
the number that we asked for in 2019. So someplace in that
neighborhood would be the request.
Mr. Graves. Is that something you have seen in statute that
we could do? Could we write that in this fiscal year 2019
appropriations bill?
Mr. Mulvaney. I have not seen anything that says you
cannot. My guess is because the statute right now--the statute
contemplates that we take money from the Federal Reserve and
that, if there is not enough money in that to run the agency,
then we have the ability to come and ask you for an
appropriation.
I see nothing that says you can't appropriate on the front
end. You all, in fairness, appropriate unauthorized programs
all the time, even though you are not authorized to do that.
The State Department hasn't been authorized for two decades I
think.
So I think you absolutely have the ability to do it and
look forward to chatting with you about that.
Mr. Graves. So it is very possible we could appropriate,
which would then not require you to draw down from the
Treasury. You would use those funds as appropriated.
Mr. Mulvaney. Let's make perfectly clear what the statute
says. I don't have it in front of me. I am going to get it
fairly close because I have looked at it more than once: I
shall, taking into consideration other funds, ask for enough
money from the Federal Reserve to run the Bureau. If there are
other funds that are available to me through appropriation,
that is money that I am completely entitled legally to consider
in making my request to the Federal Reserve.
Mr. Graves. Thank you. A different topic. There has been a
lot of discussion about CRAs, about some previous rule makings.
Under the previous Director, Mr. Cordray, the CFPB had passed a
few regulations or had pursued some in the small dollar credit
area.
I know there is a CRA by Dennis Ross that has bipartisan
support in the House, which is rare when it comes to a CRA. I
know you are familiar with it.
Can you tell us a little bit about your thoughts about the
CRA? Is it important that we pass that through the House? Does
that impact your direction? And what steps are you taking
currently so we can work in parallel?
Mr. Mulvaney. I love CRAs. As a bureaucrat, which for
better or worse is what I am now--I am a member of the
bureaucracy, I am a member of the executive branch of
government, I am a bureaucrat, I am one director for one
bureau, right--clarity is my friend. Clarity, by the way, is
your friend because, if you leave stuff ambiguous, then I get
to interpret it. You might like the way I interpret it. You
might not like the way I interpret it. It would change
depending on who is sitting in my particular chair.
You give me clarity. You give the executive branch clarity
when you pass these CRAs. Not only, by the way, do you--and a
lot of folks don't realize this--not only do you undue that
which has been done, but you prevent us from doing it again.
And that sends a very strong message, which is the legislature
has spoken, and we will follow the rules. Not only are we
undoing what you did, don't go do it again.
That is the type of clarity that I would appreciate, as a
member of the executive branch, because it allows me to focus
my attention on stuff that I actually should be working on. If
you don't want me to work in an area, tell me. And the way you
do that is by passing a law. That is what a CRA is. We welcome
more of those, not fewer.
Mr. Graves. What efforts are you taking internally to
address this particular issue?
Mr. Mulvaney. That was the last thing that my predecessor
passed. In fact, he passed it quite literally on his way out
the door. And I got there and asked what my options were, and
they said: Look, it is too late to undo. So we are not going to
undo it, but it is completely within my discretion and my legal
ability to give notice that we are going to reconsider the rule
under the parameters of the Administrative Procedure Act, which
is exactly what we are going to do. We are going to do notice.
We are going to comment. We are going to collect data. It may
be that I come to the same conclusion when reviewing the data
that my predecessor did. I may come to a different conclusion.
But we are going to follow the law. We have no preconceived
notions about what we are going to do, but we are going to do
it the right way. We are going to do it by the book. And we are
going to follow the law.
Mr. Graves. Thank you.
Mr. Quigley, do you have any further questions?
Mr. Quigley. Yes, sir. Thank you, Mr. Chairman.
Thank you, Director.
As I ask this question, Director, I would like your
thoughts on the role you think OMB plays in overseeing agency
resource practices. Purchasing. Okay. Our FSG appropriations
bill in section 710 stated that the head of any department or
agency appointed by the President may not obligate or expend
funds in excess of $5,000 to furnish, redecorate the office, or
purchase furniture, or make improvements, unless advance notice
of such furnishing or redecoration is transmitted to the
Committee on Appropriations.
Obviously, Monday, the GAO found that the EPA Administrator
had violated that 2017 omnibus spending bill. We are aware of a
whistleblower at HUD discussing this, and Secretary Carson has
been before other subcommittees discussing this. But they don't
seem to be episodes standing in isolation. What role do you see
OMB playing in overseeing these functions?
Mr. Mulvaney. We are actually involved in that process. We
are aware of the GAO report at HUD. You didn't ask the
question; we are aware of a similar GAO report at EPA. And we
will investigate them.
We take the antideficiency statute very, very seriously. If
they have been broken, we will follow the rules. We will
enforce the law, and we will do so in a transparent fashion.
Mr. Quigley, I am not interested in covering for anybody else.
Mr. Quigley. Where are you in the process of those
investigations?
Mr. Mulvaney. That I don't know. I know we just got the GAO
thing. I was more prepared about the EPA because we just got
that report this week. And I know we have not started our
work--have we started--either we have not or have just started
our work on that.
Mr. Quigley. I am sorry. Take your time. On which one?
Mr. Mulvaney. The EPA report. The GAO report.
Mr. Quigley. Okay.
Mr. Mulvaney. I don't know where we are on the HUD one. It
is a little bit older, so my guess is we are already into that
one. But I can get back to you on that.
Mr. Quigley. In your mind, what are the remedies over the
repercussions as you go forward with this under the rules as
you see them.
Mr. Mulvaney. Oh, HUD procurement did not happen? Was it a
procurement issue?
Mr. Quigley. I am aware he stopped it.
Mr. Mulvaney. That is fine. That is why I didn't know about
HUD. Okay. Again, the antideficiency statute, what is it? It is
spending money that is not appropriated. Since HUD didn't
actually spend the money, it doesn't fall under the
antideficiency statute.
If we were, let's speak more generally, to define an
antideficiency statute violation. Technically, it is a criminal
law. I don't think anybody has ever been charged criminally
with a violation of the antideficiency statute. But we would
talk to the lawyers and figure out what the appropriate
statutory steps are that we are supposed to take. Again, we are
going to be completely above board on this one. I am not any
happier about it than you are.
Mr. Quigley. Is there an education process that you see
here? I mean, you are obviously in communication with these
agencies. Is there--are you taking a tack now to put the others
on notice that they ought to be aware of this, but if not, here
are the rules?
Mr. Mulvaney. I think it is a misunderstanding of the role
of OMB. We don't micromanage every particular expenditure in
every particular agency. We are involved in the appropriations
process, in the apportionment process, and so forth.
But it would not surprise me that something like this could
happen at HUD or at EPA without us knowing about it. That would
be very unusual I think for us to know about something. Again,
a large sum of money, when you consider what was done, but in
the greater scheme of the government, not something that might
rise to the level of sharing with the Office of Management and
Budget.
Mr. Quigley. I guess, just to be specific, it is not your
belief that, given what you have seen here and these episodes
not standing in isolation, does it make sense to let the other
agencies know that you are concerned about this, and are you
contemplating that?
Mr. Mulvaney. Let me answer it this way: Earlier on, we had
some issues within the administration regarding the use of
private air travel. And what we did there was, under the
auspices of the chief of staff, was put out specific rules,
guidelines, and also bringing to the attention of the folks
that the rules already exist.
There are rules on this, just like for me, there are for
you, in terms of when you can buy business class travel, when I
can pay for business class travel. There are rules. I think
they come out of OPM, on when we can do that. To remind people
of those rules, to clarify those rules, and to the extent the
administration wants to go further on those rules, which I
believe we have, to let folks know about that, as well.
Mr. Quigley. Thank you.
Thank you, Mr. Chairman.
Mr. Graves. Mr. Yoder, and then Mr. Cartwright.
Mr. Yoder. Thank you, Mr. Chairman.
Director Mulvaney, just a couple of quick questions here.
I have heard from a number of constituents concerned about
the Medicare durable medical equipment program, including
patients who rely on home respiratory therapy in order to
remain in their homes. Unfortunately, the CMS bidding system
for durable medical equipment has hindered the ability of
Medicare patients to access these vital devices.
I am aware that an interim final rule from CMS that
addresses this issue is currently at OMB. The rule has been
pending since August of last year. As you know, Congress
included report language to accompany the fiscal year 2018
omnibus urging that the rule is finished.
Can you share an update on where this rule is in the
process and how far away from finalization it might be and what
steps OMB is taking right now to review the rule in a timely
manner.
Mr. Mulvaney. I can share with you where it is in the
process, Mr. Yoder, but because of where it is in the process,
that is going to be the only answer I can give you, which is it
is currently under review at the Office of Information and
Regulatory Affairs. And we do not comment on the process once
things are at OIRA.
I will say this: I probably receive more phone calls about
this than any other rules put together. We are aware of the
urgency to members of both parties. I am interested in getting
it out as quickly as we possibly can. That being said, it is a
fairly complex rule, and it is absolutely critical we get it
right because of the scope of this one. So I won't be able to
comment.
Mr. Yoder. I don't think we can ask for anything more,
other than you are clearly aware that this is a critical issue
for a lot of our constituents, and you are going to work on it
as fast as you can, but do it the right way.
Mr. Mulvaney. Yes, sir.
Mr. Yoder. I also wanted to ask you about the Technology
Modernization Fund, which was created under the Modernizing
Government Technology Act, which Congress passed last year. I
was a cosponsor of the legislation.
The goal of the fund is to allow government agencies to
invest in technological improvements that can improve their
services, strengthen cybersecurity, and increase efficiency.
OMB's budget request includes $210 million for the technology
modernization fund. The fiscal year 2018 omnibus included a
funding level of $100 million.
Your agency released guidance in February with information
from agencies on how they can apply for these funds. Can you
just give the committee an update on the process of this
program, as we know it is in its early stages, and what types
of projects have applied for the funds and what outcomes are
you hoping to see from a successful deployment of the TMF?
Mr. Mulvaney. Actually, I am not going to punt on this, but
the woman in our office who actually is sort of running it is
sitting behind me. So I encourage you after the meeting to grab
her and get the specific details.
I think we have identified three programs so far.
So we have heard from nine, and we have not made any final
decisions on who is going to get that first allocation of
funds. But the process is--I think you would be satisfied with
the way the process is working. I encourage you to reach out to
my office, specifically Ms. Kraninger, who is sitting behind
me, to get the specific details. We are very excited about the
stuff that we have seen so far.
Mr. Yoder. Do you expect greater participation? You have
nine. Do you view this as something that you are going to see a
lot of interest in?
Mr. Mulvaney. Yes, sir.
Mr. Yoder. That is all I have, Mr. Chairman.
Thanks, Director Mulvaney. Keep up the good work.
Mr. Graves. Mr. Cartwright, you are recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. Mulvaney, I want to talk about a couple of things.
First off is the new tax plan is going to add over a trillion
dollars to the annual deficit. From your budget, it is pretty
clear what you are trying to do is graphic the additional
deficit by cutting programs that are important to the American
people, programs like Medicaid and SNAP, and completely
eliminating some programs, such as LIHEAP, the Low-Income
Heating Assistance Program, which Americans depend on daily.
Of course, LIHEAP was started by Congress in 1984. So that
it wasn't just about helping northern climates, we included
assistance for cooling bills for Americans in warmer climates
in the South. This is an enormously important program, Mr.
Mulvaney. The budget that you wrote eliminates LIHEAP.
I come from a northern climate in northern Pennsylvania.
Monroe County, Pennsylvania, has 3,495 homes that got LIHEAP
assistance in the winter of 16-17. Lackawanna County, where
Scranton is, had 6,573 family homes assisted by LIHEAP. Luzerne
County, 11,803 homes in that winter were assisted by LIHEAP.
Do you really mean to cut these people off and leave them
shivering in their homes?
Mr. Mulvaney. A couple of different things, Congressman.
You mentioned that the new tax plan added a trillion dollars
additional deficit this year. The total deficit is going to be
roughly that number. So, clearly, the tax plan by itself does
not account for 100 percent of that. Spending makes up a good
portion of that.
Regarding LIHEAP, you are absolutely right: it was started
in the 1980s. Our understanding is that almost every major
utility provider in the country now has protections for the
folks you just mentioned to make sure their utilities are not
turned off in the wintertime up North and not turned off in the
summertime down South. So, to a certain extent, the need that
existed in the 1980s no longer exists.
Finally, you mentioned a couple thousand people in each of
your counties. And I absolutely respect that. I represented a
relatively poor area of South Carolina. You didn't mention I
think the 11,000 dead people who get LIHEAP.
So this is a program that screams out for reform. To the
extent that our budget proposals have drawn attention to that,
we welcome that, and would love to work with you on either
fixing it or replacing it with something that actually works.
Mr. Cartwright. Well, come on. I mean, auditing it and
making sure that the right people are getting it is a lot
different from eliminating it. Don't you agree?
Mr. Mulvaney. Fine.
Mr. Cartwright. I want to shift gears. I want to talk about
infrastructure for a moment.
Mr. Mulvaney. Sure.
Mr. Cartwright. Your budget addresses the much-talked-about
infrastructure plan by proposing $200 billion of Federal
spending, which you believe will spur $1.5 trillion in
investment from State and local governments and private firms.
But the bald reality is that many States cannot afford their
mandated match under your plan for Federal infrastructure
funding. That would cost States $6.50 for every single Federal
dollar invested.
So the question is, do you have a plan for State and local
government infrastructure investment where they can't afford to
match the Federal funding and can't attract the attention of
private investors?
Mr. Mulvaney. Actually, they are doing it already. State
and local governments account for about 86 percent I think of
Federal--excuse me, total infrastructure spending. They are
doing it already. What we are offering them is a way to
leverage the money that they are already spending.
The classic example I give is of a road. Let's say, in your
State, they cost $100 million, and the State has figured out a
way to raise $80 million toward that $100 million road. If we
can kick in at the Federal level the additional $20 million,
that road will get built. That is a 4-to-1 ratio. That is a
really good return on Federal money. Your road gets built;
everybody is happy. So that is one of the fundamental
underpinnings of the proposal.
Mr. Cartwright. Mr. Mulvaney, over half of State
governments saw their revenue fall below projections last year,
and they are not financially well off enough to match
government spending the way your infrastructure plan envisions.
Mr. Mulvaney. Again, they are already spending the money.
Someone just handed me a note. They are absolutely right
that the rural portion of the program, which I think is a full
20 percent, which is $40 billion, is 100 percent Federal.
Keep in mind--Mr. Cartwright, I apologize. I forget where
you are from. Is it a rural part of Pennsylvania? Is it a big
city?
Mr. Cartwright. Northeastern Pennsylvania.
Mr. Mulvaney. Anyway, the matching portion of the
infrastructure, which you have just mentioned, where we
leverage Federal dollars, is more aimed at the urban areas
where we can monetize infrastructure. We are talking about
bridges, toll roads, ports, that type of thing.
In the more rural areas where I used to represent, you may
represent, that is 100 percent federally funded. So we
recognize those realities. Listen, what we are doing now
doesn't work. And just throwing more money at it doesn't work.
My guess is you voted for the stimulus package during the
previous administration. It did not work. We need to figure out
a way to actually build the stuff that people need, and we
think we have done an effective way of proposing that.
Mr. Cartwright. Mr. Chairman, I yield back.
Mr. Graves. Thank you, Mr. Cartwright.
Mr. Mulvaney, I have another quick question, Mr. Quigley
may as well, and our understanding is that the ranking member
of the full committee is on her way and wanted to ask a
question.
Mr. Mulvaney. If it would be possible then before she gets
here to maybe take a 2-minute break, that would be lovely.
Mr. Graves. I am happy to do that. Let me give you one
question to think about during your break with regard to
CHIMPs----
Mr. Mulvaney. Goodness gracious.
Mr. Graves. One of your favorites----
Mr. Mulvaney. Yes. Everybody's favorite.
Mr. Graves. I know that you sent up a proposal recently, I
guess it was just last week, reflecting some changes to the
2019 budget in regard to CHIMPs. We had a spirited debate about
CHIMPs previously with the previous funding bill.
Obviously, I am very supportive of efforts to reduce
spending and to restore some of the fiscal sanity around here.
So can you just--we will take a break--but when you come back,
maybe just share with us a little bit about that.
Mr. Mulvaney. I appreciate the accommodation. Thank you.
Mr. Graves. We will take a 2-minute recess.
[Recess.]
Mr. Mulvaney. Thank you. I appreciate that, Mr. Chairman.
Mr. Graves. Always happy to accommodate.
Mr. Mulvaney. CHIMPs, I remember learning about them when I
was here, and it is one of those wonderful parts of Washington
bureau-speak that no one really understands outside of here. In
fact, most people here don't understand what they are.
Here is how I explain to the people and why we put them in
the budget.
It is hiding spending, right? It is a way for us to spend
more money than we want to tell people that we are actually
spending. And I just don't think it is a good practice.
Did we get rid of all of them in the budget? No. It is
actually very difficult to do that. Did we look at things like
the Crime Victims Fund, which I think is the largest CHIMP that
we use together on an annual basis to sort of move money
around?
It is a bad practice. To the extent we can limit it, I
think we are doing the taxpayer a good service. Not the fund,
but in terms of the abuse of the CHIMP system. Again, I know we
are speaking in appropriations language here that no one is
going to understand, but it is not a good practice, I don't
think, in terms of how we tell people how much we spend.
Mr. Graves. As you evaluate these, are you working with
CBO? And how does CBO look at CHIMPs? How do they score CHIMPs
reflected as a savings?
Mr. Mulvaney. They are an graphic towards spending. So I
think they count them the same way we do. The two systems are
the same.
Mr. Graves. Great.
Mr. Quigley, any questions?
Mr. Quigley. Thanks again.
Mr. Mulvaney. Yes, sir.
Mr. Quigley. We are waiting for our ranking member of the
full committee to come back and just a couple of questions
before then.
As you know, last August, the administration reversed the
previously approved EEOC collection of pay data, a collection
that was the product of a 6-year process which included
multiple lengthy public notice and comment periods. This was
the pay transparency requirements. The requirement in question
stated that companies with 100 or more employees report how
much they pay their workers by race, gender, and ethnicity.
My understanding is that OMB may review this data
collection. It is my understanding that OMB may review and
approve collection of information only if determines that the
relevant circumstances related to the collection have changed
or that the burden estimates provided at the time of initial
submissions were material in error.
What information, if any, did OMB have to suggest that
either of these criteria were met and where did that
information come from?
Mr. Mulvaney. I don't have the exact figures in front of
me. Mr. Quigley, I can get them to you. But off the top of my
head, here is what we do. The reason it comes to OIRA in the
first place is the Paperwork Reduction Act. My recollection is
that, previously, the form had I want to say 180 data points on
it. With the proposed change, it was 1,600 data points on it.
So a firm would have to fill out 1,600 different pieces of
information.
The whole reason it comes to us is to try and reduce
paperwork. We made the determination that that was not helpful.
Specifically, when we got into the details of what the
information was asking, this is what we found.
I will give you this example. Under the heading of
healthcare jobs, for example, the form did not differentiate
between accountants and doctors. So, if you were a male
accountant and a female doctor and you wanted to use this data
form to try and determine whether or not genders were being
paid properly, it would be completely worthless because
accountants shouldn't make as much as doctors do; doctors
should make more. This form failed to consider that.
So there was a Paperwork Reduction Act component. There was
a substantive component to it. That accounts for the changes
that we proposed.
Mr. Quigley. In your mind, was any of the changes
requiring----
Mr. Mulvaney. By the way, I want to make clear that those
numbers--the factor of those numbers is correct; 180 to 1,600
may be off by a lot, but it is the general concept.
Mr. Quigley. I understand. I guess the question is, was
there any data, in your mind, that is not being asked for that
was asked before that would be pertinent to understanding pay
disparity issues?
Mr. Mulvaney. Again, I don't know if that is our call. That
is up to the agency that promulgates the rules. We review it
under the Paperwork Reduction Act. They are the ones who
actually promulgate the rules.
Mr. Quigley. But the changes that we are talking about that
you referenced, did it have any diminution in terms of
collecting data that was pertinent to its purpose?
Mr. Mulvaney. It certainly had a diminution of value of the
data. If the whole idea behind the form is to make sure that
people aren't being discriminated against but the form itself
actually makes that harder to do, then, yes, I would suggest
that is a reasonable objection to the form.
Mr. Quigley. I suspect this is--I am trying to buy a little
time for our ranking member.
Mr. Mulvaney. I am happy to wait, by the way.
Mr. Quigley. Here she is. I appreciate that.
Mr. Mulvaney. She is the ranking member. I understand how
it works around here. I am happy to wait.
Mrs. Lowey. You are so kind to wait. I am embarrassed.
Mr. Mulvaney. Not at all----
Mr. Quigley [continuing]. --reading from a cookbook.
Mr. Mulvaney. Mrs. Lowey, how are you? Always good to see
you again.
Mrs. Lowey. Am I on?
Mr. Graves. Mrs. Lowey, you are recognized at any time you
are ready to ask a question of the Director.
Mrs. Lowey. And I do apologize. There are so many hearings
going on at the same time.
Mr. Mulvaney. If anybody can understand that, Mrs. Lowey,
it would be me, since I have been in the same shoes. But I am
happy to answer your questions.
Mrs. Lowey. Well, you are very kind, and I thank you.
Thank you, Mr. Chairman.
Okay. Director Mulvaney.
Mr. Mulvaney. Yes, ma'am.
Mrs. Lowey. I am really baffled by the White House plans to
submit a rescissions package to Congress seeking deep cuts to
the bipartisan omnibus spending bill the President just signed
into law. And I want to emphasize the bipartisan nature of it
because, when I came to Congress, we used to say there were
Democrats, Republicans, and appropriators.
Mr. Mulvaney. We still say that.
Mrs. Lowey. I say that because there has been real
cooperation between the Democrats and Republicans on the
Appropriations Committee.
In fact, the first media reports on this emerged within
days of the President's signature, which I find particularly
outrageous. After all, the White House had plenty of
opportunity to weigh in during the lengthy negotiations.
We keep hearing the administration's objection is
fundamentally about the sum of dollars being allocated toward
nondefense discretionary funding. This figure, as you know, was
in the spending agreement and signed into law by the President
just a few weeks earlier.
So, I must say, this whole exercise seems to me a bit
bizarre. We have a responsibility to the American taxpayer to
provide Federal agencies with regular and certain budgets so
they can adequately execute their missions in an efficient and
transparent manner.
So, by proposing to rescind funds that have just been
distributed, it seems to me you are causing an even greater
degree of chaos and confusion for the agencies. It certainly
isn't a good way to govern.
In fact, I was just talking to Chairman Frelinghuysen. We
were talking about the next round. I said: Just give us the
302(b)s now when we can get it all done earlier.
So a couple of questions. Was the President aware of the
details of the spending agreement and omnibus negotiations
before signing them into law? If so, how can the President
pretend the compromise was new to him? And if not, why is no
one in the administration properly briefing the President of
the United States?
Mr. Mulvaney. Certainly. Thank you for that question. Let's
go back to how this happened. Certainly, we knew the top lines.
We knew the top lines for several months because we had agreed
to them in the so-called caps deal I think that was in late
January or early February; I can't remember when it was.
But, in fairness, Mrs. Lowey, we didn't actually see the
bill until I think Wednesday night. And you all voted on it on
Thursday. The details, ma'am, the details are what----
Mrs. Lowey. It was this big.
Mr. Mulvaney. It was only 2,000 pages. You didn't hear the
President complain about the top line numbers. You heard him
complain about some of the individual line items. So that is
what rescissions are designed to go after.
Keep in mind he also said, look, he is signing this because
he likes part of it, but he said on the day that he signed it
that there were things he didn't like.
Rescissions--and I am not familiar with how long you have
been in Congress, but you may have been around the last time.
We actually--we used to do rescissions here all the time. Both
parties did. Presidents of both parties have done rescissions.
In fact, the first President not to do one was George W. Bush.
President Obama didn't do one either.
Rescissions used to be the ordinary course of business
around here. I think there have been over a thousand passed by
the House and Senate, passed after other spending bills have
been passed, usually on a bipartisan basis. Many folks who are
saying now they don't want to vote for rescissions because it
undoes an agreement have voted for them in the past.
It may be that there is money in the rescission that you
didn't know was in there or that you don't want to spend or
that you have changed your mind about. There may also be--and
this is critical, and this doesn't get nearly enough
attention--money that we will ask to be rescinded, that is not
in the omni. There are carryover funds to the tune of several
hundreds of millions dollars, if not more, from previous years
that we might just say: Look, the need for that money being
spent is gone. Times have changed. We have new priorities.
Let's rescind that money.
So there are a bunch of different ways to look at a
rescission. I don't think you can look it at through just the
perspective that you have offered. There is an opportunity here
to simply revisit it. You may agree with us; you may disagree
with us. We do that all the time, but we don't think this is
unusual. We don't think it is something that is unprecedented.
And we certainly don't think it is something that indicates
going back on any type of agreement.
Mrs. Lowey. Well, except for the fact, I would like to
remind all of us, that the deadline was October 1. That is
normal procedure, correct?
Mr. Mulvaney. Yeah. And we compliment the House. You all
did----
Mrs. Lowey. A few months after that. It took us a long time
to get this bill done. And I am not going to say to you that I
loved every line in the bill, but that is democracy.
Mr. Mulvaney. Right.
Mrs. Lowey. I was really so proud of all the--as the
ranking member, proud of the Democrats and the Republicans,
because they really worked together in a bipartisan way. And
remember, what took all the time was getting that top number
because, unless you have the 302(b)s, you really can't divide
everything up.
So, for me, I just wonder, do you really believe that,
after spending countless hours of precious legislative time
already this year to keep the government open--and remember, we
are way past the deadline--that spending more time to unwind
what Congress finally put to bed is a wise and responsible use
of congressional and administrative time and money?
And I also want to say I was honored to be appointed to
this special committee that is supposed to be figuring out how
we can operate more effectively and more efficiently. I said in
our first meeting: Well, if we got our 302(b)s done early
enough, we would be able to operate more effectively and more
efficiently.
So I guess my question to you: Are you planning to consult
with the committee as you develop the rescission proposal? When
will Congress be briefed?
Hopefully, you won't have a rescission proposal, and you
will take all your great, creative ideas and submit them to the
committee.
I know you looked up to see if I was serious about that.
Mr. Mulvaney. You had a smile on your face as well when you
said that.
Mrs. Lowey. Well, you are correct. So I would hope, and I
am sure all our chair and ranking members, you would give us a
lot of input as we do the next round and we get the 302(b)'s
earlier, which I certainly suggested to the chairs, so that we
can do our work, and we don't have to put a couple of thousand
page bill on the desk at the end.
So are you going to consult with the committee as you
develop the rescission proposal? And when will Congress be
briefed?
Mr. Mulvaney. A couple of different things. Thank you. I
didn't realize you were on that committee. I assume that is the
Committee on Budget Process Reform, which we absolutely
welcome.
We recognize the fact the House actually did its work last
year. I think you all passed all 12 of your appropriations
bills. So, when we say there is a problem with Congress passing
its bills, we know where that problem lies, and it is not in
this particular room.
We encourage--I will make that very clear--we encourage
anything that gets us back to regular order. The President is
serious in his threat not to sign another omni. I think that
would be a welcome threat to Members of both parties in this
Chamber because you all don't want an omni either. As you have
mentioned, you didn't like the whole thing, and that is the
nature of compromise, but I think we all agree that omnibuses
are not--omnibi?--omnibuses are not the way to run a
government.
I always laugh when folks ask me about keeping the
government open because I was in the unusual circumstance
several months ago of being the one trying to open the
government with a lot of folks who accused me previously of
wanting to shut down the government, having those folks being
the folks who actually voted to shut down the government.
I don't know how you voted on the CR during the government
shutdown, but there are a lot of folks who--the roles were
reversed, so to speak. It is always enjoyable to talk about
that, to see some of my Democrat friends vote to shut the
government down.
We do think it is a good use of time. Again, it was a good
use of time in previous administrations. We do look forward to
working with the committees. I have already started to talk
with the House leadership about this. It is probably too early
to come to the committee specifically, but we will work with
you.
We don't have to, by the way. The law doesn't require us to
do that. We can just send it to you. If we send it to you, I
think we can freeze the spending for 45 days. We, actually,
with a very small group of supporters in the House and Senate,
can force a vote on the floor. We would much rather work with
the House on this because we think, again, if we are able to
find stuff we all agree on--in 2,000 pages, there might be one
line that you and I both agree should not be in there. And that
is what rescissions are for. So we do think it is a good use of
time, and we will certainly get a chance to find out if it is.
Mrs. Lowey. Mr. Chairman, if I may ask one other the
question since you were kind enough to wait for me to come back
from another hearing.
You have campaigned as a fiscal conservative, Director
Mulvaney, and you argued for major spending cuts when you were
first elected to Congress in 2010. In 2013, you even supported
major budget cuts to graphic the emergency disaster relief
package passed through areas like mine, which were ravaged by
Superstorm Sandy.
However, as OMB Director, you have defended the GOP tax
scam, despite the fact that the CBO shows it will add $1.8
trillion to the deficit over the next decade. You defended a
repeal of the Affordable Care Act, which would reduce health
insurance coverage nationwide and increase the deficit. And you
offered a budget which doesn't even attempt to balance.
I would be interested, if you want to share it with us, why
have your thoughts on this issue changed so dramatically, and
we still haven't fully met our obligations to areas recovering
from natural disasters? In fact, I listen to NPR every morning.
Maybe your choice of stations is different.
Mr. Mulvaney. I have listened before, ma'am. That doesn't
bother me.
Mrs. Lowey. I am just saying that I was really upset this
morning because they were talking about Puerto Rico and how the
electric grid still isn't up, and there are so many homes that
still are not functioning.
So I wonder, are tax cuts more valuable to you than relief
for areas suffering extreme damage after a natural disaster
strikes?
Mr. Mulvaney. Let's talk about the tax cuts, and we can
talk about the supplemental very quickly.
I saw the CBO report. I would encourage you--we talked
about this before you were here. I apologize for going over it
again. But they make some very pessimistic assumptions about
economic growth, the health of the American economy beyond
about 2 years. They tell us we are going to go back to the 1.8,
1.9 percent growth. That accounts for a lot of that $1.8
trillion deficit you talked about.
However, I think a lot of folks overlook that if you
actually look at the revenue flows year by year, by the 10th
year, even under the CBO numbers, we are generating more money
than we would have before the tax bill. So the tax bill is
actually generating new money to the government.
Even the CBO, with its low assumptions on growth, projects
that the American economy will be $6 trillion larger at the end
of that 10-year window than it otherwise would be. That is
huge. That is bigger than most countries. It is just the
addition brought on by our policies.
So we absolutely do defend the tax bill and think it has
been a tremendous benefit to the American people. Most folks
are much better off than they were before it, and we are
welcome to defend that.
On the Puerto Rico issue, goodness gracious, Mrs. Lowey, I
think that the total supplemental emergency funding for
disaster relief was over $100 billion.
Money has not been the difficulty. I just got handed a
note: 96 percent of customers have power now. The challenge is
with the grid that--keep in mind, more people have power now in
Puerto Rico than had it before the storm. The problem has been
a structural deficiency down there that predates the storm. You
and I both know that one of the limitations of disaster relief
is you are not supposed to let people be better off than they
were before the storm. We are actually doing that in Puerto
Rico. They are going to be better off. We are making an
exception for them.
So I think I can make the argument we are treating them
better than we treated the folks who were in New York and New
Jersey during Superstorm Sandy.
We look forward to working with you and with Puerto Rico on
helping them get back on their feet, but I can assure you, in
my mind, ma'am, the difficulty they are having is not for a
lack of Federal funding.
Mrs. Lowey. Well, let me just say to you--and I want to
thank the chairman again for giving me the opportunity to have
a discussion--I hope we can have further discussion as we
approach the new--hopefully, it won't be an omnibus. Hopefully,
we will be able to do regular order.
Mr. Mulvaney. It will have to be something other than an
omnibus because we are not signing one.
Mrs. Lowey. Well, I am optimistic. Frankly, as I said to
the chair just yesterday, give us the 302(b)'s now and let's
know the rules of the road. Once we get the rules of the road,
then we have to work together, and I hope in a bipartisan way,
and there can be differences of opinions.
Certainly, when we finish this bill, there are about, what,
160 poison bills? Some of them may be perfume to some Members.
I think they may be poison. We can have differences of opinion,
but that is what democracy is all about.
I do hope that, rather than creating a process with
rescissions today, next week, we can work together on the next
series--I am careful not to say an omnibus--and put these 12
bills together in a constructive way, certainly with your
input, and I hope it will be regular order.
So, as soon as we get the 302(b)'s, then we know the
framework, and we can move forward. So thank you very much.
Thank you, Mr. Chair. I appreciate your waiting.
Mr. Graves. It was good to have you join us today.
Director, you will be pleased to know we are on an
accelerated timetable when it comes to appropriations. We had
success last year. It was the first time in over 10 years that
the House passed all 12 appropriations on time--early, in
fact--3 weeks early. This year, we are going to try to
accelerate that and have everything out of the House by mid-
June, early July. So this team here has been working really
hard. I know your team has been working really hard.
Mr. Mulvaney. Notice the staff just rolled their eyes at
that comment.
Mr. Graves. But we are moving. We are moving quick. We look
forward to having all of our bills out of committee within the
month of May.
Mr. Mulvaney. We appreciate everything you folks could do
and your staff could do--and we look forward to working with
you folks--to get back to regular order. Everybody is well
served by that.
Mr. Graves. We will work to that end, and we will be
creative in some of the packages we put together. We refer to
them as unified appropriations, as we reported all 12 out last
year in a very open, regular order process in which every
amendment was considered, and they all went to the Senate to
sit and be peered at I suppose by the Senators. This year, I
hope we get to see a little progress from the Senate.
Let me commend your team. You have got a great team that
surrounds you. They allowed you to get out of here today
without saying ``I don't know'' for too long, right?
Mr. Mulvaney. They even got Stewart's birthday. I mean,
come on? What are the chances of that?
Mr. Graves. Very good. We do appreciate your team. They
have been fantastic to work with. We look forward to working
with you in the days ahead.
With that, the meeting is adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wednesday, April 25, 2018.
FISCAL YEAR 2019 FINANCIAL SERVICES MEMBERS' DAY
Mr. Graves. All right. We will call this subcommittee to
order.
I want to welcome today some Members from both parties of
the House to testify about priorities that they have submitted
to the Financial Services and General Government Committee. We
are here to hear these priorities. As a subcommittee, we have
had over 2,000 requests submitted. And today, we have some
individuals who want to come and present those requests in
person. That is an increase of 36 percent over last year, which
I would say is a testimony to this subcommittee and the full
committee of advocating for the importance of getting
priorities and ideas and policy into the appropriations
process, because this is really how you get things done. So I
am grateful that we have a few folks here today.
In this hearing, we are going to do a couple of things.
This is a member-to-member discussion about some of these
priorities and good communication for us. And also, it shows a
great example of coordination between Appropriations Committee
and authorizing committees.
And so as we take the opportunity to listen to one another
today, we will give consideration to the Members as they
present their ideas and have given us some time.
And I am honored today to have the acting ranking member,
Mr. Cartwright, join us as well. And he is welcome to commend
any comments before we start.
Mr. Cartwright. Thank you, Mr. Chairman.
The chairman is normally happy to have me as acting ranking
member, because this is a role in which I have to behave
myself.
I want to say welcome to the Members. You know, they pay us
to do this, talk to each other and listen to each other. And
that is what I am here to do.
So thank you for being here. And I look forward to your
testimony.
I yield back, Mr. Chairman.
Mr. Graves. Thank you very much, Mr. Cartwright.
Well, first, I would like to recognize the gentleman from
Missouri, Mr. Luetkemeyer, who is from the Financial Services
Committee. He is chairman of the Financial Institutions and
Consumer Credit Subcommittee on that committee. We will give
you a moment here to get yourself settled in and get the mic
set up.
But, Mr. Luetkemeyer, we know that you have given a full
testimony of your request, and that has been submitted to the
committee. And we have all taken time to read that. I look
forward to hearing your comments and your ideas. But I
appreciate you taking time to join us, and you are welcome to
share with us. You have 5 minutes at your disposal there.
STATEMENT OF HON. BLAINE LUETKEMEYER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MISSOURI
Mr. Luetkemeyer. Thank you, Chairman Graves, and Acting
Ranking Member Mr. Cartwright. I appreciate your comments.
My goodness, you certainly have my respect if you have got
2,000 requests to go through. You have got to have awful good
staff, or you are going to burn the candle at both ends. So I
thank you for your service and for all your hard work.
For millions of customers and small business owners who
rely on our financial system each and every day, overregulation
from Washington has meant increased fees, fewer services, and
diminished access to credit. It has held back both growth and
opportunity for the American people.
As chairman of the Financial Services Subcommittee on
Financial Institutions Consumer Credit, it is a message I hear
multiple times every day, whether here in Washington, back home
in Missouri, or traveling through any city or State around our
great country.
Through the appropriation's process, the Subcommittee on
Financial Services and General Government has the ability to
foster broader availability of credit and promote economic
freedom. To me, economic freedom is what makes us, this
country, what it is today.
Consumer Financial Protection Bureau, CFPB, has buried
consumers and our economy under an avalanche of regulations. To
be clear, it is important to guard consumers against
discriminatory practices. There is no doubt about that. Yet in
doing so, we must be cautious the enforcement pendulum does not
swing too far and do too much harm--do more harm than good. For
these reasons, I respectfully request the subcommittee
seriously pursue reforms to the CFPB. Chief among them, the
placing of the Bureau on a regular appropriations schedule.
Such a move would provide greater accountability and
transparency at an agency until only very recently was neither
accountable nor transparent. It is also a move that CFPB's
Acting Director and our former colleague, Mick Mulvaney, has
said is essential. He was in our committee last week and made
this request along with three others as--reforms that he felt
would be important to make the CFPB work better, to be more
accountable and transparent.
CFPB is not the only Federal financial regulator that has
harmed American consumers and small businesses, in my judgment.
We should all work to identify ways to end, once and for all,
Operation Choke Point, the FDIC- and DOJ-led initiative that
seeks to prohibit legally operating businesses from the
financial services they need to not only do business, but to
survive.
Over the last several years, members of the Financial
Services Committee and the broader House have expressed broad
bipartisan concern surrounding Operation Choke Point. The
underlying problem here is significant. The Federal Government
should not be able to intimidate financial institutions into
dropping entire sectors of the economy as customers, based not
on risk or evidence of wrongdoing, but purely on personal and
political motivations.
In October last year, the Financial Services Committee
passed H.R. 2706, my Financial Institution Consumer Protection
Act by a vote of 59-1. That same legislation passed the House
on December 11th, 2017, by a vote of 395-2. This commonsense,
non-controversial bill would simply ensure that Federal
financial regulators cannot suggest, request, or order a
financial institution to terminate a banking relationship
unless the regulator has material reason beyond reputational
risk, which, quite frankly, the regulators have yet to tell me
how they can define.
This legislation is so non-controversial that the FDIC has
already used its authority to put the provisions into place.
For that reason and given that the House overwhelmingly
approved the measure by a near unanimous vote, I respectfully
request that the subcommittee consider inclusion of H.R. 2706
in the upcoming FSGG package.
I also urge the subcommittee to identify provisions to
offer targeted regulatory relief to financial institutions.
Under the leadership of Chairman Hensarling, the Financial
Services Committee has advanced dozens of bills to offer
targeted relief to financial firms, banks, and credit unions.
Where appropriate, I would urge the subcommittee to consider
inclusion of these provisions into your appropriations
legislation.
My colleagues and I stand ready to work with you in order
to do that. Mr. Chairman, I thank you and the members of the
subcommittee for your consideration of these ideas and
opportunity to testify today. I look forward to working in a
collaborative way on these issues and also working with
Chairman Hensarling and my colleagues in the Financial Services
Committee on these efforts to promote economic independence
across our great Nation.
With that, Mr. Chairman, I yield back.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Thank you, Mr. Chairman. And let me just thank
you for last year. I know you were a champion in this arena,
and you have a unique background that lends you to be an expert
in this area and a champion for the credit markets and for
making sure that our consumers, our constituents, have access
to credit.
So thanks again for bringing these ideas forward. I don't
have any questions for you.
Mr. Cartwright, do you have any questions, or Mr. Bishop?
Mr. Cartwright. I do not have questions, Mr. Chairman. But
I want to echo your praise for the member for that fine bill
you brought up, the Financial Institution Consumer Protection
Act. I voted for it. And, in fact, only two voted against it.
So a nice piece of legislation.
Mr. Luetkemeyer. And, actually, one of those has
actually--wished he had voted for it now. He has told me so. It
is down to one. That is okay. We all make mistakes, right?
Mr. Cartwright. Thank you for your testimony today. Thanks
for good work in Congress.
Mr. Luetkemeyer. Thank you.
Mr. Graves. Mr. Bishop.
Mr. Bishop. Thank you. I have no questions. Thank you for
your testimony, and I think your points are well taken.
Mr. Graves. Thank you, Mr. Luetkemeyer. We look forward to
doing our best to include some of your concepts, if not all,
into the process, as we move forward.
Mr. Luetkemeyer. I appreciate your consideration, Mr.
Chairman. Thank you.
Mr. Graves. Let's welcome Mr. Young to the hearing.
Mr. Young, did you have a comment real quick before Mr.
Luetkemeyer----
Mr. Young. It is just a pleasure to be on this committee
with all of you.
I yield.
Mr. Graves. Thank you for that.
Next we have Mr. Barr, the gentleman from Kentucky. We
thank you for joining us. Another member of the Financial
Services Committee, and another leader on these issues. You
engaged deeply with this subcommittee last year. We thank you
for that and look forward to hearing your testimony that you
have today. And we know that you submitted something for the
record as well, which has been recorded.
But the next 5 minutes are yours to use however you wish,
Mr. Barr. Thank you.
STATEMENT OF HON. ANDY BARR, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF KENTUCKY
Mr. Barr. Thank you, Mr. Chairman and Ranking Member
Cartwright. Thank you. Good to see all of you all here. Thanks
for the opportunity for giving me a chance to talk a little bit
about a couple of ideas for your appropriations bill.
There is two bills in particular that I believe should earn
your consideration for inclusion in the 2019 FSGG
Appropriations package. First, the Taking Account of
Bureaucratic Spending Act, known affectionally as the TABS Act,
and the Preserving Access to Manufactured Housing Act.
As appropriators, you know that one of the most important
powers of Congress enumerated in the Constitution is the power
of the purse, which is the most effective tool available to the
legislative branch to told the executive branch accountable.
Unfortunately, the Dodd-Frank Act exempts the Consumer
Financial Protection Bureau from the appropriations process,
instead allowing the Bureau to grew its funds directly from the
Federal Reserve subject to an opaque and arbitrary formula.
This arrangement means that the Bureau will draw about $6.7
billion over the next decade without the approval of Congress,
and without any oversight in how that money is spent. Our
oversight in the House Financial Services Committee has exposed
some abuses because of this.
This deprives Congress of its most important oversight
tool, the power of the purse, which, as Madison wrote in
Federalist Number 58, may, in fact, be regarded as the most
complete and effectual weapon with any constitution can arm the
immediate representatives of the people for obtaining a redress
of every grievance and for carrying into effect every just and
salutatory measure.
The Taking Account of Bureaucrat Spending Act would put an
end to Bureau extravagances and bureaucratic overreach that
come at the expense of our constituents by establishing, for
the first time, Congress' proper oversight of this Federal
agency.
Specifically, the bill amends Dodd-Frank to limit the
authorization of the agency and subjects the Bureau to the
annual appropriations process. Congress and the American people
deserve a say in how much taxpayer money the CFPB gets, how it
spends it, and whether the Bureau is fulfilling congressional
intent and whether it warrants reauthorization. No more blank
checks to the CFPB.
Now, for the second bill. Affordable housing is of critical
importance to families across the Nation. But today's Federal
regulations are making access to manufactured housing more
difficult to obtain. This is particularly concerning,
considering that 45 percent of current manufactured homeowners
have an annual household income of less than $30,000, 13
percent of manufactured homeowners are retirees, and 15 percent
of owners are unable to work or are disabled.
To these people and others, manufactured homes offer value
at a price that can't be beat. The fact that our government has
regulations in place that stifle their ability to purchase a
manufactured home is frankly appalling. Earlier this year, a
hospital worker in Kentucky applied for a loan of $38,500 to
finance a manufactured home. He had an 8 percent downpayment.
His monthly income was $2,200 a month, plenty to cover the all-
in housing cost of $670 per month.
The payment for his own home would have been less than what
he was spending on rent, but he was unable to get financing. He
contacted his local banks and credit unions, but they no longer
financed manufactured homes.
So why are the lenders not lending? First, the CFPB has a
definition of high-cost loan that fails to take into account
the fact that the fixed costs associated with purchasing a
house do not change relative to the cost of the housing. In
other words, points and fees on a $70,000 manufactured home
will likely be similar to the points and fees on a $400,000
home. Nonetheless, the current definition discriminates against
manufactured homes. And the banks, credit unions, and other
lenders are following the rules set forth by the Bureau.
Second, the government's definition of loan originator is
limiting the ability of manufactured housing retailers to help
potential buyers find the financing they need. Thus, because
potential borrowers are getting less help in finding potential
lenders, fewer manufactured homes are being purchased.
Now, this second issue is included in the bipartisan
Senate-passed financial services regulatory relief bill, and we
think and are hopeful that that will ultimately find its way
into law. But the first problem associated with manufactured
housing lending, that still is not addressed by that package.
So we think that that is--that the loan limit issue needs to be
addressed in the Appropriations bill.
So, again, the legislation that we are referring to here is
the Preserving Access to Manufactured Housing Act. It will fix
these problems. It will make it easier for Americans to afford
a manufactured home for themselves and their families.
Inclusion of this bill in the FSGG 2019 appropriations
package would end the practice of the Federal Government
protecting people right out of home ownership, and instead,
more Americans will have access to affordable manufactured
housing again. We all believe that greater access to affordable
housing is something that all of us, Republicans and Democrats,
can agree on.
And, again, I thank you for the opportunity to speak today,
and I am more than happy to answer any questions about either
proposal.
Thank you, Mr. Chairman.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Thank you for joining us today. You have been
steadfast on these issues, and I share your same concerns. We
had the Director of OMB before us last week in the Financial
Services Subcommittee and in Appropriations. But for the first
time ever, we actually had the Director of CFPB before us, and
he shared some of the same concerns about being under our
oversight and how currently that is not the case. So I am in
agreement with you on that, and I think there are members of
this panel that are as well.
But thanks for your good work on this.
Are there any questions from Mr. Cartwright, or comments?
Mr. Cartwright. I have none.
Mr. Graves. Mr. Young.
Mr. Young. No. Just a comment that the longer an agency
develops a culture where they are not accountable to anybody,
and that deepens, and they can become renegaded. And the only
way to draw that back in is to have that oversight, and that is
Congress. And using their funding as a leverage tool, and that
is ultimately accountability to the taxpayers as well. And so I
wholeheartedly support what you are doing with the TABS Act.
Mr. Barr. Thank you, Mr. Young. Can I respond to that
really quickly?
Mr. Young. Yes.
Mr. Barr. I would say that that should, for all of us, be a
bipartisan concern. This is not at all a--and it should not be
a partisan issue. It is really an issue of defending the
institution of the legislative branch.
Administrations come and go. Some of us prefer the current
administration; some of us, maybe on this side of the aisle,
prefer the previous administration. But in both cases, we had
abdicated our oversight function to the executive branch to
basically run itself. Republicans may like what is going on
with the CFPB right now. Democrats may not. Similarly in the
previous administration, Republicans may not have liked what
was going on in the CFPB. Democrats may have actually liked
what was going on.
But in either case, we, as the legislative body, should
have oversight. And I think that is where we can get a
bipartisan agreement on this reform proposal.
Thank you.
Mr. Graves. The gentlemen yields.
Mr. Cartwright.
Mr. Cartwright. Mr. Barr, I appreciate your comments and
your testimony. And everything that you have said, I understand
it, it makes sense.
But I guess the larger question I am wondering is, is there
not a rule for a truly independent body? I mean, we want--and
there are such bodies, like the Fed, for example. There are
those who are running around say ``Audit the Fed'' and ``Let's
get control of the Fed.''
But I think it is for the very same reason, because of the
frustration in not being able to control that body. How do you
feel about that?
Mr. Barr. Well, I actually support legislation that would
bring the supervisory regulatory functions of the Fed also
under congressional appropriations. I believe in independence
of the Fed, particularly with respect to monetary policy. I
respect the fact that we have independent regulatory agencies.
But what makes the CFPB unique is that unlike other
independent regulators, like the Securities and Exchange
Commission, for example, this is not a bipartisan commission.
This entity is a single director accountable to no one, a 5-
year term. And even the President that appoints the director
cannot remove this person without cause. So there is
restrictions on removal power; there is restrictions on
congressional oversight, because we don't have control over--we
don't have power of the purse over this entity. And there is
even limits on judicial review. So there is just a lack of
checks and balances that our Founding Fathers envisioned with
any agency.
Mr. Cartwright. Not to cut you off, but do you think that
problem arises to the level of a constitutional violation?
Mr. Barr. I do.
Mr. Cartwright. Has that been litigated at all?
Mr. Barr. It has been litigated in a district court. And
the D.C. district court has actually struck--a judge, a Federal
judge, struck down the structure of the CFPB as
unconstitutional. That was appealed. But the question has not
ultimately been taken under consideration by the U.S. Supreme
Court.
My view is, and we all have a responsibility in the
Congress to assess the constitutionality of the laws that we
pass.
Mr. Cartwright. Don't wait for the court.
Mr. Barr. Not just the courts. My personal view is that the
structure of this Bureau is unconstitutional. There are such
entities as independent regulatory agencies that I believe do
satisfy constitutional scrutiny. I do not believe this one is
one of those.
Mr. Graves. Mr. Cartwright, I don't think Mr. Barr is
advocating for the abolishment of the CFPB, just the oversight
of it. Many of the other independent agencies are under the
oversight of Congress through other authorizing committees that
come and testify. But as the Director pointed out last week, he
has no legal responsibility to do that other than to appear.
Mr. Cartwright. He did point that out.
Mr. Graves. I think Mr. Barr is saying there should be an
act of responsibility, and the ability to question and give a
little bit of direction, so----
Mr. Barr. Right.
Mr. Graves [continuing]. The gentleman's points are well
made. Let me see if Mr. Bishop has any questions.
Mr. Bishop. I have none.
Mr. Graves. Mr. Barr, thank you very much. We appreciate
your advocacy here. I think you know last year this same
provision was carried within this bill, and we will give it the
same consideration as well this year. I appreciate Mr.
Cartwright's comment as well.
Mr. Barr. Thank you.
Mr. Graves. Next we will have the gentleman from Colorado.
Mr. Tipton has joined us as well. Mr. Tipton, this is a very
casual opportunity for you to share a concept with us. We want
to thank you for bringing this before us. We have had over
2,000 requests towards this Appropriations Subcommittee bill,
and yours is one of those. If not, I think you might have made
a couple of requests as well. We want to thank you for that,
because you are bringing a unique idea to us, and we want to
give it full consideration. So thank you for your 5 minutes
presentation here, and we look forward to hearing from you.
STATEMENT OF HON. SCOTT R. TIPTON, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF COLORADO
Mr. Tipton. Well, thank you, Chairman Graves. I want to
thank the committee as well for this time and, frankly, all
hard work that you all are doing. I know it is a tough left to
be able to--actually, to be able to address.
And I would like to be able to start out by saying that I
really support the idea of being able to return to regular
order in the appropriations process. And I am encouraged by the
work that this committee is doing to be able to get Congress
back on the right track.
Our current system of dysfunction on spending measures will
leave a wealth of uncertainty for our future generations. And I
firmly believe that the way to be able to mitigate that
uncertainty is going to be through an open appropriations
process where all 12 appropriations bills are debated and
passed. And obviously encourage our Senate counterparts to be
able to do the same. We must also make sure that we provide
certainty for the future generations, that their way of life
will be preserved as well.
There are two federally funded initiatives that will help
our communities now and in the future. They are the Community
Development Financial institutions Fund, and the High Intensity
Drug Trafficking Area Program.
The CDFI fund plays a unique role in generating economic
growth across the United States, and especially in my district
in Colorado. By fostering and creating and expanding capacities
of community-based financial institutions that specialize in
providing affordable credit, capital, and financial services,
the CDFI fund builds businesses, creates jobs, and revitalizes
neighborhoods.
One CDFI-backed institution in Fort Garland, Colorado, for
example, which is in my district, was able to finance a small
grocery store in town. While this may not seem like much, to
many of us, the presence of a grocery store can make a huge
difference in a rural town.
Because of the CDFI, I was able to use the funds Healthy
Food Financing initiative, the small rural community of Fort
Garland now has significantly improved access to fresh, healthy
foods. This happened to be a grocery store I had the
opportunity to be able to tour. A small town. Those couple of
jobs, couple of part-time jobs, I don't think we can overstate
in those communities.
The impact of the CDFI having on those rural communities is
obviously encouraging to economic growth, and I would encourage
the committee to continue to support the program, especially as
it serves to benefit home buyers, small businesses and families
in communities across our country.
And I would also like to be able to talk about something
that is impacting many of our communities across the country in
terms of drug trafficking. High Intensity Drug Trafficking Area
program, called HIDTA, is a critical tool, utilized throughout
the United States by local law enforcement, and officers to be
able to combat drug trafficking and dealers.
In my district, the HIDTA has enabled local law enforcement
officials to yield big results in pursuing drug cartels and
help control the inflow and movement of illicit substances,
particularly in Pueblo County. In addition to Pueblo County,
there are four HIDTA-designated counties in my district: La
Plata, Mesa, Garfield and Eagle Counties. By expanding the
resources to these communities, our smaller law enforcement
agencies receive crucial assistance in combating illicit
actors.
In addition, my office is also working to extend the HIDTA
designation to other counties in the four corners region of
Colorado to further improve law enforcement's ability to combat
cartels that are active and well-established in the area.
The HIDTA program makes our communities safer and helps
reduce the amount of violent crime that is often associated
with narcotics activity. I understand that Federal resources
are limited, and I appreciate your consideration for my request
for continued funding of both of these programs, programs
function as an active benefit to our communities in my part of
Colorado and would encourage your support.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Thank you, Mr. Tipton. You bring up two very
important topics. I want to thank you for your commitment to
small business and investment in local communities, but also
safe communities.
The CDFI grants that you referenced represent the number
one request we receive from all Members, Republican and
Democratic. In fact, 14 percent of all the requests relate to
that. So thank you for that. In the top five as well would be
the safer communities and investments against illegal drug
distribution and use. So you represent a lot of Congress here
with your interest today. So you can be assured these will be
taken into deep consideration as well.
Mr. Cartwright, any thoughts or comments?
Mr. Cartwright. No. I want to thank you for appearing
before us today and for your testimony. I appreciate it.
Mr. Tipton. Thank you.
Mr. Graves. Mr. Bishop.
Mr. Bishop. Likewise, I would like to thank you for your
testimony. I don't have any questions.
Mr. Graves. Thank you for joining us today and bringing
these ideas forward. We spoke before you came in how this is
great importance for authorizing committees to be working with
appropriating committee, the Appropriations Committee, to
advance some of these ideas. So thank you very much.
Mr. Tipton. Great. Thank you, Chairman.
Mr. Graves. Thank you.
And for the subcommittee here, we had another submission, a
request to attend but who cannot join us because of another
conflict. I think a markup was scheduled, Mr. Schneider.
So without objection, we will forego that testimony. But I
think you have a print of his statement in your material here
that you are welcome to read. I thank everybody for
participating today, for the bipartisan feel here of requests
and also input.
So with that, and no other members before us, we will
adjourn.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thursday, April 26, 2018.
SECURITIES AND EXCHANGE COMMISSION
WITNESS
HON. JAY CLAYTON, CHAIRMAN, SECURITY AND EXCHANGE COMMISSION
Mr. Graves. Well, good morning. We will call the
subcommittee to order, and we welcome the Securities and
Exchange Commission Chairman Jay Clayton with us this morning.
Thanks for joining us and giving us your testimony this
morning. I know this is your first appearance before this
subcommittee, so we will look forward to spending some time
with you.
Before we discuss the proposed budget request that you
submitted, I just want you to know a couple of things: that
this has been an exciting time for our economy, as we have
watched over the last year and working with the administration
and with you.
Congress has enacted the historic tax regulatory reform
measures that we have seen over this past year, which have
freed up businesses to grow and to thrive once again. And we
have seen the results have been in the numbers.
It has been clear: unemployment is at a 17-year low, 2.5
million new jobs have been created just in the last 13 months.
Wages are growing at nearly 3 percent, which is one of the
fastest growth rates that we have seen in a decade. Small
business optimism is at an all-time high. And from your perch
you see that the stock market has reacted positively as well.
So, in other words, it is a new day for American workers,
and we are really excited right now to see what is happening
throughout the economy.
But we recognize there are still some challenges in the
modern economy, such as new products in the financial
technology sector, growing concerns about cybersecurity, and
the ever-present challenge of keeping the markets open but also
fair for everyone.
So, I want to applaud you, Chairman Clayton, for your focus
on the long-term interests of main street investors, as well as
your commitment to reducing roadblocks for small businesses, as
they face so many across our country.
But you are helping them to secure capital that they need
to hire, invest, innovate, and deliver economic opportunities
for all our constituents. So, I was encouraged to see that the
SEC voted on April 18th to propose a new regulation, what you
refer to as the regulation best interest standard.
We look forward to hearing about that this morning. I know
you want to address that and share with us your direction,
which is being designed to better protect the financial
interest of our retail customers all across the country.
So, as you begin this 90-day public comment period, I look
forward to hearing more this morning and then, obviously, as
you follow up with us in the future, about how this is going to
positively impact our constituents across the country.
But we are excited to have you today, and once again we
welcome you, and I am joined by the ranking member here, Mr.
Quigley from Illinois, who is a great member of this committee
and has great interests as well in the topic of the day.
So, Mr. Quigley, it is yours for any opening comments you
might have.
Mr. Quigley. Very good. Thank you, Mr. Chairman. Thank you
for holding this hearing. I would like to join you in welcoming
SEC Chairman Jay Clayton for his first appearance before this
subcommittee.
Chairman Clayton, I want to thank you for taking time to be
here today. I am pleased to have the opportunity to discuss
with you the SEC's first fiscal year 2019 budget with you. You
and I have had the chance to meet in my office on a couple of
previous occasions, which I appreciate.
The SEC is responsible for promoting investor protection
and education, as well as for overseeing the integrity and
fairness of capital markets. These responsibilities are
essential so that businesses have access to capital, so they
can grow, add jobs, and continue to the Nation's economic
strength.
The Commission's budget request for fiscal year 2019 is
just under $1.7 billion, including $37 million to finance a new
lease procurement for the New York regional office. This amount
represents a negligible increase to base funding of just $6
million above the enacted fiscal year 2018 spending.
While I am glad to see that the budget proposes retaining
additional spending that Congress provided last year to fortify
the Commission's cybersecurity infrastructure, I was
disappointed that your request does not seek to bolster
resources for enforcement staff to a level I believe is needed.
After all, the core of the SEC's work is enforcement and
examination. This is where predatory actors, big and small, are
caught and punished. Your budget provides for an overall
staffing level that is 1 percent lower than the current year
and a steeper 3.5 percent decline in FTP, which we compared to
2017.
I am pleased that the request begins to restore positions
that were lost during the hiring freeze, roughly one quarter
one, I believe, but frankly, your proposal will still leave the
enforcement division with dozens fewer staff than when the
hiring freeze began. Not only do I consider imperative that you
add enough people to accomplish your mission, but I think we
also share a focused determination to arm you with the
resources necessary to prevent criminals from deceiving
investors trading on inside information and undermining
competence in our markets. I look forward to hearing your
testimony and discussing these and other issues with you today.
Thank you again, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. Mr. Chairman, the
subcommittee, this morning you will see members come and go.
This an accelerated appropriations process now, so a lot of
committee meetings are being assembled simultaneously, and I
know you understand that.
So, you will see members come and go throughout the
morning, but there is great interest in what you are doing at
the Commission. And, with that, we look forward to any opening
remarks you may have before we ask you a few questions.
Mr. Clayton. Thank you. Thank you, Chairman Graves. Thank
you, Ranking Member Quigley. Members of the committee, I
appreciate the opportunity to testify before you today about
the President's fiscal year 2019 budget request for the SEC. On
behalf of my fellow Commissioners and the 4,500 women and men
at the SEC, I would like to thank this Committee for its
support.
Congress' recent funding for the agency will enable the SEC
to make significant investments in furtherance of our efforts
to modernize our information technology infrastructure and
improve our cybersecurity risk profile. I recognize the vote of
confidence that you have shown in the SEC, as does our staff.
I am committed to ensuring that the agency is a prudent
steward of this appropriation. In my interactions with our
staff, it is always clear that they recognize and are motivated
by the fact that tens of millions of Americans are invested in
our securities markets. The touchstone for the SEC staff is the
long-term interests of these Americans.
In turn, we believe serving these interests furthers
America's interests. Our fiscal year 2019 request of $1.658
billion for SEC operations will enable the SEC to continue its
work in a number of areas with a focus on five important
components that I will highlight in a moment.
A few threshold matters; first, the request will enable us
to start lifting our hiring freeze and support 100 new hires to
address current priority areas.
Second, the budget request relies on the SEC having
continued access to the Commission's Reserve Fund to invest in
information technology improvements, including those related to
cybersecurity.
And, third, importantly, the SEC's funding is deficit-
neutral, and any amount appropriated to the agency will be
graphic by transaction fees. Let me go through a few areas:
information technology and cybersecurity.
With regard to information technology and cybersecurity,
Congress has enacted the fiscal year 2018 appropriation, and
our fiscal year 2019 request will allow the SEC to make
investments to modernize our information technology
infrastructure and improve our cybersecurity risk profile.
We will use this funding to advance the implementation of
our multi-year IT strategic roadmap, including investments in
cybersecurity resources and the agency's risk management
capabilities.
Capital formation: In facilitating capital formation, we
have made progress, but I believe the SEC can and should do
more to enhance capital formation in our public and private
capital markets, and particularly for mid-sized, small, and
emerging companies.
Please be assured that, as we develop initiatives aimed at
promoting access to the capital markets, we will also seek to
maintain and enhance important investor protections. The
request also will provide resources for staffing the office of
the Advocate for Small Business Capital Formation. Turning to
protecting Main Street investors; protecting Main Street
investors and preserving their access to investments and
opportunities is at the heart of the work of numerous offices
and divisions at the SEC.
Last week, the Commission voted to issue for public comment
a comprehensive package designed to address retail investor
confusion and potential harm in their relationship with
investment professionals. Our rulemaking package will
significantly enhance retail investor protection while
preserving access, in terms of both availability and cost, to a
variety of types of investment services and investment
products.
Our rulemaking is designed to serve our Main Street
investors, and I hope that we will hear from them during the
comment process, including in the investor roundtables I
announced in Atlanta, Denver, Houston, and Miami.
Enforcement, Compliance, and Examinations: over 50 percent
of our workforce is devoted to enforcement, compliance, and
inspections, and our 11 regional offices are primarily devoted
to these areas. Our Enforcement division is committed to
protecting our markets and investors, especially from fraud
that impacts our most vulnerable.
Our request will allow for critical investments in our
ability to protect investors by supporting key enforcement
priorities, including expanding the work of our new Cyber Unit
and our Retail Strategy Task Force.
The request will also allow for further advances in our
examinations of market participants, including investment
advisers. We increased our examination of investment advisers
by more than 40 percent in fiscal year 2017 to cover
approximately 15 percent of all SEC-registered investment
advisers. But we are continuing to seek improvements, including
through the use of technology.
Trading and Markets: our trading markets constantly evolve
and expand, demanding continuous effort to identify emerging
issues and risks, and strive to ensure that, as technology
changes, our regulations drive efficiency, integrity, and
resilience.
Our request will allow our Division of Trading and Markets
to expand the agency's depth of experience in vital areas such
as equity and fixed-income market structure, analysis of
clearing agencies, broker-dealers, cybersecurity, and
electronic trading.
Leasing: Finally, our request supports our participation in
the GSA's competitive procurement process for a success or
lease for our New York Regional Office. As with the SEC's
headquarters lease, none of these funds will be used for SEC
operations, and the agency has proposed a mechanism whereby any
unused portion of these funds would be returned to fee payers.
In closing, I would like to again thank this Committee for
its continued support of the SEC, its mission, and its people,
and I look forward to answering your questions.
[The prepared statement of Mr. Clayton follows:]
Mr. Graves. Thank you, Chairman. I know I will have a
couple of questions, and I am sure the other members will as
well. And you will find this is a very thoughtful subcommittee.
They have great questions, and we look forward to hearing your
responses. The first, from me, is, just going back to something
you indicated, which was one of your items for your long-term
agenda, and that was reviewing shareholder engagement in the
proxy process.
In fact, in November, you made the comment that the SEC (or
the Commission) should be lifting the hood and taking a hard
look at whether the needs of shareholders and companies are
being met. And so, I appreciate your willingness to do that,
because we have heard from several companies regarding this
process, relating to the proxy advisory firms and their
concerns regarding those.
So, can you update our committee regarding when the
Commission will be taking an important first step to address
this issue and others like that, and reopening the comment file
on the 2010 proxy plumbing?
Mr. Clayton. Great, great. The proxy area is an area in
need of examination, and it is an area in need of at least some
modernization. You will not see it on my short-term agenda, but
that does not mean we are not thinking about it. It is on our
long-term agenda, and some of the things you mention in your
question are important. The landscape of corporate governance
has actually changed significantly in the last 5 to 10 years.
We have a greater concentration of shareholder holdings, we
have greater access to the proxy from shareholders, we have the
emergence of proxy advisory firms which have a great deal of
influence in the voting process. Those are all things we should
examine.
With respect to Proxy plumbing, we have had some recent
matters that have demonstrated what we all believe, and that is
that our plumbing is out of date. I think, if you looked at
some of the recent proxy contests and the amount of time that
it took to resolve them, you would have to reach the same
conclusion. So, broadly to your question, I am aware of the
issues, we are looking at them, and I would say stay tuned for
action.
Mr. Graves. The difference in short-term, long-term agenda
timeframes?
Mr. Clayton. Well, the way the law works on our agenda, we
have a short-term agenda, which are the things we think we can
get done this year. This is not something that I think I can
finish this year. I would say it is a higher priority on my
long-term agenda.
Mr. Graves. Fair enough, fair enough. And then you
reference the comment period and that it is being reopened and
discussing what we once knew as a fiduciary rule but now is
being re-discussed as the best interest proposal for our
constituents.
And so, if you could just give us a little bit of an update
on that, and then maybe go into a little bit more depth than
you did in your opening comments there about how you see this
process playing out, and what kind of pushback you might
receive, and what kind of comments related to comments from the
past.
How do you see that folding into the future in your plan in
the upcoming proposed rule?
Mr. Clayton. OK. There is a lot in this area; let me try
and get into detail in the time we have. I do not think there
is any doubt in anyone's mind that action is required in this
area, and action that coordinates across the various agencies
that regulate the relationship between an investment
professional and their client, whether that investment
professional is an investment adviser or a broker-dealer. We
have the Department of Labor, we have state securities
regulators, we have the SEC, we have FINRA, we have state
insurance regulators, we have banking regulators, all in this
space.
I think we all also agree that the duty, whether it is an
investment adviser or a broker-dealer, owed to a client, should
match that client's expectations. I think we all also agree
that the client ought to be able to understand that duty and
the type of relationship.
I think we all also agree that that relationship should be
governed by fiduciary principles. Now, we have called it the
best interest standard, but I want to be clear. For broker-
dealers, there are core fiduciary principles embodied in that
best interest standard. In fact, those fiduciary principles
are, I believe, the same as the fiduciary principles that are
embodied in the investment adviser standard.
So, what have we done? We have recognized that the
relationship between an investment adviser and their client is
a different type of relationship than a broker-dealer and their
client. But we have sought to harmonize the actual duties that
are owed, recognizing those differences. And I look forward to
engagement with all groups as we proceed across the rulemaking.
Mr. Graves. Well, thank you for taking time to examine
this. I know this has been an area of interest for a lot of
individuals or broker-dealers or whomever they might be. And
then what I heard is, you are incorporating some round tables
as well to get community input and investor input and, I guess,
industry input. And that is really important in this process,
so we appreciate your transparency and work in this area and
continue to move this in the right direction.
Mr. Quigley. Thank you. May I make one more comment about
this area? Do you mind?
Mr. Graves. Yes, sir.
Mr. Quigley. One of the lucky things about this job is, I
get to interact with regulators around the world. We should
never forget that the breadth and scope of participation in our
markets by the American public is the envy of the world, and we
should do everything we can to preserve that. Any other country
would be delighted to have so many individuals investing in
their capital markets.
Mr. Graves. Thank you. Thank you for that reminder, Mr.
Quigley. And then, Mr. Stewart.
Mr. Quigely. Thank you, Mr. Chairman. And, again, Mr.
Clayton, I appreciate your being here. And I appreciate your
opening remarks. I made public pronouncements, and again today,
talking about the importance of enforcement. I talked about 50
percent of your staff being involved in this.
Help me understand some of these issues, though: 2017 saw a
decline in both the total number of SEC enforcement and actions
and the amount of penalties assessed. Total penalties imposed
in 2017 declined from 1.2 billion in 2016 to 832 million, a
fall of nearly 35 percent.
But I think, perhaps, more troubling is an outsider's
perspective of your enforcement actions today could give the
appearance that your agency is going after smaller fish instead
of misconduct conducted by bigger fish firms. I understand it
is more difficult, more challenging, and any of abusers are
people you should be going after.
But I would like you, if you can, to explain what appears
to be a change in enforcement strategy. Georgetown University--
I am sure you saw this--released a study in November which
found that cases brought against entities, as opposed to
individuals, had changed quite substantially.
A quote she wrote: ``Dropping from 47 percent in the first
half of 2017, before you became chair, to 34 percent in the
second half of the fiscal year after you took the helm.''
The study went on to note that the median fine in settled
cases was about 110,000 between 2007 and 2013, but in the most
recent fiscal year SEC, which ended September 30th, that number
had dropped by more than a third to about $70,000. These would
be troubling to anyone. Can you help us understand these
trends?
Mr. Clayton. Yes, I can, and let me do this. Let me talk
about those trends, and then let me talk about what statistics
are appropriate. But accepting those statistics is one that we
want to talk about.
There is another statistic that is not in that study and
actually bothers me about these comparisons. The gestation
period for our cases is 22-24 months. That means the cases that
are being reported on in 2017, are, from a median perspective,
the ones that are were started in 2015. The ones that are
reported in 2018 are the ones that started in 2016.
So, those statistics actually reflect, I do not want to say
exclusively, but for the majority part, enforcement decisions
that were made before I arrived at the Commission.
Mr. Quigley. Decisions in terms of who to go after.
Mr. Clayton. Which cases to bring and how to start them,
because those statistics are cases that have come for a vote
and are being resolved. So, on average, they are just about two
years old from when they were started. So, what the Enforcement
Division under my leadership has are the cases that started
when I got there.
And I will tell you there has been no letup in terms of
enforcement. We have, you know, a former Southern District of
New York head of the Commodities and Securities Task Force as
one of our Co-Directors of Enforcement.
I retained one of the Acting Co-Directors of Enforcement.
We have a number of prosecutors who are leading our offices. In
Chicago, we have just hired Joel Levin, who was a prosecutor in
Chicago, to come over and run our Chicago Regional Office. So,
I have no doubt that they are pursuing bad actors.
As far as, you know, specific actions, I am happy that we
are pursuing individuals as opposed to entities. I think that
individual actions have greater deterrence. And this is based
on my experience.
When I talk to people in the private sector, and I caution
them to be careful, I do not point to a particular company. I
point to an individual. Twenty years later, people still
remember the individual harms, and it has great deterrent
effect. They do not remember the company actions.
Now, I am not saying I am not going after companies.
Because, you know, if they are wrong; we will. But individual
deterrence is very important. And just to give you some
anecdotes that we announced two days ago, the Yahoo! action was
the first action for failure to disclose a cybersecurity
breach, and it was resolved with a significant fine for the
former Yahoo.
Mr. Quigley. So, to your knowledge, no one in your agency
has been directed as to any sense of priorities? When they are
told what to prioritize, is this a uniform analysis? I get that
an individual can do a tremendous amount of damage.
Mr. Clayton. Let me put this clearly: there are no big fish
that should think we are not coming after them if they do
things wrong.
Mr. Quigley. My time is up. Thank you, sir.
Mr. Graves. Thank you, Mr. Quigley. Mr. Stewart, and then
Mr. Bishop.
Mr. Stewart. Chairman and Mr. Chairman, welcome. This is
not my area of expertise, but I do have some questions that I
think a lot of Americans wonder. And you have experience in
this, I believe, in some of your previous statements. And it is
even indicated in your bio that we have here. And that is the
role of cryptocurrencies. And I know CFTC has indicated that
they would like to exert authority over them, and they believe
there are more commodities in currency.
Let's speak broadly, if we could. I have got to tell you,
one of my sons invested $17 in a cryptocurrency. He has a
greater net worth now than I do, or something like that. So,
this has been a great success story for some people. Do you
think that the cryptocurrencies provide economic utility?
Let me ask that, and, if you would, elaborate on some of
the concerns you have, and then tell us where is the proper
regulator, and what is a proper regulating scheme that we
should have in these currencies? Because, you know, there are
many of them now, and I think sometimes people just do not have
the information they need to make good decisions.
Mr. Clayton. Well, I agree with your last comment. And it
is a complicated area because, as you said, there are different
types of crypto-assets. Let me try and divide them into two
areas, and I will try to do this fast. A pure medium of
exchange; the one that is most often cited is bitcoin. As a
replacement for currency, that has been determined by most
people to not be a security.
Then there are tokens, which are used to finance projects.
I have been on the record saying there are none that I have
seen, tokens that are not securities. To the extent that
something is a security, we should regulate it as a security.
And our securities regulations are disclosure-based, and people
should follow those and provide the information that we
require.
Mr. Stewart. And let me ask this very quickly. Are they
clear in how they present themselves, that they are presenting
themselves as a currency or as a token which is a security?
Mr. Clayton. No. And this area has grown substantially
without the usual respect for the law that you would expect to
see in financial markets. That has happened. I will take this
any way you want. I mean, I know our time is short. I can talk
about currencies and regulations of currencies, or the security
side of it, or try to do both.
Mr. Stewart. OK, so let me rephrase the question very
briefly, and we can make this yes or no, because I think the
answer is yes. I mean, there are some economic utilities in
these tools. Is that true?
Mr. Clayton. Undoubtedly. And this technology undoubtedly
has great promise.
Mr. Stewart. OK. So, that being the case, where is the
proper regulator? In the tokens, it would be for you, true?
Mr. Clayton. Yes.
Mr. Stewart. In the currency, it would be just the market?
Mr. Clayton. That is a question that I have highlighted as
well. To the extent that we do not have jurisdiction, to the
extent that it is not a security, we need to look at these
currencies because our laws did not anticipate them. Our laws
anticipated sovereign-backed currencies. These currencies are
not sovereign-backed.
With a sovereign-backed currency, I would argue that the
need for regulation to give people comfort is less than it is
for something that is not sovereign-backed. For lots of
reasons.
Mr. Stewart. Well, I would maybe conclude with this. And
that is that many times, when we regulate or when we legislate
in a moment of crisis, we overkill.
Mr. Clayton. Yes.
Mr. Stewart. Dodd-Frank is a great example of it, in my
mind. In the heat of the moment and the emotion, I think we
went too far. I would say the Patriot Act, something that is
more along my area and background. I would say the same thing.
In the emotion of it, we went too far. And I worry a little bit
that we have an event, or we have a series of things that draw
a lot of concern and then we are not prepared on how to respond
to it and we may not have the best answer.
So, I would like us to lean into this, rather than wait for
something that gets people's attention and then we draw upon
Congress and others to respond to it when we are really not
prepared. Is that a legitimate concern?
Mr. Clayton. Not only is it a legitimate point, it is what
we have been doing at the SEC. In the securities area, we have
been leaning in, because I have been concerned about two
things. I am concerned about people being taken and our laws
not applying. I am also concerned that if we do not do
anything, our inevitable reaction will make this technology
less than it would have been.
Mr. Stewart. Well, thank you, Chairman. My time is up. I
yield back.
Mr. Graves. Good questions. Mr. Bishop and Mr. Young.
Mr. Bishop. Thank you very much. Chairman Clayton, I am
very intrigued by the discussion on cryptocurrencies. But I
think that is going to be a great drill for us going forward in
the future. Let me go back. In the Fiscal Year 2019 Budget
Justification and Annual Performance Plan, the Commission
observed that nearly 35 percent of all SEC-registered
investment advisors have never been examined. And as the
population of advisors registered with the SEC continues to
grow, would you please tell us how the Commission plans to fix
such a problematic regulatory shortfall?
Mr. Clayton. Well, we have shifted. And I want to
congratulate our OCIE Division, our inspections and examination
division, on shifting to a risk-based prioritization of who we
examine and what areas we examine for using data analytics. The
statistics you cite, about 35 percent. We are trying to reduce
that number.
I will tell you that those are the ones that rank as less
risky in our analysis. But, we are making efforts to reduce
that number and we are making efforts to increase the number of
firms that we examine annually. We went to 15 percent this
year, which was up 40 percent over the last couple of years.
Mr. Bishop. Thank you for that. Now, according to a 2017
GAO report, minorities account for only 20 percent of
management positions in the financial industry. This is in
contrast to a general minority population of 40.9 percent. What
efforts has the SEC taken to help improve this drastic
disparity? And what steps would you think would be appropriate
for Congress to take to provide you with the tools to increase
minority participation?
Mr. Clayton. Well, my view on this is that efforts around
diversity and inclusion begin at home. And I am committed to it
at the SEC. I meet with our OMWI office, the Office of
Minority, Women, and Inclusion, on a regular basis and this is
a focus for me. In terms of what Congress should do, I do not
know if it is my place.
Mr. Bishop. What tools would you need, if any, that we, in
the legislative branch, could help you to accomplish that?
Mr. Clayton. I do not know that that is the role for the
SEC, in terms of social policy. But, as I said, at the SEC,
this is a priority for me. As far as how we deal with our
public companies in that regard, I am all for disclosure, all
for disclosure of material information.
As far as micromanaging from the SEC, how people handle
human capital, that is beyond our current role. I would like to
see, and I have been clear on this, I would like to see more
disclosure from public companies on how they think about human
capital. If you do not mind, can I explain?
Mr. Bishop. Yes, but you can also indicate to me what your
level of inclusion is, in terms of your diversity
representation, minority representation, at the SEC itself.
Mr. Clayton. At the SEC? We do an annual report on this.
And we are doing well throughout the agency. We can do better
in leadership.
Mr. Bishop. OK.
Mr. Clayton. To your statistics, we roughly match the U.S.
population.
Mr. Bishop. Forty percent?
Mr. Clayton. I mean, is it exact? I do not have the exact
numbers in front of me. I can get back to you. But, we do not
match the U.S. population in leadership at the SEC. And it is a
priority for me to address that over time.
Mr. Bishop. Thank you.
Mr. Clayton. Thank you.
Mr. Graves. Mr. Bishop. The gentleman from Iowa, Mr. Young
is recognized. Then, Mr. Cartwright.
Mr. Young. Thank you, Mr. Chairman. Welcome. The
cryptocurrency issue is fascinating to a lot of people, kind
of, watching what is going on. Would you invest in
cryptocurrencies?
Mr. Clayton. Well, let me say this.
Mr. Young. That is not a fair question, I realize.
Mr. Clayton. One of the unlucky and lucky things about this
job is, I am not allowed to make investment decisions anymore.
Mr. Young. That is the answer we were looking for, was it
not? So, you know, when my counterpart, Mr. Stewart, was
talking about, you know, leaning in on this or waiting for some
kind of crisis to happen and Congress jumps in on this and
tries to solve a problem, which we would probably come back in
five years and try to readdress, what are your counterparts
doing in other countries to address this from a regulatory
standpoint?
Mr. Clayton. So, this is a developing issue. What are other
regulators doing to respond to this? If you asked me this
question 6, 9 months ago, the range of what people are doing or
not doing, I think, would have been pretty broad. It is
narrowing. In the currency space, is it a substitute for the
dollar? The yen? The euro?
What I have seen is further skepticism around the world as
to whether the cryptocurrencies will, in fact, be a substitute
for our traditional sovereign currencies, including whether
governments will allow cryptocurrencies to be integrated into
their financial systems. Because our financial systems do not
only work as mediums of exchange and lending; they do a lot of
other work, including anti money laundering, preventing
terrorist financing, you know, those types of things. Also,
they allow us to affect monetary policy. Governments serve, I
would say, they hold those rightfully. They hold those
functions pretty dear. I think around the world, people are
realizing that they would not want to give up those functions.
Mr. Young. Well, we will be watching. I know you will be
watching closely as well. The SEC has yet to finalize all of
its title 7 rules for security-based swap dealers, unlike the
CFTC, which has had their registration regime effectively in
place for about five years, I think, maybe over.
This lack of finalization has led to some uncertainty in
the markets and I wonder if you have a timeline for where this
going? And are you watching what the CFTC has done in trying to
get rid of some of these duplicative regulatory requirements?
Mr. Clayton. Yeah. So, do I have a specific timeline that
would, you know, be precise enough to discuss? No. Do I have an
initiative? Yes. I am very happy that Commissioner Peirce, who
joined us recently, has agreed to oversee our efforts to move
forward with Title VII rulemaking in, what I am going to say
is, in coordination and, where possible, harmonization with the
CFTC. What we regulate and they regulate overlaps a great deal,
but not perfectly. And she is working on overseeing that work
at the SEC. We have had several bilateral meetings, and I
expect to see progress in this area.
Mr. Young. In your SEC budget request for fiscal year 2019,
there is a strong emphasis on cybersecurity. Is this being done
from a reactionary standpoint? Or from a proactive standpoint?
Tell me about what is happening in terms of hacking and
what you are experiencing. And have there been some
compromises? And to what level? And I worry about what this
effect could have on a lot of different things, as well as just
identify theft and fraud and manipulating, ultimately,
possibly, the markets.
Mr. Clayton. Well, there is a lot there. I will talk
internally at the SEC, to start, both reactionary and
proactive. When I arrived, I initiated a review of where we
stand, from a cybersecurity posture. Shortly thereafter, we
discovered that we had had a prior breach. We have been
addressing the breach of our EDGAR system.
Let me say we are addressing that specific issue, but then
we are looking more broadly across the SEC, in terms of what
are our vulnerabilities, either addressing them, reducing them,
or both. And when I say reducing, it goes to one of the points
you made, which is personally-identifiable information. We have
done a review of the personally-identifiable information we
take in and we have actually reduced that.
We just had a rulemaking the other day that had the support
of all my Commissioners, and I appreciate their support in this
area; eliminating PII from our forms where it was not
necessary.
Mr. Young. Thank you for being proactive on that, with that
rulemaking. I would be interested in learning more about that.
So, thank you for your leadership on that because this is real.
And we know it is real. And thank you for what you do. I yield.
Mr. Graves. OK, Mr. Young, Mr. Cartwright, and then Mr.
Yoder.
Mr. Cartwright. Thank you, Mr. Chairman. And Chairman
Clayton, thank you for being here. I know you spent a
considerable amount of time around Philadelphia, and I hope you
are an Eagles fan?
Mr. Clayton. Absolutely.
Mr. Cartwright. Good, good. I am going to be much nicer to
you now. Chairman, I want to talk about protecting investors.
That is what SEC is all about. And I want to talk particularly
about protecting them when it comes to disclosure of climate
change risk. I am concerned about SEC's continued lack of
enforcement of its own 2010 guidance on climate disclosure.
Investors want and need disclosures of climate risk, but all
too often they are generic or entirely lacking. Full and
complete disclosure is going to help investors allocate capital
efficiently and put pressure on corporations better to manage
climate risks.
Now, I know you share this concern. You repeatedly stressed
the importance of disclosing climate risks when you were at
Sullivan and Cromwell. And also, while you were representing
Crude Carriers Corporation, you made sure they included a very
detailed discussion of climate risks in their IPO.
When the 2010 guidance was released, the SEC issued around
50 comment letters to companies that had provided insufficient
disclosure of climate risk, but it is been years at the SEC
since they have issued a single letter. In reviewing the
disclosures, I can tell you that the answer is not that
suddenly every company is adequately disclosing climate change
risk.
So, the question is, how can you explain a near-complete
lack of evidence of any enforcement of the 2010 guidance? What
evidence can you provide that you are taking climate risk
disclosure seriously at the SEC right now?
Mr. Clayton. Thank you for noting my prior work. We take
all of our disclosure mandates seriously. We firmly believe
that investors need to have the information required to make an
investment decision. I think, if I may, the discussion around
climate risk disclosure misses some of that point. A disclosure
should be to your investors and what climate-related issues
might affect your company.
Mr. Cartwright. Right.
Mr. Clayton. And companies should think long and hard about
that. And that is not a uniform issue. There are many
industries for which it is not a material risk at all, and
there are industries for which it is clearly a material risk.
But it is a risk that depends on many factors outside of the
control of the company itself, including regulatory actions
around the world, developments, and what not.
You know, I am not disagreeing with you. I agree with you
that this is something that companies and industries need to
think long and hard about and how to communicate with their
shareholders. But, I do not think you should take the lack of
an enforcement actions as somehow indifference from the SEC in
this area.
Mr. Cartwright. It is inaction, though. It is not following
up on the 2010 guidance.
Mr. Clayton. Let me be clear. If there are cases where
companies have had adverse effects on their shareholders as a
result of climate matters and they have not disclosed them, and
they knew about them, we should be investigating those.
Mr. Cartwright. Well, let me talk about the Peabody Energy
case. New York Attorney General investigated Peabody Energy in
2015 because of their lack of candor in disclosing the risk of
climate change. When Peabody came to a settlement with the New
York Attorney General, Peabody then had to revise their SEC
disclosures. Peabody admitted that concerns about the
environmental impact of coal combustion could significantly
affect demand for our products or our securities.
So, this was something that the SEC disclosure process
should have caught. The SEC remained silent as the New York AG
took the lead, took the point, on that issue, investigating
Peabody's false disclosures. SEC disclosure process needs to
serve its intended purpose. When a company like Peabody makes
misleading disclosures, it is disconcerting that SEC is taking
a backseat to a State Attorney General.
Do you feel like the SEC failed, proactively, to address
this disclosure problem by Peabody?
Mr. Clayton. I am not going to comment on a specific case,
that would be inappropriate. But let me say this, Mr.
Cartwright. Let me be absolutely clear on this; I want to
partner with our state Attorneys General on enforcing our
securities laws. But, one thing I am concerned about is having
different disclosure standards at the state level and at the
Federal level, whether de facto or generally. Let me leave it
at that.
Mr. Cartwright. Well, let me follow up with this last
question. SEC lacks subpoena power. Companies disclose material
risks to their investors in order to comply with the Federal
securities laws. But, even if the SEC suspects that a company
is not fully complying, the corporate finance division at SEC
does not have the authority to subpoena additional information
from companies. That is correct, is not it?
Mr. Clayton. And I think it is good governance. The
Corporation Finance Division, if they see something they do not
like, they can refer it to the Enforcement Division, who will
make a judgment as to whether to pursue it or not.
Mr. Cartwright. Would not corporate finance be more
effective if it could subpoena information from companies it
suspects of withholding or misstating material information in
their disclosures?
Mr. Clayton. I do not believe so. I do not believe so. I
think it is appropriate to have those functions, the
enforcement function, and the corporation finance function
separate.
Mr. Cartwright. That is all I have. I yield back, Mr.
Chairman.
Mr. Graves. Thank you, Mr. Cartwright. Mr. Yoder and then
Mr. Moolenaar.
Mr. Yoder. Thank you, Mr. Chairman. Chairman Clayton,
welcome to the committee. I appreciate your testimony this
morning. As you know, liquidity is very constrained in some
financial markets. And that constraint of liquidity affects our
constituents who rely on retirement income, drives up the cost
of their investment, does not provide them any sort of net
benefit, but makes their investments less valuable.
One regulation that is contributing to this constraint is
that the Federal Reserve requires that banks clearing trades of
liquidity providers to the market use the current exposure
method, known as SEM.
The Fed has acknowledged that SEM is insensitive to risk
and it undervalues netting benefits and has stated that it
plans to move away from SEM. However, the Fed plans to do this
through rulemaking, a process that could take years. As a
regulator of markets, what impacts do you see stemming from
constrained liquidity, and what could the longer-term
consequences be if this problem is not fixed?
Mr. Clayton. Yeah. Liquidity is one of those difficult
concepts to get your arms around because it only becomes really
important when you do not have it and you need it; when you
want to sell and there is no buyer. Let me say this. I am very
happy with the coordination that has been present across the
Federal financial regulators. I speak regularly with Randy
Quarles and Jay Powell, Chris Giancarlo, and Secretary
Mnuchin's people at the Treasury about these types of issues.
And I am concerned about liquidity and whether we have
sufficient liquidity, particularly in our fixed income markets.
And I recognize, and we all recognize, that we are moving into
a different monetary policy situation and that moving in that
area, we need to be very cognizant of liquidity.
Mr. Yoder. And I appreciate your leadership in that regard.
As it relates to SEM, the Fed has acknowledged that it is
insensitive to risk and it undervalues netting benefits, and it
plans to move away from it. I think the challenge we see is
that their intention to do that is going to take a number of
years. And in the meantime, it tightens liquidity in markets.
And so, if there are ways to get the Fed to accelerate that
timeline to fix this, that would seem to be good for our
constituents, good for investors, good for the markets.
Mr. Clayton. Yeah. I do not want to get ahead of my
brethren or comment on that. I will say that we are all focused
on making sure there is sufficient or increasing liquidity
without adding risk. That is really the mindset we have to have
as we go forward.
Mr. Yoder. All right. Well, I want to put the SEM, this
issue, on your radar. I also want to ask you about the business
development companies. They play a vital role in helping small
businesses access badly needed capital. And these companies
were created by Congress with bipartisan support. They play an
important role as an alternative to conventional financing.
But, in 2006, the SEC finalized its Acquired Fund Fees and
Expenses rule, the AFFE rule, which required that a fund
investing in other funds disclose its share of the acquired
fund's expenses as a separate line item. Many believe this rule
is incorrectly applied to BDCs and as a result, mutual funds
and other types of funds overstate their expenses when they
invest in BDCs.
And, unlike other investments that a fund may purchase, a
BDC's market price already reflects its expenses. Therefore,
many believe the AFFE rule leads to double-counting of a BDC's
expenses. When the SEC finalized the rule in 2006, it stated
the regulation would benefit investors, not have an adverse
impact on capital formation.
Are you concerned that the AFFE rule has undermined the
SEC's stated goals of benefiting investors and fostering
capital formation, through its treatment of BDCs?
Mr. Clayton. I am aware of this issue and the good points
made on either side. The point about potential double-counting
and whether the economics are all baked in or not is a good
point. The point on the other side, that if you do not
reference this issue, people are not aware of it, is also a
good point. We are looking at it. I think--and we will look at
it in connection with our obligation to promulgate rules in the
BDC area for leverage as a result of what is going on.
Mr. Yoder. I think getting your full consideration makes
sense. You know, when the rule was finalized in 2006, there
were only 11 BDCs in existence. They have grown significantly
since then, with around 90 operating today. And, you know,
REETs are very similar to BDCs, but they are exempted from the
AFFE rule. So, I hope you will give it your consideration to
take those factors into account and have the SEC review the
rule and see if still applies properly today.
Mr. Clayton. We will. We also recognize the growth in this
industry. And I recognize that it is an industry that enables
retail investors to have access to developing companies. And
that is important to me.
Mr. Yoder. OK. Thank you, Mr. Chairman.
Mr. Graves. OK, Mr. Yoder. Mr. Moolenaar and then Ms.
Herrera Beutler.
Mr. Moolenaar. Thank you, Mr. Chairman, and welcome,
Chairman Clayton. Appreciate you being here. I wanted to talk
with you a little bit about cybersecurity, and I know that is
an issue you have already talked a little bit about. But, I
wanted to get your thoughts on, sort of, the role of the SEC,
what you are doing there.
But also, in the past, you have authored, or coauthored,
some articles on cybersecurity and calling on Congress and the
President to develop kind of a 9/11-type commission on
cybersecurity and the threat. And I just wondered if you could
give us your assessment on, kind of, where things stand,
relative overall on the topic, as well as what you are doing at
the SEC.
Mr. Clayton. So, I talked a bit before about what we are
doing at the SEC and our efforts to uplift our protection but
also reduce our risk area. And we intend to continue to do
that. Outward looking, we look at registrants. All public
companies and their cybersecurity disclosure. And I referenced
the recent action involving Yahoo.
What I have not discussed and probably should, is oversight
of what I will call market utilities, the nodes in our
financial system that are very critical. One of our jobs is to
inspect those entities. And including inspecting them for their
ability to deal with cyber threats and cyber risks. And to your
point on Federal coordination, we coordinate with other Federal
regulators who either also oversee those nodes in the system,
or other nodes that are important to our system. And I am happy
that as a result of a directive from the White House, that
coordination has gotten traction, particularly around these
nodes in our financial system. So, do I feel great? No. I am
supposed to worry. But I feel good that we are making progress
in that area.
Mr. Moolenaar. No, that was my question. Obviously, we are
never totally secure, but you feel like progress is being made
and that is encouraging to hear. I did a little research on
your background. I noticed you were born in Newport News and
spent time in Philadelphia and were a captain of a basketball
team. And it kind of reminded me of the Allen Iverson
trajectory. Have there been a lot of parallels made between
your basketball and Allen Iverson's?
Mr. Clayton. I do not like to practice either.
Mr. Moolenaar. Thank you for that. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Moolenaar. Ms. Herrera Beutler.
Ms. Herrera Beutler. Thank you, Mr. Chairman. And thank
you, Chairman Clayton for being here today. Now, I understand
your office has been reviewing the rules governing broker-
dealers and advisors under the 1940s Advisors Act. And, in
fact, I think it was last week, or not too long ago, your
office solicited public comment on a proposal to modify the
standard of care that both must provide their clients.
And I agree. We need consistent principles and, given the
differences in the business models, I was actually very happy
to see that you addressed the two groups with a more tailored
approach instead of a merged, one-size-fits-all solution.
As you continue to review the various rules and possibly
even the idea of arbitration, agreements between the investment
advisors and their customers under Section 921 of the Dodd-
Frank Act, do you intend to continue to take a tailored
approach with these two groups?
Mr. Clayton. The short answer is yes.
Ms. Herrera Beutler. Great. Because I have another
question.
Mr. Clayton. OK.
Ms. Herrera Beutler. Unless you care to expand?
Mr. Clayton. No. I appreciate your recognizing that what we
tried to do was take the investment adviser model, which is
generally a fee-based, portfolio-based, over time model and
make sure the principles that we all care about are there, and
then, the broker-dealer model, which is a transaction-based,
episodic model, and apply the same principles there. And that
is what we are trying to do, to match what an investor would
expect.
When an investor sits across the table from their financial
advisor or their broker-dealer, what they would expect them to
do. And as we go through the comment process, if people want to
appeal to us at the SEC, I think that is the way they should
look at it. What would I expect from my investment
professional? How would I expect them to behave? And our
standards should match that.
Ms. Herrera Beutler. Good. Thank you. Second question; the
SEC's recent fiduciary standard proposal provided guidance that
the broker-dealer representatives and other financial services
participants should not use the name adviser. And I agree that
there is a difference between the various categories. And
clarifying how they refer to themselves is going to help
relieve customer confusion.
Are you planning to provide guidance as to what these
groups should call themselves to help customers who may be
confused by new names that these groups may create?
Mr. Clayton. This is something I want to hear comment on
very much. One area of clear confusion is, am I dealing with a
broker or am I dealing with an investment adviser? We want to
clarify that. The title proposal is just one part of that.
The relationship summary that would need to be provided to
retail investors is another part of that. But if people have
better ideas on how we can make that clear, make it clear from
the outset, I am all ears.
Ms. Herrera-Beutler. Great. That is what I needed to know.
I yield back. Thank you.
Mr. Graves. Thank you, Ms. Herrera-Beutler. Mr. Chairman,
if you have a few more minutes with us I know I have a couple
more questions, and members may as well. I want to just get
back to cybersecurity for a minute because we made it a
priority in the 2018 fiscal year spending bill that we passed,
and the President signed recently, $45 million, I know we
provided you. Do you anticipate you will need additional funds
moving into 2019? Or is that sufficient to take care of some of
the challenges you face?
Mr. Clayton. Well, I want to say thank you because that
money, what it enabled us to do was take what we had on tap for
2019 and move it into 2018. And our 2019 request,
serendipitously, asked for an additional $45 million for
cybersecurity over 2017.
So, basically, what you have done is enabled us to move
forward what we were planning to do. So, to your question, I
think we are on our way to meet our strategic plan a little
sooner. In the area of cybersecurity, you could always spend
more money, and things can always come up. So, I do not want to
ever say I am good, but we are satisfied where we are.
Mr. Graves. Well, I am glad to hear that you were able to
bring things forward. That means you are accelerating some of
the protections as well. I mean, we can see that.
Mr. Clayton. Yes. To be clear, some of the protections, but
also some of the things we are doing to add efficiencies,
including in enforcement and whatnot.
Mr. Graves. We have had conversations in the past about the
Reserve Fund at the SEC, and we know that you have received
substantial funding from 2018, but it looks like it is still
drawing down from the Reserve Fund. Why is that, and what are
those funds being used for?
Mr. Clayton. Let's see if I have, I do have the specifics
on what we use the Reserve Fund for. The majority of it is
overall business process improvements; long-term upgrading of
some of our legacy systems, and that includes our EDGAR system.
So, that is the majority of it, and those are longer-term
projects, which is what the Reserve Fund was intended for. So,
basically, projects that go out over several years.
Mr. Graves. Do you anticipate the unused balance of the
reserve fund will be part of any rescission package coming from
the administration?
Mr. Clayton. I do not know.
Mr. Graves. OK.
Mr. Clayton. Let me put it this way.
Mr. Graves. We will probably know soon, I guess.
Mr. Clayton. I will know soon, and if it is, I will be
scrambling a bit, because we need the money.
Mr. Graves. Well, we will keep that in mind as we are
formulating the bill here in the next couple of weeks. And
then, back to the cybersecurity side of it, we are investing a
lot. You are making a lot of changes. You have private sector
experience. In your opinion, do you feel like the SEC is now
secure? I know you had questions about it when you first came
in. I mean, can you reassure us in the investment community,
and our investors, and our constituents?
Mr. Clayton. Anybody who would sit here and would say, ``I
am 100 percent sure that we are 100 percent secure,'' you
should look at very skeptically. We are subject to attempted
penetrations, scans----
Mr. Graves. Every day, I imagine.
Mr. Clayton. Every day, as are others. Do I feel like we
are more cognizant today of the risks and that we are trying to
address them? Yes, I do. And we have brought in third parties
to do penetration testing and those types of things. But it is
a constant battle.
Mr. Graves. Yeah, that is a fair assessment. And I think we
all respect and understand that as much as anyone tries to
secure and protect systems, agencies, personal identities,
there are those out there that are trying to break in, bust,
and use new technologies. So, to stay advanced, we are going to
continue investing.
We expect you to use it wisely, as you have been, and
appreciate you doing that. And then, one last question--and Mr.
Quigley may have some follow up--the Wells Fargo enforcement
that we read about, can you give us an understanding of how
much was the enforcement action against Wells Fargo, and where
do those funds go? How are they utilized? Do they go to restore
those that might have been injured, or do they go to SEC, or do
they go to Treasury? How are those funds allocated?
Mr. Clayton. I will talk generally. I do not want to talk
about a specific situation. I will talk generally about what
happens when we either issue a fine or seek restitution. We are
focused on getting money back to investors. That is our primary
focus if somebody has been wronged. In terms of a fine that
goes beyond compensating investors to the extent we can, that
goes to the Treasury.
Mr. Graves. Just goes to the Treasury, in general?
Mr. Clayton. Yeah.
Mr. Graves. All right.
Mr. Clayton. That is speaking generally. But that is how we
look at it.
Mr. Graves. Thank you, Mr. Chairman. Mr. Quigley.
Mr. Quigley. Thank you again, Mr. Chairman and Mr.
Chairman. You reference, following up on the chairman's
question--the chairman to my left--the rescission, the Reserve
Fund. This is financed by the registration fees, right? So, if
used in a rescission, we are really not sending money back to
the Treasury. We are just not using money that is set aside by
registration fees, correct?
Mr. Clayton. For all intents and purposes, our entire
budget is deficit neutral.
Mr. Quigley. So, I am just publicly questioning why, if you
do a rescission, it is to send money back to the Treasury. But
this is money coming from a different direction. So, I am just
making a point. You talked about how the Reserve Fund is used.
Generally, it can be used in what you are doing and using it
for. It helps you deal with cybersecurity threats, correct?
Mr. Clayton. Correct.
Mr. Quigley. And you talked about the fact that if this is
diminished, I think the word you used was maybe scrambling.
Mr. Clayton. Right.
Mr. Quigley. Right. You are more vulnerable.
Mr. Clayton. I like the amount that we have allocated for
tech dollars going forward, to the extent it was reduced. I
might take away from other things to get it back to where it
was because----
Mr. Quigley. Sure.
Mr. Clayton [continuing]. I think we have sharpened our
pencils on where we should be spending tech dollars. And if I
lost a fair amount of them, I would want to try and find a way
to replace them.
Mr. Quigley. Sharpening pencils is great. I am concerned
that the administration's budget for 2019 proposes a partial
rescission already for the IT Reserve Fund for the upcoming
year and a complete termination of it for the year 2020. Your
thoughts?
Mr. Clayton. Well, look, I think I have said before.
Whether the money comes from the Reserve Fund or it comes from
some other area, I am somewhat agnostic. I do need an ability
to plan for the long term. But the total amount, including the
Reserve Fund that we have asked for, we----
Mr. Quigley. You need the money.
Mr. Clayton. Need the money.
Mr. Quigley. Thank you. Let me just ask about subpoena
authority. Following the SEC's failure to catch Bernie Madoff,
Chairman Shapiro made the decision to delegate subpoena
authority so that senior enforcement staff could initiate
investigation.
Mary Jo White inherited and retained this authority. Your
predecessor, Commissioner Piwowar--I have always pronounced
this wrong--revoked this authority in February of 2017 during
his brief tenure as you were going through your Senate
confirmation, I believe, restoring the requirement that
subpoenas only be issued by one of the Enforcement Division's
Co-Directors. Your thoughts on reversing that decision?
Mr. Clayton. Let me give you the history.
Mr. Quigley. Sure.
Mr. Clayton. It used to be a Commission decision to issue a
subpoena. It went down to the heads of Enforcement, and as you
noted, out to the regional directors. When I got there, it was
at the Co-Director level. I analyzed this and said, ``Are we in
any way, by keeping it at the Co-Director level, inhibiting our
ability to investigate?''
Mr. Quigley. If you put these people in place, as you
talked about, with Mr. Cohen go in there and trust in these
people and delegating and having more people with this ability?
Mr. Clayton. I do not know of an instance where someone
from a region called up and said, ``I would like a formal order
of authority'' but it has not been granted. I mean, maybe there
have been, but I have never heard of one. What it does is it
enables our Co-Directors of Enforcement to know what everybody
in the region is doing, and I think, enhances coordination.
So, my question I have asked them, and like your question,
is a good one. Have we enhanced coordination without in any way
impeding people's ability to get a subpoena when they need one?
And the answer is yes.
Mr. Quigley. In an environment like this, though, taking
away that authority, does it not send a message to them?
Mr. Clayton. No.
Mr. Quigley. Someone could construe this as a lack of
trust, or a lack of giving them the initiative to do this.
Mr. Clayton. Well, I feel able to say this and confident in
saying it. I have been to all of our Regional Offices. I have
met one-on-one with all of our regional directors. They know
that I have confidence in them. And I do.
Mr. Quigley. OK. Thank you.
Mr. Graves. Thank you, Mr. Quigley. Mr. Yoder has no
further questions. Mr. Moolenaar.
Mr. Moolenaar. Thank you, Mr. Chairman. Just really
quickly, a few things. One is, we talked a little bit about
what you are doing at the SEC with cybersecurity. We talked a
little bit about across the different agencies. Is there any
role with the private sector collaboration that we ought to be
thinking about?
Mr. Clayton. In terms of collaboration with the private
sector, the large financial institutions have spent a
tremendous amount of money on cybersecurity and have, to my
mind, very good people. They have been helpful to us in things
like risk assessment, both as a result of our oversight role
and on a more informal basis, and I appreciate that. And I hope
that that dialogue continues and continues across the Federal
financial regulators as well as DHS.
Mr. Moolenaar. All right. And then, just looking through
the strategic plan that was from 2014 to 2018. That was prior
to you getting there. I know you are working on an updated one.
This one is still in effect. I just wondered if you would
comment on some of these strategic goals. One was establishing
and maintaining an effective regulatory environment. Two was
foster and enforce compliance with Federal securities laws.
Three was facilitate access to the information investors need
to make informed investment decisions.
And four was enhance the Commission's performance through
effective alignment and management of human information and
financial capital. I wonder if you can kind of assess how we
are doing on those? And as you look forward, are there any of
these that you are going to bolster or prioritize over other
ones?
Mr. Clayton. So, you are right. We are working on a new
strategic plan. I expect it to be out soon. I have reviewed it
with my fellow commissioners. The draft has gotten input from
our various divisions and offices. It embodies many of the
things that you just cited.
I would say if there is a shift to note it is this: if an
American retail investor knew what we knew, how would they want
us to focus our attention? And a lot of it is already in there.
But that is the perspective that we have taken in shaping the
strategic plan that will come out. Do I think we are doing well
in most of those areas? Yeah. Do I think there is room for
improvement? Yes. And the new positions we are adding are the
areas where I think there could be improvement.
Mr. Moolenaar. Great. Well, thank you, and thank you, Mr.
Chairman.
Mr. Graves. Thank you, Mr. Moolenaar. Chairman, thanks for
joining us today, giving your testimony, and presenting your
budget request. And we will be working on this in the next
several days and weeks. And hopefully, out of the subcommittee,
full committee, and the House, by midsummer is our goal, which
is aggressive. Will be reached
But we have to have aggressive goals. We have got a lot to
do. But we appreciate your responses today and your
thoroughness in what you are doing at the SEC and look forward
to seeing you again in the future. With that, this hearing is
adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thursday, April 26, 2018.
FEDERAL COMMUNICATIONS COMMISSION
WITNESS
HON. AJIT PAI, CHAIRMAN
Mr. Graves. Good afternoon. We will call this hearing to
order. I would like to recognize the Federal Communications
Commission Chairman, Ajit Pai. Thank you for joining us today.
I know you are familiar with this subcommittee. You have been a
participant in many different capacities over the years. We
thank you for joining us today in your role as chairman.
The focus of today's hearing is going to be on the FCC's
2019 budget request--although, like me, I am sure our
subcommittee members have a few policy items they might want to
discuss today as you are with us. Before I recognize Ranking
Member Quigley for his opening remarks, I want to highlight a
couple of topics that I am personally interested in and would
love to learn a little bit more about today.
First, the committee provided $1 billion over the next 2
years, in the most recent government funding bill, to set the
stage for the next generation of wireless service for our
country, such as 5G phone networks, while helping keep local
television and radio stations on the air, a process known in
Washington-speak as repack. So, Mr. Chairman, we recognize that
broadcasters and other entities participated in good faith to
make sure that the spectrum auction was successful. And we here
on the Appropriations Committee worked closely with our friends
on the Authorizing Committee as well, particularly with
Chairman Greg Walden, who has been a great champion on this
issue, along with his committee members, to ensure that our
broadcasters had all the resources necessary to make required
moves. So, we are certainly interested in hearing about that
process and the progress that you have made thus far, and what
you plan to do in the days ahead.
In addition, I know that rural broadband expansion is one
of your top priorities with the FCC, and you will find many
members of this subcommittee have interest in that as well. So,
we share that same enthusiasm and believe that the deployment
of broadband in rural and disadvantaged areas is a driver of
economic development, jobs, and opportunity. We look forward to
that discussion and hearing about the progress there.
Finally, I want to commend you for the work that you have
done to restore internet freedom. It is certainly
controversial, but nothing that is new to you. You are very
familiar with the topic and have been a great advocate for
repealing the net neutrality regulations. You and your fellow
commissioners engaged in a very transparent, very open, and I
would say spirited process, letting the American people
participate in that debate and the proceedings as well, in what
many would say was an unprecedented fashion. So, thank you for
that. We know that your work will help ensure that the online
marketplace continues to be open, and free, and flourish, while
increasing broadband access for rural and low-income Americans.
So, we know that will be an issue today that you might want to
touch on as well.
But again, we welcome you. We look forward to hearing your
testimony in a few minutes. And prior to that, I would like to
recognize Ranking Member Quigley for any opening remarks he
might have.
Mr. Quigley. Thank you, Mr. Chairman. Thank you, chairman,
for being here today. The FCC may have, at one time or another,
for many folks, just be another alphabet soup agency in the
sprawling government bureaucracy, but it has become more of a
household name recently. To me, that either means you have made
sweeping improvement to the agency, as the chairman seems to
indicate. Or as other evidence indicates, we have taken a
series of actions that could impact and disrupt the lives of
nearly every American, every walk of life and sector in this
economy.
It is no secret that you certainly drew a newfound level of
attention to the agency when you led the charge to roll back
net neutrality protections. In our 21st century world, equal
access to all online content is the cornerstone of freely-
moving communications and commerce. While the Obama era
protections of net neutrality were not perfect, your efforts to
eliminate these vital safeguards could cause severe harm to
consumers, all while stifling innovation and curtailing free
expression. This is not to mention that the FCC's rollout was
handled in ways that seemed to violate the American Procedures
Act and have already spawned numerous State attorneys general
investigations into wrongdoing.
If there were people who were not paying attention to the
FCC after your actions on net neutrality, things may have
changed when the video of dozens of Sinclair news anchors
forced to read identical and highly political text went viral
online in the news media. This, of course, brings us to the
ongoing review of the proposed merger between Sinclair and
Tribune Media, which has raised troubling concerns that have
yet to be cleared up. The FCC has taken numerous actions to
call into question, sir, your independence in the matter. And
at the very least, demonstrate that appearance of preferential
treatment for Sinclair, a broadcasting group with close ties to
the White House.
A swift series of FCC actions to ease limits on media
ownership have cleared almost all restrictions for Sinclair to
move forward with its merger proposal. An FCC commissioner that
you served with has even said--and I quote--``Everything the
FCC has done is custom-built for the business plan of one
company, and that is Sinclair.'' Taken in context with reported
meetings between you and your office, the White House
officials, and Sinclair representatives in a relatively brief
period of time, these actions reveal a disturbing pattern that
jeopardizes the independence of the FCC--so much so that you
yourself are now under an investigation by the FCC's Inspector
General for improper coordination with Sinclair.
If approved, Sinclair would control enough local TV
stations to reach 72 percent of U.S. households, significantly
harming media diversity and lowering consumer choice. To ease
mounting antitrust concerns, Sinclair just announced it will
divest 23 stations in 18 markets. However, Sinclair stretches
the definition of divestiture under the plan to something
unrecognizable.
For example, WGNTV in my home market of Chicago would
reportedly be sold to the CEO of a Maryland car dealership,
which is owned by the executive chairman of Sinclair. Sinclair
would have the option to buy back the station at a later date.
Under this arrangement, Sinclair would also have control over
all business decisions made by WGN, without having to claim
technical ownership.
While these are stations that currently enter into
appropriate joint sales and shared service agreements, this
arrangement makes a mockery out of the FCC's own rules. When
you combine a media giant cozy with the President and the White
House, the rolling back of ownership rules for the benefit of
one company, and a sign-off on dubious ownership agreements,
you get a recipe for less broadcasting competition, less high-
quality local content, and less diversity of views.
In closing, I would just like to add that I am pleased to
have you in front of the committee today, something we did not
have the opportunity to do last year. I believe this committee
has many questions for you today that have been unanswered
during previous media interviews and public appearances. It is
worth noting that most of these past appearances have occurred
with conservative media outlets and friendly audiences. I hope
if today's meeting goes well, you might consider making
yourself to a more diverse range of outlets going forward. I
look forward to hearing your testimony and discussing these and
other issues with you today. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Quigley. Chairman Pai, thanks
again for joining us today. Know that members will be coming
and going a little bit throughout the afternoon with other
subcommittee meetings. We look forward to having you with us
today. I know you want to discuss a little bit about your
budget requests, but you are certainly no stranger to some of
the policy questions. We look forward to hearing your opening
remarks at this time.
Mr. Pai. Well, thank you, sir. Chairman Graves, Ranking
Member Quigley, members of the subcommittee, thank you for the
opportunity to present the FCC's fiscal year 2019 budget
request. We will use the requested funds to achieve our
critical strategic goals. First, closing the digital divide;
second, promoting innovation; third, protecting consumers and
public safety; and fourth, reforming the FCC's processes.
In fiscal year 2018, we received $322 million, a reduction
of about 5 percent from 2017, minus the headquarters relocation
funds. To put that number in perspective, in inflation-adjusted
terms, our appropriation has declined by over 17 percent since
fiscal year 2009. These reductions have required the FCC to
operate more efficiently. Since I became chairman in January of
2017, we have done just that: cutting costs and accomplishing
more with less money.
For example, we have saved a lot of money by closing a
warehouse where we processed our mail, and instead contracting
with a vendor that performs this task for many government
agencies. And by the end of fiscal year 2018, we project that
the commission's FTE count will have declined by over 10
percent in just 2 years.
In light of this, our fiscal year 2019 budget request
proposes to freeze our FTE count rather than reduce it again. I
believe that further reductions in staffing next year could
compromise the commission's ability to accomplish its mission,
particularly in light of the many additional responsibilities
that Congress has assigned us in the omnibus appropriations
bill. Pursuant to this legislation, we must revise our
application and regulatory fee schedules, amend caller ID
spoofing rules, complete a rule-making on 911 call location
accuracy, use the Connect to Health tool to create a map
overlaying opioid drug abuse with broadband access, and
coordinate with NTIA and its use of $7.5 million in
infrastructure funds for broadband mapping. We have also been
tasked with writing reports for Congress on a variety of
important topics.
Now, in our budget request, we are asking for $8.5 million
for one-time information technology--or IT--investments. Many
of our IT systems and applications are quite old, and it is
becoming harder to keep them running. And that is why we are
seeking funding, to shift from outdated legacy systems and
applications toward modern, cloud-based solutions. Taking this
step will save money in the long run, improve resiliency,
reduce cyber security vulnerabilities, and enhance the services
that we provide to those we regulate and to the American
people.
These IT investments are the main reason why we are
requesting a slight bump up in appropriations for our regular
operations in fiscal year 2019, from $322 million to about $333
million. But even with this modest increase, our fiscal year
2019 spending level would be identical to the amount authorized
in the fiscal year 2018 omnibus, and below our fiscal year 2017
appropriation.
In our budget request, the FCC's auctions program is
projected to increase spending slightly, to $112,734,000, from
the fiscal year 2018 level of $100,150,000, which was a 5
percent drop from fiscal year 2017. And this is because next
year we will be busy when it comes to auctions.
We have two new spectrum auctions scheduled in the 28
gigahertz and the 24 gigahertz bands that are critical to
American leadership in 5G, the next general of wireless
connectivity. And we have much work to do on the post-incentive
auction repacking process. We need to develop rules for the new
programs recently approved by Congress to extend funding to
low-power television stations, and TV translators, and FM radio
stations that incur costs from the repack. We also have to
decide how to allocate money for consumer outreach related to
the repack.
And by the way, the billion dollars that you appropriated
for fiscal year 2018 and 2019 for the incentive auction repack
is already having an important impact. Just last week, we
enabled full-power television broadcasters to get access to up
to 92.5 percent of their estimated costs. This boost will make
it easier for stations to move ahead with post-auction
construction.
Finally, despite our budget planning, unforeseen problems
and disasters can upend our best efforts. For instance, during
this fiscal year, we have had to use every tool in our toolbox
to help people on the ground in hurricane-stricken regions, to
get communications networks up and running, including using
universal service fund money and experimental licenses. And we
are not done yet. I have proposed a $750 million Uniendo a
Puerto Rico Fund--or ``Bringing Puerto Rico Together Fund''--
and a $204 million Connect USVI Fund for the Virgin Islands, to
provide more short-term assistance for restoring communications
networks in the aftermath of Hurricanes Irma and Maria, as well
as longer-term support for expanding broadband access
throughout the islands.
In short, we have accomplished a great deal in the past
year and will have a full plate next year. And it is the
appropriation that you provide, along with the hard work of the
Commission's talented staff, that makes all of this possible.
And so, I want to thank you for your dedication to helping our
agency have the resources it needs to serve the public
interest. I look forward to answering your questions and to
working with you and your staffs in the time to come.
Thank you, Mr. Chairman, for your indulgence.
The information follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Graves. Thank you, Chairman Pai. We certainly have your
prepared statement as well that I know each member has taken
time to review.
I wanted to ask you just a little bit about the billion-
dollar investment that we provided in the last government
funding bill. Could you give us an overview of the process and
how much of those resources have been allocated, and are out
the door. Are the resources provided sufficient for the plan
that you are putting in place to make sure that everything goes
smoothly and it is all taken care of?
Mr. Pai. Thank you for the question, Mr. Chairman. Prior to
the legislation passing, we had made very strong efforts to
make sure that the repack was proceeding apace and smoothly.
There are approximately, I believe, something like 4,554
licenses that we have allocated, which is a great many of them.
Additionally, we have been working extensively with
broadcasters to make sure that we get some of the criteria out
there for what would constitute compensable funds.
Thanks to this legislation, as I mentioned in my opening
statement, we have now been able to increase the allocations
available for broadcasters. So, now, up to 92.5 percent of
their costs will be covered. Additionally, we have taken the
legislation's instruction very seriously, and I have asked our
incentive auction staff to start looking at ways to implement
some of the instructions with respect to low-power TV stations,
and translators, and FM stations--as well as looking at ways to
promote consumer outreach, as Congress requested.
So, we are very grateful to Congress on a bipartisan basis
for extending those resources. And we are committed to making
sure the incentive auction continues to go smoothly.
Mr. Graves. Do you think there is sufficient funding for
the low-power and FM stations?
Mr. Pai. That is the decision that Congress made, and we
respect that decision. And thus far, we do not have any reason
to believe that it is inadequate.
Mr. Graves. And so, a concern that this committee would
have, too, is that making sure the reimbursements are for costs
that would be reasonably incurred. How do you ensure that? What
is your protocol for that?
Mr. Pai. That is where we rely heavily on the
determinations by our expert staff. There are some things, I
think, that people can agree are reasonably related to the
repack, and there are costs that we can agree are not. And that
line-drawing exercise is something that we have to be very
careful about. Because after all, these are limited funds. And
we want to make sure that we are only allocating funding to the
extent that is required under the law.
Mr. Graves. And one last question related to this. $50
million was allocated for consumer education. Can you share
with us how you intend to use that for consumer education? What
would be your vision for that? I do not know that I have seen a
chairman in this role travel the country like you have to just
meet with groups, whether they are students in schools, or
civic groups, just to talk about what is important when it
comes to the FCC. So, this $50 million out of your spending
bill, what type of activities would you envision for it?
Mr. Pai. Well, first, Mr. Chairman, thank you for the kind
words. It is one of the great benefits of this job to be able
to travel around the country and see how people are impacted,
from Scottsville, Kentucky, to Utuado, Puerto Rico--each of
those places I visited over the past couple of months.
With respect to consumer outreach, as I said, we are still
in the early stages. I have asked our staff to take a look at
the range of options that are permitted under the law and given
our resources. And we have some precedents. During the digital
television transition, of course, we engaged in a very robust
consumer outreach function. And so, we will be looking to that
precedent, along with what some of the potential
vulnerabilities are, in terms of consumer awareness, going
forward. And we would be happy to keep the committee apprised
as that effort develops.
Mr. Graves. That is great. And then, one last thought on a
different topic. I know we mentioned earlier that rural
broadband expansion is one of your top priorities. In your
travels across the country, you have certainly seen the need
for that. As we go through this year and next year, how do you
see that rolling out and your vision coming to be?
Mr. Pai. Thanks for the question. I am very optimistic
about what the future holds--for the next year in particular--
for rural broadband. In July, we will be starting our $2
billion Connect America Fund Phase 2 auction to get fixed
broadband to unserved parts of the country.
Hopefully, next year, we will be kicking off the $4.5
billion Mobility Fund, Phase 2, to get 4G LTE to unserved parts
of the country. We have done rate of return forms to extend
$500 million to rural carriers. As I mentioned in my opening
statement, I have proposed $1 billion for Puerto Rico and the
Virgin Islands in particular, given some of the challenges they
have had. And aside from those subsidy programs, we have
reformed our rules to make it easier for small companies in
particular to build out the infrastructure in rural America.
And the reason why it matters is because there are a lot of
communities across this country that are simply on the wrong
side of the digital divide. And the Scottsville example is a
good one. I visited there a couple of weeks ago. Four thousand
people in the town of Scottsville, not a single pediatrician in
the entire county. And so, for a long time, the only option for
a kid who got sick in school was to hope that the school nurse
could help him or her. Well, now, thanks to a high-speed
connection between Scottsville, Kentucky and the Vanderbilt
University's Children's Hospital, they are able to engage in
telemedicine. Kids are healthier. Parents do not have to take
time off work. Teachers can focus on teaching. The community is
healthier.
And that one anecdote, I think, illustrates the fact that
this not an academic debate. Rural broadband, broadband
deployment generally means getting human capital off the shelf
and empowering Americans to be participants in--rather than
spectators of--the digital economy.
Mr. Graves. Great. Thank you. Thanks for your vision there
and the aggressive rollout. That is amazing. Mr. Quigley, you
are recognized, and then Mr. Moolenaar.
Mr. Quigley. Thank you, Mr. Chairman. Mr. Chairman, I
respect you in the fact that I know you believe that those
actions are important. And the chairman, I am sure, appreciates
those kind words.
There are some times, though, when we disagree, and these
issues matter. So, I have got to ask these questions. And it
begins with: have you recused yourself or do you plan on
recusing yourself from any further actions relating to the
Sinclair-Tribune merger until the IG investigation has
concluded?
Mr. Pai. Congressman, I have been advised by the Office of
General Counsel that recusal is not required under the
applicable rules and regulations.
Mr. Quigley. Is this concerning and after and involved with
the Inspector General's investigation?
Mr. Pai. My understanding is that the career ethics
officials have given general advice with respect to my
participation in that transaction.
Mr. Quigley. Are we told how long the IG investigation will
take place?
Mr. Pai. To my knowledge, they have not said anything
publicly about the investigation. I have no knowledge of what
their timeframe might be. I would refer you to the OIG for any
answers.
Mr. Quigley. Did representatives of Sinclair inform you or
your staff about a proposed merger with Tribune before the
FCC's vote to reinstate the UHF discount?
Mr. Pai. They did not. Absolutely not.
Mr. Quigley. Was there any communication at all before or
after, involving this merger?
Mr. Pai. About the merger?
Mr. Quigley. Yes.
Mr. Pai. Before they announced it? No. Not at all.
Mr. Quigley. Nothing whatsoever?
Mr. Pai. No. I have read about it, I think, in the press,
as anybody else did.
Mr. Quigley. Did President Trump or any other officials at
the White House--the transition team--discuss Sinclair at all
with you or any of your staff or people who would become your
staff?
Mr. Pai. To my knowledge, sir, no. No one ever told me
about a pending proceeding of any kind.
Mr. Quigley. Before the inauguration as well?
Mr. Pai. No. No one.
Mr. Quigley. After the inauguration?
Mr. Pai. When I met with the President-elect, no.
Mr. Quigley. Did anyone ever talk to you from the White
House, generally, about a proposed Sinclair-Tribune merger with
you, your staff, anyone else related at all?
Mr. Pai. Not to my knowledge.
Mr. Quigley. Has anyone from your staff talked to you about
this--having told you that they talked with anyone at the White
House or the administration?
Mr. Pai. Not that I recall. No.
Mr. Quigley. Both before and after the announcement of the
proposed Sinclair-Tribune merger, did any representatives of
Sinclair discuss with you or your staff changes to the main
studio rule or local media ownership rules?
Mr. Pai. I think a number of companies, including that one,
have suggested over the years that the media ownership rules
were in need of reform. That is a position I held well before I
had those discussions.
Mr. Quigley. But the discussions that Sinclair had, were
those with you?
Mr. Pai. When the----
Mr. Quigley. You said that they and others have.
Mr. Pai. Right.
Mr. Quigley. When did Sinclair have these discussions with
you?
Mr. Pai. Oh, so, for example: I cannot recall the specific
date, but I mean, I am aware generally that the media ownership
rules are outdated; there is a need for reform there, and that
is consistent with the views I have long-held.
Mr. Quigley. But when did Sinclair specifically talk to you
about this?
Mr. Pai. Well, I do recall--I think it was in 2016, for
example--that I made a presentation to the general managers of
some of the Sinclair stations. And one of the points I made was
that media ownership rules were in need of reform. And I think
there might have been a couple of questions from some of the
general managers about that.
Mr. Quigley. Do you have a record at all of any meetings
and correspondence that you or your staff have had with
representatives of Sinclair, including lobbyists and lawyers
representing Sinclair, since November 6th, 2016?
Mr. Pai. If we have any such correspondence, it has been
produced, I understand, in response to FOIA requests.
Mr. Quigley. In response to FOIA requests from?
Mr. Pai. From individuals who have requested information.
In addition, my understanding is we supplied some documents to
some of your colleagues on the House Energy and Commerce
Committee as well.
Mr. Quigley. And are those request up-to-date?
Mr. Pai. As far as I know, yes.
Mr. Quigley. And can you provide us with a summary of those
meetings and copies of that correspondence as well?
Mr. Pai. I will take a look at what we have and we would be
happy to work with you on that.
Mr. Quigley. Now, press reports indicate that the DC
Circuit Court has expressed skepticism about the FCC's
authority to reinstate the UHF discount. You are aware of this?
So, let me ask you: what happens if the FCC approves a
Sinclair-Tribune merger, which would be unlawful if not for the
UHF discount reinstatement, and then the court rules against
it? Will the FCC undo the merger? Can it? Either way, does not
it make sense to you, sir, that we wait until the court rules
on your authority before acting on the merger?
Mr. Pai. Well, congressman, you are talking about two
clashing hypotheticals. One is what the court might do.
Mr. Quigley. It is a big deal, though.
Mr. Pai. Oh, I understand that. But you are talking about
two clashing hypotheticals. One is what the DC Circuit might
do, and two is how the FCC might evaluate the company's newly
issued proposal, which, as you point out in your opening
statement, was just submitted a couple of days ago. The clock
on that transaction has been stopped since January. And so, I
am loath, at this point, to forecast what we might do in the
event of either of the hypotheticals.
Mr. Quigley. Could you forecast the timeframe before you
would approve a merger?
Mr. Pai. I cannot Congressman, because the clock is
currently stopped. And as you pointed out, just a couple of
days ago, they submitted this proposal, which we have not had a
chance to fully evaluate.
Mr. Quigley. And I will get into it in a later question,
but given the magnitude of the court's decision, does it not
make sense to put off a final decision until they rule?
Hypothetical or not, given the fact that you would be making
this decision and then the courts would be ruling against it
probably shortly thereafter.
Mr. Pai. Congressman, we will take that factor into
account. But again, I do not want to forecast or give a
specific timeframe, given the fact that the clock is currently
stopped and we have not had a chance to fully evaluate the new
proposal.
Mr. Quigley. My time is up.
Mr. Graves. Thank you, Mr. Quigley. Mr. Moolenaar and then
Mr. Bishop.
Mr. Moolenaar. Thank you, Mr. Chairman. Chairman Pai, thank
you for being here with us today. And I wanted to follow-up on
some of the questions Chairman Graves was asking about the
rural broadband. And also, telemedicine is something you have
been talking about. I just want to emphasize, in my district,
which is 15 counties in Michigan, rural broadband is a huge
priority, as well as the telemedicine opportunities. And I want
to continue to encourage you in that direction.
If I am speaking to people in our district and leaders in
different communities who are concerned about these things,
what message should I be giving them right now, in terms of
timing, the expectations they can have in this regard?
Mr. Pai. You can tell them that the FCC's number one
priority is closing the digital divide, making sure that every
part of this country is connected with internet access and
other advanced technologies. Everyone wants internet access by
yesterday. But nonetheless, we are moving very aggressively--
the fixed broadband program starting in July, the mobile
broadband auction starting in 2019. We are moving very
aggressively, and we are also talking about the value of
telemedicine in particular. We have teed up some reforms to our
rural healthcare program to make sure that healthcare providers
all across the country--but especially in places like your
district--have the resources that are needed to make sure the
consumers in your district can take advantage of healthcare
opportunities that folks in bigger cities do. And this is an
issue I am really passionate about and we would be happy to
work with you on it.
Mr. Moolenaar. Wonderful. Thank you. And then, every day,
our office receives calls from constituents complaining about
scam phone calls. It is more than a nuisance. Some of these
calls pose as everything from IRS agents threatening to arrest
people, hospitals claiming to need more money to assist a
relative. Why does not the Do Not Call list filter these out,
and what can the FCC do to address this problem?
Mr. Pai. The sad answer to your first question is that the
scam artists do not respect the Do Not Call List. And so, then,
it falls to the FCC as well to figure out ways to stop the
supply, so to speak, of these unwanted robo-calls. And we have
done that aggressively. For example, we took action last year
to empower carriers to block spoof calls that are clearly from
invalid or unassigned phone numbers.
And we have also engaged technologists and others to come
up with a call authentication standard--a digital fingerprint,
as you will--for each phone number. So, if you see a phone
number on your phone, you will know that it is coming from a
specific person who has specifically been assigned that number.
We have also taken aggressive enforcement actions. The largest
fines proposed in the agency's history have been proposed over
the last year to go after these robo-callers.
And I personally have talked to my counterpart at the
Federal Trade Commission and have spoken with foreign
counterparts in places like India about the need for
international cooperation. A lot of these scam calls come from
abroad. Our jurisdiction does not extend, of course, beyond the
U.S. border. We need their help. And I am glad to say that my
counterparts, generally speaking, have been very supportive in
doing that. This is an all hands on deck effort, and I am
pleased to say that we are putting all hands on that deck.
Mr. Moolenaar. OK. Thank you. If I could change course for
just a minute, I appreciate your working on cleaning up the
waste, fraud, and abuse in different programs which you have
authority over. And one of the concerns that has been raised to
me is regarding the Lifeline program.
You know, I know, in my district, I believe there are
almost 26,000 subscribers to Lifeline. There have been concerns
raised about disruption based on a new proposal that you have
on a reseller ban and some kind of a cost-sharing co-payer type
program. And I just wondered if you have done some kind of a
cost-benefit analysis on this that integrity, and make sure
that, you know, we are-- but I am hearing these concerns
raised, and I just wondered if you could speak to that.
Mr. Pai. Thanks for the question, congressman. I have long
said that every dollar in the Lifeline program, or any other
program, that is wasted is a dollar that by definition is
denied to a consumer who is in need. And that is why I have
suggested that the FCC needs to prioritize consumers rather
than the companies that are, you know, occasionally engaging in
this waste, fraud, and abuse.
And so, that is part of the reason why, for example, we got
rid of the port freeze, which essentially prevented Lifeline
consumers from changing providers for a year, preventing
consumer choice. That is why we have made clear that the
Lifeline program should support 3G or higher speeds, as opposed
to premium WiFi, because some Lifeline consumers told us,
``Well, we get these phones, but then we can only use them if
we have WiFi, which we do not have at home.''
That is part of the reason why we are taking steps to make
sure that we, as you pointed out, maintain program integrity.
We do not want companies, for example, to get multiple
duplicate subscribers----
Mr. Moolenaar. Is there some evidence of that kind of fraud
taking place?
Mr. Pai. There is. For example, in Michigan we uncovered a
case in which one company was getting subsidies for 22,000
subscribers per month. Those subscribers did not exist. And
that is the kind of thing, again, every dollar that goes to
somebody who does not exist or is not in need, it cannot go to
somebody in your district who really does need to help.
Mr. Moolenaar. Thank you. Thank you, Mr. Chairman.
Mr. Graves. Thank you, Mr. Moolenaar. Mr. Bishop and then
Mr. Yoder.
Mr. Bishop. Thank you very much, Mr. Chairman. Again,
Chairman Pai, I would like to welcome you. First off, though, I
would like to take this opportunity to talk about Commissioner
Mignon Clyburn and her legacy on the Commission. I would like
to say that Commissioner Clyburn has really been an asset to
the FCC and that she has done great work in advocating for the
American people, particularly those who are in greatest need of
government protection and assistance. She has been a consistent
and a powerful voice on the commission, and her impending
departure will be a great loss for everyone.
It would be unfair to compare anybody's work to hers, but
to that point, I want to know your thoughts on some of the
aspects of the issues for which she was such a tireless
champion. You have consistently opposed the notion that the FCC
has the authority to determine rate caps for intrastate prison
calls, which is essential for the rehabilitation of inmates by
allowing them to feel connected to their families and their
communities. What do you think that the FCC can do to mitigate
the predatory practices of the companies charging excessive
rates for inmates? And will you act on, in any way, on what you
think the FCC can do?
Let me just also say that Commissioner Clyburn was an
advocate for enhanced accessibility for communications for
individuals with disabilities. Tell us what the plans that the
FCC has and what your thoughts are, in particular, to ensure
that these individuals with disabilities are not left behind
with regard to the rapid and ongoing communication advances.
And I would like to go back to the Lifeline question, which
is so very, very important. It assists low-income individuals
with acquiring telecommunications services, which goes to the
heart of the purpose of the Universal Service Fund. But the
proposed ban on Lifeline Wireless resellers--which is a primary
source of service for Lifeline customers--accounts for up to 8
million current customers. And the ban is predicated on a GAO
report that found that 5,500 duplicate Lifeline recipients and
6,300 deceased individuals, who are receiving subsidies at a
fraud of 0.16 percent. That is 0.16 percent, and 0.18 percent
respectively.
Overall, the improper payment rate for life is well below
the government-wide average of 4.67 percent. And it outperforms
many of the other popular government programs. So, would you
just comment on the justification for such a drastic response
to the situation and what the FCC plans to do to accommodate
the millions of people who stand to be disconnected because of
loss of the subsidy?
Mr. Pai. Thank you, congressman. You have teed up a few
questions. So, I will try to get to them in sequence. First,
with respect to Commissioner Clyburn, I could not agree more.
She has been a champion of the public interest during her time
at the Commission. In fact, with the committee's indulgence, I
would like to introduce into the record a joint op-ed that she
and I did, perhaps her last of the Commission, in which we
talked about the power of broadband to help rural cancer
patients get access to the treatment they need. She and I
worked together to forge an agreement between the FCC and the
National Cancer Institute, and I think it is part of her legacy
that she is promoting telemedicine and connected health as
something that will help all Americans.
Additionally, with respect to intrastate inmate calling
rates, I have consistently said that, unfortunately, the plain
language of the Communications Act gives the FCC jurisdiction
over interstate rates, but intrastate rates are a different
question. And unfortunately, the DC Circuit agreed with that
interpretation. I understand that there is legislation in
Congress to reform that system. We would be happy to work with
you as well as members of the Senate who have expressed
interest in that question.
On the interstate side--going back to 2013--I specifically
proposed a 0.26 cent and 0.19 tiered structure that I thought
was consistent with the evidence and would have withstood
judicial review. Going forward, we are still evaluating the
issue, but we would be happy to work with you on the path
forward.
On disabilities, I could not agree with you more. One of
the great benefits of technology, I think, is now bringing into
the fold many millions of people who, in a previous analog
area, might not have had the ability to participate in society.
So, I am proud, for example, that we have really tried to push
the availability of things like real-time text, allowing those
with disabilities, for example, to text each other in real time
instead of having to send an SMS, wait for a message, and get a
message back with different reforms to the Telecommunications
Relay Service and other programs, I think, we are going to
bring more people disabilities into the connected era.
Last, with respect to Lifeline, I agree with you. I have
consistently said that Lifeline is an important tool for
addressing the digital divide. And we are still taking input on
some of our proposals from the most recent notice of proposed
rulemaking. I will simply state in the interim that we have
recognized the importance of this. I personally visited the
Navajo Nation recently, and I got to hear firsthand about the
importance of Lifeline to some of the folks on Tribal lands.
And that is why we extended the deadline, for example, for
folks in the Tribal Nation, to be able to continue to enjoy
some of those benefits. So, these are very important issues
that you have raised, and I look forward to working with you on
that.
Mr. Bishop. Thank you. My time is more than expired, but
thank you very much.
Mr. Pai. I am sorry for the long answer.
Mr. Graves. Thank you, Mr. Bishop. Mr. Yoder and then Mr.
Cartwright.
Mr. Yoder. Thank you, Mr. Chairman. Chairman Pai, welcome
to the committee, and welcome back, and welcome to the
committee for the first as chairman of the FCC. I think you
were here before, but maybe you were not actually fully
confirmed.
But it is great to have a Kansan in this role. And as a
fellow Kansan, I know that you are concerned about rural
broadband. And the chairman has asked about it, as well as
others today. And I want to ask you a little bit about the
rural healthcare program. For the past 2 decades, the rural
healthcare has remained at $400 million per year. But in 2016
and 2017, demand for this program exceeded the cap, and the FCC
has rightly proposed adjusting the cap for inflation.
However, in the meantime, the USAC--which administers the
program--set the funding request for fiscal year 2017 were $521
million, above the $400 million cap. And since the cap has not
been raised, the USAC administered retroactive cuts to the
program participants. They culled back 15 percent from
individual participants and 25 percent from those who
participated as part of a consortium.
This concerns folks in Kansas because that method of
calculating the cuts disproportionately affects Kansans where
the majority of rural healthcare program participants are part
of a statewide consortium. So, my first question is, why is the
USAC moving forward with these clawbacks ahead of the
rulemaking process that would raise the caps for 2017?
Mr. Pai. Good question, Congressman. So, based on the rules
that are existence, USAC had to make those determinations. We
have tried to work with them to ameliorate the impact of those.
So, for example, once my office saw the trend lines--that
demand was going to exceed supply in terms of the rural
healthcare budget--we asked them to use fiscal year 2017 unused
funds to mitigate the impact of that. And I recognize it is not
fully mitigating it, but we did what we could, given the
resources we had.
Moving forward, in December of 2017, we also took steps to
give healthcare providers relief by teeing up, as you pointed
out, a notice of proposed rulemaking to say, prospectively,
should we revisit what that cap is, recognizing that there have
been resource constraints in the past. And so, I hope that the
combination of those two things will help.
With respect to individual applicants for this consortia,
this is an important issue. Our thinking was that individual
healthcare provider facilities do not have the economies of
scale, the bargaining powers that a larger group, a consortium,
might have. Additionally, it might be difficult to discern
which members of a consortia are urban versus rural. This is,
of course, the rural healthcare program. And so, that was part
of the rationale there. But we recognized that there are
important services that the consortia provided as well. And so,
we hoped that it would consider the notice of proposed
rulemaking. I believe the comment cycle just recently closed.
We will take that into account.
Mr. Yoder. Well, I know, whether it is 15 percent for
individuals or 25 percent for the consortium, those clawbacks
are difficult to sustain and impactful. And so, the rulemaking,
obviously, will fix this, hopefully, going forward, by raising
those caps. Where is that process? Where are we in that
timeline?
Mr. Pai. The comment cycle recently closed. Our staff is
evaluating the comments we have received. And we hope to make a
judgment at some point in the near future. I recognize, having
been to, you know, the KU Med Center in your district, I
understand some of the great things they are doing. And we want
to keep promoting that in the time to come.
Mr. Yoder. OK. Last September, Representative Mark Takano
and I, as co-chairs of the Congressional Deaf Caucus, sent you
a letter regarding a petition for rulemaking--we have spoken
about this before--that was supported by organizations that
advocate on behalf of the deaf and hard-hearing. The petition
requested that the FCC promulgate regulations to change the
contribution methodology for the Telecom Relay Service Fund. As
you know, the TRS provides vital services to the deaf
community, but a shrinking revenue base for the fund has
threatened those services.
In our letter, we have voiced our hope that the FCC would
prioritize this issue. And I thank you for responding to the
letter, in which you stated that the Commission was working to
conclude its review of this matter as quickly and as equitably
as possible. I would like to get an update on where you are in
this situation, where we stand on the issue. And I understand
that you have been working on a Telecom Relay Service draft
notice of proposed rulemaking. Can you give us the timeline
when you expect that it will be issued and out for public
comment?
Mr. Pai. Sure. First and foremost, thanks to you and
Congressman Takano for you interest in this matter. And second,
I meant what I said in my response, and I am pleased to report
this morning--or this afternoon, rather--that in the next
couple of weeks, we hope to circulate that notice of proposed
rulemaking. Hopefully soon thereafter, my fellow commissioners
will vote on it and we will be able to hit the ground running
with that proceeding.
Mr. Yoder. Great. Thank you for your work there. That means
a lot to a lot of our constituents who are deaf and hard of
hearing. And we appreciate your leadership on that. And then,
lastly, on the repack issue. You know, in fiscal year 2018, we
included $50 million to cover reimbursable expenses of radio
broadcasters that are impacted by the TV incentive auto repack.
There has been some concerns that radio broadcasters facing
these costs in the earlier phase of the repack lack the
information they need to adequately plan for the mitigation
efforts to ensure minimal impact to radio listeners.
Can you give us a quick update on the rulemaking? And can
the FCC include the update of its work on the radio repack
rulemaking in their monthly reports to the committee?
Mr. Pai. Sure. So, with respect to the first, we have asked
the staff who are working on the incentive auctions, including
folks in the media bureau, to take a look at the recent
legislation and to figure out what steps need to be taken to
implement that instruction. At this time, I do not have a
specific timeframe that I can give you. But I can tell you that
they are working as quickly as they can to make sure that FM
stations have the certainty they need and that Congress gets
the information it needs promptly.
Mr. Yoder. Quickly and equitably as possible, as you say,
on everything.
Mr. Pai. Absolutely.
Mr. Yoder. I appreciate it. Thank you.
Mr. Graves. Mr. Cartwright and then Mr. Young.
Mr. Cartwright. Thank you, Mr. Chairman. And Chairman Pai,
thank you for being here.
Mr. Pai. Thanks.
Mr. Cartwright. And I want to talk more about rural
broadband. One thing that we agree on, on both sides of the
aisle, is the importance of getting going on this, connecting
our rural residents to the worldwide Web. Now, you mentioned
the Connect America Fund. It spent about $4.5 billion last
year, attempting to expand coverage. And I certainly applaud
those efforts. But I want to think the Commission could do more
to promote innovation. And specifically, I am thinking of an
exciting new technology that would use vacant television
spectrum--or white space--to deliver broadband to rural areas.
And now, the real benefit of this model is that utilizing
it could cut the cost of bridging the digital divide by about
80 percent, compared to fiber solutions alone. But nationwide
deployment is impossible until the Commission sets aside
sufficient TV white space spectrum for wireless unlicensed use
in every market across the country. What do you think of this?
Why has this step not been taken? And can you provide a
timeline of when we might expect the Commission to act on TV
white space?
Mr. Pai. Thanks for the question, congressman. And I am
pleased to see that we have common ground on that issue. It is
very important, as I know, in Kansas as it is in Pennsylvania.
With respect to that issue, I have met with Microsoft and some
of the other entities that are advocating for it. I have
personally been to South Boston, Virginia, a small town, where
I got to meet Dylan Harris, who at the time was a high school
student. He is now a student at Old Dominion University. And he
told me that he had internet access because of this kind of
technology and it helped him do his homework in a way he could
not before.
Now, I also have to say, though, that we have a low-power
TV displacement window that is currently open in connection
with the incentive auction. That window closes, I believe, on
June 1st. And so, it is premature for me to give you a specific
timeframe on when the Commission might reach resolution,
because we do not know what the quantum of LPTV entities might
be that might also be looking for the use of that spectrum.
We would be happy to keep you posted as soon as that window
closes and we get more information. Believe me, when it comes
to rural broadband, I understand that time is not on the side
of those folks in Easton, or in Parsons, Kansas, where I am
from. But we want to make sure we do everything we can as
quickly as we can.
Mr. Cartwright. Thank you for that. And I will ask that you
keep us posted.
Mr. Pai. Happy to do it.
The FCC provides updates on all incentive Auctions Actions
to HAC and SAC on the 23rd day of each month, as per the FY18
Explanatory Statement.
Mr. Cartwright. Secondly, Congress recently made what some
have called a down payment on investing in rural infrastructure
by adopting a $600 million rural broadband loan/grant pilot
program, to be administered by the USDA Rural Utilities
Service.
Now, with all the work on broadband network currently
underway, pursuant to USF reforms--Universal Service Fund
reforms--made by the FCC, how do we ensure that these
additional infrastructure resources are coordinated with
assisting programs to prevent duplication of effort and waste
of money?
Mr. Pai. That is a great question. And we want to make sure
that every dollar stretches as far as it can. And that includes
not duplicating effort. So, we have worked with the U.S.
Department of Agriculture. I have personally spoken to
Secretary Perdue several times over the last year. And I was
just at the Ag Department a week ago to talk about the fact
that we need to coordinate. I have asked our Wireline
Competition Bureau--and I think they already have reached out
to the U.S. Department of Agriculture staff--to make sure that
we can combine forces. And I have also set up meetings with the
Rural Utilities Service administrator, who works at the Ag
Department, of course, to make sure that we are on the same
page.
We want Congress to be able to tell its constituents, the
dollars we allocated in the omnibus are going to go towards
unserved parts of the country, and there is not going to be a
single wasted effort or dollar.
Mr. Cartwright. Now, specifically--not to put too fine a
point on it--are you at all concerned that the new
infrastructure funding might overbuild existing USF-supported
networks or even duplicate construction efforts underway
through the CAF-II and other programs to deploy networks?
Mr. Pai. I am not at this point. Again, the Ag Department
is in the early stages. They are thinking about how to
structure this program. But one of the things that have
suggested to me, and I think the clear direction from Congress
as well, is that we need to work together to make sure that we
do not encounter that possibility.
Mr. Cartwright. OK. And now, the omnibus spending bill also
included some permitting reforms to speed up the process of
securing easements and rights of way across Federal lands. Now,
that your Broadband Deployment Advisory Committee--BDAC--had
produced some recommendations on these issues, what do you see
as next steps, and what changes would you prioritize?
Mr. Pai. The Advisory Committee just came out with a few
recommendations on State and local model codes, for instance.
And they have identified some other barriers to infrastructure
investment. And again, I am very grateful to Congress for
addressing about the Federal lands issue as well.
On average, it takes twice as long to deploy broadband on
Federal lands as it does on privately-held land. That is a huge
barrier in some cases, especially out West. We are looking
forward to moving forward as quickly as we can on some of those
recommendations and instructions from Congress. And hereto, I
would be happy to keep you posted. We have been having a lot of
balls in the air between the auctions and the regulatory
reforms, but we are committed to solving those problems as soon
as we can.
Mr. Cartwright. Thank you, Chairman Pai. Back to you, Mr.
Chairman.
Mr. Pai. Thank you.
Mr. Graves. Thank you, Mr. Cartwright. Mr. Young? And then,
Ranking Member Quigley.
Mr. Young. Thank you, Mr. Chairman. Hello, Mr. Chairman.
Mr. Pai. Hello.
Mr. Young. Nice to see you.
Mr. Pai. You too.
Mr. Young. Good to be with you. This past February,
President Trump signed into law a bipartisan bill--a bill I
introduced--called the Improving Rural Call Quality and
Reliability Act. This is an issue that is pretty prevalent in
rural areas where calls are just dropped, or they are not even
connected, when they are rerouted through rural America.
Recently, your commission dropped reporting requirements of
originating providers that helps identify the rates of call
completion problems. Can you explain to me how the Commission
will ensure that rural public safety, hazards, businesses,
families, customers, services are not compromised in the
absence of these reporting requirements?
Mr. Pai. Thanks for the question, congressman. First,
congratulations on the passage of that important legislation.
It is something that I have heard firsthand, including on the
ground in Spencer, Iowa, where I heard from the local municipal
utility how this was a problem that their consumers typically
blame them for, as opposed to the company that started the
call.
As per the FY18 Explanatory Statement, on June 23rd, the
FCC submitted to the HAC and SAC a Rural Call Completion
Report.
With respect to your question, we have taken steps to make
sure that covered providers--that is, the entity that selects
the long-distance provider who will carry the call--that they
monitor the performance of those intermediate providers and
take remedial steps, if necessary, to correct any problems they
have. We do not want to see the problems we saw in the past,
with respect to least-cost routing, where people would just
pick the cheapest possible route without respect to call
quality.
Now, secondly, we have already asked our staff to take a
look at the rural call completion legislation that you just
passed and to make sure that we move with all deliberate speed
to implement it, because we recognize that for too many rural
consumers and businesses, those calls are dropping too often
and we do not want that to happen.
Mr. Young. Well, those quality assurances need to be there,
and there needs to be some accountability, because folks in the
rural areas should have just as good coverage and service as
folks in urban areas, especially when it comes to trying to
make sure that our rural economy is moving as fast and hard as
in can. Businesses have to be able to communicate with one
another in emergency services, families just wanting to talk to
one another. So, thank you, and we will continue to work on you
with that.
I am on the Agriculture Subcommittee as well on this
Appropriations Committee. And we have got the USDA's RUS--Rural
Utility Service. Are they the best entity or are you the best
entity to deal with helping to employ broadband out into rural
America or anywhere else? And are you doing something in the
same light, and do we have two different departments doing the
same thing? Is it duplicative? Are you talking to one another?
Is this the best use of the taxpayer dollars?
Mr. Pai. That is a great question. And obviously, Congress
holds in its hands the authority to make any necessary changes
that it thinks are appropriate. We do work with them
extensively. As I said, I have recently met with the Rural
Utilities Service administrator. I am going to be sitting down
with him for a more detailed discussion.
As to whether it makes sense to have multiple agencies
doing the same thing, I tend to think that our agency would
take the lead on that, given the fact that we have established
mechanisms for distributing universal service funding. We are
the technical experts when it comes to the networks themselves.
But nonetheless, we are working very well, collaboratively,
with other agencies, including the RUS, to make sure that we
are all on the same page here; we are not duplicating effort.
Mr. Young. Well, I hope it is not duplicative, because
there are plenty of holes out there that needs filled if you
are, because there is so many underserved areas, let alone
unserved areas as well. So, please coordinate in a transparent,
accountable fashion between one another, and give taxpayers the
best bang for their buck on this.
Mr. Pai. Absolutely.
Mr. Young. We had a hearing, as well, this morning, on the
Transportation, Housing, Urban Development Subcommittee. And we
talked about artificial intelligence, autonomous vehicles. Does
the FCC have any role when it comes to our transportation
systems and making sure you are working with the systems, that
everybody is talking to one another, that there is going to be
safety in the end, and vehicles are talking to one another? And
wherever this goes, how do we ensure that space is available
for the communications to make this all work?
Mr. Pai. Absolutely. As cars become internet-connected
vehicles--we are a long way from 1980 Caprice Classic with red
velour trim----
Mr. Young. That is a classic.
Mr. Pai. It was for the short time it lasted. But we are
working collaboratively with other agencies: for example, the
Department of Transportation. And also internally, we are
talking about the spectrum needs of industries like the
automotive industries. We have been looking at a number of
different bands.
Early on in my administration, we extended 4 gigahertz
from, I believe it was 77 to 81 gigahertz--to talk about
vehicular radars--since, you know, obviously being able to see,
so to speak, around you is very important in a connected
environment. So, more and more often, I think, our agencies are
converging because these industries are converging.
Mr. Young. I appreciate that and pleased to engage with
that. And let us know in Congress. We need to know regarding
that to make this all work. I want to thank you for being here
today. And we will be in touch with you and your commission
regarding the rural call quality bill that was passed into law,
make sure that works for everybody. I yield back, Mr. Chairman.
Thank you. Thank you.
Mr. Pai. You bet.
Mr. Graves. Thank you, Mr. Young. You are a champion for
rural America each and every time.
Mr. Young. Can you say that again?
Mr. Graves. Always the champion down there. Ranking Member
Quigley, you are recognized, and Mr. Yoder.
Mr. Quigley. Thanks again, Mr. Chairman. Mr. Chairman, you
know the history. There is a reason that Congress created a
statutory cap so that a single large national corporation
cannot own so many stations that it can control the voices
reaching more than 39 percent of all U.S. households. We had
the UHF discount, as we talked about, at the time.
But you and your own statements, in your mission, you
eliminate these media outlets. One of the first acts as chair
was to put the rule back in place. And I think you talked that
this is a rule that should be in the dustbin of history. But
now it is back in place. I am concerned that the FCC
resurrected this antique loophole just to pave the way for more
consolidation of companies like Sinclair. Can you tell us, is
there any technical justification, as far as signal strength or
reach, that the FCC relied on when you reinstated the UHF
discount loophole?
Mr. Pai. Congressman, my position on this issue has been
clear from the beginning. Going back to the previous
administration, I consistently said that the UHF discount and
the national cap went in tandem. And to the extent that if you
got rid of one, one had to consider changes to the other.
In fact, the previous majority--if you go to the 2016
order--they explicitly said that the FCC had the authority to
adjust the national cap. My position has been now, and has
always been, that we need to consider the two things in tandem.
I do not take a prejudged view about what the FCC's authority
should be or how it should exercise that authority. All I am
simply saying is that that tandem approach is one that I
believe Congress had in mind.
Mr. Quigley. But when you first talked about it, it was not
in tandem. You said the UHF discount should be relegated to the
history books. It was put in place for technical reasons.
Mr. Pai. Correct.
Mr. Quigley. Because the UHF strength was different back
then. All technology has changed.
Mr. Pai. Correct.
Mr. Quigley. So, the reason the rule was put in place was
not in tandem with something else. It had to do with
technology. When technology changed, how does that stay in
tandem with anything?
Mr. Pai. Because to the extent that getting rid of the
discount, while technologically justified, would nevertheless
have a major impact on the national cap, my point was simply--
--
Mr. Quigley. Well, we had that cap. But we put the law in
place for policy reasons. We did not want some corporate giant
to have control over more than 39 percent. There was an
exception because of signal strength. Once that changed, how do
we not go back to the original concern?
Mr. Pai. But, congressman, that is exactly why I said we
need to tee this up, which we did in a notice of proposed
rulemaking. I am one of the few at the Commission who has been
consistent--in the past administration and this one--in saying,
number one, that the UHF discount, the technological foundation
has changed, and number two, that the FCC may have authority
here to adjust the national cap.
And so, all we are doing is teeing up the question for
public input, but I have not said one way or the other what the
ultimate resolution should be. That is precisely why we are
engaged in this notice of proposed rulemaking.
Mr. Quigley. One of your first acts as chair was to put the
rule back in place.
Mr. Pai. Correct.
Mr. Quigley. Because?
Mr. Pai. Because, again, as I have long said going back to
the previous administration, a change the UHF discount
implicates a change in the national cap. And as the previous
administration found--not just me; the previous FCC majority--
they determined that the FCC had the authority to adjust the
national cap. And my point in my 2016 dissent was the
Commission could not do one without considering changes to the
other, which it explicitly agreed that it could do, if it
wanted to.
Mr. Quigley. You have sufficiently convoluted what is
simply a way to allow groups like Sinclair to get bigger. Mr.
Chairman, I would like to introduce into the record a letter to
the chairman from Senator Cochran. And this is signed by a
significant number of his partners--not a particularly helpful
answer, somewhat dismissive, at that--but it will indicate the
consistency of the measure that I am talking about.
I still do not understand how the two are not distinct and
that you have created, through the magic of rhetoric, the
ability to differentiate that from reality. The fact of the
matter is, we created this policy law in law for a reason. You
have creatively found way around that and say, ``We are going
to do this for different reasons. But the only exception was
for technology.'' The technology goes back to the old rule and
the rule should be in place, that stations should not be
allowed to have more than 39 percent of U.S. households. If you
approve Sinclair, what are they going to have?
Mr. Pai. Congressman, I respectfully disagree.
Mr. Quigley. Seventy-two percent.
Mr. Pai. Then I would ask, why did Acting Chairwoman
Clyburn bring up this notice of proposed rulemaking about the
UHF discount and the national cap back in 2013? I mean, I have
consistently been on the same page, here. The two go together,
because getting rid of one implicates the level of the other.
Mr. Quigley. If it was fit for the dustbin of history, then
why is not it now?
Mr. Pai. That is exactly what we are teeing up,
Congressman. That is the notice of proposed rulemaking. I mean,
it would be easy to, you know, of course, for any agency, to
simply say, ``You know the Administrative Procedure Act? Who
needs it? We will simply rule by fiat.'' That is not how we do
business. We tee up our proposals. We get public input for
those proposals.
Mr. Quigley. What concerns do you have that Sinclair would
have control over 72 percent of the Nation's market?
Mr. Pai. That is the one of the issues we have to look at.
Mr. Quigley. Let me answer. What concerns would you have
about that?
Mr. Pai. I cannot prejudge exactly where we are going to
be.
Mr. Quigley. All right, any station. What concerns would
you have? What is your policy belief of a single entity
controlling more than 39 percent of the U.S. households? At 72
percent, what concerns would you have?
Mr. Pai. They are both legal and policy questions that are
hard to answer.
Mr. Quigley. What concerns do you have?
Mr. Pai. With respect to policy, from sort of a quasi-
antitrust perspective, one wants to make sure that you have a
competitive marketplace. One does not want any entity to
consummate a transaction the effect of which would be to harm
or otherwise impede the public interest. From a legal
perspective as well, there the question is--as we discussed
earlier--we want to make sure that we are acting----
Mr. Quigley. Should any entity have 72 percent?
Mr. Pai. That is what we have to decide.
Mr. Quigley. In your mind.
Mr. Pai. I cannot----
Mr. Quigley. You get to vote on it.
Mr. Pai. Exactly. That is part of the reason. We have not
yet had a chance to----
Mr. Quigley. Should any entity have 70 percent?
Mr. Pai. We have not had a chance to evaluate the record,
congressman. They just submitted the revised proposal two days
ago. I have not had a chance to----
Mr. Quigley. You know the law that we passed that dealt
with 39 percent. What is your belief right now? Should any
entity have more than 39 percent?
Mr. Pai. I am not going to prejudge the outcome of a
rulemaking proceeding which is still pending.
Mr. Quigley. I am not talking about Sinclair. I am talking
about any entity.
Mr. Pai. I am not either. I am talking about the general
national----
Mr. Quigley. Should anybody have that much control?
Mr. Pai. I am talking about the national cap----
Mr. Quigley. Yes or no? Do you have a thought yourself?
Mr. Pai. I am not going to prejudge----
Mr. Quigley. We put you in this spot for these reasons.
Mr. Pai. To judge the facts, and the facts are still coming
in. We are still evaluating a pending notice of a proposed
rulemaking. I cannot tell you in the fifth inning how the ninth
inning is going to end.
Mr. Quigley. You are talking about one case. I am talking--
--
Mr. Pai. No, I am talking about----
Mr. Quigley [continuing]. The general sense of what is
fair. You said there could be policy implications for this.
What are they, and what is the magic number in your mind right
now? Do you not have some sense of what is fair, what is right?
Mr. Pai. This is exactly the point of being a rulemaking
agency. We do not say in the fifth inning where we are going to
end up in the ninth inning.
Mr. Quigley. You consider the laws that are in place now?
Mr. Pai. Of course. That is the guiding light of everything
we do.
Mr. Quigley. The law that is in place now says 39 percent.
Mr. Pai. That is one of the factors we have to consider.
Why did the previous FCC majority say we have authority to
increase that cap?
Mr. Quigley. Mr. Chairman, I thank you for your indulgence
and time.
Mr. Graves. Mr. Cartwright, any questions?
Mr. Cartwright. Not to beat a dead horse, Mr. Chairman. I
would like to go back to rural broadband some more. Your
agency--
Mr. Pai. I will not stop you.
Mr. Cartwright. Your agency recently adopted an order that
put additional resources into the USF high-cost program that
provides ongoing support for rural networks. And of course,
this order was most welcome, as many members of Congress,
particularly those of us that have rural areas, have weighed in
on the high-cost budget, in recent years as small carriers have
put off network investments in the face of steep cuts to
support demanded by the hard cap on the program.
But if nothing further is done, some rural carriers will
face significant cuts to support, starting again on July 1st,
and other carriers still do not have the resources needed to
accomplish what the cost model was designed to do. So, the
first question there is, how do we ensure that the high-cost
program is set up for success over the long term?
Mr. Pai. Well, that is a great question, congressman, and
thank you for the kind words about that $500 million plan we
adopted. I had heard from a number of different carriers--on
their turf, not in DC--that that budget control mechanism could
have a serious impact, because these are multiyear investment
decisions they have to make.
Going forward, in addition to that $500 million we advanced
to rate-of-return carriers, we also teed up the possibility of
two different proposals. One is increasing the amount of money
that is generally available to rate-of-return carriers. And
number two, to see whether a further offer of model support
might be something that would appeal to some of those rate-of-
return carriers.
That might be something that gives them more stability, the
ability to plan out ``OK, for the next 10 years we would like
to build out. We know for the next 10 years we are going to get
X amount of dollars from the FCC.'' That is the kind of thing
that hopefully would give them the certainty that they need to
build out those networks.
Mr. Cartwright. OK. And to follow up, I am interested in
your comments. What further changes are needed for both model
and nonmodel programs?
Mr. Pai. Sir, could you repeat the question again?
Mr. Cartwright. What further changes are needed for both
model and nonmodel programs?
Mr. Pai. Further changes? So, with respect to I guess
nonmodel programs--legacy--that is one of the issues we have
teed up in this notice of proposed rulemaking. With respect to
the model programs, we are continuing to hear from a number of
A-CAM carries about some of the issues they are facing. You
know, they, too, would like additional funding. That is part of
what we did in the $500 million program.
I would be happy to work with you on some of the things we
are thinking about. It is very much in the weeds, of course, as
you know, but overall, we want to make sure that either legacy
or nonlegacy carriers have certainty and have sufficient and
predictable support, in part because that is what Congress has
instructed us to do.
Mr. Cartwright. I want to talk about speeds for a moment.
My understanding that is in most cases the high-cost program
requires that recipients deploy 10/1 broadband in rural areas,
and in some cases the target speeds are even lower. Do you
think these speeds are sufficient for rural consumers and
businesses? And are they reasonably comparable to what urban
Americans enjoy on average?
Mr. Pai. I want every American, including rural Americans,
to have access to the highest speeds possible, and that is part
of the reason why, for example, in our Connect America fund it
was important to me to support not just 10-megabit-per-second
service, but also service at a much higher tier.
In fact, we structured it so that the higher speed you
offer to rural Americans the more of an advantage you get in
terms of the reverse auction. In fact, the highest advantage is
given to those companies that want to provide gigabit broadband
to rural Americans. That is something I hope puts them on just
as level a playing field as anybody else.
Mr. Cartwright. Very good. Thank you, Mr. Chairman. I yield
back, chairman.
Mr. Pai. Thank you.
Mr. Graves. Thank you, Mr. Cartwright. It is my
understanding Mr. Young has no further questions. I have no
further questions, and I believe Mr. Quigley has one follow-up
on another issue.
Mr. Quigley. Thank you, Mr. Chairman. So, I think I know
how to get an answer today. I am going to pretend that I am in
Iowa, in a rural area of beautiful Iowa, which I love. And I do
not have internet connection because we have not gotten to all
the issues that we want to on that. And I turn off Sinclair,
because I do not want to hear a prepaid announcement from
President Putin, because I have got a robocall, and it is a
robocall for debt collection by the Federal Government. Now, I
think I can get an answer.
We passed the bipartisan budget act of 2015 that addressed
this issue. The FCC later conducted rulemaking to implement
that law. And the majority of the Commission voted to adopt
strong consumer safeguards to make sure consumers were not
overwhelmed by unwanted calls, and they have to come off their
porch, drinking lemonade in Iowa, to take that call. Those
protections just needed a sign-off from OMB to go into effect
when you took over as FCC chairman.
Despite the fact that these consumer protections were
approved by a majority of the Commission, it appears, it seems,
that you asked OMB to halt its review, stopping the protections
from going into effect. Can you tell us what, if anything,
happened in that regard?
Mr. Pai. Congressman, I am sorry, which regulations are we
talking about? The TCPA?
Upon review, it was determined that this series of
questions on pages 275-276 referred to rules governing federal
debt collection calls and the TCPA. More specifically, Mr.
Quigley was asking about the decision to withdraw the request
for OMB approval of the Commission's 2016 Federal Debt
Collection Rules (FDCRs) adopted for debts owed to or
guaranteed by the Federal Government. The rules were adopted
per the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, 129
Stat., amending the TCPA.
The withdrawal decision referenced by Mr. Quigley was based
on the existence of an outstanding petition for reconsideration
alleging a lack of authority under the TCPA. On May 14, 2018,
the FCC issued a public notice seeking comment on various
outstanding TCPA issues including the issue referenced by Mr.
Quigley. This matter remains pending.
The PN specifically included the following request for
comments, referencing the FDCRs, the Great Lakes petition for
reconsideration, and the related Broadnet Declaratory Ruling:
[W]e seek renewed comment on the pending petition for
reconsideration of the 2016 Federal Debt Collection Rules,
filed by Great Lakes Higher Education Corp. et al. Great Lakes
asks the Commission to reconsider several aspects of the rules,
including the applicability of the TCPA's limits on calls to
reassigned wireless numbers. In light of the court's opinion on
reassigned I numbers, we seek renewed comment on this and other
issues raised by the petition.
We also seek comment on the interplay between the Broadnet
decision and the Budget Act amendments--if a federal contractor
is not a ``person'' for purposes of the TCPA (as the Commission
held in Broadnet), would the rules adopted in the 2016 Federal
Debt Collection Rules even apply to a federal contractor
collecting a federal debt? Do persons who are not federal
contractors collect federal debts? Or does the Budget Act
amendment underlying the 2016 Federal Debt Collection Rules
undermine the rationale of Broadnet?
Mr. Quigley. The ones dealing with robocalls for Federal
debt collection.
Mr. Pai. To be honest, I am trying to remember. Robocalls
relating--if I could get back to you on that----
Mr. Quigley. It was my lead-up to this question that threw
you off.
Mr. Pai. Well, I did live for 3 years in Chicago, for what
it is worth, so I also know--you know, on the South Side, so I
know Chicago as well.
Mr. Quigley. You still got robocalls from the Federal
Government, and we were trying to address that.
Mr. Pai. I would be happy to get back to you on that. It is
not coming to my mind immediately.
Mr. Quigley. None of this rings a bell about the rulemaking
that came and just needed a sign-off from OMB to go into
effect? This is when you took over as FCC chairman.
Mr. Pai. Right.
Mr. Quigley. How long ago was that, sir?
Mr. Pai. January 2017. The only 2015 rulemaking I remember
relating to robocalls or TCPA was the 2015 order that was just
struck by the DC Circuit.
Mr. Quigley. Yes, but I am asking, did you have any
communication in your recollection talking with OMB about
reviewing that?
Mr. Pai. I personally do not, no.
Mr. Quigley. You do not recall that?
Mr. Pai. No.
Mr. Quigley. If you do not remember, could you review in
your records what you--
Mr. Pai. Yes, I would be happy to do that.
Mr. Quigley. OK. And if any other recollections on this--
but you commit to go back and do everything in your power to
make sure these protections are in place?
Mr. Pai. Sure. I mean, my vague recollection is that the
rules were not strong enough, but I would happy to take a look
at what it was.
Mr. Quigley. And if you could get back to the committee as
a whole and give them the best of your recollection what
exactly took place. Because we would like these protections to
be put in place, because when I am in my field of dreams I do
not want to have to rush in the house and answer some annoying
question from some Federal person trying to get money. Thank
you so much for your cooperation. It has been great.
Mr. Graves. Thank you, Mr. Quigley. Chairman, thank you for
joining us today. I know there have been some pointed
questions. But I want to thank you for your service. I know you
have served in the minority capacity on the Commission; you are
serving in the majority now. You have been under multiple
administrations. You have been consistent in your viewpoints,
very open, very transparent, and you are continuing that
process.
And I know I speak on behalf of the full subcommittee here
that your family has endured threats that they should never
have to endure. And so, we thank you for your service, because
we know it has not come without sacrifice for you, your wife,
and your children. But we do dearly thank you, though, for
joining us today, for your consistency, and for always being
willing to come before this subcommittee and answer some tough
questions regardless of the subject matter. Thank you again.
With that, this hearing is adjourned.
Mr. Pai. Thank you.
Information submitted for inclusion in the record follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
W I T N E S S E S
----------
Page
Barr, Hon. Andy.................................................. 199
Clayton, Hon. Jay................................................ 215
Answers to submitted questions............................... 234
Duff, Hon. James C............................................... 126
Kautter, David J................................................. 39
Answers to submitted questions............................... 55
Luetkemeyer, Hon. Blaine......................................... 194
Lungstrum, Hon. John W........................................... 92
Answers to submitted questions............................... 147
Mnuchin. Hon. Steven T........................................... 6
Answers to submitted questions............................... 29
Mulvaney, Hon. Mick.............................................. 151
Answers to submitted questions............................... 190
Murphy, Emily W.................................................. 67
Answers to submitted questions............................... 89
Pai, Ajit........................................................ 251
Schneider, Hon. Brad, submitted statement........................ 211
Tipton, Hon. Scott R............................................. 206
[all]