[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2022
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
____
SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT
MIKE QUIGLEY, Illinois, Chairman
MATT CARTWRIGHT, Pennsylvania STEVE WOMACK, Arkansas
SANFORD D. BISHOP, Jr., Georgia MARK E. AMODEI, Nevada
MARK POCAN, Wisconsin CHRIS STEWART, Utah
BRENDA L. LAWRENCE, Michigan DAVID P. JOYCE, Ohio
NORMA J. TORRES, California
ANN KIRKPATRICK, Arizona
NOTE: Under committee rules, Ms. DeLauro, as chair of the full
committee, and Ms. Granger, as ranking minority member of the full
committee, are authorized to sit as members of all subcommittees.
Matt Smith, Laura Cylke, Marybeth Nassif, Elliot Doomes,
Aalok Mehta, and Parker Van de Water
Subcommittee Staff
___
PART 5
Page
Election Assistance Commission........
1
Internal Revenue Service..............
25
The Judiciary.........................
57
U.S. Postal Service...................
83
The Need for Universal Broadband:
Lessons from the Pandemic...............
111
Securites and Exchange Commission.....
139
Department of the Treasury............
157
Small Business Administration.........
183
Office of Management and Budget.......
207
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PUBLISHING OFFICE
45-633 WASHINGTON : 2021
COMMITTEE ON APPROPRIATIONS
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ROSA L. DeLAURO, Connecticut, Chair
MARCY KAPTUR, Ohio KAY GRANGER, Texas
DAVID E. PRICE, North Carolina HAROLD ROGERS, Kentucky
LUCILLE ROYBAL-ALLARD, California ROBERT B. ADERHOLT, Alabama
SANFORD D. BISHOP, Jr., Georgia MICHAEL K. SIMPSON, Idaho
BARBARA LEE, California JOHN R. CARTER, Texas
BETTY McCOLLUM, Minnesota KEN CALVERT, California
TIM RYAN, Ohio TOM COLE, Oklahoma
C. A. DUTCH RUPPERSBERGER, Maryland MARIO DIAZ-BALART, Florida
DEBBIE WASSERMAN SCHULTZ, Florida STEVE WOMACK, Arkansas
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
CHELLIE PINGREE, Maine CHUCK FLEISCHMANN, Tennessee
MIKE QUIGLEY, Illinois JAIME HERRERA BEUTLER, Washington
DEREK KILMER, Washington DAVID P. JOYCE, Ohio
MATT CARTWRIGHT, Pennsylvania ANDY HARRIS, Maryland
GRACE MENG, New York MARK E. AMODEI, Nevada
MARK POCAN, Wisconsin CHRIS STEWART, Utah
KATHERINE M. CLARK, Massachusetts STEVEN M. PALAZZO, Mississippi
PETE AGUILAR, California DAVID G. VALADAO, California
LOIS FRANKEL, Florida DAN NEWHOUSE, Washington
CHERI BUSTOS, Illinois JOHN R. MOOLENAAR, Michigan
BONNIE WATSON COLEMAN, New Jersey JOHN H. RUTHERFORD, Florida
BRENDA L. LAWRENCE, Michigan BEN CLINE, Virginia
NORMA J. TORRES, California GUY RESCHENTHALER, Pennsylvania
CHARLIE CRIST, Florida MIKE GARCIA, California
ANN KIRKPATRICK, Arizona ASHLEY HINSON, Iowa
ED CASE, Hawaii TONY GONZALES, Texas
ADRIANO ESPAILLAT, New York
JOSH HARDER, California
JENNIFER WEXTON, Virginia
DAVID J. TRONE, Maryland
LAUREN UNDERWOOD, Illinois
SUSIE LEE, Nevada
Robin Juliano, Clerk and Staff Director
(ii)
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2022
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Tuesday, February 16, 2021.
ELECTION ASSISTANCE COMMISSION OVERSIGHT HEARING
WITNESS
BENJAMIN HOVLAND, CHAIRMAN, UNITED STATES ELECTION ASSISTANCE
COMMISSION
Mr. Quigley. This hearing will come to order.
As this hearing is fully virtual, we must address a few
housekeeping matters. For today's meeting, the chair or staff
designated by the chair may mute participants' microphones when
they are not under recognition, for the purposes of eliminating
inadvertent background noise.
Members are responsible for muting and unmuting themselves.
If we have noticed that you have not unmuted yourself, I will
ask you if you would like the staff to unmute you. If you
indicate approval by nodding, staff will unmute your
microphone.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved, and you will
retain the balance of your time. You will notice a clock on
your screen that will show how much time is remaining. At 1
minute remaining, the clock will turn to yellow. At 30 seconds
remaining, I will gently tap the gavel to remind members that
their time is almost expired. When your time has expired, the
clock will turn red and I will begin to recognize the next
member.
In terms of the speaking order, we will follow the order
set forth in the House rules, beginning with the chair and
ranking member, then members present at the time the hearing is
called to order to be recognized in order of seniority; and
finally, members not present at the time the hearing is called.
Finally, House rules require me to remind you that we have
set up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided in advance to your staff.
Before I give my remarks, I would like to welcome our
ranking member, Mr. Womack, for his very first hearing with our
subcommittee. We have gained a few new members to our
subcommittee this Congress, Mr. Pocan, Mrs. Lawrence. I would
like to welcome them as well, and our returning subcommittee
members.
I will keep my opening statement brief so we can get right
into the questions. This morning, we welcome Benjamin Hovland,
chairman of the Election Assistance Commission, to testify on
EAC's work to ensure our Federal elections are fair, secure,
and accessible.
Chairman Hovland, thank you for being here today.
It is well-known that our foreign adversaries have made
attempts and even breached our U.S. election system to varying
degrees in 2016, 2018, and 2020 elections. U.S. officials at
all levels of government have worked tirelessly to address
vulnerabilities in our election systems. As a result, the 2020
election was declared, quote, ``the most secure in American
history,'' by the previous administration's own Department of
Homeland Security.
The fact that those dedicated election officials were able
to achieve this feat amid a global pandemic is even more
remarkable. However, now is not the time to proclaim mission
accomplished. Even though the 2020 election was secure, we know
there was malicious activity from foreign adversaries leading
up to Election Day. The threats to our democracy are constant
and ever-evolving. Our enemies will not be taking a break, so
neither can we.
This subcommittee has helped lead Congress' efforts to
address this issue. Since fiscal year 2018, we provided $805
million in grants to States to improve election security. We
provided an additional $400 million last year to help States
prepare for the 2020 elections during the pandemic.
As we know, EAC administers this funding to the States. Mr.
Hovland, I hope you can help us better understand what the
States still need and how they are currently spending the
money.
We have made significant and important investments in these
grants, but it seems the sporadic nature of these funds has
hampered the ability of States to spend the money more quickly.
I am curious to know your thoughts on how consistent year-
after-year funding could help improve the rate at which States
spend, and other ideas you might have to incentivize States to
get money out the door faster?
We also want to hear about EAC's work to help election
officials improve the administration of elections, and help
Americans participate in the voting process. We must ensure the
agency has sufficient funds to do so.
After their funding was slashed nearly in half between 2010
and 2019, EAC received a significant infusion of funds in
fiscal year 2020. Fiscal year 2021 sustained that upward trend,
providing the agency with $17 million. As the U.S. continues to
face threats to our elections, now more than ever, we must
ensure that EAC has the necessary resources to provide the
vital support to States and the voting public.
I look forward to hearing from Commissioner Hovland this
morning on the election security grants and what additional
tools, resources, and need for safety, security, and
accessibility of our elections.
Before I would turn to our witness for his statement, I
would like to recognize our ranking member, Mr. Womack, for his
opening remarks.
Do we need to unmute you, sir?
Mr. Womack. Hello. Can you hear me?
Mr. Quigley. We sure can.
Mr. Womack. Okay, good, good. I apologize. It may have been
my ear pods that were denying my audio from going through.
Hey, thanks, Mr. Chairman, and it is great to be with
everybody this morning. I notice that Chairwoman DeLauro talked
about freezing rain in Connecticut this morning. I think
northwest Arkansas is winning the prize today. If I heard
correctly to our news this morning, the previous overnight low
in northwest Arkansas was about 4 degrees. That was the
previous record. This morning, right before 6 o'clock, when I
went to my breakfast table for my morning coffee, our
temperature this morning in Rogers, Arkansas, was minus 15, 15
below zero.
Mr. Quigley. That is Chicago home.
Mr. Womack. That is pretty Chicago, that is correct, which
explains a lot about Chicago. But nonetheless, we got 4 to 6
inches of snow over the last couple of days. We are going to
get hit again tonight with another 3 or 4 inches of snow before
we get into a warming trend by weekend. But it is great to be
with you and, Chairman, thank you for your kind words.
And I want to say hello, a big shout-out to our witness
this morning, who happens to hail from my district. He is a
Eureka Springs native and went to college at the University of
Central Arkansas, and we are delighted to have him here today.
It is a great honor to be the ranking member on Financial
Services and General Government. This subcommittee is charged
with funding programs that impact nearly every American in our
Nation, with a range of jurisdiction over sanctions
enforcement, tax administration, the White House, Federal
courts, and a lot more. I look forward to working with my
friend chairman Quigley and all of the members of the
subcommittee.
At the end of last year, despite our political differences,
the committee was able to fulfill our article I duty,
completing 12 Approps bills, along with the needed COVID
relief, which was enacted into law on a bipartisan and
bicameral basis. That spirt of unity and consensus should be
continued as we work to advance appropriations bills in the
coming months.
As we turn to today's hearing, I know each of us recognizes
the importance of ensuring the security and integrity of our
Nation's elections. It is fundamental to our democracy. In
Arkansas, we are blessed to have an effective and reliable
system when we go to the polls. The Election Assistance
Commission has an important job assisting State and local
election officials, by administering grants to States,
developing best practices, and acting as a clearinghouse of
election administration information. We are grateful for that.
The coronavirus pandemic challenged State and local
election officials across the country as they worked to modify
their election processes to ensure voters could exercise their
rights in a safe environment. As they navigated these new
circumstances, they also maintained focus on potential
cybersecurity vulnerabilities to voter registration systems,
voting machines, and systems that tabulate and display election
results.
I am pleased the Commission has worked closely with the
Department of Homeland Security's Cybersecurity and
Infrastructure Security Agency, as well as Cyber Command, to
make sure State and local officials better understand the
threats they face and how to mitigate them.
I hope these partnerships between the Federal Government
and State and local election officials continue to grow.
However, I don't want to see the heavy hand of Washington
bureaucrats dictate to State and local officials how their
elections must be administered, or what equipment to use.
Keeping the administration of elections in control of the
States is part of the bedrock system that has served America
since its founding.
I also believe States should be responsible for funding the
costs of voting machines and election execution. Not only does
it incentivize effective management and decision-making, but
with our national debt in excess of $28 trillion and growing,
it also recognizes the harsh fiscal trajectory faced by
unbridled spending. We need to be targeted and direct Federal
tax dollars to the areas of the greatest need.
I thank the chairman for holding this hearing. I look
forward to hearing from our witness, and I yield back the
balance of my time.
Mr. Quigley. Thank you, sir.
And before we go to our witness, we are honored to be
joined by the chairwoman of the full Appropriations Committee,
Chairwoman DeLauro. There she is.
The Chair. Good morning. Good morning, good morning.
Mr. Quigley. Good morning.
The Chair. Wonderful to be with you, and I thank you. I am,
obviously, honored to be chair of the full Appropriations
Committee, and I am going to try to make as many of the
committee hearings as I possibly can. But it is a pleasure to
join with all of you today.
And I want to recognize Chairman Mike Quigley, Ranking
Member Steve Womack, for organizing the hearing. And I thank
the Election Assistance Commissioner, Mr. Hovland, who will
testify this morning.
I think the subject of today's hearing is so critical, and
that we need to look at the steps that we have taken to secure
our democratic systems, and I know that is what we are going to
hear about this morning.
Almost 400 years ago, our democracy was founded on the
premise that all people are created equal. The right to vote
would grow with each generation to ensure that democracy. And
today, in some respects, we have seen that challenged.
For 4 years now, our right to vote has been threatened by
foreign adversaries, and this year, by challenges that we had
at the State level. And this hearing is an opportunity to
discuss the EAC's resurgence after years of the agency being
underfunded in previous Congresses.
I look forward to hearing more about EAC's plans to
continue to expand their ability, to support State efforts, to
enhance election security, increase access to the polls and
other activities to improve the administration of Federal
elections.
It was not that long ago that we had these conversations.
The Help America Vote Act of 2002 made broad reforms to the
administration of Federal elections, and the Act established
the EAC to quell many of these vulnerabilities.
As the chairman pointed out a moment ago, to our detriment,
between 2010 and 2019, the EAC's annual funding was cut by
nearly 50 percent. This inconsistent, insufficient Federal
funding has hindered the ability of EAC and State and local
election officials to combat very real threats to election
security. The rise of misinformation and the coronavirus
pandemic have only further complicated these efforts.
I want to say a thank you to Chairman Quigley for a
significant allocation of funds to enable the EAC to begin to
increase staffing and to expand the agency's support to
election officials in 2020. Again, in fiscal year 2021, the
chairman and ranking member further increased the EAC's funding
to $17 million.
The increases have enabled the EAC to begin to rebuild the
staffing, which has already doubled in the past year, and
expanded the agency's support to State election officials. And
that is just a start. There is still considerable room for
improvement, as many States lack the funds to implement
necessary election security measures. But no voter should ever
have to choose between their health and their right to vote.
One of our core responsibilities on this committee is to
ensure that the agencies under, our purview, safeguard
America's election processes and our democracy. And the EAC is
a national clearinghouse for information on election
administration and accessibility, and the only, the only
Federal agency completely dedicated to election administration.
So, now more than ever, we need to provide the necessary
resources, support that protection of our democracy, secure our
election.
I want to say, again, thank you for your work, and I look
forward to hearing the testimony on this very important
subject.
And I thank you and I yield back, Mr. Chair.
Mr. Quigley. Thank you, Madam Chair. We appreciate your
being here. We look forward to your leadership.
Now, I would like to bring on our featured guest today, the
chairman of the Election Assistance Commission, Benjamin
Hovland.
Sir, thank you for being here. Please go forward with your
opening statement.
Mr. Hovland. Thank you, Chairman Quigley, Chairwoman
DeLauro, Ranking Member Womack and members of the subcommittee.
I am Ben Hovland, Chairman of the U.S. Election Assistance
Commission, or EAC. I appreciate the subcommittee's invitation
to testify on the work of the EAC and the impact of the
election security and pandemic response grants provided by
Congress to the States.
The story of election administration in 2020 should not be
told without acknowledging the tremendous job that State and
local election officials did to run their elections while
facing unprecedented challenges. With a record of nearly 160
million Americans voting in the November general election in
the middle of a global pandemic, the effort required to conduct
this election was Herculean, and the officials who managed this
task deserve our thanks and praise.
While politics in the aftermath of the November election
have distracted many from how the election was run, I can
unequivocally say this was the best administered election that
I have seen in my career. There are many reasons for this
success story, but first and foremost, is that the public
servants that run elections in cities and counties across the
country put their personal health on the line and worked
countless hours for their voters and our democracy.
Federal grant money also played an essential role in
assisting election officials with some of the challenges they
faced. Since 2018, Congress has appropriated $805 million for
election security. This has helped replace outdated and
paperless voting machines, replace or harden statewide voter
registration databases, create innovative new programs, like
Cyber Navigators, that address head-on, some of the resource
disparity challenges of our decentralized election system, and
provided for countless hours of training for staff to be on
alert and prepare and respond to common attack vectors.
The critical impact of this funding, combined with the
impressive efforts of State, local, and Federal partners, gave
me complete confidence when joining the statement from the
elections infrastructure government and sector coordinating
executive committees that the November 3rd election was the
most secure in our Nation's history.
Additionally, the $400 million provided as part of the
CARES Act in April of 2020 helped election officials address
some of the additional costs associated with running both the
largest mail and absentee ballot election most jurisdictions
had ever experienced, and making polling places as safe as
possible for voters and election workers.
EAC was proud of the work we did to distribute and
administer these grants to the States and appreciate this
committee's trust in us to do the job. The recent funding
increase to the EAC from Congress also increased our capacity
to assist election officials during this challenging time.
From an all-time low operating budget of $7.95 million in
fiscal year 2019, the increase in fiscal year 2020 made for an
exciting time at the EAC. We expanded the EAC workforce by
hiring experts in important areas of our work, including
numerous mission-critical positions across departments.
Throughout the 2020 primaries and general election, the EAC
provided much-needed assistance to election officials. By
chairing the ElectionInfrastructure Joint COVID-19 Working
Group, we were able to leverage partnerships with State, local,
and Federal partners to quickly respond with guidance on the
challenges presented by the pandemic.
We also developed new guidance, posted public forums on
pandemic-related concerns, and closely monitored innovative
State preparations, encouraging election officials to share
their successes and challenges. These efforts included dozens
of educational videos, materials for election officials
highlighting proven best practices, addressing specific
concerns related to COVID-19 and the use of CARES Act funding.
Other new efforts included creating the EAC's new Cyber
Access and Security Program, which provided security training,
best practices, and other assistance for election officials
tasked with protecting critical election infrastructure. EAC
also established the first ever National Poll Worker
Recruitment Day, galvanizing national recruitment efforts and
alleviating concerns about a significant shortage in poll
workers due to the pandemic.
While we acknowledge the success of the State and local
election officials to administer the 2020 election, it is also
clear that there is much work to be done. If the 2020 election
has taught us anything, it is that our democracy is precious,
we must invest in it to make it stronger, and we must
constantly seek to improve it. As the Election Infrastructure
Sector-Specific Plan notes, ``a government wide approach to
funding elections and election security is needed. Viewing the
Subsector as an infrastructure of our democracy is important to
understanding the need for consistent investment and
maintenance to ensure the system is strong.''
We appreciate your interest in the EAC's ongoing efforts.
With its limited resources, the EAC has helped assist State and
local officials through this unprecedented time. But the job
ahead requires the proper level of investment to ensure lasting
success. The EAC is prepared to play an increased role in this
pursuit, and we look forward to our continued partnership with
the subcommittee and with Congress.
Thank you, Mr. Chairman, and members of the subcommittee. I
am happy to answer any questions you may have.
Mr. Quigley. Thank you so much. We are starting to have
these hearings in rapid succession, so some members have
conflicts. I am going to let Mr. Bishop go first, just because
he has one and then another, one occurring now and then shortly
thereafter. So I will recognize Mr. Bishop.
Mr. Bishop. Thank you. Thank you very much, Mr. Chairman.
And thank you, Chairman Hovland, for your testimony and all
of the work that the EAC has done over the past year and few
months.
Let me get right into the questions, and I will try to be
very brief, if I can.
I want to talk about the mail-in voting. With the ongoing
coronavirus pandemic, there have been many challenges in
administering the 2020 elections, and to minimize exposure,
about 100 million Americans voted early. You mentioned that the
CARES Act provided $400 million in emergency funding. Can you
tell us how this funding was used by States to improve their
mail-in and absentee voting procedures?
And the flexibility was crucial in keeping Americans safe,
but many opted to vote in person. So tell us how the EAC
supported in-person voting in the 2020 election?
And finally, another subject that is very, very near and
dear to me, I had a conversation and a meeting just yesterday
with the National Federation of the Blind. And they raised
serious concerns about accessibility for voters with
disabilities, and they particularly were concerned with
legislation that could ensure that Americans with disabilities
have the same opportunity to vote freely and independently as
other voters.
And they indicated that with the absentee and the mail-in
vote, that sometimes it is very, very difficult for them to
access that. Of course, obviously, it is not in Braille. And
they would like for the EAC and for Congress to look at some
way to assure that they can be communicated with actively and
accurately and effectively, and that they can respond, because
they found the current processes for absentee mail-in ballots
to be somewhat onerous for them.
Thank you very much. If you can handle that, I will yield
back.
Mr. Hovland. Thank you, Congressman Bishop. You know, as
mentioned, the CARES Act was a big deal for States and
localities to get this money during the pandemic. As I
mentioned in my testimony, most jurisdictions were facing the
largest mail-in absentee ballot election they had ever had.
Now, that doesn't mean people aren't used to having mail-in
absentee ballots. You know, we know from the Election
Administration and Voting Survey, that about 25 percent of
Americans voted that way in 2016. This year, it will be closer
to 50 percent. But some of the things that the importance of
getting that money out and getting it early, like it was,
allowed people to make equipment upgrades. You know, possibly
some things that were done manually were able to be done
automated to handle that volume increase.
I mentioned the COVID-19 Joint Working Group. That worked
with election officials and the private sector election space
to identify best practices.
You know, one of the benefits of decentralized elections
was you had election officials from Washington and Oregon and
Utah and Colorado, who had been implementing vote by mail and
expanded absentee balloting for decades and were able to share
some of those lessons learned with their colleagues that didn't
have that luxury at the time to ramp that up. And so, that made
a humongous difference in those preparations. At the EAC, we
did videos with those officials to share with people, again,
produced various guides. But a lot of it also was getting that
money early to take into account some of those procurement
timelines.
You also mentioned the in-person, making that as safe as
possible. Again, the Joint Working Group addressed a lot of
those issues. We also worked with the CDC to issue guidance on
how you make polling places as safe as possible for voters and
poll workers. And you saw a lot of innovation, from one-time
use pens to reduce contact, regular contact surfaces. We saw
the "I voted" pen make an appearance this year in some places
instead of the I voted sticker.
And I just want to make sure I leave time to address your
question about accessibility. Absolutely agree with that. You
know, the Help America Vote Act that created the Election
Assistance Commission was, in many ways, a piece of
accessibility legislation, making sure that Americans could
vote independently and privately.
We work to share best practices around that. I think there
is more that we can do to make, for example, mail-in absentee
ballot accessible to more Americans. Different States have
implemented this different ways.
You also have something I think we can go farther than. It
is probably a resource issue. But the MOVE Act required that
each State have a portal for a blank ballot delivery for
military and overseas voters. You know, I think we can do a lot
to possibly either build a template, or encourage those to
become both--you know, make sure those are secure and
accessible so they can be used for our military and overseas
voters, but also as a great way to deliver blank ballots for
accessibility purposes as well.
Mr. Bishop. Thank you very much, Mr. Chairman.
Mr. Hovland. Thank you.
Mr. Quigley. I recognize Ranking Member Mr. Womack.
Mr. Womack. Once again, thank you, Mr. Chairman, and thanks
to our witness. Just a couple of questions related to Federal
spending on elections.
The CARES Act, if my numbers are correct, CARES Act had
$400 million allocated to States for the 2020 election cycle
related to COVID. The Speaker's HEROES Act, which wasn't
enacted but did pass in the House twice on partisan votes,
would have provided an additional $3.6 billion for this
purpose. Based on initial data reported by the States, it is my
understanding that States only used about $270 million, or
about 68 percent of the $400 million provided in the CARES
package.
So it begs this question, Mr. Chairman: Was the $400
million provided in CARES more--was it more than what the
States actually needed if, in fact, only about 68 percent of
what was provided was actually used?
Mr. Hovland. Thank you, Ranking Member Womack. You are
right on those numbers. I would say the $270 million that we
have, that was preliminary, based on the 20-day reports that
the CARES Act language required.
The FFRs on that are due on February 28th. So that will
give us a more complete picture. I think when you look at that
number, again, the low number, the low bar on that is going to
be about 70 percent of that money being used, which was
important.
There were some issues, as you know. There was a 20 percent
match requirement. That also triggered a lot of State
legislative approval to use the money. So in some States, that
led to delays or challenges. You know, when this money went out
the door, it was toward the end of some State legislative
cycles, or some had already ended. So there were some issues
with that as far as getting funding out the door. You know,
what the number was exactly, again, this was probably the most
expensive election that we have ever seen.
You did see some private philanthropy come in that I don't
recollect ever seeing. Mark Zuckerberg and Priscilla Chan spent
about $400 million. And, again, I have talked to the people who
distributed that at the Center for Tech and Civic Life and
election officials who received it, and that was going for the
basics. You know, that was going for PPE. That was going to
disinfect and clean and to procure significantly, or enough
polling locations, places that had closed down because maybe
they were senior centers and weren't available, also locations
that had enough room to social distance, both for voters and
staff.
Getting the right number is a little bit tricky. I am happy
to dive down into some of the consistent issues that the
chairman mentioned. But I think that is really what you look at
as far as the CARES Act money went this year.
Mr. Womack. So if we go back to the HEROES package that I
referenced just a minute ago, based on just some basic Arkansas
math here, it was an amount nine times greater than the $400
million in the CARES package.
So let's just, for the sake of the argument, assume that
the HEROES Act was enacted into law. What in the heck would we
have been spending $3.6 billion on?
Mr. Hovland. Well, as you mentioned, I am a proud graduate
of Eureka Springs, Arkansas, High School, so I am good at
Arkansas math. And I will say that--go, Highlanders--you know,
again, I think that any time you look at Federal election
funding, the details matter; the expiration dates matter; the
structure matters.
You know, when you look at--and we can talk about this more
with some of the security grants--but the way that most of
these grants are structured is that they go to the State. Well,
State and localities have very different expenses and very
different needs in the election space. The bulk of expenses
with election administration in most States is borne out at the
local level, and so, that is important.
You know, I think one of the things that I have seen in
some of the House appropriations bills has been a piece that
mentions 50 percent in cash, or in kind, going to the locals. I
think that is very important.
Unfortunately, it hasn't made it through the Senate side
yet, but that really recognizes the costs that are primarily
borne out at the local level, but also allows for that
flexibility, because we do have top-down and bottom-up States
in the way that they structure election administration around
the country.
Mr. Womack. You know, one of my concerns as an
appropriator--and this has been the case for the 10 years, 10-
plus years that I have served in Congress--is that invariably,
States, and even further down on the local level, State and
county levels, they all want more of our money. They all want
more Federal taxpayer money to execute missions that I think
are incumbent on them to command. Elections is part of that.
Now, I am not going to discount the fact that we shouldn't
have a role in helping people through technical assistance and
what have you on elections, but it just goes without saying
that the more we give them--and in this particular case,
because of a COVID situation, it was maybe more of a one-off
than normal, than normal. The more we give, the more they
become reliant on those kinds of funding packages, which
lessens the need, in their respective opinions, to be able to
cough up the money locally.
And I have always believed--and I am a former mayor--that
if it is our money that is in play, we are going to be very
effective in how we administer that money. But if it is our
money, we are going to make sure that it is spent for all the
right reasons. If the money is gifted to us by another agency,
sometimes it can be used a little more loosely.
So I just want us to understand, I want all my colleagues
on this committee to understand that we have got this
significant debt hanging over future generations' head, and we
have got to be careful not to allow more and more of the
Federal tax dollars to go for what is normally paid for at the
more local level.
And I got a lot more to say about that. I will reserve that
for another time. And I appreciate the opportunity to engage in
a conversation today. Thank you, and I am going to yield back.
Mr. Quigley. Thank you.
I recognize the chairwoman of the full committee, Ms.
DeLauro, if she has any questions.
The Chair. Mr. Chairman, I don't. I am just interested in
listening to the questions of our colleagues on both sides of
the aisle. And, you know, thank you for this important hearing.
So, as I said, I will try to continue to be present at
these hearings, but I don't want to detract from what our
colleagues on the subcommittee want to get at, the core of this
issue. So thank you very, very much, and I yield back. Thank
you.
Mr. Quigley. Thank you.
And, Chairman, let me go ahead and ask a few questions
here. We talked about the money not being used and certainly
the timing of that. You referenced certain issues. One of them
was there is a matching issue. It comes at the end. Some
General Assemblies don't meet very often, have opportunities.
But you also gleaned, or do you hear from them that some of
the other issues why this isn't happening, is it because they
went so long without that is it, to an extent, they are almost
hoarding this so that they can level off the spending over a
period of time, recognizing that, you know, next year they may
get zero from the Federal Government, or other reasons?
Mr. Hovland. Thank you, Chairman. Yeah. And I will
distinguish there a little bit between the CARES Act funding
and the HAVA security grant money, because I think there are a
little bit of differences.
But on the security grants, in particular, that is exactly
right. You know, for a long time, we went without any HAVA,
additional HAVA money until 2018. So certainly, you know, that,
you know, I know a lot of States wonder is this the end of
Federal money? You know, do I need to hold onto some of this?
But I think a bigger part of it is, frankly, some of the
timelines that we are on.
So, again, you have seen a lot of the fiscal year 2018
money be spent, but you also have, you know, the fiscal year
2020 money came at the end of 2019. We were a few weeks from
the Iowa caucuses, and getting right into the Presidential
cycle. For major procurements, both, it is difficult to do in
an election year, but you also don't want to be making major
equipment changes in the middle of a Presidential election,
because of unintended consequences, or possibly bugs with those
systems.
And, so, you see that there are States--you know, I will
use--well, I will give you two examples. Delaware replaced its
paperless equipment using the fiscal year 2018 money. Delaware
got $3 million, the minimum in fiscal year 2018, and they used
all of that to assist with a $13 million purchase of equipment.
And Delaware has three counties.
You look at Louisiana. They are in the process of procuring
a new statewide system. You know, the projections look at that
as being about a $95 to $100 million purchase to cover their 64
parishes. And their Federal portion from all of the security
money, both the 2018 and 2020, adds up to about $12.5 million.
So, again, a significant portion, but they are still
looking, you know, to get a significant State and local
investment. And as soon as that procurement goes through, as
soon as that contract goes through, you know, they will have
spent down to zero.
And, so, you have sort of these buckets. Arkansas, Arkansas
sent grants to a lot of their counties, and that was spent on
new equipment. Arkansas used all of its money.
A different category, Illinois, a new innovative program
called Cyber Navigators, where you recognize that some counties
just don't have the need or resources to have a dedicated cyber
professional, so you have State employees that have regional
responsibilities. You know, they have a handful of counties
that they are responsible for. But that is a program that is
designed to last over time, and respond to the consistent
nature of cybersecurity challenges. And, so, the spend-down
rate on that is slow.
And then you have the category that I mentioned earlier
that Louisiana is in, where they are just on the verge of a
major procurement. Another example of that, I heard from a
State election director recently, they expect to use up all
their money, their remaining money replacing their statewide
voter registration database. But, again, that wasn't something
they wanted to do in the middle of a Presidential election
cycle.
Mr. Quigley. And just for the record, let me ask, do you
get an exact runout of how each State spends its money?
Mr. Hovland. Yes, we get that reported to us. Again, we get
it on the fiscal year. So, you know, we have reporting through
September 30th of 2020, and then they have until the end of the
year to provide that for us. We are still working with a couple
States to make sure that their numbers are right and that we
have got that accurately, and then we will provide a report.
But, again, when you look at the whole picture, you can see
that the money is significant, though it isn't enough to cover
some of the major purchases, like total equipment replacement,
or voting machine replacement.
And, so, what a lot of jurisdictions are doing, you have
many options and they are going through and prioritizing. You
know, maybe that is replacing paperless equipment; maybe it is
implementing audits; cybersecurity training for staff;
implementing programs, like I mentioned, with Illinois, the
Cyber Navigators Program. But, again, a lot of that is making
choices and priorities about each State's individual risks.
Mr. Quigley. Okay, thank you.
Mr. Amodei is recognized.
Mr. Amodei. I am just enjoying the education, Mr. Chairman,
so I yield back.
Mr. Quigley. Thank you.
Mr. Pocan.
Mr. Pocan. Thank you very much, Mr. Chairman. And I am
looking forward to being on this committee in the 117th, so
appreciate it.
Chairman Hovland, thank you very much for being here. I
just have a question around the last election, but really
moving forward from it on voter misinformation. There was a
Quinnipiac poll last month that found 37 percent of voters
think that there was widespread fraud in the 2020 elections.
And, of course, we saw what happened, what that manifested to
on January 6 in some ways.
So I have a three-part question regarding: One, what is the
role of the Commission in combating misinformation about
elections? Two, are there some proactive steps that we are
taking between now and the 2022 midterms to give Americans
confidence in our election systems? And, three, do you need any
resources to help towards that end for 2022 and 2024?
Mr. Hovland. Thank you for that. Absolutely a great
question, very important. You know, as I mentioned earlier, I
think there are a lot of benefits that we get through our
decentralized election system midyear.
The assistance from the vote by mail States on how to ramp
up was important, but one of the real challenges that we have
to recognize is the decentralized system makes us more
susceptible to misinformation and disinformation. It is just
harder to combat that, because each State runs elections a
little bit differently.
And, so, I think, you know, when we look at what we need to
do on that, there were efforts this year that I think were
important. The National Association of Secretaries of State
drove a TrustedInfo 2020, trying to get their election
information from State and local election officials. That was
important, but I think we can do a lot more.
You know, we get a lot of calls, a lot of fact-checking at
the EAC. Our Election Administration and Voting Survey, you
know, has a lot of real facts about how elections are actually
run.
I think with the resources, and with adequate resources, I
would love to see us establish a one-stop shop website that
helps with voter education, helps with fact-checking, you know,
has that information directly from the States about the various
ways that--you know, what is your registration deadline? When
do you have to request a mail or absentee ballot? Those rules
of the road for voting in one place, but also that could help
direct people to their State or local election official.
I think that our effort to create National Poll Worker
Recruitment Day, where we had the HelpAmericaVote.gov website,
showed that you could have national campaigns that pointed
people to one central location like HelpAmericaVote.gov, but
then that website gave people basic information and then got
them to their State and local election official.
And I think that is a model for how we can do that with
broader election information, and help educate the public
around the process part of the voting, and it can get them the
accurate information to their State, to their jurisdiction. But
that will take more resources.
Mr. Pocan. Thank you. And just a question as far as, in
your opinion, are we capable of anticipating threats and are
States capable of doing that, or do we need to provide any
infrastructure help for any States right now that aren't up to
speed?
Mr. Hovland. You know, I think we have done a great job on
information sharing. Again, part of why I was comfortable
making that statement about the security of the 2020 election
is we are really seeing a sea change in information-sharing
with the State, local, and Federal level. Things like critical
infrastructure designation have helped with that. There has
been the creation of an Election Infrastructure Information
Sharing and Analysis Center. That has got almost 3,000 members
in it.
You really have a level of visibility and communication in
the election space that we have never had before. That is--you
know, Chairman Quigley hit on it earlier, and it was the
mention about an annual funding stream. You know, I think that
is one piece of this.
The nature of cybersecurity threats, the ongoing nature of
those threats, and the fact that it is a national security
issue means there is real value to having, you know, a piece of
Federal funding that is known, that is dependable, that can be
planned around so it is efficient.
And also, that said, you know, there is a Federal portion
of the ballot. This is a national security issue. Here is the
Federal piece. State and locals, you are primarily responsible
for running elections. You are primarily responsible for
funding elections. You know, you need to come up with the rest.
And I think that is what the sector-specific plan really
envisions in its funding section, where it talks about that
whole-of-government approach to funding our elections.
Mr. Pocan. Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Thank you.
And I yield to Mrs. Lawrence.
Mrs. Lawrence.
Mrs. Lawrence. Yes. Hello, everyone. I want to first of all
take this time to thank our electors across the country.
I have a question for you, Mr. Hovland. Back in October,
two right-wing individuals were charged in connection to racist
robocalls aimed to dissuade and discourage around 12,000 black
residents in Detroit and other U.S. cities from voting in the
November election, telling them that voting by mail in the
upcoming election was subject to their arrest, debt collection,
and a forced vaccine.
What do we need to do to fight misinformation campaigns
from our citizens, particularly in the underserved or the
communities in the Black and Brown communities? What public
engagement campaigns is the EAC employing to combat this
disinformation? And we know that election security and what we
struggled with the most in this last election was
misinformation. I would like a response to that. Thank you.
Mr. Hovland. Thank you, Representative Lawrence. Great
question. You know, that is absolutely, I think, one of the
biggest challenges. You know, I think there were a lot of
things that you hit on there that are important to dive down
into.
One, you know, we see more and more misinformation and
disinformation, you know, both that is domestic, but, also,
amplified by foreign adversaries that often mirrors traditional
voter suppression tactics. That is a real concern. Obviously,
if it is domestic, that should be enforced by the DOJ or local
prosecutors.
But to your main point, I think, we can do more around the
voter education space. I mentioned the one-stop shop website. I
think that is a big deal. You know, getting that trusted source
information to voters, having one place that you can point
people to.
You know, another thing I didn't mention earlier, we are in
an interagency agreement with GSA on vote.gov. That is around
voter registration, but I think that is something that can be
expanded on. I think you can have basic voter education videos
there to help reduce barriers to entry, or we know from various
studies that, you know, a lot of people aren't comfortable
participating, because they are not familiar with the process.
You know, they don't want to go into the polling place and not
understand what is happening, or maybe they don't know how
mail-in absentee balloting works.
And even at the national level, I think we can do basic
voter education videos to reduce that, reduce people's
potential for being intimidated with things like you described.
Again, I think there is a lot of work we can do there to
address voter education.
And on a lot of these things, you know, when you think
about the fiscal impact, you know, I recognize what the ranking
member said, but when we can find those areas at the EAC, where
you have a 50-State impact or close to it, a dollar invested at
the Federal Government can save taxpayers' dollars around the
country, because you are not reinventing the wheel.
You get the economies of scale of a national approach and
the ability to utilize other organizations to amplify those
messages at the national scale and have, you know, again, like
a lot of success with National Poll Worker Recruitment Day,
getting amplified on a number of different places, you know, by
celebrities, by various groups. And you really saw a new
generation of poll workers step up. And, so, in many ways, I
think that is a model, and we could use it on voter education.
Mrs. Lawrence. If I may, I am looking for a commitment for
a public engagement campaign for misinformation. So you hit
upon a couple of those things, you know, partnering with the
Secretary of State, so that there could be automatic campaigns
that address misinformation. The website is good, but these are
robocalls going into homes.
So just to be committed financially to your budget, and a
commitment that you can make, because misinformation, if we
don't attack that and change that, we are never going to get
our election process to be sustainable. And we fought through
it this time, and I am so proud of all the engagement.
And, so, you named some of the private entities that you
are working with. And I just want to be on the record that the
targeted groups are usually those who are minority groups and
underserved, and there is a benefit to not having it cut off.
So thank you so much, and I yield back.
Mr. Quigley. Thank you. And I apologize if I went out of
order. I didn't realize Mr. Stewart had joined us. He is now
recognized.
Mr. Stewart. Yes, thanks. I have actually been on the whole
time. And sometimes, Mr. Quigley, some of us may not have our
cameras on the whole time, so that may make it----
Mr. Quigley. Sorry about that.
Mr. Stewart. Yeah. Hey, no worries at all.
I had a few things if I could, Mr. Chairman. Thanks for
being with us, and, again, Mr. Quigley and Ranking Member,
thanks for hosting.
Let me ask my two questions and then allow you to respond.
They are a little bit different. One is many of us are familiar
with SolarWinds. It is a catastrophe, actually, in the cyber
world.
I need to understand, did we have any evidence that any of
our processes in elections were violated or compromised at all
by SolarWinds, especially knowing that it has been out there
for a long time?
The second question is, you mentioned, Mr. Chairman, Mr.
Zuckerberg's--he said $400 million. It was actually about $420
million he contributed to nonprofit organizations, private
organizations, Safe Elections Project being one of them, but
there were others as well.
My concern is, and my question to you is, do you know how
that money was spent? And was it spent evenly? For example, if
we have private individuals or companies that are coming in and
spending hundreds of millions of dollars, in some places, maybe
more than the Federal Government is spending, but say they
target blue-leaning districts, or blue-leaning States, or,
perhaps, another group comes in and targets red districts or
red States? I think that would be problematic. That would be
very obvious to both of us.
Talk to us about that, the funding of these private groups,
our ability to know how that money is being spent, and is that
actually influencing the outcome, or could it potentially
influence the outcome if it is spent in one district or
another?
Mr. Hovland. Thank you for the question. First, on the
SolarWinds. I haven't seen any evidence that the election or
any tallies were impacted again. Some of the things that were
in place this year that were crucially important to that
confidence was you had about 95 percent of Americans vote on a
paper ballot, or a paper audit trail. Obviously, in a number of
the close States, we saw exhaustive audits and recounts, a hand
inspection in Georgia that reconfirmed the machine tallies. And
all of that was very important to having confidence in the
elections.
You know, I think that SolarWinds is just such a reminder
of the evolving nature of these challenges, and basically, that
we can't--you know, I think that election officials did an
amazing job this year. Again, there has been a sea change in
information sharing at the Federal level. But, really, it is
just a great reminder that the work has to continue, the
investment has to continue. That is the nature of these threats
and challenges.
As far as the private philanthropy money to cover some of
the COVID expenses, you know, I have had briefings on that. It
was available to jurisdictions all over the country. You know,
it went to counties run by Democrats, Republicans,
Independents. It was available to every----
Mr. Stewart. Do you know how that money was spent, though?
Can you say that X amount was spent in these States and X
amount spent in another?
Mr. Hovland. I don't have those breakdowns, because that
wasn't money we distributed. You know, I think that it is
important that that money came in, given the pandemic, but, on
a balance, I view it as a failure of government that States and
jurisdictions had to rely on the philanthropy of billionaires
to be able to buy some of the basics, some of the PPE expenses
they had, some of the disinfectant equipment expenses they had,
some of the States to adequately socially distance their staff
as they put their own personal health on the line to run our
elections.
And, so, you know, again, I think that I am glad it was
there for the jurisdictions that needed it this year, but I
hope we can remedy that in the future so that we don't have to
rely on private philanthropy in this space.
Mr. Stewart. Well, I agree and I think we should. And, by
the way, I am asking you if you would try to find that
information for us. Could you do that?
Mr. Hovland. I am absolutely happy to have conversations
and look into that and reach out for more information.
Mr. Stewart. Find out. And if we can't find out that
information, that is a problem. And we should be able to know
that. If someone is contributing in ways that are election-
oriented, we should know how that money is spent and where that
money is spent.
And the second thing is, to your point, Chairman, this is
primarily to preclude or to help with some of the expenses of
COVID and precluding a bad outcome there, but I worry that it
sets a precedent that will continue into the future. In 4
years, hopefully, you know, God willing, we are not dealing
with COVID.
And now, though, do we think that we have set a precedent
where you have private individuals who come in with hundreds of
millions of dollars and, again, are targeting specific
districts or States? And, look, that would be a real problem.
It would be a real problem for either side. And I think we need
to know if that is a problem, or it potentially could be.
The first way to deal with that is to know where that money
was spent. So, again, we would really appreciate if you would
get back with us on that.
Mr. Quigley. Thank you.
Mrs. Torres, you are recognized.
Mrs. Torres. I am sorry, Mr. Chairman, did you say Torres?
Mr. Quigley. Yes.
Mrs. Torres. Thank you. First of all, I want to welcome
Election Assistance Commission Chairman Hovland to our
committee. Thank you for being here with us today.
I must stress that there is a great need for you to work
together with other Federal agencies, other Federal
Secretaries, to ensure that everyone is working toward the same
goal when it comes to election security, when it comes to
delivery of ballots.
So, with that in mind, I have three issues that I would
like to address with you: And that is the Postal Service. The
Postal Service was severely handicapped, reduced, attacked,
whatever word you may wish to use to describe what happened in
those last 2 months before Election Day.
You know, it caused a lot of delays of mail-in ballots due
to the pandemic. So, State deadlines did not align with the
reality of the mail system that was set up. It was really a
setup for voters to fail to deliver their ballots on time.
So what role has the EAC played, and, moving forward, what
role can the EAC play to ensure that State voting deadlines,
number one, align with the reality of the USPS; and what
additional steps can Congress take to ensure the USPS
guarantees on-time delivery of all domestic mail-in ballots
sent before the Saturday before Election Day?
On that same note, given the issues surrounding postal
delays in this last election, it is imperative that voters have
alternative ways of returning their mail-in ballots, such as
drop boxes.
However, we must ensure that drop-off boxes are placed in
locations that are secure and that we establish minimum
guidelines. In my home State of California, for example, the
GOP placed more than 50 drop-off ballot boxes in Los Angeles,
Fresno, and Orange Counties, which were fraudulently labeled as
official ballot boxes.
The other issue was already mentioned by a previous
colleague as it relates to people with disabilities. There are
7 million eligible voters who live with visual impairments. All
of these voters have a legal right to vote under the Americans
with Disabilities Act and Help America Vote.
So what are you looking to do to help ensure that ballots
someday are available in Braille, to ensure that we have a
voting system that is truly a personal vote and doesn't have to
be disclosed simply because someone needs assistance from
either their caregiver to fill out their ballot?
Mr. Hovland. Thank you for those questions, Representative.
On the USPS issue, you know, we work fairly closely with USPS.
The specific issue you mentioned on the State deadlines, that
isn't new. There was, obviously, a little more focus on it this
year. You know, that is certainly something that State
lawmakers balance how, you know, on one hand, you want to make
absentee ballots available to people who may not have another
option. But, again, if you allow, for example, some States
allow for a request 3 days before the election. Well, it is not
realistic that that is going to make it both ways in transit.
You, obviously, then, also have different States that
either have postcard or a postal indicator deadline, or a
received-by-election-day deadline. And, so, those make a
difference. You know, again, I think we will continue to work
on best practices. Again, I think maybe----
Mrs. Torres. If I could interrupt you there, because we
cannot abandon our responsibility to ensure that a Federal
election is--happened, and that voters are not disenfranchised.
So, that is your task. So, I hope that you will come back to
our committee and provide some input on what we can do to
ensure there are minimum requirements for States to meet these
guidelines.
Mr. Hovland. Well, one real--I will give you a quick thing
that I think will make a huge difference. A few years ago, the
Federal Voting Assistance Program, or FVAP, did a pilot program
with the USPS on full end-to-end tracking for UOCAVA ballots,
informing overseas citizens. And my understanding is that to go
full UOCAVA, and in turn, basically, full domestic tracking,
for about $8 million to the Post Office, not only would that
help election officials understand where ballots are, seek
problems that can be identified immediately if there is a
pallet of ballots on a loading dock that is getting delayed,
but it would also help voters have that confidence if they can
see in transit both ways.
And a lot of States have done that. We saw that as a big
improvement this year. But I think if you have a uniform system
of that implemented by the USPS, then people could build apps
off that, people can do more off that baseline because it would
be uniform across the country. I think that is an immediate
improvement that can happen.
Mr. Quigley. Thank you. Mrs. Kirkpatrick is recognized.
Mrs. Kirkpatrick. Thank you, Chairman, for being here. As
you know, in Arizona, over 90 percent of our vote is vote by
mail and so--which is a good thing. I mean, we have really seen
an improvement in voter participation because of that. But we
have many Tribal areas and rural areas that don't have everyday
mail service. And so my question is, what are you doing to
address those really rural areas, especially Tribal areas where
they don't have daily mail service?
Mr. Hovland. Thank you for that. Again, a hugely important
issue. You are right. Arizona's permanent early voting list has
led to significant expansion into mail-in absentee ballot in
there, and that helps a lot of people, but it does--there are
challenges with USPS delivery. Certainly, that is something we
are aware of. You know, we continue to highlight best
practices.
You know, but one of the things--and that is a hugely
important issue--but I think one of the things that is
important to recognize, too, is the nature of the EAC. You,
know, we are a small agency. It was mentioned that we were at
an all-time low in 2019 of an operating budget of $7.95
million. And this year, there was 17, but we passed through
about 1\1/2\ of that NIST.
So, we have a $15.5 million operating budget. That means we
are almost to where we were--we are a little below where we
were with inflation a decade ago. And you look at a sister
agency like, the Federal Election Commission that does campaign
finance, they are at $70 million. You look at the election--the
election program at CISA, that is $40 million as part of a $1.5
billion subagency.
And, so, when you look at our 50-State jurisdiction and the
breadth of the challenges to election administration in this
country, all--being an election administrator has never been
harder than it is right now, and elections are chronically
under-resourced all across the country at the State and local
level, and also at the Federal level. I wouldn't hesitate to
say that we should be $100 million agency to take on the
challenges that people expect of us.
And I know that doesn't happen overnight, but I think this
is a great example of one of those issues that needs to be
tackled. And just when we look at our statutory mandates, when
we look at the things that we are required to do under the Help
America Vote Act, you know this is important, and we want to
work on it and work on best practices, but there is also a
reality to what we are able to do with the resources that
Congress has given us.
Mrs. Kirkpatrick. My follow-up question has to do with
violence at polling places. And, so, this was an emotional
election. We had marches in Arizona. We had people angry, angry
crowds marching to the polls. And I just wondered if--two
things, are you seeing that having a chilling effect on
volunteers who work the polls? And do you think it is actually
having a chilling effect on the turnout?
Mr. Hovland. I think what we saw more of this year, there
was certainly--you know, absolutely Arizona had, you know, was
a hotspot in many ways. I think we saw more of that in the
aftermath. A number of election officials, you know, receiving
death threats, totally unacceptable. Again, these are public
servants that put their personal health on the line in service
of our democracy. People that care more about the integrity of
our elections than anyone else. And, so, really completely
unacceptable, really unfortunate. You know, I hope that it--it
doesn't deter people from getting in this space.
I do think it was an extremely stressful year, and there is
a level of burnout amongst election officials. But it is one
more reason that we need to recognize the work they do, provide
sufficient resources.
You know, again, the job has never been harder, and that is
both the administration pieces. But, then, the challenges that
you are alluding to, as far as around voter education to the
process. You know, more people saw more of the process this
year than probably ever before. You know, most people tune in
election night, see the preliminary results, and tune out. But
this year we saw, we saw the audits; we saw, you know, people
going through provisional ballots to figure out if someone was
eligible or not; we saw the canvass and certification process.
And I think that was important, but clearly, we can do more to
educate people around that, and we can clearly do more to
support our election officials around the country.
Mrs. Kirkpatrick. Thank you very much, Mr. Chairman. I
yield back.
Mr. Quigley. Thank you. Question, Chairman, is there
anything you would suggest that we would do to incentivize the
States to move the money out quicker, if need be?
Mr. Hovland. So, I think that--a few things. On the
security grant money, you know, that--I think that there is a
lot that ties into the timeline I mentioned. I think if people
knew there was a consistent annual funding stream coming, it
would allow for them to plan for that accordingly. You know,
you could look at--you could look at expiration dates. The 2018
and 2020 money doesn't have expirations. And, again, only
because that was the first real money to come in a long time.
You know, I don't know that people have confidence that there
will be more. But, then, you saw, at the same time, the
expiration of CARES Act money was maybe a little too short. And
so I think we are happy. You know, our [inaudible] Team does a
great job working with all the States. We are happy to work
with your staff and try to work on some of those details, you
know, of course, and should involve talking to State and local
election officials and recognizing part of--part of the
difference I mentioned before in costs that are born out at the
State level and those that are born out at the local level. But
I think there is a lot we can do, and they are happy to work on
that with you.
Mr. Quigley. Sure. Mr. Womack, do you have a follow-up
question?
I am trying to do this on a hybrid on the second round, we
don't have as much time, but I do want folks on this thing if
they had something they wanted to finish up, they had the
opportunity.
Mr. Womack. Yeah, I do, Mr. Chairman, and thank you. And,
Chairman Hovland, I do appreciate the information you are
giving us today.
This is a question about misuse of funding. How are you
organized, set up, and how--because this comes back to kind of
our oversight piece--how are we able to discern the misuse of
funds, if and when it happens? And then, what actions are then
taken--what prompt, say an IG report, that would have the
ability to recover the misuse of funds? So, if you can talk,
generally, about that particular subject?
Mr. Hovland. Yeah, I am happy to. And, actually, when I
mentioned our budget earlier, one piece that is important in
there is that we spend about $1 million a year on our inspector
general. For an agency our size, that is a huge portion of our
budget.
Again, even when our budget was down to $8 million, $1
million of that was going to our inspector general. And that is
because our inspector general's office audits all of this HAVA
money. You know, they contract out for a lot of that, but to
audit this money, usually it is about five or six States a
year, sometimes a little bit more. This year, actually,
Arkansas, Florida, Kentucky, Massachusetts, New Mexico, and
West Virginia were all audited.
And, so, we are looking back at that money, we are looking
how it is spent, looking at the receipts, making sure that it
falls into categories that are allowed by Congress, you know,
qualifying expenses, and then we provide those reports to you.
You know, we will continue to do that, move across the country,
and make it through that. And in those efforts, we are looking
at CARES money, we are looking at security money, we are
looking at the old HAVA money for any States that still have
that.
And, so, a big part of our role is both helping States and
jurisdictions on the front end, you know, providing
information, resources, you know, webinars on allowed expenses,
or ways that people can use the money. But then, of course, on
the back end, also auditing that to making sure that it has
been used correctly.
Mr. Womack. My final question, Mr. Chairman, would be this:
And that is, in education, we have accreditation standards, and
we have accreditation facilities set up of which to be able to
monitor and judge just how effective our educational
institutions are. Is there an accreditation standard, and is
there an accreditation platform by which our States are judged
as to how they carry out their mission on elections?
Mr. Hovland. So, again, with our decentralized elections, I
wouldn't say there is--there is certainly no Federal standard.
Obviously, we have a decentralized election system. The EAC is
largely nonregulatory. You, know, in a small agency, you do see
things that are created, things like the Election Performance
Index that is now housed out of the MIT election lab. It was
created by the Pugh Charitable Trusts. But that is a ranking of
different categories that use a lot of election administration
and survey data in that.
There is a number of different ways that you can look at
it. I think a little different than a ranking standard. But to
your question earlier on resourcing and how we get there, you
know, one of the great things about the Election Assistance
Commission when Congress created the Help America Vote Act was
the Federal clearinghouse responsibility. There is so much more
that we can do with that. But one of the big areas that I would
like to see us expand into more of is doing trainings, because
that does--you know, sharing those best practices that election
officials discover across the country, but doing trainings
around that to really help, you know, everyone get better, and
the efficiencies that we can realize through that, the tax
dollars that we can save through that, you know, I think are
significant. And I think that is a critical mission for the
agency in the future.
Mr. Womack. Thank you, Mr. Chairman.
Mr. Quigley. Thank you. And then as we try to do a
hyphenated second round, I recognize Mrs. Torres, if she has a
follow-up.
Mrs. Torres. I do not, Mr. Chairman. I will put a letter
together for the chairman. Thank you.
Mr. Quigley. Very good. Thank you. Mrs. Kirkpatrick?
Mrs. Kirkpatrick. I do have a follow-up.
Mr. Quigley. Can you get a little closer, please, to your
microphone.
Mrs. Kirkpatrick. Sure. Is that better?
Mr. Quigley. Yeah.
Mrs. Kirkpatrick. Yeah, my question is what are your
concerns about violence at the polling places? You know, I am
[audio malfunction]. My question has to do with making sure
that we have got adequate poll workers and turnout in every
election. And, again, you know, do you see threats of violence
as having a chilling effect on that, being able to recruit
volunteers?
Mr. Hovland. You know, I think that one of the things--you
know, one of the real silver linings that I saw in this year's
election, you know, in the primaries you saw a lot of dropout
around poll workers. We know from the Election Administration
and Voting Survey that the majority of poll workers are over
age 60. And we know that recruiting poll workers is always
challenging. In 2018, about 70 percent of jurisdictions had at
least some difficulty finding enough poll workers.
And, so, in the primaries, you saw, in particularly some of
the States that had primaries right in the early days of the
pandemic, like Wisconsin, had a huge dropout, had to shut down
a lot of polling places. You know, and, so, it became clear
that it was going to be critical to have enough poll workers.
That was part of why we launched the National Poll Worker
Recruitment Day. There were also a lot of other efforts, Power
of the Polls, Poll Heroes Project. You saw employers giving
people the day off.
And what it really resulted in this year was a new
generation of Americans stepping up and serving as poll
workers. And it is my hope--I have served as a poll worker a
number of times--and it is my hope that their experience was
similar to mine, that they realize that they were the customer
service face of our democracy. And what they were there to do
didn't have anything to do with who people were voting for, but
simply that they were there, and it was your opportunity to
make their experience of the process be a good one. You know,
help that 18-year-old who was a little bit nervous, or the
senior citizen that has been voting longer than you have been
alive, give them a little extra assistance, and give them the
``I Voted'' sticker and thank them for coming out.
I know that was the experience I had as a poll worker, and
I am hopeful that this new generation had that experience as
well, and we will see that make a difference in 2022 and 2024,
because poll worker recruitment has been a challenge for a long
time, and I think it is something we need to continue to
amplify.
I think we learned this year that a lot of people didn't
know it was the way they could serve in their community. And
so, I think we are going to continue to push those efforts, but
it is crucial.
Mrs. Kirkpatrick. Thank you so much, and I yield back.
Mr. Quigley. Thank you. Mr. Amodei, you didn't have a
question the first time, do you do the second round? I am not
sure if he is still with us, but we will ask Mr. Stewart the
same question, if he is not there. Either way, they are no
longer with us, or it is a negative. So what we will do is we
will wrap up.
Chairman, I want to thank you for your service, for your
work, and for your willingness to participate with us today.
Mr. Ranking Member, do you have anything else you want to
say in closing?
Mr. Womack. No, not at all. But again, good to have
Chairman Hovland with us. A good Carroll County product from
Arkansas, and a UCA product, and it is good to have him here.
And the next time you are back in the Third District of
Arkansas, make sure I get a call, let me know.
Mr. Hovland. All right. That sounds good.
Mr. Quigley. I want to thank all who helped put this
together, all those who participated. The staff was
outstanding.
These are difficult times. I look forward to seeing you all
in person as we do this next time. And we will see you all
soon. We are adjourned. Thank you.
Tuesday, February 23, 2021.
OVERSIGHT HEARING--INTERNAL REVENUE SERVICE
WITNESS
HON. CHARLES P. RETTIG, COMMISSIONER, INTERNAL REVENUE SERVICE
Mr. Quigley. And as if you haven't had enough early
warnings about everything, we will commence and I will give you
some more.
As this hearing is fully virtual, we must address a few
housekeeping matters. I would like to remind members that for
today's meeting the chair or staff designated by the chair may
mute participant microphones when they are not under
recognition for the purpose of eliminating inadvertent or
advertent background noise.
Members are responsible for muting and unmuting themselves.
If we notice that you have not unmuted yourself, I will ask if
you would like the staff to unmute you. If you indicate
approval by nodding, staff will unmute your microphone.
You will get three warnings and then a demerit. Three
demerits--this is where we are heading, folks. I am just
kidding.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved and you will retain
the balance of your time.
You will notice a clock on your screen that will show you
how much time is remaining. At 1 minute remaining, the clock
will turn to yellow. At 30 seconds remaining, I will gently tap
the gavel to remind members that their time is almost expired.
When your time is expired, the clock will turn red and I will
begin to recognize the next member.
Finally, House rules require me to remind you that we have
set up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided to you in advance, to your
staff.
I will keep my opening statement brief so we can get right
into the questions.
This morning we welcome the Commissioner of the Internal
Revenue Service, Charles Rettig, to testify on the state of the
IRS.
Commissioner, thank you for being here today.
The past year has tested the strength, patience, and
resolve of the American people. The coronavirus pandemic is a
public health crisis that has caused an economic crisis. Many
Americans have lost their jobs and are facing food insecurity
and struggling to pay their bills.
Congress quickly jumped into action, passing multiple
relief packages, which in part tasked the IRS with the
Herculean effort of implementing these policies in a very short
period of time.
I commend the IRS for what they have been able to
accomplish. They have issued over 300 hundred million Economic
Impact Payments totaling more than $400 billion to help
taxpayers during these trying times.
For many, these payments have been a lifeline, enabling
families to put food on the table, gas in the cars, which is
why I want to make sure that every American who is entitled to
this money receives it. I am troubled that there are people who
have not received these checks.
President Biden immediately got to work to provide
additional relief to the American people. His American Rescue
Plan includes the remaining $1,400 checks that people were
promised. It also temporarily expands the Child Tax Credit,
which could help cut child poverty in the U.S. by as much as 50
percent. I fully support the $397 million for the IRS to
implement this effort.
Right now, we are 12 days into the 2020 filing season. In a
normal year providing quality customer service and timely
refunds is a challenge, but these tasks are now compounded and
the IRS is stretched thin.
With an unprecedented backlog of over 8.7 million
unprocessed tax returns, staffing shortages due to safety
concerns in IRS processing centers, outdated IRS IT systems,
and the IRS' new role in administering stimulus payments and
the Child Tax Credit, I would like to hear from you,
Commissioner, on the IRS' readiness for this season and if any
additional resources are needed.
Recently, the IRS published its first Taxpayer First Act
report, which describes a 6-year plan to modernize the IRS,
improve customer service, reorganize the IRS with servicing the
taxpayer as its central focus. I am eager to hear more about
the benefits of this plan and how the IRS can move forward to
accomplish these goals.
Lastly, as the IRS is managing these multiple efforts
simultaneously, I want to emphasize the importance of ensuring
the safety of its workforce.
With close to 80,000 IRS employees, many of which are
required to work onsite during the filing season, it is crucial
that the IRS adhere to COVID safety protocols and continued
communication with the union and staff on all COVID matters.
With that in mind, I want to take this time to thank the
hardworking staff at the IRS for their continued commitment,
expertise, and dedication to the mission.
Mr. Commissioner, I look forward to having a robust
conversation today on all these important issues.
And I will now turn to the ranking member, Mr. Womack, for
his opening remarks.
Mr. Womack. Thank you, Chairman Quigley.
And, Commish, welcome to this hearing. It is great to have
you here today.
I would like to acknowledge you and all of your employees
at the IRS for the work that you have done over the past year,
things like getting multiple economic relief payments to
Americans, implementing the other Tax Code changes included in
the various COVID relief bills, dealing with the impact of
COVID on your staff and their families, and doing your core
missions of collecting taxes and processing annual tax returns.
While the IRS, like any other Federal agency, has made
mistakes over the year, I want to recognize that the agency has
been asked to do a lot under extremely difficult circumstances.
We appreciate your effort.
There are many topics we can cover today at this oversight
hearing, such as how the IRS plans to address the backlog of
unopened mail and unprocessed returns; improper payments, which
has always been something that I have been interested in,
including back when we passed--when I was Budget chair and we
did the last budget that passed out of Committee in the House;
the plan on modernization of your technology; and how will you
ensure that the inappropriate spending and political targeting
scandals that occurred in the not-too-distant past have not
reoccurred and shall not reoccur.
Those are the kinds of things that are on our mind today,
and I look forward to your testimony and the Q&A that will
follow.
And I am going to yield back the balance of my time.
Thanks.
Mr. Quigley. Thank you, Mr. Ranking Member.
Commissioner Rettig, thank you for being here today. As you
know, you don't need an introduction anymore as you have become
an increasingly popular figure during the pandemic in
disbursing the coveted COVID stimulus checks.
But in all seriousness, while we might not agree on
everything, I appreciate our working relationship and how
available you have been to me and your staff.
Without objection, your full written testimony will be
entered into the record. With that in mind, we would ask you to
please summarize your opening statement in about 5 minutes.
Please go ahead.
Mr. Rettig. Thank you, Chairman Quigley, Ranking Member
Womack, and the members of the subcommittee. Thank you for the
opportunity to discuss IRS operations and our efforts to help
taxpayers during the COVID-19 pandemic.
Your comments and appreciation for our employees are very
well received throughout our entire agency. And following these
hearings, I get numerous emails from employees commenting about
what you all mentioned on their behalf. And so it really is
taken to heart, and I want you to know that myself, as well as
every employee of the IRS, really appreciates your comments.
The importance of the IRS to every American has become
especially apparent since last spring as our Nation has faced
unprecedented challenges. The IRS has been at the forefront of
successfully providing rapid economic relief to taxpayers
during COVID-19. IRS employees worked around the clock since
mid-March to implement major provisions of the CARES Act, and
especially the first round of the Economic Impact Payments to
help millions of Americans.
By the end of 2020, we had delivered a total of more than
160 million in the first round of Economic Impact Payments
totaling more than $280 billion. During 2020, we also processed
more than 163 million individual returns, including more than
125 million refunds, totaling more than $320 billion, to
individuals.
IRS employees once again moved quickly to implement a
second round of EIPs that was signed into law on December 27.
These payments started posting to bank accounts just 2 days
after enactment due to the efforts of our employees to monitor
and the advance preparation as we were watching the different
variations of legislation move forward that gave us the ability
for a quick turnaround. A second round of payments went out 2
days after the legislation was enacted, and it was 147 million
payments totaling $142 billion.
We made some mistakes throughout. We had learning lessons
throughout. We learned a lot in EIP 1 that we applied in EIP 2
that we think prepares us. Should Congress and the White House,
President Biden, enact an EIP 3, we think we are prepared to
appropriately serve the American people.
But we know that we can do more, and we know that we are
being called upon to do more and more. And let me assure you
that our employees want to do more. We take our tasks to heart.
We appreciate the privilege and the opportunity that we have to
actually represent the people of this country, and we will not
let you down.
We did not have a pandemic playbook for how to respond to a
pandemic that shut down or slowed wide segments of the U.S.
economy. Nonetheless, thanks to the agility and flexibility of
our workforce, we were able to move forward, rapidly switching
to a virtual work environment and shifting the majority of our
employees to be able to work remotely. At various times, we
have had as many as 61,000 employees teleworking.
Our IT division also provided the equipment necessary to
allow thousands of our customer service representatives to
telework, and we could not have done this without the support,
and the financial support, of Congress throughout. For that, we
are most appreciative.
During the summer of 2020, we began bringing back a limited
number of our employees to the offices to perform nonportable
work, including opening mail and processing paper returns. At
one point we had a backlog of more than 20 million pieces of
mail, but we have been steadily working through that backlog
and we are now current.
We realize our phased-in reopening has been difficult for
Members of Congress, for your staff, for taxpayers, and others,
and we appreciate everyone's patience and understanding of the
situation that we were placed in as a result of the pandemic.
However, the health and safety of our employees, as well as
those we interact with, had to remain paramount throughout. Our
employees shared the same health and safety concerns as shared
by every other American for themselves, their communities, and
others.
Turning to the 2021 filing season, and in closing, I am
pleased to report the successful opening of the filing season.
At the first week in, we received 55 million submissions, and
at the peak we were receiving 335 submissions per second.
We opened the filing season slightly later than in previous
years to give us additional time to do additional programming
and testing of our systems, and we are confident in the systems
and in the status that we find ourselves in today.
Chairman Quigley, Ranking Member Womack, and members of the
subcommittee, this concludes my statement, and I would be happy
to take questions.
Mr. Quigley. So we do appreciate this. And as was said over
and over again, I want you to appreciate the fact that we
rarely in our offices get calls from constituents when they get
their payment, we rarely do, but we always do when they don't.
So if you could do a bit of a deep dive explaining why
there are still those who have not got those payments, what
those reasons could be, and where the problems exist, and how
we move forward to make sure everyone who is entitled gets
those payments.
Mr. Rettig. There is a number of reasons. I can touch on
the outreach side of it. Let me touch more on the technical
side of it.
The CARES Act--both acts, actually, for EIPs--dictated a
look at the 2019 tax returns, and then, if the 2019 returns
were not filed, a look at the 2018 returns. So I think the
concept was well placed.
There are tens of millions of people who do not have filing
requirements. And so during the issuance of EIP 1, we reached
out and coordinated our efforts with both the VA and the SSA
because most of the beneficiaries of their payments actually do
not have filing requirements. And so we coordinated a
programming for their folks so that we could get payments.
And we actually reached out to more than 11,000 different
organizations around the country with respect to homeless
organizations, unsheltered homeless and whatnot.
From what we have seen so far, if I can sort of a lessons
learned, in the folks who have not received payments, they may
not be filers. They may be filers and their returns may be
caught up in a variety of situations. It is a pitch, if you
will, for electronic filing, because, as I said, we had more
than 20 million pieces of mail stored at one point, and so we
couldn't use those returns that might have been in those
storages at that time to determine the returns.
But for folks who actually electronically filed, we got
over 90 percent of those payments out timely, including their
refunds. And keep in mind that the individual refunds, and
including EITC refunds and in many cases the CTC refunds,
exceeded the amounts of the EIPs that were being issued.
But, nonetheless, a lot of returns, less than 10 percent,
but some of the returns hit various filters that we have. And
we have identity theft. We have situations where we have asked
for additional information from people.
So that would be a situation where maybe the 2019 return
would not have been processed, and ``been processed'' means
actually posted to the account so that we could draw the
information from that return.
From a staffing and a contact perspective, we have 13,760
CSRs, customer service representatives, who essentially is our
phone bank. Through the year we did and we do provide, when
requested by FEMA, as many as 3,000 of our phone bank
representatives when there is a hurricane, a natural disaster,
wildfires, and whatnot.
And I should indicate that we just got a request from FEMA
this week for 200 of our CSRs to participate with assistance
down in Texas. And essentially we flip a switch and our people
go from being IRS CSRs to doing intake for FEMA.
So we get called upon for a lot of different tasks.
We did well overall when you get into the 90-plus percent
range, but it is easy and appropriate to turn it around and say
there was the 10 percent or so that we have been trying to
connect with.
I will say that personally I touch base with hundreds of
different organizations around the country. We coordinated
efforts with Low-Income Taxpayer Clinics and actually provided
them with the authority to prepare returns for people who did
not have returns such that they could get Economic Impact
Payments.
And it is easy for me to talk about the successes, and we
are very proud about our successes. But, similarly, we want to
do more. Our people live in the communities and are reflective
of the communities and we are very proud of that. And it is not
acceptable to us that any person did not receive a payment.
I will say that the outreach and the organizations that we
interacted with, including more than 400 different Federal and
State agencies throughout the country, were invaluable in
helping us get the word out. Our outreach materials, really
associated with private practitioners, assisted us in getting
our outreach materials out for EIP in more than 35 different
languages. We prepared tool kits. We delivered 541 tool kits to
the Hill, giving people the information of what might be
needed.
And none of this and none of my comments should be
reflective as an effort for an excuse. We understand the
importance of getting the payments out to people. There is a
variety of different things with respect to staffing at the
Internal Revenue Service.
I will say that I am very proud of our employees who
worked. Our IT department and our Wage and Investment folks
literally worked 15-, 17-hour days from March. I don't think
our CIO has slept since March. And we had a filing season, and
EIP 1, and EIP 2, to go with our normal functions. And I am the
guy, as some of you have heard me say before, who shut down 511
of our facilities and then had to figure out how to get back,
and we had to balance those responsibilities with everything
else.
And I would also like to express our appreciation to NTEU,
as well as personally to Tony Reardon. During much of 2020, I
was on weekly calls with Tony Reardon, who is president of
NTEU, and we were totally in sync in terms of protecting our
employees and recognizing the duty that we had to the country.
So we could go down a lot of different lanes. The bottom
line is----
Mr. Quigley. And we will have time. I just want to get to
the other members. And I appreciate that. And, look, I
appreciate your answering, your candid manner, and, again, your
staff. But not to cut you off, but I want to be a good example
and let the other members ask their questions, beginning with
Mr. Womack.
Mr. Womack. Yeah. Hey, thanks, Mike.
Look, I understand that my colleague, Chris Stewart from
Utah, may have a hard time, that he has got to get out. And if
that is the case, I would be willing to defer any questions I
have for the Commissioner if Chris wants to chime in and get
his questions out of the way, because I think he has got a
flight to catch.
Chris, are you on there? Do you want to take a moment here
to ask a couple of questions?
Well, I am not hearing Chris. Maybe he has already logged
off.
Mr. Quigley. Well, if he comes on and you want to defer in
the middle of yours, we will abide, whatever works for you.
Mr. Womack. Yeah. I just saw he had logged on and I wanted
to make sure he had an opportunity to get involved in the Q&A.
Mr. Quigley. Sure.
Mr. Womack. Thanks again, Commissioner, for being here.
I have always been concerned--and I have kind of put this
under the headline of mission creep--when Federal agencies get
beyond their core functions, and it always bothers me a little
bit, and I think it becomes an expensive issue for the agency.
I have picked on the VA because when they build hospitals--
they are not in the business of building hospitals--or
developing IT infrastructure and they have IT problems. There
are other organizations that do that better.
For the IRS, when ObamaCare was created, you guys were
required to issue a tax penalty to Americans who didn't
purchase certain health insurance.
Now, in the reconciliation package that is before the House
now it has language in it about IRS issuing monthly checks to
parents to address child poverty, activities that I believe are
outside the core mission.
So I know that you are going to say that the IRS is going
to do whatever Congress asks of them. However, I want to ask
these questions.
When Congress directs you to focus on new things, such as
healthcare and children, the impact it has on your core mission
of collecting, performing audits, and processing returns, how
much of that attention and the attention of everyone in the
agency will shift from your core mission of collecting taxes to
implementing monthly payments to children? And would it hurt
your ability to reduce the backlog that we have already talked
about?
Now, you mentioned that sometimes your agency is picked off
by another agency, like FEMA, to go from your core mission to
missions involving another Federal agency. So that fits
directly into my question here.
So help me understand how we can be assured that your core
mission gets executed without the interference from other
outside distractions laid upon you by Congress.
Mr. Rettig. You are correct that in my first comment that
the IRS stands ready to serve. The IRS [inaudible] its
challenges. The IRS receives, long before I came on board,
numerous challenges and I think for the benefit of the
employees has a history of rising to those challenges,
certainly doing the best that it can, and the best that it can
under the circumstances.
For any new endeavor provided to the Internal Revenue
Service, funding, staffing, training are critical. Multiyear,
consistent, adequate funding is critical. One-year funding not
followed up the next year does put a stress on our resources as
we end up having to borrow from one--to the extent we can--
borrow from one side to help fund another portion of the
agency.
And we are an administrative agency. We don't choose our
challenges. I am confident in our people. But we need the
support, both financial and staff and training, and we need to
have it in an ongoing manner as long as we are called upon to
do any of these challenges.
Mr. Womack. In the fall, you and I discussed a delay in
processing the Form 8849. This is a petroleum marketers refund
issue. Small and medium-size petroleum marketers rely on these
refunds to support their day-to-day, and it has impacted some
marketers in my particular district.
Can you update me quickly on how these refunds are being
processed, how they are being processed? And is there a backlog
that we should be concerned about?
Mr. Rettig. Yeah. We actually, as you would expect and as
you would hope and I believe as we talked about before, we
prioritized refunds for everyone. We prioritized refunds for
individuals as well as prioritizing refunds for businesses and
whatnot during the pandemic. We made the right--what we believe
is the right business decisions and certainly I believe is the
right business decisions.
December 17, we had an inventory on the 8849s of 7,405. We
currently have a backlog. We have reduced it by 4,800. And we
have a backlog of 2,565, which we expect to be cleared out by
the end of March. And, again, we put extra staff, we provide
overtime, weekends, and whatnot, to try to accomplish this, but
we have made significant headway.
Mr. Womack. Well, I know you did, and you sent a letter out
on the issue after our conversation. I just want you to know
how much I appreciate that, and that is the kind of response
that we all really want from our Federal agencies and, in this
particular case, your delivering. So thank you so much.
And, Mr. Chair, I will yield back that 12 seconds I have.
Mr. Quigley. Thank you so much.
Mr. Cartwright is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
And thank you, Commissioner Rettig, for coming back and
joining us.
Mr. Rettig. Thank you.
Mr. Cartwright. Thank you for your hard work. And thank you
also for the hard work of all the line employees of the IRS to
try to take on all of this additional responsibility during the
pandemic.
And, finally, thank you for acknowledging mistakes--we
don't hear enough of that in Washington--and that you are
learning from them. That is very encouraging.
And I want to ask, I want to get out a bunch of questions
right off and get you to answer them.
In the first two rounds of the EIPs, the Economic Impact
Payments, millions of people received their stimulus via a
prepaid debit card. And from what we are hearing from my
constituents in northeastern Pennsylvania, we got an awful lot
of complaints that they threw those debit cards away because
they weren't giving proper notice, that they didn't have the
heads-up that this was money and these were payments from the
IRS for stimulus.
How is it determined that this particular group of
Americans was singled out for prepaid cards when most people
received checks or direct deposits? What steps were taken to
ensure that the requests to replace those cards that were lost
or stolen or thrown away were fulfilled? And are there any
major changes to the disbursement of Economic Impact Payments
for the future?
In particular, I want to help ensure we help Americans get
these stimulus payments as quickly and as early as possible,
and I want to give you the opportunity really to help them arm
themselves.
For people that have had issues receiving their first or
second stimulus payment, what steps can they take today to
ensure they don't have continuing issues receiving a potential
third round of payments?
Commissioner?
Mr. Rettig. Yeah, the IRS was not the decisionmaker, and it
really wasn't even in our area as far as who would receive
paper checks and who would receive prepaid debit cards. That
was a decision between Treasury and Bureau of Fiscal Services.
I think you are aware that the IRS provides payment files to
BFS, and then BFS is actually the agency that issues the
payments. We were asked to adequately check.
So if we did not have and Fiscal did not have direct
deposit information, we were asked to provide separate files,
which were the, if you will, paper check files, and from that
we were asked to do certain pieces of that, which they pulled
out to do in the form of debit cards.
I think the interest in doing the debit cards was to try to
get the payments out quicker. Fiscal Services can only do
between 5 and 7 million paper checks per week. That is their
capacity. That is in excess of the VA and the SSA. So in order
to sort of shorten the length of those 5 to 7 million weekly
payment checks, I think the effort was to try to do the debit
cards. And certainly a lot could have been learned with
respect--and has been learned--with respect to the debit card
situation.
One of the comments, one of the questions you had is, what
can be done going forward? We and others--and I think Treasury
would join me in this, as well as Fiscal--can always do a
better job in terms of outreach and communications.
Interestingly, a lot of people tend to believe, gee, if we put
it on our IRS.gov or we do our normal channels that we would
historically do in the tax world, those are sort of for tax
people, tax practitioners and whatnot.
But the person on the street is not looking at IRS.gov.
They are not necessarily interacting with a CPA or a lawyer or
a professional organization. They are on the street. The person
digging the ditch, the person running the electricals and
whatnot, really are the target area of the outreach that we did
during 2020, which we refer to as people outside of our normal
channels of communication. I think I mentioned we did partner
with more than 11,500 different organizations, tenant rights
groups and whatnot.
I think the bottom line--and I don't know whether there
would be a similar decision on the debit cards going forward if
there was to be an EIP 3. Again, that would be between Treasury
and Bureau of Fiscal Services. I respect the decision to try to
get the payments out earlier. But we were equally concerned for
the fact that a lot of people shredded them, did not knowing
they were coming, et cetera, et cetera.
What can people do? They could file electronically and file
as early as possible. Our filing season is open. Getting a
return in that has direct deposit information, the bank
information in their return, allows us to essentially flip a
switch and issue those payments, which is what we used December
29 on EIP 2 when we issued 147 million payments totaling $142
billion 2 days after the date of enactment. We had that direct
deposit information.
And so getting that information to us in the form of a tax
return is critical. For those who don't have--Mr. Chair, if I
may finish one thought? I see I am out of time.
For those that don't have a filing requirement, we do have
the Non-Filers portal where they can provide that information
to us, and that would help us significantly.
Mr. Cartwright. Thank you, Commissioner.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Womack, you were trying to accommodate Mr. Stewart
because of a flight. Do you still wish to do that? Do you know
if he is on?
Mr. Womack. Mike, I got a text from him, and he was en
route to the airport. He is listening but just not in a
position to engage. But I do appreciate the opportunity.
Mr. Quigley. Okay. No problem.
Then I think we will move on to Mr. Joyce.
Mr. Joyce. Thank you, Mr. Chairman. I appreciate the
recognition.
And also a quick shout-out to Mr. Cartwright, because that
is commercial-like quality that he is engaged in there while
doing his----
Mr. Cartwright. Thank you, Mr. Joyce. Your cat filter is
on.
Mr. Joyce. Commissioner, I appreciate all the hard work you
have been doing.
I have a question. As you know, with the increase in
unemployment benefits made available in the last year,
unfortunately, has come along with some increased fraud that I
have taken notice of, [inaudible] At least $300 million in
fraudulent unemployment benefits were paid in 2020.
This is a problem not only for the integrity of the
unemployment insurance system but also, unfortunately, the
taxpayers who were victim of the fraud. And as you mentioned,
with the mail system, sometimes they are now just becoming
aware as they are receiving this notice that they were, in
fact, defrauded and their security was compromised.
Unknowingly, these people have taken the unemployment
benefits, had those shipped somewhere else, but the bill coming
due for their taxes is coming home to roost with them.
Is the IRS taking any action to allow flexibility for
States that need additional time to sort out the fraudulent
benefits paid and holding those individual victims of this
fraud harmless for taxes owed on unemployment benefits that
they have never received?
Mr. Rettig. We are working with the States. And regardless
of anything else--I am going to make this specific here--but
regardless of anything else, because this was expanded this
year because of the volume, but it is not unusual for folks to
have identity theft and other things where there are issues
that are hitting their account which are not theirs, is to file
an accurate return.
So even though there is a 1099-G that might indicate
somebody got funds, if you did not receive those funds, file an
accurate return, reach out to the State and ask for a corrected
1099-G, which will be in a zero dollars received capacity.
But even if they are unable to contact the State on their
individual income tax return, do not report funds you did not
receive. You are only required to report your accurate income.
If you did not receive it because of identity theft or some
other scenario, it is not income to the taxpayer.
We actually, as have the States--and like I said, we have
been working closely with the States--but we posted something
again on IRS.gov. We are doing our best to message through our
normal channels, and now our expanded family, if you will, of
communications getting out to people.
But we are very sensitive to this. We are taking a hard
look at it. And in terms of your question about flexibilities,
we are an administrator. We can't determine what is or is not
taxable.
For Federal tax purposes, unemployment benefits are
taxable. I think there are 14 States where it is not taxable,
and so people also need to be aware of the difference between
Federal and State.
And we are taking a look at it. And I think at the end of
the day you can expect us to get this one right. It is on our
plate. It is on my radar screen.
For folks who did, if I may, who did actually receive the
unemployment benefits but who were unaware that it was taxable,
file, report the benefits. You can actually even online do a
payment agreement with us. You can request financial hardship.
There is a whole host of payment relief that we have available.
And, again, our employees have gone through the same
pandemic as everybody else. We are understanding and sensitive
to the environment for the past year and for the foreseeable
future.
So folks who received it, actually received it who did not
understand that it was taxable, I would hope that they would
reach out to us for some flexibilities in terms of payment
arrangements.
And I will say that every frontline IRS employee who they
would interact with, whether it is through a CSR or in a more
direct collection format, is aware of the comments that I just
made, and I expect our people to be understanding, patient, and
to do the appropriate thing for the people of this country.
Mr. Joyce. Thank you. At least we have something to go back
to the constituents who are calling in about going back to the
State and having that cured.
I want to move on to another question regarding legal
cannabis businesses. They are unable, as you know, to utilize
our banking systems, and as a consequence of these arcane
restrictions businesses are forced to hire armored vehicles to
transport their tax payments in cash to the local IRS.
This is inefficient for business and the IRS alike,
obviously, not to mention ample opportunity for fraud and the
abuse it creates, as well as potential for criminal acts as far
as robbing and stealing from those.
How do you recommend we address this problem for your
agency? And I am talking about legal businesses, ones that have
been defined as ongoing concerns meeting all of the statutory
requirements of the States that they do business in?
Mr. Rettig. Yeah. You know, the IRS would prefer direct
deposits more so than receiving actual cash payments. It is a
security issue for the IRS. It is a security issue for our
employees. In our Taxpayer Assistance Centers is actually where
we receive these payments, and we created special facilities in
these, in the TACs, to receive the payments, and then we
similarly have to transport the payments themselves.
So, again, money is fungible. We have to receive it. And we
don't make a determination as to what is or is not legal. But
the tax payments do come in, and we would rather have direct
deposits if we could.
Mr. Joyce. And no one who is sending you over $10,000 in
cash to pay their bill is receiving a SARs, are they?
Mr. Rettig. You know, those are--that is on the banking
side of the house and I am just the tax guy.
Mr. Joyce. Thank you. I am out of time.
Mr. Rettig. Yeah. Thank you.
Mr. Quigley. Thank you, Mr. Joyce.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
And thank you, Commissioner Rettig, for all of the work
that you and the wonderful people at IRS have done,
particularly through this pandemic.
The Volunteer Income Tax Assistance program that is managed
by IRS has been a tremendous success over the years, and this
program helps Americans who make $57,000 or less, are disabled,
or limited English speakers to file a tax return for free. In
2020, the program had about 10,000 fewer volunteers and
prepared a million fewer tax returns due to the pandemic.
Some experts worry that changes to the program due to the
pandemic will leave millions of Americans without the help they
need to file in a time when submitting a tax return is
extremely important, especially to these low-income people.
Our most vulnerable Americans are being hurt the most by
these changes, especially those that don't have access to high-
speed internet or to a computer as many sites shift to online
appointments.
Can you speak to how the IRS will ensure that every
American has access to the VITA program during the pandemic,
including those in rural areas and those without high-speed
internet?
And I guess I will go ahead and ask my second question
quickly so that you can get to it. It has to do with the IRS
rule on farming cooperatives.
Many of the farmers in my district and across the country
are members of agriculture cooperatives where the farmers pool
their resources to enhance their economic market power.
Earlier this year, the IRS finalized the rule that limited
the qualified business deduction that is allowed by
cooperatives solely to patronage income. Cooperatives often
pass these deductions to individual farmers. So the rule
effectively raised taxes on the farmers themselves across the
country.
Is the IRS planning to review this rule that raised the
taxes on the farmers and was finalized by the Trump
administration?
Mr. Rettig. So let me start with your second one, which I
will get back to you, and I will have our staff work with your
staff on those specifics for that so that I can get more direct
and I think more appropriate responses for you. A lot of the
rules--keep in mind, at IRS we are tax administrators, and
policy occurs, like I said, next door, it occurs at the
Treasury Department.
But let me personally find out more information on that. I
know we have talked outside of hearings before, and we will get
back to you on that. And I appreciate the importance of the
issue, particularly to farmers during a year such as what we
had this year.
So the importance of that, sir, is not lost on me.
Mr. Bishop. Thank you.
Mr. Rettig. With respect to VITA--and, by the way, I extend
it to all members to reach out to me, or to your staff to reach
out to me, and where we can help and where we can provide
additional information, I would encourage you to do so and look
forward to it. It is a privilege to be in this position as
Commissioner and to interact with you and to try to get things
as positive as we can for the people that we are all serving.
As far as VITA and Tax Counselling for the Elderly and
military tax, and in addition, beyond VITA, the Low-Income
Taxpayer Clinics now have authority through at least April 15
to prepare returns.
Certainly, the pandemic was not something that I think
anybody foresaw. There are 11,000 VITA sites which are staffed
by volunteers, and it would have been a stretch to assume that
volunteers during the pandemic were going to have actual in-
person interactions with anybody. I mean, taxpayers did not
seek out in-person interactions, and it would be difficult to
encourage the VITA sites to do so, and we did not and I did
not.
We took a position that closing sites--we run the program.
We don't run the sites. But we were supportive of the VITA
sites closing their sites and keeping their volunteers safe and
keeping the taxpayers safe.
We have moved into, to the extent possible, a virtual
environment. That does not solve the issues with respect to
rural communities, and we are very sensitive to rural
communities.
You hear a lot come out of the Internal Revenue Service
with respect to digitalization of pretty much everything we are
doing, the modernization of our processes. But, I think as you
are aware, I was on the outside for 36 years representing
individuals, and the IRS will never lose its traditional lines
of communication, which are in person, telephone, and such.
Where we do not have staffing in communities, we tend to,
what we refer to as circuit ride. Out of 358 TACs, we have 14
that we do not have staff for because where people have
retired, they tend to be in rural communities, and we try to
hire and staff those communities. But when we don't have it
staffed, we have to circuit ride, bringing people in from a
different location to staff that.
So we have our eyes on the VITA and TCE and military tax
sites in terms of filing season 2021. It is not lost on us. I
can tell you that in the last 3 weeks I have participated in
training sessions, I think, for maybe six or seven different
VITA sites around the country, including I had a huge honor of
participating with 21 VITA sites outside the country, military
VITA sites, including a base that my son, who is an Army
captain, had deployed to.
So VITA not only--it does provide for individuals and
taxpayers, but it also provides a tremendous service for
military personnel, all of which are important.
But, sir, to your question, I, and we, have our sights on
the impact of the pandemic and the need for VITA sites to have
some type of in-person interaction. So we do have our sights on
that.
Mr. Bishop. Thank you, sir.
Mr. Quigley. Thank you.
Mr. Pocan is recognized.
Mr. Pocan. Thank you very much, Mr. Chairman.
Thank you, Mr. Commissioner, for being here. I also want to
send my kudos to your employees for all the hard work they have
been doing.
I want to get to three areas. I know it is tough, so I am
going to get right to the questions.
Mr. Rettig. I will try to make shorter answers.
Mr. Quigley. We will have a second round.
Mr. Pocan. All right.
The first question is, on behalf of the Appropriations
chair, Representative DeLauro, you recently predicted the
agency would be able to transition the Child Tax Credit
payments to a monthly schedule. That would be awesome, to have
permanent, fully refundable and paid out monthly. It has been a
priority for the chair. Heartened by your prediction.
Wondering what resources you would need to make the monthly
Child Tax Credit payments a success?
Mr. Rettig. We have actually--our folks have met with
staff, and we have actually provided the figures for that. If I
am not mistaken, the one for the monthly child credit, I think,
is about $397 million.
We not only need the funding to implement to actually
determine the requirements and to do the programming, but we
also need the funding to staff and to train our staff to do it.
In the first tranche of funding includes the design and
delivery of a portal, and I know a lot of people have looked to
our Non-Filers portal and saying, we will just use that.
The Non-Filers portal was created by industry, by private
industry, and it belongs to private industry. The Free File
Alliance was critical in helping us launch that portal within
10 days following EIP 1.
So there are a lot of constraints in terms of a launch, if
you will, staffing, training, and funding, but also this
agency, as much as any other--but, you know, I am biased
because I am here--consistent, timely, adequate multiyear
funding allows the agency to rise to the challenges.
And don't forget about us. Once we get something don't
forget about us in terms of the future years for funding.
Because we acknowledge the importance. It will be a challenge
to modify the amounts of these payments. We are very thankful,
from what we have seen, there are some flexibilities built into
it.
Mr. Pocan. Great. Thank you. Yes.
You just brought up the Non-Filer portal, and I know you
mentioned earlier in Mr. Cartwright's question. That is one
area where you guys have done a tremendous job, I think, in
getting the stimulus checks out, but that is one area that we
still have constituents, as Mr. Quigley said, that we hear from
those folks when they don't get their checks.
When will the IRS be reopening that portal? And do you have
a specific date?
Mr. Rettig. We don't have a specific date with respect to
the Non-Filers portal. People will be able to--what we are
focused on now, because people need to know the amount of their
EIP 1 and the amount of their EIP 2, when they provide--file
the return to get the Recovery Rebate Credit, and, you know, we
sent out letters, 1444 letters with the first EIP and 1444-B
with the second EIP, and we are actually going to get one
number on a tax return.
And because of the structure of these in terms of if there
was an overpayment on EIP 1, we are not allowed to claw that
back. But with respect to EIP 2 and the Recovery Rebate--and,
you know, I will say this was a challenge, which is incumbent,
I should add, as to why the filing--opening season filing date
was February 12.
And having it be February 12, I know a lot of people--and I
have read comments about a condensed filing season. It is not a
condensed filing season. The industry partners opened on
January 15 and others, Free File opened January 15----
Mr. Pocan. Yeah. No, I hear you. Perhaps reopening that, as
I can tell you, I know Mike in my office for one would be
enormously happy, because that is still probably the number one
problem we have with folks on stimulus.
Third area, if I can get to in a minute. We are currently
losing about $574 billion per year for unpaid taxes. As you
mentioned, you want to make sure we give you staffing resources
as you absolutely need, in addition to the Child Tax Credit.
But we also know that you are looking at people who have
the Earned Income Tax Credit are audited at about the same rate
as the top 1 percent. How do we know, if we give you additional
funds, that it will be used in a different ratio so that we are
really looking at where the vast majority of those dollars are
as opposed to the Earned Income Tax Credit earners?
Mr. Rettig. Well, let me finish actually something that
came to mind, finish the first question, which is the folks on
the Non-Filers portal, we would actually encourage the folks to
use Free File or the equivalent that are out there because
beyond--from the Non-Filers portal, we can only capture
information for the EIP, right, the real return recovery
rebate.
A lot of these folks are also entitled to the Earned Income
Tax Credit and the Child Tax Credit. And if they do the Free
File and put a return in and they are entitled to all three,
they can get all three, whereas if they just use a Non-Filers
portal, they would only get the EIP and miss out on what may be
a much more significant amount.
In terms of the EITC and the audit rates, I would encourage
people to look at our 2019 Data Book, page 34, table 17a, and
let it run, look at all of it.
The hardline data is that we only audit--and it is
correspondence audits--1.1 percent of the EITC claims, whereas
for the higher income taxpayers, taxpayers over $10 million, we
audit 8.16 percent, $5 to $10 million, 4.39 percent, and $1 to
$5 million, 2.39 percent.
Substantially, every experienced revenue agent is working a
high-income taxpayer or our most egregious cases, which would
be fraud cases.
So we are focused on that. We are required by IPERA to come
up with the--oh, gosh, the word escapes me--but the improper
payment rate associated with refundable credits. That is what
causes the Internal Revenue Service to actually look at--have
to look at 1.1 percent.
We do it in as polite a manner as you could think. We send
out letters and we ask for information. It is a very complex
situation.
We would love to work with staff on the Hill--I know this
goes back to 1975--but to try to work out a less complex
situation for EITC.
My personal reaction is those funds are getting to the
right people. The roadway is a little complex. And I think this
is the year that people really have an understanding to help
others. It is our mutual responsibility to help these folks,
and I think it is a privilege. And, collectively, we have the
ability to change it.
Mr. Quigley. And, again, we have to move on and make sure
all our----
Mr. Rettig. That was my shorter version of an answer.
Sorry. I am trying.
Mr. Quigley. Okay. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
And, Commissioner Rettig, welcome to our committee and
thank you for being here with us.
I am going to focus on not-for-profit organizations. I was
disappointed to see a 501(c)(5) in my district, the Pomona
Fairplex, abuse its tax-exempt status.
In addition to straying from its mission of horticultural
enhancement, a 2016 report by the California State auditor
revealed that the executive director was receiving over a
million in compensation and excessive gifts, far above most
other salaries for executives at similar organizations.
To be fair, he was not the only one. The top three
executives were grossly overcompensated, and the board of
executives received thousands of dollars in gifts, travel,
which included fine dining and wine.
While the organization was audited and several changes were
forced to avoid having penalties--I thank the IRS for that--the
taxpayers, once again, absorbed the losses of previous years.
This year, in the FSGG fiscal year 2021 report, I included
language directed to the IRS to improve its oversight of
nonprofits that do not comply with their tax compliance
statuses.
So my first question is, what is the IRS doing to improve
oversight of tax organizations, such as the Fairplex, that
abuse their tax compliance status?
And my second question is that on February 17, the Treasury
Inspector General for Tax Administration released an audit
entitled ``Noncompliant Activity by Exempt Organizations.'' The
audit found that the chance of a tax-exempt organization being
audited is 1 out of 742. It also found that nearly 20 percent
of tax-exempt organizations returns selected for examination
were not examined.
So my second question to you is, why are organizations that
were selected for examination not examined?
Mr. Rettig. So those are the two questions, right? So on
the first question----
Mrs. Torres. Yes. How are you improving it and--yes.
Mr. Rettig. On the first question, obviously, I cannot
speak to specifics as to any taxpayer and whatnot.
I can tell you that we have a robust system in terms of
identifying. And we get a lot of referrals from other parts of
our agency. We get referrals from the outside. As you can
imagine, also our employees read newspapers and magazines, and
we see reports. And we get assistance from TIGTA. We get
assistance from GAO. We get assistance from the Hill.
And our people appreciate the fact that we live in a
country that has nonprofits and charitable organizations that
provide a lot of social benefits that might otherwise not be
provided or certainly might not be provided by the government
and certainly not maybe to the level and quality.
So I can assure you that we look at these situations as you
would hope. If you were sitting in my chair, I think you would
be proud of what we are able to do.
To the question with respect to where we are not examining,
I would draw the attention to the staffing and resources of the
Internal Revenue Service in 2010 compared to many of the most
recent years. We have to sort of pick our battles.
Unfortunately, a lot of the decisions we make are resource
driven. We do use--my terminology--an empty police car. You see
a lot of my speeches involve where we are going. I say be
forewarned, we are coming here.
That doesn't mean we are coming with a thousand agents or
we are coming with a hundred agents, but we do have to have
presence, I believe, in every community, which is defined by
type of taxpayer, as well as income levels, as well always
geographic and whatnot.
I will say that about 20 percent of tax-exempt governmental
entities' casework comes from the rest of the Internal Revenue
Service, but that those sources, those referrals, if you will,
generate about 40 percent of the examination results that are
there. As much as we would like to do a full examination on
every taxpayer that we select for examination, we have resource
constraints.
Mrs. Torres. I understand. I understand all of that,
Commissioner. And I appreciate you coming forward and seeking
more resources, because I do understand that you are
understaffed, that you don't have the manpower to do the job
that you need to do.
But instead of targeting the core, what I am asking is,
will the IRS commit to focusing more resources toward auditing,
auditing organizations that are, you are absolutely correct,
their purpose is to provide and offset services in our
communities. But when the only people that are primarily
benefiting from these are their top executives or board of
directors, where does it stop?
Mr. Rettig. Yeah. I will say that the public wouldn't know
whether we did or didn't touch an executive from an
organization. Only if the executive actually took us to court,
that is the first time it becomes public, so whether we did or
didn't touch somebody.
And I will say, with respect to the returns that we might
select for examination but not examine, we do reviews. So we
make decisions out of the pool that we have of which would have
the highest audit potential.
But people should not believe that we are not touching--
this is not specific to the entity that you referenced. But we
are doing our best, and I do not have resources to reallocate
to this issue.
Mrs. Torres. Mr. Chairman, I will yield back and wait for
the second round.
Mr. Quigley. Very good. Thank you.
Mrs. Kirkpatrick, who is always so patient.
Mrs. Kirkpatrick. Thank you, Mr. Chairman.
And thank you, Commissioner.
I just want to follow up on the Congresswoman's line of
questioning.
We appreciate the challenges that COVID-19 has presented to
IRS, be that related to staffing and continuing operations or
implementing COVID relief measures. But I really want to know
what you are doing to ensure tax compliance among high-income
individuals.
That is a top priority of mine. This is certainly a welcome
development. But I would like to hear more about how you are
doing that and how that is working out.
Mr. Rettig. Yeah. I have probably said, in the past 2
years, I have probably said a hundred times I consider myself
not only a service person with eyes and friends on the street,
if you will, but also an enforcement guy. And a strong
enforcement program and a strong enforcement and a visible
enforcement program supports the compliant taxpayer.
The compliant taxpayers need to know that we actually have
eyes on and are creating risk for the folks who do not comply,
and particularly the higher income taxpayers.
During the past 2 years, we have created an Office of Fraud
Enforcement, which is designed to actually bring fraudulent
cases on the civil context and look and refer those cases for
criminal investigation. It has been highly impactful. It is
service-wide. That did not previously exist.
We actually this past year created an Office of Promoter
Investigations, because it tends to be the higher income folks
who get involved in abuse of transactions.
I think you can see a lot of information during the course
of the past year with respect to our efforts on abuse of
syndicated conservation easements, abuse of micro captive
arrangements, virtual currencies, both domestic and foreign
situations, and a lot of what you might consider to be
aggressive taxpayer work.
We are using artificial intelligence data and analytics to
go after folks in that regard. Our modernization program is 3
years in. In each of the first 3 years we received about half
of the funding that we requested. So we have had to pull funds.
In order to stay on target, to the extent we can, we have had
to pull funds in from other programs to get us there.
For high-income nonfilers, which is among the most abusive
scenarios, prior to the pandemic, we did what we call revenue
officer compliance sweeps, which is essentially just a revenue
officer--a team of revenue officers showing up and knocking on
somebody's door. We have information, but we also need the
resources to be able to do this. We did a variation of the in-
person ROCS during the pandemic, and we are continuing that.
I will say that during the pandemic, our People First
Initiative, we pulled back and provided a lot of relief to
taxpayers. We did not pull back enforcement efforts for higher
income taxpayers. We kept the pressure on. It had to be in a
virtual environment, as you would imagine, but we did not let
up, and we did not let up on our behind-the-scene efforts to
coordinate what we have.
So we have a high focus on high-income/high-asset
individuals. And I will say, again, every experienced revenue
agent that we have is on the higher income taxpayers and the
abusive transactions, and we could use more experienced revenue
agents.
We did have a hiring freeze from 2011 to 2018 which created
a gap. I can't hire a revenue agent and then the next year have
that person be, with 5 years of experience, trained to go out
against the high-income taxpayer community. And also it takes
our more experienced people offline to train the people that we
do hire, and it becomes very difficult.
So staffing, taking a look at us and providing support in
terms of staffing, funding for training, and overall funding,
you guys have been great. The Appropriations Committee has
been, I think, superb. I couldn't ask for more. And our people
appreciate it. And keeping us in that lane, I think, would
help.
We can be impactful, and we are working really hard to be
impactful. There have been some noteworthy criminal cases.
We investigate tax crimes. Our Criminal Investigation
Division investigates tax crimes. And we make the referral to
the Department of Justice for prosecution. But we work very
closely with the Tax Division of the Department of Justice, and
we appreciate the relationships that we have. I have regular
meetings with them on the criminal prosecutions. So we are
engaged.
That is probably more than you wanted to hear.
Mrs. Kirkpatrick. Thank you.
You know, on a very practical matter, when I was practicing
law I did business law and tax law, and the auditors would just
show up at the business.
Mr. Rettig. Well, we are hiring, if you are looking.
Mrs. Kirkpatrick. No, not right now.
But what kind of notice do you give these people that they
are going to be audited? I mean, it was very stressful for my
clients because the IRS would just show up on their doorstep
and seize all of their records with no notice whatsoever.
Mr. Quigley. We will let him answer this question, then we
will move on to the second round.
Mrs. Kirkpatrick. Okay. Thank you. Thank you, Mr. Chairman.
Mr. Quigley. Certainly.
Mr. Rettig. Yeah. I don't know about the cases that you
had, but we do not just show up, we send letters. In part
because of scams and everything else, we also don't place the
calls to initiate an audit and all of that. But we send
letters, and people are given 30 or more days. They schedule--
you know, now it is virtual--but meetings with us.
I would like to talk to you about your experience at some
point because if that was going on, it should not.
Mrs. Kirkpatrick. Yeah. That was a long time ago, but thank
you. Thank you for being sensitive to that. I appreciate it.
Thank you, Mr. Chairman.
Mr. Quigley. Thank you.
Commissioner, we are going to try to wing through perhaps a
quicker, shorter second round, so----
Mrs. Lawrence. I would like to go first.
Mr. Quigley. Oh, I am sorry. They don't have your name on
here. They didn't bring you back. I am sorry.
Mrs. Lawrence.
Mrs. Lawrence. Okay. Thank you.
Mr. Quigley. I apologize.
Mrs. Lawrence. Okay. My question--thank you for this
hearing--is that taxpayers continue to face frustrations of
reaching a live representative seeking help from the IRS to
ensure that they are complying with their tax obligation.
We know that the account management lines are only handling
14 percent of the calls, which is down from 61 percent.
What resources do you think are needed to improve the
taxpayer customer service interactions with the IRS?
Mr. Rettig. This, what we refer to as level of service, is
very important to not only the Internal Revenue Service as an
agency, but to the people of the Internal Revenue Service, the
employees, and, obviously, to Members of Congress, as well as
to taxpayers, represented and unrepresented taxpayers. The IRS
needs to be able to answer the phones and coordinate things for
people.
We have a lot of online and other processes. But at the end
of the day, I think many people are comfortable with the
ability to get somebody on the phone and have somebody say
that.
Mrs. Lawrence. Do you agree with the 14 percent number,
that that is all that you are answering right now, 14 percent
of the calls?
Mr. Rettig. No. We have different lines, so I would have--I
can get you the actual statistics. We have different lines. We
have 89 different toll-free lines. And so if you are looking at
a certain one, it is going to be something.
But let me add that the percentages of our phone calls,
every--you know, I like to ask people, not to you specifically,
ma'am, but how many calls do you think the IRS and the IRS
employees want to answer out of 10? The answer is readily 10.
It is math at the end of the day that----
Mrs. Lawrence. But at the end of the day, how can we
improve this number? Because that is the challenge. I am not
questioning your loyalty, but I am questioning your efficiency.
Mr. Rettig. I am with you, and I appreciate your question.
Every 10 percent increase in level of service is $100
million. So we target--you know, we are now targeting for 2023.
This is part of how we got into the situation of having our
phone answering drop below 5 out of 10, which is the target.
We request 75 percent, the ability to answer 7.5 out of 10
calls. We got funded for 5 out 10 for what is the current year.
But that happened 2 years ago, that funding happened, which was
pre-pandemic, which was pre-EIP 1, pre-EIP 2, and everything
associated with the pandemic.
So we got funded to have a certain number of what we refer
to as customer service representatives, which is 13,760.
We just brought on seasonals, which we refer to as CSRs,
3,800. We made a request for another thousand. But the math,
for 20,000--it would take 20,000 CSRs to give us a 75 percent
level of service, and it is dollars in.
And I am not allowed to take funds, if you will, from
enforcement or op support and replenish and hire. And it takes
us 3 months to train the average CSR to get them on line, and
they do need to be trained----
Mrs. Lawrence. So are you asking for more funding? Because
my objective is to increase that number. Fourteen percent is
unacceptable. So what do you need to get there?
Mr. Rettig. I would like to have our people have a
discussion with you, and we can show the metrics to get us
where we want to get, and we would greatly appreciate your
support. I think you are on the right line here, and I
appreciate it.
Mrs. Lawrence. So I have a minute left. I am going to ask
the question about modernization. I think that leads to what I
was just speaking about.
You collected $3.5 trillion on the budget. IRS also relied
on IT to process and disburse the Economic Impact Payments.
What critical IT investments are needed to fulfill the
agency's critical role of supporting tax support for our
communities?
And that goes back to probably my other question. Is it
funding? Because we can talk about what is happening, but how
do we make it better?
Mr. Rettig. Funding. That is my shorthand and my longhand
answer, it is funding. We do have our business modernization
plan that is in its third year, and like I said earlier, each
year we got funded for half of what we requested. It is a 6-
year plan of $2.3 billion to modernize.
We did get funding, CARES Act funding, that allowed us to
be as agile as we were, that allowed us to on-board people
during the pandemic. The pandemic moved very fast. It came out
of nowhere. It hit the private sector as well as government
agencies quite quickly. And, unfortunately, it hit us during
the filing season, which made it more difficult. And then we
inherited the EIP 1 and the EIP 2.
I would really appreciate the opportunity for me to sit
with your staff and others, and we can provide you with
specific information.
But at the end of the day, it is funding, staffing, and
training, as well as some of the modernization.
And just to quickly give you something that is in my mind,
which is we are going into this year with the concept of
chatbots, where people contact us online. One CSR can answer
one phone call at a time.
And during the pandemic, I should add, our phone call time
has gone to, like, 17 minutes from 12 minutes, because the
issues are more complex and the people who call in want to
talk, and we want our people to talk frequently. We are their
only contact with the government.
But I will say in terms of chatbot, one CSR can handle one
phone call, but they can handle four incoming on the chatbots.
So the ability to leverage the people we have is also very
important.
Mrs. Lawrence. Okay. I will definitely work with you to
improve----
Mr. Rettig. Yes, we will be in touch.
Mrs. Lawrence. Thank you. I yield back.
Mr. Rettig. Thank you.
Mr. Quigley. Thank you, Mrs. Lawrence.
And we are going to go through this lightning round where
we are now asking folks to do 3 minutes. And we appreciate,
Commissioner, you hanging on.
I know this is a lot about resources. One of the issues we
have concerns about relating to that is the--you tell me if
this number is right. We have 8.7 million unprocessed tax
returns from the 2019 filing system. Is that accurate, roughly?
Mr. Rettig. We have 6 million. They are all in process, so
they have all entered the stream to be processed. At the end of
the stream, they get what is called posted to the account.
So we have 6 million returns in process; 5 million of the 6
million, we have actually asked taxpayers for information, and
we are waiting.
And I think you are aware, during the People First
Initiative we extended the timeframe for people to respond to
us, not that we deserve a pat on the back, for obvious reasons.
It is during the pandemic. You know, mail and other things were
slow.
But 5 of the 6 million got pulled out either because of an
identity theft situation where we need the person to verify who
they are, and we have two different online abilities, plus we
have in-person abilities for people who are not comfortable
dealing with us online.
Similarly, if we got a return and it is not consistent,
which is the extent I can really go on this one with you for
reasons--I can get more specific off--individually with all of
you. But if we get a return electronically and it is not
consistent with the information for a prior year return, it
will kick out as maybe being an ID theft return. So we need
verification on this is actually the person.
And then there are some that people needed to file an
additional form with respect to some of the refundable credits.
So we sent the forms out to individuals.
So all of those are in process.
Mr. Quigley. Is this a typical--is this typical, the
numbers that we are talking about, into the next year, that
there is what you are describing, having this many returns
still being processed, or, as you describe, a significant
number waiting for additional information? Is this about
average?
Mr. Rettig. No. This is high for us. This is probably a few
million high. I can probably get you a specific--a year-to-date
specific on that. I probably have it on my desk here.
Mr. Quigley. And I get that. So, in other words, I assume
that this is something you prioritize going into the new year?
Mr. Rettig. That is right.
Mr. Quigley. And you also prioritize the 2020 returns that
contain a Recovery Rebate Credit? Is that in your system?
Mr. Rettig. Absolutely, absolutely.
Mr. Quigley. All right.
Mr. Womack.
Mr. Womack. Thank you.
Real quickly, the 2021 Approps Act gave an additional $400-
plus million over 2020. Various COVID relief packages have
given the IRS an additional $1.3 billion, majority's
reconciliation package about $2 billion more.
Before your time, Commish, not too long ago, the IRS had
some much celebrated--that is probably not the right word.
There were some issues going on. Let's just leave it at that.
With this influx of funding, convince me that this money is
going to be treated, as it should be, with the highest amount
of respect, because, I mean, we are talking about a lot of
additional funding. And I know when you throw a lot of money at
the wall, some of it has the chance to be spent on things that
are not necessarily all that important.
So help me understand how we are going to curb wasteful
spending.
Mr. Rettig. Yeah. I think you are aware I came on board
because of some of the issues that you are talking about and my
respect not only for the country but for tax administration. I
did not come on board to go get my next dream job. I left my
dream job with my best friends and moved to Washington, DC,
with my wife in order to try to make things better.
We, and I, do treat the funds--one, we are very respectful
and appreciative of the funds we do get. But we do treat these
funds and understand that we are really the trustees of funds
collected from taxpayers and others, and we are very specific
as to where funds are spent and really efforts.
There is a difference--and I was aware of this on the
outside, I am very aware on the inside--between having power
and exercising that power. We don't have a lot of discretion in
certain areas. But you should know--and I would be more than
willing to sit with you and others one on one, virtually, or
however people would want to do it, to go through the specifics
of how we spend money.
We do not throw money over the wall just to see what would
happen. We are accountable. I am accountable for it. We have a
lot of people here who are accountable for it.
And it is very important to get us from where we are to, I
think, where the American people deserve to have their agency.
We are way beyond a tax administration, tax collection agency,
and I think we demonstrated that this year. We provide a lot of
services to the American people, and we are proud to do so.
And that is not to say that we are without mistakes. That
is not to say that foot faults or others don't occur. I have
80,000-plus employees under a highly stressed situation in a
pandemic where, with others, we were pushing our people very
hard, continuing to do so. And sometimes when you swing for the
fences, things happen.
But I did not come on board with the Internal Revenue
Service to leave the agency at the end of my term in the
scenario that it was when I got on board. That is not
disrespectful to any prior commissioner. It is just, I think,
collectively and with you and with others up on the Hill.
We want tax administration to be better. It needs to be
transparent. And myself and others here are and need to be
accountable.
So whatever controls people want--I gave an explanation I
think a year or so ago, and I believe it was in front of your
committee, that I am actually supportive of funding that comes
our way, as long as it is multiyear.
But funding that comes our way--and I gave the example of
people who build a house. And you go to the bank, and the bank
doesn't give you $500,000 day one to build the house. They give
you money for the flooring, the structure, the drywall, the
roofing, the paint as you go through it.
And I think Congress would be impressed if they saw how we
dealt with our responsibilities for these funds. We would need
to know that the funds would be there at the end of the day for
our projects, otherwise we would pull up short, as you can
imagine.
But your question is well received and appreciated. I am
hopeful that we are quite respectful with respect to the funds
we do receive.
And I should add, if we don't get something right you all
should expect us to come up and tell you: We didn't get it
right. You shouldn't be reading about it somewhere. And I think
we have done a fairly good job of that, particularly during the
pandemic. And we did not do everything right.
Mr. Womack. I appreciate your responses. Please share my
thanks and appreciation to your team, and also for the service
of your son who is in our great military.
Mr. Rettig. Thank you.
Mr. Womack. Thank you so much. And I yield back.
Mr. Rettig. I appreciate that.
Mr. Quigley. Thank you.
We echo, the entire committee echoes the response,
especially the added words to the service of your son.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Commissioner Rettig, I really liked Mr. Womack's questions,
and I associate myself with them. We have to make sure that
money is being spent well, if it is being spent at all.
We really identified in this hearing two areas where it
looks like you need more money. Congresswoman Lawrence focused
in on CSRs and how many of the phone calls are being returned
and whether it is 14 percent or more.
But you came up with a very important metric that I wrote
down. You need a hundred million dollar increase for every 10
percent of increased calls returned. I think that is helpful,
and it is helpful in responding to Mr. Womack's questions.
But the other area is tax cheats, okay, and that is
something Congressman Pocan talked about, Congresswoman
Kirkpatrick talked about.
First off, the tax cheat number Mr. Pocan threw out, in
excess of $500 billion a year, is that a fair number,
Commissioner?
Mr. Rettig. Well, I think for that he is drawing off of the
tax gap. And if you take the last tax gap we did for tax years
2011 to 2013, the net tax gap was about $381 million--excuse
me--$381 billion per year of what is due but not paid and not
reported. And people have extrapolated that into the present
day.
Mr. Cartwright. Gotcha. Let me stop you there. I understand
what you are saying.
And I prefer ``tax cheats'' to ``tax gaps.'' I think a tax
gap is a euphemism. People that aren't paying their taxes are
tax cheats.
Here is what I want to know. Can you come up with a metric
about how much additional money you need per every 10 percent
of unpaid taxes that we want to haul in? Can you do that? That
will help Mr. Womack in his question as well.
Mr. Rettig. We will be with you--keep in mind, the tax gap
is not individuals. It is how this metric is determined.
But let me also add what people are missing is 2011 to 2013
was the last study that we did. We are actually working very
hard with our research inside to create a forecast to be able
to go forward, because 2013 is not reflective of 2020 and 2021.
If you just think in terms of virtual currencies that did
not exist in 2013 that are prevalent in 2020 and 2021 and that
were designed essentially to be anonymous and stay off the
radar screen, so if you think that part of the economy is
compliant, we are all mistaken, and I think the number could be
significantly greater.
And I will come to you, to all of you, with information
about where we could use funds for enforcement. And, again, at
the end of the day, it is systems, it is data, analytics,
artificial intelligence. I have had a lot of communications in
the private sector on those issues. It is also staffing and
training.
And you are going to see something come up where we talk
about the buckets. Unfortunately, sometimes we get enforcement
money, and it goes into the enforcement bucket, but I can't use
5,000 agents if I also in our op support budget can't get
phones and computers and whatnot. So sometimes we get funding
for staff, but I don't get the phones and computers.
Mr. Cartwright. Understood.
Thank you, Commissioner. That is helpful. Give us the
metrics and we will help get you the money.
Mr. Rettig. We really appreciate your comments and
questions today, from all of you.
Mr. Quigley. Thank you. And I remind everyone we are in the
3-minute round.
And I will move on to Mr. Joyce.
Mr. Joyce. Thank you, sir.
Commissioner, I want to go back to the Recovery Rebate
Credits. Many Ohioans have expressed confusion over who is
eligible for the Recovery Rebate Credit. And I understand that
eligible individuals who did not receive these credits as
advanced Economic Impact Payments may be able to claim the
Recovery Rebate Credit on their 2020 return.
I know that many folks, such as those that were claimed as
a dependent in 2019 but will not be claimed as a dependent in
2020, are hoping to claim the Recovery Rebate Credit when they
file their tax returns this year.
Now that the season is underway, can you first discuss the
process a taxpayer should go through to claim this credit on
their 2020 return? And also comment on whether certain groups
of people who did not receive an Economic Impact Payment but
may be eligible to claim the Recovery Rebate Credit.
Mr. Rettig. Keep in mind that the EIP 1 and EIP 2 were
advance payments of the Recovery Rebate Credit, so everything
trues up on the 2020 return.
If an individual was claimed as a dependent for 2019, but
is not claimed as a dependent for 2020, that individual is
entitled--the answer, yes--they are entitled to the return
recovery rebate on their 2020 return. And I would suggest that
they file that electronically and they do so as quickly as
possible.
On IRS.gov we have a special Recovery Rebate Credit page
that will walk people through the information. The 2020
return--which I am proud to say is actually in both English and
Spanish for the first time in the history of the United
States--the 2020 return has a return recovery rebate worksheet.
And there is a specific page where they would enter one single
number once they have whatever they got for EIP 1, EIP 2, and
they would put the information in there. And the phaseouts were
different for EIP 1 and EIP 2.
But we will do that calculation, and we will issue a notice
and we will issue those credits. And they are refundable
credits. People are entitled to those. And we are anxious to be
able to get those back out to people as quickly as possible.
Mr. Joyce. Great. Thank you.
Mr. Quigley. Are you through, Mr. Joyce?
Mr. Joyce. Mr. Chairman, yes. I will send back whatever
little time I have remaining.
Mr. Quigley. Well, we certainly appreciate it.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
I would like to ask the Commissioner if he would speak a
little bit about cybersecurity and identification fraud.
I think it was in December of last year that the Service
allowed individual identity protection personal identification
numbers relative to the cybersecurity and the ID fraud and
impersonations.
Can you speak to that and to how well that has been
received and if there is something that we need to do by way of
getting information out to our constituents or whether you
should do that, follow up on that?
Mr. Rettig. We should both follow up on that. It is our
privilege and responsibility to get this information out to the
community. We can certainly provide some information that you
can send out through your local offices to get out to people.
This is a very significant issue. We have been successful.
From 2015 to 2020, the ID theft numbers, the victims of ID
theft went from 1.4 million to 96,000. But it is still 96,000.
We saw a lot of frauds going on, scams and whatnot, during
the pandemic. A lot of people felt that IRS and taxpayers were
vulnerable and tried to take advantage of that. I think many of
you saw it in the--the most visible was the people applying for
PPP loans that didn't even have a business. But it happened at
individual levels and it hit individual taxpayers.
So the Taxpayer Protection Program and the expanded IP PIN,
we expanded the IP PIN nationwide where individuals can
actually get a six-digit number to use in association with
their Social Security number so that we know it is them.
The ID thieves tend to file early so that the refunds go
out to them and the other individuals might file their return a
little later, and refunds, as you know, would go out as returns
are being processed.
So we would encourage folks to use the IP PIN. We would
encourage folks to file early. I think so far this year we have
issued about 5 million IP PINs. But I would appreciate the
opportunity to get some information to you all and to others up
on the Hill to be able to disseminate.
It has been a successful program, but the fact is it is
still 96,000 people and we need to keep our eye on it. Each one
of those folks will have a difficult year or 2 years if their
ID gets stolen. So we look at the individuals who have the
issues, not the ones that we have been able to avoid having the
issues.
Mr. Bishop. Thank you, Commissioner.
I yield back.
Mr. Rettig. Thank you, sir.
Mr. Quigley. Thank you.
Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman.
Mr. Commissioner, I will ask two questions just so you have
got a little more time with it.
Mr. Rettig. I will try to be brief.
Mr. Pocan. I am sorry if I ask anything--I had to go to a
concurrent hearing.
First of all, there was a Treasury Inspector General for
Tax Administration report about the credit and debit card
companies and other third parties that verify income for
individuals and businesses, and they talked about the
enforcement on that. It looks like there were 300,000 business
taxpayers with over $335 billion in income who the IRS knew
should have filed tax returns but they failed to do so.
Just wondering, as you collect the 1099-K information in
order to ensure the accuracy of what taxpayers voluntarily
report, why aren't we using that information to narrow the tax
gap and what changes you might be looking at based on that
report?
And the second question--and I don't know if you addressed
this--is will the IRS be extending the filing deadline this
year?
Mr. Rettig. On your second question, we are looking at
extending the filing deadline. But understand that there is a
lot of confusion for taxpayers when we do extend the filing
deadline. Presently we don't see a need to extend the filing
deadline. Individuals can get an extension to October 15. And
what happened to us last year when we extended into July.
So in terms of the filing season, we have no present plans
to extend the filing season. Keep in mind, it creates a lot of
confusion for taxpayers. It also backs up the Internal Revenue
Service. As many of you know, for over a month we actually shut
down our system to import stuff from the prior year so we could
have a smooth filing season in the succeeding year.
And so we have our eyes on it. We are aware of it. We are
aware of people who are asking for it. But I will say that the
private sector, I probably know several thousand accountants on
a first name basis, and the private sector went into tax season
by the second week of January. They are well into it.
The real concern for folks is really the people who get
refundable credits, EITC, CTC, and I think we did a good job of
messaging that, although we opened on February 12, we----
Mr. Pocan. Gotcha. Mr. Commissioner, in the remaining 30
seconds, on the 1099-K reports.
Mr. Rettig. 1099-K reports, we have our eyes on it. A lot
of times the reports that you see from TIGTA are more in the
vein of a Polaroid snapshot, not of a movie. And we operate in
a movie, so if we didn't get something completed by the time
that they are there.
We can get back in touch with you, but rest assured we have
our eyes on it.
Mr. Pocan. Should I yield back my 3 seconds?
Mr. Quigley. You can keep them.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
Commissioner, I know you have covered this a little bit,
but I might have missed some of it. You mentioned that the IRS
has dealt with a 20 million backlog, but there have been
reports that refunds from last year are still unprocessed.
An issue that my office, my district office, has been
dealing with is that many of my constituents filed paper tax
returns, and when filing amendments to their taxes they have
waited over 6 months without a change to their tax status.
When pressing the IRS liaisons for more information, they
were told that the backlog was so burdensome that there were
trailers full of paper returns just languishing without any
attempt to address the problem.
Can you tell us a little bit about that and what you need
to ensure that this backlog is completed and behind us?
Mr. Rettig. There were trailers in June. There are no
trailers today. We are current on our mail backlog.
And then in terms of returns, we have 6 million returns in
process. So we have identified the returns. We have started
moving them through the system.
Of the 6 million, 5 million require additional information,
whether it is verifying the taxpayer's identity, whether it is
verifying that that return actually is consistent, which is
different than ID verification. For people with some of the
credits there were forms missing, so there was outreach to get
the forms.
What I would suggest is we separately set up a call with
your folks, get whoever you have that you are not getting
responses to. I will get on the call with our key people, and
we will go through your people, make sure that you have the
authority for us to actually talk about the people.
But we will do the calls. We have done quite a bit of
those. And we want to make sure, one, that we serve you, but
also that we serve your folks and that we get it right.
So I will be available, and we will coordinate that.
Mrs. Torres. Thank you.
And I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you, Mr. Chairman.
And thank you, Commissioner.
I just have a follow-up to my previous question. Do you
have an estimate as to how much tax revenue is lost due to lack
of enforcement, especially from high-income individuals?
Mr. Rettig. The only estimate--and I don't subscribe to
this estimate--the only estimate that is out there publicly is
the tax gap number. The tax gap number was based on 2011 to
2013, and it doesn't include certainly the whole virtual
currency world, which has a market cap of about a trillion
dollars a year. And virtual currencies are designed to sort of
be off the radar screen, if you will.
So we believe that the numbers that are out there are not
reflective to reality. The net tax gap for 2013 was $381
billion per year. If you gross that up, like people have said,
it is 521.
I didn't know if I was out of time. I heard something.
Mr. Quigley. No, you are fine.
Mrs. Kirkpatrick. Thank you, Commissioner. I just want to
thank you and all your employees. This is a tough time, and I
just appreciate all the work that you are doing. It is so
necessary, and I just want you to know my personal appreciation
for what you are doing.
Mr. Rettig. We appreciate your comments. And our people do
watch these hearings, and they critique me. I get a whole bunch
of emails--you didn't do this, you didn't do that. But your
comments and the comments of everybody on the committee, I can
absolutely verify and confirm, go well to our employees. And
our people work really hard.
Mrs. Kirkpatrick. They do.
Mr. Rettig. And it is inspiring to be with our people, I
have to tell you.
Mrs. Kirkpatrick. They do work really hard, and I thank you
for that.
One more question. In your view, would increasing funding
for tax enforcement, especially on the wealthy, increase
overall revenue for the Federal Government?
Mr. Rettig. Enforcement is a component of compliance. And
so we need to increase what we are doing on the front end in
terms of guidance and related, as well as enforcement. So the
two go together.
Most people file a return and try to get it right. I am
incredibly proud that during 2020, during the pandemic, during
the EIP 1, during the EIP 2, and the rest, is that we actually
came up and for the first time, I mentioned earlier, have a tax
return for 2020 that is going to be in English and Spanish.
We have a Schedule LEP that allows the individual to check
20 different boxes of what language they want us to interact
with them. Our translation services for folks who call in on
the phones is in 350 different languages.
That is part of it as well, because the communities that
want to get it right, we need to help them get it right, and
getting in language is very important.
A lot of people are bilingual, but they are not tax
bilingual, and so being able to communicate with them in
language, on writing, online, and whatnot, is very important to
us. And that helps the front end, which helps the voluntary
compliance rate.
And the enforcement, us being out there on the streets,
enforcement happens by audits, but we get there often by
modernization, which is our use of data, analytics, and
artificial intelligence.
So it is staffing, training, modernization, and guidance,
and it goes together. We must support the people who are trying
to get it right, and we must go after the people who really are
working against us and remain noncompliant.
Mrs. Kirkpatrick. Thank you. Thank you so much.
I represent a southern Arizona district that borders
Mexico, and so many of my constituents speak Spanish, and many
of them only Spanish. So I appreciate your efforts in that
regard, I really do.
Thank you.
Mr. Rettig. You may know, and I think other members of the
committee know, not only was I proud of my son--and I do
appreciate that. And I am sure he is going to watch and think
that he was the star of your guys' comments. But much
appreciated, not just for him but for all of the military
people who are serving domestically and around the world. They
and their families give up an awful lot.
But the second part, in terms of languages and such, I am
not only proud to be the first commissioner whose son or
daughter is Active Duty in the United States military, but I am
also the first commissioner whose wife came into this country
as a refugee. And my in-laws live in Little Saigon in southern
California and are not fluent in English.
So we have a line of sight, if you will, to the curves, and
I very much appreciate it. My nephews live in Arizona, and I
very much appreciate it. And growing up in Los Angeles I
understand Spanish fluently, and I can speak Spanish fairly
decently.
Mr. Quigley. Well, thank you, Mr. Pocan.
Thank you, Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you.
Mr. Quigley. I want to afford the ranking member an
opportunity to close if he wishes.
Anything you want to add, sir?
Mr. Womack. No. Look, I appreciate the Commissioner for his
responses today. He has been very thorough in everything that
he has been asked.
And now that we know that we have got a lot of IRS people
that are on the call, I want them to know how much we deeply
appreciate their responses as well--or their work as well--
under very adverse circumstances, as I said in my opening
remarks. And we truly appreciate it.
And thanks for the hearing. And, Mr. Chairman, I am going
to yield back my time.
Mr. Quigley. Thank you.
Mr. Rettig. Thank you.
Mr. Quigley. We are about to conclude today's hearing. I
would ask any members who have additional questions to submit
them in writing.
And, Commissioner, we ask you to respond in a timely manner
if they come in. And, again, we appreciate your generous time
today and your candidness and the great work you do and all
those who work with you at the Service.
With that, the committee stands adjourned.
Wednesday, February 24, 2021.
THE JUDICIARY'S BUDGET REQUEST FOR FISCAL YEAR 2022
WITNESSES
HON. JOHN W. LUNGSTRUM, CHAIR, JUDICIAL CONFERENCE COMMITTEE ON THE
BUDGET
HON. ROSLYNN R. MAUSKOPF, DIRECTOR, ADMINISTRATIVE OFFICE OF THE U.S.
COURTS
Mr. Quigley. We are called to order.
As this hearing is fully virtual, I want to refresh
everyone on a few housekeeping matters. It has been 22 hours
since our last hearing, so I am sure some of you might have
forgotten.
For today's meeting, the chair or staff designated by the
chair may mute participants' microphones when they are not
under recognition for the purposes of eliminating inadvertent
background noise.
Members are responsible for muting and unmuting yourselves.
If I notice that you have not unmuted yourself, I will ask you
if you would like the staff to unmute you. If you indicate
approval by nodding, staff will unmute you.
I remind all members and witnesses that the 5-minute clock
still applies. You will notice the clock on your screen. It
will show how much time is remaining. When your time is
expired, the clock will turn red, and I will recognize the next
member.
Finally, House rules require me to remind you that you have
set up an email address to which members can send anything they
wish to submit in writing at any of the hearings and markups.
That email address has been provided in advance to your staff.
I will keep my opening statement brief so we can get right
to questions.
This morning, we welcome the Honorable Roslynn Mauskopf,
the newly appointed director of the Administrative Office of
the U.S. Courts--welcome--and the Honorable John W. Lungstrum--
chairman of the Judicial Conference Committee on Budget, to
testify on the Judiciary's fiscal year 2022 budget.
I would like to start this hearing by talking about
transparency. At a time when faith in our institutions is at an
all-time low, government transparency is critically important.
From my years in the courtroom, I believe that the greater
public access to Federal courts increases accountability in the
judicial system and, in turn, strengthens transparency and
helps restore faith in our democracy.
I am pleased that the Judicial Conference has expanded
their policies to live stream audio in circuit courts and
selected proceedings in civil cases. And, in March 2020, the
CARES Act authorized the Judiciary to live stream video for
specific criminal proceedings.
These are all steps in the right direction. However, I am
concerned that these measures are seen as a temporary fix to
continue judicial operations during the pandemic. I wish to
encourage the Judicial Conference to explore the benefits of
permanently expanding its live-streaming policies, creating
more ways for the American people to view and understand our
democracy in action, and it is absolutely critical to our
success.
Turning to the reason for this hearing, the budget, we
appreciate the submission of your fiscal year 2022 request,
totalling 8.1 billion. I have long been an advocate for
ensuring the Judiciary is properly funded. Sufficient funds for
our judicial system should not be a partisan issue.
I look forward to discussing how the requested funding
supports the Judiciary's priorities. I am interested in
learning more about the defender program in light of last
year's Supreme Court decision that has referred a substantial
number of State cases to Federal prosecutors, thereby flooding
the Federal Defender system.
And I would like to learn more about the progress made on
improving workplace misconduct procedures at the Judiciary and
on standing up a robust new Office of Judicial Integrity. I
know this budget was prepared close to 2 years ago when the
thought of teleworking was a novel idea and not a necessity, so
I hope we can use this time today to discuss evolving IT needs.
We also need to talk about physical security needs and any
necessary supplemental funds. Just as it did for the
legislative branch, the insurrection on the Capitol on January
6th raised some serious concerns about the safety and security
of our hardworking judges and staff and physical security
needs, in and outside the courtroom, as we saw with the tragic
shooting at the Federal judge's home in New Jersey.
Once again, I thank you for joining us this morning, and
look forward to your testimony.
I now turn to our ranking member, Mr. Womack, for his
opening remarks.
Mr. Womack. Thank you, Chairman Quigley.
Judge Lungstrum and Judge Mauskopf, thank you for appearing
before our subcommittee today.
The rule of law is the bedrock of American society. Our
Founders wisely designed our judicial branch to protect our
constitutional rights, and both faithfully and impartially
uphold justice for all.
An independent Judiciary that holds the trust and respect
of our citizens that can resolve criminal, civil, and
bankruptcy disputes in a fair and expeditious manner is
fundamental to our Nation. In addition, each year, the
Judiciary's Probation and Pretrial Service officers perform a
critical public safety mission by supervising over 200,000
offenders and defendants living in our communities.
I know that the COVID pandemic has had significant impact
on court operations. In the midst of great uncertainty, judges
and court staff have worked diligently to continue the work of
the American people.
Regarding the Judiciary's budget request, I will work with
Chairman Quigley to ensure you have the resources needed to
accomplish your important mission. However, let me say that,
with a national debt approaching $28 trillion and certain to
grow exponentially in the future, I believe this committee must
take a careful look at all Federal spending and responsibly
reduce expenditures where we can. And, where we can't, we have
got to make sure that we are completely accountable.
We have a moral obligation to future generations to get our
fiscal house in order. That will certainly mean making some
tough choices and discerning carefully between the wants and
the needs of the Federal bureaucracy. I appreciate the
important work the Judiciary performs, and I look forward to
your testimony.
And, Chairman Quigley, I will yield back the balance of my
time.
Mr. Quigley. Thank you, Mr. Womack.
And we now turn to our witnesses. Without objection, your
full written testimonies will be entered into the record. With
that in mind, we would ask you to please summarize your opening
statement in approximately 5 minutes.
We will start with Judge Mauskopf's statement.
Judge Mauskopf. Thank you very much, Chairman Quigley.
And, to you, Chairman Quigley and Ranking Member Womack and
to the members of the subcommittee, I am pleased to appear
before you today for the very first time as director of the
Administrative Office of United States Courts, a position I
assumed only 3 weeks ago.
I have been a district judge in the Eastern District of New
York for over 13 years, serving as chief judge for the last
year. I have been in public service for over 38 years and look
forward to continuing that service in my new role as director.
I am here today to present the Administrative Office's
fiscal year 2022 budget request, which totals $100.3 million,
and it is discussed in detail in my full written statement.
These funds will enable us to continue our work
facilitating national programs and policy processes, and
supporting courts, probation and pretrial offices, and Federal
Defender organizations around the country.
Some of our recent accomplishments include supporting the
branch's response to the COVID-19 pandemic, improving policies
and procedures relating to workplace conduct, and furthering
efforts on diversity and inclusion in our branch.
I also serve as the secretary to the Judicial Conference,
and, in that role, I offer my support for the budget request of
the entire branch and ask for the subcommittee's assistance on
a few Judicial Conference priorities beyond the Judiciary's
budget.
The first of these requests is the continued extension of
eight temporary district judgeships whose authorizations would
otherwise expire in 2022. In the absence of a comprehensive
Article III judgeship bill and to avoid significant disruptions
and workload burdens that would follow from the loss of these
temporary judgeships, this subcommittee has worked with us to
extend them in your bill each year, and we are grateful for
your past support for these extensions and continue to ask for
that support in fiscal year 2022.
The second Judicial Conference request is the provision of
the necessary resources to the General Services Administration
so that they can execute the Judiciary space priorities
adequately. In fiscal year 2022, those priorities include
funding for a capitol security project in Augusta, Georgia, and
the construction of a courthouse annex pursuant to a judicial
space emergency in San Juan, Puerto Rico.
We also seek the continued funding of two new courthouses
and sufficient repair and alteration funding to begin
addressing GSA's backlog of deferred maintenance projects at
Judiciary occupied facilities.
The final Judicial Conference request relates to judicial
security. And, as Chairman Quigley noted, 7 months ago, an
aggrieved litigant murdered the son of U.S. District Court
Judge Esther Salas and critically wounded her husband. This
incident came amidst a trend of rising threats against judges,
as well as sustained civil unrest and several violent incidents
occurring at or near Federal courthouses.
Focused on the need for urgent security upgrades, the
Judicial Conference approved and transmitted to Congress last
summer a number of proposed improvements and included both
authorizing legislation and a request for additional funds for
the Marshals Service and the Federal Protective Service to
better protect judges both in and outside of the courthouse. We
have made progress on several of these items and hope to build
on it this year.
And, while these improvements are largely outside your
jurisdiction, we would still value your support as we pursue
them with the relevant subcommittees.
And, finally, we have also identified additional resource
needs in the Judiciary's court security appropriation following
lessons learned from the January 6th assault. These
requirements came too late to be included in our fiscal year
2022 request, but we hope to work with you going forward to
find a way to address them.
Let me again thank you, Chairman Quigley and Ranking Member
Womack and all of the members of the subcommittee for your
ongoing support of the Administrative Office and the entire
judicial branch. And, as you make the difficult choices to
apportion the resources at your disposal, I would ask that you
keep in mind the unique constitutional role of the Judiciary
and the importance of its effective functioning to our
democracy.
Thank you very much for the invitation to testify, and I
would be happy to answer questions.
Mr. Quigley. Thank you, Judge. Three weeks. We welcome you.
We want a full report on those 3 weeks.
Judge Mauskopf. It has been an honor. It has been a real
honor.
Mr. Quigley. In the meantime we are glad you are here.
And we now--we would like to hear from Judge Lungstrum.
Judge Lungstrum. Thank you.
Chairman Quigley, Ranking Member Womack, and members of the
subcommittee, I am pleased to appear again before the
subcommittee, this year to present the fiscal year 2022 budget
request of the Federal Judiciary.
I am a senior judge in the district of Kansas, but I am
appearing today as chair of the Judicial Conference Committee
on the Budget. I will briefly summarize my prepared testimony
about our discretionary appropriations requirements and our
long-standing cost containment program.
I would like to begin by thanking the subcommittee for its
strong and consistent support of the judicial branch. We are
particularly grateful for the funding we received in the fiscal
year 2021 omnibus appropriations bill. We know that you had
many difficult decisions to make in constructing that bill, and
we appreciate how we came out in all of that.
Like other institutions throughout the world, the
operations of the Federal Judiciary continue to be
significantly disrupted by the COVID-19 pandemic. Most
Judiciary personnel are teleworking, many grand jury
proceedings and jury trials have been postponed, civil
litigation has slowed, courts and Federal Defenders are using
video and teleconferencing technology for criminal and civil
proceedings, and probation and pretrial officers are using
innovative approaches to supervise offenders released from
prison and defendants awaiting trial.
The judicial branch has more than 33,000 dedicated
professionals, like public- and private-sector workers
everywhere really, continue to perform their duties admirably
during this period of great uncertainty.
Although the impact on the nature of our workload has been
significant--for example, filing of new criminal cases were
down 11 percent, filings of bankruptcy cases were down 12
percent, and appointed counsel representations in our defender
services programs were down 19 percent, commensurate with that
decline in the filing of new cases----
Not only do we anticipate the workload in these areas will
rebound in 2021 as we continue to adapt our processes to keep
dockets moving and as vaccinations become more spread--more
widespread, allowing a gradual return to normalcy, but also
certain pandemic aspects have created additional work that fill
in some of those holes.
In addition to the challenges of estimating workload during
an ongoing pandemic, there is also a new administration. His
prosecutorial policies and other criminal justice and
immigration policies, which will directly impact the
Judiciary's workload, have not yet been fully implemented.
Despite these uncertainties, we have endeavored to submit a
budget request based on the best information available to us at
this time. As new information becomes available, we will advise
the subcommittee in a budget re-estimate of any changes to our
fiscal year 2022 appropriations requirements.
The Judiciary's fiscal year 2022 request of $8.1 billion in
discretionary appropriations represents an overall 5.2 percent
increase above fiscal year 2021. Nearly 85 percent of the
requested increase is required just to maintain current
services; in other words, the inflationary and must-pay
adjustments to our budget needed to maintain current staffing
and service levels in the courts and Federal Defender offices.
One example, of course, is a 4 percent rent increase from
the General Services Administration, which amounts to
approximately $38 million, over half of which is to pay for
enhanced cleaning of courthouses as a result of the pandemic.
This is a cost we must pay.
The remaining 15 percent of our requested increase is for
targeted enhancements. We are seeking $29 million for
additional staff in district courts, probation offices, and
Federal Defender offices to address projected workload
increases.
We request $13 million for courthouse security improvements
and additional security officers. Three million dollars will
fund six additional magistrate judges and related costs, $9
million is to ensure courts have the latest IT firewall
technology, $2 million is to restore funds for in-person
training programs for judges and court personnel, and $5
million is for other initiatives, including further
strengthening our risk management and contracting and
procurement programs.
Finally, I want to emphasize the high priority we placed on
cost containment. As detailed in my written statement, we have
achieved significant savings by reducing space, requiring each
judicial circuit to offset new space needs with reductions
elsewhere. And, through our partnership with GSA to address
cost and service issues, we continue to expand the sharing of
administrative services to resist duplication.
And we are also achieving significant savings by promoting
electronic noticing to litigants in bankruptcy cases instead of
mailed notices. And we are looking at lessons learned from the
pandemic for economies and process improvements that may be
viable for the longer term. For example, a greater reliance on
video conference for meetings and conferences and perhaps to
reduce travel time for defenders and appointed counsel.
Again, thank you for the opportunity to appear today and
for your continued support of the Judiciary. I ask that you
make a part of the record my statement and the statements
provided by other Judiciary entities on whose behalf we submit
requests.
And I would, of course, be pleased to answer any questions
the subcommittee may have.
Mr. Quigley. Without objection. Thank you, Your Honor.
Judge Lungstrum, can you tell me a little bit more about
your thoughts on the Judiciary's progress for bringing video
and live-stream audio into the courts and their help in
creating additional transparency? We have seen some progress,
but obviously a lot of that seems to be that which was
necessitated by the pandemic.
Judge Lungstrum. Yeah. I think Judge Mauskopf can speak to
that in an overarching way better than I can actually, so if
you don't mind Mr. Chairman I----
Mr. Quigley. However you want to split it up is fine with
me.
Judge Lungstrum. I have got to lateral this one over to
her.
Judge Mauskopf. I am happy to address that. Thank you,
Judge Lungstrum, and thank you for that question.
The transparency and openness is one of the hallmarks of
our democracy and of our Federal courts. And, during the
pandemic, our courts have made remarkable efforts to continue
public access and transparency by using technology.
We have been conducting--all of the Courts of Appeals have
been live-streaming their arguments. District courts have been
live--have been providing audio access to civil proceedings
and, through the CARES Act, both audio and video of certain
criminal proceedings.
So we have learned a lot, I think, both good and not so
good. We need to take that information, but we need to really
explore how we can continue to use technology to bring public
access and transparency.
There are lots of things that I think we need to address
based on our experience. There are technological challenges.
One of the things we have--courts have very quickly stood up
access, and not everyone is using the same types of
technologies, and not all technologies work as well.
There are resource constraints and budgetary impacts that
need to be considered, I think not just on our end, but there--
we have encountered executive branch issues in that realm.
We also have to recognize that, during the pandemic, we
have been operating with a bit of a reduced caseload, and we
have been conducting limited proceedings.
So how our experience during the pandemic will translate
into the future use of technology, I think, is something that
we will explore and see where it takes us. And we do need to
ensure that, whatever we do, whatever practices we employ, they
don't interfere with the proceedings, they don't undermine the
integrity of those proceedings, and always ensure the fairness
of those proceedings.
Mr. Quigley. No. And I understand that. I guess the next
question would be: Is there anything that has happened during
the pandemic, during the streaming that we have seen, that
would make you say, "Well, we can't do this when the pandemic
is over"? I mean, are they going to continue at least where we
are at this level?
Judge Mauskopf. So I think, at the trial level--and this
really comes from my experience as a chief judge. I took over,
again, a few weeks before the pandemic hit. So my timing is
never good on these things. But there are real challenges.
Proceedings take a lot longer. Judges--because of the
limitations at the Bureau of Prisons, while we may be saving--
--
Mr. Quigley. It may take longer anyway because of the
pandemic, not just--not because of the streaming?
Judge Mauskopf. Well, I think they take longer because of
the technological challenges. People don't always tune in right
away. The Bureau of Prisons has challenges producing defendants
to the room, sometimes the single room where the video is
located. The Bureau of Prisons has severely limited in many
districts the type of technology that can be used, so that
there are ways that we may be able to employ technology to save
time, to save resources. But we really need to think about what
has worked and what hasn't worked during the course of the
pandemic.
Mr. Quigley. You know, I--look, I say this with the
greatest respect. Everybody on this side of this hearing is--
during most committees and certainly when we are on the floor,
everything we say and do is shut out, and the beauty of our
democracy, works as all, is that transparency. So I just stress
that it doesn't always look good. The trains don't always run
on time, but it is still important.
So we would like as much information from all of you as we
can so that we know what you need--what resources you need to
move this forward rather than hear respectfully that it can't
be done. But I appreciate your answers.
And we now turn to the ranking member, Mr. Womack.
Mr. Womack. Thanks, Mr. Chairman.
I am going to lead with a question on Probation and
Pretrial Services, and I am going to throw this open to either
of the two witnesses that we have today.
Specifically interested in how this pandemic has affected
our probation and pretrial service programs, and here are the
two or three pieces of this question: How has the pandemic
impacted their ability to help offenders, because we have a
couple of hundred thousand of these that we supervise? How is
the pandemic affecting basic things, like housing, job
training, employment opportunities? How has the pandemic
impacted the ability of offenders to receive necessary drug and
mental health treatment, which is huge?
I have a question about recidivism rates. How have they
been impacted during the pandemic, and how has the cost of
providing effective supervision changed during the pandemic?
So there you have a menu of several questions under this
umbrella of pandemic impact on our system of Probation and
Pretrial Services, and I am going to just allow both of you if
you care to, or either of you to comment on those questions.
Judge Lungstrum. Well, I will lead off, Ranking Member
Womack, and the director can jump in whenever she feels
appropriate, of course.
But the pandemic has had a definite impact on the way
Probation and Pretrial Services have to manage their work load.
Much of what, prior to the pandemic, was an in-person function,
going out to people's homes, or bringing people into the
courthouse or wherever the probation office may be located to
meet with officers. Individual drug treatment, individual
mental health treatment, things like that that might be taking
place in group settings, all involve interaction with people.
And, because of the--what has resulted from the pandemic,
that has all had to be changed, and it has created quite a
difference.
Probation offices now are trying to minimize in-person
contacts by using such things as individual drug treatment or
individual mental health treatment instead of group. Of course
that is more expensive to do it that way.
They have had to do more, like, interaction by FaceTime or
Zoom or some other virtual process to deal with offenders,
which has its own challenges to it, including utilizing the
defenders themselves sometimes to install monitoring equipment
and that kind of thing to eliminate the interpersonal contact.
So it has had a big impact, and it has had a cost element
to it, especially--the best illustration of that is changing
from group to individual drug testing.
As you point out, most of the folks that come out of the
penitentiary have been there with underlying drug or mental
health issues, in my experience, and I have been doing this for
almost 30 years. And so, therefore, in the post-release
supervision world, addressing those issues is the most
important thing perhaps for getting people on the right path to
not re-offend.
Another component of that also is often we find that folks
really have not developed the same, shall we say, world view,
moral compass, whatever, and so such things as moral
recognition therapy, where people are taught one on one often,
or in group settings about just the right way to behave and who
not to hang out with and all of that sort of good stuff. Again,
the way in which that is conducted has to be different.
I think it is too early to say what the impact on
recidivism may be. I certainly have not seen individually
myself any increase in revocations of supervised release that I
think are in any way related to the change in doing business
during the pandemic. But it is really too soon probably to know
whether there is going to be any long-term increase.
We are very proud of our work, and ability to have brought
recidivism down. We have a better record than the State courts
generally, a decrease of somewhere between 4 to 7 percent from
what would otherwise be expected of folks.
And we are dealing with a higher-risk population these days
that are coming out. One of the things that has been done, both
because of the pandemic and for cost containment, has been to
terminate supervised release for low-risk offenders early. That
of course means the mix of the population is higher risk.
And, as more people have come out in the higher-risk
category as a result of such things as the Fair Sentencing Act,
the First Step Act, and so forth, that has increased the
criminal history categories and the complications for
supervision of the population.
So there is a bit of a wait and see here to that process.
Mr. Womack. Totally understand. I know I am out of time,
but this recidivism issue, I think, is something that we need
to really pay attention to in the ensuing months and years once
we are--we have got the pandemic in our rearview mirror.
I will yield back.
Mr. Quigley. Thank you, sir.
Mr. Cartwright is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
And I want to welcome Director Mauskopf and mention what a
wonderful thing to have the first woman head of the AO and to
have you testifying before us within your first 3 weeks. They
are already putting you through your paces, I can see.
Congratulations on that.
I notice that you come from the storied Eastern District of
New York, and a lot of great judges came out of there.
Congratulations for that.
One of my favorites was Jack Weinstein, who wrote
Weinstein's Evidence, a treatise that I relied on for 25 years
of Federal court practice and trials. And I think that may be
what is--what connects the two of you, Judge Mauskopf and Judge
Lungstrum. Judge Weinstein retired, and he lives in Kansas. Is
that right, Judge Lungstrum?
Judge Lungstrum. Well, he is from Wichita, Kansas
originally, but I didn't know that he had come home, honestly,
but he is a Kansan by birth, of which we are very proud, of
course.
Mr. Cartwright. Of course. All right. Well, I want to jump
into the issue of security.
As you both know, we got a rude awakening here in
Washington about the importance of security for public
officials on January 6, and I dare say you saw that on
television. It is something that doesn't stop with legislators,
though. It includes the Judiciary.
And here is what I want to ask. And, Director Mauskopf, I
am going to invite you to answer these questions in whatever
order you want to take them.
Without disclosing any specific security measures you have
already taken, what would you say your biggest concerns are
regarding the personal safety of the judges, as well as of
court staff?
What are your biggest concerns regarding the safety of
court buildings and offices? Are there any immediate steps we
can take better to protect the courts? And how do you envision
the Judiciary changing better physically to protect those in
the court system?
Judge Mauskopf. So thank you very much, Representative
Cartwright, for that question.
Security is one of our biggest priorities, as it is for so
many of us. I think the key--a key issue for judges is the fact
that their personally identifiable information is readily
available on the internet. And we saw what can happen in the
tragic events with respect to Judge Salas and her family when
that information can be accessed and, indeed, weaponized by a
disgruntled litigant or someone that has some reason to target
a judge or even a member of our court staff.
And the legislation that was proposed last summer, which
had very broad bipartisan support, focused on efforts to try
and remove personally identifiable information--PII, as it is
known--in order to prevent or help prevent these types of
attacks. Of course you will never be able to prevent entirely
these types of incidents, but removing PII is a key aspect of
prevention.
There are other--there are resources necessary also within
the Marshals Service. Some have already been given to the
Marshals Service to enhance their ability to assess threats and
react to threats. But one of the things that would be critical
is to stand up a resource within the Judiciary itself to help
identify that information that is out there on the internet, to
educate judges better. And one of the things that we have
proposed and that we seek is a resource to proactively monitor
for online threats made against the Judiciary.
There has been additional funding provided for home-
intrusion detection systems at judges' homes. There are things
that we need to do to harden the perimeters of buildings. And,
actually, protection of buildings is actually protection of
judges, court staff, and everyone who uses our courts.
And so we are hopeful that we can seek upgrades through the
Federal Protective Service to the camera systems outside. We
have identified since January 6th some additional resources
that would be helpful to hardening the perimeter. Many of our
courthouses have glass fronts and screening areas that are set
back from the entrance to courthouses, mine included, and we
have always been concerned about malicious actors or large
groups breaching the front of the entrances to our courthouses.
Of course additional marshals, funding for additional
marshals in the marshals budget can also go a long way to
helping with all of the issues that we are concerned about and
that--we share those concerns.
Mr. Cartwright. Well, good. We can talk further offline
about things you don't want to be public.
And, with that, I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Womack, Mr. Amodei is next, but I understand he isn't
currently with us, so if it is all right, I suspect you would
like us to move on to Mr. Stewart?
Mr. Womack. I see Amodei--oh, he is on--he must be on
another hearing, so that is what the problem is. Okay. Yeah, we
can move on.
Mr. Quigley. I just want to make sure I don't skip him if
that is not the case.
Mr. Womack. Well, I am looking at him, sadly, but I think
he is on another hearing, so----
Mr. Quigley. Okay. Then we will move on to Mr. Stewart.
Mr. Stewart. All right. Well thank you all.
And you know what? As a sidebar, I will note something that
I saw yesterday on this hearing. As Mr. Womack so graciously
tried to yield to me, I was actually traveling in my car at the
time, and it turned out Webex mutes you and turns off your
video if you are moving. So, if any of you have that
experience, don't try to log in while you are driving. It won't
work. You can listen, but you can't participate. So I am glad I
am just sitting in my office today.
To all of our witnesses, thank you. Much has been said so
far about security. I don't want to ask a question regarding
that, because I think you have answered that, and we have
emphasized that.
I would like to say, though, I do have some personal
experience with this. One of my brothers is a U.S. Federal
judge. It has been something that he has been concerned about,
you know, as all of you have been for quite some time.
I could review the list of those who have been assaulted
or, in some cases, killed who are associated with our Judiciary
over the last year. And much has been said about security here
at the Capitol.
I would just like to emphasize that security of our
Judiciary is equally important, and it is just not getting the
same degree of attention, and I think it should. And part of
that is making sure that you have resources to provide that
security that our U.S. marshals and others are able to do that.
We want to work with you to make sure that that takes
place. Once again, an assault on our Judiciary is as important
as an assault on our legislative members, and I think we have
to treat it that way.
My question regards how we have responded during the
pandemic. Again, using my brother and other Federal judges that
I am associated with, many of them have not been to the
courthouses for a long time. They are holding their hearings,
as we are today, through the electronic means. And I am just
curious what kind of feedback you are getting from that. If I
were a defense attorney or perhaps a prosecutor, I would wonder
whether it has the same effect and whether it can be as
effective holding a hearing like that when you are not in
person.
And I am wondering what you are hearing from our judges.
Are they concerned about it? And how quickly are we going to be
able to get back to where they are holding their hearings in
courtrooms rather than via the web, like we are today?
Judge Lungstrum. I could lead off with that if you like
since, like your brother, I am in the Tenth Circuit area. You
know, I think all of us would prefer to go back to life as it
used to be in terms of in-person hearings. I think that--that
is clearly preferable to most all judges I have talked to.
What we have found is that, for certain kinds of
proceedings, whether they be first appearances, or whether they
be status conferences, or even revocations of supervised
release, or something else where there has been some agreement
entered into between the government and the defense counsel as
to what the disposition ought to be, the efficiencies of it
have been appreciated, and, really, the feedback from defense
counsel has been, maybe perhaps surprisingly, they find it very
positive.
So I think we haven't lost anything really in translation,
but we haven't been doing jury trials or perhaps suppression
hearings or things like that, that we are going to need to get
back to doing.
One thing about the--that I think a lot of us have
commented on, much like this proceeding today where you and I
are literally looking at each other eye to eye in a way that,
in a congressional hearing room, there is a great gulf of
distance between the dais where you all are sitting and the
tables where the witnesses are sitting, similarly, in a
proceeding that we might have virtually in a courtroom, the
difference between looking at that individual eye to eye just
like this, in some respects, I feel closer to that individual
who is in front of me than I do perhaps seated across the
courtroom by 20 yards or however far it is.
So I don't know if I am expressing myself very well about
that, but I think there are some aspects of it that are not all
that bad, if you will. And I think that perhaps has factored
into why the defense bar has not been negative about it.
Mr. Stewart. Yeah. Mr. Lungstrum, I appreciate that, and
you are right. I mean, you can be, I think, fairly effective in
this format. Some, it depends on how they are managed, and Mr.
Quigley, for example, does a good job.
But--and I know my time has expired, but I need to make
this point, because it is something that I think is very
important. That is, we have had no jury trials.
Judge Lungstrum. Right. Right.
Mr. Stewart. And that means--I mean, that means significant
legal proceedings have been delayed.
Judge Lungstrum. Sure. Absolutely.
Mr. Stewart. How long can you keep doing that? I mean, that
is a big deal when you say we haven't held a jury trial in our
Federal courts for probably a year now. And, once again, that
is an enormously important consideration that, we need to be
going forward with these cases and we have got to recognize
that.
Judge Lungstrum. In the district of Kansas, we anticipate
being able to conduct jury trials in April. Now, the caveat to
that is that we have to have proper screening. We have to have
proper social distancing. We have to have certain plexiglas
installations, things that protect the participants.
I conducted a civil jury trial in September. We conducted
two or three civil jury trials in September here in the
district of Kansas when there was that little dip in the way
the pandemic was going. But criminal jury trials, because there
is so many more witnesses involved, so many more jurors
involved and all, have been where the real holdup has been.
And there is a pent-up demand that, as soon as that safety,
you know, green flag goes up, I think there are going to be a
ton of jury trials, sooner rather than later.
Mr. Stewart. Yeah. Well, again, my time has expired, but I
hope you all understand the importance of this. And thank you,
sir.
Judge Lungstrum. Sure. Yes, sir.
Mr. Quigley. Thank you, Mr. Stewart.
And we move on to Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman, and let me
thank Judge Mauskopf and Judge Lungstrum for appearing before
us today.
I want to talk about two topics, diversity fellowships and
fellow employee issues, because even after taking into account
recent improvements, the legal profession, on the other hand,
is one of the least diverse of all of the professions in the
country.
For example, African American representation among lawyers
is only around 5 percent despite the count of the 13 percent of
the general population.
And I want to commend the Judiciary for recently
establishing the Federal Defender Diversity Fellowship Program,
which will supplement the pipeline of attorneys from all
backgrounds who are qualified to join a Federal Defender
organization or district Criminal Justice Act panel, or Federal
capital defense team.
Judge Mauskopf, can you provide us with an update on the
rollout of this new fellowship and provide us with some insight
on how much, if any, of the participants' costs will be offset
with the program project? Will the funding for the fellowship
be used to help cover the high costs of living and
transportation that often burden people from low-income and
rural backgrounds?
And the second question, quickly, according to the Office
of Personnel Management, the Federal workforce is 2.1 million
civil workers, and of course I believe it is incumbent upon
Congress to ensure that the workforce has a safe and respectful
workspace.
Recently, at the direction of the Chief Justice, you
established a working group to evaluate the Judiciary's
attendance of conduct and procedures for investigating and
correcting inappropriate workplace conduct.
Can you tell us what progress has the working group made in
this regard to improve the workplace environment within the
Judiciary, and where do you see room for future improvement?
Judge Mauskopf. Thank you, Congressman Bishop. Those are
two very, very important areas, two very high priorities in the
Judiciary, and I am happy to address them both.
Let me start with diversity. One of the privileges that I
have had is to serve on the Judicial Conference's Judicial
Resources Committee. And, as part of the committee, we have a
Diversity Subcommittee, and the Diversity Subcommittee has been
on the forefront of diversity and inclusion initiatives within
the Judiciary.
Through that, I have also participated in the Judiciary--in
the formulation of the Judiciary's strategic plan. And it was
clear that, across components of the Federal Judiciary,
everyone was focused on improving diversity, whether it was the
probation and pretrial offices, Federal Defender offices, in
the bankruptcy community, bankruptcy judges, and magistrate
judges.
And one of the things we will be doing shortly is convening
a roundtable, or a summit, bringing together all of those
pieces from across the Judiciary to share best practices and to
see what we can do moving forward to improve the diversity of
the Federal workforce and among magistrate judges and
bankruptcy judges, which is the aspect of the bench in which
the Judiciary is directly involved.
As you indicate, one of the new initiatives is the Defender
Services Diversity Fellowship Program, and it is designed to
bring lawyers--younger lawyers in their career to help work on
capital and noncapital cases within the Federal Defender
system.
One of the hallmarks of the program is that it will not be
centralized here in Washington. Fellows will reside in Federal
Defender offices across the country, will be hosted there, will
be mentored by Federal Defenders, CJA lawyers, Capital Resource
Council, and others involved in the provision of defense
services, which will hopefully address your concerns about the
high cost of living in particular areas. We hope to have these
fellows in areas where the need is greatest.
And of course the program is open to all, but the--it is
designed to have targeted outreach to communities that are not
well represented across the Federal Defender system and the CJA
system, and we hope that, through the fellowship, lawyers will
then be committed to taking what they have learned back to
their communities, serve the populations that we serve, and
reflect the communities that we serve.
With respect to workplace conduct, so, too, my service on
the Judicial Resources Committee has involved me in many of the
initiatives that are ongoing in the Judiciary, and I must say
that the Judiciary, from my perspective, has made tremendous
progress in standing up a new and much-improved system across
the Judiciary to address issues of workplace conduct.
There have been updates to the employee dispute resolution
policies, and I am happy to report that all circuits and 80
percent of the district courts, across the country, have
adopted the new model EDR plan that has been proposed since the
working group recommended changes.
There have been changes to the judicial conduct and
disability process that will greatly improve that aspect of
addressing workplace issues. We have created the Office of
Judicial Integrity, and we have sought additional resources to
provide additional staffing to that office. It is one of the
ways--one of the new, more flexible mechanisms to report
workplace conduct.
So, too, 11 circuits have created the position of director
of workplace relations. They have become central points in
addressing issues within circuits of workplace conduct. They
too are a new and independent avenue of reporting. They are
instrumental in assessing additional needs within circuits and
providing training and explaining resources and doing outreach
to the court community in order to ensure that judges and
employees know about our processes, that know where they can
seek resources, know how they can report.
Of course----
Mr. Quigley. Judge, I am sorry. I have tried to give
everybody leeway, but I have got to make sure everybody gets
their first opportunity. And then, you know, we will have a
second, quicker round for the opportunities, so I apologize. If
we could move on, please. I am sorry.
Mr. Bishop. Thank you.
Mr. Quigley. And I understand Mr. Amodei is still not
available. If that is the case, we will move on to Mr. Joyce.
Mr. Joyce. Thank you, Chairman Quigley.
Your Honor, I would like to--sort of a variance on the
theme that has already been brought up by my colleagues, Mr.
Cartwright and Mr. Stewart.
As a former prosecutor, on January 6th, unfortunately some
madness descended upon our Capitol and tried to obstruct the
constitutional process in which we took place. And you can
imagine, as a prosecutor, I look at that as a crime scene and
say, ``Well, wait a minute. We have got to cordon off the crime
scene,'' because, as I try to explain it to folks at home, it
is like dropping change on the ground. If you pick it up and
drop it again, it never drops the same way. You have only one
shot to do it right.
However, I understood and agreed with the idea that we had
to move forward and show the country that we have moving
forward and that madness wasn't going to stop us from our
constitutional duties.
Unfortunately, the same degree of madness is now trying to
influence the Judiciary and the things that are taking place. I
was wondering what if--in the integrity of the Federal court
operations and the decisions that are being made, what have you
done to let these people know that you will not be impacted by
the violence and the threats and the incidence of violence?
Judge Mauskopf. When you think, the best way that we do
that is by doing our jobs and doing it the way we have always
done it--fairly, with integrity, objectively. And, during the
pandemic, I think it is critical to make sure that the public
knows that nothing has deterred us, whether it is the virus,
whether it is the protests that we experienced in the Eastern
District of New York with thousands of people gathering in the
park across from our courthouse. We had sufficient security. We
could always use more. But we did not experience any issues.
I think, by continuing to do what we do, to--we have earned
the respect of those who may--we have earned that respect, and,
by continuing to do what we do, I think we send a good message
to those who would seek to try and influence or impair the
integrity of our courts.
Mr. Joyce. Well, I know judges are in a tough spot, because
you can't really get out and broadcast that, and however we can
be of assistance in doing that to ways you think of in putting
together the protection systems, I think it is important to let
people know that you will not be swayed.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman. And I want to thank
our guests for being here with us.
Judge Mauskopf, I want to emphasize to you how important it
is that the Administrative Office and the Judicial Conference
takes sexual harassment and workplace misconduct seriously.
Your appropriations request discusses steps taken to
bolster the AO's trouble Office of Judicial Integrity, but I am
concerned by your assurance that--and I quote--``the AO is
confident the Judiciary has enough resources to protect
judicial branch employees.''
So, in the last few years alone, multiple Federal judges
have resigned because of years-long patterns of sexual
harassment and abusive conduct. Whistleblowers have raised
concerns about the Office of Judicial Integrity. Your
appropriations request mentions that a new judicial integrity
officer came on board earlier this month. But, as you know, his
predecessor resigned after less than a year on the job, and the
position has been left vacant for months.
Fiscal year 2021, I included--of this year, I included
report language directing the Judiciary to expand its
comprehensive training program on workplace behavior and by
standard intervention and encouraged the Judiciary to expand
and report on its confidential nationwide reporting system to
document employee misconduct complaints.
Help me understand how you plan to abide by that request
and provide an exemplary workplace and protect every judge and
every court employee from sexual harassment, discrimination,
and retaliation. Tell us how the Judiciary has the resources
that it needs to actually do this job and protect its
employees.
Judge Mauskopf. Thank you very much for that question, and
I share and as does everyone in the Judiciary shares your
commitment, our commitment to creating an exemplary workplace.
And again, as I have said before, I have been involved in some
of these issues to date, and I am looking forward to playing a
different role as director in those issues.
If I may, I would just like to correct the record slightly.
Jill Langley, who was the first head of the Office of Judicial
Integrity, had continued in that role while we searched for her
successor. Her successor has now been hired. Jill has
facilitated and continues to facilitate the transition to her
successor, and----
Mrs. Torres. Have you filled the job that that person, Jill
Langley, had?
Judge Mauskopf. She is leaving the Office of Judicial
Integrity to go back home to her district. I am sorry, to her
circuit, the Tenth Circuit, where she serves as the Director of
Workplace Relations for the Tenth Circuit. So those were the
circumstances of her transition.
Our new head of the Office of Judicial Integrity is Michael
Henry, and he has served in a variety of capacities dealing
with issues of sexual harassment and workplace conduct. And one
of his main areas in which he worked, he stood up the office at
the United States Center for Safe Sport, which is----
Mrs. Torres. I don't want to interrupt you, Judge, but my
question is about the resources. How do you plan--do you have
enough resources? Is that why you have not asked for additional
resources?
Judge Mauskopf. So I think we are at the point where we are
seeking to augment the staffing in the Office of Judicial
Integrity, and we have sought resources for that. The circuits
have found resources to hire the directors of workplace
relations, and all courts have employed dispute resolution
coordinators. Those are often collateral duties, but they seem
to work well, but it is something that--so they seem to work
well. I think where----
Mrs. Torres. So pardon me again. These coordinators, they
are insiders. And how are you going to make sure that this job
or this responsibility is not being given to an abuser? How can
we be confident in that?
Judge Mauskopf. The EDR coordinator--in our experience, the
coordinators, whether they are in the circuits or whether they
are in the district courts, I don't think we have ever had a
circumstance where they have been involved, or at least not to
my knowledge, where they have been involved in a workplace
conduct matter. The new model----
Mrs. Torres. That is really great information to hear,
since we have not been privy to any of those complaints. That
is why the report language is requesting that.
My time has expired, but I look forward to hearing you
expand more on my questions in the second round.
And I yield back.
Judge Mauskopf. All right.
Mr. Quigley. Thank you.
Mr. Amodei, please.
Mr. Womack, do you know if he is available at this point?
Is he still in the other hearing?
Mr. Amodei. Hey, Mr. Chairman, it is Mark Amodei.
Mr. Quigley. Oh, there you are. Please go ahead.
Mr. Amodei. Thanks for your patience with me.
Mr. Quigley. I was patient. Mr. Womack, he was ready to cut
you loose.
Mr. Amodei. You know, he is kind of cranky. I think it
comes from that Gulf Coast area that kind of has an impact on
him some days.
Mr. Quigley. We can get into that later, I don't want to
eat up your time.
Mr. Amodei. Okay. So here is what I am--first of all, I
would like to know from Judge Blanton as well as Ms. Szpindor
is where are we at in the Federal Courts in terms of your
employees being vaccinated for COVID?
I am assuming that in those jurisdictions where your
district, your trial courts and your appellate courts are, are
those people vaccinated?
Judge Mauskopf. So, Congressman, as you may know, the
Federal Government, through HHS, has created certain categories
of prioritization that help inform State governments as to how
to dispense the vaccine.
Mr. Amodei. Correct.
Judge Mauskopf. But it is largely up to the State
authorities to determine their own priorities. And as a result
of that, there are widespread differences across the country.
In some States, Federal judges and court employees have
been vaccinated. In my State, New York, we do not fall under
the State's priorities. Probation and pretrial officers can
come under the law enforcement prioritization, which has been
made in most, if not all, jurisdictions.
And one of the other key constituencies within the Federal
Judiciary are our Federal Defenders. And I think they are--
again, in my State, that is a big issue. Although the Bureau of
Prisons has been given an allocation of vaccine for its staff
and for defendants who are incarcerated, the Federal Defenders
who are their lawyers still need to rely on remote technology
in order to safely meet with their clients, for the most part.
So we do not have one single, single standard across the
Federal Judiciary for who can get vaccinated and who can't.
Mr Amodei. Judge, do you have any----
Mr. Quigley. I want to say this, that you raised an
excellent point. And I think that Mr. Stewart's question and
other questions about speedy trials--and I won't eat up your
time here--you know, all get back to this. You know, as you
know, we have been vaccinated.
And I think that I would like to talk about this with Mr.
Womack of going forward of talking as a committee about, if we
are talking about justice moving forward, finding out a way for
the Federal Government to play a role in making sure that this
moves forward.
Sorry to eat up your time. I will give you as much as you
need.
Mr. Amodei. Hey, Mr. Chairman, I appreciate that.
To make it really clear here, it is becoming more and more
frustrating to know--and you have hit the nail on the head. My
staff in Nevada can get vaccinated. And they have made
appointments and they are going to do it.
Now, mind you, each State is different, as Ms. Mauskopf has
indicated. But I am sitting here going, there is no consistency
in the Federal Judiciary. And I am not blaming the Judiciary. I
am just saying at some point in time as we are getting ready to
open it up for everybody else, at some point in time I think we
need to take care of business in terms of those core functions.
And, obviously, the function of the judicial branch is one
of those as well as, Mr. Chairman, just the function of our own
staffs, who are basically here. I mean, I was just on a hearing
with the Administrative Office of the Courts. The AOC people
who have to work in the building, guess what, they are not
vaccinated. They can't work from home.
And so as we are sitting here getting towards this point in
time, I don't think it is to the point where it is, like, hey,
somebody is better than somebody else. I think a good faith
objective look at the functions that these various folks
provide is something that, quite frankly, ought to get them
into the, okay, we have done everything we can for you. You
know, we are talking about the mental health of everybody.
Well, COVID is a piece of that.
And I won't go on beyond that. Thank you, I look forward to
working with you.
The only other thing I want to say is, for both of these
witnesses is, I know that different judicial districts are
different and all that other sort of stuff, but one of the
things that is kind of coming forward, at least in terms of our
own neck of the woods is, are we building in silos in all this
security, at least for purposes of communication, because
whether it is, you know, the Library of Congress or the Federal
courthouse or the whatever, the one thing that I would ask is
that we think about not only what the interconnectivity is, in
terms of the Marshal's office or whomever, but also their
ability to cross-thread, if you will, with other local law
enforcement, whether they be other Feds as well as the State
and local folks, since the idea is to have all assets
available.
And so that is one of the things that we are going to be
keeping on an eye on when we talk about, okay, we got to up our
game on security, but one of the things we need to do is make
sure that there is not a silo between the Federal courthouse
and the local sheriff's office or the local FBI as well as the
U.S. Marshals and all that other sort of stuff. So I just want
to put that on the radar screen.
Mr. Quigley. No, we will. And I will allow the judges to
respond. That will be the first part of the next round. But
Mrs. Kirkpatrick has been so patient, I will let her proceed.
And then we will get to a follow up on your point as well.
Mr. Amodei. Good. Thank you.
Mrs. Kirkpatrick. Thank you, Chairman Quigley and thank you
Ranking Member Womack. As you know, this is a really important
hearing to me.
Mr. Quigley. Mrs. Kirkpatrick, I believe your screen froze.
Were you able to help Mrs. Kirkpatrick with the technical
difficulties?
Staff. Mr. Chairman, we will work on that.
Mr. Quigley. Okay.
Mr. Womack. May I suggest we move on until she can free up.
Mr. Quigley. As soon as Mrs. Kirkpatrick is back. So what
we are going to do is we are going to the second round and then
give her all the time she needs when we come back.
So very quickly, and I will ask my colleagues and those
responding, let's try to do 3 minutes this time.
And I do want to afford you the opportunity to respond to,
if you desire, what was brought up at the end about security,
but also, you all put forward a security stimulus request of
$122.5 million, with $10 million for additional staff and $112
million to conduct a physical security assessment.
Can you briefly, whomever you decide to answer, give us
your sense of this and why it is important and what it would
do?
Judge Lungstrum. Do you want to start with that, Judge
Mauskopf?
Judge Mauskopf. Sure. I think these are evolving needs that
have largely come from the lessons learned from January 6. We
have always been concerned about finding ways to harden the
entryways of our courthouses. As we have talked about, we have
always been focused on mitigating vulnerabilities before they
can be exploited.
And so $113 million of that request is to secure entrances
and screening areas; and the additional $10 million, which does
require authorizing legislation in addition to funding, is to
enhance the Judiciary's threat vulnerability management.
And this is the Judiciary's effort. This is to fund the
Judiciary's effort to identify and remove that personally
identifiable information before it can be used against a judge.
And currently, we don't have resources to stand up that
type of vulnerability management program, and it would be a
complement to what the Marshals do in actually once a threat is
identified and investigated by the Marshals.
Staff. Chairman you are muted.
Mr. Quigley. Judge, do you want to add to that?
Judge Lungstrum. No. I think the director covered that
quite well.
Mr. Quigley. Okay. Mrs. Kirkpatrick, is she back on?
Staff. Not yet, Mr. Chairman.
Mr. Quigley. If not, Mr. Womack, please.
Mr. Womack. Thank you.
My last question is going to be on cybersecurity. The
request is a $9.1 million increase for internet firewall
services. You know, we all know what happened on the SolarWinds
debacle.
To the extent that you can say it in public, if you can say
anything, has the Judiciary been impacted by the SolarWinds
breach and, if so, what steps are you taking to mitigate?
And then as followups, how closely does the Judiciary work
with cybersecurity experts and the executive branch to ensure
that you guys are all connected to the latest threats, supply
chain concerns, mitigation techniques, all of that kind of
stuff? And then how will funding in your request enhance your
cyber protections, and is it sufficient to address the growing
cyber threats? And I will leave it there.
Judge Mauskopf. And I can start.
Judge Lungstrum. I'll--or Judge will lead. Either one.
Judge Mauskopf. I was going to start generally by saying
that, unfortunately, it looks like we are in good company with
respect to the issues related to SolarWinds, but I do have to
be very careful with what we say.
We have been working with law enforcement actively, but
there are two things that I can speak about: First, we are
working with the Department of Homeland Security's
Cybersecurity and Infrastructure Security Agency, CISA. They
are conducting a forensic investigation of the impact or any
impact of the SolarWinds situation, and those findings are
pending the results of that forensic investigation.
We have also given guidance to the courts proactively while
we are trying to understand what the impact may have been to
protect highly sensitive documents, sensitive documents that
could harm the United States, harm the Judiciary, litigants or
others.
These are documents that are generally in most cases--in
fact, I think in all cases--sealed, and so we don't anticipate
any type of public access issues. But we have counseled courts
to look at their practices and to adopt orders to ensure that
those documents are maintained either in hard copy or on some
type of a standalone computer system that isn't connected to
the internet or any other system that could be compromised.
So we are working actively to identify any impacts from
SolarWinds and to take the necessary steps to understand that
and to protect the information, the very valuable information
that is housed within our systems.
And I will leave the fiscal issues to Judge Lungstrum.
Mr. Quigley. Sir, and if you could, please go ahead
somewhat quickly, as we are trying to get through the second
round, sir.
Judge Lungstrum. I think it is really all in the materials
there. And Ranking Member Womack mentioned the increase that we
are requesting. And it is our best assessment of what we are
able to do if we had that funding to be able to shore up our
security on the internet stage.
Mr. Quigley. Any followup, Mr. Womack?
Mr. Womack. No, that is it, other than to send my
condolences to Judge Lungstrum on the loss by Kansas last night
in the----
Judge Lungstrum. God, it was a heartbreaker.
Mr. Womack. As an aficionado of basketball. But, hey, the
silver lining is Kansas State won. I know you probably could
care less about them, but there you go.
Judge Lungstrum. That is not a silver lining for a Jayhawk.
Now, come on.
Mr. Quigley. We are going to go back to Mrs. Kirkpatrick.
For all you Kansas folks, if this makes you feel at home.
We will go back to Mrs. Kirkpatrick. She is still on the
first round. We are sorry for her issues.
Mrs. Kirkpatrick. Thank you, Chairman Quigley. I think we
have got it all worked out now.
Mr. Quigley. Okay.
Mrs. Kirkpatrick. So I want to thank Chair Lungstrum and
Director Mauskopf for appearing before the committee. As you
know, I represent a border district in southern Arizona. So we
are especially interested in immigration-related issues.
I understand that surges in immigration-related cases leads
to increased need in Federal Defender services staffing. So
could you please talk through staffing needs, especially in
regard to immigration, and how the 7 percent increase in
funding you have requested could meet those needs?
Judge Lungstrum. Thank you, Mrs. Kirkpatrick. As you know,
the really disproportionate number of criminal defendants arise
out of the five border court districts, much of that having to
do with immigration workload. And that particular workload did
not decrease during the pandemic as much as some other criminal
filings were. So as a result, the burden on defenders, both the
Federal Defenders offices and the Criminal Justice Act
appointees, continue to build.
We think that the work measurement formula that has been
developed for defenders adequately captures those needs. Now,
we this past--for fiscal year 2021, because of some
unanticipated needs, such as the McGirt versus Oklahoma
decision, which altered the way in which certain Indian Nations
were treated under State versus Federal law in Oklahoma, and
also Arizona's being adopted into the opt-in program for fast
tracking capital habeas cases, some resources were reallocated
among Federal Defenders offices accordingly.
We are trying to catch back up with that in our 2022
request, which would take our Federal Defenders up to a 98
percent of their staffing formula, which would be about as much
as practically they would be able to maintain just in the
ordinary course of hiring people and people leaving and that
sort of thing.
So it is always a huge issue. Our defender program is I
think one of the jewels in the crown, if you will, of the
Federal judicial system. And there are particular needs in the
border courts that we are trying very much to address.
Mrs. Kirkpatrick. Well, we really rely on the defender
services in southern Arizona. So I want you to know that is a
top priority of mine. Anything I can do to help with funding
there, let me know about that.
So, you know, you have already pretty much addressed the
security measures. I just want to highlight a little bit, I
have a rural district, largely rural district in southern
Arizona. And so, you know, what kind of online services are
being offered to my rural folks? And I would like to hear about
measures taken to increase cybersecurity in rural areas.
Judge Mauskopf. I think rural versus urban or metropolitan
doesn't make a difference in the areas that you have
highlighted. We are making proceedings accessible to the public
in rural areas as we are--in rural areas or courts that serve
rural areas as we are in others.
I think sometimes--and we even see this in urban areas--the
technology available to the public is not often good. And so
some of the things that have been done is to, if courthouses
are still open and if we can have a limited number of people in
the courthouse, we still make a video. We make a courtroom
available with a video monitor, so people can still come if
they don't have the technology to join.
So I think that we don't recognize those distinctions. We
just use different technology, different ways to achieve the
same results in courts that service rural areas as we do across
the rest of the country.
Mrs. Kirkpatrick. So one of the problems we have seen with
cyber is interoperability. Is that a problem that you are
having to deal with in rural parts of the country?
Judge Mauskopf. Honestly, that is an issue that I don't
feel well-prepared to address. And if I could get back to you
on that, I would really appreciate it.
Mr. Quigley. Sure. Just send it back to the committee, and
we will make sure every member has access to your response.
Mrs. Kirkpatrick. Thank you so much. Thank you, Mr.
Chairman.
Mr. Quigley. Absolutely.
Mrs. Kirkpatrick. I yield back.
Mr. Quigley. Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And Director Mauskopf, again, I want to congratulate you on
the new position. You certainly have big shoes to fill
replacing Jim Duff, whom we got to know, but it looks like you
are on a good trajectory toward acquitting yourself very well
in the position.
Judge Mauskopf. Thank you.
Mr. Cartwright. And, you know, 3 weeks into the job, I
understand, but we expect you to fill up your bookcase a little
more the next time we see you. But actually----
Mr. Quigley. No background shaming.
Mr. Cartwright. One thing that I will say I have thought
for decades about the Federal Courts is that they have carried
the proud mantle of preeminence, really, in both technology and
in speed of adjudicating civil cases. In fact, they have made a
great effort over the years of keeping track of statistics
along those lines, particularly with expeditiously moving civil
cases.
But my colleague Chris Stewart and I have both mentioned
now about the concern about the civil backlog, because of the
lack of Federal jury trials happening. Obviously, there is
going to be a big pile of cases in your inboxes, all of the
Federal district court judges.
Can you share with us what your ideas have been about how
to move those? Are you going to use magistrate judges more? Are
you going to do summary jury trials? You folks are masters at
innovation, and I would like to hear some of your ideas so far.
Judge Mauskopf. So--go ahead, Judge Lungstrum, why don't
you start.
Judge Lungstrum. No, you go ahead. Go ahead. I like to look
at your bookcase.
Judge Mauskopf. So on the civil side, I think judges and
litigants have approached the issue even during the pandemic in
creative ways. There have been Zoom trials on the civil side in
complex patent cases, in other commercial cases. There haven't
been a lot of them. I am not sure if we have had jury trials on
the civil side. But litigants----
Judge Lungstrum. They have in western Washington.
Judge Mauskopf. Yes.
Judge Lungstrum. Western District of Washington, yeah.
Judge Mauskopf. So some courts are experimenting with that,
and I would expect that to continue. And so people are trying
to be creative.
In terms of when we really start going, I think we will
have to think about using magistrate judges, about using our
visiting judge program, about seeing about the ways that we can
use technology, perhaps to try and increase the number of cases
we can do. But there is only so much you can do, I think. And
that backlog will take some time to dig out from.
Judge Lungstrum. One of the real--sorry.
Mr. Quigley. Go ahead, Judge.
Judge Lungstrum. I was going to say, one of the real
problems in moving the civil cases now as the logjam breaks is
the priority we need to give to criminal jury trials.
And the courtroom space is more limited, because we only
can hold proceedings in certain size courtrooms to accommodate
folks and be socially distanced and put in the personal
protection infrastructure and so forth. That is probably the
biggest impediment to actually getting civil trials conducted.
But we are going to do our best. It is important.
Mr. Cartwright. Mr. Quigley and I are a phone call away, so
we are here to help.
And I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Bishop. And, again, we are in the 3-minute rounds, so
please try to fit your questions and answers into that slot,
please. Thank you.
Mr. Bishop. Mr. Chairman, as a long time member of the
committee, I take pride in being a responsible steward of
Federal spending. I believe we have to strike a balance between
adequately funding our programs with responsible constraints on
the national debt.
And I was very pleased to hear Judge Mauskopf, as you
mentioned a number of the steps that the Judiciary has
undertaken for cost containment measures. I thought that was
remarkable.
Can you just tell me whether or not there is any additional
support that we can provide in Congress to help you with these
successes?
You went through a long list of items that you have been
able to undertake for cost containment. Is there something else
that we can do to help in that regard?
Judge Lungstrum. If I can jump in there on that,
Congressman Bishop, in our request in specifics, we have a $10
million request to help with our No Net New Program, which is
in the space area, where we have a rule that you can't add
space without taking space off the books. But sometimes to be
able to do that, there are renovations that have to take place.
So we have requested $10 million in this 2022 budget to
continue that program. And it is taking money off the books
enough that more than pays for it over time, but we have to
make an up-front expenditure. That is the kind of thing that
you all can assist with through the appropriations process for
sure.
Mr. Bishop. Thank you.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you, sir.
Mrs. Torres is recognized again.
Mrs. Torres. Thank you, Mr. Chairman.
And Judge Mauskopf, just to go back to our conversation
earlier, it seems that many of the recent concerns with the
Judiciary has to do with the lack of transparency. Sexual
harassment flourished in the darkness and judge's chambers are
notoriously closed off.
Similarly, many of the rules that apply to other Federal
agencies don't apply to the AO and the Judiciary. You are not
bound by the same Federal contracting rules, for example, as
the executive branch and you don't have an Inspector General.
I am happy to see your request to build out an Office of
Compliance and Risk to bolster the AO's ability to address
internal control weaknesses and other audit recommendations,
but I am very concerned that the office work will be undermined
unless we know what is going on.
So will you commit to making those audit recommendations
public? And if you can expand on my previous questions.
Judge Mauskopf. Congresswoman Torres, I am not prepared to
commit to making public the audit findings. I just don't know
enough about the process yet, and I hope you can appreciate
that.
I don't want to do any or commit to something that might be
in violation of law. But I certainly understand Congress'
oversight role of the Judiciary and its oversight and this
subcommittee's oversight over the resources that it provides to
the Judiciary.
And we are very mindful of that, respect it tremendously,
and will ensure that you have the information that you need,
consistent with what we can turn over to allow you to exercise
that oversight function.
Mrs. Torres. It is unfortunate that you cannot commit,
Judge, to basic transparency and accountability: I think that
is the nexus of the issues that have been brought forward, but
the lack of protection for whistleblowers, the lack of respect
for employees and the sexual misconduct allegations that we
have seen.
I have 35 seconds left. I am going to turn that time over
to you and hope that you can be a little bit more transparent.
Judge Mauskopf. I am committed and we are committed to
transparency, to transparency and to ensuring a safe workforce.
We do have provisions that address retaliation. You cannot
retaliate against someone for bringing a complaint forward.
The judicial conduct and disability rules require judges to
come forward if they know about misconduct within the
Judiciary, including involving a judge, and if they don't it is
grounds for a misconduct finding.
So there are strengthened rules, strengthened procedures to
address all of the issues that you raise. Of course, we can
always do more and we are committed to doing more.
Mrs. Torres. So we need to do more, because the issues
continue.
And I am out of time, so I am going to yield back.
Mr. Quigley. Mrs. Torres, you are out of time, but the
discussion will continue. And I pledge that we will continue to
work with you and continue to communicate with the judge on
this matter, to the extent we can as we learn more. As you
know, she is 3 weeks on the job. So let's continue the
dialogue.
Mrs. Torres. That is why I was kind and nice, Chairman.
Thank you.
Mr. Quigley. No, I understand. I appreciate that.
Mr. Womack, do you have anything to add, sir?
Mr. Womack. I do not, and ready to go eat.
Mr. Quigley. Me too.
Without objection, I have a question for the record on the
Abraham A. Ribicoff Federal Building and the U.S. Courthouse
and Hartford Courthouse, and a letter from the Federal Law
Enforcement Officers Association that I am submitting for the
record.
Mr. Quigley. We will now conclude today's hearing. I ask
members to submit any remaining questions in writing for the
record.
Judge and Director, we want to thank you so much for your
service and for your assistance today, and if you will respond
to any other additional written questions in a timely fashion.
With that, this hearing is adjourned, and thank you all.
Thursday, March 11, 2021.
OVERSIGHT HEARING--U.S. POSTAL SERVICE
WITNESS
HON. LOUIS DEJOY, POSTMASTER GENERAL, UNITED STATES POSTAL SERVICE
Mr. Quigley. The hearing will come to order.
As this hearing is fully virtual, we must address a few
housekeeping matters. I understand the boss is going to be on
the call, so I have to follow all the rules.
I would like to remind members that for today's meeting the
chair, or staff designated by the chair, may mute participants'
microphones when they are not under recognition, for the
purpose of eliminating inadvertent background noise.
Members are responsible for muting and unmuting themselves.
If I notice you have not unmuted yourself, I will ask you if
you would like the staff to unmute you. If you indicate
approval by nodding, staff will unmute your microphone.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved and you will retain
the balance of your time.
And to our guest, I will just suggest that, given the 5
minutes, please try to allocate--and I know it is difficult,
and I apologize--if you can, sort of to the point of
recognizing each member has 5 minutes in their question. And as
difficult as that is, we appreciate it.
You will notice a clock on your screen that will show how
much time is remaining. With 1 minute remaining, the clock will
turn yellow. With 30 seconds remaining, I will gently tap the
gavel to remind members that their time is almost expired. When
your time has expired, the clock will turn red, and I will
begin to recognize the next member.
Finally, House rules require me to remind you that we have
set up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided in advance to your staff.
I am going to keep this opening statement very brief so we
can leave ample time for questions.
It should be noted that we are glad to welcome, honored to
welcome the 75th Postmaster General of the United States, Louis
DeJoy, today. Appointed by the Board of Governors of the Postal
Service, he started his tenure in June 2020.
We want to thank you, sir, for being here today.
The reason I said it is special notice, it has been nearly
20 years since the U.S. Postal Service has testified before
this subcommittee. So there is 20 years of catching up to do.
Obviously, this hearing could not have come at a more
important time. Given the extraordinarily vital role of the
USPS during the pandemic, we are glad to have this hearing
today.
By delivering food, medicine, personal protective
equipment, and other essential equipment during the pandemic,
it has literally saved lives by helping Americans maintain
social distance, limiting the spread of COVID, and allowing
people to vote safely.
Let me say this. Mr. DeJoy, you and I spoke the other day.
We recognize there are a lot of issues. Let this be a hearing
where we talk about those issues and solutions and, in a sense,
cut to the chase. I have had a thousand postal cases in my
district since the beginning of the year. We typically have 500
in a year.
That being said, I will tell you that I want to help. I
know this committee and Congress want to help. We want to find
solutions working with you. It is imperative that we restore
the effectiveness to the full point necessary and possible for
the Postal Service.
So with that, I would now refer to Mr. Womack for his
opening.
Mr. Womack. Thank you, Chairman Quigley.
Welcome to the committee, Postmaster DeJoy.
Over the past year, the Postal Service has faced a lot of
challenges, including the coronavirus and its impact on the
health of postal employees and their families; a significant
decline in mail volume, coupled with a significant increase in
package volume; a shortage in airplane and truck capacity;
significant winter storms, making mail delivery all the more
difficult.
I will commend the Postal Service employees for their hard
work and commitment to deliver mail regardless of the
challenges they face. And I have seen it firsthand. Just the
other day, after a major snowfall in northwest Arkansas, I was
alerted to some traffic coming down my driveway. And there,
trudging through the snow, was the U.S. Postal Service.
I have got to hand it to my postmaster, or my mail
deliverer, Jesse, who braved the elements to make sure that I
had service that day. And I know it was a complicated route
that he was running.
We are all appreciative of the efforts of these critically
essential workers to help Americans during these difficult
times.
Yet, there are several areas where the Postal Service needs
some improvement. Delivery standards have declined, resulting
in holiday gifts arriving after the holidays; payments sent
through the mail arriving late, resulting in fees and interest
charges for many Americans; and challenges for businesses that
use the Postal Service to receive supplies and deliver
products.
In addition, the Postal Service is not on a sustainable
fiscal path. While the Postal Service does not rely on taxpayer
dollars to fund most of its operations, revenues from the sale
of postage, products, and services haven't kept up with the
cost.
Since 2007, USPS has recorded significant net losses each
year, including 9.2 billion in 2020. I understand that without
significant reforms, you are projecting to lose 160 billion
over the next 10 years.
The majority's HEROES bills from this past summer proposed
providing the Postal Service with billions of dollars of
taxpayer funds without requiring structural reforms. I am on
record as opposing such taxpayer-funded bailouts.
I understand you, along with the Postal Service Board of
Governors, intend to release a 10-year strategy to get the
Postal Service on a sustainable path. It is a welcomed first
step, and I look forward to seeing it.
The Postal Service has a great history, which began with
the Continental Congress appointing Ben Franklin--Benjamin
Franklin--as the first Postmaster General.
I want to work with you, Chairman Quigley, and the
authorizing committee to ensure that the Postal Service becomes
financially stable and continues its long history of providing
a high level of service.
And with that, I look forward to our Q&A, and I yield back
the balance of my time.
Mr. Quigley. Thank you, Mr. Ranking Member.
I now recognize the chairwoman of the full Appropriations
Committee, Ms. DeLauro.
The Chair. Thank you very much, Chairman Quigley and
Ranking Member Womack, for holding this vital hearing.
It has been almost a year since the United States Postal
Service Board of Governors selected you, Mr. DeJoy, as the 75th
Postmaster General of the United States.
Since then, the Postal Service has, frankly, become wholly
unrecognizable from what it once was. Under your leadership,
on-time delivery for something as simple as a letter to a loved
one declined to just 60 percent and has still not fully
recovered.
Because of the COVID-19 pandemic, Americans are now relying
on the Postal Service for everything--medications, food, bills,
and even livestock. But even as this pandemic was putting an
enormous strain on the Postal Service, you implemented a number
of new rules that led to severe and unnecessary mail delays.
We have all heard the stories from our constituents. Some
have been forced to pay interest or extra fees because their
bills were not delivered on time. Small business owners are
losing money in the mail. And those who are sick are waiting
days, if not weeks, for lifesaving medications.
In my own district, I heard from a veteran whose insulin
arrived 3 days late and who had to get to the VA to provide the
dosage he needed in order to survive.
An immunosuppressed constituent of mine waited 17 days for
a shipment of medication to go from Main Street in East Haven,
CT, to New Haven, CT, 4 miles away.
And I heard from a small business owner in Milford who is
facing financial hardship because hundreds of client payments
have never arrived.
Though he has since been able to track down 80 pieces of
mail, 50 of which were client payments, and 30 of which were
bills he had to scramble to pay, about 200 pieces of mail are
still missing.
I want to take a page from what my colleague Congressman
Womack said. I want to commend our postal workers. They know
how to deliver the mail. They have been doing it for a very,
very long time.
What has happened at the post office is unacceptable. And,
frankly, your leadership of the Postal Service, in my view, has
been an utter disgrace.
It is simply inexcusable that even after all this hardship
you are working on a new strategic plan that would permanently
slow First-Class Mail and abandon current service standards.
And perhaps even more outrageous, even after Congress
provided $10 billion to the Postal Service in the CARES Act to
help address the impacts of this pandemic, you continued to put
the health and safety of your employees at risk.
It is my understanding that almost 56,000 postal employees
have tested positive and 170 have died. I am appalled. My
constituents are as well.
It is time for to you put an end to these delays, restore
service and reliability, and prioritize the health and the
safety of the American people.
And if you cannot do that, if you do not want to actually
make the Postal Service better, then I do call into question
why you took on this job.
I am pleased with President Biden's decision to nominate
three new members of the Postal Service Board of Governors late
last month, and I urge the Senate to quickly confirm their
appointment, ensuring oversight to stop the damage that I
believe you are causing.
And with that, let me say thank you to Chairman Quigley and
to Ranking Member Womack, and I yield back.
Mr. Quigley. Thank you, Madam Chairman.
Again, Postmaster General, we appreciate your being here
today. Without objection, your full written testimony will be
entered into the record. With that in mind, please summarize
your opening statement in 5 minutes, if you could. Thank you,
sir.
Mr. DeJoy. Thank you.
Good afternoon, Chairman Quigley, Ranking Member Womack,
Chair DeLauro, and members of the subcommittee. Thank you for
calling this important hearing concerning the Postal Service's
fiscal year 2022 budget request.
I appreciate the opportunity to also discuss the actions we
are taking to put the organization on firm financial footing to
ensure that we can fulfill our vital universal service mission
and to provide the American people with the service that they
expect and deserve in a self-sufficient manner.
It is important to note that the Postal Service is an
independent establishment which by design is supposed to be
self-sustaining. In concept, we are required to fund our
operations and to fulfill our public service mission through
sale of our products and services.
It is a common misperception that we are supported by
taxpayer dollars. To the contrary, with a narrow few
exceptions, the expectation that is built into law is that we
will run our business efficiently and in a manner that produces
enough revenue to pay our own way.
One of the narrow exceptions is that when Congress created
the U.S. Postal Service in 1970, it pledged to appropriate
funds to pay for the cost of certain subsidized postage that it
deemed worthy of public support, such as free mail for the
blind and overseas voting.
I view this promise as consistent with the mandate that we
be self-sustaining, since if Congress required us to
undercharge for certain services or to provide other services
for free for the public--for public policy reasons, it makes
sense that Congress should pay for those services or make up
the difference.
My written testimony details our fiscal year 2022 budget
request for these reimbursements, which total $330 million and
includes revenue foregone amounts.
Let me place our relatively modest but no less justified
budget request in context: Much more comprehensive action must
be taken if we are to have any hope of revitalizing the Postal
Service.
The hard reality is that years of financial stress,
underinvestment, unachievable service standards, and the lack
of operational precision have resulted in a system that does
not have adequate resiliency to adjust and adapt to changing
circumstances.
I expect and do not shy away from your own observations and
questions about recent service performance in your home
districts. Confronting and understanding the problems with
service is an essential diagnostic step toward finding
solutions. My time at the Postal Service has been focused on
just such a diagnostic process.
I acknowledge that our current service performance is
unacceptable and that the status quo should be acceptable to no
one, but I also believe that the solutions are within reach if
we can agree to work together.
In that regard, we have developed and will soon announce a
plan to revitalize the Postal Service and ensure financial
stability and service excellence that embraces our vital public
service mission and the continuation of 6-day delivery.
Our 10-year strategy will reenforce the Postal Service's
obvious strengths and address our obvious weaknesses and enable
us to continue to meet the needs and expectations of the
American people and our universal service mission.
The key commitments of this plan will include, No. 1, a
commitment to 6- and 7-day-a-week delivery service to every
address in the Nation, not just because it is a law, but
because it is a key ingredient to our future success.
Number 2, a commitment to stabilizing and strengthening our
workforce, especially for our associates who are not yet in a
career position. We want every postal employee to have the
tools, training, and supportive environment necessary to enjoy
a long-term career with us.
Number 3, a commitment to investing in our network
infrastructure, including vehicles, technology, and package
sortation equipment.
In the weeks ahead, I look forward to sharing more
information and engaging in discussions about this strategy
with public policymakers, our unions and management
associations, our employees, our stakeholders, and with the
American people.
There is difficult work that is ahead of us to fix the
systemic problems that have plagued the Postal Service. But I
am confident that together those problems can be solved, and I
see a bright future ahead for the Postal Service and the public
we serve if we have the collective courage to act.
Thank you, Chairman Quigley and Ranking Member Womack, for
the opportunity to testify in support of full funding for our
fiscal 2022 budget request. I welcome any questions you and the
subcommittee may have.
Mr. Quigley. Thank you. We will begin with questions.
Let me just talk about Chicago, because so many of the
problems seem to be playing out throughout the whole country,
the same issues.
Let me ask you point blank, the fact that we have mail
service problems, people not getting mail for long periods of
time, are insufficient, and all the other complaints you got,
can you be as specific as possible, is this a workforce
shortage? Is this, to a large extent, being backed up because
the Service couldn't handle the dramatic increase in package
delivery? Is this because of air service issues? Is it because
of anything else mechanical, distribution centers, processing
equipment of any sort?
So to the extent you can be as specific as possible, in
Chicago, and as it plays out the same way to the rest of the
country, why are we having--why do we have these severe
problems near the holiday, and why are they still playing out?
Mr. DeJoy. Thank you. And that is a fair question. And
given the time, I can address it in a robust manner.
Number one, our network and financial condition and service
have been eroding for years. We have been in a bad business
model that has been allowed to exist both by the Congress and
by our regulators, and by efforts by previous management teams,
for the most part, have been stymied, and in some cases their
own reluctance to take on the challenges that needed to be
taken on to address the change.
Our performance during this peak period is a result of
extreme change in the dynamics of our market, meaning packages,
significant, significant increase in package volume, which from
a cubic movement standpoint, which is how we go about moving--
delivering our service. A tractor trailer of mail would hold
500,000 pieces. A tractor trailer of packages would hold 5,000
pieces.
We do not have the air, ground transport, or physical
distribution capabilities both from a space standpoint or
equipment standpoint to handle this. And there have been
extreme delays throughout the whole system, starting from the
peak period.
Also, we have had significant--historically have had
significant turnover in the pre-career aspects of our
workforce. This year we hired 200,000 people and didn't move
the top-line number of 650,000 employees an inch.
Many of the career employees who have lead and were, in
fact, had to deal with the growing, growing reach of the
pandemic as we have moved from last--from March of last year
into the end of this year, it spread more around the country.
And we had tremendous more employee availability problems and
absenteeism, which was filled by temporary hires.
These almost got to a point where there were day workers
asked to operate our machinery in our plants. And they walk in
our plants and they see the type of environment that they need
to work in, and many just turned around and went home.
We had pockets, like in Chicago, Detroit, Philadelphia, we
have 750 routes. We only had 400 carriers to go out on a day.
The Postal Service experienced the pandemic like everyone else.
And the final thing is, if we got mail and packages for the
most part throughout the Nation to our delivery units, we
delivered 90--over 98 percent of the time, over 97 percent of
the time. That is the strength of the organization. And that is
part of why I am optimistic about how we go about fixing it.
But we had days where I delivered 40 million packages in 1
day, and the next day could only do 30, yet we had 150 million
packages in the system, because we could not get it to the
delivery units. They were caught up in plants, they were caught
up in trucks, they were caught up on terminal handling
processes with airports, and so forth.
And with those packages moves--goes mail. And we threw
everything we had at it, and it just wasn't enough. Just the
system was----
Mr. Quigley. I appreciate that. I am going to abide by my
own rules and move on. And the next questions will be by the
ranking member, Mr. Womack.
Mr. Womack. So mail volume down 42 percent, package volume
up 120 percent. You have already spoken to how that has
impacted your organization. So, I mean, those are numbers that
speak for themselves.
So my question is, what is it--and maybe I am asking you to
kind of give us a glimpse into your 10-year plan--what is it
that we need to do in order--because, you know, coronavirus has
caused a lot of people to shop online. I get that. I am an ex-
mayor, so, I mean, I know the shopping habits of people. And
that being the case, I think we have trained people now to shop
more online.
I am not optimistic that the traffic at the malls that once
upon a time was pretty robust is ever going to get back to that
number because people now are comfortable shopping in pajamas
by logging onto their computer.
So what are you doing, what should we be doing in order to
be able to adjust to this change in mail volume?
Mr. DeJoy. Thank you. Thank you for that.
The first thing I would say, sir, is that while we--
everybody recognizes the decline in mail volume that has been
happening over the last 10 years, over 40 percent, and is
projected to continue to decline another 35 to 40 percent over
the next 10 years.
We have not adjusted adequately enough for that change in
our operating structure. We still have many, many mail
sortation machines in our plants. We have transportation that
runs 30 percent utilized around the country to deliver mail. So
we have to recognize that and make the changes that are
necessary to address that.
The second thing is the package volume, which is tremendous
more cubic volume that is moving around the country. And as you
note, the projections are anywhere from over the next 10
years--you know, 6 years, 7 years, could double. We see
consumers ordering smaller things online, getting more into
consumables, and so forth.
And this is where I am optimistic about how we move
forward. Our carriers reach, even during the pandemic, 161
million addresses every single day. And we do that at a 98-plus
percent hit rate, which is an unbelievable accomplishment, the
strength of the organization. And yet our package delivery
volume is we only deliver about 35 percent of the packages that
are delivered in the country.
We need to reorganize ourselves, which is part of what this
plan will do, to address the marketplace. But we also need to
get better at operating our network as a whole.
And this plan is about service, you know, service
excellence moving forward at affordable prices. As I said, I am
committed to maintaining 6- and 7-day-a-week delivery. It is
about investing in the organization. Our plan will have some
big numbers investing into the organization and workforce,
approaching $40 billion. It is spurring innovation for growth,
which we, prior to the pandemic, we were losing ground on the
package market. And it is about following the law and becoming
self-sustaining.
And some of that requires legislation. Chairwoman Maloney
is working on her bill to integrate Medicare, which is
something that is an unfair burden on the organization, and we
would look for everyone's support on that.
So I am optimistic.
Mr. Womack. I want to move to the second part of my
question, and I call it price-to-delivery model. Is our price-
to-delivery model right? Is it up to date? Is it sustainable?
And maybe I am not using the right term, but I call it
price-to-delivery because there is a certain amount of cost
that goes into getting a package or a letter wherever, from
point A to point B.
So speak to that for me.
Mr. DeJoy. So we have two types of--two areas that we have.
We have competitive pricing, which gets reviewed by--which is
pretty much in our control. We have the market-dominant
pricing, which was part of the legislation in 2006 and a big,
big part of our problem over the last 14 years.
This was an experiment which really--we were frozen in the
business model, pricing and volume relationships and cost
relationships that were established in 2006. Subsequent to 2006
mail volume dropped out. The American geography expanded where
people live, about a million addresses a year. And our cost
relationships were totally out of whack. And we were pretty
much price capped to CPI.
After 10 years we were supposed to get a ruling. It took 4
years to study that. We finally got the ruling last December,
which addressed a lot of the issues going backwards in terms of
recognizing the reduction in mail flow, but during that process
it left an extreme amount of damage to the organization. And
had this become----
Mr. Womack. All right. I am out of time. I get it. Thank
you very much.
I will yield.
Mr. Quigley. Thank you, sir.
I now yield to the chairwoman of the full committee, Ms.
DeLauro.
The Chair. Thank you, Mr. Chairman.
Just for the record, and I just looked this up, in 2019 the
Postal Service delivered 800 million packages between
Thanksgiving and Christmas.
The ability of the Postal Service to handle packages is
well-known with what they have done at holiday times. The post
office delivers more packages to homes than any other shipper.
So this notion that packages then have slowed up this
process appears to fly in the face of the actual data with
regard to the post office. I believe there was an attempted
assault on the post office service by the previous
administration.
I appreciate the efforts of the hardworking men and women
in the Postal Service to ensure that an unprecedented number of
mail-in ballots were delivered on time, an increase of 22
million from the 2016 election. However, these efforts relied
heavily on, quote, ``extraordinary measures,'' like extra
transportation and overtime, to handle the surge.
Let me ask you, does the strategic plan that you are set to
release shortly include changes that will allow the Postal
Service to better scale its operation of increased use of mail-
in voting is the new normal?
And in a recent report, your Office of the Inspector
General said that you were only able to measure service
performance of just over half of the ballots. What steps are
you taking to increase that number and ensure that there is
visibility for all ballots?
Mr. DeJoy. Well, Chair, I thank you for recognizing our
ability to deliver packages. We delivered 1.1 billion packages
this holiday season, but were tendered probably about 1.5
billion packages, which is what resulted in delays.
As with regard to measurement, we have processes to
measure, but this is also part of the election process
throughout the States. All 50 States have different rules,
regulations, they have different types of mail that they tender
to us.
If you have a bar code on a ballot, we can track it.
The Chair. If you just give me a second, because I want to
abide by what the chair is doing with regard to time.
But my question is, what is your plan going to do with
regard to allowing the Postal Service to better scale its
operations if, as I believe is the case, there will be the
increased use of mail-in voting, if that is the new normal?
What are you doing to change your operation to deal with that
fact?
Mr. DeJoy. Ma'am, we dealt with the--the mail-in voting,
record mail-in voting that we had last year, some 25 percent or
something higher than the 2018 election, we had a 99, 98
percent, very, very high performance level. It is about 2
percent of our mail during the process.
The capacity to process election voting is there, as I
stated, throughout the whole election cycle. And the bigger
focus we need to have is on the overall operations so it
doesn't continue to erode our performance.
But the election--any amount of election mail that we have,
we can handle.
The Chair. But your own inspector general said that you are
only able to measure service performance in just over half the
ballots. Again, my issue is not what has happened in the past,
but where are you going in the future with your strategic plan.
Because as I take a look at the commentary on your
strategic plan, you plan to eliminate a tier of First-Class
Mail in an area that is already struggling, and you plan to
prevent First-Class Mail from being shipped by airplane.
It doesn't sound to me--you need to let us know what you
are doing to deal with what have been the delays, the
shortfalls, et cetera, going forward. That is all we want to
know, is what is going to be different going forward than we
have in the recent past.
Mr. DeJoy. Again, I want to stress the fact that we are
adequately prepared to handle election mail. If the chair would
like to see higher measurement, that report, I am familiar with
that report, and there is--that report is, in general, talking
about we need to work with election boards to get a more
collaborative methodology to tender the ballots.
We did that quite extensively last year, and we continue
to--will continue to do that in the future. But I can only
measure what is prepared to be measured. And with regard to the
plan, the plan will be forthcoming.
And one last thing, with regard to service standard change.
Over 80 percent of the mail will stay in the same--especially,
our 2-day product will remain 2 days. We think we are
adequately prepared for any election going forward.
The Chair. Well, we will look carefully at the IG report
and then deal with the recommendations.
And with that, I apologize to the chair. I have overstepped
my time and I yield back.
Mr. Quigley. Never a problem. Thank you.
Mr. Amodei.
Mr. Amodei. Thank you, Mr. Chairman. We have kind of
touched on the stuff that I was interested in, so I am going to
go ahead and yield back.
Mr. Quigley. Thank you, sir.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Mr. DeJoy, many of the problems that USPS faces can be
traced all the way back to last summer. The chairwoman is
correct. Last summer there were efforts to dismantle mail-
sorting machines, cut overtime, restrict deliveries, remove
blue mailboxes, all in the name of operational efficiency.
I have no doubt you will attempt to deny these actions or
justify them, as you have previously, but we have all seen the
report. And my constituents did not experience an increase in
efficiency in any way. Instead, they experienced delays, as
well as missing and missed delivered mail.
And yet you want to try this again. You propose more
service cuts, doubling down, instituting higher and region-
specific pricing and lower delivery expectation.
So I have three questions for you.
Number 1, Americans are clearly relying more than ever on
the United States Postal Service than before the pandemic. Why
are you doubling down on the policies that have led to massive
delays?
Number 2, how would doubling down on these policies that
helped create these issues help Americans receive their mail on
time?
And, No. 3, given the severe issues that the Postal Service
has faced since you were appointed Postmaster General, can you
explain why you think you are still qualified to hold that
position?
Mr. DeJoy. So, Congressman, first of all, I don't agree
with the premise that you introduced the question on with
regard to changes that I have implemented have caused these
issues. As I said earlier, our network and the financial
condition of the Postal Service have been eroding
substantially, and we did have to operate in the pandemic just
like every other operation in the Nation.
With regard to the changes that we are looking to make, we
are looking to capitalize on our strengths and address our
obvious weaknesses. And this plan, the changes that we will
make, are about service excellence and affordable prices. It is
about maintaining 6- and 7-day-a-week delivery. It is about
investing in the organization and spurring on innovation to
grow.
And, importantly, what this Congress continuously fails to
recognize, part of the law is to be self-sustaining. And that
is what this board and this management team is trying to
address. We suffered almost $10 billion of losses last year. We
suffered almost $80 billion of losses over the last 7 years. If
I paid all my bills, I would be out of money tomorrow.
And I am trying to take this board, and myself and this
management team are trying to take seriously the issues that
face us, is that we are in a broken business model and changes
need to happen.
When we roll out our plan, I think any reasonable person
will understand the challenges that we face. But they will also
see the optimism of the plan.
And why should I stay? Because I am committed to seeing
this change, I have the expertise to do so, and I have the
tenacity and the stamina to undergo this type of questioning.
Mr. Cartwright. Well, Mr. DeJoy, on December 21, 2020, I
wrote you a letter asking how you had planned to improve
delivery standards given the many concerns that the people in
my district, in northeastern Pennsylvania, have shared with me
about their mail service. I received your response, which
stated you were doing everything you could to provide timely
and efficient service.
That was December. Christmas is over. The election is over.
It is now March, and things are simply not getting better in
northeastern Pennsylvania.
What is it that has caused these delays to continue well
into March? What is the USPS doing to ensure these delays are
resolved as soon as possible? And, specifically, how are you
dealing with staff shortages to ensure there are enough workers
to do the work that is necessary?
Mr. DeJoy. A fair question. Throughout the country, in
different, especially in urban areas, we have had absentee
issues with regard to carriers. But for the most part
throughout the Nation if mail and packages got to our carriers,
we delivered at over 98 percent of the time.
We have hired over 200,000 people in less than a year
trying to fill positions. We have converted 10,000 people in
December. We have not converted people in many, many, many
years.
So we are very committed to try and stabilize the
workforce. It is my number one thing I am focusing on. I have
been working with our union leadership on this to change the
trajectory of our turnover in that area.
But the rest of the problem, sir, is not at the delivery
units. It is in our network. We have standards that require
flying planes. We don't own any planes. We overwhelmed all the
aircraft that we could have. We are significantly short on
aircraft to move volume around.
Our trucking network is problematic, but we also
overwhelmed that in terms of capacity. We bought every piece,
every bit of transportation we could get, and it just wasn't
enough.
Now, with regard to March, we were still delivering peak
season volume all through January. We delivered 1.1 billion
pieces up to the end of year and had significant--it took us
January to work it down.
And then we got hit with the storms. I woke up, I came in
one morning, and the winter storm was there, 71 million
addresses potentially impacted. And many of our hubs--that got
down to about 20 million--many of our hubs were frozen. We
could not get in mail and packages through the network.
So the problem, sir, is bigger than just your locality. It
is a network operation, and our network is in bad shape.
Mr. Amodei. Mr. Chairman, I have no further questions for
the witness.
Mr. Quigley. Thank you.
Mr. Stewart, please.
Mr. Stewart. Thanks to the chairman and ranking member,
and, of course, to the Postmaster General.
I do have a couple questions. Before I do that, I would
like to express the view that I recognize you took on an
enormous challenge, and perhaps there have been mistakes made
along the way. I think that is probably true of any of us who
would take on such a big challenge. I do think some of the
criticism that you have received here today is probably
exaggerated, some of it is unfounded.
Again, I think we can do better. I hope you can do better.
I think you are clearly committed to doing better.
But, in my view, too, it is a little bit like assigning a
new captain to the Titanic after it has hit the iceberg and
then blaming that captain for the damage and the catastrophe
that took place before.
I mean, the challenge of the Postal Service is a
generational challenge. This is something that has been years
and years in the making, and it is going to take a little time
to fix it.
So, once again, I want and encourage you to continue to
make the reforms that are necessary, but I feel a little bad
that some of the criticism that you have received here today I
just think is unfounded and, as I said, exaggerated.
Having said that, let me ask you a couple of questions. And
I can ask you both, and then let you answer.
The first is, the ability of someone in China to create
malicious drugs, very deadly drugs, Fentanyl being the worst
example because it is so compressed and so easily shipped via
mail. And the reality is, is that many times that is shipped
through the U.S. Postal Service. In fact, it is probably the
primary vehicle for these deadly drugs that are created and
manufactured overseas to be brought into the country.
And I would like you to address how and what you have done
already and how you intend to address that in the future how
you are going to stop the Fentanyl particularly and other drugs
from coming in.
And then, very briefly, address in your plan how you are
going to protect rural postal service. It is very important to
my district, it is important to the West, and rural parts of
the country. And we have got to show our constituents that
their rural service will not be interrupted.
Mr. DeJoy. Well, thank you. Thank you for your question.
Congressman. I will start with the second one first with regard
to rural Americans.
As I said, I am committed to 6- and 7-day-a-week delivery
to every address in America, and our board is committed. This
is a very strong position that we are taking in our 10-year
plan.
And as you know, sir, when the pandemic hit, we saw that
many of these areas, these rural areas, were not delivered to
by many private enterprises. And that is what the essence of
the Postal Service was founded around, is trying to serve every
American.
So with regard to that, our plan stays committed to 6- and
7-day-a-week delivery. And so that is that one.
With regard to China, as you know, the STOP Act, we have
been working with Senator Portman, the CBP, the State
Department, everybody, on the STOP Act, and have been
monitoring the traffic coming in. Our Inspection Service is
very, very involved in monitoring traffic coming in from
overseas.
And, quite frankly, it really has come down from China. I
don't know all the--I don't remember all the specific numbers.
I get briefings every month. Most of the volume now is coming
in--winds up coming in through southern border and through the
mail, I believe.
But we are very close. We extended--the STOP Act was
supposed to be implemented at the end of the year. It got
pushed out to March 31. It is a multiple agency, all of
government type of initiative that is going on.
And we are very close to having a sampling plan, an
identification plan, a compliance measurement system to really
address foreign entry into the mail system. We still have
domestic issues that we have to confront.
Mr. Stewart. Okay. Well, again, my time has expired. I hope
you will concentrate on that. I think it is incredibly
important to our culture and society that we not have access to
such deadly drugs simply a mailbox away. And, again, the rural
communities are so dependent on you.
So thank you.
I apologize if my video is not working.
Mr. Quigley. It is on now. Thank you.
We move to Mr. Pocan, please.
Mr. Pocan. Thank you, Mr. Chairman. Appreciate it.
And thank you, Mr. Postmaster, for being with us.
Mr. Postmaster, what was your first day on the job? What
was that date?
Mr. DeJoy. July 15, 2016.
Mr. Pocan. Okay. So you have got about 8 months, 9 months
under your belt?
Mr. DeJoy. Yes, sir.
Mr. Pocan. What grade, on a scale of A to F, would you give
your performance as of----
Mr. DeJoy. I don't give grades. I look forward.
Mr. Pocan. Just go ahead and try. I mean, do you think you
have done a good job.
Mr. DeJoy. I don't want to. I don't want to. Why don't you
give me a grade?
Mr. Pocan. Well, I am going to ask you what grade. Are you
excellent?
Mr. DeJoy. I am not going to give myself a grade.
Mr. Pocan. Are you satisfactory? Would you say you have
done a satisfactory job?
Mr. Womack. Cartwright needs to mute his microphone. We are
getting feedback.
Mr. Pocan. Mr. Postmaster General?
Mr. DeJoy. I am sorry. I didn't hear the question when he--
Mr. Pocan. I was just trying to ask what grade, wanted you
to assess the performance you have done.
Mr. DeJoy. What is the grade spectrum you want me to grade
myself on?
Mr. Pocan. A, B, C, D, F.
Mr. DeJoy. Okay. I would give myself an A for bringing
strategy and the planning and effort to here. And as I did in
my last testimony in Congress, as the leader of the
organization I take responsibility for how we have delivered
during this season.
And I apologized to the American public. And my apology was
not just on behalf of this organization. My apology was on
behalf of the regulatory boards that have overseen this and
this Congress.
Mr. Pocan. Mr. Chairman, I would just like to reclaim my
time.
So you are saying an A. That would be excellent.
So I am looking at the inspector general report about your
performance. They said that you communicated primarily orally,
which resulted in confusion and inconsistent application of
operational changes. They said you implemented changes without
completing a study or analysis of the impact of changes.
They looked at performance of First-Class postage
delivered. Went down to below 80 percent. First-Class presort,
First-Class packages, and Priority all declined in performance.
When there was a court order asking you to roll back some
of those changes, we actually improved the delivery times on
these changes that you made, from dismantling equipment, to not
paying overtime, to not hiring an adequate amount of people at
holiday season, your organizational structure, and more.
So let me ask two questions. And I will ask them together,
you can answer them together.
The first one is, do you really think that that is
excellent service, for the first question?
And the second question is, let me ask you specifically
about my State of Wisconsin, because, unfortunately, my numbers
were worse than the national numbers.
So in Wisconsin our First-Class Mail delivery dropped to a
low of 63.69 percent the week of December 19. And outside of
some challenges from the holidays, the week of September 19 it
was 77 percent while the national rate was at 84 percent.
So the first question is, do you think you deserve an
excellent grade? Second, are there specific problems that are
causing delays in Wisconsin, and what are you doing to address
those?
Mr. DeJoy. So I will take the second one.
There are specific things that are affecting mail being
delivered in Wisconsin and mail being delivered around the rest
of the Nation. I can't get the mail there. I have more mail
than I have ability to transport it throughout the Nation. I
have more mail and packages than I have the ability to process
in our plants. And as we were coming off that big peak volume,
we ran into a--we had a storm.
So that is the majority of the reasons why----
Mr. Pocan. If I can just interrupt for a second, Mr.
Postmaster General. So we do get storms in Wisconsin. We have
had them since I had hair. You and I have similar haircuts. I
think you know what I am talking about timeline-wise. It has
been a while. But----
Mr. DeJoy. So therefore this situation is new to you about
having bad mail service in Wisconsin?
Mr. Pocan. No. It is new, the bad service. Snow isn't new
in Wisconsin. But under your leadership bad performance has
been, unfortunately, increased in Wisconsin. And I am trying to
get that.
I know that you have taken--and some of this happened prior
to you--taken some of the sorting processing outside of various
parts of the State. But it was pretty clear that our rates are
pretty awful.
So your excellent, your grade A service, why is it having
such a bad impact to Wisconsin?
Mr. DeJoy. Well, first of all, I disagree with how you
interpreted the OIG's report and what the OIG's report says.
Okay? Because many of these things, with removing collection
boxes, removing sorting machines--which were 30 percent
underutilized, even the collection boxes that were moved.
There are regional and local practices that enable those
things to happen. It had been going on for many, many years
before I got here. And it was incorrectly associated with my
directive and had no impact on mail delivery. So we are focused
on the wrong things.
The thing that I did do, the thing that I did do, sir, was
try and get the trucks to run on time. We had the COO, seven
area VPs, they put together a plan to try and run the trucks on
time. It failed. They would be eventually recovered after 2 or
3 weeks. It had nothing to do with Federal orders, judge
orders, and so forth.
So you are putting together a whole bunch of activity which
the Postal Service does endeavor in. We have 650,000 people and
deliver to 161 million addresses a day. And you are conflating
a lot of things, sir, to come to my grade. And I want to stay
with my position.
Mr. Quigley. And I appreciate that. Let me move on to Mr.
Joyce, please.
Mr. Joyce. There we go. Thank you, Mr. Chairman.
Postmaster DeJoy, first off, let me say, in northern Ohio,
according to your own statistics, we were the third worst in
the country in the third quarter last year.
But I am not going to beat a dead horse. I understand that
you had problems. And I understand what you are saying, it was
the symptoms of that problem.
However, during Christmastime the local TV station was
showing trucks lined up outside the Cleveland main post office.
And then internally there was mail stacked on top of each
other, and a problem with workers, or whatever, and people
receiving those delays.
I know that you are working on a 10-year system of trying
to get the strategy, trying to cure many of the problems we are
hearing here today. Would you enlighten us on what that 10-year
strategy looks like?
Mr. DeJoy. I can. The plan focuses on service reliability
at affordable prices, and it maintains 6- and 7-day-a-week
delivery.
As we back up from that, we have had significant issues in
the alignment of our network. Most of our network is built out
to service mail. And we have an increasing package business, a
package business that we think--we know will continue to grow.
And the American people have shown through the pandemic that
they like to use the United States Postal Service for package
delivery.
So we have a significant alignment to make in how we run
our network. And I am optimistic it is doable, but we have to
make change. It we don't make change, this will continue.
The pandemic and the service impacts that we had over the
last several months are a few of what is to come if we don't
make change. We could be running trucks around the country with
10 pieces of mail on it and continue to have package business
erode, as it was doing before the pandemic.
So we need to make some big changes. It involves
investment, investment of larger facilities, new equipment, new
package sortation equipment.
It does involve a service standard change. The service
standards that we have now have not been met in the last 7 or 8
years. They are not achievable in the current environment. We
cannot go to California from New York in 3 days without going
on planes, and we don't own planes.
Mr. Joyce. Fair enough. I get those logistic problems. But
if I am not mistaken, part of the business model with packages
has been the last leg, if you will, and working those packages
into the rural areas where it is not cost-efficient for UPS or
FedEx or Amazon or other delivery services to go.
What is your plan for the rural--if you are trying to
condense the system, what is your plan for those areas in your
10-year strategy?
Mr. DeJoy. I am very, very committed, sir, to the rural
areas. And the plan that you are talking about with regard to
density, the private carriers were going after dense areas and
packages and leaving the Postal Service to do rural.
And that is where I get back to the standard, that we are
only doing 35 percent of the deliveries in the Nation. Our plan
is about growing in that business. And the rural areas will
be--we are very--this board, myself, and this management team
are very, very committed to keeping our service to rural
America.
And when we roll out the plan, you will see that a big part
of this is to attain financial sustainability and have revenue
growth to help offset--to become self-sustaining, which is part
of the mission.
There are two things in the legislation that we have: be
self-sustaining and deliver 6 days a week. And we are going to
continue to do that. And we think that those are very--those
are things to be proud of as an organization, and they are
achievable. But we need to make other change. We cannot stay
where we are right now.
Mr. Joyce. Thank you, Mr. Chairman. I will yield back at
this time.
Mr. Quigley. Thank you.
Mrs. Lawrence, please.
Mrs. Torres. She is not there.
Mr. Quigley. Okay.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
First of all, thank you for coming before our committee.
I want to associate myself with the concerns of my
colleagues regarding mail delivery and the unraveling of
machines during a time where we needed them the most, even
though you say that 30 percent of--they were not being utilized
at 30 percent of the time.
I want to move on, though, from that and try to make you a
little more comfortable and address other issues. You are our
guest in our committee.
You know, our committee is in charge of appropriating the
funds that you need in order to operate the post office. So I
want to bring up two issues.
Number one, my experience has been that people--you know,
the poorest of the poor have a much higher use for the post
office. They receive a lot of their mail, their checks--
payments through checks in the mail. They utilize it more
because many of them do not have bank accounts or other means
of delivery. They don't have set-up accounts with other
services.
My hometown of Pomona, a city, when I was the mayor, of
163,000--population of 163,000 people; an adjacent city,
population of about 30,000 people. We are looking at two
cities, an affluent middle class and a very low working-class
community.
On the one community where I live, a post office, a small
community post office, was shut down completely. The only post
office that is left in my community is in a terrible,
dilapidated state. Here are, you know, some of the photos: We
have mailboxes that are out of service. This is the welcoming
that they get in my community. Versus the beautiful post office
in an affluent city with 30,000 residents.
Additionally, the hours, the hours of operation, are not
the same. So you have people that are having to drive 40, 50,
60 miles one way to work and, you know, don't get home till
about 7:00, 8:00 at night, and the post office is closed. So
limited access for them. I am very concerned about that.
I am very concerned at the post office denial to clean up
this mess. You know, the post office represents--the image of
the post office represents the Federal Government. That is not
the image that I want of the Federal Government in my
community.
And, without objection, I would like to ask that these
photographs be submitted for the record.
Mr. Quigley. Without objection.
Mrs. Torres. I don't know if you can answer this question,
but I do want to put it on the record, because I would like to
have a conversation with you, moving forward.
I have serious concerns about the workplace environment at
the Santa Ana District USPS, which serves much of my district.
Over the years, I have spoken with employees who have voiced
concerns over numerous issues--workplace harassment;
retaliation for filing complaints with HR; supervisors who are
not properly trained when they are promoted--instead of holding
them accountable for retaliating against employees, they are
rewarded by giving them promotions; an ongoing issue of
managers having relationships, personal relationships, with
employees, which is, you know--that is unacceptable. That is
unacceptable behavior.
So what is being done at the national level to address this
workplace misconduct? Obviously, we need proper training,
improved training. And we cannot simply move a bad employee and
transfer them to another facility for them to continue to
sexually harass or abuse other employees.
So those are my concerns. I am going to give you--you know,
there is not much time. I hope that we can follow up and have a
longer conversation around it.
Mr. DeJoy. Well, I mean, the points that you make are very,
very important ones and are reflective of historical
circumstances and something that we are very much focused on,
moving forward.
Underinvestment in our retail facilities around the Nation
is something I am very--this board and the management team, we
are very, very concerned about, and that is in our plan.
Our employee turnover is unacceptable, and it is something
that has been around for a number of years, and it is something
I am very committed to working on.
And I would love to hear your thoughts, going forward, and
we can set up a phone call or something.
Mrs. Torres. I would like to do that.
Mr. DeJoy. I think we will see that we are pretty aligned
on trying to make improvements to the organization.
Mrs. Torres. I would like to follow up personally with you,
sir, because I understand these are sensitive concerns that I
have, but, you know, my role here on the Appropriations
Committee is to support a budget request moving forward, and I
want to be on the record that I cannot do that given the
circumstances that I have experienced.
I yield back.
Mr. DeJoy. But if I could add to that just one thing, and
hopefully you will reconsider.
Part of the reason for the situation that we are in is we
lost almost $10 billion last year, $8 billion the year before,
and on and on and on. We have many unfunded mandates that are
put on by us by Congress. There are many limitations that are
put on us by Congress and our regulatory board.
So I would ask that you reconsider--this is a small amount
of money here for the blind and for overseas voters. And I
understand all your concerns, and, look, I can assure you we
are trying to address them. But pulling money away from us is
really not going to help as we move forward.
Mr. Quigley. We encourage and thank you for agreeing to
further communication. I do need to go forward.
Mrs. Lawrence is now recognized.
Mrs. Lawrence. Thank you so much.
Postmaster General, thank you for being here again.
It is my understanding, last week, the United States Postal
Service announced the following organizational changes: You are
consolidating 67 postal districts into 50. New district
territories will be aligned with State boundaries. Districts
will align with the communities the Postal Service serves and
provide similar boundaries for employees and customers. It goes
on and on.
Your predecessor, when she had a plan to change and
reorganize the Postal Service, she actually came and gave a
briefing to the Oversight Committee, which you know I am on,
which gives oversight and approves the operational issues with
the Postal Service. You have denied us that. And it continues
to question your leadership, because you are new to the Postal
Service, but you are doing this massive, sweeping
organizational change.
I know what that feels like because I was with the Postal
Service for 30 years. When you reorganize at that scale, you
are literally slowing down operations. Everyone is trying to
figure out who is on first; you have to go through a whole
selection process for new people. And you are doing this on top
of you already being challenged with not figuring out why you
continue to have the service issues--which, sir, I have to
disagree with you, we have never had the service issues that I
am seeing. I have worked with the Postal Service. I have never
seen trucks backed up for miles to get into a facility.
And the responsibility of all these things that you have
mentioned does rest on your shoulders. I would give you the
grace period--and I want to be very clear about this--if you
wanted to correct your problems with retention so you could
have a stable workforce before you are going in and just
tearing everything up. You know you were hit hard because, in
the middle of an election and in a pandemic, you were taking
out boxes, you were changing overtime policies, and all these
things.
And the entire country responded to that and said, what are
you doing? Because, unlike the United States Congress, the
Postal Service has over a 90 percent approval rating. It is
because the Postal Service touched every American 7 days a week
and they trust that delivery. And now I get calls, and you have
gotten them too, where we literally have not delivered mail but
once or twice a week to a community. And, for them, that is
unsettling, that is not the norm.
And, at minimum, Mr. Postmaster General, the courtesy and
the respect of the organizational structure, to come into the
Postal Service and do a--I mean, into the United States
Congress, to give a briefing, and not subject us to sitting at
home reading a press conference or seeing it on TV.
Because right now we are all talking to you about our
challenges in our communities and in this country, and all you
have, ``I have a plan.'' No one here knows what it is.
And can you tell me, in my time that is left, where is the
analysis of your changes will have on morale? Because we
already, you said, we have this issue, we have this turnover--
on morale? On sustaining delivery?
Because while you are redrawing the lines and talking about
trucks and our vehicle inventory, while you are restructuring
these lines--because every time you change--and you know this.
Every time you change a logistical process for a truck to
deliver mail to a facility, you have built in mistakes, missed
deliveries, because you have to connect all of those logistical
changes, those boundaries that I talked about, you have to
change processes within the plant to allow that dispatch to
meet the delivery of the truck.
And I haven't gotten anything like that from you. And I sit
also on this committee that has the responsibility to
appropriate funds and on Government Oversight for the Postal
Service.
So I will ask that question and tell you, I am going to use
all the power I have to require you to stop doing press
releases on massive changes and to at least give the United
States Congress the courtesy of knowing your plan.
Mr. DeJoy. Congresswoman, you are well-known and respected
within the Postal Service for your career and your position
today. But, honestly, the Postal Service of today and the
condition we are in is not the Postal Service of 2008 when you
retired. We are in----
Mrs. Lawrence. I remember----
Mr. DeJoy [continuing]. Dire, dire financial crisis. And
change----
Mrs. Lawrence. But, sir, when I left the Postal Service----
Mr. DeJoy. And we are not positioned--and we are not
positioned to serve the market that----
Mrs. Lawrence [continuing]. Continue to monitor what is
happening. So I am not naive, sir.
Mr. DeJoy. I didn't hear you. I am sorry.
Mrs. Lawrence. I said I am not naive. When I left the
Postal Service, I came to Congress and have had responsibility
for 8 years of the operations of the Postal Service and had my
thumbprint on what is going on. So please don't imply that I am
ignorant to what is going on.
Mr. DeJoy. I am not saying you are naive.
Mrs. Lawrence [continuing]. Responsibility of hearing the
voices of the people in the United States cry about the
service.
Mr. DeJoy. With regard to the organizational change, this
has been worked since August by leadership in the organization,
established, 30-year people within the organization.
The previous organization structure has led to many of the
problems that we have today. You know, there is a number of
reasons that basically had 7 or 8 people running a 600,000-
person organization, which created a lot of confusion, lack of
clarity, and inability to implement change.
This has all been worked on through many, many people
throughout the organization, has been planned. And we did the
proper notice that we were supposed to do, you know, to the
Congress.
But the point I am making with 2008 is, we don't have
another 10 years ahead of us if we don't get moving on change.
And that is why----
Mr. Quigley. I am sorry. I just have to make sure as we try
to get to a mini-second-round. So I need to move on to Mrs.
Kirkpatrick.
Mrs. Kirkpatrick. Thank you, Mr. Chairman. Thank you for
having this hearing.
And thank you, Mr. DeJoy, for being here and helping us out
with the committee.
As you may know, I represent southern Arizona, including
parts of Tucson. So, back in 2011, the Postal Service moved to
consolidate the Cherrybell Processing Center in Tucson and
targeted it for permanent closure. Fortunately, this closure
did not come to fruition, thanks to a coordinated effort in
Tucson and throughout the State to demonstrate Cherrybell's
value. That said, the facility lost its postmark in 2013 and
has been threatened with further consolidation ever since.
Further, the U.S. Postal Service has chosen to ship postage
from Tucson to Phoenix for processing, and then it goes back to
Tucson. So this means the whole State relies on the processing
in Phoenix, which has led to problems that were exacerbated by
the pandemic.
These problems will only get worse as the population in
Tucson and throughout Arizona continues to grow at a rapid
pace. In my view, it is no longer feasible to forego a
processing operation in Tucson itself.
So, last week, I joined with Senator Sinema and other
members of our delegation to send you a letter that goes into
greater detail on this issue. The letter requests that you move
to reserve the partial consolidation of Cherrybell in Tucson in
light of the problems we identified in our letter.
So I have three questions, Mr. Chairman. My first question
is, will you commit to refraining from further consolidations
at Cherrybell and give serious consideration to reversing the
consolidation that has already occurred?
Mr. DeJoy. Congresswoman, no, I will not commit to
anything, but we are very, very engaged in evaluating, you
know, growing and future conditions of population and how we
service that population. And while, as you said, Arizona was a
growing State, we plan to get on that, we plan to have all our
service, as we design it, to be at 95 percent, and we will
appropriately position facilities, transportation, and
resources to, you know, get to that level.
With regard to a specific site and where it is right now
and what happened in 2011, I would need to get back to you on
that. But, I mean, the big thing to take away from this: If
there are people and need, we are going to reach them, at a
high performance level. But we do need to recast that
expectation of what it is that we are able to do, because we
are losing a lot of money.
Mrs. Kirkpatrick. Thank you for your answer. I appreciate
that. I appreciate the budgetary concerns that you have.
My second question is--and you have partially answered
this: Will you commit to taking in population growth when you
are considering further consolidation or closures?
Mr. DeJoy. Absolutely. We love population growth. We know
we have to go where there are people. And that is a big part of
how we plan to grow.
In this plan, I will say--and this plan has some $20
billion of growth. And it is reaching--it is dealing with the
changing economy and reaching out to where the people are with
the appropriate services and a reliable timeframe. So I
suspect, based on what I hear and know, that Arizonais going to
be in good shape, going forward.
Mrs. Kirkpatrick. Yeah. Well, good.
And, you know, part my district is rural, and I represent
lots of veterans who live in rural Arizona, and they rely on
the Postal Service to get their medications. Many of them live
in areas where there is no community health center and no
doctor. And you have just done a really good job for our
veterans, and I want to applaud you with that.
So, you know, my third question is, do you think it is
efficient to ship Tucson's postage up to Phoenix for processing
and then ship it back to Tucson for distribution?
Mr. DeJoy. So it may be, when we are done with our
analytics. It depends on, you know, the density of mail, the
traffic flows that we have.
But the key thing that we want to be committed to is, what
is our service standard, and are we making it 95 percent of the
time? And from that--and as I said earlier, if we get mail and
packages to our carriers, to our delivery units, it is going to
get there. Ninety-eight percent of the time, it is getting
there.
And the problem and the cost of our network--I mean, that
is costly to do that, but that is legislated, and that is
something we are committed to. The cost of moving mail and
packages around and not having the right equipment and network
and running underutilized is what drives up our costs.
So it may be that that is the solution for getting the 2-
day, you know, mail there. But, as you begin to grow, as the
communities begin to grow, we change.
And that is a key thing. We have failed to evolve over the
last 10 years in terms of our strategy. If we did incremental
things every year as this was happening, more incremental, we
would be in a better shape, and it wouldn't have to be, you
know, where we are at right now.
Mr. Quigley. I am sorry. I thank you, Mr. Postmaster. We
are going to try to do a third round.
And to my colleagues, please try to stick to a 3-minute
question period, if you could, please, so we can get as many
people to be able to ask questions as possible.
Mr. Postmaster, very quickly, there has been much talk
about your new fleet and the fact that such a small percentage
of it is an electric fleet. And I know that there are
limitations, as you have described, in terms of the
infrastructure to have the charging and so forth. But, you
know, it seems that we have tied our hands, you know, if we
purchase a fleet that is really meant for the last 100 years,
right? And by the time this fleet will have served its purpose,
very few cars will be operating in the same manner.
And, at the same time, you know, here we are, as a
Congress, talking about an infrastructure package. It would
seem that, before you go forward and lock things into a plan
that is hard to change, you would have the communication with
us to talk about how to work together toward this end.
And I know there is an issue between where these vehicles
are built. That is not the question here. The question is----
Mr. DeJoy. And I am very----
Mr. Quigley [continuing]. Moving forward.
Mr. DeJoy. I am very, very glad you asked me that question.
I think there is a misunderstanding out there. In fact, I
penned a letter to Congress to explain.
We are very, very excited about having a full fleet, or to
the greatest extent we can, you know, electric fleet. And the
decision that--but we are also facing, we have a 30-year-old
fleet, and they are catching on fire, and we need trucks.
The 10 percent was getting us in a position to engage in
electrification of our fleet. We have a year to decide what the
actual volume is. But the 10 percent was about $500 million,
which we don't have, to kick off the study of engineering and
the plant-building for an electric fleet.
These drivetrains are convertible, so if we were able to
get the funding, we would be able to maybe, of the first buy,
go 50 percent electric. But there is a huge infrastructure cost
associated with that----
Mr. Quigley. No, I get that. And let me cut to the chase.
And I get what you are saying. You are talking about unfolding
a plan as well. Some of the things that you have supposed in
that plan may alter, given your discussions with Congress.
So this is just one example, and we are very limited on
time. And I ask that you consider that, as you unveil your plan
for the future, that you take into consideration that some of
those assumptions you might have would be altered if Congress
said, well, that is not what we want, and we are willing to
help to avoid that eventuality. That is the only point.
Mr. DeJoy. And we would welcome the help with regard to
that matter, sir. Thank you.
Mr. Quigley. Okay.
Mr. Womack.
Mr. Womack. Mr. Chairman, I don't have any further
questions, and, in the interest of time, I am going to yield my
time back and thank the Postmaster General for his time today.
Thank you.
Mr. Quigley. Thank you.
I would move on to Mr. Cartwright.
Mr. Cartwright. Just one question, Mr. DeJoy.
The USPS has this prefunding requirement for healthcare and
pensions for many years into the future. That was enacted in
2006. Successive members of top management at the Postal
Service have expressed a wish that that were not the case,
which is a burden that no other governmental-related agency
faces.
And, last year, in the U.S. House, we passed the USPS
Fairness Act, which had more than 300 cosponsors, including
more than five dozen Republicans. What is your position on
that, Mr. DeJoy? Do you think it is advisable that we pass
that, and will it help with budgetary problems?
Mr. DeJoy. That is a very important question and a big part
of our plan, sir.
I have been working with our team here, with our union
leadership, to get two things out of legislation. One is the
integration of Medicare, and eliminating the prefunding
requirement.
I have been up to the Senate side, on the House side,
speaking with different Members. It is very important. It is
about $50 billion to us over the next 10 years. And we hope
that the Congress sees this through. It is very, very important
to our future.
Mr. Cartwright. Thank you.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you, sir.
Mr. Joyce.
Mr. Womack. I don't think he had any other questions.
Mr. Quigley. Okay.
Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman.
Thank you, Mr. Postmaster General.
Let me just--I just want to make sure I am clear on that
last part, because I do think we have this unusual requirement
that you have to have about prefunding health benefits 75 years
into the future.
I have been a businessperson for over 30 years. You have
been a longtime businessperson. I don't know of another Federal
agency or, quite honestly, a business that requires 75-year
prefunding of health benefits. And that creates an artificial
problem for your agency.
So are you committed to getting rid of that prefunding if
Congress would work with you?
Mr. DeJoy. I--sir, very, very important. And the steps are
important too. And thanks for the opportunity here.
The first, most important thing is requiring the
integration of Medicare. That is going to be somewhere in the
$30 billion range. That is the first step. And then the second
step is eliminating the prefunding requirement, which is about
$13 billion to us over the next 10 years.
Anything you can do to help us with that the whole
organization would really, really appreciate. And it is a big
part of our plan, and we are working it hard.
Mr. Pocan. I give you an ``A'' grade on that answer. I want
you to know that.
Mr. DeJoy. I will take it.
Mr. Pocan. One last thing, and I will yield back after
this. You know, very happy that the contract for the vehicles
is going to Oshkosh, Wisconsin. They are an excellent provider,
and we are strongly supportive of that. So thank you.
I yield back, Mr. Chairman.
Mr. DeJoy. Thank you, sir. Thank you.
Mr. Quigley. Mr. Pocan, are you through?
Mr. Pocan. Yeah, I yielded back, Mr. Chair.
Mr. Quigley. Oh, I am sorry. It broke up for a second.
Mrs. Lawrence.
Mrs. Lawrence. Yes.
You said something really important, Mr. DeJoy. You said
that you wanted to work with the Postal Service when it came to
legislation that will have an impact on your financial
obligation when it comes to funding/prefunding of Medicare and
Medicaid for your employees.
That is the point. If you don't walk away with anything
else--and, lately, you have been pretty combatant when you have
come to these hearings--the one thing I want to stress to you
is that you do need to work with Congress.
The Postal Service is an independent agency, and I am very
much aware of that. But when you make independent decisions--
and every Member you talk to has had the discussion and calls
to our office to tell us how they are not satisfied with the
service. We and I have been working very hard to relieve you of
that financial burden so the Postal Service can become stable.
But if your position is that we have no value--you insult
the fact that we are not sitting in the Postal Service. You
have only been there for a few months. You retired from your
industry in 2018 or whenever you left. To say that you were not
qualified because of all the experience that you had left when
you left your organization, you would feel offended and tell me
how qualified you are to sit in the seat you are in.
So I am telling you that this has to be a partnership. And,
again, I will stress, coming before Congress and the Oversight
Committee and to this body to lay out your plan--if your plan
is one that will work, improve standards--because what we were
told is that you are going to reduce the delivery standard and
suggest that we raise the cost of postage, and that is not
acceptable. But if there is a plan that supports modernization
of the Postal Service, if it is a plan that is going to help us
to keep a workforce, then we can work together.
I don't want to be in this position again where we are
going tit-for-tat and you seem annoyed and arrogant about
answering the questions. We must work together, because the
Postal Service is bigger than you and I, in the short period of
time that you will be serving and the 30 years that I put into
it.
And I pledge to you today that my objective, sir, is to
make it where we have a Postal Service that works for the
American citizens and one that we both can be proud of.
And I will yield back, sir.
Mr. Quigley. Thank you.
Mr. DeJoy. I appreciate those comments, Congresswoman, and
I will work to have further discussion with the Congress as we
move forward with the plan. And happy to meet with you.
And, yes, there are times when, where I leave these
sessions, I am a little embarrassed about my behavior. But I
would also offer--I have been accused of many, many, many
things every time I come in front of the Congress. And I am a
human being, and I am trying to do the right thing. And I
apologize to you if I offended you in some way. I didn't really
mean to. I meant to get my points across, because they are
very, very important, you know, to the organization.
So I look forward to speaking with you again in the future
on the details of our plan, and thank you for your comments.
Mr. Quigley. I appreciate both of your comments. It is
helpful.
Mrs. Torres, please.
Mrs. Torres. Thank you, Mr. Chairman.
I just want to yield some time to our guest to, you know--
we didn't have a whole lot of time for you to answer my
concerns. And I understand that they are delicate and we may
not be able to discuss them openly. But I want to yield my time
to you, in case you want to cover anything.
Certainly the dilapidated state of the post office in my
home city and, you know, threats to close another post office
in the city of Ontario, that has the community, you know, very
nervous.
Mr. DeJoy. Yes, ma'am. I will go back and look at the
details of your district. But I will say, on all those
aspects--and you are talking about employee morale, which leads
to employee behavior, you are talking about how we represent
ourselves and our physical assets, you know, for communities,
and it gets up into our service--this is where the organization
is at right now, right? And it has been a long time coming.
And I think, when we get our--our plan is about improving
every aspect of that. So there is a tremendous amount--we are
earmarking $40 billion to reinvest into the organization. A
great deal of that is in our retail centers. Trying to get our
pre-career turnover rate down to under 40-something percent.
Which is where, perhaps, the situations that you are talking
about, where they really begin to--where they happen the most.
It might not be in our long-term career employees. But we have
basically a two-tier system. And while it should be an
apprenticeship that leads to long-term success and we need the
structure for viability, financial viability, we could have
managed it a whole lot better and are going to, you know, as we
move forward.
Long term, we are looking at our interaction with the
American public. We are trusted, but I want to be used. This
plan is about being used more and about being modern and being
reliable at 95 percent and everything that we say that we do.
So I sense your--I appreciate your concern, and I sense
your interest and empathy for that environment. And I promise
you that this is something on the top of our list and our plan.
And I look forward to working with you to get some more insight
on, you know, the specifics of what you are talking about.
Mrs. Torres. Thank you, sir.
Mr. Chairman, I yield back.
Mr. Quigley. Thank you so much.
Mr. Womack, do you have any concluding remarks?
Mr. Womack. I am finished for the week.
Mr. Quigley. I completely understand.
Mr. Postmaster General, we want to thank you for being here
today. I think you can understand the passion and the interest
this issue has created. And we have our moments, but I do
believe there was some connection today and some communication,
and that is extraordinarily important. So we want to thank you
for being here.
We will now conclude today's hearing. I ask members to
submit any remaining questions into the record.
Mr. DeJoy, I ask that you respond to the additional written
questions in a timely fashion.
Mr. Quigley. And, with that, the subcommittee stands
adjourned. Thank you all.
Tuesday, May 18, 2021.
OVERSIGHT HEARING--THE NEED FOR UNIVERSAL BROADBAND: LESSONS FROM THE
COVID-19 PANDEMIC
WITNESSES
JOI CHANEY, EXECUTIVE DIRECTOR OF THE WASHINGTON BUREAU AND SENIOR VICE
PRESIDENT FOR POLICY AND ADVOCACY, NATIONAL URBAN LEAGUE
MATT DUNNE, FOUNDER AND EXECUTIVE DIRECTOR, CENTER ON RURAL INNOVATION
MAX STIER, PRESIDENT AND CEO, PARTNERSHIP FOR PUBLIC SERVICE
LANG ZIMMERMAN, VICE PRESIDENT, YELCOT TELEPHONE COMPANY AND MOUNTAIN
VIEW TELEPHONE COMPANY, ON BEHALF OF NTCA
Mr. Quigley. This hearing will come to order.
Since this hearing is virtual, we must address a few
housekeeping matters.
For today's meeting, the chair or staff designated by the
chair may mute participants' microphones when they are not
under recognition for the purposes of eliminating inadvertent
background noise or advertent background noise. Members are
responsible for muting and unmuting yourself. If I notice you
have not unmuted yourself, I will ask you if you would like the
staff to unmute you. If you indicate approval by nodding, the
staff will unmute your microphone.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move on
to the next member until the issue is resolved and you will
retain the balance of your precious time. You will notice a
clock on your screen that will show you how much time is
remaining. At 1 minute remaining, the clock will turn yellow.
At 30 seconds remaining, I will gently tap the gavel to remind
members that your time is almost expired. When your time is
expired, the clock will turn red, and I will recognize the next
member.
In terms of the speaking order, we will follow the order
set forth in the House rules, beginning with the chair and
ranking member. Then members present at the time the hearing is
called to order will be recognized in order of seniority, and
finally, members not present at the time the hearing is called
to order. We will deviate from that if the ranking member has
someone who needs to move up or adjust, as I will within our
ranks at the same time.
Finally, House rules require that we have set up an email
address to which members can send items they wish to submit in
writing at any of our hearings or markups. That email address
has been provided to you in advance.
This morning, we welcome four individuals with expertise in
broadband: Matt Dunne of the Center on Rural Innovation; Max
Stier of the Partnership for Public Service; Ms. Joi Chaney
from the National Urban League, and Mr. Lang Zimmerman of
Yelcot Communications.
They are here to discuss one of the most important issues
of our time: ensuring that all Americans have the connectivity
to fully participate in our economy and society.
Broadband has been an enormous benefit to our country. It
is a key driver of our economic growth and innovation, has
democratized access to educational resources and new job
opportunities, and has broadened availability of health care
and social services. But during COVID, broadband became much
more than that. It became a matter of, literally, life and
death.
People with reliable broadband at home were more easily
able to socially distance by transitioning to telecommuting and
remote learning. They could use video conferencing to keep in
touch with friends and family, access health care services,
order essential supplies and medicines, and use government
services. In other words, the pandemic has made it abundantly
clear that access to reliable broadband is not a luxury, but a
necessity. Broadband is as important to modern life as
electricity or running water.
Unfortunately, not everyone is so fortunate. Many of our
rural communities have no connectivity or remain reliant on
outdated technologies that don't provide sufficient bandwidth.
Communities of color have also been disproportionately
affected. It has limited access to jobs, left many students of
color struggling to keep up with their schoolwork, and put many
people of color at higher risk of catching the virus.
As the subcommittee that oversees the Federal
Communications Commission, we have been working on these issues
for years, and we ramped up our efforts during the pandemic. We
helped secure billions in funding to provide devices and
connectivity for at-home learning and telemedicine. We have
provided substantial resources for better broadband maps and
given states the flexibility to use virus relief funds on
broadband.
And we are excited that just last week the FCC launched the
Emergency Broadband Benefit, a $3.2 billion program to provide
discounted broadband services and devices to low-income
Americans, including people affected by the pandemic.
These efforts are just the beginning. There is bipartisan
agreement about the importance of ensuring universal broadband
access, and the administration has made it clear that broadband
is one of the main priorities in an infrastructure package.
Today, we will learn more about how the lack of broadband
affects rural communities, the connectivity issues facing
communities of color, and the challenges of small internet
providers. And we will hear about an issue dear to me and my
fellow appropriators--how broadband might make the federal
government more efficient and effective.
These insights will help ensure that we fully incorporate
lessons from the pandemic into our infrastructure discussions
and ensure we get the most value for each dollar we invest. I
look forward to the discussion.
Before I turn to each of the witnesses for their
statements, I would like to recognize the ranking member, Mr.
Womack, our friend, for his opening remarks.
Mr. Womack. Thank you, Mr. Chairman, and thanks for holding
this very important hearing on a truly bipartisan topic,
broadband.
When the pandemic began, as the chairman so stipulated, our
businesses and schools closed, many Americans began to work
from home, increased their online purchases, and school
classrooms became virtual. Our nation's broadband providers
stepped up to the challenge to meet the increase in demand on
our information networks. According to the Information
Technology and Innovation Foundation, the jump in demand has
seen peak traffic roughly 20 to 30 percent higher than before
the pandemic.
Thankfully, the increase in broadband traffic was within
the anticipated growth and demand operators could already
accommodate. As such, U.S. broadband networks were able to
accommodate these changes with virtually no drop in
performance.
The facilities-based competition model in the United
States, which relies on incentivizing providers to invest in
infrastructure, passed the COVID-19 network stress test,
performing better than internet infrastructure in many other
countries. The dynamic broadband competition in the United
States has driven billions of dollars into network capacity
that met the surge in demand. The light-touch regulatory
approach also allowed for network operators to flexibly adjust
interconnection levels to meet new changes in demand.
While the pandemic showed the strength of our nation's
broadband networks, it also highlighted that more work needs to
be done to provide reliable and accessible internet service to
many rural and urban areas. In America, your employment
opportunities and education should not be limited by your
ability to access the internet.
I would like to welcome our witnesses today. We will look
forward to hearing your ideas on improving broadband
accessibility. Specifically, let me recognize Lang Zimmerman,
the vice president of Yelcot Telephone Company and Mountain
View Telephone Company, which provide broadband service to
northern Arkansas, including parts of my district.
During the pandemic, Yelcot and Mountain View demonstrated
their commitment to the communities by ensuring struggling
customers remain connected to broadband services and connecting
new customers to broadband. I am pleased that he is with us
today to provide the perspective of a service provider who has
been working to expand broadband accessibility in rural
Arkansas, actually boots on the ground.
Currently, the federal government has dedicated tens of
billions of dollars to broadband and 5G expansion through the
Universal Service Fund, the various COVID relief bills, and the
Department of Agriculture. We would like to hear if these
resources are improving accessibility, if more funding is going
to be needed, and that there are regulatory changes that could
speed expansion and reduce costs.
I want to thank the witnesses for participating today, and
I yield back the balance of my time.
Mr. Quigley. Thank you, Mr. Womack.
Our first witness is Matt Dunne, founder and executive
director of the Center on Rural Innovation.
Please go ahead.
Mr. Dunne. Chairman Quigley, Ranking Member Womack, and
members of the subcommittee, thank you for this opportunity to
appear before you today.
My name is Matt Dunne, and I am the founder and executive
director of the Center on Rural Innovation, a nonprofit action
tank that was founded in 2017 to close the rural opportunity
gap. Today, we are working with small towns across 20 states,
including rural Tennessee, Wisconsin, Utah, Arkansas, and
Nevada to help them become successful in economic development
and entrepreneurship in the 21st century.
The rural-urban divide that has emerged since the Great
Recession was driven by automation and a decline in
entrepreneurship. As of January of 2020, less than half of all
rural countries had returned to their pre-recession economies,
and COVID-19 only knocked these counties to new lows.
Specifically driving the divide is the fact that high-
paying, resilient digital economy jobs, like computer
programmers, cybersecurity analysts, and IT specialists are not
distributed equitably across the country. Rural America
represents 15 percent of the nation's workforce, but only 5
percent of the digital economy jobs.
As you can imagine, central to closing this gap is
accelerating access to world-class broadband in rural America.
And we help that by providing support to communities,
policymakers, and others seeking to build future-proof
broadband infrastructure. And as the past year has shown us,
this work has never been more important.
Broadband is no longer a luxury. It is a necessary piece of
infrastructure to ensure there is equal access to health care,
education, and jobs. And COVID has created a moment where there
is the motivation and momentum to close the broadband gap.
We need to take a lesson from the rural electrification
effort a century ago and do this right. If we do not focus on
delivering future-proof broadband, we will be back here five
years and billions of dollars later discussing, once again, the
inequity in broadband connectivity.
Even before the pandemic, rural America struggled with the
broadband gap. There is a small town near our headquarters that
has a fantastic library. You drive by on Sundays and the
parking lot would be full, which wouldn't be so odd if the
library wasn't closed on Sundays. That parking lot was full of
people working on their homework or their day jobs from their
cars, making the most of the wifi leaking from the library
windows.
This story was no longer funny once COVID hit. The pandemic
laid bare the depth and severity of the digital divide. More
than 20 percent of rural Americans don't have access to
broadband, a figure that is even worse for communities of
color. It is estimated that 46 percent of rural black residents
don't have broadband access at home.
During the pandemic, millions of children couldn't
participate in remote school. Superintendents reported losing
touch completely with many of their at-risk students. People
who could work remotely would sit in running cars trying to use
hot spots hastily put up by schools or police stations.
Seniors, unable to access new telehealth technologies due to
poor broadband, were forced to risk infection to visit clinics
for routine checkups.
However, this wasn't the case in every rural community. The
small towns that had capitalized on municipal electric
companies, coops, public-private partnerships, or collaborated
with small telephone providers to build out future-proof fiber
broadband had different experiences during the pandemic. These
places benefitted from city dwellers who brought their jobs
with them to beautiful rural settings, reversing the population
declines of the last decade. Powered by great broadband, tech
startups in communities we work with have grown, received
investment, and found new markets without needing to leave the
places they love.
We all know there are models to deliver sustainable, world-
class broadband to small town America. We have seen the power
of unleashing rural innovation in education and economic
development when broadband is available.
I wanted to offer six recommendations for this once-in-a-
lifetime moment to ensure we build future-proof broadband in
the most efficient way possible.
One, require ISPs to provide the FCC with accurate and
validated data; no excused.
Two, focus on fast responses with hot spots and some
wireless, but, then, focus most of the resources and money on
fiber to the home.
Three, predicate federal broadband funding on states
allowing municipal, coop, and public-private broadband
solutions.
Four, resist the temptation of reverse auctions and have
funding follow plans, such as USDA ReConnect, that are driven
by states and regions.
Five, invest in programs to build the 250,000-person labor
force needed for broadband deployment.
Six, create enforcement mechanisms that hold providers who
receive funding accountable.
Thank you for your time and consideration of this important
issue. You have the momentum and historic opportunity to bring
broadband to all Americans once and for all. Rural America is
ready to make this happen. And I am happy to answer any
questions you may have.
Mr. Quigley. Thank you.
Our next witness is Max Stier, president and CEO of the
Partnership for Public Service.
Mr. Stier. So, I just want to start by saying thank you so
much, Chairman Quigley and Ranking Member Womack, for inviting
me to testify.
As you mentioned, I am the president of the Partnership for
Public Service, a nonpartisan, nonprofit organization focused
on trying to make the federal government work better.
It is terrific that you are having this hearing on the need
for universal broadband. High-speed internet access is not
itself the end, but an essential tool for Americans to thrive
in today's world, as you said, like water and electricity. I
will try to offer some context on why this matters so much
right now and provide recommendations on the path forward.
So, as more services move online, the federal government
needs to address the digital divide to ensure everyone has
access to its critical services. Many people who rely on
government do not have high-speed internet, such as more than
41 percent of Medicare beneficiaries, 35 percent of the
population on rural tribal lands, 42 percent of rural veterans,
and 60 percent of U.S. farmers and ranchers do not believe they
have adequate internet connectivity.
We need a government that is, in fact, even more available.
A government that serves the public using modern online tools
is going to be more effective, efficient, user-friendly, and
secure. So, some examples on this.
On the efficiency side, it costs the IRS $41 to field every
phone call it gets, as opposed to pennies for online
transactions.
Second, providing an online option to report a lost or
stolen passport resulted in a 46 percent increase in reporting,
helping the State Department ensure the security of its
passports.
And the third example, a mobile app increased the accuracy
and frequency of wage information reported to the Social
Security Administration, which meant that it was able to reduce
improper payments.
Now the pandemic supercharged the need for the government
to serve the public through modern online interactions. Many
agencies rose to the challenge. Again, a couple of examples.
The Veterans Health Administration delivered a thousand
percent increase in video health care visits.
The USDA adopted new digital tools for electronic
signatures and online file sharing for farm loans.
Which leads me now to my five recommendations:
First, we need to enhance the efficiency of government
through collaboration across agencies to address the digital
divide. The digital divide is a complex challenge that no one
agency can solve. We have heard already that, while lots of
agencies are involved in funding, options include creating a
cross-agency council. One existed during the Obama years, the
Broadband Opportunity Council. Or a second opportunity would be
to work with OMB, which is truly the center of government and a
vital actor in bringing together the different pieces, the
connectivity across government.
Second, we need to leverage public-private partnerships.
And again, an example here, the Veterans Health Administration
has a partnership with Microsoft and internet providers to
bring high-speed internet to rural veterans.
Third, we need to improve the customer experience. Access
alone is not enough. Services need to be easy to use, even for
those with low digital literacy, and agencies need to consider
people who not only lack high-speed internet, but want other
options. So, the VA, for example, sent internet-enabled tablets
to veterans. And customers should have choices. For example,
the ability to call to speak to someone, even if there is an
option for doing something online.
Fourth, and very important from our perspective, we need to
give the federal workforce the tools and flexibility they need
to serve the public effectively. The pandemic has revealed
digital gaps in government itself, and we need to see more
investment in modern IT systems, including secure cloud-based
environments. And we need the government to build off of what
it has learned through the pandemic to continue to enable a lot
of remote work, so that it can actually access the best-in-
class talent across the entire country and enable them to
continue to work remotely.
Fifth, and finally, we need, actually, agencies to
regularly collect and report on data around access, use, and
satisfaction with services. There are two specific pieces of
legislation to mention here. Congress should pass the FACE Act,
which will streamline the process for collecting customer
feedback and require publicly reported customer service
measures across agencies, and then, second, ensure the
implementation of the 21st century IDEA Act, which sets the
usability standards for federal websites. We need OMB to put
out the implementing regulations.
Thank you for this opportunity. I look forward to the
conversation after the rest of the witnesses.
Mr. Quigley. Thank you.
Now we will hear from Joi Chaney, executive director of the
Washington Bureau and senior vice president for policy and
advocacy at the National Urban League.
Ms. Chaney. Thank you, Mr. Chairman.
Subcommittee Chairman Quigley, Ranking Member Womack,
members of the subcommittee, and in their absence, full
Committee Chairwoman DeLauro, Ranking Member Granger. Thank you
for having this hearing and for the opportunity to present the
views of the National Urban League.
As you said, my name is Joi Chaney, and I serve as senior
vice president of policy and advocacy and executive director of
the Washington Bureau of the Urban League. I bring you
greetings on behalf of Marc Morial, our president and CEO.
I am honored to testify about the need for universal
broadband and how we can leverage the lessons learned by the
COVID-19 pandemic for a more inclusive and 21st century
society.
Prior to the COVID-19 pandemic, many individuals, families,
and children relied on their schools, places of work, and
other, quote-unquote, ``third spaces,'' like libraries,
churches, internet cafes, and coffee shops, to connect to the
internet because they did not have a broadband internet
connection in the home--with a disproportionate number of these
Americans being from communities of color or low-income
communities. Overnight, third spaces disappeared at a time when
we needed connection the most.
The pandemic accelerated the ongoing migration to remote
everything, particularly for essential activities, such as
employment, health care, and education. The benefits of being
connected grew even faster, but so did the costs to communities
who were not connected. The COVID-19 pandemic proved that
broadband was no longer a nicety; it has become a necessity, as
you have said, Mr. Chairman, as necessary as electricity and
running water.
Far beyond the, quote-unquote, ``homework gap,'' when
schools were forced to close the districts that had the
resources to provide computers and hot spots to students and
educators, they were able to transition to online learning
fairly quickly, but those who did not were left scrambling.
Philadelphia Public Schools initially decided not to provide
remote learning instruction, citing inequity in access to
computers and high-speed internet as the main reason. And that
is just an example.
In health care, we know that the lack of broadband access
is leading to inequality in obtaining the COVID-19 vaccine,
yes, but that telehealth has become a critical necessity since
the start of the pandemic. Some estimates show that health care
providers are seeing 50 to 175 times more patients using
telehealth than they did immediately before the pandemic. We
don't simply expect this trend to reverse post-pandemic because
of the benefits telehealth provides to those who cannot easily
visit a doctor in person. Nevertheless, telehealth is out of
reach for those Americans without in-home broadband and/or a
proper device.
And while these examples focus on those who cannot afford
or do not have available broadband service on demand in the
home, there are those who could have it, but who lack the
digital literacy to use internet services, including a
disproportionate number of older Americans. Moreover, even if
you have broadband and you know how to use it, we need our
public institutions to improve utilization. The costs of not
doing so are borne disproportionately by those who rely most on
government services, often at their time of need.
In my home State of Florida, hundreds of Floridians risked
their safety to line up during a pandemic to obtain an
unemployment form because the State's website crashed, making
it painfully obvious that the public sector is still far behind
where it should be in terms of providing services over the
internet.
These examples underscore the need for universal broadband
and the need for overdue investments towards closing the
digital divide, as a matter of civil rights and as a matter of
human rights. It is also why the Urban League released our
Comprehensive Lewis Latimer Plan for Digital Equity and
Inclusion. The plan describes and offers solutions for closing
several gaps: refocus on expanding availability, ensuring
affordability, lowering barriers to adoption, improving
utilization, and extending access to economic opportunity for
communities of color.
One thing in this moment that would put us a long way
towards addressing these gaps is to build on the work fo the
ongoing Emergency Broadband Benefit and establish a long-term
or permanent broadband benefit program. Any such program must
set minimum standards that will regularly be reevaluated and
adjusted to remain current, and we must ensure greater
accountability from internet service providers.
Moreover, we know that costs cannot fall only on the
American taxpayer. We need appropriations, especially in the
beginning, so that the neediest in our society won't have to
wait. But, ultimately, we also need the industry to put skin in
the game. One idea is a digital equity fund that could be the
repository of contributions, including from special auction
proceeds.
But whatever we, whatever you, as Congress, does, the
National Urban League charges you with doing something to
ensure those who receive emergency broadband now don't go back
to not having it once the emergency is over. Because as bad as
the former gaps were, the gaps will only be much larger in the
future. The COVID-19 pandemic has forever changed the way we do
work, learn, and connect with others in society. If we do not
close the digital divide, our communities will continue to fall
behind at the speed of each innovation, and with them, our
nation in the global marketplace.
Thank you for the opportunity to testify, and I look
forward to answering any of your questions.
Mr. Quigley. Thank you so much.
Our fourth witness, and final witness, is Lang Zimmerman,
vice president of Yelcot Communications.
Please go ahead.
Mr. Zimmerman. Thank you, and good morning. Chairman
Quigley, Ranking Member Womack, and members of the
subcommittee, thank you for this opportunity to testify about
lessons learned from providing broadband during the COVID-19
pandemic.
My name is Lang Zimmerman. I am vice president of the
Yelcot Telephone Company and Mountain View Telephone Company.
We are a small rural broadband and voice provider located in
north central Arkansas. And my remarks today are on behalf of
those two companies as well as NTCA, the rural broadband
association which represents about 850 small rural telecom
carriers in 45 states.
The pandemic has altered society as we know it and
highlighted the importance of access to reliable, high-speed
broadband connectivity. I am proud to report that, as offices
and schools closed over a year ago in response to the pandemic,
Yelcot and Mountain View joined hundreds of other small
broadband providers in making every effort to connect and keep
connected to everyone in rural communities who wanted and
needed high-speed broadband.
If I had to identify one lesson learned from the pandemic,
it would be that investments in broadband infrastructure and
affordability are essential so that everyone will experience
the telehealth, telework, distance learning, and other benefits
of such connectivity.
And how do we move forward from here? Nearly 70 percent of
NTCA member customers are already connected to fiber broadband
and can access speeds of 100 megabits or more. While we are
proud of this work that has been done, the job is, obviously,
not finished. Too many Americans are still waiting for reliable
broadband service, many of whom are not served by community-
based broadband providers. Those who lack access probably live
in a rural area that provides no business case for deploying
and maintaining an advanced telecom network.
The USF High-Cost Program will remain essential to
incentivizes deployment in these areas and to help keep rates
more affordable, but USF alone is not enough because it does
not pay for the network construction. It does not provide
capital to build networks.
Congress has already appropriated considerable sums to the
USDA ReConnect Program to help connect unserved areas, and
Yelcot and Mountain View, each are working toward our
completion of fiber broadband deployment projects, thanks, in
part, to ReConnect awards.
But additional support from the government is needed to
help finance the deployment of networks and provide the
business case to operate them on an ongoing basis. Thankfully,
both the administration and Congress have acknowledged that
broadband should be an essential component of any major
infrastructure plan. As work continues to agreement, several
key objectives should be kept in mind.
First, broadband is essential and consumer bandwidth
demands are increasing at a staggering pace. So, why not
support the most robust and reliable infrastructure? It is time
to put resources toward more fiber broadband connections that
could be readily upgraded to meet future demand and relied on,
regardless of terrain or weather conditions.
Number 2, at the same time, new investments must be
coordinated with existing networks and ongoing deployments
instead of backing a second network in an area where there is
not a business case for even one network. This will be helped
by prioritizing areas most lacking in broadband and putting at
least some new infrastructure dollars in current programs such
as ReConnect, which has been highly effective with a record of
accountability and results.
Number 3, support should go to broadband providers with
proven track records in delivering measurable, real-world
results.
Number four, we should look local and leverage the
expertise and experience of community-based providers like
Yelcot and Mountain View, regardless of their corporate form,
when it comes to implementing broadband solutions.
Cost is not the only barrier to broadband deployment.
Carriers must secure approvals across government and privately
owned lands, and the process for doing so can be very time-
consuming and expensive, further delaying broadband
installations that customers badly need.
The standardization of permitting procedures across federal
agencies should be a high priority, and Congress should also
allocate the resources needed to timely complete reviews and
establish reasonable, but firm timelines for doing so.
In addition, Congress should monitor supply chains and
ensure agencies work closely with suppliers, as already
considerable delays in order fulfillment for critical
communications equipment could become increasingly more
problematic as more phones flow for deployment.
Finally, broadband must be both available and affordable
for the customer. Yelcot and Mountain View are pleased to be
participating in the new Emergency Broadband Benefit Program to
ensure that service is affordable for all. I encourage Congress
to take the lessons learned from the EBB and apply them to a
permanent broadband affordability program with predictable and
sufficient funding.
And I thank the subcommittee for holding this hearing and
for your interest in determining the most effective ways to
ensure everyone gets and stays connected to broadband. And we
at my companies and NTCA companies are eager to work with you,
and we will answer any questions.
Mr. Quigley. Thank you. And I want to thank our witnesses.
We are turning to questions, and as we do, I would just ask
those asking and answering questions to keep in mind the 5-
minute allocation, so that we can make sure everyone gets an
opportunity to participate. And given the time constraints, we
may go out of order for a few.
In this case, we will begin with Mrs. Lawrence.
Mrs. Lawrence. Good morning, and thank you, Chair Quigley
and Ranking Member.
In the city of Detroit that I proudly represent,
approximately 40 percent do not have a wired, high-speed
connection, and 26 percent of Detroiters don't have internet of
any kind, ultimately, excluding thousands of people from
opportunities for access to health care, education, and
employment.
We must continue to address the digital divide. I am proud
to hear or relieved to hear that discussion includes
affordability, because we know the infrastructure is in place
in some major areas, urban areas, but it is an issue of
affordability. Affordability is a concern for my constituents
in Detroit.
My question is, Do you have any recommendations of how to
address the affordability specifically for cities with high
poverty rates? And any of the panel can answer.
Mr. Zimmerman. I will take a shot at that.
The Emergency Broadband Benefit Program that is starting
right now, it has funds that are only supposed to last an
estimated six months, and that won't do anybody any good to get
on, and then, get kicked off after six months. I think what it
can do, though, is show the demand. I understand the website
for people to try to sign up for the EBB has crashed because of
demand. There is obviously a demand for it.
What we need to do is learn from that and make sure that we
can maybe extend that or make it permanent. There is currently
a Lifeline Program for voice communications that is accessible
for both landline and cell phone, and broadband probably needs
a lifeline program of its own.
Ms. Chaney. This is Joi Chaney from the Urban League,
Congresswoman.
And I am not sure if you are still there, but I wanted to
jump to say I agree, we need some kind of long-term broadband
benefit.
Mrs. Lawrence. Yes.
Ms. Chaney. And I address that in my testimony as well. If
you look at my longer testimony, our Latimer Plan, we also come
up with an alternative. I don't think it is as good as a long-
term broadband benefit, but we came up with some lifeline
adjustments for mobile and broadband around health, education,
and workforce that could also be an alternative and a solution.
But I think your point is that we are saying, I think on a
bipartisan level, that we must have funds that are allocated
for those who simply do not have the resources, really almost
at any amount, any low-cost program, to meet the needs of
having broadband in the home. We need to have a Broadband
Benefit Program through FCC.
Mr. Dunne. Yes, Congresswoman, if I could add just two
additional points to the excellent comments that were just
made?
Mrs. Lawrence. Yes.
Mr. Dunne. The two things are states who coordinated their
efforts to try to help bulk purchase the subsidies and be able
to work in a coordinated way with social service agencies and
others to deliver those, so that you took the friction out of
someone having to figure out how to access the subsidy, how to
then utilize it, have it applied retrospectively or
prospectively, because they were all different, saw a lot
faster utilization and allowed for people to take advantage of
the subsidies that were available, either from individual
providers or that were available through state and federal
subsidy. And it is worth considering that coordination.
The other piece that I would mention is that we have
recommended----
Mrs. Lawrence. If I could----
Mr. Dunne. Oh, sorry.
Mrs. Lawrence. If I could just interject, in the city of
Detroit we have Connect 313. It is a citywide, data-driven,
data-inclusion strategy that brings organizations together to
make Detroit a national model for digital inclusion and ensure
all Detroiters can access the digital. What can we do in
Congress to support these inclusion efforts at the local level?
And with that, if you will answer the question?
And, Mr. Chair, I will yield back after their answers.
You can continue, sir.
Mr. Dunne. Thank you.
Just the other thing that I would suggest--and there has
been talk of this--is the idea of leveraging national service
to be able to help support the kinds of efforts that it sounds
like Detroit is taking a leadership role in coordinating. The
opportunity for a broadband corps that is focused on making
sure that people are aware of subsidies, understand how to sign
up, and also, how, if they avail themselves of broadband
services, they can save money in other parts of their life
work, is really powerful. And the Urban League has done an
excellent job of laying out the kinds of things that need to
happen, and I think there is a moment for national service
through a numerical program specifically on broadband support
that could be powerful. And we have recommended that to a
couple of states over the last year.
Ms. Chaney. Thanks so much, Matt. I was going to say yes,
we certainly endorse some kind of digital navigators program
that would help people not only learn how to get online and to
get the access of whatever resources are available to them,
federal or local, but, then, also learning how to get on, how
to use, and how to really benefit from the internet.
Thanks.
Mr. Quigley. Thank you.
And we are going to have to move on to the next questioner.
We will get back to you if there is anything left within the
questions asked, just to make sure. We have several that are on
tighter deadlines.
And toward that, I believe that the ranking member wants me
to recognize Mr. Joyce first.
Mr. Joyce. Thank you, Mr. Chairman. And thank you, Ranking
Member Womack, for conceding to me.
Over the last year, Americans have relied more on services
which allow them to connect remotely than ever before.
Unfortunately, far too many Buckeyes in rural areas completely
lack access to adequate broadband services.
A 2019 study funded by the Appalachian Regional Commission
across eight Ohio counties found that, in rural areas with 20
or fewer households per square mile, 80 to 90 percent of the
households had no access to broadband whatsoever. We know that
strong public-private partnerships will be critical to building
out the broadband infrastructure to these currently underserved
communities.
Mr. Zimmerman, given your experience of getting private
operators to work with local stakeholders, can you provide any
insight into what kind of practices have worked? And just as
important, what practices have not worked in forming strong
public-private partnerships to deploy broadband to underserved
or unserved areas?
Mr. Zimmerman. Yes. Arkansas has used a large chunk of its
CARES money to do a broadband grant program. And that grant
program was driven by community involvement, as in, if it was a
municipality, the mayor had to sign off on the application. Or
if it was a county, the county judge had to sign off. And if it
was both of those guys, they both signed off on it. So, that
was very effective in getting some areas involved and seeking
out this money that was there, because, as you know, sometimes
mayors are very progressive and know about these programs;
sometimes mayors or county judges do not know. With the public-
private partnerships, we were able to approach some areas that
we knew were underserved and encourage them to apply with us.
And so, I think Arkansas set aside $125 million and went
through it fairly quickly with some really good projects in the
State of Arkansas. So, I would encourage Ohio to look at some
grant programs to take some of this broadband money, or if it
is infrastructure money they are calling it, you can still
apply to broadband in Ohio.
Mr. Joyce. There are several well-known factors that might
diminish the broadband providers' willingness to invest in new
infrastructure in communities which don't have sufficient
access. These factors include low population density,
challenging natural features of the land, and building some
government regulations. Mr. Zimmerman, are there factors which
policymakers should be aware of that limit broadband
investments in unserved areas?
Mr. Zimmerman. Well, yes. Some of the things that can make
it tough on the companies to develop, we sometimes have to get
permits from federal agencies to cross their land. And, in
fact, on a couple of projects, one, in particular, we made a
conscious decision to bypass a federal piece of property that
would have been a faster route just because we didn't want to
get bogged down in the process.
So, what we would encourage is a streamlined permit process
across all federal agencies that control land, as well as what
we call a ``shop clock,'' so that an application doesn't sit on
someone's desk or an agency's desk for a long period of time.
We need something that says, if it is not approved in 90 days,
or something like that, it is deemed approved.
We also have rights-of-way issues with railroads, which,
obviously, the feds can't just wave a magic wand and fix, but
that is one issue we face, as well as pole attachments, which
are large hindrances in a number of areas. There are some pole
owners that enjoy federal exemption from the FCC pole
attachment rules and make it very expensive to attach to their
poles to get to some of these areas that need broadband. So,
those are some of the things that can also hinder the
expansion.
In my area, Mountain View, we have got down to five people
per square mile or five households per square mile. So, we are
very rural, but we won some of these ReConnect grants and we
are going out there and doing it.
Mr. Joyce. Yes, it, unfortunately, really took something
like the pandemic to drive home the fact that there are many
areas of my district that were being unserved completely. And
you only had to go by the closed McDonald's to see all the
people using their broadband in the parking lot to realize just
how bad the problem was.
Thank you all for being here and communicating.
Thank you, Mr. Chairman and Ranking Member, for allowing me
to go. And I yield back the rest of my time.
Mr. Quigley. Thank you, sir.
I will address Ms. Chaney on this. Obviously, there is
strong support for providing funding to build out future
networks, but we are also concerned about getting the most out
of our limited federal dollars. What protections or conditions
should we be placing on funding to ensure that we are really
protecting consumers at the same time? For example, not just on
the affordability issues, but redlining, abusive data
collection practices, as they use networks that the federal
government helps build?
Ms. Chaney. I don't know if someone else is going to go
first, but I shall then.
Absolutely, I think that this is a time of incredible
opportunity, but sometimes in these moments, especially when we
are in an emergency, we forget to have all of the backstops
that we need. And you addressed many of them there.
I mean, one of the things that we also want to make sure is
that service providers aren't doing any kind of abusive
activities as well, inadvertently or intentionally. And so, we
will need to do that to protect privacy; to make sure that
people, when they get on, understand what that means and that
the exposures they are having.
And I think one of the things that the Latimer Plan also
talks about is making sure that, in our rush to expand
broadband and increase availability, and all of the things,
that we don't allow communities of color to sort of miss out on
the economic opportunity that is happening as well. We want to
make sure that, as we are setting up, you know, the funding is
going out and we are building, that business owners of color
are able to access some of that economic opportunity that is
being created. It would be a shame to get on the other side of
this and to find that we have created more gaps than we
actually have closed.
And I yield the rest, but I think that it is very important
to be thinking about that as well.
Mr. Quigley. Mr. Dunne.
Mr. Dunne. Mr. Chairman, I would say there are three areas
that I would really focus in on.
One is on the importance of having enforcement after funds
are allocated. We have seen in the past that goal posts have
moved; that funding has been given to be able to deliver some
quality of broadband to a certain region that has not actually
happened, and then, there is a waiver that comes after it. And
that sets up a bad dynamic, particularly for those companies
that are actually doing the work and not receiving the funding,
and then, are having to see that someone who doesn't succeed
gets it, and then, is given a waiver.
The second area is on data. It is a very strange thing that
large incumbents are not required to deliver absolutely up-to-
the moment data on what is available and what isn't. And when
there are so many programs, including the RDOF auction that
took place recently, that are dependent on that data to show
what is served and not served, to be able to show
accessibility, you ended up with situations where some areas in
a place like Pine Bluff, Arkansas, that didn't have broadband
access were shown to be served. And so, it couldn't get the
money. And some places that were already served, but showed as
not being served, did actually get awarded resources. So, there
is real importance on making sure that that data is taken care
of.
The final piece is focusing on future-proof broadband, what
Mr. Zimmerman was talking about, which is fiber to the home.
You have got to get some emergency resources out there to get
people connected in the short term, but for the long-term value
and efficiency, you really want to make sure you are bringing
fiber to the home. It is the only thing that is future-proof
and will allow for scale, since the demand of broadband is
projected to increase in terms of upload speeds of 20 to 30
percent per year. And we just don't want to be here again in
five years saying we have still got a broadband divide after we
have spent billions and billions of dollars on too many short-
term solutions.
Mr. Quigley. Thank you both.
Mr. Womack.
Mr. Womack. Thank you, Mr. Chairman.
Mr. Zimmerman, local permitting, licensing issues,
environmental and historical preservation reviews, all slow
down broadband expansion, as it has already been noted, and
makes it more costly. Give us an example as to how you make,
and how we can make, broadband services affordable to those who
live in remote areas?
And I took note of the fact that you said five families per
square mile in your rural area. I would also be curious to
know, when you do get service out in the areas, is it something
that some people decide, ``Well, even though it is here, I
don't want it. I am out here in the rural area for a reason.''?
So, what is your experience rate with people hooking up when
the service is made available or deciding not to?
Mr. Zimmerman. Well, that is a really key point. The
differences between availability and affordability are very
different. And a lot of times, someone says, they will say
school kids don't have internet at home. Well, there may be
internet available right inside their front door, but the cost
to subscribe can be prohibitive to the family. So, I like to
say you can lead a horse to the water, but you can't make him
buy a broadband internet. Some people want it; some people got
to have it; some people could care less.
Our hospital, I am the chairman of the board of Baxter
Regional Hospital, and we just did a COVID sign-up. And we had
to have phone banks. We were going to try to do it all online,
but there are too many especially senior citizens that do not
have an internet connection or they don't have a computer.
Either they think they are too old to learn or they just don't
want to. And we had to set up a phone bank, so people could
call in. So, people's take rates are much lower than the
availability usually.
Mr. Womack. Mr. Stier, we have thrown a ton of money at a
lot of different things here at the federal government level.
And as the former chairman of the Budget Committee, I am always
interested in making sure that we are getting the maximum
amount of benefit out of the fewest dollars possible, because I
know a lot of this is borrowed money; most of it is borrowed
money. Maybe all of it is borrowed money that is going on the
credit card for our grandkids and our grandkids' grandkids to
pay.
So, this question is back to your testimony where you
talked about the need maybe for, I think you called it a cross-
agency sort of entity. And I am also enamored, always enamored
with the idea of the P3s out there. Whenever you can leverage
federal dollars with other money, first of all, it gives us an
opportunity to do more with what we have at the federal level,
but, also, when people have skin in the game, they seem to want
to make sure that it is done properly and responsibly, and that
sort of thing. So, can you comment on that just a little bit
more?
Mr. Stier. Great. Thank you so much.
And I think you are 100 percent right that, in essence,
there is a collaboration need on multiple levels. There is a
collaboration within the federal government itself. You note
that there are a whole bunch of entities that are providing
financial support for broadband access, but I would go out in
the field there and say that it is also about the services
themselves that are being provided using that broadband. And we
need to see better collaboration on both fronts, because there
are ways to generate very large efficiencies if agencies work
better together.
My view is there is sometimes a tendency to think about
restructuring government, you know, trying to build a new
agency by putting a bunch together. I think that the better
investment is actually getting them to work better together.
And as you noted, one way of doing that is the council, or OMB,
in my view, is an essential actor. You have jurisdiction over
OMB, and this is a place where their role as connective tissue
is fundamental.
Your point on the public-private partnerships I also think
is vital here. So, you need collaboration within the federal
government. You need it intragovernmental with the federal,
state, and local, and then, you need it, obviously, with the
government and the private sector. The more that can be done to
encourage it, as you suggest, you get people who are skin in
the game, but also knowledge about how to actually make this
effective.
And then, to bring you all around--this point was made
earlier--a lot of this is about getting real-time data about
what is happening, so that you can make sure that resources are
being spent right and improve it. And that is part of our push
on moving the government to pay more attention to customer
experience. We need to hear from the customer in order to make
sure that the services being provided are actually the ones
that are creating the most value for those that need them.
Mr. Womack. Thank you.
I know, Mr. Chairman, my time is up.
I am a big subscriber to the old notion that you measure
twice and you cut once to make sure that you are not wasting
anything. And if we have another round, I may want to come back
with a capacity issue because I think it would be just a crying
shame if we threw all this money at this problem right now, and
five years from now we are still talking about this gap that
was mentioned earlier.
Anyway, again, thanks to all the witnesses.
I yield back.
Mr. Quigley. Thank you, sir.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman. And thank you, Mr.
Chairman, for holding this hearing, and to the ranking member
as well.
I couldn't agree more with the idea of not wasting money
and making sure whatever we spend is still going to be
effective five years from now. And I like that point about
fiber optic connections.
Mr. Dunne, my questions this morning are for you. We have
been talking about the importance of connecting rural places,
and I don't think anybody on this call, this hearing, has
failed to mention the importance of connecting rural areas. I
know the FCC has taken some steps in recent years to work on
that problem.
In 2018, it conducted Auction 903 allocating Connect
America Fund Phase II support to certain eligible areas across
the United States. At that time, 103 bidders won $1.49 billion
over 10 years to provide fixed broadband and voice services to
over 700,000 locations in 45 states.
In 2020, the FCC adopted the framework for the $20.4
billion Rural Digital Opportunity Fund to bring high-speed,
fixed broadband service to rural homes and small businesses.
The Rural Digital Opportunity Fund Phase I auction, Auction
904, awarded $9.2 billion over 10 years to service providers
that committed to offer voice and broadband services to 5.2
million locations in unserved, high-cost areas.
On October 27, 2020, the FCC adopted a report and order
establishing the 5G Fund for Rural America, which will make up
to $9 billion available to bring 5G mobile broadband service to
rural areas that would, otherwise, be unlikely to see
deployment of 5G broadband service, based on new mobile
coverage data submitted in the FCC's broadband data collection.
Two questions I have for you. No. 1, can you speak to the
adequacy of these efforts and what more the FCC should be doing
to ensure broadband is truly universal for millions of
Americans living in rural areas? And No. 2, how do we ensure
that additional infrastructure resources that are made
available under the American Jobs Act build on, rather than
duplicate or even adversely affect, these ongoing efforts by
the FCC?
Mr. Dunne. Mr. Congressman, thank you for that question and
the detail.
There have been a lot of resources that have been put
against this really vexing problem over the last five years,
and most recently, the effort of Congress, and now the current
FCC is working on getting those data issues handled. Because a
lot of the inefficiency of deploying funding to where it could
make the most impact in broadband came down to bad maps. In
fact, if you look at some states that went out on their own and
did their own maps, like in Georgia, they had the map that was
provided by the FCC, and then, the did their own ground
trooping and found that it was fundamentally different.
And when those are, then, the guidelines for Washington-
based deployments of dollars in a reverse auction or other
kinds of mechanism, it means that the funding doesn't
necessarily get to the places where it is needed most, or that
folks on the ground would know we need resources here to get to
the last mile, and not have a situation where a provider might
cherry-pick: ``I only want the communities that are in a
densely populated area of a rural place. We will leave
everything else to those who are left,'' whether it is a small
telephone company, like the one Mr. Zimmerman works with, or it
is a municipal entity, or anything else.
So, I would say that the overall problem to be able to
solve for the long term is in the neighborhood of $80 to $100
billion over a period of time to really solve fiber to the home
in the way that the United States solved rural electrification,
right? It was not a small investment, but it was also about
doing something that would have lasting impact and not have us
come back later.
So, I think it is important that we stay focused on that
data being accurate, and then, do resource allocations that
focus on the regions and leverage the knowledge of the local
providers and the local leadership to get to that last mile.
Reverse auctions have a lot of benefits in terms of efficiency,
particularly when it comes to something that is more or less
ubiquitous like a wireless spectrum allocation, but it is much
tougher when it is being used to give directly to providers to
meet the needs of individual residents in a particular Census
block.
So, doing allocations like ReConnect, ensuring that there
is planning that goes along with it, and that the regions and
states are involved in saying, ``Yes, we need these resources
to bring future-proof fiber to the last mile,'' is going to be
what is critical in delivering that value.
Mr. Cartwright. Well, thank you for that answer, and I
really like your repeated references to the Rural
Electrification Project. That is a reminder to all of us that
we can do this; we can get this right.
Mr. Chairman, I yield back.
Mr. Quigley. Thank you.
Mr. Stewart, please.
Mr. Stewart. Thank you, Mr. Chairman.
And to the witnesses, again, thank you for being here and
for helping us understand this important, very important issue.
The one thing that has been pointed out here by some of my
colleagues, Mr. Womack and others, is that we have spent a
boatload of money on this issue, and we should. There is a
definite need, and as people have said, infrastructure has been
redefined from what it was in the '70s or the '80s. And I don't
regret that the federal government has a role here to play.
My concern is that, as we provide these billions of
dollars--and by the way, much of that is to rural parts of our
nation, which include a vast part of my district in rural Utah.
I think I represent probably some of the most rural parts of
the nation, with the exception maybe of Mr. Amodei, who will be
speaking here shortly. And we want to provide those people with
the opportunities and schoolchildren and hospitals, and others
as well.
The question that I have--and I guess this is probably for
you, Mr. Zimmerman, but I would be interested in anyone's
input--I am troubled by recent broadband funding proposals that
seem to give preferences to government-owned networks. And I
think we see in many cases there are too many examples where
government-owned networks have ultimately failed.
And there is an example in my home State of Utah where
IProvo was a government-funded attempt and it failed fairly
miserably. I think there are other examples that we could turn
to where government-owned networks haven't done what they
promised to do.
And my question is, (a) Is there a preference? In this
government funding, are we giving a preference to government-
owned or government-controlled entities, and should we? Or
should we allow the market to work on this, and for the
government to provide adequate funding, but not only give the
money to other government-controlled entities who are trying to
provide the broadband?
And, Mr. Zimmerman, I would be interested in your thoughts
on that.
Mr. Zimmerman. I think that is a great question. Some of
the municipal examples around the country have failed
spectacularly. You have also seen Google try to go in and put
fiber in different cities like Kansas City and pull out. It is
a hard thing to do. It is an expensive and hard thing to do.
And I think some of the municipalities have done it based on
unreasonable take rates, which that has killed a lot of
projects. You can build it, but you can't make people pay for
it.
I think one of the key things is, in the past, some of
these things like CAF II funding or RDOF have been based on
very low broadband speed minimums, and they have been
asynchronous, as in 25/3, 25 down and 3 up. I think any kind of
funding you do for any kind of plan should be 100 by 100. It
should be 100 up and 100 down. And that will help make some of
these investments go to fiber networks, which are the only
networks that can reasonably handle that speed and can
reasonably be upgraded to them.
We have had some things where some of the wireless wins
have been because they wanted like 25/3; they are good at
sending stuff down to you, but they can't send stuff up to you.
And the reason that upload speed is important to you, you have
got things like home security networks; you have got people
working from home; you have got kids playing games, and there
is a lot of data going both ways. So, if you guys could make
sure government plans require 100 by 100 minimum for bids, it
will direct more of the money to a fiber-based system that is
what we call future-proof.
So, I think that Mr. Dunne mentioned the speeds and how
much they are progressing. Right now, the average U.S. fixed
broadband speed is 179 down by 65 up, but----
Mr. Stewart. Mr. Zimmerman.
Mr. Zimmerman. Yes.
Mr. Stewart. I am going to interrupt you because I only
have a minute left.
Mr. Zimmerman. Yes, sir.
Mr. Stewart. And I appreciate your comments on the speeds,
and I don't discount that at all. But, in the few seconds I
have left, I want to reemphasize, once again, this principle
that, again, I think you agreed with me. And that is the
government has a responsibility in some cases to help fund
these organizations, but I don't think we should defer to
government entities in order to provide the service. I think
the market could do that much more efficiently. Just a yes or
no, do you agree with that?
Mr. Zimmerman. Absolutely. We are boots on the ground; we
know where things need to go.
Mr. Stewart. Yes, exactly.
And I will conclude in the last 16 seconds I have with just
an observation. And that is, we often hear of the urgency, but
local permitting, licensing issues, environmental concerns,
historical preservation--there are so many obstacles that are
place in the way. And I would look forward to a regulatory
review as well, so that we don't deny people access while we go
through a seven-year historical review. That has got to be part
of this as well.
And with that, Mr. Chairman, I would yield back. Thank you.
Mr. Quigley. Thank you.
Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman.
Thank you to the witnesses.
So, this is an interesting conversation, and I come at this
from a bit of a different perspective, but a very similar
background as Mr. Stewart. I have a lot of very rural parts in
my district. One of my counties, the growing population is
Amish. Just to give you an idea, I live in a rural town of 850
or so people. There is no town center. There is a townhall. I
first got broadband three years ago. Prior to that, I got the
half-priced sale on a dish for $300 a month for 40 measured
gigs a month, and about an hour on Netflix is 2.5 gigs. I make
$174,000. I could kind of afford it; most people couldn't.
So, here's where I am at, and I helped form a Rural
Broadband Caucus, bipartisan, around this. I am very curious.
To me, when we all say it is like water and electricity, I want
to ask, Why don't we really mean that? If we really mean that,
wouldn't that argue that we would put this under Title II, so
that a regular like common carrier can provide greater access
to people, rather than the system that we currently have where
like my town had to wait until the one company got free money
to put it into my town, because we had a state law that didn't
allow coops or local communities to do this. And I know, Mr.
Dunne, you brought that up specifically, point No. 3. I heard
what you said.
So, my question to Mr. Dunne and Ms. Chaney specifically is
around, What about this idea about Title II and what else?
Because I am kind of tired of the conversation about--I am
sorry, when, Mr. Zimmerman, you said some people couldn't care
less about broadband, I call that my BS meter, right? Even my
92-year-old mother who doesn't work on a computer talks to her
Alexa, right? And without that, she is not getting the weather
or the joke of the day.
So, Mr. Dunne, Ms. Chaney, if you could just address the
Title II question, and then, the question about cooperatives
and munis and others? How do we really get this done? Because I
feel like we say ``water and electricity,'' but we don't mean
it.
Ms. Chaney, do you want to go first? I see you smiling.
[Laughter.]
Ms. Chaney. Sure. I am smiling, in part, because, I mean,
we are not really focused on what section it comes out of or,
frankly, whether or not you focus on municipalities, or whether
we let the market handle it. The truth is, we think that in
some places it works for there to be municipal governments who
are in on creating something, and in some places it would not
work, right, and it would be a failure. So, both can happen. We
want to make sure that we don't have any bars to doing any of
it. Because, ultimately, we want what works in order to get
people broadband.
I tend to agree with you. Just really quickly, I smiled
because I agree with you; everyone wants broadband. I have
heard this argument that there is someone who doesn't want it.
Yes, that might be true for a small group. Vast majorities of
people want it. And if they knew what it would get them, they
would want it even more. So, I think we have to let some of
that go. It is a fantasy.
Mr. Pocan. Mr. Dunne, let me just add this one sentence. We
also have the second most expensive broadband on the planet.
So, if you could address my questions in that regard, too?
Mr. Dunne. So, there are a couple of directions that you
go. Before you get to Title II and needing to create it as a
regulated monopoly, I think there are a number of steps that
can be taken on ensuring that there is more active
participation. And the biggest one that I mentioned before is
predicating the next tranche of federal funding--and there
should be because now is the moment--on states adopting laws
that allow for public-private partnerships, including with
municipalities and cooperatives. It seems crazy that there
would be actual state laws preventing the same entities that
allow the electricity to come to rural places to prevent the
``electricity of our time.''
So, that is where I would just emphasize the focus and the
effort right now. If that still isn't sufficient, when you have
the plans in place and you have a commitment to getting to the
last mile of those communities, then starting to explore that
next step I think makes sense.
The cost factor actually has to do with structures that
allow for competition, and competition where it makes sense
does help in driving down cost. In Europe, they have a
different model, which is the common ownership of the actual
infrastructure, and then, ISPs can provide and they compete
with each other on pricing.
That is a very different model than we have adopted in the
United States, and shifting to that would be challenging. But
what we have seen is that in places where there are multiple
providers, where we are fortunate enough, not in rural places
where it doesn't really make sense for multiple providers most
of the time, but where there is, you see prices go down.
Mr. Pocan. Thank you, and I yield back, Mr. Chairman.
Mr. Quigley. Mrs. Kirkpatrick.
Mrs. Kirkpatrick. Thank you, Mr. Chairman.
And thank you to all witnesses for joining us today to
discuss these important issues.
I represent a district in southern Arizona. However, as
Arizona's only Representative on the Appropriations Committee,
I see it as my responsibility to advocate for the whole State.
As you probably know, Arizona has strong Native American
communities, including a number of tribal colleges throughout
the State. These tribal colleges provide critical higher
education opportunities to significantly underserved areas.
That is why I was proud that the fiscal year 2021
consolidated appropriations bill included $285 million to
create a new Office of Minority Broadband Initiatives at the
National Telecommunications and Information Administration that
will support minority-serving institutions, including tribal
colleges and universities.
So, I only have time for one question because I have to
jump onto another committee. But my first question to any of
our witnesses who feel comfortable responding. Can you talk
about some of the unique challenges tribal colleges and
universities face when it comes to broadband connectivity, both
for students on and off campus? And given these challenges, how
important is it that we continue to ensure tribal colleges and
universities, as well as Native American communities more
broadly, are given specific allocations for broadband
deployment?
Mr. Dunne. I am happy to take a first stab at this. And,
Congresswoman, thank you for bringing up this important
category of communities, if you want to put it that way.
I can't speak as specifically to tribal colleges and
universities, although they face, since many of them are in
rural places, they face the same challenges of being able to
get broadband deployment as most other rural colleges and
universities.
But what I will say is that, when indigenous or tribal
college students go home, their situation is usually quite
challenging. As we know, tribal communities are very different
across the country, whether they are living on reservations or
they are actually in other kinds of setups in other parts of
the country. And so, it can vary dramatically how remote, how
much challenge there is for getting connectivity there, and
then, how much of a challenge it is to get it to individual
homes. And in some cases, you know, pueblos and others, are
incredibly remote and don't have the intermediate
infrastructure to be even able to get that kind of connectivity
there.
So, I would just say that it is really, really important
for indigenous and tribal communities to be able to get
additional resources, to get that middle-mile infrastructure,
and then, get full deployment, to make sure that they are on
equal footing, since not everyone learns while they are on
campus at a university or college, and that is certainly true
for tribal universities and colleges. You want to make sure
that they have access to that connectivity at home and to close
that homework gap and make sure that there is real connectivity
throughout those regions serving our tribal communities.
Ms. Chaney. Congresswoman, our Latimer Plan actually does
speak directly to tribal colleges and tribal communities. One
of the things we have done is we have endorsed the digital
equity and inclusion bill because we think there should be
plans that are created at the state and local level and at the
tribal level for ensuring broadband and digital inclusion in
those spaces.
And another thing we ask for and call for is that
universities are used as digital navigators to make sure they
are actually helping their communities, whoever they serve,
HBCUs, Hispanic-serving institutions, Asian-American-serving
institutions, and tribal colleges and universities, to make
sure that they are being utilized and getting the resources
that will help them, but also helping their communities. So
that both students when they go back home, but also their
families have greater access to broadband.
I will follow up with your staff to make sure that they
know what we have said about tribal communities.
Mrs. Kirkpatrick. Thank you. I really appreciate that.
Thank you so much.
Mr. Quigley. Thank you.
Mrs. Torres, please.
Mrs. Torres. Thank you, Mr. Chairman, for hosting this
meeting.
And thank you go our panel for staying this long.
Mr. Zimmerman, a reliable internet connection has always
been important, but it became especially vital, as you have
heard throughout the hearing, during the pandemic, when it
became necessary to work from home, remote school, or even just
continuing to be engaged with our loved ones. My constituents
face repeated outages which have made it very difficult to do
any of those things.
But, more important than even all of that is the concern
that I have regarding access to 911 during outages. As you
know, telephone providers have moved to voice over the
internet. Many of those companies, although it is the law that
they are supposed to admonish their customers that, should
there be an outage, they could not have or they may not have
access to 911 services, the seniors in my community are very
concerned about this issue because many of them are dependent
on panic alarms, on being able to dial 911 when they have an
emergency. And when outages occur, none of that could happen.
So, what steps have you taken to increase your ability to
respond to outages? And as we think about providing additional
funding for broadband, are there additional regulations or
guidelines that should be in place to improve reliability in
the mindset of emergency services availability and response?
Mr. Zimmerman. Yes, it would be nice to say we go back to
the good old days on a landline. We used to send electricity
down the landline, and that is how, if the power is out, your
phone still works and you can call 911 even if the power is
out.
So, the current, you dial 911 and it goes over a voice-
over-internet circuit. If the power goes out and if you don't
have enough battery backup, then, yes, the power can die. What
is required is for network providers, which is what we do here
at Yelcot, is we have different routes out. If the fiber gets
cut over on the east side of town, we can reroute it to the
west side of town. That does cost money to make what are called
alternate routes. So, that is an added expense to the network
provider, but it is something that you can require to make sure
that 911 does not get cut. So, that way, you can have alternate
routes to 911. And they call it piece app where the 911 calls
are answered.
Mrs. Torres. I was a 911 dispatcher for 17 and a half
years. So, I know very intimately the subject and the hardships
that occur.
Part of my district is a concrete jungle; the other part is
wanting to be that, but not quite yet. It is a suburb of Los
Angeles. However, the internet challenges are still there.
There is this redlining that has been brought out by some
of my other colleagues, the fact that internet providers are
not investing in communities like mine because they don't see
the return for their investment. So, I think it is a
responsibility, when that doesn't happen, for the federal
government to step in and help improve conditions, not just for
quality-of-life issues, for convenience, but for commerce and
for emergency services.
So, I wonder, Ms. Chaney, do you have anything to add on
this issue?
Ms. Chaney. Sorry, say it one more time? It cut off a
little bit and wasn't able to hear you fully. I apologize.
Mrs. Torres. Reliability for internet; the lack of
investment from internet providers in communities, you know,
the working poor; the redlining that we continue to see--it is
so obvious--and the responsibility of the federal government to
ensure that we are responding to the need of all of our
constituents.
Ms. Chaney. That is right. I mean, I am so glad that you
brought that up. I mean, one of the things that we talk about
in the plan is that--I mean, we talked a lot around this here
today--we are talking a lot about availability, and that is
important. But we also have to talk about affordability and
what has been happening in communities where they have
broadband all around them, but they can't access it because
they can't afford it. Or they have broadband in areas that are
near them, right, but not necessarily--they are sort of in a
desert in the middle of all of this access.
So, yes, we have to have greater controls over that,
greater accountability. One of the things we are concerned
about is making sure that, as we are making these much-needed
generational investments, we aren't doing it in a way that
over-enriches companies without putting any kind of limits on
them in a way or guardrails or regulations that make sure that
they are actually doing what we are investing for them to do.
So, we agree completely.
Mrs. Torres. Thank you. My time is up. Mr. Chairman, I
yield back.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
And let me thank the witnesses for being here, and let me
offer my apologies. I had another commitment earlier in the
hearing. And so, I apologize if I become redundant in my
questions.
Let me ask, Ms. Chaney, your organization recently released
a comprehensive plan discussing the challenge that is facing
low-income areas and communities of color and notes that, in
order to address the gaps in availability, we have to
prioritize producing an accurate map of broadband availability
that pinpoints those unserved by broadband services. The need
for accurate maps is something that we recognize in Georgia.
The CyberArch Program at the University of Georgia created a
statewide map that allows us to identify broadband dead zones
down to single addresses.
Can you speak to the importance of updating the FCC's
broadband maps and how we can use updated maps to guide our
policymaking?
Ms. Chaney. Absolutely. I mean, yes, we have what we call
``broad-dated maps''. We have been calling for updated maps, so
many have been calling for them for quite a long time.
One of the things that I think, hopefully, the other
witnesses will agree is that we need to have some public-
private partnerships here. It is not just the FCC. There are
other government agencies that have maps or information that we
can use to have an improved understanding of where we need
service and where the strength of that service is. Also,
private institutions, private company who have information to
this data, they are not relying on old maps and materials to
make their investments.
We should be coming together and figuring out [audio
interference]----
Mr. Quigley. Thank you.
Ms. Chaney. Okay. Thank you so much. Someone else has
chimed in.
Mr. Bishop. Ms. Chaney, you recently released a
comprehensive plan that identified principal barriers to
achieving digital equity inclusion. And one of those is
affordability. And, of course, in our appropriations bill last
year, Congress allocated $3.2 billion for an Emergency
Broadband Benefit Program to connect low-income households. The
funds are used to subsidize broadband cost up to $50 a month
for low-income households.
While it is clearly in the early implementation, do you
believe that the EBB Program is properly targeted to help close
the affordability gap? And should we make this program
permanent?
Ms. Chaney. I definitely think we need to make the program
permanent. I definitely think we need to learn the lessons from
this current rollout. So, we will know more, right, about how
well it is doing, where it is targeted, what needs to be
adjusted, as we go through the program. But I think that the
good outweighs whatever concerns we might have, including about
the cost. It is so essential.
The vast majority of people who are not engaged in
broadband who have it available to them, right, is not so
much--the vast majority of people who don't have broadband,
actually, it is not that they don't have it available; they
can't afford it. And so, we want to make sure that we hone in
on that. We definitely want to focus on availability as the
first part of our plan, but if we do that, and we don't deal
with the fact that the majority of people who don't have
broadband simply don't have it because they can't meet the
financial requirements, you know, we will still be here not
just 5 of 10 years from now; we will be here next year talking
about it again.
Mr. Bishop. Thank you.
Ms. Chaney. Yes, thank you.
Mr. Bishop. Thank you very much.
Mr. Zimmerman, since the FCC announced the winning bidders
in round one of the Rural Digital Opportunity Reverse Auction,
many have voiced concerns over the ability of certain providers
to perform as promised. For example, I have heard from local
broadband providers that their bids were undercut by large
national providers at price points that they believe could not
be met. But what guardrails can we implement to ensure that
winning bidders perform as promised and allow local providers
the same opportunity to meet the needs of our constituents?
Mr. Zimmerman. That is really good question. My company bid
on some areas and won a small bid, but we lost some to some
very, very low bids. And there are concerns about the
technology that was proposed in these bids. The FCC is
currently looking through the long-form applications that these
companies made to prove their capabilities. We would prefer
that bidders on anything like this have to prove they are bona
fides before they bid, rather than afterwards. You don't want
to give out this money based on someone's hopes and dreams that
this one weird radio frequency might just work, when it might
not. So, we prefer that people be vetted upfront about their
technological capabilities, rather than getting awarded and a
couple of years later we find out they couldn't do it.
Mr. Bishop. Thank you, Mr. Zimmerman.
I think my time has expired. Thank you, Mr. Chairman. I
yield back.
Mr. Quigley. Thank you.
Mr. Womack, have we heard from everyone on your side as
well?
Mr. Womack. I believe we have, Mr. Chairman.
Mr. Quigley. Now I know that you had sort of a hanging
question at the end of yours. We are not going to go through a
whole other second round, but in lieu perhaps of--you have a
right to close, anyway. If you wanted to finish up with that
question it will be just fine.
Mr. Womack. Just one quick question. And since Mark Amodei
hasn't taken any questions, asked any questions today, and
instead has had to do a staff call----
Mr. Quigley. You are channeling your inner Mr. Amodei?
Mr. Womack. Yes.
Mr. Quigley. Good luck with that.
Mr. Womack. And now, he is awake. [Laughter.]
Mr. Amodei. Hey, can I say something, Mr. Ranking Member?
Mr. Womack. Oh, please do.
Mr. Amodei. That is all I wanted to say. Thank you, Mr.
Chairman. I yield back. [Laughter.]
Mr. Womack. There you go.
Look, here is the remaining question, and maybe it fits in
the capacity question. I don't know, but I am going to ask
this. Hearing proposals to open up broadband for 100/100
service, we still have communities that don't have the basic,
even the most basic 25/3 service. So, Lang, do you believe the
proposals that we are hearing now about 100/100 would hurt
communities--obviously, there is a competition for funding--
that still don't even have basic broadband?
Mr. Zimmerman. I don't think so. I think you need to start
focusing money, so it gets put into future-proof networks,
which fiber is the one that can do it in the future. If you do
it based on 10/1 or if you do it based on 25/3, we will be in
the position in 10 years from now where capacity needs are
going to keep going up 20 percent a year, and you will have to
be in the same position to rebuild it. If you go ahead and do
it--and I think as several of the several other panelists have
said, you need to make it so you don't come back here and be in
the same position in five years. And you need to require
something that can be upgraded.
Mr. Womack. Mr. Dunne, I see an affirmative nod from you. I
assume you are in agreement?
Mr. Dunne. Absolutely, and I don't want to say that there
is a lack of concern for the immediate needs. And there really
are some immediate needs. Some of those can be solved with hot
spots and other kinds of things on the short term, and even
some wireless to be able to do it.
But, to Mr. Zimmerman's point, if we really want to be
thinking long term and making sure that there is going to be
equal access and the most efficient use of funds over that long
term, it has got to be 100/100 and fiber to the home.
Mr. Womack. Go ahead, Lang.
Mr. Zimmerman. I would say you need to also prioritize the
areas that have the worse service. The areas that you are
talking about with nothing, you can start there first and build
out from there. Don't go back into areas that already have it.
Mr. Dunne. Agreed. It makes sense.
Ms. Chaney. I agree with that, yes.
Mr. Womack. Yes, I think this has been a really
enlightening hearing. And as I said in my opening remarks, a
bipartisan subject on broadband.
So, thanks to the witnesses for all being here.
And, Mr. Chairman, I am going to yield back my time.
Mr. Quigley. Thank you.
I agree. Everyone gets a note home that they all had worked
and played well with others. And I appreciate the time and the
work that all of our witnesses do on an ongoing basis. So, we
appreciate everyone's involvement.
This meeting is adjourned.
Wednesday, May 26, 2021.
SECURITIES AND EXCHANGE COMMISSION OVERSIGHT HEARING
WITNESS
HON. GARY GENSLER, CHAIR, SECURITIES AND EXCHANGE COMMISSION
Mr. Quigley. This hearing will come to order.
And, again, my part of this, as this hearing is fully
virtual, we must address a few housekeeping matters. For
today's meeting the chair or staff designated by the chair may
mute participants' microphones when they are not under
recognition for the purposes of eliminating inadvertent
background noise.
Members are responsible for muting and unmuting yourselves.
If I notice you have not unmuted yourself, I will ask you if
you would like the staff to unmute you. If you indicate
approval by nodding or some other strange gesture, please let
us know. Staff will unmute you at your microphone--unmute your
microphone.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved. And you will
retain the balance of your time.
You will notice a clock on your screen that will show how
much time is remaining. At the 1 minute, the clock will turn to
yellow. At 30 seconds, I will gently tap the gavel to remind
members that their time has almost expired. When your time is
expired, the clock will turn red. And I will begin to recognize
the next member.
In terms of the speaking order, we will follow the order
set forth in the House rules, beginning with the chair and
ranking member. Then members present at the time the hearing is
called to order will be recognized in order of seniority; and,
finally, members not present at the time the hearing is called
to order.
Finally, House rules require me to remind you we have set
up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided in advance.
This afternoon, we welcome the chair of the Securities and
Exchange Commission, Gary Gensler.
Mr. Gensler, thank you for being here today.
The SEC protects investors, helps secure our markets
against fraud and manipulation, and promotes capital formation.
And like most Federal agencies, its work has changed in
profound ways because of the pandemic. I would like to briefly
mention four areas where we hope to gain insight into the SEC's
recent activities and future resource needs. This information
will be vital as we get started in earnest on crafting this
year's appropriation bills.
First is the emerging--is the issue of emerging financial
technologies. The market for non-fungible tokens,
cryptocurrencies, and other digital assets has exploded. While
these have created significant wealth and value, these markets
also feel like a virtual Wild West. They have led to extreme
market volatility, theft, pump-and-dump schemes, and other
issues that hurt retail investors. I look forward to learning
more about the work the SEC is doing in cooperation with other
Federal agencies to help bring more order to these markets.
Second, we are not just seeing innovation in financial
products. Technology is also driving new market trends that
warrant scrutiny. For example, Chair, I know you recently
testified on the issue of GameStop, and that the SEC's
investigating issues relating to the trades of GameStop on the
financial platform, Robinhood. I hope to hear more about how
the SEC can preserve the rights of retail investors as it
grapples with the market impacts of new technology, like mobile
apps, decentralized finance, and artificial intelligence.
Third, as a strong proponent of transparency in and out of
government, I am heartened to see the SEC make progress on
climate issues. There is widespread interest from both
companies and consumers and the new administration in increased
disclosure of environmental and climate risks. I welcome both
the increased regulatory and enforcement efforts in this space.
I am also a firm advocate for increased political disclosures,
and will continue my work to provide the SEC the resources and
authorities it needs to address this pressing issue.
Finally, the pandemic has accelerated many of the trends of
recent years from digital adoption to geographic migrations.
Unfortunately, one of those things is income and wealth
inequality. It is a testament to the resiliency of the American
economy and people that our markets were able to quickly
stabilize, then grow, after the start of the pandemic but also
made the richest Americans much richer, even as many low-income
areas and communities of color faced setbacks that will push
off financial prosperity for years to come. It is not enough
just to make sure markets work. They need to work for everyone.
I look forward to working with the SEC and the
administration to address this growing disconnect between Main
Street and Wall Street. Chair Gensler, I realize that the SEC
chairs jurisdiction of these issues with other agencies that
this subcommittee oversees, including the Department of
Treasury and the Federal Trade Commission. We also welcome your
comments on how we might be able to facilitate more cooperation
with these agencies and other parts of the Federal Government
to ensure that you can work most efficiently.
Before I turn to the Chair for his statement, I would like
to recognize our ranking member, Mr. Womack, for his opening
remarks.
Mr. Womack. Thank you, Chairman Quigley, and welcome to the
committee.
Chairman Gensler, congratulations on your confirmation. We
look forward to hearing you from today.
The SEC plays a critical role in protecting investors,
maintaining fair, orderly, and efficient markets, and
facilitating capital formation, all while overseeing
approximately $100 trillion in securities trading annually in
U.S. equity markets. I believe it is important to build on
former Chairman Clayton's efforts to improve the investment
experience for Main Street investors. It is also critical that
the SEC helps to facilitate the formation of capital for
American companies, and more so now as the economy recovers
from the pandemic. We must promote a market environment that is
worthy of the public's trust.
I am concerned with cyber threats to both SEC systems and
market participants, and I would like to learn how the SEC is
managing these threats.
Despite the conc--or the effort of my chairman there, I am
a bit concerned about the SEC getting involved in areas that
are a little outside its core mission, such as climate change
and political spending. The EPA is the primary Federal
regulator for climate change. The FEC is the Federal regulator
for campaign spending. I don't believe the SEC should be using
its authority over public companies to require costly and
ideologically based disclosures that do not provide material
information relevant to making investment decisions. Instead, I
believe the SEC should focus on helping the American economy
recover.
I am also disappointed with the administration's new
executive order on climate change and financial risk. The order
will have far-reaching impact on the entire financial sector,
consumers, investors, and Federal loan and procurement
policies. Such sweeping policy changes should not be addressed
unilaterally by the administration.
Regarding the work of this committee, because of
administration's delay in submitting their fiscal 2022 budget,
we aren't able to discuss the details of your resource needs
for next year. However, as the appropriations process unfolds,
I am going to pledge to work with Chairman Quigley to make sure
you have an appropriate level of resources to complete your
important core mission.
With that, I yield back my time.
Mr. Quigley. Thank you, Mr. Womack.
Thank you, Chair Gensler, for being here today. Without
objection, your full written testimony will be entered into the
record. With that, in mind, we ask to you please summarize your
opening statement in 5 minutes.
Please begin.
Mr. Gensler. Good afternoon.
Thank you, Chairman Quigley, Ranking Member Womack, and
members of the subcommittee. I am honored to appear before you
today for the first time, and I hope I will be seeing you again
in the future as Chair of the Securities and Exchange
Commission. Thank you for inviting me to testify.
Before I begin, I would like to note that my views are my
own, and not speaking on behalf of the fellow commissioners or
staff. That is the standard language you have probably heard in
the past.
This subcommittee oversees many government agencies, and I
appreciate the opportunity just for a moment to describe our
activities at the SEC. And having just started one month ago, I
would say I have just been struck by the sheer breadth and
scope of the capital markets the agency work.
As Ranking Member Womack said, we oversee nearly $100
trillion capital markets at the SEC that affect every American.
The 50-plus-trillion-dollar debt markets are how we fund our
Federal Government, our local governments, how corporations
borrow money, and how construction of a hospital down the
street gets financed. Our 45 trillion-dollar-plus public equity
markets, which gets most of the attention, connects Americans
looking to invest with public companies seeking to innovate,
grow, and create jobs. Our multi-trillion-dollar private equity
and venture capital markets, somewhat the shiny object of much
around the globe looks to, innovation and helps and plays a
significant role, particularly in venture capital.
So how does our agency fit into all of that? Congress laid
out the SEC's three-part mission, as the chair mentioned and
the ranking member, to protect investors on one side,
facilitate capital formation on the other, and then I think in
the middle that connects those investors and capital formation,
fair, orderly and efficient markets.
Our responsibilities at the agency oversee 28,000
registered entities, 3,700 broker dealers, 24 national security
exchanges, seven clearinghouses. You get the picture. 2,300
filings come in a year from self-regulatory organizations that
need to be reviewed. Each day, I will be animated by working
families. Our capital markets help Americans save for
retirement, borrow for mortgages, and prepare for the bumps
along the way. And the SEC and Congress' support of adequate
resources for the agency are a real part, I believe, of
America's economic success these last 90 years.
In the last 5 years, the scale, scope, and complexity of
our capital markets have continued to grow. A record 67 million
families hold direct or indirect stockholdings, and that is in
2019. The number of private equity funds have increased 58
percent just in the last 5 years, and the venture capital funds
I mentioned, 110 percent increase in 5 years.
In the midst of that, the SEC has not grown to meet the
needs of the 2020s. Between fiscal 2016 and 2020, our staff
decreased about 4 percent. So, we have been flat to a decrease.
In my written testimony, I highlight a number of additional
trends that we are seeing.
First, we are in the midst of a once-in-a-generation wave
of traditional initial public offerings and, in addition to
that, when I say once in a generation, more than the dot-com
boom of 20--2000. But, in addition, you may have heard
something about blank-check companies called special purpose
acquisition companies and there we have seen already, to date,
700 filings, 300 completed transactions, and that compares to
only 13, 5 years ago.
A second big trend is that trend I mentioned about private
funds.
A third trend is that which the chair mentioned about
crypto assets or digital tokens, and the first, bitcoin, we
have all heard about, but there are over 80 other tokens that
have over $1 billion market cap right now, and 1,700 that are
over $1 million. In my written testimony I also highlight some
topics that were raised here--financial technology, data
analytics--that will help, and also, stretch our resources. I
hope to be able to work with you on the resources that we can
tap into new data analytics.
And while the Commission is an appropriated agency, I would
just mention before I close, we are funded by fees. You might
remember the Section 31 fees that we collect on securities
transactions. So we sort of cover ourselves. A well-funded SEC
helps us better serve the American public and stronger investor
protection and efficient markets.
I look forward to working with Congress and this committee,
and I thank you. I look forward to your questions.
Mr. Quigley. Thank you so much.
Let me begin talking about cryptocurrencies. We talked
about mission of agencies, but the world is changing. In fact,
you know, the world is changing in front of us while the
scenery behind us changed. It seems sort of dizzying at times.
You know, from a regulatory perspective, many cryptocurrencies
are treated as commodities but, in practice, you know, they are
characteristics of currency and securities. So, do you think
the current regulatory categories are sufficient for oversight,
and do you see value in the creation of a new regulatory
category?
Mr. Gensler. I thank you for that question, Chairman.
I think that there is gaps in our current system. You are
right to say that there are many crypto tokens that do come
under the securities laws, and our agency is trying to enforce
the laws. But there is thousands of tokens and we have only
been able to bring 75 actions. And there are others currently
that are noncompliant.
But I think the bigger gap is around what is called
exchanges, crypto exchanges, and I would think if we could work
with Congress to try to bring investor protection to the
platforms where these sometimes commodities, sometimes
securities are trading on the platforms.
Mr. Quigley. And for those watching, Chair, while you
finish your answer on that, could you explain what your
concerns are, what the abuses that can take place involving
these new currencies?
Mr. Gensler. Well, without a cop on the beat, and some
rules of the road, then market participants can front-run your
orders. If you placed an order on an app, and you said, All
right, I want to buy a stock, there are rules that protect you
that somebody won't use your order and get ahead of you, and we
at the SEC try to protect against fraud and manipulation. Not
so in the crypto world.
And so, it is trying to bring the similar protections to
the exchanges where you trade crypto assets as you might expect
at the New York Stock Exchange, or NASDAQ.
Mr. Quigley. You work with the other agencies, as you
started, like Treasury and the Futures Trading Commission. Do
you think that you are able to clearly split jurisdiction with
these agencies so far? Are there gaps in that regard as well?
Mr. Gensler. Well, I am just in my second month on the job,
but I have had some really good conversations with both
agencies. I think that working, particularly with the CFTC, to
ensure that there--that we cover the markets, that the
investing public is protected in these crypto assets. With
Treasury, they are keenly focused on anti-money laundering and
guarding against illicit activity. And where we can augment and
support their efforts, I look forward to that. I will admit
about investor protection, we might need a little help from
Congress as well.
Mr. Quigley. Yeah, look, final question for this, for now.
You are regulating some extremely well-financed entities and,
as we have said, it is a complex--it is a complex world now.
Are you able to attract the level of skilled personnel that you
need, and what are the challenges you face in that regard?
Mr. Gensler. I have been very impressed with the career
staff at the agency, but you are right. It is always a
challenge, and we will talk about technology in a bit as well.
We only spend about 16 or 17 percent of our budget, about $325
million a year, on technology, which is less than probably some
large firms spend in a month, or some of them even spend that
much in 2 weeks. So we are nimble and we are efficient, but we
are underresourced compared to some of the big players in
finance.
Mr. Quigley. You know, I think some of these entities'
marketing budget dwarfs yours, but I have every faith in your
force and I appreciate their work.
I am going to yield back and recognize Mr. Womack.
Mr. Womack. Thank you, Mr. Chairman.
Once again, Chairman Gensler, welcome to our committee.
As I said in my opening, I am not--I am not sure that it is
appropriate to use the SEC and its authority over public
companies to require costly and burdensome disclosures that
don't necessarily provide information relevant to making
investment decisions, and, particularly, the impact of the
administration's new executive order on climate-related
financial risk.
I know that some investors want the information, but that
doesn't necessarily mean that the SEC should require its
disclosure from every public company. So I have got two or
three questions along that line.
Chairman, do you believe the climate information is
material simply because of its interest to some investors?
Mr. Gensler. Well, I think that you and I share a view that
the disclosure regimes are about investors, and that has been
the heart of the capital market reforms of the 1930s until now.
And what we are finding is there is literally trillions of
dollars of assets under management that have asked for and want
to understand the climate risks, both the underlying physical
climate risk, and also, the transitional, as companies are
moving forward to address their own risk in that area.
And, so, as investors are looking for that, we as an agency
can help bring some comparability to the disclosures, some
consistency, some reliability to those disclosures. But I think
we share this view. It is investors and what investors are
looking for to make their investment decisions.
Mr. Womack. Do you think that this kind of information is
relevant to every investment decision?
Mr. Gensler. I think that it is the test, as I understand
it, is: Do reasonable investors find it significant to their
investment decisions? And so, we are going to go out, and I
have asked staff to prepare something for the five-member
commission, do the economic analysis, and then put it out to
notice and comment, and hear really from investors and the
broad public as to what is relevant, what metrics, what
disclosures are relevant to their investment decisions.
Mr. Womack. So in that particular matrix, the cost to the
public companies will be analyzed, I assume.
Mr. Gensler. Right. We--I was actually a professor of
global economics and management up at MIT. I really deeply
believe in economics. So we will have economic analysis, both
at the proposal stage, but also, ask the public, share with us
the economics as well.
Mr. Womack. And along this line, the last question is more
about the impact that the executive order could have on
companies from going public. Is there a concern that this could
be--that this could be some kind of a barrier to companies
going public?
Mr. Gensler. I think you raise a good point. We have both
vibrant public markets. I mentioned 40- to $45 trillion in
size, about 4,500 companies. We are at an all-time peak of
companies trying to tap the public markets, but we also have
private markets. And it is usually about the stage of the
company's development. But disclosure regime for public
companies, in many instances, are more than in private
companies. This disclosure regime that we would be looking to
put out for public comment on climate, I think many investors
are looking for and, as I say, do have some comparability,
consistency, and reliability.
Mr. Womack. Good. We are going have several, I am sure,
budget-related questions here today. So I am going to follow
the lead of my chairman and yield back some of my time so that
we can get to the questions of some of our other members.
Chairman, it is great to see you, and welcome, again, to
our committee, and I appreciate your time today.
Mr. Gensler. I thank you. I thank you for the call earlier
this week as well.
Mr. Quigley. Thank you.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And, Chairman Gensler, nice to kind of be with you today.
Thank you for joining our hearing.
I will say, I agree with you that many, many investors do
find it relevant, climate-related information with publicly
traded companies. Just because some may find it irrelevant
doesn't mean others don't find it relevant. So I agree with you
on that.
I wanted to talk to you about what we call the Consolidated
Audit Trail, the CAT. In 2010, the Securities and Exchange
Commission directed the self-regulatory organizations, the
SROs, comprised of the securities exchanges and FINRA, the
Federal Industry Regulatory Authority, to develop and implement
a Consolidated Audit Trail, the CAT, that will enable
regulators efficiently and accurately to track all orders in
U.S. equities and listed options and can conduct cross-market
surveillance.
Now, when fully implemented, this CAT will be the world's
largest database of equities, securities, and listed options
transactions, and it will maintain customer personally
identifiable information on over 100 million institutional and
retail investors.
Last year former SEC Chair Clayton testified before
Congress on June 25 where he acknowledged that the bulk
downloading of CAT data by each of the SROs is a complicated
problem, and that the SEC is still evaluating internal risk
controls and other potential threats. And shortly after his
testimony, the SEC did issue the CAT data security proposal
that is designed strictly to curtail bulk downloading by the
SROs, and otherwise significantly enhance the security of data
within the CAT, that proposal is still pending before the SEC.
But, Chair Gensler, when do you expect the SEC to act to
adopt that proposal?
Mr. Gensler. I thank you.
And I share your goal to protect the data. I think that
Chair Clayton also did some things which they did finalize to
remove some of that personal identifying information, people's
birthday, Social Security numbers, and the like, from the data
that was completed.
But I would like to--I am only in my second month. I would
like to work with you and your staff to reply to the second
question about the timing of the FINRA, I think, has that
second bulk data in front of us, and I could better reply the
timing of that as a follow-up.
Mr. Cartwright. Okay. And I will ask you this, and the same
answer will be appropriate. We would rather have a correct
answer a week from now than something wrong off the top of your
head today.
Chair Gensler, I also understand the SROs as the sole
operators of the CAT have proposed to strictly limit their
liability in the event of a CAT data breach, or misuse of the
CAT data by the SROs or their employees. This should have the
effect of shifting all liability to broker dealer firms
reporting to the CAT in the event of a CAT breach, even though
those firms have no control over the CAT or any security
measures it may adopt. How does the SEC plan to address this
issue?
Mr. Gensler. Again, I think--I think I need to sort of
understand from the staff a little better how to address it but
I share the concern that you don't want to sort of put it all
on the burden of the people sending the information in, that
the aggregator, in this case, FINRA, and the operator of the
Consolidated Audit Trail has a responsibility as well.
Mr. Cartwright. Well, we will follow up with you, Chair
Gensler, on that. And I thank you for your answers and your
presence here today.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
I believe that Mr. Joyce is next in line.
Mr. Joyce. Could you defer, if you don't mind, Mr.
Chairman, to Mr. Stewart?
Mr. Quigley. Certainly. Okay. Mr. Stewart.
Mr. Stewart. Yeah, thank you.
Thanks, Mr. Joyce.
And, Chairman, thanks for being with us. I almost have too
much to the point where I almost have not--don't know where to
start, and I guess I would just come back and ask you to define
a little bit for me or to maybe explain a little bit some of
your thinking regarding--and Mr. Womack alluded to this or
talked about this briefly--but could we discuss primarily this
idea of requiring more information, whether it is in the
environmental area, which is, I know, the focus that some
people have concerns about.
But I am wondering, well, if we are going to expand the
reporting requirement in some of the environmental concerns,
are there other areas that we should require additional
reporting as well? Would we only want to limit to environmental
concerns? Are there other areas that you think probably need to
be reported as well? And do you have any aspects of the cost
and the economic burden, or the regulatory burden that that
would entail?
Mr. Gensler. First, let me say if the 5 minutes isn't
enough, I am glad to meet with you next week or anytime that we
can mutually figure out.
And I make that offer to all the members of the committee.
But in terms of disclosure, I think that each period of
time we should be animated by investors. So what investors
might have wanted in the 1960s might be different than the
2020s, which might be different than the 2030s, but right now,
there is significant interest from investors to understand
climate risk, and from the issuers and to bring some
consistency. A lot of companies are doing this voluntarily, and
there is a little bit of differences of what they are
reporting. So, it is not comparable either.
Secondly, I think we are going to take up--I have asked
staff to make recommendations around human capital. Just the
value of a company is often very entwined with the employees,
their turnover, where they are located, the pay levels, and the
like. And, so, that is a second area. I have asked staff to
serve up something for Commission on climate risk disclosure
and human capital disclosure.
We are currently considering something around cyber
protection and a number of members have already asked about
cyber but just how issuers are looking at and how they are
insured for their own cybersecurity.
Mr. Stewart. So, and by the way, I don't oppose this effort
necessarily. I want to be candid with people about the cost and
I want to be candid with them about, you know, my concerns
about regulatory burdens that it would entail, but I think more
of a philosophical conversation about: If we are going to
require it for some climate concerns, would we want to include
some for social justice concerns as well, which is something
that many people are equally concerned with? And if we open it
to that, are there other things that we may regulatory require?
And, Commissioner--Chairman, you bring up something quite
interesting. You said a lot of companies are interested in
this. Why not let the market drive that? If this is of a
particular interest to an investor, why not let them--the
market drive them to those companies to disclose this, rather
than through regulation require that every company have the
equal burden when some of them, you know, or some investors may
be sufficiently satisfied by having the markets and allowing
them to move to those organizations that do report on these
things?
Mr. Gensler. I think it is a very good question. I think it
is embedded in a debate about when some standardization so you
can have comparability and you can see across the issuing--we
have about 4,500 public companies, and you are right, that it
might be more relevant to some than others, but to have
comparability across the ones that report. And I think that
this is enough investor demand right now that--and the SEC has
a role, just as the SEC stepped in and required, over the
decades, management discussion and analysis, or a risk section
itself.
The SEC of the 1930s was looking at financial disclosure.
But by the 1990s, it included some risk assessment and some
management discussion and analysis, even disclosures around
executive compensation. So I think in the 2020s, this is an
area that a lot of investor demand is there, and we can bring
some comparability and some reliability to that reporting.
Mr. Stewart. Well, and, again, I don't--I don't just in a
broad way oppose this. I just want to be very open about some
of the concerns and costs.
And last comment, and my time is expired. But you are right
in the sense, too, that let's have compatibility. Let's have
them be standardized. But that is different than requiring that
of every company. But, again, my time is expired. Thank you,
Mr. Gensler, for being with us. Thank you, Chairman, for
hosting this today.
Mr. Quigley. Thank you.
Mr. Stewart, you asked good questions. While we may
disagree on issues, the discussions are particularly helpful to
have. In the Atticus Finch school of such things, you walk
around in the other person's shoes to understand them all.
Mr. Stewart. Thank you, Mr. Chairman.
Mr. Quigley. Mr. Pocan.
Mr. Pocan. Thank you very much, Mr. Chairman.
And thank you, Mr. Gensler, for being with us. If I appear
distracted, 15 seconds ago, they just started actual voting on
a markup I am in on another computer. So I am waiting for a
text if I have to fly away. I apologize.
As you have emphasized, the SEC's role is to protect
ordinary investors by ensuring a fair and transparent
marketplace. Private equity firms play an ever-larger role in
our economy, often to the detriment of workers and communities.
While most ordinary investors are not directly invested in
private equity, they may be exposed to risks posed by private
equity through their pension funds or other investments. And
yet private equity funds are not subject to regular disclosure
requirements that other types of investments are.
A couple of questions. Would it be beneficial to investors
if they had access to information about private equity firms'
practices, fees, and performance information so they can assess
whether or not to invest in such firms? And do you think it
might be material to an investor if a company uses private
equity type business practices, like buying up small companies,
loading them up with debt, and selling off their assets?
Mr. Gensler. I thank you for that question.
I think, as I mentioned in my prepared testimony, the
private equity space has grown significantly. I think it was
close to 60 percent just in the last 5 years, and that is
number of funds, not just dollars under management, which I
think has grown even more. And the transparency there, I think,
is something that can be enhanced, particularly between the
investment manager and their investors. And you are right. You
said the investors are often pension funds.
So, I have asked staff to just try to understand that a
little bit more. There is some things where you can enhance the
disclosure to the SEC through what is called a Form PF, or
private fund, and some other regulatory filings, but also this
relationship between the asset manager, usually a general
partner, and the investors, limited partners, which are often
pension funds and best organizing that.
Mr. Pocan. Great. No, I appreciate that. And in your
testimony, you mentioned, I think you said your staff was
decreased by 4 percent. At the same time, you gave that in the
other statistics of increases. What resource do you need from
Congress to ensure adequate oversight, especially in the
private equity sector?
Mr. Gensler. Well, I would like to work with this committee
and, of course, the whole Congress to get more resources. I
don't want to stand in front of the President's budget, and I
know it is a little awkward that I am here, you know, a few
days before OMB is released. But I do think that we have shrunk
about 4 percent, and we should try to, at least try to make
that up, given the incredible growth and complexity of the
markets.
Mr. Pocan. Gotcha. And you noted in your testimony that
changes in private fund strategies, structures, and business
practices have created new risks for markets and investors. Can
you just talk a little bit more about what some of those newer
risks are?
Mr. Gensler. Well, some of the newer risks, or even
involving what we talked about earlier, crypto, there is some
interest in funds, investing in the digital asset and crypto
space. And then, it is also some of the mechanisms that the
sponsor is trying to earn fees from the portfolio companies.
This was highlighted about 8 years ago in a speech at the SEC,
but, you know, sort of really looking about how that disclosure
and how that relationship works between the general partner,
the advisor, and the investors in their funds. And that there
are some general partners that have asked their limited
partners to sign agreements to say there is no fiduciary duty
between the general partner and limited partner, which is sort
of wasn't the way it was when I was growing up in the financial
world.
Mr. Pocan. Great. In less than a minute, I am not going to
try to ask you questions about stock buybacks. We will submit a
question series on that. But I am not familiar with the special
purpose acquisitions you talked about that are relatively new.
If you have any good information on that, could you share that
with us? I would love to learn a little more about those.
Mr. Gensler. I am glad to send it. It is basically a
company that has no operations and raises money from the
public, thus blank check, and then says, We have 2 years to
take the money you just gave us to find a target and to buy a
target, and then when they find the target, sort of take that
company public. They have just taken off like, you know, you
might say wildfire in the last 6 months, and there is hundreds
of them, as my testimony said, and there is some real question
about who is benefiting and investor protection.
Mr. Pocan. Great. Appreciate that.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Thank you.
Mr. Amodei.
Mr. Amodei. Thanks, Mr. Chairman.
And to you, Chairman Gensler, I am going to go ahead and
take you up on your gracious offer that you enunciated during
Mr. Stewart's questioning about we will hook up with you later
instead of trying to see if we agree on religion or politics in
5 minutes or less.
Mr. Chairman, I never like to publicly disagree with you on
something. So, I will agree with you that perhaps Mr. Stewart's
questions were okay, but the camera angle was all wrong on that
in my humble opinion.
Mr. Quigley. I saw somebody cut him off. I was concerned.
Mr. Amodei. I am, like, obviously there has got to be some
law in Utah for doing what he just did abundantly in the
record.
And with that, I will yield back, Mr. Chairman,
Mr. Gensler. I look forward to meeting you at another time
and moment, whenever you want, by the way.
Mr. Quigley. Yeah, Chair, I want you to call me when you
finally realize that you regret making that broad offer.
But I recognize Mrs. Lawrence.
Mrs. Lawrence. Thank you. This is quite an interesting
hearing.
So, I want to say, Chair Gensler, you have so many things
on your plate and I want to bring up one that probably a lot of
attention hasn't been given to. Yesterday marked the 1-year
anniversary of George Floyd's killing, calling for greater
attention to systemic racism and investors demanding companies
to do more to advance racial equality. For change to truly be
realized, companies need to take a look at their own internal
processes.
Study after study demonstrates that diversity and inclusion
is correlated with the company's profitability and performance.
Has the SEC issued any new rulemaking or advisory opinions on
this topic recently? Does the SEC plan to prioritize this issue
in the coming months?
Mr. Gensler. I thank you for that, Congresswoman.
And the tragic loss of George Floyd is on all of our minds,
and we have so much more to do as a Nation to address, as you
said, systemic racism. At the SEC, I have asked staff to take
up, as we look at potential disclosure regime for human
capital, to include in that diversity, diversity of senior
management, and diversity at companies. And at the SEC itself,
I am looking closely, not only in the hires that I can affect
at the senior leadership team, but everything we do at the
agency, that everybody can bring themselves to work and be
their best selves, regardless of race or gender or national
background, sexual orientation. But this week's 1-year
anniversary is a real moment to reflect, I think, that we have
got so much work to do in this country.
Mrs. Lawrence. Thank you. I look forward to your
leadership.
You have mentioned that new technologies like Robinhood and
other mobile apps increase access to capital markets, but
present new policy questions. What can the SEC do to ensure
that users of such apps are knowledgeable about the risks of
training and investing? And what comes to mind is that if you
enter into these app locations, there is a disclaimer or
warning that will go to the user.
Mr. Gensler. I think you are right. I mean, one of the
challenges, and we see throughout our economy, is that when we
use applications--I mean, I will admit it. I don't always read
the fine print and the detail. How can I on such a small
device? And, so, they have brought greater access, much greater
access. But at the same time in the financial world, they are
leading to greater activity. And in some places, it is okay. It
is okay if, for instance, a streaming app knows that I am kind
of a rom-com guy, and I am. I am. And so I might lose 90
minutes watching a movie. By the way, my favorites you can ask
me about privately.
But if you trade too much on a mobile app, economic studies
show you probably have lower returns. And, so, I have asked
staff, we are going to put out, to comment, to get advice on
the use of behavioral props that move folks to move and trade
more often.
Investing is a good thing. We want to encourage investing
but it is a question whether it is this day trading and things
like that, or opening up a margin account or an option account
when you don't, as you say, have fully been informed about the
risks of these accounts.
Mrs. Lawrence. Thank you for that.
And since everyone else is asking for some personal time, I
just feel compelled, Mr. Chair, to ask for a personal one-on-
one. I don't want to be left out.
Mr. Gensler. Oh, my God. Chair Quigley, you are right and
my wonderful head of leg affairs, Kevin Burris, is going to be
upset with me after this hearing.
Mr. Quigley. I think he was upset when he heard it. All
right. Live and learn.
Mrs. Lawrence, are you through?
Mrs. Lawrence. I yield back, sir. Thank you, Mr. Chairman.
Mr. Quigley. Very good.
Mr. Joyce, do you wish some time?
Mr. Joyce. Yes. Thank you, Chairman Quigley.
Chairman Gensler, I would just like to come when you have
Amodei in. I don't want to question. I just want to watch that.
Can you hear me?
Mr. Gensler. Yeah, I can hear you.
Mr. Joyce. I want to follow up a little bit on what Mrs.
Lawrence was talking about in the aftermath of the January--the
volatility with GameStop. I have heard from many individual
investors here in northeastern Ohio who are concerned that
retail investors do not share a level playing field with large
institutional investors, particularly in this rapidly changing
market. And I appreciate--I know you have a team that is
studying that. Can you preview any of the overarching takeaways
that they have gathered so far?
Acting Chief Pittman. So, I think that you are--like so
often, the voters are smart. I think what they are raising with
you in Ohio is that it is not always a level playing field.
That is what we are trying to ensure.
So, our current equity market structure, if any one of the
10 or 20 of us that are on this call were to enter an order
into our mobile application or--and say we want to send a
market order to the market, by and large, that doesn't go to
the big stock exchanges we know like the New York Stock
Exchange or NASDAQ. By and large, that is being bought through
something called payment order flow by financial firms that are
wholesaling those trades. Well over 90 percent of those
transactions are flowing through the markets to a handful, a
small handful of firms.
And, so, are they really getting best execution? As I say,
is best execution really best execution? And, you know, broker
is handling things. So there is a rule that says best interest.
Is best interest really best interest? And conflicts have
existed in the financial market since antiquity. This is not
new. But it is how we sort of address that, what we address
through disclosure, and what we address sometimes through
saying, no, there needs to be rules to ensure more.
So, I think we will be doing some things around market
structure in the stock market, based on what we learned in
January and those market events.
Mr. Joyce. That is good to hear. And I look forward to
that, sir.
I was excited about the SEC's announcement in November on
its final rule changes to harmonize and improve an exempt
offering framework that was outdated and burdensome for
entrepreneurs and investors alike. I am hopeful that this
simplified framework will facilitate access to private markets
for their more investors and help small businesses with their
capital formation. Is the SEC still committed to the smooth
implementation of the policy adjustments for similar
regulations which improve private markets for investors and
help small businesses grow?
Mr. Gensler. We are committed to a formation of capital for
small businesses. A little bit about myself. My--neither of my
parents went to college, but my dad took his mustering-out pay
of out of World War II, which was 300 bucks in those days, and
he started a small business, a vending business. Never had more
than 35 employees in Baltimore, but it sent all of his five
kids to college. So I am a product of small businesses. He
didn't tap the public markets, but his bank did. I know that,
you know, and when he needed some money and the 400 bars that--
he had cigarette machines and pin games in bars. You know,
small business is in my blood.
Mr. Joyce. Well, that is good to hear. Thank you for your
time today, sir.
And, Mr. Chairman, I yield back.
Mr. Quigley. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
And, Chair Gensler, thanks for coming to our committee
today. As a regulator, I applaud your efforts to focus on
competition and consumer protection. My questions are about the
effect of consolidation and conflicts of interest in the
nationally recognized statistical rating organizations, NRSRO
system.
In 2020, there were nine NRSROs operating, but the three
largest controlled 95.1 percent of the market. An issue that
will likely exacerbate market consolidation is when large
NRSROs buy up the companies and provide the data needed for
developing ratings. So has your office examined the potential
impacts of large NRSROs controlling access to the data on which
others must rely?
Mr. Gensler. If I might just generalize a little, because I
am only in my second month in the role, but I think you raise
an important point about data, not just for credit rating
agencies, but elsewhere in the financial market, that we found
in our modern 2020 economy that data is so valuable, as you
mentioned. And a concentration of data, I think we are seeing
that in the market-making, even in the events in January, which
we talked about earlier with other members of the committee.
There is a concentration of market-making and, as you are
right, there is this concentration in credit ratings where
there is the three big ones that have 95 percent of the market.
We examine and we oversee these credit rating agencies, but
I think the point about data and the concentration not just
there, but elsewhere in the capital markets, is one that we
will be studying and potentially suggesting enhancements in our
rule sets.
Mrs. Torres. I hope that you will report back to our
committee any of your findings that you have, so that we are
able to work with you on this really important issue.
Another question is 11 years ago, Dodd-Frank attempted to
mitigate conflicts of interest in the securities market
surrounding NRSROs. In the following years, experts have urged
the SEC to end the issue-pay business model that dominates the
industry. This business model allows issuers of securities to
pay credit rating agencies for ratings which has led to
inflated ratings that SEC has never fully addressed conflicts
of interest. So, has the SEC considered countermeasures to
reduce conflicts such as the implementation of an independent
rating mechanism?
Mr. Gensler. You are right to raise this. The SEC has
considered. But it feels like it was a number of years ago,
Congresswoman, in some reports it published in, I think, 2013
or 2014. The interesting historical note is that it wasn't
always this way. Credit ratings actually were subscriber-based
and through the 1960s. Now, a lot changed since the 1960s, of
course. But the 2008 financial crisis, at the heart of that
crisis was some of these conflicts were really reared their
heads. So Congress asked for a report. The SEC did that. As I
said, it was about 7 or 8 years ago. I have asked staff can we
take a fresh look at that and just understand if there is
further modifications to be done.
Mrs. Torres. Chair Gensler, thank you again for coming to
our committee. I urge you to, you know, put all your attention
to these issues. And I welcome an opportunity not to continue
our discussion in a private setting, but in a public setting so
my constituents and all Americans that depend on these credit-
rating agencies can fully inform themselves of the issues that
we have. Thank you.
And I yield back.
Mr. Quigley. Thank you.
That completes the first round. I think we will do
something of a modified second round if someone has a few
questions.
The reason I say that, Mr. Womack, you mentioned that you
might have an additional one when you spoke before.
Mr. Womack. Yeah, I just want to ask--probably a bit unfair
to ask the chairman about the impact of COVID, but I do know
that particularly in the--and I am sure we all have companies
that have done a lot of telework, as Members of Congress have.
I understand the SEC will spend about $100 million on rent
this fiscal year, but because of the pandemic, most SEC staff
have been teleworking for more than a year. Chairman Gensler,
dive down on that subject just a minute. What have you--what
have you heard? What have you learned in your conversations
with staff about the impacts of COVID, staff production, and
whether or not we are going to see an emphasis within the SEC
as we have in a lot of companies--and I have got some big ones
in my district--that teleworking has worked for them, and there
will be an expectation that that model is going to be prevalent
going forward? Help me understand that concept from the SEC
perspective.
Mr. Gensler. No, it is a very good question.
First, I would say too many staff and even myself have lost
family members to COVID. So, I think first that is what I am
hearing and it has been--that has been hard.
But in terms of the SEC, it is right. It went mandatory
remote in March of last year, and is still mandatory remote,
and what we have found is, the productivity has been pretty
high. There is some--there is some challenges. Don't get me
wrong. There is some challenges, particularly for new
employees, and that certain communities aren't built in the
same way.
We are already thinking about, and we will be working with
the bargaining unit as to how we might expand telework, but
there has been, most definitely, even in my 6 weeks, employees
are saying, Can we--as we come back into our 12 regional
offices in D.C., can we look to expand that?
If we do that, I think you are right as an appropriator to
think it might lower the need in square footage and This would
be over the multiple years, because you--leases don't come up,
you know, every month. But I think that there is some
possibility there in terms of square footage.
Mr. Womack. Yeah. So there could be some savings down the
road, but I would agree with you. It is probably a bit
premature to determine what the final outcome is going to look
like. But, you know, I have heard from some of my larger
companies that business as usual before the pandemic is
probably not going to be the way forward for the next few
years, that they are going to continue to experiment with that,
and reduce travel, a lot of travel costs associated with it as
well.
Anyway, that is all I have, Mr. Chairman.
Chairman Gensler, thank you, again, for your time today and
assuming, after you meet with Mark Amodei and are still wanting
to be the Chairman of the SEC, that we will have an opportunity
to visit face to face very soon.
Mr. Gensler. I look forward to it.
Mr. Quigley. Inquiring minds want to know.
Before I go--Mrs. Torres, do you have a follow-up question
at the end? Okay.
Then, Chair, let me just ask you one more. I know climate
disclosures were raised. Do you have a guesstimate on when SEC
might proceed to rulemaking relating to standards for
disclosure on climate and environmental risk? How long do you
expect the process to take?
Mr. Gensler. Well, the process, we have an open comment
file right now where it is not a rule, but it is--my
predecessor, Acting Chair Lee, had put out some questions. We
are going to take that into consideration. That is open until
June 13. Of course, if any members or the public want to put
something in. We are going to try to look at that and then turn
that around and put a proposal out, but I don't want to--I have
already made one commitment to meet with your members. So I
don't think I want to make a commitment exactly what month, but
we want to turn around these comments----
Mr. Quigley. We want to know when you are going to do
public hearings in all 435 districts.
Mr. Gensler. I am not--I am not going there, sir, but I do
think that this is an important set of matters, and to do it
right, to get the economic analysis, to consider the comments
that are coming into this file, we will get a proposal out. And
then, based upon that, the rulemaking usually is in
multistages. A final rule you wouldn't expect to be during the
next 6 months, because we have to turn things around and then
we turn things around. But I think I am be better advised by
staff not to try to commit to a specific month. But we will
move expeditiously on this and human capital disclosure as
well.
Mr. Quigley. Okay. I would ask the ranking member if he has
anybody else on his side or if he has any closing remarks. He
does not.
So I was tempted to open the floor to Mr. Amodei and Mr.
Joyce for further abuse, but have declined to.
Chair, this has been a great discussion. We really
appreciate you are willing to take on this task and your
openness, foolhardy or not, to be so gracious with your time.
We do appreciate that and the very serious issues that we are
talking about today.
So I thank everyone for participating, and this hearing is
now adjourned.
Mr. Gensler. Thank you.
Mr. Quigley. Thank you sir.
Thank you, Mr. Ranking Member.
Thursday, May 27, 2021.
DEPARTMENT OF THE TREASURY OVERSIGHT HEARING
WITNESS
HON. JANET YELLEN, SECRETARY, DEPARTMENT OF THE TREASURY
Mr. Quigley. The hearing will come to order.
As this hearing is fully virtual, we must address a few
housekeeping matters for those who can't remember from
yesterday.
For today's meeting, the chair or staff designated by the
chairman may mute participants' microphones when they are not
under recognition for the purposes of eliminating background
noise. Members are responsible for muting and unmuting
themselves. If I notice that you have not unmuted yourself, I
will ask if you would like the staff to unmute you. If you
indicate approval by nodding, staff will unmute your
microphones.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved, and you will
retain the balance of your time. You will notice a clock on
your screen that will show how much time is remaining. At 1
minute, the clock will turn to yellow. At 30 seconds, I will
gently tap the gavel to remind members that their time is
almost expired. When your time has expired, the clock will turn
red, and I will begin to recognize the next member.
In terms of speaking order, we will follow the order set
forth in the House rules, beginning with the chair and ranking
member; then members present at the time the hearing is called
to order will be recognized in order of seniority; and,
finally, members not present at the time the hearing is called.
Finally, House rules require me to remind you that we have
set up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided to you in advance.
This morning, we welcome Secretary of the Treasury Janet
Yellen to testify for the first time before this subcommittee.
Madam Secretary, thank you for being here today.
Secretary Yellen. Thank you.
Mr. Quigley. The Department of the Treasury plays a vital
role in stabilizing and supporting the U.S. economy. That did
not go unnoticed as this subcommittee, and Congress, put
together much needed relief packages to support individuals,
families, businesses, industries, States, territories, Tribes,
counties, and others affected by the COVID pandemic.
We tasked Treasury with leading much of the Federal
Government's relief, and I commend you and the hardworking
staff at the Department. You have worked tirelessly to
implement these programs that have provided a critical lifeline
to so many Americans struggling through these difficult times.
We realize, however, that much more work remains to be done
to ensure that the economy works for everyone.
The fiscal year 2022 budget for the Department of the
Treasury reflects that, requesting $14.9 billion, an increase
of $1.4 billion over fiscal year 2021.
Within this amount, the administration requests $13.2
billion for the Internal Revenue Service, an increase of $1.2
billion.
In addition, the administration requests a $417 million
discretionary cap adjustment for tax enforcement as part of a
multiyear initiative to increase tax compliance and raise
revenues.
I am eager to hear how these funds will help the IRS better
identify those that are underpaying their tax obligations and
fulfill the goals outlined in Treasury's report on the American
Families Plan tax compliance agenda.
I am also happy to see that, for the first time in 4 years,
the budget request does not propose to eliminate funding for
Community Development Financial Institutions. This year's
budget supports CDFI at $330 million, a $60 million increase,
to drive capital and expand economic opportunity in distressed
communities.
I look forward to hearing about the expansion of this
program, as well as the Department's rollout of $12 billion in
emergency stimulus funds to CDFIs and minority depository
institutions to rebuild and invigorate low-income and
underserved areas impacted by the pandemic.
I am also pleased to see a significant increase in funding
for the Financial Crimes Enforcement Network to support the
Department's efforts to combat money laundering and safeguard
the financial system. The Anti-Money Laundering Act of 2020,
which was enacted at the beginning of this year, is the first
comprehensive revision to anti-money laundering and countering
the financing of terrorism laws in nearly 20 years.
The budget requests $191 billion for FinCEN, an increase of
$64 million, to implement the numerous reforms mandated in this
act. I look forward to discussing how these new authorities and
additional funds will help Treasury and FinCEN protect the
integrity of the U.S. financial system.
Before I turn to Secretary Yellen for her statement, I
would like to recognize our ranking member, Mr. Womack, for his
opening remarks.
Mr. Womack. Thank you, Mr. Quigley, for the opportunity.
And welcome to the committee, Secretary Yellen.
First, let me congratulate you on your confirmation and
thank you, on behalf of all of us, for your many, many years of
public service.
You are the Secretary of the Treasury during a very
challenging time as the country struggles with the economic
impact of the global health pandemic. I appreciate the hard
work all the staff at Treasury have done over the past year to
provide relief to struggling Americans. I am hopeful that as
more Americans are vaccinated, the economy will continue to
dramatically improve. It wasn't long ago we were experiencing
record growth, thanks to a lot of pro-growth policies.
In 2020, I supported all the bipartisan COVID relief
packages enacted, which provided economic relief to millions of
Americans, along with addressing health needs, such as
providing PPE, conducting testing, and vaccine development.
However, I am concerned that the latest relief package was
enacted using reconciliation to avoid having to work with
Republicans. Much of the spending included in that package has
nothing to do with COVID, which is why the majority party could
not get Republican support.
As the country recovers from the pandemic and the economy
starts to grow, I am concerned that this excessive level of
Federal spending by the administration will lead to both
inflation and massive debt that will hinder the recovery and
burden future generations of Americans.
I was hoping that the administration's fiscal year 2022
budget request would begin to limit Federal spending. Instead,
the request proposes higher spending, the Department requesting
a double digit percent increase over fiscal year 2021.
I am certainly troubled with the administration's tax
proposals. I don't see how increasing taxes on American
corporations will help the economy grow, how it will create
jobs, or help American companies compete globally.
It is also concerning that the Department and financial
regulators are getting involved in activities that are beyond
your core mission. For example, the IRS is spending more and
more of its efforts on providing social safety net benefits
instead of its fundamental duty of collecting taxes, processing
returns, and conducting audits.
Furthermore, the administration's new executive order on
climate change and financial risk will have a far-reaching
impact on the entire financial sector, on consumers, investors,
and Federal loan and procurement policies. As I said in
yesterday's hearing, such sweeping policy changes should not be
addressed unilaterally by the administration.
Another area of great concern is the administration's
negotiations with Iran on a nuclear deal. While Hamas is
raining down Iranian-made rockets on Israel, I think it is
reckless and unconscionable to try and appease Iran and its
proxies. We must stand with Israel and hold Hamas and Iran
accountable. I oppose the Department weakening any sanctions
against Iran.
In conclusion, I won't be supporting the level of spending
included in the President's budget request. However, I do look
forward to working with you, Chairman Quigley, and the other
members of this committee in a bipartisan fashion to provide
the Department with a reasonable level of resources to
accomplish your important core missions. I also look forward to
working with you on the policy concerns that I have raised
today.
Once again, Madam Secretary, welcome to the committee.
Chairman Quigley, thank you so much for the opportunity,
and I yield back my time.
Mr. Quigley. Thank you, Mr. Womack.
Thank you, Secretary Yellen, for being here today.
Without objection, your full written testimony will be
entered into the record.
With that in mind, we would ask you to please summarize
your opening statement in approximately 5 minutes.
Please begin.
Secretary Yellen. Thank you.
Chairman Quigley, Ranking Member Womack, thank you for
inviting me to join you today. I look forward to your
questions, but first I want to briefly discuss the state of our
economy and the state of the Treasury Department. I believe
that one depends on the other.
Our economy is recovering from the pandemic, but we still
have a long road ahead of us. For this reason, I expect that
economists will look back on this Congress' decision to enact
the American Rescue Plan and judge it very favorably. You had
the option to provide just a few months of relief or continued
support to see us through to the end of the crisis, and you
chose the latter.
Thanks to ARP and its predecessor legislation, I am
confident that people will make it to the other side of the
pandemic, but, as you know, in order for these dollars to
effectively reach their intended targets, we have to stand up
and manage new Federal programs. Treasury has been tasked with
much of this work. We are proud to do it.
The challenge is, while our portfolio has grown to match
the urgency of this moment, our annual budget has not grown in
tandem, and the funding provided to administer new programs is
temporary. Not accounting for inflation, our annual budget is
still at the same enacted level as 2010, and critical policy
offices, like domestic finance, economic policy, and tax
policy, have seen their budgets cut by as much as 20 percent
since 2016.
The mismatch is very stark when you take a moment to scan
the new bodies of work we have undertaken.
Treasury has built a $350 billion program to help State,
local, and Tribal governments start operating normally again.
The National Security Loan Program has distributed more
than $700 million to contractors who are critical for our
Nation's defense.
The CERTS program will provide $2 billion to bus and ferry
programs.
There are two separate multibillion dollar programs to help
people pay their rent and mortgages.
And, of course, Treasury administers economic impact
statements.
The IRS entered the pandemic as an agency that processes
tax filings and returns once a year, and it managed to marshal
its forces to disperse more than $460 million payments,
totaling approximately $800 billion across three separate
tranches. And now the IRS is preparing to make monthly payments
of the expanded Child Tax Credit to families of more than 88
percent of American children.
Our team has done valiant work implementing these programs
with the resources at our disposal, but we cannot continue to
be good stewards of this recovery and tackle the new bodies of
work that Congress assigns to us in the years beyond with a
budget that was designed for 2010.
Tomorrow our administration will release its formal budget,
and there are several critical areas where funding is needed.
For instance, the Financial Crimes and Enforcement Network,
FinCEN, is tasked with building a massive database that
collects and secures beneficial ownership information, but
Congress has not yet provided any funding to do it.
Then there are the Community Development Financial
Institutions. Congress has dramatically expanded funding for
CDFIs with supplemental appropriations, and rightly so. These
institutions are very effective at injecting capital into areas
the financial sector hasn't traditionally served well. But it
is challenging for the CDFIs fund to distribute greater
resources and scale these programs without additional
administrative funding.
The IRS is in need of additional resources too. Over the
next 10 years, the American people could see roughly $7
trillion fall through the cracks of our tax system. Why?
Because many of the country's wealthiest taxpayers do not pay
their full tax bill, and the IRS is not nearly staffed up
enough to ensure compliance. Today the IRS has fewer auditors
than at any time since World War II.
Our proposal would give the IRS the funding it needs. For
fiscal year 2022, it includes $13.2 billion from discretionary
appropriations, plus $417 million for the first year of a
program integrity allocation as part of the multiyear American
Families Plan.
The speed and strength of our recovery and our economy long
term depends on a fully funded Treasury. I look forward to
working with you to make that happen.
Mr. Quigley. Thank you so much.
We will now begin with questions.
Madam Secretary, let me begin by talking about your
sanctions enforcement efforts. Last month, the Treasury took
multiple sanction actions against the Russian Government and
individuals in Russia and other entities in response to a
number of malign activities, including, but not limited to,
meddling in the 2020 elections, the poisoning of Alexei
Navalny, the SolarWinds cyber attack. And, you know, over the
past, I have expressed concern about there are overseas
accounts the Kremlin is using to undermine these effectiveness.
Can you talk a little bit about the challenges in enforcing
the sanctions that you are asked to push forward?
Secretary Yellen. Well, thank you for that question.
Let me just start with Russia and say that we are firmly
committed to using the full breadth of Treasury's authorities
to target the range of Russian malign activities, including
those you mentioned. And we do believe that this poses a very
significant threat to U.S. national security.
Where generally Treasury believes in the warranted
strategic and judicious use of sanctions, we see them as a very
powerful tool to discourage malign actors, promote
accountability, and propel positive changes in behavior of
foreign enemies and adversaries. And we think that they have
significantly advanced U.S. national security. But I have asked
my Deputy Secretary, Wally Adeyemo to lead a review of our
sanctions program and policy to make sure that we use sanctions
strategically with the clearly defined goals and implemented as
part of a broader integrated strategy. He is going to be
focusing on identifying conditions that make for the successful
use of sanctions and trying to understand what other
complementary actions need to be taken to try to develop a
framework through which to evaluate potential sanctions actions
and look at the possibility of coordinating more closely with
other countries so that the sanctions that we impose are more
powerful and have a larger effect.
Mr. Quigley. Sure. And I think the coordination with our
allies is essential, but can you at least--so folks watching
can help understand the kind of tactics we see not just Russia
but others use to evade these efforts?
Secretary Yellen. Well, you know, certainly there are
efforts at evasion of sanctions, and this is something that we
try to address to the maximum extent possible. When we are
working jointly with our allies, the odds--the difficulty of
evading sanctions becomes higher, and that is one important
reason I think we need to collaborate with other countries in
imposing these sanctions.
Mr. Quigley. Just make sure, as you go forward, that you
let us know what kind of resources you need in a changing world
to move forward on all of those efforts.
Secretary Yellen. Thank you.
I think that our budget includes funding to make sure that
we are--expanding our portfolio, it has become much more
important in recent years, and the resources we have devoted to
it have increased substantially.
Mr. Quigley. Very good. Thank you.
Mr. Womack.
Mr. Womack. Thank you.
Madam Secretary, there is no secret that I oppose the Iran
nuclear deal and supported the withdrawal from it, and
personally I think it is reckless and pretty much
unconscionable for the administration to start negotiating with
Iran to reinstate the nuclear agreement, particularly given the
known support to Hamas and what we have witnessed recently in
Israel. I believe we need to stand with Israel.
So here is my question as we carry the sanctions issue just
a little bit further: What is Treasury's role in this
particular skirmish on sanctions with Iran and Hamas? And what
are you doing to ensure that money is not moving from that
state actor to its proxy in an effort to attack our friends in
Israel?
Secretary Yellen. So we have a set of sanctions that have
long been in place on Hamas, and it is something that Treasury
is working effectively to make sure that we carry out, we try
to constrain Hamas' activities. We have worked with other
countries, including countries in the Middle East, to make sure
that it is harder for Hamas to evade the sanctions we have put
in place. So this is a very active of engagement.
With respect to Iran, I think you know the President is
looking at negotiations that might succeed in bringing Iran
back to full performance of its commitments under the JCPOA and
has indicated that the United States is prepared to do the same
if Iran agrees to that. So we will carefully review what
sanctions relief would be appropriate if Iran takes the
appropriate steps.
Mr. Womack. Are you anticipating the weakening of sanctions
against Iran?
Secretary Yellen. Well, if Iran returns to full compliance,
then we would do the same.
Mr. Womack. It is kind of hard to expect that they are
going to return to full compliance when we see this bombardment
that recently took place in Israel, so, you know, I hope for
the best there.
Real quick question about inflation, and you knew this
question was going to come.
Secretary Yellen. Sure.
Mr. Womack. The Bureau of Labor statistics reported earlier
this month that, over the last year, the Consumer Price Index
rose by 4.2 percent, largest 12-month increase since September
2008. And as you and I talked in our previous meeting, I am
concerned that in the post-pandemic economy, that inflation is
going to rear its ugly head. We can talk about tax increases
all day long, but, boy, you know, the inflation spiral that
seems to be hitting right now is indeed a tax increase on
working families.
So how high will the CPI have to increase before you
believe we have got a problem facing America right now from an
inflationary standpoint?
Secretary Yellen. Well, I certainly agree that we don't
want inflation to pick up and be embedded in the American
economy going forward. You know, I came of age and studied
economics in the 1970s, and I remember what that terrible
period was like, and no one wants to see that happen again. But
we obviously have to watch the current situation very closely.
And the Treasury and economists in the White House are
certainly monitoring inflation trends very carefully.
My judgment right now is that the recent inflation that we
have seen will be temporary. It is not something that is
endemic. I expect it to last, however, for several more months
and to see high annual rates of inflation through the end of
this year.
You know, we have an economy that was struck by a very
severe and unusual shock. It caused very substantial shifts in
spending patterns away from services and towards durable goods
and commodities. And the high inflation reading in the CPI that
we saw last month partly reflects the fact that service prices,
for example, airline seats, prices of hotels, recreation, where
prices fell dramatically at the beginning of the pandemic, as
our economy is coming back, these prices they are still below
where they were pre-pandemic, but they are moving up. That was
part of the inflation.
And there are bottlenecks also. We have a shortage of
chips, a semiconductor shortage. We saw an unusual move up in
used car prices, in part because of the shutdown that had to
occur in some auto plants, and we had rental car companies
that, in order to survive the pandemic, sold off their
inventories. While the demand is coming back, we saw a surge in
rental car prices.
So I think, as the economy gets back online, it is going to
be a bumpy process, but I do believe that we will see some
adjustments. I don't think this is endemic inflation. And, you
know, we have tools to address it, and it will be important to
do so.
Mr. Womack. Yes. And I thank the Secretary. Mr. Chairman, I
know I am way out of time. But I hope you are right, Madam
Secretary, that it is short-lived, but because of the amount of
money that is in this pipeline that is going to go for years to
come, I am afraid that this amount of Federal spending is going
to keep the inflationary spirals for a while.
Anyway, I yield back my time. Thank you.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
And thank you, Madam Yellen, for coming and appearing
before us and for all of your work over the years.
I would like to talk with you briefly about the CDFI,
minority depository institutions. A 2018 SBA report found that
minority-owned businesses typically pay higher interest rates
and experience more frequent loan denials than White-owned
businesses and, as a result, minority entrepreneurs are less
likely to apply for loans due to fear of denial. And this
disparity on access to credit was exacerbated during the
coronavirus pandemic, with a recent study finding that Black-
owned businesses suffered the sharpest rate of closures in the
first part of 2020.
To help alleviate these disparities, the American Rescue
Plan provided a historic $9 billion investment into Community
Development Financial Institutions and minority depository
institutions through the Emergency Capital Investment Program.
Can you provide us with an update of the implementation of
this program and what steps Treasury is taking to ensure that
these funds will build capacity to that access to capital for
these underserved small and minority businesses?
Secretary Yellen. Well, thank you for that question,
Representative Bishop.
I think that the Emergency Capital Investment Program is a
tremendously important initiative that will really strengthen
the capacity of CDFIs to increase their lending and investments
in low-income, rural, and minority communities for many years
to come. And injecting capital into these institutions will
enable them to--there will be a leveraging effect. They will be
able to tremendously expand their lending activities.
We are in the process of putting this program into place
right now. We have had extensive engagement with stakeholders,
and we are beginning to accept applications. We originally had
an application deadline to these funds of May 7. And what we
heard is that extending the deadline was important to these
institutions to give them adequate opportunity to understand
the details before applying, and we have now extended the
application deadline to July 6. But this is a very important
series of investments, and we want to make sure that the money
that we provide will do the maximum possible, particularly in
the most distressed areas.
Mr. Bishop. Thank you, ma'am.
Let me shift quickly to the Child Tax Credit. The Rescue
Plan expanded the Child Tax Credit by increasing the credit to
$3,000 for children 6 to 17, $3,600 for under 6 for the 2021
tax year, and the IRS recently allows that the monthly payments
would begin in July for those families that are eligible. There
has been discussion that we should extend the credit beyond
2021, and President Biden's Families Plan was extended through
2025.
If Congress were to extend the tax credit, does the IRS
have the resources needed to implement the credit beyond 2021?
And what do you have to suggest to us what we could do to help
improve the tax credit beyond 2021?
Secretary Yellen. Well, thank you.
You know, the IRS is doing a terrific job in implementing
the Child Tax Credit program. It has really never really been
called on in the past to implement a program that involves
monthly payments to recipients, but it has quickly figured out
how to do that, and it is expected that a very large share of
the money that will be owed for the Child Tax Credit will be
paid out in July. The first payments go out in July.
We have also worked with the IRS and other agencies to make
sure that some of the neediest children whose parents don't
file tax returns and don't otherwise have much contact with the
IRS, that they are aware of the program and their eligibility
for it, and we want to make sure and are working through a
variety of community groups to get the information to them.
We have requested a substantial increase in funding for the
IRS for many different purposes, including the ability to
administer programs like this on an ongoing basis to improve
enforcement, to improve taxpayer service. The IRS has really
been crimped for funds, and it is a very high priority in the
budget submission.
Mr. Bishop. Thank you very much. My time has expired.
And, Mr. Chairman, I yield back, and I appreciate your
indulgence.
Mr. Quigley. Thank you.
Mr. Stewart, you are recognized.
Mr. Stewart. All right. Thank you.
Thank you, Secretary, for being with us, as always, and as
has already been expressed, thank you for your many years of
service. Although I think we don't see the world exactly the
same politically, you have been someone that I have admired
over the years, and we are grateful for your service today.
We do live in interesting times. I think a lot of us would
like to make them a little less interesting. And I would like
to express two concerns, if I could, and then ask two
questions. And I will just ask them both at the same time and
let you respond.
Debt and spending is the primary reason I ran for Congress
8 years ago, and this is a time when the challenges we had then
seem rather small compared to the times we have now. And, by
the way, I have been consistent on this. In the previous
administration under President Trump, I encouraged him
personally and I encouraged the administration to be far more
serious about our debt and the spending that we had under their
administration as well. So this isn't something where I have
been hot and cold depending on who is in the Presidency.
And I think we are in the middle of a catastrophe in the
making, as has been expressed by, I think, our ranking member,
Mr. Womack, and others. Inflation scares the life out of me,
and I think it is as a result of policies, which leads me to my
question. And that is, at a time when the administration is
suggesting what is trillions of dollars on top of already
trillions of dollars of debt, when you have incredibly loose
monetary policy, when you have disincentives to produce, which
we clearly have, and we are seeing that now in our employment
rate, you said earlier, Madam Secretary, that you believe
inflation will be transitory. And my question, my first
question is this: Given what I just explained, how could we
expect this to be transitory? And if you would just put a pin
in that because my question, again, how could we expect
inflation to be transitory under the policies that we are
seeing on the monetary and fiscal side as well as, you know,
the economic outcome for that on the employment?
My second question is a little more personal, but it
affects millions of Americans. A member of my family, my
daughter, who is just a young couple starting out, finishing
college, they are waiting a year and a half for their tax
return, not from this year; from the year before. And I am told
by some members of the IRS, some leaders in the IRS, there are
6 million Americans who are waiting for tax returns from,
again, not this year; the year before. And I know that COVID
interrupted some of the work schedules, but I am wondering, A,
are you aware of that? And what can you tell these Americans?
For a young couple or for many working companies, a $2,000 or
$3,000 tax return is a lot of money to them, and to be waiting
18 months for it is just completely unacceptable. And I wonder
if you would address that as well.
Secretary Yellen. Sure. Let me start with the inflation
question that you asked.
You know, the economy suffered a severe shock. Employment
plummeted, and although we have had very healthy job gains in
recent months, we are still over 8 million jobs below where we
were pre-pandemic. Now, there is still health concerns,
childcare concerns, a variety of reasons that people aren't
moving instantly into jobs now that the economy has opened up.
Lots of people lost permanent jobs and need to figure out what
to do, which new jobs to take. But there remains a lot of slack
in our economy. And as we get the pandemic under control and
schools and childcare reopened so it goes back to normal, I
think we have provided in the ARP the relief that people need
to get through this period without their finances being
completely decimated, and I fully expect them to go back to
work.
Now, it is a large package. We had to balance the risk of
permanent scarring and a long recovery, things we really didn't
want to have happen, with a small chance that this package
could be inflationary. I don't believe it will be inflationary,
but we are watching that carefully and have tools to address
it.
Now, the President has proposed a jobs package and a
families plan, and the headline figures on those programs are
large, but it is important to recognize that they are programs
that will last over 8 or 10 years. And the President has
proposed a way to pay for those programs, to put in place tax
increases on corporations and on wealthy individuals that
would, I believe, be fiscally responsible and even lead to
lower deficits in the outyears as the spending winds down.
Interest rates are very low. Now, debt-to-GDP ratios have
gone up because of the pandemic spending. Interest rates are
exceptionally low. And even after recovery, we have been in a
world--this is true throughout the developed world--we have had
very low interest rates, and most economists believe that that
will continue.
So, you know, beyond 2030, we will have challenges related
to an aging population and Social Security and Medicare we need
to address, but I believe over the next decade that the
interest burden is very manageable on the debt, and I hope that
there will be substantial apportionments paid for.
On the IRS question you mentioned, I know the backlogs are
very large. It is a matter of concern to me, to people in
Treasury, and to the IRS. It is a burden for individuals who
suffer that. In part, the backlog has to do with paper returns
and problems that arose when the pandemic made it difficult,
essentially meant that IRS had to work remotely, and they are
working through that.
Mr. Stewart. Well, thank you.
Mr. Quigley, I know we are out of time.
I will just conclude, Secretary. I pray you are right on
the pandemic. I have a degree in economics. I know it is way
more art than science, but I think we have let a genie out of
the bag here that is going to be very, very hard to put back,
and we look forward to reviewing where we are in a year. And,
again, I hope you are right when we see you again. And please
pressure the IRS. Again, it is important for these families.
And, Mr. Quigley, I yield back. Thank you.
Mr. Quigley. Thank you.
We are pleased to be joined by the chairwoman of the full
Appropriations Committee to ask questions.
Chair DeLauro, you are recognized.
The Chair. Thank you very, very much, Mr. Chairman.
Let me just say welcome, Secretary Yellen. It is wonderful
to see you.
I would just make a comment first off. I was disappointed
from the Senate Republican proposal to gut the Child Tax Credit
to pay for the infrastructure package. This would practically
double child poverty and increase taxes on middle class
families, and I would just say not on our watch.
Secretary Yellen, I want to say a thank-you to you for your
leadership and your commitment to making the expanded and
improved Child Tax Credit a reality. And, you know, and I
remain committed, and we all do remain committed to making the
Child Tax Credit permanent.
Let me just ask a few questions. And I will ask them all at
once and give you time to respond. Can you provide an update
with where Treasury and IRS are with respect to the Child Tax
Credit, the nonfiler portal and the update portal?
Let me just ask, what additional resources will Treasury
need to make the monthly Child Tax Credit payments a success,
and what we would need to move beyond 2025?
What are Treasury and IRS' plans to reach nonfiling
families? Will this include a dedicated phone line and staff?
What about the rollout of the portals? And, in essence, what
kind of services will be available for nonfilers and when do we
anticipate the rollout of the portals? And I guess, overall,
that is what is the communication plan for being able to deal
with outreach for people to take it who are eligible to be able
to access it?
Secretary Yellen. Well, thanks so much, Chair DeLauro. I
want to thank you for your leadership on this issue, which has
been tremendously important.
As you know, the Child Tax Credit makes a huge difference
to childhood poverty, and what was provided in the ARP, the
rescue plan, is estimated that is the most important
contributed to this year halving the child poverty rate. So it
is a very important program. We want it to succeed.
And IRS has been working very hard to ensure that it can
get monthly payments out starting in July, and it is quite
confident that the bulk of the payments that are due, over 80
percent, will be able to be distributed. But as you indicate,
nontax filers are much more of a challenge.
The IRS anticipates launching a simplified tool to enable
nonfilers to be able to apply for the Child Tax Credit. They
are doing something along the lines of the EIP nonfiler portal
that was deployed last year, but are trying to redesign it in a
way that will be easy to use and significantly more people will
be able to access. It does need more information than was
required for the EIP. But what is most important for these
nonfilers, and that includes some of the poorest families with
the greatest need, is they need to learn about this program.
They need to apply for it. They need to be made aware of what
is available for them.
And in a way this is a whole-of-government effort. And the
IRS is working hard with nonprofits, homeless shelters,
nonprofits that work with homeless people, low-income people to
increase awareness. Other agencies in government are working
with us to do that outreach, we regard that outreach
particularly to those nonfilers to be a very critical piece of
making this an effective program.
The Chair. Do we have any idea, Secretary Yellen, about
when there might be the rollout of the portals?
Secretary Yellen. I can't give you a precise date. All I
can say is soon.
The Chair. Soon.
And I am appreciative of the partnerships that you are
making reference to, and I understand you have about 4,000
community partnerships, as well as trying to identify ZIP Codes
that have the higher incidences of nonfilers. So I think that
these pieces are very critically, critically important because
it is now the outreach of this. And I am making this assumption
that the Department will have a full scale communications----
Effort in getting the word out in this effort.
And I would also, please, if we can be in touch because my
time is out, and I want to be mindful of my other colleagues,
but what additional resources will Treasury need to make the
monthly Child Tax Credit payments a success? And if you want to
get back to me on that, I would really very much welcome that
information. It will be critically important.
Secretary Yellen. Yes. Thank you very much.
We want this to be a success, and we will get back to you
on details. But as you know, the budget proposal includes
substantial additional funding for IRS to be able to undertake
activities like this.
The Chair. Thank you very, very much.
And I yield back, and I am sorry I went over my time, Mr.
Chair.
Mr. Quigley. Thank you, Madam Chairwoman.
Mr. Joyce.
Mr. Joyce. Thank you, Chairman Quigley.
Always tough to follow Madam Chair in such a meeting.
But, Madam Secretary, thank you for being here today.
This is something that I have heard in the last
administration, as well as now at this administration, that I
wanted to ask a question about. Treasury has a role in working
with the State Department to craft international sanctions
policies, and there is a manufacturing company in my district
that relies on a supplier in Belarus for a unique product that
is difficult to find elsewhere in the world.
In April, the Treasury Department, in consultation with the
State Department, decided to wind down authorization for
several companies in Belarus to do business with Americans. The
short timeframe for this policy change that was implemented has
created big supply chain problems for this northeast Ohio
business.
Considering the recent developments in Belarus last week--
and I understand the administration's desire to impose
sanctions on the inappropriate actors--or appropriate,
depending on your definition. But what I want to get into today
is how does Treasury potential harm sanctions might have on
American businesses?
And, additionally, what steps does Treasury take to ensure
that sanctions policies they choose do more harm to the
intended bad actors overseas than they do on businesses here at
home?
Secretary Yellen. Well, thank you, Representative Joyce.
With respect to the specific situation of a firm in your
district, my staff has, I believe, been in contact with your
office about it and really want to work with you.
Mr. Joyce. Thank you.
Secretary Yellen. When Treasury--I mean, in this specific
case, when the sanctions went into effect, there was a 45-day
wind down period to allow U.S. businesses to conclude dealings
and prevent undue or immediate harm to them. And that is often
the case when there are sanctions that we don't want to catch
American businesses unaware. There is always the ability to ask
OFAC for an exception to explain a particular situation and why
it should be something that a license should be issued to
continue. That is OFAC. OFAC is ready and willing and able to
work with individuals or firms that have a problem and believe
they deserve exemptions.
And then I would say more generally, we are always worried
about allowing humanitarian aid to be delivered, and in many
instances where there are sanction programs in effect, great
efforts are made to ensure that humanitarian aid can continue
to flow. This is sometimes quite difficult, but it is a
priority, and OFAC and the Treasury Department want to work to
make sure that--you know, we want these sanctions to hit malign
actors and to change the behavior of countries that are
engaging in actions that harm the United States but not to harm
the individuals within these countries. We don't want the
burden to fall there.
Mr. Joyce. Thank you very much. I appreciate your concern
there.
A second thing--I have a minute here to address you--
obviously, I am not going to go into the tax rate structures
with you, but I have corporations here in the district that had
locations in, say, Ireland or England, or somewhere else, just
to avoid the taxes here in America. And I know you are a
proponent of raising the corporate tax here.
You know, when I went to see those CEOs of the business
after we lowered the tax rate because they had just a year or
two earlier had made their move over to Ireland, he said: No,
you know, we are not moving back home because just this, we
continue to change our tax rate depending on administrations
and majorities.
Now, I think this put America workers and America companies
at a disadvantage if we continue to have a rate that
fluctuates. And don't you think this puts us at a disadvantage
with foreign competitors as we look to make a strong post-
pandemic economic recovery?
Secretary Yellen. Well, we certainly want to provide a tax
environment where planning is possible, and so frequent changes
in the rules are something that is very undesirable from
businesses' point of view. But I believe we have the system--I
mean, in the case you described, there are very valid reasons
for firms wanting to have operations abroad, sometimes in low-
tax jurisdictions. Ireland is, for many companies, a good place
to locate to do business in the EU. But what we want to avoid
is companies moving their operations or rejiggering their
accounting and profits to take advantage of tax shelters and
for those decisions to be based on the different tax rates that
they face in different parts of the world.
We are working--we have proposed to try to close loopholes
in our own system that encourage or permit that. But we are
simultaneously attempting to negotiate a treaty with the--
through the OECD negotiations that would create a global
minimum tax that all countries put into effect that would stop
what has essentially been a race to the bottom so that, you
know, it is competitive attractions of different countries that
influence location decisions and not tax competition.
Mr. Joyce. Well, I know I am out of time, Mr. Chair.
And, Madam Secretary, thank you much for your time today.
I just have one last quick aside to what Chris Stewart
brought before. I know if I am 17 days late on payment of
taxes, you charge me interest. Those people who haven't gotten
know paid for 18 months, will they get interest?
Secretary Yellen. I am not sure. I doubt it. Good point.
Mr. Quigley. Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman.
And thank you, Madam Secretary, not just for being here but
for your lifetime of service. I really appreciate that.
I have a very important issue to my State of Wisconsin. We
sent a letter to you a couple of weeks ago from Ron Kind, Gwen
Moore, and myself, and I believe Senator Tammy Baldwin also
sent you a letter regarding the American Rescue Plan. When we
signed it into law, it talks about assistance based on some
Bureau of Labor Statistics unemployment data. And CRS estimated
when we signed the bill into law on May 11 that Wisconsin would
receive $3.2 billion based on that unemployment data covering
what we put in the law, the 3-month period ending with December
2020.
Since then, however, the Treasury Department has decided to
use subsequent BLS data in the issuance of its interim final
rule, and that lowered Wisconsin's allocation to $2.5 billion.
That is a $700 million hit, and, you know, we already--it has
been a tough year with COVID. Our Governor is already working
how to get that allocation out there.
My first question is, you know, is there a way--you know,
when we passed the law, we knew what the statistics were and
what we were expecting. Now it has changed, and it is going to
cost us greatly.
The second question is, also section 9001 of the American
Rescue Plan said that you have the authority to separate
payments to States into two tranches, but you are not required
to. And that is another concern that we had for our State is,
especially if we are going to be hit on this giant decrease on
the amount, splitting it over two pieces makes it even harder
rather than a single piece.
So I guess the two questions: Is there a way to try and use
the data as the bill was actually passed, that CRS said there
would be $3.2 billion? And, secondly, is there a way to do it
in a single payment rather than two payments?
Secretary Yellen. So, Representative Pocan, I understand
that this is a huge change from what was expected in Wisconsin
based on the CRS----
Mr. Quigley. If someone could get--we might have a
background if someone isn't muted. Sorry.
Secretary Yellen. No problem.
So I understand this is a huge problem. We have looked at
this very carefully. I am afraid we are following the law. CRS
indicated that their numbers were preliminary, and the Bureau
of Labor Statistics, we have to use their numbers, and they
revised the numbers significantly for the last 3 months of the
year. Actually, the revised numbers were available when the
bill was passed, and I believe they were available to CRS. So
this was a huge change. I understand that it is a blow. On
that, I honestly don't--we have looked at this very carefully,
and we would be happy to review, you know, with you the details
of how we came up with this number. But I don't think we have
much scope there.
You know, I think with respect to splitting the payments,
the law specified generally that Treasury could split payments
and make exceptions and provide one payment only for States
that had experienced very, very large increases in their
unemployment. So many States are receiving two payments over
time. I think our view that that 12 months apply; all local
governments will, and most States will.
We see splitting payments as encouraging recipients to
adapt to new developments that could arise over the coming 12
months, and there can be changes in the nature of the public
health emergency and its negative economic impacts, but most
States or localities will receive it in two tranches.
Mr. Pocan. I just--you know, perhaps you might be able to
look at it and make an exception also for, you know, a
situation like Wisconsin if we aren't going to get the $700
million additional that I think people were expecting, you
know, that perhaps, in a situation like that, that also might
be a good argument to try to do it in a single payment. We just
hope that you would consider that. I know that was the request
from Senator Baldwin and Ron Kind and Gwen Moore and I, so----
Secretary Yellen. [inaudible.]
Mr. Pocan. I don't think I have time to ask the question on
why we are auditing people on the earned income tax credit at a
greater rate than people who are at the very top wage earners.
I was going to ask that----
Mr. Quigley. We will try to do a quick second round, Mr.
Pocan, if we can get----
Mr. Pocan. Yes. I have got another hearing that starting in
a minute.
Mr. Quigley. All right.
Mr. Pocan. So, in the 10, 12 seconds that I had, are we
still going to keep the penny?
Secretary Yellen. I don't think there is active
consideration of getting rid of the penny.
Mr. Pocan. Okay.
Secretary Yellen. But, you know, on the--there is a major
proposal here that we are trying to increase the audit
resources available to the IRS, and they will be focused on
high-income taxpayers and corporations and not on individuals
whose actual income is below $400,000.
Mr. Pocan. Great. Thank you. Thank you very much, Mr.
Chairman. I appreciate it.
Mr. Quigley. No problem.
Mrs. Torres.
Mrs. Torres. Thank you, Mr. Chairman.
And thank you, Secretary Yellen, for joining us today.
I really do hope that we have a second round because I have
a couple of very, very important issues to touch on.
Secretary Yellen, I was chairwoman of the Housing and
Community Development Committee in California as a State
legislator during the housing crisis of 2009 to 2011. We drew
down at that time $2 billion from the hardest-hit fund to
support homeowners in need. Last April, SIGTARP released a
report, stating that there were hundreds of millions, if not
billions, in funding left over from the hardest-hit fund that
was established during that recession. These funds were
supposed to go to help unemployed homeowners afford their
mortgages. Unless otherwise obligated, they will revert to
Treasury general fund. These funds should be used for
congressional--for Congress' original intent, and that was to
keep Americans from becoming homeless.
I have a bill, the Keep Your Home and Prevent Homelessness
Act, which would do just that, transfer the funds to the
Housing Trust Fund to help homeowners, renters, and individuals
experiencing homelessness immediately. The inspector general
has also urged Treasury not to let these funds go to waste and
instead to reuse these funds, using its existing authorities
instead of moving them to the general account. I hope that we
don't have a need for my bill. I hope that you will see that
these funds should revert back to the States who had to turn
them back over to you. And I hope that you will allow them to
utilize them or to continue to use this funding for its
intended purpose.
Will you commit, Secretary Yellen, to using these funds
right away to help vulnerable Americans in this housing crisis
instead of sending the funds back to Treasury's general
account.
Secretary Yellen. So, thanks for that question. We are--
concerns about homelessness and housing insecurity are really
these are key priorities for President Biden and for those of
us in Treasury, and we are trying to provide critical relief to
homeowners and to renters who have been impacted by the
pandemic and, more generally, promoting housing stability for
vulnerable households. We are working hard to get money out
through the Emergency Rental Assistance Program and the
Homeowner Assistance Fund. And I think you, as you probably
know, the JOBS program allocates a good deal of money to low-
income housing in distressed communities.
With respect to the TARP funds, virtually all of them have
been spent or obligated. There really just isn't very much
money there or any--or essentially any money that can be used
for this purpose. All of it has been essentially obligated, and
I think focusing on the new pots of money that we have and
trying to use those very effectively, and we are happy to talk
with you about this and to work on that with you.
Mrs. Torres. Yes. I want to be respectful to the rest of my
colleagues. I have a very lengthy second question that I will
follow up with you on this because it is my understanding that
California and several other States returned millions of
dollars in unspent money because simply they just they ran out
of time. We helped about 96,000 people stay in their home or
helped them with a down payment for an apartment to prevent
homelessness. There is a homeless epidemic across the U.S.,
and, you know, these funds were already appropriated for that,
and I hope you will not just simply turn them over to your
general fund.
With that, Mr. Chairman, I will yield back so that I can
have an opportunity in the second round.
Mr. Quigley. We will get you. Sounds good.
Mrs. Lawrence.
Mrs. Lawrence. Thank you, Mr. Chair.
And thank you, Madam Treasury Secretary, for being here
with us today.
My question is that, like many of the components of the
American Rescue Plan, the State Small Business Credit
Initiative represents an historic investment to bolster
business creation and enhance economic development. Can you
talk about the implementation of this program, especially why
this funding may not be available to the States and Indian
Tribes until next year, and how Treasury is working to ensure
that this funding gets to the businesses that need it the most,
especially our disadvantaged businesses?
Secretary Yellen. Well, this is an important program.
President Biden is very supportive of it, and we are working to
get those funds out and to make them available. I can have my
staff, if it would be helpful, follow up more with your office
to discuss implementation details.
Mrs. Lawrence. My second question kind of goes back to
Sanford Bishop's but, as we know, the Community Development
Financial Institution and Minority Depository make up community
leaders that provide capital to the small businesses in the
community that face challenges getting loans, especially in the
underserved markets. How can we strengthen the standing of the
CDFIs and the MDIs to ensure that the mission leaders reach
their target markets and put us on a path to sustain an
equitable economic recovery?
And I want to say, in the city of Detroit, which I
represent, the small businesses that have been the economic
engine of bringing the city of Detroit back has had the most
challenge, and I am so proud of the leadership of this
administration to direct funds to the MDIs and the CDFIs, but I
need to hear from you how we are going to meet the targets.
Because while the money is available, what are you doing above
just making it available to make sure we hit our targets?
Secretary Yellen. Well, we have a great deal of money now
that was made available in the bill that Congress passed in
December. There will be $9 billion to invest in CDFIs and MDIs,
and there was $3 billion in emergency funding that we have
worked very hard to get out the door to make sure that CDFIs
have the ability to lend in some of the communities that were
most hard hit during the pandemic.
Our budget is requesting additional funds for the CDFI fund
in Treasury to partly to help us make sure that all the money
that is available is used in an effective manner and makes a
difference in the most vulnerable and hardest to serve
communities.
So the CDFI-funded Treasury provides technical assistance
and support to CDFIs. We try to look at programs that are
working well and give technical advice and work with CDFIs to
make sure that they are engaging in lending that is structured
in a way that will be very effective.
So I agree with you it is not just a matter of the amount
of the money but how we help that money be used in ways that
really make a difference.
Mrs. Lawrence. So I would like to make a request. If I can
utilize local or Federal staff to come in and do some outreach
in our community to help guide through some of the common
roadblocks and removing through training and monitoring that we
are reaching our goals, I would really--I will reach out to you
for that. Thank you so much.
Secretary Yellen. We look forward to working with you.
Thank you.
Mrs. Lawrence. Thank you.
I yield back, Mr. Chair.
Mr. Quigley. The gentlelady yields back.
Mrs. Kirkpatrick, please.
Mrs. Kirkpatrick. Thank you, Mr. Chairman.
And thank you, Secretary.
I was going ask that question about CDFIs, but that has
already been done. So let me move on to another question.
One of the things I hear most from my constituents is they
feel the economy is rigged in favor of the wealthy and
powerful. This is understandable, given the severe economic
inequality in our country, which has only been worsened by the
pandemic. Part of what drives this perception is the sense that
wealthy individuals are often able to skirt tax requirements
and avoid paying their fair share. This undoubtedly is true,
and more must be done to address it. I was extremely pleased to
review the recently released American Families Plan Tax
Compliance Agenda, which takes aim at reducing the severity of
our tax gap and cracking down on wealthy tax evaders.
Could you please go through what you see as being the most
important pillars of the tax compliance agenda, as well as
whatever other initiatives you see as critical to rebalancing
the scales toward the average American taxpayer?
Secretary Yellen. Well, thank you for that question,
Representative Kirkpatrick.
The Treasury and the Biden administration feel very
strongly about having a Tax Code and enforcement of that Tax
Code that is fair and doesn't unduly burden working people at
the expense of corporations and wealthy individuals.
And the Treasury has found, you know, the estimated tax gap
over the next 10 years, $7 trillion. Now when an individual
earns wages and they are reported as a W-2 or other things that
are reported to Treasury, filings, the tax gap there is almost
nonexistent. The amounts that are paid are reported on people's
tax returns. But it is where there is not very good reporting
and independent information provided to the IRS that compliance
is lower, and that is among wealthy taxpayers who receive
income in forms that isn't reported on a W-2 or smaller
corporations or partnerships. So the proposal has a number of
different planks.
First of all, the enforcement budget has just shrunk to the
point where it is almost impossible to undertake complex tax
negotiations and to hire people with the requisite skills. So
the audit rates on wealthy individuals and corporations has
declined utterly massively, and we are requesting funds to
change that to make sure that those resources are available and
on a multiyear basis so that they have the resources they need.
They also--the IRS also needs information so that it knows
where the lack of compliance would be. And our tax compliance
proposal is proposing that the IRS be allowed to collect a
little bit of additional information that would be very
valuable in targeting auditing resources. And, in particular,
banks and other financial institutions routinely report to the
IRS the amount of interest paid on accounts. If they were to
just report two additional pieces of information, the aggregate
of inflows into an account and the aggregate of outflows from
that account directly to the IRS, that information, those two
pieces of information, would be immensely helpful and in
targeting resources and it would probably also increase
voluntary compliance. Knowing that that information was being
provided would be an incentive to comply and report income.
There also needs to be a modernization of IT systems at the
IRS. And there are tools like artificial intelligence that can
be deployed effectively, especially with that information to
help target auditing resources.
So we estimate overall that we could, over a 10-year budget
window, collect an additional $700 billion with the proposals
in this budget and the Families Plan.
Mrs. Kirkpatrick. Good answer. Thank you. I really
appreciate that you took the time to be here with us today to
discuss these important issues and want to wish you the very
best. Take care.
Secretary Yellen. Thank you very much, Representative
Kirkpatrick.
Mr. Quigley. The gentlelady yields back.
Mr. Womack, we are going to try to do what is left of who
is still left, a quick second round. Are you of interest to ask
an additional question, sir?
Mr. Womack. Yes. Thank you, Chairman Quigley.
And, again, Madam Secretary, thank you for your time here
this morning.
I want to follow up my colleague Chris Stewart talked about
deficits and debt, and, of course, you can't have an issue like
that discussed, in being a former budget chairman and a ranking
member on the Budget Committee, not at least weigh in on the
subject.
Secretary Yellen. Sure.
Mr. Womack. There are so many questions, and I have just
got a limited amount of time.
You know, in judging from the spending proposal that we
expect to get from the administration and the long-term, the
multiyear deficits that are going to be projected, are you
concerned about this deficit spending? And are you concerned
about what will happen to interest rates? We talked about that
a little bit earlier, that should--any reasonable economist
would expect that those interest rates are going to rise over
time. But just the fact that we are putting so much more of a
debt burden on future generations, it is going to lead to
future tax increases on them. Help me understand where Treasury
is in this entire discussion.
Mr. Quigley. And, Mr. Ranking Member, I want to make sure
you know. You are not to be rushed at the ranker. You can go
ahead and finish your thoughts and your questions.
Secretary Yellen. So it is critically important that we
have a responsible fiscal policy and not burden our children
and their children with tax increases that will rob them of
chances to achieve prosperity and--
Mr. Womack. But at what point in time will the
administration look to reducing Federal spending as part of our
long-term solution to this challenge?
Secretary Yellen. So I think we need to discuss what
metrics we should be looking at and discussing in evaluating
the fiscal program, and traditionally we would be talking about
numbers like the debt-to-GDP ratio. And that is already around
100 percent and, over the next 10 years, in the budget that
will be presented tomorrow, is estimated to rise a little bit
higher. And I know those are high numbers traditionally and
worrisome. So it is not wrong to be focusing on those.
But that doesn't in and of itself tell you whether or not a
program is fiscally responsible. I think a better metric is the
real interest payments on the debt as a share of GDP. So
interest rates matter, and the way of thinking about the burden
of the debt and deficits on the economy is how many resources
does the Federal Government need to pay interest on the debt.
And the real interest rate right now is negative, and in
that sense, actually there is no interest burden of the debt,
given that we--the 10-year Treasury rate is currently 1.6
percent. Financing costs are very low. And in real terms, with
inflation around 2 percent, the real interest costs currently
are negative. Now that will increase over time, but at least
over the span of the budget that we are going to be presenting
tomorrow, it remains well within and under historic norms, and
I think it needs to stay that way.
So that is a metric that I am looking at to judge the
sustainability of Federal finances. So we have a--we have a
problem with respect to deficits after 2030 due to an aging
population, Social Security, and Medicare. We will need to come
back and address that. The President's proposal you will see
will have a temporary period of spending and permanent
increases that, beyond the budget window, will result in lower
deficits and more tax revenue to support those expenditures. I
believe it is a fiscally responsible program, but you are very
right to ask these questions, and it is important it be judged
fiscally responsible.
Mr. Womack. Well, as someone who believes, as my colleague
said earlier, you know, a lot of us ran for Congress because of
these kinds of matters. We do think that deficits and debt do
matter. And as an appropriator, I will tell you I am deeply
concerned about the upward trend of the net interest on our
debt and how much money that is taking away from the spending
capabilities on the discretionary side for government that
actually needs to be resourced and funded, particularly
national security issues and the like, at an adequate level.
Again, thank you for your time this morning. As always, we
look forward to the continued working relationship.
And I yield back.
Mr. Quigley. Mr. Bishop, are you still with us?
Mr. Bishop. Yes, sir.
Mr. Quigley. Sir, please go ahead if you have another
question.
Mr. Bishop. Yes. Madam Secretary, the COVID 19 pandemic
taught us that access to broadband is essential everywhere, and
many across southwest and middle Georgia still lack access to
that. We need significant investment in broadband
infrastructure so that we can connect every household to the
internet, and that is throughout rural America particularly.
In the Rescue Plan, we included $10 billion for Capital
Projects Fund, which has been implemented by Treasury. The
program provides States and local municipalities with funds for
broadband infrastructure. I know that Treasury has not yet
released data on the program. But can you provide us with some
insight as to how our local governments will be able to utilize
the fund for broadband infrastructure and what Treasury is
doing to ensure that our rural communities, our small, rural
communities, will be able to have access to the program?
Secretary Yellen. So, this is a complex and important
program, and Treasury is taking the time to make sure we
understand how best to structure the program, but we hope to
issue full guidance on the Capital Projects Fund soon and begin
taking applications this summer.
You know, it is important that this money be used as the
law intended, to serve underserved households and businesses,
those that lack connections that are capable of delivering
minimum speeds. And when investments are made, we had put in
place rules to ensure that those investments will go beyond the
minimum and will provide capacity at modern standards that will
enable it to work for many years to come. Things like video
conferencing and remote schooling, education opportunities
require high-quality investments in broadband, and we are
trying to get that right, but the funds will be made available.
Mr. Bishop. Thank you. And Federal medicine.
Secretary Yellen. Yes.
Mr. Bishop. Thank you, Madam Secretary.
I have got 26 seconds, but I will yield it back, Mr.
Chairman. Thank you very kindly.
Mr. Quigley. Thank you so much.
Mr. Stewart, you are recognized, if you have additional
questions.
Mr. Stewart. Yes, I do.
And I will be brief, Madam Secretary. A couple of times you
have mentioned today that, if inflation actually isn't just
transitory, that the Fed had several tools. It seems to me that
the tools are all very painful. You know, Fed could raise
interest rates. We could cut spending, but, I mean, if we have
an interest rate, as you have mentioned here, one of the
benefits right now and one of the things that lessens people's
concerns about debt is we are paying such an incredibly low
interest rate, but we certainly anticipate that is not going to
be the case forever.
I wish you would talk through what the tools that the
Treasury has and what would be the implications, what would be
the impact of those tools upon the American people.
Secretary Yellen. Well, I mean, some of the recent
inflation we have seen over the last couple of months have to
do with bottlenecks and supply shortages, and those are things
that we are trying to deal with in the Federal Government, but
the core responsibility for controlling inflation over time
rests with the Federal Reserve. You know, short-term interest
rates are at near-zero levels. The Fed's own projections
indicate that a more normal level that they think will prevail
in the long run is around 2.5 percent. That is still a very low
level by historical standards.
But most market participants anticipate that, as the
economy recovers and we get back to pre-pandemic full
employment conditions, eventually it will become appropriate
for short-term interest rates to rise above rock-bottom levels,
and the budget that will be presented tomorrow also assumes
that over time interest rates will revert to low but still more
normal levels than we have now.
Mr. Stewart. Okay. And I just want to make sure I
understand your response, and maybe I will reframe my question
to make sure we are talking about the same thing.
So, if we find out that inflation isn't transitory and we
are looking a year from now at, you know, the same interest
rate or inflation rate that we have now or potentially even
higher even 6 months from now, is there anything that--and I
know the Fed is outside of your direct control. But is there
anything the U.S. Government could do to control inflation
other than raising interest rates, which would, as we all know,
would be incredibly painful for anyone who is trying to buy a
car, trying to buy a home, or for the Federal Government who is
trying to finance this step?
Secretary Yellen. Well, you know, the Biden proposals with
respect to the Jobs Plan and the Families Plan are really
proposing long-run investments in this economy that will expand
the supply potential and boost potential output. Investments in
R&D and education, in training, in infrastructure, in support
to working families that will boost labor force participate
participation, and from our side, from the fiscal side, I think
those supply-boosting proposals and investments will also help
on the inflation side.
Mr. Stewart. Well, again, thank you, and our time is short
on the second round. And I have expressed my respect for you.
That is sincere, but I fear that you are wrong, and I fear for
all of us if it turns out that we don't get this right, but----
Mr. Quigley. Mr. Stewart, if you have another question,
please go ahead.
Mr. Stewart. No, no, that is fine. That is my primary
concern, and I want to be respectful of the Secretary's time as
well.
So thank you both.
Mr. Quigley. All right. Thank you.
Mrs. Torres.
Mrs. Torres. Thank you.
Mr. Quigley. I am going to yield you my time in the second
round, which would give you a couple more minutes. But if you
could still keep it close to 5, that would be appreciated.
Mrs. Torres. Thank you so much, Mr. Chairman.
And, Secretary Yellen, I want to turn to the situation in
the Northern Triangle. We will not see any meaningful
sustainable progress towards addressing migration from the
Northern Triangle until we tackle the root cause of migration,
including rampant corruption and the degradation of the rule of
law. I am pleased that the Biden administration is placing
anticorruption measures at the center of our foreign policy and
assistance towards the region.
The Global Magnitsky Act is one of the most effective tools
we have in our arsenal to fight corruption, and your Department
plays a major role in sanctions under that act. However, to
date, only a handful of individuals have been sanctioned under
the Global Magnitsky Act from the Northern Triangle
specifically. The two recent Guatemalan designations were
already well-known and targeted. If we want to see--to be
impactful, we need to expand our targets to reflect the depth
of corruption and challenge to rule of law in the region.
So is Treasury's current focus on the Northern Triangle and
commitment of personnel dedicated to the region adequately
reflect of the Biden administration's prioritization of the
region and emphasis on anticorruption? And with as many
specifics as possible, can you tell me why Treasury hasn't
sanctioned more individuals from the Northern Triangle?
Secretary Yellen. Well, I mean, what I can tell you is that
the Biden-Harris administration is committed to helping
Northern Triangle countries combat corruption and improving
economic and security conditions. There, as you know, the Vice
President has been tasked with leading an effort that will use
many tools of government and sanctions or one of them.
We work closely with the State Department in implementing
sanctions. We are trying to bring--use the Global Magnitsky Act
and bring financial pressures to bear on when there are human
rights violations and corruption. We recently sanctioned a
current and a former Guatemalan Government official for their
roles in corruption that builds on the Global Magnitsky Human
Rights Accountability Act. We have--we did this in conjunction
with the United Kingdom, and we certainly are ready and willing
to cooperate with State in imposing sanctions when we can
identify appropriate targets and think they will be effective.
Mrs. Torres. Okay. So, in the past, I have heard from
Treasury that there is not sufficient evidence to build cases
and that this is a significant roadblock. However, the State
Department has a list of individuals that they have deemed
corrupt. Are Treasury and State in consensus about the standard
needed to sanction individuals? I know that you said that you
are talking to them. But does that include consensus on, you
know, what deems a person to be corrupt? Can you explain a
little bit about that?
Secretary Yellen. So I maybe can't give you as much detail
as you are seeking here, and it probably makes sense for me to
put some of our staff at OFAC in touch with you. What I can say
is that we work closely with--you know, we implement sanctions.
We work closely with State Department. We have certain legal
requirements. I am not aware of disagreements between State and
Treasury on this, but I will put you in touch with people who
can give you more detail in terms of----
Mrs. Torres. Thank you.
Secretary Yellen [continuing]. This answer.
Mrs. Torres. I would very much appreciate that, as I am
requesting additional funding to ensure that you have the
resources that you need to do your job in this field.
Thank you, and I yield back.
Mr. Quigley. Thank you.
Mr. Womack, I believe everyone who had questions the second
round completed them. Do you have anything to say in closing?
Mr. Womack. I do not, other than to say thanks again to the
Secretary for her time this morning. I appreciate it.
Mr. Quigley. Thank you.
Madam Secretary, we appreciate your service and your time
today.
Mrs. Lawrence. Mr. Chair, I would like to ask a question.
Mr. Quigley. I am sorry.
Mrs. Lawrence. I would like to ask a question.
Mr. Quigley. I was told by staff that you didn't. Please go
ahead.
Mrs. Lawrence. Okay. Beginning in 2022, the women faces
will appear on quarters for the first time and the public will
help choose who will be minted. Can you discuss where we are in
that process and how the public can weigh in?
Secretary Yellen. Yes. I believe that there is a website. I
am not positive. I will get you details on this. But we are
soliciting public input on this, on the quarter program. I have
approved two women to appear on the quarters so far, Maya
Angelou and Sally Ride, and I believe there is a website where
you can provide input, but we are looking for public input, and
I think it is a very--it is an important program.
Mrs. Lawrence. I just would ask if you could send me that
information so we can promote it, and thank you so much. I am
very excited about this.
Thank you, Mr. Chair. I yield back.
Mr. Quigley. Thank you so much.
Again, Madam Secretary, we thank you for your service.
Thank you for giving us so much of your time today. We look
forward moving forward together.
And, without objection, this hearing is adjourned.
Thank you so much.
Secretary Yellen. Thank you, Chair Quigley.
Thank you, everybody.
Mr. Quigley. Thanks for your time.
Secretary Yellen. Thank you.
Friday, May 28, 2021.
SMALL BUSINESS ADMINISTRATION
WITNESS
HON. ISABELLA CASILLAS GUZMAN, ADMINISTRATOR, SMALL BUSINESS
ADMINISTRATION
Mr. Quigley. This hearing will come to order.
As this hearing is fully virtually, we must address a few
housekeeping matters, although in the future, we may prerecord
this part of it so you don't have to watch the same thing, you
can fast forward.
For today's meeting, the chair or staff designated by the
chair may mute participants' microphone when they are not under
recognition for the purposes of eliminating inadvertent
background noise.
Members are responsible for muting and unmuting themselves.
If I notice that you have not unmuted yourself, I will ask if
you would like the staff to unmute you. If you indicate
approval by nodding, staff will unmute your microphone.
I remind all members and witnesses that the 5-minute clock
still applies. If there is a technology issue, we will move to
the next member until the issue is resolved, and you will
retain the balance of your time.
You will notice the clock on the screen that will show how
much time is remaining. At 1 minute remaining, the clock will
turn to yellow. At 30 seconds, I will gently tap the gavel to
remind members that your time has almost expired. When your
time has expired, the clock will turn red, and I will recognize
the next member.
In terms of speaking order, we will follow the order set
forth in the House rules, beginning with the chair and ranking
member. Then members present at the time the hearing is called
to order will be recognized in order of seniority, and finally,
members not present at the time the hearing is called to order.
Finally, House rules require me to remind you that we have
set up an email address to which members can send anything they
wish to submit in writing at any of our hearings or markups.
That email address has been provided in advance.
This morning we welcome the Administrator of the Small
Business Administration, Isabella Guzman.
Administrator Guzman, thank you for being here today.
Small businesses are the backbone of the U.S. economy. The
United States has more than 30 million small businesses that
employ nearly half the country's private workforce.
These small businesses were hit hardest in March 2020 when
many businesses, including restaurants, live entertainment
venues, and gyms were forced to close or dramatically scale
back operations.
In response, Congress created several new programs and
provided more than $1 trillion in economic relief to small
businesses that were impacted. These programs have helped
millions of small businesses continue to pay the rent, keep
employees on payroll, and stay afloat during these difficult
times.
Administrator, I thank you and your dedicated staff at the
Small Business Administration for your commitment and hard
work.
I look forward to hearing from you this morning on the
challenges SBA has faced to implement these relief programs and
the work that remains to help small businesses recover and
rebuild.
I am pleased to see that since you have taken office, SBA
has taken steps to focus its outreach to the hardest-hit small
businesses and those in underserved communities to ensure fair
and equitable access to resources.
The fiscal year 2022 budget for SBA builds upon these
efforts. The request includes an increase of $31 million for
SBA entrepreneurial development programs that support women,
people of color, and other underserved small businesses and
entrepreneurs, a stark contrast to previous cuts proposed.
The request also provides additional resources to support
the expansion of Federal contracting opportunities for socially
and economically disadvantaged small business owners.
I am eager to hear your vision for SBA moving forward and
how you will continue to increase support for small businesses
and entrepreneurs of all backgrounds.
Before I turn to our witness for her statement, I would
like to recognize our ranking member, Mr. Womack, for his
opening remarks.
Mr. Womack. Thank you, Chairman Quigley.
And welcome to the committee, Administrator Guzman, and
congratulations on your confirmation. And many thanks for the
time that we spent the other day in our visit.
You are leading the SBA at a very challenging time. I would
like to thank all of the SBA staff throughout the country who
have been working so hard for over a year to provide critical
assistance to America's small business.
In fact, just last week, I visited a company in my
district, Pruitt Oil and Gas, a Third District, family-owned
company headquartered in Fort Smith. They directly told me that
without the PPP program initiated by Congress and run by SBA,
they might have grappled with having to close their doors.
PPP supported local jobs and that company. Your work on
this front is truly appreciated.
With the administration only just releasing its budget
request today--sometime this afternoon is my understanding--we
haven't been able to review all the details of your fiscal 2022
request. However, we know SBA is requesting a total of $852
million, which is a 9.4 percent increase above the fiscal 2021
discretionary numbers.
I was hopeful that in fiscal 2022, with seeing more of the
pandemic in a rearview mirror, we could begin to reduce Federal
spending. Instead, the request calls for a nearly double-digit
funding increase to your fiscal 2021 discretionary
appropriations.
With the Federal debt in excess of GDP, I think we need to
start finding ways to reduce Federal spending.
In addition to your annual discretionary funds, SBA has
been appropriated about a trillion dollars to help struggling
businesses overcome the economic impact of the pandemic.
I know that at the height of the pandemic it was important
to get funding out quickly. However, I think providing
protections against waste, fraud, and abuse are very critical,
and I hope that you and your OIG are working to prevent fraud
and recover funds where fraud has occurred.
One pandemic program that I am particularly concerned with
is the Restaurant Revitalization Fund. I understand the program
does not require a review of documentation or immigration
status. I hope this initiative isn't prioritizing funding for
undocumented business owners over business owners living and
working in America legally.
Thank you for being with us today and to answer our
questions, and I look forward to your testimony.
And I yield back my time.
Mr. Quigley. Thank you, Mr. Womack.
Administrator Guzman, thank you for being here today.
Without objection, your full written testimony will be
entered into the record. With that in mind, we would ask for
you to please summarize your opening statement in 5 minutes.
Ms. Guzman. Good morning, Chairman Quigley, Ranking Member
Womack, and members of the committee. Thank you for the
invitation to be here and for the opportunity to discuss SBA's
programs in response to the COVID pandemic.
When I appeared in the Senate Small Business Committee as a
nominee not too long ago, I mentioned how this unprecedented
crisis for our Nation's 30 million small businesses had created
a sense of urgency to work harder, think more creatively, and
build more collaboration to meet the desperate need presented
by this moment.
And in my first two and a half months, I can share with you
that my motivation to deliver against that for our
entrepreneurs has intensified.
And I have to share how proud I am of my incredible
mission-driven team at the SBA, who despite having had to scale
at a high intensity the past year-plus, remains incredibly
committed to our Nation's entrepreneurs.
They have been working around the clock to deliver the
American Rescue Plan's crucial relief programs to ensure our
small businesses can survive this disaster and get on the path
to recovery, growth, and resilience.
We are making significant progress, particularly in our
efforts to reach small businesses owned by women and people of
color and veterans who have, because of longstanding barriers
to capital markets and networks, suffered disproportionately
from this pandemic as well and, by many accounts, weren't able
to access relief.
We are seeing the impact. The latest economic reports show
that small business jobs have begun to rebound and proprietors'
income levels have begun to recover. And we are hearing from
the small businesses we serve that both our traditional and our
new relief programs have created vital lifelines, like that
case in Arkansas that the ranking member just referred to.
Earlier this month, we successfully launched the $28.6
billion Restaurant Revitalization Fund. As of Monday, when the
application portal closed, we have received more than 372,000
applications, representing over $76 billion in requested funds,
including strong reach to food and beverage businesses owned by
women, veterans, and people of color, those socially and
economically disadvantaged businesses as well who, as directed
by Congress, received priority access to the program initially.
And we are reaching the smallest of the small food and
beverage businesses as well, with one-third of the total funds
set aside just for them, including a specific set-aside created
for businesses with revenues of $50,000 and under.
I am proud of how we rolled out this program in under 2
months while focusing on my key priorities of meeting small
businesses where they are and integrating a customer-first,
technology-driven, and equitable approach.
We also launched the $16.2 billion Shuttered Venues
Operators Grant program. And as of today, the SVOG program has
received more than 13,000 applications for approximately $11.2
billion in requested funds.
We started distributing our SVOG funds this week, and we
hope to continue to help our Nation's venues hold on until they
can bring back the performances and experiences that are the
lifeblood of our American culture.
Through our Paycheck Protection Program, PPP, and our
Economic Injury Disaster Loan program, EIDL, we have now gone
beyond that $1 trillion in relief. And, so far in 2021, 95
percent of PPP loans have gone to small businesses with fewer
than 20 employees.
Our priority across all our relief programs is to get funds
into the hands of small businesses swiftly, efficiently, and
equitably.
At the same time, we are also committed to maintaining a
high level of oversight, to minimize fraud and abuse, while
elevating transparency and open communication. We have
implemented controls and oversight to better achieve the
balance and reverse some of the previous fraud challenges that
initially plagued EIDL and PPP programs.
I was pleased to hear both GAO's Bill Shear and SBA's
Inspector General Mike Ware say in a recent House committee
hearing that transparency at the SBA has improved under my
watch and that our relationship is off to a very good start.
There is a lot of work to do, but we are working diligently
to ensure funds get into the hands of the businesses for whom
it was intended.
Beyond our COVID relief programs, we are also looking to
the future and our Nation's economic recovery with an eye
toward equity.
Small businesses are starting to reopen, but they are still
reeling from major revenue losses, and most expect recovery
will take more than 6 months. This means that we will continue
to see the need for capital, which is why SBA is exploring all
options to open up capital access, including direct lending.
Additionally, we know that the best thing we can do for our
small businesses is to help our Nation recover from COVID and
get our marketplaces and Main Streets back to normal. With more
than 61 percent of adult Americans who have taken at least one
shot of the COVID vaccine, we are making progress.
The SBA is doing its part by getting the word out to our
small businesses about the American Rescue Plan's tax credit
available to them that provides paid leave to employees
receiving or recovering from a COVID vaccination.
There is so much more work to do. As the voice for
America's small businesses and innovative startups, I will be
leveraging every tool at my disposal to bring businesses back,
create jobs, and build an equitable economy that works for
everyone in all regions.
I look forward to partnering with you to give all
entrepreneurs the tools they need to start, sustain, and grow
into the future.
Thank you, Chairman Quigley and Ranking Member Womack and
all the members of the committee, for the opportunity to appear
before you today.
Mr. Quigley. Thank you. We will begin with questions.
In December, Congress established the Shuttered Venue
Operators Grant program to support live entertainment venues
that have sat empty since the start of the pandemic, over a
year for many. While many other businesses were able to adjust
their operation to at least adapt to the new normal, the live
events industry was forced to shutter almost completely.
My district, which includes the north side of Chicago,
among other areas, has more live performances venues than in
almost any other congressional district. We are looking forward
to seeing shows at the Metro and the Vic and so forth again.
But many of those businesses were hanging on a thread and
anxiously waiting for the grants to be awarded.
Tell us a little bit about what those challenges were
getting that stood up and what caused the delays in the
disbursement of funds.
Ms. Guzman. Thank you.
Yes, we have seen that some specific industries were not
able to access PPP in the same way, as many of them were
closed, first to close and probably last to fully reopen, like
shuttered venues across the country.
And as I mentioned in my opening, we have seen over 13,000
applications submitted. And of that, 12,000 were under 50
employees or less. So we are also talking about smaller
entities as well. So these grants to recover revenue are really
critical for them.
The SBA did work to deploy this as soon as possible. And,
obviously, this was a very complex program that we had to stand
up, with multiple different entities, from producers to stage
venues, folks with control of the building and those not of
those operators.
So very unique eligibility criteria for each type of
entity. But we worked closely with industry to make sure that
we could stand this up in a way that was navigable for them.
But as a result of the complex eligibility, it has been a
little bit longer to implement, and we experienced some
technology issues when we first launched nationally without any
pilot.
I think what is key about this program is that we have been
getting funds out this week, finally. It is not soon enough.
And we are working diligently to try to process these as soon
as possible.
Mr. Quigley. Are there still issues with the processing or
going through this or technology? Or is it now just catching
up?
Ms. Guzman. It is a combination as we continue now to work
through the important parts of actually reviewing eligibility
and disbursements. We are still implementing. But those are
starting to roll out. It was just a longer, more complex build.
One thing to keep in mind is that we do use the Rule of Two
to make sure that we have strong controls in place on this
program. And so there is a manual review as well because of the
complexity of this program. I mean, there is a very
prescriptive nature of this. For example, I mean, we have
applicants having to prove that they have a lighting rig, as an
example.
And so, because of that, that is taking a little bit longer
for review, but our team is pushing these out as quickly as
possible now moving forward. And we will continue to work with
our vendors on the technology to continue to streamline as
quickly as we can.
Mr. Quigley. Sure. We know the need is great in the
industry, yet the cumulative amount requested so far is below
what was anticipated. Do you have any sense of understanding
why the demand wasn't as high as we thought it would be?
Ms. Guzman. We have seen all of the different priority
groups apply in the beginning at the outset, and so we are just
not sure. We are not hearing anything specific from the
industry in terms of people's inability to access the program.
We still continue to get new applications submitted every
day. However, there is a supplemental at the end. And the
industry continues to promote and make sure that people are
aware of this program.
Mr. Quigley. Very good.
Mr. Womack.
Mr. Womack. Thank you.
In the COVID package in March, $29 billion for the
Restaurant Revitalization Fund. You got double the amount of
applications. As a matter of fact, correct me if I am wrong,
but I think you got about almost $29 billion worth of requests
from the prioritized groups, which would tell me that the
prioritized groups are going to be taken care of.
However, a whole lot of other folks that were not in the
priority groups, the disadvantaged businesses and what have
you, veterans, that people not in those groups are going to be
on the outside looking in.
Is that a correct assessment?
Ms. Guzman. Congress had required a specific priority
period. However, we also put set-asides in for small
businesses. And so we have already started processing
nonpriority applicants as well, and funding will be disbursed
across the board.
Mr. Womack. And as I said in my opening remarks, I have got
some concerns about the immigration status of people applying
for some of these funds. Is it possible that illegal immigrants
operating restaurants are going to get grants out of this
program?
Ms. Guzman. All of the businesses will be taxpaying
businesses, operating and established in the U.S. We are
funding across the board those businesses that can establish an
eligibility and identity, and we are following all the rules
from that perspective.
So we do know that restaurants are a critical pathway for
so many immigrant communities. It is an entryway into our
capitalistic country. So we know that those people are also
equally working hard to create jobs. If they are tax paying and
have the proper documentation, then they are eligible for the
program.
Mr. Womack. What is that documentation?
Ms. Guzman. You can have a Social Security, EIN number,
ITIN. And these are broadly food and beverage businesses.
Remember, it is not just restaurants as well. We have defined
it broadly so that it does include--we have defined it as food
carts and caterers. There could be independent contractors in
there as well.
Mr. Womack. All right. I want to shift to PPP for just a
minute. A couple of questions about it.
One, what is our current status right now? How much, as far
as the application process, the forgiveness of loans, the
amount of money that has gone out, any money, any residual
amount of money that has not? Can you just give me a Reader's
Digest version of where that program stands today?
Ms. Guzman. Yeah. I am really pleased to see the impact of
that bipartisan PPP. And I do continually hear from businesses
that that was a turning point for them when they got that PPP
loan, and it helps keep them afloat during this time.
I can report that the agency has nearly exhausted all of
the initial PPP funds that were allocated by Congress. And so
we have just three more days, I guess, the 28th. The end of the
month is the final time.
We are in the process of finalizing all those hold codes,
issues that maybe the bank or the SBA had to resolve those
between us so that we can process all those final applicants
through the system.
And, of course, in the final days, the CFIs, the community
financial institutions, which are the CDFI banks and local
banks, as well as the CBCs and minority institutions, we are
processing billions of loans through the system as well for
that set-aside.
So we have really seen this program leveraged all the way
to the end, and SBA is working through those final loans now in
these final days.
Mr. Womack. Is it your opinion that we are on the tail end
of this thing now and not going to need additional relief? Or
what are you hearing from small business?
Ms. Guzman. I am still hearing that there is interest in
the PPP program, folks who have not--maybe they haven't gotten
their second or they never were able to access the first. So I
still continue to hear that there is some demand, but it is
definitely winding down.
We do have other relief programs available as well with the
EIDL program for loans, low interest, long term, and then the
targeted EIDL for low-income communities.
But we can report that, of course, this year nearly $275
billion was loaned in 2021, and we saw that they were going to
those smaller entities who weren't able to access it in
previous rounds and at the very beginning, so employees 20 and
under. So we are seeing trends of those smaller finally
accessing that.
Mr. Womack. Thank you.
I am going to yield back and come back for a second round.
I am going to have a question about waste, fraud, and abuse and
the OIG. So we will be prepared for that.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Very good.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And, Administrator Guzman, nice to sort of be with you, and
congratulations on your confirmation.
I want to follow up about the Restaurant Revitalization
Fund.
Independent restaurants really are the cornerstone of
communities across the country. And from the outset of the
pandemic, it was clear that this crisis would take a
devastating toll on these small businesses, the restaurants.
So I spent the better part of this past year fighting to
secure targeted relief for northeastern Pennsylvania
independent restaurants. And now that that relief is finally on
its way to our restaurants, I want to ensure the SBA is taking
every precaution to see that it gets into the right hands. So
the first couple of questions are about that.
Number one, what internal controls did the SBA put in place
to ensure that people engaged in fraud did not crowd out
legitimate small businesses from the Restaurant Revitalization
Fund program?
And number two, how effective have those controls been in
ensuring Restaurant Revitalization Fund program integrity?
Ms. Guzman. Thank you for that.
Yeah, across the board we have made controls and fraud
mitigation a priority. We want to ensure consistency across all
of our programs and have been working to make sure that the
money gets into the hands of those that it is intended.
We have looked at best in class practices across our
programs. Our Office of Capital Access is implementing the
Restaurant Revitalization Fund, of course leveraging some of
those automated and systematized progress controls across the
program.
We continue to see that--of course, we are requiring tax
documents, as well as ensuring that eligibility is verified.
So we feel strongly, and we have been working in
collaboration closely with the IG on all of those controls. We
are trying to design and implement those controls at the front
end of all of our programs and work with them collaboratively
to make sure that there is comfort level. So we feel good about
the controls that we have in place.
One of the great features of the restaurant program is that
we try to leverage technology and also private partners. And so
we also have a lot of the point of sale vendors who have
existing restaurant clients who they are directing to the site
and providing data as well. So that is also a strong existing
base of restaurants that we can leverage to put into the
system.
Mr. Cartwright. Okay. Well, thank you for that. And let's
continue to talk about that, because fighting fraud is not a
one-time deal. It is a continuing fight.
I want to skip to the amount of the funding.
Administrator Guzman, you note in your testimony that when
the Restaurant Revitalization Fund portal closed this Monday,
more than 362,000 applications have been submitted with a total
of $75 billion in funding requested.
That is more than two and a half times the entire amount
that Congress allocated for the Restaurant Revitalization Fund
program, two and a half times more money applied for than we
allocated to it.
So the question is, do you believe more targeted relief for
restaurants is warranted?
Ms. Guzman. I would be happy to continue to provide data,
final data. Now, I can report over 372,000 applications
received and over $76 billion.
I think, obviously, there is a huge deficit. We have heard
from the Independent Restaurant Coalition and the National
Restaurant Association that additional funds would have been
needed. That is proven in the demand, the applications.
And so we are happy to work with Congress to make sure that
you have the data that you need to make that decision and then
implement it on your behalf.
Mr. Cartwright. Well, Administrator Guzman, I happen to
agree with you that more funding is needed, and that is why I
have called for the Restaurant Revitalization Fund to be
replenished.
I don't have enough time to ask the whole next question I
have, so, Mr. Chairman, I am going to yield back.
Mr. Quigley. We will get back to you.
Mr. Womack, I believe that Mr. Joyce would be next in line.
Is that correct?
Mr. Womack. That would be correct.
Mr. Quigley. Mr. Joyce.
Mr. Joyce. Thank you, Chairman Quigley and Ranking Member
Womack.
And greetings, Administrator Guzman.
As you may know, I joined several of my colleagues in
sending you a letter back in March noting disagreement on the
SBA's decision to exclude air shows from the Shuttered Venue
Operators Grant program.
Northeast Ohio hosts one of the strongest air shows in the
country on Labor Day weekend every year, the Cleveland National
Air Show. It is a big economic driver for the region, creating
jobs, supporting many small businesses who contribute to the
event.
And it is a tremendous amount of civic pride watching the
Blue Angels. No matter where you live in northeast Ohio, they
seem to fly over during the deployment.
Can you comment on how the SBA came to its determination
that air shows would not be eligible for this program designed
for live industry small businesses?
Ms. Guzman. Yes. The full statute was reviewed, of course.
It was a very prescriptive statute and limited our flexibility
in many respects. And so we took exactly what we were given and
designed the program that way.
So I appreciate the need for additional types of operators
to get into the program. Working with our Office of General
Counsel we interpreted the statute and stuck to that
prescription.
Mr. Joyce. I have got one guy in the district, he does
nothing but food at air shows around the country, and the
pandemic completely broke his back.
But anyhow, there has been a lot of important discussion
about the actions of Congress and the SBA over the last year in
an effort to help small businesses.
As more and more Americans are vaccinated and normal
economic activity returns, I also want to look at the future
and consider how we can help small businesses reboot and
contribute to our economic recovery as we return to normal, as
the return to normal is going to bring its challenges with
that.
One challenge I have heard constantly from small businesses
in my district is they cannot find workers to meet the demand
for their services, a demand which is coming back quickly in
many industries.
I would like to know if we have any ideas why small
businesses are having this problem and what challenges you see
ahead for them in this post-pandemic recovery.
Ms. Guzman. I have heard a full range of concerns. I think,
number one, across a lot of the data, is that the COVID
environment, the risks for health issues as well as the
resulting care economy issues that come with it, meaning a
small child, small children at home, limits your ability to
work.
I think those issues are paramount. So that is why the SBA
has launched an initiative to do extensive outreach to our
small businesses to make sure that they know about those tax
credits in the American Rescue Plan, to give time, paid time
off to their employees to go get the vaccination.
I think returning to normalcy in the marketplace and
getting our kids back in school and in childcare is, I think,
the really critical thing. So that is first and foremost.
We continue to work across our field offices, with the
Department of Labor, to make sure that our field offices as
well as our resource partners are equipped with as many tools
as possible to help connect businesses to workforce and help
them overcome some of those challenges.
Mr. Joyce. That is great.
Here in the district as well many small finance industry
businesses who provide critical services to communities and
played a key role during the pandemic are now being denied when
they apply for forgiveness of their PPP loans despite Congress'
intention that forgiveness be accessible to businesses in a
wide range of industries.
Can you explain how and why the SBA's interpretation of the
law written by Congress is preventing many finance companies
from receiving forgiveness on their PPP loans?
Ms. Guzman. I would have to look in specifically to that
industry. I know overall over 60 percent of the first round of
loans have been processed for forgiveness and cleared by the
SBA.
There is a small percentage of them that are being held. I
understand that it is less than 1 percent over that 90-day
requirement that we are going back and forth with some of the
banks on.
So I would look forward to finding out a little bit more
detail and make sure that we are addressing that specific
issue. So thank you for flagging.
Mr. Joyce. Thank you for all you are doing, and hopefully
we can continue the good work and get our economy back up and
roaring together.
With that, I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
Thank you, Administrator Guzman, for being here and for
your service.
I would like to ask you, with regard to the Office of
Entrepreneurial Development, the fiscal year 2022 budget
request includes an increase of $49 million above the fiscal
year 2021 request for the entrepreneur development program, of
which $31 million is for programs to support women, people of
color, and other underserved entrepreneurs.
The entrepreneur development program oversees the network
of programs and services that support the training and
counseling needs of small business.
And, of course, the training for small business provided by
the program is especially important for small and rural
communities, which often lack access to technical expertise to
assist with their business development.
How will the SBA utilize this additional funding to better
support women, people of color, and other underserved
entrepreneurs and rural entrepreneurs that don't have access to
that technical expertise?
Ms. Guzman. Thank you for that.
Yes, we do know that bold action is needed to address some
of those racial inequities and ensure that all of our
entrepreneurs, no matter what region or what background, have
access to the resources and opportunities.
And, of course, our Office of Entrepreneurial Development
plays a key role in providing technical assistance and
connection to all of these relief programs as well. And so the
discretionary request does include that $31 million increase
over 2021.
Of course, the full budget will be released later today,
but the focus will be on trying to help underserved
entrepreneurs better connect to capital, better connect to
marketplaces, and better connect to networks that really
support them in the ecosystem so that they can either start up
or grow.
We are really going to be focusing on making sure,
especially in recovery, that that is possible through our other
programs at the SBA.
Mr. Bishop. Thank you.
The American Rescue Plan established the Community
Navigator Pilot Program and helped set up networks nationwide
that will reach the smallest businesses with a priority focus
on those that are owned by socially and economically
disadvantaged individuals as well as women and veterans. It is
intended to bridge the gap between local entrepreneurs and
SBA's resources and programs.
A lack of access to these governmental programs has long
been an issue across my district in southwest and middle
Georgia.
So how will small businesses and entrepreneurs be able to
utilize this program to gain fair access to programs that are
offered by the SBA?
Ms. Guzman. Thank you for that.
I am really excited about the Community Navigator Pilot
Program. We just released the Notice of Funding Opportunity
this week so that local governments as well could access this
resource. We are trying to get more hyper local with local
trusted sources so that we can better connect and help
businesses navigate the resources that are available to them.
This will, of course, augment our strong field presence as
well as our resource partners in the field, like our small
business development centers and women's business centers,
which have been expanding recently, including to five SBDC
locations.
And so with the Community Navigator Pilot Program, though,
this gives us a unique opportunity to branch out with new
partners to get more local and to get trusted advisers to work
with local communities that are underserved, rural, urban, and
especially those with women, veterans, and socially and
economically disadvantaged individuals.
So we do look forward to implementing this. In the next few
weeks, we will be able to report more in terms of who has been
awarded to help us become these navigators nationally to
support entrepreneurs across your districts.
Mr. Bishop. Okay. Thank you.
The 2022 budget request includes $10 million to facilitate
access to capital investments to help small businesses become
more resilient to climate change and support a clean energy
economy.
How is SBA going to utilize the funding to help support
small businesses in their efforts to combat the effects of
climate change and build clean energy?
Ms. Guzman. Thank you for that.
That has been our focus, is to try to make sure that when
we are looking across our programs that we are trying to be
more customer-centric and accessible to all businesses. And the
smallest of the small have a more challenged access to our
programs, typically.
That same would apply to combat climate change. We do know
that small businesses will play a critical role in combating
climate crisis as well through modernization, as well as
innovative goods and services.
But in terms of their own resilience, we hope that we can
continue to do the kind of extensive outreach, especially
leveraging the Community Navigator Pilot Program, to really
reach businesses to build resilience to combat climate change.
Mr. Bishop. Thank you.
My time has expired. I yield back, Mr. Chairman.
Mr. Quigley. Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman. Appreciate it.
And, thank you, Administrator Guzman. It is a pleasure to
meet you. I look forward to working with you. I am a small
business owner for 32 years, a very small business, about a
handful of employees, but not many people in Congress come with
that background.
I would like to get to several areas, but let me start with
just one that may be a little unpleasant.
We have had some of the most difficult time of dealing with
any Federal agency is dealing with SBA on communication,
especially in the last year, on behalf of our caseworkers
working on behalf of constituents and, quite honestly, even on
the policy side of our Washington office.
I know you have only been there since March. But what can
we do in a very brief amount of time to try to improve those
relations? Because it really has stood out as one of the most
difficult agencies to work with.
Ms. Guzman. Yes. In my time here, I have implemented a
culture of transparency and collaboration. We know that there
have been failures on communication, even interdepartmental, as
well as in the field offices, to support your constituents.
And so one of the big [inaudible] I changed access from our
field to give them direct access to our platforms to give
updates on our Office of Disaster Assistance and our Office of
Capital Access. That was limited in the past. So we have opened
that up as an example, a great example of the collaboration
that we are seeking and that openness.
So we are working hard every day to try to change that, and
we look forward to working with you locally to make sure your
constituents have more [inaudible].
Mr. Pocan. I appreciate that just because, again, it has
stood out. And especially being a small business owner, I think
I hear from a lot more small businesses owners, and it just
really was difficult in the last year. I appreciate any changes
we can do on that front.
Having said that, I do think this recession was different
than some other recent recessions. In 2008, it felt like there
was a general malaise, except for maybe the housing industry,
obviously, had a very specific hit.
This time, there were winners and losers, right? If you
were a grocery store, a liquor store, someone who dealt with
people who were spending more time at home, you were doing
better than ever. But if you were a restaurant or bar, the
meeting industry, tourism, you might have been completely
zeroed out as a business. And it was a very unusual recession,
I think, in that sense.
We saw the need for the PPP, and you are out of funds
already again on the PPP for the demand.
The Main Street Alliance and the Small Businesses Majority
have expressed the need for more unrestricted, direct grant
assistance to hard-hit small businesses.
And I can tell you very personally and specifically that I
had difficulty in conveying some of my concerns in the last
year as we were putting plans together for small business
because--and I hate the term ``micro business,'' but that is
what people seem to be using these days for under 20 employees.
But using gross sales is a gross mistake, is what I would call
it.
So when we are saying in order to get that PPP loan, which
was vital to so many businesses that second time, you needed a
25 percent drop, well, many small businesses might have taken
on lower margin sales in order to survive, so their gross
numbers mean nothing compared to their profit, that they
actually are using their operating expenses to pay their
employees with.
The same is true of startups. If you keep increasing sales,
you can't necessarily compare a year ago to now. You could be
down in sales, but your sales could be up. But that is the
growth cycle, and that is where most of the jobs these days are
started.
So what can we say specifically about providing any
assistance? Are there any ideas you might have to different
criteria as the Main Street Alliance is looking at or I just
explained? Because I, unfortunately, still see some sieve holes
that I think hopefully we could be innovative and try to figure
out how to fix.
Ms. Guzman. I appreciate that. And I have definitely had my
own experience as a small business owner, including as an
independent contractor on different occasions. So I appreciate
the challenges.
I do think that the way that we design our programs is
really critical for who is going to access them. That dictates
who can better leverage the program. So we are open to
exploring options as we look to expand on the recovery.
Mr. Pocan. Are you looking at any specific programs right
now, or is this something we are going to need to probably try
to initiate with you?
Ms. Guzman. [inaudible] All the programs right now do look
at revenues, in terms of the relief programs. And so we will
need to think creatively and out of the box as we develop
programs for recovery and look at all of our programs through a
new lens as well.
Mr. Pocan. And it sounds like you do understand a couple of
those sieve holes I mentioned, right, startups where it won't
work and a small business. If you are really small, gross
revenues don't necessarily mean anything if you took on
business that might have a lower margin. You are still in the
same bad place you might be in.
Ms. Guzman. And if I could add as well, Congressman, that
we do have, of course, the Small Business Innovation Research
Grant, the Office of Investment and Innovation, and Growth
Accelerators. We do want to lean into that startup system and
really provide support. And so we will be leaning into those
innovation assets at the SBA as well.
Mr. Pocan. Great. Thank you.
I yield back, Mr. Chairman. Appreciate it.
Mr. Quigley. Thank you.
Mrs. Kirkpatrick, please.
Mrs. Kirkpatrick. Thank you, Mr. Chairman.
And thank you, Administrator Guzman, for being here to
answer our questions today.
I just want to ask you about a couple of issues that are
important in my district.
So I want to take us back to April of 2020, to the first
round of the Paycheck Protection Program. As I am sure you
remember, the rollout didn't go quite as smoothly as we had
hoped.
But by the time the dust settled after the first tranche,
it was very clear that businesses in certain districts had
fared far worse--far worse--than those in others.
Unfortunately, Arizona was one of the States that struggled the
most.
While the scales eventually evened out after additional
funding was distributed, it still concerns me that there was a
gap between the States.
Of course, the PPP also faced other issues, namely, the
exclusion of CDFIs during the first round, requirements
implemented by private vendors, lack of clear guidance from the
SBA.
So I hope that in your new role as Administrator you have
been taking steps to ensure there is equity in the way COVID
relief programs are administered and avoid some of the pitfalls
we saw with the PPP rollout.
To that end, how has the SBA been working to ensure the RRF
and SVOG are equitably distributed? And are there any lessons
you have taken from some of the PPP rollout struggles?
Ms. Guzman. Thank you for that. And I was California's
advocate for small business at the time, and so dealing with
COVID directly and experiencing the initial PPP rollout as
well. So I can appreciate, since the State initially was having
challenges accessing PPP as well. We faced similar challenges.
Eventually, of course, we got back on track.
I think that across the board what we have tried to
emphasize, first off, leveraging the resources we have. We have
a great field network, we have a great resource partner
network, and we wanted to make sure that communication was
strong with them.
For SVOG, there were so many different industries included,
but we have gone above and beyond, reaching out to stakeholder
groups and making sure that their members, by industry, had the
information that they needed, that they were involved in the
process at the front end, as well as receiving the outreach
once the program was launched.
And then RRF, which was a much broader program in terms of
the numbers, we have done over 1,000 events across the country,
working again with industry, the National Restaurant
Association and the Independent Restaurant Coalition.
But as well, lots of ethnic chambers and local groups
across the country to make sure that we were reaching as many
people as possible, reaching out to ethnic media sources, those
trusted voices in communities, as well as veterans groups.
I think I did 20 veterans group calls in 1 week just to try
to make sure that all of these organizations had the
information they needed to distribute to their members.
So it is really about that connection to resources, which
is why the Community Navigator Pilot Program is so fundamental
to all of our programs. You can launch something, but if it is
not implemented and successfully reaching those who need it,
then it is not as effective.
So we hope to work in partnership with you to continue to
do a better job across our States through the resource partners
and the field offices that we have.
Mrs. Kirkpatrick. Thank you. I appreciate your answer. I
really do.
I have one other question.
Being from Arizona, the concerns of our Tribal nations are
always top of my mind. A consistent theme I take from meetings
with Tribal leaders is they don't feel the Federal Government
prioritizing their needs, whether that is related to COVID
response or more broadly.
As it relates to the SBA, I want to make sure these
communities have the same access to capital resources and all
the SBA and its partners can provide.
As SBA Administrator, can you please share how you intend
to prioritize Native communities and build on what the SBA has
already undertaken?
Ms. Guzman. Thank you for that.
Yes, we definitely count on Tribal communities as part of
our critical outreach to ensure, both through the Community
Navigator Pilot Program or through our normal outreach, that we
are able to connect to those entrepreneurs as Native-owned
businesses.
And that is across the board, through our capital programs
as well as our government contracting programs, where they are
included as disadvantaged businesses and so that it can
leverage the Federal marketplace.
So we are all in on trying to ensure that Tribal
communities have access to our programs. In California, I did
the same, worked collaboratively with our Tribal entities and
leaders to try to make sure that we were meeting their needs
and reaching their communities.
Mr. Quigley. Thank you.
Mrs. Kirkpatrick. Thank you so much, and I yield back.
Mr. Quigley. Thank you.
Mrs. Torres, please.
Mrs. Torres. Thank you, Mr. Chairman and Administrator
Guzman, for joining us today and including this robust
conversation around how we can help our economy come back as we
are beginning to vaccinate more people and turn things around.
I want to focus your attention to cybersecurity threats as
it relates to small businesses. One survey shows that 23
percent of small businesses in the U.S. suffered from a cyber
attack in the last year.
Cyber attacks are costly for these small businesses and our
economy and can put small businesses at significant risk of
going out of business.
As the threat of cybersecurity grows, there needs to be
emphasis on supporting and protecting them. So for this reason,
fiscal year 2021, FSGG appropriations included $3 million to
fund the cybersecurity assistance pilot program.
Can you provide an update to the status of this initiative?
And what else is the SBA doing to help the small business
community protect themselves from cyber attacks?
Ms. Guzman. Thank you so much.
Yes, the SBA is in the midst of drafting the final funding
announcement for the cyber assistance pilot project that we
will be launching. The team has been assessing best practices
in State programs and plans to make sure that the NOFO is
reflective of that. And so it should be fully cleared and
posted in the very near term, and we will make sure that your
staff receives that for sharing with you.
As per the legislation, awards will be geared towards
States who can assist small businesses. I know in California,
we had our own programs on cyber risks for small businesses and
trying to get them better equipped.
I think the silver lining of the pandemic is that
businesses, small businesses, have adopted technology at really
high rates, whether that was through e-commerce pivots or more
operational type of support for their organizations.
And so I do feel that this is going to increasingly become
a very critical issue for our small businesses as far as their
long-term resilience.
The $3 million that was appropriated in this pilot, we do
anticipate a handful of State awards will be awarded through
the NOFO. So we look forward to that important resource.
But in addition to that, we will continue to work with our
Federal partners who lead on this issue in terms of best
practices, the FBI, NIST, and others, as well as our grantee
resource network, our SBDCs, SCORE, WBCs, VBOCs, veterans
centers, just to make sure that America's small businesses are
aware of the tools that are available to them and solutions.
Mrs. Torres. They hold a lot of data and information of
consumers. So we want to make sure that, with that in mind,
that we are protecting the most vulnerable people that are
trying to do right by shopping small.
We want to continue to encourage that, but we also want to
make sure that they feel confident enough that their
information, when they swipe their credit card, that that
information is going to be protected.
Thank you, Chairman. I yield back.
Mr. Quigley. Thank you.
Mrs. Lawrence, please.
Mrs. Lawrence. Good morning. Thank you, Chairman, for this
meeting, and Ranking Member Womack.
Administrator Guzman, small businesses, and especially the
restaurants, in the city of Detroit, the small business
restaurants were a part of the comeback of our city. And as you
know, May 24, the Restaurant Revitalization Plan has received
more than 300,000 applications with a total of $75 billion in
funding requested.
This is a program that is in high demand and critical to my
State. I would appreciate your assessment on where we are with
this program, and how do we address the demand that has been
followed.
And before you answer, I wanted to add, Congresswoman
Kirkpatrick mentioned it, it was painful what we had to go
through during this pandemic to connect resources to our small
businesses. And the definition of insanity, to keep doing the
same thing expecting different results.
I would love to hear from you your vision. I know you are
new in the job. Because it is an assumption that if you are a
business owner you have all these resources, you are connected.
And a lot of these small restaurants literally have a great
recipe from their mother and just get brick and mortar and open
up a restaurant. The food is good, but their business sucks.
So what can we do? That industry is so important to the
economy of a lot of major cities. What are we going to do with
connecting the resources?
And I don't mean you sit there in a building, and you say
we have these resources, and if you go online and connect it.
What are we going to do innovative and different so that we
can build back better and with more people included in your
department resources?
Ms. Guzman. Thank you for that.
Yes, we know that restaurants are the third-largest source
of jobs in this country, and so that is why we are very excited
to quickly get out the Restaurant Revitalization Fund program.
Demand is definitely outsized, beyond $28.6 billion. It is now
over $76 billion.
The program portal has closed to new applicants as a
result. And so we definitely see that that is not going to meet
the needs of all these restaurants.
And, yes, I agree, they have been first to close and highly
impacted and had slim margins to begin with, and so really
operating under challenges. Many of them have expressed the
fact that PPP didn't necessarily work for them, that they were
going to close. And so they have had challenges across the
board.
So we stand ready to continue to implement this program if
additional funds are awarded and provide you with whatever data
that you need to make those decisions in Congress.
I do think, though, connection to resource is not working,
I agree. And President Biden's Community Navigator Pilot
Program, he is very passionate about that program because he
recognizes that not all small businesses have that connection,
let alone a teachable on-screen [inaudible]. They don't have--
they may not even know about a Small Business Development
Center or the SBA.
So we do need to do a better job. I plan, as I did in
California, to work extensively with local systems and with
private partners as well. SBA is great at leveraging public-
private partners, as demonstrated during this longstanding loan
program, that we need to do with funding across the board.
So I want to be customer first, technology driven, and
equitable, and that includes collaborating and being open and
transparent and working to ensure that people see the SBA as a
pathway to growth for their businesses.
Mrs. Lawrence. I want, Administrator Guzman, to personally
invite you to Detroit. I would love for you, in your developing
and improving the accessibility, to sit down with some of our
restaurant owners and to hear.
Or even if you don't come, someone at the top of the
administration, your administration, to come and actually touch
and smell and see the impact of the policies. To me, being in
government over 30 years, that has had the greatest impact.
And I want to thank you, and I hope to see you in Detroit.
And just know that we hear that you need more funding for the
Restaurant Revitalization.
Thank you so much, and I yield back, Mr. Chairman.
Mr. Quigley. Thank you, Mrs. Lawrence.
Administrator, I think you are invited to all of our
districts to try our local fare if you want. I am sure Detroit
is outstanding, but if you want real pizza, hot dogs, Italian
beef, Chicago awaits.
A quick question to follow up on Mrs. Lawrence. Are we
keeping a list of those restaurants who applied but were told
that we were out of resources? Are they being kept in line so
that they don't have to start all over if and when we are able
to charge up that fund again?
Ms. Guzman. Yes. Thank you for that, Chairman. Yes, they
are. So our system maintains all the applicants, all applicants
in the system.
Mr. Quigley. In order that they hopefully can. And we are
not discouraging anybody, like don't even apply, we don't have
money, right?
Ms. Guzman. Well, the portal itself did close on Monday.
Mr. Quigley. Right. But for those who did apply before
Monday. Okay.
Ms. Guzman. That is correct.
Mr. Quigley. Sure.
Ms. Guzman. And it was certainly open and outreach was
extensive to everyone. We asked everyone to apply based on the
first in, first out.
Mr. Quigley. Very good. Okay. Thank you.
Mr. Womack.
Mr. Womack. Thank you, Mr. Chairman.
My dad always tells me that--and he is a wise guy--that you
make your biggest mistakes in life under a couple of different
conditions, one of those when you are really emotional, and
number two, when you are in a hurry. And because we had this
pandemic on our hands and really didn't have a playbook for it,
we were doing everything we could to speed money out the door,
that sort of thing.
And given the theme of my dad's sage advice, I know that
the speed at which some of this happened did cause some
problems as well.
And so I am curious, whether it is PPP or the EIDL or the
Shuttered Venue program, what have we learned through our
Office of Inspector General.
And how can we take those lessons, first of all, claw back
from some of these folks, but at the same time learn so we can
not make those same mistakes the next time around when our
playbook is a little bit more--when we have it on the shelf and
we can pull it out and see what we did last time and how we can
avoid those problems in the future?
Ms. Guzman. Thank you for that, Ranking Member.
Yes, I think that what we have learned is that that
commitment has to be at inception, that commitment to balance
speed with some strong guardrails and oversight controls at the
design phase, whenever that is possible, as quickly as
possible, and that it is iterative as we go. Because, clearly,
defending against fraud is an ongoing battle, and we have to be
as smart as those fraudsters out there.
And so those two things I think have to be integrated
across our program design. And that is what we are focusing on
doing, making sure that teams are embedded within program
offices and that we have an enterprise-wide approach to fraud
risk detection and prevention. And so that is what we are
committed to do from a management perspective and structure.
And I think that across the board with these programs,
though, I mean, clearly speed is important as well and
efficiency and simplicity, because small businesses, as we have
heard from so many, need assistance in not only connecting to
the resources but understanding the process.
And so leveraging technology tools to simplify so that we
can still get speed but with controls in place. And I think
that we have to continue to learn from private sector best
practices across the board. And we have a great opportunity to
do that, knowing that we have one of the best public-private
partnerships with our financial institutions through our
lending programs.
And so I think that that culture of collaboration with the
IG and GAO will serve us well as we continue to design programs
that focus on controls as well from the inception.
Mr. Womack. Well, I am glad to hear a Federal--a director
at one of our agencies say--admit that the private sector does
do a lot of great things and we can learn from them. And it
pleases me to know that you will talk to the people that you
represent out in the private sector and learn, because that is
a matter of survival for them.
And any time we are going to throw hundreds of billions if
not trillions of dollars at a problem, there are those working
out there that want to get their piece of it and will do a lot
of nefarious things to get a hold of it.
But thank you for your time. And like all my colleagues, we
look forward to the day that you can visit northwest Arkansas.
Ms. Guzman. Thank you so much. I look forward to all these
invitations.
Mr. Quigley. Thank you.
And as we try to go through a quicker second round for
those who still have additional questions, we are going to run
at 3 minutes, beginning with Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
I want to follow up on Mr. Womack's theme of nefarious
people, Administrator Guzman.
As you well know, in recent weeks the Department of Justice
has ramped up its enforcement efforts to combat COVID-19-
related fraud, including schemes targeting the Paycheck
Protection Program, the Economic Injury Disaster Loan program,
and unemployment insurance programs as well.
Now, Administrator Guzman, we have not met before, but I
serve as the chairman of the House Appropriations Subcommittee
on Commerce, Justice, and Science. We fund the Department of
Justice.
So I am going to be very interested to hear from you what
your assessment is about how those joint Small Business
Administration and Department of Justice coordination efforts
are going.
So specifically my question is, what more can SBA, DOJ, or
Congress be doing to ensure the SBA and the DOJ are efficiently
and effectively working together to minimize fraud in the
Restaurant Revitalization Fund program or, frankly, any other
of these SBA COVID-19 relief programs?
Ms. Guzman. Thank you for that question.
Yes, we are committed to supporting investigations and
convictions. And so, obviously, it is required that we support
those investigations. We provide a lot of the information and
then work with the DOJ and OIG and U.S. Secret Service and
other law enforcement agencies closely to support those
criminal investigations and actually recover funds disbursed
under fraudulent pretenses.
And so, for example, in the EIDL program, we have over 160
staff members now. We have ramped up with the additional
administrative funds to make sure that we are reviewing cases
of fraud and that we have dedicated support on the program that
has been impacted by those fraud attacks.
And so I think it does come to that collaboration and being
open to support with information flow, to ensure that those
investigations are successful.
We will continue to do that and would look for any
suggestions as we dive deeper into this to see if the Attorney
General and the Inspector General have any further
recommendations. But so far, they continue to be thankful for
that support that we are giving, and we will continue to
support that.
Mr. Cartwright. Well, you are pretty new in the job, so I
am going to ask you that question a little bit later on in your
tenure to get a retrospective review of how that collaboration
has been going. And I thank you for your testimony and your
time today.
Ms. Guzman. Thank you so much.
Mr. Cartwright. Yield back, Mr. Chair.
Mr. Quigley. Thank you, sir.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
Ms. Guzman, I was interested in your comment that you have
learned a lot from your interaction and your collaboration with
the private sector during the CARES relief programs.
And they worked very well for the most part, except that
the complaints that I got were the programs that were
administered directly by SBA and the relief that came directly
from SBA was very, very, very slow in getting out, and that the
feedback was that the SBA was simply overwhelmed with the
volume and just could not handle the capacity.
So I wanted to ask you whether or not, going forward, you
have sufficient IT infrastructure and whether you have
sufficient personnel, those resources, in order to be able,
going forward, to avoid being overwhelmed as you were--as the
agency was, you weren't there at the time--during the initial
phases of that pandemic.
Ms. Guzman. Thank you.
I did serve previously at the SBA as a deputy chief of
staff during the Obama administration. And this is a new
agency. It has scaled from $40 billion to managing over a
trillion in relief. And so I am never going to deny the
opportunity to be able to say that, of course, we need more
FTEs, more salary and expenses.
However, across the board, what we are trying to do is be
as efficient as possible, leverage technology, leverage private
partners and our great resource partners and ecosystems across
the country to better support small businesses and help keep
the SBA connected.
We do recognize that customer service needs to be ramped
up, and so we will continue to try to find creative ways to
improve the services that we provide directly, as demonstrated
on the Restaurant Revitalization Fund, which is a great example
of how we provided excellent customer service.
Mr. Bishop. I was really trying to get at whether or not
the failures initially with the programs that SBA had to
distribute themselves were the result of inefficiency or were
the result of lack of personnel, because there was such a
backlog, and it seemed as if they just couldn't get it
together.
Ms. Guzman. The scaling-up was, of course, challenging, and
having to adopt technology and scale that really quickly as
well. The administrative funding is really important. And, of
course, some of that administrative funding is expiring in
September.
We always appreciate no year money or extended times on all
of these programs. They all have some end dates that are going
to be coming.
And so as much as SBA can collaborate with you to see about
extending some of those would be great as we can continue to
try to use technology and expand our temporary resources to
support these programs.
Mr. Bishop. Thank you.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman, and thanks for the
extra time.
Administer Guzman, I just want to wrap up that final bit of
conversation I had.
Do you agree that a single metric of a 25 percent reduction
of gross sales does, unfortunately, not capture all businesses
that need and needed assistance?
Ms. Guzman. I mean, clearly, as evidenced by SVOG, which
has those revenue deficit--or the Targeted EIDL Advance that
requires [inaudible] revenues, not everybody has experienced it
that way. That is an underutilized program that we are trying
to use more effectively and do more outreach on. But that is
always a challenge.
Mr. Pocan. Great. I just want to know that others are
hearing what I am saying. I had some strong difficulties in the
last year getting that across, and I know that sometimes it is
hard when we are writing a giant bill, but I hate seeing people
left behind.
Having said that, you probably saw the New York Times
article in January of 2021 talking about people receiving PPP
loans of $100 or less. Clearly, that wasn't addressing the
small businesses that had need.
What can we do, again, about those small businesses left
behind?
And let me just say, technical assistance isn't the answer
for every small business. If you are in the meeting industry,
convention and meeting industry, there were no conventions or
meetings, period. And there are other people who may not have
qualified by the other parameters.
So looking for what we can do for the people that did get
left behind.
Ms. Guzman. If some simple changes were made, in terms of
in the PPP allowing for independent contractors to look at
their Schedule C gross revenues instead, they could get more
funding since they didn't have payroll. So tweaks like that are
definitely of significance.
I think that across the board our current programs that we
are implementing, obviously, we are following administrative
programs that were created by Congress, and so we are required
to look at those losses and revenues specifically across so
many programs.
But I would welcome the opportunity to collaborate on how
we can make recommendations and give you--provide you with
data.
Mr. Pocan. I would love to do that, and I will take you up
on that offer, as well as extend the offer that our chairman
has. Madison, Wisconsin, may not have some of the food that
Mike mentioned in the same way that Chicago does, but certainly
beer and cheese is going to be outstanding in my State.
Final very quick question. Do you have an update on the
EIDL Targeted Advance program and the Supplemental Targeted
Advance program, where we are at on those?
Ms. Guzman. Yes. We are still going through those initial
priority folks who were people who had applied and received
less than the $10,000. So over ten million emails went sent out
to them. And of course not all of those were eligible, but
being in a low-income area and suffering 30 percent loss in
revenues.
But we continue to try to process that. It is 1.5 billion
processed so far on the program, but we are now starting to
ramp up our expected outreach, as in June we will open that up
[inaudible] for those who applied after December 27 or those
who did not apply at all.
And so we will be doing outreach to low-income communities
to try to get the funding out on Targeted EIDL.
With Supplemental, clearly, we have done extensive outreach
for that, 1.4 million. So far, we have funded just under $350
million for that Supplemental Advance of 5,000, and that is the
same [inaudible] to the low-income with higher revenue
thresholds of 50 percent.
So we will continue to do outreach to try to make sure that
we are connecting with those businesses who qualify.
Mr. Pocan. Thank you.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Obviously, if we were in person, I could see more easily,
but I don't see any members who have not had a chance at the
second round. Correct me if I am wrong.
Otherwise, Mr. Womack, you get the last shot at any
comments you want to make before we leave, including the
restaurants' food that you would recommend when the
Administrator visits your district.
Mr. Joyce. Mr. Chairman.
Mr. Womack. Well, it is always good barbecue. We do have
good barbecue. But we have got a lot of other things. We are
famous for great hospitality down here, and I look forward to
that.
Chairman, thank you so much for the opportunity to have
this interaction with Administrator Guzman.
We are looking forward to working with you. And I know I
speak for all of my colleagues that there is no question what
the backbone of our economy happens to be--all these millions
and millions of small businesses out there. And anything we can
do to advance their cause I think is a great investment in the
economy of the United States of America.
So thank you for your service to our country. Look forward
to working with you.
And, Chairman, thanks again for the opportunity to have
this interaction today.
Mr. Quigley. Sure.
Did someone seek recognition?
Mr. Joyce. Mr. Chairman, I would be remiss if I did not
offer the Administrator to come to taste all the fine cuisine
of northeast Ohio, whether it be at the air show or the walleye
and perch that are caught in Lake Erie.
Thank you.
Mr. Quigley. We appreciate that.
Madam Administrator, we just want to thank you for being
here, for your work. We know your work is not done yet.
And we also know there are other industries that have been
hit equally hard by the pandemic. I would just throw out the
gym and fitness industry, for example. Something like 80
percent of their clubs are small businesses, and they have lost
about 1.4 million.
So we are hoping to come to you, be ready, when we get an
opportunity to help that industry as well.
But I want to wish everyone a safe and happy Memorial Day
weekend.
And we look forward to working with you in the future.
And given that, this meeting is adjourned. Thank you.
Administrator Guzman. Thank you.
Wednesday, June 9, 2021.
OFFICE OF MANAGEMENT AND BUDGET FISCAL YEAR 2022 BUDGET REQUEST
WITNESS
HON. SHALANDA YOUNG, ACTING DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
Mr. Quigley. This hearing will come to order. As this
hearing is fully virtual, we must address a few housekeeping
matters. For today's hearing, the chair or staff designated by
the chair may mute participants' microphones when they are not
under recognition for the purposes of eliminating inadvertent
or advertent background noise.
Members are responsible for muting and unmuting themselves.
If I notice you have not unmuted yourself, I will ask if you
would like the staff to unmute you. If you indicate approval by
nodding, staff will unmute your microphone.
I remind all members and witnesses that the 5-minute clock
still applies. And we are going to try to do two rounds today,
folks, so please try not to ask the most lengthy, complicated
question with 30 seconds left. If there is a technology issue,
we will move to the next member until the issue is resolved,
and you will retain the balance of your time.
You will notice a clock on your screen that will show you
how much time is remaining. At the 1-minute mark, the clock
will turn to yellow. At 30 seconds, I will gently tap the
nonexistent gavel to remind members that time is almost
expired. When your time has expired, the clock will turn red,
and I will begin to recognize the next member.
In terms of speaking order, we will follow the order set
forth in the House rules, beginning with the chair and ranking
member, then members present at the time the hearing is called
in order--and will be recognized in order of seniority. And,
finally, members not present at the time the hearing is called.
Finally, House rules require me to remind you that you have
set up an email account to which members can send anything they
wish to submit in writing at any of our hearings and markups.
That email address has been provided in advance to staff.
This morning, or this afternoon, we welcome the Acting
Director of the Office of Management and Budget, Shalanda
Young. I should say we welcome back because the committee knows
the Acting Director very well. She worked for the committee for
14 years serving as Democratic staff director beginning in
2017.
I am thrilled that President Biden has chosen Ms. Young for
this role. He could not have made a better choice for one of
the government's most important and influential positions.
Be warned, Ms. Young, that we know well the great job you
did on the Appropriations Committee, and will have equally high
expectations to you in your new role. In Chicago, instead of
saying to the victors go the spoils, it is the other way
around. So congratulations, sometimes condolences. The task is
at hand, we know you will do great.
Last time OMB testified before this committee in March
2020, and obviously a big difference in a year. At that time,
we heard about a budget that aimed to drastically shrink almost
every part of the Federal Government, except for Defense. That
view of limited government has not aged well. It was swift
action by Congress and execution by Federal agencies that
allowed us to deliver much-needed support to the American
people during the COVID pandemic, and developed the vaccines
that are helping us emerge in this crisis.
This year's budget builds upon the lessons of the last year
by recognizing the important role of the government in making
long overdue investments in critical domestic programs. The
budget proposes necessary increases to ensure that we can deal
with the lingering effects of the pandemic, and help us become
more resilient against future crisis.
It takes step to address the structural, economic, and
racial inequalities highlighted by the pandemic, alleviate
poverty, and ensure that we have a society that works for
everyone. It recognizes the urgency of taking aggressive action
to mitigate an existential threat to America and the rest of
the world: Climate change.
I look forward to discussing these proposals with you in
more detail, Acting Director. What is true in the large scale
is also true in the smaller scale. The last administration
undermined the authority of OMB career staff, overruled their
expertise to legally delay and divert funds, and attempted to
remove their job security. Many experienced staffers left the
agency, and we fear they may have left Federal service forever.
According to the most recent Federal Employee Viewpoint
Survey, job satisfaction at most agencies improved in 2020, but
it plunged at OMB by 16 percent. This year, the new leadership
team is placing the priority on supporting and expanding the
OMB career staff. The agency is asking for $121.9 million in
fiscal year 2022, a 14.3 percent increase over fiscal 2021, to
help rebuild the agency's expertise and morale.
Acting Director, I look forward to discussing with you in
more detail these OMB initiatives and how you will leverage the
experience you gained at the committee to maximize the impact
of any new Federal agency. Again, congratulations on your new
role.
Before we turn to the Acting Director, I would like to
recognize Ranking Member Mr. Womack for his remarks.
Mr. Womack. Thank you, Mr. Chairman.
And welcome back to the committee, Acting Director Young.
Let me congratulate you on your confirmation. Thank you for
your years of service to the committee and the American people.
We have missed you, but are pleased that such a talented and
dedicated person is managing the budget process for the new
administration.
And let me just say, as a matter of personal pride, the
work that you have helped us do on the Joint Select Committee
on Budget and Appropriations [inaudible] Provided opportunity
for future activities along that front.
You are in charge of [audio malfunction] As the country
struggles with the health and economic impact of COVID-19. I
appreciate the hard work of all the staff [audio malfunction]
Mandatory and discretionary spending along with massive tax
increases.
I am concerned that the excessive level of Federal spending
by this administration will lead to both inflation and
historically high debt that will hinder the recovery and burden
future generations of Americans. I am also troubled that while
proposing significant spending increases for most agencies and
programs, the administration's discretionary proposal
shortchanges the resource needs of our military and for border
security. Our Nation faces real national security threats from
adversaries, such as China and Iran, and now is not the time to
be complacent.
Regarding the border, I have seen firsthand the crisis
currently underway. I would encourage you and every senior
official in the administration to visit the border and observe
how dire the conditions at our southwest border have become. We
should be increasing resources for border security instead of
ignoring the situation and allowing this humanitarian crisis to
continue.
I am also very troubled with the administration's tax
proposals. I don't see how increasing taxes on American
corporations will unleash economic growth, create jobs, and
help American companies compete globally. I understand the
administration can propose an aspirational budget, especially
in a year without budget caps; however, I hope that you will
work with leaders on both sides of the aisle as this process
unfolds to come to bipartisan and bicameral agreements.
Using partisan tools such as reconciliation to force
through the current majority's policies is not a long-term
solution to our challenges, especially during times when the
majority party frequently changes from one Congress to the
next.
Regarding the budget request for OMB, I believe a 14
percent increase over the current year is excessive; however, I
will work with Chairman Quigley to ensure that you have an
appropriate level of resources to complete OMB's important
work.
Director Young, I look forward to working with you in your
new position. Hopeful to have a successful, bipartisan
appropriations process this year, and let's pray that we can
get it on time.
Thank you, Mr. Chairman. I yield back.
Mr. Quigley. Thank you, Mr. Womack.
Next, I will turn to our distinguished chair of the full
committee, Ms. DeLauro.
The Chair. Thank you. Thank you, Chairman Quigley, and
thank you, Ranking Member Womack.
And I am delighted to be here today to welcome Acting
Director Shalanda Young back to the Appropriations Committee
and offer my congratulations. During her 14-year service on
this committee's staff, I saw firsthand her commitment to
America's working families. And Acting Director Young
understands the profound role that government can play in
improving people's lives. She understands that while ensuring
our government services and programs are effectively funded and
efficiently managed may not seem like the most exciting role of
government, but it is the most important.
Like the Appropriations Committee, the work of the Office
of Management and Budget touches every aspect of our daily
lives. By distributing funding to the programs and services
that need it most, OMB encourages jobs, businesses,
communities, opportunities, and our Nation to grow, which is
also what the Biden-Harris administration's budget does by
sowing the seeds of prosperity in the lives of working
families, the middle class, and the vulnerable.
It begins the long process of growing our Nation back from
the declaration of this pandemic, and the decades of
disinvestment that have starved our communities for far too
long. More specifically, the Biden-Harris administration's
budget increases investments for schools and childcare; it
protects workers and strengthens the safety net; it expands
local food systems and works to address the existential threat
of climate change; it begins to rebuild our public health
infrastructure, provides millions for gun violence research,
and makes investments to address the opioid, mental health, and
maternal health crisis.
I am especially pleased that it enables more women to
access safe, affordable, reproductive healthcare, and I am
proud that it not only strengthens our Nation at home but
restores America's place in the world.
I might add that this budget blueprint would not be what it
is today without the tireless and dedicated work of the OMB
staff, including Acting Director Young. That is why I am glad
to see a funding request of $121 million for OMB, an increase
that would boost the morale of OMB's public servants and
restore expertise to an agency that has been abused over the
past 4 years.
I am eager to get to work turning this blueprint into
funding bills that will meet the challenges and the
opportunities of this historic moment. So, again, I say thank
you to you, Acting Director Young, for your work, and thank
Chairman Quigley and Ranking Member Womack, and I yield back.
Mr. Quigley. Thank you, Madam Chairwoman.
And, Acting Director, I want to thank you again for being
here today. Without objection, your full written testimony will
be entered into the record. With that in mind, we ask for you
to please summarize your opening statement in about 5 minutes.
And before you begin, let me just say, from my heart, and I
think most members feel this way, I don't know of anyone in
government who has earned their position through hard work,
dedication, and accomplishments than you. So, again, thank you
for your service and thanks again for being here today.
Ms. Young. Thank you, Chairman Quigley, Ranking Member
Womack, Chairwoman DeLauro, and I would say members of the
subcommittee, but really it is more like friends and family.
This is surreal. It is like talking to extended family members
and coming back home. I know you will be tough on me today, and
we will have a healthy dialogue, but I really can't tell you
what it feels like to come back and talk to all of you in this
position.
And thank you for the chance to be here today. The
President's fiscal year 2022 budget request for the Office of
Management and Budget is to discuss the details many of you
have outlined. The full request of $121.9 million represents a
14 percent increase over last year's enacted level, consistent
with the budget's general approach to restore staff capacity at
agencies after a decade of harmful spending caps.
This increase would allow OMB to rebuild the agency's
career staff and to continue its pivotal role in developing and
executing the President's budget, overseeing the performance of
Federal agencies, and ensuring an efficient and accountable
government, which I think are goals we all share.
The incredibly hardworking career staff at OMB have been
running a marathon, and they need these critical resources to
continue effectively serving the American people long after my
tenure with the institution is over. The fiscal year 2022
request reflects an investment in our outstanding career
workforce at a moment when OMB has taken on numerous new
responsibilities and faced persistent staffing shortages.
Over many years, OMB staffing levels have declined and
staff have been realigned across the agency, leaving many
offices at historically low staffing levels, as much as 30
percent below fiscal year 2012 levels, in some instances. The
requested increase is entirely for career positions, and more
than half of the estimated increase in staffing is for existing
positions that OMB has not been able to fill since fiscal year
2020.
OMB is also requesting $10.4 million for the Information
and Technology Oversight and Reform Fund, what we like to call
ITOR. The requested ITOR funding also represents an investment
in staff enabling the OFCIO to reach 46 full-time employees.
This staffing level is critical to the delivery of the OFCIO's
important mission of providing strategic direction and
oversight for the development and management of IT and
cybersecurity across the Federal Government in the wake of
SolarWinds and other recent attacks.
OMB's request also includes funding to restore a paid
intern program, which I know many of you on the Hill are
operating under and helped start on Capitol Hill. That is key,
we believe, to establishing a strategic recruitment and
outreach effort to strengthen the pipeline of diverse and
historically underrepresented candidates into OMB, and to
promote the administration's efforts to advance equity, remove
barriers to equal opportunity, and attract top talent that
reflects the full diversity of this Nation.
I will point out, I started in Federal budgeting through
the presidential management intern programs, now the fellow
program, so these programs really do create a pipeline that
pays dividends.
Before I close, I would like to speak to the President's
overall fiscal year 2022 budget request. Under the President's
leadership, our country is getting back on track after one of
the most challenging periods in our history. At least 63
percent of Americans have now received one vaccine shot. The
economy has added 2 million jobs since the President took
office. The unemployment rate has dropped to 5.8 percent, the
lowest since the start of the pandemic.
A very encouraging sign is the decline we see in the long-
term unemployed, by 431,000 last month, as well as the decline
in those seeking initial claims of unemployment, by about half
of what they were in January. All of this is due, in no small
part, to the American Rescue Plan, which put money in pockets
and shots in arms.
The President's budget before you builds on this economic
momentum to reimagine a new American economy that invests in
the middle class and those trying to break into the middle
class.
The President's fiscal year 2022 budget details the
President's agenda for this year to help grow the economy,
create good-paying jobs, and do so responsibly by requiring the
wealthiest Americans in big corporations to pay their fair
share. It includes the two historic plans the President has
already put forward: the American Jobs Plan and the American
Families Plan, and reinvests in education, research, public
health, and other foundations of our country's strength through
the discretionary request.
The budget also calls on Congress to take action this year
to lower prescription drug costs, and expand and improve
coverage. And it does all of this while proposing long overdue
changes in our Tax Code that will improve our country's long-
run fiscal health, and help lay the foundation for shared
prosperity.
Thank you for the opportunity to be here today, and I look
forward to your questions.
Mr. Quigley. Thank you. We will now turn to questions. With
the utmost respect, I will defer to the chairwoman of the full
committee, Ms. DeLauro, if for any questions she might have.
The Chair. Thank you very much, Mr. Chairman.
I have a couple of questions. I will try to do it in the
allotted time. The budget does propose sweeping generational
changes, restructures the role of government, expands economic
opportunity, improves education, deals with a climate crisis.
But it also includes programs that continue to address the
pandemic, and its economic and health implications, the racial
and economic equity, and public health infrastructure.
As pointed out, many of these proposals are in the American
Jobs Plan, the American Families Plan, which is bundled
together, much of the administration's infrastructure,
caregiving, and educational legislative proposal.
The budget proposal is not about returning to normal. For
far too many Americans, normal was never fair, equitable, or
just. Can you discuss how the President's budget moves us
forward to build that architecture for the future?
Ms. Young. Madam Chair, that is a great point to start out
with. We think we are on the right path, thanks to the passage
of the Rescue Plan to full recovery. We have the 5.8 percent
unemployment, the lowest it has been since the start of the
pandemic. We think that assistance has put us on the right
track.
What the Jobs and Families Plan is intended to do is
exactly what the President has promised the American people
before the pandemic was not good enough. We have to reimagine
the economy so that all can share in the prosperity of this
country.
You talked about pandemic response. A lot of the pandemic
spending last year was to play catchup, because we had
underinvested in public health and a lot of other discretionary
places long before that. So you will see this budget invest in
CDC. It provides a $1.6 billion, 23 percent increase, the
largest in nearly two decades. And we think that is necessary
to look forward and retool, and make sure we are not just
getting back to where we were, but building back better.
The Chair. You mentioned the pandemic, and if you could
just elaborate more on the investments across the agencies with
respect to the pandemic resilience and recovery. Look, you know
as well as I, and you know my view on sequestration and the
damage that that has inflicted on the limits of non-defense
discretionary spending, so--and you are right; that hindered
our response to the pandemic.
So just thinking about some of these investments and where
you think that we are able to go with that, and if we have
the--if the direction has been outlined for the future on this
and post pandemic.
Ms. Young. Thank you, Madam Chair. I will start with where
I ended the last question. You will see a 23 percent increase
for CDC in this budget on the discretionary side. The budget
also provides new flexible spending for public health
infrastructure for States and territories, something many of
them called for during the pandemic. It also includes funding
to build international capacity to detect global emerging
threats and pathogens, and it provides nearly $1 billion to
restore the strategic national stockpile.
In the Jobs Plan portion of the budget, we invest $30
billion over 4 years for pandemic preparedness. And this
funding, we hope, will accelerate development of vaccines
against pathogens for each of the viral families, so we have a
good basis to respond to what hopefully is only once in a
generation, but we owe it to future generations to be prepared.
The Chair. Thank you. And my last point would be to say is,
what my hope is, is that I think the Rescue Plan really laid
out the parameters of where our focus is, and that is middle
class, working families, the vulnerable, and the benefits are
going there. My hope is, is that with the--both the Jobs Plan
and with the Families Plan, that we will incorporate the
infrastructure piece, but we will not leave behind the care
economy and the infrastructure as well.
Some of that is built in, and my hope is is that as we move
forward and we look at the negotiation around these issues,
that we will not leave behind things like childcare and the
long-term services in healthcare for people, that that has got
to be critical to buttressing both jobs, infrastructure, and a
care economy that we need for that architecture for the future.
Thank you.
Ms. Young. Thank you, Madam Chair, and you see all of that
presented in the budget today.
The Chair. Thank you very, very much, and, again,
congratulations.
And thank you, Mr. Chairman, and thank you to the Ranking
Member Womack.
Mr. Quigley. Thank you.
Mr. Womack, you are next.
Mr. Womack. So that means you are going to defer your
questions. The Bureau of Labor----
Mr. Quigley. Well, I let the chairwoman of the full
committee go before me, so I will go after you.
Mr. Womack. And that is very gracious of you, Mr. Chairman.
Director Young, the Bureau of Labor statistics reported
last month that, over the past year, CPI increased by 4.2
percent, the largest 12-month increase since September of 2008.
I am concerned that as the post-pandemic economy grows, and the
Federal Government is still spending as if we are in the height
of the pandemic, inflation will continue to rear its ugly head.
How high will the CPI have to increase before you believe it is
a problem for Americans, or do you believe this is really a
temporary issue?
Ms. Young. Thank you, Ranking Member Womack. Clearly, we
have to watch this. We have a team of economists from Secretary
Yellen, Ceci Rouse. Really, we also have to, you know,
acknowledge the Fed has the tools to deal with a lot of these
issues, but we absolutely are keeping an eye on these.
We do believe, though, that what we are seeing are base
effect coming out of the pandemic year with depressed low
prices, so it matters what you compare current prices to. And
we aren't seeing the long-term indicators that would suggest
that we are going anywhere close to the inflation levels I know
many of us would be concerned about in the 1970s. So we
continue to monitor, but we are just not seeing the long-term
effects and think that we remain well-anchored in the long run.
Mr. Womack. If inflation becomes a problem, or if it
becomes a more long-term issue for the country, we all know
that that is going to have an impact on interest rates, and
those interest rates are going to impact how much money we are
spending to satisfy our debt obligations. But if the inflation
becomes a problem, will the administration consider reducing,
or maybe clawing back some of this Federal spending, because we
have pumped a lot of money into an economy, and I don't think
there is anybody on this call today that isn't hearing from
their job creators about how many people they are looking for.
They have got the ``Help Wanted'' sign out virtually everywhere
in our country.
And, so, we have pumped a lot of money into the economy, we
are creating a lot of demand because of this money, and then we
are having difficulty matching the supply to the demand because
we just don't have the available workforce. So like I say, if
this becomes a problem, or continues to be a problem, will you
consider reducing the Federal Government's impact on it?
Ms. Young. Ranking Member Womack, I want to make sure I
point out, kind of in reference to what I talked to the
chairwoman about. Yes, we believe we appropriately spent it a
time when Americans were dying at a rapid rate of COVID for the
Rescue Plan. Jobs and Families make long-term investments where
we don't see an overheating, because we are pacing it over a
10-year period, the spending. So we have hopefully, you know,
thought about this issue of overheating in a responsible way,
where you see a long tail on the spending, this is about
transformational change.
And, you know, I heard also a little, and I don't know if
you want me to respond to the idea of, you know, shortages,
those people looking for jobs. You know, I know some people
have suggested unemployment enhanced benefits might play a role
into that. That was always intended to be temporary. Those
proposals do lapse in September.
But we--before any of the ideas of pulling the $300 from
some governors, which is their right to do, we still saw, I
think, a strong growth pattern in the last job report with
559,000 jobs, including great numbers on low-wage jobs, which
we like to see.
But, yeah, we are going to have to--we are going to see
wage growth. We have to see wage growth. People are going to
have to pay their workers more. So I think these are complex
issues, you are absolutely right, we are going to have to look
at and play close attention to, and this team is.
Mr. Womack. So a real quick question about debt and deficit
and then I will yield back, and that is, and, I mean, we are in
uncharted territory, in my opinion. Debt held by the public can
grow from $21 trillion in fiscal year 2020 to $39 trillion in
[audio malfunction]. Are you concerned about deficit spending
if the interest rates continue to rise, or if they go up, and
which we all assume they will?
Ms. Young. Ranking Member, you went out a little but I
think I got the gist of it. We do think it is important that we
put forth a fiscally responsible plan. You may disagree with
the offsets, but the President's policies are fully offset.
Over a 15-year period, you see jobs and families fully offset.
Over a 20-year period, you see a reduction in deficits of $2
trillion.
Clearly, the debt is a different issue. We see the aging of
our population, and some other key measures, I know you know,
as the former Budget Committee chairman, that play into those
numbers. But we also have to look--we are living under low
interest rate times, and we are paying less on real debt
service payments, which we think is a bigger indicator of
fiscal health.
Mr. Womack. Mr. Chairman, thank you for the opportunity. I
yield back.
Mr. Quigley. Thank you. And just so your folks can check it
out before I begin, your service seems to be popping in and out
a little bit occasionally.
But, Acting Director, let me ask you, let's talk about the
FBI Building. You know, the GSA comes through this
subcommittee. In 2021, we included language requiring GSA to
set up a plan for the new headquarters during conference
negotiations that turned to statement language. But does the
administration currently have a plan to provide to Congress
about the--a new FBI Building?
Ms. Young. This administration is coming up here. We think
it is appropriate to review where we are with regards to the
FBI Building. We have to work with the FBI to figure out what
the Director believes is an appropriate scope and location. We
don't believe we can just pick up where the last administration
left off.
So I would think you would want us to take some time and
make sure we get this right. You know, it is not only a
security issue. I am sure you all have seen the Hoover
Building, Mr. Chairman. It is not in the best shape.
Mr. Quigley. Well, we have pieces of concrete landing on
people's desks there, so obviously, not just for their safety,
but for the efficient building that keeps us safe.
Ms. Young. That is right. We have to look at the setback
requirements. But, you know, the Obama administration had one
plan; the Trump administration had another plan; the FBI
Director had thoughts on this, so we--I have had at least two
meetings on this. We need to retool and figure out, hopefully,
a Biden administration plan that we can see to fruition because
the Hoover Building situation can't continue.
Mr. Quigley. And what are we basing this on now? And I am
not suggesting anything; I just don't know. Is it the
administration's understanding that Congress needs to pass,
enact, a legal requirement to move the project forward?
Ms. Young. I would never tell you what steps to take. I can
imagine the frustration here, as an issue that has been over
now three administrations continues to percolate. You are going
to give us a certain amount of time to get this right. So I
would never suggest, you know, how you go about expressing
those frustrations.
I will agree with you that what we have now cannot
continue, but I do think we need to engage in a process with
this administration to figure out what those parameters are. We
know it makes sense for any government agency to have co-
location. Right now, we are in many different buildings. We
know the setback requirements can't be achieved necessarily at
Hoover, so we are trying to work that out. But I would never
suggest--I know it is a very frustrating process, and I have
worked on this project for a long time from the other angle.
So, you know, I share in that, and we want to move as quickly
as possible.
Mr. Quigley. Well, what is your understanding of what the
FBI Director wants? Has he expressed anything to this
administration about timing or location or desires for the
building?
Ms. Young. I have not spoken directly to him, so until that
happens, I have--you know, we have had staff speak. I would
want to speak to him directly before I suggest his position on
such an important issue. But we will be talking, in short
order, about this and make sure--I would like to point out, and
I know you hear a lot from GSA, but GSA does what the client
asks. So we need to get a good understanding of what the client
believes its needs are, so that GSA can operate from that
standpoint.
And, of course, OMB has some equities to make sure we are
doing so with taxpayers in mind, and that we are making smart
decisions. So we will weigh into that, but GSA can only do what
its client has, you know, scoped out and we really need to work
that out.
Mr. Quigley. Well, there is a--as you sense, a sense of
urgency on our side, on the congressional side, to move this
forward and to get it, as you say, done right. Thank you.
At this point, Mr. Amodei, is recognized.
Mr. Amodei. Thanks, Mr. Chairman. I appreciate your
courtesies.
Shalanda, good to see you. I appreciate you contacting us
before the meeting to talk about, I believe the phrase you used
was, how I was going to be mean to you or something like that.
And after much reflection, I don't think I am capable of being
mean to you. So I will go ahead and follow offline on some of
the stuff we talked about the agencies, just in terms of
follow-up and that sort of stuff.
But congratulations, that is quite a distinguished
background you have behind you there. I notice there is a wire
going to one of those doors. You have got to find out what that
is about. I don't know whether it is a safety thing or a big
brother thing or whatever. But anyhow, make sure you know what
is going on with that.
And with that, Mr. Chairman, since the ranking member took
so much time, and in consideration of the committee's--the
importance of the committee's time, I yield back.
Ms. Young. And, Mr. Chairman, can I say, I am in the
appropriately named War Room. I didn't know what I was coming
into, so we are in the old War Room in the Old Executive Office
Building. But thank you, Mr. Amodei, for taking it easy on me.
But in all seriousness, I have always appreciated your
thoughtfulness on issues, and I look forward to continuing to
talk to you.
Mr. Quigley. Let us know if there is any battle maps in
there from days gone by.
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
And, Acting Director Young, it is great to see you. I want
to talk about, you know, personnel. I want to hear a little bit
about quantitative, but a lot about qualitative, you know, your
view of the matter.
What we have seen, you know, during my entire time in the
Congress, is an erosion of numbers of people working in the
government, you know, following this philosophy that smaller
government is better. And, so, we have seen things happen like,
you know, during the pandemic, when we were depending on
employees of the Treasury Department to get out relief money,
checks, get relief out to the people in the entire Nation,
because they had--the numbers of people working in Treasury had
been dwindling, and at the IRS over the years, they were unable
to meet those requirements.
And, you know, Members of Congress, like me and like all
the other members of this committee, we would call up the IRS
and want to help constituents, you know, get their relief money
during the COVID crisis, and they didn't have enough people to
answer the telephones.
And then we look at the Post Office, you know, what has
happened to postal delivery service under the philosophy that
less government is better, and less money going into public
services is better? I mean, holy cow. I had somebody call me up
and tell me that it took a month--a month for a letter to be
delivered from Wilkes-Barre, Pennsylvania, to Scranton,
Pennsylvania under the current Postal Service standards.
But OMB, your department, over the past decade, there has
been a decrease in full-time equivalents from 527 in 2010 to
466 in 2019. And in the current budget, of course, OMB is
asking for--finally, asking for an increase of 39 FTEs and some
new paid internship programs. I fully approve of that.
But I want you to comment, if you would, Acting Director
Young, how have these issues of decreasing and fluctuating
staff and losing people by attrition, as well as the erosion of
expertise and morale under the prior administration, how have
they affected the ability of OMB to be effective and do its
job?
Ms. Young. Well, one, I am glad to talk to you about this
in an Appropriations Committee setting, because these are not
necessarily the issues you get a lot of traction for. Really,
if the appropriators don't pay attention to this, we often, you
know, forget about what these investments mean. A lot of people
look at programs and spending. Well, it matters how we
implement them. If we don't have the staff available, we miss
things. So we really see a degradation of services to the
American people, and we do a disservice.
The career civil servants, let me--there is a reason we
hired a lot of Office of Management and Budget staff on the
Appropriations Committee, both sides of the aisle. They are the
ultimate professionals. You want them regardless of what party
occupies the White House. They bring the expertise needed.
They know the historical knowledge of these programs. They
can tell you when you want to undertake a, frankly, not smart
initiative, and point out the 20 reasons why you shouldn't--you
could still do it, but you can't deny that you have the
expertise behind you explaining to you what roadblocks and
why--you know, why that might create long-term problems for the
country.
And I think you would find that same level of dedicated
staff from NIH scientists, like myself, a former NIH budget,
you know, budget nerd, to DOD civilians. You know, I really
think we do ourselves a disservice not investing in them
because they keep us honest no matter who is in power here, and
that is why we have the investment in career.
Mr. Cartwright. Well, let me ask you this: What are you
planning to do to fight the recent erosion of expertise and
morale at OMB?
Ms. Young. The first step is asking you to consider
seriously rebuilding. We have what we call RMOs, so the office
that deals with--they are almost by subcommittees. If you think
of them as how we separate Appropriations Subcommittees, so
each of them looks at pieces of the budget they are experts in.
We have seen extreme erosion in the environmental staff, in the
international and defense staff, but if you look at where we
would put the staff, we try to rebuild evenly across all of the
offices of OMB.
Really, I just want to reiterate, this is not about me. We
will see the fruits of this labor if you approve it, you know,
after I am gone. This is really about making sure that the
American people are served.
Mr. Cartwright. Well, thank you, Acting Director Young.
And, Mr. Chairman, I yield back.
Mr. Quigley. Thank you. The gentleman yields back.
Mr. Stewart is recognized.
Mr. Stewart. Thank you, Chairman.
And, Ms. Young, thank you for being here. We are proud of
you. It is an honor to have you. Congratulations. I appreciate
having the chance to talk with you last week and, as you said,
to have a robust conversation today.
I will simply say, I recognize this is the President's
budget, and I don't believe it is fair to criticize the
messenger. I believe it is your job to defend this budget; I
understand that. I think it is a difficult task. I think,
frankly, some of it is nearly indefensible, and I want to
mention just a few before I get to my question, but they are so
troubling to me.
And, by the way, there is many more that I would mention,
but just for clarity of time, I won't. I don't understand how
the budget request for defense is actually below the rate of
inflation, and the reality is, is that is a cut to the
Department of Defense. If we are not keeping up with the rate
of inflation, that is a cut to the Department of Defense. I
just think that is inexplicable in this day and age.
And, by the way, when other agencies are getting double-
digit increases, I think this turns a blind eye to the
realities of the world. At a time when we have got approaching
nearly 200,000 illegal border crossings every month, the
President's proposed a reduction in DHS funding.
And, finally, one more I want to mention briefly is the
Hyde Amendment. This has been bipartisan for generations,
including it was bipartisan support from the President. I don't
understand why he would take such a divisive proposal and
insert that into the budget.
But the thing I want to focus on, Ms. Young, is some of the
numbers--and some of them have already been mentioned by the
ranking member--consumer price index increase of 4.2 percent,
the highest in a long, long time. And as the pandemic economy
grows, the Federal Government spending, I don't think that the
Federal Government spending helps the problem, I actually think
it makes it worse.
I mean, we are talking about $6 trillion spending every
year for 10 years, which would be at least a $1.3 trillion
deficit every year for 10 years.
And I know you have partially answered this question, but I
would like to re-ask it, and maybe with more specificity, and
that is, if the consumer price index were to, you know, say it
is 4.3 now, but say it was 10 percent, I mean, at what point
would the President become concerned to suggest, well, we
probably need to address and reduce our spending.
If the CPI was 10 percent, do you think the President would
be willing to cut spending at that point? Or at what point
between now, 4.2 and the President says, no, we want to suggest
more spending, at what point would it be too much? At what
point would the CPI be too high and the President want to
address the spending and the deficit?
Ms. Young. Congressman Stewart, thank you for your
question. It was a pleasure talking to you. Look, we have our
hands full dealing with, you know, real-life recovery out of
pandemic. We certainly won't pontificate on, you know,
hypotheticals in the budget. Clearly, inflation is one thing we
look at when we are dealing with a complex--trying to bring a
complex economy out of a pandemic. I am not sure anyone in this
generation has ever had to do that.
But what we are seeing now does not indicate that this is a
long and persistent issue, and I will remain--the long-term
indicators matter in whether we are well-anchored in those
indicators. But what we are seeing are, we believe, base effect
coming out of a pandemic year. But, absolutely, we have to, you
know, monitor this situation closely.
Mr. Stewart. And that actually leads me to my second
question that I wanted to follow up with you, Ms. Young, and
that is, I understand that we have had some chokepoints in
supply chain, but that does not explain by itself--it doesn't
begin to explain the pressures on the economy and I think these
inflationary pressures, and yet we are told by you and the
President and Ms. Yellen and others, these are transitory. But
what evidence do you have that these actually are transitory
inflationary pressures?
I mean, when we are suggesting the type of spending that we
are, when the Federal Reserve, as we know, has, I think, used
virtually every tool available to them, why do you actually
believe this is a transitory and not a systemic long-term
economic environment? We are going to be dealing with inflation
perhaps for years.
Ms. Young. I am happy to say, this isn't just the
administration saying this. We are also looking at, and we
think we are in a similar place as market forecasters. So, yes,
if we were the only people saying that, you know, I would
understand the concern, but we are in good company in believing
these are short-term transitory effects of the economy.
Mr. Stewart. Well, and I am out of time. I appreciate it. I
mean, again, I don't think you answered my question since I was
asking what the evidence is. I know there is some people who
agree with that, but people are wrong all the time. Economists
are wrong all the time. My heavens, I am an economist. I was
trained in economics, and I know we are wrong frequently. But,
Ms. Young, it is good to be with you and look forward to
continuing the conversation.
Ms. Young. Thank you, Congressman.
Mr. Quigley. Thank you. The gentleman yields back.
Mr. Bishop is recognized.
Mr. Bishop. Thank you, Mr. Chairman.
And let me welcome the Acting Budget Director, Ms. Young.
Thank you for your conversation earlier in the week. And let me
associate myself with the laudatory remarks of Chairman
Quigley, Ranking Member Womack, as well as Appropriations Chair
Ms. DeLauro. I think I could speak for the entire
Appropriations Committee in saying that we are busting with
pride to have one of our family in that position. You have a
portfolio of skills that are needed to effectively lead the
office, and I am glad you are there.
Let me go directly to my question here. On January 19,
2021, the Metropolitan and Micropolitan Statistical Area
Standards Review Committee posted recommendations to OMB
concerning changes to the 2010 standards for delineating
metropolitan and micropolitan statistical areas. These
recommendations would raise the minimum population of cities
that constitute the core of metropolitan statistical areas from
50,000 to 100,000. The proposal will go into effect in 2023.
Under the current rules, metropolitan statistical areas
have urbanized areas of 50,000 or more people. The latest OMB
recommendations could have significant unintended negative
impacts to the six Georgia cities that are currently located
and designated metropolitan statistical areas, as well as have
devastating effects on rural communities throughout the State.
Our rural communities are concerned that more micropolitan
areas would increase the competition for Federal funding that
is targeted for rural areas. In March, there was a bipartisan
letter that was signed by 15 Democrats and 38 Republicans,
which was sent to OMB, expressing our concerns about these
recommendations. Can you give the subcommittee an update on the
status of these changes?
Ms. Young. One, Mr. Bishop, this issue, unlike any others
since I have gotten here, shows bipartisanship is alive and
well. I have heard from Members on both sides of the aisle,
Senate and House, about the problems this, if it went into
effect, would create.
We had a public comment period. You probably know, after
the initial change was released January 19, we, you know, heard
the outcry, but we also thought that it was appropriate to
continue an open process and we received public comment. I am
waiting for the analysis from staff about what the public
comment showed us, and we will make our final decision based on
the comments we get--we receive from that public comment
period. And I certainly hope, given the hugeness it means for
many locals and their programs, I understand the nervousness it
is creating, that we can make a decision soon.
Mr. Bishop. Thank you. Thank you for that. Let me switch
gears for a moment. Can you tell the subcommittee what you
envision the role of the Deputy Director of Management to be
under this administration, especially in relation to the
Director of the Office of Personnel Management?
The Director of Management's responsibilities are codified,
I think, in 31 USC 503. In your view, are there any amendments
to the statutory authority that would better define or clarify
the DDM's position, and in what specific ways would you expect
the DDM to assist you in managing and administering the agency?
Ms. Young. Thank you, Mr. Bishop. This side of OMB doesn't
get nearly the attention it should. It is extremely important.
As we talk about the management challenges throughout the
government, you often see in the GAO high-risk lists. Many of
those are management challenges that have built up over two
decades.
So I certainly expect Jason Miller, who's our Deputy
Director for Management, who's confirmed by the Senate, to
tackle those issues heads on. Typically, we work very closely
with agency deputy directors who often deal with, like, the
day-to-day management issues. Jason has begun meeting with all
the confirmed deputy directors to get a head start on these
really tough issues that have been persistent problems, like
human capital, we have to get right.
And speaking of human capital, and how we work with OPM, we
expect he and the OPM Acting Director will keep a close line of
communications. Often, OMB will send out the broad management
guidance to agencies and OPM will follow up on the detailed
prescription to agencies on how they expect implementation of
the broad OMB guidance sent out.
I don't think that is different than how other
administrations have dealt with the OMB management role in OPM,
so we expect that to continue. But we expect a significant
focus--we are sick of seeing some of these issues never get
resolved, and I know Jason is up for the challenge, and we
expect big results.
Mr. Bishop. Thank you, Ms. Young. My time is expired, and,
so, I yield back my exhausted, unexpired time.
Mr. Quigley. The gentleman yields back.
Mr. Joyce is recognized.
Mr. Joyce. Thank you, Chairman Quigley.
And it certainly is a pleasure to be with you today, Acting
Director Young. I know this may surprise you, but I want to ask
you about the Sage Grouse. Obviously, Amodei must have his
volume off because--no, we had a lovely discussion the other
day about the Great Lakes, and I won't bug you about the Sage
whatever the hell it is called.
And I appreciate that the President's budget, while
increasing, it did not--the Great Lakes restoration initiative
did not go to $375 million that was authorized. But I am sure
that as you move the numbers around, you will be able to find
the appropriate number there.
But as you also know, the pandemic has, unfortunately, led
to a troubling rise in addiction and drug abuse in many
communities across the country. This is especially concerning
for Ohioans with the work we have done to combat the opioid
epidemic. It is at the risk of coming back after we were
starting to finally starting to make it down the turn.
In February, I introduced H.R. 654, the Drug-Free
Communities Pandemic Relief Act, which would boost Federal
resources to the drug-free communities program and put money in
the hands of local leaders to identify and respond to drug and
alcohol problems in their communities.
The drug-free communities program, which is funded by this
subcommittee through the Office of National Drug Control
Policy, has a proven track record of reducing drug abuse. How
does the President's fiscal year 2022 budget support this, and
other programs which are critical to responding to this
concerning upward trend of addiction we have seen in the last
year?
Ms. Young. Congressman Joyce, I didn't hear you that well,
so if I don't address anything, feel free to ask me to. And I
think you were joking about the Sage Grouse, so I am just going
to talk about drug-free communities. But the budget includes
$1.4 billion in discretionary funding for health workforce
programs and HRSA, which is an increase of $156 million, or 13
percent, through that program.
Within this amount, the budget includes $268 million for
nursing programs, an increase of $4 million over the last year.
The budget also includes increases for behavioral health
training and activities that seek to improve the diversity of
the healthcare workforce.
But I know this issue is of great importance. We're also
investing in ONDCP, which you pointed out is in the financial
services area. We include $4 million for administrative
expenses over the 2021 enacted level for a total of $106
million to ensure that ONDCP can provide DFC coalitions with
appropriate oversight and timely responses to technical
assistance.
So just not ONDCP, we tried to present a fulsome budget
that deals with this very critical issue. I know many of you
have been leaders in responding.
Mr. Joyce. Thank you. The pandemic has also taken a toll on
the healthcare workforce--can you hear me now? Is that better?
Okay--which has unfortunately experienced growth and retention
problems for years without actually [inaudible] Doctors and
nurses to keep up with the demand.
One troubling report from the U.S. Bureau of Labor Stats
projection, an additional 175,900 openings for registered
nurses each year over the next decade. As a cochair of the
House Nursing Caucus, I made the nursing workforce a priority
since coming to Congress. I am also in love with a nurse. This
happens to be my wife.
I was glad to see my bill, the Title 8 Nursing Workforce
Reauthorization Act, signed into law last March. Continued
resources for this and other similar programs are crucial.
Lacking healthcare workforce puts stress on healthcare
professionals and limits access for patients. What does the
President's fiscal year 2022 budget do to address the shortages
in this critical sector?
Ms. Young. Congressman Joyce, I would like to point out, we
provide $1.4 billion for health workforce programs in HRSA,
including $268 million for nursing programs. We also include
increases for behavioral health training. So we think we do
provide a robust budget there, and I hope this allows you to
point to that leadership you have provided for these areas when
you talk to your wife, and you should take credit for being a
leader here.
Mr. Joyce. Happy wife is a happy life. And I was just
kidding about the Sage Grouse, because I saw Amodei come back
schooling in with his lunch and everything else, give him
indigestion. I am out of time. Thank you very much, Chairman
Quigley.
Mr. Quigley. Thank you.
Mr. Pocan is recognized.
Mr. Pocan. Thank you very much, Mr. Chairman.
And it is great to see you, Acting Director Young. We miss
you, and we are very excited for the position that you are now
in.
If I could just make two quick comments kind of responding
to some questions that people did bring up. You know, I just
did a roundtable with a bunch of restaurants in the district,
and I have been an employer for over 32 years here in my
district, and I can tell you that UI is not the problem. A lot
of our industries are still really hurting. They are not back
and people need the unemployment.
I think when more people get vaccinated and things get to
normal there will be less COVID adversity. That is what I am
hearing a lot from people going back into the workforce. So I
think if we all work on that, including maybe Republican
Members of Congress getting vaccinated, we will all be better
off and people will be getting back into the market, So I just
want to mention that.
And to the questions on defense spending, as I mentioned to
you on our call, you know, I do think there have been a lot of
overdue investments that I think the President put in his
budget. Very grateful for those. However, on defense, in the
last 4 years, under the Trump administration, we had a 20
percent increase in defense spending at a time of relative
peace that artificially rose--made the number increase quite a
bit.
And just the increase alone that President Biden has is
more than 50 percent larger than the entire CDC budget, just
the increase. So put me on the other side of the column from
those other comments that you got just so you have those.
My question today really is, you know, I am so glad we have
investments now in a lot of areas that have been neglected for
a number of years. But what really got me was an article that
came out this week that says, ``You May Be Paying A Higher Tax
Rate Than a Billionaire.'' And I don't know if you got a chance
to see this from ProPublica or ProPublica.
But I will tell you, it was pretty scary in the sense that,
you know, a lot of my--matter of fact, almost all of my
constituents are paying a higher tax rate than people like Jeff
Bezos and Elon Musk and Michael Bloomberg and others. And, you
know, when you start seeing how they have been able to get
around paying taxes, it is pretty extraordinary. In fact, at
one point, I believe it was Jeff Bezos claimed a $4,000 child
tax credit because of how he was able to maneuver his taxes.
So I guess my question very specifically, because I so
strongly believe in the investments that you have in this
budget, is, you know, what is the President's budget doing to
tackle this particular problem, and what can we do to make the
wealthy and the ultra-wealthy that, as pointed out in this
article, contribute and pay at a level that is more in line
with where all of our constituents are actually paying taxes?
Ms. Young. Yeah, Congressman Pocan, I am happy to talk
about the tax policies in the budget. I do want to point out
that I won't comment on, you know, individual tax mentions.
There is an investigation going on about that particular story.
So putting that aside, I would like to point out that, as of
2018, the richest 400 Americans were actually paying a lower
effective tax rate. That is the total amount of taxes of the
share of their income than a household making around $75,000.
So we do see the, you know, the inheritance tax, the
capital gains piece, raising the corporate rate, not back to
even pre-tax-cut levels, as a way to begin to bring some equity
and fairness into the tax system so we can make those
investments in a fiscally sound way.
Mr. Pocan. Yeah, I will tell you that tax fairness, I
finally was getting around in my district a little bit post
COVID and, you know, had a conversation on this article
actually with some folks down at Rock County in my district.
You know, when you look at how they have been able to--
basically they don't give themselves an income, right. All of
their actual income is through these other investments. There
are rates that none of us can actually pay. It really skews it
for the wealthiest, and especially the ultra wealthy.
So have you guys looked at all at anything that we can do
on the ultra wealthy so that they could, you know, perhaps pay
a greater percent of what they are holding as opposed to, you
know, just raising that top rate, if they are already not
paying that top rate, unfortunately won't get after some of
those folks?
Ms. Young. Yeah. We also do think, if you look at the
inheritance tax, which, you know, you do pass that level of
wealth on from generation to generation, that is one of the
ways the tax policies in here could help bring that fairness to
bear and the capital gains changes we have proposed in the
budget. I know others have ideas that aren't reflected here,
and we will have to continue to, you know, enter into a debate
about that. But we do think the inheritance piece and the
capital gains piece does do something about this inherent
unfairness.
Mr. Pocan. Great. Thank you. No, I agree with you, and I
appreciate that. And I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
If we could all make sure that we are muted when we are not
talking, please.
Mrs. Torres is recognized.
Mrs. Torres. Thank you, Chairman.
And, Acting Director Young--I love saying that out loud--it
is really great to see you again, and welcome to our committee.
During your time on the Hill, you helped pass historic
legislation, and I look forward to your continued success at
OMB.
I would like to turn your attention to an issue that is
incredibly important to me, and that is the status of 9/11
dispatchers.
Before I ran for public office, I worked for 17\1/2\ years
as a public safety telecommunicator. The experience drove me to
run for office. As a public safety telecommunicator and 911
dispatcher, every time you pick up the line, you make life-
altering decisions.
I regularly coached people through CPR. I talked people out
of suicide. I provided situational awareness to officers during
armed pursuits and many other very dangerous situations. I
talked to a fleeing suspect, one specifically who barricaded
himself inside a mini-mart while he held a gun to the head of a
cashier.
And, of course, I will never forget 11-year-old Yahaira as
she screamed her last words, ``Uncle, please don't kill me, it
is not my fault,'' while being shot five times point-blank
after her head was bashed against the wall of her living room.
The work I did was protective. I was present in the room
when those crimes occurred. And the courts confirm that and
agree with that statement, because I often was called to court
to serve as the witness to the crime. In the case of little
Yahaira, there was a dispute of how many shots were actually
fired. I heard five. I told the officers five. And eventually
they found five shells. I was present.
Because of the protective and stressful nature of this
work, PTSD rates for this profession are around 18 to 25
percent, comparable to combat veterans. Unfortunately, OMB's
Standard Occupational Classification, SOC, catalog categorizes
public safety telecommunicators as office and administrative
support occupations. This includes secretaries, office clerks,
and taxicab dispatchers.
This is based on an outdated view of the work that is
actually being performed. To classify a profession that is a
primarily female workforce, many of whom are single parents, as
secretaries is antiquated, and it needs to be changed.
So, to address this problem, I introduced the 911 SAVES
Act, a bipartisan bill that directs OMB to classify public
safety telecommunicators as a protective service occupation.
However, we don't need to wait for this bill to pass to update
this classification. OMB can change the SOC to reflect the
accurate nature of this profession on its own.
So, Acting Director Young, will you commit to reexamining
the misclassification of public safety telecommunicators under
the SOC?
Ms. Young. So, one, thank you for bringing this to my
attention. You know, I want to thank you for your service. I
mean, what a harrowing role to be in. And I have such strong,
you know, strong feelings of support for what you described and
also the honorable work other dispatchers do across this
country. You don't think about it often, but hearing you
explain that, I think, brings it to the forefront for all of
us. So thank you very much.
You are absolutely right; OMB does periodically revise the
SOC, the Standard Occupational Classification. It was last
revised in 2018. And we need to make sure we get input,
including yours, when we next update that document. And we will
make sure to consider everything you brought up today when we
review that.
And I encourage--you know, I hope all participate in that
public comment process, because we really do make better
decisions when we hear from those who have done the jobs and
who know how these jobs really are.
So I want to thank you for bringing this up and bringing it
to my attention.
Mrs. Torres. Thank you.
And I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mrs. Kirkpatrick, please.
Mrs. Kirkpatrick. Thank you, Mr. Chairman. Thank you for
having this hearing.
Thank you to the Director for appearing before us. A couple
of questions I have for you. First of all, it is great to see
you. And you have been a tremendous help to my office, and I
thank you for that. It has really made a difference for my
district, so thank you, thank you.
I was especially pleased to see that you are seeking
funding to restore OMB's paid internship program. I use a lot
of interns in my office, and it allows us to hire a diverse
group of talented individuals who may not have otherwise been
able to afford living and working in D.C.
How important do you see this internship pipeline as being
to OMB's future? And, in a broader sense, how does this budget
request ensure OMB is able to fill its ranks with topnotch
talent moving forward?
Ms. Young. One, you know, Federal budget work is not
something you find a lot of experts, even amongst government
employees. So we absolutely, you know, need a pipeline of
people who are experts in this field. The internship is one way
to develop that.
I talked about the Presidential Management Intern Program,
now Fellows Program, that OMB has greatly utilized. I
participated in that. I am, you know, diverse in many
respects--you know, racial diversity; I am from a small town of
1,600. I am not sure I would have found my way into the Federal
Government, into Federal budgeting, if it wasn't for an intern
opportunity that allowed me to really think about Federal
budgeting. Even if I was interested in government, it is not
the first thing people think about when they think about
government service. So I have seen it play firsthand with
myself.
And I think all of us know we are better served with people
from geographic diversity, from ethnic diversity, all walks of
life of the American people, because you want people looking at
budget resources from different vantage points. And that is
really what we are trying to achieve.
Mrs. Kirkpatrick. I really appreciate that answer. You
know, we want a diverse group of talented individuals, and I
think the internship pipeline is a great way to fulfill that.
I have one other question, and that is: In addition to
sitting on FSGG, I also sit on the Defense Subcommittee, so I
certainly understand how important it is that the United States
have a strong national defense and well-funded and -equipped
military.
That said, it is clear, defense spending has grown
disproportionately quickly to nondefense discretionary funding.
The President's budget calls for an over-$100-billion increase
in this nondefense spending. In my view, this is an incredibly
important investment in our Nation's future.
But I would like to hear from you, as Acting OMB Director,
why is it so important that we rebalance the scales and make
sure we are investing at least as much in nondefense spending
as we do in defense spending?
Ms. Young. One, if we could take a step back and talk about
this line of defense and nondefense. And, remember, in
nondefense, we also have several things that ensure that this
country, you know, remains competitive with countries like
China. It is just as important, what we spend on research and
development to remain leaders in the world. Our economic
strength is just as important as the strength provided, you
know, through our military might.
So the increases you talk about, nondefense, discretionary,
to us, you know, they are necessary pieces to maintain our
position in the world and rebuild that position in some ways.
One place we are rebuilding is in diplomacy. I think
General Mattis said it best: You reduce your diplomatic budget,
you may as well buy him more bullets.
This budget reinvests to make sure that our strength is not
just in one place but it is in our economic outlook and it is
in our diplomacy. And, you know, I think we have to look at
national defense from that broader lens.
Mrs. Kirkpatrick. Thank you so much. Like I said, it is
great to see you again.
I yield back.
Mr. Quigley. Thank you.
Mrs. Lawrence is recognized.
Mrs. Lawrence. Thank you so much.
And to our amazing interim acting chair, whatever your
title is, you are amazing beyond titles.
I want to take a moment to focus on the President's budget.
A Federal budget is a statement of our national values. The
budget is a once-in-a-generation investment in America to help
grow the economy, create good-paying jobs, and to make us more
competitive globally.
My question is: President Biden has said he wants to make
racial equality the business of the entire government. In
addition to programs that deal exclusively with racial
equality, how are you working to ensure that the issue of
racial equality is considered in everything budgetary that the
government does?
Ms. Young. Thank you for that.
Congresswoman, the foundational human values of equity,
justice, and fairness are embedded throughout the President's
budget, and I am proud to have been a part of that.
You can see this budget commitment to racial equity in
everything from housing and healthcare to education and small
business support, to addressing the climate crisis and criminal
justice reform. You forget about climate with regards to those,
you know, equity issues, but that is exactly why we have robust
funding in our environmental justice pieces that you see mostly
in EPA.
It reflects this administration's view that advancing
racial equity requires a whole-of-government approach. So it
goes even beyond the budget in how we implement programs, make
sure we are using a lens to ensure that taxpayers from all
walks of life get those investments back. And that is also a
great way to grow the economy and make sure we aren't leaving
people behind and that our government is working for all
citizens.
So you see it in our budget; you see it in the executive
order the President signed on this issue. And we are fully
committed to making sure this isn't just a short-term
initiative but just a different way of looking and doing
business.
Mrs. Lawrence. Thank you for that. I appreciate everything
the President has done. And I want to count on you, in your
role as Director, whatever status that is, is that you will
continue to use your bully platform to raise your voice when
you see the budget leaving that place, that we are leaving the
racial diversity.
I have one other question. The pandemic has worsened the
challenges, including the physical infrastructure, lack of
access to childcare education. And the childcare is something
that is very important to me as the co-chair of the Women's
Caucus.
How does the President's budget help create long-term
solutions to deal with these structural issues--healthcare,
education, childcare?
Ms. Young. Congresswoman, one, I would like to point out,
there are several pieces. You have to look at, on the
discretionary side, we make a historic investment so that the
annual budget is more reflective of, you know, probably
shortfalls in the block grant program that existed for a long
time. We have increased that program by 25 percent to $7.4
billion. But also what is needed is a transformational
investment, and you will find that in the Families Plan.
Mrs. Lawrence. Uh-huh.
Ms. Young. So we think it is important that, both on the
appropriations side, with the annual influx of the block grant,
that has to also be, you know, to ensure that, when Families
runs out in the long run, we are spending up so there isn't
also a big cliff at the end of the Families Plan.
So we certainly hope, you know, Congress looks at both
those pieces. We think they work well together; they are
complementary. So we need both the large investment in
childcare to be transformational but the appropriations and
annual process to slowly build to make sure we are keeping up
with inflation in a way that we haven't been over the last
probably more than decade in childcare.
Mrs. Lawrence. Thank you so much. That is why we need you
in this position, and I am so glad you are here. Because your
lens of looking at how we appropriate and budget and pay for
what we believe in in our country, you add so much value. I
want to say thank you so much.
And I will yield back.
Mr. Quigley. Thank you.
We have a smaller crowd lined up for our second round, but
I am going to let the ranking member begin that second round if
he has another question.
Mr. Womack. Yeah, just a couple of quick questions.
Director Young, in the COVID package, you know, we put $350
billion in there for grants to State and local governments. And
the first tranche goes out this year; there will be a second
tranche next year.
Look, I know COVID has been a problem for a lot of people,
but I am getting reports from not just my State but other
States that they have done a lot better. And I think a lot of
that can be attributed to the fact that a lot of people,
particularly those States that rely on sales taxes, saw a lot
of online sales activity, and because of a Supreme Court
ruling, you know, that money is now being collected back by the
States, and they are doing very well.
So, you know, because this is taxpayer money and a lot of
it is borrowed money, the question is about that second
tranche. Given the fact that there are surpluses in places like
Arkansas, even California, Wisconsin, you know, others,
shouldn't we maybe claw back some of that second tranche of
money if, in fact, we find that it hasn't necessarily been as
big a hardship as we thought it was at the time we passed that
bill?
Ms. Young. Congressman Womack, you know, the push and pull
of Federal spending has always been, you know, people want to
obligate quickly, because they don't want these questions to
arise, ``Well, if you didn't spend it fast, you don't need
it.''
What we want State and locals to do is have an adequate
planning process. You saw with the first tranche of State and
local spending last year, many of them said they didn't have
enough time. So the effort here is to make sure, you know, we
aren't pushing just for the sake of pushing. We want to see
fully developed plans that make sense. That is why we think it
made sense to spread that out.
And I heard on the radio the other day Tribal nations
praising the additional time. They thought the first CARES Act,
State and local, didn't give them enough time to adequately
plan. So, you know, we want to see the time spread out and make
sure people are making wise decisions and we have time to look
at these plans so we know the money is going to serve the
people we want.
And I will point out also, Mr. Womack, we had a strong jobs
package, but if you look--numbers--but if you look under that
559,000, we aren't seeing as strong of local government numbers
that we need to see. We can't have State and local employees go
on the unemployment rolls. So we still see some indicators that
show State and locals aren't necessarily doing well everywhere.
Mr. Womack. Well, they are doing well in a lot of places.
And, like I say, in a perfect world, you know, who wouldn't
want the Federal money? But the fact is, this is a form of
generational theft. I mean, we are giving money out where there
is not a definitive need, and we are going to ask future
generations to pay for it. And I just don't--I just don't think
we really should be doing that.
The last question is this. You know, I referenced you in my
opening about the Joint Select Committee on Budget Process
Reform. We didn't quite get across the finish line. We did some
things. Where are you right now?
Obviously, if you took a vote of the American people right
now, if the budget process is working in the Federal
Government, it would be a resounding, not ``no,'' but ``hell
no.''
Where are you right now with advocating for some changes,
i.e., biennial budgets, debt-to-GDP targets, certain things
that can constrain Congress's desire to want to continue to
move these debt numbers higher and increase deficits? Where are
you in relation to a timely budget process?
Ms. Young. Ranking Member Womack, I have to remind myself
every day where I sit. And, on this one, I would have to say
that, you know, the congressional budget process, that really,
you know, is for the congressional body to make a
determination, what works best for them.
I will say, of course, clearly, from this perch, we want to
see as close-to-on-time appropriations measures as possible.
Government agencies are best when we have--and work best for
the American people when we have full-year appropriations.
So we certainly do watch the results, because those matter
for how we serve the people, but as for how you get there, make
sure you have a system that gets on-time bills, you know, I
would leave that to you all. We have a separate branch of
government, and I respect greatly, you know, your authority
through the Constitution to make those decisions.
Mr. Womack. Well, we are not doing a very good job of it.
With that, Mr. Chairman, thank you for the hearing. I yield
back.
Mr. Quigley. Thank you.
At this point, through staff, I understand that Mr. Bishop
may have another question, if he is still on.
Mr. Bishop. I am, Mr. Chairman. And thank you very much for
yielding.
I would like to ask the Director: The American Rescue Plan
departed from previous emergency response legislation in one
major way; the spending was mandatory, in that it was
appropriated by the authorizing committees, rather than
discretionary spending by the Appropriations Committee.
As a result, the programs historically funded with annual
appropriations, such as the pandemic response by the Centers
for Disease Control of Georgia and rural development programs
that fall under my subcommittee's jurisdiction, received
mandatory appropriations through the authorizing committees.
Can you tell me whether or not this approach is a one-time
anomaly and that the Biden administration won't take this
approach in future White House funding packages in line for
congressional action?
My understanding of the rationale for the mandatory
spending approach is that it turned on concerns about
sequestration of discretionary spending. However, it is also my
understanding that the mandatory spending also triggers
sequestration and that the Congress already suspended that
action as it affects Medicare in April.
So, if Congress can obviously suspend sequestration for
mandatory spending, then why couldn't Congress do the same for
appropriated discretionary spending?
Ms. Young. Congressman Bishop, in many of the same ways I
answered Ranking Member Womack, it is a similar concept. You
know, we propose a way we think makes sense from a budgetary
standpoint from the administration. At the ARP, you know, we
did a similar assessment where we asked for specific programs.
Here, we are asking for them in either discretionary or
mandatory. But, really, how Congress answers that call is up to
you. And, you know, that decision is much more yours on how you
move, and we are not going to get in the middle of process
decisions. You know, we want to see it done.
And you raise interesting points, but, you know, frankly,
past administrations have made requests of Congress on
mandatory side or discretionary side and they have answered the
call for that spending on the opposite side of that ledger.
So, you know, you really--you have the authority to make
those decisions. We want to see these investments made, but I
think it is best left to you and leadership on how best to make
sure that investment happens.
Mr. Bishop. Thank you very much. And I do have to respect
the seat that you are now in, as opposed to the former seat
that you held.
Thank you very much for your cooperation and your
testimony.
I yield back, Mr. Chairman.
Mr. Quigley. Thank you.
Mr. Womack, I don't believe there are any other questions
on the Republican side. Is that accurate?
Mr. Womack. Unless Joyce has one.
David, do you have any questions?
Okay. Yeah, Mr. Chairman, we are finished.
Mr. Quigley. Okay. And our staff has informed me that there
are no more, other than myself, on the Democratic side. Is
that--if there is nobody else yelling at me, I will assume that
the staff is accurate.
So, that being the case, I will take the last crack.
Madam Acting Director, I know you heard about this, you
know, issue before in all your time working on this, and I
understand you heard about this in confirmation time, the Army
Corps of Engineers and the OMB repeatedly making changes to
their work plans, including removing essential projects
relating to the Great Lakes.
Our 2021 bill included bipartisan statutory language
preventing OMB from using funding to alter the work plans. And
the Energy and Water bill also included a provision related to
this. But we understand OMB staff is still making significant
changes to this.
Could you explain what the philosophy is there and the
practice is and how we can avoid these issues as we go forward?
Ms. Young. Yeah. And we are, just as like the MSA, I have
heard probably the second most on the Army Corps process. And
we need to work through some things, because you are absolutely
right; we are seeing, you know, unfortunately, that probably
did happen, some of the worst-case scenarios. And I heard from
both sides of the aisle.
I think OMB does have a role in any administration to make
sure the agency decisions are in line with the President. That
is the role OMB should be serving, certainly not to go out of
our way to change projects based on who we may or may not like
on a given day. These are national projects. They matter a lot
to local communities. And we need to take that process
seriously.
So you have my commitment to do that, to work with Army
Corps as a partner. Often, in my limited tenure here, that has
not been the case. I have met with the acting head of Army
Corps. We are waiting on a confirmed director. But we have to
get this right, because the frustration is real. And OMB, you
know, we can do better, and we will do better. And we are
working through that process.
Mr. Quigley. No, and I appreciate that, and we know you are
new at this. I think the most important thing is, if there are
issues that OMB wants to raise, communication first is always,
as you know, very, very, very helpful.
Ms. Young. And, Mr. Chairman, we haven't had a work-plan
process yet. You know, we get the work plan after you give us
an appropriation. So that is where, you know, I have, at least,
in my limited time here, seen where some of the, you know,
shenanigans may have occurred.
Mr. Quigley. Okay.
Ms. Young. And we have some time to make sure that does not
happen, and serve a role, you know, to make sure they are
aligned with the vision when they send out projects, but not
anything more personal than that.
Mr. Quigley. Okay. And I appreciate that.
Mr. Ranking Member, do you have anything to say in
conclusion?
Mr. Womack. Not at all, other than congratulations again,
Director Young, and we look forward to working with you.
Mr. Quigley. Yeah.
And, Director, thank you for your time today. We really
appreciate it. Now we will begin phase two of the 3,000
questions we have left in your opening day before us, but----
Ms. Young. That is really directed to the staff.
Mr. Quigley. Again, we wish you the best. If we can help,
let us know. Otherwise, thank you so much for your service and
your help, and everyone involved today, especially the staff.
At this point, this hearing is adjourned. Thank you.
Ms. Young. Thank you.
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